ARNHOLD & CO LTD v. FREDERICK OVERBECK REID AND OTHERS

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

1990 No. A136

HEADNOTE

Employee's breach of loyalty, fidelity and good faith during the term of his employment - employee's solicitation of employer's customers before/after termination of employment - employee's solicitation or enticement of servants of employer - breach of confidential information, secret and knowledge - restraint of trade.

Evidence - failure to call evidence - omnia praesumuntur contra spoliatorem - conspiracy of silence - failure to disclose documents.

Transcript – O.68 r.1(1) - transcribing tape-recorded evidence - costs to litigants in providing shorthand writer to prepare transcript of evidence and costs of protracted proceedings requiring a tribunal to take down evidence in longhand - availability of transcript.

1990 No. A136

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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Dates of Hearing: 21st-23rd, 26th-30th April, 3rd-7th, 10th-13th, 17th, 24th-27th May 1993.

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J U D G M E N T

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1. The Plaintiff Arnhold & Company Limited ("Arnhold") is a long established company in the Far East. It began business in China in 1866. It first registered a branch office in Hong Kong in 1923. In 1949 the company's head office was transferred from Shanghai to Hong Kong. It is one of the major independent suppliers of engineering equipment and building materials to commercial organizations, manufacturers, utility companies and government departments in Hong Kong and in Mainland China. The main trading activities of the Plaintiff is an agent for a number of foreign principals selling and distributing the products of those principals to customers in Hong Kong and in China. The Plaintiff presently acts as agent for about 80 companies.

2. Mr. Michael Green ("Green") began working for Arnhold in 1962. In 1965 he was appointed as a Director of Arnhold and from 1971 up to now, he has been the Managing Director thereof.

3. The 1st Defendant Frederick Overbeck Reid ("Reid") joined Arnhold in November 1976 as an employee. On 1st January 1983 Reid became a director of Arnhold. He worked under a service contract dated 1st January 1985. Five years later on 2nd January 1988 he gave notice of resignation from Arnhold but remained in its employment until 10th September 1988 when he finally left the company. During his time with Arnhold Reid had been responsible for the Building Product Division and the Mechanical Engineering Division. In the latter part of his employment in early 1987 and at least by 11th March 1987 he was responsible for the new section business development until he left in September 1988.

4. The 2nd Defendant Brian Leslie Fancett ("Fancett") previously worked for Gilman. He joined Arnhold as an employee on 15th October 1984. He was employed as a manager of the then Electrical Supplies/Engineering Division which was later renamed the Electro Technical Division and still later Electrical Engineering Division. His contract of employment was dated 10th September 1984. He was dismissed by Green on 17th October 1988 and he was there and then given three months salary and benefits.

5. The 3rd Defendant Engineering Expertise Limited ("EEL") is a private limited company incorporated in February 1987. It was at first beneficially owned and controlled by Reid and one Gordan Kan Wing-kee ("Kan") and later on together with Fancett and one Wolfgang Haering ("Haering"). At the time of incorporation there were two shares, one held by Kan and the other by one Kan Chung-keung who, being a member of Kan's family, declared himself trustee of the EEL share in favour of Reid.

6. The 4th Defendant Milson Technologies Limited ("Milson") is a private limited company incorporated in May 1988. The directors of Milson were two nominee companies acting for Kan, Reid, Fancett and Haering.

7. One Gold Dragon Resources Limited ("Gold Dragon") is a private limited company incorporated in August 1988. Effectively Gold Dragon was beneficiary owned by Kan, Reid, Fancett and Haering who in turn owned the shares in EEL and Milson. Each of the aforesaid four persons held 1250 shares in Gold Dragon which were later increased to 1500 shares each in April 1989.

8. In short, effectively at some material times Reid, Fancett, Kan and Haering owned and controlled the aforesaid three companies, i.e. EEL, Milson and Gold Dragon. The exact time when Reid and Fancett effectively owned and controlled the companies is in dispute as will be apparent hereinbelow.

The Dispute

9. Arnhold had acted for two principals which are material to the subject matter of this action - one was Barber Colman ("B.C."); the other one was Yuasa Battery Company Limited ("Yuasa").

1. Barber Colman

10. B.C. was one of the Plaintiff's American suppliers which manufactured building automation products and system. By an agreement in 1979, Arnhold was appointed as B.C.'s exclusive distributor for a range of air distribution products and services for a period of two years. Reid was working on this Agency at that time and later on Fancett. On 30th September 1981, Arnhold signed an environmental control sales representation agreement with B.C. by a further agreement dated 1st January 1982 Arnhold was appointed as the exclusive agent for B.C. environmental control products in Hong Kong. In 1984 the exclusive agency for the air distribution products and services was not renewed. Green agreed that B.C. felt the sales performance thereof was unsatisfactory. But Arnhold still remained as B.C.'s exclusive agent for environmental control products.

11. By 1986/1987 (Green cannot recall the exact time) Arnhold was coming round to the view that B.C.'s agency was not profitable. It should not continue its agency with B.C. and formed the intention of terminating the relationship. At that time Fancett was working on B.C. Agency. Termination of such a relationship with B.C. was effected in May 1987. Such an agency in Hong Kong was then taken up by EEL. At the end of 1987 Fancett agreed with Kan of EEL to sell Arnhold's remaining Barber Colman and Cazzaniga ("B.C. & C.") stock (Cazzaniga is another company with its products which work together with those of B.C.) for $5,000. The cost value of such stock was about $80,000 and their book value was about $64,000. Later Green discovered that Reid and Fancett were in effect shareholders and directors of EEL after they had left Arnhold in September and October 1988 respectively.

2. Yuasa

12. The other principal Yuasa is one of the world's leading manufacturers of batteries. Its agency was an extremely important one as far as Arnhold was concerned. It was a very profitable agency for Arnhold since the first agreement on 1st July 1983. It was handled by Arnhold's Electrical Engineering Division and it became under Fancett's supervision since his appointment on 15th October 1984.

13. In February 1985 one Nicoll Chiu joined Arnhold and worked under Fancett on the Yuasa agency. Nicoll Chiu had worked under Fancett whilst they were in Gilman. Nicoll Chiu was later promoted to a section manager in the Electrical Engineering Division. In March 1985 one Ronnie Chan was employed as a salesman of Arnhold and he also worked on the Yuasa agency under Nicoll Chiu.

14. Arnhold was appointed as the sole and exclusive distributor of Yuasa N.P. series sealed lead acid rechargeable batteries except in relation to sales to two particular Hong Kong companies. Arnhold also acted as agent for certain non-N.P. products but on non-exclusive basis. They were mainly Ni-cd batteries.

15. The original distributorship agreement was extended for a further three and a half years from 1st July 1985, i.e. until 31st December 1988 unless the two parties by agreement extended the same a three-months period before the expiry date. (This stipulation of three months before the expiration date would, of course, have no contractually binding effect since further agreement could be made at any time according to the wishes of the parties.)

16. By a letter dated 30th September 1988 and without any warning or discussion Yuasa gave Arnhold notice of termination of their agency to take effect on 31st December 1988. In other words Yuasa did not intend to renew the agency agreement with Arnhold. Arnhold learnt later on that Yuasa agency was then taken up by Milson officially effective from 1st January 1989. Milson, as I have said earlier, is a subsidiary company controlled by Gold Dragon which was controlled by Reid, Fancett, Kan and Haering. In fact at all material times from 1987 to at least 1989 Barber Colman and Yuasa were the only 2 agencies of the Gold Dragon Group in two respective companies, EEL and Milson.

3. Chronology

17. A brief summary hereinbelow of some of the events will give a better understanding of what happened between the parties from 1987 up till now.

The Plaintiff's Case

18. The Plaintiff Arnhold alleged that both Reid and Fancett were in breach of the implied and expressed terms of their contracts of employment in dealing with Barber Colman, Yuasa, and Nicoll Chiu and Ronnie Chan before and after their termination of employment with Arnhold.

19. In particular Arnhold alleged that both Reid and Fancett were in breach of their general obligations of loyalty, fidelity and good faith which any employee owes to his employer. They involved particular obligations including the -following, namely:-

20. Further Arnhold alleged that Reid during the period of one year from the termination of his appointment with Arnhold, either on his own account for any other person, firm or corporation, directly or indirectly engaged in any business in Hong Kong which was likely in competition with the business of the Plaintiff in breach of clause 9 of his Terms of Employment.

21. Fancett, on the other hand, so alleged by Arnhold, had within one year from the termination of his employment solicited business from Yuasa which company had, during the currency of his appointment with the Plaintiff, dealt with Arnhold in breach of clause 6(a) of his Terms of Employment.

22. Furthermore, Arnhold alleged that both Reid and Fancett had, at any time during the said one year from the termination of their employment with Arnhold:-

(a)  solicited or enticed or endeavoured to solicit or entice away any servant of the Plaintiff; and

(b)  employed any person who, during the currency of Reid and Fancett's appointment, had been a servant of Arnhold and who, by reason of such employment, might be likely to be in possession of any confidential information or secret relating to the Plaintiff's business and these two servants of the Plaintiff were Nicoll Chiu and Ronnie Chan.

23. I shall deal with both Reid and Fancett together and their involvement in EEL, Milson and Gold Dragon under (1) Barber Colman, (2) Yuasa, (3) Nicoll Chiu and Ronnie Chan.

(1) Barber Colman

24. In respect of Reid's involvement in EEL and the Gold Dragon Group, Arnhold alleged that he was guilty of the following breaches of contract:-

(a) failing in his duty to devote the whole of his time, attention and skill to the duties of his office as director and employee of the Plaintiff (in breach of clause 2.01(a) of his Terms of Employment);

(b) engaging or being concerned or interested in any way, directly or indirectly, in any trade, business or occupation whatsoever other than the business of the Plaintiff without the consent of the Plaintiff (in breach of clause 2.02);

(c) failing to disclose to the Plaintiff's Board of Directors during the continuance his employment the benefit which he received in the form of a 50% shareholding in EEL and failing to account for the same to the Plaintiff (in breach of clause 4.04);

(d) having learnt in early March 1987 of the Plaintiff's proposed termination of the Barber Colman agency acquiring the beneficial interest in 50% in EEL on 20th March 1987 with the object of having the Barber Colman agency transferred to EEL;

(e) having been a party to EEL to the obtaining of the Barber Colman agency and having failed to disclose or account for any profits derived therefrom, Reid is liable to account to the Plaintiff for such profits received both during and after the termination of his contract of employment;

25. Green told me he had not told Reid of Arnhold's intention to terminate the B.C. agency. However, Reid told me in evidence that he recalled one day in early March 1987 Green rushed into his office and told him that he was terminating the B.C. agency and then rushed out again. He was surprised and did not know why he told him this. He said Green said because he was responsible for it. He said Fancett was following Green at that time.

