DARTSLIVE ASIA LTD v. SO WANG CHUN (ALSO KNOWN AS STEVEN SO) AND OTHERS

HCA 2291/2016
[2018] HKCFI 335

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2291 OF 2016

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D E C I S I O N

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1.  This is the plaintiff’s application for an order that there be a split trial on the issues of liability and quantum in this action, by summons filed on 19 June 2017[1].

BACKGROUND

2.  The plaintiff is a company incorporated in Hong Kong.  It is a member of the Dartslive group which is and was at all material times engaged in the manufacture and supply of electronic dart devices, and the provision of network services that enable darts players to connect and compete with each other around the world.  The business activities of the Dartslive group span across Asia, Europe, the Americas and Oceania.

3.  The 1^st and 2^nd defendants were formerly employees and directors of the plaintiff.  Apart from occupying senior positions in the plaintiff, the 1^st and 2^nd defendants also held senior positions in other entities within the Dartslive group.  There is no dispute that the 1^st defendant ceased to be the plaintiff’s employee and director on 31 October 2015 and the 2^nd defendant ceased to be so on 3 January 2016.

4.  The 3^rd defendant, a company incorporated in Hong Kong on 6 November 2015, was founded by the 1^st defendant who was also its first director.  Shortly after the 3^rd defendant’s incorporation however, the 1^st defendant resigned as its director and his brother Mr So Wang Kit Kenny, who was then also an employee of the plaintiff, was appointed in place of the 1^st defendant.  There is no dispute that the 2^nd defendant has since joined and is working for the 3^rd defendant.

5.  The gist of the plaintiff’s case is that the 1^st and 2^nd defendants had wrongfully prepared for the setting up of the 3^rd defendant, said to be a competing business, prior to their departure from the plaintiff, have thereafter engaged in business in competition with the plaintiff, solicited its customers to switch to the 3^rd defendant, and procured or attempted to procure employees or ex-employees of the Dartslive group to join the 3^rd defendant.  The plaintiff also claims that the 2^nd defendant had wrongfully deleted most of the data stored in the hard drive of a laptop computer provided for his use by the plaintiff.

6.  Based on pleaded causes of action in breach of contract and restrictive covenants (1^st and 2^nd defendants), breach of fiduciary duties (1^st and 2^nd defendants), procuring a breach of contract (3^rd defendant) and conspiracy to injure by unlawful means (all defendants), the plaintiff seeks, inter alia, the following relief:-

(a) declarations of breach of duties by the defendants;

(b) injunctions restraining the defendants from committing the alleged wrongful acts;

(c) discovery on oath relating to the foregoing;

(d) damages or, at the plaintiff’s option, an account of profit; and

(e) interest and costs.

7.  On damages, the plaintiff contends that it is not in a position to tell the extent of the defendants’ wrongful activities and is unable to fully particularize the loss and damage it has suffered[2].  For the time being, the plaintiff’s pleaded case is that it has suffered loss and damage as a result of the defendants’ wrongful activities in that[3]:-

(a) additional discounts and/or rebates have had to be offered to its customers to counter the competition from the 3^rd defendant and the wrongful solicitation of business by the 1^st and 2^nd defendants on behalf of the 3^rd defendant;

(b) retention bonuses and extra pay raises have had to be given to its employees to counter the wrongful procuring of or attempts to procure these employees to leave the plaintiff by the 1^st and 2^nd defendants on behalf of the 3^rd defendant;

(c) it has had to expend manpower, time and/or expenses on recruitment of replacements for the ex-employees procured and solicited to leave by the defendants; and

(d) it has suffered loss of business to the 3^rd defendant.

8.  Other than the above heads of damages, the plaintiff also claims exemplary and/or aggravated damages based on allegations that the defendants’ breach was flagrant, and that their wrongful acts were calculated and deliberate and were committed in blatant disregard to the rights and interests of the plaintiff and the duties owed by the 1^st and 2^nd defendants towards the plaintiff[4].

9.  On the other hand, the defendants’ case is that the 1^st and 2^nd defendants did not take steps to prepare the setting up of the 3^rd defendant’s business in competition with the plaintiff prior to their resignation.  They deny having carried on business to compete with the plaintiff through the 3^rd defendant within 6 months after their resignation.  They also deny having solicited customers to switch to the 3^rd defendant or procured, solicited or enticed away employees or ex-employees as alleged.  They further challenge the reasonableness and enforceability of the relevant restrictive covenants, and put in issue the causation and reasonableness of the plaintiff’s alleged losses.[5]

10.  The pleadings in this action have been closed. The parties have given discovery by exchanging lists of documents but have not yet exchanged witness statements.  According to the timetabling questionnaires, the parties intend to call a total of 21 factual witnesses, 7 by the plaintiff and 14 by the defendants, to testify at trial.

