(A) Introduction
Friends Food (Hong Kong) Company
Ltd v. Friends Frozen Food Company Ltd and another (DCCJ 1670/2022, date of judgment:
17 April 2026) [1] concerns a dispute arising from a written agreement for the sale
and transfer of a frozen food wholesale business. The Plaintiff claimed against
the Defendants on the grounds of fraudulent representation, breach of contract
and tort of misappropriation and conversion. The Court ultimately ruled in
favour of the Plaintiff. In particular, the Court found that the 2nd
Defendant wrongful actions were deliberate and premeditated and that he had
orchestrated the fraudulent scheme with the clear intention of making a
substantial profit for himself. In such exceptional circumstances, the Court
awarded exemplary damages to mark society's disapproval of conduct it regarded
as wholly unacceptable.
While the contractual framework was
conventional, this case offers valuable guidance in three aspects:
(1) The
trial underscored the decisive evidentiary role of contemporaneous electronic
communications, especially WhatsApp voice messages and text exchanges, which were
useful in undermining the credibility of the witnesses.
(2) The
Court’s meticulous credibility assessment highlighted the dangers of witness
statements that are not the product of independent recollection. Where material
portions of two statements were found to be substantially identical, the Court
declined to accord weight to evidence that did not reflect a genuine personal
account.
(3) The
Court reaffirmed the principles governing the award of exemplary damages in
commercial fraud cases and held that such damages may be deployed where a
defendant’s conduct is cynically calculated to render wrongdoing more
profitable than compliance.
(B) Facts
In
mid‑2021, Yeung Cho Yi (“Yeung”),
who was the sole shareholder and director of Friends Frozen Food Company Limited
(“F Frozen Food”), listed the frozen food wholesale business operated under F
Frozen Food (the “Business”) for sale. The listing was handled by Mr. Sam Shing
(“Shing”). [2]
In July 2021, Mr Mak Wai Cheung (“Mak”) and Mr
Cheung Hoo Kiu Kenny (“Cheung”) noticed
the listing and approached Shing. They subsequently met Yeung for further
discussions. [3] On 20 July 2021, F
Frozen Food, Yeung and Cheung entered into a provisional agreement for the sale
of the Business. [4]
On 31 August 2021, a
formal written contract (the “Contract”) was executed between Friends
Food (Hong Kong) Company Limited (“F Food HK”), F Frozen Food and Yeung. [5]
Pursuant to the terms of
the Contract, Mak paid Yeung a total of HK$1,050,000 as staged payments. On 2
October 2021, Mak paid Yeung a further HK$200,000. [6]
Before the Contract was
executed, Yeung had already taken active steps to set up a competing venture.
In or around the second half of July 2021, Yeung asked Ms. Angel Wong (“Ms.
Wong”) to assist him in establishing a new company, Goodsview Trading Limited (“Goodsview”)
to carry on a frozen food wholesale business similar to that of F Frozen Food. [7]
On 1 September 2021, F
Food HK took over the Business and continued its operations from F Frozen Food’s
existing workshops. [8]
Following
the transfer, and during the period when Yeung was contractually obliged to
assist F Food HK in the transition, Yeung engaged in a series of deliberate
breaches and dishonest acts:
(1) failed to provide a
complete and detailed list of customers and suppliers. [9]
(2) issued a notice to
customers under the name of F Frozen Food which falsely stated that there would
be a mere “change of name” in October 2021, rather than a change of ownership
on 1 September 2021. [10]
(3) instructed customers to continue contacting him
directly and to make payments to him or his wife. [11]
(4) diverted payments
from customers for goods supplied by F Food HK after 1 September 2021 into his
personal account or his wife's account and retained those sums. [12]
(5) actively solicited
F Frozen Food’s former employees and transport drivers to leave F Food HK and
join Goodsview. As a result, most of the staff and drivers departed shortly
after the transfer. [13]
(6) failed to attend
the Food and Environmental Hygiene Department to sign the necessary documents
to transfer the Food Factory Licence to F Food HK. [14]
(7) Goodsview’s frozen food
wholesale business commenced operations in late September or early October
2021. [15]
As a result of the
Defendants’ wrongful acts, F Food HK was unable to continue operating the
Business. [16] In January 2022, Mak sold the tenancies of the workshops, together
with the internal fixtures, fittings, tools and equipment, to a third party
(Ms Yip Sau Ping). [17]
(C)
Decision
The Court’s Assessment of Witness Credibility
The
Court undertook a careful analysis of the oral and documentary evidence as follows:
(1) The Court found Mak and
Ms. Wong to be honest and reliable witness. They gave direct and
straightforward answers when questioned by the Court and under
cross-examination. their evidence (both given orally at trial and in their
statements) was supported by contemporaneous documents, photo records and voice
messages between Yeung and Ms Wong, and between Mak and Yeung. They remained
unshaken after cross-examination. [18]
(2) In contrast, the Court
found that Yeung’s evidence was inherently incredible and/or inconsonant with contemporaneous
records (including screenshots of text messages and transcripts of voice
messages on WhatsApp). [19] Yeung disputed the authenticity of damaging WhatsApp
messages (including voice messages), but maintained this challenge unreasonably
