MA KING HUEN v. THE SINCERE COMPANY, LTD

HCA 1746/2021

[2024] HKCFI 1437

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1746 OF 2021

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DECISION ON COSTS

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A.  Introduction

1.  By my judgment handed down on 1 February 2024, following the trial of this action I substantially upheld the Plaintiff’s claims herein; I gave judgment in his favour amounting in total to HK$12,064,271.80; I dismissed the Defendant’s counterclaim and made an order nisi that the Defendant should pay the Plaintiff the costs of this action and the counterclaim, to be taxed on a party and party basis, if not agreed, with a certificate for 2 counsel (“the Costs Order Nisi”).

2.  By summons issued on 15 February 2024, the Plaintiff sought an order that the Costs Order Nisi be varied (a)  to include the costs of proceedings in the Labour Tribunal (LBTC 2236/2021)  (“the LT Proceedings”)  and (b)  to provide for the taxation of the Plaintiff’s costs on an indemnity basis from 25 May 2022, or alternatively from 18 October 2023, onwards and for an order that the Defendant do pay the Plaintiff interest on costs at a rate not exceeding 10% above judgment rate from 18 October 2023 until 1 February 2024.

3.  In short, the Defendant’s position is that (a)  the costs incurred in the LT Proceedings should not form part of the costs awarded to the Plaintiff in the High Court Action – in other words that there should be no order for costs in respect of those proceedings and (b)  all costs in the High court action should be taxed on a party and party basis, as per the Costs Order Nisi.

4.  I have had the benefit of extensive written submissions by each party in support of their respective positions – by the Plaintiff on 19 March 2024; by the Defendant on 16 April 2024 and by the Plaintiff in reply dated 30 April 2024.

B.  Costs in respect of LBTC 2236/2021

5.  The Plaintiff’s claim in the LT Proceedings was transferred to the High Court by order made on 1 November 2021 and was successfully pursued by the Plaintiff in the present action to judgment, by which it was upheld in full.

6.  In my view, whilst it is usual that disputes adjudicated by the Labour Tribunal are resolved with no order as to costs (consistent with the purpose of the Labour Tribunal as providing a speedy, efficient and cheap means of adjudicating employment claims and, to that end, the requirement that, in the Tribunal, parties are required to represent themselves, without legal representation), there is no rigid rule governing this and indeed section 28 of the Labour Tribunal Ordinance, cap 25 expressly gives the Tribunal power to award to a party costs and expenses.

7.  In any case, whilst it is usual that disputes adjudicated by the Labour Tribunal are resolved with no order as to costs, different considerations apply in a case such as this where the claim first brought in the Tribunal is transferred to the High Court, particularly, as here, in large part, by reason of the fact that complex issues of law and fact are involved in the claim.

8.  In this respect it is significant that, in transferring the Plaintiff’s claims in the LT Proceedings to the High Court, the Presiding Officer directed that the costs of the legal proceedings before and after transfer should be determined by the High Court.

9.  In all the circumstances I am satisfied that it is appropriate that the costs which I ordered should be paid by the Defendant to the Plaintiff in respect of the present action should include the Plaintiff’s costs of the LT Proceedings, all on the High Court scale, and I so order.

C.  The basis for taxation – indemnity costs – general principles

10.  The party and party basis of taxation is the standard basis for taxing costs as between parties to litigation. Generally, in order to justify an award of costs on a more generous basis than this (e.g. an award of indemnity costs), it must be shown that the case has some special or unusual feature and taxation on this basis will only be ordered when it is appropriate to do so. This principle was reaffirmed by the Court of Final Appeal in Commissioner of Inland Revenue v Poon Cho-Ming, John, FACV no 1 of 2019, [2020] HKCFA 2.

11.  In Leung Chun Kwong v Secretary for the Civil Service[2019] HKCFA 34, the Court said (at paragraph 15)  that the sanction of an award of indemnity costs is “……usually reserved for those cases in which there has been something improper or inappropriate or wholly unreasonable in…the conduct of the proceedings.”

12.  As illustrated by the decision of the Court of Appeal in Choy Yee Chun (the Representative of the estate of Chan Pui Yiu v Bond Star Development Ltd [1997] HKLRD 1327, the principle for the award of costs on the indemnity basis applies equally to an order for costs against a defendant: In that case, after reviewing the authorities, Stock LJ said that “if a plaintiff has been forced to institute proceedings by a defendant whose conduct had been not only hostile in the normal litigious sense but oppressive and with base ulterior motive, and if the pursuit of a defence constituted conduct which was part of an oppressive game plan, then invocation of the power to award costs on an indemnity basis might well be justified.”

D.  The Plaintiff’s Primary case on indemnity costs – the Plaintiff’s offer of 17 May 2022

13.  The Plaintiff’s primary case is that an award of indemnity costs should be made in his favour against the Defendant in respect of costs incurred from 17 May 2022, when the Plaintiff made an offer to the Defendant (which was not accepted)  that all claims, cross claims and counterclaims as between the parties in this action be fully and finally settled on a payment by the Defendant of HK$11,560,616.28.  This offer was expressed to be made “without prejudice save as to costs” but the Plaintiff accepts that it was not a sanctioned offer under RHC Order 22 and that it was not an offer which the Court is permitted to take into account in exercising its discretion as to costs. This is by virtue of the provisions of RHC Order 62 r. 5(1)(d)  which provides that,  whilst in exercising its discretion as to costs  the Court may take into account any written offer which is expressed to be “without prejudice save as to costs” relating to any issue in the proceedings, the Court may not take it into account if, at the time it was made, the party making it could have protected his position as to costs by means of a sanctioned payment or a sanctioned offer under Order 22.

14.  In the Plaintiff’s written submissions, however, it is submitted that, notwithstanding that the offer of settlement cannot be taken into account in the exercise of the discretion as to costs, the Court is not precluded from considering the parties conduct vis-a-vis attempts to settle the action.  In this respect, the Plaintiff places reliance on the dictum of DHCJ Paul Lam SC in Sam Sien San Albert v Sam Mo Yee[2019] HKCFI 1188, at paragraph 10, viz:

“In the recent decision of LLC v. LMWA and LELP [2019] HKFA 347, the Court of Appeal reaffirmed that, since the CJR, all parties to litigation are under a duty to assist the court in the promotion of the underlying objectives in Order 1A, rule 1 including a duty to co-operate in a process facilitating settlement; the courts expect litigants to explore settlement in good faith; the conduct of a party in adopting an uncooperative stance can, and very often will be taken into account under Order 62, rule 5(2); and there is a need to engage in constructive negotiations even in face of any unacceptable sanctioned offer.”

15.  The Plaintiff also relies on remarks made by A Chan J in Bright Gold Ltd v Mega Well Development Ltd [2019] 3 HKLRD at paragraph 13, viz:

“It is reasonably well established that the failure to beat a favourable settlement offer can attract an award of indemnity costs….it is consonant with the underlying objectives enshrined in O. 1A r. 1 for the court to encourage dispute settlement and therefore failure to respond constructively to a reasonable Caldebank offer, coupled with the subsequent failure to beat the offer, should weigh heavily against the offeree on costs.”

16.  I entirely accept that failure to respond constructively to a reasonable Caldebank offer coupled with the subsequent failure to beat the offer should be taken into account by the court in exercising its discretion as to costs.  However, whether or not that should warrant an award of indemnity costs must depend on whether it can be shown that the case has some special or unusual feature (e.g. where there has been something improper or inappropriate or wholly unreasonable in the conduct of the proceedings (see paragraphs 10-12 above).

17.  In Heung Wing Yan v Hangway Housing Management Ltd, HCPI 347/2012 (14 February 2017, at [19], DHCJ Marlene Ng (as she then was)  said as follows:

“Although the discretion to award indemnity costs is unfettered and uncircumscribed, there must be some special or unusual feature in the case to justify an order for indemnity costs. I accept indemnity costs are no longer limited to cases where a party’s conduct lacks moral probity or deserves moral condemnation for which the court wishes to express disapproval. But such conduct must be ‘unreasonable to a high degree; unreasonable in this context certainly does not mean merely wrong or misguided in hindsight ...... It follows from all this ...... it will be a rare case indeed where the refusal of a settlement offer will attract ...... not merely an adverse order for costs, but an order on an indemnity rather than standard basis’. Further, whilst pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, the pursuit of a hopeless claim (or a claim which the party pursuing it should have realised was hopeless)  may well lead to such an order.”

I agree with these remarks.  In short, I agree that it will be a rare case where the refusal of a settlement offer will or should, by itself, attract an award of indemnity costs.

