Kishimoto Sangyo Co. Ltd. and Another v. Akihiro Oba and Others
Read the full judgment text of HCA 396/1995 on BabelCite. This High Court CFI judgment was delivered on 6 September 1995.
1. The 1st Plaintiff (Kishimoto Japan) is a large Japanese trading corporation. The 2nd Plaintiff (Kishimoto HK) is a subsidiary of Kishimoto Japan. The Plaintiffs together I shall call Kishimoto. From 1991, when he was seconded from Japan to Hong Kong, the 1st Defendant (Mr. Oba) was managing director of Kishimoto HK until he resigned and left the company on 31st October 1993. During 1993, Mr. Oba was in negotiation with a Taiwanese company, Prime View International Company Limited (Prime View)
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HCA000396/1995 1995 No. A396 IN THE SUPREME COURT OF HONG KONG HIGH COURT ____________
____________ Coram: The Hon. Mr. Justice Barnett in Court Dates of hearing: 8, 9 and 12 - 16 June, 24 - 28 and 31 July, 1, 7 and 10 August Date of delivery of judgment: 6 September 1995 ________________ J U D G M E N T ________________ 1. The 1st Plaintiff (Kishimoto Japan) is a large Japanese trading corporation. The 2nd Plaintiff (Kishimoto HK) is a subsidiary of Kishimoto Japan. The Plaintiffs together I shall call Kishimoto. From 1991, when he was seconded from Japan to Hong Kong, the 1st Defendant (Mr. Oba) was managing director of Kishimoto HK until he resigned and left the company on 31st October 1993. During 1993, Mr. Oba was in negotiation with a Taiwanese company, Prime View International Company Limited (Prime View) which resulted in substantial contracts for Kishimoto to supply equipment to Prime View for a pilot plant for the production of thin film transistor liquid crystal displays (TFT - LCD). The pilot plant was effectively a test bed for Prime View which intended to set up mass production of TFT - LCD (the production project), which would result in even more substantial contracts for suppliers of equipment. 2. Upon his resignation from Kishimoto HK, Mr. Oba joined the 3rd Defendant (BOIS), a company which he had acquired in October. The 2nd Defendant (Mr. Leung) who had been a manager of Kishimoto HK since 1991 left that company in March 1994 and joined BOIS. Both Mr. Oba and Mr. Leung became directors and shareholders of BOIS in November 1993. By January 1994, if not earlier, BOIS through Mr. Oba was in negotiation with Prime View for the supply of equipment for the production project. At the same time, Kishimoto found that its formerly close relationship with Prime View was becoming distant, as were its relations with Japanese companies from which it had acquired and hoped again to acquire equipment for Prime View. 3. From that nutshell of this case, it is easy to see why Kishimoto's suspicions were aroused. After their solicitors on 6th October 1994 had warned Mr. Oba of possible breach of covenant and after a short exchange of letters, Kishimoto issued a writ against the Defendants on 12th January 1995. In response to a summons seeking interlocutory injunctions, the Defendants gave undertakings not to involve themselves in the production project. It was agreed that there should be a speedy trial. The trial came on with commendable speed. 4. By their statement of claim, Kishimoto plead against Mr. Oba : breach of his duty of fidelity; breach of his fiduciary duty; breach of an express agreement made on 31st October 1993 not to use secret or confidential information; and breach of confidence and fiduciary duty after he left Kishimoto by using and disclosing knowledge relating to Kishimoto's dealings with Prime View. 5. Against Mr. Leung, Kishimoto also plead breach of duty of fidelity; breach of fiduciary duty; and breach of confidence and fiduciary duty after leaving Kishimoto. 6. Against both Mr. Oba and Mr. Leung, Kishimoto plead that each induced caused or procured the other to act in breach of his duties. 7. Against BOIS, Kishimoto plead that it induced, caused or procured Mr. Oba and Mr. Leung to act in breach of their duties. Mr. Oba (1) The law. 8. Although various individual breaches of duty have been pleaded, in combination they constitute Kishimoto's real complaint, which is that Mr. Oba diverted or tried to divert to himself or BOIS what has been called a "maturing business opportunity", that is the production project. Kishimoto also claim that Mr. Oba misused confidential information. This claim is in reality part of the main complaint, but is capable of independent life if the main complaint fails. 9. Diversion of a maturing business opportunity is simply one aspect of the principle, which was not in dispute, that a director owes to his company fiduciary duties, which include a duty not to profit personally from his position as director and a duty not to allow a conflict to arise between his duty as a director and his own self interest : Regal (Hastings) Ltd. v. Gulliver [1967] 2 AC 134. 10. The leading authority is Canadian Aero Services v. O'Malley [1973] 40 DLR (3d) 371. Laskin J. delivering the judgment of the Supreme Court said at p. 381 :
11. After canvassing the authorities, the Supreme Court reached the conclusion that a director's fiduciary duty does survive him leaving his company and went on to consider whether what the defendants had done was a breach of such duty. The defendants were the president/chief executive officer and executive vice-president/director. Canaero, principally through the latter officer, did a great deal of investigation, planning and preparation for a possible aerial survey on Guyana, a project likely to be funded by the Canadian Government. At a time when it was "felt the job was a certainty for Canaero", these two officers resigned. Through a company which they had recently set up, they bid for the job when bids were invited by the government and succeeded with their bid. It is hardly surprising that the Supreme Court upheld the trial judge in finding that the defendants were in breach of fiduciary duty. 12. At page 391, Laskin J. said :
