Kao Lee & Yip (A Firm) v. Donald Koo Hoi Yan and Others

HCA 8847/1993

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION OF NO. A8847 OF 1993

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Coram: Hon Ma J in Court

Dates of Hearing: 22 - 25 April 2002, 6 - 7, 14, 17 and 21 May 2002

Date of Judgment: 2 April 2003

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J U D G M E N T

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Facts

1.Kao Lee & Yip, the Plaintiff in this action ("KLY") and Koo & Partners ("K & P") are two of the most well known solicitors firms in Hong Kong. They are headed by extremely capable and ambitious lawyers, KLY by Mr Emmanuel Kao ("Kao") and Mr Yip Wan Tak ("Yip"), and K & P by Mr Donald Koo, the 1st Defendant in these proceedings ("Koo"). This action is about the time when Koo was a partner in KLY from 1989 to 1993. The 2nd to 6th Defendants were assistant solicitors in KLY (apart from the 5th Defendant who was a trainee solicitor). In the background to the disputes between the parties in this action, was the Bank of China ("BOC"), a major client of KLY.

2.KLY was founded in 1981 by Kao, Yip and Ms Mabel Lee. Koo first joined KLY as an assistant solicitor in April 1985, then aged about 32. Within three months, he was made a partner of the firm. A Deed of Partnership was entered into between Kao, Yip and Koo on 29 June 1985 (Ms Lee had left the firm on 22 November 1984). In September 1986, Koo left KLY to join BOC as an in-house counsel. His employment with BOC commenced in November that year. It is fair to infer that he was very successful in that position.

3.Such was his success with BOC that in 1988, he was asked by Kao and Yip to rejoin KLY. At that time, the partners of KLY were Kao, Yip, Pauline Li and Alexa Cheung. Koo agreed to do so with effect from 1 January 1989. A new Deed of Partnership dated 16 December 1988 was made between Kao,Yip, Pauline Li, Alexa Cheung and Koo ("the Deed of Partnership").

4.The following provisions in the Deed of Partnership are of note:-

(1) Kao and Yip were described in the Deed as the "Founding Partners".

(2) Clause 7(b)(iv) set out the shares in the partnership: out of 1,000 shares, Kao and Yip had 350 shares each and Li, Lam and Koo had 100 shares each.

(3) By clause 8(a) thereof, it was stated that the Founding Partners would have absolute discretion in determining the accounting and financial policy and basis of partnership.

(4) By clause 9 thereof, it was stated that the powers and management and conduct of the affairs of the partnership would vest in the Founding Partners absolutely, but the other partners would be consulted on matters of policy or major decisions affecting the partnership or its practice.

(5) Under clause 10, it was stated that the Founding Partners could introduce or admit any other person or persons to be a partner or partners on any terms that they thought fit without the consent of, but after consulting, the other partners.

(6) Clause 13 stated:-

"Any Equity Partner [this included Koo] shall not during the continuance of the partnership either alone or in conjunction with any other person engage directly or indirectly in any trade or business other than the partnership practice except with the consent of the Founding Partners."

(7) Clauses 15(a) and (b) stated:-

"15. Each Partner shall at all times:

(a) show the utmost good faith to the other Partners or Partner in all matters relating to the partnership;

(b) conduct himself in a proper and responsible manner and use his best skill and endeavours to promote the partnership business;"

These clauses, together with clause 13 are relied on by KLY in this action.

(8) Clause 16(b) was a restraint of trade clause dealing with the solicitation of clients after a partner ceased to be such. This restraint of trade clause was the subject of interlocutory injunction proceedings earlier in the history of this action. I shall refer further to this below.

5.It can thus be seen from Deed of Partnership that Kao and Yip controlled the firm. This had always been the position and Koo was no stranger to that. Not only did he agree to abide by the terms of the Deed of Partnership, the earlier Deed of Partnership dated 29 June 1985 contained similar provisions as to Kao and Yip's control of accounting and financial policy and the management and affairs of KLY.

6.In 1990, Koo's equity in KLY was increased by Kao and Yip.

7.On the 1 July 1992, Pauline Li left the firm whereupon Koo took over the running of the banking and finance department within KLY as well as becoming head of litigation there.

8.The 2nd, 3rd , 4th and 6th Defendants joined KLY as assistant solicitors on various dates in 1991. Apart from the 6th Defendant who was in the firm's conveyancing department, the other Defendants joined the banking and finance department. The 5th Defendant joined in August 1991 as a trainee solicitor. I shall deal with the 5th Defendant's position presently. Suffice it to say for the time being that the claims against her were abandoned by KLY in the course of this trial.

9.In the case of the 2nd to 6th Defendants, the written terms of their employment were contained in letters of employment which set out, as pleaded by KLY, terms regarding confidentiality.

10.Before Koo joined (or rather rejoined) KLY, as I have said, he was employed as an in-house counsel at BOC. When he joined KLY, it was agreed between him and Kao and Yip that he would continue to work as in-house counsel to BOC. After he joined, Koo initially worked three mornings a week at BOC's offices, later reduced to two mornings a week.

11.In November 1992, Koo met Lam Kwong Siu, the Deputy Chief Executive of BOC's Macau Regional Office. On behalf of BOC, Mr Lam sought advice from Koo as to how best to enlarge the in-house legal department of the BOC Regional Office so as to better serve the Bank of China Group. The BOC Group at that time comprised various banks.

12.Koo's advice to Mr Lam was effectively that if BOC engaged solicitors as employed solicitors (i.e. employed by BOC), BOC could then provide legal services to its clients through these solicitors and charge accordingly. The employed solicitors would then be paid the fees from the clients and these fees could be set off against the solicitors' salaries paid by BOC.

13.Following Koo's advice, in mid-December 1992, BOC decided to set up the BOC Legal Services Centre ("the Law Centre"). This was announced by BOC in January 1993. Koo was asked to establish the Law Centre. Mr Li Shu Feng and Mr Zheng Zhen Wu were assigned by BOC to assist Koo in establishing the Law Centre.

14.It is clear that Koo intended to head the Law Centre himself and was in fact asked to do so. Accordingly, on 13 December 1992, Koo gave 12 months' notice to quit KLY pursuant to clause 19 of the Deed of Partnership. This period of notice was later (in June 1993) reduced so as to take effect from 1st October 1993. In giving notice to quit the partnership, Koo did not tell either Kao or Yip that he had been asked to set up the Law Centre on behalf of BOC. Nor did he tell them of the advice he had given to BOC. All he did was to tell Yip that he was returning to work in BOC as in-house counsel.

15.In the first half of 1993, Koo then helped BOC recruit suitable lawyers for the Law Centre. He recommended the 2nd, 3rd ,4th and 6th Defendants to BOC and they were accordingly invited to join the Law Centre which was to be set up . Over the course of May to July, these Defendants gave notice resigning from KLY. Their last dates with KLY were, respectively, 4 October 1993 (the 2nd Defendant), 15 September 1993 (the 3rd Defendant), 29 September 1993 (the 4th Defendant) and 31 August 1993 (the 6th Defendant).

16.In July 1993, however, BOC changed its mind about setting up the Law Centre and abandoned the idea. What then transpired is best described by referring a passage in the third Affirmation (dated 14 January 1994) served by Koo in relation to the interlocutory injunction proceedings in this action:-

"In mid-July 1993, I was informed by Mr Li [Shu Feng] that because of external pressure the BOC Regional Office had to abandon the idea of an inhouse Law Centre. I was shocked by this news as I had already resigned from the Firm for the specific purpose of heading the in house Law Centre. There was also the position of the other solicitors who had been recruited by BOC to work in the Law Centre. Mr Li and I discussed how the Law Centre could be replaced to the satisfaction of BOC and since the BOC Regional Office wanted to use the services of a friendly outside law firm I decided to form a new firm and this was done with the support of BOC."

17.This passage assumes considerable importance in the present case, providing one of the main causes of action asserted by KLY against Koo.

18.The law firm set up by Koo was of course K & P. The partners of this firm were Koo and the 2nd, 3rd, 4th and 6th Defendants. The 2nd Defendant joined the partnership on 7 October 1993. The others commenced their partnership on 1 October 1993, the date K & P commenced practice. The relevant Partnership Agreement is dated 30 September 1993, the last day that Koo remained as a partner of KLY.

19.In the months leading up to the commencement of business of K & P, various preparatory steps were taken by the Defendants:-

(1) A service company, K & P Services Limited ("KPSL") was incorporated on 14 July 1993. The initial subscribers were Koo and the 3rd Defendant. The witness to their signatures on the Memorandum of Association and the Articles of Association of KPSL, was the 2nd Defendant who did so in his capacity as a solicitor using KLY's address. On the same date, the 2nd Defendant also signed a Declaration of Compliance pursuant to the Companies Ordinance, again in his capacity as a solicitor practising at KLY's offices. His signature was witnessed by the 4th Defendant in this capacity as well. This Declaration stated that KPSL was "presented by" KLY.

(2) The first directors of KPSL were staff of KLY who later joined K & P but who at the time they became directors were still working for KLY.

(3) A share certificate dated 28 July 1993 certified that the 3rd Defendant was a shareholder. On the 16 September 1993, the 4th and 6th Defendants applied to take one share each in KPSL. A share certificate dated 17 September 1993 recorded the 2nd Defendant as being a shareholder of that company. On the same date, Koo transferred one share of the company to the 4th Defendant. With the exception of the 6th Defendant, whose last day with KLY was 31 August 1993, at all material times, the other Defendants were still with KLY.

(4) When K & P commenced practice, they did so from premises situate at 22nd floor, Bank of China Tower, 1 Garden Road. The lease for those premises between BOC as the landlord and K & P as the tenant was dated 2 November 1993, but the tenancy was stated in the lease to take effect as from 16 July 1993.

(5) Over the course of July to September 1993, a number of meetings of the Board of Directors of KPSL were held at these premises. There is a minute of an extraordinary general meeting of the company that was held at 10 a.m. on 19 September 1993, attended by the 2nd, 3rd, 4th and 6th Defendants, at which they were elected additional directors. At this time, the 2nd and 4th Defendants were still working at KLY.

(6) On 6 August 1993, KPSL made offers of employment to five members of staff working for KLY (these staff had been employed by that firm through KLY's service company, Kaley Limited) at the time. The names of these five staff members (who were either conveyancing staff or secretaries) appear in paragraph 22C of the Re-Re-Re-Re Amended Statement of Claim (I shall hereinafter simply refer to this document as the Statement of Claim). The details pleaded there are admitted by the Defendants, save for those in relation to a Ms Choy Man Ki. Other former employees of KLY also commenced work for K & P on 1st October 1993.

(7) Finally, I draw attention to clause 6.1 of the Partnership Agreement of K & P dated 30 September 1993:-

"There is no initial capital of the Partnership. The set up and initial operating expenses of the Partnership shall be by way of a loan facility obtained from Bank of China, Hong Kong Branch to which all the Partners shall be jointly and severally liable."

20.As I have said, on 1 October 1993 K & P commenced business. On 2 October 1993, the present action was commenced by KLY, initially against the 1st to 4th Defendants. The 5th and 6th Defendants were later joined by amendments made on 20 October 1993.

The present litigation

21.Following the issue of the Writ in the present action, the Plaintiff immediately sought an interlocutory injunction against Koo seeking to restrain him from employing solicitors formerly with KLY (meaning the 2nd to 6th Defendants) and soliciting clients of KLY. The relevant clause in the Deed of Partnership was clause 16(b) referred to earlier, which was a restraint of trade clause. Mayo J dismissed the application on 21 January 1994. KLY appealed. This appeal (heard by Godfrey JA and Kaplan and Leonard JJ) was dismissed with costs on 23 August 1994 (the judgment is reported at [1995] 1 HKLR 248). The Court of Appeal held that the restraint of trade clause was unenforceable. An application for leave to appeal to the Judicial Committee of the Privy Council was dismissed by the Court of Appeal on 26 October 1994 (see [1995] 1 HKLR 261).

22.KLY then petitioned for special leave from the Privy Council. On 13 March 1995, this was dismissed.

23.Anton Piller relief was also sought in relation to certain documents that the Defendants allegedly took away from KLY's premises. This was resolved by undertakings giving to Court to deliver up, contained in an Order of Stock J made on 30 September 1993. I shall have to refer to this Order later in this judgment.

