GHAZI FAIDI v. QANTEX CAPITAL MARKETS LTD

HCA 272/2018 & HCA 486/2018
(Consolidated)

[2023] HKCFI 3196

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 272 OF 2018

________________________

________________________

AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 486 OF 2018

________________________

________________________

(Consolidated by Order of Master Queenie Lau dated 2 October 2018)

________________________

D E C I S I O N

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A.  INTRODUCTION

1.  On 25 August 2023, this Court handed down a decision (“August 2023Decision”)[1] making the following orders:

(1)  Final judgment be entered against the Defendants for the sum of US$750,000;

(2)  There be an order nisi that the Defendants do pay to the Plaintiff pre-judgment interest at prime rate plus 1% from 10 May 2017 until the date of judgement, and at judgment rate thereafter until payment (“Order on Interest”);

(3)  Upon the Defendants paying to the Plaintiff the sum of US$750,000 plus interest in compliance with paragraphs (1) and (2) above, the Plaintiff do forthwith procure the transfer of the Shares to the Defendants;

(4)  The 1^st Defendant’s counterclaim for the sum of US$250,000 be struck out on the grounds that (i) it is scandalous, frivolous and vexatious; and (ii) may prejudice, embarrass or delay the fair trial of the action; and/or (iii) is otherwise an abuse of process of the Court;

(5)  Cost of and incidental to the Plaintiff’s summons filed on 14 December 2022 (“P’s Summons”) be paid by the Defendants to the Plaintiff, summarily assessed at HK$261,498.10;

(6)  Costs of this action relating to the Bonus Claim be paid by the Defendants to the Plaintiff, to be taxed if not agreed (“Costs Order on Bonus Claim”); and

(7)  Costs of this action relating to the Bonus Counterclaim be paid by the 1^st Defendant to the Plaintiff, to be taxed if not agreed (“Costs Order on Bonus Counterclaim”).

2.  By summons filed on 11 September 2023 (“Variation Summons”), the Plaintiff applies to vary the Order on Interest, the Costs Order on Bonus Claim and the Costs Order on Bonus Counterclaim as follows:-

(1)  The Defendants do pay to the Plaintiff interest on the sum of US$750,000 (i) at prime rate plus 1% from 10 May 2017 to 18 December 2020 and (ii) thereafter at 5% above judgment rate until payment.

(2)  Costs of this action relating to the Bonus Claim be paid by the Defendants to the Plaintiff, to be taxed if not agreed.  Such costs, incurred up to and including 18 December 2020, are to be taxed on a party-to-party basis, and from 19 December 2020 on an indemnity basis. The Defendants shall pay interest on costs incurred as from and including 19 December 2020 (including the costs of and incidental to P’s Summons as summarily assessed at HK$261,498.10) at 2.5% above judgment rate calculated as from 19 December 2020.

(3)  Costs of this action relating to the Bonus Counterclaim be paid by the 1^st Defendant to the Plaintiff, to be taxed if not agreed.  Such costs, incurred up to and including 18 December 2020, are to be taxed on a party-to-party basis, and from 19 December 2020 on an indemnity basis. The Defendants shall pay interest on costs incurred as from and including 19 December 2020 at 2.5% above judgment rate calculated as from 19 December 2020.

3.  In support of the Variation Summons, the Plaintiff relies on a sanctioned offer made on 20 November 2020 (“Sanctioned Offer”), and Order 22, rule 24 of the Rules of the High Court (Cap. 4A) (“RHC”) which provides as follows:-

“24. Costs and other consequences where plaintiff does better than he proposed in his sanctioned offer

(1) This rule applies where –

(a) A defendant is held liable for more than the proposals contained in a plaintiff’s sanctioned offer; or

(b) The judgment against a defendant is more advantageous to the plaintiff than the proposals contained in a plaintiff’s sanctioned offer.

(2) The Court may order interest on the whole or part of any sum of money (excluding interest) awarded to the plaintiff at a rate not exceeding 10% above judgment rate for some or all of the period after the latest date on which the defendant could have accepted the offer without requiring the leave of the Court.

(3) The Court may also order that the plaintiff is entitled to –

(a) His costs on the indemnity basis after the latest date on which the defendant could have accepted the offer without requiring the leave of the Court; and

(b) Interest on those costs at a rate not exceeding 10% above judgment rate.

(4) Where this rule applies, the Court shall make the orders referred to in paragraphs (2) and (3) unless it considers it unjust to do so.

(5) In considering whether it would be unjust to make the orders referred to in paragraphs (2) and (3), the Court shall take into account all the circumstances of the case including –

(a) The terms of any sanctioned offer;

(b) The stage in the proceedings at which any sanctioned offer was made;

(c) The information available to the parties at the time when the sanctioned offer was made; and

(d) The conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated.

(6)  The power of the Court under this rule is in addition to any other power it may have to award interest.”

4.  Order 22, rule 24(4) RHC provides that where a plaintiff does better than its proposed sanctioned offer, the Court shall grant it costs on indemnity basis and enhanced interest rate on the judgment sum after the latest date on which the sanctioned offer could have been accepted without leave of the Court, unless it considers unjust to do so.

5.  The losing party who fails to beat the sanctioned offer bears the burden of proof in showing why it would be unjust to make the orders prescribed in Order 22 rules 24(2), (3) RHC: see Lo Yuk Sui v Fubon Bank (Hong Kong) Ltd [2017] 2 HKLRD 477, per Ng J at paragraph 25(c).

6.  In deciding whether it would be unjust to impose the costs and interest sanctions of Order 22 RHC, the Court would consider all the circumstances of the case, including those set out in Order 22, rule 24(5), as well as the factors in Order 62, rule 5(1): see Grupo Pacifica Incorporada v Worldwide Marine Product Ltd[2018] HKCFI 2584, per Au-Yeung J at paragraphs 8-9.

7.  The Court has a discretion under Order 22, rule 24 to include a non-compensatory element to the award, provided that the level of interest awarded is proportionate to the circumstances of the case: see OMV Petrom SA v Glencore International AG[2017] 1 WLR 3465, per Sir Geoffrey Vos at paragraph 38.

8.  Under the Sanctioned Offer, the Plaintiff offered to accept US$750,000 from the Defendants (payable within 14 days from the acceptance of the Sanctioned Offer), in full and final settlement of the two consolidated actions.

9.  There is no dispute that the last date on which the Sanctioned Offer could have been accepted without leave was 18 December 2020 (“Cut-Off Date”), according to Order 22, rule 16(1) RHC.  The Defendants did not accept the Sanctioned Offer by the Cut-Off Date or otherwise.

10.  The Plaintiff’s case is that he has done better than the Sanctioned Offer, in that:

(1)  Under the Sanctioned Offer, the Plaintiff would only have received US$750,000 (or HK$5,878,125[2]).

(2)  Under the August 2023 Decision, the Defendants were ordered to pay the sum of US$750,000 plus interest. It is not disputed that the interest amount comes up to at least HK$2,261,185.85 (being the amount of pre-judgment interest payable up to the date of the August 2023 Decision).  Hence, the Plaintiff has been awarded at least HK$8,139,310.85 (i.e. HK$5,878,125 plus HK$2,261,185.85 in interest).

(3)  According to the Plaintiff’s calculations (which the Defendants have not disputed), even if the 1^st Defendant succeeds in all its remaining counterclaims, it would only be awarded HK$754,608.01 (inclusive of interest).

(4)  Hence, the net effect of the above is that under the August 2023 Decision, the Defendants are liable to pay at least HKD7,384,702.84 to the Plaintiff (i.e. HK$8,139,310.85 minus HK$754,608.01).

11.  The Defendants oppose the Variation Summons on two grounds:

(1)  First, the Sanctioned Offer did not address the issue of the Shares, and it was only in the August 2023 Decision that the Court ordered the Plaintiff to return the Shares to the Defendants after the monetary orders are complied with by the Defendants.  On such basis, the Defendants argue that the Plaintiff has not shown that that he has done better than the Sanctioned Offer, especially as the Plaintiff has not submitted any evidence as to the actual value of the Shares.

(2)  Second, in any event, even if the Court considers that the Plaintiff has done better than the Sanctioned Offer, it is unjust to grant the orders sought in the Variation Summons, particularly in relation to the period to which the enhanced interests and costs is to apply, as well as the level of enhanced interest rate sought by the Plaintiff.

B.  WHETHER THE PLAINTIFF HAS DONE BETTER THAN THE SANCTIONED OFFER

12.  I am of the view that the Plaintiff has done better than the Sanctioned Offer and the requirement under Order 22, rule 24(1) RHC has been met:

(1)  The Defendants’ argument that the Plaintiff failed to beat the Sanctioned Offer is premised on the assumption that the Shares are worth around HK$1.5 million (i.e. the difference between HK$7,384,702.84 and HK$5,878,125).  However, there is no evidence before the Court to suggest that the Shares could be worth around HK$1.5 million.

(2)  The Plaintiff has adduced evidence, in the form of a letter from the Official Receivers’ Office, that a winding up petition was presented against the 1^st Defendant on 31 July 2023. 

(3)  On the other hand, the Defendants have not adduced any evidence as to the value of the Shares, despite that they would possess such information and are much better placed than the Plaintiff (who has ceased working for the 1^st Defendant since October 2017) to speak to the value of the Shares.

(4)  Indeed, if there is evidence to the effect that the Shares are valuable, no doubt the Defendants would have adduced the same in their affirmation filed in opposition to the Variation Summons.  They did not do so.   

C.  ENHANCED INTEREST AND COSTS UNDER ORDER 22, RULE 24(3)-(4) RHC

13.  As mentioned above, according to Order 22, rule 24(4) RHC, if a plaintiff does better than its proposed sanctioned offer, then the Court shall make the orders referred to in rules 24(2) and (3) unless it considers it unjust to do so. 

14.  The Defendants contend that even if the Court takes the view that the requirement of Order 22, rule 24(1) RHC has been met, it would be unjust to grant the orders sought in the Variation Summons particularly in relation to the period to which the enhanced interest and costs apply, given the manner in which the Plaintiff pursued his case, including the fact that he pursued his O14A Application which was defeated by a technicality and led to a lapse of time of almost 2 years, and he then took another half a year after the handing down of the O14A Decision to issue P’s Summons.  

15.  The Defendants further contend that the level of enhanced interest rate sought by the Plaintiff is too high, and submit that if the Court is minded to grant enhanced interest, having regard to comparable case law, the starting point of enhanced interest rate should be 2.5% above judgment rate, but such rate should be further reduced to 2% above judgment rate given the Plaintiff’s conduct in these proceedings.

16.  Having considered the parties’ submissions, I do not consider there to be circumstances in this case rendering it unjust to make the orders under rule 24(2) and (3) RHC.

17.  As regards the period for which the enhanced interest and costs should apply, I am of the view that the Plaintiff should not be held responsible for the period of delay between 16 July 2020 (when the O14A Application was issued) and 15 June 2022 (when the O14A Decision was handed down), or between 15 June 2022 and the issuance of P’s Summons on 14 December 2022.

(1)  First, the Plaintiff is not seeking any enhanced interest and costs for the period from 16 July 2020 to 18 December 2020.

(2)  Second, the Defendants ought to be responsible for the time and costs incurred on or after 19 December 2020 by reason that had they accepted the Sanctioned Offer by the Cut-Off Date, all such time and costs would have been saved.

(3)  Third, the Plaintiff had already been ordered to pay the costs of the O14A Application, although it was defeated by a mere technicality. There is no reason why the outcome of the O14A Application should deprive the Plaintiff of the entitlement to enhanced interest and costs under Order 22, rule 24 RHC.

(4)  Hence, I do not consider that there is any good reason to limit the period to which the enhanced interest and costs should apply to after the issuance of P’s Summons, as suggested by the Defendants.

18.  As regards the rate of enhanced interest, after reviewing the relevant authorities cited by the parties and considering the factual circumstance of the present case, I am of the view that the enhanced interest rate of 5% above judgment rate is proportionate and appropriate.

(1)  Whilst the Defendants contend that the cases cited by the Plaintiff, including Angbuhhang Netra Jang v Laing O’Rourke Construction Hong Kong Ltd[2021] HKCFI 232, Wong Giles v Donowho Simon Christopher[2020] HKCFI 1053, Yeung Ho Man v Shum Kin Leung[2020] HKCFI 2781, OMV Petrom SA v Glencore International AG[2017] 1 WLR 3465 and Grupo Pacifica Incorporada v Worldwide Marine Product Ltd[2018] HKCFI 2584 can be distinguished on their facts, the enhanced interest rates sought by the Plaintiff in the present case are much lower than those imposed in those cases.  

(2)  The Plaintiff also referred to the case of Maysun Engineering Co Ltd v International Education & Academic Exchanges Foundation Co Ltd [2011] 2 HKLRD 844, where the Court awarded enhanced interest on the judgment sum at  5% above judgment rate (see paragraph 18). The Court relied on the fact that the defendant had, by the time the sanctioned offer was made, adequate information to assess the plaintiff’s claim and yet it persisted in maintaining its unmeritorious defence (see paragraphs 12-13, 17), which bears similarity to the situation in the present case. In particular, in this case:

(i)  The Sanctioned Offer was made long after the close of pleadings (the Reply and Defence to Counterclaim was filed on 12 March 2019) and also after the filing of the O14A Application and the Plaintiff’s supporting affirmation dated 15 July 2020 in which he disclosed all the key documentary evidence he relied on in support of the Bonus Claim. 

(ii)  Although the Defendants had adequate information to assess the Plaintiff’s claim, they did not respond at all to the Sanctioned Offer.   

(iii)  Even after the O14A Decision was handed down (in which the Judge rejected all of the Defendants’ pleaded defences), the Defendants continued to resist the Bonus Claim and to pursue the Bonus Counterclaim.

(3)  The rate of enhanced interest sought by P (i.e. 5% above judgment rate) is well below the maximum amount (i.e. 10% above judgment rate) stipulated under Order 22, rule 24(2), which I consider to be proportionate and appropriate taking into account all the circumstances of this case.