13. I make two observations. First, that a director's fiduciary duty to his company survives after leaving the company seems to have been accepted in later cases, for example, Island Export Finance Ltd. v. Umunna [1986] BCLC 460 and Pacifica Shipping Co. Ltd. v. Anderson [1986] 2 NZLR 328. Mr. Stone Q.C., who appeared for Mr. Oba and the other two Defendants, suggested that the ratio of these decisions is rather based upon breach of duty before the director left the company. If there is a continuing fiduciary duty, he asked, what aspects of fiduciary duty continue and where and when do they end. In other words, difficulties of definition preclude a continuing duty. I am satisfied, however, that the concept of continuing fiduciary duty is now well established. It is, in my view, simply an application of the underlying principle that what a person, who was previously in a fiduciary position, can and cannot subsequently do is governed by good conscience. An examination of the facts in each case will demonstrate whether or not the erstwhile fiduciary is acting in good conscience. 14. My second and trite observation is that it is a relatively sterile exercise to trawl through the facts of decided cases. Facts vary infinitely. I do not, therefore, propose to indulge in a minute examination of the authorities cited to me. (2) The issue. 15. The real issue is what was Mr. Oba's true intention between June 1993 and January 1994. This intention is largely a matter of inference. (3) The facts. 16. Kishimoto Japan is a Japanese international trading company. It is of medium size with 100-150 employees at its head office in Tokyo. According to Mr. Kazuo Kawada, a director and head of the international division, it deals in silicon for electronic parts, plastic resins and electronic machines. Its entry into the field of LCD manufacturing equipment, in particular the supply of equipment for the self assembly process (the process), is comparatively recent. It does not make LCDs nor does it make the machinery used for the manufacture of LCDs. As Mr. Takatoshi Masuda, the managing director of Kishimoto HK, put it, it acts as a middleman by matching suppliers or manufacturers of the equipment used for manufacturing LCDs (the suppliers) and a company or person intending to manufacture the LCDs themselves (the customer). Kishimoto buys the equipment and sells it to a customer, making its profit on the difference in price. The actual transaction, however, is considerably more complex. The middleman needs a good understanding of the process so that he can understand and convey the customer's technical requirements to the suppliers. He will liaise between the two sides and arrange the necessary technical co-operation. He also needs a good relationship with the suppliers, there being no one supplier of all necessary equipment for the process let alone the whole production line. Ideally, the middleman will represent more than one supplier so that he effectively provides a package for the customer who has the advantage of dealing contractually at least with only one party. 17. I mention "package" at this stage because Mr. Masuda was taken to task by Mr. Stone for not mentioning anywhere until his evidence-in-chief that he considered as secret or confidential that Kishimoto HK had made up a team of 3 suppliers. Mr. Masuda said he thought that the concept was common knowledge so that he did not bother to mention it specifically either in his affidavit in support of an application for an interim injunction or in his witness statement. I find that wholly understandable. It seems to me to be blindingly obvious that if you have a good team of suppliers, you are halfway to being able to offer a good package when you find another customer in the market. 18. Although the team concept may have been obvious, however, it was not pleaded until I allowed an amendment to the statement of claim at the end of Kishimoto's case. That was somewhat surprising, because one of Kishimoto's major complaints was that in order to try and win contracts for the production project, Oba effectively stole the team which he had put together for the pilot plant and for an earlier project in China for Truly Electronics (Truly). That team consisted of 3 Japanese suppliers or manufacturers of equipment, namely Iinuma Gauge Manufacturing Co. Ltd. (ING), SPC Electronics Corporation (SPC) and Nakan Corporation (Nakan). Collectively, I will call them the team. 19. Kishimoto HK was set up in about 1988 through a Singapore subsidiary of Kishimoto Japan. Mr. Oba was appointed director but carried on as a senior manager for Kishimoto Japan in Japan. Kishimoto HK did little business until Mr. Oba was appointed managing director in 1991 and was seconded to Hong Kong to develop the LCD business. Mr. Oba, who had been with Kishimoto Japan all his working life since 1963, was vastly experienced and already had some exposure to this new business. Once in Hong Kong, not without difficulty, he obtained orders from Truly. 20. The difficulty I referred to was this. Mr. Oba approached ING for a rubbing machine. Mr. Sadayuki Iinuma, the president of ING, had previously done domestic business with Kishimoto Japan and had met Mr. Oba. He was not, however, interested in export business because his company was small and did not then have sufficient resources to deal with export. In the event, ING sold a standard rubbing machine to Kishimoto Japan, but without any technical or other support. Later, a second machine was supplied, this time probably to Kishimoto HK. 21. Truly then wished to set up a production line. Oba again approached ING. Mr. Iinuma introduced Oba to Nakan, which makes PI coaters, and some other manufacturers. In turn, Nakan introduced Mr. Oba to SPC, the manufacturer of the cleaning system. Mr. Takashi Odajima, president of Nakan, was not particularly impressed by Mr. Oba's company. Further, Nakan was not able to deal direct with Mr. Oba because Hitachi Chemicals, with whom Nakan had developed the PI coater, was Nakan's agent. Nakan could, however, deal with ING. Mr. Oba was able to prevail upon ING so that ING acquired the necessary machines from Nakan and SPC and sold these together with its own product to Kishimoto HK. On this occasion, the suppliers attended to the installation of their machines. 22. As a result, in 1992, Kishimoto HK obtained orders worth about ￥ 600 million while Mr. Oba got to know the suppliers, their factories and machines and acquired a deeper knowledge of the process and the machinery involved. Mr. Oba was then thought to be Kishimoto's most knowledgeable person in this field. 23. Mr. Iinuma was sufficiently impressed both by the prospect of overseas business and by Mr. Oba's ability to absorb and convey the respective requirements and specifications of supplier and customer, that he asked Oba to look for and develop opportunities in Taiwan through Hong Kong. In so doing, Mr. Iinuma was not binding ING to Kishimoto HK. Mr. Iinuma made it plain in his evidence, which I accept on this point, that he, like any other supplier or manufacturer, was always open to approaches from any customer direct or any trading company. He said more than one trading company might seek equipment from ING for the same customer. In that situation, ING will give top priority to the trading company which has already obtained an order for equipment, but would also take into account any difficulties in the customer's specifications and the ability and co-operation of the trading company. 