HCA 724/2019 & HCA 1317/2019
[2022] HKCFI 208
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 724 OF 2019 AND ACTION NO 1317 OF 2019
(TRANSFERRED FROM LBTC NO 1492 OF 2019)
_______________________
| BETWEEN | | |
| | WESOFT NATIONMARK LIMITED
(慧邦訊有限公司) | Plaintiff |
| | and | |
| | NATIONMARK (H.K.) LIMITED
(邦迅(香港)有限公司) | 1st Defendant |
| | CHAN SIU FAI (陳少輝) | 2nd Defendant |
| | HA CHOI LAN (夏彩蘭) | 3rd Defendant |
_______________________
(Consolidated by the Order of Master Lai dated 30 August 2019)
Before: Hon B Chu J in Chambers (Open to Public)
Dates of Hearing: 6 December 2021
Date of Judgment: 18 January 2022
__________________
JUDGMENT
__________________
INTRODUCTION
1. This is an appeal by the defendants (collectively “Ds” and respectively “D1”, “D2”, and “D3”) against summary judgment granted to the plaintiff (“P”) and Ds also appeal against the refusal of a grant of stay of execution of the summary judgment.
2. The summary judgment was granted by Master KW Wong (“Master”) on 24 June 2021 and Ds’ stay application (“Stay Application”) was subsequently refused by the Master on 30 September 2021.
3. Counsel Mr Byron Chiu appeared for P, and Counsel Mr Adrian Leung appeared for Ds.
BRIEF BACKGROUND
4. This is essentially a dispute between the shareholders of P, namely First Joint Limited (“First Joint”), a BVI company holding 60% of the issued shares of P, and D1 holding the remaining 40%.
5. First Joint is wholly owned by WeSoft Holdings Limited (“WeSoft”) and is said to be in the business of software development and software quality assurance and testing. WeSoft is said to be controlled by Poon Tit Wing and Poon Ka Hing, Victor (collectively referred to herein as “Poons” and respectively “TW Poon” and “VictorPoon”).
6. D1 was incorporated on 9 August 1983 in Hong Kong and it is principally engaged in the provision of hardware maintenance services and sale of ancillary computer hardware (“Business”)[1]. According to Ds, the Business was successful and resulted in the follow-on maintenance service contracts with its customers. D1 is owned and controlled by D2 and D3 who are husband and wife.
7. It is Ds’ pleaded case that the Poons initially approached D2 with a proposal to acquire the entire share capital of D1 for the purpose to bolster WeSoft’s turnover for the purpose of listing on the Growth Enterprise Market of The Stock Exchange of Hong Kong (“GEM”), but due to WeSoft’s cash constraint, a different scheme was then proposed, which was for a joint venture (“Scheme”)[2].
8. The Scheme agreed by the parties in 2015 was that (i) a new company would be incorporated; (ii) WeSoft or its associate company would acquire 60% of the issued shares of the new company and D1 40%; (iii) D1 would transfer the Business and certain assets including the benefits of the Customer Contracts (as defined later) (“Assets”)[3] to the new company as a going concern.
9. It was under the above circumstances that a new company P was incorporated in Hong Kong on 2 September 2015 with D2 and D3 as shareholders and of which the paid up capital was HKD 10,000.
10. On 23 September 2015, amongst other things, the following agreements/deeds were entered into:
(1) a shareholders’ agreement entered into between First Joint, D1 and P (“Shareholders Agreement ”)[4];
(2) a transfer agreement between D1 as transferor and P as transferee, providing for the transfer of the Business and the Assets of D1 to P at a nominal consideration of HKD 1.00 (“Asset Transfer Agreement”)[5];
(3) a sale and purchase agreement between D1 as vendor and First Joint as purchaser and We Software Limited as guarantor pursuant to which D1 agreed to sell and First Joint agreed to acquire 60% of the entire issued share capital of P at the consideration of HKD 9,600,000 (“Sale and Purchase Agreement”)[6];
(4) a deed of non-competition between P and D1 (“Deed ofNon Competition”)[7];
(5) a service contract between P and D2 by which D2 was employed as a Managing Director of P (“D2 Service Contract”)[8];
(6) an employment agreement between P and D3 pursuant to which D3 was employed by P as its accountant (“D3 Employment Agreement”)[9];
11. There were also 3 other documents signed, namely (i) a written resolution of P signed on 23 September 2015 approving the transfer of 60% of the issued shares of P to First Joint, (ii) a confirmation of D1 signed on 23 September 2015 to terminate the employment of 22 of its named staff and to transfer them to P, and (iii) a tax deed signed on 23 September 2015. Hence, a total of 9 documents/agreements were signed and/or entered into by the parties on 23 September 2015.
12. Upon completion (“Completion”)[10], First Joint became the registered shareholder of 60% of P’s issued shares, and D1 the registered shareholder of the remaining 40%. Pursuant to Clause 4.1 of the Shareholders Agreement, P was to have only 3 directors with two nominated by First Joint being TW Poon and Victor Poon and the remaining one nominated by D1 being D2. Later, on or about 17 September 2018, Mr Rollo Chan Ka Chun (“Rollo Chan”) was appointed as an alternate director to TW Poon.
13. Pursuant to Clause 4.6 of the Shareholders Agreement and paragraphs 3.1 and 3.2 of the D2 Service Contract, D2 was named the Managing Director with the scope of his duties defined therein. It is not disputed that D2 being the Managing Director of the new company was to handle the daily operations of P and that monthly financial reports would be sent to WeSoft/First Joint by D2 and/or D3.
14. Further, on or about 23 September 2015, and on various dates thereafter, P and D1 had entered into various service agreements (“Service Agreements”)[11] in relation to the customer contracts (“Customer Contracts”) between D1 and each of the 152 customers particularized in Annex A of the statement of claim (“Customers”), all of which had contained an express term and condition that during the term of the Service Agreement, D1 was to continue to interface with the Customer and to pass to P all notices or communications received from the Customer in connection with the services[12].
15. As the paid up capital of P is only HKD 10,000, funding was to be provided by First Joint and D1 pursuant to Clauses 7.1 and 7.2 of the Shareholders Agreement. According to Ds, First Joint and D1 were to respectively provide HKD 2,640,000 and HKD 1,760,000 respectively for initial working capital (“First Funding”) and for further additional funding pursuant to Clause 7.2 of the Shareholders’ Agreement.
16. According to Ds, in 2017 and 2018, there were negotiations for First Joint to acquire all the shares of D1 from D2 and D3, which did not materialize as the parties failed to agree on the price and mode of payment. This, according to Ds, negatively impacted WeSoft’s attempt to be listed on GEM and that this then led to WeSoft’s actions to oust D2 and D3 including terminating the employment of D2 and D3.
17. It is also Ds’ case that since around December 2017, there were disputes between First Joint and D1 about the need to inject further working capital into P and that First Joint refused to inject further capital. According to Ds, the disputes resulted in issues about P’s ability to meet its payment obligations, including payment of its staff’s salaries towards the end of 2018, and this resulted in a resignation en masse of P’s staff in December 2018.