26. Shortly afterwards Reid said he was contacted by Gordan Kan, a person he knew for some time since 1978 through his brother-in-law who was a workman of Gordan Kan. In Christmas 1986 they had a social engagement and they discussed business generally. In early 1987 Reid signed an agreement with Kan on the understanding that his nominee shareholding would not be registered until he resigned from Arnhold. Consequently EEL was formed and the nominee shareholding was signed on 20th March 1987 (Mr. Grimsdick said Reid first spoke to him about EEL in or about July 1987.)

27. When Gordan Kan contacted Reid in March 1987, Kan said he heard from market rumours that Barber Colman was to lose its agency with Arnhold. Reid told him that that was correct and that "it was currently a very weak agency but [Reid] thought it could be made good if worked on a dedicated technical manner". However, under cross-examination Reid said he did not consider in his mind that he had a commercial interest in EEL at that time. Legally, yes, he said, but commercially, no.

28. When Reid was asked why he needed a nominee shareholder and director at that time he said he did not want this to be made public knowledge because it would influence his existing job with Arnhold. Green said categorically that if he knew of Reid's involvement in EEL he would have objected to it. In other words Reid was saying simply he did not want others to know of his involvement in EEL. He also agreed that there was a risk that Gordan Kan might have mentioned Reid's name and that would have been embarrassing.

29. Green told me that previously in late 1986 and early 1987, Reid failed to follow established company procedures and the aggregate effect of these failures was a loss of over $650,000 to Arnhold. Consequently Green sent out 3 memo reprimanding Reid dated 16.9.86, 17.11.86 and 24.1.87 (at 2/24-26). Thereafter Reid was taken off from line management and instead was given Business Development in Arnhold. This was officially confirmed in writing on 11.3.87 (at 2/28). Green told me that as a result of Reid's failure he informed Reid in the presence of Raymond Wong, a director of Central Finance of Arnhold, that Reid's signing authority was removed. Reid remained a director of the company. Green did not document such a removal of signing authority nor was there a resolution of the Board of Directors.

30. One Brian Houghton gave evidence for the Plaintiff. He was and still is working for American Air Filter ("AAF"), one of Arnhold's principal. Houghton told me that on 29.7.87 Reid invited Houghton for dinner at his home. Kan was also there. Reid told Houghton of his new venture in EEL with Kan. He asked Houghton whether he would be interested in joining that company as a director taking with him the AAF agency. Reid also offered Houghton shares in EEL.

31. One key element of that agency was the particular product range - air filter which needed regular replacement especially in Hong Kong environment and therefore would have generated a fairly quick cash flow.

32. Reid asked Houghton whether he could think of any other companies and products that would be useful if he joined them. Houghton jotted a couple of names down on the back of a business card. Reid commented that EEL given time would be as big as if not bigger than Arnhold.

33. Morever Reid specifically referred to the fact that he was well aware of the clauses in his contract prohibiting this but said that nobody would be able to trace the fact that Reid was involved. Reid explained to Houghton quite clearly he knew he was in breach of his contract of employment and commented that Green would not be very pleased if he were to learn about it.

34. Reid told Houghton that he had already obtained the B.C. agency and it was with EEL. Reid said to Houghton that if he took the AAF agency to EEL, the quick generation of cash that would bring to the company would effectively finance salaries (his in particular) and that Reid would continue in the employ of Arnhold while this venture was to get off the ground and that he would play a "back role". Houghton indicated that he was interested and said he would consider the offer.

35. Reid mentioned this again on other subsequent occasions when Houghton visited Hong Kong and also on the phone to him in his U.K. office. However Houghton indicated that this would be risky for AAF and also for him personally.

36. In Reid's evidence he said there were aspects of Houghton's testimony which "left him blank". He claimed that commercially he did not want the AAF agency at all. He was only interested in Houghton as an experienced person in the field of air-filters. He wanted to cut him away from the AAF agency but Reid found Houghton "very much in love with AAF".

37. Reid could not give any explanation as to how Houghton could possibly have come to say such things about him. He at first said, under cross-examination, that there could well be some misunderstanding. But he could not say what and how there could be misunderstanding. Later on Reid was asked what possible basis for any misunderstanding could there have been and he said: "I have no idea".

38. Further in Reid's statement he said "I believe that Michael Green has some belief that I tried to acquire another of his company's principals called [AAF] and that is not true." That was before Houghton had made a statement. Later he learned that Houghton had made a statement from one Paul Leung of Arnhold but he said that he did not know the content. He could not explain why he had this belief that Green believed he tried to "acquire" the AAF agency. He said he did not refer to the dinner with Houghton and Kan in his statement because he had completely forgotten about that.

39. Houghton also referred to "controlling companies" in the context that Reid said it would be difficult or impossible to trace his involvement in EEL. Reid said the concept of multiple companies was not even thought of until Fancett came along in 1988. There was no specific challenge to Houghton's aforesaid reference in cross-examination. Further at Bundle 2/146 there is a document compiled by Reid himself in which he referred to EEL as having been "formed as a subsidiary in mid 1987 by one of the four founders of the Gold Dragon Group of Companies". (Emphasis supplied.)

40. By reasons of the aforesaid matters and those matters I shall refer to hereinafter I prefer the evidence of Green and Houghton to that of Reid. I found Reid's evidence very much incredible. He was, as I found, very much interested in acquiring the AAF agency but failed. He clearly had the motives and intentions to acquire any agency as he got the B.C. Agency for EEL and later on Yuasa for Milson. I shall comment more on the credibility of Fancett, Reid and on other aspects later on. I now deal with how the B.C. and C. stock was disposed of by Fancett afterwards at the end of 1987.

Barber Colman and Cazzaniga stock

41. Arnhold alleged that in respect of Fancett he failed to act in the best interests of Arnhold in selling B.C. & C.'s stock to EEL at an undervalue, i.e. he failed to obtain the best available price for the stock without attempting to negotiate on a reasonable commercial basis. Instead he caused the said stock with a book value of $64,000 odd and at a cost to Arnhold of at least $80,000 odd to be sold for only $5,000 to EEL at the end of 1987. At the said sale, Arnhold says Fancett knew EEL was a company in which Reid had an interest and in which he himself had a "commercial" interest. In due course Fancett became a shareholder together with Reid, Kan and Haering.

42. Since late 1986/early 1987 Arnhold through Green had decided to terminate the Barber Colman agency. Fancett was instructed to dispose of the remaining Barber Colman stock at the best possible price. It is common ground between the parties that Fancett did for some time in 1987 sold some of the stocks for more than $200,000. It was the remaining stock which was sold for $5,000.

43. The Defendants' case is that many of these stocks were difficult to sell because they were damaged, soiled, obsolete or incomplete. Further the Plaintiff could not provide further service or replenish the stock since its agency had been terminated.

44. Fancett said he was instructed to write off the book values of these stocks but he managed to sell it for $5,000 (i.e. it was $5,000 more than writing off their values to zero). The sale was approved by Green and he signed on the Order Control Sheet.

45. According to Michael Green he said he would have asked Fancett to ensure that the new agent took as much stock as possible and to dispose of it at the best price available. He did not, however, tell Fancett to write off their book value in January 1988. Only Green himself had authority to write off stocks for various reasons. He emphasized that a "write off" was a completely separate matter from the making of "provisions" which is an accounting procedure authorized by the company's Finance Director and vetted by the company's auditors. This is an internal management tool to encourage people through their profit sharing scheme to sell aging stocks.

46. The aforesaid Order Control Sheet at Bundle 3/459 dated 5th January 1988 was compiled by Victor Jim at-the instructions of Fancett and countersigned by Green. According to Green, Fancett told him that the stock was "a complete mess and that it was all not functioning and that the best he could do was to either take $5,000 or just scrap it and throw it away". Green trusted Fancett and took his advice and believed what he said. Green did not even know what those items consisted of. He was not in a position to form any independent judgment.

47. Fancett said in late 1987 or early 1988 Kan only made one offer, i.e. $5,000. To him it was zero value and his first reaction was "OK, it's $5,000 extra, easy decision, a very casual decision. Just to get rid of the problem". He said that in December 1987 he sent a list of residue stocks round to Gordan Kan by a salesman. Gordan Kan phoned back and said $5,000 was the best price he could offer. It was the only price that he offered but there was no negotiation. Fancett mentioned no other price at all. Gordan Kan had a take it or leave it attitude.

48. It had never occurred to Fancett to say to Kan that "it would cost you much more than that to get those items from Barber Colman". He made no reference to Barber Colman's price list or to the replacement cost to EEL. He did not look at the book value of the items, in fact it did not even occur to him to look at the book value. Under cross-examination he explained that "I never had any access to book values. That was something that went on secretly on the other side of the company."

49. Fancett's impression was some of the stocks were "damaged". He said that he got that impression from his own marketing staff, and specifically Victor Jim. This was never put to Victor Jim in cross-examination. In fact, Victor Jim's evidence was the goods were not damaged and this was unchallenged. He was the one who had meticulously listed out and classified in the inventory to the stock as to their salability at Bundle 8/108 though the document was signed by Lo Ying Siu, Arnhold's employee responsible for warehousing and delivery.

50. Fancett said some of the stocks were "soiled" in the sense that they were out of packaging, dirty/dusty. Some of them were obsolete, i.e. not in current price list and not current models, out of date, old fashion, but he did not determine how much of the whole or what items were obsolete. When he was referred to the schedule of stock resold by EEL at prices in excess of the cost to Arnhold, Fancett said "This stock was obsolete to Arnhold but it is obviously not obsolete to EEL, certainly." He did not accept that he should have looked at those items and determine how much they were worth.

51. Earlier Gordan Kan wrote to John Menzies on 18th May 1987 and said "We take over their stock (i.e. the existing agent - Arnhold) on consignment basis. We will deliver to our own storage area on 1.8.87 … We would expect consignment stock transfer prices to be at least 20% below cost landed C.I.F. supported by documents." To that Martin Hodder replied by a telex dated 29.5.87 "3. You should liaise direct with Arnhold Company for the purchase for their controlled stock after the agreement has been signed."

52. Gordan Kan then wrote back by a telex dated 30.5.87 "3. Do not want to get involved with your existing agent. They have vindicative [probably means vindictive]. Only reason to want their stock is faster start-out."

