1. These appeals involved two consolidated actions by Ryder Industries Limited, formerly known as Saitek Limited (“Saitek”) against Timely Electronics Company Limited (“Timely”), both of which are Hong Kong companies, and against Mr Chan Shui Woo (“Mr Chan”), the majority shareholder and director of Timely, as guarantor. The claims were for about HK$6.5 million claimed to be due under a series of agreements between 2005 and 2007 concerning a joint venture for the manufacture of mobile phones in the PRC. The agreements were governed by Hong Kong law, but most of the performance (other than payment) was to take place on the mainland. 2. For the purposes of the agreements, the parties operated a periodic mutual account. By mid-2006, the account was considerably in favour of Saitek, and the sum due had been accruing and unpaid for some time. In March 2007, Timely and Saitek entered into a supplementary agreement and agreed that the net outstanding payable was HK$5,615,394.97 and that Timely would pay the debts before the end of 2007. Mr. Chan personally guaranteed that all outstanding debts would be paid by then. 3. When proceedings were commenced by Saitek, Timely and Mr. Chan resisted payment on the ground that enforcement of the agreements was barred as a result of acts of performance of the co-operation agreement which were illegal under PRC law. 4. The trial judge gave judgment for Saitek. He found that Saitek was involved in the outsourcing of bonded materials for the production of mobile phones in the absence of customs office’s approval required under the relevant PRC law. He nevertheless held that Saitek did not need to rely on the illegality as a basis for the claim and it would be disproportionate to decline to enforce the payment obligation under the agreement because of that breach of PRC law. His decision was affirmed by the Court of Appeal. 5. Timely and Mr. Chan appealed to the Court. The appeals raised the question of the enforceability in Hong Kong of a contract governed by Hong Kong law when it had been performed in the PRC partly in breach of PRC law. 6. The Court held that the trial judge and the Court of Appeal were wrong to have treated the case as if it were purely an internal Hong Kong case, and should have addressed the issues on the basis of the rules of conflict of laws. Under the applicable principles, 6.1 if the performance of a contract requires or necessarily involves conduct which is illegal under the laws of the place where it is required to be performed, it will not be enforced; and 6.2 a contract will not be given effect if the real object and intention of the parties at the time of concluding the contract necessitates them joining in an endeavour to perform in a foreign and friendly country some act which is illegal by the law of such country notwithstanding the fact that there may be alternative modes or places of performing which permit the contract to be performed legally. 7. The Court noted that the principle in paragraph 6.2 above was one of public policy, and that it was not a pre-condition to the principle that the plaintiff was relying on its own illegality. A sufficiently serious breach of foreign law which reflected important policies of the foreign state or separate law district may be such that it would be contrary to public policy to enforce a contract. However, there was no basis in authority or principle for holding that every breach of foreign law would come into this category. 8. The Court therefore rejected Timely’s submission that comity required Hong Kong courts to treat the contract as unenforceable because of incidental breaches under PRC law in its performance. 9. Applying the principles to the facts of the case, the Court held that there was no basis for denying relief because: 9.1 First, there was no suggestion that performance of the contract in accordance with its terms was prohibited by PRC law. 9.2 Second, there was no finding that the parties had agreed to a scheme whereby PRC law would be contravened. 9.3 Third, there was no finding that Saitek always intended to commit the illegality. Even if it had so intended, it would be extraordinary if it could be regarded as contrary to public policy in Hong Kong to enforce a contract because of breaches which the judge found (a) not to be a very serious contravention of the law; (b) not to be conduct which could be described as iniquitous; (c) not to have resulted in actual criminal or enforcement proceedings in the PRC; and (d) to have been mere administrative contraventions. 10. Accordingly, the appeals were unanimously dismissed. Concurring judgment of Chief Justice Ma: 11. Chief Justice Ma observed that it was not necessary to discuss illegality in the domestic context, and he would leave open any detailed discussion of the applicable principles for a case in which the point arises. However, Chief Justice Ma was not in favour of applying the proportionality test as the applicable test for illegality since it appeared to suggest some kind of judicial discretion to be exercised. The question of illegality must be based on firmer principle and policy, although the facts in any given case would inevitably differ.