18.  The Plaintiff nevertheless argues that the Defendant’s failure to constructively engage with and respond to the offer of 17 May 2022 coupled with what he contends to have been the Defendant’s unreasonable conduct in these proceedings should warrant an award of indemnity costs.

19.  In short, the Plaintiff contends that Defendant’s conduct in these proceedings was unreasonable in that the Defendant (a)  persistently delayed and denied the Plaintiff’s contractual and statutory entitlement to wages, (b)  adopted a “kitchen sink” approach in advancing its Defence and Counterclaim and in particular advanced a wholly unmeritorious counterclaim for unjust enrichment and (c)  threatened to commence other unmeritorious counterclaims such as breach of fiduciary duty and defamation. The Plaintiff places particular reliance upon the finding at paragraph 70 of my judgment to the effect that the resolution passed by the Defendant on 18 August 2021 purporting to nullify the recommendation or determination of the Remuneration Committee, made on 29 May 2020 did not in any way affect the Plaintiff’s contractual entitlement and was, in any case, misconceived.

20.  I have carefully considered each of the points advanced by the Plaintiff in support of his contention that the Defendants’ conduct of these proceedings was so unreasonable such as to justify an order for indemnity costs from 17 May 2022.  I have however concluded that the matters upon which the Plaintiff relies are not sufficient to justify such an order.  In particular:

a.  I do not consider that either the defences or the counterclaims which the Defendant put forward in these proceedings were so unmeritorious such as to justify such an order;

b.  I do not consider that the fact that in the LT Proceedings, the Defendant raised potential defences which were not pursued in the High Court to be material to this question, and

c.  The fact that I found that the resolution of 18 August 2021 was misconceived does not in my view bear on the reasonableness or otherwise of the Defendant’s conduct of the proceedings. In any case the resolution did not form any significant element of the Defence or the Defendants’ submissions.

21.  Accordingly, I decline to accede to the Plaintiff’s primary case as to indemnity costs.

E.  The Plaintiff’s alternative case on indemnity costs – the Plaintiff’s offer of 19 September 2023

22.  On 19 September 2023, the Plaintiff repeated the offer which was first made on 17 May 2022.  However, unlike the offer of 17 May 2022, the offer made on 19 September 2023 was a sanctioned offer under RHC Order 22.

23.  RHC Order 22 rule 24(3)  provides that where the plaintiff does better than he proposed in his sanctioned offer, “the Court may also consider 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.

24.  RHC Order 22 rule 24(2)  further provides that “the Court shall make the orders referred to in paragraphs (2)  and (3)  unless it considers it unjust to do so.

25.  The latest date on which the Defendant could have accepted the offer of 19 September 2023 without requiring the leave of the Court was 18 October and, on the Plaintiff’s alternative case for indemnity costs, such costs are sought from this date. 

26.  Clearly, the provisions of Order 22 rules 24(2)  & (3)  override and supplant the general principles for indemnity costs as per the authorities to which I have referred in paragraphs 10-12 above and in a case where Rule 24(3)  applies it is for the Defendant to satisfy the Court that an order for indemnity costs from the specified date would not be unjust.

27.  The Defendant submits that it would be unjust to make an order for indemnity costs on account of the non acceptance of the sanctioned offer and, in this respect, contends that:

a.  The  Defence and Counterclaim were plainly arguable;

b.  The sanctioned offer was made less than 3 months before trial after the bulk of the legal costs had been incurred;

c.  The Defendant was not in a position to make an informed decision whether to accept the sanctioned offer as the issues turned on intricate issues of both fact and law, and

d.  The terms of the sanctioned offer were far from generous, being premised on the counterclaim failing in its entirety and representing only a small discount of approximately 7% of the amount claimed.

28.  I do not agree with the Defendants’ submissions:

a.  Whilst I accept that the Defence and Counterclaim were arguable, I do not accept that this fact by itself justifies a departure from the default position under O. 22 rule 24 that indemnity costs should be awarded in the circumstances specified in O. 22 r. 24(3).

b.  I do not regard the fact that the sanctioned offer was made less than 3 months before trial as having any relevance. Significant legal costs would inevitably have been incurred thereafter;

c.  I do not accept that the Defendant was not in a position to make an informed decision as to whether to accept the sanctioned offer. Notwithstanding the complexity of the issues of fact and law, he had ample opportunity to seek and obtain an advice on the merits;

d.  I do not regard the fact that the sanctioned offer was premised on the counterclaim failing completely and that the discount from the amount claimed was small as being material. The fact is that the offer was vindicated and was bettered by my Judgment.

29.  Accordingly, I do not accept that there is any injustice in making an order for indemnity costs pursuant to Order 22 rule 24(3).

30.  The Costs Order Nisi will therefore be varied to provide that the costs of this action and the counterclaim (including the costs of the LT Proceedings)  as from 18 October 2023 shall be paid by the Defendant to the Plaintiff on the indemnity basis.

31.  It is also appropriate that the Defendant should pay enhanced interest on costs pursuant to Order 22 rules 24(2)  and (3)  in respect of the period from 18 October 2023 to 1 February 2024, being the date of the Judgment.  It can be assumed that the Plaintiff would have paid moneys on account to his solicitors in respect of these costs, but the Plaintiff has not adduced any evidence to show the actual amounts and dates upon which payments were made.  In these circumstances I will follow the “modified” approach to the award of enhanced interest which has been widely adopted in other cases, (notably by Johnson Lam J in Golden Eagle International (Group)  Ltd v GR Investment Ltd [2010] 3 HKLRD 273 and by Bharwaney J in Shih Pik Nog v G200 (Apparel)  Ltd [2011] 4 HKLRD 121)  and endorsed by the Court of Appeal in Antwerp Diamond Bank NV v Brink’s Incorporated (No 1) [2015] 4 HKLRD 628, by assuming a fully enhanced rate of interest at 4% above prime rate and awarding half that amount by way of interest on the award of indemnity costs in respect of  the relevant period (18 October 2023 to 1 February 2024).

F.  Order

32.  The Costs Order Nisi will therefore be varied (a)  to include the costs of the LT Proceedings, (b)  to provide for the taxation of the Plaintiff’s costs in respect of the action and the counterclaim on an indemnity basis from 18 October 2023 onwards and (c)  to award the Plaintiff interest on such indemnity costs at one half of 4% above the prime rate prevailing from time to time from 18 October 2023 to 1 February 2024.

G.  The Costs of this application

33.  The Plaintiff has prevailed on the issue as to whether or not the costs of this action should include the cost of the LT Proceedings; he has failed in respect of his primary case on indemnity costs, albeit succeeding in his alternative claim and has succeeded in his claim for enhanced interest (albeit on rather a different basis than that on which the application was based).  That being the case I have concluded that the appropriate order for costs in respect of this application is to award the Plaintiff 80% of his costs.

34.  The Plaintiff has lodged a statement of his costs in respect of this application for summary assessment. This amounts in total to HK$320,340 which includes the fees of both Senior and Junior Counsel.  I regard this as grossly excessive for what has been a fairly straightforward application to vary a costs order nisi which should not have required or warranted more than one counsel. By way of contrast, the statement of costs submitted by the Defendant amounted in total to HK$129,480.

35.  In all the circumstances I have decided to summarily assess the Plaintiff’s costs in respect of this application at the amount of HK$136,000 (80% of HK$170,000).

Mr Norman Nip SC, Mr Michael Lok and Mr Charlie Liu, instructed by Patrick Chu, Conti Wong Lawyers LLP, for plaintiff

Mr John Cheung, instructed by Holman Fenwick Willan, for defendant

HCA 1746/2021

[2024] HKCFI 319

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1746 OF 2021

____________________

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JUDGMENT

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A.Introduction

1.  This case concerns (a) claims by the Plaintiff (“P”) against the defendant (“D”) in respect of unpaid director’s fees, wages and other emoluments and (b) counterclaims by D against P to clawback past payments made to D on the grounds of unjust enrichment, D’s case being that such payments were not properly authorised and were paid by mistake.

2.  P’s claims were originally brought in the Labour Tribunal but were transferred to the High Court by order made on 1 November 2021.