18. On the other hand, according to P, the monthly financial reports prepared by D2 and D3 showed that the net monthly income of P had continuously declined since about June 2017. In an email dated 18 May 2018 and a letter dated 14 August 2018, D1 had requested First Joint to provide further working capital to P. D2 had also by a letter dated 11 September 2018 to P’s other 2 directors alleging that Ps’ working capital was not sufficient to meet the daily operating expenses of P.
19. It is P’s case that various board meetings were then convened for the purpose of discussing issues relating to the provision of further working capital by First Joint, but despite repeated requests and demands, Ds had denied the other 2 directors of P to access information and documents of P. Further, due to the en masse resignation in December 2018, no employee was left to serve any of P’s remaining customers, and that Ds had left nothing behind for P such that P was effectively incapacitated to carry on its business.
20. There was a board meeting held on 8 January 2019, which was attended by Victor Poon, Rollo Chan, and P’s solicitor Mr Wong on one side, and D2, D3 and Ds’ solicitor Mr Kwok on the other (“08.01.19Meeting”). The meeting was recorded and a transcript had been produced[13] (“08.01.19 Meeting Transcript”). During the 08.01.19 Meeting, P had demanded D2 and D3 to deliver up documents and information of P, which was later set out in paragraph 16(a) to (l) of P’s statement of claim (“SOC”)[14]. This was followed by a letter on 24 January 2019 from P’s solicitors to each of the Ds. As of date of the SOC, there were documents and information not delivered up by Ds as set out by P in paragraph 18(a) to (l) of the SOC (“Outstanding Documents and Information”).
21. Further in the 08.01.19 Meeting, P had requested D1 to deliver up the documents and information to P as set out in paragraph 23(a) to (d) of the SOC (“D1 Documents and Information”) and also D2 to deliver up the documents and information to P as set out in paragraph 27(a) to (b) of the SOC (“D2 Documents and Information”), and such requests were followed by a letter on 24 January 2019 from P’s solicitors respectively to D1 and D2. It was P’s case that as at the date of the SOC, D1 and D2 had failed to do so.
22. D2’s service as Managing Director was terminated summarily by P at the 08.01.19 Meeting although he has remained a director of P. D3’s Employment Agreement was terminated summarily by P on about 25 January 2019.
23. P’s case is that Ds owed various duties to P under the various agreements set out earlier and they were in breach of their duties to P. Further or alternatively, in the capacity as P’s director and/or its Managing Director, D2 owed P fiduciary duties which he was in breach of.
24. On the other hand, Ds’ case is that by a letter of 30 January 2019, Ds had already confirmed to P that they had delivered all of P’s property on diver dates as listed therein, and that some of the P’s Outstanding Documents and Information, essentially documents related to the Customers, were not properties of P but properties of D1 and/or its associates. In this connection, it is Ds’ case that (a) at all material times, P had only one customer, namely D1, and this was reflected in P’s audited accounts; and (b) the arrangement of the Scheme under the Service Agreements is that D1 would interface with the Customers and pass to P all notices and communications received from them in connection with the services, which had been complied with, and all income received from the Customers were also paid back-to-back to P when received.
25. As for the D1 Documents and Information and the D2 Documents and Information, it is Ds’ case that P is not entitled to the same.
26. P issued the writ herein endorsed with the SOC on 25 April 2019. It is P’s case that (1) D1 had failed to procure the Customers to enter into “novation agreement(s) with P and D1 in breach of Clauses 6.1 and/or 6.2 of the Asset Transfer Agreement; (2) D2 had breached his restrictive covenants and had solicited/enticed away from P its employees, and/or had procured the employees’ breach of employment contract with P; (3) together with D2’s other attempts to cripple P’s business (including the refusal to deliver up requisite information and documents for proper operation of the Business), such breach of restrictive covenants amount to a flagrant breach of fiduciary duties owed to P; (4) D2 and D3 had respectively breached the D2 Service Contract and the D3 Employment Contract in wrongfully communicating to third parties P’s confidential information.
27. Ds’ defence and counterclaim was first filed on 27 September 2019, and the amended defence was filed on 12 November 2020 (“Amended Defence”). P’s amended reply was filed on 22 December 2020 (“Amended Reply”).
28. On 8 December 2020, P issued its summons for summary judgment (“O14 Summons”), which was supported by the 2nd affirmation of Victor Poon of 4 December 2020. D2 filed his 2nd affirmation in opposition on 21 December 2020. The O14 Summons was first fixed for a call over hearing on 28 December 2020 when D2 was given leave to file a further affirmation in opposition and a further call-over hearing was fixed on 22 February 2021. D2’s 4th affirmation was filed on 18 January 2021 in further opposition to the O14 Summons.
29. In the meantime, there was a hearing on 27 January 2021 before Master Jonathan Wong in relation to Ds’ application for payment by P of security for costs.
30. Thereafter, on 11 February 2021, Ds’ solicitors sent a letter to P’s solicitors enclosing 2 CD-ROMs of 7 categories of documents consisting of over 20,000 pages of documents (“February Delivery Up”), saying this was in order to avoid unnecessary disputes and for the saving of the court’s time[15]. This was then followed by D2’s 5th affirmation of 17 February 2021. As a result, at the hearing on 22 February 2021, P was given the opportunity to review those documents delivered up by Ds in the February Delivery Up and to file an affirmation in reply, which was filed by Rollo Chan on 5 May 2021. It is P’s case that there are still outstanding documents notwithstanding the February Delivery Up.
31. The substantive hearing of the O14 Summons eventually took place on 24 June 2021. The Master granted P the summary judgment (“O14 Order”). A full transcript of that hearings had been obtained by P[16] (“1st Transcript”). Ds lodged a notice of appeal to Judge in chambers on 7 July 2021[17].
32. On 22 July 2021, the day by which Ds were to deliver up the documents under the O14 Order, Ds issued the Stay Application, for a stay of execution of the O14 Order pending the hearing of their substantive appeal, and the Stay Application was fixed it for hearing before this Court. This Court took the view that the Stay Application should have been fixed before the Master instead. The Stay Application was later refixed before the Master and was refused by the Master on 30 September 2021 (“Refusal ofStay Order”). A transcript of that hearing had also been obtained by P[18] (“2nd Transcript”). On 12 October 2021, Ds lodged a notice of appeal against the Refusal of Stay Order[19].
33. This Court directed that two appeals be heard together on 6 December 2021. In the meantime, Master D To granted time for Ds to comply with the O14 Order until 6 December 2021, and at that hearing, this Court granted an interim stay until the handing down of this judgment.
THE O14 ORDER
34. In P’s O14 Summons, P seeks delivery up of the following documents and information:
(1) as against D1, D1’s Documents and Information;
(2) as against D2, D2’s Documents and Information;
(3) as against D1, D2 and D3, the Outstanding Documents and Information.
