Read the full judgment text of HCA 8847/1993 on BabelCite. This High Court CFI judgment was delivered on 2 April 2003 before Geoffrey Ma J.
Equity – fiduciary duties – partners and employees – solicitor leaving partnership to set up a new firm with assistant solicitors recruited from the old firm – establishment of rival in-house legal services unit and subsequent 'friendly outside law firm' for a major client – non-conflict duty and not to profit duty – maturing business opportunity – account of profits – equitable remedies – whether preparatory steps amount to breach – whether duty to inform employer of fellow partner's alleged breach. The Plaintiff firm KLY, a major Hong Kong solicitors' firm, sued the 1st Defendant (a former equity partner) and the 2nd to 6th Defendants (former assistant solicitors/trainee) for breach of fiduciary duty and breach of the KLY Deed of Partnership (cl. 13, 15(a) and (b)) and employment contracts, in connection with Koo's advice to the Bank of China ('BOC') in setting up an in-house Law Centre, the subsequent setting up of a new firm K & P (with BOC's support and at BOC's premises in Bank of China Tower, with BOC financing), the recruitment of the 2nd to 6th Defendants, and the taking of preparatory steps in July to September 1993. Held, dismissing Claims 3 and 4, and otherwise substantially succeeding on Claims 1, 2, 5 and 6 (against the 1st to 4th and 6th Defendants, the action against the 5th Defendant having been abandoned). (1) Claim 1 (Law Centre) – Koo acted as in-house counsel to BOC in his capacity as a partner of KLY, so legal professional privilege did not excuse non-disclosure to his partners; consent to act as in-house counsel did not extend to acting adversely to KLY's interests; in advising and helping set up the Law Centre and recruiting the 2nd to 6th Defendants, Koo breached the non-conflict duty, the not to profit duty and cl. 13 and 15 of the Deed. (2) Claim 2 (BOC work) – when BOC indicated in July 1993 that it wished to use a 'friendly outside law firm', this was a tangible, mature business opportunity which Koo should have communicated to KLY and sought to have channelled to KLY; he breached fiduciary duty and cl. 13 and 15 by taking it for himself and K & P; applying Kishimoto Sangyo Co Ltd v Akihiro Dba and Canadian Aero Service Ltd v O'Malley, the opportunity was a maturing business opportunity, and the 'rainmaker' / 'pied piper' argument did not defeat liability. (3) Claim 3 (neglect of practice) – dismissed; bare absence of timesheets did not establish non-performance, and the billings for the period showed Koo attributable with 63% of BOC Group billings and 91% of BOC billings, with no contemporaneous complaint by Kao or Yip. (4) Claim 4 (2nd–6th Defendants' failure to inform) – dismissed; no general duty on an employee to inform of a fellow employee's breach, no such term in their employment contracts, and no evidence they knew of any breach. (5) Claim 5 (preparatory steps) – the 2nd to 6th Defendants, as future partners of K & P, overstepped the line of permissible preparatory steps by using their position as KLY solicitors (witnessing the KPSL Memorandum and signing the Declaration of Compliance 'presented by KLY'), attending an EGM of KPSL on 19 September 1993 during working hours, and using the offices of BOC (a major KLY client) to lease premises and obtain credit facilities while still employed by KLY; breach established. (6) Claim 6 (documents) – breach of fiduciary duty, the Deed (Koo) and employment contracts (2nd to 6th Defendants), and conversion, established on the basis of documents taken/copied in suspicious circumstances (the 5th Defendant having been abandoned); the compliance with Stock J's Anton Piller order did not preclude the claim. (7) Remedies – Claim 7 – the court distinguishes breach of fiduciary duty (attracting equitable remedies) from breach of non-fiduciary duty (compensatory only). An account of profits is appropriate on Claim 2, but the court exercises its equitable discretion to limit the account to BOC and the BOC Group legal services provided by K & P for a period of one year from 1 October 1993 (rejecting Mr Kwok's two-year submission), with allowances for expenses, overheads, salaries and a fair allowance for Koo's time and skill; KLY's 'loss of chance' argument is rejected; the application to amend to plead delay was refused as made too late. Nominal damages of $1.00 are awarded on each of Claims 1, 5 and 6. The court rejects Mr McCoy's submission that KLY was re-litigating the restraint of trade clause (which had been held unenforceable) and rejects suggestions that Kao and Yip maintained the proceedings out of spite. Costs and the precise form of judgment were to be heard separately. 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.
Legal issues: Koo's liability for advising and assisting BOC in setting up the Law Centre · Koo's liability for diverting BOC work to K & P as a maturing business opportunity · Koo's alleged neglect of KLY's practice (Claim 3) · Duty of 2nd to 6th Defendants to inform KLY of Koo's activities (Claim 4) · Defendants' liability for preparatory steps in setting up K & P (Claim 5) · Defendants' liability for removal of documents (Claim 6) · Remedy: scope of account of profits against Koo (Claim 2)
Outcome: KLY succeeds on Claims 1, 2, 5 and 6 (subject to the 5th Defendant); Claims 3 and 4 are dismissed, as are all claims against the 5th Defendant.
Cites 1 case