(4)  As regards interest rate on costs, as submitted by the Plaintiff, a simplified approach towards the calculation of interest on costs under Order 22 RHC has been adopted in Hong Kong. By this approach, once the rate of interest has been fixed, it will be halved and then applied to all items of costs, regardless of when incurred, and will run from the last date on which the sanctioned offer could have been accepted without leave: see Golden Eagle International (Group) Ltd v GR Investment Holdings Ltd [2010] 3 HKLRD 273, per Lam J (as he then was) at paragraphs16-19. Hence, adopting the simplified approach in Golden Eagle and in view of the matters set out in sub-paragraphs (1)-(3) above, I consider it appropriate to order the Defendants to pay interest on costs at half of the rate of 5% above judgment rate.  I note that the Plaintiff is seeking 2.5% above the judgment rate, which does not entirely accord with the simplified approach advocated in Golden Eagle.

(5)  For completeness, insofar as the Defendants contended for a reduction on the interest rate on costs to 2% above judgment rate to “reflect the circumstances of this case particularly given the Plaintiff’s conduct in these proceedings”, they have not explained what kind of “circumstances” and which part of “the Plaintiff’s conduct” justify such reduction.  If the Defendants are referring the matters set out in paragraph 14 above and/or that the O14 Application was unsuccessful, I do not consider those to be valid reasons to justify the reduction sought for the reasons set out in paragraph 17 above.

19.  Lastly, the Plaintiff contends that enhanced interest rate should also apply to the period from the date of judgment to the date of payment.  However, I am of the view that judgment rate should apply from the date of judgment to the date of payment, both in respect of the judgment sum and costs.  As the Court held in Zief Incorporated v Tekchandani Ajai Mohan (trading as D’Ziner Collections (Hong Kong)) & Ors[2021] HKCFI 730 (per Recorder Eugene Fung SC at paragraphs 38-44), to which I agree, section 49(1)(a) of the High Court Ordinance confers power on the Court of First Instance to decide what rate to be applied to judgment debts, and there must be good reasons for the court to depart from the convention of ordering post-judgment interest to be charged at judgment rate.

20.  In the present case, I do not consider that the failure to accept a sanctioned offer provides sufficient reasons for this Court to order post-judgment interest at a rate higher than the judgment rate.  As the learned Recorder stated at paragraph 43 of Zief:

“As explained earlier, the powers to award enhanced interest under Order 22 rule 24 are to redress the perceived unfairness from the fact that the successful plaintiff will not be sufficiently compensated for the inconvenience, anxiety and distress of having to resort to and pursue proceedings. Such inconvenience, anxiety and distress (insofar as they exist) would ordinarily end when the successful plaintiff obtains the judgment. Moreover, as mentioned earlier, the purpose of post-judgment interest is not to compensate the successful plaintiff for such inconvenience, anxiety and distress, but to provide incentive to the losing defendant to promptly settle the judgment debt. See McPhilemy v Times Newspapers Ltd (above) at §24 (Chadwick LJ); Lo Yuk Sui v Fubon Bank (Hong Kong) Ltd [2017] 2 HKLRD 477 at §§57-59 (P Ng J).”

E.  DISPOSITION

21.  For the reasons set out above, I make an order that the Order on Interest, the Costs Order on Bonus Claim and the Costs Order on Bonus Counterclaim be varied as follows:

(1)  The Defendants shall pay to the Plaintiff interest on the sum of US$750,000 at prime rate plus 1% per annum from 10 May 2017 to 18 December 2020, and thereafter at the rate of 5% above judgment rate to the date of the judgment on 25 August 2023 (“Judgment”);

(2)  From the date of the Judgment to the date of payment, the Defendant shall pay interest on the sum of US$750,000 (including interest accrued up to the date of the Judgment) at judgment rate;

(3)  Costs of this action relating to the Bonus Claim be paid by the Defendants to the Plaintiff, to be taxed if not agreed.  Such costs, incurred up to and including 18 December 2020, are to be taxed on a party-to-party basis, and from 19 December 2020 on an indemnity basis.

(4)  Costs of this action relating to the Bonus Counterclaim be paid by the 1^st Defendant to the Plaintiff, to be taxed if not agreed.  Such costs, incurred up to and including 18 December 2020, are to be taxed on a party-to-party basis, and from 19 December 2020 on an indemnity basis.

(5)  For the period from 19 December 2020 to the date of the Judgment, the Defendants shall pay interest on costs relating to the Bonus Claim and Bonus Counterclaim at half of the rate of 5% above judgment rate, calculated as from 19 December 2020.

22.  The Plaintiff submitted that the Order 22 r.24 RHC sanctions (including costs on an indemnity basis and enhanced interest) should also apply to the costs of the Variation Summons.  In the exercise of my discretion, and taking into account all the circumstances of this case including that the Plaintiff’s costs of the Variation Summons were incurred only after Judgment, I consider that the appropriate order would be that the costs of and occasioned by the Variation Summons be paid by the Defendants to the Plaintiff, to be taxed on indemnity basis if not agreed.

Submissions by Mr Thomas Wong, instructed by Eversheds Sutherland, for the  Plaintiff

Submissions by Tanner De Witt, for the Defendants

HCA 272/2018 & HCA 486/2018
(Consolidated)

[2023] HKCFI 2184

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 272 OF 2018

_________________

BETWEEN

_________________

AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 486 OF 2018

_________________

BETWEEN

_________________

(Consolidated by Order of Master Queenie Lau dated 2 October 2018)

_________________

D E C I S I O N

_________________

A. INTRODUCTION

1.  This is the hearing of the Plaintiff’s summons filed on 14 December 2022 (“P’sSummons”) for:

(1) summary judgment for part of the Plaintiff’s claims in this action, in the sum of US$750,000 plus interest (“Bonus Claim”); and

(2) striking out the 1^st Defendant’s counterclaim[1] for the sum of US$250,000 (“Bonus Counterclaim”) on the grounds that (i) it is scandalous, frivolous and vexatious; and (ii) may prejudice, embarrass or delay the fair trial of the action; and/or (iii) is otherwise an abuse of process of the Court.

2.  The Plaintiff was an employee of the 1^st Defendant (“the Company”), a licensed financial institution engaged in the business of stock brokerage.

3.  The 2^nd Defendant (“D2”) and the 3^rd Defendant (“D3”) are brothers and are together the majority shareholders, directors and responsible officers of the Company.

4.  The two actions relate to the alleged entitlements of the Plaintiff under the second employment contract dated 3 April 2014 (“Employment Agreement”) which the Plaintiff (as employee) entered into with the Company (as employer). In the Employment Agreement, D2 and D3 signed as guarantors in relation to the terms set out in Schedule 2 thereof.

5.  In this action, the Plaintiff claims, inter alia, for the payment of liquidated damages of US$1,000,000 less the part-payment of US$250,000 allegedly made pursuant to Schedule 2 of the Employment Agreement, and payment of his share of the legal costs in the sum of HK$296,515 incurred in relation to a share purchase transaction that fell through.

6.  By a Consolidated Defence and Counterclaim filed on 12 February 2019 (“D&CC”), the Defendants deny the Plaintiff’s claims. The Company further counterclaims for (inter alia) the return of legal fees and the sum of US$250,000 paid to the Plaintiff allegedly by mistake, and 3 months’ wages in lieu of notice under the Employment Agreement.

B. FACTUAL BACKGROUND

7.  The relevant background facts are set out in paragraphs 9 to 22 of the O14A Decision (defined below). The pertinent aspects relevant to P’s Summons are repeated below for ease of reference.

8.  By an employment agreement dated 13 July 2011, the Plaintiff commenced employment with the Company for a fixed term of 3 years (“Initial Employment Agreement”).

9.  Shortly before the Initial Employment Agreement expired, the Plaintiff entered into a new employment agreement dated 3 April 2014 (i.e. the Employment Agreement defined above), for an initial term of 39 months, to be continued indefinitely upon the expiry of the initial term until terminated.

10.  The Employment Agreement contains terms that provide the Plaintiff with incentive in the form of a sign-on bonus (“Sign-On Bonus”) for agreeing to continue his employment with the Company. In particular, Clause 7.1 provides as follows:

“…. You will receive a one off payment for re-signing your employment contract. The details of this payment are outlined in Schedule 2. You agree to repay to the Company on a pro-rata basis any payment made under Schedule 2 if you resign or are summarily dismissed within 39 months of the Commencement Date.” (Emphases added)

11.  Schedule 2 of the Employment Agreement (“Schedule 2”) contains the following “details of … payment” referred to in Clause 7.1 in the form of two options at the election of the Plaintiff:

“You will be entitled to receive a one off (sic) payment for the re-signing of your employment contract. The payment will be at your choice of the following alternatives.

1) A cash payment of US$750,000

2) The Company agrees to:

a. Procure the transfer of 1,231,000 ordinary shares (the “Shares”)(representing a total of 5% of the company’s outstanding ordinary shares) to you from existing shareholders within. [days] of the execution of this Employment Contract (the Transfer”);

b. Pay any stamp duty that may be payable in connection with the transfer referred to in clause (2)(a) of this Schedule 2;

c. Procure on your behalf a Deed of Adherence to any existing shareholders’ agreement to which any other shareholders are a party at the time of the Transfer;

d. Between 3 October 2014 (being for the avoidance of doubt, a day 6 calendar months after the signing of this Employment Contract), up to and including the end of the Term (as defined in clause 2.1 of the Employment Contract), within 3 months of receiving written notice of exercise under this clause, transfer to you the sum of. US$ 0.8124/share in consideration for the transfer to the Company (or its agent, nominee or assig) of the Shares (in any amount of shares that you elect, provided the maximum amount payable for the total of the Shares does not exceed US$1,000,000);

e. If any relevant transaction occurs by which the shareholders of the Company (including yourself, whether by way of tag-along or drag-along rights acquired as a result of signing the shareholders’ agreement pursuant to clause 2(c) of this Schedule 2) agrees(sic) to surrender, transfer, or otherwise beneficially assign their interests in the shares of the Company to a third-party (the Third-Party Buyout), you agree that:

i. To the extent the right specified in clause 2 d) of this Schedule 2 remains unexercised at the date of completion of Third-Party Buyout, such rights in clause 2(d) will expire and be replaced by the rights set out in clause 2(c)(iii) below; and

ii. any up-front cash payment for the Third-Party Buyout will be set off against any remedy sought under clause 2(f) of this Schedule 2.

And the Company further agrees that:

iii. At any point during the period between the completion of the Third-Party Buyout, and the end of the Term (as specified in clause 2.1 of the Employment Contract), you may elect to forgo any future earn-out rights which you may acquire as part of the Third-Party Buyout in return for a cash payment equal to the formula in sub paragraph (1) below, which the Company agrees to make or procure within 3 months of being so notified;

1. CASH PAYMENT = US$ 1,000,000 less any consideration received as part of the Third -Party Buyout less any payment received pursuant to clause 2(d) above less any earnout commission already received;

2. For the avoidance of doubt, and in the event of any dispute, it is the parties’ express intention that the formula in the preceding paragraph preserves a right by you to receive a total sign-on bonus of US$1,000,000 within the term, but to properly account for any consideration (whether upfront payments or earn out commissions) that may be received as a result of any Third-Party Buyout.

AND Simon Gray and Matthew Gray, being a party only to this Schedule 2, jointly and severally agreed to procure the making of such cash payment referred to clause 2(e)(iii) above and further jointly and severally personally guarantee such payment should the Company fail to make such payment within 14 days.” (Emphases added)

12.  In July 2014, D2 and D3 entered into an agreement in relation to the transfer of the Company’s shares to the Plaintiff pursuant to Clauses 2(a)-(c) of Schedule 2 (“Shareholders Agreement”). On 17 October 2014, D3 transferred 5% of the shares in the Company (“Shares”) to the Plaintiff.

13.  On 24 December 2014, the Plaintiff, D2 and D3 entered into a share purchase agreement (“SPA”) with CBD Investment (Cayman) Corporation (“CBD”) pursuant to which CBD agreed to purchase, and the Plaintiff, D2 and D3 agreed to sell 85% of the shares of the Company to CBD (“CBD Transaction”).

14.  Clause 4.1(c) of the SPA provides that it is a condition precedent for the CBD Transaction that the Shareholders Agreement has been terminated on terms satisfactory to CBD acting reasonably (“SPA Condition Precedent”).

15.  Pursuant to the SPA Conditions Precedent, on 4 December 2015, the Plaintiff, D2 and D3 entered into a Deed of Termination (“Deed of Termination”), under which the Shareholders Agreement would be terminated. Clauses 2 and 5 of the Deed of Termination provide as follows:

“2. PREVIOUS AGREEMENTS

With effect from the date of the Deed, all previous agreements between the Parties relating to their interests, rights, and obligation in respect of the Company, including the Shareholders Agreement, shall be terminated and will have no further effect.

5. ENTIRE AGREEMENT

This deed constitutes the whole agreement between the parties relating to the subject matter herein (no party having relied on any representations made by any other Party which is not a term of this Deed) and no future variation of any term of the Deed shall be effective unless made in writing and signed by each of the Parties.”

16.  The parties to this consolidated action and CBD entered into a Supplemental Agreement dated 4 December 2015 (“Supplemental Agreement”), pursuant to which certain clauses of the SPA including on the timing for the payment of the ”Initial Cash Consideration” were amended from payment “on Completion” to “payable as soon as practicable after Completion, but… no later than [30] March 2016”.

17.  On 28 January 2016, the Plaintiff transferred the Shares to CBD. D3 also transferred his shares in the Company to CBD, whereupon CBD became the majority shareholder of the Company.

18.  However, CBD failed to pay the consideration under the SPA and the Supplemental Agreement whether by the extended payment deadline or at all. This led to the execution of an unwind deed dated 20 February 2017 (“Unwind Deed”) between D2, D3 and CBD. The Plaintiff did not sign the Unwind Deed at the time.