24.Discovery took place in 1996. From about mid-1996 to 2001, there was very little activity in this action. In 2001, steps were taken to prosecute the proceedings. Further rounds of discovery took place. Eventually, the trial of the action commenced before me on 22 April 2002, culminating on 22 May 2002.

25.At trial, Mr Kenneth Kwok SC and Mr Ashley Burns appeared for KLY, Mr Gerard McCoy SC, Mr Kevin Patterson and Ms Winnie Lau for the Defendants.

KLY's claims in this action

26.The Statement of Claim in this action has been amended five times. The present version, as noted above, is the Re-Re-Re-Re Amended Statement of Claim, for which leave was given during the trial (on 6 May 2002). The claims which were in existence at the start of the trial when Mr Kwok opened KLY's case bare scant resemblance to the claims in the Statement of Claim as originally pleaded. Apart from perhaps two claims, the other claims were introduced only at the stage of the Re-Re Amended Statement of Claim (made on 30 July 2001) and the Re-Re-Re Amended Statement of claim (made on 27 March 2002).

27.I have already mentioned the position of the 5th Defendant. She had been engaged as a trainee solicitor when she joined KLY in August 1991. She was joined in the present proceedings by an amendment made to the Writ on 20 October 1993. However, out of the blue, after the mid-morning break on the 2nd day of trial, Mr Kwok announced that the action against the 5th Defendant would be abandoned. No explanation was proffered as to why this decision had been taken after 81/2 years of litigation against her. That is perhaps for another day (in particular when the question of costs is resolved). For the time being, I will just record the fact that there is no longer any proceedings against the 5th Defendant. When I refer hereinafter to the 2nd to 6th Defendants, this will exclude the 5th Defendant.

28.In summary, KLY makes the following claims against the Defendants, (excluding the 5th Defendant of course):-

(1) As against Koo, it is alleged first that he was in breach of his fiduciary duties owed to the other partners of KLY and in breach of clauses 13 and 15(a) and (b) of the Deed of Partnership, in advising and assisting BOC in the establishment of the Law Centre, which was contrary to KLY's interests. He was further in breach by his assisting in the recruitment of the 2nd to 6th Defendants (including the 5th Defendant) for the Law Centre. The fiduciary duties are set out in paragraph 6 of the Statement of Claim. (Claim 1: Koo's liability as regards the Law Centre)

(2) As against Koo, KLY also alleges he was again in breach of his fiduciary duties and the Deed of Partnership by failing to persuade BOC to use the services of KLY (or even informing the other partners) when BOC decided to abandon the idea of establishing the Law Centre and instead use the services of a "friendly outside law firm". On the contrary, Koo decided to form a new firm with the support of BOC and this led to the formation of K & P. (Claim 2: Koo's liability for diverting BOC work to K & P)

(3) Thirdly against Koo, it is alleged that in the period from 25 November 1992 to 30 September 1993, Koo neglected the firm's practice to the extent of some 117.5 hours a month. In his closing, Mr Kwok narrowed the ambit of his claim to the period from November 1992 to July 1993, a period of 81/2 months, claiming the sum of $3,102,000 as damages. (Claim 3: Koo's liability for neglecting KLY's practice)

(4) As against the 2nd to 6th Defendants, KLY claims they were in breach of their fiduciary duties by failing to inform KLY of Koo's activities in relation to the setting up of the Law Centre. The gravamen of the allegation seems to be that they should have informed the other partners of KLY of Koo's breach of fiduciary duty and of the Deed of Partnership. (Claim 4: The 2nd to 6th Defendants' liability for failing to inform KLY regarding Koo's activities in advising or assisting in the establishment of the Law Centre)

(5) As against all the Defendants, KLY alleges that they all breached their fiduciary duties (against Koo, also a breach of the Deed of Partnership) by taking preparatory steps in the setting up of K & P during the time they were still in partnership (in the case of Koo) or in the employment of KLY (in the case of the other Defendants). This claim relates to the activities in July to September 1993 referred to in paragraph 19 above. KLY also claims, as far as the 2nd to 6th Defendants are concerned, that by taking these preparatory steps they were also competing with KLY. (Claim 5: The Defendants' liability in taking preparatory steps in setting up K & P)

(6) Also against all the Defendants, KLY maintains the claims that were originally made in relation to the removal of documents by the Defendants, these documents allegedly belonging to KLY. These documents have been particularized in the Further and Better Particulars of the Statement of Claim. The claim is put on the basis of a breach of fiduciary duties as well as of the Deed of Partnership (in the case of Koo) and the relevant contracts of employment (in the case of the 2nd to 6th Defendants), and conversion. (Claim 6: The Defendants' liability for removal of documents)

(7) In terms of the relief sought for the alleged breaches, Mr Kwok made it clear his client was not claiming anything other than nominal damages in relation to the breaches (save for Claim 3), but sought an account of profits against all Defendants. (Claim 7: Account of profits and damages)

29.Before analysing these claims in detail, I should first say something about the evidence in this action, and deal with the applicable law relating to fiduciary duties.

The evidence before the Court

30.Only Kao gave evidence in the trial. He has also provided a Witness Statement which was served on the Defendant and this was treated as part of the evidence in chief. While giving evidence, Kao verified the contents of the Witness Statement. In the course of his testimony, Kao also referred to certain parts of some previous Affidavit evidence he had provided and these parts also formed a part of the evidence before the Court.

31.Reference was also made by KLY in the trial to certain parts of the Affirmation evidence provided by Koo, specifically his 3rd Affirmation dated 14 January 1994 made in the interlocutory proceedings which I have earlier referred.

32.Mr McCoy for the Defendants made reference to the Affidavit evidence in the bundles before me and I have likewise taken them into account. There are also a number of documents in the bundles before me and these have also been taken into account.

33.The finding of facts I make in this judgment (and the facts referred to in the section headed "Facts" above are also to be treated as findings of fact) are based on the pleadings (where admissions have been made), the testimony of Kao and the documents (including affidavit evidence) I have been referred to by both parties in this trial.

34.None of the Defendants gave evidence. In these circumstances, adverse inferences may be more easily drawn against them and correspondingly, any inferences favourable to KLY can more confidently be drawn as well:- see Polaroid Far East Ltd v Bel Trade Co Ltd [1992] HKLR 447 at 454; Jones v Dunkel (1958-1959) 101 CLR 298. This is of course providing that the rest of the evidence allows such inferences to be drawn and that such evidence is credible in the first place.

Fiduciary Duties

35.In the classic work Finn: Fiduciary Obligations (1977), the learned author begins by saying it is meaningless to talk of fiduciary relationships as such. This is because it is almost impossible to give a precise and satisfactory definition and the courts have not attempted this. The starting point, therefore, in the examination of the extent of the duties in law owed by persons alleged to be fiduciaries, is not to attempt a definition but instead to identify the essential characteristics of a fiduciary relationship.

36.It is clear that the essence of a fiduciary relationship is one of trust and confidence (or, to use another common term, good faith) between the fiduciary and the person whom I shall hereinafter refer to as the beneficiary. In the present case, the 'fiduciaries' are the Defendants and KLY, the 'beneficiary'. Traditionally, some relationships have always been regarded as giving rise to a fiduciary relationship: solicitor and client, trustee and cestui qui trustent, employer and employee, principal and agent, partners.

37.In Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, at 96-7, Mason J classified the critical feature of these fiduciary relationships as being that "the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical way". In short, the person classified as a fiduciary is placed in a position of trust and confidence in relation to the beneficiary, who is in a position of 'vulnerability' (in the sense that he has to rely on and trust the fiduciary to look after his interests). The term 'vulnerability' was a term used by Mason J in the above case.

38.On this basis, the categories of fiduciary relationships can never be exhaustively defined. Other relationships which at first sight may not appear to be fiduciary relationships, may be regarded as such depending on the facts: banker and customer, siblings, amongst others. The relationships that are under scrutiny in the present case, however, do not pose any problems in terms of identification as fiduciary relationships. They clearly are. In other cases, problems may arise.

39.I am concerned with two types of relationships: (1) partnerships (KLY and Koo) and (2) employer and employee (KLY and the 2nd to 6th Defendants). There is no doubt that these are fiduciary relationships giving rise to fiduciary duties.

40.In the case of partners, this is one of the classic fiduciary relationships. The duty of good faith between partners can be traced to Roman law. The standard required of partners in this regard is high. In the 5th edition of Lindley on Partnership (1888) (reproduced in Lindley & Banks on Partnership (18th edition) at paragraph 16-01), Lord Lindley put it thus:-

"The utmost good faith is due from every member of a partnership towards every other member; and if any disputes arise between partners touching any transaction by which one seeks to benefit himself at the expense of the firm, he will be required to show, not only that he has the law on his side, but that his conduct will bear to be tried by the highest standard of honour."

41.In Helmore v Smith (1886) 35 Ch.D. 436, at 444, Bacon V-C said:-

"If fiduciary relation means anything I cannot conceive a stronger case of fiduciary relation than that which exists between partners. Their mutual confidence is the life blood of the concern. It is because they trust one another that they are partners in the first instance; it is because they continue to trust one another that the business goes on."

42.More often than not, however, the precise obligations owed by partners to one another are set out in a written agreement and fiduciary obligations are frequently set out in such a document. In the present case, clauses 13 and 15(a) & (b) of the KLY Partnership Deed (referred to above) involve fiduciary obligations.

43.Similarly, in the case of employees, fiduciary (as well as other) duties owed to the employer are also sometimes set out in written form in the contract of employment. I have already referred to those clauses regarding confidentiality in the employment contracts between KLY and the 2nd to 6th Defendants.

44.What then are the duties peculiar to fiduciaries generally and to solicitors (whether in partnership or employment) specifically?

45.It has first to be recognised that not every breach of duty by a person in a fiduciary position amounts to a breach of fiduciary duty. In other words, a fiduciary can owe fiduciary obligations in relation to a part of his duties but not other parts: see New Zealand Netherlands Society 'Oranje' Inc. v Kuys [1977] 1 WLR 1126, at 1130 per Lord Wilberforce. Fiduciary duties are those duties which are peculiar to fiduciaries with the consequence that any breach will attract legal consequences and remedies differing from the breach of other duties: see Bristol and West Building Society v Mothew [1998] Ch. 1, at 16-18. Thus, for example, the duty of a trustee not to profit from his office is clearly a fiduciary duty (arising from his being in a position of trust). On the other hand, the breach by the trustee of the skill and care expected of him (say, where he has acted negligently or incompetently in making an investment) is not the breach of a fiduciary duty. The difference between the two types of duty is not, as Millett LJ observed in Mothew, mere semantics. It has direct relevance to the remedies available to a plaintiff upon establishing breach. The relevance of this can clearly be seen when I come to consider the question of relief under Claim 7.

46.The distinguishing or core obligations of a fiduciary is that of loyalty (or fidelity) and good faith: see Mothew at 18. A number of aspects of these core obligations emerge:-

(1) The duty not to place himself in a position where his or anyone else's interests would or may conflict with duties owed to the beneficiary ("the Non-Conflict Duty").

(2) The duty not to make a profit from his position ("the Not to Profit Duty").

47.These duties are critical in any fiduciary relationship. They have been described as 'inflexible' (by Lord Herschell in Bray v Ford [1896] AC 44, at 51) and 'fundamental' (by Lord Upjohn in Phipps v Boardman [1967] 2 AC 46, at 123).

48.Generalities aside, it is important to recognise that how these duties are applied to the facts in any given case can only be determined by reference to the nature and character of the particular relationship in question: see Birtchnell v Equity Trustees, Executors and Agency Co. Ltd. (1929) 42 CLR 384, at 408 per Dixon J (a passage cited with approval by the Privy Council in Kuys). For example, there are many different types of solicitors' firms. In some firms, the solicitors are partners or solicitors work solely for the firm. In others, some of the partners and solicitors may also work for other firms. How these fundamental fiduciary duties are to be applied in any given case will depend on factors such as the contents of the relevant partnership deed or contract of employment or the way in which the firm's activities are carried out. Thus, for instance, the contractual bargain between the parties may qualify, one way or another, the extent or rigour to which the fiduciary duties will be applied: c.f. Hospital Products Ltd. at 102. As the learned authors of Meagher, Gummow & Lehane: Equity (3rd edition) put it at paragraph 515, "Where a fiduciary relationship arises out of the terms of an express contract, a trust deed, a partnership agreement or some other instrument which defines the duties and powers of the fiduciary, regard obviously will be had to the terms of the contract or instrument for the purpose of determining the scope of or ambit of the fiduciary's undertaking".

