1.Ricky and Jason were business partners in a chain of Japanese noodle restaurants in Hong Kong under the name “Ajisen Ramen”. Each Ajisen Ramen restaurant was held by a separate company (together, “the Ajisen Group”) in which Ricky, Jason and others held shares. In around 2004, the shareholders of the Ajisen Group decided to go into the sushi restaurant business, and Smart Wave was set up to operate a sushi restaurant under the name of “Itamae”. Ricky is a director and shareholder of Smart Wave. Ricky subsequently went on, on his own, to set up other sushi restaurants, each held by a separate company, being the 2nd to 30th Respondents (the “further restaurants”). 2. Disputes arose between the shareholders and they entered into a shareholders’ agreement known as the Hero Elegant Agreement under which it was intended that Hero Elegant Limited and its subsidiaries would operate the Itamae restaurants and Ricky and Jason (through a company owned by him), amongst others, would be issued shares in the separate companies operating those restaurants. Jason sued for breach of the Hero Elegant Agreement, claiming that Ricky had failed to perform it. The trial judge dismissed that claim, holding that Jason’s company had been in repudiatory breach of the Hero Elegant Agreement. There was no appeal in relation to that part of the judgment. 3. Jason also sued in a derivative action, on behalf of the shareholders of Smart Wave except Ricky, for breach of fiduciary duties owed by Ricky to Smart Wave as its sole director by opening further restaurants. 4. The central question in this appeal was whether, in the events that occurred, the conduct complained of went beyond the scope of the duties owned by Ricky to Smart Wave (“Question 1”). 5. The duty of a director to act in the best interest of the company is a statement of the positive duty of loyalty which encompasses (and is broader than) the conflict rule. The conflict rule provides that a fiduciary may not put himself in a position where his own interest and duties to the company conflict. 6. The majority held that Ricky was in breach of the conflict rule by setting up further restaurants because, in addition to the further restaurants being in competition with Smart Wave, there was the possibility that a business opportunity was diverted from Smart Wave. Furthermore, Smart Wave, as the first restaurant in what was to become a chain of restaurants, had an interest in the establishment and operation of the chain as it developed. The strength of the brand, and its popularity, would redound to its advantage. 7. The majority also held that the agreement between Jason, Daisy Poon (sister of Jason) and Ricky that Smart Wave would be the first of a number of companies, each operating one restaurant, was coupled with an expectation and agreement that they would all be substantial shareholders in each such company (together, the “2004 Agreement”). The Appellant could not rely only on that part of the 2004 Agreement that suits his case. Mr. Justice Ribeiro PJ and Mr. Justice Fok PJ also held that the 2004 Agreement was superseded by the mutual consent between the parties reflected in the Hero Elegant Agreement and, even if it continued to operate, it involved an agreement for the establishment of chain restaurants in which its parties would be able to participate as shareholders rather than an agreement simply allowing Ricky to open further restaurants on his own. 8. All shareholders with a right to vote at a general meeting of Smart Wave may assent to the opening of further restaurants by Ricky, even if those activities breach the conflict rule. However, the majority was unable to find such unanimous assent in this case. There was no direct evidence of any such acquiescence, let alone agreement, by the minority shareholders in Smart Wave authorising Ricky to open the further restaurants. Absent authorisation, Ricky was in breach of his fiduciary duties to Smart Wave. 9. The other question raised in this appeal was, in essence, whether inconsistent conduct or the failure of an alleged obligation to call “contrary evidence” was sufficient to deny the equitable relief which Jason sought on behalf of Smart Wave (“Question 2”). 10. The majority refused to entertain Question 2, since it was only raised for the first time in the Court of Final Appeal; it was not pleaded, nor was the evidence directed to it. Dissenting judgment of Mr. Justice Tang PJ (Mr. Justice Bokhary NPJ agreeing): 11. Dissenting on Question 1, the minority found that since Smart Wave was established pursuant to the 2004 Agreement, any fiduciary duties which Ricky might owe to Smart Wave must be consistent with and conform to the terms of the 2004 Agreement. And because Smart Wave was limited to operating the first Itamae restaurant only, as per the 2004 Agreement, the opening of further restaurants by Ricky would not be in breach of his fiduciary duties owed to Smart Wave. It also followed that the remedy to Ricky cutting the other parties out of their shares in the further restaurants would be contractual, pursuant to the 2004 Agreement, and the breach of the 2004 Agreement has been resolved by the Hero Elegant Agreement. The fact that the Hero Elegant Agreement miscarried by reason of Jason committing a repudiatory breach, through no fault of Ricky, made no difference to the contractual nature of the remedy. 12. The minority also found that the minority shareholders had been allotted shares in Smart Wave on the understanding that Smart Wave was to be the first of a number of companies, each operating one restaurant. In this way, there was understanding between all shareholders of Smart Wave that Ricky could open further restaurants. 13. The minority agreed with the majority that the Court should not entertain Question 2. CONCLUSION: 14. The appeal on Question 1 was dismissed by a 3:2 majority, and the appeal on Question 2 was dismissed unanimously.