24. Mr. Iinuma was slightly dismissive of the trading company's role. He said that the trader has more work if the customer is simply buying standard equipment than where custom made equipment is required. He explained that in the latter situation the trader is simply the channel, while the manufacturer and customer engage in the necessary technical discussions. I think that is rather unfair, and anyway is contrary to the evidence Mr. Iinuma gave about the production project. Mr. Iinuma said that he was not prepared to help Kishimoto Japan in respect of the production project because Kishimoto Japan could not furnish sufficient details of specifications and layouts to enable ING sensibly to consider their request. On the other hand, ING responded to Mr. Oba's contemporaneous request because Mr. Oba did have sufficient information to enable ING to proceed to a meeting with Prime View. So Mr. Iinuma acknowledged both Mr. Oba's ability as well as the skill and work required of a trading company where a custom built production line is required. 25. At about the end of 1992, Kishimoto Japan learnt from its Taiwan subsidiary, Kishisang Company, that Prime View intended to set up the pilot plant. It was agreed within Kishimoto that Kishimoto HK through Mr. Oba and in conjunction with Kishisang should contact both Prime View and suppliers. According to Mr. Kawada, the suppliers, ING and Nakan, regarded Mr. Oba as the LCD specialist and preferred him to help them in Taiwan. It was also agreed within Kishimoto that Kishimoto HK should have a percentage of any profit. 26. At the end of February 1993, Mr. Oba together with Mr. Masuda, who then had some responsibility for overseeing Hong Kong business and Kishisang, visited Prime View and met Mr. S.N. Lee, president of Prime View. After Mr. Lee had explained what Prime View wanted, Mr. Oba made a presentation of the various types of machines available, in particular emphasising the equipment supplied by SPC and Nakan. Mr. Lee was impressed and said Oba should meet Prime View technical people. Mr. Oba then visited the various suppliers in Japan and returned to Prime View in April with the managing director, Mr. Iinuma, and an engineer of ING and representatives of Kishisang. It was discovered that Prime View had no technical knowledge, but wanted to buy equipment and set up a pilot plant for research and development. Mr. Oba was confident of getting orders for the equipment. He advised Mr. Masuda of this. In his monthly report for April to head office, he wrote :
27. In the report, Mr. Oba estimated the value of the contract to be ￥ 140 million. He went on:
28. There, very plainly and very significantly, Mr. Oba was acknowledging a clear intention on the part of Prime View to go into mass production within a space of two years or so. It was an indication that Prime View regarded the pilot plant simply as a step, albeit a necessary step, on the way to the production project. 29. On 21st May, Prime View placed an order for a Nakan PI coater worth US$163,600.00. It followed with an order on 15th June for assembly equipment and jigs worth US$981,000.00. The orders were placed with Kishisang. They were fulfilled by Kishimoto Japan purchasing the equipment and selling it to Kishimoto HK which in turn invoiced Prime View. 30. It should be noted that 15 separate items of equipment were sold to Prime View. Of these, 3 were both manufactured and supplied each by one company, namely SPC, Ayumi Kogyo Co. Ltd. and Yodogawa Kasei Kogyo. The other 12 items were all supplied by ING, of which 8 were manufactured by ING itself and the other 4 by other manufacturers including Nakan, the manufacturer of the PI coater. ING therefore played a considerable role and was an important link for Kishimoto HK. In money terms, Mr. Masuda calculated that ING supplied over US$800,000.00 of equipment, approximately 77% of the total value. 31. Confirmation that Prime View intended to go on to the production project was received by Mr. Kawada when he entertained Mr. Lee in Japan in June. Mr. Lee expressed satisfaction at Kishimoto's specialist co-ordination and said he looked forward to their continued full support. In July, Mr. Kawada visited Prime View and met Mr. Lee who substantially repeated what he had said in Japan earlier. 32. Just before the second order was made, Mr. Oba and Dr. Hu of Prime View signed on 11th June a letter of understanding. The essence of this was that Kishimoto HK would provide machines that would achieve cell gap control of plus or minus three microns. That is the gap between the two glass plates forming each individual LCD cell. Plainly, this document must have influenced Prime View in giving at least the second order to Kishimoto. Effect was given to it by Mr. Yoshiya Wada, an assistant manager in Kishimoto Japan international division. After Mr. Oba resigned, Mr. Wada was asked to carry out work on the pilot plant. He visited Prima View in August with Mr. Oba and Mr. Masuda to make a final check of specifications. Once the machinery had been manufactured and delivered to Prime View in about November, Mr. Wada together with manufacturers' engineers spent ten days at Prime View, from 12th to 22nd December, when the machinery was set up and produced a satisfactory performance. I note that Kishimoto demonstrated a considerable level of commitment to the success of the pilot plant. 33. Shortly after the second order was received, Mr. Oba received a nasty shock. He was told by Mr. Kawada that, although it had been agreed that Kishimoto HK should become involved in Prime View and share any profits, Mr. Kishimoto, the president of Kishimoto Japan, had directed that Kishimoto companies should work within their own areas. Kishimoto HK was responsible for Hong Kong and China. It was not to receive any benefit from the pilot plant, other than a small commission to cover expenses. 34. It is fair to say, I think, that Mr. Oba was outraged. That, at least, was his demeanour when he gave evidence. He could not accept the thinking of top management. He could not accept the disappointment to staff of Kishimoto HK. He decided to resign and gave notice on 7th July to expire on 30th September. He later agreed to extend the date for his departure to 31st October to allow his successor to be found and introduced. Mr. Oba was also rather bitter that neither the president, Mr. Kishimoto, nor anyone in top management asked why he was resigning from the company after 30 years. 