35. The O14 Order consists of amongst other things (i) the delivery up order against D1 for those of the D1 Documents and Information as ordered (“D1 Order”), (ii) the delivery up order against D2 for those of the D2 Documents and Information as ordered (“D2 Order”) and (iii) the delivery up order against D1-D3 for those of the Outstanding Documents and Information as ordered (“D1-D3 Order”).
The D1 Order
36. The D1 Documents and Information sought by P are set out in paragraphs 23 (a) to (d) and paragraph 24 of the SOC. The Master ordered D1 to deliver up those documents and information as set out in Schedule 1 of the O14 Order (“Schedule 1”)[20]:
O14 Summons – The D1 Documents and Information-paragraphs 23(a)-(d) and paragraph 24 of SOC | O14 Order – Schedule 1 |
| 23(a) All of the direct or indirect rights or interests in any business, company or association held by D1 and/or its close associates ( as defined in the Deed of Non Competition) ; | 1. All of the direct or indirect rights or interests in any business, company or association held by D1 and/or its close associates (as defined in the Deed of Non-competition)(including but not limited to Micro 2000 Limited (“Micro 2000”) and Nationmark Service Centre Limited (“Nationmark Service”)) |
| 23(b) Detailed financial account of such business company or association (as the case may be); | 2. Detailed financial account of such business, company or association (as the case may be); |
| 23(c) Written confirmation from D1 for its compliance of the Deed of Non Competition; and | 3. Written confirmation from D1 for its compliance of the Deed of Non-Competition entered into between P and D1 on about 23rd September 2015; |
| 23(d) All files and documents of D1 and/or its close associates (as defined in the Deed of Non Competition) for P’s review, including but not limited to (1) all correspondences with customers, (2) books, (3) accounts, (4) working files, (5) closed files (6) emails (7) records (8) computer printout (9) ledger (10) invoices (11) receipts (12) bank statements (13) audit report. | 4. All files and documents of D1 and/or its close associates (as defined in the Deed of Non-competition)(including but not limited to Micro 2000 and Nationmark Service)for P’s review, including but not limited to all correspondences with customers, books, accounts, working files, closed files, emails, records, computer printout, ledger, invoices, receipts, bank statements, audit report; and |
| 24(a) all notices or communications received from the customers by D1 in connection with the services under the Service Agreements. | 5. All notices or communications received from the customers by D1 in connection with the services under the Service Agreement |
(the deletions and underlined parts in Schedule 1 show the deviations from the documents sought by P in the SOC)
The D2 Order
37. The D2 Documents and Information sought by P are set out in paragraphs 27(a) and (b) of the SOC and those documents and information ordered by the Master to be delivered up by D2 are set out in Schedule 2 of the O14 Order (“Schedule 2”):
| O14 Summons – Paragraph 27 (a) and (b) of SOC | O14 Order – Schedule 2 |
| 27(a) Information and documents about all of D2’s other directorships and other (direct or indirect) interests, employment, consultancies or associations held by D2 and all interests in the business which may be competing with P; and | 1. Information and documents about all of D2’s other directorships (other than of P) and other (direct or indirect) interests, employment, consultancies or associations held by D2 and all interests in the business which may be competing with P (including but not limited to Micro 2000 and Nationmark Service); and |
| 27(b) Detailed financial account of such business, company or association (as the case may be) | 2. Detailed financial account of such business, company or association (as the case may be); |
(the deletions and underlined parts in Schedule 2 show the deviations from the documents sought by P in the SOC)
The D1-D3 Order
38. The Outstanding Documents and Information sought by P are set out in paragraphs 16 and 18 of the SOC and the Master ordered D1 to D3 to deliver up those documents set out in Schedule 3 of the O14 Order (“Schedule 3”)[21]:
| O14 Summons – Paragraphs 16 and 18 of SOC | O14 Order – Schedule 3 |
| 16(a) Full ex-employees’ record (including personal records contacts, resignation letters) | 1. Full ex-employees’ record (including personal records contacts, resignation letters, job reference letters and education certificates of all ex-employees), including but not limited to:
[paragraphs
1.(i)
…..
to
……
(xxxiii)]
(Paras. 1(i) to (xxxiii) are not set out in full) |
| 16(b) Previous bid records and replied tenders | 2. Previous bid records and replied tenders |
| 16(c) All employees’ attendance log per daily basis | 3. All employees’ attendance log per daily basis, including but not limited to the original attendance log of [3 named employees] from July 2018 onwards; |
| 16(d) All the customers’ contact details including name, telephone number, email and address of such customers’ contact person | 4. All the customers’ contact details including name, telephone number, email and address of such customers’ contact person; |
| 16(e) Work logs of all engineers including current and previous records (from 2015 onwards) | 5. Work logs of all engineers including current and previous records from 2015 onwards; |
| 16(f) Signed maintenance service reports | 6. Signed maintenance service reports; |
| 16(g) All outgoing and incoming email, including communications between P and the customers | 7. All outgoing and incoming email, including communications between P and the customers; |
| 16(h) All customer services documents, including call sheets, computer access, and reports | 8. All customer services documents, including call sheets, computer access, and reports; |
| 16(i) Breakdown of vouchers which D1 charged P including the breakdown of staff expenses, their expense claim forms and receipts | 9. Breakdown of vouchers which D1 charged P including the breakdown of staff expenses, their expense claim forms and receipts including but not limited to staff expenses from September 2018 onwards and supporting documents and receipts for charges; |
| 16(i) All previous and present customers’ working file from 2015 onwards and all documents, log, maintenance record of all previous and present engineers from 2015 onwards | 10. All previous and present customers’ working file from 2015 onwards (including but not limited to all communication related tenders, projects, marketing materials, Powerpoint) and all documents, log, maintenance record of all previous and present engineers from 2015 onwards, |
| 16(k) The login information of work log system for P to access the work log, customer service call logs and related supporting documents of P; and | 11. The login information of work log system for P to access the work log, customer service call logs and related supporting documents of P; and |
| 16(l) The original copy of the Service Agreements, purchase orders or quotations signed by customers | 12. The original copy of the Service Agreements, purchase orders or quotations signed by customers |
(the deletions and underlined parts in Schedule 3 show the deviations from the documents sought by P in the SOC)
THE LEGAL PRINCIPLES
39. It is trite that an appeal from the Master’s decision is by way of a re-hearing of the O14 Summons[22].
40. The principles governing an Order 14 application are well established. The defendant must show that there are triable issues[23]. The policy of Order 14 is to prevent delay in cases where there is no defence and therefore notwithstanding the use of the word “may” in rule 3(1), once the court concludes that there is no triable issue or question or that for some other reason there ought to be a trial, it will ordinarily give judgment for the plaintiff[24].
THE D1 DOCUMENTS AND INFORMATION
41. As set out earlier, P sought 5 categories of documents and information against D1 in the O14 Summons. By the time of the substantive hearing before the Master, the documents sought included those of Micro 2000 and Nationmark Service (collectively “2 Companies”) and the D1 Order was made as sought by P. P essentially relies on Clause 2(a) of the Service Agreements and Clauses 5(a), (b) and/or (c) of the Deed of NonCompetition for seeking the delivery up of these documents.
