LEE KA MAN v. NG TSZ MAN AND OTHERS

DCCJ 2840/2023

[2026] HKDC 323

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2840 OF 2023

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BETWEEN

	LEE KA MAN	Plaintiff
and
	NG TSZ MAN（吳子文）	1st Defendant
	TSOI SUET LEONG（蔡雪亮）	2nd Defendant
	HONG KONG COMMUNICATION ART LIMITED	3rd Defendant

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Before:

Deputy District Judge Ng Man Sang Alan (Paper Disposal)

Date of the Plaintiff’s Submission:	5 November 2025
Date of the Defendant’s Submission:	19 November 2025
Date of the Plaintiff’s Reply Submission:	25 November 2025
Date of Decision:	25 February 2026

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DECISION

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1.  This is an application by way of summons taken out by the Plaintiff on 11 August 2025 (the “Summons”) to vary the costs order nisi made under para 102 of the judgment handed down on 28 July 2025 in this case (the “Judgment”). I shall adopt hereinbelow the defined terms used in the Judgment.

2.  P commenced this action to recover damages for misrepresentations whereby P was induced, in the main, to invest in New Asia by paying a total sum of HK$1,466,001.82 for a Linguaphone (靈格風) language education business in Shanghai. By the Judgment, I have found for P and held, in the main, that D1, D2 and D3 were liable to P in damages for fraudulent misrepresentation[1], that judgment be entered for P against D1, D2 and D3 jointly and severally on her claim for the sum of HK$1,466,001.82 (the “Judgment Sum”) with interest at 1% above the HSBC best lending rate from 4 December 2010 to the date of judgment and thereafter at the judgment rate[2] and that the Counterclaim be dismissed[3].

3.  In para 102 of the Judgment, the following costs order nisi was made:-

(a) D1, D2 and D3 do pay P’s costs of the action on a party and party basis, such costs to be taxed if not agreed with certificate for counsel; and

(b) D1 and D2 do pay P’s costs of the counterclaim on a party and party basis, such costs to be taxed if not agreed with certificate for counsel.

4.  P, who is the winning party in this case, applies for the costs order nisi to be varied in the following ways:-

(a) D1, D2 and D3 do jointly and severally pay to P interest on the sum of HK$1,466,001.82 at 1% above the HSBC best lending rate from 4 December 2010 to 30 December 2024 (ie the latest date on which Ds could have accepted the sanctioned offer[4] without leave of the Court);

(b) D1, D2 and D3 do jointly and severally pay to P interest on the sum of HK$733,000.91 (ie the sum stated in the Sanctioned Offer) at 1% above the HSBC best lending rate from 31 December 2024 to the date of judgment and thereafter at the judgment rate;

(c) D1, D2 and D3 do jointly and severally pay to P interest on the sum of HK$733,000.91 (ie the balance of the Judgment Sum after deducting the sum stated in the Sanctioned Offer) at 10% above the judgment rate from 31 December 2024 to the date of judgment (or any such other rate as this Court deems just) and thereafter at the judgment rate;

(d) Costs, including all costs reserved if any, from the date of writ of summons (the “Writ”) up to 20 June 2023 (ie the date of joint letter to Court for the transfer of this case to the District Court) of this action be paid by D1, D2 and D3 jointly and severally to P on indemnity basis on the High Court scale, to be taxed if not agreed;

(e) Costs, including all costs reserved if any, from 21 June 2023 be paid by D1, D2 and D3 jointly and severally to P on indemnity basis on the District Court scale, to be taxed if not agreed; and

(f) Interest on the costs referred to in para 4(e) above be paid by D1, D2 and D3 jointly and severally at 10% above the judgment rate from 31 December 2024.

5.  Ds oppose the Summons.

6.  By an order dated 19 September 2025, I directed the Summons to be dealt with by way of paper disposal and gave directions to the parties to file their affirmation(s) and to lodge their written submissions pertinent to the Summons.

7.  P’s written submissions on costs/interest prepared by Mr Lau was lodged on 5 November 2025 (“P’s Submissions”) while Ds’ submissions on costs and interest prepared by Mr Leung lodged on 19 November 2025 (“Ds’ Submissions”). Mr Lau lodged P’s reply submissions on 25 November 2025 (“P’s Reply Submissions”).

DS’ STANCE

8.  Ds do not dispute the following[5]:-

(a) The Sanctioned Offer complies with the requirements under Order 22 of the Rules of the District Court, Cap 336H (“RDC”). Put simply, the Sanctioned Offer was a valid sanctioned offer.

(b) Ds were held liable for more than the proposal contained in the Sanctioned Offer. In a word, P did better after trial than the Sanctioned Offer.

(c) It is not unjust to award enhanced interest and costs on indemnity basis from 31 December 2024. Put another way, the jurisdiction under Order 22, rule 24 of RDC is triggered and Order 22, rule 24(2) and (3)(a) of RDC shall apply in this case.

(d) It is not unjust to award enhanced interest on indemnity costs from 31 December 2024. Put another way, Order 22, rule 24(3)(b) of RDC shall apply in this case.

9.  It is indisputable that the latest date for acceptance of the Sanctioned Offer without leave of the Court was 30 December 2025.

10.  Ds however take issue on the following:-

(a) The period over which costs should be on the High Court scale (the “1^st Issue”);

(b) Whether costs prior to the Sanctioned Offer should be on indemnity basis (the “2^nd Issue”);

(c) The rate of the enhanced interest (the “3^rd Issue”); and

(d) Interest on costs[6] (the “4^th Issue”).

CHRONOLOGY OF RELEVANT EVENTS

11.  The events relevant to this Decision are chronicled as follows:-

(a) On 4 December 2010, P’s then solicitors issued two demand letters.

(b) On 9 March 2016, P served the Writ and commenced this action in the High Court, claiming the sum of HK$1,466,001.82.

(c) On 26 April 2017, Statement of Claim of P was filed.

(d) On 22 June 2017, Defence and Counterclaim of Ds was filed whereby D1 and D2 counterclaimed for damages to be assessed.

(e) On 14 November 2017, Reply and Defence to Counterclaim of P was filed.

(f) On 3 December 2018, the jurisdictional limit of District Court was increased to HK$3 million.

(g) On 25 February 2021, Re-Amended Defence and Counterclaim of Ds was filed whereby D1 and D2 counterclaimed for HK$3,152,559.00.

(h) On 23 September 2022, Re-Re-Amended Defence and Counterclaim of Ds was filed whereby D1 and D2 reduced their counterclaim to HK$2,867,208.67.

(i) On 22 November 2022, Amended Reply and Defence to Counterclaim of P was filed.

(j) On 26 April 2023, Re-Re-Re-Amended Defence and Counterclaim of Ds was filed.

(k) On 20 June 2023, P and Ds by joint letter applied to the Court to transfer this action to District Court.

(l) On 2 December 2024, P made the Sanctioned Offer.

(m) On 5 December 2024, Ds replied to the Sanctioned Offer.

(n) On 30 December 2024, Ds could have accepted the Sanctioned Offer without leave of the Court at the latest.

(o) On 31 December 2024, D1 and D2 abandoned their Counterclaim.

(p) On 21 January 2025, the trial of this action commenced.

(q) On 28 July 2025, the Judgment was handed down.

THE 1^ST ISSUE

12.  Ds agree that at the time of issuance of the Writ on 9 March 2016, it was reasonable for P to commence this case in the High Court as the claim then fell within the jurisdictional limit of the High Court[7] and that when the Defence and Counterclaim of Ds was re-amended on 25 February 2021, inter alia, quantifying the Counterclaim for the first time at HK$3,152,559, the proper scale of costs should be that of the High Court[8].

13.  Ds however argue the following:-

(a) that as soon as the jurisdictional limit of the District Court was increased on 3 December 2018, P ought to have applied to transfer this action to the District Court[9];

(b) that the fact that Ds counterclaimed for an unquantified amount at that time was no bar for P to transfer her claim to the District Court[10]; and

(c) that when the Defence and Counterclaim of Ds was re-re-amended on 23 September 2022, inter alia, reducing the quantified Counterclaim from HK$3,152,559 to HK$2,867,208.67, the proper scale of costs should be that of the District Court from that time onwards.[11]

14.  Ds pray aid of the case of Ip Siu Chi v Kwan Wing Hang t/a Fai Hung Construction Co & Others[2024] HKCFI 1622. Ds therefore submit that a fairer approach would be costs on the District Court scale, save and except the following periods in respect of which costs should be awarded on the High Court scale: -

(a) From the date of issuance of the Writ, ie 9 March 2016 to 2 December 2018; and

(b) From 25 February 2021 to 22 September 2022.[12]

15.  Section 44A of the District Court Ordinance, Cap 336 (“DCO”) provides the following: -

“(4) The court to which the proceedings are transferred has power to order costs and order the scales on which the costs of the several parts of the proceedings are to be taxed. The costs of the whole proceedings are to be taxed in the court to which the proceedings are transferred.

(5) In an action founded on … tort, for the proceedings in the Court of First Instance before the transfer, the Court may, if satisfied that there was sufficient reason for bringing the action in the Court of First Instance and subject to any order of the Court of First Instance, allow costs on the Court of First Instance scale.” (Emphasis added)

16.  In Ho Chung Yen, executor of the estate of Madam Wong Yuet Wan, deceased v Chang Din Hung & Anor [1985] 1 HKC 628, the plaintiff commenced an action in the High Court against the defendants, claiming damages in respect of the death of the deceased. Later, the action was transferred by consent to the District Court. After the claim was settled by the plaintiff accepting the sum of HK$30,000 paid into court by the defendants. At issue was whether the High Court scale should apply since at the date of the writ, the monetary limit of the District Court’s jurisdiction was HK$20,000 notwithstanding that the limit of the District Court’s jurisdiction was increased to HK$40,000 on 1 September 1983 and HK$60,000 on 1 January 1984. Downey DJ held in favour of the plaintiff. After referring to the wide and general terms of section 43(1) of the then District Court Ordinance, Cap 336 (similar to the current section 44A(1)-(3) of DCO) and the proviso thereto (similar to the current section 44A(4) and (5) of DCO), Downey DJ had the following to say at 630G-631G:-

“It seems to me that the need for the District Court to be ‘satisfied that there was sufficient reason for bringing the action in the High Court’ only applies to actions founded on contract and tort which were within the District Court's jurisdiction at the date when the proceedings were commenced. Assuming that the latter has to be determined by reference to the amount eventually recovered, in the present case the amount recovered was $30,000; well in excess of the District Court's jurisdiction on 8 July 1983, when the writ was issued. Accordingly, I consider that I do not have to be ‘satisfied that there was sufficient reason’ for bringing the present action in the High Court before exercising the discretion vested in me, by s 43(1) of the Ordinance.

That discretion implicitly empowers me to order that the ‘several parts’ of the proceedings prior to the transfer should be taxed on the High Court scale. In the circumstances of the present case, I order that the entirety of the costs of the present action prior to 23 March 1984 be taxed on the High Court scale. It is true that the present action could have been transferred to the District Court on or shortly after 1 September 1983. But, I do not think that it would be just to direct that the costs incurred between that date and the actual date of transfer, ie 23 March 1984 or, indeed, those incurred between 1 January 1984 and the date of transfer, should be taxed on the District Court's scale. Apart from the fact that there does not appear to be any District Court scale of costs for claims brought within the jurisdiction of the court by the 1981 Ordinance or the 1983 resolution, because the District Court Civil Procedure (Costs) Rules have not been amended to take into account these increases in jurisdiction, the defendants did not take any step which would put a reasonable person in the position of the plaintiff on notice that a real issue as to costs might arise until 26 July 1984, when $30,000 was paid into court. Instead, the defendants did not file their defence until 15 November 1983. Although that included a more or less standard form of plea of contributory negligence, the defendants were apparently not confident that such plea might bring the claim within the recently increased jurisdiction of the District Court. At the hearing of the summons for directions on 10 January 1984, they consented to the action being tried in the Supreme Court. Presumably, they then thought that there was a real risk that the plaintiff might recover more than $60,000.

If I am wrong, and it is necessary to be satisfied that there was sufficient reason for bringing the present action in the High Court, the fact that the plaintiff eventually recovered $10,000 more than the limit of the District Court's jurisdiction, at the date of the writ, is, in my view, sufficient reason for commencing proceedings in the High Court. Commencement of the present proceedings could have been postponed until February 1984, by which time the jurisdiction of the District Court had been raised to $60,000. However, the situation has to be looked at in the light of the law and facts as they stood when the proceedings were brought; not at some other date when they might have been brought. In my view, any other interpretation would encourage undue delay in the institution or prosecution of claims.” (Emphasis added)

17.  The defendants in Ho Chung Yen (supra) had not raised the issue as to the scale of costs to be taxed in respect of the period between the increase in the limit of the District Court’s jurisdiction and the actual date of transfer of that case to the District Court. Downey DJ nevertheless took the view that the situation had to be looked at in the light of the law and facts as they stood when the proceedings were brought and ordered the entire pre-transfer costs to be taxed on the High Court scale.