3.  P’s claims fall into the following  categories:

(1)  fees for acting as director of D for the period from 1 March 2021 to 30 June 2021, amounting to HK$73,333.32;

(2)  wages in lieu of unused annual leave of 18.98 days, amounting to HK$1,056,730.19 (“Annual Leave Pay”); and

(3)  Fees attributable to P’s management role as director of wholly owned subsidiaries of D, namely, Springview Limited (“Springview”); Silveroute Limited (“Silveroute”), the Sincere Finance Company, Limited (“Sincere Finance”) and the Sincere Department Store (China) Limited (“Sincere China”) (collectively, the “Subsidiaries”), including directors’ fees entertainment allowances and management fees (a) in the period from March 2020 to February 2021, amounting in total to HK$8,244,000 (“P’s 2020/21 Remuneration Package”) and (b) in the period from March 2021 to June 2021, amounting in total to HK$3,067,999.99 (“P’s March – June 2021 Package”).

4.  The total sum claimed by P against D is HK$12,442,063.50 together with interest.

B.  Undisputed factual Background

5.  P is a member of the third generation of the Ma family (the “Ma Family”), the founder of the group of companies under the name and brand “Sincere”, which includes D (collectively, the “Group”).

6.  D is a Hong Kong company which was first established in 1919 and has since then carried on business in the retailing industry.

7.  Since 1972, D has been listed on the Main Board of the Hong Kong Stock Exchange and is subject to the applicable Listing Rules.  Until June 2021, when D came under the control of Realord Group Holdings Limited (“RGHL”) in the circumstances described later in this judgment, D was managed by and operated under the leadership of members of the Ma Family, including Mr Ma Walter King Wah (“Walter Ma”), until his demise in 2014, and P.

8.  P held the following senior managerial positions:

(1)  On 15 November 1990, P was appointed finance director of D.

(2)  In 1992, P was appointed an executive director of D.

(3)  In 1993, P was appointed Group Managing Director.

(4)  On 26 March 2012, P was promoted to Deputy Chairman and Chief Executive Officer (“CEO”) of D.

(5)  On 16 September 2014, after the death of Walter Ma, P was appointed as Chairman of D.

(6)  Between 16 September 2014 and 10 June 2021, P was Chairman, CEO, Executive Director and authorised representative of D.  P ceased to be Chairman and CEO of D on 11 June 2021.

(7)  From 11 June 2021 until his retirement on 1 July 2021, P was a Non-Executive Director of D.

9.  At various times in the nineteen nineties, P was nominated by the Board of Directors of D to serve as a director of the Subsidiaries and was appointed as such.

C.  P’s Employment with D

10.  In a letter dated 28 March 2012 written on D’s letterhead, signed on behalf of D by Walter Ma and headed “Confirmation of appointment as Deputy Chairman and Chief Executive Officer of the Company”, P’s appointment as Deputy Chairman and CEO was confirmed on the terms therein set out (“ConfirmationLetter”).  The Confirmation Letter was countersigned by P, signifying his acceptance of the appointment and the terms set out in the letter:

(1)  In Clause 1.1 of the Confirmation Letter it was provided that P’s appointment was subject to the requirements under the Listing Rules of the Stock Exchange of Hong Kong Limited, the provisions of D’s Articles of Association in force from time to time and any other applicable laws and regulations;

(2)  In Clause 4.2.1, it was provided that, during P’s appointment, he should perform “…such functions and exercise such powers as are appropriate to [P’s] position as Deputy Chairman and Chief Executive Officer of the Company”; and

(3)  In Clause 5, under the heading “Remuneration and Benefits, it was provided (under clause 5.1) that P would  be entitled to receive a fee (subject to review) of HK$110,000 per anum (payable on a yearly basis) and (under clause 5.2), that, as Deputy Chairman and Chief Executive Officer,  P would be entitled to a salary and other emoluments and benefits “…..recommended by Remuneration Committee from time to time.”

11.  Notwithstanding P’s succession to the post of Chairman on Walter Ma’s death, the Confirmation Letter and the terms therein set out remained effective and unchanged until P ceased to be Chairman and CEO of D on 11 June 2021.  It is common ground that it continued to govern P’s contractual relationship with D until P resigned from all positions with D on 1 July 2021.

12.  P never entered into any employment agreement with the Subsidiaries or with any other entities affiliated with D.  Nor was there any other letter or agreement governing any other position held by P, whether with D or with the Subsidiaries . 

D.  D’s Remuneration Committee

13.  On 1 January 2005, a new Code on Corporate Governance Practices (“the Code”), issued by The Stock Exchange of Hong Kong Limited, came into effect:

(1)  §B1.1 of the Code provides that “[i]ssuers should establish a remuneration committee with specific written terms of reference which deal clearly with its authority and duties.  A majority of the members of the remuneration committee should be independent non-executive directors.”

(2)  §B1.3 of the Code states that the terms of reference of the remuneration committee should include, as a minimum, the duties specified therein, including the duty “to have the delegated responsibility to determine the specific remuneration packages of all executive directors and senior management, including benefits in kind, pension rights and compensation payments, including any compensation payable for loss or termination of their office or appointment”.

14.  D’s Board, consisting of, inter alios, P and Walter Ma, adopted the Code as D’s own code of corporate governance practices.  As a result, D established a Remuneration Committee (“the RC”).  The duties, responsibilities and powers of the RC are set out in the RC’s written “Terms of Reference” (“the RC’sTOR”) which were approved by D’s board at its meeting on 4 August 2005.  The role of the RC “was to ensure that there was a formal and transparent procedure adopted by the Company for developing policies on, and for overseeing, the remuneration packages of all the directors of the Company”.

15.  Under the RC’s TOR, the RC was given, inter alia, “….the delegated responsibility to determine the specific remuneration packages of all executive directors and senior management, including benefits in kind, pension rights and compensation payments, including any compensation payable for loss or termination of their office or appointment…”. This wording is identical to §B1.3 of the Code.

E.  P’s Remuneration for the year ending 28 February 2021

16.  According to the minutes of the meeting of the RC on 29 May 2020, there was tabled before the meeting a proposal for the fixing of the remuneration packages of each of the directors of D in respect of the year ended 28 February 2021 (“the Proposal”).  The Proposal consisted of a table headed “The Sincere Company Limited – Proposed Directors Remuneration for the year ending 28 February 2021”.  In the table, the proposed remuneration for P (then the only executive director of D) was spread between D (director’s fee: HK$220,000 per year and salary; HK$503,655 per month), Springview (director’s fee: HK$300,000 per year; Management fee: RMB 300,000 per quarter and entertainment fee: HK$80,000 per month); Silveroute (director’s fee: HK$600,00 per year; management fee: USD50,000 per quarter); Sincere Finance (director’s fee: HK$600,000 per year; management fee: RMB 100,000 per quarter); Sincere China (director’s fee: HK$144,000 per year; management fee: USD100,000 per quarter) and The Sincere Company (Perfumery Manufacturers) Limited (director’s fee: HK$4,000 per year.  The Proposal was signed by Peter Tan, then a non executive director of D and the chairman of the RC.

17.  At the meeting of the RC held on 29 May 2020, the remuneration package of P for the year ending 28 February 2021, as stated in the Proposal, was approved “subject to shareholders approval in the forthcoming annual general meeting of the Company”

18.  On 7 August 2020, at D’s AGM (the “2020 AGM”), D resolved to authorise D’s Board to fix the directors’ “remuneration” for “the ensuing year”. The same resolution had been passed at every AGM since 2012.  In the AGMs held in 2010 and 2011, resolutions were passed authorising D’s board to fix the Directors’ “fees”[1]. Despite the difference in terms, I am satisfied that what was being referred to in each instance was the fees for the office of director rather than salaries and the like.  In none of the minutes of these AGMs was there any reference to resolutions passed by the RC or to any determinations or recommendations made by the RC.

19.  There was no board resolution of D approving or fixing the remuneration of P or any of the directors of D for the year ended 29 February 2021.  Indeed, none of the minutes of the meetings of D’s board prior thereto which were adduced in evidence contained any such resolution and none referred to any discussion of the subject of directors’ remuneration at board level until the board meetings held on 25 May 2021 and on 18 August 2021 which I will address later in this judgment

20.  In Note 27 to the financial statements for D which formed D’s Annual Report for 2020-21, P’s remuneration package for the year ended 28 February 2021 as executive director of D was stated as being HK$12,054,000, comprising HK$1,864,000 by way of fees; HK$10,184,000 by way of salaries, allowances and other benefits and HK$6,000 by way of Pension Contributions.  Although not expressly stated, these sums included fees and other remuneration attributable to P’s role with the Subsidiaries.

21.  In Note 41 to the financial statements for 2020/21, it was stated that the financial statements had been approved and authorised for issue by the Board of Directors of D on 30 June 2021.