49.Although in discussing these two duties, I have dealt with them separately, this is largely for convenience. It should be borne in mind that often, they overlap. Breaches of one duty may well also constitute a breach of other duties.

50.I first deal with Non-Conflict Duty, that is the duty on the fiduciary not to place himself in a position where his or anyone else's interests would or possibly may conflict with those of the beneficiary. There is an obvious overlap between this duty and the Not to Profit Duty. The words "possibly may conflict" involve an objective test meaning that a reasonable man looking at the relevant facts would think there to be a real sensible possibility of conflict: Phipps v Boardman [1967] 2 AC 46, at 124 (per Lord Upjohn).

51.The following facets of the Non-Conflict Duty assume importance in the present case (in relation to Claims 1, 2 and 5):-

(1) Where the fiduciary has dealings with a third party, specifically a client or customer of the beneficiary. This arises for example in the case of solicitors when there are dealings or contacts with the firm's clients. Here, the aspect of conflicts of interest feature prominently, whether as between the fiduciary's interests and those of the beneficiary, or even as between the client's interests and the beneficiary's interests. This situation is relevant to Claims 1, 2 and perhaps 5.

(2) Where the fiduciary is contemplating leaving the beneficiary or is planning to do so, whether to set up on his own in competition with the beneficiary or joining others in such a venture. This is relevant to Claim 5.

52.In respect of the first of these situations (i.e. dealing with the beneficiary's customers or clients), a common occurrence is where the fiduciary obtains information from a client or customer that is relevant to the interests of the beneficiary. Here, the fiduciary is under a duty to pass this on to the beneficiary and not keep it to himself or for his own personal interests even where such information may have been received by the fiduciary in his private capacity: see Industrial Development Consultants Ltd. v Cooley [1972] 2 All ER 162, at 173-175 (this report contains the facts unlike the report in the Weekly Law Reports). Equally, for instance, where the client or customer approaches the fiduciary encouraging him to terminate his relationship with the beneficiary so that the client can then pass on his business to the fiduciary after he leaves, the fiduciary will be under the same duty to inform the beneficiary of this: see Sanders v Parry [1967] 1 WLR 753. In Sanders, a client of the plaintiff (a solicitor running a sole proprietorship) had approached the defendant fiduciary (an assistant solicitor employed by the plaintiff) with a view to giving the defendant his business were he to set up on his own. Further, like the present case, the client also intended to lease premises to the defendant.

53.In the case of partners, the obligation is further spelt out in s.30 of the Partnership Ordinance Cap. 38 which states that "Partners are bound to render true accounts and full information of all things affecting the partnership to any partner or his legal representatives".

54.I have so far dealt with a fiduciary's duty to speak out and inform the beneficiary where matters involving clients are concerned (this being the relevant position in the present case). However, it should be recognised that the duty of course extends to all matters involving the beneficiary's interests.

55.I now deal further with the situation where an outside party (in the present case a client of the beneficiary) engages or seeks to engage or involve the fiduciary in some venture or transaction in his personal capacity. Here, the fiduciary may well find himself in a position where there exists a real conflict of interest. In this situation, what is clear is that the fiduciary must not act for the benefit of that outside party to the detriment or possible detriment of his beneficiary, unless the beneficiary's informed consent is given: see Mothew at 18. It may even transpire that the fiduciary has in effect more than one principal, therefore owing fiduciary duties to more than one person. One common example of this is where a solicitor or estate agent acts for both vendor and purchaser in a conveyancing transaction (and, as will be demonstrated, this was the position facing Koo when BOC first approached him in relation to the setting up of the Law Centre). In this situation, the fiduciary must proceed with extreme caution because the possibility (verging on probability sometimes) of a massive conflict of interest. The constant reminders by the Court in relation to solicitors acting for both vendor and purchaser in a conveyancing transaction is founded on this principle.

56.Where the fiduciary faces a situation where there is a conflict between the respective interests of his principals, he may be unable to fulfil his obligations to one principal without failing in his obligations to the other. In such a situation, he may have no alternative but to cease to act for one or the other. The preferable view is that he should cease to act for both: see Mothew at 19.

57.A special problem however arises in the case of partners or employees who are contemplating leaving their present partnership or employment or who have served a notice of termination (the second of the situations referred to in paragraph 51 above). How far are they, while still being in partnership or employment with the firm, permitted to make arrangements for their future? In the present case, the Defendants are all alleged to have made preparations for their future while still employed or in partnership at KLY. The following principles offer some guidance here:-

(1) Certainly, a fiduciary will not be able to use the time during which he was meant to be working for the beneficiary to be working for his own and anyone's else's interests: see, for example, Wessex Dairies Ltd. v Smith [1935] 2 KB 80. In other words, he must not use 'company' time other than for 'company' purposes.

(2) The difficulties arise when considering what the fiduciary mayor may not do in his spare time. The statements which follow deal particularly with this situation.

(3) Here, generally, a fiduciary is entitled to use his spare time for whatever activities he chooses to indulge in, as long as these are not inconsistent with the fiduciary duties he owes to the beneficiary or in direct competition with the beneficiary's interests: see Hivac Limited v Park Royal Scientific Instruments Limited [1946] 1 Ch. 169. Thus, for example, what is commonly called 'moonlighting' will be acceptable as long as this does not conflict with the duties owed to the beneficiary or with his terms of employment.

(4) The making of arrangements in his spare time during a person's employment to compete with the employer after termination of employment does not necessarily always involve a breach of duty: see Hospital Products Ltd. at 105; Laughton v Bapp Industrial Supplies Ltd. [1986] ICLR 245; CMS Dolphin Ltd. v Simonet [2001] 2 BCLC 704, at paragraph 108. The rationale for this is that while a fiduciary does owe the beneficiary a duty of fidelity (and it could of course be argued that making arrangement for his future, whether or not in competition with the beneficiary, is contrary to the beneficiary's interests), it must also be recognised that a fiduciary (usually an employee or a partner in a firm) should be able to make preparations for and look to his future as long as this is kept within reasonable limits. To suggest otherwise would amount to an unjustifiable restriction on a person's freedom to work. It is, however, a question of degree.

(5) The authorities demonstrate that it will not be a breach of duty for the fiduciary merely to evince an intention to leave and set up in competition with the beneficiary: see, for instance, Balston Ltd. v Headline Filters Ltd. [1990] FSR 385 at headnote (1), 404. The taking of some preparatory steps is permissible.

(6) But, what are those limits? It will in every case be a question of fact and degree whether or not in taking preparatory steps for his future whilst still in a fiduciary relationship, a fiduciary will be found to have been in breach: c.f. Hivac Limited at 175. Mr. Kwok for his part does not suggest the rule is absolute in every case. The cases here are not really of great assistance in my view and must be treated with some care. What was or was not permissible in some cases may not apply to all situations. Ultimately, they are fact sensitive and involve matters of degree. The circumstances of each case will vary. I give some examples merely to illustrate some common situations:-

(a) The well known case of Robb v Green [1895] 2 QB 1 contains an important passage in the judgment of Hawkins J at first instance, at 15,

"In what I have said I do not intend to convey that while the contract of service exists a person intending to enter into business for himself may not do anything by way of preparation, provided only that he does not, when serving his master, fraudulently undermine him by breaking the confidence reposed in him. For instance, he may legitimately canvass, issue his circulars, have his place of business in readiness, hire his servants, etc. Each case must depend on its own circumstances."

The case went on appeal where the judgment below was upheld: see [1895] 2 QB 315. That passage quoted above was referred to in Balston where the qualification was made that by the employee being able to canvass customers for his future occupation, this meant customers other than the beneficiary's customers. In Balston, it is perhaps also worth noting that the fiduciary in that case took preparatory steps by consulting solicitors and accountants, approaching banks for finance and looking at premises. These steps were regarded as being permissible: see Pg.404.

(b) In another case, employees informing suppliers of nuts and bolts used by their employers that they intended starting up a rival business (and so the suppliers were clients in that sense) after they ceased their employment and accordingly asking for details of products, were held not to be breaches: see Laughton v Bapp Industrial Supplies Ltd.

(c) In yet another case, while it was accepted that seeking employment with another employer or taking preliminary steps to set up his own business may have been acceptable, the employee went too far: see Lancashire Fires Ltd. v SA Lyons and Co. Ltd [1997] 1 IRLR 113. There, the fiduciary concerned had taken quite advanced steps in setting up his own business whilst still employed by the plaintiff. He not only saw a client but also asked the client for financial assistance.

(d) Marshall v Industrial Systems & Control Ltd. [1992] IRLR 294 provides another example of where the employee (there, the managing director) went over the boundary of what was permitted (in that case, the fiduciary had approached an important client and also tried to induce another key employee to join his new business).

58.Ultimately, as I have said, the application of the principle depends on the facts and involves matters of degree.

59.The solicitation of clients in the above context can sometimes pose factual difficulties. The following is a familiar scenario. A partner, employee or other fiduciary intends leaving a firm or employers either to join another firm or to set up on his own in competition. What steps can he take to solicit clients during the time he is still in partnership or employment with the old firm? Here, the partner or employee needs to tread very carefully:-

(1) Solicitation as such when he is still working for the old firm or employers is not permitted: see Wessex Dairies. This is so even if this is done in his spare time: see Hivac at 182, Balston at 414.

(2) Whether or not an act amounts to solicitation will of course obviously depend on the facts in any given case. It is neither possible nor desirable to set out the various circumstances in which this can arise. In some instances, it may be difficult to ascertain whether the relevant act or acts amount to solicitation. One would have thought that merely informing a client that the employee is about to leave a partnership or employment, will not by itself amount to solicitation. It may be different where the client is asked whether he is likely to follow that partner or employee when he moves. As will be seen below, however, the facts in the present case pose relatively less difficulties than other cases encountered by the courts.

(3) Finally, I should just mention that even where it is the client that initiates the approach to the partner or employee with the intention that the partner or employee should leave whereupon the client would transfer to him the relevant custom or business, the partner or employee will be in breach of his fiduciary duties if he were to go along with this unless consent is obtained from the beneficiary (whether a fellow partner or the employer): see Sanders v Parry [1967] 1 WLR 753.

60.I now deal with the duty on a fiduciary not to make a profit from his position, the Not to Profit Duty. This is relevant to Claim 2. More accurately, the duty can be put in this way: a fiduciary must not make a profit out of his trust: see Phipps v Boardman at 123D-E. This means that a fiduciary must not, without the informed consent of the beneficiary, make a profit deriving from the position of trust and confidence in which he has been placed.

61.It is important to emphasise the words "deriving from the position of trust and confidence" here. The defaulting fiduciary needs only to account for those gains obtained or received by reason or by the use of his fiduciary position or of the opportunity or knowledge resulting from it; the object is to prevent the fiduciary from misusing his position for personal gain:- see Hospital Products Ltd. at 107; Chan v Zacharia (1983-1984) 154 CLR 178, at 198-199 (per Deane J).

62.But this only half states the position. Many persons in a fiduciary position (such as employees and solicitors) acquire skills, knowledge and experience in the course of the performance of their fiduciary duties. In the particular context with which the present case is concerned, there is also the aspect of client or business contacts. The accumulation by a fiduciary of all these matters in the course of the performance of his fiduciary duties is of course inevitable. It is important to stress that the Not to Profit Duty does not prevent a fiduciary from making use of such acquired skills, general knowledge, know-how or experience upon the termination of the fiduciary relationship (By termination, I mean no more than the formal relationship coming to an end, such as the termination of a partnership or employment. I do not mean by this paraphrasing that the fiduciary duties have come to an end. Some fiduciary duties continue beyond the termination of the partnership or employment, such as the duty not to use trade secrets or confidential information). This very aspect was emphasised in the context of fiduciaries by Litton VP in Kishimoto Sangyo Co. Ltd. v Akihiro Dba [1996] 2 HKC 260, at 279I, where he said, "A man is entitled to use his own accumulated knowledge skill and experience for his own profit. He is equally entitled to cultivate his own commercial relationships, with suppliers, customers and anyone else, without attracting the disapproval of equity". A useful parallel is in the area of restrictive covenants in employment contracts. In FSS Travel and Leisure Systems Limited v Johnson [1998] IRLR 382, Mummery LJ said at paragraph 32, "Protection cannot be legitimately claimed in respect of the skill, experience, know-how and general knowledge acquired by an employee as part of his job during his employment, even though that will equip him as a competitor, or potential employee of a competitor, of the employer". It is easy to see the policy reason for this: otherwise, there would be an unreasonable restraint of trade. I shall later return to this important qualification when dealing with the question of how far a fiduciary is entitled to take advantage of business opportunities that come his way both before and after the termination of his fiduciary relationship.

