J.H. TRACHSLER (HONG KONG) LTD v. BJOERNLOHSE AND OTHERS

Case No 1987, 2906

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

____________

JUDGMENT

____________

Preliminary

1. The trial of this matter ended on 27 July 1989. I handed down my judgment on 9 August 1989. This was substantially in favour of the Plaintiff. In that judgment, I invited counsel to deal with some outstanding points. On 6 October 1989, I heard counsel on these points, but also, at that hearing, Miss Li argued that the claim by the Plaintiff had been "satisfied". On the basis of this argument, Miss Li says, my judgment should not have effect. Mrs Kaplan had no notice of this argument and hearing was adjourned to enable her to consider the matter. The hearing was completed on 27. November.

2. As I mentioned in my judgment of 9 August 1989, when this action commenced, there were eight Defendants: The First Defendant was Eugene George Yourieff ("EGY"); the Second Defendant was his son, David Yourieff ("DY"); the Third Defendant was Mr C. Y. Poon; the Fourth Defendant was Northern Technical Services Limited("Nortec"), and the Eighth Defendant was Miss Ida Chow. I refer to these Defendants as "the former Defendants", and to the Defendants involved in the trial before me as "the present Defendants". In my judgment, I found that all the Defendants, both present and former, save for the Seventh Defendant, conspired together to defraud the Plaintiff, and that the Seventh. Defendant was vicariously liable for the acts of the Fifth Defendant in that conspiracy. I also found that the former Defendants were in the position of constructive trustees for the Plaintiff and that by setting up Nortec and operating its competing business, they fraudulently and dishonestly breached that trust. I found that the present Defendants were liable to account for any of the Plaintiff's property received by them because they knowingly and dishonestly assisted in that breach; the Seventh Defendant's liability being vicarious.

3. Although I found the present Defendants liable under both heads, I dealt with the matter by considering the relief due to the Plaintiff primarily as damages, but sought to ensure that no injustice was done to anyone by counting the same money twice or failing to take it into account at all.

The Satisfaction.

4. It is convenient to deal with the substantive point of satisfaction first, because, if Miss Li is right, the other points may not arise for decision.

5. Miss Li's point that the Plaintiff's claims against the present Defendants have been satisfied arises from the implementation of an agreement entered into by the Plaintiff, on the one hand, and EGY, DY, Mr Poon and Nortec ("the debtors!), on the other This agreement recited that the debtors were Defendants in the present action and had consented to judgment being entered against them in the action in the sum of $3,789,944.20, interest and costs. Under the agreement, the debtors agreed to pay to the Plaintiff the sum of $155,000 on or before 12 July 1989 and the sum of $1,395,000.00 on or before 30 September 1989, making a total payment of $1,550,000. I was told by Mrs Kaplan that these payments were made; the second payment being made at the end of September, after I had handed down my judgment on 9 August 1989. If these sums were paid, the, agreement provides that -

"(a) each of the parties hereto hereby releases the other of them from all sums of money actions proceedings accounts claims and demands which each of them now has or at any time heretofore had against the other for or on account of or in relation to any act cause matter or thing, whatsoever down to and inclusive of the date of this deed.

(b) [the Plaintiff] forever undertakes not to cause to be issued out of the Registry of the Supreme Court of Hong Kong the consent order neither to draw up the judgment both referred to in paragraph (2) of the recitals herein."

6. Miss Li points out that she was in no position to raise the matter of satisfaction until payment under the agreement had been made, and, as I have said, this was done after I had given judgment. Now that payment has been made, Miss Li argues, she is able to raise this payment as satisfaction of the cause of action on which my judgment is founded, and that satisfaction operates as a bar to any further proceedings. I am able to deal with matter, although I have given judgment, Miss Li says, for the good practical reason that anyfinding that I am technically functus would mean only that the point would have to be taken on appeal as a new fact. It is important, Miss Li says, that the point be dealt with as soon as possible because its resolution may affect contribution proceedings between the former and present Defendants.

7. If, Miss Li goes on to argue, the satisfaction is not a complete bar, at least it operates pro tanto to release the present Defendants from liability to the extent to which payment has been made.

8. Mrs Kaplan argues that, in the circumstances of this case, where the amount due by the present Defendants under my judgment is more than the amount paid by the other Defendants, the payment cannot be a complete bar on the implementation of my judgment. Mrs Kaplan calculates, and Miss Li did not dissent from this, that an amount of about $2,800,000 would be payable under my judgment; She concedes, of course, that no Plaintiff may recover more than the loss he has suffered, but this is a matter to be dealt with under the process of execution and not at this stage. Mrs Kaplan says that it has always been her position that the Plaintiff may not recover an amount greater than it loss, and, indeed, she said this when I raised a niggle about the matter when the existence of the settlement agreement involving the former Defendants arose during the trial.

9. Miss Li has made it quite clear to me that she does not rely on the consent to judgment by she other Defendants or on the agreement signed by the Plaintiff and the other Defendants as a release, without more The actual payment by the other Defendants as satisfaction is the platform on which she relies Therefore, she says, the provisions of the Civil Liability (Contribution) Ordinance(Chapter 377),which do not deal with satistaction, are irrelevant I accept this.