APPLICABLE PRINCIPLES

11.  There is no dispute that the court is empowered in the exercise of its discretion to order a split trial on liability and quantum pursuant to Order 33 rule 4 of the RHC.

12.  It is nevertheless well-established that an order for a split trial of different issues is the exception rather than the norm.  As the Court of Appeal held in Telford Development Ltd v Shui On Construction Co Ltd [1990] 2 HKC 110 (at 117A-B):-

“The general rule is that all the issues in a case are to be tried at one and the same time. There is power to order that different issues in a case be tried at different times. But that departure from the general rule is ordered only if it is just and convenient. And it is, of course, for the party who seeks such a departure to demonstrate that it is indeed just and convenient.”

13.  “Just” means fair to both sides, without either gaining an undue advantage by a separation, and “convenient” means convenient to both sides and advantageous from the point of view of costs (see Wincheer Investments Ltd & Ors v Lobley Co Ltd & Anr (unreported) HCA 8145/1992; 23 February 1995 per Findlay J at §6).

14.  While there is a conceptual distinction between the order of a trial of a preliminary issue and the order for a split trial of liability and quantum, both concepts share the common theme that the trial should take the form of a cohesive whole, and that unless it is clear that it is just and convenient, in the “preliminary issue” context, for a specific matter to be hived off from the general issue, or, within the “split trial” context, for the question of liability to be separated from issues of consequential loss/damage, the court ought not to grant such orders (see Pagoda Ventures Ltd v JE Fulfilment Ltd & Anr (unreported) HCCL 39/2007; 13 June 2008 per Stone J at §19).

15.  In particular, an order for a split trial of liability and quantum is only made in cases where there is on the pleadings a clear line of demarcation between issues bearing on liability and those bearing on quantum (see Polskie Towarzystwo v Electric Furnace Co Ltd [1956] 1 WLR 562 per Jenkins LJ at 567; Chan Yin Na v Union Medical Centre Ltd (unreported) HCPI 804 & 805/2003; 27 April 2006 per Suffiad J at §6).  The court should exercise considerable caution when deciding whether to depart from the normal rule to order a split trial (see Pagoda Ventures (supra) at §61).

16.  To enable the court to assess whether a split trial is just and convenient, the party seeking a split trial is normally expected to furnish reasonably accurate estimates as to how much time and costs would be saved by a split trial.  A failure to provide such information could, by itself, justify the refusal of granting such an order (see Secretary for Justice v Lau Hon Mo [2015] 3 HKLRD 561 per Registrar KW Lung at §§22-23, citing Telford (supra) at 117C; Zhang Xiuhong v Liu Wenchen & Ors (unreported) HCA 2118/2012; 20 July 2017 per Au-Yeung J at §16).

17.  It is also open for the court to take into consideration the duplication of calling witnesses in the preliminary issue (or liability) trial and the main (or quantum) trial, and the delay if the preliminary issue or liability judgment were taken to the appellate courts (see Lau Hon Mo (supra) at §22; Pagoda Ventures (supra) at §60).

PLAINTIFF’S GROUNDS FOR SPLIT TRIAL

18.  Mr Wong, counsel for the plaintiff, submitted 4 grounds in contending that it is just and convenient for a split trial on liability and quantum to be ordered[6]:-

(a) First, given that the parties are direct competitors in business, there are bound to be substantial disputes when it comes to discovery on quantum issues touching on matters of profits, and financial and customer information.  This, he argued, would delay the proceedings and significantly increase the costs of this action;

(b) Second, if no split trial is ordered, substantial time and resources would be spent in preparing witness statements and possibly expert export on quantum.  All such costs and time to be incurred on quantum may be saved if there is a split trial;

(c) Third, the plaintiff is claiming the alternative remedy of an account of profit or an inquiry as to damages for some of the causes of action.  To enable the plaintiff to make an informed election between the two, discovery as to damages and profits would be required.  This would, as pointed out above, lead to substantial disputes; and

(d) Fourth, the questions of liability and quantum are clearly demarcated, and it lies ill in the defendants’ mouth to oppose this application when they have failed to make full discovery of documents relating to the question of quantum.

19.  A recurring theme in Mr Wong’s submissions is that this action is analogous to intellectual property cases where the plaintiff is not aware of the full extent of the defendants’ wrongful activities, and is claiming damages or an account of profits in the alternative.

