Invoking Pallant v Morgan to secure the right to participate in a proposed new venture

Alan Hoo v Benjamin Lung ([2007] 3 HKLRD 169, CA) concerned a proposal to establish an Italian restaurant in Shanghai. The plan was to replicate a successful Italian restaurant in Hong Kong. There had been three shareholders of the company that owned the Hong Kong restaurant. They fell out and the shares in the company through which they ran the Hong Kong business were sold to another company.The three shareholders then entered into an agreement with each other pursuant to which H (one of the shareholders) would have ‘not more than 30% beneficial interest’ in a new company to be set up to pursue the Shanghai project. Offers were later made to H to allow him to participate but they were not acceptable to him. H sought, among other remedies, an injunction to prevent the use of the name of the Hong Kong restaurant in Shanghai and damages for breach of contract and breach of fiduciary duty or an account of profits. H argued that at the time of the relevant agreement, the plans for the Shanghai restaurant had been at an advanced stage but that they had subsequently been departed from in significant ways that made participation unattractive.

The claim for breach of contract failed for the simple reason that, properly understood, the agreement gave H no say in whether or how the Shanghai project was to be executed. H also sought to invoke the Pallant v Morgan equity. The Court of Appeal considered the elements of the equity as identified by Chadwick LJ in Banner Homes. None of them were satisfied in this case. Any pre-acquisition agreement there may have been had been superseded by the later formal written agreements between the parties. It was not envisaged that any of the parties to the agreement would acquire the Shanghai property; rather a new company was to acquire the property. H had been offered the opportunity to participate; he had turned these offers down without making any counter-offers. He claimed that this was because the concept had changed from that which he had expected but the concept was work in progress and liable to change. (Perhaps this is significant if the ‘concept’ is considered to be the relevant property. The Court of Appeal would then be saying that even the loose definition of the property required by Pallant v Morgan had not been satisfied).


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