10. In terms of the Plaintiff's statement of claim, the action against the former and present Defendants claimed various relief against various Defendants -

i. Against EGY, DY, Mr Poon and Ida Chow damages for: breach of contract.

ii. Against all the Defendants - damages for conspiracy.

iii. Against all the Defendants - an account of secret profits and payment over.

iv. Against all the Defendants, except Nortec - sums received from Nortec as constructive trustees.

v. Against EGY payment of money received.

vi. Against EGY - damages for breach of director's duty.

11. EGY filed a counterclaim against the Plaintiff for money due and damages. DY, Mr Poon and Nortec had counterclaims against the Plaintiff for damages.

12. The settlement agreement between the Plaintiff and the other Defendants was an overall settlement of all claims between the Plaintiff and the others. Therefore, Mrs Kaplan argues, it took into account claims against the Defendants that did not arise in the litigation before me and also settled the counterclaims. The payment made under this agreement was not, therefore, solely in respect of the same claim against the present Defendants.

13. As one might expect from the nature of these things and how they come about, the settlement agreement is for a lump sum, without any attempt to break down the figure in respect of the various claims between the parties.

14. In my view, in one way or another, the Plaintiff sought to recover the money said to be due under all the claims in the statement of claim from the present Defendants. The Plaintiff was not completely successful regarding all the sums concerned, but it did press for recovery of them and I made my decision upon them.

15. It is unlikely, in view of my findings, that the counterclaims by the former Defendants would have been sustainable. Having regard to what EGY, DY and Mr Poon knew they had been doing while employed by the Plaintiff, it is improbable, in my view, that these counterclaims would have played any significant part in the settlement negotiations. In any event, whatever part they did play would have been to reduce the settlement figure, and, therefore, this aspect of the matter is irrelevant to the present problem in so far as it may be said to restrict the Plaintiff in recovering under my judgment.

16. There may have been some regard paid by the parties to other matters during the settlement negotiations, perhaps sums were taken into account on which the Plaintiff was unsuccessful in the litigation before me, but there can. be little doubt that major factors governing the settlement were the Plaintiff's claim for the loss it had suffered, by way of damages or otherwise, by reason of the Defendants' behaviour and the general uncertainties of litigation. The matter with which I was concerned was also substantially the Plaintiff's claim for the loss it had suffered, by way of damages or otherwise, by reason of the Defendants' behaviour.

17. If the Plaintiff suffers some prejudice from the fact that the settlement, payment did, in fact, include some substantial element attributable to the factors not covered by my judgment, the Plaintiff must bear this loss. The present Defendants did not, on the face of it, take any part in the settlement negotiations. The form of the settlement, and the allocation of the money paid, was, to some degree, under the Plaintiff's control, and completely out with that of the present Defendants. If it had applied its mind to it, the Plaintiff would have been aware that it could not recover the payment from the other Defendants and a payment in respect of the same loss from the present Defendants, and should have been able to put itself in the position of being able to show precisely to what claims the payment should be allocated That not m having been done, there is nothing I can do to make an allocation now; to attempt to do so would be nothing more than arbitrary and founded on guesswork that maybe completely wrong The apparent primary purpose of the settlement agreement was to settle the present action a against the other Defendants. In my view, if there had been any other significant issue between the parties. settled by the agreement, this would have been specifically stated.

18. Accordingly, I find, that, on the information available to me - any there is no reason to think drat any better in formation is available - the payment made by the other Defendants related substantially to the same loss as that con - cerned in my judgment.

19. I have now to decide what effect this finding has on the Plaintiff's right to enforce my judgment.

20. Miss Li relied to a great extent on Bryanston Finance Ltd. v. De Vries [1975]1 Q.B. 703. In that case, the second defendant settled an action for libel against him in respect of which he was jointly liable with Mr de Vries. By consent, judgment was entered against the second defendant "for £1,000, being his proportion of the damages and £1,250 being his proportion of the costs, to be paid ... forthwith." The libel action continued against Mr de Vriea and judgment was entered against him for £300. Lord Denning M. R. said this at page 723 -

"If the Plaintiff gets judgment against the remaining tortfeasor for a sum which is more than the sum already recovered (by the settlement or consent order), he is entitled to enforce it for the excess over which he has already recovered. But if he gets judgment for less than he has already recovered, then he recovers nothing against the remaining tortfeasor and should pay the costs. ... The right solution ... is for any sum paid by the one wrongdoer under the settlement to be taken into account when assessing damages against the other wrongdoer. If the plaintiff recovers more, be gets the extra."

21. So the principle is clear enough. If I had assessed the Plaintiff's loss at less than the payment subsequently received from the other Defendants, plainly the Plaintiff could have taken no steps to enforce that judgment because it would have already recovered the money to compensate it for that loss Having been awarded more under nay Judgment than the payment by the other Defendants, it must take that payment into account and seek to recover under my judgment no more than the excess to make up my assessment of the total loss suffered by it.

