DCCJ2284/2019 DATA WORLD SOLUTIONS LTD AND ANOTHER v. CHAN WING CHEONG AND OTHERS - LawHero
DCCJ2284/2019
District CourtDeputy District Judge Alexsander Wong11/1/2024[2024] HKDC 66
DCCJ2284/2019
A A
B B
DCCJ 2284/2019
C [2024] HKDC 66 C
D D
IN THE DISTRICT COURT OF THE
E HONG KONG SPECIAL ADMINISTRATIVE REGION E
CIVIL ACTION NO 2284 OF 2019
F F
G ———————— G
BETWEEN
H H
st
DATA WORLD SOLUTIONS LIMITED 1 Plaintiff
I
(達訊顧問有限公司) I
POLY-ASIA (CHINA) COMPANY LIMITED 2nd Plaintiff
J (普亞(中國)有限公司) J
and
K K
CHAN WING CHEONG (陳榮昌) 1st Defendant
L CHAN CHI YAN EUGENIA 2nd Defendant L
POLY-ASIA E-TECHNOLOGY LIMITED 3rd Defendant
M M
(普亞電貿科技有限公司)
N POLY-ASIA E-TECHNOLOGY (HOLDINGS) 4th Defendant N
LIMITED (普亞電貿科技(控股)有限公司)
O ———————— O
P P
Before: Deputy District Judge Alexsander Wong in Court
Q Dates of Hearing: 4 to 7, 10 and 12 July 2023 Q
Date of Judgment: 12 January 2024
R R
S ———————— S
JUDGMENT
T T
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A A
B B
C A. INTRODUCTION C
D D
1. This is a dispute arising from the sale and purchase of the 2nd
E Plaintiff, Poly Asia (China) Company Limited (“PA China”) between E
(1) the purchaser, the 1st Plaintiff, Data World Solution Limited (“Data
F F
World”) and (2) the sellers, the 1st Defendant, Chan Wing Cheong (“Paul
G Chan”) and the 2nd Defendant, Chan Chi Yan Eugenia (“Eugenia Chan”). G
H H
2. At trial, Mr. Tom Ng (together with Mr. Billy Liu) appeared
I for the Plaintiffs, while Ms. Vivian Chan (together with Ms. Teresa Yu) I
appeared for the Defendants. At the outset, I wish to expressly
J J
acknowledge that counsel on both sides had at all times conducted the trial
K reasonably and rendered helpful assistance to the court throughout. K
L L
3. Data World is a company incorporated in Hong Kong carrying
M on the business of providing IT business management solutions from M
enterprise resource planning (“ERP”), human resource management and
N N
customer relationship management to IT infrastructure and network
O security. At all material times, Mr. Ben Ng Wing Hong (“Ben Ng”) was O
its director and indirect shareholder. A Mr. Mak Che Fai Lawrence
P P
(“Lawrence Mak”) was also a director of Data World who was also
Q Q
involved in the negotiations of the sale of PA China to Data World.
R R
4. Eugenia Chan was the daughter of Paul Chan, holding 0.01%
S S
of the shares in PA China. Prior to the sale of PA China to Data World in
T
early 2018, Paul Chan and Eugenia Chan held all the shares in PA China. T
Eugenia Chan was never involved in any business activities relating to PA
U U
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A A
B B
China and she simply held the shares in PA China as a nominee of his
C father, Paul Chan. C
D D
5. PA China was also a company engaged in the business of
E providing and distributing IT business solution products. E
F F
6. Paul Chan has also been running his IT business since 1990s
G with inter alia the following companies (“PA Group”):- G
H H
(1) Poly-Asia Systems, a sole proprietorship registered in
I 1992 and later ceased in 1993; I
J J
(2) The 3rd Defendant, Poly-Asia E-Technology Limited
K (“PA E-Tech”); and K
L L
(3) The 4th Defendant, Poly-Asia E-Technology (Holdings)
M Limited (“PA Holdings”), incorporated in 1995. M
N N
7. The PA Group (including PA China) has conducted
O accounting systems and ERP business since 1992 and software licensing O
of Pervasive database management system business (“Pervasive
P P
Business”) since 1995.
Q Q
R
8. Prior to the sale of PA China to Data World, PA China had R
attained and maintained the “gold status” as a Microsoft ERP partner since
S S
2006. The Microsoft ERP gold partner status is the highest level of
T
partnership status as assessed by Microsoft based on revenue requirements. T
U U
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A A
B B
PA China’s ERP business as a Microsoft ERP gold partner is referred to
C hereinbelow as “the Microsoft ERP Business”. C
D D
B. THE SALE AND PURCAHSE AGREEMENT
E E
9. As Ben Ng, Lawrence Mak, and Paul Chan were all in the IT
F F
industry, they had known each other for some time. According to Ben Ng,
G he and Paul Chan had been acquainted with each other since about 1995, G
whereas Paul Chan said that he knew Ben Ng since about 2000. In any
H H
event, they seem to have known each other for many years prior to 2017.
I I
10. In about February 2017, Lawrence Mak and Paul Chan met
J J
incidentally and had a casual chat. In the course of their conversation, Paul
K Chan said in effect that his business was mediocre and that he could retire K
if someone would purchase his business. Lawrence Mak understood from
L L
this that Paul Chan intended to sell his business. Lawrence Mak then duly
M informed Ben Ng about Paul Chan’s intention to sell his business. Since M
Data World was looking to expand their business, they got in touch with
N N
Paul Chan to explore the possibility of a sale and purchase of Paul Chan’s
O business. O
P P
11. On about 13 February 2017, Ben Ng called Paul Chan and
Q Q
asked whether Paul Chan was intended to retire and interested in a sale of
R
his business. Paul Chan replied that if he could sell his business, he might R
be able to retire. They scheduled to meet on 16 February 2017 to further
S S
discuss the matter.
T T
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A A
B B
12. Ben Ng and Paul Chan gave slightly different accounts of
C what was discussed in the meeting on 16 February 2017:- C
D D
(1) According to Ben Ng, he has ascertained from Paul
E Chan whether he wished to sell all of “Poly Asia” E
business and was given an affirmative response by Paul
F F
Chan as Paul Chan wanted to retire completely. Ben
G Ng stressed that it was on this understanding that he G
agreed to proceed further with the discussion. It was
H H
then agreed that Paul Chan would prepare more
I detailed information about PA China’s business and I
operations for another meeting;
J J
K (2) According to Paul Chan, Ben Ng asked him whether he K
was a Microsoft ERP gold partner to which Paul Chan
L L
replied yes. Ben Ng then informed Paul Chan that he
M was interested in becoming a Microsoft ERP gold M
partner. There were some discussions on the ERP
N N
market and Paul Chan gave a brief introduction about
O his business. Towards the end of the meeting, Ben Ng O
asked if the price for Paul Chan’s business would be
P P
expensive. Paul Chan then proposed that they should
Q Q
first enter into a Non-disclosure Agreement (“NDA”)
R
before any further negotiations. Ben Ng then asked R
Paul Chan to send him a draft NDA and suggested that
S S
they should meet up again for further discussions.
T T
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A A
B B
13. When asked during cross-examination, Ben Ng said that he
C did not remember whether they discussed PA China’s ERP gold partner C
status with Microsoft. However, he knew at that time that PA China was
D D
conducting ERP business with Microsoft. In any event, despite the
E differing accounts on the meeting on 16 February 2017, it seems clear E
enough that nothing was substantially agreed and the parties would have to
F F
negotiate further. On the next day, Paul Chan sent a draft NDA to Ben Ng.
G G
14. On 21 February 2017, Ben Ng and Paul Chan met up again
H H
for further discussions (“21 Feb Meeting”). Again, both Ben Ng and Paul
I Chan gave differing accounts of this meeting:- I
J J
(1) According to Ben Ng, Paul Chan only verbally
K presented information as the NDA has not yet been K
signed. The following matters were said to have been
L L
discussed:-
M M
(a) Paul Chan informed Ben Ng that the business of
N N
PA China basically consisted of (i) the Microsoft
O ERP Business, and (ii) the Pervasive Business; O
P P
(b) Paul Chan said that PA China was a Microsoft
Q Q
ERP gold partner, and this status has great value
R
as this would entitle PA China to have more R
support from Microsoft and it was actual proof
S S
of competence to potential customers;
T T
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A A
B B
(c) The Microsoft partnership license was attached
C to the domain name “polyasia.net” and the “Poly C
Asia” brand name, which had been driving and
D D
supporting the business of PA China operated
E under the Microsoft partnership license. The E
long attachment of the PA China’s domain
F F
names and the “Poly Asia” brand name to the
G Microsoft partnership license had greatly G
enhanced the value of the Microsoft partnership
H H
license. If a different domain name and brand
I name was to be used by PA China to distribute I
the Microsoft products in place of the domain
J J
name “polyasia.net” and the “Poly Asia” brand
K name, the business of PA China would be K
seriously and adversely affected, and the source
L L
of potential customer would have to be built up
M from scratch; M
N N
(d) PA China had 25 years of history and had
O established the “Poly Asia” brand name in the IT O
service industry and also on the internet, such
P P
that many of PA China’s new businesses came
Q Q
from internet search in which PA China had a
R
high exposure priority because of the early R
registration of its two domain names
S S
“polyasia.com” and “polyasia.net”; and
T T
U U
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-8-
A A
B B
(e) Ben Ng proposed that Paul Chan could consider
C retaining part of his shareholding in PA China C
(about 30% to 49%), and continue to be involved
D D
in the “Poly Asia” business, which was firmly
E rejected by Paul Chan as he intended to retire E
from the IT business.
F F
G (2) According to Paul Chan, at the 21 Feb Meeting:- G
H H
(a) Ben Ng informed Paul Chan that Data World had
I a lot of marketing and sales problems with one I
of their ERP vendors. Ben Ng also told Paul
J J
Chan that a product from another ERP vendor is
K a dying product. Thus, it was Ben Ng’s objective K
to look for an existing Microsoft ERP gold
L L
partner with customers’ base, consultant team
M and revenue for Data World to acquire. If the M
sale could proceed, Data World would not need
N N
to start from scratch. Ben Ng in cross-
O examination agreed that he had told Paul Chan of O
these matters;
P P
Q Q
(b) There were general discussions of the ERP
R
market where Ben Ng remarked that the R
advantage to do ERP business is that once users
S S
used the ERP product and services, the users
T
would have to keep paying for the services and T
products every year. Again, Ben Ng in evidence
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A A
B B
agreed that this was in line with what he told Paul
C Chan; C
D D
(c) Ben Ng said that he would ask Lawrence Mak to
E talk to Paul Chan about the details of operations, E
but Paul Chan responded that it would be better
F F
to talk further after the NDA is signed; and
G G
(d) According to Paul Chan, nothing about his
H H
retirement or even the sale of his company was
I discussed at the 21 Feb Meeting. The discussion I
was mainly focused on the ERP market. He has
J J
not been asked to retain any shareholdings in PA
K China since the discussion was still at the initial K
stage and it was simply premature to know what
L L
transaction would be carried out. Furthermore,
M it was also because no NDA was then signed by M
the parties.
N N
O 15. On about 27 February 2017, the NDA was signed by the O
parties. On 1 March 2017, Ben Ng messaged Paul Chan and asked to
P P
discuss some financial data before moving on to discuss operations. Ben
Q Ng and Paul Chan duly met up on 2 March 2017 (“2 Mar Meeting”). Q
R
Again, both Ben Ng and Paul Chan’s evidence differs:- R
S S
(1) Ben Ng stated that Paul Chan had disclosed to him that
T
the business of PA China was not good and had in fact T
suffered losses over recent years. Paul Chan reiterated
U U
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A A
B B
the “intangible values” of PA China including its gold
C partnership status for Microsoft ERP, the “Poly Asia” C
tradename, and the long historical presence of the
D D
“polyasia.com” and “polyasia.net” domain names. Ben
E Ng also explained to Paul Chan that they were only E
keen to consider the acquisition on the basis of the trade
F F
name, historical presence, etc. Ben Ng also informed
G Paul Chan that they were not keen on acquiring the G
Pervasive Business. Ben Ng also asked Paul Chan to
H H
prepare a detailed report about PA China’s operations
I and financial data; and I
J J
(2) Paul Chan, on the other hand, said that the only
K financial data he told Ben Ng was about the number of K
customers, monthly average revenue, and the number
L L
of consultants of his business at the time. In the 2 Mar
M Meeting, they only talked about the general scope of M
PA China’s business without any serious discussions
N N
on the deal to be made, what Data World would
O acquire, or any price issue. O
P P
16. Immediately after the 2 Mar Meeting, Ben Ng emailed Paul
Q Chan on the same day and informed Paul Chan that “they can go ahead for Q
R
more detail discussion of the project” and that Ben Ng had instructed R
Lawrence Mak to follow up with Paul Chan for detail discussions of the
S S
operations and financial aspects. As a result, a meeting was set up between
T
Paul Chan and Lawrence Mak at the office of PA China on 8 March 2017, T
where Lawrence Mak said that Paul Chan emphasized the long history of
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A A
B B
the “Poly Asia” brand name and the wide exposure to prospective
C customers owing to its domain names. Paul Chan denied that he uttered C
any such emphasis.
D D
E 17. On 21 March 2017, Paul Chan provided Ben Ng with an E
outline showing the businesses of PA China (“the March Business
F F
Outline”). The March Business Outline contained financial data as well
G as a suggested valuation of PA China in the sum of HK$3,424,258 based G
on various financial information stated therein.
H H
I 18. The negotiations subsequently fell stale and there were no I
exchanges between the parties until October 2017. On 23 October 2017,
J J
Paul Chan reached out to Ben Ng and they met for discussions (“23 Oct
K Meeting”), where Paul Chan agreed to exclude the Pervasive Business K
from PA China, essentially selling only the Microsoft ERP Business to
L L
Data World.
M M
19. Ben Ng also alleged that at the 23 Oct Meeting he had made
N N
clear to Paul Chan that he agreed to continue the negotiations on the
O conditions that: (i) after the sales, Paul Chan would not engage or be O
involved in any IT business with the brand “Poly Asia”, (ii) Paul Chan
P P
would not operate the Pervasive Business under the “Poly Asia” brand
Q Q
name, and (iii) there must be an arrangement to ensure a smooth transition
R
to new management and to ensure renewal of the Microsoft partnership R
license.
S S
T T
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A A
B B
20. Paul Chan however alleged that they did not have any
C discussions on the brand name or domain names, and that he would C
obviously not be retiring as he retained the Pervasive Business and would
D D
not sell to Data World all the business under the “Poly Asia” brand.
E E
21. On 31 October 2017, Ben Ng and Paul Chan met at Ben Ng’s
F F
office where Paul Chan provided Ben Ng a business outline titled
G “Microsoft Gold Partner” (“the October Business Outline”). On G
1 November 2017, Paul Chan asked Ben Ng whether it is possible for the
H H
parties to have something signed in respect of what was discussed. Ben
I Ng suggested that Paul Chan should list out what was discussed in their I
meeting and subsequently sign a memorandum of understanding. As such,
J J
on 3 November 2017, Paul Chan circulated the minutes of the meeting of
K 31 October 2017 (“31 Oct Minutes”), where Ben Ng subsequently also K
confirmed that it contained an accurate record of what had transpired and
L L
could be taken as the memorandum of understanding. The 31 Oct Minutes
M recorded, among other things, that:- M
N N
(1) Paul Chan presented the October Business Outline to
O Ben Ng; O
P P
(2) Ben Ng inquired with Paul Chan who could run the
Q Q
whole operation if Paul Chan is no longer in an active
R
operation role. Paul Chan suggested the following:- R
S S
(a) To assign one Data World senior staff to be
T
General Manager; T
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A A
B B
(b) Paul Chan to serve as a paid adviser for further
C 12 months to assist the overall operation C
transition;
D D
E (c) Data World to assign one accountant to take over E
the accounting; and
F F
G (d) Regarding sales and marketing, it would be a G
good idea to share resources with Data World in
H H
future marketing activities.
I I
(3) Paul Chan requested HK$1,500,000 to sell off PA
J J
China’s Microsoft related operations and business and
K a monthly fee of HK$25,000 as adviser’s fees for 12 K
months, to which Ben Ng agreed.
L L
M 22. On 5 December 2017, Paul Chan sent a “Note for drafting M
S&P Agreement” (“the Drafting Note”) to Ben Ng listing the subject
N N
matter to be covered under the eventual sale and purchase agreement. The
O Drafting Note did not refer to any intellectual property rights or domain O
names. The price was revised to HK$1,540,000 to take into account a sum
P P
of HK$40,000, being the expenses for renewing the Microsoft partnership
Q Q
license for the Microsoft ERP Business.
