TAGTRENDS ASIA LTD AND ANOTHER v. TAGTRENDS GLOBAL LTD AND OTHERS

HCA 1847/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1847 OF 2011

_________________________

_________________________

_______________

D E C I S I O N

_______________

THE APPLICATION

1.  This is the plaintiffs’ (“Ps”) application under O.33, r.4 of RHC for a split trial of the issues of quantum and/or inquiry as to damages and/or account regarding the 1^st plaintiff’s claim on the breach of fiduciary duties; breach of trust; conversion and dishonest receipt and passing off separately after the trial on all remaining issues, including but not limited to the issues of liability and other remedies regarding the above claims and the issues of liability and quantum and remedies of the 2^nd plaintiff’s claim on defamation.

2.  The first to the 4^th defendants (“Ds”) dispute this proposal.  The parties are legally represented.[1]

THE ISSUES OF DISPUTE BETWEEN THE PARTIES

3.  In this action, Ps claim against D1 to D4 for inter alia: -

(a) Breach of fiduciaries duties;

(b) Breach of trust;

(c) Conversion and dishonest receipt;

(d) Passing off;

(e) Defamation.

4.  In gist, it is Ps’ allegations that D2 (i.e. Mr. Chan) (who at all material times was shareholder and director of P1) had unlawfully formed D1 (i.e. Tagtrends Global Limited (also known as TT Global)), which has taken away P1’s business (including clients, etc.) without P2’s knowledge or consent.

5.  Also, as seen from the Statement of Claim, Ps’ claims involve serious allegations of fraud, conspiracy, and perjury, and a lot of other serious criminal allegations had been made against D2 (i.e. Mr. Chan).[2]

6.  It is D1 to D4’s defence that the parties had agreed to separate, and P2 at all material times had full knowledge and had agreed that D2 would take over P1’s existing business (by forming D1) (i.e. known as the TagTrends Global Agreement and the Separation Agreement as pleaded in §24 and §37 of the Defence of D1 to D4).[3]

7.  Viewed from the pleadings, this is a case where there are factual disputes between P2 and D1 to D4.

8.  Defamation forms a different category of dispute between P2 and D2.

9.  Where factual disputes are the main issues for the resolution by the trial court, there would be overlapping of factual issues over the various claims as pleaded by Ps in their Statement of Claim.  This factor has to be balanced with the other factors discussed below, bearing in mind the spirit of the CJR under Order 1A of the Rules of the High Court. See Order 1A, rule 2(1).

THE RELEVANT LEGAL PRINCIPLES

The general legal principles

10.  There is no dispute between the parties as to the legal principles set out by the Court of Appeal in Telford Development Limited v Shui On Construction Co. Ltd. [1990] 2 HKC 110, summarized as follows:

(a) 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.

(b) The applicant should provide information to estimate with any reasonable degree of accuracy how much time and costs would be saved if the preliminary issues are first determined.

(c) The Court would take into consideration the duplication of calling witnesses in the preliminary issue trial and the main trial and the delay to the main trial if the preliminary issues were taken to appeal courts.

The legal principles for special cases

11.  However, Ps submit that this is an intellectual property case, which has been classified as one of the special cases where the practice is to have a split trial of liability and damages issues.  Counsel for Ps relies upon the following authorities:

(a) Intellectual Property in Hong Kong, Vol. 1, Division I, Passing Off at §754;

(b) Guangzhou Green Enhan Bio Engineering Co. Ltd & Another v Green Power Health Products International Co. Ltd & Others, unreported, HCA4651/2002, HCA2802/2003, HCMP74/2004, Consolidated Action, 8 April 2005, [2005] H.K.E.C. 513;

(c) Diagcor Bioscience Incorporated Ltd v Chan Wai Hon Billy [2015] 4 HKLRD 727, Queeny Au Yeung J at §82 84;

(d) Baldock v Addison [1995] 3 All E.R. 437, Lightman J;

(e) Island Records Ltd v Tring International Plc and Another [1995] 3 All E.R. 444, Lightman J at p.446d j.

The Island Records case

12.  Of those authorities above, the prominent one is the case of Island Records Ltd which set out the Chancery practice for split trials for intellectual property claims on which Ps have placed emphasis in support of their argument.  Baldock was the case where the parties had agreed a split trial.  The issue in dispute was the scope of discovery as to whether it should be restricted to the split issues or it should cover all issues.  The court ultimately set aside the Master’s decision and held that discovery should be confined to the limited scope of the split issues.  The other local authorities agreed that the chancery practice of having a split trial for intellectual property claims should be adopted in Hong Kong.