19.  On 10 February 2017, the Plaintiff served a notice on the Company (“Notice”), with copies sent to D2 and D3 as guarantors, stating as follows-

“I refer to my contract of employment with [the Company] dated 3 April 2014. I am writing to notify you under Clause 2(d) and 2(e)(iii) of Schedule 2 of my decision to elect to receive a cash payment calculated in accordance with sub-clause 1. Based on that formula, the payment is USD1,000,000 (US Dollar one million). I look forward to receiving payment within three (3) months of the date of this notification in accordance with Schedule 2”. (Emphases added)

20.  On 7 July 2017, the Company made a payment of US$250,000 in two separate tranches to the Plaintiff. According to the Plaintiff, despite his demands, the Defendants have not paid him the balance of the Sign-On Bonus in the amount of US$750,000.

21.  On 2 July 2017, the initial 39-month term of the Employment Contract was completed. On 3 October 2017, the Plaintiff’s employment came to an end.

C. PLAINTIFF’S APPLICATION UNDER ORDER 14A RHC

22.  By summons dated 16 July 2020, the Plaintiff applied to have 3 preliminary questions of law or construction to be finally determined, and judgment entered in its favour for the sum of US$750,000 plus interest (i.e. the Bonus Claim), pursuant to Order 14A rule 1 of the Rules of the High Court (“RHC”) and the inherent jurisdiction of the court (“O14A Application”). The 3 preliminary questions of law or construction are as follows:

The First Question

Whether, on the proper construction of the Deed of Termination, clauses 2 and 5 thereof have the effect of superseding the Plaintiff’s rights and claims under clause 7.1 and Schedule 2 of the Employment Agreement.

The Plaintiff proposed that the answer should be “no”.

The Second Question

Whether Notice was a valid notice under clause 2(d) of Schedule 2 of the Employment Agreement.

The Plaintiff proposed that the answer should be “yes”.

The Third Question

Whether the Notice was a valid notice under clause 2(e)(iii) of Schedule 2 of the Employment Agreement.

The Plaintiff proposed that the answer should be “yes”.

23.  The substantive hearing of the O14A Application took place on 16 March 2021 before Recorder Winnie Tam SC, and judgment was reserved.

24.  On 7 April 2022, when the Recorder’s decision was still pending, the Plaintiff’s solicitors wrote to the Defendants’ solicitors stating that the Plaintiff had “now executed a counterpart of the Unwind Deed pursuant to clause 3.2 therein and agreed to be bound by its terms”. The letter further requested the Defendants’ assistance in “implementing the terms of the Unwind Deed, in particular, in transferring the [Shares] currently held by CBD back to [the Plaintiff]”.

25.  The Defendants’ solicitors responded by letter dated 11 April 2022 asking for a copy of the counterpart of the Unwind Deed signed by the Plaintiff, and stating (inter alia) that the Plaintiff’s execution of the Unwind Deed and assertion of ownership of the Shares was “fundamentally and diametrically opposite to his position in these proceedings which was, inter alia, that CBD was holding the Shares on trust for him but that he served notice to the 2^nd Defendant electing to receive cash consideration (purportedly in accordance with clause 2(d) or 2(e)(iii)(1) of Schedule 2 of the Employment Agreement) as an alternative to retaining ownership of the Shares”.

26.  The Defendants’ solicitors also wrote on the same day to the learned Recorder to inform her of the aforesaid developments, and stating that: (i) given the “new and changed circumstances…..there are strong and exceptional reasons to re-open and re-hear all parties’ arguments as to the [O14A Application]”; (ii) the Defendants will be making a formal application to restore the [O14A Application] and seek the appropriate directions from the Court as to the filing an service of further submissions as early as practicable; and (iii) they are in the process of preparing such application (“Intended Application to Re-Open”), and asking the learned Recorder to withhold handing down her decision on the O14A Application in the meantime until the disposal of the Intended Application.

27.  By letter dated 14 April 2022, the Plaintiff’s solicitors wrote to the learned Recorder stating (inter alia) that (i) the Plaintiff’s position remained unchanged, namely, that the Plaintiff is the beneficial owner of the Shares and CBD is holding the Shares on trust for the Plaintiff and CBD was willing and able to transfer the Shares back to the Plaintiff; and (ii) there was no reason to allow the Defendants to relitigate the issue.

28.  It is not in dispute that the Intended Application to Re-Open was ultimately not made by the Defendants.

29.  By the decision of the learned Recorder dated 15 June 2022 (“O14A Decision”)[2], the Order 14A Application was dismissed with costs against the Plaintiff.

30.  It appears from the O14A Decision that the learned Recorder took the view that she did not have all the necessary facts and matters before her in order to determine the questions of construction on the Second and Third Questions, and thus she exercised her residual discretion in favour of not determining the First Question either (see §91).

31.  In particular, the learned Recorder applied the 3-step test in Rockwin Enterprises Ltd v. Shui Yee Ltd [2003] 3 HKC 174 at [18] and found that because there was no assertion, evidence or admission before the Court as to whether “completion” within the meaning of clause 6 of the SPA had taken place, and if so, whether before or after the date of the Notice, the Court lacked the necessary factual basis to enable it to determine the Second and Third Question, and hence Step (2) of the Rockwin test was not satisfied i.e. the learned Recorder took the view that these questions were not suitable for determination under the O.14A procedure (see §§23, 24, 75, 77, 82).

32.  But notwithstanding the aforesaid, the Recorder did go on to consider and provide her analysis on all of the 3 Questions for the sake of completeness, and in deference to counsel’s arguments. In her analysis, the Recorder essentially acceded to all of the Plaintiff’s arguments on the 3 questions of construction, and rejected the Defendants’ contentions (see in particular, §§37-50, 79-80, 86-88).

33.  There has been no appeal by the Plaintiff against the O14A Decision.

34.  By P’s Summons, the Plaintiff now seeks summary judgment on the Bonus Claim, this time under Order 14 of the RHC, and also for an order to strike out the Bonus Counterclaim under Order 18 rule 19 of the RHC.

D. THE PARTIES’ RESPECTIVE POSITIONS

35.  The Plaintiff’s pleaded case in his Amended Statement of Claim filed on 14 December 2018 (“ASOC”) on the Bonus Claim is that:[3]

(1) The Notice served on the Defendants on 10 February 2017 was a valid notice electing to receive the Sign-On Bonus cash in the sum of US$1,000,000 in accordance with clause 2(d) or, alternatively clause 2(e)(iii)(1) of Schedule 2.

(2) On 7 July 2017, the Company made a payment of US$250,000 in two separate tranches to the Plaintiff, but have not paid him the balance of the Sign-On Bonus in the amount of US$750,000.

36.  In the D&CC, the Defendants have pleaded the following defences to oppose the Bonus Claim:

(1) Clauses 2 and 5 of the Deed of Termination have superseded the Plaintiff’s right to claim for the Sign-On Bonus (“1^st Pleaded Defence”).[4]

(2) The Plaintiff cannot invoke Clause 2(d) of Schedule 2 because at the time the Notice was issued, the Shares had been transferred to CBD and the Plaintiff was not the legal owner of the Shares (“2^nd Pleaded Defence”).[5]

(3) The Plaintiff cannot invoke Clause 2(e)(iii) of Schedule 2 as the Plaintiff did not enter into the SPA by reason of any tag-along or drag-along rights (“3^rd Pleaded Defence”).[6]

(4) The Notice was not a valid notice under Clause 2(e)(iii) of Schedule 2 as it did not contain any election by the Plaintiff to forgo future earn-out rights (“4^th Pleaded Defence”).[7]

37.  In support of the Bonus Counterclaim, the Defendants’ pleaded case is that the US$250,000 was paid to the Plaintiff by the Company not for the purpose of settling any entitlement of the Plaintiff under Schedule 2, but under the mistaken belief that it was obliged to do so when in fact it was under no such obligation.[8]

38.  It is common ground between the parties that the Bonus Claim and the Bonus Counterclaim are opposite sides of the same coin, such that if the Bonus Claim succeeds, the Bonus Counterclaim must fail and vice versa.

39.  The Plaintiff contends that the Defendants’ 1^st to 4^th Pleaded Defences lack merit, and they have already been rejected by the learned Recorder in the O14A Decision. The Plaintiff accepts that the Defendants are not bound by the Recorder’s conclusions, nor are such conclusions binding on this Court. However, the Plaintiff submitted that the Recorder’s analyses are cogent and compelling and there is no reason for this Court to depart from them.

40.  The Defendants contend that P’s Summons is an abuse of process in that the Plaintiff had, by the O14A Application, applied for pre-trial judgment but unsuccessfully, and P’s Summons does not seek to rely on any new event, evidence or argument to justify a repeat application for pre-trial judgment. On this basis, the Defendants ask the Court to dismiss P’s Summons, or alternatively, grant unconditional leave to defend. On the merits of this application for summary judgment, the Defendants rely primarily on the submissions which they had made before the Recorder, which they contend raise triable issues.

E. ABUSE OF PROCESS

E1. Legal principles

41.  It is not disputed that the rules relating to res judicata in interlocutory matters are less stringent than those generally applicable. As accepted by the Defendants, the extent to which the doctrines of res judicata, issue estoppel and abuse of process apply to interlocutory decisions varies with (i) the nature of the original decision, and (ii) the nature of the second occasion where the doctrines might apply.

42.  In Chu Hung Ching v Chan Kam Ming [2001] HKC 396 at 401E-402D, Mayo VP referred to the following part of the Alberta Court of Appeal’s Judgment in Pocklington Foods Inc vThe Queen in right of Alberta (1995) 123 DLR (4th) 141 at 144:

“… Res judicata and issue estoppel do not apply to procedural interlocutory motions. While in the judgment of Clement J.A. in Talbot, there is considerable discussion of the position where a decision is made on the adequacy of the material rather than on the merits of the application, when read as a whole the decision supports the position taken by McDonald J. in this case.

However, the court is not powerless to deal with attempts to re-litigate issues already decided by it. In Talbot, after refusing to apply res judicata to an interlocutory procedural application, Clement J.A. stated at p. 112:

‘… I am of the opinion that the principle does not apply to an interlocutory application of the nature now before us; rather, the second application is subject to control by the exercise of judicial discretion in determining whether it is frivolous or vexatious in all the circumstances then appearing.’

McDonald J. went on to consider the reasoning which should apply in controlling abuse of process. He cited from the decision of Lord Maugham L.C. in New Brunswick Ry. Co. v. British & French Trust Corp., Ltd, [1939] A.C. 1 (H.L.) at p. 20 (cited with approval in Talbot) as follows [at p. 282]:

‘If an issue has been distinctly raised and decided in an action, in which both parties are represented, it is unjust and unreasonable to permit the same issue to be litigated afresh between the same parties or persons claiming under them.’

He continued:

‘Thus the raison d’etre of the principle of res judicata or issue estoppel lies in what is just and reasonable. Applying that notion to an assertion that a ruling on an interlocutory application is res judicata when the same issue is raised in a subsequent interlocutory application in the same action, it will not be unjust or unreasonable to allow the second application to be heard, for what is involved is not relitigation of an identical issue of law or fact:

(a) if the ruling on the first application was not based on the merits of the issue but on a technical objection …

(b) if upon the first application the applicant had failed to prove essential facts from mistake or inadvertence …

(c) if there is new evidence that seriously justifies reconsideration of the issue;

(d) if there is a material change of circumstances of a non-evidentiary nature.’”

43.  Mayo VP went on to conclude at 402D-E:

“It is apparent from this that the rules relating to res judicata in interlocutory matters are less stringent than those generally applicable. […]”

44.  In the case of Lau Sin v Wong Mary & Others [2018] HKLRD 202 at §33, Deputy High Court Judge Paul Lam SC (aftering considering various authorities) summarised the general principles applicable to the situation where the same interlocutory application was made again:

“(a) The doctrine of res judicata, properly-so-called, does not apply to interlocutory orders.

(b) If a party seeks to re-litigate a matter which has been determined in a previous interlocutory decision by taking out a second application, the second application is liable to be dismissed by the court, either of its own motion or on application, pursuant (sic) its inherent jurisdiction or Order 18, rule 19, on the ground that it constitutes an abuse of process.

(c) It will not be an abuse of process if there are express statutory provisions permitting the re-litigation of the matter. There are many express provisions allowing the respondent to an application to apply to set aside an order made in its absence or as a result of its failure to comply with certain procedural steps (eg Order 13, rule 9; Order 14, rule 11; Order 19, rule 9; Order 24, rule 17; Order 26, rule 8). Another useful example is that directions on evidence (including expert evidence) may also be revoked and varied by a subsequent direction (Order 38, rule 44).

(d) In the absence of any such express statutory provision, whether the second application constitutes an abuse of process must depend on the particular circumstances of each case. Generally speaking, the court should consider what is just and reasonable.

(e) It is inappropriate and impossible to set out exhaustively what the relevant considerations will be. Naturally, the court will need to consider the nature of the interlocutory application; whether the applicant had, or could and should have, challenged the first interlocutory decision by other means; and why a second application on the same matter has been made. Examples of situation where the court may conclude that there is no abuse of process include: the ruling on the first application was not based on merits but on a technical objection, the applicant failed to prove essential facts from mistake or inadvertence at the first application, there is new evidence that seriously justifies reconsideration of the issue; or there is a material change of circumstances.

(f) Nevertheless, the court should adopt a holistic, rather than a dogmatic or mechanistic, approach. At the end of the day, the court shall whether it is in the interests of justice to allow the second application to proceed having regard to all relevant circumstances of the particular case. And in considering how its discretion should be exercised, Order 1A, rule 2 requires the court to give effect to the underlying objectives of the RHC as set out in Order 1A, rule 1.”

45.  It can be seen from the aforesaid cases that the principle of res judicata is not applied to interlocutory applications strictly, and that whether there is any abuse of the process of the Court in raising the same issue in another interlocutory application should be considered on a case-by-case basis.