53. By a telex dated 11.9.87 Kan wrote to Martin Hodder and said, "I will negotiation with Brian Fancett re their stock next week." By a telex dated 23.10~87 Martin Hodder wrote to Brian Fancett and said, "Until the above order (i.e. all new orders inquiries after the agency was directed to EEL) you should liaise with Gordan Kan on any margin or percentage mark-up and EEL enter the order". On 11.11.87 Martin Hodder sent a fax to Gordan Kan and said "2. Has all the Arnhold stock now been sent to your store." On 12.11.87 Gordan Kan wrote back and said "2. No - purchasing from them through third company on order by order basis. Good situation. Complete access and no cost for material or storage. Victor Jim is easier to handle than B. Fancett."

54. At the outset of the case Mr. Huggins, counsel for the Plaintiff, submitted that in the nature of things any breaches of loyalty, fidelity and good faith are carried out surreptitiously and covertly. Wherever possible those involved will seek to cover their tracks. They rarely would do anything so openly. They would not proclaim their disloyalty and their breaches of confidence from the roof top. Arnhold must therefore inevitably rely upon an accumulation of circumstantial evidence to persuade the court on the balance of probabilities that such breaches of fiduciary obligation have clearly occurred.

55. Apparently in November 1987 Gordan Kan was still saying that "Victor Jim is easier to, handle than Brian Fancett" and then suddenly in December 1987 Fancett became so easy to have agreed to sell the stock for just $5,000. I must look at the overall picture and the interlocking relationship between various parties, and in particular between Reid and Fancett in respect of the timing and chronology, and what they were saying, doing and not doing and saying.

56. Reid at that time had decided to leave Arnhold. He had discussed with Kan in late 1986. EEL was formed in March 1987. He had formally given his notice of resignation on 2nd January 1988. In accordance with clause 1.02 of his service contract, a not less than six months notice in writing was required. It was stated on the said letter at Bundle 2/30 that Michael Green would advise the last day of his service. It is clear that Reid had been a shareholder and director under the nominee for some nine months or so by then. EEL had secured Barber Colman's agency and started to trade and make profit out of it.

57. Both Reid and Fancett told me that Fancett did not know about EEL or Gordan Kan or of Reid's plan until nearly two months after Reid's resignation. In particular that was after Fancett had agreed with Gordan Kan to sell the stock for $5,000. Reid's explanation was that he had been "stewing" during the Chinese New Year holidays of 1988 over whether or not to tell Fancett of his resignation. He, however, did not know why he chose to speak to Fancett in February 1988. He did not say what he was stewing over. At one point Fancett slipped out the phrase "Fred, [i.e. Reid] had told me he was going to resign from the company and had resigned."

58. The original defence of 22nd January 1990 was that Reid had no knowledge at the time of the Plaintiff's decision to terminate the B.C. agency. Later on it was amended to he knew of the Plaintiff's decision to terminate because he was informed orally by Michael Green in late March. Reid said in evidence that was actually early March 1987. He said Fancett was actually following Green. That was not supported by Fancett's earlier testimony. Shortly afterwards EEL was incorporated.

59. Michael Green specifically denied that he had ever told Reid about the said termination. Reid agreed in cross-examination that there was no commercial reason for Green to tell him the decision to terminate the agency at that stage, apart from what he called one's upmanship.

60. In the original defence it was alleged that when Barber Colman and EEL concluded an agency agreement in about mid-July 1987 and at that time neither Reid nor Fancett knew that B.C. and EEL had entered into such an agreement. It was later on amended that "the agency agreement was concluded in mid 1987. (From Kan's telex dd. 14.5.87, he was already asking Hodder/Mensies of B.C. to confirm their exclusive agency.) Only Fancett did not know of such an agreement. Reid first knew of the agreement when he was informed by Kan orally around Mayor June 1987." But then in the same telex of Kan dated 14.5.87 he stated that the effect date of expiration of Arnhold's agency was 15.8.87. It was only 4 days later that Fancett stated the effective date of termination would be 90 days thereafter i.e. exactly 15.8.87. Fancett of course could not say how come Kan knew this before he wrote to B.C. Mensies said he did not tell Kan but he could get it from Hodder. Kan was not called to give evidence.

61. Thereafter Reid had a brief encounter with the Plaintiff's witness Brian Houghton. On 29th July 1987 when Houghton was invited to dinner with Kan as I have mentioned earlier.

62. From the aforesaid chronology of events I think it will defile any imagination if one could say certain happenings, coincidence after coincidence, were just coincidence. I find that Reid and Fancett both as witness has no credibility at all. This is in sharp contrast to Michael Green and Brian Houghton who came forward to this court to give evidence in a straight forward, direct manner with no hesitation even under cross-examination. Fancett and Reid both gave me a distinct impression that they have a decided version of the "events" and they were trying hard to keep to that decided version.

63. In particular I find that Reid did not learn about the termination of Barber Colman agency from Green but from Fancett in 1986/1987 and related the same to Kan. By March 1987 Reid had already decided to embark on a joint venture in the form of EEL. Reid kept it as a secret by a nominee director and shareholder. He encouraged Kan to secure the Barber Colman agency. Before he tendered notice of his resignation in January 1988 he had already informed Fancett of his decision in or about late November or December, at the time he invited Fancett to join him. Fancett decided to join much earlier than March 1988 and before Reid tendered his resignation. For that reason and in anticipation of his joining EEL with Reid and Kan, Fancett decided to sell Barber Colman stock at a price of $5,000 without any negotiation with Gordan Kan. The picture of Fancett and Reid's involvement at the later days of their employment in Arnhold in respect of Yuasa agency is more eminent to support my decision that they were lacking in credibility.

Yuasa Agency

64. It should be noted at the outset that way back in March 1988 Fancett had already agreed to join the group of four persons including himself, i.e. Fancett, Reid, Kan and Haering. This group is a group of Gold Dragon including EEL and later on Milson was incorporated. Fancett said it was just a "side line hobby". Reid said he did not feel like being a shareholder and director of EEL. He left everything to Gordan Kan. Both of them of course were employed by Arnhold at that stage. From the minutes of Mr. Grimsdick dated 8th March 1988 and a letter of Mr. John Reid of Ernest and Whinney dated 10th March 1988, it was evident that both of them were actively involved in embarking upon a new joint venture for their own future in anticipation of leaving Arnhold. Both of them of course were still employed by Arnhold at that stage. EEL at that time was already the agent of Barber Colman, an agency handled by Reid at an earlier stage and by Fancett at a later stage whilst they were in Arnhold. Paragraph 2 of Grimsdick's minutes or attendance note read as follows:

"2. They now believe that with their combined resources they were able to set up a group of companies handling different types of agency, principally relating to electrical and electronic components with principals based in Europe, Korea, Japan and the U.S.

3. The four shareholders will have an equal interest in a new holding company called Gold Dragon Resources Ltd. (GDR) and it is intended that GDR will own all other companies which are set up within the group." …

"5. It is intended that GDR will acquire the EEL capital by shares sometime in early May when EEL's audited accounts to 31st March 1988 are available." …

"7. I pointed out that the establishment of such a large number of subsidiary companies will be quite expensive in terms of maintenance, cost and they accepted this. They believed that within two years each subsidiary will have a turnover of at least HK$25m and that therefore a separate company will be justified.

Because they are negotiating a number of new agency agreements at this moment, it is most important to get the structure of the group clearly defined at this stage and also the intended method of operation for each company to be determined. To this end we have agreed for them to meet with one of our tax specialists so that they know exactly what they are able to sign and in whose name."

"9. Because two of them were still working for Arnhold and are likely to continue doing so and for the next few months I urge them to take proper legal advice as to their position. It might be construed that they were contravening their conditions of employment by Arnhold by apparently setting up in competition, and a legal action at this stage would be both expensive and take up a lot of time. All four of them accepted that this was important and Fred Reid undertook to take formal legal advice (probably from Deacons) to establish what he can and cannot do."

(See Bundle 7/101 & 102)

65. Mr. John Reid was the tax consultant referred in Mr. Grimdick's attendance note. By a letter dated 25th March 1988 he advised Gordan Kan as managing director of EEL and referred to a meeting on 10th March 1988 with Kan Reid and Fancett. He said under "corporate policy and structure" that:

"You outlined at the meeting your policy in relation to the GDR group in broad terms. This policy envisaged GDR acting only as a holding company for subsidiaries involved in merchandising an agency work. The intention was that a separate subsidiary would be incorporated for each merchandising operation and agency, the main purpose being to aggregate responsibility and profitability into legally defined units …"

66. By 10th August 1988 a Mr. Clive Saunderson, manager of Ernest and Whinny, wrote to Gordan Kan and confirmed that they had reserved a shelf company called Durrow Investments Ltd. which was incorporated on 9th August 1988. The idea was to change this company's name to Gold Dragon Resources Ltd. and directions were given to Gordan Kan for the actual machinery to be done. In the notes of minutes held at Ernest and Whinny on 21st September 1988 for Gold Dragon Resources Group, Reid, Kan and Fancett were present together with two persons from Ernest and Whinney including Mr. Grimsdick. Reid was described as north dragon, Kan west dragon and Fancett as south dragon. Haering was not present at the meeting. The responsibilities of dragons were described as follows:

Group Managing Director - Fancett
Liaison among subsidiaries - Kan
Technical - Haering

67. Fancett said in evidence that Haering was the missing east dragon.

68. The aforesaid happening and plans of Reid and Fancett were unknown to Michael Green. As far as he is concerned he had removed the signing authority of Reid in 1987 after the aforesaid three failures of Reid causing some losses to Arnhold. Green believed that Reid bore a grudge against him and was planning to leave the company. When Reid gave notice of his resignation on 2nd January 1988 he was at pains to point out how he would continue to help Arnhold in any way he could, in particular he said to Green he would never get involved in any business which was competing with Arnhold and that he was considering some form of consulting activities. He said he would take the holiday with his family to allow himself some time to think things over first.

69. In respect of Fancett he was transferred in mid-1988 to head the new office automation division from electrical engineering division. Reid considered that was a new expansion and anticipated the growth in facsimile machine market. That was after early 1988 when Reid and Green visited Hitachi in Japan to see whether Arnhold could come to an agreement with that company. At that time Fancett projected that this new unit could by 1990 achieved a turnover of in excess of $70m and a net profit in excess of $9m. He would have a 5% net profit bonus. As I have said earlier Peter Pan became the head of the Electrical Engineering Division from June 1988.