F.  Events in the period from May to August 2021

22.  On 15 May 2021, RGHL and D issued a Joint Announcement, by which RGHL (as offeror) announced its intention to make a voluntary conditional cash general offer for shares in D through Realord Asia Pacific upon the satisfaction of various pre-conditions before the specified long stop date, 30 April 2021.

23.  In May 2021, P requested payment from D in relation to the 2020/21 Remuneration Package. The then Finance Director of D, Mr Kelvin Lee (“Kelvin Lee”), declined to authorise payment and replied that he needed to take instructions from D’s Board.

24.  The minutes of the D’s Board meeting on 25 May 2021 recorded, inter alia, that:-

(1)  P had briefed the board that he had issued legal letters to D demanding payment of the outstanding fees due to him.

(2)  P had requested Kelvin Lee to pay the outstanding fees and Kelvin Lee had replied that he needed to take instructions from the Board

(3)  “In view of the poor financial position of [D] in the last year, [P] has voluntarily agreed to postpone receiving the fees from [D]”.

(4)  “Up to February 2021, approximately a total of HK$8 million was due to [P]”.

(5)  The Board had been legally advised by its legal advisor, Messrs Anthony Siu & Co that “according to Employment Ordinance, the Company has responsibility to pay salary to staff and cannot exceed seven days after the last day of the wage period.  If the Company knowingly does not pay salary to the staff, it is a criminal offence and liability can extend to the Company’s director, manger (sic) or secretary.  The maximum penalty is HK$350,000 and 1.5 years imprisonment” and “it is illegal for a company to assume the delay in payment of salary”.

(6)  “Enquiry was made on the four subsidiaries of [D] which had minimal operations and the justification on the amounts of the management fees.  [P] explained the amounts of management fees has been carried forward for many years since the former Chairman, Mr Walter Ma.  The executive director fee was spread into the subsidiaries.  In the past 10 years it was the same, spread the executive director’s compensation into the subsidiaries as the subsidiaries had no cash.  The fees have been approved by the remuneration committee and therefore to discuss the justification was meaningless at this stage”.

(7)  “It was agreed that Kelvin Lee to propose a proposal to settle the outstanding fees for the Board’s consideration by the end of this week.”

25.  On 26 May 2021, Kelvin Lee suggested that, after having taken into account the tight cash flow position of D, a partial payment of $86,000 should be made to P.  Whilst Anders Lau (one of D’s non executive directors) responded by email, saying that he was “fine” with the suggested amount, he later said that he had to “retrieve” the email and asked that his comments be ignored.  It would seem that no other director of D commented on Mr Lee’s proposal and no such sum was paid to P.

26.  On 3 June 2021, RGHL acquired approximately 79.51% of the entire issued share capital of D.  D thereby came under the control of RGHL with effect from that date.

27.  On 8 June 2021, D announced that P has tendered his resignation as D’s Chairman, CEO, Executive Director and authorised representative with effect from 1 July 2021.

28.  On 17 June 2021, P brought a claim against D in the Labour Tribunal (LBTC 2236/2021) for the sum of HK$8,244,000 (being the claimed remuneration attributable to P’s role vis a vis the Subsidiaries for the period from March 2020 to February 2021 – see paragraph 3(3) above).

29.  By 1 July 2021, P had ceased all employment and/or contractual relationship with D.

30.  Under cover of a letter dated 7 July 2021, written by D to P, D sent P a cheque for HK$495,244 which, according to D, represented payment of salary in respect of P’s employment with D for the period from 1-11 June 2021 (HK$184,674) and “leave payment” (i.e. wages in lieu of unused annual pay (HK$310,570) and also a cheque for HK$390,000 as a long service payment.

31.  In the letter of 7 July 2021:

(1)  the following points were “noted”:

(i)    “your salary for the period from 1 March 2021 to 30 June 2021 as the chairman and chief executive officer of the Company has not been determined or approved by the Board and/or [the RC”];

(ii)   you ceased to act as the chairman and chief executive office of the Company with effect from 11 June 2021; and

(iii)  for the reasons stated in (i) and (ii) above, the Company did not have an authorised amount of your salary for the period from 1 March 2021 to 30 June 2021 which is required to form the basis of your final salary, leave payment and/or director’s fee.”

(2)  it was stated that the payment of HK$495,244 (“the Payment”) was “conditional”, based as it was on P’s salary of HK$503,655 for the month of February 2021 (i.e. that part of P’s remuneration package as approved by the RC at its meeting of 29 May 2020 attributable solely to P’s role directly with D, excluding P’s role vis a vis the Subsidiaries), and

(3)  it was also stated that the payment was “….made on the condition that, subject to the determination by and approval of the Board and/or the [RC], the Company reserves the right to claim back from you and request for the return of any excess amount paid by the Company to you for (a) the Payment and (b) the salary already paid to you in the aggregate amount of HK$1,057,674 for the period from 1 March 2021 to 31 May 2021.”

32.  Subsequently, in August 2021 D paid the following additional sums to P:

(1)  HK$67,222.22, purportedly as fees for P acting as a director of D for the period from 1 March 2021 to 30 June 2021; and

(2)  HK$318,981, purportedly as salary from 12 -30 June 2021.

33.  In a meeting of D’s board of directors held on 18 August 2021, a resolution was passed, purporting to “nullify” P’s 2020/21 Remuneration Package (the “18 August 2021 Resolution”).  The minutes of the meeting contained, inter alia, the following statements:

(1)  “Following the 2020 AGM, the Board has never passed any further resolutions in relation to the Philip Ma 20/21 Remuneration Package and accordingly the Philip Ma 20/21 Remuneration Package has never been approved up to the date hereof.”

(2)  In relation to the Directors’ remuneration “conditionally approved by the RC in the May 2020 Meeting”:

(a)  The RC was “clearly ill-informed as it had not been provided with all material information (particularly the operational and financial information relating to the Relevant Subsidiaries)”; and

(b)  In any event and in so far as the Subsidiaries are concerned, such “conditional approval was only in the nature of an agreement-In-principle by the Company in its capacity as the holding company, and even after the condition of the approval was fulfilled final approval would be required to be made by each of the Relevant Subsidiaries in accordance with its articles of association”.

(3)  “As the cash flow and the financial position of the Group taken as a whole for the financial year ended 28 February 2021 and up till now were and has been in poor condition, those director’s fees and the management fees for Mr Philip Ma under the Philip Ma 20/21 Remuneration Package which had not been properly approved by the Relevant Subsidiaries be and are hereby nullified and cancelled to all intents and purposes.”

34.  On 18 August 2021, the Boards of the Subsidiaries also resolved that “no director fee or management fee or any other remuneration of whatsoever nature shall be payable to Mr Philip Ma ... (b) for the period from 1 March 2021 to 30 June 2021 (both dates inclusive)”

35.  It is not clear from the evidence whether or not the RC ever met again following the 18 August 2021 Resolution.  If it did, there is no evidence that it ever considered P’s remuneration for 2021/2022 or made any determination or recommendation concerning it.  In the light of the 18 August 2021 Resolution, the overwhelming probability is that it did not.

G.  The Central Questions in respect of P’s claims

36.  The central questions which arise in respect of P’s claim for directors’ fees and other remuneration for the year ended 28 February 2021 are:

(1)  The effect of D’s Articles of Association and those of the Subsidiaries upon the interpretation of Clause 5 of the Letter of Confirmation; whether clause 5.1 and/ or clause 5.2 is in conflict with them and, if so, whether those clauses are ultra vires and therefore unenforceable;

(2)  As regards clause 5.1 of the Letter of Confirmation, how and by whom was P’s stated director’s fee fixed and was the fixing of P’s director’s fee then and in subsequent years in accordance with that clause and D’s Articles of Association;

(3)  Additionally, as regards the interpretation of Clause 5.2 of the Letter of Confirmation:

(a)  Whether this clause covers P’s remuneration in respect of P’s role vis a vis the Subsidiaries; and

(b)  whether anything more was required to trigger P’s entitlement to remuneration beyond the recommendation of the RC.

(4)  Whether the resolution passed at the meeting of the RC on 29 May 2020, approving the Proposal tabled before it “subject to shareholders approval….” was sufficient to trigger P’s entitlement to remuneration for the year ended 28 February 2021;

37.  As regards P’s claims for remuneration for the period from March to June 2021 the principal question which arises is whether, in the absence of the convening of a meeting of the RC to consider or make recommendations as to remuneration to be paid to P for that period there was a breach by D of implied terms of the Confirmation Letter which, it was agreed, were (a) that D should not do any act to put an end to the state or circumstances which entitled P to remuneration or benefits in respect of his role as regards the management of D; (b) that D should exercise its contractual discretion and/or power in determining P’s remuneration in good faith, rationally and for a proper purpose and not arbitrarily or capriciously or in a manner which is not bona fide and/or (c) that D should not without reasonable and proper cause conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of mutual trust and confidence between itself as employer and P as employee.