46.  The parties confirmed to this Court at the hearing that they have no quarrel with the above principles.

E2. Whether P’s Summons is an abuse of process?

47.  Mr. Thomas Wong (counsel for the Plaintiff) submitted that there is no abuse of process by the Plaintiff in issuing P’s Summons. The main arguments raised by Mr. Wong in his written submissions and orally at the hearing before this Court are as follows:

(1) First, the O14A Application was defeated only by reason of a technicality, in that the application was dismissed by the Recorder solely because of the way how the Second Question and the Third Question were framed. Mr. Wong submitted that if the two questions were combined into one, i.e. in asking the Court to determine whether the Notice was a valid notice either under clause 2(d) of Schedule 2 or under clause 2(e)(iii) of Schedule 2, then the Recorder would have been able to determine the question.

(2) Second, the Recorder did not find any of the Defendants’ pleaded defences to be arguable, but in fact rejected them. In pursuing P’s Summons, the Plaintiff is not seeking to attack or circumvent any matter decided by the Recorder. Instead, Mr. Wong submitted that the Recorder’s analyses on the points of construction were correct.

(3) Third, it is entirely reasonable for the Plaintiffs to have taken the view that there is no viable appeal against the learned Recorder’s decision, as it was open to the Recorder to have come to the conclusion she did in the exercise of her discretion, and in light of how the questions of construction were framed in the O14A Application.

(4) Fourth, in deciding whether P’s Summons is an abuse of process, this Court should also take into account the underlying merits of P’s Summons, and whether the Defendants have any arguable defence. If the Defendants have no arguable defence, the Plaintiff should not be precluded from seeking summary judgment and be forced to take the Bonus Claim to trial.

48.  Mr. Edward Alder (counsel for the Defendants) confirmed to the Court at the hearing that the Defendants are not relying on issue estoppel or res judicata estoppel in the strict sense to preclude the Plaintiff from issuing a second application for pre-trial judgment. His argument is that P’s Summons should be dismissed as being an abuse of process on the ground that it is essentially a “re-run” of the O14A Application, when the position before this Court is the same as it was before the Recorder, but only that this time the application for pre-trial judgment is made under Order 14 RHC as opposed to Order 14A RHC. Mr. Alder submitted that:

(1) The Plaintiff cannot bring himself within any of the exceptions identified in Chu Hung Ching (supra) where repeated interlocutory applications are permitted.

(2) In particular, the O14A Application did not fail by reason of any technicality. It was open for the Recorder to have entered judgment for the Plaintiff on the Bonus Claim (by converting the application under Order 14A RHC to an Order 14 RHC application) but she exercised her discretion not to do so. The Recorder was also not bound by the questions of construction as framed in the O14A Application.

(3) Further, the Plaintiff does not rely on any new evidence in support of the P’s Summons. In particular, the Plaintiff adduced no new evidence regarding when “completion” occurred. The Plaintiff’s 2^nd Affirmation made in support of P’s Summons only includes a statement that “I have been advised by my lawyers and believe that “completion” of the CBD buyout had taken place by the time I issued the Notice. I also have no reason to doubt that the conditions and obligations set out in clause 4.1 and Part A of Schedule 4 of the SPA had either been fulfilled or waived”. In any case, the Plaintiff’s position is that whether completion has occurred is irrelevant to his claim.

(4) Hence, the position before this Court is exactly the same as it was before the learned Recorder, except that the Unwind Deed has now allegedly been signed by the Plaintiff. However, for the purpose of P’s Summons, the Plaintiff’s position is that his signing of the Unwind Deed is irrelevant.

(5) Instead of issuing P’s Summons to seek pre-trial judgment for a second time, the Plaintiff could instead have appealed the O14A Decision (in which case the Defendants could then issue a Respondents’ Notice), or simply brought the matter on to trial.

49.  Applying the undisputed legal principles set out in Section E1 above, in determining whether P’s Summons constitutes an abuse of process, the Court shall consider all relevant circumstances and decide what may be just and reasonable, taking a holistic, rather than a dogmatic or mechanistic approach, and ultimately deciding whether it is in the interests of justice to allow P’s Summons to proceed notwithstanding the dismissal of the O14A Application.

50.  After careful consideration of the parties’ respective submissions, I am of the view that P’ Summons ought not be considered to be an abuse of process.

51.  First, it cannot be in dispute that the dismissal by the Recorder of the O14A Application was not by reason of the underlying merits of the Plaintiff’s Bonus Claim, but because she was of the view that the Court lacked the necessary factual basis (in relation to whether “completion” under the SPA had taken place when the Notice was served) to enable it to determine the Second and Third Questions as framed in the O14A Application. On such basis, the Recorder was of the view that Step (2) of the Rockwin test was not satisfied.

52.  I agree with Mr. Wong’s submission that the perceived difficulty of the Recorder in determining the Second and Third Questions was due only to the way in which they were framed. Had such questions been framed differently (see §47(1) above), the Recorder would have been able to determine the questions. As the Recorder observed (at §70 of the O14A Decision), if the Plaintiff’s rights under Schedule 2 were exercised before completion of the SPA, then clause 2(d) applied, and if they were exercised after completion, then clause 2(e)(iii) could apply.

53.  Hence, I agree with Mr. Wong that the O14A Application was defeated by reason of a technicality, in a sense that its dismissal was not related to the underlying merits of the Plaintiff’s Bonus Claim. Indeed, the learned Recorder acceded to the all of Plaintiff’s arguments on construction, including on the proper construction and applicability of Clauses 2(d) and 2(e)(iii) of Schedule 2.

54.  Second, whilst it is true that the Plaintiff does not, for the purpose of P’s Summons, rely on any additional evidence which was not before the Recorder (including as regards whether “completion” had taken place[9]), the nature of the O14A Application and P’s Summons are not identical. As Mr. Wong submitted, whereas the question of whether completion had taken place when the Notice was served is not a relevant consideration for the purpose of P’s Summons and P’s Bonus Claim, it was arguably relevant for the purpose of the O14A Application, but solely by reason of how the Second and Third Questions were framed.

55.  Third, I am of the view that although the Recorder was not strictly bound by how the Second and Third Questions were framed in that for example, she did have power under Order 14A RHC to: (i) combine the Second and Third Questions and reframe them in the alternative (see §47(1) above); or (ii) determine the Second Question in the affirmative on the assumption that completion under the SPA had not yet taken place by the time the Notice was issued, and to determine the Third Question in the affirmative assuming completion had taken place by the time the Notice was issued, and concluded that either way, the Plaintiff would have been entitled to Judgment on the Bonus Claim. But I also agree with Mr. Wong that although the Recorder had the power to do so, it was also open to her, in the exercise of her discretion, to decline to determine the questions by reason of how they were framed in the O14A Application.

56.  As submitted by Mr. Wong, for the purpose of deciding whether there is an abuse of process, the question for this Court should not be whether the Plaintiff in fact had a viable appeal against the O14A Decision, but whether it was reasonable for the Plaintiffs to have taken the view that they did not have a viable appeal against the O14A Decision.

57.  I am of the view that it cannot be said to be unreasonable for the Plaintiff to have taken the view that there was no viable appeal against the O14A Decision, on the basis that the exercise of discretion by the Recorder in declining to answer the questions by reason of the way they were framed is arguably not plainly wrong so as to justify intervention by the Court of Appeal.

58.  Mr. Alder fairly accepted that it was indeed open for the Recorder to have declined to determine the 3 questions as framed in the O14A Application (and he went further to accept that the Recorder was correct in so declining). He further accepted that the decision not to determine the 3 questions was an exercise of the Recorder’s discretion which cannot be interfered with by the Court of Appeal unless it was shown to be plainly wrong. However, Mr. Alder went on to submit that the Recorder could, having declined to determine the 3 questions, nonetheless have granted judgment for the Plaintiff as if the application was an Order 14 RHC application for summary judgment. I am unable to agree with such submission.

(1) First, this alternative approach was never canvassed by either party during the hearing before the Recorder. It would not have been right for the Recorder to have treated the application as an Order 14 RHC application without receiving submissions from the parties on the justifiability of such course.

(2) Second, Order 14A rule 1 RHC expressly states that “The Court may upon the application of a party or of its own motion determine any question of law or construction of any document arising in any cause or matter at any stage of the proceedings …. (2) upon such determination the Court may dismiss the cause or matter or make such order or judgment as it thinks just.” (emphasis added). Hence, the Court’s jurisdiction to make orders under Order 14A RHC is premised upon its determination of questions of law or construction.

59.  In any event, even if the Recorder’s powers were as wide as contended for by Mr. Alder, the ultimate question is whether the Plaintiff was reasonable in taking the view that there is no viable appeal against the O14A Decision because the Recorder’s exercise of discretion was not plainly wrong. I consider that it is not unreasonable for the Plaintiff to have taken this view. The fact that another Judge may have come to a different conclusion is irrelevant.

60.  Fourth, I also agree with Mr. Wong that this Court can take into account the merits of P’s Summons as part of the holistic review of the relevant circumstances to decide whether it is an abuse of process. This is not a case where the underlying merits of the Bonus Claim have been considered and rejected by one judge, and the Plaintiff is seeking a second determination before a different judge hoping for a different result. The Plaintiff is not mounting a collateral attack on the Recorder’s findings on the underlying merits of the Bonus Claim. To the contrary, the Plaintiff endorses the Recorder’s findings as being correct. Ultimately, the Court has to decide what may be just and reasonable, and whether allowing the Plaintiff to pursue P’s Summons would be in the interests of justice.

61.  For the reasons I have set out in Section F below, I am of the clear view that the Defendants have no arguable defence to the Bonus Claim and the Bonus Counterclaim is also unarguable. Hence, it will not be just and reasonable nor would it be consistent with the underlying objectives in Order 1A r.1 RHC to preclude P’s Summons, and force the Plaintiff to pursue the Bonus Claim and defend the Bonus Counterclaim at a full trial, especially when such claims turn only on matters of legal construction of the relevant contractual documents.

62.  Lastly, I also reject the Defendants’ contention that the Plaintiff has engaged in “judge shopping” by not fixing P’s Summons before the Recorder, hoping that a different judge would arrive at a better result for the Plaintiff. I do not consider that P’s Summons must necessarily be dealt with by the Recorder. In any event, P’s Summons was initially fixed before a Master in accordance with the usual procedure, and subsequently directed by the Master to be fixed for substantive hearing before a Judge.[10] The Notice of Hearing was issued on 14 February 2023 stating that P’s Summons had been fixed before Keith Yeung J. At no time prior to the Defendants’ Skeleton Submissions dated 14 August 2023 did the Defendants indicate their position that P’s Summons should be fixed before the Recorder.

63.  For the above reasons, I find that P’s Summons is not an abuse of process and the Plaintiff should not be precluded from pursuing it.

F. SUMMARY JUDGMENT AND STRIKING OUT

64.  The approach of the Court in summary judgment applications is well-established:

(1) The Order 14 machinery works on the basis that if the plaintiff’s application is properly constituted, it is prima facie entitled to judgment unless the defendant shows cause to the contrary.

(2) The mere assertion in an affidavit of a given situation by the defendant does not, ipso facto, ground leave to defend.

(3) The burden is on the defendant to show a real or bona fide defence or a triable issue by condescending upon particulars. The defendant must satisfy the Court that her evidence is believable and that on the basis of such evidence, there is a fair or reasonable probability of the defendant having a real or bona fide defence.

(4) In assessing the credibility of the defendant’s factual case, the Court will not embark upon a mini-trial on affidavit evidence. However, if having regard to inherent plausibility, inconsistency with contemporaneous documents and other compelling evidence, the defence is not credible, the Court must say so.

(5) If the defendant’s evidence is incredible in any material respect, it cannot be said that there is a fair or reasonable probability that the defendant has a real or bona fide defence.

See: Guanghua SS Holdings Limited v Lim Yew Cheng[2022] HKCFI 1052, §13 (per Ng J); Bhagwandas Kewaleram Murjani v Bank of India [1990] 1 HKLR 586 (CA), 589G-590H (per Hunter JA).

65.  Pleadings may only be struck out in plain and obvious cases. Yet, plain is not the same as simple, and obvious is not the same as short. A manifestly misconceived claim with no prospect of success would also be deemed frivolous and an abuse of process, and may be struck out on those grounds: see Hong Kong Civil Procedure 2023, §§18/19/4, 18/19/7.

66.  The parties’ respective pleaded cases on the Bonus Claim and the Bonus Counterclaim have been summarised in §§35 to 38 above.

67.  For the reasons below, I do not consider that any of the Defendants’ pleaded defences to the Bonus Claim[11] are arguable, or raise any issues that should go to trial. For the same reasons, I also take the view that the Bonus Counterclaim is unarguable and should be struck out.

68.  In providing my analyses below, I have (as invited to do so by counsel for both sides) considered the arguments advanced by the parties before the Recorder in the O14A Application, and also considered the reasoning provided by the Recorder in the O14A Decision, whilst bearing in mind that such reasoning is not binding on this Court. I have also considered the further submissions of the parties on the merits of the Bonus Claim and Bonus Counterclaim for the purpose of P’s Summons.

F1. 1^st Pleaded Defence – Clauses 2 and 5 of the Deed of Termination have superceded the Plaintiff’s right to claim for the Sign-On Bonus

69.  Under the 1^st Pleaded Defence, the Defendants’ case is that Clauses 2 and 5 of the Deed of Termination had the effect of superceding the Plaintiff’s right to claim for the Sign-On Bonus under Schedule 2.

70.  On the other hand, the Plaintiff’s case is that Clauses 2 and 5 of the Deed of Termination only affects the Plaintiff’s rights as shareholder of the Company, otherwise, the clauses would have operated to terminate the Employment Agreement of the Plaintiff with the Company by mutual agreement.[12]

71.  The 1^st Pleaded Defence has been dealt with in detail by the Recorder in the O14A Decision §§37-50. I agree with the Recorder’s analyses which accord with my views.