13.  The discussion is therefore focused on the Island Records Ltd case.

14.  In this case, it was common ground that the plaintiff was entitled to judgment by admission or by summary judgment.  The question lies upon the time the plaintiff had to make an election on the remedies.  In this action, the plaintiff claimed, among other things, an inquiry as to damages for infringement and in the alternative an account of profits.  The court had set out four principles, which it had taken into consideration in determining the proper course of the legal proceedings should take.  At page 447D, it said:

“Four principles are clear. First, whilst a plaintiff can apply in proceedings in the alternative for damages and an account of profits, he cannot obtain judgment for both; he can only obtain judgment for one or the other. ……Second, once judgment has been entered either for damages or an account of profits, any right of election is lost: any claim to the remedy other than that for which judgment is entered is forever lost. ......Third, a party should in general not be required to elect or be found to have elected between remedies unless and until he is able to make an informed choice. ……Fourth, the exercise of the right of election should not be unreasonably delayed to the prejudice of the defendant.”

15.  Judge Lightman in the above judgment had explained the reasons for having a split trial for cases where the plaintiff claimed in the alternative damages or an account of profits.  At 446d, he said:

“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 savings of costs, the practice has developed, in particular in intellectual property cases, when this is practicable, to have a ‘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 is 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.  (It may be noted that this practice was in appropriate cases adopted by the Courts of Equity in the nineteenth century: see Benbow v Low (1880) 16 Ch.D. 93 at 98 and Fennessy v Clark (1887) 37 Ch.D. 184).”

16.  The judge at 447e further explained split trial to be the appropriate procedure which could reconcile the four principles, where he said:

“The question raised is whether the court can adopt a procedure which reconciles the four principles and enables a plaintiff who has established the liability of the defendant and his right to elect between remedies to secure the wherewithal to make an informed election before thereafter with reasonable promptitude committing himself to either remedy. The need for such procedure is made the more acute by the desirability of supporting the practice of limited discovery in case of split trials and of encouraging a plaintiff who is so entitled to enter judgment at an early stage in the proceedings (thereby saving court time and costs). Whilst it is true that there is no English authority where such a procedure has been adopted or even hinted at, I think that it is open to the court to develop such a procedure and that it is just and convenient that it should do so.”

17.  The court then referred to the Federal Supreme Court of an Australian case Minnesota Mining and Manufacturing Co v C Jeffries Pty Ltd [1993] FSR 189, in which the court order limited discovery to enable the plaintiff to make an informed election and deferred the hearing of the application to enter judgment for an assessment of damages or an account of profits until after this discovery was furnished.  See 447h.

18.  In the Baldock case, the court only allowed limited discovery for the determination of the election of the alternative remedies.  Obviously, this measure will save costs of the proceedings.

The special circumstances

19.  The circumstances that the courts found that required split trials are as follows:

(a) the four principles as set out in the Island Records case;

(b) the plaintiff is entitled to and has pleaded alternative claims of taking account of the profit or for damages;

(c) the plaintiff has to make an election at the application for judgment or after the liability of the defendant has been determined by the court (Auto Treasure Ltd v Noble Diamond Ltd [1992] 1 HKC 117, followed by Diagcor Bioscience Incorporated Ltd v Chan Wai Hon Billy [2015] 4 HKLRD 727, Queeny Au Yeung J at §82);

(d) it is only fair for the plaintiff to have the opportunity of having information by way of discovery before making the election;

(e) if there is not a split trial, the plaintiff would be entitled to discover massive documents and information from the defendant concerning the accounts and profits and damages for the trial;

(f) the costs and time for discovery will be substantial such that the issue of proportionality under O.1A will have to be considered. See Chan Shun Kei trading as Chan Shun Kei Construction Works v Hong Kong Construction (Hong Kong) Ltd (formerly known as Hong Kong Construction (Holdings) Ltd (unrep. CACV 192/2014, Lam VP, 7 March 2016);

(g) the question of liability and quantum are distinct issues (Auto-Treasure Ltd v Noble Diamond Ltd [1992] 1 HKC 117, followed by Diagcor Bioscience Incorporated Ltd v Chan Wai Hon Billy [2015] 4 HKLRD 727, Queeny Au Yeung J at §84).

DISCUSSION

20.  Ps in this action have pleaded alternative remedies against Ds.  But those alternative remedies do not apply to the claim of defamation by P2 against D2.  Ps have rightly asked for no split trial for P2’s claim founded on defamation.