R R
23. On 12 December 2017, Paul Chan sent Ben Ng a draft sale
S S
and purchase agreement. Thereafter, the parties had various discussions
T
on the terms of the draft sale and purchase agreement up to 8 January T
2018:-
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A A
B B
C (1) On 13 December 2017, Ben Ng objected to the non- C
refundable nature of the deposit upon signing of the sale
D D
and purchase agreement;
E E
(2) On 16 December 2017, Paul Chan replied with his
F F
suggestion on the issue regarding the non-refundable
G deposit; G
H H
(3) On 17 December 2017, Ben Ng suggested to Paul Chan
I that he should seek legal advice as to the viability of the I
terms in relation to the deposit as proposed by Paul
J J
Chan;
K K
(4) On 20 December 2017, Ben Ng wrote to Paul Chan
L L
rejecting the term regarding non-refundable deposit.
M On the same day, Paul Chan replied that he is willing M
to insert terms to allow the deposit to be refundable in
N N
the event that there is a breach by the sellers;
O O
(5) On 29 December 2017, Ben Ng informed Paul Chan by
P P
email that he had read through the draft sale and
Q Q
purchase agreement and specifically requested inter
R
alia appending a list of customers and the audited R
accounts and management accounts to the draft. Other
S S
than the comments provided in that email, Ben Ng
T
stated that he had no other comments; and T
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A A
B B
(6) On 8 January 2018, a final draft of the sale and purchase
C agreement was sent to Ben Ng with the requested C
documents to be appended thereto.
D D
E 24. On 12 January 2018, Paul Chan and Eugenia Chan (as E
vendors) and Data World (as purchaser) entered into a sale and purchase
F F
agreement (“the SPA”) under which the entire shareholding of PA China
G was sold to Data World. The recital to the SPA provides:- G
H H
“WHEREAS
I [PA China] is now having 400,000 fully paid shares of HK$1.00 I
each, out of which Paul CHAN holds 399,999 shares,
representing 99.9% of the total issued shareholding and Eugenia
J J
CHAN holds 1 share, representing 0.01% of the issued
shareholding.
K K
AND
L [PA China] is now eligible of Microsoft Partner Competency in L
Gold Enterprise Resource Planning and Silver Cloud Platform
M and shall be until 31 January 2019.” M
N 25. The SPA further provides:- N
O O
“1. In consideration of HK$1,540,000 and subject to the
terms and conditions hereof by the parties on the event date:
P P
(a) The Vendor shall sell and the Purchaser shall buy
Q 400,000 shares in the share capital of [PA China] (the Q
‘Shares’)
R (b) The lists of customers including their yearly BREP and R
Support values are agreed and shown as the following:
S S
• List of Customers as per Microsoft Partner
Portal with BREP value as at 1 January 2018
T (Annex A(1)) T
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A A
B B
• List of Poly-Asia (MS Dynamics) Support
Customers (Annex A(2))
C C
(c) The audited balance sheet and financial statements of
[PA China] as at 31.03.2017 (Annex B) is included; and
D D
(d) The management accounts as at 31 December 2017 are
E included… E
…
F F
4. Upon completion, the Vendor shall deliver to the
Purchaser:-
G G
(a) Share Certificate representing the Shares.
H H
(b) Bought and Sold note and Instrument of Transfer for the
Shares duly executed by the seller and the transferor.
I I
(c) [PA China] shall produce a Board Resolution for the
J approval of the transfer of Shares and register the J
Purchaser as the registered owner of the Shares.
K … K
L 6. In the next 12 months after completion, Paul CHAN shall L
act as an Adviser to [PA China] for its management support at
the rate of HKD25,000 per month starting from 1 February 2018
M payable at the end of each month… [PA China] shall sign a M
management agreement with a company designated by Paul
CHAN for such management support and the managing
N N
company shall present an invoice every month for that charge to
[PA China].
O O
7. WARRANTIES AND INDEMNITIES BY VENDORS
P 7.1 The Vendors represent, warrant and undertake to the P
Purchaser and its respective successors in title, the Warranties
Q contained in the Schedule are true and accurate in all respects Q
at the date of this Agreement and will continue to be so on each
day up to and including the day of Completion with reference to
R the facts and circumstances from time to time applying. The R
Vendors agree that the Purchaser may treat each of such
S Warranties as a condition of this Agreement. S
…
T T
7.6 The Vendors undertake, in relation to any Warranty
which refers to the knowledge, information or belief of the
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A A
B Vendors, that it has made full enquiry into the subject matter of B
that Warranty and that it does not have the knowledge,
C information or belief that the subject matter of that Warranty C
may not be correct, complete or accurate.
D … D
E
14.5 This Agreement contains the entire agreement between E
the parties hereto relating to the transactions provided for
herein and there are no other warranties, conditions or terms
F applicable thereto whether express or implied.” F
G 26. The Schedule to the SPA provided the following warranties G
H
given by the vendors:- H
I “1.4 (a) All information given by the Vendors, the Vendors’ I
Appointed Agent or the Vendors’ Accountants to the
J Purchaser, the Purchaser’s Solicitors or the Purchaser’s J
Accountant relating to the business, activities, affairs, or
assets or liabilities of the Company [PA China] was,
K when given, and is now accurate and comprehensive in K
all respects.
L L
(b) There are no material facts or circumstances, in
relation to the assets, business or financial condition of
M the Company, which have not been fully and fairly M
disclosed in writing to the Purchaser for the Purchaser’s
solicitors, and which, if disclosed, might reasonably have
N N
been expected to affect the decision of the Purchaser to
enter into this Agreement.
O O
1.13 [PA China] has all permits, authorities, licenses and
consents (whether granted by public or private authority)
P necessary to carry on its business effectively and without P
hindrance in the manner and in the places in which its business
Q is now carried on with particular reference to the ownership of Q
the Property and the business of leasing and letting parts thereof
and there are no circumstances which might lead to the
R suspension or cancellation of any such permits, authorities, R
licenses or consents.
S S
1.19 All information given or which may at any time before
Completion be given by any of the Company, its directors,
T officers, accountants, solicitors or other advisers, to the T
Purchaser, their directors, officers, accountants, solicitors or
other advisers or the Vendor is accurate in all material respects
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A A
B and there are no facts which have not been disclosed to the B
Purchaser which would make any such information misleading.
C C
1.20 All information relating to the Company, its prospects
and affairs known or which would on reasonable enquiry be
D known to any of the Company, its directors or the Vendor, which D
might affect the willingness of a prudent purchaser for value of
E
the Shares to complete his purchase or the amount of the E
consideration which such purchaser would be prepared to pay
for the Share has been disclosed to the Purchaser.”
F F
C. THE MANAGEMENT AGREEMENT
G G
H 27. Pursuant to Clause 6 of the SPA, PA China entered into a H
management agreement with PA E-Tech dated 1 February 2018 (“the
I I
MA”), under which PA E-Tech shall procure Paul Chan to provide
J J
advisory services to PA China for a management fee of HK$25,000 per
K
month for a period of 12 months. K
L L
28. Clause 7 of the MA further provides as follows:-
M M
“7. INTELLECTUAL PROPERTY
N N
The Manager and its Directors agree that all Relevant
Intellectual Property (whether patentable or not) shall be the
O absolute property of the Company. The Manager and its O
Directors shall further:
P P
(a) notify and disclose to the Company in writing full details
of all Relevant Intellectual Property forthwith upon the
Q production of the same, and promptly whenever Q
requested by the Company and in any event upon the
determination of the Appointment deliver up to the
R R
Company all correspondence and other documents,
papers and records, and all copies thereof in his
S possession, custody and power relating to an Relevant S
Intellectual Property;
T (b) assign to the Company or any Affiliated Company as the T
Company may designate, without additional
U compensation all rights (including patent, registered U
V V
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A A
B design and trade mark rights and copyrights) to such B
Relevant Intellectual Property worldwide;
C C
(c) if required by the Company, apply or join with the
Company or any Affiliated Company as the Company
D may direct in applying for letters, patents, registered D
design, trade mark, copyright and other protection or
E
registration for such Relevant Intellectual Property at E
the expense of the Company or any Affiliated Company;
F (d) sign and execute all documents and do all things as may F
in the opinion of the Board be necessary or desirable to
carry out the foregoing and otherwise to protect and
G G
maintain all Relevant Intellectual Property;
H (e) give testimony in support of its inventorship if required; H
and
I (f) hold upon trust for the benefit of the Company any I
Relevant Intellectual Property to the extent the same may
J not be and until the same is vested absolutely in the J
Company and/or a Affiliated Company as the case may
be…”
K K
D. POST-ACQUISITION
L L
M M
29. It is common ground that Paul Chan had since February 2018
N
provided consultancy/advisory services to PA China pursuant to the terms N
of the MA without any dispute until around June 2018.
O O
P 30. On 27 June 2018, Ben Ng messaged Paul Chan and invited P
him to meet over dinner the next day. Paul Chan’s evidence is that in the
Q Q
dinner meeting on 28 June 2018, Ben Ng asked him to change the name of
R his other companies and asked for the administrator’s passwords for R
various domain names, including “polyasia.net” and “polyasia.com”
S S
(collectively “the Disputed Domain Names”). Paul Chan told Ben Ng
T that the changing of names needs to be discussed with Ms. Patty Wu, who T
is his wife and a director of the relevant companies. As to the
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A A
B B
administrator’s passwords, Paul Chan told Ben Ng that the staff of PA
C China already had the administration rights for doing what they wanted to C
do. Ben Ng did not give evidence on what transpired at this dinner meeting.
D D
E 31. That night, when Paul Chan discussed the matter with Patty E
Wu, she immediately opposed the changing of names of the other
F F
companies. Patty Wu also told Paul Chan that the Disputed Domain Names
G were necessary in operating the other companies and that there was no G
requirement under any agreements to stop other companies from using
H H
them.
I I
32. On 29 June 2018, Ben Ng in an email requested Paul Chan to
J J
pass the relevant passwords to Ryan Chan, the technical manager of Data
K World. It is not disputed that Paul Chan did not pass the administrator’s K
passwords for the Disputed Domain Name to Data World.
L L
M 33. On 25 October 2018, Paul Chan wrote to Ben Ng stating that M
the domain name of “polyasia.com.hk” is registered under PA China and
N N
the registration password is ready for collection. However, Paul Chan
O stated that the Disputed Domain Names were not registered under PA O
China. On the evidence, they were first registered under the sole
P P
proprietorship Poly Asia Systems and, according to Paul Chan, were
Q Q
subsequently registered to Paul Chan himself.
R R
34. On 26 October 2018, Ben Ng replied to Paul Chan alleging
S S
that the failure to provide the relevant passwords to the Disputed Domain
T
Names is a breach of the SPA and/or the MA. T
U U
V V
- 21 -
A A
B B
35. By 18 January 2019, Data World has not paid PA E-Tech’s
C monthly management fee for a period of 4 months. A sum of HK$100,000 C
was then outstanding. At that time, Paul Chan still had the means to settle
D D
payments for PA China, and he therefore made payments to PA E-Tech on
E behalf of PA China by bank transfer to settle the outstanding amount owed E
to PA E-Tech under the MA.
F F
G 36. Separately, it transpired that a “Poly Asia E-Technology” logo G
was registered by PA Holdings under Trade Mark Registration No.
H H
300596484 (“the Trade Mark”). In a letter dated 23 January 2019, PA
I E-Tech stated that it would terminate PA China’s use of the Trade Mark I
upon cessation of the MA with effect from 1 February 2019.
J J
K 37. It is under the above background that the parties’ disputes K
arise.
L L
M E. THE PLAINTIFFS’ CLAIM AND DEFENDANTS’ DEFENCE M
N N
38. The gist of Plaintiffs’ primary complaint is the Defendants’
O failure to transfer to PA China the Disputed Domain Names and the Trade O
Mark (collectively, “the IP Rights”).
P P
Q 39. Data World’s primary claim is in misrepresentation either on Q
R
the facts as pleaded by it or on the case as advanced by the Defendants (the R
precise details of its claims based on these 2 different scenarios are
S S
discussed below), where it is alleged to be entitled to:-
T T
U U
V V
- 22 -
A A
B B
(1) Rescind the SPA, together with the refund of the
C purchase price of HK$1,540,000, which is to be held on C
trust in favor of Data World;
D D
E (2) An indemnity to indemnify Data World’s use of the IP E
Rights; and
F F
G (3) Damages under the Misrepresentation Ordinance. G
H H
Data World’s claim for misrepresentation under the SPA as pleaded by
I Data World is discussed in Section F below, whereas Data World’s claim I
on the basis of the Defendants’ case is examined in Section G below.
J J
K 40. Alternatively, even if the SPA is not rescinded, the Plaintiffs K
allege that PA China is entitled to rescind the MA on the basis of
L L
misrepresentations, with the results that:-
M M
(1) The management fees in the sum of HK$300,000
N N
should be refunded to PA China, which is to be held on
O trust; and O
P P
(2) Damages under the Misrepresentation Ordinance.
Q Q
R
Section H below deals with the Plaintiffs’ claim of misrepresentations R
under the MA.
S S
T T
U U
V V
- 23 -
A A
B B
41. Further alternatively, the Plaintiffs’ further case is that on a
C proper construction of the subject matter of the SPA and the MA, the IP C
Rights are included in the sale and purchase and the failure to transfer to
D D
PA China the IP Rights constituted a breach of the SPA and/or the MA,
E thus entitling Data World and/or PA China to:- E
F F
(1) Specific performance by requiring Paul Chan, PA
G E-Tech and/or PA Holdings to transfer the IP Rights to G
PA China;
H H
I (2) Further and/or alternatively, damages for breach of the I
SPA and/or the MA; and
J J
K (3) An indemnity to indemnify Data World and/or PA K
China’s use of the IP Rights.
L L
M This is discussed in Section I below. M
N N
42. In any event, regardless of the Court’s findings on the issues
O above, PA China further claims:- O
P P
(1) A breach of duty on the part of Paul Chan in
Q Q
transferring the HK$100,000 to PA E-Tech in January
R
2019; R
S S
(2) Recovery of the HK$100,000 from PA E-Tech on the
T
basis of unjust enrichment; and T
U U
V V
- 24 -
A A
B B
(3) Damages/equitable compensation for breach of duty on
C the part of Paul Chan in transferring away the Disputed C
Domain Names.
D D
E These claims are examined in Sections J and K below. E
F F
43. The Defendants denied that Paul Chan had made any false
G representations. Accordingly, Data World and/or PA China are not entitled G
to rescind the SPA or the MA, nor are Data World and/or PA China entitled
H H
to damages for misrepresentations.
I I
44. The Defendants further denied that the proper construction of
J J
the subject matter of the SPA and/or the MA extended to cover the IP
K Rights, and hence they were not in breach thereof. The Defendants also K
denied Paul Chan and/or PA E-Tech’s liability for the transfer of
L L
HK$100,000 and/or the Disputed Domain Names.
M M
45. The parties had helpfully prepared an agreed list of issues as
N N
early as the pre-trial review. However, in light of the clarifications made
O over the course of trial, it would be more convenient to deal with the issues O
in the order as mentioned in paragraphs 39 to 42 above.
P P
Q Q
F. MISREPRESENTATIONS UNDER THE SPA
R R
46. At trial, I specifically asked Mr. Tom Ng and Mr. Ng
S S
confirmed that Data World is relying only on express misrepresentations
T
that were allegedly made during the course of the negotiations prior to T
entering into the SPA. Data World is not running a case of any
U U
V V
- 25 -
A A
B B
misrepresentation by silence or any unpleaded bases for alleging that the
C IP Rights should form part of the subject matter of the SPA. Mr. Ng further C
confirmed that Data World is not alleging any implied terms or any
D D
estoppel by reason of any other antecedent or subsequent conduct. The
E position of Mr. Ng is understandable given that the pleadings did not E
include these other claims.
F F
G 47. In the Statement of Claim, the pleaded express representations G
made by Paul Chan were as follows:-
H H
I (1) Paul Chan would retire and the sale would include I
everything under the established brand-name “Poly
J J
Asia” (save and except the Pervasive Business) (“the
K Retirement Representation”); and K
L L
(2) The sale would include all assets and business (save and
M except the Pervasive Business) of PA China, including M
the Disputed Domain Names and the Trade Mark (“the
N N
IP Rights Representation”).
O O
48. In closing submissions, Data World sought to rely on a third
P P
representation that the “Poly Asia” brand was well established in the IT
Q Q
service industry and on the internet and the early registration of the
R
Disputed Domain Names enabled customers to have easy and quick access R
to the businesses under the “Poly Asia” brand (“the Brand
S S
Representation”). However, I do not see it as proper to allow the Brand
T
Representation to be raised only in closing submissions and relied upon as T
an independent misrepresentation.