18.  Increase in the limit of the District Court’s jurisdiction aside, the issue of the scale of costs may also arise after transfer of the case from the High Court to the District Court when damages awarded to the plaintiff after trial was below the limit of the District Court’s jurisdiction. In such cases, the Courts needed to be satisfied that there was sufficient reason for the plaintiff to bring the action in the Court of First Instance after applying the reasonable prospect test, ie whether it would be obvious to a reasonable plaintiff or his adviser that the case was a District Court rather than High Court case. The test required a balanced approach that imposed a duty on the plaintiff and his legal advisers to evaluate their choice of court reasonably and objectively. The relevant time to apply this test is at the time of issuance of the writ. Only in obvious cases where the claim should be brought in the District Court would their decision to do otherwise attract a costs sanction.[13]

19.  The nub of the 1^st Issue is not whether at the time of issuance of the Writ on 9 March 2016, it was unreasonable for P to commence this case in the High Court but whether it was unreasonable for P to persist in pursuing this action in the High Court (a) after the jurisdictional limit of District Court was increased on 3 December 2018 and (b) after D1 and D2 amended their Counterclaim to reduce the sum claimed to HK$2,867,208.67 on 23 September 2022.

20.  On this, Mr Leung cited Ip Siu Chi (supra) where Phoebe Man DHCJ observed that after the increase of the District Court jurisdiction, discovery or the award of the EC claim (whichever is later), the plaintiff should have been updated in the advice on the merits of her claim and the quantum of damages sought in light of the new circumstances, see para 7(1). The plaintiff had not done so and the sum awarded to the plaintiff for his personal injuries claim was HK$1,509,202 which was about half of the District Court’s jurisdictional limit. Hence, Phoebe Man DHCJ held at para 8 that costs should be on the District Court scale after the date when the EC award was issued or when discovery had taken place and after documents had been produced (whichever was later). In the same case, Phoebe Man DHCJ gave the following remarks at para 7(3): -

“(3) Although I agree that a defendant would under normal circumstances also be expected to raise the issue of whether a case should be transferred to the District Court; in this particular case, where the plaintiff’s claim was over HK$17 million, it would have been unrealistic for a defendant to suggest that the case be transferred to the District Court, when the plaintiff has shown no indication that her claim would have been adjusted substantially downwards.” (Emphasis added)

21.  It is trite that the District Court has a wide discretion in awarding costs under section 53(1) of DCO. The usual starting point is costs to follow the event, meaning that the losing party pays the costs of the winning party.[14]

22.  Order 62, rule 5(1)(e) of RDC provides that the conduct of the parties should be taken into account by the Court in exercising this discretion. They include[15]:-

(a) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(b) the manner in which a party has pursued or defended his case or a particular allegation or issue;

(c) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and

(d) conduct before, as well as during, the proceedings.

23.  In the present case, P consistently claimed for the sum of HK$1,466,001.82 in damages and was ultimately awarded the same by the Judgment. At the time of issuance of the Writ, it was reasonable for P to commence this case in the High Court. When the jurisdictional limit of the District Court was increased, D1 and D2 had already mounted a connected unquantified counterclaim against P. The Counterclaim of D1 and D2 if in excess of the jurisdictional limit of the District Court would have ensured that this action would remain in the High Court in any event.[16] I am unable to see how P can be criticized for not suggesting a transfer whilst waiting for D1 and D2 to quantify the Counterclaim. The issue of quantifying the Counterclaim must be privy to D1 and D2. It was neither realistic nor reasonable to expect P to do so. This renders all the more realistic and reasonable to expect Ds to raise the issue of whether this case should be transferred to the District Court. In fact, D1 and D2 subsequently quantified their Counterclaim at HK$3,152,559.00. On 23 September 2022, D1 and D2 filed their Re-Re-Amended Defence and Counterclaim, reducing their counterclaim from HK$3,152,559.00 to HK$2,867,208.67, a figure just slightly below the present jurisdictional limit of the District Court. After a lapse of about 9 months, the parties jointly applied to transfer this case to the District Court. In these circumstances, I don’t think costs should be awarded to P on the District Court scale for any period(s) prior to the transfer of this case to the District Court.

24.  Accordingly, the costs awarded to P should be on the High Court scale from the date of issuance of the Writ to 20 June 2023 and thereafter on the District Court scale.

THE 2^ND ISSUE

25.  P relies on 2 grounds in seeking costs on indemnity basis for this entire action:-

(a) Ds’ fraud and dishonesty; and

(b) Ds’ oppressive litigation conduct by way of making a groundless counterclaim.[17]

26.  Ds accept that costs from 31 December 2024 should be assessed on indemnity basis. Ds’ position is predicated on their acceptance of their failure to accept the Sanctioned Offer without leave on 30 December 2024.[18]

27.  The principles applicable to indemnity costs are well-settled by the Court of Final Appeal in Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114 at paras 14 to 18, summarised as follows:-

(a) In certain circumstances, costs may be awarded on a more generous than usual basis of taxation so as to achieve a fairer result.

(b) It is for the receiving party to show that the case has some special or unusual feature.

(c) Such features are not confined to an ulterior motive, an improper purpose, deception or underhand conduct on the part of the paying party.

(d) Neither the attributes of the parties nor the character of the proceedings is irrelevant to the question of whether a more generous than usual basis of taxation should be ordered.

(e) The discretion to order a more generous than usual basis of taxation is not to be fettered or circumscribed beyond the requirement that such taxation be ordered only when it is appropriate to do so.

(f) As to that, the grounds on which a more generous than usual basis of taxation is to be ordered must be connected with the case. That extends to – but no further than to – any matter relating to the litigation and the parties’ conduct in it, and also to the circumstances leading to the litigation.

28.  Mr Lau cites Non-No Fashion Wholesale Limited v Chung Kam Wing & Shu Man Lee, HCA 20335/1998, (Unreported), 31 January 2001, at p 32 per Cheung J (as he then was), adopted by Mr Recorder Pow SC in Wong See Lung v Huang Hua Jiang & Others, HCA 2067/2009, (Unreported), 4 November 2014 at para 3, in support of his legal proposition that indemnity costs are clearly appropriate in cases of fraud.

29.  Mr Leung submits that a finding of deceit does not automatically justify indemnity costs, and that fraudulent conduct exists on a spectrum of severity. He contends that each case must be decided on its own merits. Mr Leung emphasizes that the Shanghai venture was a genuine, albeit unsuccessful, business, not a bogus scheme devised from the outset to defraud P. Mr Leung further cites Chow How Yeen Margaret & Anor v Wex Pharmaceuticals Inc. & Anor, HCA 537/2013, (Unreported), 5 September 2017 to submit that the learned judge there did not order indemnity costs for the costs incurred before the last day for accepting the sanctioned offer notwithstanding that Chow How Yeen Margaret (supra) was a case of fraudulent misrepresentations. The learned judge there did not make such an order for indemnity costs is understandable since the plaintiffs only asked for indemnity costs on the ground that the defendants did not beat the sanctioned offer, see paras 4 and 31-51. The question whether the plaintiffs should be awarded indemnity costs for the entire action including the costs incurred before the deadline for accepting the sanctioned offer was never raised as an issue before the learned judge.

30.  While I make no finding of a pre-meditated bogus scheme, it does not mean that I am satisfied that the purported business was “genuine” but “unsuccessful”. Particularly, when P, as a 49% shareholder of New Asia, has never received any financial documents, let alone income, profit, or dividends from Ds.

31.  In the present case, Ds lost on each and every issue they contended for. In the face of the serious allegations relating to Ds’ fraudulent conducts, Ds met those allegations with D1’s evidence which was riddled with inconsistencies and contradicted by contemporaneous documentation. Key examples include:-

(a) D1’s denial of his involvement in drafting the 2009 announcement, see para 70(b) of the Judgment;

(b) D1’s initial position that "Pingu" was never their choice, contradicted by contemporaneous documentary evidence, see para 70(d) of the Judgment;

(c) Ds’ case on the Shanghai Shareholder was incompatible with the objective undisputed facts, see para 78 of the Judgment;

(d) D1’s testimony on the application for education licence “defies belief”, see para §82(a) of the Judgment;

(e) The complete absence of paper trail regarding the application for education licence, see para 82(c) of the Judgment; and

(f) D1’s explanation for the delay in processing the application for education licence “strains credulity”, see para 82(d) of the Judgment.

32.  In my view, the defence was hopelessly pursued in the light of the overwhelming contemporaneous documentation. More importantly, I have made detailed findings regarding Ds’ fraudulent state of mind at para 95 of the Judgment and the upshot of Ds’ fraudulent conducts was that P was fleeced of a total of HK$1,466,001.82. I agree with Mr Lau that Ds’ fraudulent misrepresentations involved 2 persons, were not one-off but were repeatedly made on 3 different key aspects of the Intended Business for months.

33.  I accept that in every case where there is a material dispute of fact, the Court is bound to prefer one party’s account. Such a finding, without more, is not a special or unusual feature making indemnity costs appropriate.[19] However, the matters mentioned in paras 31 and 32 above are serious enough and amount to deception or underhand conduct on the part of Ds. At the very least, the aforesaid matters portray a special or unusual feature of this case, warranting a more generous than usual basis of taxation. In my view, this special or unusual feature cries out for an indemnity costs order.

34.  I don’t think it is necessary for me to further consider whether the abandoned Counterclaim and how D1 and D2 proceeded with the Counterclaim in this action will further justify my decision for indemnity costs. If necessary, I am inclined to accept Mr Lau’s submissions that how D1 and D2 quantified and thereafter abandoned on the first day of the trial, the Counterclaim (not to mention how Ds handled the accounts of the PRC Subsidiary in the litigation of this action), cumulatively would give further justification for indemnity costs to be awarded to P in this action.

THE 3^RD ISSUE

35.  In the present case, P seeks an enhanced interest on the sum of HK$733,000.91 (ie balance of the Judgment Sum after deducting the sum stated in the Sanctioned Offer) at the rate of 10% above the judgment rate from 31 December 2024 to the date of the Judgment.

36.  Mr Leung submits that an appropriate uplift would be 5% which would be translated into an enhanced interest rate of 13.25% per annum.[20]

37.  Order 22, rule 24(1) and (4) of RDC provide that where a defendant fails to achieve a better result than a sanctioned offer, the Court shall, unless it considers unjust to do so, make the order referred to in rule 24(2) and (3), namely (a) enhanced interest on the judgment sum for some or all of the period after the latest date on which the defendant could have accepted the sanctioned offer without requiring leave of the Court (the “Latest Date”) or agreement with the plaintiff on costs and (b) costs on indemnity basis after the Latest Date, and (c) interest on costs. For the present purpose, only Order 22, rule 24(1), (2) and (4) of RDC is apposite.

38.  Order 22, rule 24(5) of RDC requires the Court, in considering whether it would be unjust to make the orders in rule 24(2), to take into account all circumstances of the case including:-

(a) the terms of any sanctioned offer;

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

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

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

39.  It is undisputed that there are no positive reasons making it unjust for the Order under Order 22, rule 24(2) of RDC to be made. As I have said, the difference between P and Ds on this issue is the level of enhanced interest to be awarded.

40.  I would adopt in this Decision the guiding principles distilled by Jonathan Chang DDJ in Cheung Shuk Han v Chik Wai Yin [2013] 4 HKC 311 as to how the Court should exercise its discretion in deciding the level of enhanced interest to be awarded. The relevant passage can be found at paras 12 to 20, excerpted as follow:-

“12. The power to award enhanced interest on the judgment sum is compensatory and not penal in nature. It is conferred to enable the court to redress the element of perceived unfairness, otherwise inherent in the legal process, which arises from the fact that damages, costs (even costs on an indemnity basis) and statutory interest will not compensate the successful claimant for the inconvenience (including disruption in business or daily life), anxiety and distress of having to resort to and pursue proceedings which he had sought to avoid by an offer to settle on less advantageous terms than what he obtained after trial: McPhilemy v Times Newspapers Ltd (No 2) [2001] 4 All ER 861, [2002] 1 WLR 934 at pp 943F to 944B per Chadwick LJ.

13. The court may award enhanced interest at a rate of up to 10% above judgment rate, but it should not start from the assumption that the full uplift should normally be awarded or should otherwise be taken as the starting point, since litigation varies greatly in weight and complexity, and the underlying facts in any given case will be different: Earl v Cantor Fitzgerald International (No 2) (2001) LTL (3 May 2001) per Moore-Bick J; Petrotrade Inc v Texaco Ltd [2001] 4 All ER 853, [2002] 1 WLR 947 at p 951F per Lord Woolf MR (as he then was).