72.  As the Recorder rightly found, Clauses 2 and 5 of the Deed of Termination clearly only had the effect of terminating the Shareholders Agreement, not the Plaintiff’s right to the Sign-On Bonus under the Employment Agreement.

73.  First, the “Background” section of the Deed of Termination makes it clear that the parties had only intended to terminate the Shareholders Agreement, which was a condition precedent under Clause 4.1(c) of the SPA: see O14A Decision §44.

74.  Given the context and purpose for which the Deed of Termination was executed, Clause 2 thereof could not have been intended by the parties to have the effect of terminating or superceding any rights of the Plaintiff as employee under the Employment Agreement without even specifically referring to it: see O14A Decision §45.

75.  Second, if one adopts the Defendants’ interpretation of Clauses 2 and 5 of the Deed of Termination, this would lead to the somewhat absurd result that the Plaintiff’s obligations as an employee of the Company would also have been superceded. This could not have been what the parties had intended: see O14A Decision §46.

76.  To the contrary, Schedule 7 paragraph (g) of the SPA expressly prohibits the Company from making any change to the terms and conditions of employment of the Plaintiff: see O14A Decision §47.

77.  Further, it is clearly shown from Clause 2(e)(i) and (iii) of Schedule 2 that the parties intended that the Plaintiff’s right to the Sign-On bonus would survive and continue to subsist during the period of the Third-Party Buyout, being an event which the parties had envisaged at the time the Employment Agreement was entered into: see O14A Decision §48.

F2. 2^nd Pleaded Defence – The Plaintiff cannot invoke Clause 2(d) of Schedule 2 because at the time the Notice was issued, the Shares had been transferred to CBD and the Plaintiff was not the legal owner of the Shares

78.  Under the 2^nd Pleaded Defence, the Defendants’ case is that the Plaintiff was not entitled to invoke Clause 2(d) of Schedule 2 because at the time the Notice was issued, the Shares had been transferred to CBD and the Plaintiff was not the legal owner of the Shares. This argument has no merit and has, in my view, been rightly rejected by the Recorder at O14A Decision §§79-80.

79.  First, it is common ground that CBD never paid the consideration for the transfer of the Shares.[13] Hence, as the Recorder rightly found, the beneficial title to the Shares remains with the Plaintiff. Further, without having paid the consideration, there is no basis for CBD to retain the legal title of the Shares transferred, and it has been holding the Shares on constructive trust for the Plaintiff and is obliged to return the same to the Plaintiff: see O14A Decision §79.

80.  Second, on proper construction of Clause 2(d) of Schedule 2, it is irrelevant that the legal title of the Shares had been transferred to CBD since the Plaintiff remained the beneficial owner of the Shares. Contrary to the Defendants’ pleaded case^[14], nothing in Clause 2(d) suggests that legal title of the Shares must, as a “condition” of the agreement, also be vested in the Plaintiff at the time of the Notice, even if he only has the beneficial title and would be legally entitled to call for the transfer back of the Shares. I agree with the Recorder’s view that the Notice issued by the Plaintiff pursuant to Clause 2(d) is not made invalid only because he had yet to procure the return of the legal title of the Shares to him from CBD: see O14A Decision §80.

F3. 3^rd Pleaded Defence – The Plaintiff cannot invoke Clause 2(e)(iii) of Schedule 2 as the Plaintiff did not enter into the SPA by reason of any tag-along or drag-along rights

81.  Under the 3^rd Pleaded Defence, the Defendants’ case is that the Plaintiff cannot invoke Clause 2(e)(iii) of Schedule 2 as the Plaintiff did not enter into the SPA by reason of any tag-along or drag-along rights. This argument has no merit and has, in my view, been rightly rejected by the Recorder at O14A Decision §§86-88.

82.  The parties’ dispute turns on how the following words in parentheses in Clause 2(e) should be interpreted: “if any transaction occurs by which the shareholders of the Company (including yourself whether by way of drag-along or tag-along rights…) agrees to surrender, transfer … their interest in the shares of the Company to … the Third-Party Buyout” (emphases added).

83.  The Defendants argue that the words in parentheses limit and define the circumstances in which the right to serve a notice is available to the Plaintiff. They submit that the reference to “whether by way of drag-along or tag-along rights” means that the Plaintiff has no right under Clause 2(e)(iii) if has joined the Third-Party Buyout on any other basis other than as defined.

84.  On the other hand, the Plaintiff contends that there is nothing in Clause 2(e) that could suggest that the Plaintiff has to have entered into the SPA by reason of exercising tag-along rights or by other shareholders having exercised on him drag-along rights before he was entitled to the give notice under the clause.

85.  I agree with the Recorder’s analyses that on the proper construction of Clause 2(e), it can be invoked even where (not only if) the Plaintiff participates in the Third-Party Buyout by reason of tag-along or drag-along rights. If it were intended to exclude the Plaintiff as a shareholder from agreeing to a Third-Party Buyout other than by exercising tag-along rights or having been dragged along, such exclusion would have been made clear: see O14A Decision §86.

86.  As the Recorder rightly observed, the aforesaid construction is further supported Schedule 2 Clause 2(e)(iii)(2), where the “express intention that the formula in the preceding paragraph preserves a right by [the Plaintiff] to receive a total sign-on bonus of US$1,000,000 within the Term, …” is stated “for the avoidance of doubt and in the event of any dispute”: see O14A Decision §88.

F4. 4^th Pleaded Defence – The Notice was not a valid notice under Clause 2(e)(iii) of Schedule 2 as it did not contain any election by the Plaintiff to forgo future earn-out rights

87.  As regards the 4^th Pleaded Defence i.e. that the Notice was not a valid notice under Clause 2(e)(iii) of Schedule 2 as it did not contain any election by the Plaintiff to forgo future earn-out rights, it has also been dealt with by the Recorder at O14A Decision §89. I agree with the Recorder that such contention has no merit.

88.  First, it is plain that Clause 2(e) contains no requirement that the Notice has to specify the forgoing of earn-out rights.

89.  Second, there are 2 options for the Plaintiff under Clause 2(e) i.e. either (i) to retain the future earn-out rights as a shareholder within the Third-Party Buyout, or (ii) to elect to forgo the future earn-out rights and receive the cash payment (calculated in accordance with sub-clause 1) in return. The statement by the Plaintiff in the Notice that “it is my decision toelect to receive a cash payment calculated in accordance with sub-clause 1” already made it clear that the Plaintiff elected to forgo the future earn-out rights.

90.  For completeness, the Defendants have also pleaded[15], that the Plaintiff is not entitled to invoke Clause 2(e)(iii) since “CBD holds the Shares by reason of the Plaintiff ’s refusal to enter into the Unwind Deed”. I also reject this argument. It is irrelevant that CBD was holding the legal title of the Shares due to the Plaintiff’s refusal to sign the Unwind Deed. Nothing in Clause 2(e)(iii) suggests that legal title of the Shares must be vested in the Plaintiff at the time of the Notice. The analyses at §§79 and 80 above in relation to Clause 2(d) applies equally to Clause 2(e)(iii).

91.  For the above reasons, none of the Defendants’ pleaded defences on the Bonus Claim have any merit or raise any triable issues. For the same reasons, the Bonus Counterclaim is also unarguable and bound to fail and thus ought to be struck out.

G. OTHER POINTS RAISED BY THE DEFENDANTS

92.  The Defendants raised the following fuether points in opposition to P’s Summons which are dealt with below.

93.  First, it is alleged that there has been a “change of position” on the part of the Plaintiff in that he has, in 2022, allegedly signed the Unwind Deed.

94.  Mr. Alder contends that there is no evidence as to the Plaintiff’s intention in signing the Unwind Deed and that the Plaintiff has also not provided any evidence of CBD’s consent to such late signing or the signed counterpart. Mr. Alder contends that in signing the Unwind Deed, the Plaintiff appears to be taking a different position than the position taken before the Recorder, and the “natural inference” from the Plaintiff’s belated signing was that he intended and intends to keep the Shares. He argues that this weakens the Plaintiff’s application for summary judgment.

95.  I am of the view that the alleged signing of the Unwind Deed does not affect the merits of the Bonus Claim at all. The Unwind Deed is concerned with reversing the CBD Transaction, rather than affecting the Plaintiff’s right to the Sign-On Bonus under Schedule 2. This is evident from the “Background” section of the Unwind Deed.

96.  Whether the Plaintiff has signed the Unwind Deed or not cannot affect the validity of the Notice and the Plaintiff’s entitlement to the Sign-On Bonus, or somehow “weaken” the Plaintiff’s application for summary judgment. The Plaintiff’s case is that CBD has been holding the Shares on trust for him all along (see §79 above) and CBD is willing and able to return the Shares to the Plaintiff or anyone else upon the Plaijntiff’s instructions.[16] The Plaintiff’s execution of the Unwind Deed in 2022 only goes to show that the Plaintiff was still able to demand CBD to transfer the legal title of the Shares back to him and is consistent with the Plaintiff’s pleaded case.

97.  Second, insofar as the Defendants argue that the question of whether “completion” had taken place when the Notice was served had not been adequately addressed in the Plaintiff’s evidence, and is a matter for trial, I reject this argument.

98.  Whether completion under the SPA had taken place when the Notice was issued is irrelevant to the Plaintiff’s Bonus Claim. If completion had taken place, then the Plaintiff was entitled to invoke Clause 2(d) of Schedule 2. If completion had not taken place, the Plaintiff was entitled to invoke Clause 2(e) of Schedule 2. Either way, the Plaintiff is entitled to the Sign-On Bonus.

99.  In fact, the Defendants had not pleaded that the Bonus Claim should be dismissed because either the SPA had completed or had not yet completed at the time the Notice was served. Indeed, the Defendants have not themselves filed any affirmation evidence on this issue. Nor have they provided any response to the statement in the Plaintiff’s 2^nd Affirmation that the Plaintiff has been advised by his lawyers and believe that “completion” of the SPA had taken place by the time the Notice was issued (see §48(3) above).

100.  For completeness, I also do not consider that the Notice is defective or rendered invalid just because it stated that the Plaintiff was writing to “notify [the Company] under clause 2(d) and (e)(iii) of Schedule 2 of my decision to receive [the Sign-On Bonus]” (emphasis added), albeit that only one of the two provisions could apply depending on whether completion had taken place. The mistaken use of the word “and” as opposed to “or” cannot change the substance, effect or purpose of the Notice, which was to inform the Defendants of the Plaintiff’s election to receive the Sign-On Bonus of US$1,000,000.

101.  Third, insofar as the Defendants argue they have a good defence and bona fide counterclaim by reason of the new pleas in the draft Amended Defence and Counterclaim (which was not pursued in Mr. Alder’s written or oral submissions before this Court), I reject this argument. The new pleas are substantially identical to the assertions contained in the D3’s 1^st Affirmation[17] filed in opposition to the O14A Application.

102.  As rightly observed by the Recorder, these assertions concern the parties alleged “subjective intentions” and “changing mentality”, which are irrelevant to the construction exercise: see O14A Decision §74.

103.  In any case, Mr. Alder has not provided any submissions to this Court as to how such new pleas may affect the arguability of the Defendants’ pleaded defences.

H. DISPOSITION

104.  For the reasons above, I make the following orders:

(1) Final judgment be entered against the Defendants for the sum of US$750,000;

(2) There be an order nisi that the Defendants do pay to the Plaintiff pre-judgment interest at prime rate plus 1% from 10 May 2017 until the date of judgement, and at judgment rate thereafter until payment;

(3) Upon the Defendants paying to the Plaintiff the sum of US$750,000 plus interest in compliance with paragraphs (1) and (2) above, the Plaintiff do forthwith procure the transfer of the Shares to the 1^st Defendant (or its agent, nominee or assign);

(4) The 1^st Defendant’s counterclaim for the sum of US$250,000 be struck out on the grounds that (i) it is scandalous, frivolous and vexatious; and (ii) may prejudice, embarrass or delay the fair trial of the action; and/or (iii) is otherwise an abuse of process of the Court;

(5) Cost of and incidental to P’s Summons be paid by the Defendants to the Plaintiff, summarily assessed at HK$261,498.10;

(6) Costs of this action relating to the Bonus Claim be paid by the Defendants to the Plaintiff, to be taxed if not agreed; and

(7) Costs of this action relating to the Bonus Counterclaim be paid by the 1^st Defendant to the Plaintiff, to be taxed if not agreed.

105.  The order nisi set out in §104(2) above shall become absolute unless an application to vary the same is made within the next 14 days.

Mr. Thomas Wong, instructed by Eversheds Sutherland, for the Plaintiff

Mr. Edward Alder, instructed by Tanner De Witt, for the Defendants

HCA 272/2018
HCA 486/2018

[2022] HKCFI 1632

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 272 OF 2018

________________________

________________________

ACTION NO. 486 OF 2018

________________________

(Consolidated by Order of Master Queenie Lau dated 2 October 2018)

________________________

D E C I S I O N

________________________

I.  INTRODUCTION

1.  This is an employment dispute.  The plaintiff was an employee of the 1^st Defendant (“the Company”), a licensed financial institution engaged in the business of stock brokerage. While under the employment of the Company, the Plaintiff held the title of “Co-Head, Nikkei Options Desk” between 2011 to 2014, and was given the dual titles of “Desk Head of Nikkei Options” and “Co-Head of Asian Broking” thereafter.

2.  The 2^nd and 3^rd Defendants (“D2” and “D3”)  are brothers and are together the majority shareholders, directors and responsible officers of the Company.

3.  The two actions relate to the alleged entitlements of the Plaintiff under the second employment contract dated 3 April 2014 (“the Employment Agreement”)  that the Plaintiff as employee has entered into with the Company as the employer. In the Employment Agreement, D2 and D3 signed as guarantors in relation to the terms set out in Schedule 2 thereof.