U U
V V
- 26 -
A A
B B
C 49. First, in my view the Brand Representation has not been C
pleaded. It is not a pleaded misrepresentation in the Statement of Claim.
D D
Mr. Ng sought to refer me to the Plaintiff’s Answer to the Defendants’
E Request for Further and Better Particulars of the Reply (“the Answer”), in E
which the Plaintiffs referred to Paul Chan having stated that the matters
F F
now relied upon as the Brand Representation. However, the relevant
G response in the Answer was in relation to a request in respect of the G
Retirement Representation. There was nothing in the Answer that
H H
suggested that the matters pleaded therein raised a completely independent
I Brand Representation. I
J J
50. Second, as a result, the Defendants did not plead in response
K to the Brand Representation, and it is unfair, if not unjust, to require the K
Defendants to deal with the Brand Representation without a proper
L L
pleading basis.
M M
51. Third, as a result of the lack of pleadings, the Plaintiffs
N N
themselves have not pleaded how the Brand Representation was false and
O no evidence was led by either party in this regard. This court has not seen O
any evidence at all as to (i) whether the “Poly Asia” brand was well
P P
established in the IT service industry and on the internet, or (ii) whether
Q Q
the early registration of the Disputed Domain Names enabled customers to
R
have easy and quick access to the businesses under the “Poly Asia” brand. R
In the absence of such evidence, I am not satisfied that the falsity or
S S
otherwise of the Brand Representation has been proved one way or another.
T
In the absence of proper pleadings and evidence, the reliance on the Brand T
Representation is with respect a non-starter.
U U
V V
- 27 -
A A
B B
C F1. The general law of misrepresentation C
D D
52. Before considering the other misrepresentations pleaded by
E Data World, it is helpful to set out some general principles in relation to E
the law on misrepresentation, which the parties do not dispute. A useful
F F
summary was given by DHCJ Alexander Stock SC in Joytex Development
G Limited v Super Homes Limited [2018] HKCFI 2286, at §77:- G
H H
“77. I consider it helpful to outline a few core principles …
I (1) Generally, an actionable misrepresentation requires a I
false statement of past or present fact, as distinct from a
statement of opinion or intention; though a statement of
J J
opinion/intention or as to the future may entail an implied
statement of fact.
K K
(2) Where there is a dispute as to the meaning conveyed, the
court interprets the relevant words or conduct. The
L approach is objective, viewing the communication from L
the perspective of a reasonable person in the position of
M the representee. The test is whether: (a) the words or M
conduct in fact led the representee to believe the alleged
false fact; and (b) it was reasonable for the representee to
N believe it from the words or conduct as he perceived N
them. In applying the test, the characteristics of the
O
representee, including level of sophistication, are taken O
into account.
P (3) Where an implied representation is alleged, the question P
is what a reasonable person would have inferred was
being impliedly represented by the representor’s words
Q Q
and conduct in their context.
R (4) The statement must have the character of one upon which R
the representee was intended and entitled to rely.
S (5) The representee must have in fact relied on the statement; S
though this can sometimes be inferred. The
T representation need not be the only or main cause of the T
decision to contract. It is generally sufficient that it be
a cause (in other words, a material inducement).”
U U
V V
- 28 -
A A
B B
C F2. The Retirement Representation C
D D
53. I find the Plaintiffs’ case based on the Retirement
E Representation problematic. The Retirement Representation consists of 2 E
components, namely (i) Paul Chan would retire and (ii) the sale of PA
F F
China would include everything under the established brand-name “Poly
G Asia”. G
H H
54. As to Paul Chan’s retirement, I am of the view that this
I representation, even if made, does not assist Data World. First, Paul I
Chan’s retirement clearly does not lead to a reasonable understanding that
J J
the sale would include everything under the “Poly Asia” brand-name. Both
K Paul Chan and Ben Ng were sophisticated businessmen. Apart from being K
a director of Data World, Ben Ng was also a director of a listed company.
L L
The representation that Paul Chan is to retire could not have reasonably led
M a representee with Ben Ng’s experience to believe that the sale of PA China M
(i.e. that company alone) would include everything under the “Poly Asia”
N N
brand. It just does not follow.
O O
55. Second, I am not satisfied that the representation that Paul
P P
Chan would retire was intended to and did induce Data World to enter into
Q Q
the SPA. As a matter of fact, Ben Ng admitted that he did not rely on Paul
R
Chan’s retirement in deciding whether to acquire PA China. R
S S
56. As to the 2nd component of the Retirement Representation,
T
namely that there was an express representation that the sale would include T
everything under the established brand-name “Poly Asia”, I am not
U U
V V
- 29 -
A A
B B
satisfied that the evidence shows that such a representation has in fact been
C made by Paul Chan. C
D D
57. First, it is Ben Ng’s evidence that by the time the SPA was
E executed, he was aware of the fact that Paul Chan had a number of E
companies under the PA Group. He was also aware that Data World was
F F
contracting to acquire only PA China. Companies such as PA E-Tech or
G PA Holdings were not specifically included in the SPA. This clearly was G
known to Ben Ng as Data World contracted with PA E-Tech under the MA
H H
as an ancillary agreement to the SPA. It must have been clear to the parties
I that the SPA does not include everything under the “Poly Asia” brand. I
This is inconsistent with such a representation having been made by Paul
J J
Chan.
K K
58. Second, the October Business Outline titled specifically as
L L
“Microsoft Gold Partner” made it quite clear that the sale concerned only
M the Microsoft ERP Business. The 31 Oct Minutes was also clear as to the M
scope of the sale where it was recorded that the sale of the whole company
N N
is “Poly-Asia with only Microsoft Business and Operation”. Similarly, the
O Drafting Note also refer specifically to the Microsoft ERP Business. O
P P
59. Third, the SPA itself is also quite apparent that the subject
Q Q
matter of the sale is the Microsoft ERP Business. In my view, the parties
R
had quite clearly demonstrated that the subject matter of the SPA is the R
Microsoft ERP Business, effected through the sale of the shares of PA
S S
China. It would be surprising if the sale were understood to include
T
anything other than the assets of PA China and the Microsoft ERP T
U U
V V
- 30 -
A A
B B
Business, experience businessmen such as Ben Ng and Paul Chan would
C not have stated them clearly in the documentations. C
D D
60. Fourth, I agree with Ms. Vivian Chan, counsel for the
E Defendants, that the way Data World frames the Retirement E
Representation now is unnatural. Despite the clear wordings used
F F
throughout the negotiations and in the SPA pointing to the subject matter
G being the Microsoft ERP Business, the present allegation of a G
representation that the sale included everything other than the Pervasive
H H
Business appears to be arbitrary and framed to include the IP Rights.
I I
61. For all of the reasons above, I find, on the balance of
J J
probabilities, the Retirement Representation (at least the second
K component as referred to above) was not made by Paul Chan. K
L L
F3. The IP Rights Representation
M M
62. One of the main factual disputes is whether Paul Chan
N N
expressly made the IP Rights Representation. On the evidence before the
O Court, I am not satisfied that Data World has proved this on the balance of O
probabilities.
P P
Q 63. Ben Ng’s evidence is that Data World’s primary concern in Q
R
acquiring PA China was to obtain its brand-name and the IP Rights. He R
went so far as to say that Data World was not too concerned with the
S S
business performance of PA China. This appears to me to be inconsistent
T
with what was discussed in the 21 Feb Meeting (see paragraph 14(2) T
above), where Ben Ng admitted having told Paul Chan his primary
U U
V V
- 31 -
A A
B B
intention to acquire an existing Microsoft ERP gold partner. If the
C acquisition of the brand-name and the IP Rights were Data World’s C
foremost intention, it is inherently unlikely that Data World did not insist
D D
that the brand-name and the IP Rights be expressly included in the SPA.
E There is simply no good answer to this. E
F F
64. Data World referred to Clause 7 of the MA as evidence that
G the IP Rights Representation was made. Clause 7 of the MA contained a G
reference to the term “Relevant Intellectual Property”. Data World
H H
submitted that had there not been such representations, it is unlikely that
I Clause 7 of the MA would impose an obligation on Paul Chan and Eugenia I
Chan to procure the transfer of “Relevant Intellectual Property” to PA
J J
China. For otherwise, Clause 7 of the MA would serve no useful purpose.
K K
65. I reject Data World’s submissions in this regard. The MA is
L L
a service agreement between PA China and PA E-Tech. Paul Chan and
M Eugenia Chan (i.e. the vendors in the SPA) were not even parties to the M
MA. The purpose of the MA is not for Paul Chan and Eugenia Chan to
N N
transfer the IP Rights as part of the subject matter under the SPA.
O I therefore agree with Ms. Chan that the purpose of the MA is to assist in O
the transition of PA China after it was acquired by Data World, rather than
P P
to transfer any assets.
Q Q
R
66. Further and more importantly, Clause 7 of the MA in my view R
refers to “Relevant Intellectual Property” (although not specifically defined
S S
in the MA) that was created during the course of the advisory services
T
under the MA. Clause 7 of the MA thus read:- T
U U
V V
- 32 -
A A
B “The Manager and its Directors agree that all Relevant B
Intellectual Property (whether patentable or not) shall be the
C absolute property of the Company. The Manager and its C
Directors shall further:
D (a) notify and disclose to the Company in writing full details D
of all Relevant Intellectual Property forthwith upon the
E
production of the same, and promptly whenever E
requested by the Company and in any event upon the
determination of the Appointment deliver up to the
F Company all correspondence and other documents, F
papers and records, and all copies thereof in his
possession, custody and power relating to any Relevant
G G
Intellectual Property”
H H
67. In the circumstances, I find that Clause 7 of the MA does not
I refer to the IP Rights and does not assist the Plaintiffs at all. I
J J
68. The reason given by Ben Ng as to why, despite the alleged IP
K Rights Representations and the importance allegedly attached to them by K
Data World, the IP Rights were not expressly included in the SPA was that
L L
he trusted Paul Chan. However, there is nothing in the evidence to support
M Ben Ng’s trust in Paul Chan when they were not close acquaintances, but M
negotiating a commercial deal between two experience businessmen.
N N
O 69. On the other hand, there are ample evidence to show that Data O
World’s intention was to acquire the Microsoft ERP Business with its gold
P P
partnership status:-
Q Q
R
(1) The intention to acquire an existing Microsoft ERP R
gold partner was mentioned by Ben Ng as early as in
S S
the 21 Feb Meeting;
T T
U U
V V
- 33 -
A A
B B
(2) The October Business Outline, the 31 Oct Minutes, the
C Note to Drafting, and the SPA all specifically refer to C
the acquisition of the Microsoft ERP Business;
D D
E (3) In evidence, Ben Ng had admitted that the gold E
partnership status carried a high value. Ben Ng also
F F
knew of the benefits that come from the gold
G partnership status including discount and referral of G
new customers from Microsoft, and the instilling of
H H
confidence in its customers;
I I
(4) In fact, the valuation of PA China as shown in the
J J
October Business Outline appears to have been
K calculated (at least by Paul Chan) on the basis of K
financial figures from the Microsoft ERP Business.
L L
There is nothing on the evidence that is indicative of
M the sale price to have taken into account the IP Rights M
or the brand-name at all;
N N
O (5) I also agree with Ms. Chan that the evidence does not O
show that PA China was performing poorly, such that
P P
Data World only valued the IP Rights in the acquisition.
Q Q
Between 2014 to 2017, the gross profit each year ranges
R
from about HK$3.38 to HK$4.36 million with a gross R
profit margin of 58% to 63%. Even according to Ben
S S
Ng, this profit margin was not too bad in the industry.
T
Although the evidence does show a loss of T
HK$100,037 for 2016/17, this has included directors’
U U
V V
- 34 -
A A
B B
remuneration of HK$737,600, which was drawn by
C Paul Chan and Patty Wu; C
D D
(6) During the drafting of the SPA, Ben Ng has specifically
E requested to include in the SPA the customer list of PA E
China’s Microsoft ERP Business. This clearly shows
F F
that Data World was principally concerned with it. Had
G the IP Rights been their primary concern, there was no G
reason why Data World did not request a list of
H H
intellectual property rights, but instead a list of clients
I in the Microsoft ERP Business. I
J J
70. Importantly, during cross-examination, Ben Ng stated that his
K understanding that the SPA included the IP Rights was merely his own K
assumption, and that the IP Rights ought to be included as a matter that
L L
goes without saying. I am not required to determine whether this can be
M implied into the SPA on this basis as this was never Data World’s case. M
Ben Ng’s admitted assumptions cast substantial doubts as to whether Paul
N N
Chan in fact made the IP rights Representation.
O O
71. On 2 January 2019, shortly prior to the commencement of
P P
these proceedings, Ben Ng messaged Paul Chan as follows:-
Q Q
“…在買 PA 前，我記得跟你講過你不如留下 49% 股份，繼
R R
續由你經營 PA。亦清楚記得你回答說希望完全賣掉，了無
牽掛地退休，享受人生。”
S S
“既然完全賣掉了 PA，現在又何必多生枝節，在可以退休
T 享受時，惹來一身官非煩惱，亦令自己一生的信譽破產？” T
U U
V V
- 35 -
A A
B B
72. Even Ben Ng did not refer to any express IP Rights
C Representation as a basis for demanding Paul Chan to transfer the IP C
Rights.
D D
E F4. Subsequent conduct E
F F
73. Against the above evidence, Mr. Ng urged the Court to also
G consider the following subsequent conduct of Paul Chan, which, Mr. Ng G
submitted, tend to show that the various representations had in fact been
H H
made by Paul Chan:-
I I
(1) PA China had been using the IP Rights for a substantial
J J
period (from February to October 2018) after the SPA
K without objection; K
L L
(2) At least from late-June 2018, Paul Chan knew that PA
M China intended to appropriate the IP Rights, but he M
chose not to object until 25 October 2018;
N N
O (3) Despite the suggestions at trial that PA China could O
have used some alternative remedial measures to
P P
replace the importance of the IP Rights, at no time did
Q Q
Paul Chan inform Ben Ng and Lawrence Mak of these
R
alleged remedial measures; and R
S S
(4) Paul Chan testified that he did not have the intention to
T
discontinue PA China’s use of the IP Rights after T
U U
V V
- 36 -
A A
B B
1 February 2019 at the time when the SPA was
C executed. C
D D
74. In his closing submissions, Mr. Ng advanced these subsequent
E conduct as forensic tools for the limited purpose of testing the parties’ case E
on whether various representations were made by Paul Chan. That is to
F F
say, Data World is not relying on any subsequent conduct in interpreting
G the SPA or to find some sort of estoppel. However, I consider the G
subsequent conduct referred to by Mr. Ng ambiguous at most and is not
H H
suggestive of Paul Chan having made the various representations as
I alleged, particularly in light of the matters discussed in section F3 above. I
J J
75. After the execution of the SPA, I find that there has been a
K transitional period within which the parties were attempting to effect a K
smooth transition of the business of PA China to Data World. The MA, no
L L
doubt, was effected for this purpose. I do not consider PA China’s
M continuing use of the IP Rights in the transitional period necessarily meant M
that Paul Chan had made the IP Rights Representation or other similar
N N
representations.
O O
76. Furthermore, I do not consider it relevant the timing of Paul
P P
Chan’s objection having been made in October 2018 rather than earlier.
Q Q
The timing of his objection, in my view, is neither here nor there in terms
R
of whether Paul Chan made the IP Rights Representation. I do not see how R
the earlier or later objection by Paul Chan affects the likelihood of him
S S
having made the IP Rights Representation. Mr. Ng submitted that the
T
evidence suggests that Paul Chan and Patty Wu waited until late-October T
2018 to object because they took time to deliberately give a false
U U
V V
- 37 -
A A
B B
impression that the Disputed Domain Names had always been owned by
C PA E-Tech (being a non-party to the SPA), rather than Paul Chan himself. C
This was done deliberately to lead Data World to believe that Paul Chan
D D
had no power to transfer the Disputed Domain Names. I do not accept Mr.
E Ng’s submissions. I do not think it is fair to draw this inference of bad E
faith from the evidence when the matter, which clearly needs to be, but was
F F
not, put to Paul Chan under cross-examination.
G G
77. Equally, I do not regard as relevant the failure of Paul Chan
H H
to suggest alternative measures to replace the IP Rights points one way or
I another as to whether he made the IP Rights Representation. Instead, Mr. I
Ng submitted that the Court may thus infer from this that Paul Chan knew
J J
that the IP Rights were irreplaceable. I do not accept that this is an
K inference that can be drawn on the evidence as there is little evidence in K
this regard. This no doubt stems from the fact that the importance of the
L L
IP Rights was not an issue arising from the parties’ pleaded case. But even
M if this Court accepts that such an inference could be drawn, it has no M
bearing on whether it is more likely or not that Paul Chan made the IP
N N
Rights Representation.
