When can a director appropriate a corporate opportunity for himself? It all depends on the scope of the company’s business. In Cheng Wai Tao v Poon Ka Man Jason,1 the Hong Kong Court of Final Appeal confirmed that the “scope of business” test should be used to determine the boundaries of a director’s “no-conflict” duty, and gave specific guidance as how the test would be applied. In particular, the director must prove that the company is bound by the restriction on its scope of business that she seeks to rely on. This case stands as important authority in the ongoing debate over the scope of a director’s duties, and the applicability of the “scope of business” test to corporate opportunity cases.

Ricky proceeded to open six more Itamae restaurants, each operated by a separate company, with himself as sole shareholder-director.5 Jason and Daisy considered Ricky’s expansion of the restaurant chain to be in breach of the 2004 Agreement, because they were not issued shares in the six new companies incorporated by Ricky. In 2006, Jason and Daisy, through their corporate vehicle Fine Elite Group Ltd, decided to resolve their dispute with Ricky through the “Hero Elegant Agreement”. Under this agreement, the parties would hold shares in Hero Elegant Ltd, and Hero Elegant Ltd and its subsidiaries would manage and operate the Itamae restaurants.6 This compromise soon fell apart. Alleging that Fine Elite had repudiated the Hero Elegant Agreement, Ricky continued to open new Itamae restaurants using separate companies wholly owned by himself. Jason and Daisy brought a derivative action on behalf of Smart Wave against Ricky, alleging breaches of director’s duties.7

The Court of First Instance held that Fine Elite had repudiated the Hero Elegant Agreement, and Ricky had accepted the repudiation; this holding was not subsequently