Pursuer: Cormack; McGrigors LLP

Defender: Cheyne; Balfour + Manson LLP

17 February 2011

Introduction

[1] The first defender was at all material times employed by the pursuer ("SSEL"). Unknown to SSEL, the defender also had a significant interest in a company called DK Verification Limited ("DKV"), which provided SSEL with engineering support and quality control services. In this action, SSEL seeks an accounting from the defender for profits made by him from his dealings with, or interest in, DKV. It seeks damages for breach of contract in the alternative. It was agreed between the parties, in terms of a Joint Minute lodged in process, that if the court were to order an accounting, it could proceed forthwith, on the basis of the evidence adduced at the proof, to determine the amount to be accounted for.

[2] The second defender is his wife. She has never been employed by SSEL. By agreement between all parties, she was released from the action on terms recorded in a Joint Minute lodged on the first morning of the proof. From here on I shall, for convenience, refer to the first defender simply as "the defender".

The evidence

[3] The main oral evidence adduced by SSEL was from Mr Peter Fosh, currently its Finance Director, and Mr Chul Soo Bae, the Senior QA manager for SSEL in Glasgow during the period with which this action is concerned. In addition, they adduced evidence from Mr David Gill and Mr Gavin McCormick, both of Linx International Limited, who were called in by SSEL to investigate the links between the defender and DKV. An Affidavit was put in, without objection, from Mr Lukasz Kolasa, dealing with events connected with DK Verification Spolka, a Polish sister company of DKV. The credibility of the witnesses called by SSEL was not challenged. Much of their evidence was uncontroversial and, on the main issues in the case, I accept it. The defender himself gave evidence on his own behalf, but called no other witnesses. Mr Kelly, a principal actor in the events underlying this dispute, was in Ireland and, despite having given a witness statement to the defender's agents in advance of the proof, did not make himself available to be called as a witness. There was no attempt to rely on his unsworn statement as his evidence. Mr Docherty was commendably candid in many parts of his evidence - he admitted his involvement with DKV and appeared to be open about his bank accounts - but in some respects he was, in my view, evasive. It seemed to me that he deliberately sought to play down the importance of his role as a QA Manager and the extent to which his advice and recommendations would be persuasive in the decision making process within SSEL. In a number of instances, his oral evidence appeared at odds with what appeared plainly from the e-mails between him and others, both within and outside SSEL. I was not prepared to accept his evidence on these matters.

[4] Apart from the contractual documents, the documentary material consisted largely of e-mail chains involving the principal actors: Mr Kelly; the defender; Mr Fosh; and Mr Bae. It largely spoke for itself. Parties had helpfully provided the court with a joint bundle of the relevant e-mail correspondence arranged in chronological order: see paragraph 16 of the Commercial Actions Practice Note (No.6 of 2004). The arrangement of the correspondence in this way has been of great assistance to the court, and it enabled the proof to proceed efficiently and with minimal delay between references to productions. I am grateful to them for the effort involved.

SSEL

[5] A description of the business carried out by SSEL can be taken from paras.13 and 14 of the witness statement of Peter Fosh. SSEL imports and distributes semiconductor products. Mr Fosh described them as "box shifters". The semiconductor products are mostly manufactured by Samsung in Korea and China. SSEL procures the products either through firm orders or through receipt of an allocation from Samsung Electronics Co. Ltd. ("SECL"), its ultimate parent company in Korea. Products are generally sold either into OEMs (Original Equipment Manufacturing), i.e. to computer manufacturers such as Dell, IBM and HP, or into distribution. They are sold in various forms of completion depending on customers' requirements - a silicone wafer, for example, might be sold in its own right or made into a component part, which part might itself either be sold as such or else incorporated into a module and then sold. SSEL sells Memory (i.e. chips), LCD (Liquid Crystal Display), HDD (Hard Disk Drives), ODD (Optical Disk Drives) and System LSI (Large Scale Integration) products. Its products are used in a wide spectrum of end uses, from printers to medical equipment, the main uses being in laptops, PCs, mobile phones and navigation devices;

[6] SSEL is based in the UK. That is where its customer relationships are predominantly established, though it works with customers throughout Europe and the rest of the world. It is a wholly owned subsidiary of Samsung Electronics UK Limited, a company based in London, which in turn is a subsidiary of SECL (sometimes referred to as "Samsung HQ"). SSEL has a sister company, Samsung Semiconductor Europe GmbH ("SSEG"), based in Germany, which has responsibility for most of mainland Europe, with a focus on Eastern Europe.

[7] SECL sends over a number of Korean ex-pat managers from Korea to the UK, usually for a period of five years. One such Korean ex-pat was typically based in the Glasgow office of SSEL. Thus, Mr CS Bae was sent over from Korea in May 2005 and returned to Korea at the end of his posting in July 2010. Whilst in the UK, Mr Bae was the Senior Quality Assurance ("QA") Manager at SSEL in Glasgow. He took over from Mr YH Yoo, who had been there in that role for the previous five years. The Korean ex-pats are seen essentially as a means of liaising between Samsung HQ and the local Samsung company (such as SSEL). Apart from the Korean ex-pats, the remainder of the management and employees of SSEL, numbering about 80 in total in the UK, were local. Mr Fosh explained that the Samsung culture, or philosophy, was that "locals work best with locals". Samsung aimed to employ local people worldwide so that they developed relationships with customers in a particular area. They put a lot of trust in their local staff, relying on them not only to give them necessary, accurate and important information but also to give recommendations. A great deal of reliance was placed on such recommendations.