70. However, according to Green, Fancett's original enthusiastic reaction to his new area of responsibility changed. He became, according to Mr. Green, insolent and rebellious towards senior managers including Green. Green considered, with the benefit of the hindsight that Fancett was trying to provoke his dismissal having already made arrangement to join Reid in his new enterprise. In other words he wanted a dismissal with immediate effect and he expected to be able to secure and obtain full salary in lieu of notice. On 17th October 1988 that happened.

71. Both Reid and Fancett gave a different version as to why they left Arnhold and how their relationship with Green had fallen through. Reid said that Fancett had been the blue eye boy in commercial terms. Fancett was putting everything in its right position within Arnhold. Then sudden Green took a dislike for him due to an alleged refusal of a directorship to Fancett. Fancett said he was offered to be a director of Arnhold in early 1988. He insisted something in writing from Green and that was not forthcoming. Fancett said that that might have annoyed Green and Green's attitude towards him changed. He said that. this occurred at the end of 1987 and the beginning of 1988 "It was like shutting a door. It was different altogether."

72. Reid said he was upset with Green's style. He felt Green was ruining the potential of a very good company. He accused Green of having a vindictive character. However Reid claimed that he was offered 10% shareholdings of Arnhold by Green and according to his own estimate that would have worth $5m-$10m. He, however, declined the offer. Green emphatically denied that suggestion and, in re-examination, Green estimated that 10% of the company shares worth not less than $10m, and he had never made that offer to Reid. Reid had done nothing at all to warrant the offering of that.

73. The aforesaid is the scenario of how Yuasa came to an end with Arnhold and thereafter it was taken up by Milson, a company of the Gold Dragon Group controlled by Reid, Fancett and Haering. In June, after Fancett was transferred to the Office Automation Department away from the Electrical Engineering Department, which included the Yuasa agency, Fancett met Kanno. According to Fancett Kanno of Yuasa was visibly was disturbed and shocked. Fancett said Yuasa had always been dissatisfied with the change of person in Arnhold in dealing with Yuasa. In fact back in 1985 the position was so acute that Fancett had to give his "personal assurance" to Yuasa in Japan when he took over the agency that he would handle Yuasa agency in Arnhold to ensure continuity. Fancett did not relate Kanno's disturbance to Green. He did not disclose to Green of his previous personal assurance. His explanation was that it was Green who removed him from the EE Department, it will be fruitless to report to Green. He said he would not have wanted to laud his own importance.

74. This is in sharp contrast to the position in May 1983 when Yuasa had written to one Sutherland of Arnhold, who was then in charge of the Yuasa agency, about dissatisfaction in relation to staff changes. That had been drawn to Green's attention. Similarly Fancett himself had drawn to Green's attention about Yuasa's dissatisfaction expressed by Yuasa at a meeting on 26th June 1985. Green said that at the time of the redesignation of Fancett's responsibilities Fancett gave no indication to him of any potentially adverse effect on the agency.

75. Fancett at first denied that Kanno would have indicated his unhappiness at the fact that Fancett was no longer involved, but then of course Fancett had already said that back in 1985 "I have to give them my personal promise that I would stay. They wouldn't believe anything from Arnhold because so many promises had gone by before, so I had to make it into a personal assurance." It was in this context that he later on admitted that Kanno appeared to be both "disturbed"and "shocked". Kanno had "asked him all sorts of questions" including generally "why had this change taken place". Fancett had said he gave Kanno no explanation and told him that he could not comment.

76. Arnhold alleged that at some time between May and September 1988 Fancett arranged with Kanno of Yuasa that Yuasa would terminate the agency with Arnhold and would transfer it to a company in which Fancett would be involved and that during that same period Milson was incorporated with the object of having Yuasa agency transferred to Milson. In other words, Arnhold is alleging that Fancett solicited the Yuasa business before the termination of his own contract of employment. Reid and Fancett had visited Japan on 4th July 1988. Both of them said their one and only one objective was to visit the Hitachi people. They said that they had not met Kanno in Japan. After Reid came back from Japan he indicated to Green that he wished to leave on 31st August 1988. Eventually he left on 10th September on the very day Green came back from his holiday.

77. On 18th September 1988 Nicoll Chiu and Peter Pan visited Yuasa in Japan. According to Peter Pan who gave evidence for the Plaintiff, he was supposed to be introduced by Nicoll Chiu to the Yuasa people and the meeting was arranged the day after they had arrived in Japan. However, once they arrived in Japan he was told by Nicoll Chiu that the meeting was postponed to one day afterwards. On the next day Nicoll Chiu disappeared and Peter Pan had no idea where Nicoll Chiu had gone to. Peter Pan said the visit to Yuasa was just a casual talk of 15 minutes. Apart from introducing himself, nothing in particular was said. Nicoll Chiu, of course, had given notice of resignation from Arnhold and left in April 1989 and Ronnie Chan, another one working in the Yuasa agency left earlier in February 1989. According to Reid and Fancett Nicoll Chiu joined Monarch Technologies, a subsidiary of Gold Dragon. Ronnie Chan joined Milson.

78. When Kanno expressed his disturbance and shock to Fancett in June 1988 he had never expressed any dissatisfaction, anxiety or concern to Michael Green or to Peter Pan. The Plaintiff submitted that the overwhelming likelihood was that he had already obtained an indication from Fancett that if Yuasa were to terminate with Arnhold, Fancett and his group would be prepared to take over.

79. Yuasa's sales were stable throughout the period from May to September 1988. There was no objective reason for concern by Yuasa about Arnhold's ability to handle the agency. The Plaintiff submitted that Fancett had sown the seeds of dissatisfaction or encouraged dissatisfaction, at the same time indicating he had decided to leave Arnhold and was setting up on his own with another group. Coincided with the timing Fancett changed in attitude and behaviour with Arnhold. Fancett did not on this occasion express to Michael Green of Kanno's concern or dissatisfaction. Milson was incorporated on 20th May 1988, less than a month after the first announcement of Fancett's redesignation of responsibilities and less than one month before Kanno appeared to be so disturbed.

80. Michael Green wrote on 29th September 1988 to Yuasa, for the attention of Mr. S. Yonese and informed them of the re-establishment of the Electrical Engineering Division. He also introduced Peter Pan as the department manager and Tony Wong as the division manager responsible for the overall performance of divisional activities. Further, he said "these changes are expected to result in substantially improved performance and results for our company and for yours and we look for your support in achievement of mutual objectives". Out of the blue, on 30th September 1988, Mr. S. Yonese of Yuasa wrote a letter, received by Arnhold on 6th October 1988, and gave notice to Arnhold to terminate the agency which would expire on 31st December 1988. It was in- the following words:

"We take this opportunity to thank for -the pleasant business relationship we have had with your firm for another year. As you may be aware, the market for NP series batteries have become extremely competitive in Hong Kong and worldwide. The circumstances within our production compel us to review the NP series compared to the other batteries within our range. We have to inform you that under existing circumstances we must terminate the agency agreement with Arnhold & Company Ltd. which expires on December 31st 1988.

We will pay under normal procedures and as agreed in our commission agreement dated July 1st 1985 with you commissions due to Arnhold & Company Limited for all orders accepted by us with delivery up to December 31, 1988.

Once again we thank you for the cooperation you have readily extended and regret for the action we have been forced to take."

81. It is not clear from the letter what was the reason behind the termination of this agency agreement which was fruitful to Arnhold and beneficial to Yuasa. What was the reason for ending this pleasant business relationship and why Yuasa said that they were "forced" to take this action.

82. Michael Green had promptly written on 6th October 1988 to Yuasa and expressed his regret for the sudden termination notice. He wrote in the following words:

"We have always worked loyally and treated Yuasa business in the same way as we would treat our own company. It is this high mutual trust which has been the basis for our success. Please, therefore, excuse me for mentioning the following:-

Our executives are bound by an employment contract which prevent them from working with out principal's either directly or indirectly for a period of one year should they leave our company. If, therefore, one of our executives subsequently handles Yuasa products directly or indirectly it would result in our company taking immediate legal action to protect our company's position under Hong Kong law. Should it be necessary for us to take legal action this would result in severe embarrassment to your company and the possibility of interruption to your trade in Hong Kong in the areas in which we had previously represented you … "

83. This is an indication that Michael Green already sensed something wrong in the air but could not at that time lay his fingers on anything concrete. There was no evidence at that stage to substantiate his suspicion that certain things untoward had happened within his own company, or he had, at that stage, specious reasons given for the termination and the change of attitude of Fancett which eventually forced him to dismiss Fancett on the spot on 17th October 1988.

84. Originally the defence stated to the effect the decision to appoint Milson as the new agent was only made on 23^rd January 1989. The pleading was changed after discovery, in particular Milson had already, on 21st December 1988, wrote to Kanno of Yuasa and said:

"Following your recent visit to Hong Kong and the discussions covering our agency agreement could you please let us know what are the most convenient date to be in Tokyo for signing the agency agreement between our two companies." (see Bundle 2/312)

In the same faxed message it was said "P.S. Please find attached the final order schedule commencing January 1989 following the addition of the last two items." The schedule at p.313 revealed that there were ten Milson orders for delivery of Yuasa’s batteries in January to March 1989. It is evident that these orders were placed on or before 21st December 1988.

85. Milson failed to make discovery the first ten Milson orders. Fancett explained that these orders were not placed by Milson but they were orders secured by Yuasa directly. When asked why in that case Yuasa would give these order to Milson to enable Milson to receive commission which they have not earned by themselves, Fancett said it was a "present” which Kanno gave it to him.

86. Kanno did not give evidence in this court but the defence tried to adduce two statements made by him. The explanation given was that Kanno, having now left Yuasa, do not have the consent of Yuasa to give evidence in a trial involving the dispute between Arnhold and Milson. Kanno asserted that he gave Milson details of Yuasa customers whom Milson needed contact in relation to orders in the list at pp.312 and 313. However, there was no discovery by Milson of any documents in which Yuasa provided to Milson with any details of such customers. On the contrary the documents to Milson revealed that Milson was preparing a list of customers for Yuasa (see Bundle 9/391). This is quite inconsistent with Fancett's suggestion that the ten orders shown in these two pages were orders placed direct between customers and Yuasa and that Yuasa simply gave him as a "present" the commission in relation to those orders. Kanno says in paragraph 12 of his statement that he recalled that he told the customers listed at p.313 "to place their orders through Milson" but none of the underlying documents revealed any orders placed through Milson and Fancett's explanation for that is "since Yuasa dealt directly in relation to those orders with those customers, Yuasa would have the documentation and not Milson.”