4.  The Plaintiff has lodged a claim in the Labour Tribunal against the Company on 9 November 2017. The matter was transferred to the High Court and became HCA 468/2018, which was then consolidated with HCA 272/2018 commenced by the Plaintiff against all three Defendants. The Plaintiff claims for the payment of liquidated damages of US$1,000,000 less the part-payment of US$250,000 made pursuant to the Schedule 2 of the Employment Agreement, and payment of his share of the legal costs in the outstanding sum of HK$296,515 incurred in relation to a share purchase transaction that fell through.

5.  By a Consolidated Defence and Counterclaim dated 12 February 2019, the Defendants deny the Plaintiff’s claims. The Company counterclaims for the return of legal fees and the sum of US$250,000 paid to the Plaintiff by mistake, and 3 months’ wages in lieu of notice under clause 15.1 of the Employment Agreement.

6.  By summons dated 16 July 2020, the Plaintiff applies to have 3 preliminary questions of law or construction to be finally determined without a full trial of the action, pursuant to RHC Order 14A.  The three questions and the Plaintiff’s proposed answers are set out below –

The First Question

Whether, on the proper construction of the Deed of Termination dated 4 December 2015, clauses 2 and 5 thereof have the effect of superseding the Plaintiff’s rights and claims under clause 7.1 and Schedule 2 of the Employment Contract dated 3 April 2014.

The Plaintiff proposes that the answer should be “no”.

The Second Question

Whether the notice the Plaintiff served on the D1 on 10 February 2017 (“Notice”)  was a valid notice under clause 2 (d)  of Schedule 2 of the Employment Agreement.

The Plaintiff proposes that the answer should be “yes”.

The Third Question

Whether the Notice was a valid notice under clause 2 (e)(iii)  of Schedule 2 of the Employment Agreement.

The Plaintiff proposes that the answer should be “yes”.

7.  On the bases of the proposed answers to the three questions, the Plaintiff applies for judgment to be entered in favour of the Plaintiff for the balance of the sum due under clause 2 of Schedule 2 and for interest.

8.  The Plaintiff’s application is supported by his own affirmation. The Defendants rely on an affirmation made by D3 in resisting the application.

II.  BACKGROUND FACTS

9.  The facts set out below are undisputed.[1]

10.  By an employment agreement dated 13 July 2011, the Plaintiff commenced employment with Qantex for a fixed term of 3 years (“the Initial Employment Agreement”).

11.  Shortly before the Initial Employment Agreement expired, the Plaintiff entered into a new employment agreement (“the Employment Agreement”), dated 3 April 2014, for an initial term of 39 months, to be continued indefinitely upon the expiry of the initial term until terminated[2]. The Employment Agreement contains terms that provide the Plaintiff with incentive in the form of a sign-on bonus (“the Sign-On Bonus”)  for agreeing to continue his employment with the Company under clause 7.1 -

“…. You will receive a one off (sic)  payment for re-signing your employment contract. The details of this payment are outlined in Schedule 2. You agree to repay to the Company on a pro-rata basis any payment made under Schedule 2 if you resign or are summarily dismissed within 39 months of the Commencement Date.” (Emphasis added)

12.  Schedule 2 of the Employment Agreement (“Schedule 2”)  contains the following “details of … payment” referred to in clause 7.1 in the form of two options at the election of the Plaintiff -

“You will be entitled to receive a one off (sic)  payment for the re-signing of your employment contract. The payment will be at your choice of the following alternatives.

1)  A cash payment of US$750,000

2)  The Company agrees to:

a. Procure the transfer of 1,231,000 ordinary shares (the “Shares”)(representing a total of 5% of the company’s outstanding ordinary shares)  to you from existing shareholders within. [days] of the execution of this Employment Contract (the Transfer”);

b. Pay any stamp duty that may be payable in connection with the transfer referred to in clause (2)(a)  of this Schedule 2;

c. Procure on your behalf a Deed of Adherence to any existing shareholders’ agreement to which any other shareholders are a party at the time of the Transfer;

d. Between 3 October 2014 (being for the avoidance of doubt, a day 6 calendar months after the signing of this Employment Contract), up to and including the end of the Term (as defined in clause 2.1 of the Employment Contract), within 3 months of receiving written notice of exercise under this clause, transfer to you the sum of. US$ 0.8124/share in consideration for the transfer to the Company (or its agent, nominee or assig)  of the Shares (in any amount of shares that you elect, provided the maximum amount payable for the total of the Shares does not exceed US$1,000,000);

e. If any relevant transaction occurs by which the shareholders of the Company (including yourself, whether by way of tag-along or drag-along rights acquired as a result of signing the shareholders’ agreement pursuant to clause 2(c)  of this Schedule 2)  agrees(sic) to surrender, transfer, or otherwise beneficially assign their interests in the shares of the Company to a third-party (the Third-Party Buyout), you agree that:

i.  To the extent the right specified in clause 2 d)  of this Schedule 2 remains unexercised at the date of completion of Third-Party Buyout, such rights in clause 2(d)  will expire and be replaced by the rights set out in clause 2(c)(iii)  below; and

ii.  any up-front cash payment for the Third-Party Buyout will be set off against any remedy sought under clause 2(f)  of this Schedule 2.

And the Company further agrees that:

iii.  At any point during the period between the completion of the Third-Party Buyout, and the end of the Term (as specified in clause 2.1 of the Employment Contract), you may elect to forgo any future earn-out rights which you may acquire as part of the Third-Party Buyout in return for a cash payment equal to the formula in sub paragraph (1)  below, which the Company agrees to make or procure within 3 months of being so notified;

1.  CASH PAYMENT = US$ 1,000,000 less any consideration received as part of the Third -Party Buyout less any payment received pursuant to clause 2(d)  above less any earnout commission already received;

2.  For the avoidance of doubt, and in the event of any dispute, it is the parties’ express intention that the formula in the preceding paragraph preserves a right by you to receive a total sign-on bonus of US$1,000,000 within the term, but to properly account for any consideration (whether upfront payments or earn out commissions)  that may be received as a result of any Third-Party Buyout.

AND Simon Gray and Matthew Gray, being a party only to this Schedule 2, jointly and severally agreed to procure the making of such cash payment referred to clause 2(e)(iii)  above and further jointly and severally personally guarantee such payment should the Company fail to make such payment within 14 days. If it's OK in the diary, it's okay.

(Emphases added)

13.  In July 2014, D2 and D3 entered into an agreement in relation to the transfer of the Company’s shares to the Plaintiff pursuant to clause 2  (a), (b)  and (c)  of Schedule 2 (“Shareholders Agreement”). On 17 October 2014, D3 transferred 5% of the shares in the Company (“the Shares”)  to the Plaintiff.

14.  On 24 December 2014, the Plaintiff, D2 and D3 entered into a share purchase agreement (“SPA”)[3] with CBD Investment (Cayman)  Corporation (“CBD”). Under the SPA, CBD agreed to purchase, and the Plaintiff, D2 and D3 agreed to sell 85%[4] of the shares of the Company to CBD (“the CBD Transaction”).

15.  Clause 4.1 (c)  of the SPA provides that it is a condition precedent for the CBD Transaction that the Shareholders Agreement has been terminated on terms satisfactory to CBD acting reasonably (“SPA Condition Precedent”).

16.  On 4 December 2015, the Plaintiff, D2 and D3 entered into a Deed of Termination (“Deed of Termination”)[5], under which the Shareholders Agreement would be terminated.  Clauses 2 and 5 of the Deed of Termination provide as follows –

“2. PREVIOUS AGREEMENTS

With effect from the date of the Deed, all previous agreements between the Parties relating to their interests, rights, and obligation in respect of the Company, including the Shareholders Agreement, shall be terminated and will have no further effect.

5. ENTIRE AGREEMENT

This deed constitutes the whole agreement between the parties relating to the subject matter herein (no party having relied on any representations made by any other Party which is not a term of this Deed)  and no future variation of any term of the Deed shall be effective unless made in writing and signed by each of the Parties.”

17.  The parties to this consolidated action and CBD entered into a Supplemental Agreement dated 4 December 2015 (“the Supplemental Agreement”),[6] pursuant to which certain clauses of the SPA including on the timing for the payment of the ”Initial Cash Consideration” were amended from  payment “on Completion” to “payable as soon as practicable after Completion, but… no later than [30] March 2016[7]”.

18.  On 28 January 2016, the Plaintiff transferred the Shares to CBD, as did D3 his shares in the Company, whereupon CBD became the majority shareholder of the Company.

19.  CBD failed to pay the consideration under the SPA and the Supplemental Agreement whether by the extended payment deadline or at all. This led to the execution of an unwind deed dated 20 February 2017 (“the Unwind Deed”)  between D2, D3 and CBD. The Plaintiff did not sign the Unwind Deed.

20.  On 10 February 2017, the Plaintiff served a notice on the Company (“the Notice”),[8] with copies sent to D2 and D3 as guarantors, stating as follows-

“I refer to my contract of employment with [the Company] dated 3 April 2014. I am writing to notify you [i.e. the Company] under Clause 2(d)  and 2(e)(iii)  of Schedule 2 [of the Employment Agreement] of my decision to elect to receive a cash payment calculated in accordance with sub-clause 1. Based on that formula, the payment is USD1,000,000 (US Dollar one million). I look forward to receiving payment within three (3)  months of the date of this notification in accordance with Schedule 2”.(Emphasis added)

21.  On 7 July 2017, the Company made a payment of US$250,000 in two separate tranches to the Plaintiff. Despite the Plaintiff’s demands, the Defendants have not paid the Plaintiff the balance of the Sign-On Bonus in the amount of US$750,000.

22.  On 2 July 2017, the initial 39-month term of the Employment Contract was completed.[9] On 3 October 2017, the Plaintiff’s employment came to an end.[10]

III.  APPLICABLE LEGAL PRINCIPLES

Preliminary Question

23.  The applicable legal principles are not in dispute. In Rockwin Enterprises Ltd v Shui Yee Ltd[11] Recorder Ma SC (as he then was)  has laid down a three-step approach for considering an application for determining a preliminary question, as follows -

(1)  Is the relevant question one of law or of the construction of a document?

(2)  If so is that question one that should be determined under the O.14A procedure?

(3)  If the answer to (2)  above is yes, what is the determination of that question and what orders should the Court make as a consequence of determining that question?

24.  Step (2)  above requires the Court to be satisfied of the following [12]–

(1)  That the question of law or construction is one that is suitable for determination without a trial. In other words, the Court has all the necessary facts and matters before it in order to determine the question of law or construction;

(2)  That if so suitable and should it be determined by the Court, that it will finally determine (subject to a possible appeal)  the entire cause or matter or any issue or claim therein; and

(3)  Even if the above two conditions are fulfilled, that the Court in its discretion is satisfied that the question is one that ought to be determined under O.14A.

25.  In the same judgment, Recorder Ma SC accepted as correct the principles stated by the English Court of Appeal in Korso Finance Establishment Anstalt v John Wedge[13], where the court overturned the decision of the court below in refusing to entertain the application for a preliminary question to be determined unless the determination of the question would finally determine the entire matter, and allowed the appeal on the basis that the wording of O.14A did not require that the determination of the relevant question should finally determine the action. The English Court of Appeal considered that the question of construction before it was well capable of constituting an issue in the cause or matter.

26.  Of the factors set out in the preceding paragraph, the matters that may be relevant in the exercise of discretion under sub-paragraph (2)  would include whether the determination of the question might facilitate settlement or result in saving of time or costs[14].

27.  It is well-established that the O.14A procedure is inappropriate for determining a question where the related “issues of facts are interwoven with legal issues to be determined”.  Questions of law or construction of documents cannot be dealt with on assumed or hypothetical facts.  Where it is necessary for the court to hear evidence to resolve a factual dispute in order to come to a determination on the question of law or construction it would not normally be suitable to invoke O.14A: Shell Hong Kong Ltd v Yeung Wai Man & Kiu Yip Co Ltd.[15]

28.  However, even where determining the question will finally determine the issue or the entire cause, it does not follow that the court should automatically be req uired to embark on the determination of a question under O.14A[16]. The court retains a residual discretion not to embark on a determination of a question under O.14A even if the first two requirements set out in §22 above are satisfied: Rockwin at §21.  In exercising this residual discretion, the court must be well aware of the risk of making a determination where it is not seized of all the necessary facts and matters, and weigh in any likelihood that there will be a trial: Cable & Wireless HKT Int’l Ltd v New World Development Ltd[17].

29.  Words of caution have been sounded against deciding questions of legal principles without knowing the full facts.  The court should not place itself in a precarious position in the event that the basis on which it made its determination may turn out to be inconsistent with facts subsequently found.  It should not by making a determination bind its hands in its future fact finding: China Ping An Insurance (HK)  Co Ltd v Tsang Fung Yin Josephine.[18]

Construction of Contract

30.  On the principles of construction of documents, this court will follow the well-established principles set out in Jumbo King Ltd v Faithful Properties Ltd[19] -

“The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve. Quite often this exercise will lead to the conclusion that although there is no reasonable doubt about what the parties meant, they have not expressed themselves very well. Their language may sometimes be careless, and they may have said things which, if taken literally, means something different from what they obviously intended.”

31.  The Court must bear in mind the overall importance of context when construing contractual documents: Fully Profit (Asia)  Ltd v Secretary for Justice[20].

32.  The construction of a term of contract is to be carried out by identifying the meaning of the relevant words, in light of the natural and ordinary meaning of those words, the overall purpose of the contract, any other provisions of the contract, the facts known or assumed by the parties at the time, and common sense, but ignoring the subjective evidence of the party’s intentions. It is not for the Court to go behind the terms of a finalised document or speculate on why the parties should have agreed to a particular wording, or to relieve a party of the consequences of agreeing to terms containing clear wording.: Maeda KKKK v Bauer Hong Kong Ltd[21]. 