Clause 2(a) of the Service Agreements
42. Clause 2(a) of the Service Agreements[25] provides that:
“(a) During the term of this Agreement, Nationmark shall continue to interface with the Customer in connection with the Customer Contract and shall pass to WeSoft all notices or communications received from the Customer in connection with the Services”.
Clauses 5(a),(b) and/or (c) of the Deed of Non Competition
43. Clause 5 provides as follows:
“5. The Covenantor has further undertaken and covenanted with the Company that, for so long as this Deed remains in effect, the Covenantor will:
(a) promptly provide to the Company such information as the Company may from time to time reasonably request to ascertain compliance by the Covenantor of its obligations under this Deed including, without limitation, a written confirmation in respect of compliance by it with the terms of this Deed.
(b) allow the Directors to review, at least on an annual basis and as reasonably requested, compliance with this Deed by the Covenantor, the options, pre-emptive rights or first rights of refusals (if any) provided by the Covenantor on its existing or future competing businesses; and
(c) undertake to provide all information necessary for annual review by the Directors and the enforcement of this Deed.”
Ds’ defence
44. As seen in paragraphs 95 - 98 of Ds Amended Defence[26], Ds’ defence is that (i) P is not entitled to request D1 to deliver up the 4 categories of documents enumerated at paragraphs 23(a) to (d) of the SOC; (ii) P is not entitled to the D1 Documents and Information described in paragraph 23(a), (b) and (d) of the SOC; (iii) P had not asked for a written confirmation of compliance of the Deed of Non Competition as described in paragraph 23(c) of the SOC; (iv) upon proper construction of the paragraph 23(a) to (d) in the context of the entirety of the Sale and Purchase Agreement and the Scheme, P is not entitled to the 4 categories of the D1 Documents and Information. Further, as seen in paragraph 97 of the Amended Defence, paragraph 24(a) and (b) of the SOC are also denied by Ds, but paragraph 24(a) not only includes the 4 categories of documents and information in paragraph 23 (a) to (d), but also a 5th category, namely all notices or communications received from the Customers by D1 in connection with the services under the Service Agreements.
45. Thus apart from repeating that P was not entitled to the 4 categories of the D1 Documents and Information, there were no other particulars pleaded.
46. In so far as the 5th category is concerned, it was D2’s case that D1 had already complied with this request.
47. In D2’s 2nd affirmation, his case/evidence on the other 4 categories was amongst other things as follows[27]:
(1) the 4 categories of the D1 Documents and Information are wide, embarrassing and oppressive;
(2) D2 personally found it unclear and embarrassing as to what P meant by “documents” and “information”;
(3) referring and repeating paragraphs 95-98 of the Amended Defence, that P was not entitled to the requested 4 categories of documents on the proper construction of the Shareholders Agreement and the other relevant documents;
(4) the question of whether P was entitled to the D1 Documents and Information pursuant to Clause 5 of the Deed of Non Competition or at common law is a matter for the Court upon its interpretation of Clause 5 after a substantive hearing on merits;
(5) The Clause 5(a) information to be provided is subject to “reasonableness” and for the purpose “to ascertain compliance” of D1’s non-competition obligations;
(6) Ds had pleaded at paragraph 96 of Amended Defence that P had not asked D1 for a written confirmation of its compliance with the Deed of Non Compliance and at paragraph 98 that it had delivered up all the documents P was entitled to receive;
(7) Further, Clauses 3.1 to 3.3 of the Deed of Non Competition provide that non-competition shall not apply to Micro 2000 and Nationmark Service, which are companies that pre-exist the formation of P and were disclosed to the Poons prior to the joint venture;
(8) In respect of the D1 Documents and Information and D2 Documents and Information, P did not take into account the exception to non-competition in the Shareholders Agreement[28];
(9) D1 had pleaded in paragraph 29 of the Amended Defence that the one dollar consideration for the Deed of Non Competition had not been paid;
(10) whether the 4 categories and further documents are discoverable by D1 as a shareholder is a triable issue and it relates to third party documents to which D1 does not have possession or may not have power;
(11) as seen in paragraphs 54 and 55 of P’s Amended Reply , there are clearly good arguable defences and triable issues[29].
The 5th Category - Paragraph 24 (a) of SOC – All notices or communications from the Customers
48. In so far as this 5th category of the D1 Documents and Information is concerned, namely all notices or communications received from the Customers by D1 in connection with the Services as defined under the Service Agreements, although there is a deviation between paragraph 24(a) of the SOC and item 5 of Schedule 1, as said earlier, D2’s case was that D1 had already complied with this request[30]. As there were no particulars or supporting evidence provided by D2, the Master was justified in making the D1 Order, for D1’s director to state whether those documents were or had at any time been in its possession, custody or power etc.
The 3rd Category - Paragraph 23(c) of the SOC
49. As for 3rd catergory in relation to P’s request for the delivery up of a written confirmation from D1 for its compliance of the Deed of Non Compliance, D1’s case was that P had not asked D1 for the written confirmation and that D1 had delivered up all the documents P was entitled to receive. However, as seen in the 08.01.19 Meeting Transcript, P had during the 08.01.19 Meeting requested for such a written confirmation[31]. In item 4 of the letter of 24 January 2019 sent by P’s solicitors to D1, P had further requested D1 to provide P with a written confirmation from D1 for its compliance of the Deed of Non Competition[32].
50. There was no basis for Ds to say that P had not asked D1 for the written confirmation.
The 1st, 2nd and 4th Category
Whether the 2 Companies should be included in the D1 Order
51. It is Mr Leung’s submission that the D1 Order goes beyond P’s pleaded case by requiring from D1 the delivery up of amongst other things “detailed financial account” and “all files and documents” of the 2 Companies which are expressly and contractually exempted from D1’s “Non Competition Undertakings”. Mr Leung thus submitted that there are at least 2 triable issues in relation to (i) whether the 2 Companies are “Close Associates” within the meaning ascribed thereto under Rule 1.01 of the Rules Governing the Listing of Securities on GEM (“GEM Listing Rules”) and (ii) whether the 2 Companies should be included in the D1 Order (and the D2 Order) notwithstanding P’s pleaded case.
52. The “Non Competition Undertakings” are set out under Clause 3 of the Deed of Non Competition[33]. Under Clause 3.1, D1 has covenanted to P amongst other things that it will not, and will procure that its “Close Associates” will not, directly or indirectly, carry on, participate or be interested or engaged in or acquire or hold any right or interest in any “Restricted Business”, namely business relating to the provision of hardware maintenance services in Hong Kong SAR, carried on or contemplated to be carried on by P from time to time.
53. Under Clause 3.2, D1 further represents and warrants that neither it nor any of its Close Associates [at the time of the Deed of Non Competition] carries out, participates in or is interested or engaging in, invests in, acquires or hold, directly or indirectly or otherwise is involved in the Restricted Business other than through P and D1 undertakes to refer to P within 10 days of any “New Business Opportunity” in connection with the Restricted Business which are identified by or made available to D1.