35. In July, Mr. Oba went to Japan and there visited various manufacturers and suppliers accompanied by Mr. Masuda. One such visit was to ING. Mr. Masuda said that, on this occasion, Mr. Oba told him he was resigning and asked if Mr. Masuda would consider joining ING to provide it with export expertise. Possibly on the same occasion, Mr. Oba said that if Mr. Masuda did this, "we would most certainly obtain contracts for (the production project)". According to Mr. Masuda, Mr. Oba also mentioned getting involved in an antique business and also said he would set up his own company in Hong Kong. Mr. Masuda thought this over for two or three days because he had some dissatisfaction with his work at the time. He decided against it because he would have had to repay all the expenses laid out for him for a recent traineeship in New York. 36. Mr. Oba, however, said in evidence that there was no such specific conversation in July. He said he told Mr. Masuda he was leaving and why and suggested that Mr. Masuda also might find it difficult to get along with top management and should think of his future. Later in September, when again visiting manufacturers in order to introduce Mr. Masuda as his successor, Mr. Oba said he suggested that Mr. Masuda might quit and think of working at ING where he was highly thought of and where the environment would be good for his young family. 37. The difficulty with Mr. Masuda's account is that he made no mention at all of this incident in his affidavit. He explained that this was because of his sense of obligation to Mr. Oba. Next, in his witness statement, Mr. Masuda said in para. 13 :
38. The only complexion that can be put on that passage is that Mr. Oba was inviting Mr. Masuda to join him in his new company. It was on that basis that Mr. Thomas Q.C. opened for Kishimoto. Mr. Masuda in cross-examination said he meant the offer of a job at ING. 39. It is difficult to see how there could be any confusion about the offer, if any, which Mr. Oba made. Mr. Masuda, however, plainly had and still has a high regard for Mr. Oba and, because of his respect for Mr. Oba, was less than willing to give evidence the effect of which would be to make things difficult for Mr. Oba. So it is understandable, perhaps, that in an effort to mitigate the effect of his evidence as far as possible, Mr. Masuda should have been less than clear and precise in his instructions. Further, Mr. Masuda said that he was able to pinpoint the time when the discussion took place because he had occasion to discuss it with his wife. It is also to be noted that, if the suggestion or offer was made by Mr. Oba in September, there would be less occasion for Mr. Masuda to give it serious consideration because he had by then been identified as the new managing director of Kishimoto HK. 40. Notwithstanding the defects in Mr. Masuda's evidence, and having regard to the manner in which Mr. Masuda gave his evidence which showed considerable deference to Mr. Oba's knowledge and experience, I come to the conclusion that Mr. Masuda has been truthful in his version of this particular incident. Mr. Masuda's evidence was in marked contrast to that of Mr. Oba, which was the evidence of an embittered man and which, when looked at overall, is plainly unworthy of belief. 41. At the end of August 1993, Mr. Oba was visiting Prime View with Mr. Masuda. He took the opportunity to see Mr. Lee privately to explain that he was leaving Kishimoto and why. He said he was probably going to do antique business and had no plan to deal in LCDs, but would be happy to have Mr. Lee's co-operation if he did. 42. At about the same time, an acquaintance, Mr. Yoshihisa Senoo, president of Chiyodo Sangyo Co. Ltd., telephoned Mr. Oba and asked him to bring some Chinese medicine for Mr. Senoo if he was returning to Japan. He may also have mentioned that the Japanese economy was not doing well and he wanted to extend business to China. Mr. Oba said it would be difficult because he was leaving Kishimoto. Mr. Senoo said he would like to see Mr. Oba. In September, Mr. Oba met him and others in Japan. He saw Mr. Senoo early in September when Mr. Senoo said he wanted to start selling his machinery used for making aluminium window frames in China and suggested to Mr. Oba, "Why not do a company". Mr. Oba said in evidence that he did not think it a good idea at the time. The reason seems to have been that he did not then have the capital to invest in a company and he did not want again to be a salaried employee. 43. On 9th September, Mr. Oba visited SPC where he met a number of executives. One of them made minutes of the meeting in exhibit D7. This document was only unearthed by Kishimoto shortly before Mr. Oba began to give evidence. Mr. Oba had the opportunity to speak to SPC by telephone and satisfied himself that it was, in fact, SPC's record. These minutes read :
Matters Discussed
44. Mr. Oba's explanation of these minutes was that it was not a formal meeting with a formal agenda. He paid a courtesy call at which there was general conversation in which he gave a general description of the future. He had started thinking of a new company in Hong Kong, but had no firm plan and no clear picture of who would back him. He expressed a desire to be able to deal directly with SPC, a large public company. He told SPC he thought he could count on technical and financial support from ING in view of their relationship although he had not yet approached ING. He thought if he set up in business, some of the staff he worked with in Hong Kong would approach him and he felt Mr. Leung might come over if he talked to him. 45. I simply note two aspects of this document. First, whatever form the meeting took, Mr. Oba plainly had given considerable thought to his future and had some pretty clear ideas of what he was going to do. Second, the way in which Mr. Oba, a managing director and senior manager, referred to his own employers and the movement of staff was wholly unacceptable. 46. On the following day, 10th September, Mr. Oba with Mr. Masuda visited Mr. Iinuma. Mr. Oba said the visit was to check how the production of equipment was progressing and to introduce Mr. Masuda as his successor. He did not tell Mr. Iinuma of his future plans mainly because he did not have money and also because he felt he did not have the personal basis there, so it would be irresponsible to mention private plans to ING. Mr. Iinuma, however, wanted to celebrate Mr. Oba's departure. 