even after the Plaintiff produced screen‑recording video clips demonstrating
the full WhatsApp conversations. It was not until the fourth day of trial,
after Ms. Wong downloaded the original records from her iCloud account, that
the Defendants abandoned their authenticity challenge. Yeung then admitted in
cross‑examination that the records were true and accurate. [20] Further, under
cross‑examination, Yeung made verbal assertions that directly contradicted his
own written statements. [21] The Court concluded that Yeung did
not tell the truth in court. [22]
(3) Although Shing was
presented as an independent witness, the Court found that a great number of
paragraphs in his witness statement were substantially similar and on occasions
identical to the corresponding parts of Yeung’s statement. [23] When cross‑examined
on these similarities, Shing offered no explanation and merely responded “no
comment”. [24] In the absence of any suggestion of collusion and given Shing’s
inability to justify the similarities, the Court was not satisfied that Shing’s
statement reflected his personal recollection. [25] As such, the Court attached
little weight to Shing’s evidence adduced by adoption of his statement. [26]
The Court’s Findings on
Liability
The
Court ruled in favour of the Plaintiff on the following grounds:
(1)
Fraudulent
Misrepresentation
The
Court found that before the execution of the Contract, Yeung represented to Mak
and Cheung that the Defendants would transfer the entire Business and would not
engage in a competing frozen food wholesale business after the transfer. At the
time these representations were made, Yeung had already instructed Ms. Wong to
incorporate Goodsview and set up a competing operation. Therefore, Yeung had no
intention of honouring the representations, knew they were false and made them
with the intention that they be relied upon. [27] Mak and Cheung relied on
those representations and were thereby induced to cause F Food HK to enter into
the Contract. [28] The Court held that the Defendants were liable for fraudulent
misrepresentation. [29]
(2)
Breach
of Contract
The
Court held that the Defendants were in breach of various express terms of the
Contract, including:
(a) Clause
1.2: Failure to transfer the complete customer and supplier base and to provide the
necessary information for follow‑up. [30]
(b)
Clause
2.2: Failure to cooperate in the transfer of the Food Factory Licence. [31]
(c)
Clauses
2.5 and 2.6: Failure to assist in retaining existing staff and transport contractors;
instead, Yeung actively poached them for Goodsview. [32]
(d)
Clause
2.7: Breach of the 84‑month non‑competition covenant by establishing and operating
Goodsview in direct competition with F Food HK. [33]
The Court further held
that, given the nature of the Defendants’ obligations and the Plaintiff’s
vulnerability, a duty of good faith and fidelity was implied into the Contract.
The Defendants’ conduct fell manifestly short of that standard. [34]
As a result of the
Defendants' wrongful acts, in particular the failure to transfer the Food
Factory Licence and Yeung's misappropriation of F Food HK's receivables, F Food
HK was unable to continue operating the Business. [35]
(3) Remedies for Fraudulent Misrepresentation
and Breach of Contract
The Court addressed the available
remedies as follows:
(a) Rescission
of the Contract was held to be inappropriate as the leases for Workshop 1717
and Workshop 2801 had been transferred to a third party and could not be
restored to F Frozen Food. [36]
(b) Given
that rescission was unavailable, the Plaintiff was entitled to damages in lieu,
measured as the actual loss directly flowing from the fraudulent
misrepresentation. [37] The Court also confirmed that, as an alternative basis, the
Plaintiff would have been entitled to the same sum as damages for breach of
contract measured on a reliance basis. [38]
(c) The
Court declined to grant a declaration that the Defendants were in breach of
contract as such a declaration would merely restate the legal conclusion
already reached and would serve no useful practical purpose where the judgment
already awarded damages on that basis. [39]
(4)
Misappropriation
of Receivables
The
Court held that Yeung wrongfully and dishonestly diverted payments from
customers of F Food HK to his personal account or his wife’s account and failed
to account for those sums. [40]
(5)
Exemplary
Damages
The Court found that Yeung’s wrongful
actions were deliberate and premeditated. He orchestrated the fraudulent scheme
in question with the clear intention of making a substantial profit for
himself. [41] A compensatory award of damages to F Food HK is inadequate to punish
Yeung for his egregious conduct. [42] In such exceptional circumstances, the Court
awarded exemplary damages against Yeung to mark society’s disapproval of such
conduct. [43]
(6) Dismissal of the Counterclaim
The
Defendants’ counterclaim for the outstanding contract sum was dismissed. The
Court held that the Defendants’ own breaches disentitled them from recovering
the balance of the purchase price. [44]
(D)
Key
Takeaways
This
case is significant on the following grounds:
(1) Promises
as to Future Conduct Can Constitute Fraudulent Misrepresentation
The Court affirmed that a promise may constitute as a representation as to the
promisor’s present intention regarding future conduct. Accordingly, if it is
shown that the promisor had no intention of performing the promise at the time
it was made, that statement is actionable as a fraudulent misrepresentation.
