Quality Assurance Management Asia Pte Ltd v Zhang Qing and others

• Jurisdiction: Singapore
• Judge: Vinodh Coomaraswamy JC
• Judgment Date: 03 May 2013
• Neutral Citation: [2013] SGHC 96
• Court: High Court (Singapore)
• Docket Number: Suit No 715 of 2010 (Registrar’s Appeal No. 391 of 2012)
• Year: 2013
• Published date: 03 July 2013
• Hearing Date: 16 November 2012
• Plaintiff Counsel: See Tow Soo Ling (Colin Ng & Partners)
• Defendant Counsel: Kelvin Tan (Gabriel Law Corporation)
• Subject Matter: Equity,Equitable compensation,Principles in assessing
• Citation: [2013] SGHC 96

Vinodh Coomaraswamy JC: Introduction

When an employee who is in a fiduciary relationship with his employer uses his employer’s business opportunities, time and revenue-generating equipment to earn a secret profit for himself, what are the principles on which the court will assess the employee’s obligation to pay equitable compensation to his employer? That is the principal question raised on this registrar’s appeal.

Procedural history

Quality Assurance Management Asia Pte Ltd (“QAM”) commenced this action on 17 September 2010 against three defendants. The first defendant is Zhang Qing (“Zhang”), their former employee and fiduciary. The second defendant is Feng Guiyu (“Feng”), Zhang’s wife. The third defendant is Pinnacle Microelectronic Pte Ltd (“Pinnacle”), the corporate vehicle by which Zhang earned his secret profits. On 25 November 2010, QAM applied for summary judgment against the defendants with damages to be assessed. When that application came up for hearing on 24 January 2011, the defendants consented to interlocutory judgment with damages to be assessed.

The discovery exercise for the assessment of damages commenced in March 2011 and concluded in December 2011. The parties exchanged affidavits of evidence in chief for the assessment in early March 2012. QAM adduced the evidence of two witnesses: (a) Benjamin Wright Brown (“Brown”), the managing director of QAM; and (b) Tan Kah Leong, a manager of Tecbiz Frisman Pte Ltd (“Tecbiz”). QAM engaged Tecbiz to provide the computer forensic and digital investigation services it needed to uncover Zhang’s wrongdoing which forms the subject-matter of these proceedings. The evidence on behalf of the defendants came from Zhang and Feng, each of whom filed an affidavit of evidence in chief on their own behalf and on behalf of Pinnacle. The defendants called no other witnesses.

The Assistant Registrar (“AR”) heard evidence in the assessment on 19 March 2012 and 20 March 2012. By her decision on 10 September 2012, she assessed the damages which the defendants were to pay to QAM at a total of $72,462.10 plus, as is usual, interest and costs. The defendants appealed to a judge in chambers against the entirety of the AR’s award of damages by way of Registrar’s Appeal No. 391 of 2012. I heard the defendants’ appeal on 16 November 2012. I dismissed the defendants’ appeal, save in one relatively minor respect.

On 14 December 2012, the defendants appealed to the Court of Appeal against my decision. I now give my reasons for my decision.

The parties

The following introduction of the parties is taken from the oral grounds of decision of the AR given on 10 September 2012:¹ 1 Quality Assurance Management Asia Pte Ltd (“the Plaintiff”) is a company incorporated in Singapore in the business of providing testing and inspection services to the semiconductor and other electronics industries. The first defendant, Zhang Qing (“1st Defendant”), is an ex-employee of the Plaintiff who was in the Plaintiff’s employ from June 2002 to September 2010. He was hired as a project engineer in 2002, and was promoted to become the project manager of the Plaintiff on 1 March 2006. The second defendant, Feng Guiyu (“2nd Defendant”) is the 1st Defendant’s wife. The third defendant, Pinnacle Microelectronic Pte Ltd, (“3rd Defendant”) is a company incorporated in Singapore in 2007, whose sole shareholder and director up to 31 August 2010 was the 2nd Defendant. From 1 September 2010, the 1st Defendant has become the sole director of the 3rd Defendant. The 3rd Defendant’s registered address is also the residential address of the 1st and 2nd Defendants. On 17 September 2010, the Plaintiff brought claim against the 1st Defendant for breach of employment contract and fiduciary duties by diverting contracts from some of the Plaintiff’s existing customers to the 3rd Defendant during the period between November 2007 and September 2010. The Plaintiff also brought a claim against each of the Defendants for an inquiry as to damages for misuse [of] confidential information and conspiracy to defraud the Plaintiff, and further or alternatively, an account of all the profits made by the Defendants.

1st defendant’s employment history

Zhang joined QAM as a project engineer on 1 June 2002.² QAM promoted him to the position of project manager on 1 March 2006.³ His duties as a project manager included:⁴ Leading projects on behalf of QAM including planning, coordination, supervision and mentoring of site technicians and engineers. Administering and supervising project billings, cost control and budgeting to ensure successful project completion. Serving as the primary point of contact with QAM’s clients assigned to him for all technical, commercial and scheduling issues that arise during the course of a project.