47. I observe that this explanation is rather curious because in-chief Mr. Oba said Mr. Iinuma had spoken to him on every occasion since they knew each other along the lines, "If you could come to us and do our business it would be great". Further, it must by now be plain that Mr. Iinuma had considerable respect for Mr. Oba. However, Mr. Oba also said that Mr. Iinuma was busy on 10th September and asked Mr. Oba to come again when he had more time. 48. Mr. Oba saw Mr. Iinuma again. Mr. Oba explained why he was leaving Kishimoto and said he was going into the antique business with his father-in-law. Mr. Iinuma told him not to do it and suggested he set up a company in which he, Mr. Iinuma, would support him. Again, Mr. Oba did not commit himself. He explained to me that he was not seriously considering a company at the time and had no money. 49. This meeting on about 22nd September obviously crystallised Mr. Oba's thinking. Within the next three weeks, he had raised money from relatives, Mr. Iinuma, Mr. Senoo and Mr. Leung. Mr. Iinuma and Mr. Senoo were each to put up HK$700,000.00, Mr. Leung HK$10,000.00 and Mr. Oba the balance. In the middle of October, Mr. Oba had instructed accountants, Messrs Deloittes, to purchase a shelf company, Drumhill Ltd., the name of which was changed to "BOIS" on 27th October. BOIS was an acronym for Bernett, Oba, Iinuma and Senoo, all of whom except Mr. Iinuma became directors in November. Mr. Oba was also looking for office accommodation. 50. On 27th October, Mr. Oba left Kishimoto HK's office and went to Japan to say his farewells and tie up his affairs. There he was asked by Mr. Yasushi Hieda, a director of Kishimoto Japan who was in charge of personnel and administration, to sign a document called "definite promise". This document is dated 31st October 1993 and reads :
51. In my view, nothing turns on this document which does no more than spell out the constraints which Mr. Oba would be under anyway. One thing it does not do is to spell out that Kishimoto were concerned about Mr. Oba's connection with Prime View. Otherwise, I am satisfied that the document is of no force or effect. Mr. Oba said that when he was required to sign it by Mr. Hieda, it was made plain to him that his retirement benefits would be at risk if he did not sign. Mr. Oba was reluctant to sign because he was not sure of its scope. He took advice and made enquiries. He said he discovered another senior manager had never been required to sign such a document. However, as he wished to leave Kishimoto peacefully, he agreed to sign even though he was then required to write it out in long hand which he did. 52. Mr. Hieda acknowledged in cross-examination that he did tell Mr. Oba that there would be a problem with his benefits if Mr. Oba did not sign. 53. Kishimoto has Confidentiality Rules. Under these Rules company secrets are defined. Article 5(2) of these rules provides :
54. Article 6(5) provides :
55. In my view, the Rules provide a scheme under which specific secrets and information are identified by management, reduced into writing and acknowledged by employees. Mr. Oba complained, and Mr. Hieda confirmed, that no such list had ever been prepared for Mr. Oba. Nor was there any attempt by Kishimoto to identify any specific matters when Mr. Oba resigned. I find in the circumstances that there was no warrant for extracting this promise from Mr. Oba. 56. While he was in Tokyo, Mr. Oba also paid a courtesy call on the president, Mr. Kishimoto. He told Mr. Kishimoto he was going into the antique business. He did not tell him about BOIS. It is, in fact, not in dispute that Mr. Oba did not tell anyone in Kishimoto, apart from Mr. Leung, about BOIS or his plans. He simply told all his colleagues that he was going into the antique business. Mr. Oba explained that he felt he was under no obligation to disclose his plans to Kishimoto, particularly as no one had asked why he was resigning. 57. After tidying up his affairs in Tokyo, Mr. Oba returned to Hong Kong in mid-November to set up his new business. At this time, Mr. Leung, although a director and shareholder of BOIS, remained at Kishimoto HK. This, Mr. Leung explained, was for two reasons. First, there was no actual work for him yet at BOIS. Second, he wanted to help Mr. Masuda with a smooth transition. He denied he stayed on to "keep in touch with what BOIS was doing", that is to spy or to recruit staff. In November, however, two staff members resigned from Kishimoto HK. Their letters of resignation indicated that they were going to other jobs. Mr. Leung said he asked why they were resigning and was told that they had lost confidence. He asked where they were going. Both said they were going to take a rest and one also said he might work for his father. Mr. Leung said in evidence that he did not mention BOIS to them but saw Mr. Oba a few days later and, knowing Mr. Oba would be interested, told him about the two staff who had left. Mr. Oba told him that he would contact them and did so, taking them on at BOIS soon after. 58. A third staff member resigned in January 1994 and also went to BOIS by the same route. 59. Again, somewhat surprisingly, there was no plea by Kishimoto in respect of these three staff members. Mr. Thomas sought to rely on it as evidence only of Mr. Oba's plans and intentions. In my judgment, that is not good enough. A plaintiff must plead all material facts and matters on which he intends to rely. This aspect of the case is plainly a material fact and not something which can be introduced purely as evidence. No application was made to amend. I disregard, therefore, the evidence led on this matter. 60. After setting up BOIS, finding it accommodation and staff, Mr. Oba returned to Tokyo on about 16th December where at home he found awaiting him a Christmas card and calendar for 1994 from Mr. Lee of Prime View. The card contained greetings and the message "We wish you all the best at your new office". Mr. Oba explained that in Japan the appropriate character could simply mean "place of work". Whichever the correct meaning I attach no importance to it. Mr. Lee knew Mr. Oba was leaving Kishimoto and was no doubt simply being polite. Mr. Oba, however, said that he phoned Mr. Lee to thank him. Mr. Lee asked if Mr. Oba was dealing in LCDs and, when Mr. Oba said yes, invited Mr. Oba to Taiwan. Mr. Oba said in evidence that he thought he should first introduce his company and, on his return to Hong Kong, sent a fax (the fax) to Mr. Lee. 61. In the meantime, Mr. Wada together with Mr. Kono, an engineer from ING, had been at Prime View between 12th and 22nd December, setting up the equipment and thus giving effect to the letter of understanding. During this visit, Prime View confirmed what had been said on an earlier visit, that they were going to set up a mass production line. Mr. Wada first heard this from Dr. Hu who indicated that there would be a budget of ￥ 12 billion, ￥ 8 billion being for the production line of which the process formed part. Prime View wanted a proposal from Kishimoto. Wada was then given by Dr. Wu, who was in charge of LCD production, a one-page document which Mr. Wada described as a letter of intent. It reads,