14. That said, the level of enhanced interest on the judgment sum should make a material, albeit proportionate, difference to the outcome of the case, or else O.22 would become otiose: Little v George Little Sebire & Co reported in The Times (17 November 1999) where Deputy High Court Judge David Foskett QC noted in the full judgment as follows:

“… since one of the factors mentioned in the overriding objective is the saving of expense, the powers conferred by the rules are likely to be interpreted by the Courts in a way that encourages settlement. Settlement is achieved only if parties focus properly on the strengths and weaknesses of their respective cases. The powers conferred by r 36.21 [our equivalent of O.22] are plainly designed to sharpen that focus. Unless the discretions conferred by the rule are exercised in a way that makes a material, albeit proportionate, difference to the outcome of the case, the rule becomes otiose.”

15. That explains why generally the uplift should be at a higher rate for small claims, otherwise the additional advantage for the receiving party (and, in turn, the imposing of a material difference or impact to the outcome of the case) would not be achieved. The size of the claim is thus a relevant factor when considering the amount of the uplift in interest under O.22: see Petrotrade Inc v Texaco Ltd at p 951D-E, followed in Poon Yiu Cheung v World Mastery Technology Ltd, [2011] HKCU 1877, DCCJ 632/2005 (unreported, 30 September 2011) at para 15 per Deputy Judge R Yu, and in Tsang Yuen Mui v蔡嬋貞Choi Sim Ching [2012] HKCU 94;, DCCJ 1347/2008 (unreported, 15 December 2011) at para 11 per Judge H C Wong.

16. The conduct of the paying party in the proceedings is also a relevant factor. If there is cause to criticize the paying party (for example, in unreasonably pursuing the matter to trial where his case was obviously unsustainable either on the facts or in law), whilst this would not justify increasing the rate of enhanced interest to punish that party, it would mean that due to his conduct in the proceedings he had forfeited the opportunity of asking the court to apply a lower rate of the additional interest payable: Petrotrade Inc v Texaco Ltd at p 951C-D. See, for instance, the conduct of the defendants in the defence of the claims (namely the inadequacy in the defence expert valuation report) was considered by the court in deciding whether to make an order under O.22, the rate of enhanced interest to be awarded, and the period to which the orders may relate: Ho Kin Pong & Anor v Tam Kok Hung & Ors, [2011] HKCU 1209, DCCJ 624/2010 (unreported, 27 June 2011) at paras 22 to 24 per Judge Mimmie Chan (as she then was). See also Maysun Engineering Co Ltd v International Education and Academic Exchanges Foundation Co Ltd [2011] 2 HKLRD 844, [2011] HKCU 559 at para 17 (p 851) where Judge Mimmie Chan took into account the conduct of the defendant in maintaining its case which was partly abandoned only at trial, and partly rejected by the court after trial, in deciding the enhanced interest rate.

17. I add that in assessing the conduct of the paying party in the proceedings, the difference between the sanctioned offer and the judgment sum should also be a relevant consideration: the larger the difference (ie the receiving party being more prepared to forgo part of his claim to settle), the more unreasonable it is for the paying party not to take up the offer.

18. At the same time, it is also necessary for the court to stand back and consider whether, viewed in the round, any given award of enhanced interest would provide a disproportionate benefit to the receiving party or impose a disproportionate burden on the paying party: Earl v Cantor Fitzgerald International (No 2).

19. For instance, the low interest regime over the relevant period of time is a relevant consideration in determining the appropriate uplift: Chung Mei Industries Ltd v So Kwok Keung, [2011] HKCU 1090, HCA 2604/2005 (unreported, 10 June 2011) at para 5 per Deputy High Court Judge Carlson. This is to guard against making an award that has the effect of giving the receiving party a windfall in interest that he would otherwise not have been able to achieve under the prevailing economic environment and conditions.

20. I stress that as with any exercise of discretion, straightjackets are inapposite for the approach that the court should take when dealing with costs, and the above principles are there to guide and are by no means exhaustive. Ultimately, the court should consider all the circumstances of the case: O.22, r.24(5).” (Emphasis added)

41.  Cheung Shuk Han (supra) is a landlord-and-tenant case where the tenant successfully sued the landlady and the tenant did better after trial than her earlier sanctioned offer. Jonathan Chang DDJ was not prepared to award a full uplift of 10% above judgment rate given the low interest regime then but awarded 6% above judgment rate as the appropriate rate of enhanced interest.

42.  In Chow How Yeen Margaret & Others v Wex Pharmaceuticals Inc & Anor (supra), Queeny Au-Yeung J, while commenting at para 17 that “[the case] was a thoroughly bad case of fraudulent misrepresentation and concealment and the plaintiffs were kept out of their money, being made to wait for a real opportunity for profits for 8.5 years until the Acro Pharm Agreement was terminated with nil return”, held that it was not unjust to allow enhanced interest of the judgment sum at 10% above judgment rate. In allowing the maxima of the enhanced interest rate, Queeny Au-Yeung had considered the overall position having regard to the pre-judgment interest to see if the plaintiffs were over compensated or the defendants over penalized, see para 56. This part of Queeny Au Yeung J’s decision was upheld in the Court of Appeal.[21]

43.  In Grupo Pacifica Incorporada v Worldwide Marine Product Limited & Others [2018] HKCFI [2584], the plaintiff was the victim of a fraud as a result of which sums of money to which the plaintiff was entitled had been diverted to the bank accounts held by the defendants. The trial concerned only the plaintiff’s claim against the 1^st defendant. The plaintiff succeeded in its claim in unjust enrichment and did better than the sanctioned offer made by it to the 1^st defendant previously. Queeny Au-Yeung J holding that the 1^st defendant rejected the sanctioned offer in a hostile and dismissive manner and never came back with another offer and that the 1^st defendant’s rejection of the sanctioned offer (despite having sufficient documents to make an informed consent) was objectionable in the light of its unreasonable defence, awarded enhanced interest of 10% above judgment rate after the latest date on which the sanctioned offer could have been accepted without leave of the court. Had the 1^st defendant accepted the sanctioned offer, the case would have been disposed of without a trial 31 months earlier.

44.  Mr Lau cites another case in support of his submission to enhance the rate of interest to 10% above judgment rate, ie OMV Petrom SA v Glencore International AG (CA) [2017] 1 WLR 3465 which is a case of deceit happened on the British soil where the claimant did better at trial than a CPR Pt 36 offer made by it to settle its claim against the defendant. The first instance judge enhanced interest to a rate of 4.5% per annum after the expiry of the CPR Pt 36 up to judgment. On appeal by the claimant, the English Court of Appeal enhanced the interest to 10% over base rate. Sir Geoffrey Vos C took the view that the Court must have regard to all the circumstances of the case in deciding what rate of interest to award under rule 36.14(3)(a) and the level of interest awarded must be proportionate to the circumstances of the case, that those circumstances might include, for example, (a) the length of time that elapsed between the deadline for accepting the offer and judgment, (b) whether the defendant took entirely bad points or whether it had behaved reasonably in continuing the litigation, despite the offer, to pursue its defence, and (c) what general level of disruption can be seen, without a detailed enquiry, to have been caused to the claimant as a result of the refusal to negotiate or to accept the CRP Pt 36 offer.

45.  Sir Geoffrey Vos C said that relevant to the determination of the appropriate rate of enhanced interest in that case were the 1^st defendant’s refusal to engage in settlement discussions or to respond to the Part 36 offer[22], the fact that the eventual award (US$40,071,913) was very significantly greater than the Part 36 offer (US$35 million) itself and, most of all, the 1^st defendant’s deplorable (if not outrageous) conduct of the litigation

46.  Sir Geoffrey Vos C further highlighted the change in the litigation culture since the Woolf reforms and adumbrated at para 39 the following:-

“… Parties are no longer entitled to litigate forever simply because they can afford to do so. The rights of other court users must be taken into account. The parties are obliged to make reasonable efforts to settle, and to respond properly to Part 36 offers made by the other side. The regime of sanctions and rewards has been introduced to incentivise parties to behave reasonably, and if they do not, the court’s powers can be expected to be used to their disadvantage. The parties are obliged to conduct litigation collaboratively and to engage constructively in a settlement process.” (Emphasis added)

47.  This rationale applies equally to the litigation culture in Hong Kong after the Civil Justice Reform. In Qvist Henrik v. Clatronic Far East Ltd. [2020] 1 HKLRD 703, Recorder Stewart Wong SC took the view at para 19 that the emphasis was on the reasonableness of the defendant’s conduct in the settlement process or in the conduct of the litigation and at para 22 that a defendant ought to make reasonable efforts to settle the matter as early as possible, and a defendant who does not react to an early sanctioned offer at all but simply sits on his hands without attempting to seek any further information required will need to convince the Court that he has not been acting unreasonably.

48.  In considering the only issue of what should be the enhanced rate for the judgment sum, Recorder Stewart Wong SC, in Qvist Henrik (supra), took into account the making of allegations of fraud, dishonesty or other misconduct committed by the plaintiff but not pursued at the trial. He however discounted the threats made by personnel of the defendants when the plaintiff was summarily dismissed and the sending of notices to customers that the plaintiff’s employment had been terminated. Recorder Stewart Wong SC explained the reason for the foregoing distinction at para 28, as follows:-

“… as the sanctioned offer regime ought to address conduct of the parties in the settlement and litigation process in relation to the effect and consequence of the making, and the acceptance or rejection, of a sanctioned offer, and not pre-action matters independent of the making or otherwise of such an offer. Where there is such other unreasonable conduct of a party which the Court feels it should express disapproval, that should be done by way of an award of indemnity costs if at all possible and appropriate.” (Emphasis added)

49.  After opining at para 29 that a maximum of 10% above judgment rate as enhanced interest must be reserved for the worst kind of cases, Recorder Stewart Wong SC awarded the plaintiff an enhanced rate of 4% above judgment rate as an appropriate enhanced rate of interest.

50.  In Antwerp Diamond Bank NV v Brink’s Incorporated (No 2) [2015] 4 HKLRD 628, the plaintiff successfully appealed and the 3^rd defendant was ordered to pay the plaintiff damages of US$852,399 with interest at the commercial rate (1% over prime) from the date of misdelivery and costs of both the trial and the appeal. On the plaintiff’s application to vary the orders, the Court of Appeal increased the rate of interest to 4% over prime rate.

51.  In Ko Philip Zhi Yao v The Incorporated Owners of Hamburg Villa[2024] HKDC 1388, Isaac Chan DDJ held that although there was no lack of criticisms against the defendant’s conduct of the action, the defendant’s conduct was not of the most egregious type, eg conducting proceedings with dishonest ulterior motive or dishonest behaviour. Isaac Chan DDJ considered an enhanced interest of 5% above judgment rate to be appropriate for the judgment sum.

52.  The maximum uplift of 10% above judgment rate is reserved for the worst kind of cases. There are plentiful reasons which convince this Court that this case is a very bad case verging on the worst of its kind. The reasons are as follows:-

(a) P has successfully proven a case of deceit against Ds. P was kept out of her money since 2010.

(b) The abandoned Counterclaim of D1 and D2 was groundless and was instituted to put pressure on P into settling her case of deceit. Despite legal advice received that “[D1 and D2] would have difficulty in establishing the counterclaim”[23], D1 and D2 sustained their Counterclaim until they abandoned it on 31 December 2024. Whether D1 and D2 could establish the Counterclaim was a matter entirely within their own knowledge. They did not need P’s discovery of documents for them to come to their view and, certainly, did not need to wait until the advent of the trial to abandon the Counterclaim.

(c) P made the Sanctioned Offer about one month before the trial and about 8 months before the Judgment. The Sanctioned Offer was half of the sum claimed by P. The Sanctioned Offer was very generous and should not have been met by the high-handed if not dismissive response of D1 and D2. D1 and D2 should have acted reasonably to accept the Sanctioned Offer. At the very least, Ds should have made reasonable counteroffer to keep the settlement negotiation alive. It is not an excuse for Ds to contend that P’s claim is “all-or-nothing” in nature; they could have counteroffered by proposing a lesser sum. This was particularly so when D1 and D2 must have known that they had difficulty in establishing the Counterclaim. In my view, Ds’ reply to the Sanctioned Offer was more of a tactical ploy than a bona fide constructive attempt towards resolving the dispute.

53.  I am required to stand back and consider everything in the round. In doing so, I take note of the low interest environment in Hong Kong and the likelihood that the maximum uplift may provide a disproportionate benefit to P. The HSBC best lending rate from 4 December 2010 to the date of the Judgment ranged from 5% to 5.88%. Accordingly, the maximum enhanced interest rate of 18.25% (10% above judgment rate) per annum proposed by P would be about an additional 12% compared to the interest of around 6% (ie 1% above HSBC best lending rate) without the Sanctioned Offer.