H.  The Letter of Confirmation – Principles of Contractual Interpretation

38.  The general approach to contractual interpretation has recently been discussed by the Court of Final Appeal in Eminent Investments v DIO Corp (2010) 23 HKCFAR 487.  At paragraphs 43 & 44 of the Judgment of Ribeiro PJ and Lord Collins of Maplesbury NPJ, it was stated as follows:

“43.  It is a truism that the starting point is the ordinary and natural meaning of the words of the contract, and of course in the vast majority of cases that is the ending point also.  But, as Ma CJ pointed out in Fully Profit (Asia) Ltd v Secretary for Justice,28 in the more difficult cases it is not particularly helpful to refer to the “ordinary and natural meaning” of words because in such cases there can be much debate over exactly what is the ordinary or natural meaning of words; and in those cases the surer guide to interpretation is context.

44.  In Wood v Capita Insurance Services Ltd,29 Lord Hodge JSC reviewed the many cases on interpretation and emphasised that interpretation was a unitary exercise.  That is why, where there are conflicting interpretations, account should be taken of the natural and ordinary meaning of the provision in question, the purpose of the contract and of the provision, other relevant provisions, the facts and circumstances known or assumed by the parties at the time that the contract was executed, the quality of the drafting of the instrument, and commercial common sense.”

39.  Although the context or setting in which a contract and the purpose for which a contract is made are important considerations in interpreting a contract “…if the ordinary meaning of the words make sense in relation to the rest of the document and the factual background then the Court will give effect to that language, even though the consequences may appear hard for one side or another….” (per Lord Hoffman NPJ in Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279, cited with approval by Tang PJ in Sinoearn International Ltd v Hyundai-CCECC Joint Venture (2013) 16 HKCFAR 632 at [77]).

40.  Similarly, in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 [P#27] at §23, Lord Clarke said that “Where the parties have used unambiguous language, the court must apply it…”:.

41.  As to context, the following extracts from The Interpretation of Contracts (7^th Ed) are material:

“   In order to arrive at the true interpretation of a document, a clause must not be considered in isolation, but must be considered in the context of the whole of the document” (§7.07) and “The expression of this principle of construction is no more than an enlargement of the general proposition that an individual word takes its meaning from the context in which it is found, which is now the single most important principle in the modern approach to the interpretation of contracts”: (§7.10)

42.  The approach to the related exercise of contractual implication is well-summarised by Lord Hughes JSC in Ali v Petroleum Co of Trinidad and Tobago [2017] ICR 531 (PC) [D#3]:

“ 7. … the process of implying a term into a contract must not become the rewriting of the contract in a way which the court believes to be reasonable, or which the court prefers to the agreement which the parties have negotiated. A term is to be implied only if it is necessary to make the contract work, and this is may be if (i) it is so obvious that it goes without saying… and/or (ii) it is necessary to give the contract business efficacy. Usually the outcome of the of either approach will be same. The concept of necessity must not be watered down. Necessity is not established by showing that the contract would be improved by the addition. The fairness of equity of a suggested implied term is an essential but not a sufficient precondition for inclusion. And if there is an express term in the contract which is inconsistent with the proposed implied term, the latter cannot, by definition, meet these tests, since the parties have demonstrated that it is not their agreement”.

43.  The inter-relationship between the exercises of contractual interpretation and implication has been explained by Lord Neuberger PSC in Marks & Spencer plc v BNP Paribas Securities ServicesTrust Co (Jersey) Ltd [2016] AC 742 as follows:

“ 28. In most, possibly all, disputes about whether a term should be implied into a contract, it is only after the process of construing the express words is complete that the issue of an implied term falls to be considered. Until one has decided what the parties have expressly agreed, it is difficult to see how one can set about deciding whether a term should be implied and if so what term… Further, given that it is a cardinal rule that no term can be implied into a contract if it contradicts an express term, it would seem logically to follow that, until the express terms of a contract have been construed, it is, at least normally, not sensibly possible to decide whether a further term should be implied”.

44.  Subsequent conduct of the parties is generally inadmissible when construing a contract: Marble Holding Ltd v Yatin Development Ltd (2008) 11 HKCFAR 222 at §22 per Mortimer NPJ; SNE Engineering Co Ltd v Chime Kee Machinery Co Ltd (Unreported, CACV 101/2016, 11 July 2017) at §52 per G Lam J (as he then was).

I.  The effect of Articles of Association on a service agreement between a company and executive director

45.  The above principles apply to the interpretation of a service agreement between a company and an executive director, just as they do in respect of any other contract.  It is argued on D’s behalf that, in addition, in such a case, the articles of association of the company are implied into the service agreement. In support of this proposition the following passage, at paragraph 8.26D of Company Directors; Law and Liability is relied upon:

“ The Company is not at liberty to engage a director under a service agreement on terms which are in direct conflict with its articles as they are at the time of appointment (Bluett v Stuchbury’s Ltd [1908] 24 T.L.R. 469, as the articles themselves are implied into the service agreement.”

46.  I do not read the judgment in Bluett v Stutchbury’s as being authority for the broad proposition advanced in Company Directors: Law and Liability to the effect that there must be a wholesale implication of a company’s articles into a director’s service agreement and in my view this statement should be read with caution.  However I do accept that a service agreement between the company and an executive director is subject to and should be read with those provisions in the articles of association of a company which are concerned with the appointment of directors, their terms of service, their remuneration and their powers and duties.  Indeed, by clause 1.1 of the Confirmation Letter, P’s appointment thereunder was expressly made subject to the provisions of D’s Articles in force from time to time.

47.  In Bluett v Stutchbury’s, the plaintiff was appointed by the board of the defendant company as managing director under a service contract for 4 years, but the articles only authorised the board to appoint directors “until the next following ordinary general meeting”.  The plaintiff failed to secure re-election as a director at the next ordinary general meeting and the defendant company gave him notice to determine the appointment.  The plaintiff brought an action against the company for damages for breach of the agreement.  It was held by the English Court of Appeal that (a) as the plaintiff had not been re-elected as a director of the company, he could not be a managing director, and therefore the agreement came to an end and (b) the directors had no power to the plaintiff a managing director for four years whether the company re-elected him a director or not.

48.  On the other hand, in Southern Foundries (1926) Limited v Shirlaw [1940] AC 701, by a service agreement between Southern Foundries and Mr Shirlaw, Mr Shirlaw, a director of Southern Foundries, was appointed managing director for a term of 10 years.  However, the articles of association contained a clause empowering the company to pass an extraordinary resolution to determine Mr Shirlaw’s appointment by removing him as a director even before the period of his office had expired.  The company passed such a resolution and Mr Shirlaw was removed from office .  On Mr Shirlaw’s claim for wrongful dismissal and breach of contract, the House of Lords held that Mr Shirlaw was entitled to receive damages for breach of contract even though the fixed term appointment in his service contract was inconsistent with the articles.

49.  Similarly, in Shindler v Northern Raincoat Co Ltd [1960] WLR 1038, under a service agreement between the plaintiff and the defendant company, the Plaintiff was appointed managing director for a fixed term of 10 years.  Before the expiry of this term he was removed from office as director at an extraordinary general meeting of the company and pursuant to the articles of association his appointment as managing director automatically terminated.  Diplock J., as he then was, held that there was an implied term in the service agreement that the defendant company would do nothing of its own motion to put an end to the state of circumstances which enabled the plaintiff to continue as managing director and that accordingly, the defendant was in breach of its contract with the plaintiff for which the plaintiff was entitled to damages.

50.  The distinguishing feature of the decision in Bluett v Stutchbury’s on the one hand and those in the Southern Foundries case and Shindler on the other would therefore appear to be that whilst, in Bluettv Stuchbury’s, the plaintiff’s service contract came to an end simply by operation of the articles and the fact that he was not re-elected as a director, the service contracts in Southern Foundries and Shindler came to an end by reason of a positive act on the part of the each company which was held to be in breach of the implied term referred to by Diplock J in Shindler.

J.   Clause 5 of the Confirmation Letter and the Articles of Association

51.  It is important to distinguish between clause 5.1 of the Confirmation Letter which provided that P would be entitled to receive a fee of HK$110,000 per annum “subject to review” (which in my judgment was clearly intended to be in the nature of a fee in respect of P’s office as a director of D), from clause 5.2 which related to the remuneration to which P was entitled for his executive duties as Deputy Chairman and CEO.

