Tbc International (HK) Ltd v. Chan Kwok Sum Sam and Another

HCA010671A/1995

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Coram: The Hon. Mr. Justice Waung in Chambers

Date of Hearing: 22 November 1996

Date of Handing Down of Judgment: 24 March 1997

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JUDGMENT

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1. By its Summary Judgment Application, the Plaintiff seeks judgment against the Defendants of the sums found due, upon the taking of account of the transactions entered into by the Defendants and the profits made by the Defendants from such transactions.

2. The Plaintiff herein is TBC International (HK) Limited. TBC in the name of the Plaintiff stands for Tin Box Company which is the short form of the name of The Tin Box Company of America Inc., the American parent company of the Plaintiff. I will hereinafter refer to the Plaintiff as the "HK/TB" and its parent company, The Tin Box Company of America Inc. as the "US/TB". The business of both HK/TB and US/TB were and are in tin boxes. The business of HK/TB was and is to market, promote, sell and distribute in Hong Kong goods in decorative tin boxes of all shapes and sizes. At all material times, Mr. Michael Roth ("Roth") was a director of the HK/TB and a Vice President of the US/TB. Roth however was not resident in Hong Kong.

3. From the time when HK/TB first started its business in 1987 up to the 1st of September 1995, the 1st Defendant ("Chan") was employed by HK/TB. Chan as a senior employee and manager of HK/TB, was the most senior resident employee of HK/TB in Hong Kong during all the years from 1987 to 1995. Chan was responsible for the overall management and day to day running of the Plaintiff's business affairs. It is the case of the Plaintiff that the duties of Chan included very significantly, the duty to pass on to the Plaintiff company all business opportunities and/or other relevant information coming to Chan relating to the sale or possible sale of decorative tin box goods.

4. Unknown to HK/TB, Chan had acted against the interests of the HK/TB and had set up a rival company, the 2nd Defendant, Yee Ngai Company ("Chan Company") which engaged in the decorative tin box goods business, in competition against HK/TB. Prior to July 1993 when he started the Chan Company, Chan apparently traded under the name firstly of Tin's World & Package Co. and secondly, Samco. What Chan did was to take advantage of his position and redirect business, which should belong to the Plaintiff, to Chan's own company. The case of Catimex is a prime example of Chan's exploitation of his position.

5. At the hearing before me, much of the alleged case of the Plaintiff is not disputed by the Defendants and having regard to the overwhelming weight of the evidence, they are really incapable of being seriously disputed. In a brave struggle to resist the Summary Judgment application, Mr. Lam Shun Chiu for the Defendant summarised the defence as consisting of:-

6. The contention that Chan was not in a position of responsibility is totally devoid of merit and is in the face of overwhelming evidence to the contrary. He was the first employee to be taken on in Hong Kong by HK/TB when it first started business. After HK/TB expanded in Hong Kong, he became the overall manager. Different employees were responsible for different areas such as accounting, artwork/colour separation, shipment scheduling and quality control but it was Chan who was responsible for overseeing the employees of HK/TB and running of the Hong Kong business. Hong Kong and the neighbouring China were places of production for HK/TB and US/TB and Chan was the man to ensure that production were properly done for the Plaintiff and that the business of the Plaintiff was carried on satisfactorily. In my view there is therefore no substance in the contention that Chan was not in a position of trust or responsibility.

7. The function of Chan in HK/TB as I understand it was multifold and certainly not limited to either production or acting as liaison between HK/TB and US/TB. I do not understand how it could be compatible for Chan to be the top man in Hong Kong and yet only be confined to the alleged narrow duties of production and liaison between HK/TB and US/TB. It might be asked rhetorically that if it was not Chan who had overall control of HK/TB including the matter of sales enquiries, then who in the Plaintiff company in Hong Kong had that duty and responsibility. It is of course true that it was not amongst Chan's duties to carry out sales negotiation or to effect sales on behalf of HK/TB. He had no such authority from HK/TB to do so. But it was the duty of Chan to pass on to the Plaintiff and specially to Roth any sales inquiry or matters relating to potential sales. This was part of the marketing functions of HK/TB. This was what Chan deliberately failed to do and the reason for his failure is that he had diverted possible business away from the HK/TB and channelled all possible sales enquiries to his own company. The diversion was deliberate. The purchases by Catimex Co. Ltd. ("Caltimex") from the Chan Company as discovered by Roth (see paragraph 15 of Roth's 1st Affidavit and paragraph 12 of Roth's 3rd Affidavit) was a prime illustration of such diversion. The critical question at the hearing is whether Chan owed any fiduciary duty to his employer HK/TB as there could be little doubt that if he owed such fiduciary duty, he broke it. In my view, it is clear that Chan was in a fiduciary relationship with HK/TB and that a fiduciary duty was owing by Chan to HK/TB. I find therefore against Mr. Lam on his third objection namely that no fiduciary duty was owing by Chan to HK/TB.

8. The last submission of Mr. Lam is that Chan could in his spare time do what he did, namely to work with the manufacturer Yee Hing. The evidence shows clearly and there is not much dispute between the parties that HK/TB had engaged the Hong Kong manufacturer Yee Hing to manufacture and produce the various tin boxes and it was in the capacity of Chan as the manager of HK/TB that there were constant dealings between Chan and Yee Hing. What happened was that Yee Hing upon being approached by customers wanting tin boxes, referred these potential customers to Chan and instead of Chan passing on to HK/TB the potential purchase inquiry, Chan pursued this potential business himself through his own company, the Chan Company. The fact that this potential business or actual business arose out of the spare time of Chan or at the office of HK/TB (if those allegations are believed) is not really relevant. If Chan was under a fiduciary duty then it makes no difference as to when or where Chan was offered this work or obtained this business. What he was not supposed to do was to take advantage of his position and this was what he did. There is no dividing line for someone with this fiduciary obligation between on-duty fiduciary obligations and off-duty fiduciary obligations. This fourth objection of Mr. Lam has no substance and does not help the Defendants.

9. This is a case where over a long period of time and deliberately, Chan while being a trusted employee of the Plaintiff company had abused his position and created secretly his own business and his own Chan Company and benefited substantially from such activities. The Cooley judgment demonstrates that it is not necessary to show that the employer would have done the order if it had not been diverted. The prerogative of the employer is to do what it likes with an order which might come to the employer and the employer can exploit the business himself or give it to someone else to develop. But what is not permissible is for the employee to take away that potential business from the employer. What the law required is simply that a senior employee while so employed, must devote the whole of his services to his employer and not to allow his personal interests to come into conflict with his duty or with the interests of the employer. I have no doubt that Chan was in breach of his fiduciary duty and in the circumstances, there must be summary judgment against the Defendants. I make an order in terms of the Draft Order handed up to me by Mr. Remedios at the hearing. The Plaintiff is also to have the costs of the Summary Judgment application.

Representation:

Mr. Leo Remedios instructed by Messrs Stevenson, Wong & Co. for the Plaintiff

Mr. Lam Shun Chiu instructed by Messrs C.C. Lee & Co. for the Defendants