54.  Viewed everything in the round, I consider an enhanced interest of 8% above judgment rate to be appropriate for HK$733,000.91 (ie the balance of the Judgment Sum after deducting the sum stated in the Sanctioned Offer) from 31 December 2024 to the date of the Judgment.

THE 4^TH ISSUE

55.  As to enhanced interest on costs, the only issue remains is the rate of enhanced interest on the indemnity costs from 31 December 2024.

56.  By parity of reasoning[24], I order that the entirety of P’s taxed costs from 31 December 2024 shall carry interest at 4%[25] above judgment rate.

DISPOSITION

57.  For reasons set out above, my Orders under paras 101 and 102 of the Judgment shall be varied as follows:-

(a) Judgment be entered for P against D1, D2 and D3 jointly and severally on her claim for the sum of HK$1,466,001.82;

(b) D1, D2 and D3 do jointly and severally pay P interest on the sum of HK$1,466,001.82 at 1% above the HSBC best lending rate from 4 December 2010 to 30 December 2024;

(c) D1, D2 and D3 do jointly and severally pay P interest on the sum of HK$733,000.91 at 1% above the HSBC best lending rate from 31 December 2024 to the date of judgment and thereafter at the judgment rate;

(d) D1, D2 and D3 do jointly and severally pay P interest on the sum of HK$733,000.91 at 8% above the judgment rate from 31 December 2024 to the date of judgment and thereafter at the judgment rate;

(e) Costs, including all costs reserved if any, from the Writ up to 20 June 2023 be paid by D1, D2 and D3 jointly and severally to P on indemnity basis on the High Court scale, to be taxed if not agreed with certificate for counsel;

(f) Costs, including all costs reserved if any, from 21 June 2023 be paid by D1, D2 and D3 jointly and severally to P on indemnity basis on the District Court scale, to be taxed if not agreed with certificate for counsel;

(g) Interest on the costs referred to in para 4(e) above be paid by D1, D2 and D3 jointly and severally at 4% above the judgment rate from 31 December 2024 until full payment;

(h) The Counterclaim be dismissed; and

(i) D1 and D2 do pay P’s costs of the Counterclaim on a party and party basis, such costs to be taxed if not agreed with certificate for counsel

58.  I order that the costs of the Summons be to P to be taxed on indemnity basis with certificate for counsel.

	( Ng Man Sang Alan )
	Deputy District Judge

Mr Lau Ka Kin, instructed by Joseph C T Lee & Co, for the plaintiff

Mr Desmond Leung, instructed by Hastings & Co, for the 1^st to 3^rd defendants

  

DCCJ 2840/2023

[2025] HKDC 1241

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2840 OF 2023

-----------------------------

BETWEEN

	LEE KA MAN	Plaintiff
and
	NG TSZ MAN（吳子文）	1st Defendant
	TSOI SUET LEONG（蔡雪亮）	2nd Defendant
	HONG KONG COMMUNICATION ART LIMITED	3rd Defendant

-----------------------------

Before:

Deputy District Judge Ng Man Sang Alan in Court

Dates of Hearing:	21 – 24 and 28 January 2025
Date of Judgment:	28 July 2025

-------------------------

JUDGMENT

-------------------------

A. INTRODUCTION

1.  This is the 5-day trial of the action commenced by the Plaintiff (“P”) on 9 March 2016 to recover damages for misrepresentations whereby P was induced, in the main, to invest in New Asia Consulting Group Limited (“New Asia”) by paying a total sum of HK$1,466,001.82 for a Linguaphone (靈格風) language education business in Shanghai.

2.  The 1^st Defendant (“D1”) is the husband of the 2^nd Defendant (“D2”). Both D1 and D2 at the material time were the owners and directors of the 3^rd Defendant (“D3”), carrying on the education business of Hong Kong Communication Art Centre (“the Centre”). D1 was at the material time the principal of the Centre.

3.  I shall refer to D1, D2 and D3 collectively as “Ds” hereinbelow.

4.  On 22 June 2017, D1 and D2 counterclaimed against P for her share of further contribution in the Shanghai education business allegedly based on the investment ratio of 49 (P) to 51 (D1 and D2)[1] (“the Counterclaim”). On the eve of the 1^st day of the trial, solicitors for Ds sent a letter to P’s solicitors indicating that D1 and D2 shall not pursue the Counterclaim at the trial.

5.  The 5-day trial took place on 21-24 and 28 January 2025. P was represented by Mr Lau Ka Kin of Counsel (“Mr Lau”) and Ds represented by Mr Desmond Leung of Counsel (“Mr Leung”). On the 1^st day of the trial, D sought to abandon the Counterclaim and by consent, the Counterclaim was dismissed. There was no reason why P should not be awarded costs of the Counterclaim straightaway. However, I indicated at trial that the issue of costs in relation to the Counterclaim would be dealt with nisi at the time of the judgment.

6.  P and Ds each has called 1 witness. P has elected to testify and D1 elected to testify for Ds at trial. Both P and D1 have been subject to searching cross examination.

7.  Mr Lau and Mr Leung have helpfully filed their written Closing Submissions. After hearing the parties’ oral closing submissions on 28 January 2025, I reserved my judgment and informed the parties that I would hand down my written judgment on or before 28 July 2025.

8.  This I now do.

B. THE BACKGROUND

9.  The following is the pertinent background of this case gathered from the undisputed or indisputable evidence.

10.  D1 is a doctoral degree holder. As of 2010, he had more than 20 years of experience in marketing and running educational courses in language. He was the principal of the Centre owned and operated by D3[2]. D1 established D3 back in 1994.

11.  D2 is and at all material times D1’s wife. D2 was also quite experienced in education business: She became the shareholder and director of D3 in 1997. D2 was the sole shareholder of New Asia till 10 March 2010.

12.  P is qualified to practise as a solicitor in Hong Kong. She had practised as a solicitor in Hong Kong for 3 years from 2001 to 2004 and thereafter has worked as an in-house solicitor. Her husband is Mr Alan To (“Alan”).

13.  Prior to 2010, P did not know D1 and D2, but P had become acquainted with Mrs Ang Senior and her family members, including her son Mr Harry Ang (“Harry”). Mrs Ang Senior is D2’s aunt (姑母); Harry is D2’s cousin (表哥). In late 2009, P, through her husband Alan, learned from Harry about an opportunity to invest in a Linguaphone language centre in Shanghai (“the Intended Business”). P and Alan were interested in the opportunity and Harry arranged a meeting so that P and Alan could meet up with D1 and D2.

14.  Linguaphone is a well-known brand of language learning products. A statement entitled “Linguaphone Group appoints new language training partner for China”, dated 16 November 2009, announced and put up on the official website of the Linguaphone Group[3] (“the 2009 Announcement”) showed and stated the following:

(a) Above the title of the 2009 Announcement, the logos of (i) Pingu (a penguin), (ii) Linguaphone and (iii) Direct English were shown;

(b) Linguaphone had “replaced its Master Licensee for Linguaphone China with immediate effect”;

(c) Its Master Licensee for China “failed to prevent the temporary closure of their Linguaphone China training centers at certain locations in China”;

(d) A joint venture between the Centre and Linguaphone Singapore was appointed “as [Linguaphone Group’s] new Master Licensee for China”;

(e) The “new arrangement with [the Centre] and Linguaphone Singapore will see delivery of the Group’s adult-based Linguaphone and Direct English language learning programs to the mainland Chinese market and the reopening of all Linguaphone China language training centers” (Emphasis added);

(f) Clive Sawkins, the Chief Executive Officer of the Linguaphone Group, was quoted as saying that “as a result of this joint venture, teaching within Linguaphone language training centers will shortly recommence…”;

(g) D1, the principal of the Centre was quoted as saying that “… our immediate focus will be to work with Linguaphone Singapore to oversee the reopening of Linguaphone centers in Shanghai and Wuhan so that existing customers can continue their English language training with Linguaphone”;

(h) The 2009 Announcement directed Chinese speaking media enquiries to D1 at [email protected] (the Centre’s email address);

(i) The Notes to editors stipulated that the Linguaphone Group was a language training provider, operating under Linguaphone, Direct English and Pingu’s English (“Pingu”) brands and had language training centres across 34 countries worldwide including China and Hong Kong; and

(j) The Chinese version of the 2009 Announcement was “Copyright © 2009 Hong Kong Communication Art Centre”.

15.  Pingu targeted children.[4]

16.  At the material time, D3 was the exclusive Master Licensee of the following products in the following localities:

(a) Linguaphone, Direct English and Pingu in Hong Kong[5]; and

(b) Linguaphone and Direct English in China[6].

17.  On 30 January 2010, P and Alan met D1 and D2 for the first time at the office of the Centre (“the 30/1/2010 Meeting”). During the 30/1/2010 Meeting, D1 and D2 introduced the background of D1 and D3 to P.[7] They also met at subsequent meetings in either Hong Kong and Shanghai.[8] The matters discussed and represented during such meetings are hotly disputed.

18.  On 10 February 2010, Alan sent an email to D1 and D2 (copied P)[9], identifying items to be settled on or before their trip to Shanghai and some of to do items (including “Meet shareholder”) in Shanghai (“the 10/2/2010 Email”).

19.  On 12 February 2010, D1 sent an email to Alan[10] (“the 12/2/2010 Email”), attaching a draft Unit License Agreement for Linguaphone Kids and Linguaphone or Direct English (Either One) in Shanghai, Pudong between D3 as licensor and a licensee not yet identified[11] (“the Draft UL/A”) for a period of 5 years from 1 April 2010 to 31 March 2025 with a 5 years option. The Draft UL/A referred to, inter alia, Linguaphone Kids[12] and provided that “License fee for first adult and first Children unit is RMB$[1.2m]”, of which RMB400,000 would be payable upon the signing of the draft UL/A.[13]

20.  By the 17/2/2010 Email, Alan and P sent, inter alia, a graph of License Relationship and a list of questions to D1 (“the 17/2/2020 List of Questions”), raising questions about Pingu.[14] Of note are the following questions:

Reference	Question
About the product/ service offering: Linguaphone, EF, Wallstreet English website	(i) … … (iv) Is Linguaphone kids the same as Pingu’s English?
Linguaphone Group website – Global Licensed Partner Network (k) [the Centre] appointment was as follows: China (Linguaphone and Direct English adult language courses) (ii) Direct English HK/Linguaphone HK/ Pingu’s English HK China ([Pingu] children’s English languages course) was appointed to QE (Shanghai) Management Consulting Co. (“QE Shanghai”)	(v) What is the authority of [the Centre] to appoint Linguaphone Kids in Shanghai Pudong? (vi) Is (sic, does) Linguaphone includes (sic, include) both adults and kids? (vii) Is [Pingu] competitor of Linguaphone kids
Linguaphone Group website – statement of temporary closure of Linguaphone Shanghai “Linguaphone Group announced a joint venture between [the Centre] and Linguaphone Singapore as new Master Licensee for China”	(i) What is the joint venture arrangement between [the Centre] and Linguaphone Singapore?
-ditto- “this new arrangement with [the Centre] and Linguaphone Singapore will see delivery of Group’s adult-basedLinguaphone and Direct English’s language learning programs to the mainland Chinese market and the reopening of all Linguaphone China language training centres”	(i) Can [the Centre] deal with Kid’s market?  If so, Linguaphone kids or [Pingu]

(Emphasis added)

21.  On 1 March 2010, D1 introduced Andrew Koh (“Andrew”) to P and arranged for Andrew to sign the T/A for 3-year duration from 1 May 2010 to 30 April 2013[15] and an equipment transfer agreement[16] (“the ET/A”). Together with Andrew were D1 and Alan who jointly signed the T/A and the ET/A. D1, Alan and Andrew were authorised to sign the T/A pursuant to a letter of authorisation by New Asia.[17]

22.  By an email dated 3 March 2010 from the address “[email protected]” to “[email protected]” (copied P)[18], the sender sent a quotation and a layout plan for the renovation of the Pudong Linguaphone Centre to a 謝小姐. On the same day, P sent an email to D1 and Alan, commenting that “change carpet is expensive”.[19]

23.  On 3 and 4 March 2010, P sent an email to Alan and D1 respectively, attaching a draft Chinses shareholder agreement entitled “股東協議書” between D1 and P and the shareholders’ funding requirement.[20]

24.  On 4 March 2010,

(a) P paid HK$179,550.21 to New Success International Trading Co, Ltd[21] (“New Success”), a company carrying on the business of remittance of funds from Hong Kong to the Mainland, for the Intended Business; and

(b) in relation to P’s enquiry made with上海教委諮詢熱綫, P wrote an email to D1 and Alan[22] about her enquiry made in relation to the licence requirement and that she would share with them the findings in due course.