52.  Clause 5.1 must be read subject to Article 57 of D’s Articles of Association which is in the following terms:

“ All business relating to the reading, consideration and adoption of the reporting documents, the election of Directors in the place of those retiring at the meeting whether by rotation or otherwise, the appointment of the auditors (where special notice of the resolution for such appointment is not required by the Ordinance) and the fixing, or the determination of the method of fixing, of the remuneration of the Directors and of the auditors shall be transacted at the annual general meeting”

53.  Article 57 itself must be read with and is subject to Article 104 which is in the following terms:

“ Notwithstanding Articles 87, 88, 89 and 90, the remuneration of a Managing Director, Joint Managing Director, Deputy Managing Director, Executive Director, General Manager or joint General Manager or a Director appointed to any other office in the management of the business of the Company shall from time to time be fixed by the Directors and may be by way of salary, commission participation in profits or otherwise by all or any of those modes and with such other benefits (including pension and/or gratuity and/or other benefits on retirement) and allowances as the Directors may from time to time decide. Such remuneration shall be in addition to his remuneration as a Director”

54.  It is thus clear that, as regards the directors of D, the ambit of Article 57 is confined to the fixing of fees for acting in the office of a director whilst the fixing of other remuneration (e.g. salaries for executive roles within D) is governed by Article 104.

55.  It follows from the above that whilst Article 57 is material in considering the interpretation of Clause 5.1 of the Confirmation Letter and P’s claims in respect of directors’ fees, it is not material to the interpretation of Clause 5.2 of the Confirmation Letter or P’s claims in respect of remuneration other than directors’ fees.

56.  In the succeeding paragraphs of this judgment I will first consider the proper interpretation and the question of the enforceability of Clause 5.2 of the Confirmation Letter; I will then consider P’s claims thereunder and will then move on to consider the proper interpretation/enforceability of Clause 5.1 and P’s claims made thereunder for director’s fees.

K.  Remuneration (other than fees for P’s office as a director) - Clause 5.2 of the Confirmation Letter

57.  The wording of Clause 5.2 of the Confirmation Letter is in my view clear and unambiguous – it provides that the recommendation by the RC as to the salary, other emoluments and benefits of P as Deputy Chairman and Chief Executive Officer of D, by itself and without more, gives to P an entitlement to be paid such salary, emoluments and benefits by D as per the RC’s recommendation.

58.  Article 104 of DS’s Articles of Association gives D’s directors the power to decide on and fix such remuneration and under Article 113, the directors were entitled to delegate its powers to committees.  The power to fix or determine the remuneration of executive directors and managers was in fact delegated to the RC by the appointment of the RC and the adoption by the board of the RC’s TOR.  By virtue of Article 114, all acts done by a committee to which a power of the directors is delegated has the like force and effect as if done by the directors.

59.  In my judgment, the resolution passed at the meeting of the RC on 29 May 2020, approving the remuneration package of P for the year ending 28 February 2021 as stated in the Proposal referred to in the minutes amounted to a “recommendation” within the meaning of Clause 5.2 of the Confirmation Letter notwithstanding that that approval was expressly subject to shareholders approval at D’s then forthcoming annual general meeting.

60.  As noted in paragraph 16 above, in the “Proposal” tabled before the RC meeting on 29 May 2020, headed “The Sincere Company Limited – Proposed Directors Remuneration for the year ending 28 February 2021”, the proposed remuneration for P was allocated as between P’s roles vis a vis D, on the one hand, and his roles vis a vis each of the Subsidiaries on the other and, as regards those roles, P’s proposed remuneration was further split between director’s fees and other remuneration.

61.  The questions therefore arise (a) as to whether or not the recommendation as a whole fell within the scope of Clause 5.2 of the Confirmation Letter;  (b) whether only that part of the recommendation, specifically allocating P’s proposed remuneration in respect of Ps roles vis a vis D (as distinct from the remuneration allocated to his roles as regards the Subsidiaries) fell within its scope and (c) whether or not the RC’s recommendation concerning fees to be paid to P as a director of  D fell within the scope of Clause 5.2.

62.  The question raised in paragraph 61(c) above can be disposed of very shortly: I am satisfied that, on any basis, the RC’s recommendation as to the directors’ fees to be paid to P was, when it was made, beyond its remit.  In the first place, as I have mentioned in paragraph 15 above, the RC’s TOR was confined to determining (or recommending) the remuneration packages for executive directors and senior management (which in my view does not cover directors’ fees) but more importantly, the payment of directors’ fees is governed by Clause 5.1 of the Confirmation Letter which gives no role to the RC and Article 57 of D’s Articles of Association in effect provides that exclusive power to fix such remuneration rests with the shareholders in annual general meetings.

63.  In determining the questions raised in paragraphs 61 (a) and (b), it is important to bear in mind:

(1)  that the RC was D’s committee (and D’s committee only) and was comprised solely of executive and non executives of D;

(2)  consistent with this is the heading to the Proposal: “The Sincere Company Limited – Proposed Directors Remuneration for the year ending 28 February 2021”;

(3)  the RC was not a committee of any associate or subsidiary of D and it is common ground that it had no powers on behalf of any associate or subsidiary to fix the fees, remuneration or other benefits of those acting as directors of any such associate or subsidiary company;

(4)  the practise of the RC in earlier meetings:

(a)  between 2012 and 2018, the “remuneration packages” of individual Executive Directors and senior management (including P) were noted and such increments as the RC resolved should be awarded for each of the forthcoming financial years were expressed as percentage increases over and above the then existing remuneration packages; and

(b)  although, for the most part, the precise details of the “remuneration packages” of the executive directors and senior management, to which reference was made in the minutes, were not specified, the “remuneration packages” which were referred to were clearly those set out in D’s financial statements as contained in D’s Annual Reports which set out the remuneration of D’s directors and senior managers in lump sums without any breakdown or allocation as between D and the Subsidiaries.  This was explicitly the case in respect of the minutes of the meeting of the RC held on 28 October 2016, to which there was attached an extract from D’s annual report for 2015/16 detailing the remuneration of the directors in lump sums, without reference to the Subsidiaries.

(5)  notwithstanding that, from at least 2015 onwards, the minutes of meetings of the boards of each respective Subsidiary recorded that it had been resolved to recommend payment of fees to their respective directors and according to the minutes of the annual general meeting of each Subsidiary, such payments were approved,  it is clear from the evidence that, each year, at least from 2012, P’s total remuneration as Deputy Chairman (and from 2014, Chairman) and CEO of D and in respect of P’s role vis a vis the subsidiaries was paid entirely by D and in each Annual Report of D from 2005 onwards, P’s remuneration (in respect of all such roles, whether as Deputy Chairman/Chairman and CEO of D or in respect of P’s role vis a vis the Subsidiaries) was disclosed as a lump sum, encompassing both.

64.  In Ps cross examination it was put to him that it was extraordinary for him to have been paid the remuneration which was paid in respect of his role vis a vis the Subsidiaries given that, latterly, they allegedly had little or no business.  In response, P said as follows:

“ I think one needs to look at the entire picture and not just look at the four subsidiaries…..the allocation was done by D as to which subsidiaries to charge to, that’s the crunch job of the company, D, as to how to allocate ED [executive directors] or senior management time and resources to the different subsidiaries…it is D’s prerogative to allocate how much to charge each subsidiary, these have passed through the auditors as they look at the books of each company and subsidiaries…..I am the one that suggested the allocation but the overall amount was not suggested by me. It was not determined by myself but by the RC. My job was to allocate the total sum to the 4 subsidiaries, 5 subsidiaries, whatever makes sense for the best interest of the company for planning, tax, whatever reason.”

65.  In all the circumstances which I have summarised above, I have no hesitation in accepting P’s evidence that, in effect, the recommendations of the RC as to the remuneration packages of the directors and senior managers of D were recommendations as to the remuneration to be paid to them by D and that the splitting or spreading that remuneration between D and the Subsidiaries was simply a reflection as to how D was to charge the Subsidiaries for the remuneration which it was paying.

66.  Credence to P’s evidence as set out in paragraph 65 above was lent by the evidence given on behalf of D by Tsang Chin Pang, Vice President of D since November 2021.  In cross examination, Mr Tsang agreed that, although he had no first hand knowledge of the facts and matters with which this action is concerned, there was no reason to doubt P’s evidence as summarised in paragraph 64 above. Mr. Tsang agreed with the proposion which was put to him that P’s remuneration was based on a lump sum and not split between the Subsidiaries, adding that “… normally, as a listed company, the remuneration received by a certain director of course would be a lump sum all from the subsidiaries and it would be disclosed as a lump sum … it would be disclosed definitely by way of a lump sum.”