33.  If one would conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other: Maeda KKK v Bauer Hong Kong Ltd.[22]

34.  Reliance placed on commercial sense and surrounding circumstances should not be invoked to undervalue the importance of the language of the provision which is to be construed. A court should be very slow to reject the natural meaning of a provision as correct, simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. Commercial common sense is not to be invoked retrospectively. Maeda KKK v Bauer Hong Kong Ltd.[23]

35.  In striking a balance between the indications given by the language and the implications of competing constructions, the Court must consider the quality of drafting of the clause (the poorer the quality of the drafting, the less willing the court should be to be driven by semantic niceties to attribute to the parties an improbable and unbusinesslike intention), and it must be alive to the possibility that one side may have agreed to something which with hindsight did not serve his interest Maeda KKK v Bauer Hong Kong Ltd.[24]

36.  As a general rule, the intention of the parties is to be ascertained from the words used in the deed.  It is with only limited exceptions that extrinsic evidence may be given to show the real intention of the parties. On occasions, this rule may lead to the actual intention of the parties being defeated, but the rule is applied to ensure certainty in legal affairs: AIB Group (UK)  Ltd v Martin.[25]

 IV.  DISCUSSION

a.   The First Question

37.  Applying Step (1)  of the test in Rockwin, the First Question is clearly one of law and/or construction of contract. It requests an answer on whether the Defendant’s pleaded position on the construction of clauses 2 and 5 of the Deed of Termination[26] is correct. 

38.  The Plaintiff’s position in his Reply and Defence to Counterclaim is that clauses 2 and 5 only affect the Plaintiff’s rights as a shareholder of the Company, and leave untouched the Plaintiff’s rights to the Sign-On Bonus under Schedule 2 of the Employment Agreement.

39.  In cannot be disputed that the Deed of Termination was executed to satisfy the SPA Condition Precedent[27] as set out in the SPA. As seen from the undisputed facts and the documents executed, its obvious purpose is to terminate the Plaintiff’s rights as a shareholder under the Shareholder Agreement to the satisfaction of the purchaser in the Third-Party Buyout, CBD, so that the share purchase transaction can proceed.

40.  The wording of clause 2 in focus is whether the termination of “all previous agreements between the parties relating to their interests, rights and obligations in respect of the Company, including the Shareholder Agreement” includes termination of selected provisions of the Employment Agreement, namely, clause 7.1 and Schedule 2.

41.  Mr Alder submits that although the Deed of Termination does not refer to the Employment Agreement, it does not mean that it could not terminate some of its provisions, including the provisions in Schedule 2 clause 2. He invites the court to construe clause 2 of the Deed of Termination widely as terminating “all previous agreements between the parties”, including but not limited to the Shareholders Agreement, but also “such parts of the Employment Agreement that relates to the employee’s interest in the Company’s shares”, in particular its Schedule 2.

42.  Mr Alder relies on Liquidators of China Medical Technologies Inc v Tsang Tak Yung Samson[28] to support reading a wide meaning into the words “relating to”. I do not find the decision has any application at all, as the issue for determination in that case was on statutory interpretation, not construction of contract.  The dicta on the scope of the meaning of the phrase used in the context of legislation is of no assistance to this court here.

43.  Schedule 2 of the Employment Agreement contains elaborate terms of the Company’s agreement to a “one-off payment”[29] as the Sign-On Bonus in two alternatives. The Company promised to either pay the Plaintiff US$750,000 in cash, or at his election “procure the transfer of” 5% of its shareholding to him, which shareholding could be transferred back to the Company at a fixed price on notice given by the Plaintiff between the expiry of 6 months from the start of the term of employment till its end (3 October 2014 to 2 February 2017)[30]: Schedule 2 clauses 1 and 2.  The performance of the Company’s obligations in Schedule 2 to honour the payment of the Sign-On Bonus in the event of a Third-Party Buyout (clause 2 (e)(iii))  are guaranteed by D2 and D3 personally.

44.  The Deed of Termination devotes a section to “Background”, from which the purpose of executing the deed is made clear. It refers to the Shareholders Agreement under (A), the SPA under (B), the Supplemental Agreement under (C), and specifically clause 4.1(c)  of the SPA, namely, the SPA Condition Precedent under (D). Under (E)  of the same section, it states –

“The Parties now wish to terminate the Shareholders’ Agreement on the terms appearing in this Deed.”

45.  The construction of a contract involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve: Jumbo King. Bearing in mind the factual context and the purpose for which the Deed of Termination was brought into existence, I do not accept that clause 2 would have the effect of, selectively and without specific reference, terminating or superseding unspecified rights of the Plaintiff as an employee contained in any other document without even referring to it.  

46.  If the Defendant’s suggested interpretation were to be given its full effect, the obligations of the Plaintiff as an employee of the Company under the Employment Agreement would likewise have to be regarded as an “agreement relating to the … obligations in respect of the Company”, and would have been “superseded” by the Deed of Termination.  This is a consequence Mr Alder himself would accept as the parties’ intention. However, his selective approach of reading it as terminating whatever agreement that “relates to” “interests, rights … in respect of the Company” does not find support in the correct approach to construction set out above. I should bear in mind the fact that despite a list of the relevant background documents having been set out, the parties to the Deed of Termination chose to make no reference to the Employment Agreement, less still the Plaintiff’s guaranteed right to the Sign-On Bonus under Schedule 2 clause 2 (d)  and (e)  which it purports to terminate or supersede.  

47.  In fact, under Schedule 7 paragraph (g)  of the SPA, which is expressly referred to in paragraph (B)  of the “Background” section of the Deed of Termination, the Company is prohibited from “[making] any change to the terms and conditions of employment of any … of its …Senior Employees (including remuneration, bonuses, pension entitlements and other benefits)” before Completion and without the written consent of CBD. This provision would certainly apply to the terms of employment of the Plaintiff under the Employment Agreement, and would have precluded the Company from making any significant change to the terms governing the Sign-On Bonus payable to the Plaintiff.  The presence of this provision in the SPA makes it unlikely for the Termination Agreement to have the effect contended for by the Defendants. It makes it inherently unlikely that that the parties to the Termination Agreement had intended any deletion of prior existing rights of the employee may have the effect of significantly modifying the rights of the Plaintiff even if by agreement, and risking non-compliance of the SPA. This part of the factual matrix further refutes the argument put forward by the Defendants on construction.

48.  It is clear from the provisions for the Sign-On Bonus that the possible Third-Party Buyout envisaged by the parties at the time of entering into the Employment Agreement was a process that would take a period of time to complete. The parties’ intention for the rights and obligations of the parties as provided for under Schedule 2 clause 2 to survive and continue to subsist throughout this period is clearly spelt out in clause 2 (e)  (i)  and (iii)  of Schedule 2.  This view is fortified by Schedule 7 of the SPA, as referred to above, which makes it an obligation on the part of the Company to maintain without any substantial change the terms of employment including bonus entitlement of senior employees such as the Plaintiff. This is obviously in order to ensure stability of the operation pending completion of the purchase. The above is inconsistent with the proposition that somehow by executing the Deed of Undertaking, the parties had intended to terminate some unspecified rights of the Plaintiff in the Deed of Termination.

49.  Step (2)  of the test in Rockwin requires the court to be satisfied that the question is suitable for determination without a trial, in that it has all the necessary facts and matters before it in order to determine the question of law or construction. Counsel for the Defendants Mr Alder submits that the First Question raises issues of fact that require determination, and therefore does not qualify for summary determination under the O.14A procedure. The reference to issues of fact is to those raised by the Plaintiff in his pleadings[31]. On the other hand, counsel for the Plaintiff has indicated he only intends to rely on pleaded facts that are not in dispute[32], and does not need to and will not rely on any facts in dispute in support of this application[33].

50.  On the question of construction, the position of Mr Alder in oral submission was that the terms of the Deed of Termination was clear and the Defendants do not find it necessary to rely on any evidence: it was the Plaintiff who relied other facts which are disputed in the Defence. I agree that the true nature of the First Question is one of construction of the agreement itself, which can be determined simply by referring to the terms of the Deed of Termination and with reference to the undisputed factual matrix as the Plaintiff now proposes. I do not accept Mr Alder’s argument that the Plaintiff is precluded from not relying on any pleaded facts that are in dispute for the purpose of determination of the First Question. Given the Plaintiff is only relying on facts which are not in dispute for the purpose of the First Question, I do not find any evidence given by D3 on the commercial benefits perceived by the Plaintiff of the evolving terms of the share purchase transaction with CBD to be of any assistance.  I am prepared to accept that on this question of construction, the court has all the fact necessary facts before it to make the determination.

51.  One of the factors to be considered in Step (2)  of the Rockwin test is whether the determination of the preliminary question might facilitate settlement or result in the saving of time and costs: see paragraph 26 above.

52.  Apart from this principal claim of the Plaintiff, the only other monetary claim of HK$296,515 involves legal costs in relation to the share purchase transaction with CBD that are not yet reimbursed to the Plaintiff. On the other hand, the Company counterclaims for the return of the payment by mistake of (i)  legal fees relating to the CBD transaction, and (ii)  US$250,000 which the Plaintiff agrees to account for in his claim from the sum of US$1,000,000. On top of that, the Company disputes the Plaintiff’s allegation of constructive dismissal based on the wrongful non-payment of the balance of the US$1,000,000. The Company denies constructive dismissal and counterclaims for 3 months’ salary in lieu of notice in the sum of HK$375,001.  Out of the three items in the Defendants’ counterclaim, the lion share also goes to the claim for the return of US$250,000 made by “mistake”, which the Plaintiff will account for if it succeeds in its principal claim for the payment of US$1,000,000.

53.  Plaintiff’s counsel Mr Jason Lee contends that the determination of the First Question without a trial will likely result in a saving of time and costs for the parties. This is on the basis that the Plaintiffs’ main claim being US$1,000,000 minus part-payment of US$250,000[34], the First Question will dispose of a “significant part of the dispute” as well as the Counterclaim for the return of the same part-payment of US$250,000 made by alleged mistake[35]. The Plaintiff perceives that the determination of this question in the negative “may well facilitate and result in the settlement of the entire proceedings”[36], and would enable the Court to enter partial judgment on the said claim and counterclaim.

54.  It is submitted on behalf of the defence that the determination of the issue will not obviate a trial, and the court should be careful not to tie its hands in the event that the facts to be decided after a trial may drive a different conclusion. The Defendants rely on the decision of Stone J in Cable & Wireless[37], which distinguishes the decision of the English Court of Appeal in Korso[38]. The learned judge pointed out that the case before him is a far cry from the case before the English Court of Appeal, where the court took the opportunity to construe a document the effect of which would almost certainly be dispositive of what was probably perceived as an unmeritorious action.

55.  As will be apparent from the judgment of Stone J in Cable & Wireless, the case before him was a claim worth HK$280 million in value in delivery fees said to have been paid by mistake by one telecom company to another. It gave rise to questions on the construction of two Determinations made by the Telecommunication Authority pursuant to statutory powers. The background in which the telecommunication market was opened up to free competition in the mid 1990’s, and the technical aspects of how fees were to be determined in the context of cross-territory connection were complex. The lengthy questions originally framed in the summons were abandoned, with two shortened questions re-formulated in a revised summons which referred to two paragraphs of the pleadings. In the end, only one was proceeded with, but was still regarded to have been “mounted too broadly” even in its revised form[39]. The learned judge placed “heavily in the balance the overwhelming probability that there will be a trial of this action”, and considered the possibility of settlement as a result of the determination of the reframed question unlikely. The decision made on the facts before him was plainly correct and was upheld by the Court of Appeal[40].

56.  The First Question is a crisp question of construction of clauses 2 and 5 of the Deed of Termination, set against factual matrix that is not in dispute.  It is a far cry from the question proposed for determination before Stone J in Cable & Wireless.  Evidence on the commercial sense should not be invoked to undervalue the importance of the language of the provision which is to be construed: Maeda.

57.  That said, the First Question relates to the principal claim, which, if successful, would substantially reduce the scope of the parties in dispute, leaving only a much smaller claim and relatively minor counterclaims of an aggregate value within the jurisdiction of the District Court, and hardly any commercial reason to expend substantial legal costs and time in continuing expensive litigation.  However, the court must not lose sight of other hurdles that the Plaintiff will have to cross in order to succeed in his principal claim.  This relates to the Second and Third Questions, which will be dealt with below.  It is only if those two questions, or either of them, is also disposed of in favour of the Plaintiff, that I would see the force in the Plaintiff’s argument that the determination of the questions would dispose of the lion’s share of the causes in dispute, and would likely lead to settlement of the rest and saving in costs.

58.  The fact that the matter may still go to trial because there exists any other defence that would require a trial to determine should indeed go into the weighing scale in the court’s exercise of discretion on whether to determine the question.  The court must have regard to the facts pertinent to the particular case under consideration.  

59.  It would therefore be appropriate to discuss the exercise of my discretion after considering all the three questions.

b.   The Second Question and the Third Question

60.  These two questions relate to the validity of the Notice served pursuant to the clause 2 of Schedule 2.  Clauses 2 (d)  and 2(e)(iii)  of Schedule 2 define alternative but mutually exclusive circumstances in which the service of a notice will trigger payment obligation on the part of the Company and obligations under the guarantee provided by D2 and D3. 

61.  A clause 2(d)  notice may be given within the designated period, i.e., between 6 months after commencement to the end of the 39-month term of the Employment Agreement, for up to the full amount of the Shares to be transferred back for a proportionate payment of up to US$1,000,000.  

62.  This right may be exercised at any time during the relevant period, but will be modified by clause 2(e)  where Third-Party Buyout occurs and the shareholders had enter into an agreement to “surrender, transfer or otherwise beneficially assign” the shares to the third-party buyer. “Third-Party Buyout” is defined as –

“If any relevant transaction occurs by which the shareholders of the Company (including yourself whether by way of tag-along or drag- along rights acquired as a result of signing the shareholders’ agreement pursuant to clause 2(c)  of this Schedule 2)  agrees (sic) to surrender, transfer, or otherwise beneficially assign their interests in the shares of the company to a third party (“the Third Party Buyout”)…”

63.  Clause 2(e)  applies where there is a Third-Party Buyout, and the shareholders including the Plaintiff had entered into an agreement to transfer their respective shares in the Company to the third-party buyer.  In such circumstances, as sub-paragraph (i)  stipulates –

“…to the extent the rights specified in clause 2(d)  of this Schedule 2 remains unexercised at the date of completion of the Third-Party Buyout, such rights in clause 2(d)  will expire and be replaced by the rights set out in clause 2(e)(iii).”