25.  On 5 March 2010, P sent an email to Andrew asking to him to find 2 to 3 other contractors to make a quotation.[23] P then followed up with Andrew by another email dated 8 March 2010[24] with reply by email from Andrew on 11 March 2010[25] and 19 March 2010[26].

26.  Between 5 and 12 March 2010, there was a series of email correspondence between P and the staff of “Shanghai Hanbang International Investment Consulting Co, Ltd” (namely Jenny Zhang and Clare Sun) regarding the setting up of a PRC company.[27]

27.  On 10 March 2010:

(a) P and D2 entered into a Chinses shareholder agreement entitled “股東協議書”[28] (ie the Draft Shareholders’ Agreement) regarding their shareholders’ rights and obligations in New Asia.

(b) New Asia increased its share capital from HK$1 to HK$100. 50 shares were allotted to D2 whilst 49 shares allotted to P. [29] D2 and P then respectively became the 51% and 49% shareholders of New Asia, the company holding the Intended Business.

(c) Upon the subscription of the shares in New Asia, P became bound by the Articles of Association as her contract with D2.[30]

(d) D3 entered into a Unit License Agreement with New Asia (the “UL/A”).[31]

(e) P paid D3 HK$222,222[32] as part of the licence fee payable by New Asia to D3 according to Schedule 4 to the UL/A.

28.  At all material times, D2 was the 51% majority shareholder of New Asia. New Asia in turn was the sole shareholder of 上海直通教育信息咨询有限公司 (“the PRC Subsidiary”)[33]. D2 was the legal representative of the PRC Subsidiary. D2 together with D1 had control over New Asia and the PRC Subsidiary.

29.  On 11 March 2010, Alan sent an email to D1, D2 and Harry (copied P) with the subject “Direct English Marketing Plan”[34], discussing about various marketing ideas. In the same email, Alan said that he did not send the email to Andrew for the moment, that he had checked that the Chinese name of Direct English was “直捷英語”. The email also showed that D1 and Harry would meet with “Jiaotong” the following week.

30.  On 14 March 2010, P sent an email to D1 and D2, attaching a draft “股東轉讓協議書” which included a third party.[35] Apart from the name of D2 as Party A, the names of Party B and Party C were left empty.

31.  By an email dated 23 March 2010 from P to D1 and Alan[36], P attached a “to do list before 29 Mar” (“the 23/3/2010 To Do List”). One of the items was “Bring 1 set Direct English Materials, bring 1 set kids materials”, with D1 being the “Management”. Another item was “Discuss交大 terms”, with Harry being the “Contact person” and Alan being the “Management”.

32.  D1 and D2 requested P to prepare draft agreements with Andrew. On 29 March 2010, D1 emailed to Andrew (forwarded to P and copied D2 on 31 March 2010) a draft “股份轉讓協議書”[37] (“the Draft ST/A”) which provided that D2 would transfer 20% shares in New Asia to Andrew.

33.  By an email dated 20 April 2010 from Alan to D1 (copied P and an “Echo Lai” of D3, “Echo”)[38], Alan forwarded to D1 his emails with a “Clara” between 7 to 20 April 2010.[39]

34.  By an email dated 22 April 2010 from P to Echo, a “Catherine” of D3 (“Catherine”) and D1[40], P told Catherine that she had 1 box Pingu Early learner English Course unit 1-12, 1 clip file Pingu teacher’s guide and 1 clip file Linguaphone recruitment manual.

35.  On 26 April 2020, P sent an email captioned “New Asia Shareholder Agreement” to D1, D2 and Alan[41], enclosing the draft shareholders’ agreement in English dated 9 March 2010 (“the Draft New Asia S/A”) in place of the previous Chinese version (ie the Draft Shareholders’ Agreement) and asking for its execution.

36.  By an email dated 23 May 2010[42], P informed D1, D2, Alan, Andrew and Harry of, inter alia, P’s previous meeting with Jiaotong University and her completion of the course approval application and the teaching venue application forms for Jiaotong University’s review, that after approval by the Education Authority, they could formally sell the course and that Jiaotong University was willing to wait for them to obtain the Business licence.

37.  On 6 July 2010, P sent an email to D1, D2 and Alan[43], proposing to have a meeting the following day on 7 July 2010. One of the items for discussion on 7 July 2010 was “[Andrew] arrangement. [D1] to update his communication with [Andrew] and the proposal.” In the same email, P also attached minutes of the meeting dated 26 June 2010 with attendance of D1, D2, P, Alan and a “Richard So”[44], recording that D1 said that Andrew had not invested in Shanghai yet, that Alan reported Andrew did not perform in Pudong Linguaphone Centre and that P commented that someone needed to be appointed as a partner to perform.

38.  After 10 March 2010, P paid a total sum of HK$1,064,229.61 for the Intended Business[45]:

Date / Recipient	Amount
16 March 2010 / D1 and D2	HK$27,778.00[46]
29 April 2010 / New Asia	HK$245,000.00[47]
24 May 2010 / New Asia	HK$245,000.00[48]
24 June 2010 / New Asia	HK$490,000.00[49]
5 July 2010 / D1 and D2	HK$56,451.61[50]

39.  By an email dated 14 July 2010 from 康瀅 of Jiaotong University to D1 (copied Harry and a George Chiu)[51], D1 was informed that the Education Management Department had temporarily suspended the teaching activities at Pudong Linguaphone Centre because there was a delay in completing the filing. On the same day, the aforesaid email was forwarded to P (copied Alan) by Harry.[52]

40.  Between August and September 2010, some of the staff members at Pudong Linguaphone Centre tendered their resignations, including Andy, Michelle, Aaron, Cindy, Nikki, and Grabelle.[53]

41.  In September 2010, Andrew suddenly disappeared. On 13 September 2010, P sent an email to D2 and D1 (copied Alan), complaining that Andrew who agreed to purchase 25% shareholding in New Asia should be responsible for the operation of the Intended Business and demanding an explanation from D2 and D1.[54]

42.  On 14 November 2010, P under a pseudonym sent an email enquiry to Linguaphone to find out more about the Master Licence granted by Linguaphone to D3 for Mainland China.[55] On 17 November 2010, Linguaphone replied, stating, inter alia, that “… another partner has exclusive rights to Pingu’s English across China.”[56]

43.  On 29 November 2010, P instructed a solicitors firm, George Chan & Co (“GC”), to send a letter to D2 alleging, inter alia, acts of mismanagement by D2 involved bad faith and fraudulent conduct, offering D2 to buy her out and demanding D2 not to use New Asia and PRC Subsidiary’s funds without her written consent.[57] By email of even date, P notified D1, D2 and Harry of her engagement of lawyer to advise on her legal rights and interest regarding her investment in Shanghai business and her partnership with D1/D2 and legal actions would be followed if the situation was not resolved effectively.[58]

44.  By a letter dated 4 December 2010[59], GC demanded D2 to provide with them all books and records of New Asia for their inspection. By another letter of the same date[60], GC P issued a statutory demand to New Asia, demanding payment of HK$1,466,001.61.

45.  By a letter dated 9 December 2010[61], Messrs Chan, Wong & Lam (“CWL”) acting for D2 replied to P’s letters of 29 November and 4 December 2010.

46.  On 23 January 2011, P sent a demand email to D2 (copied Harry)[62], following the telephone conversations between Mrs Ang Senior and D1/D2 respectively. What followed was an exchange of emails between D2 and P from 24 January 2011 to 22 February 2011.[63]

47.  On 28 August 2011, P lodged a complaint to Linguaphone.[64]On 3 September 2011, D1 wrote to Linguaphone to deny the allegations.[65]

C. THE ISSUES

48.  As culled from the pleadings, the issues between the parties can be essentially stated as follows:

(a) Whether Ds had made the following representations to P from 30 January to 10 March 2010:

(i) D3 had acquired licence rights to market, to grant licence to “Unit Licensees” and to carry on operation in Linguaphone Kids (Pingu) products and services in Mainland China. The Intended Business would provide such products and services. Ds made the aforesaid representations during the 30/1/2010 Meeting verbally and by conduct (in particular, by Ds’ showing the Linguaphone Kids (Pingu) teaching materials to P) and during a meeting between the parties at D3’s office shortly after 17 February 2010 verbally by saying that “Linguaphone Kids” and “Pingu” were the same products and services. (“the Pingu Representations”)

(ii) D1 and D2 told P that a “hidden shareholder” who invested in the business through D1 and D2 and who was a resident in Shanghai, would be responsible for looking after the operation of the Intended Business in Shanghai. Ds made the aforesaid representations verbally during a meeting with P at D3’s office in February 2010 and by conduct in Shanghai (by D1 and D3 via D1 introducing Andrew to P and D1 arranging for himself, Andrew and Alan to sign the T/A for the Intended Business) on around 1 March 2010. (“the Shanghai Shareholder Representations”)

(iii) There was no need for any education licence from the Mainland government authorities for the operation of the business under the intended Unit Licence agreement. Ds made the aforesaid representation during a meeting at D3’s office verbally. (“the Licence Representations”)

(b) Whether P relied on and induced by the Pingu Representations and/or the Shanghai Shareholder Representations and/or the Licence Representations to agree to invest in the business of D1 and D2 and to become the 49% minority shareholder of New Asia which, through the PRC Subsidiary, would carry on the Intended Business.

(c) Whether, from around 10 March to around 5 July 2010, D1 and D2 repeated and/or continued to make the Pingu Representations and the Shanghai Shareholder Representations verbally and by conduct:

(i) Since around March 2010, D1 and D2 caused and/or procured the placing of teaching materials of Pingu at the Pudong Linguaphone Centre. In around April 2010, D2 gave the teaching materials of Pingu to P.

(ii) In March 2010, D1 and D2 instructed P to prepare the Draft ST/A. On 31 March 2010, D1 sent the Draft ST/A which stipulated that D2 would transfer 20% of New Asia to Andrew (copied D2 and P). D1 and D2 also told P at the material time that the Draft ST/A was to formalise Andrew’s role as a hidden shareholder.

(d) Whether P relied on and induced by the Pingu Representation and/or the Shanghai Shareholder Representation to pay an additional aggregate sum of HK$1,064,229.61 to D1, D2 and New Asia from 16 March 2010 to 5 July 2010.

(e) Whether the Pingu Representation, the Shanghai Shareholder Representation and the Licence Representation (collectively as “the Representations”) were false.

(f) At the time when Ds made the Representations, whether Ds were under the following state of mind:

(i) whether D1 and D2 knew that the Representations were false; or

(ii) whether the Representations were made without belief in their truth; or

(iii) whether each of Ds was reckless, not caring whether the Representations were true or false.

(g) Whether D1’s and/or D2’s knowledge of the falsity or lack of belief in the truth or recklessness as to the falsity of the Representations was attributed to D3 by reason of his/her/their directorship with D3.

(h) (i) Whether Ds were under a common law duty of care to P in making the Representations in the course of negotiations on P’s investment in the Intended Business.

(ii) Whether Ds were in breach of the aforesaid common law duty of care when they made the Representations if the Representations were false.

(i) Whether P could rely on section 3 of the Misrepresentation Ordinance (Cap 284) (“MO”), entitling her to the relief claimed.

(j) The quantum of damages recoverable by P.

D. THE APPLICABLE LEGAL PRINCIPLES

49.  The law on misrepresentation is trite. Mr Lau and Mr Leung have helpfully summarised the relevant legal principles with the supporting authorities in their written opening and closing submissions. The following are some legal principles apposite for recapitulation here.

D.1. The Core Principles of Misrepresentation

50.  DHCJ Alexander Stock SC in Joytex Development Ltd v Super Homes Ltd[2018] HKCFI 2286 at para 77:

“77. I consider it helpful to outline a few core principles, for which see eg Yang Dandan v Hong Kong Resort Company Ltd CACV 247/2015, 9 August 2016 per Kwan JA at §§52 - 55 and 67 - 74, and Misrepresentation, Mistake and Non-Disclosure by Cartwright (4^th ed) Chapter 3:

(1) Generally, an actionable misrepresentation requires a false statement of past or present fact, as distinct from a statement of opinion or intention; though a statement of opinion/intention or as to the future may entail an implied statement of fact.

(2) Where there is a dispute as to the meaning conveyed, the court interprets the relevant words or conduct. The approach is objective, viewing the communication from the perspective of a reasonable person in the position of the representee. The test is whether: (a) the words or conduct in fact led the representee to believe the alleged false fact; and (b) it was reasonable for the representee to believe it from the words or conduct as he perceived them. In applying the test, the characteristics of the representee, including level of sophistication, are taken into account.

(3) Where an implied representation is alleged, the question is what a reasonable person would have inferred was being impliedly represented by the representor's words and conduct in their context.

(4) The statement must have the character of one upon which the representee was intended and entitled to rely.

