Union Knopf (HK) Ltd v. Marcel Sossnowski and Another

DCCJ 680/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 680 OF 2010

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REASONS FOR DECISION

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1.The 1^st defendant was the former managing director of the plaintiff and was the sole registered shareholder and director of the 2^nd defendant when the 2^nd defendant was incorporated.

2.The 1^st defendant tendered his resignation on 28 November 2007 and left the plaintiff’s service on 31 May 2008.  The 2^nd defendant was incorporated on 6 May 2008 and was engaged in business similar to that of the plaintiff.

3.The plaintiff claims against the 1^st defendant for breach of fiduciary duties and breach of express and implied terms of employment contract including restrictive covenants and duty of confidence.

4.The plaintiff claims against the 2^nd defendant for dishonestly and/or knowingly misappropriated the plaintiff’s confidential information and trade secrets by procuring the 1^st defendant to do so or being the vehicle used by the 1^st defendant for the purpose of misappropriating the plaintiff’s confidential information and trade secrets.  The plaintiff also claims against the 2^nd defendant for knowingly employed and/or engaged the 1^st defendant who was bound by the restrictive covenants and implied terms in his contract of employment and the fiduciary duties owed to the plaintiff and/or dishonestly and/or knowingly assisted the 1^st defendant in his breach of the restrictive covenants, implied terms and fiduciary duties.

5.In the Re-Re-Amended Statement of Claim, the plaintiff claims against the 1^st defendant for:

(A)  damages or equitable compensation for breach of fiduciary duties;

(B)  alternatively an account of the 1^st defendant’s profits earned thereby and/or resulting therefrom and payment of the sum found due;

(C)  further or alternatively, a declaration that the 1^st defendant holds such profits on constructive trust for the plaintiff; and

(D)  all necessary accounts and inquiries including where necessary all tracing orders and consequential directions.

6.The plaintiff claims against the 2^nd defendant for:

(A)  damages;

(B)  alternatively, a declaration that the 2^nd defendant holds its profits as constructive trustee for the plaintiff;

(C)  further or alternatively, an account of all the profits made by the 2^nd defendant, whether as a result of the 1^st defendant’s breach of contract and fiduciary duties or otherwise, and payment over of all sums found due; and

(D)  all necessary accounts and inquiries including where necessary all tracing orders and consequential directions.

7.Of course, the plaintiff also claims interest and costs against both defendants.

8.It can be seen that some remedies claimed by the plaintiff are alternative and some are cumulative.

9.The plaintiff has not elected between the alternative remedies claimed.  At the pre-trial review held on 8 February 2013, the defendants raised this issue of election.  The defendants said that the plaintiff should make the election before the commencement of the trial and latest by closing submissions.

10.The plaintiff said that it could make the election after determination of the liability issue.

11.I directed at the pre-trial review that this issue of election to be dealt with as a preliminary issue on the 1^st day of the trial and before the commencement of the trial.

12.I heard the parties’ submissions on this issue before the commencement of the trial and ruled on 8 April 2013 that if the plaintiff’s case was that it was entitled to alternative remedies in respect of a particular claim herein, it had to elect between the alternative remedies not later than the closing submissions.  I also ordered the plaintiff to pay the defendants’ costs for the hearing of 8 April 2013 in respect of this preliminary issue.

13.I had reserved my reasons for decision which I now set out below.

The defendants’ case

14.Mr McLeish representing the defendants submitted that the remedies of an account of profits and damages were alternative and inconsistent remedies and that the plaintiff was required to make an election between them.

15.Mr McLeish sought a direction that the plaintiff should be required to make its election before the trial got under way; with a fallback position, that the plaintiff ought to be put to its election latest at the time of closing submissions.

16.Mr McLeish referred to the following passages of the judgment of Lord Nicholls in Tang Man Sit v Capacious Investments Ltd [1996] 1 AC 514 at 521:

“Faced with alternative and inconsistent remedies a plaintiff must choose, or elect, between them. He cannot have both. The basic principle governing when a plaintiff must make his choice is simple and clear. He is required to choose when, but not before, judgment is given in his favour and the judge is asked to make orders against the defendant.”