87. However there was no document to support how Milson can compile the so-called "final order schedule" at p.313. In any event Kanno's statement in paragraph. 12 simply does not fit into the time frame given by Fancett to the effect that in December Kanno met Reid, Fancett, Kan and Haering in a restaurant (also called Gold Dragon) in Hong Kong and let them know that the agency was theirs. On 21st December the telex at 2/313 shows the orders had already been placed with delivery in January 1989. There would not have been any time between any meeting in any day in December and 21st December for customers to place their order through Milson for delivery in January 1989.

88. The Plaintiff further submitted that it is inherently improbable for the company in the magnitude of Yuasa for agreeing to transfer its agency to a $2 company like Milson instead of Arnhold, a substantial company with a long history of experience in the Far east, unless it has been persuaded by Fancett that it should take the agency to a company in which he was to be involved and unless such an agreement had already been made before they gave their notice of termination. Even Fancett agreed that usually before a principal terminating an agency agreement would have secured a new agent. (That actually happened in Barber Colman agency. Before Menzies met people in Arnhold on the very day in Hong Kong he had breakfast with Gordan Kan first and tried to find out if Arnhold's agency was terminated who would succeed Arnhold). It should also be noted that Nicoll Chiu was not called to give evidence and to explain why he was giving assistance on 18th January 1989 to Milson in relation to 150,000 pieces of batteries which, on the face of it, had nothing whatsoever to do with Arnhold at that stage (see Bundle 9/515). By this document Nicoll Chiu was apparently informing Kanno of Yuasa on Arnhold's letterhead by fax and said: "Attached please find Sunergy's LC application for your reference. Please arrange the immediate shipment once receipt of the LC." At p.520 on Sunergy's shipping papers the 150,000 pieces were meant for Milson and not Arnhold.

89. This case involve a lot of doing of Gordan Kan but he was not called to give evidence. At one stage I was informed that he was in court but later went up to China for a business. Mr. Huggins for the Plaintiff suggested that there is all the machinery for subpoenaing him to give evidence in court. I was informed by the defence that there was no suggestion that Gordan Kan was an unwilling witness. It was the decision of the defence not to call him. He was not called to explain how it was that Milson was providing a detailed client list to Yuasa at Bundle 9/391 and why there should be any need to send Yuasa such a list if it was Yuasa who actually provided Milson with such a list instead. He was not called to explain what happened to the underlying documents which must have gone to Milson if Kanno's statement is right. Kanno was not called to give evidence about the missing underlying documents if they really did go to Yuasa as suggested by Fancett and to explain the need of a letter of introduction around 30th January 1989 as suggested in 9/391 if Kanno had already told all Yuasa customers about the new agent.

90. Bundle 9 called the Milson file is discovered from Milson. At page 399 this document refers to "detailed client list being prepared" by Mils6n for Yuasa. The Plaintiff submitted that this document is far more consistent with confidential information relating to the full list of clients being provided by Fancett to Gordan Kan as part of the involvement for which he received a "present" from Kanno. There was no document to show that Milson was provided a client list by Yuasa, nor any evidence from Gordan Kan to that effect.

91. As I have said, the document at p.515 showed assistance was given by Nicoll Chiu to Milson on 18th January 1989. No explanation was given by Nicoll Chiu who was not called to give evidence.

92. In respect of the first ten orders the only underlying documents were in relation to items 2 and 9 but all the rest are missing. Fancett could not offer any explanation. The company called Pedaro previously dealt with Arnhold directly. After 3rd January 1989 it dealt directly with Milson. However, immediately prior to 1st January 1989, the first ten orders show Pedaro was among those still placing orders but no underlying documentation was disclosed. Milson was receiving the benefit of such orders. Milson would need such documents to deal with any problems that might arise if there were late shipment or defective shipment. Fancett said or suggested that they could be in the hands of Yuasa but this is inconsistent with Kanno's statement in paragraph 12 where he said "Milson would not need customer list from Arnhold because the customers were Yuasa customers. I record that I told the customers listed at p.313 to place their orders through Milson and later I took Gordan Kan and Stephen Mang around to meet the customers."

93. The Plaintiff therefore submitted that Milson was trying to suppress those underlying documents because:-

(a) They wanted to hide the fact that Milson was operating the agency prior to 31st December 1988 while Arnhold was still officially an agent until the end of December. This would be contrary to the terms of Yuasa/Arnhold agreement, i.e. it would reveal Milson was assisting Yuasa to break its contract with Arnhold for its own commercial benefits; and

(b) To hide the fact that the decision to appoint Milson had been made by Yuasa much earlier than the pleaded case of 23rd January 1989 as a result of solicitations by Fancett; and

(c) To hide Nicoll Chiu's diversions of orders from Arnhold to Milson.

Eventually Fancett agreed that the overwhelming probability is that these ten orders would have been placed some considerable time before the end of 1989 and Fancett said that would be several months. Fancett also agreed that some of these ten orders might have been in relation to one for which Arnhold would have been entitled to commission but he did not even think about it i.e. his "presents". Fancett acknowledged that in Fancett/Arnhold contract there was a provision that during the effective period of the agency Yuasa could not sell knowingly or cause a third party to sell products in Hong Kong or in the area covered by the agreement.

94. The Plaintiff submitted that there are only three alternatives as to the party to whom such missing document would have been originally directed. These are: -

(a) Yuasa as contended by the Defendants,

(b) Milson as suggested by Kanno in his second statement para.12, or

(c) the Plaintiff as contended by the Plaintiff.

95. For Milson's file in Bundle 9 most customers placed their orders directly with Milson. Customers like Wong's who initially placed order with Yuasa direct but always with copy to the agent Milson, the defence pointed out that a number of orders after the first ten were placed direct with Yuasa but accepted that for the most part such orders were copied to Milson. In other words it would be fair to say that from what appeared in the Milson's file customers tended on the whole to send their orders to the agent or at least to copy them to the agent. It is therefore particularly surprising that no such documentation had been disclosed for the initial orders.

96. Nicoll Chiu, as I have said, was engaged in assisting Milson in its handling of the Yuasa agency. The letters of credit in respect of the order placed by Sun Power/Chronar (MTYU-1009 at 9/515-9) was directed to Milson. The person who could explain this extraordinary state of affairs were Gordan Kan, Kanno and Nicoll Chiu. All of them were not called to give evidence. There was no explanation why Gordan Kan who could be called to give evidence was not called to give evidence. The defence just submitted that what Gordan Kan could say was already covered by other witnesses of the defence. There are, however, as I have said earlier, a number of points which Fancett and Reid could not explain for and on behalf of Gordan Kan and Nicoll Chiu. Fancett's explanation contradicted what Kanno had said earlier.

97. The Plaintiff, therefore, submitted that the Court could draw adverse inferences from the prima facie case established by the Plaintiff against the Defendant. The doctrine of omnia praesumuntur contra spoliatorem is also applicable. The Plaintiff invited the court to draw in relation to what such document would, if available, have revealed and that is they were in all probability originally orders directed to the Plaintiff but diverted to Yuasa/Milson by Nicoll Chiu.

98. The Plaintiff relied on the following passage in Cross on Evidence 7th Edition at pp.36-7: -

"As Cockburn CJ said:

'If a prima facie case is made out, capable of being displaced, and if the party against whom it is established might by calling particular witnesses and producing particular evidence displace that prima facie case, and he omits to adduce that evidence, then the inference fairly arises, as a matter of inference for the jury and not a matter of legal presumption, that the absence of that evidence is to be accounted for by the fact that even if it were adduced it would not displace the prima facie case. But that always presupposes that a prima facie case has been established; and unless we can see our way clearly to the conclusion that a prima facie case has been established, the omission to call witnesses who might have been called on the part of the Defendant amounts to nothing.'

Very soon after the parties were enabled to testify in most civil cases by the Evidence Act 1851, Alderson B recognised that the failure of one of them to deny a fact which it is in his power to deny 'gives colour to the evidence against him'. Almost a hundred years later the same point was made more forcefully by an Australian judge, Rich J, when he said:

'When circumstances are proved indicating a conclusion and the only party who can give direct evidence of the matter prefers the well of the court to the witness box, a court is entitled to be bold.'

Dixon J added a note of caution in a dissenting judgment in the same case:

'It is proper that a court should regard the failure of the Plaintiff to give evidence as a matter calling for close scrutiny of the facts upon which he relies and as confirmatory of any inferences which may be drawn against him. But it does not authorise the court to substitute suspicion for inference or to reverse the burden of proof or to use intuition instead of ratiocination.'

But Lord Diplock may be thought to have gone further than Rich J in a case in which the Defendants called no evidence:

'this is a legitimate tactical move under our adversarial system of litigation; but a Defendant who adopts it cannot complain if the courts draw from the facts which have been disclosed all reasonable inferences as to what are the facts which the Defendant has chosen to withhold.'

There does not appear to be much discussion in the English authorities of the effect of the failure of a party to a civil case to call a witness who might have been expected to give evidence favourable to him. A variety of explanations could be given for such a failure but, subject to these, it is difficult to believe that the English judge would dissent from the following observations in a joint judgment delivered in the Supreme Court of Victoria on an appeal in a civil case tried with a jury:

[W]here a party without explanation fails to call as a witness a person whom he might reasonably be expected to call, if that person's evidence would be favourable to him, then, although the jury may not treat as evidence what they may as a matter of speculation think that that person would have said if he had been called as a witness, nevertheless it is open to the jury to infer that that person's evidence would not have helped the party's case, if the jury draw that inference, then they may properly take it into account against the party in question for two purposes, namely (a) in deciding whether to accept any particular evidence, which has in fact been given, either for or against that party, and which relates to a matter with respect to which the person not called as a witness could have spoken; and (b) in deciding whether to draw inferences of fact, which are open to them upon evidence which has been given, again with respect to matters to which the person not called as a witness could have spoken (Newton and Norris JJ in O'Donnell v. Richard [1975] VR 916 at 929).' ”

99. From the totality of the evidence presented to me it is quite clear to my mind that the distinct lack of supporting orders and shipping documents in respect of the first ten orders was a cover-up by the defence in order not to reveal that both Reid and Fancett were diverting Yuasa agency from Arnhold during their terms of employment and diverting orders originally intended for Arnhold to Milson. In fact the evidence as I have recounted as aforesaid could only have one explanation as suggested by the Plaintiff. Both Fancett and Reid were lacking in credibility. They were hesitant and evasive when they were answering questions. Both Fancett and Reid wanted to paint the picture that Reid did not tell Fancett of his involvement with Gordan Kan and EEL until nearly two months after Reid's resignation. Indeed at one point Fancett had this slip-of tongue phrase: "Fred had told me he was going to resign from the company and had resigned …" The reality as I found was that Reid would have told and did tell Fancett of his pending resignation and would have asked and did ask him to join the group much earlier than they had maintained. Both Fancett and Reid's explanations as to how their relationship with Green turned sour were entirely incredible. Fancett's version was that because Green offered him a directorship but he insisted something in writing and Green refused. Reid said Green offered him a 10% shareholdings in Arnhold which, even according to his estimation was worth something between $4.5m and $10m but he refused and that annoyed Green. The truth of the matter as I find it on the balance of probability was that both Reid and Fancett had been planning to leave Arnhold from late 1987/early 1988 and tried to get as much as they could out of Arnhold.