62. To try and put this rather sketchy document into effect, Mr. Kono consulted Prime View engineers and received a flowchart to show the process. This was another basic and rather general document which Mr. Wada described as of not particular significance. 63. At about the same time, on 16th December, an article appeared in a Taiwan newspaper about the proposed production line. Copies of all these documents were sent to Mr. Iinuma. Mr. Iinuma's reaction was that far more detailed technical specifications were required before any decision could be made to get involved in the production project. He did not think there was any need to rush or panic. His only reaction was to send a copy of the article to Mr. Senoo as he did not want to go to the trouble of finding Mr. Oba. 64. Returning to the fax. This was dated 23rd December although sent on 22nd December. It was not discovered until very late and only after Kishimoto obtained copies of BOIS international fax records. Mr. Oba explained that he had forgotten about it and had had to get a copy from Taiwan as he could not find one himself. Indeed Mr. Oba had trouble in finding copies of any relevant faxed documents at that time. 65. The fax was addressed to Prime View for the attention of Mr. Lee and reads :
66. The fax speaks for itself. However, as I understood Mr. Oba, it was no more than mere puff because he had not discussed the contents with anyone and was far from having any formal backing from the equipment suppliers. Mr. Oba said, and in this he was supported by Mr. Iinuma, that they had not yet communicated either as to how BOIS should represent ING or about the production project. Perhaps more surprisingly, Mr. Odajima, who had become extremely friendly with Mr. Oba, said he did not learn until December that Mr. Oba had left Kishimoto HK and was then only told about Mr. Oba's intention to go into antiques, not about the new company. Both Mr. Iinuma and Mr. Odajima, however, said they would have agreed to what was said in the fax if asked. 67. While Mr. Oba was gearing up for his bid to get the Prime View business, Kishimoto Japan was doing the same. Mr. Kawada ordered contact to be made with the team and other suppliers so that estimates and a layout could be made. Indeed, he was also being asked for these by Kishisang. 68. On or about 7th January 1994, Mr. Kawada visited ING and entertained Mr. Iinuma at local hotsprings. He asked Mr. Iinuma for layout and specifications and for an engineer to go to Prime View. Mr. Iinuma's response was at best half-hearted. He said that ING was too busy to be able to send an engineer to Prime View. He could not provide specifications until Prime View had indicated what design they wanted. He did, however, provide specifications of equipment previously supplied to Kishimoto Japan. Mr. Iinuma took the view that Prime View now had sufficient experience to decide what they wanted and that Kishimoto Japan should be able to put more specific proposals to him. Mr. Kawada felt that Prime View could not yet do this and that Kishimoto Japan needed help from its suppliers to be able to formulate a proposal. 69. At the same time, Mr. Wada had had equal lack of success in obtaining assistance from suppliers. On 13th January, he prepared a quotation for Prime View which he described as a "ball park figure". Between then and 14th February, Mr. Wada wrote a series of letters to Prime View, giving specifications for what he described as "basic sample models" and apologizing for being unable to give proper specifications because of difficulties he was having with manufacturers. 70. Later in January, Mr. Iinuma visited Kishimoto Japan where Mr. Kawada spoke to him with equal lack of success. Mr. Iinuma apparently expressed anxiety as to whether Kishimoto Japan could really do Prime View business without a specialist, such as Mr. Oba. Mr. Kawada said that Mr. Wada and Mr. Masuda were learning and that Kishimoto Japan would hire a specialist to strengthen their position. A specialist, Mr. Iwasa, was in fact employed in August 1994. On neither occasion in January, when Mr. Kawada and Mr. Iinuma spoke, did Mr. Iinuma mention BOIS. 71. On 10th January, Mr. Oba went to Prime View. He met Mr. Lee and staff and introduced BOIS and its shareholders. At this point, Mr. Lee asked Mr. Oba to sign a confidentiality agreement. After reading it, Mr. Oba signed and was then given details of Prime View's plan which revealed the enormous dimension of the project. 72. Mr. Oba returned to Japan and arranged for a meeting at SPC's office, attended by Mr. Iinuma, Mr. Odajima and Mr. Ichikawa of New Long, another manufacturer. He explained about his visit to Prime View, in particular, what he had learned of their budget and schedule. According to Mr. Iinuma, Mr. Iinuma adopted a wait-and-see attitude at the meeting. He wanted to see what other trading companies were doing and to do his own research. Mr. Odajima, however, was more optimistic. He said that when he learned Mr. Oba had started to deal in this business, he felt sure he would get Prime View contracts. After the meeting, he went on dealing with Mr. Oba and BOIS to try and get Prime View business. 73. The result of the meeting, anyway, was that by 4th February, Mr. Oba was writing to Prime View making arrangements for representatives of ING and SPC to visit Prime View. Mr. Iinuma was unable to attend the first visit in February but went on a later visit in March. By that stage, he was constrained to concede that ING, if not other suppliers, had decided to go with BOIS. In contrast, although Kishimoto Japan also visited Prime View, they did not have the co-operation of any suppliers. According to Wada, they faced up to the fact that they were not going to get any response from the team and decided not to pursue contracts to supply their equipment. Instead they focused on other areas, in particular, an LCD filling machine manufactured by Ayumi and a cassette handler made by Yodogawa. In 1995, Kishimoto Japan obtained contracts for both these sets of equipment at prices of ￥ 47 million and ￥ 78.4 million respectively. Mr. Oba and BOIS, however, withdrew from all negotiations in January 1995 as a result of this case and an undertaking then given. (4) Conclusion. 