(5) The representee must have in fact relied on the statement; though this can sometimes be inferred. The representation need not be the only or main cause of the decision to contract. It is generally sufficient that it be a cause (in other words, a material inducement).”

D.2. Deceit/Fraudulent Misrepresentation

51.  Where a defendant makes a false representation, knowing it to be untrue, or being reckless as to whether it is true, and intends that the plaintiff should act in reliance on it, then in so far as the latter does so and suffers loss the defendant is liable.[66]

52.  In Haifa International Finance Co Ltd v Concord Strategic Investments Ltd [2009] 4 HKLRD 29, Cheung JA, at para 15, relied on Winfield & Jolowicz on Tort (17^th ed, 2006) at p 472 para 11-3 as a clear exposition of the elements of fraud or deceit, which is as follows:

“(1) There must be a representation of fact made by words or conduct.

(2) The representation must be made with knowledge that it is or may be false. It must be wilfully false, or at least made in the absence of any genuine belief that it is true.

(3) The representation must be made with the intention that it should be acted upon by the claimant, or by a class of persons which includes the claimant, in the manner which resulted in damage to him.

(4) It must be proved that the claimant has acted upon the false statement.

(5) It must be proved that the claimant suffered damage by so doing.”

53.  A representation as to the future will not as such found liability in deceit. Nor will a broken promise, as such. However, the limits of this principle must be borne in mind. A representation of present intention, whether the intention be that of the representor or of a third party, is a sufficient representation of an existing fact to form the foundation of an action for deceit if the state of a man’s mind at a particular time can be ascertained. Therefore, a statement as to the future will often indeed imply a statement as to present intention: He has at the moment of making the promise the intention of fulfilling it.[67]

54.  A statement of opinion is invariably regarded as incorporating an assertion that the maker does actually hold that opinion; hence, the expression of an opinion not honestly entertained amounts to fraud. The only serious obstacle in the way of maintaining an action for a false representation on this basis lies in the difficulty of proving what the defendant’s real opinion was.[68]

55.  Deceit is not actionable per se: damage, in other words, is of the gist of the action. Where a plaintiff proves that he has been deceived into expending money, the burden shifts to the defendant if he wishes to argue that the expenditure did not in fact amount to a loss to the plaintiff.[69]

D.3. Section 3 of MO

56.  Section 3(1) of MO provides that:

“Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable grounds to believe and did believe up to the time the contract was made that the facts represented were true.”

57.  The question under section 3 of MO is not one of negligence. Section 3 of MO has imposed an absolute obligation not to state facts which the representor cannot prove he had reasonable grounds to believe. Circumstances may exist in which a person may make a statement without having reasonable ground to believe it, yet in which it would be held that he was not (having regard to all the circumstances) negligent.[70]

58.  The basic measure of damages under MO is the same as the measure of damages for fraud.[71]

D.4. Negligent Misrepresentation

59.  At common law, a negligent misrepresentation is one which is made carelessly, or without reasonable grounds for believing it to be true.[72]

60.  A person who made a negligent statement could owe a duty of care to a person who suffered financial loss through reliance upon the statement.[73]

61.  The House of Lords case of Hedley Byre [1964] AC 465 recognised a cause of action in negligence for causing pure economic loss. The House of Lords held that there might be relationships which imposed a duty of care in making a representation independently of contract and fiduciary duty. The case before them gave rise to such a relationship and the plaintiffs only failed because liability had been excluded by the disclaimer.

62.  A special relationship, giving rise to a duty of care, may subsist between parties negotiating a contract if information is given in connection with the contract. In Esso Petroleum Co Ltd v Mardon, it was held that a petroleum company negotiating a lease of a filling station was liable to the tenant for negligently giving him overoptimistic estimates of the sales potential of the filling station. It should be noted that this was not a casual observation made between parties each of whom was in the same position to judge the accuracy of the estimate. The information was based on a detailed evaluation of the position by the petroleum company and the tenant was clearly not in as good a position as was the company to make such an estimate.[74]

63.  In Henderson v Merrett Syndicates Ltd, Lord Goff identified the governing principle of Hedley Byrne as being assumption of responsibility by the defendant along with reliance by the claimant. He said that from the speeches in Hedley Byrne: “we can derive some understanding of the breadth of the principle underlying the case. We can see that it rests upon a relationship between the parties, which may be general or specific to the particular transaction, and which may or may not be contractual in nature. All of their Lordships spoke in terms of one party having assumed or undertaken a responsibility towards the other. On this point, Lord Devlin spoke in particularly clear terms … Further, Lord Morris spoke of that party being possessed of a ‘special skill’ which he undertakes ‘to apply for the assistance of another who relies upon such skill’.”[75]

64.  On “special skill”, in Spring v Guardian Assurance Plc, Lord Goff duly confirmed that the reference to special skill in Hedley Byrne had “to be understood in a broad sense, certainly broad enough to embrace special knowledge” and that this could include situations where the “defendant has access to information and fails to exercise due care … in drawing on that source of information”.[76]

D.5. Evaluation and Assessment of Witnesses

65.  The legal principles on evaluating the truthfulness of an account given by a witness are relevant. These principles were referred to in Hui Cheung Fai v Daiwa Development Ltd (HCA 1734/2009, 8 April 2014) at paras 77-80 by DHCJ Eugene Fung SC, and helpfully summarized by Madam Recorder Yvonne Cheng SC (as her Ladyship then was) in Joint and Several Trustees of the Property of Yeung Wing Sing v Yeung Wing Sing[2021] HKCFI 2018 at para 26 as follows:

“(1) contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility;

(2) in deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events;

(3) regard should be had to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence;

(4) care should be taken in drawing conclusions about truthfulness and reliability solely or mainly from the appearance of a witness or from the assessment of a witness’ character;

(5) witnesses’ credibility should be tested by reference to the objective facts proved independently of their testimony, and regard should be had to their motives and to the overall probabilities.”

66.  I have also borne in mind the principles on evaluation of evidence enunciated by HH Judge Simon Barker QC in Northampton Borough Council v Cardozq and others [2019] BCC 582 at paras 37-39 and the reminder given by K Yeung J in Siao Miu Hua v Wu Ching Kuen[2024] HKCFI 232 at para 84 where his Lordship quoted H Au-Yeung DJ’s observations at para 14(5) of High Fashion New Media Corporation Ltd v Leong Ma Li[2022] HKCFI 2234 as follows:

“It is essential to have regard to the entirety of a witness’ evidence. A witness can make mistakes, but the mistakes do not necessarily affect other parts of his evidence. Likewise, a witness may lie. However, lies themselves do not mean necessarily that the entirety of that witness’ evidence is to be rejected. A witness may lie in a stupid attempt to bolster his case, but the actual case nevertheless remains good irrespective of the lie”.

E. EVIDENCE AND ANALYSIS

E.1. The Representations

67.  Here, I am grappling with the issues set out at para 48(a) and (c) hereinabove and shall resolve the issues of the Pingu Representations, the Shanghai Shareholder Representations and the Licence Representations one by one.

E.1.1. The Pingu Representations

68.  According to P’s evidence:

(a) P and Alan first met with D1 and D2 at the 30/1/2010 Meeting. At the meeting, D1 and D2 told P, inter alia, that D3 was granted licence for Linguaphone adult and kid products in Hong Kong and Mainland China, that the kid teaching brand was named “PINGU” and the adult teaching brand named “Linguaphone” and “Direct English” and that D3 had obtained the Unit Licence for Linguaphone Kids (Pingu). During the same meeting, D1 and D2 showed and introduced Linguaphone/Direct English and Pingu teaching materials to P. P indicated that the kid market had better potential for development than the adult market. So, they proposed that P should cooperate with them to carry on Linguaphone adult-and-kid education centre in Mainland China. D1 and D2 had also talked about the 3 brands of (i) Pingu, (ii) Linguaphone and (iii) Direct English during the 30/1/2010 Meeting and mentioned to P that Linguaphone had published the 2009 Announcement.

(b) P denied that at the 30/1/2010 Meeting, D1 told her that D3 was granted licence for Pingu in Hong Kong and had no licence for Pingu in Mainland China.

(c) Shortly after the 30/1/2010 Meeting, P read the 2009 Announcement. The 2009 Announcement showed the logos of (i) Pingu, (ii) Linguaphone and (iii) Direct English “operating under the internationally recognised Linguaphone, Direct English and Pingu’s English brand names”.

(d) On 12 February 2010, D1 sent out the Draft UL/A. The “Marks” therein purportedly included Linguaphone Kids, but the Draft UL/A made no reference to Pingu.

(e) P noted from Linguaphone’s website that the licensee of Pingu in China was said to be QE Shanghai.

(f) In the circumstances, on 17 February 2010, P sent, inter alia, the 17/2/2010 List of Questions to D1 and D2 and asked, inter alia, whether Linguaphone Kids was the same as Pingu, whether Linguaphone included both adults and kids and whether Pingu was competitor of Linguaphone Kids.

(g) A few days after the foregoing email, P met D1 and D2. D1 and D2 confirmed that Linguaphone Kids was the same as Pingu. D1 said that Linguaphone Kids was the former name of children product and that the brand name now was Pingu. In response to the question about Pingu China being “appointed” to QE Shanghai, D1 emphasised that that was not a problem and that he could and would sort it out. He reiterated that he had over 20 years of experience in the education business.

(h) After 10 March 2010, D1 and D2 repeated the above Pingu Representations.

(i) By email of 13 March 2010, a recruitment advertisement, stating that Direct English established an adult and children language training centre was posted. In the same email, the requirements of “Native English Teacher” included “2. one year pre-school/kindergarten … experience”.

(ii) On 23 March 2010, P circulated the 23/3/2010 To Do List. D1 was to “Bring 1 set Direct English Materials, bring 1 set kids materials”. That month, D1 and D2 brought Pingu products to Shanghai for display at the Pudong Linguaphone Centre.

(iii) On 7 April 2010, Clara’s email recorded that “Made Direct English introduction that will send to potential customers, Pingu English is in preparation”. The email chain was forwarded to, inter alios, D1 on 20 April 2010.

(iv) In April 2010, D2 gave one set of Pingu teaching materials (first shown and introduced to P at the 30/1/2010 Meeting and too heavy for P to take away on 30/1/2010) to P, which was produced as Exhibit “P-1” at trial.

69.  According to D1’s evidence:

(a) Linguaphone had 4 products, namely Linguaphone, Linguaphone Kids, Direct English and Pingu. The Centre obtained the licences of all 4 products in Hong Kong. In China, since the licence for Pingu was given to QE Shanghai, the Centre was only the master licensee of Linguaphone, Linguaphone Kids and Direct English.

(b) Linguaphone and Direct English were courses designed for adults, while Linguaphone Kids and Pingu were for children. Linguaphone was more focused on conversational English while Direct English was more academic, such as the teaching of formal English and gramma. Linguaphone Kids was similar to Linguaphone – the children’s version of Linguaphone and targeted primary students. “Pingu” was a famous penguin carton character which Linguaphone had obtained the right to use in classrooms and materials for the teaching of children between the age of 3 and 8 – Pingu product. The Pingu products targeted kindergartens.

(c) During the meetings before 10 March 2010, D1 and D2 did not expressly refer to Pingu because P was only interested in operating a language centre in Pudong Shanghai and Ds were not the master licensee of Pingu in Mainland China. D1 and D2 never mentioned Pingu or “Pingu’s English”.

(d) During the negotiation stage, Ds did not represent to P and Alan that Linguaphone Kids and Pingu/“Pingu’s English” were the same products and services.

(e) D1 denied having mentioned the 2009 Announcement to P. The 2009 Announcement was drafted and published by the Linguaphone Group and Ds were not involved in the drafting. Neither did the Linguaphone Group seek Ds’ approval for the publication of the 2009 Announcement.

(f) In Court, D1 said that he could not remember when he met P to discuss the 17/2/2010 List of Questions.

(g) The UL/A was for “Linguaphone Kids and LinguaphoneorDirect English”. At the time when the UL/A was drafted, the parties had yet decided whether the Pudong Linguaphone Centre was to market Linguaphone Kids and Linguaphone or it would only market Direct English. However, when the UL/A was signed, the parties were quite sure that Direct English was the product they would market and Pingu was thus never a choice.

(h) In witness box,

(i) D1, however, confirmed that the fact that Direct English was chosen did not exclude the kid products business to be carried on at the Pudong Linguaphone Centre and that at all material times, the common understanding of all parties concerned was that the Pudong Linguaphone Centre would carry on the business of Direct English and education of children.

(ii) At the 30/1/2010 Meeting, D1 did introduce Pingu to P and Alan, but denied having told P that the Pudong Linguaphone Centre would carry on Pingu business.

(iii) D1 denied having told P that that master licence for Pingu was granted to QE Shanghai was not a problem and that he could and would sort it out.

(iv) Following the 23/3/2010 To Do List, D1 brought kids materials from Hong Kong to the Pudong Linguaphone Centre.