22. I do not believe that the Bryanston case, or commonsense, supports Miss Li's submission that the payment operates as a complete bar where the other payment is less than the amount of the judgment recovered. If the payment had been made much earlier, and Miss Li had been ably to plead it, she could have done no more than plead that payment as a factor to be taken into account in assessing the Plaintiff's loss, and not as a complete defence to the action.

23. That being the case, Mrs Kaplan and Miss Li are not far apart; Mrs Kaplan saying that account should be taken of the payment at the time of execution and Miss Li arguing that there is no point in that I should do it now.

24. Mrs Kaplan accepts that the payment made under the settlement agree ment must be brought into account at some stage. Accordingly, this exercise must be performed at some time, and it has not been suggested that I, or another judge, will be in any better position to take that payment into account at some other stage or in other proceedings.

25. This issue really resolves itself in favour of Miss Li's submission in the sense that, having found that the whole payment of $1,550,000 should be taken into account, there does not seem to be any more to be done by me I do not think I can, should or need to, alter my judgment, but it is sufficient, I believe, for me to say that the Plaintiff cannot recover mare under my judgment than its loss, and that loss has already been reduced by the payment of $1,550,000 " already made by the other Defendants, which I cannot do other than find, on the facts available, is attributable to the same loss.

The Trade Debt.

26. I left this matter in abeyance because I had insufficient material on which to work. On 6 October, Mrs Kaplan told me that Miss Li had now seen the supporting documents and was satisfied that the sum of $203,700 should be added to the judgment figure" Miss Li does not accept, of course, that I was right to find that the trade debt is properly part of the loss suffered by the Plaintiff for which her clients are liable, but accepts the quantum. Accordingly, the judgment sum is increased by $203,700. Interest on this sum has been calculated, and agreed, up to 6 October 2989, at $28,170.

Rent in respect of Wyndam Street.

27. Having found that this was part of the Plaintiff's loss, I neglected to make an award in respect of it. This sum of $52,500, together with interest thereon to 6 October 1989 at $14,471, has been agreed. These sums are payable under my judgment, and the judgment sum is increased accordingly.

Interest.

28. Interest on the sum of $1,393,544 awarded in my judgment of 9 August 1989 has been calculated at $373,582 to 6 October 1989. Interest to the same date has been calculated on my award of 155,930 yen at 20,267 yen and on my award of 37,941 Swiss francs at 4,931 Swiss francs.

29. Otherwise, the judgment date for the purposes of interest will be 9 August 1989.

Commission Deductible.

30. Miss Li points out that one of the methods used by me to ascertain the damages suffered by the Plaintiff was to take the profits earned by Nortec as a base. The argument was that, if the conspiracy had not been undertaken these profits would have been earned by the Plaintiff. However, to equate the prefits of Nortec with what would have been the profits of the Plaintiff, it was necessary to make some adjustments; one of which was to take into account the expenses that would have been incurred by the Plaintiff in earning the income.

31. Miss Li argues that, having taken the income of Nortec and made it notionally the income of the Plaintiff, in order to translate this notional income into the profit lost by the Plaintiff, I must deduct from that income the commission on the profits of the Plaintiff that would have payable to DY and Mr Poon if those profits had been earned by the Plaintiff. Or, to put the matter differently, if the conspiracy had not taken place, the gross profits of the Plaintiff would have increased, but this gross profit does not truly reflect the loss suffered by the Plaintiff because the money in its pocket at the end of the day would have been lessened by the commission on those profits payable to DY and Mr Poon.

32. This is not anew point. Miss Li made the same submission at the close of the trial, but, although I mentioned the point in my judgment, I neglected to deal with the substance of it. I am still in the driver's seat in this matter and I think it is right that I should deal with it now.

33. Mrs Kaplan made submissions to me on the basis that DY and Min Poon were conspirators. This is so, but the assumption for the purposes of the present exercise is that no conspiracy was undertaken. There is no question of DY or Mr Poon receiving any benefit under this calculation. The purpose of the exercise is to calculate the loss to the Plaintiff on the proper basis and the proper basis would seen to be the net amount that would have accrued to the Plaintiff if it had not been defrauded. That net amount, it seems to me should be reached after deducting what the Plaintiff would have paid to DY and Mr Poon as commission on the profits.

34. The expert evidence also supports Miss Li's submission. Mr Tsang conceded that, in order to calculate the extent to which the Plaintiff was out of pocket, commissions payable on sales and profits should be taken into account, and this had not been done in the Plaintiff's calculations of its loss prepared by his firm.

35. I will not attempt to perform the calculations involved here; that would be beyond my mathematical ability. I will leave this to be done, and hopefully agreed, by the expert accountants for the parties. Perhaps this aspect of the matter can be finalised at the same time as the hearing on the question of the costs.

Costs.

36. There remains the matter of costs, including the costs of the application for a stay of execution. I will bear counsel on this at a convenient time to be arranged by the Listing Officer.