67.  Amongst the documentary evidence in this case are documents entitled “Directors Fees and Other Allowance” in respect of the financial years commencing 2015/16, setting out directors’ fees, entertainment allowances and quarterly management fees for each of the Subsidiaries.  Each such document is signed by P, signifying his approval thereto.  These documents serve to corroborate P’s evidence that it was he who decided or ultimately decided upon the allocation of these fees and expenses between the Subsidiaries.

68.  In all the circumstances I am satisfied that the resolution passed at the meeting of the RC on 29 May 2020, approving the remuneration package of P for the year ending 28 February 2021 was a recommendation within the meaning of Clause 5.2 of the Confirmation Letter as regards the entirety of the Proposal which was tabled before the meeting (save only as regards P’s fees for acting in the office of a director of D).

69.  I would add that, in the light of the matters I have outlined above, which give context to the Confirmation Letter, I am satisfied that, on the proper interpretation of Clause 5.2,  the capacity and role in respect of which P is contractually entitled to be remunerated by D, namely that of D’s former Chairman and Chief Executive, extends to the role he had vis a vis the Subsidiaries, which I find was incidental to the position P held with D and part of his functions and powers as provided for in clause 4.2.1 of the Confirmation Letter.  In this respect it is important to bear in mind that, at all material times, P was head of the Group of which D was the parent company.  This was so at the time of the execution of the Confirmation Letter when he held the position of Chief Executive Officer, even though he was then deputy Chairman.  Again, the evidence of Mr Tsang is of relevance – in cross examination he agreed that as a director of a listed company, P necessarily had to deal with the affairs of D's subsidiaries.

70.  It follows from all I have said above in this section of my Judgement that I am satisfied that P is contractually entitled to recover from D, the remuneration claimed by him attributable to the role he performed vis a vis the Subsidiaries, in the period from March 2020 to February 2021, in the sum of HK$8,244,000.  In this respect I have concluded that the 18 August 2021 Resolution, purporting to “nullify” the recommendation or determination of the RC (see paragraph 34 above) did not in any way affect P’s contractual entitlement and was in any case misconceived.  In particular:

(1)  as P’s entitlement to remuneration under Clause 5.2 of the Remuneration Letter arose on the making of a recommendation by the RC, it was triggered simply by such a recommendation without the need for more and was not conditional on either Shareholders’ approval or on any endorsement or any other act by the board;

(2)  in any case, the board had delegated responsibility for determining the remuneration packages of all executive directors and senior management to the LC without qualification or reservation, as it was entitled to do; and

(3)  the suggestion that, in approving P’s remuneration package, the RC was “ill informed” because it had not allegedly been provided with all material information concerning the financial situation of the Subsidiaries and that such approval was conditional upon the approval of the Subsidiariesis misconceived.  In the first place there is no evidence to support the allegation that there was any deficiency in the financial information provided to the RC but, more importantly, this argument ignores the fact that, as I have found, the remuneration approved by the RC was remuneration to be paid to P by D for his services to D and the Group (which remuneration was in fact wholly paid by D) and the allocations made in respect of P’s roles vis a vis the Subsidiaries were in the nature of charges to be made by D to the Subsidiaries in respect of those roles.

L.  Remuneration for P’s role vis a vis the Subsidiaries in period from March -June 2021

71.  As I have observed above, either the RC did not meet to consider the remuneration for executive directors/senior management in respect of the period from March 2021 or, if it did meet, it did not consider, determine or recommend any remuneration package for P.

72.  There is no doubt that the effect of the 18 August 2021 Resolution was to effectively prevent the RC from considering, recommending or approving any remuneration for P for the period from March 2021 which has had the result of depriving P of a substantial part of remuneration for the period during which he worked for D from March – June 2021 which he would otherwise have reasonably expected to receive for this period.  This was contrary to previous practise and contrary to P’s legitimate expectation that that practice would continue.

73.  I am satisfied that the actions by the board were in breach of the implied terms which I have summarised in paragraph 37 above for which P is entitled to recover damages.

74.  There is in my view no reason to believe that, had the RC properly considered the remuneration to be paid to P for the period from March 2021, it would have determined that such remuneration should have been any less than the remuneration it approved for the previous year.  Accordingly, it seems to me to be reasonable to assess damages pro rata for the period from March – June 2021 (4 months) by reference to P’s 2020/21 remuneration attributable to Ps’ role vis a vis the Subsidiaries which would give rise to a quantum of damages amounting to HK$3,068,000.  I so assess damages under this head in that amount.

M.  Directors’ fees - Clause 5 (1) of the Confirmation Letter

75.  As I have said above, Clause 5(1) of the Confirmation Letter must be read subject to Article 57 of the Articles of Association, which, insofar as is material, required that “all business relating to……the fixing, or the determination of the method of fixing, of the remuneration of the Directors…..shall be transacted at the annual general meeting”.

76.  The terms of Article 57 of D’s Articles of Association as regards directors’ remuneration are rather different from the usual form of provision which commonly provides (without qualification and in mandatory terms) that directors’ fees (or even the salaries of executive directors) must be determined by the company in general meeting.  For example, Article 28(1) of the Model Articles for Public Companies Limited by Shares, prescribed by the Companies (Model Articles) Notice, cap 622H provides that “Directors’ remuneration must be determined by the company at a general meeting.”

77.  Thus, in Kerr v Marine Products Limited [1928] T.L.R. 292 which concerned a claim for remuneration pursuant to a director’s service agreement and articles of association which required that directors’ remuneration had to be determined by the company in general meeting, it was held that, as the plaintiff’s remuneration has not been determined by the defendant company in general meeting as required by the company’s articles, the plaintiff could not recover and was required to repay to the company the money which had been paid to him pursuant to the agreement

78.  Article 57 of D’s Articles of Association however expressly allows the shareholders of D at an annual general meeting either to fix the remuneration of the directors themselves or to pass a resolution for the determination of the method of fixing such remuneration in some other way.  Hence, Kerr v Marine Products is distinguishable on its facts from the present case.

79.  According to the minutes of the AGMs of D held since August 2007, resolutions “Directors’ Fees” or “Directors’ Remuneration” were dealt with as follows:

(1)  at the AGM held on 3 August 2007, it was noted that the directors’ “remuneration” for 2006/7 was HK$110,000 and it was resolved that the directors’ “remuneration” be fixed at that sum for each director of the board for “the coming year” with the chairman receiving double that amount;

(2)  at the AGM held on 1 August 2008, under the marginal note “Fix the Director’s fee”, it was noted that the directors’ “remuneration” for 2007/8 was HK$110,000 and it was resolved that the directors’ “remuneration” be fixed at that sum for each director of the board for “the coming year” with the chairman receiving double that amount;

(3)  at the AGM held on 28 August 2009, under the marginal note “Fix Director’s Fee”, it was noted that the Directors’ “remuneration” for 2008/9 was HK$110,000 and it was resolved that the directors’ “remuneration” for the coming year for each member of the board would be HK$80,000 apart from the Chairman who, it was resolved, should receive double that amount.

(4)  at each of the AGMs held on 6 August 2010 and 5 August 2011, under the marginal note “Fix Director’s Fee”, a resolution was passed authorising D’s Board of Directors to fix the directors’ “fee” for “the ensuing year”; and

(5)  at the AGM held on 20 July 2012 and at every succeeding AGM,  including that held on 7 August 2020, under the marginal note “Fix the Directors’ Remuneration”, resolutions were passed authorising D’s Board of Directors to fix the directors’ “remuneration” for “the ensuing year”.

80.  It is clear from this summary that, at D’s AGMs, the terms: director’s or directors’ “fee” and director’s or directors’ “remuneration” were interchangeable and referred to the fee payable to each director for holding office as such, as distinct from the remuneration payable to an executive director for carrying out his duties as such.

81.  I am satisfied that the resolutions which were passed at each of D’s AGMs from 2010 onwards, resolving that D’s board of directors be authorised to fix “the directors’ fee” or “the directors’ remuneration” for the ensuing year were within the ambit of Article 57 and valid and effective, being resolutions for the determination of the method of fixing such remuneration.