(i) Direct English did not have any teacher training kit and Pingu did have materials for training teacher. D1 therefore provided Pingu’s teacher training kit to P for reference purposes only and in the hope of helping with the training of teachers in the Pudong Linguaphone Centre. Apart from the teacher training kit, no other materials of Pingu had been provided to P and/or Alan. The materials of Pingu were never supposed to be displayed in the Pudong Linguaphone Centre.

(j) In witness box, D1 could not tell who gave the materials to P and could not be sure about what materials were given to P. D1 accepted that the student’s flashcards[77] were for kids.

70.  On this aspect, I do not accept D1’s evidence on the following grounds:

(a) At the stage of negotiation, D1 must have referred to P and Alan Pingu and P regarded Pingu and kids’ market in Shanghai as important. Otherwise, P and Alan would not have asked D1 whether Linguaphone Kids was the same as Pingu after they received the Draft UL/A from D1.

(b) Having regard to the entire contents of the 2009 Announcement, it lies ill in the mouth of D1 to deny his involvement in the drafting of the same.

(c) The 17/2/2010 List of Questions made reference to the contents of the 2009 Announcement. It is more likely than not that the 2009 Announcement was mentioned to P and Alan at the 30/1/2010 Meeting.

(d) D1’s initial position that Direct English was the only product they would market in Shanghai and Pingu was never their choice contradicts the contemporaneous documentary evidence which shows clearly that the Pudong Linguaphone Centre was set up and targeted pre-school/kindergarten kids market and that Pingu was in preparation for the Pudong Linguaphone Centre. This led D1 to confirm in Court that the common understanding of all parties concerned was that the Pudong Linguaphone Centre would carry on the business of Direct English and education of children.

(e) D1 testified that Pingu was a product for pre-school and kindergarten whereas Linguaphone Kids was for primary school students. Judging from the contemporaneous documentation, it is more likely than not that the Pudong Linguahpone Centre was set up also for Pingu products – the pre-school/kindergarten kids market.

(f) D1 did not simply provide Pingu’s teacher training kit to P for reference purposes only. If Pingu materials were provided for the purpose of training teachers, it would not be necessary to provide P with the student flashcards. D1 had in fact provided P Pingu materials for the Intended Business.

71.  P’s evidence is well supported by contemporaneous documentation and I accept her evidence. If D1 and D2 had not confirmed that Linguaphone Kids was the same as Pingu[78] and assured P that that Pingu China was appointed to QE Shanghai was not a problem and he could and would sort it out, the T/A would not have been signed and payments would not have been made by P for the Intended Business subsequently. More importantly, the Pudong Linguaphone Centre would not have been intended to be set up to provide English teaching to pre-school/kindergarten kids which was the province of Pingu. P’s evidence that in April 2010, D2 gave one set of Pingu teaching materials (first shown and introduced to her at the 30/1/2010 Meeting and too heavy for P to take away on 30/1/2010) to her[79] was corroborated by the email of 22 April 2010 by P to, inter alios, D1: “I have the following materials on hand … 1 box Pingu Early learner English Course unit 1-12 … 1 clip file Pingu teacher’s guide … 1 clip file Linguaphone recruitment manual”.[80]

72.  I find as facts the following:

(a) At the 30/1/2010 Meeting, D1 and D2 told P, inter alia, that D3 was granted licence for Linguaphone adult and kid products in Hong Kong and Mainland China, that the kid teaching brand was named “PINGU” and the adult teaching brand named “Linguaphone” and “Direct English” and that D3 had obtained the Unit Licence for Linguaphone Kids (Pingu).

(b) During the same meeting, D1 and D2 showed and introduced Linguaphone/Direct English and Pingu teaching materials to P. P indicated that the kid market had better potential for development than the adult market. So, they proposed that P should cooperate with them to carry on Linguaphone adult-and-kid education centre in Mainland China. D1 and D2 had also talked about the 3 brands of (i) Pingu, (ii) Linguaphone and (iii) Direct English during the 30/1/2010 Meeting and mentioned to P that Linguaphone had published the 2009 Announcement.

(c) At the 30/1/2010 Meeting, D1 did not tell P that D3 was granted licence for Pingu in Hong Kong and had no licence for Pingu in Mainland China.

(d) Shortly after the 30/1/2010 Meeting, P read the 2009 Announcement.

(e) On 12 February 2010, D1 sent out the Draft UL/A.

(f) P noted from Linguaphone’s website that the licensee of Pingu in China was said to be QE Shanghai. In the circumstances, on 17 February 2010, P sent, inter alia, the 17/2/2010 List of Questions to D1 and D2 and asked, inter alia, whether Linguaphone Kids was the same as Pingu, whether Linguaphone included both adults and kids and whether Pingu was the competitor of Linguaphone Kids.

(g) A few days after the aforesaid email, P met D1 and D2. D1 and D2 confirmed that Linguaphone Kids was the same as Pingu. D1 said that Linguaphone Kids was the former name of children product and that the brand name was now Pingu. In response to the question about Pingu China being “appointed” to QE Shanghai, D1 emphasised that that was not a problem and that he could and would sort it out. He reiterated that he had over 20 years of experience in the education business.

(h) Since D1 and D2 had, during the 30/1/2010 Meeting, already told P that D3 was granted licence for Linguaphone adult and kid products in Hong Kong and Mainland China and that the kid teaching brand was Pingu, the cumulative effect of the Pingu Representations remained that the Pudong Linguaphone Centre and the Intended Business would provide Linguaphone Kids (Pingu) products and services in Mainland China.

(i) After 10 March 2010, D1 and D2 repeated the above Pingu Representations by the matters as mentioned in para 68(h)(i)-(iv) hereinabove.

73.  I reject D1’s evidence which is at variance with that of P on this aspect.

E.1.2. The Shanghai Shareholder Representations

74.  According to P’s evidence:

(a) During a meeting in D3’s office in February 2010, D1 and D2, in reply to P’s concern that both P and Alan had a full time job and could not devote time to manage the Intended Business, told P that a “hidden” shareholder[81] who invested through them (D1 and D2) and who resided in Shanghai would be responsible for managing the business in Shanghai.

(b) On 1 March 2010, D1 introduced Andrew to P and arranged for Andrew to sign the T/A and the ET/A jointly with him and Alan.

(c) After signing the T/A, P, Alan, D1 and Andrew started discussion on the Shanghai business plan, including renovation of premises and recruitment of manager.

(d) At the request of D1 and D2, P prepared (i) a draft shareholders’ agreement for P and D2 to sign and (ii) a draft shares transfer agreement whereby D2 would transfer part of her shares in New Asia to a 3^rd party.

(e) In reliance on the Shanghai Shareholder Representations:

(i) P, on 14 March 2010, sent an email to D1 and D2, attaching a draft “股東轉讓協議書” which included a third party.[82] Apart from the name of D2 as Party A, the names of Party B and Party C were left empty. Clause 1 of the draft provided that Party C would not have any voting rights in New Asia.

(ii) On 29 March 2010, D1 emailed to Andrew (forwarded to P and copied D2 on 31 March 2010) the Draft ST/A[83] which provided that D2 would transfer 20% shares to Andrew on the basis that Andrew would have no voting rights. D1 and D2 told P that the Draft ST/A was to formalise Andrew’s role as a shareholder (as they had previously told P).

(iii) D2 would complete the transfer of part of her shares in New Asia to Andrew and Andrew would be responsible for the daily operation of the Intended Business.

(f) In witness box:

(i) P testified that the word “hidden shareholder” was understood to mean that P was not supposed to have dealing with Andrew when it came to Andrew’s shareholding; Andrew invested through D1 and D2 only.

(ii) When P was confronted by the discrepancy between “invested” in the Amended Statement of Claim and “有興趣入股” in her Witness Statement, P testified that as to the “hidden shareholder”, there were in fact two stages. At stage one, D1 and D2 told P that the “hidden shareholder” “有興趣” invest. At stage two, P asked D1 and D2 whether the “hidden shareholder” “會投資”, D1 and D2 then confirmed that the “hidden shareholder” “會投資”. When being further asked whether at stage 2, D1 and D2 in fact said “投資咗” or “會投資”, P testified that she could not confirm, but then added that after Andrew did something, she understood that Andrew had already invested. However, after she answered the last question on Day 1 of the trial, she volunteered to supplement that she could now confirm that D1 and D2 indeed told her that the “hidden shareholder” “投資咗” before P went to Shanghai. When asked by the Court why she could now confirm that, she said that she was distracted and was too nervous at that time, but now she had thought over it clearly.

75.  According to D1’s evidence:

(a) At the 30/1/2010 Meeting, D1 and D2 had made known to P that they could not be in Shanghai to look after the operation and day-to-day running of the Intended Business. At the time, D1 was busily looking after his education business in Hong Kong while his children who were about 9 and 7 years of age required the full- time attention of D2. The recruitment and day-to-day operation of the Intended Business would be for P and Alan to handle as they would be in Shanghai.

(b) D1 was sure that P and Alan would move to Shanghai for good.

(c) D1 knew Andrew because the Centre had an office in Tai Shing Commercial Building, Yaumatei, and D1 was the chairman of the Owners Incorporation while Andrew was a committee member. Thereafter, they became friends. D1 knew that Andrew lived in Shanghai and was a businessman with no connection or experience in education. Since he was living in Shanghai and appeared to be a wise and sensible person, D1 thought that if he would accept their offer to take up some shares, then they would have a trusted person in Shanghai who could provide some healthy checks and balances. In D1’s words in cross examination, Andrew would become his “eyes” in Shanghai.

(d) Andrew was initially interested and during preparation for the setting up of the Intended Business, he provided his assistance because he was in Shanghai. However, by about mid-2010, Andrew was no longer interested in investing. He said that he could not get along with P.

(e) On 11 March 2010, Alan sent an email to D1, D2 and Harry (copied P) with the subject “Direct English Marketing Plan”[84], discussing about various marketing ideas. Alan did not send the email to Andrew.

(f) After receiving the draft “股東轉讓協議書” on 14 March 2010, D1 subsequently inserted the name of Andrew to the draft and sent the same to Andrew by an email dated 29 March 2010. The draft was never signed by Andrew because Andrew’s proposed investment never materialized.

(g) On 26 April 2020, P sent an email captioned “New Asia Shareholder Agreement” to D1, D2 and Alan, enclosing the Draft New Asia S/A. Clause 5.04 of the Draft New Asia S/A, P had the right to appoint Andrew as CEO. [85]

(h) Andrew never signed the agreement for the sale of shares to him and he never actually invested in the Intended Business. When he was involved in the Intended Business, he was merely trying to learn about the education business for his own sake while providing some assistance to Ds. He was never a key player.

(i) The 3^rd party investor was only a possibility. At no time did D1 or D2 mention that a 3^rd party had already invested (or would definitely invest) in the Intended Business. Neither did they mention that someone (whether Andrew or not) would be responsible for looking after the operation of the Intended Business. D1 and D2 only considered Andrew a potential investor.

76.  Although P’s stance on the Shanghai Shareholder Representations has wavered, I nevertheless accept P’s evidence in Court since her evidence is more consistent with the contemporaneous emails. This is particularly so where a few days after the 30/1/2010 Meeting, Alan sent the 10/2/2010 Email to D1 and D2 (copied P)[86], identifying items to be settled on or before their trip to Shanghai and some of to do items (including “Meet shareholder”) in Shanghai. If P did not understand Andrew was a shareholder but only a potential investor (through D1 and D2 only), there would be no need for P to meet Andrew at that point in time.

77.  D1 admitted that he received the 10/2/2010 Email and noted P’s understanding that the Shanghai shareholder mentioned by Ds was not merely a potential investor. D1 and D2, however, did not correct P’s misunderstanding and allowed P to labour under her misunderstanding. To arrange for P to see Andrew in Shanghai and to further allow Andrew to sign the T/A and the ET/A jointly with D1 and Alan with the effect of undertaking personal liability thereunder were conducts furthering the representation that Andrew was a shareholder who had invested in the Intended Business. The same is true of the conduct of D1 and D2 requesting P to prepare the Draft ST/A, providing that D2 would transfer 20% shares in New Asia to Andrew.

78.  Ds’ case is that they did not mention that a 3^rd party had already invested (or would definitely invest) in the Intended Business and neither did they mention that someone (whether Andrew or not) would be responsible for looking after the operation of the Intended Business. It is not Ds’ case that D1 and/or D2 had told P prior to P’s investment in the Intended Business that someone (whether Andrew or not) was merely a potential investor. The fact that Andrew had gone to the length of signing the T/A and the ET/A and undertaking work for the Pudong Linguaphone Centre on the instructions of P from 5 March to around early July 2010 goes a long way to disprove Ds’ case. I reject D1’s evidence which is at variance with P’s evidence on this aspect.