100. Insofar as/the disputed point between Green and Houghton on one part and Fancett and Reid on the other part I prefer the evidence of Green and Houghton. I find that from the totality of the evidence as I have recounted, it is clearly compelling for me to draw the inevitable inference that both Reid and Fancett were trying to and did obtain the Yuasa agency before the termination of their contracts of employment.

101. The Plaintiff's secondary and alternative case which was based on Fancett's own evidence, namely Fancett solicited the Yuasa business after the termination of his employment on 17th October 1988. In particular he had a meeting with Kanno which he says was at the end of November or December 1988. Clause 6(e) of Fancett's contract of employment provides that he is under a duty not, within one year from the termination of his appointment, to solicit business from any company which at any time during the currency of his appointment had dealt with the Plaintiff. I shall consider the post-contract dealings later on under "restraint of trade".

Nicoll Chiu and Ronnie Chan

102. Reid, together with Fancett, employed through companies in which they had a beneficial interest, Ronnie Chan and Nicoll Chiu. Fancett acted for himself and the members of his group in the employment with the knowledge of Reid. Both of their contracts of employment expressly provided that each one of them was prohibited within one year from the termination of his employment to employ any person who, during the currency of his employment, had been servant of Arnhold and who, by reason of such employment, might be likely to be in possession of any confidential information relating to Arnhold's business. Reid says he was not really aware of that provision.

103. The defence submitted that such information that either of these men have had in relation to Barber Colman or Yuasa was information which Fancett and/or Reid already had themselves of which either Barber Colman or Yuasa could have provided to the company's employee Ronnie Ch an and Nicoll Chiu. This to my mind is not an answer to the said prohibition. The clause prohibited employments of any servant who had previously been employed by Arnhold at the same time as Fancett and/or Reid and who, by reason of such employment, "might be likely to be in possession of any confidential information relating to Arnhold's business". The prohibition was not in any way qualified. Its purpose was to protect Arnhold from his vulnerability to having employees who are likely to be in possession of confidential information being poached by principals who wished to set up new agencies, therefore cutting out Arnhold completely or by persons who wished to start an agency to replace Arnhold by poaching those employees of Arnhold with their requisite knowledge. By so doing, the new agent could have a quick start with no training. It would be easier for them and thus increased its compatibility.

Restraint of Trade

104. Both Fancett and Reid were restrained by their terms of employment not to, at any time during the period of one from termination of their employment with Arnhold: -

1. To solicit or entice away any servants of Arnhold;

2. To employ any person who, during the currency of their employment, had been a servant of Arnhold and who by reason of such employment might be likely to be in possession of any confidential information or secrets relating to Arnhold's business;

3. Reid could not at any time during the period of one year from the termination of his employment with Arnhold either on his own account or for with any other person, firm or corporation, directly, or indirectly be engaged in any business in Hong Kong which was likely to be in competition with the business of the Plaintiff. Fancett, however, was restrained not within one year from the termination of his employment to solicit business from any person or company which at any time during the currency of Fancett's employment had dealt with Arnhold.

105. The defence admitted the terms but avoided them by saying that they are unenforceable being void and contrary to public policy and in restraint of trade. The Plaintiff said the terms are reasonable and not contrary to public interest. Mr. Hingoranni for the defence in his opening said expressly that the issue of reasonableness/restraint of trade relates only to the 12-month prohibition clauses and not to other clauses.

106. Covenant which are in restraint of trade are prima facie unenforceable unless it can be shown that they are reasonable having regard to the interests of the parties and that they are not otherwise injurious to the public interest. See Chitty Vol. 1 para.1190 et. seq.

107. The burden of proving that the covenant relied upon is reasonable having regard to the interests of the parties lies on the parties seeking to enforce its covenant, i.e. Arnhold. If the party seeking to enforce the covenant satisfies this burden, the burden shifts to the party seeking to avoid the covenant to show that it is otherwise injurious to the public interest. The test of reasonableness is an objective one. The Plaintiff conceded that on the evidence any solicitation or enticement of Ronnie Chan and Nicoll Chiu was for the benefit of the Gold Dragon Resources group of which Reid was a member. The Plaintiff would not ask the court to find any breach by Reid and further it should not ask the court to find as a fact that there was a breach by Fancett as there was no direct evidence of any approach to either of them by Fancett. His evidence in the cross-examination was to the effect that they came to him to ask him whether he would give them a job or help them to find a job after Arnhold's loss of the Yuasa agency that had left them little work and no prospect of earning commission as they had in the past.

108. However, both Reid and Fancett had employed the ex-employees of Arnhold who might be likely to be in possession of confidential information/secret relating to Arnhold's business. Both of them are in breach by causing companies which are subsidiaries of Gold Dragon (which is beneficiary owned by them) to employ Nicoll Chiu and Ronnie Chan. The term itself is a reasonable one since it is designed to protect an interest which the law has long held to be capable of protection, namely an employer's interest in information which is confidential to him and secret to him. The prohibition is limited to a period of one year.

109. Green under cross-examination denied that there is a dissatisfaction on the part of directors and senior employees with the one year restraint clause. There was no conflicting evidence adduced by the Defendant, in fact not one word was said in this respect. Fancett did not deal with reasonableness of the terms in his evidence in chief. Under cross-examination he agreed that the reasons which Green gave as being justifications for the clauses were valid having regard to Arnhold's business. He did not dispute the reasonableness of the clauses. Reid did not deal with the reasonableness of the terms in his evidence in chief and was not cross-examined as to this issue.

110. The Plaintiff submitted that the terms were designed to protect the legitimate interests which it had having regard to the nature of its business as an agent for a range of overseas principals. The Defence did not challenge this in the evidence, thus reasons and justifications put forward by Green was not challenged at all. The Defendants have not suggested that there is any other public interest objection so that even if reasonable between the parties the clauses should be struck out. As I have said earlier the burden of proof as to that lies on the defence and they had adduced no evidence to enable any such finding to be made. The only issue is, therefore, whether or not the clauses as they stand are objectively reasonable having regard to their terms and interests which they are designed to protect. To my mind the Plaintiff has clearly established that.

111. Accordingly Reid was clearly in breach in that less than a year after the termination of his appointment with Arnhold on 10th September 1988 he was actively involved in the affairs of the Gold Dragon Group. The business of Arnhold was that of acting as agents for overseas principals in relation to a wide range of products. The intended and the actual business of Gold Dragon group was to act as agent for overseas principals and was therefore a business which was in direct competition with that of Arnhold.

112. Having regard to the business nature of Arnhold, it is appropriate and therefore reasonable for some restraint to be imposed on its employee so as to prevent his competing directly with Arnhold immediately after ceasing his appointment with the Plaintiff. The clause does not prevent Reid from seeking to utilize his expertise elsewhere than in Hong Kong. Arnhold is involved in the business of agencies for the whole of Hong Kong. Arnhold would not be adequately protected by a more restricted geographical limit than the whole of this territory. The time limit of one year is clearly not excessive and has often be upheld which I shall deal with later.

113. Fancett, by comparing, is also in breach by soliciting Yuasa to provide Milson with the agency. This covenant restrained solicitation of customers is valid even if it extends to people who, although a customer at the beginning of the employer's employment, ceased to be so before its termination. In this case Yuasa continued to have dealings with Plaintiff for some two and a half months after Fancett left, i.e. from 17.10.88 to the end of 1988.

114. The defence said that the particular customer in relation to whom the covenant is to be enforced has no intention of doing further business with the employer. Yuasa determined to end their relationship in September 1988 to take effect by the end of the year, thus it was submitted that any legitimate interest of Yuasa ceased. There was no proprietary interest for Arnhold to protect and therefore the solicitation had no effect on Arnhold at all and thus, it was so submitted, the term was unenforceable.

115. The Plaintiff submitted that "a covenant not to solicit customers is valid even if it extends to people who, although customers at the beginning of their employee's employment, ceased to be so before its termination" Chitty on Contract Vol.1 para.1208. Further "Similarly a covenant ought not to be held invalid because hypothetical cases can be suggested when it might be unreasonable to apply it, if those circumstances were outside the contemplation of the parties, to such an extent that they are to be excluded from its operation. It is no objection to the enforcement of a non-solicitation covenant with respect to a particular customer that that customer has no intention of doing any further business with the employer; this is 'the very class of case against what the covenant is designed to give protection …. the Plaintiff does not need protection against customers who are faithful to him.' " (See John Michael Design Plc v. Cooke [1987] 2 All E.R. 332, 336). The unwillingness of customer to deal with the employer is something that goes to damages.

116. In other words the Plaintiff submitted that if the court finds for the Plaintiff only for its secondary case that the solicitation happened after the termination of their employment the defence submission only goes to the amount of damages by way of loss of opportunity. I accept the Plaintiff's submission such a clause is prima facie enforceable unless the Defendant can satisfy me by any overriding public interest that it should be made unenforceable.

117. In Ho Wing Cheong trading as Hong Leung Securities and others v. Margot and another [1991] 1 HKLR 245, there were two actions arose out of the employment by the Plaintiff who carried on business as stock brokers. Again Graham Margot, the first Defendant, as executive director and Norman Ng, the second Defendant, as finance and administration manager and their subsequent defection together with 16 other employees of the Plaintiff to another stockbroker on September 1986. Under Margot's contract of employment with the Plaintiff Margot undertook that he might not seek employment with any other firms engaged in the stockbroking business in Hong Kong for at least three years after terminating his employment with his employer. It was held that:

"1. Provisions in a contract of employment restricting fields of employment after the employee has left the employer operate in restraint of trade and are unenforceable unless the employer can show that at the time the contract was made the restrictions were reasonably required for the protection of the legitimate interests of the parties and the public.