82.  The only board minutes which were adduced in evidence in respect of the period from 2005 to 2012 were in respect of (a) the meeting held on 4 August 2004 at which it was resolved to establish the RC, (b) the 845^th meeting held on 4 December 2007, (c) the 892^nd meeting held on 31 May 2012 and (d) the 893^rd meeting held on 27 July 2012.  There were therefore 45 meetings between 4 December 2007 and 31 May 2012, the minutes of which were not adduced in evidence.  It was during this period that the Confirmation Letter dated 28 March 2012 came into existence.

83.  The Confirmation Letter was written on D’s letterhead;  it was signed on behalf of D by Walter Ma in his capacity as D’s Executive Chairman and the opening paragraph reads: “We [i.e. D] hereby write to confirm your appointment as Deputy Chairman and Chief Executive Officer of the Company, being an Executive Director, on the following terms……”.  In view of all of this, notwithstanding that none of the board minutes which were adduced in evidence at around the time the Confirmation Letter was signed made mention of the Confirmation Letter, P’s appointment thereunder, any discussion on the subject of directors’ fees or directors’ remuneration or any resolutions passed in respect thereof, I find on the balance of probabilities that the issue of the Confirmation Letter and its terms were properly authorised by D’s board of directors and, in particular, the director’s fee specified in clause 5.1 was fixed and  properly authorised by the directors, at least as regards the period from 28 March 2012 to 28 February 2013.

84.  I should also mention that, amongst the trial bundles, there is a single sheet, stamped “Received 4 AUG 2011” and headed “The Sincere Company Limited – Directors’ Fee for 2011-2012”, setting out the director’s fees for each of the then directors of D, i.e. HK$110,000 for each director and HK$220,000 for Walter Ma who was then Chairman of D (i.e. a resumption of the levels of fees fixed at the AGMs held on 3 August 2007 and 1 August 2008).  Similar sheets setting out the fees of the directors of D were adduced in evidence in respect of the years 2013/2014, 2014/2015, 2015/2016, 2016/2017, 2017/2018, 2018/2019, 2019/2020 and 2020/2021.  In each of these, the directors’ fees were stated as being HK$110,000, apart from those of the Chairman (Walter Ma, until his death in September 2014, and thereafter, P) whose remuneration remained constant at HK$220,000.  Each of these documents appears to bear the signature of P.  Notwithstanding that no evidence was adduced as to their provenance, I find that, in all the circumstances, and on the balance of probabilities, they reflected the determination of the board of directors from time to time as to the amounts to be paid to its directors and chairman by the way of directors’ fees.

85.  I would add that, as was the case with the meeting of the RC on 29 May 2020, at which approval was given to the remuneration packages of each of the Directors of D in respect of the year ended 28 February 2021 in accordance with the table which was presented to the meeting which included, inter alia, a proposed director’s fee of HK$110,000 for each of the directors of D and HK$220,00 for P as D’s Chairman (see paragraph 16 above), similar approvals were given to the directors’ remuneration packages (including P’s director’s fee of HK$220,000) at the meetings of the RC held on 25 May 2018 & 27 May 2019 in respect of the years ending 28 February 2019 and 28 February 2020.  In each case, the Proposal was signed by Peter Tan, an independent non executive director of D and Chairman of the RC.

86.  A point of some significance is that the meetings of the RC held on 25 May 2018 and 29 May 2018 were attended by all directors of D other than P (P at those times being the only executive director of D).  The meeting of the RC held on 27 May 2019 was attended by each of the independent non-executive directors of D, the only directors being absent (apart from P, who was again absent from the meeting) being Charles Chan, a non-executive director of D, who was nevertheless given notice of the meeting as a member of the RC.

87.  The meeting of the RC on 29 May 2020 was the last of such meetings.  The meeting which in usual circumstances would have been held on May 2021 to fix the directors remuneration for the period ending 28 February 2022 was not held and instead, at the board meeting held on 18 August 2021, the board purported to “nullify” P’s 2020/21 Remuneration Package, save and except P’s director’s fee of HK$220,000 for the year ended 28 February 2021 and P’s salary as chairman and CFO of D in the sum of HK$503,655 per month.  Nothing was said at this meeting about P’s director’s fee or other remuneration in respect of the period from 1 March 2021.

88.  I find that, in all the circumstances, P’s director’s fees were to all intents and purposes fixed by D’s board of directors in respect of every year ending on 28 February from at least 2010 to 2021 – those fees remained at the constant level of HK$110,000 per annum until P became Chairman and then were fixed at $220,000 from the time he succeeded Walter Ma as chairman.

89.  There are no documents evidencing the fixing of directors fees by the directors for the period from March 2021.  Nevertheless in view of the terms of clause 5.1 of the Confirmation Letter granting P an entitlement to a fee of HK$110,000 per annum, subject to review and the fact that that fee was in fact reviewed and increased to HK$220,000 on his succession to the post of chairman on Walter Ma’s death, I consider that it was an implied term and within the reasonable expectation of the parties that, thereafter, that fee would be payable unless it was further reviewed or revised which it was not.  On the contrary even the 18 August 2021 Resolution, purporting to “nullify” P’s 2020/2021 remuneration package preserved the HK$220,000 directors fee for P for the year ended 28 February 2021.  Alternatively, in my view, the failure to confirm P’s director’s fee for the period from 1 March 2021 was contrary to and a breach of the implied terms of the Confirmation Letter to which I have referred in paragraph 37 above.

90.  Clause 5.1 of the Confirmation Letter provided that the fee specified therein would be payable “on a yearly basis”.  It was argued on behalf of D that it was therefore only payable on the basis of a full year’s service.  I reject this interpretation of the provision.  In my view the term “on a yearly basis” meant simply that the fee was payable as a lump sum at the beginning or end of the year.  In the situation, as here, where only part of a year is served, the entitlement is to a pro rata proportion of the annual fee.

N.  Conclusion as to P’s claims

91.  P claims HK$73,333.32 as director’s fees for the period from 1 March 2021 to 30 June 2021, i.e. one third of the annual fee of HK$220,000.  I have concluded that P is entitled to succeed on this head of claim on the basis I have explained above.  However, of this amount, HK$67,222.22 was paid in August 2021 (see paragraph 32 above).  On behalf of P it is contended that this sum (and also each of the other sums paid in July and August 2021) should be treated as ex gratia payments.  I do not agree.  Credit should be given for the payment of HK$67,222.22 against P’s claim for director’s fees.  On this basis, I will uphold P’s claim under this head to the extent of HK$6,111.10 only.

92.  Similarly the amount claimed for annual leave pay of HK$1,056,730.19 must be reduced by HK$310,570 paid in July 2021 (see paragraph 30 above), which leaves a balance which I find to be due in respect of annual leave pay of HK$746,160.19.

93.  As I have concluded at paragraph 70 above, P is entitled to payment of HK$8,244,000 being the amount to which he is contractually entitled in respect of so much of his remuneration in respect of the period from March 2020 to February 2021 which has hitherto not been paid and which is attributable to P’s management role vis a vis the Subsidiaries.

94.  P is also entitled to damages for breach of the implied terms of the Confirmation Letter concerning his entitlement to remuneration for the period from March 2021 in respect of his role vis a vis the Subsidiaries amounting to HK$3,068,000 (see paragraphs 71-74 above).

95.  The parties are agreed as to the quantum of damages or award to which P is entitled should P succeed on liability which he has done.  On the basis that the payments of HK$67,222.22 and HK$310,570 paid in July and August 2021 constitute part payment of (a) P’s claims for directors fees for the period from 1 March 2021 to 30 June 2021 and (b) annual leave pay, as I have held they should be (a sum in aggregate of HK$377,792.22), the total sum for which judgment shall be entered in favour of P against D is HK$12,064,271.80 (HK$12,442,063.50 less HK$377,792.22). On the other hand, the amounts of HK$184,674 and HK$318,981 paid as salary to P in July and August 2021 (see paragraphs 30-32 above) do not fall to be deducted from P’s claim as those payments were not attributable to P’s role vis a vis the Subsidiaries and thus were not connected to any head of P’s claims.

96.  There will also be judgment for interest on the sum of HK$12,064,271.80 to be assessed.  If possible the parties should endeavour to agree the amount of interest for which judgment should be entered.  In default of agreement, the amount of such interest shall be assessed by the court in respect of which there shall be liberty to apply.

O.  Counterclaim

97.  As a consequence of my finding in favour of liability in respect of the Plaintiffs’ claims and for the reasons I have explained in doing so, it follows that D’s counterclaim must fail and it is therefore dismissed.

P.  Costs

98.  I will make an order nisi that D should pay P the costs of this action and of the Counterclaim, to be taxed on a party and party basis, if not agreed, with certificate for 2 counsel.