“In the ordinary course, by the time the trial is concluded a plaintiff will know which remedy is more advantageous to him. By then, if not before, he will know enough of the facts to assess where his best interests lie. There will be nothing unfair in requiring him to elect at that stage.”

17.Mr McLeish pointed out that there was no order for a split trial in this case.  He further pointed out that on 30 April 2012 the plaintiff obtained an order for specific discovery against the 2^nddefendant (the “Discovery Order”).  The basis for the plaintiff to seek the specific discovery as stated in paragraph 3 of the fifth affirmation of Eberhard Wilhelm Ganns filed herein on 24 February 2012 was, inter alia, to obtain documents necessary and relevant to the election by the plaintiff for damages or an account of profit.  Mr McLeish said that the 2^nddefendant had disclosed about 1,500 pages of documents including quotations, purchase orders and invoices of the 2^nd defendant to the plaintiff pursuant to the Discovery Order.

18.He referred to Cantor Fitzgerald Europe & Anor v Jason Jon Boyer & Ors (unrep., Reyes J, HCA 1160/2011, HCA 41/2012, HCA 42/2012, HCA 43/2012 & HCA 44/2012, 29 February 2012) which was also a case with no application for split trial and with relevant documents being disclosed.  The court in that case put the plaintiff to an election at the closing submissions. 

19.Mr McLeish submitted that with the documents disclosed pursuant to the Discovery Order, the plaintiff should already know enough of the facts to assess where its best interests lay andshould be required to make the election at the beginning of the trial.

20.Mr McLeish submitted that requiring the plaintiff to make its election at the beginning of the trial would substantially narrow down the issues between the parties as the court would then only need to concern with evidence relating to the elected remedies.

21.He referred to Order 1A, rule 1 of the Rules of the District Court (the “Rules”) which set out the underlying objectives of the Rules to, inter alia, increase cost-effectiveness, ensure a case was dealt with as expeditiously as was reasonably practicable, and promote a sense of reasonable proportion and procedural economy in the conduct of proceedings. 

22.Mr McLeish further submitted that the court should require the plaintiff to confirm that it was abandoning claim for compensatory damages as the plaintiff’s opening submission stated that “the issue of damages primarily turn on the profits made by the Defendants” and there was lack of evidence in the trial bundles on loss or damage to the plaintiff. He further submitted that the plaintiff had no legal basis to claim compensatory damages for post-termination breach of employment contract.

23.Mr McLeish also submitted that if the plaintiff elected for damages, it should not be allowed to elect for damages to be assessed.  He pointed out that the plaintiff had by amendment to its Statement of Claim deleted the words “to be assessed” after the word “damages” in its prayer and that the “Agreed Statement of Issues in Dispute” signed by parties’ solicitors provided for quantum to be dealt with at the trial.  Mr McLeish further relied on Born Chief Co v George Tsai & Anor [1996] 2 HKLR 188 to support his contention.

The plaintiff’s case

24.Mr Suen representing the plaintiff submitted that the plaintiff had multiple causes of action against the defendants.  They included claim for breach of fiduciary duties, claim for breach of confidence and claim for breach of restrictive covenants.  Different causes of action entitled the plaintiff to different remedies.

25.In respect of the 1^st defendant’s breaches of fiduciary duty and duty of confidence and the 2^nd defendant’s knowing assistance in such breaches, the plaintiff was entitled to an account of profits or damages/equitable compensation.  In respect of the 1^st defendant’s breaches of contract and the 2^nd defendant’s inducement of such breaches, the plaintiff might seek an account for profits or “hypothetical bargain damages”.

26.He submitted that the plaintiff should not be required to make an election before liability had been determined as one type of remedy would not cover the plaintiff’s different causes of action.