54. Under Clause 3.3, D1 agrees to and undertakes it will keep P indemnified against any damage, loss or liability suffered by P arising out of any of D1’s breach of covenants and undertakings and/or any of its obligations.
55. Clause 3.4 states that the undertakings in Clause 3.1 to 3.3 shall not apply to Micro 2000 (“Internet and IT Related Business”) and Nationmark Service (“IT Related Business”), notwithstanding the 2 Companies may fall with the definition of “Close Associate”.
56. Clause 4 sets out the exceptions to the undertaking in Clause 3.1. Clause 5 then sets out “Other Undertakings of the Covenantor”.
57. The term “Close Associate” is defined in Clause 1.1 to have the meaning ascribed thereto in Rule 1.01 of the GEM Listing Rules but this is subject to the preamble in Clause 1.1 which states that “In this Deed, including the recitals, unless the context requires otherwise, the following words and expressions shall have the meanings set out thereunder”[34].
58. It has been pointed out by Mr Chiu that the evidence shows that D2 and D3 are directors and controllers of the 2 Companies and there has been no denial by Ds of this. What seems to be envisaged by Clause 3.4 is that the 2 Companies may fall within the definition of “Close Associate”.
59. There is no evidence in D2’s 2nd, 4th and 5th affirmations that the 2 Companies were or were not at the material times “Close Associates”, and Ds’ case in D2’s affirmations in respect of these 2 Companies is essentially that Clauses 3.1 to 3.3 do not apply to the 2 Companies and that they are exceptions to non-competition. In so far as this Court can see, there were no submissions made in the written Skeleton Submissions of Ds’ then counsel Mr Samuel Wong nor orally during the substantive hearing before the Master (as seen in the 1st Transcript) that the 2 Companies were not “Close Associates”.
60. It appeared to be only during the hearing on 30 September 2021 for the Stay Application that it was submitted by Mr Wong that Ds had confirmed that the 2 Companies were not “Close Associates” within the meaning of the Rule 1.01 of the GEM Listing Rules and that the inclusion of the 2 Companies in the D1 Order (and/or D2 Order) was outside of what was pleaded in the SOC[35].
61. It is accepted by Mr Chiu that the 2 Companies have been carved out of the non competing undertakings under Clause 3, but he has submitted that the relevant clause should be considered in its context, and that as a matter of proper construction, D2 and D3 being the directors and controllers of the 2 Companies and also of D1, and that the 2 Companies must be “Close Associates”, and that the context requires the term to be construed other than under Rule 1.01 of the GEM Listing Rules. Mr Chiu further pointed out that even if Ds were right in that the 2 Companies were not “Close Associates”, P could always apply to amend the SOC to delete the reference to “Close Associates”, relying on what was held in TTI Global Resource Hong Kong Limited v HongKong Myphone Technology Co Limited and Ors[2021] HKCFI 306[36].
62. Under Clause 2.1 of the Asset Transfer Agreement, D1’s Business and Assets have been transferred to P free from any encumbrance together with all existing and future rights and benefits and as a going concern and P has taken over such Business and the Assets. The “Assets” is defined to mean all the Trade Receivables and benefits of the [Customer Contracts] under the Business and the List of the Assets in Schedule 1 includes the benefit and interest of and in and the burden of the [Customer Contracts] and all work-in progress in respect of the [Consumer Contracts]. Thus, upon the transfer, the Business and Assets became P’s. It is P’s case D1 then hollowed out and/or transferred/diverted such Business and Assets to entities including the 2 Companies, and these entities in carrying on the Business with the Assets will clearly be in competition with P.
63. Under Clause 3.1, D1’s obligations are two folds, namely (i) it itself shall not compete, and (ii) it will procure its Close Associates [the 2 companies excepted] not to compete in the Restricted Business. Clause 3.1 has to be read with Clause 3.2, pursuant to which D1 represents and warrants that neither it nor any of its close associates “currently” [which means at the date of the Deed of Non Competition] carries out/participated in/interested/engaged in the Restricted Business. As the 2 Companies have been carved out under Clause 3.4, this would mean that the 2 Companies could have been carrying out their own business which would fall within the Restricted Business at the time and they could compete with P in such of their business.
64. There is however no evidence from Ds as to whether the 2 Companies were in fact carrying out any business which would fall within the Restricted Business at the time of the Deed of Non Competition and/or they were competitors of P, but even if they were, such business was their own business and/or the business belong to the 2 Companies as Ds have pointed out, they pre-exist P.
65. As Mr Chiu has submitted, it is one thing that D1 needs not procure the 2 Companies not to compete, but it is a different matter for D1 (and D2) to actively procure the 2 Companies to compete with P by hollowing out P and supplying the 2 Companies, the Business and the Assets and the Customers and staff which ought to belong to P. In my view, the non competition clauses should be construed in this way, that D1’s non competition undertakings do not apply to the 2 Companies in engaging in or carrying on any of the Restricted Business which was their own and/or belonged to them, but the undertakings should apply to the 2 Companies, whether they are “Close Associates” or not, in engaging in any of the Business with the Assets which belonged to P and said to be diverted to the 2 Companies by D1 in breach of its undertakings under the Deed of Non Competition. Otherwise, it will not make commercial sense.
66. In any event, P is relying on Clause 2(a) of the Service Agreements and Clauses 5 (a), (b) and (c) of the Deed of Non Competition in seeking the D1 Documents and Information. There is no reference to “Close Associates” in these clauses.
67. Having considered all the above, whether the 2 Companies are “Close Associates” or not, I see no reason as to why they should not be included in the D1 Order. I am not satisfied that Ds have raised triable issues in relation to the inclusion of the 2 Companies in the Schedule 1 (D1 Order).
Whether the D1 Documents and Information sought are too wide, embarrassing and oppressive
68. In so far as 1st and 2nd categories are concerned, Ds’ case is that it is unclear what “detailed financial account” entails, and that P has not justified why it requires such “detailed financial account” to ascertain D1’s compliance of or to enforce the Deed of Non Competition. As for the 4th category, Ds’ complaint is that this is even wider and all encompassing as P literally seeks “all files and documents” of D1 and its Close Associates and that P’s request for such information is unreasonable and falls outside of Clause 5 of the Deed of Non Competition.
69. The documents/information in the 1st, 2nd and 4th categories were sought in the 08.01.19 Meeting. In so far as the request for D1’s direct or indirect interests in other businesses and also the detailed financial account of such businesses, Ds’ solicitor Mr Kwok who was present had only indicated that they would not agree to provide and that anything which was not related to D1 would not be provided. When P’s solicitor Mr Wong sought information on behalf of the board of directors about D2’s directorship, or direct or indirect interest in other business and the financial account of such business, Mr Kwok only responded that there was no obligation for D2 to provide the information under the D2 Service Contract. There was no indication that D2/Ds did not know what “financial account” or what the other documents in the 4th category included.