20.  Citing Island Records Ltd v Tring International Plc & Anr [1996] 1 WLR 1256 per Lightman J at 1258A-G (quoted below), Mr Wong submitted that the practice in having a split trial in intellectual property cases should be adopted in this action:-

“In proceedings in which the plaintiff claims in the alternative damages or an account of profits, the plaintiff may seek and obtain a trial at which will be determined all issues of liability, of the assessment of damages and of calculation of profits. In such a case full discovery will include all documents relevant to the assessment and calculation, and the plaintiff can make an informed election between damages and profits in the course of the trial in the light of the information revealed on discovery and in the evidence at the trial. With a view to the saving of costs, the practice has developed, in particular in intellectual property cases, when this is practicable, to have “split trial.” The action is divided into two stages. The first stage is the trial at which the issue is limited to that of liability, i.e. whether the plaintiff’s rights have been infringed. The second stage, which is contingent upon liability being established at the first stage, is concerned with the question of assessment of damages and calculation of profits. In this way, the costs of exploring the issue of damages and profits are put off until it is clear that the defendant is liable and the issue really arises and requires determination. As a concomitant with this practice, there has likewise developed the practice of limiting discovery at the first stage to documents relevant to the issue of liability and excluding documents relevant only to the second stage. In this way the burden of discovery at the first stage is reduced, and the invasion of confidence necessarily involved in discovery is postponed and (if liability is not established) entirely obviated: see Baldock v. Addison [1995] 1 W.L.R. 158.”

21.  That said, as Mr Wong also clarified, the plaintiff is not contending that there should be a split trial whenever there is an alternative claim for damages and an account of profits.  He accepted that each case depends on its facts and either way is workable.  He also accepted there is nothing unjust to the plaintiff if an order for split trial is refused.  As I see it, the focus of Mr Wong’s submissions is that a split trial may save time and costs from the hotly disputed issues of discovery as to quantum.

DEFENDANTS’ GROUNDS OF OPPOSITION

22.  On the other hand, Mr Ho (leading Mr Yuen) for the defendants submitted that it is not just and convenient for a split trial to be ordered because:-

(a) First, the present action is not analogous to intellectual property cases.  There are in fact intertwining issues on liability and quantum of the heads of damages as pleaded in §28 of the statement of claim.  The pleaded basis of the plaintiff’s claim for exemplary and aggravated damages further necessitates investigation of motives and conduct with respect to the alleged wrongdoings[7]; and

(b) Second, given that witness statements have not yet been exchanged, the court is not in a position to be satisfied that there will be a clear demarcation between the evidence on liability and quantum, or to assess with any degree of accuracy as to the possible saving of time or costs if a split trial were to be ordered[8].

23.  Mr Ho further drew attention to the plaintiff’s refusal to provide particulars to commit its case as to the basis of its claim for loss and damage and the heads of damages as pleaded in §28 of the statement of claim.  He submitted that it was wrong to allow the plaintiff to engineer a situation where by refusing to properly and committing to its case, it has created support for arguing that a split trial would save costs.  This, Mr Ho argued, also prevented parties from having a constructive attempt to reach settlement.[9]

24.  Finally, Mr Ho submitted that if an order for split trial is made inappropriately, it would increase the costs and time of the proceedings and creates difficulties for the court of appeal (citing Pagoda Ventures (supra) at §60 and Mai Gou v Mak Chik Lun [2001] 3 HKLRD 248 where Le Pichon JA at 251E-F adopted the speech of Lord Wilberforce in Tilling v Whiteman [1980] AC 1 at 17H-18A).

ANALYSIS

25.  In view of the foregoing, I consider it appropriate to approach the application by asking 3 questions, namely:-

(a) Is the present action materially analogous to intellectual property cases such that the usual practice of having a split trial in those cases should be adopted herein?

(b) Is there a clear line of demarcation on the pleadings between issues bearing on liability and those bearing on quantum?

(c) Are there any exceptional circumstances that justify the ordering of a split trial in the present case?

26.  I address each of these questions below.

(a)   Is the present action analogous to intellectual property cases?

27.  To start with, there can be no dispute that this action (see §6 above) does not concern the infringement of any form of intellectual property rights.  Mr Wong’s argument is premised solely on the submission that, like in intellectual property cases, the plaintiff is not currently aware of the full extent of the defendants’ wrongful activities. 