27.Mr Suen referred to the following passage in China Light & Power Co. Ltd v Ford [1996] 2 HKC 23 cited by Deputy High Court Judge Au-Yeung (as she then was) in怡居地產有限公司訴蘇麗華及其他人 (unrep., HCA 1024/2008, 16 June 2011) at paragraph 180:

“For breach of confidence, a plaintiff cannot be awarded both an accounting of profits and damages against the defendant. He has to make an election. In a proper case, a successful plaintiff may be permitted to make an informed decision on election within a reasonable time after judgment.”

28.Mr Suen said that if the court upheld the plaintiff’s claim for breach of fiduciary duties and the plaintiff elected to claim for account of profits, the court would have to determine the length of period for such account of profits and such period might overlap with the plaintiff’s claim for damages for breach of restrictive covenants.  He submitted that in such case it would be inappropriate to deal with the damages for breach of contract before the plaintiff had elected whether to seek damages or account of profits for breach of fiduciary duties or breach of duty of confidence.  He relied on the case of Guangzhou Green-Enhan Bio-Engineering Co Ltd & Anor v Green Power Health Products International Co Ltd & Ors (unrep., HCA 4651/2002, HCA 2802/2003 & HCMP 74/2004, 8 April 2005) when Lam J (as he then was) in a case involving claims for breach of contract and passing off followed the Chancery practice of ordering inquiry as to damages or alternatively, at the option of the plaintiff, account of profits.

29.Mr Suen further submitted that as the plaintiff had various causes of action against the defendants, the parties would not know which claims the plaintiff would succeed.  It would not be costs effective to require the parties to spent time at trial on quantum for a particular cause of action which might not be upheld by the court at the end of the trial.

30.Mr Suen further referred to Pioneer Way Development Ltd v Cheung Mary (unrep., HCA 717/2005, 26 September 2006, Yam J) when the court allowed a very late application for a split trial.

31.Mr Suen submitted that the court might give directions for the plaintiff to make election for remedies after determination of the liability issue.  He submitted that this would be more costs effective.

32.Mr Suen said that the defendant had not fully complied with the Discovery Order and there were still documents which the defendants should disclose. 

Discussion and rulings

33.The starting point for this case is that there is no order for split trial and there is no application for split trial.  In such case, the issues of liability and quantum will usually be dealt with together at the trial unless the relief granted will necessarily lead to further inquiries such as an order for inquiries of accounts.

34.This is not a case involving intellectual property claims as in the case of Guangzhou Green-Enhan Bio-Engineering Co Ltd & Anor v Green Power Health Products International Co Ltd & Ors.  Furthermore, in that case,the court was of the view that “the damages for breach of contract must overlap with that for passing off.” (See paragraph 156 of the judgment) This is not the case here.

35.If the plaintiff’s claims are upheld and it elects for account of profits for some of its claims which might overlap with damages of other claims, the court may give appropriate direction to avoid double recovery.

36.The parties in preparing a case where no order of split trial has been made should be geared to have both issues of liability and quantum to be dealt with at the trial.  Discovery will be made and witness statements prepared with such target in mind.

37.A plaintiff entitled to alternative remedies is entitled to make an informed election. However, this does not mean that there will invariably be a split trial for cases where the plaintiff has alternative remedies.  As pointed out in Tang Man Sit v Capacious Investments Ltd that therewould be nothing unfair in requiring a plaintiff to elect by conclusion of trial when the judgment was not a default judgment or summary judgment.  The case before me is not a case of default judgment or summary judgment.

38.A split trial order may in appropriate cases expedite the proceedings by reducing the scope of pre-trial discovery and limiting the extent of evidence on quantum at trial.  If the plaintiff fails in the whole claim, the costs for investigating into the quantum issue can be saved or if the plaintiff fails partly, part of such costs can be saved.  However, if a plaintiff succeeds wholly or partly, a split trial order will necessitate another hearing on quantum which will lead to increased costs and delay the final disposal of the case.  The court has to balance the advantages and disadvantages.

