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

Judgment Cited authorities 5 Cited in Precedent Map Related
Vincent
Judgment Date06 September 1995
Subject MatterCivil Action
Judgement NumberHCA396/1995
CourtHigh Court (Hong Kong)
HCA000396/1995 KISHIMOTO SANGYO CO. LTD. AND ANOTHER v. AKIHIRO OBA AND OTHERS

HCA000396/1995

1995 No. A396

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

____________

BETWEEN
KISHIMOTO SANGYO CO. LIMITED

KISHIMOTO SANGYO (H.K.) CO. LIMITED

 1st Plaintiff

2nd Plaintiff
and
AKIHIRO OBA

LEUNG HIN YAN, BERNETT

BOIS TECHNOLOGY LIMITED

 1st Defendant

2nd Defendant

3rd Defendant

____________

Coram: The Hon. Mr. Justice Barnett in Court

Dates of hearing: 8, 9 and 12 - 16 June, 24 - 28 and 31 July, 1, 7 and 10 August

Date of delivery of judgment: 6 September 1995

________________

J U D G M E N T

________________

1. The 1st Plaintiff (Kishimoto Japan) is a large Japanese trading corporation. The 2nd Plaintiff (Kishimoto HK) is a subsidiary of Kishimoto Japan. The Plaintiffs together I shall call Kishimoto. From 1991, when he was seconded from Japan to Hong Kong, the 1st Defendant (Mr. Oba) was managing director of Kishimoto HK until he resigned and left the company on 31st October 1993. During 1993, Mr. Oba was in negotiation with a Taiwanese company, Prime View International Company Limited (Prime View) which resulted in substantial contracts for Kishimoto to supply equipment to Prime View for a pilot plant for the production of thin film transistor liquid crystal displays (TFT - LCD). The pilot plant was effectively a test bed for Prime View which intended to set up mass production of TFT - LCD (the production project), which would result in even more substantial contracts for suppliers of equipment.

2. Upon his resignation from Kishimoto HK, Mr. Oba joined the 3rd Defendant (BOIS), a company which he had acquired in October. The 2nd Defendant (Mr. Leung) who had been a manager of Kishimoto HK since 1991 left that company in March 1994 and joined BOIS. Both Mr. Oba and Mr. Leung became directors and shareholders of BOIS in November 1993. By January 1994, if not earlier, BOIS through Mr. Oba was in negotiation with Prime View for the supply of equipment for the production project. At the same time, Kishimoto found that its formerly close relationship with Prime View was becoming distant, as were its relations with Japanese companies from which it had acquired and hoped again to acquire equipment for Prime View.

3. From that nutshell of this case, it is easy to see why Kishimoto's suspicions were aroused. After their solicitors on 6th October 1994 had warned Mr. Oba of possible breach of covenant and after a short exchange of letters, Kishimoto issued a writ against the Defendants on 12th January 1995. In response to a summons seeking interlocutory injunctions, the Defendants gave undertakings not to involve themselves in the production project. It was agreed that there should be a speedy trial. The trial came on with commendable speed.

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

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

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

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

Mr. Oba

(1) The law.

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

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

10. The leading authority is Canadian Aero Services v. O'Malley [1973] 40 DLR (3d) 371. Laskin J. delivering the judgment of the Supreme Court said at p. 381 :

"It follows that O'Malley and Zarzycki stood in a fiduciary relationship to Canaero, which in its generality betokens loyalty, good faith and avoidance of a conflict of duty and self-interest. Descending from the generality, the fiduciary relationship goes at least this far: a director or a senior officer like O'Malley or Zarzycki is precluded from obtaining for himself, either secretly or without the approval of the company (which would have to be properly manifested upon full disclosure of the facts), any property or business advantage either belonging to the company or for which it has been negotiating; and especially is this so where the director or officer is a participant in the negotiations on behalf of the company.

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.

11. After canvassing the authorities, the Supreme Court reached the conclusion that a director's fiduciary duty does survive him leaving his company and went on to consider whether what the defendants had done was a breach of such duty. The defendants were the president/chief executive officer and executive vice-president/director. Canaero, principally through the latter officer, did a great deal of investigation, planning and preparation for a possible aerial survey on Guyana, a project likely to be funded by the Canadian Government. At a time when it was "felt the job was a certainty for Canaero", these two officers resigned. Through a company which they had recently set up, they bid for the job when bids were invited by the government and succeeded with their bid. It is hardly surprising that the Supreme Court upheld the trial judge in finding that the defendants were in breach of fiduciary duty.

12. At page 391, Laskin J. said :

"In holding that on the facts found by the trial Judge, there was a breach of fiduciary duty by O'Malley and Zarzycki which survived their resignations I am not to be taken as laying down any rule of liability to be read as if it were a statute. The general standards of loyalty, good faith and avoidance of a conflict of duty and self-interest to which the conduct of a director or senior officer must conform, must be tested in each case by many factors which it would be reckless to attempt to enumerate exhaustively. Among them are the factor of position or office held, the nature of the corporate opportunity, its ripeness, its specificness and the director's or managerial officer's relation to it, the amount of knowledge possessed, the circumstances in which it was obtained and whether it was special or, indeed, even private, the factor of time in the continuation of fiduciary duty where the alleged breach occurs after termination of the relationship with the company, and the circumstances under which the relationship was terminated, that is whether by retirement or resignation or discharge."

13. I make two observations. First, that a director's fiduciary duty to his company survives after leaving the company seems to have been accepted in later cases, for example, Island Export Finance Ltd. v. Umunna [1986] BCLC 460 and Pacifica Shipping Co. Ltd. v. Anderson [1986] 2 NZLR 328. Mr. Stone Q.C., who appeared for Mr. Oba and the other two Defendants, suggested that the ratio of these decisions is rather based upon breach of duty before the director left the company. If there is a continuing fiduciary duty, he asked, what aspects of fiduciary duty continue and where and when do they end. In other words, difficulties of definition preclude a continuing duty. I am satisfied, however, that the concept of continuing fiduciary duty is now well established. It is, in my view, simply an application of the underlying principle that what a person, who was previously in a fiduciary position, can and cannot subsequently do is governed by good conscience. An examination of the facts in each case will demonstrate whether or not the erstwhile fiduciary is acting in good conscience.

14. My second and trite observation is that it is a relatively sterile exercise to trawl through the facts of decided cases. Facts vary infinitely. I do not, therefore, propose to indulge in a minute examination of the authorities cited to me.

(2) The issue.

15. The real issue is what was Mr. Oba's true intention between June 1993 and January 1994. This intention is largely a matter of inference.

(3) The facts.

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