O O
78. Finally, I also do not regard the parties’ post-contractual
P P
intention as to the duration for PA China to continue to use the IP Rights
Q Q
to be of any relevance to whether Paul Chan had made the relevant
R
representations. R
S S
79. Having considered the totality of the evidence, I accept Paul
T
Chan’s evidence and find, as a matter of fact, that the IP Rights were never T
discussed during the negotiations prior to the SPA. Further, I prefer the
U U
V V
- 38 -
A A
B B
evidence of Paul Chan and reject the evidence of Ben Ng and Lawrence
C Mak insofar as they are inconsistent with Paul Chan’s. Accordingly, I find, C
on the balance of probabilities, that Data World had failed to prove that
D D
Paul Chan had expressly made the Retirement Representation and/or the
E IP Rights Representation. Accordingly, Data World’s own pleaded case E
on express misrepresentations under the SPA must fail.
F F
G G. MISREPRESENTATION / BREACH OF WARRANTIES G
UNDER THE DEFENDANT’S CASE
H H
I 80. Mr. Ng’s next point is that even if I find for the Defendants I
on the Defendants’ factual case, namely that the parties had never
J J
discussed the sale and purchase of the IP Rights, Warranties 1.4(b), 1.13,
K 1.19, and 1.20 of the SPA (collectively, “the Warranties”) were in and of K
themselves false, giving rise to misrepresentations and breaches. These
L L
misrepresentations or breaches were not specifically pleaded by Data
M World in its Statement of Claim. Mr. Ng submitted that the court is M
nevertheless entitled, on the principles as stated in Poon Hau Kei v Hsin
N N
Chong Construction Co Ltd Taylor Woodrow International Ltd Joint
O Venture (2004) 7 HKCFAR 148, to decide in favor of a party based on a O
scenario that he has not pleaded but his opponent has. While it is true that
P P
the Defendants pleaded a case that the IP Rights were never discussed in
Q Q
negotiations (and hence no express representations were made), the
R
Defendants never pleaded a case that there had been breaches of the R
Warranties as a result.
S S
T T
U U
V V
- 39 -
A A
B B
81. I do not agree with Mr. Ng that the principles in Poon Hau
C Kei is applicable in the present case. To begin, it is pertinent to examine C
closely the principles as stated in Poon Hau Kei, where Bokhary PJ, said:-
D D
E
“18. In each of those two cases [in which the court rejected E
the plaintiff’s unpleaded case], the plaintiff sought to succeed on
a scenario not pleaded by either side and outside the defendant’s
F contemplation. That is the opposite of the situation in the present F
case. The respondent pleaded the light trough scenario as one in
which the accident ‘was caused solely or contributed to by the
G G
negligence of” the appellant. (Emphasis added)
H 19. Provided that it does so in a fair manner, a court is H
entitled to decide in favour of a party on the basis of a scenario
that he has not pleaded but his opponent has pleaded. This is a
I proposition at which I arrive on principle. It is also a proposition I
supported by highly persuasive authority. In John G Stein & Co
J Ltd v O’Hanlon [1965] AC 890 at p.910A, Lord Guest said: ‘I J
failed to see how [the defenders] can have been in any way
prejudiced when the facts upon which liability was established
K are those averred in the defences and spoken to by their witnesses K
in evidence.’…”
L L
82. First, it must be obvious that if liability is to be found on the
M M
Poon Hau Kei principles, the opponent’s pleaded case must be capable of
N allowing the Court to find liability. In other words, the facts upon which N
liability is to be established are those averred in the opponent’s pleadings.
O O
Second, the principle is only to be applied provided that it does so in a fair
P manner. P
Q Q
83. As to fairness, Bokhary PJ further explained in Poon Hau Kei
R as follows:- R
S S
“21. Was there any unfairness in the process by which the trial
judge reached his findings? In Bank of America National Trusts
T and Savings Associations v Chai Yen [1980] 1 WLR 350 at T
p.353D, Lord Lane, delivering the advice of the Privy Council,
U U
V V
- 40 -
A A
B said that ‘the essence of any rule of procedure must be fairness’. B
The same is true of any rule of practice.
C C
22. In the present case, the respondent pleaded the light
trough scenario as one in which the appellant caused or
D contributed to the accident. It adduced evidence to prove – and D
succeeded in proving – that the appellant had been standing on
E
the light trough. It cross-examined him to the effect that he E
would be at fault if he had done so. And it addressed the trial
judge on the issue of contributory negligence in the light trough
F scenario. In short, the respondent pleaded and argued that the F
appellant caused or contributed to the accident in the light trough
scenario.
G G
23. Thus the respondent did not opt at the trial for the more
H ambitious but perhaps less promising course of confining itself H
to a contention that the light trough scenario left it blameless,
whether by reason of an absence of foreseeability or otherwise.
I If the respondent had opted at the trial for that course, the I
appellant might have adduced evidence to answer the contention,
J and the state of the evidence might then have been materially J
more favourable to the appellant…
K 24. On the question of fairness, it is pertinent to note that the K
trial judge said that the light trough scenario had been fully
L
canvassed in evidence and submissions by the parties [and that L
there was] no prejudice to anyone…”
M M
84. It is clear that in Poon Hau Kei the respondent conducted its
N own case on the basis that they might be liable under the light trough N
scenario rather than relying on the case that such scenario would leave
O O
them blameless. The respondents had fully canvassed the relevant
P evidence and made submissions thereon. In effect, the factual case that P
was run by the respondent is sufficient to find liability against it, in
Q Q
circumstances that such factual case was entirely within the contemplation
R of the respondents. R
S S
85. The present case is clearly different. I do not accept that the
T
Defendants’ pleaded case that the IP Rights were not discussed in the T
U
negotiations would entitle Data World to succeed on misrepresentations U
V V
- 41 -
A A
B B
and/or breaches under the Warranties, which it has not itself pleaded.
C There are simply no other pleaded facts in the Defendants’ pleadings or the C
way in which the Defendants ran their case at trial that could give rise to
D D
liabilities under the Warranties. It seems to me clear that the breach of
E Warranties as now alleged by the Plaintiffs was never within the E
contemplation of the Defendants.
F F
G 86. The fact that the parties were silent on the IP Rights might G
have been one of the facts that needs to be proved by Data World, but that
H H
is not the only fact required to be proved before Data World can succeed
I on the Warranties. There are other relevant matters which has not been I
canvassed because Data World had not pleaded material facts enabling it
J J
to succeed. The unfairness to allow such unpleaded case to be advanced is
K manifest. Had the Defendant been alerted to the claims under the K
Warranties, other evidence would no doubt have been canvassed:-
L L
M (1) Under warranty 1.4(b), there is no evidence before the M
Court that the IP Rights (which does not belong to PA
N N
China) “might reasonably have been expected to affect
O the decision of the Purchaser to enter into the [SPA]”, O
particularly in light of the finding that the primary
P P
subject matter of the SPA is the acquisition of the
Q Q
Microsoft ERP Business, where the IP Rights might or
R
might not be crucial to the Microsoft ERP Business; R
S S
(2) Similarly, under warranty 1.20, there is again no
T
evidence that the IP rights “might affect the willingness T
of a prudent purchaser for value of the Shares to be
U U
V V
- 42 -
A A
B B
complete his purchase or the amount of the
C consideration which such purchaser would be prepared C
to pay” when the primary acquisition is for the
D D
Microsoft ERP Business;
E E
(3) Under warranty 1.13, it provides that PA China should
F F
have all permits, authorities, licenses and consents
G necessary to carry on its business effectively. There is G
again unsatisfactory evidence as to whether the IP
H H
Rights are necessary for the business to be carried on
I effectively. It appears to me on the evidence, the only I
domain name necessary to carry on the business is the
J J
Microsoft domain name “polyasia.onmicrosoft.com”
K (which was transferred to Data World) for use to K
identify and represent itself as a unique partner to
L L
Microsoft servers and Microsoft portal in the Microsoft
M environment. M
N N
(4) Under warranty 1.19, there is no evidence as to what
O information was allegedly disclosed and how the O
failure to disclose the IP Rights make such information
P P
misleading.
Q Q
R
87. The principle in Poon Hau Kei is not, in my view, designed to R
allow parties to freely run unpleaded case based on some incomplete facts
S S
alleged by the opponent. Where additional facts are required to entitle a
T
plaintiff to succeed, those facts clearly must be pleaded. The lack of T
evidence over many relevant matters in the present case is a stark
U U
V V
- 43 -
A A
B B
manifestation of how undesirable and unfair if Data World is to be allowed
C to run its unpleaded case based on breach of the Warranties. In any event, C
on the current evidence, I am not satisfied that Data World had proved any
D D
breach of the Warranties on the part of the Defendants.
E E
H. MISREPRESENTATION UNDER THE MA
F F
G 88. The Plaintiffs’ claim to rescind the MA is based on the same G
misrepresentations under the SPA. Mr. Ng submitted that as a matter of
H H
law if a misrepresentation induces a transaction to which a second
I transaction is closely related, it may be possible to rescind the second I
transaction: The Law of Recission (3rd ed.), at §4.121. As the MA was
J J
entered into pursuant to Clause 6 of the SPA, any misrepresentation that
K vitiates the SPA should also similarly vitiate the validity of the MA. K
However, in light of the finding that there was no misrepresentation under
L L
the SPA, I also dismiss the Plaintiffs’ claim in misrepresentation under the
M MA. M
N N
I. PROPER CONSTRUCTION OF THE SUBJECT MATTER OF
O THE SPA AND MA O
P P
89. The Plaintiffs also alleged that on a proper construction of the
Q Q
subject matter of the SPA and MA, the IP Rights are included in the sale
R
and purchase, such that the failure to transfer the IP Rights to PA China R
was a breach of the SPA and the MA.
S S
T
90. The SPA was entirely silent on the IP Rights. The MA T
referred to the “Relevant Intellectual Property”, which as I have found
U U
V V
- 44 -
A A
B B
above is not a reference to the IP Rights. Instead, the wordings of the SPA
C expressly refer to the sale and purchase of the shares in PA China with its C
Microsoft ERP Business. Other than the various alleged representations
D D
by Paul Chan, the Plaintiffs are not relying on any other factual
E circumstances to be taken into account in interpreting the SPA and/or the E
MA. This is not surprising since, again, these other matters, if any, were
F F
not part of the Plaintiffs’ pleaded case.
G G
91. Instead, the interpretation point taken by the Plaintiffs is based
H H
on the various alleged representations made by Paul Chan. Mr. Ng
I submitted that the evidence shows that there had been pre-contractual I
representations regarding the inclusion of the IP Rights in the sale of PA
J J
China (i.e. the Retirement Representation and the IP Rights
K Representation). Accordingly, once the court finds that the representations K
were made, Mr. Ng invited the court to conclude that the representations
L L
were incorporated as terms of the SPA. Mr. Ng further submitted that even
M if the SPA and the MA did not refer to the IP Rights, if the relevant context M
and background led the court to the conclusion that something had gone
N N
wrong with the language of the SPA and the MA, mistakes in drafting can
O be corrected as a matter of construction: Fok Chun Yue Benjamin v Fok O
Chun Wan Ian [2015] 2 HKLRD 212, at §42.
P P
Q Q
92. As I have found that Paul Chan did not make the
R
representations as alleged by the Plaintiffs, I do not accept that they form R
part of the background and circumstances in construing the subject matter
S S
of the SPA and/or the MA.
T T
U U
V V
- 45 -
A A
B B
93. On a proper construction of the SPA, I am of the view that the
C subject matter of the sale and purchase was the Microsoft ERP Business C
effected through the transfer of shares of PA China. There is nothing in
D D
the SPA and/or the MA to indicate the sale included the IP Rights, which
E were assets that did not belong to PA China. Accordingly, I find that the E
failure to transfer the IP Rights by any of the Defendants did not constitute
F F
breaches of the terms of the SPA and/or the MA.
G G
J. TRANSFER OF HK$100,000 TO PA E-TECH
H H
I 94. PA China further claims against Paul Chan personally for I
breach of duty in transferring the sum of HK$100,000 to PA E-Tech on 21
J J
January 2019. PA China’s case is that Paul Chan did not have any authority
K to make the transfer of HK$100,000 to PA E-Tech as there was no board K
resolution authorizing the transfer.
L L
M 95. There is no dispute that Paul Chan remained as a director of M
PA China when he acted as advisor to PA China after the sale. He was
N N
only removed as a director in about February 2019. During his time as a
O director of PA China, he was an authorized signatory of PA China’s bank O
account and continued to have access to PA China’s online banking
P P
account with Hang Seng Bank.
Q Q
R
96. According to the evidence of Paul Chan, at the time when he R
made the transfer to PA E-Tech, he had authority to settle payments on
S S
before of PA China. In the past, he had settled various payments on behalf
T
of PA China, including payments to Microsoft and payroll payments by T
signing cheques or electronic bank transfer. This part of the evidence was
U U
V V
- 46 -
A A
B B
not seriously challenged by Data World. Despite there being no written
C broad resolution authorizing Paul Chan to make payments on behalf of PA C
China, it is clear that Paul Chan was authorized to do so when he was a
D D
director of PA China even after the SPA. His authority to make payments
E on behalf of PA China was of course subject to those payments being E
properly incurred in the course of PA China’s business. There is no
F F
evidence that his authority to make payments on behalf of PA China was
G revoked before 21 January 2019. G
H H
97. Apart from the complaint that the Defendants had failed
I and/or refused to transfer to PA China the IP Rights and hence were in I
breach of the MA disentitling PA E-Tech to payment under the MA, there
J J
is no allegation that Paul Chan and/or PA E-Tech had in any other way
K breached the SPA or the MA. In light of my finding that the IP Rights were K
not part of the subject matter of the SPA or the MA, it appears to me that
L L
PA China was in fact obliged to pay PA E-Tech the sum of HK$100,000
M on 21 January 2019. M
N N
98. In the circumstances, as the payment was made for a sum of
O money that PA China was legally obliged to pay in the course of its O
business, I find that Paul Chan did have the authority to make that payment
P P
on 21 January 2019 and there was no breach of duty on his part.
Q Q
R
99. It also follows that PA China is not entitled to claim against R
PA E-Tech for unjust enrichment in the sum of HK$100,000 as the
S S
payment was not made in breach of duty by Paul Chan. That payment was
T
in fact made in accordance with the contractual provisions contained in the T
MA, which PA E-Tech was entitled to received.
U U
V V
- 47 -
A A
B B
C K. TRANSFER OF DISPUTED DOMAIN NAMES C
D D
100. As I have found that the Disputed Domain Names were not
E registered with PA China (i.e. not part of the asset of PA China), nor were E
the Disputed Domain Names part of the subject matter of the SPA and/or
F F
the MA, there was no breach of duty on the part of Paul Chan in dealing
G with assets that did not belong to PA China. G
H H
L. DISPOSITION
I I
101. For the forgoing reasons, I dismiss all of the Plaintiffs’ claims
J J
against the Defendants. However, for the avoidance of doubt, nothing in
K this judgment should be construed as disentitling PA China from using the K
phrase “Poly Asia”, where appropriate, in the course of its business. This
L L
was not an issue raised in these proceedings and the court makes no
M findings in this regard. I note that the domain names “polyasia.com.hk” M
and “polyasia.onmicrosoft.com” were assets of PA China, which, it seems
N N
to me, PA China would be entitled to continue to use, along with its name,
O in the course of its business. O
P P
102. In light of my dismissal of all of the Plaintiffs’ claims, issues
Q concerning the Plaintiffs’ remedies (i.e. rescission, indemnity, damages, Q
R
and specific performance) do not arise. R
S S
103. I also make a costs order nisi that costs of these proceedings
T
be paid by the Plaintiffs to the Defendants (including any costs reserved), T
with certificate for one counsel, to be taxed if not agreed.
U U
V V
- 48 -
A A
B B
C 104. Lastly, it remains for me to reiterate the helpful assistance C
rendered to this court by Mr. Tom Ng, Mr. Billy Liu, Ms. Vivian Chan,
D D
and Ms. Teresa Yu.