70. In fact, at the hearing before the Master, the Master had observed that “detailed financial account” was not too wide and that D1 could provide the detail financial account as according to its own understanding. I agree with this observation. There has been no evidence from Ds as to what they have understood the “detailed financial account” to be.
71. It is Mr Leung’s submission that in so far as P is intending to seek full financial disclosure, such disclosure is “burdensome and intrusive” to those from which the disclosure is sought, referring to what was said by Kwan J, as she then was, referring to the case of Re Weihong Petroleum Co Ltd (No 2) [2003] 2 HKLRD 747.
72. In the Weihong case, under an Order under s 221 of the Companies Ordinance Cap 32, the liquidators were seeking during oral examination on oath of former directors disclosure of their personal assets and liabilities on grounds including to ascertain whether it is worth pursuing them to judgment, namely the “powder and shot” ground. Kwan J (as she then was had said in the exercise of discretion the Court must perform a balancing exercise between the competing public and private interests. The Judge then came to the view that the potential for oppression outweighed any perceived advantage to the liquidators[37].
73. The present case can be distinguished in that the information sought is concerned with policing and enforcement of the Deed of Non Competition which D1 has voluntarily signed and be bound by it. What is being sought is not any information of D2’s personal assets/liabilities.
74. As to whether there would be hardship to the 2 Companies, there is no evidence of any hardship. Although Ds have denied that the Business was diverted to the 2 Companies, the evidence from P is that Nationmark Security has continued to carry on the Business and related services for the Customers. There is also evidence that the 2 Companies have poached P’s former employees.
75. Other than generally complaining that the scope of the D1 Documents and Information is too wide, embarrassing and oppressive, there is no sufficient evidence as to the oppression or unfairness D1 and/or Ds will suffer.
Whether P’s request for the D1 Documents and Information is reasonable
76. As said earlier, it is Mr Leung’s submission that P has not justified why it requires such “detailed financial account”. In particular, Mr Leung had referred to the hearing before the Master and submitted that Mr Chiu had sought to justify the inclusion of the 2 Companies in the D1 Order and/or the D2 Order by suggesting that the requested information is required to ascertain whether D2 has been in breach of his duties transferred customers to the 2 Companies[38]. Mr Leung submitted that this is outside the ambit of Clause 5 and is not reasonable.
77. However, as seen in the 1st Transcript[39], Mr Chiu did submit that for the purposes of category 2 and for the clause 5, P was asking for documents to ascertain compliance of non competition.
78. Mr Chiu had also submitted that there was plain justification for requiring detailed financial account of all any business, company or association held by D1 and/or its Close Associations including the 2 Companies. He submitted that the Deed of Non Competition was designed to prevent the situation where D1’s interested businesses/companies/associations would poach customers/staff belonging to P and that the detailed financial accounts would reveal this. Likewise, the request for files and documents of D1 and/or its associates in the 4th category are similarly justifiable on the basis that the starting point ought to be that neither D1 nor D2 should compete with P save as provided in the Deed of Non Competition.
79. Having considered the evidence and the respective submissions, I am of the view that P’s request for the 1st, 2nd and 4th category of the D1 Documents and Information as ordered in the P/Order is reasonable for P to ascertain compliance by D1 of its obligations of non competition.
No time Limit
80. Ds have complained that there is no time limit defining the scope of the D1 Order, ie no specific start date or end date, and citing the 5th category in Schedule 1, ie no time limit for the notices or communications received from the Customers. Under Clause 2(a) of the Service Agreements, D1’s obligation was during the term of the Service Agreements. Under Schedule 4 (4) of the Assets Transfer Agreement, at completion as defined therein, D1 was to deliver or make available to P “all Records relating to the Business andall information relating to customers, suppliers, agents and distributors and other information relating to the Business.”[40] P is thus legally and entitled to the “Records” relating to the Business and all the information relating to the Business which belong to P and there should not be any time limit.
81. In any event, as mentioned earlier, it is D2’s evidence in his affirmation/s that Ds had complied with the delivering up of the 5th category documents/ information.
Non Payment of the One Dollar Consideration
82. Under Clause 3.1 of Asset Transfer Agreement, the sum of HKD1.00 for the consideration was to be paid to D1 on demand. In P’s Amended Reply, P stated that D1 had not demanded payment. The Asset Transfer Agreement is an enforceable contract supported by other forms of consideration namely P’s and D1’s respective duties therein and/or all the agreements in the Scheme. On the evidence, the requirement of paying D1 HKD 1.00 had clearly been waived by D1.
Whether any triable issues
83. Having considered the above, I am not satisfied that Ds have raised triable issues over P’s request for the delivery up by D1 of the D1 Documents and Information as set out in Schedule 1 of the O14 Order (D1 Order).
THE D2 DOCUMENTS AND INFORMATION
84. The two categories of D2 Documents and Information sought by P have been set out earlier. It is common ground that D2 remains a director of P. P relies on the obligations imposed upon D2 as a fiduciary, as well as Clauses 3.2.6, 3.3.1, 3.3.2, and 3.3.3 of the D2 Service Contract.
85. It was submitted by Mr Leung that there are triable issues as: (1) The D2 Service Contract does not support P’s claim as P had already terminated the same prior to commencing this action and the relevant clauses do not survive the termination; (2) D2 has already disclosed his directorships in other companies and is not under any duties to generally deliver up the two categories of the D2 Documents and Information; (3)further or alternatively, the court should not exercise its discretion in ordering specific performance/mandatory order on such vague, wide and oppressive terms that would cause out of proportion hardship on D2.
86. As for (1) above, under Clause 3.1 of the D2 Service Contract, D2 was nominated and appointed as a director and employed as a Managing Director of P. As submitted by Mr Chiu, the contract governs both D2’s directorship and D2’s employment as Managing Director, and that in both capacities, D2’s responsibilities and obligations are set out in Clauses 3.2.6, 3.3.1, 3.3.2, and 3.3.3, and the termination in question was only in respect of D2’s employment. As said earlier, D2 remains a director of P and in my view, P is entitled to enforcement of those clauses of the D2 Service Contract. Further, as pointed out by Mr Chiu, if the summary dismissal of D2 as Managing Director was indeed wrongful as alleged by Ds, then there is even more force in the D2 Service Contract to continue to apply in respect of D2’s obligations.
87. Mr Leung has complained that the information sought by P in the 1st category of the D2 Documents and Information goes well beyond his director’s duty to declare material interest in specific transactions, arrangement or contract with P pursuant to s 536 of the Companies Ordinance, Cap 622. Mr Leung also submitted that the “information and documents” and “may be competing” are vague and oppressive and is prone to dispute as to what constitutes business which may be competing with P and that P is embarking on a fishing expedition.
88. However, P is relying on the obligations imposed upon D2 not only as a fiduciary but also in contract, and Mr Chiu has submitted that P is entitled to the requested D2 Documents and Information contractually and/or in equity and also they are highly relevant to the core complaint in this action as to whether D2 has acted in breach of his fiduciary duties and the D2 Service Contract.