74. In my view, the facts and events which I have set out speak for themselves. While individual matters are susceptible of innocent explanation, taken together they require no great penetration to reveal an interest and purpose on the part of Mr. Oba to place himself in pole position when it came to bidding for the production project. 75. I accept that Mr. Oba's resignation was prompted only by what he perceived to be lack of support and unfair treatment by top management in Kishimoto Japan and that it was not in anyway contrived as, for example, the resignation in Industrial Developments Consultants v. Cooley [1972] 1 WLR 443 where a managing director represented dishonestly that he was in ill health. What I cannot accept, however, is that Mr. Oba had no intention of forming his own trading company until after the various meetings he had with suppliers in September 1993. Accepting, as I do, the evidence of Mr. Masuda, it is clear that Mr. Oba had this in mind by June or July. By the beginning of September when Mr. Oba met SPC, the idea had largely crystallized. Even if Exhibit D7 is the product of casual conversation, it nonetheless demonstrates that Mr. Oba had already been thinking closely on the matter. 76. Nor can I accept that Mr. Iinuma and Mr. Oba had no contact about Prime View before the meeting at SPC on 12th January 1994. From the outset, the production project was something rather more than a "gleam in Prime View's eye" and was potentially very lucrative. Mr. Iinuma was a relaxed and engaging witness. I am unable to believe, however, that he was as relaxed about BOIS and Prime View as he would have me believe. The idea that, despite his shareholding in BOIS, he was happy to leave Mr. Oba to set up the business and did not expect anything much to happen for a time defies belief. As Mr. Iinuma said about the newspaper article, "I had high hopes and thought about it". Inevitably, it seems to me, he would have been in contact with Mr. Oba. 77. Equally unacceptable is Mr. Odajima's protest that until 12th January 1994, he knew nothing about BOIS, only that Mr. Oba was leaving Kishimoto. These two men were close friends. Mr. Odajima's evidence was that when he learned in December that Mr. Oba was leaving Kishimoto, he said it was a great pity and asked whether Mr. Oba could somehow sell Nakan's machines. Mr. Oba said the could not do it at that stage. Mr. Odajima did not press Mr. Oba. Yet it was in December that Mr. Oba wrote the fax to Prime View. I particularly noticed that Mr. Odajima was uncomfortable when being questioned about this. 78. I am, therefore, satisfied and so find that at about the time when he resigned from Kishimoto, Mr. Oba conceived the idea of setting up his own trading company through which he would bid for the production project and decided to woo the team to give himself a head start in the bidding. I am also satisfied that he deliberately cultivated Mr. Lee of Prime View, hoping for a sympathetic reception for his bids. 79. As far as the production project is concerned, I accept two matters. First, the pilot plant and the production project were very different in scale and complexity. The pilot plant consists of free standing manually operated machines designed to produce a few LCDs each day in order to give the customer an opportunity to learn and assess the technology involved. The machines are standard machines from off the shelf. The production project, however, was likely to be fully automatic and designed to produce several thousand LCDs per day. The equipment involved had to interface to ensure smooth operation, was much larger and more complex. It had to be custom made. Co-operation by the suppliers or manufacturers was therefore essential. 80. Second, Prime View called for bids for the production project. The project involved, therefore, a separate and distinct contract or series of contracts for the supply of equipment. It was hardly surprising that Mr. Stone characterized the production project as calling for a fresh initiative on the part of Mr. Oba by the use of his own skill and knowledge. 81. Initially I was attracted by Mr. Stone's argument. After giving careful thought, I come to the conclusion that it is not correct to consider the production project in isolation. The correct approach is to look overall at what had been happening since Kishimoto first learned of the Prime View business. Kishimoto HK, admittedly through Mr. Oba, worked hard to secure contracts for the pilot plant anticipating, correctly as it turned out, an opportunity for more valuable orders in the foreseeable future. After June 1993 when Kishimoto HK was directed to withdraw from Taiwan business, Kishimoto Japan worked equally hard to ensure the success of the pilot plant. Mr. Kawada entertained Mr. Lee and in turn visited Mr. Lee in Taiwan. Mr. Wada visited Prime View several times, particularly in December 1993 to supervise the successful installation and operation of the pilot plant equipment. 82. Immediately it became known at the end of December 1993, that Prime View were going to proceed with the production project, Kishimoto Japan began to approach suppliers including the team with a view to preparing quotations for Prime View. It was at that point that Kishimoto Japan found their erstwhile suppliers showing a less than enthusiastic response. 83. As Mr. Thomas said, the production project was a rare opportunity on which Kishimoto had been working for some months. I am satisfied that, but for the activities of Mr. Oba, Kishimoto Japan had justifiable expectations of getting a significant number of contracts for the project. While the pilot plant and the production project were separate and distinct in terms of equipment and scale, in reality they formed part of an overall scheme on the part of Prime View. This scheme was evident from an early stage and it was with this scheme in mind that Kishimoto prepared and bid for the pilot plant, expecting to carry on with similar preparation for the production project without any real break in continuity. 