Just over 6 months later, on 17 September 2006, QAM promoted Zhang to the position of branch cum general manager. In his new position, Zhang was the second most senior operations personnel in QAM. The promotion meant that Zhang became responsible for:⁵ All local sales activity. The acquisition and maintenance of QAM’s equipment inventory. The planning and execution of site testing and analysis services. Recruiting, training and deploying field personnel.

Zhang’s rapid promotion and the duties which QAM entrusted to him on each promotion make clear that QAM saw Zhang as a highly trusted and valued employee.⁶ Indeed, in March 2009, just 18 months before QAM was compelled to commence this action against Zhang, it presented him with its Employee of the Year Award 2008 together with a monetary award worth $8,000.⁷ QAM also supported Zhang’s application for permanent residence in Singapore and later, Zhang’s application to become a citizen of Singapore.⁸

The wrongdoing which Zhang engaged in was an especially cynical betrayal of the deep trust and confidence which QAM reposed in him.

Pinnacle Microelectronics Pte Ltd

Pinnacle was incorporated in 2007. Initially, Feng was the sole shareholder and director. In 2009, QAM discovered Pinnacle’s existence and about its connection to Zhang through Feng.⁹ When confronted about this, Zhang represented falsely to QAM that Pinnacle traded in industrial supplies unrelated to QAM’s business and that there was no conflict in Feng managing the business of Pinnacle.¹⁰

Zhang maintained the charade that Pinnacle was not his alter ego in cross-examination. He insisted that Pinnacle was his wife’s company, that he merely helped her out and that he did not run Pinnacle’s business, even unofficially.¹¹ But the truth emerged in Feng’s evidence. She confirmed in her affidavit of evidence in chief¹² and in cross-examination¹³ that she did not participate at all in the business of Pinnacle; it was Zhang who was solely responsible for preparing all of Pinnacle’s quotations and purchase invoices and for carrying out the work of Pinnacle. Feng was nothing more than a front for Zhang from the outset. Zhang eventually conceded in his cross-examination that Pinnacle was his business.¹⁴

Zhang resigns

On 15 August 2010, Zhang resigned¹⁵ from QAM, saying that he intended to go into a business similar to QAM’s but on a smaller scale.¹⁶ QAM then noticed that Zhang had been coming to its office in the late hours of the night.¹⁷ QAM discovered that Zhang had wrongfully downloaded its confidential information into a thumb drive.¹⁸

Most significantly however, QAM discovered that Zhang had, during his employment with QAM and contrary to his representations, been operating the business of Pinnacle in direct competition with QAM.

Zhang’s wrongdoing was audacious in the extreme. While he was still employed by QAM, he conducted Pinnacle’s business from QAM’s office premises during QAM’s office hours. He secretly diverted to Pinnacle for his own benefit customers of QAM who clearly intended to deal with QAM (see [65] to [68] below). He conducted the testing work for these diverted customers using QAM’s very own testing equipment at QAM’s very own place of business.¹⁹ He corresponded with QAM’s customers on Pinnacle’s business during his working hours at QAM. He used QAM’s very own office equipment in QAM’s very own office to generate quotations, test reports and tax invoices from Pinnacle to these diverted customers.²⁰ He gave as his contact numbers on Pinnacle’s quotations and tax invoices his direct line at QAM’s office and his mobile telephone number paid for by QAM.²¹ He even returned to QAM’s premises furtively on Sundays to carry out testing for these customers. He kept secret from QAM and retained for his own benefit all of the revenue and profits which he, through Pinnacle, earned by means of this diversion.

Zhang was candid in cross-examination:²² Q: Paragraph 13 [of your AEIC] – [“]apart from my initial approach, I had never actively sought out these contracts.[”] Can you explain what you mean by your [“]initial approach[”]? A: At the beginning when we were preparing [these] contracts, I did not secure these contracts for [Pinnacle], but the customers they came to approach me. Q: My question was, what do you mean by [“]initial approach[”]? A: [“]Initial approach[”] is I request for quotations, and I give them the quotations. Q: Are you trying to tell the court that [QAM’s] customers tried to approach you for quotations, and you gave [Pinnacle’s] quotations to them? A: Yes. Q: You said earlier that you did the work on Sundays. As the second most senior person in Plaintiff’s company, the branch general manager, wasn’t it up to you to allocate your team to carry out work which Plaintiff’s customers had wanted done? Why did you think it was all right to do the work yourself and keep the fees for yourself?

. . .

A: Because Plaintiff did not have enough manpower to carry out the job, so I have to carry it out on Sundays. Q: You are Plaintiff’s employee – so what do you mean there was not...