2. Protection against competition from a former employee is not a legitimate interest. The only legitimate interest of the employer is the protection of his confidential information.

3. The confidential information capable of protection by such restrictions includes not only information in the nature of trade secret but also the information which can be acquired by the employee from contact with customers. Putsman v. Taylor [1927] 1 KB 637 and Herbert Morris Ltd. v. Saxelby [1916] AC 688 followed.

4. Where an employee is placed in a position in which he has such contact with the employer's customers with the result that the customers may leave with the employee, the law will uphold against the employee restrictions which go no further than is reasonably necessary to prevent that happening.

5. In Hong Kong in 1985 the Plaintiffs did not need a restriction of 3 years to achieve their legitimate objects. 1 year would have been ample to break the connection of Mr. Margot with the Plaintiffs' client 'for a sufficient period to let the next man obtain the connection'. Middleton v. Brown [1878] 47 LJ(NS)

118. The case of Putsman v. Taylor [1927] 1 KB 637 was cited in the judgment of Godfrey J. where Salter J. says this:

"The relation between master and servant is always confidential, though in differing degrees. The relation between a master and the servant who manages his business for him is highly confidential. During the service he is in constant contact with the master's customers, 'and cannot fail to learn their names and addresses, their likes and dislikes, and something of their financial credit. Such knowledge can be used with effect, after the determination of the service, to induce such customers to transfer their custom to a new employer. Certain conduct of this kind will be restrained, as being in breach of implied terms of the contract of service [and he cites some authority] … Other conduct of this kind, though injurious to the late employer, will not be restrained in the absence of express agreement. Such agreement need not take the form of a covenant against solicitation. Such a covenant is difficult to enforce; it is difficult to show breach and difficult to frame an injunction. The master is entitled to protect himself by a covenant against competition, provided that it is not wider than is reasonably necessary to safeguard his proprietary interests against unfair use by the former servant of information gained during the service."

Godfrey J. in Ho Wing Cheong went on to say in his judgment at p.248 that:

"The reason for this attitude on the part of the law is that the employer's customer connection belongs to the employer, not the employee, although it may be the employee who has built it up or maintained it. If the law were to permit the employee, who has built up or maintained the employer's customer connection, to walk off with it, after the termination of the employment, in the face of restrictions entered into by the employee to protect the employer against just such a risk and going no further than reasonably necessary for that purpose, the employer would have just cause for complaint. The risk is that the employee 'might obtain such personal knowledge of and influence over the customers of his employer … as would enable him, if competition were allowed, to take advantage of his employer's trade connection' - see Herbert Morris Ltd. v. Saxelby [1916] AC 688 per Lord Parker of Waddington at page 709. Such restrictions then, will be enforced if 'the protection sought is reasonably necessary to … prevent some personal influence over customers being abused in order to entice them away' - see Faccenda Chicken Limited v. Fowler [1986] ICR 297, per Neill, L.J. at 310F.

Accordingly, where an employee is placed in a position in which he has that type and degree of contact with the employer's customers which means that, after the employee leaves, the customers may leave with the employee, the law will uphold against the employee any restrictions which go no further, than is reasonably necessary to prevent that happening.

In the present case, the Court will enforce the covenant in question against Mr. Margot only if the Plaintiffs have demonstrated;

First, that the contact that Mr. Margot had with the Plaintiffs' clients and the degree of that contact as known or envisaged in 1985 was such as to warrant a reasonable concern on the part of the Plaintiffs that, when he left, clients might want to deal with him in future rather than with the Plaintiffs.

Secondly, that the covenant goes no further than is reasonably necessary for the protection of the Plaintiffs against this risk."

119. In the case of Candia Shipping (HK) Ltd. v. Wong Chiu-wai and others (HCA No. 629 of 1986 25th February 1986) Deputy Judge Downey said at p.4:

"It is trite law that an employer is not entitled to protect himself against mere competition on the part of a former employee. He cannot prevent the former employee from utilizing the additional skill or knowledge he may have acquired during his employment, unless it consisted of confidential information or trade secret or he can show that the employee has come into contact with his clients or customers in such a way as to acquire influence over them. If one of these special or 'proprietary' intrinsic is shown to exist, it can be used as a pad on which to hang a restraint against competition within reasonable limit of time and space."

Further at p.5 thereof:

"Where a covenant to that effect will be held as reasonable must depend upon all the circumstances of the particular case including the nature of the employment and the nature of the 'proprietary' interest which exists. If such interest does not exist or is not proved to exist, the covenanty must necessarily fail to discharge the burden of proving that the restraint is reasonable and enforceable."

120. The question now is what confidential information or what proprietary interest the Plaintiff is seeking to protect. The Plaintiff relied on the following confidential information relation to its business, namely the identities of the existing purchasers, the addresses, telephone numbers and relevant contact personnel. Green gave evidence as to the type of information which Yuasa would not necessarily have itself. In Milson file Bundle 9/391, there appears a document from Milson to Yuasa dated 30.1.89 seeking a letter of introduction to be sent to customers and referring to a "detailed client list which is being prepared" i.e. by Milson for Yuasa. This is evident that Milson obtained such information from a source other than Yuasa, otherwise there would be no need for Milson to prepare a client list for Yuasa. If Yuasa had provided the list to Milson, then Milson should have provided discovery of such documentation either in a list indicating that the document is still in its possession or that it was in its possession but no longer is. The defence instead chose not to call Gordan Kan nor Kanno and no explanation was given as to how and why Milson would provide a client list for Yuasa. Consequently it is inevitable for this court to draw the compelling inference that such a list of customers was being prepared by Milson on the basis of information provided by Fancett -and/or Nicoll Chiu at Fancett's instigation. This is the proprietary interest which the Plaintiff is entitled to protect and Fancett was in breach of-its contractual obligation.

Fancett's Failure to Report Yuasa's Dissatisfaction

121. On Fancett's own evidence he did not disclose to the Plaintiff the fact that Kanno was visibly "disturbed" and "shocked" in June 1988 on his visit to the Plaintiff's office, especially in light of Fancett's failure to disclose to Green the "personal assurance" which he said he gave to Yuasa in Japan when he took over the agency. The Plaintiff alleged that Fancett's failure in this regard would have inevitably undermined the Plaintiff's position in relation to Yuasa and enable Fancett's own group of companies to reap the benefit of the opportunity to obtain the Yuasa agency for themselves. It lost the opportunity of either of reassuring Kanno that his fear was unfounded or in reconsidering the move of Fancett from the Yuasa agency, it thereby lost the opportunity of renewing the agency agreement with Yuasa and of continuing the profits which has made for a large number of years by Fancett's failure and thereafter obtaining the Yuasa agency for his, own company. He was acting contrary to his employer's interest: see Sanders v. Parry [1967] 1 WLR 753.

122. In that case the Defendant was employed as an assistant solicitor in the Plaintiff's legal practice. He knew that a Mr. Tully was an important client of the firm. The Defendant was asked to take responsibility for the conduct of Tully's affairs. Unknown to the Plaintiff, the Defendant entered into an agreement with Tully whereby the Defendant agreed to leave the Plaintiff's employment and establish business in his own right and Tully agreed to transfer all his legal work to' the Defendant. This agreement was presented to the Plaintiff as a fiat accompli by the Defendant when he handed a letter to the Plaintiff in which he, Tully, stated that he wished to transfer all his business to the Defendant. The Defendant was dismissed and the Plaintiff instituted proceedings for breach of the Defendant's implied duty of fidelity. The Defendant admitted the existence of his duty but claimed that an agreement between him and Tully had been initiated by Tully and that by accepting Tully's offer he had not breached his implied duty. The Defendant was held liable, however for breach of duty of good faith when the Defendant discovered that Tully was dissatisfied with the Plaintiff's services he was under a duty to disclose this to the Plaintiff and, by accepting Tully's offer, he was acting contrary to his employer's interest. At 765 Havers J. said:-

"The next point that arises is this. If it was not initiated by the Defendant, but during the subsistence of his agreement with the Plaintiff, he accepted the offer made by Tully, was that a breach of the agreement? Now in my view there was a duty on the Defendant at all times during the subsistence of that agreement to protect his master's interests, especially to do his best to retain Mr. Tully as a client of his master, and in regard to the letter to which I have already referred, there was a duty on the Defendant to look after and protect Fully's interests on behalf of his principal, the Plaintiff. Now, in accepting this offer the Defendant was not protecting his master's interests. He made no effort to try and retain Mr. Tully as a client of his master. The Defendant was placing himself in a position in which there was a conflict of interests between him and his principal and he was looking after his own interests to the detriment of his master's interests. He was knowingly, deliberately and secretly acting, setting out to do something which would inevitably inflict great harm on his principal.

There being a duty on the Defendant to protect the interests of his principal, if Tully had expressed any dissatisfaction as to the position, then the Defendant should have gone to the Plaintiff, his principal, to give him an opportunity to find out any grievance which Mr. Tully thought he had. It may well be there was a misunderstanding in Tully's mind about this Penman affair, and if he had gone to the Plaintiff about this there might well have been an opportunity for him and Tully to have sorted it out and of clearing up the misunderstanding. I think it was accurately described by counsel for the Plaintiff as a "conspiracy of silence" between the Defendant and Tully. The Defendant said that if he disclosed the existence of this agreement at once to his principal he would betray Tully's confidence, and so he was silent in the interests of Fully and to his principal's detriment. It apparently never occurred to the Defendant that while he was still employed by the Plaintiff he could not discussed any offer Mr. Tully made; he could not possibly do that until his agreement with the Plaintiff was terminated. I was satisfied that in accepting the offer, by such conduct the Defendant was guilty of breach of duty in regard to the agreement implied therein by law that the Defendant would serve the Plaintiff with good faith and fidelity."

Fancett, in my view, should have made every effort to try and retain Yuasa as a client of Arnhold. He should have gone to Green to give him an opportunity to find out any grievance which Kanno thought he had and to assuage such grievance. Instead he placed himself in a position in which there was a conflict of interest between him and the Plaintiff. That was the time in mid 1988 when he had already decided to join the Gold Dragon Group. I find that Fancett's silence is a so-called "conspiracy of silence" between Fancett and Kanno as in the case of Sanders v. Parry. In Sanders v. Parry the Defendant was also in breach in failing to report to his employer the dissatisfaction of a secretary Mrs. Stanford. His failure to do so deprived his employer of an opportunity of seeing what he could do to meet any complaint that Mrs. Stanford had so that she would remain with him. It was held that it was the duty of the Defendant to have reported the secretary's dissatisfaction to the Plaintiff to give him an opportunity as far as he could to satisfy her. Instead of forwarding his principal's interest the Defendant was concerned only in promoting his own.