39.The general rule in Hong Kong is that all issues in a case (including issues on liability and quantum) are to be tried at the same time.  Departure from the general rule is ordered only if it is just and convenient.  An order for a split trial should only be made in exceptional circumstances or on special grounds. (See paragraph 33/4/9 of Hong Kong Civil Procedure 2013)  Lord Nicholls expressed the same view in Tang Man Sit v Capacious Investments Ltd in his judgment quoted in paragraph 16 hereinabove.

40.No order for split trial has been made for this case.  The parties have been preparing their cases on the basis that the issues of liability and quantum will be dealt with at the trial.  Discovery,especially the Discovery Order, was made with such goal in mind.  If the defendants had failed to comply with the Discovery Order which rendered the plaintiff unable to make the election, the plaintiff should have taken out appropriate interlocutory application to deal with such non-compliance before the case was set down for trial.

41.The plaintiff’s solicitors had confirmed in their Listing Questionnaire filed herein on 29 October 2012 that there was no outstanding direction to be complied with (paragraph A3) and that they did not intend to take out any interlocutory application (paragraph A5).  The plaintiff’s solicitors further confirmed that all steps that ought to be taken to prepare the plaintiff’s case for trial had been duly taken and complied with (paragraph A16) and that it was appropriate in all the circumstances to set the case down for trial (paragraph A17).

42.It is noted that in paragraph A7 of the said Listing Questionnaire the plaintiff’s solicitors stated that: “I confirm discovery has completed for now though the Plaintiff is still of the view that the 2^nd Defendant has not produced all the documents required to be produced.  The Plaintiff would leave it to be dealt with by order(s) for accounts and inquiries and other tracing orders and directions upon obtaining judgment against the Defendants.”

43.In such case, if there are further documents required to be produced by the defendants, these documents are only required if the plaintiff elected for the remedies of accounts, inquiries and tracing orders but not documents enabling the plaintiff to make the election.

44.Issues in dispute were also agreed by the parties with a view to dispose of all issues at the trial.

45.Pending examination of witnesses, all evidence required for determination of liability and quantum should have been available at trial.  After examination of witnesses at trial and by the time of closing submissions, there will be more than ample information available to the plaintiff to make an informed election.

46.In Pioneer Way Development Ltd v Cheung Mary the court was concerned that “the defendant should not be put to expenses and to the prejudice of giving of a further hearing enabling the plaintiff to prove damages.” (See paragraph 102 of the judgment)  In that case, the parties agreed on the fact that no witnesses should be called.  Yam J was of the view that:

“104. Not a word, of course, was said in respect of damages. If I order damages to be assessed by a master or by me in a further hearing, it would not put the defendant to further expenses. Secondly, there was no prejudice to the defendant. In particular, after the submission, Mr. Kwong, so belatedly and at the 11:59 hours, applied for a split trial.”

“106. Should the plaintiff bring in all the evidence and also as to damages, then the trial will require two full days for the hearing of evidence, at least one further day in terms of costs. But if I order damages to be assessed by a master, the same amount of money would have been spent by the defendant, so to my mind, there is no further expenses and prejudice to the defendant.”

47.It is under such circumstances that the court allowed the plaintiff’s very late application for split trial.  Pioneer Way Development Ltd v Cheung Mary is distinguishable with the case before me.  This case has been set down for a 5 days trial and we were at the commencement of the trial.  Evidence on quantum should have been prepared by the parties and would be placed before the court during the trial.  Any direction for split trial will necessitate a further hearing resulting in delay and further costs if the plaintiff shall succeed on the issue of liability.