E E
F F
G G
( Alexsander Wong )
H H
Deputy District Judge
I I
J J
Mr. Tom Ng and Mr. Billy Liu, instructed by Robertsons, for the Plaintiff
K Ms. Vivian Chan and Ms. Teresa Yu, instructed by Lo, Wong & Tsui, for K
the Defendant
L L
M M
N N
O O
P P
Q Q
R R
S S
T T
U U
V V
DATA WORLD SOLUTIONS LTD AND ANOTHER v. CHAN WING CHEONG AND OTHERS
A A
B B
DCCJ 2284/2019
C [2024] HKDC 66 C
D D
IN THE DISTRICT COURT OF THE
E HONG KONG SPECIAL ADMINISTRATIVE REGION E
CIVIL ACTION NO 2284 OF 2019
F F
G ———————— G
BETWEEN
H H
st
DATA WORLD SOLUTIONS LIMITED 1 Plaintiff
I
(達訊顧問有限公司) I
POLY-ASIA (CHINA) COMPANY LIMITED 2nd Plaintiff
J (普亞(中國)有限公司) J
and
K K
CHAN WING CHEONG (陳榮昌) 1st Defendant
L CHAN CHI YAN EUGENIA 2nd Defendant L
POLY-ASIA E-TECHNOLOGY LIMITED 3rd Defendant
M M
(普亞電貿科技有限公司)
N POLY-ASIA E-TECHNOLOGY (HOLDINGS) 4th Defendant N
LIMITED (普亞電貿科技(控股)有限公司)
O ———————— O
P P
Before: Deputy District Judge Alexsander Wong in Court
Q Dates of Hearing: 4 to 7, 10 and 12 July 2023 Q
Date of Judgment: 12 January 2024
R R
S ———————— S
JUDGMENT
T T
————————
U U
V V
-2-
A A
B B
C A. INTRODUCTION C
D D
1. This is a dispute arising from the sale and purchase of the 2nd
E Plaintiff, Poly Asia (China) Company Limited (“PA China”) between E
(1) the purchaser, the 1st Plaintiff, Data World Solution Limited (“Data
F F
World”) and (2) the sellers, the 1st Defendant, Chan Wing Cheong (“Paul
G Chan”) and the 2nd Defendant, Chan Chi Yan Eugenia (“Eugenia Chan”). G
H H
2. At trial, Mr. Tom Ng (together with Mr. Billy Liu) appeared
I for the Plaintiffs, while Ms. Vivian Chan (together with Ms. Teresa Yu) I
appeared for the Defendants. At the outset, I wish to expressly
J J
acknowledge that counsel on both sides had at all times conducted the trial
K reasonably and rendered helpful assistance to the court throughout. K
L L
3. Data World is a company incorporated in Hong Kong carrying
M on the business of providing IT business management solutions from M
enterprise resource planning (“ERP”), human resource management and
N N
customer relationship management to IT infrastructure and network
O security. At all material times, Mr. Ben Ng Wing Hong (“Ben Ng”) was O
its director and indirect shareholder. A Mr. Mak Che Fai Lawrence
P P
(“Lawrence Mak”) was also a director of Data World who was also
Q Q
involved in the negotiations of the sale of PA China to Data World.
R R
4. Eugenia Chan was the daughter of Paul Chan, holding 0.01%
S S
of the shares in PA China. Prior to the sale of PA China to Data World in
T
early 2018, Paul Chan and Eugenia Chan held all the shares in PA China. T
Eugenia Chan was never involved in any business activities relating to PA
U U
V V
-3-
A A
B B
China and she simply held the shares in PA China as a nominee of his
C father, Paul Chan. C
D D
5. PA China was also a company engaged in the business of
E providing and distributing IT business solution products. E
F F
6. Paul Chan has also been running his IT business since 1990s
G with inter alia the following companies (“PA Group”):- G
H H
(1) Poly-Asia Systems, a sole proprietorship registered in
I 1992 and later ceased in 1993; I
J J
(2) The 3rd Defendant, Poly-Asia E-Technology Limited
K (“PA E-Tech”); and K
L L
(3) The 4th Defendant, Poly-Asia E-Technology (Holdings)
M Limited (“PA Holdings”), incorporated in 1995. M
N N
7. The PA Group (including PA China) has conducted
O accounting systems and ERP business since 1992 and software licensing O
of Pervasive database management system business (“Pervasive
P P
Business”) since 1995.
Q Q
R
8. Prior to the sale of PA China to Data World, PA China had R
attained and maintained the “gold status” as a Microsoft ERP partner since
S S
2006. The Microsoft ERP gold partner status is the highest level of
T
partnership status as assessed by Microsoft based on revenue requirements. T
U U
V V
-4-
A A
B B
PA China’s ERP business as a Microsoft ERP gold partner is referred to
C hereinbelow as “the Microsoft ERP Business”. C
D D
B. THE SALE AND PURCAHSE AGREEMENT
E E
9. As Ben Ng, Lawrence Mak, and Paul Chan were all in the IT
F F
industry, they had known each other for some time. According to Ben Ng,
G he and Paul Chan had been acquainted with each other since about 1995, G
whereas Paul Chan said that he knew Ben Ng since about 2000. In any
H H
event, they seem to have known each other for many years prior to 2017.
I I
10. In about February 2017, Lawrence Mak and Paul Chan met
J J
incidentally and had a casual chat. In the course of their conversation, Paul
K Chan said in effect that his business was mediocre and that he could retire K
if someone would purchase his business. Lawrence Mak understood from
L L
this that Paul Chan intended to sell his business. Lawrence Mak then duly
M informed Ben Ng about Paul Chan’s intention to sell his business. Since M
Data World was looking to expand their business, they got in touch with
N N
Paul Chan to explore the possibility of a sale and purchase of Paul Chan’s
O business. O
P P
11. On about 13 February 2017, Ben Ng called Paul Chan and
Q Q
asked whether Paul Chan was intended to retire and interested in a sale of
R
his business. Paul Chan replied that if he could sell his business, he might R
be able to retire. They scheduled to meet on 16 February 2017 to further
S S
discuss the matter.
T T
U U
V V
-5-
A A
B B
12. Ben Ng and Paul Chan gave slightly different accounts of
C what was discussed in the meeting on 16 February 2017:- C
D D
(1) According to Ben Ng, he has ascertained from Paul
E Chan whether he wished to sell all of “Poly Asia” E
business and was given an affirmative response by Paul
F F
Chan as Paul Chan wanted to retire completely. Ben
G Ng stressed that it was on this understanding that he G
agreed to proceed further with the discussion. It was
H H
then agreed that Paul Chan would prepare more
I detailed information about PA China’s business and I
operations for another meeting;
J J
K (2) According to Paul Chan, Ben Ng asked him whether he K
was a Microsoft ERP gold partner to which Paul Chan
L L
replied yes. Ben Ng then informed Paul Chan that he
M was interested in becoming a Microsoft ERP gold M
partner. There were some discussions on the ERP
N N
market and Paul Chan gave a brief introduction about
O his business. Towards the end of the meeting, Ben Ng O
asked if the price for Paul Chan’s business would be
P P
expensive. Paul Chan then proposed that they should
Q Q
first enter into a Non-disclosure Agreement (“NDA”)
R
before any further negotiations. Ben Ng then asked R
Paul Chan to send him a draft NDA and suggested that
S S
they should meet up again for further discussions.
T T
U U
V V
-6-
A A
B B
13. When asked during cross-examination, Ben Ng said that he
C did not remember whether they discussed PA China’s ERP gold partner C
status with Microsoft. However, he knew at that time that PA China was
D D
conducting ERP business with Microsoft. In any event, despite the
E differing accounts on the meeting on 16 February 2017, it seems clear E
enough that nothing was substantially agreed and the parties would have to
F F
negotiate further. On the next day, Paul Chan sent a draft NDA to Ben Ng.
G G
14. On 21 February 2017, Ben Ng and Paul Chan met up again
H H
for further discussions (“21 Feb Meeting”). Again, both Ben Ng and Paul
I Chan gave differing accounts of this meeting:- I
J J
(1) According to Ben Ng, Paul Chan only verbally
K presented information as the NDA has not yet been K
signed. The following matters were said to have been
L L
discussed:-
M M
(a) Paul Chan informed Ben Ng that the business of
N N
PA China basically consisted of (i) the Microsoft
O ERP Business, and (ii) the Pervasive Business; O
P P
(b) Paul Chan said that PA China was a Microsoft
Q Q
ERP gold partner, and this status has great value
R
as this would entitle PA China to have more R
support from Microsoft and it was actual proof
S S
of competence to potential customers;
T T
U U
V V
-7-
A A
B B
(c) The Microsoft partnership license was attached
C to the domain name “polyasia.net” and the “Poly C
Asia” brand name, which had been driving and
D D
supporting the business of PA China operated
E under the Microsoft partnership license. The E
long attachment of the PA China’s domain
F F
names and the “Poly Asia” brand name to the
G Microsoft partnership license had greatly G
enhanced the value of the Microsoft partnership
H H
license. If a different domain name and brand
I name was to be used by PA China to distribute I
the Microsoft products in place of the domain
J J
name “polyasia.net” and the “Poly Asia” brand
K name, the business of PA China would be K
seriously and adversely affected, and the source
L L
of potential customer would have to be built up
M from scratch; M
N N
(d) PA China had 25 years of history and had
O established the “Poly Asia” brand name in the IT O
service industry and also on the internet, such
P P
that many of PA China’s new businesses came
Q Q
from internet search in which PA China had a
R
high exposure priority because of the early R
registration of its two domain names
S S
“polyasia.com” and “polyasia.net”; and
T T
U U
V V
-8-
A A
B B
(e) Ben Ng proposed that Paul Chan could consider
C retaining part of his shareholding in PA China C
(about 30% to 49%), and continue to be involved
D D
in the “Poly Asia” business, which was firmly
E rejected by Paul Chan as he intended to retire E
from the IT business.
F F
G (2) According to Paul Chan, at the 21 Feb Meeting:- G
H H
(a) Ben Ng informed Paul Chan that Data World had
I a lot of marketing and sales problems with one I
of their ERP vendors. Ben Ng also told Paul
J J
Chan that a product from another ERP vendor is
K a dying product. Thus, it was Ben Ng’s objective K
to look for an existing Microsoft ERP gold
L L
partner with customers’ base, consultant team
M and revenue for Data World to acquire. If the M
sale could proceed, Data World would not need
N N
to start from scratch. Ben Ng in cross-
O examination agreed that he had told Paul Chan of O
these matters;
P P
Q Q
(b) There were general discussions of the ERP
R
market where Ben Ng remarked that the R
advantage to do ERP business is that once users
S S
used the ERP product and services, the users
T
would have to keep paying for the services and T
products every year. Again, Ben Ng in evidence
U U
V V
-9-
A A
B B
agreed that this was in line with what he told Paul
C Chan; C
D D
(c) Ben Ng said that he would ask Lawrence Mak to
E talk to Paul Chan about the details of operations, E
but Paul Chan responded that it would be better
F F
to talk further after the NDA is signed; and
G G
(d) According to Paul Chan, nothing about his
H H
retirement or even the sale of his company was
I discussed at the 21 Feb Meeting. The discussion I
was mainly focused on the ERP market. He has
J J
not been asked to retain any shareholdings in PA
K China since the discussion was still at the initial K
stage and it was simply premature to know what
L L
transaction would be carried out. Furthermore,
M it was also because no NDA was then signed by M
the parties.
N N
O 15. On about 27 February 2017, the NDA was signed by the O
parties. On 1 March 2017, Ben Ng messaged Paul Chan and asked to
P P
discuss some financial data before moving on to discuss operations. Ben
Q Ng and Paul Chan duly met up on 2 March 2017 (“2 Mar Meeting”). Q
R
Again, both Ben Ng and Paul Chan’s evidence differs:- R
S S
(1) Ben Ng stated that Paul Chan had disclosed to him that
T
the business of PA China was not good and had in fact T
suffered losses over recent years. Paul Chan reiterated
U U
V V
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A A
B B
the “intangible values” of PA China including its gold
C partnership status for Microsoft ERP, the “Poly Asia” C
tradename, and the long historical presence of the
D D
“polyasia.com” and “polyasia.net” domain names. Ben
E Ng also explained to Paul Chan that they were only E
keen to consider the acquisition on the basis of the trade
F F
name, historical presence, etc. Ben Ng also informed
G Paul Chan that they were not keen on acquiring the G
Pervasive Business. Ben Ng also asked Paul Chan to
H H
prepare a detailed report about PA China’s operations
I and financial data; and I
J J
(2) Paul Chan, on the other hand, said that the only
K financial data he told Ben Ng was about the number of K
customers, monthly average revenue, and the number
L L
of consultants of his business at the time. In the 2 Mar
M Meeting, they only talked about the general scope of M
PA China’s business without any serious discussions
N N
on the deal to be made, what Data World would
O acquire, or any price issue. O
P P
16. Immediately after the 2 Mar Meeting, Ben Ng emailed Paul
Q Chan on the same day and informed Paul Chan that “they can go ahead for Q
R
more detail discussion of the project” and that Ben Ng had instructed R
Lawrence Mak to follow up with Paul Chan for detail discussions of the
S S
operations and financial aspects. As a result, a meeting was set up between
T
Paul Chan and Lawrence Mak at the office of PA China on 8 March 2017, T
where Lawrence Mak said that Paul Chan emphasized the long history of
U U
V V
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A A
B B
the “Poly Asia” brand name and the wide exposure to prospective
C customers owing to its domain names. Paul Chan denied that he uttered C
any such emphasis.
D D
E 17. On 21 March 2017, Paul Chan provided Ben Ng with an E
outline showing the businesses of PA China (“the March Business
F F
Outline”). The March Business Outline contained financial data as well
G as a suggested valuation of PA China in the sum of HK$3,424,258 based G
on various financial information stated therein.
H H
I 18. The negotiations subsequently fell stale and there were no I
exchanges between the parties until October 2017. On 23 October 2017,
J J
Paul Chan reached out to Ben Ng and they met for discussions (“23 Oct
K Meeting”), where Paul Chan agreed to exclude the Pervasive Business K
from PA China, essentially selling only the Microsoft ERP Business to
L L
Data World.
M M
19. Ben Ng also alleged that at the 23 Oct Meeting he had made
N N
clear to Paul Chan that he agreed to continue the negotiations on the
O conditions that: (i) after the sales, Paul Chan would not engage or be O
involved in any IT business with the brand “Poly Asia”, (ii) Paul Chan
P P
would not operate the Pervasive Business under the “Poly Asia” brand
Q Q
name, and (iii) there must be an arrangement to ensure a smooth transition
R
to new management and to ensure renewal of the Microsoft partnership R
license.
S S
T T
U U
V V
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A A
B B
20. Paul Chan however alleged that they did not have any
C discussions on the brand name or domain names, and that he would C
obviously not be retiring as he retained the Pervasive Business and would
D D
not sell to Data World all the business under the “Poly Asia” brand.
E E
21. On 31 October 2017, Ben Ng and Paul Chan met at Ben Ng’s
F F
office where Paul Chan provided Ben Ng a business outline titled
G “Microsoft Gold Partner” (“the October Business Outline”). On G
1 November 2017, Paul Chan asked Ben Ng whether it is possible for the
H H
parties to have something signed in respect of what was discussed. Ben
I Ng suggested that Paul Chan should list out what was discussed in their I
meeting and subsequently sign a memorandum of understanding. As such,
J J
on 3 November 2017, Paul Chan circulated the minutes of the meeting of
K 31 October 2017 (“31 Oct Minutes”), where Ben Ng subsequently also K
confirmed that it contained an accurate record of what had transpired and
L L
could be taken as the memorandum of understanding. The 31 Oct Minutes
M recorded, among other things, that:- M
N N
(1) Paul Chan presented the October Business Outline to
O Ben Ng; O
P P
(2) Ben Ng inquired with Paul Chan who could run the
Q Q
whole operation if Paul Chan is no longer in an active
R
operation role. Paul Chan suggested the following:- R
S S
(a) To assign one Data World senior staff to be
T
General Manager; T
U U
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A A
B B
(b) Paul Chan to serve as a paid adviser for further
C 12 months to assist the overall operation C
transition;
D D
E (c) Data World to assign one accountant to take over E
the accounting; and
F F
G (d) Regarding sales and marketing, it would be a G
good idea to share resources with Data World in
H H
future marketing activities.
I I
(3) Paul Chan requested HK$1,500,000 to sell off PA
J J
China’s Microsoft related operations and business and
K a monthly fee of HK$25,000 as adviser’s fees for 12 K
months, to which Ben Ng agreed.
L L
M 22. On 5 December 2017, Paul Chan sent a “Note for drafting M
S&P Agreement” (“the Drafting Note”) to Ben Ng listing the subject
N N
matter to be covered under the eventual sale and purchase agreement. The
O Drafting Note did not refer to any intellectual property rights or domain O
names. The price was revised to HK$1,540,000 to take into account a sum
P P
of HK$40,000, being the expenses for renewing the Microsoft partnership
Q Q
license for the Microsoft ERP Business.