63.It is often assumed that the Not to Profit Duty is really a part of the Non-Conflict Duty: see Phipps v Boardman at 123D-E. Therein lies much of the confusion that occurs in practice when these fundamental duties are sought to be applied to any given situation. It would be better to accept that while they are largely overlapping duties, they are not always conterminous and each has distinct features. Only then will the application of these duties to any given situation be allowed the breadth and flexibility that surely is their role in equity. There is much to commend the analysis undertaken in relation to this topic in the judgment of Deane J in Chan v Zacharia at 198-199.

64.The rule established by Keech v Sandford (1726) Sel Cas. Ch.61; 25 ER 223, is perhaps a good illustration of the difference between the 2 duties. There, a trustee had obtained for his own benefit the renewal of a lease that had originally been granted to the beneficiary. It was held that the trustee was liable for breach of the duty not to profit even though the beneficiary was never in a position to have the lease renewed to him.

65.The Not to Profit Duty assumes considerable importance in the present case. Koo is alleged to have taken advantage of his position in KLY by diverting a business opportunity (namely, work from BOC) that KLY would almost certainly have wanted, to himself and K & P. K & P of course did not commence practice until Koo left KLY, so the present case involves a business opportunity that has accrued to the fiduciary (Koo) only after the fiduciary relationship has come to an end (after he left KLY).

66.In general terms, a fiduciary who has taken advantage of an opportunity made available to him in the course of a fiduciary relationship to secure for himself a business opportunity, will be in breach of fiduciary duty, for which he will be liable to account for any profits he has made, even if this business was one which would not have been available to the beneficiary: see Regal (Hastings) Ltd. v Gulliver [1967] 2 AC 134 (in particular, the speeches of Lord Russell and Lord Wright); Cooley among many others. This is merely a restatement of the Not to Profit Duty mentioned above.

67.There is little difficulty in the application of this principle where the fiduciary seeks to take advantage for himself of a business opportunity during the time he is still in a fiduciary relationship with the beneficiary (in the sense I have referred to). He is clearly in breach of the Not to Profit Duty. This was the position that led to the finding of liability on the part of the directors in Regal (Hastings) Ltd. v Gulliver. However, that is not the situation in this case. As mentioned above, we are dealing with the position of a fiduciary making use of an opportunity after the fiduciary relationship has come to an end.

68.Cooley provides a good illustration of the application of the Not to Profit Duty in this situation. The facts of that case bear some degree of resemblance to the facts of the present case. There, a director of an architectural company, in breach of his fiduciary duties, secured for himself with a gas board the position of project manager responsible for the design and supervision of four building projects. This business had been sought by the architectural company (and indeed the director had been negotiating on its behalf) but the gas board had refused to deal with the company. Roskill J, after a trial, held the director in breach of fiduciary duty and further ordered an account of profits. He held it was irrelevant that the company would on no account have been able to secure the business for itself (even though it no doubt wanted it). This was an application of the rule in Keech v Sandford. Nor could the director escape liability by resigning so that he could take advantage of the business opportunity.

69.A similar result was reached by the Supreme Court of Canada in Canadian Aero Service Ltd. v O'Malley (1973) 40 DLR 371. Here, some former high-ranking officers of the plaintiff company were held liable to account for the profits made by them in relation to a business opportunity that had originally been negotiated by them, but which they diverted to a company in which they were interested. The breach was described in the following way by Laskin J at 383, "The reaping of a profit by a person at a company's expense". Again, it was emphasised that liability was not dependent on any profits being lost by the beneficiary: the fiduciary would be liable even if the profit was one that the beneficiary could not make: see 383-4.

70.A fiduciary's liability for taking advantage of a business opportunity which he learnt about during the time he was still in the relevant fiduciary relationship is, however, not open-ended. It must be tested against the other principle I have already referred to, namely, that upon the termination of the relevant fiduciary relationship, a fiduciary is fully entitled to make use of such skills, general knowledge, know-how, experience and client contacts as he has acquired. This was the approach of the Court of Appeal in Kishimoto which I am bound to follow. See also the similar approach adopted by Hutchison J in Island Export Finance Ltd. v Umunna [1986] BCLC 460, at 478a-482e.

71.Thus, the courts have developed the test of the so called "maturing business opportunity". In other words, was the business one that was, for example, actively being pursued by the beneficiary in the first place and what stage had this business opportunity reached? Canadian Aero Service Ltd. is usually cited as the authority for the statement of principle involved. At 382, Laskin J says this:-

"An examination of the case law in this Court and in the Courts of other like jurisdictions on the fiduciary duties of directors and senior officers shows the pervasiveness of a strict ethic in this area of the law. In my opinion, this ethic disqualifies a director or senior officer from usurping for himself or diverting to another person or company with whom or with which he is associated a maturing business opportunity which his company is actively pursuing; he is also precluded from so acting even after his resignation where the resignation may fairly be said to have been prompted or influenced by a wish to acquire for himself the opportunity sought by the company, or where it was his position with the company rather than a fresh initiative that led him to the opportunity which he later acquired."

72.I should pause here just to clarify that the "maturing business opportunity" concept does not narrow the Not To Profit Duty. It is but a facet of it. As stated above, the duty applies irrespective of whether the beneficiary could have obtained the benefit anyway of the profit that the fiduciary made, this being the rule in Keech v Sandford. The "maturing business opportunity" concept may upon analysis perhaps ultimately be just one of causation, being the link between the profits made to the breach of duty. Although this does not arise in the present case, it should nevertheless not be assumed that there can never be liability unless the business opportunity was one in which the beneficiary was 'actively pursuing'.

73.Mr. McCoy relies on the approach of the Court of Appeal in Kishimoto to suggest that in the present case, there was no question of any "maturing business opportunity" that the Plaintiff had been deprived of and in any event, none had been pleaded. There, a claim was made against a former senior manager by his employers on the ground that he had breached his fiduciary duties by diverting to a company (in which he had a substantial interest) a lucrative supply contract that the plaintiffs claimed was a maturing business opportunity. The Court of Appeal reversed the judge's conclusion that damages should be awarded for this breach of fiduciary duty. It did so on the basis that there was no maturing business opportunity at all. The relevant supply contract which the plaintiffs claimed should be taken into account was at the time the manager was employed by the plaintiffs "an embryonic business project": see 2661. Stress was laid on the fact that the relevant supply contract did not appear on the horizon for nearly a year after the manager had left the company and that the whole project was one that called for a fresh initiative on the defendant's part by the use of his own skill and initiative: see 267A, 278H.

74.In other words, the business opportunity must be tangible (or mature) at the time the fiduciary was in the position of trust and confidence. If at this time the business opportunity was nebulous and uncertain, it would be unfair to deprive the fiduciary of the benefit of the matured opportunity once this occurred. Here, there would scarcely be a link or resemblance between the business opportunity that actually enured to the fiduciary's benefit and the business opportunity of which he gained knowledge at the time of his being in a fiduciary relationship with the beneficiary. This can be put another way. Where the opportunity is so remote that the eventual obtaining of it by the fiduciary cannot realistically be said to be linked to any position of trust and confidence that the fiduciary was in regarding that opportunity, there is no breach. Thus, for example, where as in Canadian Aero Service Ltd., officers of a company are negotiating on behalf of their employers a contract that is very much at a developed stage and then the officers take advantage of that contract for themselves once they leave their employment, liability is established. This is to be contrasted with, say, the facts in Kishimoto, where the business opportunity was at an "embryonic" stage.

75.Whether or not a business opportunity is sufficiently mature will be often a question of degree for the Court to decide. Relevant factors will include, for example, whether the business opportunity that eventually accrued to the fiduciary was one that resulted from a prolonged fresh initiative on his part (see Kishimoto at 278H; Island Export Finance Ltd. at 481f) or the stage reached in any discussions regarding the business. Timing may also feature as a factor. For example, where the relevant business opportunity was obtained a long time after the fiduciary had resigned or left the relevant fiduciary relationship, this may be relevant to show that the business opportunity was not sufficiently mature. In Kishimoto, as noted above, the contract did not appear on the horizon until a year after the senior manager left his employment. Linked to this factor would be the reasons for the fiduciary leaving his position as well. All these matters are for the judge trying the case to factor into the scales.

76.Ultimately, whether one is dealing with maturing business opportunities is really a matter of labelling. It provides but one example of the Not To Profit Duty. The basic inquiry is always whether the fiduciary's interests have conflicted with a "specific" interest of the beneficiary. This I derive from the judgment of Falconer J in Balston at 412, referred to in Framlington Group plc v Anderson [1995] 1 BCLC 475, at 495-6. The specific interest may be a maturing business opportunity or some other interest. The matter was put in the following way by Falconer J in Balston at 412:-

"In the statement of the overriding principle by Roskill J. in the I.D.C. case, namely 'that a man must not be allowed to put himself in a position in which his fiduciary duty and his interests conflict,' the conflict contemplated must be one with a specific interest of the company (or other body or person) to whom the fiduciary duty is owed, as, for example, a maturing business opportunity, as in Canaero, or the plaintiff's interest in the contract secured by the defendant in the I.D.C. case, or a contract falling within the first class of contracts in Lord Blanesburgh's dichotomy in Bell v. Lever (page 194), or the use of some property or confidential information of the company which has come to a director as such (Lord Blanesburgh's qualification of his second class). In my judgment an intention by a director of a company to set up business in competition with the company after his directorship has ceased is not to be regarded as a conflicting interest within the context of the principle, having regard to the rules of public policy as to restraint of trade, nor is the taking of any preliminary steps to investigate or forward that intention so long as there is no actual competitive activity, such as, for instance, competitive tendering or actual trading, while he remains a director."

77.So far, I have only dealt with the law relating to Claims 1, 2 and 5. For the other claims, I will deal with what applicable principles there are when I come to analyse those claims. I now move onto the claims in this action.

Claim 1: Koo's liability as regards the Law Centre

78.In relation to this claim, KLY complains essentially that both the Non-Conflict and the Not To Profit Duties have been breached. As can be seen from the relevant facts set out in paragraphs 11 to 15 above:-

(1) Koo advised BOC on the setting up of the Law Centre.

(2) He also intended to join the Law Centre after it was set up, indeed he was to head it.

(3) He helped establish the Law Centre by, among other things, helping to recruit suitable lawyers such as the 2nd to 6th Defendants.

79.It should be borne in mind that the intention of the Law Centre was to provide legal services to clients of the BOC Group (as well as it can be assumed services to the BOC Group itself), services which would and could otherwise be provided by solicitors. This is clear from the fact that qualified solicitors such as Koo and the 2nd to 6th Defendants would be recruited.

80.In my view, both the Non-Conflict and the Not To Profit duties were breached by Koo here, as were clauses 13 and 15 of the Deed of Partnership:-

(1) There was a clear conflict of the interests of both Koo and BOC on the one hand and those of KLY on the other.

(2) As regards BOC, the idea of the Law Centre was to provide legal services to the BOC Group and to clients of BOC. These legal services could without doubt have been provided by KLY, whether or not in collaboration with BOC. In the establishment of the Law Centre, there was therefore to exist another entity, akin to a rival firm of solicitors, that would be providing legal services. It was clearly Koo's duty to have informed KLY about this development and promote KLY's interests. Instead, not only did Koo keep silent (as far as KLY was concerned) about this development, he actually advised on the setting up of this rival entity.