48.I bear in mind that Pioneer Way Development Ltd v Cheung Mary was a pre-CJR decision decided in 2006.  After the CJR, underlying objectives of the Rules, including achieving costs effectiveness, expeditious disposal of cases and procedural economy, are expressly set out in Order 1A, rule 1 of the Rules.  The court shall seek to give effect to these underlying objectives when it exercises any of the power.  (See Order 1A, rule 2(1) of the Rules)

49.In Cantor Fitzgerald Europe & Anor v Jason Jon Boyer & Ors, a post-CJR case decided in 2012, the court was also dealing with claims for breaches of employment contract (including restrictive covenants) and fiduciary duties.  The court required the plaintiff to make an election at the closing submissions as there had been no application for a split trial and relevant documents had been disclosed.  Reyes J was of the view that “by the time of closing submissions, there was more than ample information available to the Plaintiffs on which they could make an informed choice whether to elect for damages or an account.” (See paragraph 24 of the judgment)  We have a similar situation here.  The fact that the plaintiff has multiple causes of action in claiming breach of employment contract and fiduciary duties in the same case is no obstacle to an election of alternative remedies.

50.Lord Nicholls recognized in Tang Man Sit v Capacious Investments Ltd at 522 that the principles regarding election between alternative remedies were no more than practical applications of a general and overriding principle that proceedings should be conducted in a manner which struck a fair and reasonable balance between interests of the parties, having proper regard also to the wider public interest in the conduct of court proceedings.  Lord Nicholls quoted Lord Wilberforce in Johnson v Agnew [1980] A.C. 367 at 398: “Election, though the subject of much learning and refinement, is in the end a doctrine based on simple considerations of common sense and equity.”

51.The court has to balance the right of the plaintiff to make only an informed choice and the aforesaid underlying objectives of the Rules.  In this case, there is no order for split trial and the parties have been preparing the case for trial with a view to deal with both issues of liability and quantum at trial.  I am of the view that the plaintiff shall be directed to make an election of remedies.  The direction shall be given at the commencement of the trial so that the parties will know whether they have to deal with evidence on quantum at trial.

52.It is unfair to require the plaintiff to make the election at the beginning of the trial before it has the chance to examine the defendants’ witnesses.  In the premises, I have directed the plaintiff to make its election for remedies latest by closing submissions.  By that time, all evidence, including testimony from witnesses, should have been placed before the court and made available to the plaintiff.

53.I note that the plaintiff has claimed different causes of action against the defendants and different causes of action may entitle the plaintiff to different remedies.  Accordingly, I direct that the plaintiff shall make election in respect of each cause of action which the plaintiff claims that it is entitled to alternative remedies.  Of course, no election is required if the remedies sought are cumulative.

54.I do not agree that I shall before the commencement of the trial make any order stipulating particular form of remedy as not available for election or requiring the plaintiff to confirm abandonment of certain remedies as suggested by Mr McLeish.  These are matters for closing submissions.

Costs

55.Mr McLeish asked for costs with counsel certificate.

56.Mr Suen submitted that the defendants’ argument to require the plaintiff making election at the beginning of the trial was rejected by the court.  The defendants only succeeded in their fallback position. They should not be considered as successful in the determination of this preliminary issue.  He further submitted that the preliminary issue was dealt with in the opening submissions.  It overlapped with other issues.  The costs incurred should be part and parcel of the trial costs.  He proposed costs in the cause.

57.The preliminary issue is an issue determined before commencement of the trial.  The costs incurred are not part and parcel of the trial costs.

58.The defendants sought a direction requiring the plaintiff to make its election either at the beginning of the trial or at the end of the trial.  The defendants succeeded in getting such direction although the time of election directed by the court was not at the beginning of the trial as preferred by the defendants.

59.The plaintiff resisted such direction and maintained that it should not be required to make the election until after determination of the liability issue.  The plaintiff failed to persuade me to agree to its contention.

60.The plaintiff failed in its argument on the preliminary issue and should bear the defendants’ costs for arguing the preliminary issue at the hearing on 8 April 2013.

61.I have ordered the plaintiff to pay forthwith the aforesaid costs of the defendants with counsel certificate.  I have subsequently assessed such costs by summary assessment.

Mr Jenkin Suen, instructed by Messrs Marie Tsang, Dustin Chan & Co, for the plaintiff

Mr Robin McLeish, instructed by Messrs Simmons & Simmons, for the 1^st and 2^nd defendants