28.  It is important to note that, even in intellectual property cases, it is not the court’s invariable practice to direct a split trial of liability and quantum.  As pointed out by Lightman J in Island Records (supra) at 1258B-C, the practice of having a split trial in intellectual property cases only applies “when this is practicable” (see §20 above).

29.  What usually happens in intellectual property cases is that a plaintiff rights owner complains of infringement by the defendant’s unauthorized dealings with one or more work, mark, article or process said to fall within the scope of protection.  The focus of the enquiry as to whether infringement has occurred is on assessing whether the defendant’s work, mark, article or process falls within the protected scope.

30.  More often than not, the work, mark, article or process said to be infringing is limited in number (while the acts of unauthorized dealings with it could be repeated multiple times, e.g. the sale of an infringing product or the use of an infringing trade mark).  In many cases, the question of infringement entails a one-on-one comparison between the owner’s version and a defendant’s competing (and allegedly infringing) version. 

31.  Once liability is established, the question of quantum then turns on the nature and scale of the defendant’s unauthorized dealings, from which the loss and damage suffered by the plaintiff and/or the profit made by the defendant may be assessed.

32.  In this kind of cases therefore, the question of liability can be neatly separated.  In the liability phase, the focus is on whether the defendant’s version is infringing by asking, e.g. whether it was substantially copied from the plaintiff’s work, whether it was confusingly similar to the plaintiff’s registered trade mark, or whether it fell within the limitations of the plaintiff’s patent claims.  It does not matter if the plaintiff has no full knowledge of the defendant’s wrongful dealings.  It is only when liability is established then discovery is required on the full extent of defendant’s wrongful dealings with the infringing version, so as to enable the plaintiff to make an informed election between a claim for damages or an account of profit.  That, in my view, is the main reason why a split trial could be conducive to the saving of time and costs.

33.  On the other hand, in non-intellectual property cases where the liability question is not so confined to a limited or a one-on-one comparison, the ease of separating the liability question from the quantum question may not be plain and obvious.

34.  Taking the present case as an example, the plaintiff’s complaint is that the defendants have wrongfully taken steps to compete with the plaintiff’s business, and in doing so wrongfully solicited its customers to switch to the 3^rd defendant, and procured or attempted to procure employees or ex-employees of the Dartslive group to join the 3^rd defendant.  Given the nature of the complaint, there would likely be serious debates at trial as to whether each customer, employee or ex‑employee who switched or left had been solicited or procured by the defendants or did so on their own volition.  This is indeed foreshadowed by the defendants’ detailed particulars on why a number of employees or ex-employees had left the plaintiff and joined the 3^rd defendant[10]. 

35.  Unlike the usual kind of intellectual property cases as discussed above, it is likely that the court would need to examine the question of liability in connection with each individual customer, employee or ex‑employee said to have been solicited or procured to leave.  As I shall address under question (b) below, it is likely that the evidence in relation to each such customer, employee or ex-employee would not be confined to the question of liability, but also merge into the question of quantum. 

36.  On the present pleadings, at least 14 employees or ex-employees of the Dartslive group were said by the plaintiff to have left the group and joined the 3^rd defendant.  Given the sheer number of individual inquiries that would be necessary at trial, I do not agree that the rationale of having a split trial in intellectual property cases is applicable here, and that the plaintiff’s lack of knowledge of the full extent of the defendants’ wrongful activities is by itself a good reason for a split trial to be ordered.

(b)   Is there a clear demarcation of liability and quantum issues on pleadings?

37.  What I do consider to be the major determinant on whether a split trial should be ordered is whether there is a clear demarcation of liability and quantum issues.  The focus of the enquiry is to examine if such a demarcation is present on the pleadings.

38.  The importance of having such a clear demarcation before a split trial is ordered cannot be overstated.  The authorities are clear that, unless it is plain and obvious that issues of liability and quantum can be easily and fairly differentiated, a split trial should not be ordered.

39.  The need for particular caution is self-evident from the problems that could arise in the absence of such a clear demarcation.   Apart from potential interlocutory arguments over, for instance, whether certain documents sought to be discovered relate to liability or quantum, acute problems may also be precipitated in the trial itself.  As aptly explained by Stone J in Pagoda Ventures (supra) at §§55-56:-

“55. … At any trial of liability alone, for example, I am inclined to agree with Mr Tong that the difficulty of easily ‘pigeonholing’ issues into those of liability on the one hand and quantum on the other may well produce problems in the conduct of the trial both for counsel and the bench, and in cross-examination in particular in terms, for example, of whether a line of questioning is relevant and well-founded. And if and in so far as the ‘line’ is blurred between the two concepts, and the questioning proceeds, the evidence so garnered may require to be identified and marshalled at a subsequent hearing on quantum, if such transpires to be necessary.