21.  Against the above background, it will be for Ds to set out their reasons to oppose the proposal of a split trial for this matter, except for defamation as mentioned above.

22.  First of all, Ds have no argument over the four principles, which form the reasons for having a split trial.  They also have no quarrel with the decisions of the other cases decided in Hong Kong, following the Chancery practice of the UK.

23.  Ds raise the objection by saying that there is no affidavit evidence in support of Ps’ application and that Ps have not provided special circumstances in support of their application.

24.  It is true that Ps have not filed any affidavit evidence in support of the application, stating the amount of costs that can be saved by a split trial.  If, however, Ps are able to demonstrate to the satisfaction of the Court that there are special circumstances that a split trial should be ordered, this Court will not disregard those special circumstances even though they have not set out the amount of costs that can be saved, which may be obvious but difficult to quantify under the special circumstances.

25.  By supplemental written submissions, D1 to D4 submit at Ps had agreed to the directions made by Master Chow on the preparation of the witness statements.  They should not be allowed to apply for a split trial after they had agreed to the course originally taken without a split trial.  This ground becomes irrelevant if those factors discussed above apply because they are the factors that this Court must consider to expedite the proceedings with less time and costs. This is going to be beneficial to both parties.

26.  D1 to D4 further submit that as Ps’ Statement of Claim stands, they have given no particulars in support of their claim for damages, on which they would challenge the claims for lack of particulars.  If a split trial order is granted, they cannot take this point at the trial.  This will prejudice their case.

27.  In my view, this is not realistic because now Ps have put this issue on the table.  They are, if their application fails, at liberty to apply for leave to amend the Statement of Claim by adding the particulars in support of their claim for damages. But the particulars may not be given without further discovery of the documents and information from D1 to D4.  As can be seen, it is going to be a massive discovery for D1 to D4. Ps’ counsel has already spelt this out in his written submissions for this hearing.

28.  D1 to D4 are, of course, entitled to contest Ps’ application for leave to amend the Statement of Claim.  Ps would argue that the application was required because D1 to D4 opposed their application for a split trial, which separate the issue of liability from the issue of assessment of damages or alternatively take account of the profits.

29.  Ultimately, there will be satellite litigations between the parties.  The court will have to consider Order 1A, rule 2(2), that is, the primary aim of securing the just resolution of disputes in accordance with the substantive rights of the parties.  The final analysis will be whether D1 to D4 are allowed to bar Ps from exercising their right of election as discussed in the above cases.

30.  The answers to all these questions are quite clear now.  For just and convenient reasons, there should be a split trial for this case.  The liability issue can be determined by resolution of the factual disputes between the parties, viz.  whether there were TagTrends Global Agreement and the Separation Agreement between P2 and D2., which is quite distinct from the issues of the assessment of damages or taking of the accounts for profit.

31.  For the reasons above, I accede to Ps’ request as per their summons.

COSTS AND ORDER

32.  As to the costs of this application and the hearing today, Ps ask for costs which should follow the event whereas D1 to D4 submits that the application is late on the one hand and on the other hand, Ps had, by their conduct, agreed to the directions by Master Chow on the basis that there would not be a split trial.  They therefore submit that the proper order should be either there should be no order as to costs or Ps’ costs should be reduced.  Although this is a case management application, the costs for the argument between the parties should follow the event, taking into account of the conduct of the parties under O.62, r. 5(e) RHC.  I shall order that the costs of the application be in the cause, but the costs for the argument today (with counsel’s certificate) be to Ps and for the conduct of Ps, P’s costs be allowed 70% of the costs to be assessed summarily under O.62, r.9A RHC.  Having had the schedule of costs from Ps, the costs assessed are $52,500 to be paid by D1 to D4 within 14 days from the date hereof.

33.  The Court shall now make an order in terms as follows:

(a) As per Ps’ summons;

(b) Costs as per paragraph 32 above.

CASE MANAGEMENT DIRECTIONS

34.  By consent, time for Ps to exchange the witness statements be extended for 28 days from the date hereof, with costs of $800 to be paid by Ps to D1 and D4;

35.  The parties shall obtain Counsel's advice within 35 days after the exchange of the witness statements;

36.  All interlocutory applications as may be advised shall be taken out within 21 days thereafter, such applications, if contested, shall be fixed before the Registrar for argument;

37.  Liberty to apply.

38.  The matter is adjourned to 10:30 am on 13 September 2017 for the 2^nd Case Management Conference;

39.  The costs of the Case Management Conference be in the cause (20 minutes).