(3) As between KLY and Koo, Koo was clearly preferring his own interests in advising and helping establish the Law Centre. It was expressly envisaged that he would head the Law Centre and, it will be recalled, that Koo's advice was that the solicitor or solicitors employed in the Law Centre could charge their clients fees for the legal services rendered by them and these fees could then be set off against their salaries.

81.Mr McCoy did not really, I think, dispute the above. His submissions, rather, were directed to the following:-

(1) In advising BOC on the Law Centre and helping it establish the Law Centre (including recruiting staff), Koo was acting independently of KLY. He was therefore acting only in his capacity as in-house counsel of BOC in relation to the Law Centre, not as a partner of KLY. He relied on the fact that after Koo joined KLY in 1989, he was expressly permitted (in fact encouraged) to continue as in-house counsel for BOC. Accordingly, no breach of fiduciary duties nor of the Deed of Partnership took place.

(2) As a refinement of this argument, Mr McCoy continues that since Koo was acting as in-house counsel for BOC at the time he gave the advice and helped establish the Law Centre, he was in any event prohibited as a matter of law (legal professional privilege) from disclosing the advice he gave in relation to the Law Centre to KLY, even if he had wanted to.

(3) As a further extension of the point, it was then submitted that far from Koo being prohibited to give advice to BOC about the Law Centre (which would or might be of benefit to BOC), he was in fact duty-bound to do so as its in-house counsel, regardless of whether this adversely affected KLY's interests. Otherwise, Koo would have been giving what Mr McCoy called "corrupted advice".

(4) Lastly, Mr McCoy submitted that in making this claim against Koo, KLY was in effect re-litigating the restraint of trade issue that had been resolved against it in the interlocutory injunction proceedings.

(5) In the circumstances, Koo was not liable and even if he was, only nominal damages should be awarded.

82.Apart from the issue of relief, I cannot agree with these submissions.

83.The constant theme running throughout Mr McCoy's submissions was the contention that in acting as in-house counsel for BOC, Koo was somehow not acting in his capacity as a partner of KLY. In my view, the facts clearly demonstrate that while Koo was in-house counsel for BOC (in the time after he joined KLY in 1989), he did so as a partner of KLY, not in any other capacity. I refer to the following facts in support of this:-

(1) One starts with Kao's evidence (contained in his Witness Statement) that the maintenance and development of relationships with clients was an important part of a partner's duties. In this regard, both Kao and Yip saw the obvious benefit of Koo maintaining continued close contact with BOC after he joined KLY. Indeed, Koo himself accepts this. In answer to one of the interrogatories administered by KLY, he said this:-

"As part of the marketing arrangements for the firm I greed with the Founding Partners of Kao Lee & Yip to attend to legal business as Legal Consultant to Bank of China for more than two-half days in certain weeks at various times during the period during which I was a partner in Kao Lee & Yip between 1 January 1989 and 30 September 1993. I cannot now recall the weeks when I attended my office at the Bank of China Tower to work as Legal Consultant to Bank of China for more than two-half days. I do recall that as the workload of Kao Lee & Yip increased, and at the insistence of the Founding Partners in the firm, I reduced my regular attendance at my office in the Bank of China Tower as Legal Consultant to the Bank of China to two-half days in any week although I attended more often if urgent work required this and I considered myself on 'standby."

(2) Throughout the testimony of Kao, there are references to Koo working in BOC "as a marketing exercise for [KLY]" and his (i.e. Kao) hoping that Koo's presence at the BOC would "result in more work coming [KLY's] way".

(3) It is also pertinent to point out that BOC did not pay Koo for working as in-house counsel, even though BOC offered to pay KLY for this, according to Kao in his evidence in chief. Kao also agreed with what was put to him in cross-examination, that as part of KLY's marketing strategy, if complimentary advice was given to BOC, there would be returns to be gained.

(4) In his 4th Affidavit dated 1 February 2002 (in support of KLY's application for specific discovery), Kao stated he considered Koo as having been "on secondment" to BOC at the time he worked as in-house counsel.

(5) The work that Koo did as in-house counsel for BOC (or at least some of it) was actually recorded in timesheets kept by partners and other solicitors of KLY. The file reference given to this work was apparently '99999' which seems to have been used whenever non-chargeable work was logged. In his Witness Statement, Kao stated that up to 30 September 1993, BOC had been advised on some 600 matters involving 3,000 hours of chargeable time (but for which no bills were ever rendered).

84.If, as I have found, Koo was working as a partner of KLY when he acted as in-house counsel for BOC, it must follow that there could not have been any legal professional privilege as far as his telling his other partners about any relevant advice he was giving BOC. Quite simply in effect, any advice that Koo gave BOC as in-house counsel could be treated as advice given to BOC by KLY.

85.As to the point that Kao and Yip expressly consented to Koo continuing as in-house counsel for BOC, this is of course true and indeed accepted by KLY. However, what KLY does not accept (and the Defendants cannot demonstrate this) is that Koo would somehow be permitted to advise and act for BOC in a way contrary to the interests of KLY or to further his own interests.

86.Much the same point can be made in relation to Mr McCoy's "corrupted advice" point. It must of course be acknowledged that as in-house counsel (even if acting for free), Koo had to act in the best interests of BOC at all times. However, this did not mean that in doing so, Koo was free to act to the detriment of KLY. As Kao said in his testimony, Koo had to give advice to BOC "fearlessly", but subject to his not acting in conflict with KLY's interests. If indeed Koo was in a predicament between BOC's interests and KLY's, then as a matter of law (see paragraph 56 above), he should have ceased to act. In the present case, Koo furthered his own interests as well. Instead of not advising or acting for BOC in relation to the Law Centre or informing his partners at KLY of these developments, Koo did the opposite of what he should have.

87.There is no question of KLY re-litigating the restraint of trade clause by claiming against Koo in relation to the Law Centre. Clause 16 of the Deed of Partnership has nothing to do with the present claim.

88.Nevertheless, I agree with Mr McCoy to the extent that the finding of liability on Koo's part in relation to the Law Centre gives rise to no damages other than nominal damages. Mr Kwok accepts this but says that the breach by Koo is relevant when one turns to the other claims. For instance, it provides the background to Claim 2 to which I now turn.

Claim 2: Koo's liability for diverting BOC work to K & P

89.Over the course of the trial, certainly by the time the stage of final submissions had been reached, this became KLY's main claim. In my judgment, applying those legal principles I have earlier set out, I find there is no answer to it.

90.In going through the facts, I have already dealt with what happened after BOC decided to abandon the idea of the Law Centre. Factually, there is very little evidence that is available. I have set out in paragraph 16 above the relevant paragraph in Koo's affirmation which goes to this point.

91.That paragraph of Koo's affirmation proves the following facts and gives rise to various inferences that can be drawn:-

(1) Koo was told that the BOC Regional Office wanted to use the services of a "friendly outside law firm".

(2) This obviously meant that an opportunity would arise for such a "friendly outside law firm" to get work from the BOC Regional Office. From the rest of Koo's affirmation, it is clear that the BOC Regional Office was the entity that represented the BOC Group (at that time the Group comprised a number of banks other than BOC itself, such as the China and South Seas Bank Ltd, Hua Chiao Commercial Bank Limited and Kwangtung Provincial Bank).

(3) Koo did not tell KLY about this proposal on BOC's part. Instead, he decided (in what must have been in July 1993) to set up his own firm and this had the support of BOC. As is common ground, Koo in fact carried out this intention and set up K & P. There was no suggestion made on behalf of the Defendants that Koo somehow informed the other partners of KLY that he was going to set up a solicitors firm, much less that this was to take the benefit of BOC's wish to use services of an outside firm (i.e. lawyers that were not in-house).

92.In my judgment, when BOC stated to Koo that it wanted to use the services of a "friendly outside law firm", this could be termed a business opportunity. It was, moreover, an opportunity that had Koo complied with those fiduciary duties identified above as the Non-Conflict Duty and the Not To Profit Duty, it should at least have been communicated to the other partners of KLY. I would go so far as to say that, pursuant to those duties, he was obliged to persuade BOC to consider appointing KLY as that "friendly outside law firm". Afterall, there was no evidence to suggest that KLY could not handle such work. There was also no evidence that BOC was somehow dissatisfied with the work that KLY had been doing for it. And even if there was any such dissatisfaction, Koo still had to inform KLY about it so that they could deal with any problems. By not doing what he should have, Koo was in breach of his fiduciary duties and clauses 13 and 15(a) and (b) of the Deed of Partnership.

93.In addition, what Koo could not do was to seize this opportunity and take advantage of it to benefit himself. This Koo did and this represents a further breach of the duties I have referred to.

94.However, was this business opportunity sufficiently tangible to attract liability, or to put it in other way, was it "a maturing business opportunity"? I have already dealt with the law in relation to this aspect: see paragraphs 65 to 76 above.

95.In my view, the opportunity that came Koo's way in July 1993 was clearly sufficiently tangible or mature:-

(1) BOC's proposal was made just after the Law Centre idea had been abandoned. The Law Centre had gone quite a long way to being established when it was abandoned. For example, the 2nd to 6th Defendants had already been recruited.

(2) No great planning or arrangements would be needed to implement the opportunity: as far as BOC was concerned, all that was required was a "friendly outside law firm" to be in existence to provide legal services to BOC and the BOC Group.

(3) What actually took a little time (but not much) was the setting up of K & P, including the recruitment of staff, finding premises, securing credit facilities etc. If KLY had been chosen as the law firm to provide legal services to BOC, this could have been done almost instantaneously.

(4) The business opportunity in the present case was mature and tangible like the one in the Canadian Aero Services Ltd case and not vague or nebulous as in Kishimoto.

96.Mr McCoy submitted time and time again that Koo was, to use his term, a "rainmaker". The point made here was (I think) that Koo had brought BOC as a client to KLY and BOC would have followed him wherever he went. I accept that after Koo joined KLY, that firm's BOC business picked up "significantly" (as Kao said in his evidence) and after Koo left, this business dropped quite substantially. Kao also agreed in his evidence with Mr McCoy's suggestion that Koo had a "grip" on BOC. What I do not accept, however, is that the opportunity that came Koo's way in July 1993 can be ignored as a tangible business opportunity that Koo could (and did) take advantage of. Here the following points should be borne in mind:-

(1) BOC was looking for a "friendly outside law firm", which by definition could have included KLY or indeed any other firm. BOC was not saying it would only follow Koo. Indeed at that time, it appears that BOC used a number of law firms.

(2) When Koo joined KLY in 1989, he was concerned that as a condition of his continuing to work as in-house counsel for BOC, he would have to bring in BOC business to KLY. He was not required to do so. This simply shows that at the time, Koo did not regard himself as being some sort of "pied piper" to BOC.

(3) If Koo had a "grip" on BOC, then all the more he ought to have persuaded them to use KLY.

(4) On the facts as a whole, it just cannot be said somehow that the opportunity can be ignored.

97.Mr McCoy also submitted that this claim had not been adequately pleaded. I confess I find some difficulty in accepting this. Paragraph 21 of the Statement of Claim pleads:-

"21. In further breach of his fiduciary duties set out in paragraph 6 above and in breach of clauses 13 and 15 of the Deed the first Defendant

21.1 failed to attempt to persuade Bank of China to retain the services of the Plaintiff, in the absence of a Law Centre; and

21.2 persuaded Bank of China to place work which it was to have placed with the Law Centre (and which would otherwise have been placed with the Plaintiff) with a firm to be set up by the first Defendant."

98.Admittedly, the pleading have been fuller but the gist of KLY's case is clear and by the time Mr Kwok opened KLY's case, the details were made even more apparent.

99.It was also submitted by Mr McCoy that Mr Kwok had abandoned any reliance on the concept of "maturing business opportunities". This argument is largely one of semantics in my view. Quite clearly, as a matter of substance, KLY was asserting (and pleading) that Koo had breached his fiduciary duties in relation to the business opportunity presented to Koo in July 1993.

100.Like Claim 1, KLY also succeeds in Claim 2. The remedy sought by KLY here is for an account of profits. I will return to that issue when I come to deal with Claim 7.

Claim 3: Koo's liability for neglecting KLY's practice

101.This claim can be shortly disposed of, even though both sides devoted much time to it at the trial.