89. Under Clause 3.2.6 of the D2 Service Contract, D2 has agreed to disclose to the Board of P all other directorships and other direct or indirect interests, employment, consultancies or associates held by D2 including all interests in the securities required to be disclosed by D2 under the Securities and Futures Ordinance, Cap 571 and all interests in the business which may be competing with the business of P from time to time. Further, under Clause 3.3.3, D2 has agreed to provide all information, explanations and assistance P may require during his employment.
90. D2’s disclosure in the letter of 11 February 2021 from his solicitors to P’s solicitors[41] was simply of his directorships in 6 companies (including the 2 Companies). First, this was made only after the issue of the O14 Summons and second, it was clearly deficient in that there was no information disclosed as to D2’s direct or indirect interests, employment of consultancies or associations held by D2 and all interests which may be competing with P to which P is entitled to contractually.
91. As for the 2nd category of the D2 Documents and Information, namely the “detailed financial account”, as found earlier, it is not too wide, or embarrassing, or oppressive, or unreasonable. As earlier said, I see no reason why the 2 Companies are not to be included in the Schedule 2 of the O14 Order (D2 Order).
92. I am not satisfied that Ds have raised triable issues over P’s request for delivery up of the D2 Documents and Information as set out in Schedule 2.
THE OUTSTANDING DOCUMENTS AND INFORMATION
93. As DHCJ William Wong SC has stated in referring to the relevant legal principles in Unimax Property Consultancy Ltd v Ng Lai Ching & Anor[2019] HKCFI 45 where the plaintiff therein sought an injunction against its directors (the defendants) and for the provision and delivery up of information and/or documents of the plaintiff:
“7. First, there can be no dispute that the Plaintiff, as the company, is entitled to require its directors to deliver up company documents which are in their possession, custody, power and control. Company documents and records are assets of the Plaintiff company….
8. Secondly….
10. Thirdly, the burden rests on an applicant to adduce primie facie evidence to prove at the least the existence of documents he or she requested for and that such documents are in the possession, custody, power or control of the respondent. It is not for the respondent to prove a negative”
94. P is thus entitled to require its directors to deliver up company documents which are in their possession, custody, power and control. As seen in the 1st Transcript, Ds have accepted that the Outstanding Documents and Information are company’s assets belonging to P[42]. Further, as submitted by Mr Chiu, Rollo Chan has in his 3rd affirmation[43] set out the relevant provisions of the Asset Transfer Agreement, the Shareholders’ Agreement, the D2 Service Contract, the D3 Employment Contract , and the Deed of Non Competition, which, together with Ds’ duties owed to P arising from the fiduciary and/or employment relationship form the basis of P’s request for the Outstanding Documents and Information.
95. In D2’s 2nd affirmation, it was pointed out by him that P in its Reply had admitted that some of the documents pleaded under the Outstanding Documents and Information had been received and that there were no details of what remained outstanding, and it was for P to specify what documents went missing and make out a case that Ds had in their power, possession and custody of such documents[44]. D2 had set out what had been provided by them between November 2018 and January 2019 and that there were good arguable defences and triable issues as to whether there were further documents to be disclosed by Ds[45]. Then, D2 confirmed that Ds did not have in their possession, custody or power of the alleged Outstanding Documents and Information, and that all P’s documents in their possession had been delivered to P[46] (“Confirmation”).
96. Notwithstanding D2’s Confirmation, as set out earlier, in the February Delivery Up, Ds then produced over 20,000 pages of documents. Ds’ then counsel Mr Wong had tried to explain to the Master at the substantive hearing of the O14 Summons that as a director of P, D2 had kept a disc for himself containing electronic copies of the P’s documents and these were not the original documents owned by P, and that it was Ds’ case that all P’s documents had been delivered to P. However, in Rollo Chan’s 3rd affirmation filed after the February Delivery Up, he had stated that there were newly disclosed documents in the February Delivery Up which had not been disclosed before, such as staff travel expense for the period from September 2015 to August 2018[47]. Further, Rollo Chan had listed all the details of the documents and information which Ds had still failed to deliver up notwithstanding the February Delivery Up, in particular the original copies of the Service Agreements, purchase orders or quotations signed by the customers and only electronic copies of the Service Agreements were delivered up[48].
97. Ds have complained that the scope of the documents and information requested is extremely wide and that documents are described in very vague and uncertain terms, and that that it is impossible for Ds to state by way of affirmations to verify whether those documents and information were in their possession, custody or order, but as said earlier, D2 was able to provide the Confirmation in his 2nd affirmation. In any event, Rollo Chan has already set out a list of the details of the outstanding documents and information in his 3rd affirmation.
98. There is no evidence from Ds to contradict the evidence of Rollo Chan that there were documents/information newly disclosed or there are still documents/information not yet disclosed despite the February Delivery Up. In the 7th affirmation filed by D2 in support of the Stay Application, all D2 had said that “it would take enormous time and effort to verify whether [Ds] remained in possession of the original or copy of those documents, and if not, what is the date when [Ds ]parted with possession.”[49], namely there was insufficient time for Ds to prepare the affirmations with reference to the O14 Order. By now, Ds has had plenty of time to prepare such information.
99. It is Mr Leung’s submission that in the present case there is an issue as to whether or not Ds have adequately delivered all documents and information and he drew an analogy with the summary procedure in Order 43 of RHC for the ordering of an account. In this respect, he has referred to the case of Man On Sum v Man Ping Hei HCMP 3163/2016, unrep, 13.01.17 (CA). In that case, Cheung JA and Poon JA (as he then was) agreed with Chow J (as he then was) who allowed an appeal against the master’s order under Order 43 for provision of an account by the defendants, namely that there was a preliminary question to be tried in respect of the dispute whether the defendants had already rendered full and proper accounts of the Tong’s assets, income and expenditure over the years, and that where a defendant had already provided an account and the issue was the adequacy of the account provided, such issue should generally speaking be regarded as a ‘preliminary question’ to be tried and thus it would not be appropriate to make a summary order for account[50].
100. However, the question here is not really about the adequacy or sufficiency of the information. Put it simply, those documents are company documents belonging to P, and P is entitled to them unless they are not, or no longer in the possession, custody or power of Ds.
101. As to the argument that the Outstanding Documents and Information relating to the Customers do not belong to P but to D1 as D1 is the only customer of P, this runs contrary to the Asset Transfer Agreement.
102. Further, there are clauses in the D2 Service Contract such as Clauses 18.3 and 20.2 in the D3 Employment Contract such as Clauses 7.2 and 9 which provide for obligations to deliver up post termination of employment.
103. As for whether the D1-D3 Order is oppressive and fishing, or causes hardship and prejudice to Ds, Ds are only ordered to comply with their contractual duties and obligations. As for the deviations between Schedule 3 and the Outstanding Documents and Information sought in the SOC, this is as a result of the February Delivery up and Rollo Chan had since set out in his 3rd affirmation with specificity further outstanding documents and information.
104. I am not satisfied that Ds have raised any triable issues over P’s request for the delivery up of the Outstanding Documents and Information as set out in Schedule 3 of the O14 Order (D1-D3 Order).