(2) The
Evidentiary Power of Contemporaneous Electronic Communications
This case underscores the importance of preserving and authenticating original
digital records. WhatsApp voice messages and text exchanges proved decisive in
undermining Yeung's credibility. Notably, Yeung unreasonably challenged the
authenticity of the messages until the fourth day of trial, when Ms. Wong
produced the original records downloaded from her iCloud account. He then
admitted the records were true and accurate.
(3) Witness
Statements Must Reflect Genuine Independent Recollection
The Court held that where the statements of two witnesses are materially
identical, the Court may infer that neither reflects a genuine individual
recollection of events. In the absence of a satisfactory explanation for the
similarities, the Court may attach little weight to those statements.
(4) Restrictive
Covenants in Business Sale Agreements Are Enforceable if Reasonable
The
Court analyzed the enforceability of restrictive covenants from two
perspectives:
(a) A restrictive covenant
against competition given by a vendor on the sale of the goodwill of a business
should be upheld as necessary to protect the subject matter of the sale,
provided it is reasonable in scope and confined to the area within which competition
would be likely to injure the purchaser’s enjoyment of the goodwill acquired.
(b) From a public‑interest
perspective, upholding such a covenant would not prejudice existing customers
or society at large where the transaction merely involves the transfer of an
existing business that will continue to operate.
(5)
Exemplary
Damages are an Available Remedy in Deceit Cases
Where a defendant’s conduct is cynically calculated to make a profit that
exceeds the likely compensatory award, the Court may impose exemplary damages
to mark society's disapproval and to deter similar wrongdoing.
[2]Friends Food (Hong Kong) Company Ltd v. Friends Frozen Food Company Ltd and another (DCCJ 1670/2022, date of judgment: 17 April 2026), §2
[3] Ibid, §3
[4] Ibid
[5] Friends Food (Hong Kong) Company Ltd v. Friends Frozen Food Company Ltd and another (DCCJ 1670/2022, date of judgment: 17 April 2026), §4
[6] Ibid, §6
[7] Ibid, §12
[8] Ibid, §5
[9] Ibid, §133–140
[10] Ibid, §120
[11] Ibid.
[12] Friends Food (Hong Kong) Company Ltd v. Friends Frozen Food Company Ltd and another (DCCJ 1670/2022, date of judgment: 17 April 2026), §168-§169
[13] Ibid, §125-§132
[14] Ibid, §133-§140
[15] Ibid, §39
[16] Ibid, §141
[17] Ibid, §145
[18] Ibid, §§28, 30
[19] Ibid, §35
[20] Ibid, §36-§38
[21] Ibid, §46
[22] Ibid, §47
[23] Ibid, §48
[24] Ibid, §51
[25] Ibid, §54
[26] Ibid, §56
[27] Ibid, §87-§88
[28] Ibid, §93
[29] Ibid, §94
[30] Ibid, §116–§122
[31]Ibid, §133–§140
[32] Ibid, §132
[33] Ibid, §107
[34] Ibid, §109-§115
[35] Ibid, §141
[36] Ibid, §146-§149
[37] Ibid, §150
[38] Ibid, §151-§156
[39] Ibid, §166
[40] Ibid, §171
[41] Ibid, §181
[42] Ibid, §182
[43] Ibid, §183
[44] Ibid, §189–§191
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