79.  Accordingly, I find the matters stated in para 74 hereinabove as facts, particularly the following:

(a) During a meeting in D3’s office in February 2010, D1 and D2, in reply to P’s concern that both P and Alan had a full time job and could not devote time to manage the Intended Business, told P that a shareholder who invested through them (D1 and D2) and who resided in Shanghai would be responsible for managing the business in Shanghai.

(b) On 1 March 2010, D1 introduced Andrew to P and arranged for Andrew to sign the T/A and the ET/A jointly with him and Alan.

(c) After signing the T/A, P, Alan, D1 and Andrew started discussion on the Shanghai business plan, including renovation of premises and recruitment of manager.

(d) At the request of D1 and D2, P prepared the Draft ST/A, providing that D2 would transfer 20% shares in New Asia to Andrew on the basis that Andrew would have no voting rights. D1 and D2 told P that the Draft ST/A was to formalise Andrew’s role as a shareholder.

E.1.3. The Licence Representations

80.  According to P’s evidence:

(a) At the 30/1/2010 Meeting, P specifically asked D1 whether an education licence would be required to operate the Intended Business. D1 answered “no”, citing their experience in their Guangzhou centre.

(b) When cross-examined on her online enquiry about education licence to the Shanghai authority on 4 March 2010[87], P explained that during the meeting in Shanghai on 1 March 2010, Harry casually asked whether licence would be required; D1 reacted strongly saying that people should listen to him and licence was not required. The conversation ended up in somewhat an irrelevant argument of seniority because Harry was D2’s elder cousin whereas D1 was, among the people there, the only person experienced in education. P sent the enquiry just to wrap up the matter. P did not receive any response to her online enquiry and did not follow up on her enquiry. To her, the authority would probably confirm that a licence was not needed, as D1 and D2 had told her.

(c) The lack of licence resulted in suspension of business at the Pudong Linguaphone Centre. D1 then asked Harry to find an organisation with education licence to cooperate.

(d) Initially, D1 and Harry would meet with Jiaotong University for the purpose of marketing the Intended Business.[88] It was only after the suspension of business at the Pudong Linguaphone Centre by the authority for lack of education license that D1 suggested that co-operation with Jiaotong University would resolve the licence issue.

(e) A sum of RMB200,000 was paid to Jiaotong University on 9 June 2010 for cooperation with Jiaotong University.

81.  According to D1’s evidence:

(a) At the 30/1/2010 Meeting, D1 made clear that an education licence was necessary for the operation of the Intended Business and they should apply for one. D1 knew about the requirement as he had the experience in running an education institute in Guangzhou, PRC.

(b) The parties were aware of the need for an education licence and had started applying for one. However, Shanghai was staging the Shanghai World Expo at the time and the application was delayed. For such reason, an arrangement with Jiaotong University was entered into and a license fee of RMB200,000 was paid on 9 June 2010. They were totally free to operate their courses as long as they were done in conjunction with Jiaotong University.

(c) In witness box:

(i) Prior to 10 March 2010, the parties did not specifically talk about education licence and that he could not remember whether an application for an education licence was ever made.

(ii) After it was pointed out to D1 that ascertaining, enquiry and application were different, D1 then said that to his knowledge, an application was made. The application for education licence was made in March 2010. After he was shown the email of 11 March 2010[89], he claimed that the application was made at the outset. He testified that immediately after they submitted the application, they learned from source(s) in the government that due to World Expo, the education licence would not be granted anytime soon, and therefore the discussions with Jiaotong University since or before 11 March 2010.

(iii) D1 did not know who the applicant for the education licence was. When it was pointed out to him that the PRC Subsidiary was not incorporated until 3 June 2010, he said that an individual could be a licence holder.

(iv) D1 did not claim to have seen any application forms or emails relating to the application. He was unable to tell which staff told him that the application for education licence had been made. He was not clear who made the application. Neither has he enquired from his staff to discover the facts and documents about the application. He did not consult any lawyers or advisors about carrying on education business in Mainland China.

(v) D1 claimed that the processing of the application was delayed by the World Expo. He testified that due to the need to maintain social stability and prevent chaos, the government would not proceed to grant new education licence. In the following years, there was no follow-up, no withdrawal and no result.

(vi) The PRC Education Bureau did not stop the education activities of the Pudong Linguaphone Centre because the latter had no education licence. However, it was possible that the Pudong Linguaphone Centre did not hold any education activities.

82.  On the Licence Representations issue, I have no hesitation in rejecting D1’s evidence. My reasons are as follows:

(a) According to D1, the application for education licence was made in March 2010. D1’s testimony that immediately after they submitted the application for an education licence, they learned from source(s) in the government that due to World Expo, the education licence would not be granted anytime soon. This led to the discussions with Jiaotong University since or before 11 March 2010. All these (i) preparation for the application, (ii) submission of the application, (iii) gathering of information from the government and (iv) discussions with Jiaotong University with a view to overcoming the licence issue happened in 10 calendar days. This defies belief.

(b) If the application for an education licence was made since around 1 March 2010, it would be very difficult to comprehend why P submitted an online enquiry on 4 March 2010. This testimony is also inconsistent with D1’s testimony that prior to 10 March 2010, the parties did not specifically talk about education license.

(c) He did not claim to have seen any application forms or emails relating to the application for the education licence. Not a scintilla of documentation relating to the application was discovered. The complete absence of a paper trail is inexplicable and remains unexplained.

(d) D1 claimed that the processing of the application for an education licence was delayed by the World Expo. He testified that due to the need to maintain social stability and prevent chaos, the government would delay processing applications for education license. It strains credulity to say that granting a license to teach Direct English and/or Pingu would result in chaos. And if World Expo in May 2010 were a factor, then there would be no reason why the application made zero progress in 2011 and the following years, and the PRC Subsidiary still took no steps to follow up.

83.  I accept P’s evidence and, in this context, it is inherently probable that P asked D1 whether an education licence would be required to operate the Intended Business and D1 answered in the negative. This tallies with the absence of a paper trail relating to Ds’ application for the education licence.

84.  Hence, I find as facts the following:

(a) At the 30/1/2010 Meeting, P specifically asked D1 whether an education licence would be required to operate the Intended Business. D1 answered “no”, citing his experience in their Guangzhou centre.

(b) P made online enquiry about education licence to the Shanghai authority on 4 March 2010 to end the argument between D1 and Harry. P did not receive any response to her online enquiry and did not follow up on her enquiry.

(c) The lack of licence resulted in suspension of business at the Pudong Linguaphone Centre. D1 then asked Harry to find an organisation with education licence to cooperate.

(d) Initially, D1 and Harry would meet with Jiaotong University for the purpose of marketing of the Intended Business. It was only after the suspension of business at the Pudong Linguaphone Centre by the authority for lack of education license that D1 suggested that co-operation with Jiaotong University would resolve the licence issue.

(e) A sum of RMB200,000 was paid to Jiaotong University on 9 June 2010 for cooperation with Jiaotong University.

F. RELIANCE AND INDUCEMENT

85.  It is undisputed[90]:

(a) that D3 was solely owned and operated by D1 and D2;

(b) that D1 at the material time had more than 20 years’ experience in the business of language education; and

(c) that Ds had, prior to 30 January 2010, already had dealings with Linguaphone.

86.  The Pingu Representations, the Shanghai Shareholder Representations and the Licence Representations were made by D1 and/or D2 (for which D3 was responsible) in the context of their discussion with P and Alan for P to decide whether to invest in the Intended Business. Against this context, it is beyond question that the Pingu Representations, the Shanghai Shareholder Representations and the Licence Representations each were material and an inducing cause of the alteration of P’s position mentioned in para 87 hereinbelow, and I so find.[91]

87.  The Pingu Representations, the Shanghai Shareholder Representations and the Licence Representations each contributed to P doing, inter alia, the following acts:

(a) Payment of HK$179,550.21 by P to New Success on 4 March 2010;

(b) Subscription of 49 shares in New Asia by P on 10 March 2010;

(c) Payment of HK$222,222 by P to D3 on 10 March 2010;

(d) Payment of HK$27,778 by P to D1 and D2 on 16 March 2010;

(e) Payment of HK$245,000 by P to New Asia on 29 April 2010;

(f) Payment of HK$245,000 by P to New Asia on 24 May 2010;

(g) Payment of HK$490,000 by P to New Asia on 24 June 2010; and

(h) Payment of HK$56,451.61 by P to D1 and D2 on 5 July 2010.

88.  It is undisputed that P paid a total sum of HK$1,466,001.82 and did not receive any income, profits, dividends or share of assets from the business.[92]

G. FALSITY

89.  The burden of proving falsity, as relates to the Pingu Representations, the Shanghai Shareholder Representations and the Licence Representations, rests on P.

90.  It is undisputed[93]:

(a) that Linguaphone Kids did not include Pingu;

(b) that the Master Licence granted to D3 in respect of Pingu was confined to Hong Kong;

(c) that Ds knew:

(i) the scope of the licence granted to D3;

(ii) the fact that Linguaphone Kids did not include Pingu; and

(iii) D1 and D2 in any event had no intention or plan to develop Pingu’s related business in the PRC through New Asia.

(d) that Ds never intended or contemplated that New Asia would carry on any business in respect of Pingu;

(e) that an education licence was required by the authorities in Mainland China for the Intended Business; and

(f) that Andrew never invested in New Asia.

91.  Viewed thus, I find that the Pingu Representations, the Shanghai Shareholder Representations and the Licence Representations were false.

H. STATE OF MIND

92.  P’s case against Ds is principally on fraudulent misrepresentation/deceit.

93.  The relevant state of mind in fraudulent misrepresentation is: whether D1, D2 and D3 made the Pingu Representations, the Shanghai Shareholder Representations and the Licence Representations, knowing them to be untrue, or being reckless as to whether they were true, and intended that P should act in reliance on it.

94.  In reaching my views on this issue, I bear in mind that the very gravity of an allegation of fraud is a circumstance which has to be weighed in the scale in deciding as to the balance of probabilities.[94]

95.  Considering all the circumstances, the findings which I have made above, and the undisputed facts mentioned in paras 85 and 90 above, I find the following:

(a) (i) When the Pingu Representations were made, D1 and D2 knew that the Pingu Representations were false and intended that P should act in reliance on it.

(ii) Since D3 was solely owned and operated by D1 and D2, the state of mind of D1 and D2 was attributed to that of D3.

(b) (i) When the Shanghai Shareholder Representations were made, D1 and D2 knew that the Shanghai Shareholder Representations were false and intended that P should act in reliance on it.

(ii) Since D3 was solely owned and operated by D1 and D2, the state of mind of D1 and D2 was attributed to that of D3.

(c) (i) When the Licence Representations were made, D1 knew that the Licence Representations were false and intended that P should act in reliance on it.

(ii) Since D3 was solely owned and operated by D1 and D2, the state of mind of D1 was attributed to that of D3.

96.  For completeness sake, D3 have not pleaded and adduced evidence to show that it had reasonable grounds to believe and did believe up to the time the contract was made[95] that the facts represented in the Pingu Representations, the Shanghai Shareholder Representations and the Licence Representations were true.

97.  Because of my findings in para 95, it becomes unnecessary for me to reach any finding on negligent misrepresentation.

I. LIABILITY & QUANTUM

98.  For the above reasons,

(a) D1, D2 and D3 were liable to P in damages for fraudulent misrepresentation[96]; and

(b) D3 was liable to P in damages under section 3(1) of MO.

99.  It is indisputable that acting in reliance on the fraudulent misrepresentations and induced thereby, P has suffered out-of-pocket loss to the tune of HK$1,466,001.82.

J. DISPOSITION

100.  D1, D2 and D3 are jointly and severally liable to pay P the sum of HK$1,466,001.82.

101.  Accordingly, I make the following Order:

(a) Judgment be entered for P against D1, D2 and D3 jointly and severally on her claim for the sum of HK$1,466,001.82 with interest at 1% above the HSBC best lending rate from 4 December 2010 to the date of judgment and thereafter at the judgment rate; and

(b) the Counterclaim be dismissed.

102.  As to costs, I make the following order nisi:

(a) D1, D2 and D3 do pay P’s costs of the action on a party and party basis, such costs to be taxed if not agreed with certificate for counsel; and

(b) D1 and D2 do pay P’s costs of the counterclaim on a party and party basis, such costs to be taxed if not agreed with certificate for counsel.

103.  The costs order nisi shall be made absolute unless application for variation is made within 14 days from the date of this judgment.

104.  Lastly, it remains for me to thank counsel for their able assistance.

	( Ng Man Sang Alan )
	Deputy District Judge

Mr Lau Ka Kin, instructed by Joseph C T Lee & Co, for the plaintiff

Mr Desmond Leung, instructed by Hastings & Co, for the 1^st to 3^rd defendants