R R
23. On 12 December 2017, Paul Chan sent Ben Ng a draft sale
S S
and purchase agreement. Thereafter, the parties had various discussions
T
on the terms of the draft sale and purchase agreement up to 8 January T
2018:-
U U
V V
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A A
B B
C (1) On 13 December 2017, Ben Ng objected to the non- C
refundable nature of the deposit upon signing of the sale
D D
and purchase agreement;
E E
(2) On 16 December 2017, Paul Chan replied with his
F F
suggestion on the issue regarding the non-refundable
G deposit; G
H H
(3) On 17 December 2017, Ben Ng suggested to Paul Chan
I that he should seek legal advice as to the viability of the I
terms in relation to the deposit as proposed by Paul
J J
Chan;
K K
(4) On 20 December 2017, Ben Ng wrote to Paul Chan
L L
rejecting the term regarding non-refundable deposit.
M On the same day, Paul Chan replied that he is willing M
to insert terms to allow the deposit to be refundable in
N N
the event that there is a breach by the sellers;
O O
(5) On 29 December 2017, Ben Ng informed Paul Chan by
P P
email that he had read through the draft sale and
Q Q
purchase agreement and specifically requested inter
R
alia appending a list of customers and the audited R
accounts and management accounts to the draft. Other
S S
than the comments provided in that email, Ben Ng
T
stated that he had no other comments; and T
U U
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A A
B B
(6) On 8 January 2018, a final draft of the sale and purchase
C agreement was sent to Ben Ng with the requested C
documents to be appended thereto.
D D
E 24. On 12 January 2018, Paul Chan and Eugenia Chan (as E
vendors) and Data World (as purchaser) entered into a sale and purchase
F F
agreement (“the SPA”) under which the entire shareholding of PA China
G was sold to Data World. The recital to the SPA provides:- G
H H
“WHEREAS
I [PA China] is now having 400,000 fully paid shares of HK$1.00 I
each, out of which Paul CHAN holds 399,999 shares,
representing 99.9% of the total issued shareholding and Eugenia
J J
CHAN holds 1 share, representing 0.01% of the issued
shareholding.
K K
AND
L [PA China] is now eligible of Microsoft Partner Competency in L
Gold Enterprise Resource Planning and Silver Cloud Platform
M and shall be until 31 January 2019.” M
N 25. The SPA further provides:- N
O O
“1. In consideration of HK$1,540,000 and subject to the
terms and conditions hereof by the parties on the event date:
P P
(a) The Vendor shall sell and the Purchaser shall buy
Q 400,000 shares in the share capital of [PA China] (the Q
‘Shares’)
R (b) The lists of customers including their yearly BREP and R
Support values are agreed and shown as the following:
S S
• List of Customers as per Microsoft Partner
Portal with BREP value as at 1 January 2018
T (Annex A(1)) T
U U
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- 16 -
A A
B B
• List of Poly-Asia (MS Dynamics) Support
Customers (Annex A(2))
C C
(c) The audited balance sheet and financial statements of
[PA China] as at 31.03.2017 (Annex B) is included; and
D D
(d) The management accounts as at 31 December 2017 are
E included… E
…
F F
4. Upon completion, the Vendor shall deliver to the
Purchaser:-
G G
(a) Share Certificate representing the Shares.
H H
(b) Bought and Sold note and Instrument of Transfer for the
Shares duly executed by the seller and the transferor.
I I
(c) [PA China] shall produce a Board Resolution for the
J approval of the transfer of Shares and register the J
Purchaser as the registered owner of the Shares.
K … K
L 6. In the next 12 months after completion, Paul CHAN shall L
act as an Adviser to [PA China] for its management support at
the rate of HKD25,000 per month starting from 1 February 2018
M payable at the end of each month… [PA China] shall sign a M
management agreement with a company designated by Paul
CHAN for such management support and the managing
N N
company shall present an invoice every month for that charge to
[PA China].
O O
7. WARRANTIES AND INDEMNITIES BY VENDORS
P 7.1 The Vendors represent, warrant and undertake to the P
Purchaser and its respective successors in title, the Warranties
Q contained in the Schedule are true and accurate in all respects Q
at the date of this Agreement and will continue to be so on each
day up to and including the day of Completion with reference to
R the facts and circumstances from time to time applying. The R
Vendors agree that the Purchaser may treat each of such
S Warranties as a condition of this Agreement. S
…
T T
7.6 The Vendors undertake, in relation to any Warranty
which refers to the knowledge, information or belief of the
U U
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- 17 -
A A
B Vendors, that it has made full enquiry into the subject matter of B
that Warranty and that it does not have the knowledge,
C information or belief that the subject matter of that Warranty C
may not be correct, complete or accurate.
D … D
E
14.5 This Agreement contains the entire agreement between E
the parties hereto relating to the transactions provided for
herein and there are no other warranties, conditions or terms
F applicable thereto whether express or implied.” F
G 26. The Schedule to the SPA provided the following warranties G
H
given by the vendors:- H
I “1.4 (a) All information given by the Vendors, the Vendors’ I
Appointed Agent or the Vendors’ Accountants to the
J Purchaser, the Purchaser’s Solicitors or the Purchaser’s J
Accountant relating to the business, activities, affairs, or
assets or liabilities of the Company [PA China] was,
K when given, and is now accurate and comprehensive in K
all respects.
L L
(b) There are no material facts or circumstances, in
relation to the assets, business or financial condition of
M the Company, which have not been fully and fairly M
disclosed in writing to the Purchaser for the Purchaser’s
solicitors, and which, if disclosed, might reasonably have
N N
been expected to affect the decision of the Purchaser to
enter into this Agreement.
O O
1.13 [PA China] has all permits, authorities, licenses and
consents (whether granted by public or private authority)
P necessary to carry on its business effectively and without P
hindrance in the manner and in the places in which its business
Q is now carried on with particular reference to the ownership of Q
the Property and the business of leasing and letting parts thereof
and there are no circumstances which might lead to the
R suspension or cancellation of any such permits, authorities, R
licenses or consents.
S S
1.19 All information given or which may at any time before
Completion be given by any of the Company, its directors,
T officers, accountants, solicitors or other advisers, to the T
Purchaser, their directors, officers, accountants, solicitors or
other advisers or the Vendor is accurate in all material respects
U U
V V
- 18 -
A A
B and there are no facts which have not been disclosed to the B
Purchaser which would make any such information misleading.
C C
1.20 All information relating to the Company, its prospects
and affairs known or which would on reasonable enquiry be
D known to any of the Company, its directors or the Vendor, which D
might affect the willingness of a prudent purchaser for value of
E
the Shares to complete his purchase or the amount of the E
consideration which such purchaser would be prepared to pay
for the Share has been disclosed to the Purchaser.”
F F
C. THE MANAGEMENT AGREEMENT
G G
H 27. Pursuant to Clause 6 of the SPA, PA China entered into a H
management agreement with PA E-Tech dated 1 February 2018 (“the
I I
MA”), under which PA E-Tech shall procure Paul Chan to provide
J J
advisory services to PA China for a management fee of HK$25,000 per
K
month for a period of 12 months. K
L L
28. Clause 7 of the MA further provides as follows:-
M M
“7. INTELLECTUAL PROPERTY
N N
The Manager and its Directors agree that all Relevant
Intellectual Property (whether patentable or not) shall be the
O absolute property of the Company. The Manager and its O
Directors shall further:
P P
(a) notify and disclose to the Company in writing full details
of all Relevant Intellectual Property forthwith upon the
Q production of the same, and promptly whenever Q
requested by the Company and in any event upon the
determination of the Appointment deliver up to the
R R
Company all correspondence and other documents,
papers and records, and all copies thereof in his
S possession, custody and power relating to an Relevant S
Intellectual Property;
T (b) assign to the Company or any Affiliated Company as the T
Company may designate, without additional
U compensation all rights (including patent, registered U
V V
- 19 -
A A
B design and trade mark rights and copyrights) to such B
Relevant Intellectual Property worldwide;
C C
(c) if required by the Company, apply or join with the
Company or any Affiliated Company as the Company
D may direct in applying for letters, patents, registered D
design, trade mark, copyright and other protection or
E
registration for such Relevant Intellectual Property at E
the expense of the Company or any Affiliated Company;
F (d) sign and execute all documents and do all things as may F
in the opinion of the Board be necessary or desirable to
carry out the foregoing and otherwise to protect and
G G
maintain all Relevant Intellectual Property;
H (e) give testimony in support of its inventorship if required; H
and
I (f) hold upon trust for the benefit of the Company any I
Relevant Intellectual Property to the extent the same may
J not be and until the same is vested absolutely in the J
Company and/or a Affiliated Company as the case may
be…”
K K
D. POST-ACQUISITION
L L
M M
29. It is common ground that Paul Chan had since February 2018
N
provided consultancy/advisory services to PA China pursuant to the terms N
of the MA without any dispute until around June 2018.
O O
P 30. On 27 June 2018, Ben Ng messaged Paul Chan and invited P
him to meet over dinner the next day. Paul Chan’s evidence is that in the
Q Q
dinner meeting on 28 June 2018, Ben Ng asked him to change the name of
R his other companies and asked for the administrator’s passwords for R
various domain names, including “polyasia.net” and “polyasia.com”
S S
(collectively “the Disputed Domain Names”). Paul Chan told Ben Ng
T that the changing of names needs to be discussed with Ms. Patty Wu, who T
is his wife and a director of the relevant companies. As to the
U U
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- 20 -
A A
B B
administrator’s passwords, Paul Chan told Ben Ng that the staff of PA
C China already had the administration rights for doing what they wanted to C
do. Ben Ng did not give evidence on what transpired at this dinner meeting.
D D
E 31. That night, when Paul Chan discussed the matter with Patty E
Wu, she immediately opposed the changing of names of the other
F F
companies. Patty Wu also told Paul Chan that the Disputed Domain Names
G were necessary in operating the other companies and that there was no G
requirement under any agreements to stop other companies from using
H H
them.
I I
32. On 29 June 2018, Ben Ng in an email requested Paul Chan to
J J
pass the relevant passwords to Ryan Chan, the technical manager of Data
K World. It is not disputed that Paul Chan did not pass the administrator’s K
passwords for the Disputed Domain Name to Data World.
L L
M 33. On 25 October 2018, Paul Chan wrote to Ben Ng stating that M
the domain name of “polyasia.com.hk” is registered under PA China and
N N
the registration password is ready for collection. However, Paul Chan
O stated that the Disputed Domain Names were not registered under PA O
China. On the evidence, they were first registered under the sole
P P
proprietorship Poly Asia Systems and, according to Paul Chan, were
Q Q
subsequently registered to Paul Chan himself.
R R
34. On 26 October 2018, Ben Ng replied to Paul Chan alleging
S S
that the failure to provide the relevant passwords to the Disputed Domain
T
Names is a breach of the SPA and/or the MA. T
U U
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- 21 -
A A
B B
35. By 18 January 2019, Data World has not paid PA E-Tech’s
C monthly management fee for a period of 4 months. A sum of HK$100,000 C
was then outstanding. At that time, Paul Chan still had the means to settle
D D
payments for PA China, and he therefore made payments to PA E-Tech on
E behalf of PA China by bank transfer to settle the outstanding amount owed E
to PA E-Tech under the MA.
F F
G 36. Separately, it transpired that a “Poly Asia E-Technology” logo G
was registered by PA Holdings under Trade Mark Registration No.
H H
300596484 (“the Trade Mark”). In a letter dated 23 January 2019, PA
I E-Tech stated that it would terminate PA China’s use of the Trade Mark I
upon cessation of the MA with effect from 1 February 2019.
J J
K 37. It is under the above background that the parties’ disputes K
arise.
L L
M E. THE PLAINTIFFS’ CLAIM AND DEFENDANTS’ DEFENCE M
N N
38. The gist of Plaintiffs’ primary complaint is the Defendants’
O failure to transfer to PA China the Disputed Domain Names and the Trade O
Mark (collectively, “the IP Rights”).
P P
Q 39. Data World’s primary claim is in misrepresentation either on Q
R
the facts as pleaded by it or on the case as advanced by the Defendants (the R
precise details of its claims based on these 2 different scenarios are
S S
discussed below), where it is alleged to be entitled to:-
T T
U U
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- 22 -
A A
B B
(1) Rescind the SPA, together with the refund of the
C purchase price of HK$1,540,000, which is to be held on C
trust in favor of Data World;
D D
E (2) An indemnity to indemnify Data World’s use of the IP E
Rights; and
F F
G (3) Damages under the Misrepresentation Ordinance. G
H H
Data World’s claim for misrepresentation under the SPA as pleaded by
I Data World is discussed in Section F below, whereas Data World’s claim I
on the basis of the Defendants’ case is examined in Section G below.
J J
K 40. Alternatively, even if the SPA is not rescinded, the Plaintiffs K
allege that PA China is entitled to rescind the MA on the basis of
L L
misrepresentations, with the results that:-
M M
(1) The management fees in the sum of HK$300,000
N N
should be refunded to PA China, which is to be held on
O trust; and O
P P
(2) Damages under the Misrepresentation Ordinance.
Q Q
R
Section H below deals with the Plaintiffs’ claim of misrepresentations R
under the MA.
S S
T T
U U
V V
- 23 -
A A
B B
41. Further alternatively, the Plaintiffs’ further case is that on a
C proper construction of the subject matter of the SPA and the MA, the IP C
Rights are included in the sale and purchase and the failure to transfer to
D D
PA China the IP Rights constituted a breach of the SPA and/or the MA,
E thus entitling Data World and/or PA China to:- E
F F
(1) Specific performance by requiring Paul Chan, PA
G E-Tech and/or PA Holdings to transfer the IP Rights to G
PA China;
H H
I (2) Further and/or alternatively, damages for breach of the I
SPA and/or the MA; and
J J
K (3) An indemnity to indemnify Data World and/or PA K
China’s use of the IP Rights.
L L
M This is discussed in Section I below. M
N N
42. In any event, regardless of the Court’s findings on the issues
O above, PA China further claims:- O
P P
(1) A breach of duty on the part of Paul Chan in
Q Q
transferring the HK$100,000 to PA E-Tech in January
R
2019; R
S S
(2) Recovery of the HK$100,000 from PA E-Tech on the
T
basis of unjust enrichment; and T
U U
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- 24 -
A A
B B
(3) Damages/equitable compensation for breach of duty on
C the part of Paul Chan in transferring away the Disputed C
Domain Names.
D D
E These claims are examined in Sections J and K below. E
F F
43. The Defendants denied that Paul Chan had made any false
G representations. Accordingly, Data World and/or PA China are not entitled G
to rescind the SPA or the MA, nor are Data World and/or PA China entitled
H H
to damages for misrepresentations.
I I
44. The Defendants further denied that the proper construction of
J J
the subject matter of the SPA and/or the MA extended to cover the IP
K Rights, and hence they were not in breach thereof. The Defendants also K
denied Paul Chan and/or PA E-Tech’s liability for the transfer of
L L
HK$100,000 and/or the Disputed Domain Names.
M M
45. The parties had helpfully prepared an agreed list of issues as
N N
early as the pre-trial review. However, in light of the clarifications made
O over the course of trial, it would be more convenient to deal with the issues O
in the order as mentioned in paragraphs 39 to 42 above.
P P
Q Q
F. MISREPRESENTATIONS UNDER THE SPA
R R
46. At trial, I specifically asked Mr. Tom Ng and Mr. Ng
S S
confirmed that Data World is relying only on express misrepresentations
T
that were allegedly made during the course of the negotiations prior to T
entering into the SPA. Data World is not running a case of any
U U
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- 25 -
A A
B B
misrepresentation by silence or any unpleaded bases for alleging that the
C IP Rights should form part of the subject matter of the SPA. Mr. Ng further C
confirmed that Data World is not alleging any implied terms or any
D D
estoppel by reason of any other antecedent or subsequent conduct. The
E position of Mr. Ng is understandable given that the pleadings did not E
include these other claims.
F F
G 47. In the Statement of Claim, the pleaded express representations G
made by Paul Chan were as follows:-
H H
I (1) Paul Chan would retire and the sale would include I
everything under the established brand-name “Poly
J J
Asia” (save and except the Pervasive Business) (“the
K Retirement Representation”); and K
L L
(2) The sale would include all assets and business (save and
M except the Pervasive Business) of PA China, including M
the Disputed Domain Names and the Trade Mark (“the
N N
IP Rights Representation”).
