POON KA MAN JASON v. CHENG WAI TAO AND OTHERS

HCA 304/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 304 OF 2011

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D E C I S I O N

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1.  On 24 May 2013, Judgment was handed down in this case after trial. I will adopt the same definitions as they were used in the Judgment.

2.  Before the Judgment order was perfected, the plaintiff Jason invited the court to reconsider and vary paragraph 68 of the Judgment and the order made that Smart Wave is entitled to claim damages from Ricky as a result of his breach of fiduciary duties as a director of the company. 

3.  The court’s jurisdiction to vary its own judgment before it has been perfected and sealed is not disputed.  The issue is whether the court should exercise its power so to vary, and the Court of Appeal in Hong Kong has held that such power should only be exercised where it can be justified by strong reasons.  There must be finality in litigation, but the jurisdiction serves the purpose of enabling the court to deal with the just resolution of disputes in accordance with the parties’ substantive rights. 

4.  I have considered the decisions of the Court of Appeal in  Andayani v Chan Oi Ling [2000] 4 HKC 233 and Sun Jianqiang v Trans-Island Limousine Service [2004] , and I am satisfied that there are strong reasons in this case to exercise my power to reopen and reconsider paragraph 68 of the Judgment.  As I have indicated in the written directions on 6 June 2013, I had omitted in the Judgment to deal with Smart Wave’s right to elect for damages or an account of profits, and the parties had not in the course of trial argued this issue which had been identified in the Joint List of Issues agreed between the parties before trial.  In balancing the interests of finality of a judgment after trial on the one hand, and the interests of doing justice to the parties on the other hand, I consider that I should give to both parties the opportunity to make submissions and argue on the issue not canvassed at trial, as to whether the court should order that Jason suing on behalf of Smart Wave be allowed to elect between an account of profits or an inquiry as to damages, instead of limiting Jason on behalf of Smart Wave to damages, as now provided for in paragraph 68 of the Judgment.  Incidental to that, directions on discovery may have to be given in order to enable an informed election to be made by Smart Wave, and the parties should also be given a fair opportunity to make submissions to the court on that.

5.  The parties have now made submissions, not only on the power of the court to vary its own judgment, but also on whether an account of profits should be ordered against the defendants, and the scope or terms of the order and directions to be made.

6.  Although I am prepared to reconsider the order made in paragraph 68 of the Judgment, I have made clear to the parties at this hearing that the finding in paragraph 68 is clear: and that the remedies to which Smart Wave is entitled are granted on the basis that Ricky was in breach of his fiduciary duties as director, in operating sushi restaurants under the “ITACHO” name, in competition with Smart Wave’s business until it was ceased in 2010.  Whether this is right or wrong is to be canvassed on appeal, and any further directions to be made by me on the application for variation can only be made on the basis of the findings made and expressed in the Judgment.  I agree that in deciding whether to reopen the Judgment and what directions to make on discovery if the Judgment is to be varied to permit an account of profits, it is entirely inappropriate to embark, and have refrained from embarking, on “an exposition such as would be presented to a court of appeal” (the expression used in Noga v Abacha [2001] 3 All ER 513).  That should be done before the Court of Appeal, and it would be a waste of time and costs to repeat the exercise.

7.  Having found that I have the jurisdiction and should exercise my power to reopen the Judgment and to reconsider the orders to be made, the next issue is whether I should order and give the plaintiff the option to seek an account of profits.

8.  In this regard, as I have been reminded by Leading Counsel for Ricky, I have found Fine Elite, and effectively Jason, who was the only relevant protagonist acting on behalf of Fine Elite, and in effect its alter ego, as well as the only shareholder of Smart Wave now pursuing the claim against Ricky, to have acted in bad faith in applying for and seeking registration of the “ITAMAE” Service Marks.  Jason’s conduct amounting to bad faith is as described in paragraphs 37 to 39 of the Judgment.  I found in paragraph 57 of the Judgment that Fine Elite is not entitled to the remedy of specific performance by virtue of such bad faith and conduct falling short of acceptable commercial behavior.  I rejected Jason’s claim that his application for registration of the Service Marks was made and held on trust for the benefit of the Itamae Companies including Smart Wave. 

9.  An account for profits is similarly a discretionary and equitable remedy. HCA 1269/2008 which are proceedings commenced by Fine Elite, and HCA 304/2011 which are proceedings commenced by Jason on behalf of Smart Wave, are substantially connected in terms of the rights to the use of the Service Marks and the operation of the Itamae restaurants, and were tried together with common questions of fact.  Jason’s application for registration of the Service Marks was held to be repudiation of the Hero Elegant Agreement (paragraph 40 of the Judgment), and Ricky’s operation of the ITACHO restaurants commenced after the repudiation, in 2007.  The court is entitled to withhold the grant of a discretionary and equitable remedy to Jason, who is the only shareholder complaining of the operation of the ITACHO restaurants by Ricky, on the basis of his conduct in the trade mark proceedings which is tantamount to an abuse of process, and on the basis of the findings made against him in HCA 1269/2008.   I consider it to be within the power of the court, after hearing all the evidence at trial and finding that there is abuse, to decline the exercise of its discretion to grant the equitable and discretionary relief sought, notwithstanding the absence of any pleading made in HCA 304/2011 that Jason’s claim for equitable relief is barred. 

10.  The mere fact that the parties had included, in a Joint List of Issues for trial, the issue of “what consequential directions should be given to enable election to be made between the alternative remedies of damages/equitable compensation… or account of profits”, does not mean that Jason as plaintiff will not have to establish his entitlement to an order for accounts and other remedies sought, before the directions are made.

11.  On the other hand, having heard submissions from the parties on whether the court should exercise its power to vary the Judgment, the fact that there is or will be an appeal against the Judgment or variation itself is not per se a reason for the court not to vary the Judgment (subject to the caveat referred to in paragraph 6 above) and to make directions on discovery, if it is indeed proper and appropriate in the circumstances of the case so to do.

12.  In all the circumstances of this case, including the limited nature of Smart Wave’s rights in the operation of one Itamae restaurant, Jason’s conduct in relation to his claim to registration of the “ITAMAE” Service Marks, and the information which Smart Wave and Jason already have before commencement of and at trial, I consider that it would be more just and equitable to order Ricky to make payment to Smart Wave of the damages sustained by Smart Wave as a result of Ricky’s breach of duties as director, as opposed to an order for an account of profits.  Such damages are to be assessed in the usual way, as originally ordered in paragraph 68 of the Judgment.

13.  For the above reasons, after hearing the parties’ submissions, I decline to make an order giving Smart Wave the right to elect for an account of profits.  It becomes unnecessary to decide further on the scope and terms of the directions for discovery to enable election.

14.  I order that the costs of the application for variation are to follow the event, and are to be paid by Jason to Ricky, with certificate for 2 counsel. 

15.  However, the costs of the parties’ submissions for leave to file evidence for the hearing of this application for variation should be borne by Ricky, since I ruled on 20 August 2013 that no such evidence should be filed.