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Akihiro Oba And Others v Kishimoto Sangyo Co. Ltd. And Another

Judgment Cited authorities 4 Cited in Precedent Map Related
Vincent
Judgment Date12 April 1996
Subject MatterCivil Appeal
Judgement NumberCACV211/1995
CourtCourt of Appeal (Hong Kong)
CACV211/1995 AKIHIRO OBA and Others v. KISHIMOTO SANGYO CO. LTD. and Another

CACV000211/1995

IN THE COURT OF APPEAL

1995, No. 211
(Civil)

Headnote

Contractual duties of employees and fiduciary duties of directors of companies - Breach of duties of fidelity resulting in nominal damages - Whether breach of fiduciary duties led to equitable remedies - Concept of diversion of maturing business opportunity in Canadian Aero Service v. O'Malley [1973]40 DLR (3rd) 371 is one aspect of the wider principle of equity stated in Regal (Hastings) Ltd. v. Gulliver [1967]2 AC 134.

Held (Court of Appeal) reversing the trial judge: Breach of contractual duties sounded in nominal damages only. Diversion of business opportunity requiring the intervention of equity not established on the judge's findings of fact. Appeal allowed.

IN THE COURT OF APPEAL

1995, No. 211
(Civil)

BETWEEN
KISHIMOTO SANGYO CO. LIMITED
KISHIMOTO SANGYO (HK) CO. LIMITED		 1st Plaintiff/Respondent

2nd Plaintiff/Respondent
AND
AKIHIRO OBA
LEUNG HIN YAN, BERNETT
BOIS TECHNOLOGY LIMITED		 1st Defendant/Appellant
2nd Defendant/Appellant
3rd Defendant/Appellant

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Coram: Hon. Litton, V.-P., Godfrey and Ching, JJ.A.

Date of hearing: 19, 20, 21, 22 and 26 March 1996

Date of handing down of judgment: 12 April 1996

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J U D G M E N T

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Litton, V.-P.:

Introduction

1. This is an appeal by the defendants in an action tried by Barnett J in June, July and August 1995. By his judgment dated 6 September 1995 Barnett J gave judgment for the plaintiffs, in terms which will need close analysis later on.

2. The 1st Plaintiff (Kishimoto Japan) is a large Japanese trading corporation. The 2nd Plaintiff (Kishimoto HK) is a subsidiary of Kishimoto Japan. From 1991, when he was seconded from Japan to Hong Kong, the 1st Defendant (Mr Oba) was managing director of Kishimoto HK, for the purposes of developing the overseas trade of Kishimoto Japan. He remained at the same time a senior manager of Kishimoto Japan. His principal function was to develop Kishimoto's business in the region, and this included the emerging liquid crystal display (LCD) market. This product, known more precisely as TFT-LCD (thin film transistor - liquid crystal display) is the display component found in colour computer notebooks and products of this kind. Essentially, it is the screen on which the images are displayed. It consists of two pieces of glass with a minute gap in-between (measuring 0.3 microns) which is filled with liquid crystal. On one of the pieces of glass there is implanted a micro printed-circuit, the other piece of glass being a colour filter. When the printed circuit is energised, the liquid crystal refracts light and this forms the basis of a high resolution colour screen. Technically, this unit is known as a "cell assembly process" and it was the obtaining of contracts for the supply of equipment to mass produce these screens which provided the focus of this case.

3. In brief outline, the events leading up to this litigation is as follows:

(i) In early 1993 Oba was in discussion with the senior management of a Taiwanese company called Prime View International Limited. Mr Oba had great expertise in TFT-LCDs and was highly respected in the field. As a result of Mr Oba's efforts, Kishimoto HK, acting as a middle-man, was able to secure two contracts with Prime View for the installation of a pilot plant in Taiwan. The contracts were made in May and June 1993 and the manufacturers of the equipment were three Japanese companies known as Iinuma Gauge (headed by Mr Iinuma), Nakan (headed by Mr Odajima) and SPC. The purpose of the pilot plant was to test the viability of Prime View mass-producing TFT-LCD. The cell assembly process was one of the three processes constituting the production line which Prime View was contemplating setting up.

(ii) In mid-June 1993 Mr Oba was told by head office that Kishimoto HK was no longer to develop the Taiwan business. The business was to go to the Taiwan subsidiary. He was unable to accept this corporate ultimatum and tendered his resignation on 7 July 1993, to take effect on 30 September 1993. The resignation was, by mutual arrangement, postponed for one month and Mr Oba left Kishimoto at the end of October 1993. The judge found as a fact that Mr Oba's resignation was "prompted only by what he perceived to be lack of support and unfair treatment by top management in Kishimoto Japan" (p33 judgment).