102.Ultimately, the only evidence relied on by KLY in support of the claim was that Koo did not fill out timesheets for the relevant period in question, namely, from 25 November 1992 to 30 September 1993. As I have recorded, this was eventually narrowed down to a 8 1/2 month period from November 1992 to July 1993. August 1993 was the time Koo took his holidays and in September 1993 (being his last month), the other partners of KLY did not really expected him attend to his work (nor did they want him to).

103.In my judgment, this claim fails and was really quite hopeless:-

(1) It became apparent in the course of the trial that, as stated above, the only factual basis for alleging that Koo neglected the firm's practice was that he did not fill out timesheets as he had previously done. Therefore, it was submitted this evidence failed that Koo did no work. In my view, this does not follow at all.

(2) I would have expected KLY first to have adduced evidence going to the practice of filling out timesheets. There was no evidence as to this save that at one stage, Koo did in fact fill out timesheets. Kao, when cross-examined, could not provide much insight into this aspect. For example, he could not even recall whether or not Yip filled out timesheets.

(3) No concrete evidence was adduced either to show that Koo was not working over the relevant period. Really, the most that could be said was that apart from the failure to fill out timesheets, Kao did not really notice Koo much in the office in the months leading up to his departure. This is very thin evidence, to say the least.

(4) In fact, Kao could not really say for sure that Koo was not doing the work expected of him. In his examination in chief, he said, "he [Koo] may or may not have done any work for the benefit of the firm, but we have very little way of knowing". When asked by Mr McCoy whether it was KLY's case that he did not do "a stroke of work" from November 1992 to September 1993, all Kao could say was to repeat the fact that Koo did not fill in timesheets. He said this, "He might have [done work], but because he did not fill in timesheets, there was no way we could tell whether he did any fee earning or other work for the benefit of the firm".

(5) It was also clear from Kao's evidence that at no stage during the relevant period in question did he (or it seems, Yip) complain to Koo about any lack of work on Koo's part. When Mr McCoy asked him why he did not complain to Koo, all Kao could say was, somewhat petulantly, "I just didn't do it".

(6) The billings (and hence profits) of KLY for 1993 perhaps demonstrate why no complaints were made against Koo. For the period from 1 October 1992 to 13 September 1993, the total billings for the BOC Group recorded by KLY was $13,072,191.94, out of which $8,258,941.64 was attributable to Koo (some 63%). For BOC alone, the total billings for that period amounted to $6,999,933.64, of which $9,399,718.64 was attributable to Koo (91%). While Kao sought to down play these figures by saying that the billings attributable to Koo did not necessarily mean he did the work himself and Mr Kwok submitted that they perhaps only meant that Koo was the person who referred the work, nevertheless I am bound to hold that these figures at least do not demonstrate that Koo was not doing "a stroke of work". Far from it. Put at its lowest, he was responsible for a lot of profits made by KLY that year, profits that the other partners of KLY enjoyed. It is perhaps also interesting to note that for the previous year (1 October 1991 to 30 September 1992), KLY's billings to the BOC Group attributable to Koo amounted to $7,985,366.50 (out of total billings of $14,767,587.50) so for the period 1 October 1992 to 30 September 1993, Koo's contribution actually increased.

(7) At one stage, it was suggested by Kao that the real complaint against Koo was not the failure to carry out fee paying work, but the failure to discharge administrative duties within KLY. This allegation was brought in by re-re-re amendments made to the Statement of Claim. Before then, the only allegation related to "chargeable" time (which obviously meant time chargeable to clients). In my judgment, this claim cannot be sustained either. There was no evidence of this and it is not enough simply to rely on the absence of timesheets. There may not have been any timesheets but, as the billings for the period 1 October 1992 to 30 September 1993 show, Koo must have done a fair amount of work for so much of the billings to be attributable to him.

104.I dismiss this claim.

Claim 4: The 2nd to 6th Defendants' liability for failing to inform KLY regarding Koo's activities in advising or assisting in the establishment of the Law Centre

105.Paragraph 18 of the Statement of Claim reads:-

"18. At the time of Bank of China's invitations to the second to sixth Defendants to make applications to the Law Centre, those Defendants knew that the first Defendant had resigned from the Plaintiff. They were each told by Bank of China that the first Defendant had been asked to head the Law Centre, which would be an in-house establishment to service the Regional Office and the Bank of China group. In the circumstances, they knew or ought to have realised that the Law Centre was likely to compete with the Plaintiff for Bank of China's work, and that the first Defendant, in agreeing to head the Law Centre, was not acting in the best interests of the Plaintiff. Notwithstanding the foregoing, the second to sixth Defendants in breach of their duties of fidelity to the Plaintiff failed to inform the partners in the Plaintiff of the first Defendant's activity."

106.In response, paragraph 14(A) of the Re-Re-Amended Defence pleads as follows:-

"14A. It is admitted that the 2nd, 3rd, 4th, 5th and 6th Defendants, at the time the Bank of China invited them to apply for positions in the proposed Law Centre advertised in May 1993, knew that the 1st Defendant had resigned from the Plaintiff; and that the 1st Defendant had been asked to head the proposed Law Centre, which would be an in-house establishment to service the Regional Office and the Bank of China group. Save as admitted, paragraph 18 of the Re-Re-Re-Amended Statement of Claim is denied. It is expressly denied that the 2nd, 3rd, 4th, 5th or 6th Defendants were under the duty to inform as alleged."

107.As a matter of law, in certain circumstances, an employee may have a duty to report to his employer matters which are not in the latter's interests:- see for example, Swain v West (Butchers) Ltd [1936] 3 All ER 261. However, the general principle is that there is no duty to report a fellow employee's misconduct or breach of contract. Whether or not a duty exists in any given case, depends on the terms of employment and other circumstances:- see Sybron Corporation v Rochen Ltd [1984] 1Ch 3112, at 126H-127A.

108.In the present case, there is nothing in the terms of employment of the 2nd to 6th Defendants that imposes such a duty. None such was pointed out by Mr Kwok. In my judgment, there was no duty anyway on the 2nd to 6th Defendants to have informed on Koo in relation to the Law Centre.

109.Even if such a duty existed, KLY would still fail on the facts. There is no evidence to suggest that the 2nd to 6th Defendants knew that what Koo did was in breach of his fiduciary or other duties owed to the other partners of KLY. Afterall, they were just employees and not privy to any discussions that may or may not have taken place between Koo and Kao and Yip. In his closing submissions, Mr Kwok submitted that the 2nd to 6th Defendants knew that Koo was not acting in the best interests of KLY and therefore should have informed KLY of Koo's activities. There is no evidence to support this assertion.

110.I therefore dismiss this claim as well.

111.Even if, somehow, the 2nd to 6th Defendants were in breach, no damages flow from this.

Claim 5: The Defendant's liability in taking preparatory steps in setting up K & P

112.KLY's case against the Defendants relates to the preparatory steps taken in setting up K & P and getting it ready to commence practice on 1 October 1993. These steps have already been set out in paragraph 19 above.

113.Apart from relatively minor details as to some of the former KLY staff employed to work for K & P (these are pleaded in paragraphs 15A(ii) and (iv) of the Re-Re-Amended Defence and accepted by Kao in cross-examination), the basic facts contained in paragraph 19 above are either admitted in the pleadings or have not been disputed.

114.The relevant fiduciary duty the Defendants are said to have breached, is the Non-Conflict Duty referred to above.

115.For his part (and to his credit), Koo admits in the Re-Re-Amended Defence that he had breached his fiduciary duties by taking preparatory steps, but denies that KLY has suffered any loss or damage. Indeed, KLY only claims and is therefore entitled to, as far as damages are concerned, nominal damages.

116.The other Defendants do not admit liability so it is therefore necessary to consider their position, although at the end of the day no substantial damages are claimed by KLY either.

117.I have already set out the applicable principles in paragraph 57 above. In my judgment, the 2nd to 6th Defendants have breached their fiduciary duties owed to KLY in taking preparatory steps in setting up K & P:-

(1) It is first important to emphasize the point that the 2nd to 6th Defendants were not mere employees of K & P but became partners in that firm together with Koo. Their participation in the various preparatory steps has accordingly to be seen in this light.

(2) It is clear from paragraph 19 above that use was made by these Defendants of their position as solicitors in KLY to set up K & P. For example, the 2nd Defendant witnessed the signature of the initial subscribers to the Memorandum of Association and the Articles of Association of KPSL, in his capacity as a solicitor practising at KLY offices. The same applies to his signing the Declaration of Compliance dated 14 July 1993. Other examples, include the attendance of the 2nd to 4th Defendants at an EGM of KPSL at 10 a.m. on 19 September 1993, when presumably they ought to have been at work in KLY.

(3) The involvement of the 2nd to 6th Defendants in KPSL is made all the more unacceptable when that company made offers to KLY staff to leave their positions with KLY to join K & P at a time when they still worked for KLY.

(4) The leasing of premises from BOC and obtaining credit facilities from it, while perhaps normally unobjectionable activities by themselves (see paragraph 57(6)(a) above), is made unacceptable in this case by the fact that BOC was a major client of KLY. There is no doubt that the 2nd to 6th Defendants must have known this, since all of them worked at the banking and finance department and, in the case of the 6th Defendant, the conveyancing department of KLY, where they must have handled work for BOC at some stage.

118.As stated above, a fiduciary is entitled to take some preparatory steps for his future occupation even during the time he is still in partnership with or in the employment of the beneficiary, but he must not overstep the mark of what is acceptable. In the present case, I find that the 2nd to 6th Defendants did overstep the mark for the reasons given in the previous paragraph.

119.That said, no damages are alleged by KLY to arise from this breach. Any damages must therefore only be nominal.

Claim 6: The Defendants' liability for removal of documents

120.This claim was in the original Statement of Claim and indeed provided the platform for the Anton Piller proceedings instituted by KLY against the Defendants. The primary, if not only, relief claimed by KLY was injunctive relief. On 30 September 1993, Stock J made the following Order in relation to the relevant documents:-

" AND UPON the intended Defendants (and in addition, Lisa Lee and Monica Cheung) by their Counsel undertaking that

they shall by 9.30 a.m. on 2nd October 1993 deliver or cause to be delivered to the custody of the offices of Messrs. Herbert Smith all documents, computer discs (and copies thereof) and all other items of whatever nature, save personal items, which have been removed from the intended Plaintiff's premises whether by the intended Defendants, Lisa Lee and Monica Cheung themselves, or by their servants, agents, employees or otherwise howsoever, or which are currently in the possession, custody or control of the intended Defendants, Lisa Lee or Monica Cheung, or their respective servants, agents or employees to be jointly inspected forthwith by the intended Plaintiff's Solicitors and the intended Defendants' Solicitors, and that the intended Defendants, Lisa Lee and Monica Cheung and each of them do within 2 working days thereafter swear an Affidavit or make an Affirmation stating or confirming that all such documents, discs or items have been delivered and forthwith serve such Affidavits and Affirmations on the intended Plaintiff's Solicitors, ..."

121.The documents were duly delivered up and affirmations served in compliance with that order.

122.It was therefore with some surprise that I found that this claim continued to be litigated between the parties. However, KLY maintains the claims against the Defendants for breach of fiduciary duty, (in the case of Kao) also of clauses 15(a) and (b) of the Deed of Partnership and (for the 2nd to 6th Defendants) also of their employment contracts. For their part, the Defendants deny liability and although they have complied with Stock J's order, this was without admission of liability.

123.I do not propose to deal at length with this claim, particularly since no substantive relief is claimed in relation to them. Again, there is no claim for damages made by KLY, apart from nominal damages.

124.Neither party invited me to go through the exercise of examining the relevant documents and I have not done so. It is fair to say that neither side displayed much enthusiasm in relation to this claim.

125.The evidence before the Court does suggest that there is substance to KLY's claim here. The relevant documents were taken away by the Defendants or photocopied by them in somewhat suspicious circumstances. The evidence of Kao in relation to this claim is contained in his Witness Statement. None of the Defendants, as I have already observed, gave evidence.

126.It was suggested to Kao by Mr McCoy in cross-examination that perhaps some of the documents might have belonged to the Defendants anyway. I cannot accept this. First, there was no evidence to substantiate this assertion. Secondly, at no stage in the history of this litigation did any of the Defendants seek to vary Stock J's order to claim back any documents belonging to them.

