BUSI3803 Company Law

Tutorial 1
Focus
 Types of law
 Legal System and company law
 Sources of Law
• Q1.
• What kind of law might be relevant (contract law, tort law, criminal law, etc…). You’d want to
identify if it’s a public law or private law issue or both and what specific forms of law apply.
• For example, for one particular situation, both criminal law and tort law could both apply.
• I will give you some examples/questions which would help you to gain an understanding of the
concept. Before this step, I would like to hear from you some examples. Please be prepared.
• (a) A director has knowingly made a statement of solvency for the company while he knows it is
not solvent.
• contract law/ tort law/ criminal law/company law/business law/ administrative law/ others
• public law/private law
• What causes of action might be brought?
• (b) Long Hair shouted loudly in public places throwing apples to a judge complaining that his
judicial review on a provision of Companies Ordinance has been dismissed.
• contract law/ tort law/ criminal law/company law/business law/ administrative law /others
• public law/private law
• What causes of action might be brought?
• (c) Dennis is an officer of a public company. He failed to file annual return of the company to the
Registry and has been making profits from client’s personal data.
• contract law/ tort law/ criminal law/company law/business law/ administrative law /others
• public law/private law
• What causes of action might be brought?
• Q2.
• What are the sources of law in Hong Kong? Does PRC law apply in HK? Does international law
apply in Hong Kong?

Please refer to the following information derived from the lecture powerpoint and the Basic Law,
and briefly present your views to the class.

There is no burden on you to remember exact wordings of each articles, just grasp the main ideas of
each articles and know how to apply in a question would be more than enough. I will explain in class
to help you go through the major concepts.
 Hong Kong sources of law
Basic Law (what is the Basic Law?)

+ international law?
sources of Law legislation
(Companies + PRC law?
(primary)
Ordinance)

case law (precedent)

What are secondary sources?
2018 **Please refer to lecture powerpoint 2018,p.13 7
On sources of law in HK:
• Basic Law Article 8
The laws previously in force in Hong Kong, that is, the common law, rules of equity, ordinances,
subordinate legislation and customary law shall be maintained, except for any that contravene
this Law, and subject to any amendment by the legislature of the Hong Kong Special
Administrative Region.
On International Law:
• Basic Law Article 39
The provisions of the International Covenant on Civil and Political Rights, the International
Covenant on Economic, Social and Cultural Rights, and international labour conventions as
applied to Hong Kong shall remain in force and shall be implemented through the laws of the
Hong Kong Special Administrative Region.
The rights and freedoms enjoyed by Hong Kong residents shall not be restricted unless as
prescribed by law. Such restrictions shall not contravene the provisions of the preceding
paragraph of this Article.
On whether PRC law applies in HK:
• Basic Law Article 11
In accordance with Article 31 of the Constitution of the People's Republic of China, the systems
and policies practised in the Hong Kong Special Administrative Region, including the social and
economic systems, the system for safeguarding the fundamental rights and freedoms of its
residents, the executive, legislative and judicial systems, and the relevant policies, shall be based
on the provisions of this Law.

No law enacted by the legislature of the Hong Kong Special Administrative Region shall
contravene this Law.
On whether PRC law applies in HK:
• Basic Law Article 18
The laws in force in the Hong Kong Special Administrative Region shall be this Law, the laws previously in
force in Hong Kong as provided for in Article 8 of this Law, and the laws enacted by the legislature of the
Region.
•
National laws shall not be applied in the Hong Kong Special Administrative Region except for those listed in
Annex III to this Law. The laws listed therein shall be applied locally by way of promulgation or legislation by
the Region.
•
The Standing Committee of the National People's Congress may add to or delete from the list of laws in
Annex III after consulting its Committee for the Basic Law of the Hong Kong Special Administrative Region
and the government of the Region. Laws listed in Annex III to this Law shall be confined to those relating to
defence and foreign affairs as well as other matters outside the limits of the autonomy of the Region as
specified by this Law.
•
In the event that the Standing Committee of the National People's Congress decides to declare a state of war
or, by reason of turmoil within the Hong Kong Special Administrative Region which endangers national unity
or security and is beyond the control of the government of the Region, decides that the Region is in a state
of emergency, the Central People's Government may issue an order applying the relevant national laws in
the Region.
On whether PRC law applies in HK:
• Basic Law Article 19
The Hong Kong Special Administrative Region shall be vested with independent judicial power,
including that of final adjudication.
The courts of the Hong Kong Special Administrative Region shall have jurisdiction over all cases in
the Region, except that the restrictions on their jurisdiction imposed by the legal system and
principles previously in force in Hong Kong shall be maintained.
#The courts of the Hong Kong Special Administrative Region shall have no jurisdiction over acts
of state such as defence and foreign affairs. The courts of the Region shall obtain a certificate
from the Chief Executive on questions of fact concerning acts of state such as defence and foreign
affairs whenever such questions arise in the adjudication of cases. This certificate shall be binding
on the courts. Before issuing such a certificate, the Chief Executive shall obtain a certifying
document from the Central People's Government.
On whether PRC law applies in HK:
• Basic Law Article 13
#The Central People's Government shall be responsible for the foreign affairs relating to the Hong
Kong Special Administrative Region.
The Ministry of Foreign Affairs of the People's Republic of China shall establish an office in Hong
Kong to deal with foreign affairs.
The Central People's Government authorizes the Hong Kong Special Administrative Region to
conduct relevant external affairs on its own in accordance with this Law.
On whether PRC law applies in HK:
• Basic Law Article 14
The Central People's Government shall be responsible for the defence of the Hong Kong Special
Administrative Region.
•
The Government of the Hong Kong Special Administrative Region shall be responsible for the
maintenance of public order in the Region.
•
Military forces stationed by the Central People's Government in the Hong Kong Special
Administrative Region for defence shall not interfere in the local affairs of the Region. The
Government of the Hong Kong Special Administrative Region may, when necessary, ask the
Central People's Government for assistance from the garrison in the maintenance of public order
and in disaster relief.
•
In addition to abiding by national laws, members of the garrison shall abide by the laws of the
Hong Kong Special Administrative Region.
Expenditure for the garrison shall be borne by the Central People's Government.
• Q3

• The following case simply demonstrated how a case related to company law started in the Court
of First Instance and made its way through Court of Appeal to the Court of Final Appeal. I will
explain it in class.