(Emphasis added)

64.  In other words, the right to payment of the Sign-On Bonus upon transfer of the Shares under clause 2(d)  expires in so far as it is not exercised by the date of the completion of the Third-Party Buyout, and is replaced by the right under clause 2(e)(iii)  “during the period between the completion of the Third-Party Buyout and the end of the Term”.

65.  The mutually exclusive nature of the two provisions is recognised in §22 of the Amended Statement of Claim, where the Plaintiff pleads that the Notice was served upon the Company by the Plaintiff “electing to receive in accordance with clause 2(d)  or, alternatively, 2 (e)(iii)(1)  of Schedule 2” (emphasis added), and the Plaintiff is therefore entitled to payment from the Company of US$1,000,000 by 10 May 2017.  However, this is at variance with the language of the Notice, which claims to “notify [the Company] under clause 2(d)  and (e)(iii)  of Schedule 2 of my decision to receive [the Sign-On Bonus]”.

66.  Although the Plaintiff’s proposed answers to both questions are “yes”, even if the two questions were appropriate to be determined summarily in an O.14A procedure, the court would not be able to answer both of them in the positive. Putting the Plaintiff’s case at its highest, only one of the two provisions in the circumstances would give the Plaintiff the right to payment by the Notice.    

67.  In §22 of the Consolidated Defence and Counterclaim, the Defendants deny that “the Notice was a valid notice under either clause 2(d)  or clause 2(e)(iii)  and/or the Plaintiff is entitled to receive any payment from the Defendant under Schedule 2”.

68.  These Second and Third Questions address the defence raised in §22 of the Consolidated Defence and Counterclaim against the principal claim of the Plaintiff, and are directly relevant to the basis of the Defendants’ principal counterclaim for the return of the US$250,000 paid by mistake.  

69.  The undisputed facts relied on by the Plaintiff as relevant to the two questions are that the Shares were transferred to CBD ahead of payment for the purchase price by CBD, but payment was never made. It is not disputed the Plaintiff did not enter into the SPA as a shareholder by exercising any tag-along right, nor was any drag-along right exercised by other shareholders against him. It is common ground that the Plaintiff did not execute the Unwind Deed.

70.  However, Plaintiff did not make clear whether the rights exercised under the Notice was exercised before the completion date of the Third-Party Buyout, in which case clause 2 (d)  applies, or whether it was a right exercised after the completion date, in which case only clause 2 (e)  (iii)  could apply. Neither the two questions nor the submissions advanced by the Plaintiff before the court were expressed to be on the alternative basis[41]. On the other hand, §22 of the Statement of Claim states that the two provisions are relied on in the alternative, which does not accord with the expression in the Notice itself. 

71.  The Defendants’ contentions include those grounds stated under the First Question above, i.e. that the Schedule 2 rights to receive the Sign-On Bonus was terminated and superseded by the Termination Agreement. By submitting that clause 2(e)(iii)  does not apply because no tag-along/drag-along rights were relied on by any of the parties, the Defendants impliedly contend that no “Third-Party Buyout” as defined in clause 2(e)  had taken place, and therefore only the rights under clause 2(d)  under the Second Question is left to be considered. 

72.  The Defendants’ submissions on clause 2(d)  are –

(1)  Schedule 2 clause 2(d)  only applies where the Plaintiff remains in a position to return the Shares to the Defendants, but at the time of the Notice the Plaintiff was no longer the legal owner of the Shares;  

(2)  In the CBD Transaction, the Plaintiff was not exercising tag-along rights, nor was he forced to enter into the CBD Transaction by way of drag-along rights, which is what Schedule 2 clause 2 (e)  is limited to;

(3)  therefore it is not open to the Plaintiff to rely on Schedule 2 clause 2(d)  or (e)(iii)  to serve the Notice.

73.  The Plaintiff submits that the two questions are questions of law or of construction, and maintains the position that they can be decided on the basis of the agreed facts set out above, as there are “no real disputes between the parties as to the material facts underlying Question 2”, only disagreement as to the legal effects and consequences. [42]

74.  The Affirmation of D3 states that the Defendants were advised that the two questions are neither of law nor of construction, but questions of fact to be determined by the court[43]. Mr Alder for the Defendants takes a slightly different position, and submits that these are questions of construction intertwined with issues of fact which are in dispute, and therefore not suitable for determination under the O.14A procedure[44]. The Affirmation of D3 at §§32 and 33 refers back to §§22(3)  and 22(4)  of the Consolidated Defence and Counterclaim. D3 also puts forward matters pertaining to the commercial negotiations of an alleged cash top-up and the related motives of the Plaintiff’s entering into the SPA and subsequent amendment agreements[45], which are not pleaded in the defence. The evidence put forward in D3’s affirmation[46] contains allegations of facts and evidence of subjective intention pertaining to the commercial sense of the terms of Sign-On Bonus in Schedule 2, and alleged changing mentality of the parties including the Plaintiff, as negotiations progressed and the SPA was amended once and again. In the light of the principles set out in paragraph 32 above and in Hellman Holder v Webster[47],  and in the absence of pleading of any of those facts,[48] the court is unable to take such evidence into account in the construction exercise.

75.  In considering whether the court has all the facts necessary to determine the First Question, the court finds that there is no evidence available from the undisputed facts on whether the Notice was served before or after the relevant “date of completion of the Third-Party Buyout” as defined under clause 2 (e). If the Notice was only served after the date of completion, there would have been no question that the Second Question should be answered in the negative, even without considering the other arguments advanced by the Defendants.

76.  It is common ground that as a result of at least the first of the two amendment agreements[49] (dated 4 December 2015 and dubbed “the Supplemental Agreement" by the Defendant[50]), which the Defendants agreed was signed, full payment for the consideration under the SPA was postponed until after completion. Whereas clause 3.2 of the SPA[51] provides for payment of the “Initial Cash Consideration” to the sellers “on completion”, the Supplemental Agreement provided for payment to be “as soon as practicable after completion”, requiring CBD only to have paid $1 before the date of completion[52].  A copy of the second amendment agreement dated August 2016 but bearing only the signature of the Plaintiff and his witness (a document not admitted by the Defendants in pleadings to have been executed[53])  shows payment of the Initial Cash Consideration further postponed to a date “after Completion on a date agreed in writing” [54].

77.  However, the fact that payment was postponed till after completion still does not resolve the question of whether “completion” did take place and if so whether before or after the date of the Notice.  “Completion” within the meaning of the SPA (clause 6)[55] does not mean only the transfer of the Company’s shares by the sellers to CBD, but involves a series of obligations to be complied with by the sellers pursuant to Part A Schedule 4 of the SPA[56], unless waived by the purchaser in the absence of full compliance. The Second Question can only be determined in the positive (subject to other defences)  if “completion” within the meaning of clause 6 of the SPA has not taken place and therefore the right under clause 2(d)  not replaced under clause 2(e)(i). However, there is no assertion, evidence or admission to that effect. In the circumstances, the court simply lacks the necessary factual basis to enable it to determine the Second Question. Step (2)  of the Rockwin test is not satisfied.

78.  In view of my conclusion on the Second Question, there is no need to deal with the rest of the defence arguments on the same question, but I shall refer to them for the sake of completeness. The conclusion of the court on the issues discussed below is subject to my conclusion in the Second Question set out in the preceding paragraph.

79.  The Defendants take the position that at the date of the Notice, the Plaintiff has already “sold” the Shares to CBD.  That said, it is common ground that CBD never paid the consideration for the transfer of the Shares. It follows that there is no basis whatsoever for CBD to retain the legal title to the Shares transferred. CBD has therefore been holding the shares on constructive trust for the transferor and is obliged to return them to the Plaintiff.  The beneficial title to the Shares remains with the Plaintiff.

80.  On a plain reading of clause 2(d)  of Schedule 2, there is nothing in the words “in consideration for the transfer to the Company … of the Shares” to suggest that the legal title of the Shares must, as a “condition”[57] of the agreement,  also be in the hands of the Plaintiff at the time of the Notice, even if he only has the beneficial title and would be legally entitled to call for the transfer back of the Shares. Given the Plaintiff remains beneficially entitled to the shares, the Notice issued by the Plaintiff pursuant to clause 2 (d)  is not made invalid simply because he has yet to have procured the legitimate return of the Shares to him from CBD. Whether the Plaintiff will manage to provide the consideration for the payment of US$1,000,000 under clause 2 (d), i.e. by securing the legal title of the shares for transfer to the Company, is a separate matter.

81.  I turn now to the Third Question, which requests the Court to determine whether the Notice was validly issued based on clause 2(e)(iii)  of Schedule 2 to the Employment Agreement.

82.  As discussed above, whether clause 2(e)  has any application likewise depends on whether “completion” of the Third-Party Buyout within the meaning of clause 6 of the SPA had or had not taken place at the time of the Notice.  Again, for the lack of assertion, evidence and admission that “completion” within the meaning of clause 6 of the SPA has already taken place, the Court is unable to determine this question for the same reason that it is unable to determine the Second Question.

83.  In deference to counsel’s arguments, I shall deal with the main submissions advanced under the Third Question, apart from those advanced by Mr Alder generally under the First and Second Questions which I have already dealt with above, namely, that there are relevant background issues raised in pleadings and in D3’s the affirmation that are in dispute and ought to be investigated at trial.

84.  Mr Alder for the Defendants submits that the Plaintiff is only entitled to rely on clause 2 (e)(iii)  to issue a notice to claim for the payment of US$1,000,000 if he joins the CBD Transaction by exercising his tag-along right or by other shareholders exercising their drag-along rights against him, but that was not the case. He had entered into the CBD Transaction on his own accord outside of those terms. Mr Alder relies on the words “if any transaction occurs by which the shareholders of the Company (including yourself whether by way of drag-along or tag-along rights…)  agrees to surrender, transfer … their interest in the shares of the Company to …  the Third-Party Buyout” as defining the limited circumstances in which the right to serve a notice is available to the Plaintiff.

85.  The parties’ disagreement is on how the above words in parenthesis, which are grammatically imperfect, should be read, and the legal effect thereof.  Mr Alder submits that the reference to “whether by way of drag-along or tag-along rights” limits the Plaintiff’s rights and disentitles him to the right under clause 2 (e)(iii)  if the Plaintiff has joined the Third-Party Buyout on any other basis. Mr Chan on the other hand submits that there is nothing in the clause that suggests that the Plaintiff has to have entered into the SPA by reason of exercising tag-along rights or by other shareholders having exercised on him drag-along rights before he was entitled to the give notice under the clause.

86.  In my view, clause 2 (e)  does not impose the restriction that the Defendants postulate it does. When properly construed, the word “whether” cannot be read as “but only if” in its context. When the clause is read as a whole, it refers to a Third-Party Buyout occurring by agreement (“if any relevant transaction occurs by which the shareholders of the Company ( …)  agrees(sic)  to surrender”), but, for the avoidance of doubt, includes the situation where the plaintiff as a shareholder exercises the tag-along right and therefore “agrees” to sell alongside other shareholders, as when he does not “agree” to the share purchase but is dragged into the SPA by other shareholders exercising drag-along rights under the Shareholders Agreement[58]. If it were intended to exclude the Plaintiff as a shareholder from “agreeing” to a Third-Party Buyout other than by exercising tag-along rights or having been dragged along, the exclusion would have been made clear.

87.  In construing the clause, I bear in mind the principles set out in the Court of Appeal’s judgment in Maeda Corporation v Bauer[59]. I prefer the construction set out in the preceding paragraph which is consistent with business common sense and to reject the construction advanced by the Defendants.

88.  I find support for the above view in Schedule 2 clause 2 (e)(iii)(2), where the “express intention that the formula in the preceding paragraph preserves a right by [the Plaintiff] to receive a total sign-on bonus of US$1,000,000 within the Term, …” is stated “for the avoidance of doubt and in the event of any dispute”.

89.  The Defendants also submit that the Notice was defective as it did not contain any election by the Plaintiff to forgo future earn-out rights.  I do not think there is anything unclear in the Notice as one given pursuant to clause 2 (e)(iii), which clause was specifically referred to. There are two options: one is to retain the future earn-out rights as a shareholder within the Third-party Buyout, or elect to forgo the future earn-out rights and receive the cash payment (calculated in accordance with sub-clause 1)  in return. The clause itself does not contain any stipulation that the election has to specify the forgoing of earn-out rights. Notice is only needed if the Plaintiff makes an election for the second option. The words “it is my decision to elect to receive a cash payment calculated in accordance with sub-clause 1” contained in the Notice make it abundantly clear that the Plaintiff elects to forgo the future earn-out rights.  

c.  Overall Exercise of the Court’s Discretion

90.  I find that the court’s discretion should be exercised not on any of the question by itself, but by taking into account all three questions to be disposed of in this application under the Order 14A procedure. 

91.  In view of my conclusion that I do not have all the necessary facts and matters before me in order to determine the question of construction on the Second and Third Questions, I would exercise my residual discretion in favour of not determining the First Question either.

92.  The inability of the Court to dispose of these two further questions even after the disposal of the First Question means that the 1^st Defendant’s liability to pay the Plaintiff the Sign-On Bonus will still have to be investigated at trial. The determination of the First Question alone would be unlikely to have any effect contended for by the Plaintiff.

V.  CONCLUSION & DISPOSITION

93.  I dismiss the application.

94.  Costs of this application should follow the event.  I make an order for the costs of the O.14A application to be paid to the Defendants by the Plaintiff, to be taxed if not agreed.

95.  I would also thank counsel for both parties for their able assistance.

Mr Jason Lee, instructed by Eversheds Sutherland, for the plaintiff

Mr Edward Alder, instructed by Tanner De Witt, for the defendants