127.For the above reasons, I find for KLY in relation to this claim, but any damages would be nominal.

Claim 7: Account of profits and damages

128.I now turn to the question of the appropriate relief to which KLY is entitled in relation to those claims in which it has succeeded. To summarize the position on liability, I find Claims 1 and 2 proved against Koo, Claims 5 and 6 proved against all the Defendants (bar the 5th Defendant of course) and I dismiss Claims 3 and 4.

129.In opening KLY's case, at one stage Mr. Kwok, when dealing with Claim 2, treated KLY's claim in respect of the BOC business as a 'loss of chance' case (referring to Chaplin v Hicks [1911] 2 KB 786). In the end, I think he recognised that KLY's claims in the present case could not be analysed in this way, although it was never entirely clear that he abandoned this approach. For his part, Mr McCoy assumed all along that Mr Kwok had not abandoned the point. In my view, the present case is not a 'loss of chance' case at all. As Mr Kwok made clear, KLY makes no claim in damages for any of the claims (save for Claim 3). In relation to the other claims, the remedy sought by KLY was an equitable one, namely, an account of profits. It is to this complicated aspect I now turn.

130.I have already referred to the importance of distinguishing between breaches of fiduciary duties and breaches of other duties: see paragraph 45 above. This distinction is crucial when one turns to the question of remedies for breach. The breach of fiduciary duties can attract equitable remedies whereas the breach of non-fiduciary duties will not. In the example given in paragraph 45 above, a secret profit by a trustee deriving from his office may well result in a constructive trust being established and an account of profits ordered. On the other hand, the breach by a trustee of the skill and care expected of him in the discharge of his duties will only result in an award of damages.

131.The essence of equitable relief is that it is primarily restorative and restitutionary rather than compensatory: see Mothew at 18A; Cia de Seguros Imperio v Heath (REBX) Ltd. [2001] 1 WLR 112, at 119D-E. Even damages in equity for breach of fiduciary duty (equitable compensation as it is sometimes called) must be distinguished from common law damages: see Mothew at 17. The basis for an award of equitable compensation is different and while the principles of assessment often coincide with the basis of assessment for common law damages, there are occasionally differences: see Spry: The Principles of Equitable Remedies (6th edition) Ch.7, in particular at Pg.646-9. There are other remedies which are unique to equity: injunctions, specific performance, rectification. Breaches of fiduciary duty in particular have always attracted the courts' attention in terms of remedies that were not open in other cases. For example, compound interest can be awarded in relation to a breach of fiduciary duty where there has been an unauthorised use of trust money: see Wallersteiner v Moir (No.2) [1975] QB 373, at 388 per Lord Denning MR; Typhoon 8 Research Ltd. v Seapower Resources International Ltd. [2002] 2 HKLRD 660, at paragraph 24 per Le Pichon JA.

132.We are concerned in this case with one of the most difficult equitable remedies to apply in practice: the duty of a fiduciary to account for profits following a breach of fiduciary duty. In Hospital Products Ltd., Mason J at 107 stated the general principle:-

"The principle, accepted by the courts below, is that the fiduciary cannot be permitted to retain a profit or benefit which he has obtained by reason of his breach of fiduciary duty: Consul Development (59); Queensland Mines (60). A fiduciary is liable to account for a profit or benefit if it was obtained (1) in circumstances where there was a conflict, or possible conflict of interest and duty, or (2) by reason of the fiduciary position or by reason of the fiduciary taking advantage of opportunity or knowledge which he derived in consequence of his occupation of the fiduciary position."

133.I emphasise again in the context of the present case that a liability to account for profits arises from a fiduciary taking advantage of the opportunity or knowledge that his office has given him: see also Regal (Hastings) Ltd. v Gulliver at 154B-C (per Lord Wright) in a passage approved by Lord Hodson in Phipps v Boardman at 105A-C; Chan v Zacharia. If there is a causal link between the "opportunity" and the profits made, he will be liable to account. In order to be able to claim an account of profits, there must be shown this link. In Kishimoto at 278G-I, Litton VP makes precisely this point. I will deal with this aspect again in the context of business opportunities.

134.As I have mentioned, it is irrelevant that the profit made by the fiduciary was one that the beneficiary could not have made anyway or that the profit was not made at the expense of the beneficiary: see the rule in Keech v Sanford; Kishimoto at 267C-D; Furs Ltd. v Tomkies (1936) 54 CLR 583, at 592 (High Court of Australia). As Laskin J said in Canadian Aero Service Ltd. at 383, "Yet there may be situations where a profit must be disgorged, although not gained at the expense of the company, on the ground that a director must not be allowed to use his position as such to make a profit even if it was not open to the company". Gains made by a defaulting fiduciary are to be disgorged irrespective of whether the beneficiary had suffered any financially measurable loss; in short, the remedy of an account of profits does not have to bear any resemblance (and often does not) to the disadvantage suffered by the beneficiary: see Attorney General v Blake [2001] 1 AC 268, at 279E-280D per Lord Nicholls of Birkenhead.

135.Equally, the liability to account does not depend on the existence of fraud, absence of bona fides (the fiduciary may even have intended to act for the benefit of the beneficiary) and in the same way that it is unnecessary to demonstrate loss to the beneficiary, the fact that the beneficiary may also have profited is not relevant either: see Regal (Hastings) Ltd. v Gulliver at 144G (per Lord Russell of Killowen), 153C-D (per Lord MacMillan). Phipps v Boardman is a good illustration of the strictness of this principle. There, it will be recalled, the fiduciaries acted with the best of motives, indeed in an attempt to secure for the beneficiaries some gain from what had been regarded as a somewhat unsatisfactory investment in a company.

136.Viewed in this way, in one sense, an account of profits can be said to result in a windfall for the beneficiary. The justification for this is the public interest in maintaining the highest standards of loyalty and fidelity on the part of fiduciaries and, to this end, thus to ensure that fiduciaries are financially disinterested in the discharge of their duties. As the High Court of Australia observed in Warman v Dwyer (1995) 128 ALR 201, at 209, "The objectives which the rule seeks to achieve are to preclude the fiduciary from being swayed by considerations of personal interest and from accordingly misusing the fiduciary position for personal advantage".

137.Conceptually, where a fiduciary has obtained an unauthorised profit for himself, equity will insist on treating him as having obtained it for his beneficiary: see the talk given by Sir Peter (now Lord) Millett Bribes and Secret Commissions [1993] RLR 7, at 20 in a passage referred to by the Judicial Committee of the Privy Council in Attorney General for Hong Kong v Reid [1994] 1 AC 324, at 337.

138.In the context of maturing business opportunities, the fiduciary is treated as having appropriated property which belongs to the beneficiary and he is therefore accountable to him for the profits as though it was trust property: see CMS Dolphin Ltd. v Simonet [2001] 2 BCLC 704, at 733d-f.

139.The difficulty about an order for an account of profits which usually confronts the courts (and which exists in the present case) are the limits of this remedy. Although, as noted above, an account of profits can be said in one sense to have the consequence that the beneficiary obtains a windfall, nevertheless it is crucial to remember that the duty to account is not completely open-ended. There must be some reasonable limits to it. Mr. Kwok recognises this and I shall return to his submissions in due course.

140.I begin with the approach of the courts that the imposition of any equitable remedy such as the liability to account is not penal in nature. Lord Denning MR was at pains to emphasise this in the context of an award of compound interest against a trustee: Wallersteiner v Moir (No.2) at 388. As James LJ put it in Vyse v Foster (1872) LR 8 Ch.App. 309, at 333, 'This Court is not a Court of penal jurisdiction'. An account of profits is therefore intended to represent the gain made by the defaulting fiduciary. But how is this to be applied in practice? A number of propositions assist here.

141.The object in ordering an account of profits is to ascertain as accurately as possible the true measure of the profit or gain made by the defaulting fiduciary as a consequence of his breach of fiduciary duty: see Hospital Products Ltd. at 110. The most straightforward case is perhaps where there is a specific and identifiable gain that the fiduciary has made directly resulting from the breach of duty. For example, a fiduciary has used money belonging to the beneficiary to invest in the stock market and has made a gain in doing so. We are not concerned with that type of situation in this case.

142.In contrast, at the other end of the spectrum, where, as in the present case, a fiduciary has taken advantage of a business opportunity (as we shall see, the business accruing to K & P from having BOC as a client) in breach of his fiduciary duties, the position is not necessarily that clearcut and care must be taken not to penalise the fiduciary when ordering an account of profits. To put it another way, while the fiduciary who has been found to be in breach of his fiduciary duties here must disgorge the whole of his profits, he is only accountable for those profits properly and reasonably attributable to the breach: see CMS Dolphin Ltd. at 733f- 734a. In a case where a business opportunity is involved, the exercise of ascertaining these profits will often become a difficult one in practice.

143.In this situation, it is impossible to adopt an approach that borders on any mathematical exactness and the court must really work on what Slade J described in My Kinda Town Ltd. v Soll [1982] FSR 147, at 159, as "a reasonable approximation". Here, the approach must be to take into account various factors relevant to the critical inquiry (namely, what is the gain that the fiduciary has made as a result of his breach of fiduciary duty?). The following go to the Court's approach in this context (obviously they are not exhaustive):-

(1) Perhaps the most important guide for the Court here is flexibility. In some circumstances, the Court may only order an account of limited aspects of the business accruing to the fiduciary flowing from the breach of duty rather than an account of the entire business. In other cases, the Court may order an account of profits to reflect the whole of the business and merely give allowances to the fiduciary for the time, energy, skill and financial contribution he has made. Whatever approach is appropriate would depend on the circumstances: see the approach of Upjohn J in re. Jarvis [1958] 1 WLR 815, at 820. There may be other approaches that will be appropriate. As Upjohn J said at 820, "I do not think it is possible to lay down any general rule in relation to businesses beyond the general principle already stated, that a trustee may not make a profit out of his trust".

(2) In some cases, where a fiduciary has mixed profits he has made from the breach of duty with his own property so as to render the identification of the gain impossible, the whole of the property may be treated as trust property (i.e. property belonging to the beneficiary) and he may therefore have to account for the whole: Hospital Products Ltd. at 109-110.

(3) In taking an account of profits, in most cases it will be right to make allowances for expenses, overheads and financial contribution (sometimes even a reasonable salary for the wrongdoer) so as to reflect the 'cost' of the profit as it were. This is consistent with the overall object of the remedy of an account of profits, namely, to give to the beneficiary the true extent of the profits made by the fiduciary, not to punish him.

(4) Consistent with this approach, it may sometimes be appropriate to put a cap on the duration for which the account of profits is ordered. In the case of a one off venture (such as the purchase of shares or a specific property for investment), the account of profits would be relatively well defined. On the other hand, where one is trying to ascertain the profits attributable to a breach of fiduciary duty involving an ongoing business or business relationship, the limits are much less easy to define. In some cases, there comes a point when the profits of the relevant business are so remote from the breach of fiduciary duty that it would simply be unfair to force the fiduciary to continue to account. For example, in Warman, the approach of the High Court of Australia to this question involved looking at factors such as how long the relevant business could have remained with the beneficiary anyway and the input of the fiduciary into the business. Mr. Kwok recognises this in the present case and submits that any account of profits should be limited to a period of 2 years.

144.It can thus be seen that when dealing with an account of profits as regards business opportunities, the Court's approach must necessarily be flexible. The key is to remember at all times the critical inquiry referred to above which emphasises to need to focus on causation and remoteness when examining the link between the breach of duty and the gain. It is in considering the terms of the order for an account of profits that the Court will ensure that the fiduciary is not punished and that his liability is "not transformed into a vehicle for the unjust enrichment of the plaintiff": see Warman at 212.

145.It makes no difference to the ordering of an account that the wrongdoer has transferred the benefit of the business opportunity to another vehicle or, as in our case, to a partnership, in which he has an interest. In these circumstances, the fiduciary in breach will still be liable for the whole of the profits even though within the company or the partnership, he may only share in a part of the profits. In other words, he is accountable for the whole of the profits arising from the relevant business opportunity he has in breach of his fiduciary duty taken advantage of. It is immaterial that the fiduciary has chosen to share this with anyone. See here: Imperial Mercantile Credit Association v Coleman (1873) LR 6 HL189, at 202, 208; CMS Dolphin Ltd. at paragraphs 98-105.