O O
48. In closing submissions, Data World sought to rely on a third
P P
representation that the “Poly Asia” brand was well established in the IT
Q Q
service industry and on the internet and the early registration of the
R
Disputed Domain Names enabled customers to have easy and quick access R
to the businesses under the “Poly Asia” brand (“the Brand
S S
Representation”). However, I do not see it as proper to allow the Brand
T
Representation to be raised only in closing submissions and relied upon as T
an independent misrepresentation.
U U
V V
- 26 -
A A
B B
C 49. First, in my view the Brand Representation has not been C
pleaded. It is not a pleaded misrepresentation in the Statement of Claim.
D D
Mr. Ng sought to refer me to the Plaintiff’s Answer to the Defendants’
E Request for Further and Better Particulars of the Reply (“the Answer”), in E
which the Plaintiffs referred to Paul Chan having stated that the matters
F F
now relied upon as the Brand Representation. However, the relevant
G response in the Answer was in relation to a request in respect of the G
Retirement Representation. There was nothing in the Answer that
H H
suggested that the matters pleaded therein raised a completely independent
I Brand Representation. I
J J
50. Second, as a result, the Defendants did not plead in response
K to the Brand Representation, and it is unfair, if not unjust, to require the K
Defendants to deal with the Brand Representation without a proper
L L
pleading basis.
M M
51. Third, as a result of the lack of pleadings, the Plaintiffs
N N
themselves have not pleaded how the Brand Representation was false and
O no evidence was led by either party in this regard. This court has not seen O
any evidence at all as to (i) whether the “Poly Asia” brand was well
P P
established in the IT service industry and on the internet, or (ii) whether
Q Q
the early registration of the Disputed Domain Names enabled customers to
R
have easy and quick access to the businesses under the “Poly Asia” brand. R
In the absence of such evidence, I am not satisfied that the falsity or
S S
otherwise of the Brand Representation has been proved one way or another.
T
In the absence of proper pleadings and evidence, the reliance on the Brand T
Representation is with respect a non-starter.
U U
V V
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A A
B B
C F1. The general law of misrepresentation C
D D
52. Before considering the other misrepresentations pleaded by
E Data World, it is helpful to set out some general principles in relation to E
the law on misrepresentation, which the parties do not dispute. A useful
F F
summary was given by DHCJ Alexander Stock SC in Joytex Development
G Limited v Super Homes Limited [2018] HKCFI 2286, at §77:- G
H H
“77. I consider it helpful to outline a few core principles …
I (1) Generally, an actionable misrepresentation requires a I
false statement of past or present fact, as distinct from a
statement of opinion or intention; though a statement of
J J
opinion/intention or as to the future may entail an implied
statement of fact.
K K
(2) Where there is a dispute as to the meaning conveyed, the
court interprets the relevant words or conduct. The
L approach is objective, viewing the communication from L
the perspective of a reasonable person in the position of
M the representee. The test is whether: (a) the words or M
conduct in fact led the representee to believe the alleged
false fact; and (b) it was reasonable for the representee to
N believe it from the words or conduct as he perceived N
them. In applying the test, the characteristics of the
O
representee, including level of sophistication, are taken O
into account.
P (3) Where an implied representation is alleged, the question P
is what a reasonable person would have inferred was
being impliedly represented by the representor’s words
Q Q
and conduct in their context.
R (4) The statement must have the character of one upon which R
the representee was intended and entitled to rely.
S (5) The representee must have in fact relied on the statement; S
though this can sometimes be inferred. The
T representation need not be the only or main cause of the T
decision to contract. It is generally sufficient that it be
a cause (in other words, a material inducement).”
U U
V V
- 28 -
A A
B B
C F2. The Retirement Representation C
D D
53. I find the Plaintiffs’ case based on the Retirement
E Representation problematic. The Retirement Representation consists of 2 E
components, namely (i) Paul Chan would retire and (ii) the sale of PA
F F
China would include everything under the established brand-name “Poly
G Asia”. G
H H
54. As to Paul Chan’s retirement, I am of the view that this
I representation, even if made, does not assist Data World. First, Paul I
Chan’s retirement clearly does not lead to a reasonable understanding that
J J
the sale would include everything under the “Poly Asia” brand-name. Both
K Paul Chan and Ben Ng were sophisticated businessmen. Apart from being K
a director of Data World, Ben Ng was also a director of a listed company.
L L
The representation that Paul Chan is to retire could not have reasonably led
M a representee with Ben Ng’s experience to believe that the sale of PA China M
(i.e. that company alone) would include everything under the “Poly Asia”
N N
brand. It just does not follow.
O O
55. Second, I am not satisfied that the representation that Paul
P P
Chan would retire was intended to and did induce Data World to enter into
Q Q
the SPA. As a matter of fact, Ben Ng admitted that he did not rely on Paul
R
Chan’s retirement in deciding whether to acquire PA China. R
S S
56. As to the 2nd component of the Retirement Representation,
T
namely that there was an express representation that the sale would include T
everything under the established brand-name “Poly Asia”, I am not
U U
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A A
B B
satisfied that the evidence shows that such a representation has in fact been
C made by Paul Chan. C
D D
57. First, it is Ben Ng’s evidence that by the time the SPA was
E executed, he was aware of the fact that Paul Chan had a number of E
companies under the PA Group. He was also aware that Data World was
F F
contracting to acquire only PA China. Companies such as PA E-Tech or
G PA Holdings were not specifically included in the SPA. This clearly was G
known to Ben Ng as Data World contracted with PA E-Tech under the MA
H H
as an ancillary agreement to the SPA. It must have been clear to the parties
I that the SPA does not include everything under the “Poly Asia” brand. I
This is inconsistent with such a representation having been made by Paul
J J
Chan.
K K
58. Second, the October Business Outline titled specifically as
L L
“Microsoft Gold Partner” made it quite clear that the sale concerned only
M the Microsoft ERP Business. The 31 Oct Minutes was also clear as to the M
scope of the sale where it was recorded that the sale of the whole company
N N
is “Poly-Asia with only Microsoft Business and Operation”. Similarly, the
O Drafting Note also refer specifically to the Microsoft ERP Business. O
P P
59. Third, the SPA itself is also quite apparent that the subject
Q Q
matter of the sale is the Microsoft ERP Business. In my view, the parties
R
had quite clearly demonstrated that the subject matter of the SPA is the R
Microsoft ERP Business, effected through the sale of the shares of PA
S S
China. It would be surprising if the sale were understood to include
T
anything other than the assets of PA China and the Microsoft ERP T
U U
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A A
B B
Business, experience businessmen such as Ben Ng and Paul Chan would
C not have stated them clearly in the documentations. C
D D
60. Fourth, I agree with Ms. Vivian Chan, counsel for the
E Defendants, that the way Data World frames the Retirement E
Representation now is unnatural. Despite the clear wordings used
F F
throughout the negotiations and in the SPA pointing to the subject matter
G being the Microsoft ERP Business, the present allegation of a G
representation that the sale included everything other than the Pervasive
H H
Business appears to be arbitrary and framed to include the IP Rights.
I I
61. For all of the reasons above, I find, on the balance of
J J
probabilities, the Retirement Representation (at least the second
K component as referred to above) was not made by Paul Chan. K
L L
F3. The IP Rights Representation
M M
62. One of the main factual disputes is whether Paul Chan
N N
expressly made the IP Rights Representation. On the evidence before the
O Court, I am not satisfied that Data World has proved this on the balance of O
probabilities.
P P
Q 63. Ben Ng’s evidence is that Data World’s primary concern in Q
R
acquiring PA China was to obtain its brand-name and the IP Rights. He R
went so far as to say that Data World was not too concerned with the
S S
business performance of PA China. This appears to me to be inconsistent
T
with what was discussed in the 21 Feb Meeting (see paragraph 14(2) T
above), where Ben Ng admitted having told Paul Chan his primary
U U
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A A
B B
intention to acquire an existing Microsoft ERP gold partner. If the
C acquisition of the brand-name and the IP Rights were Data World’s C
foremost intention, it is inherently unlikely that Data World did not insist
D D
that the brand-name and the IP Rights be expressly included in the SPA.
E There is simply no good answer to this. E
F F
64. Data World referred to Clause 7 of the MA as evidence that
G the IP Rights Representation was made. Clause 7 of the MA contained a G
reference to the term “Relevant Intellectual Property”. Data World
H H
submitted that had there not been such representations, it is unlikely that
I Clause 7 of the MA would impose an obligation on Paul Chan and Eugenia I
Chan to procure the transfer of “Relevant Intellectual Property” to PA
J J
China. For otherwise, Clause 7 of the MA would serve no useful purpose.
K K
65. I reject Data World’s submissions in this regard. The MA is
L L
a service agreement between PA China and PA E-Tech. Paul Chan and
M Eugenia Chan (i.e. the vendors in the SPA) were not even parties to the M
MA. The purpose of the MA is not for Paul Chan and Eugenia Chan to
N N
transfer the IP Rights as part of the subject matter under the SPA.
O I therefore agree with Ms. Chan that the purpose of the MA is to assist in O
the transition of PA China after it was acquired by Data World, rather than
P P
to transfer any assets.
Q Q
R
66. Further and more importantly, Clause 7 of the MA in my view R
refers to “Relevant Intellectual Property” (although not specifically defined
S S
in the MA) that was created during the course of the advisory services
T
under the MA. Clause 7 of the MA thus read:- T
U U
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A A
B “The Manager and its Directors agree that all Relevant B
Intellectual Property (whether patentable or not) shall be the
C absolute property of the Company. The Manager and its C
Directors shall further:
D (a) notify and disclose to the Company in writing full details D
of all Relevant Intellectual Property forthwith upon the
E
production of the same, and promptly whenever E
requested by the Company and in any event upon the
determination of the Appointment deliver up to the
F Company all correspondence and other documents, F
papers and records, and all copies thereof in his
possession, custody and power relating to any Relevant
G G
Intellectual Property”
H H
67. In the circumstances, I find that Clause 7 of the MA does not
I refer to the IP Rights and does not assist the Plaintiffs at all. I
J J
68. The reason given by Ben Ng as to why, despite the alleged IP
K Rights Representations and the importance allegedly attached to them by K
Data World, the IP Rights were not expressly included in the SPA was that
L L
he trusted Paul Chan. However, there is nothing in the evidence to support
M Ben Ng’s trust in Paul Chan when they were not close acquaintances, but M
negotiating a commercial deal between two experience businessmen.
N N
O 69. On the other hand, there are ample evidence to show that Data O
World’s intention was to acquire the Microsoft ERP Business with its gold
P P
partnership status:-
Q Q
R
(1) The intention to acquire an existing Microsoft ERP R
gold partner was mentioned by Ben Ng as early as in
S S
the 21 Feb Meeting;
T T
U U
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A A
B B
(2) The October Business Outline, the 31 Oct Minutes, the
C Note to Drafting, and the SPA all specifically refer to C
the acquisition of the Microsoft ERP Business;
D D
E (3) In evidence, Ben Ng had admitted that the gold E
partnership status carried a high value. Ben Ng also
F F
knew of the benefits that come from the gold
G partnership status including discount and referral of G
new customers from Microsoft, and the instilling of
H H
confidence in its customers;
I I
(4) In fact, the valuation of PA China as shown in the
J J
October Business Outline appears to have been
K calculated (at least by Paul Chan) on the basis of K
financial figures from the Microsoft ERP Business.
L L
There is nothing on the evidence that is indicative of
M the sale price to have taken into account the IP Rights M
or the brand-name at all;
N N
O (5) I also agree with Ms. Chan that the evidence does not O
show that PA China was performing poorly, such that
P P
Data World only valued the IP Rights in the acquisition.
Q Q
Between 2014 to 2017, the gross profit each year ranges
R
from about HK$3.38 to HK$4.36 million with a gross R
profit margin of 58% to 63%. Even according to Ben
S S
Ng, this profit margin was not too bad in the industry.
T
Although the evidence does show a loss of T
HK$100,037 for 2016/17, this has included directors’
U U
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A A
B B
remuneration of HK$737,600, which was drawn by
C Paul Chan and Patty Wu; C
D D
(6) During the drafting of the SPA, Ben Ng has specifically
E requested to include in the SPA the customer list of PA E
China’s Microsoft ERP Business. This clearly shows
F F
that Data World was principally concerned with it. Had
G the IP Rights been their primary concern, there was no G
reason why Data World did not request a list of
H H
intellectual property rights, but instead a list of clients
I in the Microsoft ERP Business. I
J J
70. Importantly, during cross-examination, Ben Ng stated that his
K understanding that the SPA included the IP Rights was merely his own K
assumption, and that the IP Rights ought to be included as a matter that
L L
goes without saying. I am not required to determine whether this can be
M implied into the SPA on this basis as this was never Data World’s case. M
Ben Ng’s admitted assumptions cast substantial doubts as to whether Paul
N N
Chan in fact made the IP rights Representation.
O O
71. On 2 January 2019, shortly prior to the commencement of
P P
these proceedings, Ben Ng messaged Paul Chan as follows:-
Q Q
“…在買 PA 前，我記得跟你講過你不如留下 49% 股份，繼
R R
續由你經營 PA。亦清楚記得你回答說希望完全賣掉，了無
牽掛地退休，享受人生。”
S S
“既然完全賣掉了 PA，現在又何必多生枝節，在可以退休
T 享受時，惹來一身官非煩惱，亦令自己一生的信譽破產？” T
U U
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A A
B B
72. Even Ben Ng did not refer to any express IP Rights
C Representation as a basis for demanding Paul Chan to transfer the IP C
Rights.
D D
E F4. Subsequent conduct E
F F
73. Against the above evidence, Mr. Ng urged the Court to also
G consider the following subsequent conduct of Paul Chan, which, Mr. Ng G
submitted, tend to show that the various representations had in fact been
H H
made by Paul Chan:-
I I
(1) PA China had been using the IP Rights for a substantial
J J
period (from February to October 2018) after the SPA
K without objection; K
L L
(2) At least from late-June 2018, Paul Chan knew that PA
M China intended to appropriate the IP Rights, but he M
chose not to object until 25 October 2018;
N N
O (3) Despite the suggestions at trial that PA China could O
have used some alternative remedial measures to
P P
replace the importance of the IP Rights, at no time did
Q Q
Paul Chan inform Ben Ng and Lawrence Mak of these
R
alleged remedial measures; and R
S S
(4) Paul Chan testified that he did not have the intention to
T
discontinue PA China’s use of the IP Rights after T
U U
V V
- 36 -
A A
B B
1 February 2019 at the time when the SPA was
C executed. C
D D
74. In his closing submissions, Mr. Ng advanced these subsequent
E conduct as forensic tools for the limited purpose of testing the parties’ case E
on whether various representations were made by Paul Chan. That is to
F F
say, Data World is not relying on any subsequent conduct in interpreting
G the SPA or to find some sort of estoppel. However, I consider the G
subsequent conduct referred to by Mr. Ng ambiguous at most and is not
H H
suggestive of Paul Chan having made the various representations as
I alleged, particularly in light of the matters discussed in section F3 above. I
J J
75. After the execution of the SPA, I find that there has been a
K transitional period within which the parties were attempting to effect a K
smooth transition of the business of PA China to Data World. The MA, no
L L
doubt, was effected for this purpose. I do not consider PA China’s
M continuing use of the IP Rights in the transitional period necessarily meant M
that Paul Chan had made the IP Rights Representation or other similar
N N
representations.
O O
76. Furthermore, I do not consider it relevant the timing of Paul
P P
Chan’s objection having been made in October 2018 rather than earlier.
Q Q
The timing of his objection, in my view, is neither here nor there in terms
R
of whether Paul Chan made the IP Rights Representation. I do not see how R
the earlier or later objection by Paul Chan affects the likelihood of him
S S
having made the IP Rights Representation. Mr. Ng submitted that the
T
evidence suggests that Paul Chan and Patty Wu waited until late-October T
2018 to object because they took time to deliberately give a false
U U
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A A
B B
impression that the Disputed Domain Names had always been owned by
C PA E-Tech (being a non-party to the SPA), rather than Paul Chan himself. C
This was done deliberately to lead Data World to believe that Paul Chan
D D
had no power to transfer the Disputed Domain Names. I do not accept Mr.
E Ng’s submissions. I do not think it is fair to draw this inference of bad E
faith from the evidence when the matter, which clearly needs to be, but was
F F
not, put to Paul Chan under cross-examination.