(iii) Upon his resignation from Kishimoto HK, Mr Oba joined the 3rd Defendant (BOIS), a company which he had acquired in October. The 2nd Defendant (Mr Leung) who had been a manager of Kishimoto HK since 1991 stayed with Kishimoto HK until February 1994 when he left and joined BOIS. Both Mr Oba and Mr Leung became directors and shareholders of BOIS in November 1993. By January 1994, BOIS through Mr Oba was in contact with Prime View to discuss the possibility of BOIS supplying the equipment for the production project. At the same time, Kishimoto found that its formerly close relationship with Prime View was becoming cool, as were its relations with the Japanese manufacturers from whom the equipment for the pilot plant had been acquired: the same manufacturers Kishimoto had hoped would again supply equipment for Prime View for the mass-production project.

4. It is the plaintiffs' case (put at its simplest) that but for Mr Oba's activities Kishimoto would have got, or had a good chance of getting, a significant number of contracts for the Prime View mass-production project; Mr Oba "wooed" the team of manufacturers who had supplied equipment for the pilot plant (ING, Nakan and SPC) and "deliberately cultivated" Mr S.N. Lee the president of Prime View, with the result that Kishimoto lost the chance of getting those contracts.

The proceedings

5. After their solicitors had on 6th October 1994 warned Mr Oba of possible breaches of covenant and after a short exchange of letters, Kishimoto issued a writ against the Defendants on 12th January 1995. BOIS was, at that time, on the verge of securing a contract for the supply to Prime View of a piece of machinery manufactured by Nakan. In response to a summons seeking interlocutory injunctions, the Defendants gave undertakings not to involve themselves in the production project. It was agreed that there should be a speedy trial.

6. By their statement of claim, Kishimoto pleaded against Mr Oba: breach of his duty of fidelity as an employee; breach of his fiduciary duty as a director of Kishimoto HK and as a senior manager of Kishimoto Japan; breach of an express agreement made on 31st October 1993 not to use secret or confidential information; and breach of confidence and fiduciary duty after he left Kishimoto by using and disclosing knowledge relating to Kishimoto's dealings with Prime View.

7. Against Mr Leung, Kishimoto also pleaded breach of duty of fidelity; breach of fiduciary duty; and breach of confidence and fiduciary duty after leaving Kishimoto.

8. Against both Mr Oba and Mr Leung, Kishimoto pleaded that each induced caused or procured the other to act in breach of his duties.

9. Against BOIS, Kishimoto pleaded that it induced, caused or procured Mr Oba and Mr Leung to act in breach of their duties.

The alleged "diversion" of a "maturing business opportunity"

10. As the judge puts it: "although various individual breaches of duty have been pleaded, in combination they constitute Kishimoto's real complaint, which is that Mr Oba diverted or tried to divert to himself or BOIS what has been called a 'maturing business opportunity', that is the production project. Kishimoto also claims that Mr Oba misused confidential information. This claim is in reality part of the main complaint, but is capable of independent life if the main complaint fails".

11. I have underlined the words "or tried" in the judgment quoted above because, as I see it, there is a real difference between a case, such as Canadian Aero Service v. O'Malley (1973) 40 DLR (3rd) 371, upon which the judge heavily relied, where the defendants obtained for themselves a profitable contract by the misuse of their positions as senior officers of the plaintiff, and a case such as this where the focus of the evidence was simply upon an embryonic business project: There was no profitable contract to which the "activities" complained of could have been directed; Mr Oba was not negotiating on the plaintiffs' behalf any contract for the mass-production plant at the time he left the company; no contract as such appeared over the horizon for nearly a year.

12. As the judge rightly said:

"Diversion of a maturing business opportunity is simply one aspect of the principle, which was not in dispute, that a director owed to his company fiduciary duties, which include a duty not to profit personally from his position as director and a duty not to allow a conflict to arise between his duty as a director and his own self interest: Regal (Hastings) Ltd. v. Gulliver [1967] 2 AC 134."

13. If a director has profited from a misuse of his position as a director, in breach of his fiduciary duty, he is liable to account to the company for that profit, irrespective of whether the company has been damaged or not: see Lord Russell of Killower in Regal (Hastings) Ltd v. Gulliver at 140-141: Though the court could, in the exercise of its equitable jurisdiction, order payment to be made to the director for his work and skill in obtaining that profit: see Phipps v. Broadman [1967] 2 AC 46 at 104-E and 112D.

14. In Canadian Aero Service v. O'Malley senior officers of the plaintiff had undertaken much preparatory work for an aerial survey of Guyana, a project to be funded by the Canadian government. At a time...

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