146.A beneficiary who sues for breach of fiduciary duty can of course elect which remedy he wishes to pursue. That much is not in dispute. However, Mr. McCoy has focused on the delay aspect. Like all equitable remedies, an account of profits is a discretionary remedy. In Clegg v Edmondson (1857) 8 De GM & G 787, at 814, Knight Bruce LJ said, "In such cases a man having an adverse claim in equity on the ground of constructive trust should pursue it promptly, and not by empty words merely." Mr. McCoy also makes reference to a decision of the New Zealand High Court, Aquaculture Corporation v NZ Green Mussel Co. Ltd. (No.3) (1986) 1 NZIPR 678, at 690. Again, as a principle, it cannot be doubted that delay in seeking relief in equity is sometimes a factor militating against the granting of relief. Whether or not it bars relief in any given case of course depends on the facts.

147.I should also mention at this point the position of partners under the Partnership Ordinance. Section 31(1) states:-

"31. Accountability of partners for private profits

(1) Every partner must account to the firm for any benefit derived by him, without the consent of the other partners, from any transaction concerning the partnership or from any use by him of the partnership property, name, or business connexion"

148.In my view, that subsection does not add much to the common law position in the context of the present discussion. It was submitted by Mr Burns (for KLY) that s.31(1) gave his client an absolute entitlement to an account once it was shown that a partner had made use of a "business connexion". True it is that the subsection is couched in mandatory terms, but the limitations and qualifications to this remedy referred to above, in my view must, nevertheless, remain applicable. No authority has been cited to me which suggests otherwise and, as a matter of principle, any such contention, particularly in the context of what is essentially an equitable remedy, is untenable.

149.I now apply these principles to the present case. In my judgment, there can be no question of an account of profits in relation to Claims 1,5 or 6:-

(1) As to Claim 1, this breach on the part of Koo did not result in any gains made by him. The Law Centre idea was, it will be recalled, abandoned. True it is that it provides the background to Claim 2, for that is a different matter.

(2) As to Claim 5 and 6, no real basis was demonstrated by Mr Kwok as how an account of profits could arise thereunder. Indeed, I see no basis to so order.

150.Accordingly, in respect of the breaches in Claims 1, 5 and 6, I order nominal damages of $1 for each of those claims.

151.It was clear that KLY's claim for an account of profits related principally to Claim 2 alone. Here, the contention that an account of profits should be ordered has more substance.

152.Claim 2 involves the diversion of a business opportunity (BOC work) by Koo to himself or more accurately, to K & P. As concluded above, this was an opportunity about which he should have informed the other partners of KLY and indeed, he should have tried to persuade BOC to appoint (or at least consider appointing) KLY as the "friendly outside law firm".

153.Instead, the business opportunity was diverted to K & P. In my judgment, the remedy of an account of profits is entirely appropriate in the circumstances of the present case. Koo must account for the profits made from the BOC work that was given to K & P.

154.I have already mentioned the submission made by Mr McCoy that, given Koo's relationship with BOC, that entity would have followed him wherever he went. This was effectively the "pied piper" scenario. The relevance of this submission to the question of account of profits is presumably that if it were true, then it might be argued that there was simply no causative link between the profits made by Koo arising from BOC work and the breach of fiduciary duty under Claim 2.

155.I do not accede to this argument (if it is in fact made at all). In my view, there was a clear link between the business opportunity that came Koo's way in July 1993 and the profits he and his firm made from BOC work. The following factors are of note:-

(1) While it is true that as far as clients of solicitors are concerned, the personality of the solicitor is important, I agree with Kao that as far as legal services are concerned, especially banking work, it is not 100% dependent on the solicitor's personality.

(2) Much has to do with the ability of the solicitor concerned and that of the firm in which he works. While Koo no doubt enjoyed a very close relationship with BOC, was extremely capable and had their confidence, he was not the only solicitor they used. As stated above, in 1993, BOC used a number of different solicitors firms.

(3) Indeed, what BOC told Koo in July 1993 was that they wanted to use the services of a "friendly outside law firm", not any firm that Koo was in, whatever that might be.

(4) It just cannot be said that if Koo had encouraged or persuaded BOC to use KLY or if any other partners or the other partners of KLY had tried to persuade BOC to appoint KLY the "friendly outside law firm", BOC would only have responded by insisting on following Koo . Afterall, as Kao said, up to 30 September 1993, 3,000 hours of chargeable time in 600 cases had been performed by KLY for BOC, for which no bills had been rendered.

(5) In short, an opportunity was presented and Koo took it for his own advantage.

156.That said, however, although I am of the view that an account of profits should be ordered in the present case in relation to Claim 2, some limits to this remedy must be imposed so as not to penalize Koo and so as to reflect the reality of the situation. In my judgment, the following factors are not to be ignored:-

(1) There is no doubt that Koo enjoyed the position of immense trust and confidence placed on him by BOC. And equally there is no doubt that he was a "rainmaker". The facts speak for themselves here. The work that KLY did for BOC and its Group prior to Koo joining in 1989 was very little in comparison with the work that was carried out for the BOC Group after Koo joined. This was expressly acknowledged by Kao, who in his evidence, did acknowledge that Koo had a "grip" on BOC. After Koo left, for the period 1 October 1993 to 31 July 1994, KLY's billings, as far as the BOC Group was concerned, dropped substantially.

(2) Generally, in the field of legal services, many factors determine the reasons and the extent to which a client will retain a firm of solicitors. I have already mentioned that the personality of the solicitor concerned. There are other factors such as the set up of the solicitors firm itself, its staff (both legal and otherwise), the specializations of the firm and the reputation of the firm generally. Also important would be the track record of performance of the firm towards the client.

157.It would accordingly not be fair or just in the present case to order an account of profits that Koo made in relation to BOC and BOC Group business for an indeterminate period of time. As time passed, any profits that K & P made from providing legal services to BOC and the BOC Group would have become increasingly remote from the "business" opportunity that was presented to Koo in July 1993. Some time limit should therefore be put on the period for which an account of profits should be ordered in the present case. Mr Kwok submitted that it should be two years. No real grounds were articulated in support of this period.

158.In my judgment, an appropriate period for the account of profits would be one year from 1 October 1993. I arrive at this figure for the following reasons (apart of course from those matters I have set out in paragraph 156 above):-

(1) One of the helpful, albeit hypothetical, ways of testing the matter is to ask the question for how long BOC would have provided KLY with the type of work it intended to give to the "friendly outside law firm" had Koo not breached his fiduciary duties. I appreciate that this is not relevant as far as deciding whether or not an account of profits should be ordered:- see Keech v Sandford. However, it is in my view a legitimate aid as far as trying to ascertain the appropriate period for which an account of profits should be ordered, is concerned. This was done in Warman.

(2) While Koo's influence was significant as far as BOC was concerned, I do not believe (for the reasons stated above) that BOC would have followed Koo blindly wherever he went. No doubt at some stage BOC would have gravitated towards Koo even if Koo had not breached his fiduciary duties, but this would not have been on 1 October 1993 (and Koo has not adduced any evidence to suggest otherwise). If Koo had complied with his fiduciary duties, I believe that BOC would have given to KLY the bulk of the work they eventually gave K & P starting from 1 October 1993. Afterall, BOC was familiar with KLY, had worked with the firm and in fact even after Koo left, they continued to give work to KLY.

(3) In my view, the period of 1 year represents the time that BOC would have given work to KLY (that K & P in fact got) had Koo not been in breach. Even with Koo leaving as from the 1 October 1993, it would have taken some time before BOC would have redirected his work to K & P. BOC was afterall a large bank which used a number of solicitors firms. To switch from firm to firm, particularly in these circumstances and where transactions are not necessarily just one off or short in duration, would have taken some time.

(4) I have also taken the view that by seizing the said business opportunity for himself and K & P, Koo gave his firm a head start (as far as BOC business was concerned). This head start, even with Koo's connections and ability, can, not unreasonably, be estimated at about a year.

159.The estimate of one year is of course a rough approximation, dependent as it is on the number of assumptions. Still, however unscientific the exercise is, it has to be done in order to do justice not just to KLY but also to Koo.

160.In addition, I would just like to clarify some more points about the account of profits which I intend to order:-

(1) The relevant profits for which an account is to be taken and for which Koo is liable, are those made by K & P (the vehicle used by Koo to take advantage of the business opportunity) in relation to the legal services provided to not only BOC but also the BOC Group. I think it right that the Group is included because the business opportunity that was proposed to Koo in July 1993 related to the wish of the "BOC Regional Office" to use the services of a "friendly outside law firm". Here, the establishment of the Law Centre provides some insight. It will be recalled that one of the reasons for establishing the Law Centre was to expand the legal department of the BOC Regional Office so to better serve BOC Group as a whole.

(2) The BOC Group comprises a number of banks. The billings of KLY referred to in paragraph 103(6) above relate to the BOC Group. The Group therefore comprised banks such as The China Development Finance Company Hong Kong Limited, The China and South Seas Bank Limited, Hua Chiao Commercial Bank Limited, Kwangtung Provincial Bank, Sin Hua Bank Limited, BOC China Fund Limited, BOC Group Investment Limited, and China Development Investment Management Limited. There may have been others in the Group.

(3) In his final submissions, Mr Kwok also claimed that any account of profits should include referrals of clients emanating from the BOC Group. I do not agree. In my view, this was not part of the business opportunity that was presented to Koo in July 1993:- see paragraph 91 above referring to paragraph 34 of the Koo's 3rd Affirmation.

(4) In taking the account of profits, allowances will have to be made for the expenses and overheads incurred in relation to such profits. This will include relevant salaries and an assessment, in monetary terms, of the time spent by solicitors and staff (including Koo himself).

161.Finally, I will just deal with a point that Mr McCoy made as to delay:- see paragraph 146 above. It was submitted that KLY was guilty of inexcusable delay in seeking the relief of an account of profits and so should be denied thus equitable relief. On the penultimate day of the trial (in the course of Mr McCoy's closing submissions), an application was made to amend the Re-Re-Amended Defence to plead delay. Mr McCoy stated he did not rely on laches, only on post Writ delay. I refused the application for leave to amend and said that the reasons for this refusal would be incorporated into the present judgment.

162.Essentially, the application was refused because it had been made far too late. KLY's claim for an account of profits under Claim 2 had been in existence since the time the Statement of Claim was re-re-amended on 30 July 2001. The Defendants chose neither to resist those amendments at the time leave to amend was sought nor to apply to amend the Defence to plead delay once leave was given.

163.In so far as the Defendants assert they are somehow prejudiced by the delay (and I am not sure that they were asserting this), I would point out that an order was made by Mayo J on 21 January 1994 whereby Koo was ordered to maintain an account of all work undertaken by K & P in relation to any former clients of KLY until trial or further order. The point therefore has no merit either.

Outcome of trial

164.KLY succeeds on Claims 1 and 2 against Koo and on Claims 5 and 6 against all Defendants (bar the 5th Defendant). Claims 3 and 4 are dismissed. All claims against the 5th Defendant are also dismissed.

165.On Claims 1,5 and 6, I award KLY $1.00 on each claim as damages.

166.On Claim 2, I order an account of profits on the basis stated above.

167.I will hear the parties on costs and if necessary, on the precise form of the judgment.

168.Lastly, as a postscript to this judgment, I would just remark on a consistent theme run by Mr McCoy that Kao was an vindictive man who, together with Yip, has caused the present litigation to be maintained against the Defendants out of spite. This is going too far and I take this opportunity to reject this accusation. Kao and Yip are, like Koo, extremely ambitious men who often played "hardball". They insist on the enforcement to the fullest possible extent of what they regard as their legal entitlement. There is nothing wrong in this, whatever one may personally think about such behaviour. While it is true that KLY has failed on some claims and have on others, only obtained nominal damages and furthermore, has only at a very late stage abandoned the action against the 5th Defendant, these are matters that go towards the incidence of costs.

Representation:

Mr Kenneth Kwok SC and Mr Ashley Burns instructed by Messrs Herbert Smith for the Plaintiff.

Mr Gerard McCoy SC, Mr Kevin Patterson and Miss Winnie Lau instructed by Messrs Tanner De Witt for the Defendants.