56. Forensic difficulties can, of course, always be overcome, but for my part, and save in the most obvious case wherein the advantage of separation of the dispute into liability and quantum is plain – and in this regard clearly every case is ‘fact-sensitive’ – I see no merit in unnecessarily creating potential problems in terms of the conduct of a trial, nor, for that matter, of effectively tying the hands of the court at the outset by thus restricting the inquiry and the ambit of the evidence of any particular witness in a case of this relatively complex nature.”

40.  As explained in §§34-36 above, the enquiry as to liability would likely comprise inquiries into why each individual customer has switched from the plaintiff to the 3^rd defendant, and why each employee or ex-employee of the Dartslive group has joined the 3^rd defendant.  

41.  These issues do not only relate to liability but also quantum.  As Mr Ho submitted, the manner and frequency a customer had been approached could affect the discounts and/or rebates alleged to have been offered (as pleaded in §28(a) of the statement of claim).  Likewise, the circumstances as to how particular employees were procured to leave and join the 3^rd defendant could affect the retention bonuses and pay raises alleged to have been given (as pleaded in §28(b) of the statement of claim).

42.  The effect of this likely overlap is that, if a split trial is ordered, the same group of witnesses would likely have to testify twice, once at the liability trial and another in the quantum trial. The inconvenience is compounded by the large number of witnesses the parties intend to call.  As most of them are former employees of the plaintiff, the inconvenience to the parties’ witnesses would be highly significant.

43.  But what is more pertinent is the risk of the potential problems of the kind described by Stone J in Pagoda Ventures (supra) as mentioned above.  Whether arising at the interlocutory stage or at trial, such problems would be highly disruptive and could give rise to satellite litigation.  Given the large number of factual witnesses, the evidence of most of whom if not all straddle across liability and quantum, the potential risk of disruption to the proceedings is material and should not be overlooked.  Any perceived (and well-intended) benefits and savings in costs and time from having a split trial could easily be wiped out.

44.  In the absence of a clear demarcation of liability and quantum issues on the pleadings in the present case, it is my judgment that an order for a split trial on liability and quantum is prima facie inappropriate.

(c)   Are there any exceptional circumstances?

45.  In light of this conclusion, it would be convenient to examine whether there are other reasons among Mr Wong’s submissions that would truly make this case exceptional.

46.  On his first and third grounds (see §18(a) and (c) above), the fact that there may be substantial disputes over discovery does not seem to me to be an exceptional reason for ordering a split trial. Confidentiality per se is not a bar to discovery, and there are suitable methods, such as the redaction of documents and the use of “confidentiality clubs”, for dealing with disclosure of trade secrets.  If the nature of the plaintiff’s claim is prone to such disputes, it is an inherent risk that the plaintiff should have to bear.  It does not in my view make this case exceptional.

47.  On his second ground (see §18(b) above), I do not think that the possibility that the costs and time spent on preparing evidence on quantum could be saved provides a reason, still less an exceptional reason, why an order for a split trial should be made.  The same could in fact be said of most civil actions.  While I can fully appreciate that there is a potential need for expert evidence to prove its claims for loss of business, the plaintiff has provided no information on how substantial the costs and time required to prepare expert evidence would be.  Without such information, and given the limited duration of loss as presently pleaded (6 months to 1 year), I do not consider that a bare assertion of substantial time and resources would make this case exceptional.

48.  Finally, Mr Wong also complained of the defendants’ failure to provide discovery as to the issues of the profits they have made and the business they have done with their customers.   As rightly submitted by Mr Ho, if the complaint is insufficient discovery, there are ways to compel the making of specific discovery, and one should not put the cart before the horse by using insufficient discovery as a reason to request a split trial.

DISPOSITION

49.  For all these reasons, I conclude that it is not just and convenient for a split trial to be ordered in the present case. 

50.  The plaintiff’s summons is accordingly dismissed.

51.  Costs should follow the event.  On a nisi basis, I order that the plaintiff do pay the defendants’ costs of this application, including all costs reserved if any, to be taxed forthwith if not agreed with certificate of one junior counsel.  While I have derived much assistance from Mr Ho’s submissions, I believe this application is well within the competence of a counsel of Mr Yuen’s seniority, who qualified as a solicitor in 2003 and a barrister in 2010.  In the absence of any application to vary the same within 14 days of handing down, the order nisi shall become absolute.

52.  I thank counsel for the assistance they rendered to the court.