123. By the same token I find that Fancett was actively promoting his own interest at that time which eventually caused Yuasa to terminate its agency with Arnhold and transferred to a company in which he had beneficial interest. Fancett foresaw only too well the opportunity which was open to him of undermining Arnhold's position for the benefit of his own group and he had every intention of reaping such benefits that might accrue. He did reap such a benefit eventually.

124. Even if Fancett did not foresee the possibility that in keeping quiet he might be able to pick up some benefit for his own group (which I have already found otherwise), nevertheless the failure alone to report Yuasa's dissatisfaction and "disturbance" and "shock" would itself be a breach of contract for which the Plaintiff would be entitled to damages. It would be no answer for Fancett to say that he only contemplated receiving any benefit that might accrue after the termination of his own contract of employment: See Robb v. Green [1895] 2 QB 1. Hawkins, J. said at pp.14-15: -

"The obligation to protect his master's interests lasts until the last hour of his service. The dividing line between owing his master a duty and owing him none is that in perceptible period of time between the termination of his service and the moment he acquired freedom of action after his service has terminated. Here we are dealing with a fragrant breach of trust during service with intent to reap the advantage contemplated afterwards. In such a case, too, it seems to me that the fraud in service with intent to use afterwards and the use afterwards are both discountenanced by law."

Conclusion

125. I find the following breaches of the Defendants by reason of the aforesaid matters, namely:

1st Defendant Reid

(1) Reid is liable for his involvement in EEL and the Golden Dragon Group by reason of the following breaches of his contract of employment:-

(a) Failing in his duty to devote the whole of his time, attention and skill to the duties of his office as director and employee of the Plaintiff under clause 2.01a;

(b) Engaging or being concerned or interested in any way directly or indirectly in any trade, business or occupation whatsoever other than the business of the Plaintiff without the consent of the Plaintiff under clause 2.02;

(c) Failing to disclose to the Plaintiff's board of directors during the continuance of his appointment the benefit which he received in the form of a 50% shareholding in EEL and failing to account for the same to the Plaintiff under clause 4.04;

(d) Having learnt in early March 1987 of the Plaintiff's proposed termination of the Barber Colman agency, acquiring a beneficial interest in 50% of EEL on 28th March 1987 with the object of having the Barber Col man agency transferred to EEL;

(e) Having been a party through EEL to the obtaining of the Barber Colman agency and having failed to disclose or account for any profit derived therefrom, Reid is liable to account to the Plaintiff for such profits received both during and after the termination of his contract of employment.

(2) Reid failed to account to the Plaintiff for such profits from the transaction of the Barber Colman and Cazzaaniga stock which EEL bought at an undervalue from the Plaintiff and therefore, together with EEL, is liable to account to the Plaintiff for such profits as were received from that transaction and the resale of those items.

(3) Reid divulged or communicated to Gordan Kan confidential/private information consisted of: -

(a) the fact that the Plaintiff had intended to terminate its agency with Barber Colman prior to. Barber Colman being informed of such proposed termination; and

(b) the fact that it was a "currently very weak agency but one which could be made good if worked on in a dedicated technical manner".

(4) Reid was in breach of the following terms of his contract of employment: -

(a) implied duty to act in the best interests of the Plaintiff;

(b) expressed duty not at any time either during or after the termination of his appointment to divulge or communicate to any person or company any of the Plaintiff's secrets or other information which he might receive or obtain in relation to the private affairs of the Plaintiff under clause 3.01;

(c) expressed duty not at any time to use for his own purpose or for any purposes other than those of the Plaintiff any information or knowledge or a confidential nature which he might from time to time acquire in relation to the Plaintiff.

(5) Reid was in breach of his contract of employment by having a commercial interest in the corporation of Milson on 20th May 1988 and a formal beneficial interest thereafter through Gold Dragon Resources in August 1988 with the object and intention of having such company available to have the Yuasa agency transferred to it. Reid knew that Fancett was to be involved in assisting in the operation of the Yuasa agency by Milson and that Kanno wanted Fancett to be involved. The participation of Reid in the obtaining of the Yuasa agency for Milson rendered him liable together with Fancett to account for profits made by Milson as a result of Fancett passing on confidential information to Gordan Kan and Milson in breach of contract.

(6) Reid together with Fancett employed through companies in which they had a beneficial interest Ronnie Chan and Nicoll Chiu who had been employed during the currency of Reid and Fancett's employment with the Plaintiff. Since they were both persons who, by reason of their employment with the Plaintiff, were likely to have been in possession of confidential information relating to the Plaintiff's business, and in particular with regard to Yuasa, Reid was in breach of contract in employing this person within the 12-month prohibition period under clause 9(d).

The 2nd Defendant Fancett

126. The 2nd Defendant Fancett is liable for the following breaches of contract, name1y:-

(1) In respect of Barber Co1man and Cazzaniga stock Fancett failed to act in the best interest of the Plaintiff in selling the stock to EEL at an under value, i.e. failed to obtain the best available price for the stock but instead in breach of his contract of employment and obligations of loyalty, fidelity and good faith, he caused the said stock to be sold at an under value of $5,000 to EEL;

(2) Failed to report Yuasa's dissatisfaction and Kanno's disturbance and shock in 1988 to the Plaintiff.

(3) Between May and September 1988 Fancett arranged with Kanno of Yuasa that Yuasa would terminate the agency with the Plaintiff and would transfer it to a company in which Fancett would be involved and that during that same period Milson was incorporated in which Fancett was interested through Gold Dragon Resources with the object of having Yuasa agency transferred to Milson.

(4) On Fancett's own admission, Fancett had within one year from the termination of his employment solicited business from Yuasa which at any time during the currency of Fancett's employment, had dealt with the Plaintiff in breach of clause 6(e) of his contract.

(5) Fancett had, within one year from the termination of his employment, employed Nicoll Chiu and Ronnie Chan being persons who, during the currency of Fancett's employment, had been servants of the Plaintiff and who, by reason of such employment, might be likely to be in possession of any confidential information relating to the Plaintiff's business in breach of clause 6(d) of his contract of employment.

(6) Fancett had failed to keep in confidence all confidential matters in relation to the Plaintiff's Yuasa agency and instead had made use of them when assisting Milson in the operation of his own agency with Yuasa.

The 3rd Defendant EEL

127. EEL through Reid and Fancett, having knowingly received the said B.C. & C. stock, is liable to account to the Plaintiff for all the profits it has received and continued to receive therefrom.

The 4th Defendant Milson

(1) Fancett, with Reid's knowledge, parted with confidential information to Milson (both of them having an interest in Milson and that such information was also provided by Nicoll Chiu at Fancett's instigation); and

(2) In or about May to September 1988 Fancett agreed with Yuasa that Yuasa would termination the agency with the Plaintiff and would of transfer it to a company wholly owned or controlled by him and Fancett and Reid acquired their interest in Milson with a view to having Yuasa agency transferred to it and Fancett made arrangement for transferring Yuasa's agency to a company in which he had an interest. Accordingly Milson is liable to account for all profits it made arising out of the Yuasa agency.

128. Accordingly there shall be judgment for the Plaintiff on liability in terms of paragraphs 1, 2, 3 and 4 of the Plaintiff's claim, all accounts to be taken and inquiries to be made and damages to be assessed before a Master of the court. There shall also be an order nisi in respect of costs of this action against all Defendants to be made absolute within 14 days upon receipt of the judgment by the parties pursuant to O.42 r.5B(6).

Epilogue

129. I must take this opportunity to thank counsel for both sides for the diligent and prompt assistance given to this court throughout the trial. Further, I must say a few words about the transcript of the proceedings before me. At the start of the proceedings I have pointed out to counsel that this court would be slow to otherwise direct pursuant to O.68 r.1(1) to dispense with the official shorthand writer. Consequently, both counsel undertook for solicitors on both sides to transcribe the tape recorded transcript of the evidence with the transcriber provided by the court. That task was shouldered mainly by Mr. Erving of the Defendant's solicitors. On the first two days Mr. Erving's secretary encountered certain problem in the operation of the transcriber, which problem was not encountered by other solicitors in earlier proceedings before me. Mr. Erving, together with the agreement on the other side, had promptly decided to engage professional shorthand writers to take down the notes of the proceedings.

130. At the outset of the proceedings all parties realized that it would be impossible to take down all the evidence in long hand unless the proceedings were proceeded at a much slower pace. I was informed by the parties that the cost of such shorthand writer service is $8,500 per day. However, I was further informed that the legal costs on both sides would cost about $200,000 per day. In other words, both parties realized that if the proceedings before me could be saved by just one day because of the shorthand writer's service, it would be sufficient to cover the cost for shorthand writers. In fact all agreed that the proceedings would be lengthened by 50% or even up to 100% more time if witnesses were stopped moment by moment in order to watch the judge's pen.

131. It has been thought previously that engaging shorthand writers would burden the litigants with unnecessary costs or, at least, additional costs. This, in my view, is just a misapprehension of the fact that litigants were actually paying through their nose by requiring a tribunal to take down all the evidence in longhand. A few glance through the five bundles of transcripts before me will immediately realize that it will be impossible to take down such kind of evidence in long hand in the way it is now recorded.

132. The daily transcript was prepared after about 24 hours or so. This kind of prompt service enable counsel in subsequent days to make use of it in their examination. It has also proved to be useful in pointing out to a witness exactly what case was originally put to the other witness and exactly what a witness was saying previously. This, in my view, is what litigation should be. I am grateful for all who were involved in this case in making these proceedings as smooth and efficient as what litigation should be. Counsel would note that for the 20 days of sitting I had never stopped a witness because I had to take down what he said. That did not even happen once. Instead, I was given every opportunity to watch carefully how a witness gave his evidence and the manner he was saying it and how he was feeling when he gave the evidence as disclosed in his demeanour. I must express my thanks to all parties involved in providing and compiling the transcript.

133. I understand as from 1st June 1993 court reporters will be provided to civil trials to cover the evidential part whilst the other parts of the proceedings will be recorded by the mechanical sound recording system (MSRS). This is, of course, a very significant break through in civil proceedings. However, I wish to point out that the transcript will not be ready in the manner as appeared in the proceedings before me, i.e. after 24 hours or so. Transcripts will only be ready for the purpose of any appeal. This will mean that. Judges and. counsel could not make use of the transcript as taken down by the court reporters or recording. This is in any event a significant step taken for the "modernization" of court proceedings.