• Cheng Wai Tao and Others v. Poon Ka Man Jason (suing on behalf of himself and all other
shareholders in Smart Wave Limited except the 1st appellant) and another [2016] HKCFA 23 Press
Summary (Chinese); (2016) 19 HKCFAR 144; [2017] 1 HKC 463; FACV 17/2015 (1 April 2016)

• http://www.hklii.org/cgi-
bin/sinodisp/eng/hk/cases/hkcfa/2016/23_Press(Chi).html?stem=&synonyms=&query=promoter

• The issues in this case involved part of the important concepts in company law (in some
highlighted words) which you may learn more in progress in the later topics.
• There would be no burden on you since you only need to know the structure of courts and how
does a case rise to the upper level courts.
• Case Brief:
• The Hero Elegant Agreement was dated 16 September 2006. At the time there were a total of 4
Itamae restaurants each held by a separate company, namely, D2 (Smart Wave), D3, D4 and D6.
Three others were opened shortly afterwards.
• Example of a mixed role: A promoter, a shareholder, and a director
• The first Itamae Sushi Restaurant in Tsimshatsui proved to be a huge success. We therefore
proceeded to open more Itamae Sushi Restaurants and Ricky Cheng was again tasked to
coordinate their establishment.
• Case Brief:
• Disputes on allotment of shares and shareholder’s agreement:
• Later, in May/June 2006, he received a fax from Ricky proposing that in respect of these two
Itamae sushi restaurants, Daisy would be allotted 23% and Jason allotted only 7% of the shares
in them. When Jason complained to Ricky about the substantial reduction in his shareholdings
from 10% to 7%, Ricky again said that he would need to allot some shares to other parties to
facilitate the operation of the Itamae sushi business.
• The dispute over the allotment of shares in the subsequent Itamae restaurants led to the Hero
Elegant Agreement.
• Ricky Cheng agreed to allot 23% shares in the other Itamae Sushi Restaurants to Daisy and 8 %
shares to me.
• Case Brief:
• On the use of holding company:
• One of the shareholders and directors Jason said at court:
• 38. … To prevent Ricky Cheng from reneging on this agreement again by failing to allot shares in
future Itamae Sushi Restaurant, we decided that Ricky Cheng should be required to vest the
interests in all existing (save for Smart Wave) and future Itamae Sushi Restaurants in a holding
company and Daisy and I were to be allotted, through Fine Elite, the shares in the holding
company…”
• Fine Elite sought specific performance of the Hero Elegant Agreement against Ricky so that Fine
Elite should hold 31% of the shares in a holding company…
• Case Brief:
• On repudiation of shareholder’s agreement
• Ricky’s defence in HCA 1269/2008 was that Fine Elite had repudiated the Hero Elegant
Agreement and the repudiation had been accepted by him such that he was discharged from
further performance.
• After trial, Mimmie Chan J held in favour of Ricky and dismissed Fine Elite’s claim based on the
Hero Elegant Agreement. There was no appeal.
• Case Brief:
• On derivative action:
• The Hero Elegant Action was heard at the same time as the derivative action which was
commenced by Jason in 2011 (HCA 304/2011). The learned trial judge dismissed the derivative
claim against Ricky in respect of the subsequent Itamae restaurants but ordered Ricky to pay
damages to be assessed in respect of the Itacho restaurants.
• Case Brief:
• On application of Duomatic Principles:
• the Hero Elegant Agreement did not comprise all the shareholders in Smart Wave, so the court
needs to determine if there is informal authorization along the lines envisaged in Re Duomatic
Ltd,[1] arose.
• The starting-point in this appeal is that Ricky Cheng (“Ricky”) owed the usual fiduciary duties of a
director as Smart Wave Limited’s (“Smart Wave”) sole director. The central question was whether,
in the events that occurred, those duties were limited or cut down so as to enable Ricky to open
further restaurants without breaching those fiduciary duties.
• Case Brief:
• On breach of fiduciary duties of a director:
• The starting-point in this appeal is that Ricky Cheng (“Ricky”) owed the usual fiduciary duties of a
director as Smart Wave Limited’s (“Smart Wave”) sole director. The central question was whether,
in the events that occurred, those duties were limited or cut down so as to enable Ricky to open
further restaurants without breaching those fiduciary duties.
• Case Brief:
The case went to the Court of Final Appeal to determine on the issues below:

• 12. The appeal committee granted leave to appeal on the following two questions:
(1) Whether the “no conflict rule” applies to a director of a chain business where the agreed
modus operandi was to have one company for one agreed operation.

• Where the company was of a “limited nature” as found by the Trial Judge, with the agreed modus
operandi of only operating one restaurant, whether the principle set out in In re Duomatic
Ltd. [1969] 2 Ch 365 (“the Duomatic principle”) applies as found by the Court of Appeal;
• Case Brief:
• The Court of Appeal reversed the judge in respect of the Itamae restaurant and ordered that in
respect of the Itacho restaurants, Jason could elect on behalf of Smart Wave for an enquiry into
damages/equitable compensation or an account of profits.