G G
77. Equally, I do not regard as relevant the failure of Paul Chan
H H
to suggest alternative measures to replace the IP Rights points one way or
I another as to whether he made the IP Rights Representation. Instead, Mr. I
Ng submitted that the Court may thus infer from this that Paul Chan knew
J J
that the IP Rights were irreplaceable. I do not accept that this is an
K inference that can be drawn on the evidence as there is little evidence in K
this regard. This no doubt stems from the fact that the importance of the
L L
IP Rights was not an issue arising from the parties’ pleaded case. But even
M if this Court accepts that such an inference could be drawn, it has no M
bearing on whether it is more likely or not that Paul Chan made the IP
N N
Rights Representation.
O O
78. Finally, I also do not regard the parties’ post-contractual
P P
intention as to the duration for PA China to continue to use the IP Rights
Q Q
to be of any relevance to whether Paul Chan had made the relevant
R
representations. R
S S
79. Having considered the totality of the evidence, I accept Paul
T
Chan’s evidence and find, as a matter of fact, that the IP Rights were never T
discussed during the negotiations prior to the SPA. Further, I prefer the
U U
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- 38 -
A A
B B
evidence of Paul Chan and reject the evidence of Ben Ng and Lawrence
C Mak insofar as they are inconsistent with Paul Chan’s. Accordingly, I find, C
on the balance of probabilities, that Data World had failed to prove that
D D
Paul Chan had expressly made the Retirement Representation and/or the
E IP Rights Representation. Accordingly, Data World’s own pleaded case E
on express misrepresentations under the SPA must fail.
F F
G G. MISREPRESENTATION / BREACH OF WARRANTIES G
UNDER THE DEFENDANT’S CASE
H H
I 80. Mr. Ng’s next point is that even if I find for the Defendants I
on the Defendants’ factual case, namely that the parties had never
J J
discussed the sale and purchase of the IP Rights, Warranties 1.4(b), 1.13,
K 1.19, and 1.20 of the SPA (collectively, “the Warranties”) were in and of K
themselves false, giving rise to misrepresentations and breaches. These
L L
misrepresentations or breaches were not specifically pleaded by Data
M World in its Statement of Claim. Mr. Ng submitted that the court is M
nevertheless entitled, on the principles as stated in Poon Hau Kei v Hsin
N N
Chong Construction Co Ltd Taylor Woodrow International Ltd Joint
O Venture (2004) 7 HKCFAR 148, to decide in favor of a party based on a O
scenario that he has not pleaded but his opponent has. While it is true that
P P
the Defendants pleaded a case that the IP Rights were never discussed in
Q Q
negotiations (and hence no express representations were made), the
R
Defendants never pleaded a case that there had been breaches of the R
Warranties as a result.
S S
T T
U U
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- 39 -
A A
B B
81. I do not agree with Mr. Ng that the principles in Poon Hau
C Kei is applicable in the present case. To begin, it is pertinent to examine C
closely the principles as stated in Poon Hau Kei, where Bokhary PJ, said:-
D D
E
“18. In each of those two cases [in which the court rejected E
the plaintiff’s unpleaded case], the plaintiff sought to succeed on
a scenario not pleaded by either side and outside the defendant’s
F contemplation. That is the opposite of the situation in the present F
case. The respondent pleaded the light trough scenario as one in
which the accident ‘was caused solely or contributed to by the
G G
negligence of” the appellant. (Emphasis added)
H 19. Provided that it does so in a fair manner, a court is H
entitled to decide in favour of a party on the basis of a scenario
that he has not pleaded but his opponent has pleaded. This is a
I proposition at which I arrive on principle. It is also a proposition I
supported by highly persuasive authority. In John G Stein & Co
J Ltd v O’Hanlon [1965] AC 890 at p.910A, Lord Guest said: ‘I J
failed to see how [the defenders] can have been in any way
prejudiced when the facts upon which liability was established
K are those averred in the defences and spoken to by their witnesses K
in evidence.’…”
L L
82. First, it must be obvious that if liability is to be found on the
M M
Poon Hau Kei principles, the opponent’s pleaded case must be capable of
N allowing the Court to find liability. In other words, the facts upon which N
liability is to be established are those averred in the opponent’s pleadings.
O O
Second, the principle is only to be applied provided that it does so in a fair
P manner. P
Q Q
83. As to fairness, Bokhary PJ further explained in Poon Hau Kei
R as follows:- R
S S
“21. Was there any unfairness in the process by which the trial
judge reached his findings? In Bank of America National Trusts
T and Savings Associations v Chai Yen [1980] 1 WLR 350 at T
p.353D, Lord Lane, delivering the advice of the Privy Council,
U U
V V
- 40 -
A A
B said that ‘the essence of any rule of procedure must be fairness’. B
The same is true of any rule of practice.
C C
22. In the present case, the respondent pleaded the light
trough scenario as one in which the appellant caused or
D contributed to the accident. It adduced evidence to prove – and D
succeeded in proving – that the appellant had been standing on
E
the light trough. It cross-examined him to the effect that he E
would be at fault if he had done so. And it addressed the trial
judge on the issue of contributory negligence in the light trough
F scenario. In short, the respondent pleaded and argued that the F
appellant caused or contributed to the accident in the light trough
scenario.
G G
23. Thus the respondent did not opt at the trial for the more
H ambitious but perhaps less promising course of confining itself H
to a contention that the light trough scenario left it blameless,
whether by reason of an absence of foreseeability or otherwise.
I If the respondent had opted at the trial for that course, the I
appellant might have adduced evidence to answer the contention,
J and the state of the evidence might then have been materially J
more favourable to the appellant…
K 24. On the question of fairness, it is pertinent to note that the K
trial judge said that the light trough scenario had been fully
L
canvassed in evidence and submissions by the parties [and that L
there was] no prejudice to anyone…”
M M
84. It is clear that in Poon Hau Kei the respondent conducted its
N own case on the basis that they might be liable under the light trough N
scenario rather than relying on the case that such scenario would leave
O O
them blameless. The respondents had fully canvassed the relevant
P evidence and made submissions thereon. In effect, the factual case that P
was run by the respondent is sufficient to find liability against it, in
Q Q
circumstances that such factual case was entirely within the contemplation
R of the respondents. R
S S
85. The present case is clearly different. I do not accept that the
T
Defendants’ pleaded case that the IP Rights were not discussed in the T
U
negotiations would entitle Data World to succeed on misrepresentations U
V V
- 41 -
A A
B B
and/or breaches under the Warranties, which it has not itself pleaded.
C There are simply no other pleaded facts in the Defendants’ pleadings or the C
way in which the Defendants ran their case at trial that could give rise to
D D
liabilities under the Warranties. It seems to me clear that the breach of
E Warranties as now alleged by the Plaintiffs was never within the E
contemplation of the Defendants.
F F
G 86. The fact that the parties were silent on the IP Rights might G
have been one of the facts that needs to be proved by Data World, but that
H H
is not the only fact required to be proved before Data World can succeed
I on the Warranties. There are other relevant matters which has not been I
canvassed because Data World had not pleaded material facts enabling it
J J
to succeed. The unfairness to allow such unpleaded case to be advanced is
K manifest. Had the Defendant been alerted to the claims under the K
Warranties, other evidence would no doubt have been canvassed:-
L L
M (1) Under warranty 1.4(b), there is no evidence before the M
Court that the IP Rights (which does not belong to PA
N N
China) “might reasonably have been expected to affect
O the decision of the Purchaser to enter into the [SPA]”, O
particularly in light of the finding that the primary
P P
subject matter of the SPA is the acquisition of the
Q Q
Microsoft ERP Business, where the IP Rights might or
R
might not be crucial to the Microsoft ERP Business; R
S S
(2) Similarly, under warranty 1.20, there is again no
T
evidence that the IP rights “might affect the willingness T
of a prudent purchaser for value of the Shares to be
U U
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A A
B B
complete his purchase or the amount of the
C consideration which such purchaser would be prepared C
to pay” when the primary acquisition is for the
D D
Microsoft ERP Business;
E E
(3) Under warranty 1.13, it provides that PA China should
F F
have all permits, authorities, licenses and consents
G necessary to carry on its business effectively. There is G
again unsatisfactory evidence as to whether the IP
H H
Rights are necessary for the business to be carried on
I effectively. It appears to me on the evidence, the only I
domain name necessary to carry on the business is the
J J
Microsoft domain name “polyasia.onmicrosoft.com”
K (which was transferred to Data World) for use to K
identify and represent itself as a unique partner to
L L
Microsoft servers and Microsoft portal in the Microsoft
M environment. M
N N
(4) Under warranty 1.19, there is no evidence as to what
O information was allegedly disclosed and how the O
failure to disclose the IP Rights make such information
P P
misleading.
Q Q
R
87. The principle in Poon Hau Kei is not, in my view, designed to R
allow parties to freely run unpleaded case based on some incomplete facts
S S
alleged by the opponent. Where additional facts are required to entitle a
T
plaintiff to succeed, those facts clearly must be pleaded. The lack of T
evidence over many relevant matters in the present case is a stark
U U
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A A
B B
manifestation of how undesirable and unfair if Data World is to be allowed
C to run its unpleaded case based on breach of the Warranties. In any event, C
on the current evidence, I am not satisfied that Data World had proved any
D D
breach of the Warranties on the part of the Defendants.
E E
H. MISREPRESENTATION UNDER THE MA
F F
G 88. The Plaintiffs’ claim to rescind the MA is based on the same G
misrepresentations under the SPA. Mr. Ng submitted that as a matter of
H H
law if a misrepresentation induces a transaction to which a second
I transaction is closely related, it may be possible to rescind the second I
transaction: The Law of Recission (3rd ed.), at §4.121. As the MA was
J J
entered into pursuant to Clause 6 of the SPA, any misrepresentation that
K vitiates the SPA should also similarly vitiate the validity of the MA. K
However, in light of the finding that there was no misrepresentation under
L L
the SPA, I also dismiss the Plaintiffs’ claim in misrepresentation under the
M MA. M
N N
I. PROPER CONSTRUCTION OF THE SUBJECT MATTER OF
O THE SPA AND MA O
P P
89. The Plaintiffs also alleged that on a proper construction of the
Q Q
subject matter of the SPA and MA, the IP Rights are included in the sale
R
and purchase, such that the failure to transfer the IP Rights to PA China R
was a breach of the SPA and the MA.
S S
T
90. The SPA was entirely silent on the IP Rights. The MA T
referred to the “Relevant Intellectual Property”, which as I have found
U U
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A A
B B
above is not a reference to the IP Rights. Instead, the wordings of the SPA
C expressly refer to the sale and purchase of the shares in PA China with its C
Microsoft ERP Business. Other than the various alleged representations
D D
by Paul Chan, the Plaintiffs are not relying on any other factual
E circumstances to be taken into account in interpreting the SPA and/or the E
MA. This is not surprising since, again, these other matters, if any, were
F F
not part of the Plaintiffs’ pleaded case.
G G
91. Instead, the interpretation point taken by the Plaintiffs is based
H H
on the various alleged representations made by Paul Chan. Mr. Ng
I submitted that the evidence shows that there had been pre-contractual I
representations regarding the inclusion of the IP Rights in the sale of PA
J J
China (i.e. the Retirement Representation and the IP Rights
K Representation). Accordingly, once the court finds that the representations K
were made, Mr. Ng invited the court to conclude that the representations
L L
were incorporated as terms of the SPA. Mr. Ng further submitted that even
M if the SPA and the MA did not refer to the IP Rights, if the relevant context M
and background led the court to the conclusion that something had gone
N N
wrong with the language of the SPA and the MA, mistakes in drafting can
O be corrected as a matter of construction: Fok Chun Yue Benjamin v Fok O
Chun Wan Ian [2015] 2 HKLRD 212, at §42.
P P
Q Q
92. As I have found that Paul Chan did not make the
R
representations as alleged by the Plaintiffs, I do not accept that they form R
part of the background and circumstances in construing the subject matter
S S
of the SPA and/or the MA.
T T
U U
V V
- 45 -
A A
B B
93. On a proper construction of the SPA, I am of the view that the
C subject matter of the sale and purchase was the Microsoft ERP Business C
effected through the transfer of shares of PA China. There is nothing in
D D
the SPA and/or the MA to indicate the sale included the IP Rights, which
E were assets that did not belong to PA China. Accordingly, I find that the E
failure to transfer the IP Rights by any of the Defendants did not constitute
F F
breaches of the terms of the SPA and/or the MA.
G G
J. TRANSFER OF HK$100,000 TO PA E-TECH
H H
I 94. PA China further claims against Paul Chan personally for I
breach of duty in transferring the sum of HK$100,000 to PA E-Tech on 21
J J
January 2019. PA China’s case is that Paul Chan did not have any authority
K to make the transfer of HK$100,000 to PA E-Tech as there was no board K
resolution authorizing the transfer.
L L
M 95. There is no dispute that Paul Chan remained as a director of M
PA China when he acted as advisor to PA China after the sale. He was
N N
only removed as a director in about February 2019. During his time as a
O director of PA China, he was an authorized signatory of PA China’s bank O
account and continued to have access to PA China’s online banking
P P
account with Hang Seng Bank.
Q Q
R
96. According to the evidence of Paul Chan, at the time when he R
made the transfer to PA E-Tech, he had authority to settle payments on
S S
before of PA China. In the past, he had settled various payments on behalf
T
of PA China, including payments to Microsoft and payroll payments by T
signing cheques or electronic bank transfer. This part of the evidence was
U U
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A A
B B
not seriously challenged by Data World. Despite there being no written
C broad resolution authorizing Paul Chan to make payments on behalf of PA C
China, it is clear that Paul Chan was authorized to do so when he was a
D D
director of PA China even after the SPA. His authority to make payments
E on behalf of PA China was of course subject to those payments being E
properly incurred in the course of PA China’s business. There is no
F F
evidence that his authority to make payments on behalf of PA China was
G revoked before 21 January 2019. G
H H
97. Apart from the complaint that the Defendants had failed
I and/or refused to transfer to PA China the IP Rights and hence were in I
breach of the MA disentitling PA E-Tech to payment under the MA, there
J J
is no allegation that Paul Chan and/or PA E-Tech had in any other way
K breached the SPA or the MA. In light of my finding that the IP Rights were K
not part of the subject matter of the SPA or the MA, it appears to me that
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PA China was in fact obliged to pay PA E-Tech the sum of HK$100,000
M on 21 January 2019. M
N N
98. In the circumstances, as the payment was made for a sum of
O money that PA China was legally obliged to pay in the course of its O
business, I find that Paul Chan did have the authority to make that payment
P P
on 21 January 2019 and there was no breach of duty on his part.
Q Q
R
99. It also follows that PA China is not entitled to claim against R
PA E-Tech for unjust enrichment in the sum of HK$100,000 as the
S S
payment was not made in breach of duty by Paul Chan. That payment was
T
in fact made in accordance with the contractual provisions contained in the T
MA, which PA E-Tech was entitled to received.
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A A
B B
C K. TRANSFER OF DISPUTED DOMAIN NAMES C
D D
100. As I have found that the Disputed Domain Names were not
E registered with PA China (i.e. not part of the asset of PA China), nor were E
the Disputed Domain Names part of the subject matter of the SPA and/or
F F
the MA, there was no breach of duty on the part of Paul Chan in dealing
G with assets that did not belong to PA China. G
H H
L. DISPOSITION
I I
101. For the forgoing reasons, I dismiss all of the Plaintiffs’ claims
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against the Defendants. However, for the avoidance of doubt, nothing in
K this judgment should be construed as disentitling PA China from using the K
phrase “Poly Asia”, where appropriate, in the course of its business. This
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was not an issue raised in these proceedings and the court makes no
M findings in this regard. I note that the domain names “polyasia.com.hk” M
and “polyasia.onmicrosoft.com” were assets of PA China, which, it seems
N N
to me, PA China would be entitled to continue to use, along with its name,
O in the course of its business. O
P P
102. In light of my dismissal of all of the Plaintiffs’ claims, issues
Q concerning the Plaintiffs’ remedies (i.e. rescission, indemnity, damages, Q
R
and specific performance) do not arise. R
S S
103. I also make a costs order nisi that costs of these proceedings
T
be paid by the Plaintiffs to the Defendants (including any costs reserved), T
with certificate for one counsel, to be taxed if not agreed.
U U
V V
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A A
B B
C 104. Lastly, it remains for me to reiterate the helpful assistance C
rendered to this court by Mr. Tom Ng, Mr. Billy Liu, Ms. Vivian Chan,
D D
and Ms. Teresa Yu.
E E
F F
G G
( Alexsander Wong )
H H
Deputy District Judge
I I
J J
Mr. Tom Ng and Mr. Billy Liu, instructed by Robertsons, for the Plaintiff
K Ms. Vivian Chan and Ms. Teresa Yu, instructed by Lo, Wong & Tsui, for K
the Defendant
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M M
N N
O O
P P
Q Q
R R
S S
T T
U U
V V