84. Accordingly, I find there was a maturing business opportunity which was diverted from Kishimoto Japan by Mr. Oba. I say Kishimoto Japan because it is Kishimoto's own case that Kishimoto HK was not to pursue Prime View business. The pursuit was carried on by Kishimoto Japan. Insofar as Kishimoto HK was deprived of a business opportunity, it was deprived by Kishimoto Japan. (6) Relief. 85. I give judgment, therefore, for Kishimito Japan against Mr. Oba for damages to be assessed. Early in the trial, it being apparent that because of the speed at which the trial had come on, Kishimoto at least was not in a position satisfactorily to deal with quantum, I ordered damages to be dealt with separately. Mr. Thomas submitted that I should at this stage assess by way of a percentage figure what the impaired chance of a business opportunity was, an approach adopted in Sanders v. Parry [1967] 1 WLR 753 and Industrial Developments Consultants v. Cooley [1972] 1 WLR 443. Mr. Stone objected on the ground that there was insufficient evidence available for me to be able to determine a figure. I believe, however, I can and should do so. 86. The team was not contractually bound to Kishimoto Japan. Their enthusiasm at least initially was for Mr. Oba rather than for Kishimoto itself. But Kishimoto Japan worked hard after Mr. Oba decided to resign and Mr. Wada in particular was accumulating experience. Kishimoto Japan was also prepared to engage a specialist and indeed did so. Kishimoto Japan also plainly established a relationship with Prime View and Mr. Lee. 87. I also note that the trading company plays a lesser role in setting up an automatic production line because of the need to interface between individual items of equipment. Of the meeting at SPC in January 1994, Mr. Odajima said that the team, as a normal procedure, had a preliminary discussion on what kind of layout to adopt. It was normal, he said, to suggest a layout. So this they did and soon after were ready to accompany Mr. Oba to visit Prime View. Yet if I understood Mr. Iinuma correctly, he was effectively saying that this is what he expected of Kishimoto Japan. He said of the meeting on 7th January with Mr. Kawada that he could not understand what line and equipment Prime View wanted. Absent Mr. Oba's activities, I see no reason why the team, of whom Mr. Iinuma was plainly the leader, would not have co-operated with Kishimoto. 88. I note that two suppliers of equipment for the pilot plant, Ayumi and Yodogawa, retained their faith in Kishimoto and were rewarded with contracts for their equipment. 89. There are, of course, other manufacturers and suppliers of equipment in this field. There are other trading companies no doubt equally adept at putting together a team and offering a customer a package. And a customer can always deal directly with a manufacturer, as seems ultimately to have been the case with Prime View and Nakan in respect of the production project. But in all the circumstances, it seems to me that when bids were being sought at the end of 1993, Kishimoto were well placed to get substantial business. I determine, therefore, that Kishimoto's impaired chance was 50% and damages are to be assessed on that basis. 90. Although misuse of confidential information was separately pleaded, the information sought to be protected was particularized as :
91. Insofar as the information was confidential, that information formed part of Kishimoto's real complaint against Mr. Oba, namely the diversion of a business opportunity. Although much of that information was obtained in Mr. Oba's capacity as managing director of Kishimoto HK, I do not consider it necessary or appropriate to make an independent finding of liability in favour of Kishimoto HK. (7) Breach of duty. 92. Mr. Oba was, however, in breach of his duty of fidelity and his fiduciary duty towards Kishimoto HK. Although such breaches were all pleaded in the context of Prime View, I think the following stand independently:
93. These breaches prevented Kishimoto HK from isolating Mr. Oba from dealing with Prime View or the team, and from taking steps generally to ensure that he could not damage Kishimoto HK. 94. In spite of Mr. Stone's submission that damages were not pleaded at large, I am satisfied that paragraph 16 of the amended statement of claim is sufficient to encompass an independent award for these breaches. 95. I find for Kishimoto HK and give judgment for damages to be assessed. In all the circumstances, it seems likely that such damages will be nominal. It is for consideration by Kishimoto HK whether they are worth pursuing. 96. I also find Mr. Oba caused Mr. Leung to act in breach of his duties to Kishimoto HK and give judgment for damages to be assessed. Mr. Leung 97. Mr. Leung was simply a follower of Mr. Oba. He had earlier been recruited by Mr. Oba. Having seen and heard him give evidence, I absolve him of any real complicity in Mr. Oba's plans in relation to Prime View. He is probably a good office manager and was wanted by Mr. Oba for that rather than any particular business acumen. 98. Mr. Leung, as manager of Kishimoto HK, was plainly, however, in breach of his duty of fidelity. In particular, the following breaches :
99. Accordingly, I give judgment for Kishimoto HK against Mr. Leung for damages to be assessed. BOIS 100. Kishimoto Japan have no independent complaint against BOIS. Their cause of action depended upon the cause of action against Mr. Oba. As I have found Mr. Oba to be precluded from usurping the Prime View business opportunity, BOIS is similarly bound. Injunction 101. The final issue is whether I should grant the injunctive relief sought against all Defendants restraining them from taking part in the Prime View business. Mr. Stone submitted that no such relief should be granted because the mischief at which it was aimed is now spent, and because of the delay by Kishimoto in commencing proceedings against the Defendants. 102. There was evidence that there is still one contract for equipment to be let. Certainly, any opportunity that may remain for obtaining business from Prime View should be denied to the Defendants. I do not find that there was any such delay as to prevent me from exercising my discretion in favour of Kishimoto Japan. I grant an injunction, therefore, in the terms in which it is sought but with the deletion of the words "or any person or company associated with Prime View". Those words having the effect of making the relief far too wide. 103. I will hear counsel upon the question of costs and other directions in due course.
Representation: Mr. Michael Thomas Q.C. & Mr. Godfrey Lam instructed by Lovel White Durrant for Plaintiff. Mr. William Stone Q.C. instructed by Deacons for Defendants |
Cases cited in this judgment