P’S DELAY
105. It is Mr Leung’s submissions that there that there had been an unjustified delay of 19 months on P’s part in issuing the O14 Summons, after having repeatedly confirmed at various stages that it did not intend to make any interlocutory application and that its delay was not consistent with its case that Ds had obstructed its operation which came to a halt since December 2018. Further, P only issued the O14 Summons as a technical manoeuvre to oppose or delay Ds’ security for costs application.
106. Ds’ defence and counterclaim was first filed on 27 September 2019. Ds had counterclaimed against P and First Joint alleging amongst other things, (i) as against First Joint, breach of the Shareholders Agreement in refusing to provide urgently needed working capital and repayment of shareholder’s loans advanced by D1 to P; (ii) as against P, outstanding payments for wrongful dismissal of D2 and D3; and (iii) as against P, for wrongfully registering a domain name in 2019 which is confusingly similar to D1’s domain name. P filed its reply and defence to counterclaim on 26 November 2019.
107. The parties then filed their respective Timetabling Questionnaires. P had confirmed therein that it did not intend to make any interlocutory application. On 29 June 2020, directions nisi were given for the parties to file list of documents and for Ds to apply for amendment of its defence and counterclaim and for security for costs. Thereafter, the parties had filed their respective list of documents, P disclosing 209 documents and Ds 339 documents.
108. Ds then applied to amend their defence and counterclaim on 27 July 2020, in particular to delete their entire counterclaim, and to plead a defence of set-off. Ds also applied for security for costs from P. According to Ds, during two of the call over hearings before the Registrar for Ds’ application for security for costs, P had indicated that it would oppose the security for costs application, that P has high probability of success in its claim against Ds and that P’s financial difficult was caused by Ds, and the Registrar had expressed his view that P should not go into merits unless P could show high probability of success and if there were such a real high probability, then P should have applied for summary judgment.
109. The Amended Defence was eventually filed by Ds on 12 November 2020. Shortly thereafter, on 8 December 2020, P issued the O14 Summons. Rollo Chan had said in his 4th affirmation that there was no delay and that Ds’ amendment of their defence reinforced P’s belief that Ds’ defence to this part of P’s claim is hopeless.
110. On the other hand, it is Ds’ case that it was only in December 2020 that P indicated its intention to issue the O14 Summons and that the issue of the O14 Summons was P’s last minute attempt to pre-empt the security for costs application to be heard on 27 January 2021, and that it would be grossly unfair for the O14 Summons to be entertained and heard before the security for costs hearing.
111. Anyway, Ds did obtain an order for security of costs from P.
112. Although it would appear that the security for costs application might have prompted P to issue the O14 Summons, there was no unreasonable delay and the O14 Summons was taken out shortly after the Amended Defence was filed upon which, the disputed issues became clearer with no counterclaim. As set out in paragraph 14/2/2 of HKCP 2022, there is no express provision in the rules as to the time when application for summary judgment must be made and that the court should approach each application on the footing that if the plaintiff has satisfied it that notwithstanding the delay there is no defence to his claim, he is entitled to summary judgment.
113. I am satisfied that notwithstanding the delay, P should be entitled to summary judgment on this part of its claim against Ds.
WHETHER THE COURT SHOULD EXERCISE ITS DISCRETION TO GRANT EQUITABLE REMEDIES
114. In so far as the D1 Documents and Information and the D2 Documents and Information are concerned, Ds are essentially asked to perform their contractual obligations (and on D2’s part, also his fiduciary duties) and there is no unfairness to Ds.
115. In so far as the Outstanding Documents and Information is concerned, those documents are P’s company documents, and P is entitled to them and as said by the Master, no matter how voluminous, Ds have to return them to P.
CONCLUSION ON THE O14 SUMMONS
116. Having heard counsel’s respective submissions and in light of all said above, I am satisfied that there are no triable issues raised by Ds or any other reasons for P’s claim for delivery up orders to go to trial. I agree with the terms of the O14 Order made by the Master.
THE STAY APPLICATION
117. In the circumstances, Ds has not been able to satisfy this Court that there is a reasonable prospect of success on the appeal against the O14 Order. There are no other reasons for the Court to grant any stay. Ds’ appeal against the Refusal of Stay Order is hereby dismissed.
ORDERS
118. This Court’s order is thus:
(1) Ds’ Notice of Appeal issued on 7 July 2021 is dismissed.
(2) Ds’ Notice of Appeal issued on 12 October 2021 is dismissed.
COSTS
119. Costs should follow the event and I order Ds to pay P’s costs of the two appeals, such costs to be summarily assessed and be paid by Ds jointly and severally within 14 days of assessment. For summary assessment, I direct P to lodge its statement of costs within 7 days and Ds to lodge their list of objections within 7 days thereafter.
| ( Bebe Pui Ying Chu )
Judge of the Court of First Instance
High Court |
Mr Byron Chiu, instructed by Jingtian & Gongcheng LLP, for the Plaintiff
Mr Adrian Leung, instructed by Sit, Fung, Kwong & Shum, for the 1st to 3rd Defendants
[1] As described in Recital(A), Asset Transfer Agreement (defined later), C21
[2] See para 5, A68-69
[3] As defined in Clause 1.1, Asset Transfer Agreement, C21
[4] C1-C19
[5] C20-C41
[6] C107-C142
[7] C48-57
[8] C66
[9] C76
[10] As defined in the Sale and Purchase Agreement , C110
[11] C42-47, for one example of the Service Agreement
[12] At clause 2(a) of each of the Service Agreements
[13] D25-D36
[14] At A16
[15] See para 5, D2’s 5th affirmation, B67
[16] G506-G573
[17] A185-187
[18] G574- G611
[19] A188-191
[20] A:197
[21] A199-201
[22] At para 58/12, HKCP 2022
[23] At para 14/4/9, HKCP 2022
[24] At para 14/4/8, HKCP 2022
[25] See one of the Service Agreements Clause 2(a), C:43
[26] A:96-97
[27] See para 38, B:43-45
[28] Presumably D2 was referring to the exclusion of the 2 Companies in the Deed of Non Competition
[29] Presumably D2 was referring to paragraphs 54 and 55 of the Amended Reply, and his case was that as paragraphs 95-99 of the Amended Defence are denied by P as pleaded in its Amended Reply, this raised triable issues
[30] See para 38, B:43-45
[31] At para 4(a), item (3), C102-103
[32] At D2
[33] At C52
[34] C50
[35] At line B, G577
[36] At lines G–R, G599
[37] At para 38
[38] Lines E-R, G527
[39] Lines P-U, G527 and A-O, G528
[40] At C 35
[41] At D17
[42] See para 9.1.2 of P’s Skeleton Submission
[43] At para 10, B77
[44] At para 40 (d), (e), B46-47
[45] At para 40(g) (i) – (ix), B47-49
[46] At para 42
[47] In para (i), B88
[48] In para 23, B85-89
[49] At paras 8 and 9, B100
[50] At para 4.1