SSEL's business relationship with Dell

[8] Until about May 2009, one of SSEL's key customers was Dell. During the years 2002-2008, business with Dell made up an average of 20.8% of SSEL's total turnover, and Dell's LCD business alone made up an average of 11.9% of SSEL's total turnover. Samsung and Dell have an overarching contract, which forms part of Samsung's Global Account Management ("GAM"), a world wide agreement between Samsung in Korea and Dell in the United States. The price charged by SSEL to Dell for its products is agreed between Samsung in Korea and Dell in the USA.

[9] For most of the time with which this action is concerned, Dell had a large manufacturing plant in Ireland. This operation was gradually moved to Poland during the fourth quarter of 2007, but there was a period when activities in Ireland and in Poland ran in parallel. The Memory, HDD and ODD business with Dell, and the handling of the Dell account, transferred from SSEL to SSEG on 1 September 2010, but there was continuity at senior level since the senior employees in charge of the customer relationship in SSEL were transferred to Germany. Dell continues to be a key customer of Samsung.

[10] Like many other customers, Dell wanted their suppliers to provide local QA support, both to check goods as they arrived and to deal with problems discovered once the goods were with them. To provide this service, suppliers would use their own local employees or sub-contractors, or in some cases both. Having only about 80 of its own staff in the UK, Samsung sub-contracted some of its QA support service to third parties.

The defender's employment with SSEL

[11] The defender was first employed (from August 1999 to December 2000) by SSEG in Germany as a QA Assistant Manager. In December 2000 he was transferred to SSEL to take up a position in Limerick, again as QA Assistant Manager. He was promoted to QA Manager in November 2002, was transferred to Glasgow in August 2003, and was promoted to QA Senior Manager on 1 April 2005. QA Manager is a fairly senior role within the Samsung organisation, and Senior Manager more so. At the time he was suspended, in January 2010, the defender was on an annual salary of £59,000, plus a pension, a generous bonus, and the use of a company car (or car allowance), the package as a whole being worth about £86,000 a year.

[12] The role of a QA Manager within SSEL involves a number of different activities: dealing with product quality and monitoring quality levels; teaching the customer how to handle the product during production; and handling the QA relationship between SSEL, Samsung HQ and the customer. A job description formed part of the defender's contract of employment dated 12 December 2000, when the defender was appointed QA Assistant Manager for the pursuer and posted to Limerick (no further contract appears to have been issued upon his various promotions or on his transfer to Glasgow, but it was not in dispute that he was bound by the terms of that contract). The job description listed four "accountabilities": (1) to meet customers' technical requirements for all semiconductor products; (2) to offer effective problem management for technical issues arising from claims; (3) to monitor quality levels continuously and report regularly to Samsung HQ on such matters; and (4) to manage subcontractors who provide support to customers. It postulated direct liaison both with important customers and with third party service providers, with a minimum of supervision. And it specifically envisaged that the job holder might be required to perform other duties.

SSEL's business relations with DKV

[13] From around 2001, Samsung had been using an individual called Darren Kelly to provide QA services and engineering support in Ireland. Before moving on to providing these services in a personal capacity, he had been employed by QCF Limited. In about March 2004, at about the time that a new form of testing incoming products ("OBA") was introduced by Samsung, he set up DKV, through which he continued to provide the services. There was no written contract between SSEL and DKV but the relationship is well documented in e-mails and invoices.

QA testing

[14] Good QA is of the highest importance to Samsung. In the main it was conducted by means of On Site Verification ("OSV"). If there was a failure reported from a Dell manufacturing line, or a report of mechanical damage, Dell would contact SSEL, and SSEL would arrange for the problem to be checked locally before returning any parts to Korea for failure analysis. The reported failure or damage would be checked on site, the non-functioning part or product being tested by attempting to replicate the failure, so as to assess whether it was Vendor Induced Damage ("VID"), i.e. a defect for which Samsung was responsible, Customer Induced Damage ("CID"), a defect for which the customer was responsible, or No Fault Found ("NFF"), where it had proved impossible to replicate the symptoms of failure. Between 40% and 60% of reported failures leading to OSV were found, after testing, to be NFF. In such cases the product would be returned to Dell, to be re-used by them. Because OSV was time consuming and required constant attendance at the customer's premises, the use of third party providers (or sub-contractors) for verification purposes was normal practice. This was where Mr Kelly/ DKV came in. They were engaged by SSEL to provide third party QA services in relation to products supplied to Dell in Limerick.

[15] One of the important functions of a Samsung QA Manager was to organise and supervise the supply of these services by third party providers. The defender fulfilled that role in relation to Dell and DKV. Mr CS Bae explained his role in the following way. On a day to day or week to week basis, the defender would be involved in making sure that the service that was provided was a service that was required and expected by Dell. He would supervise whether the correct test conditions were in place and check that the tests to verify the failure modes were being properly carried out. The OSV process, depending as it did upon a report from the customer, required a main contact for the customer to liaise with. The defender was that person in relation to Dell. Dell would request a person to look at their problem and the defender would communicate directly with Dell, and liaise with Mr Kelly/ DKV, requesting them to visit the Dell manufacturing line and investigate the problem. Mr Kelly/ DKV were based in Ireland and could conveniently respond to problems at the Dell manufacturing site. The defender would often communicate with them about problems, and DKV would report to the defender in relation to how many parts had been received and any activities that were being undertaken by them on a day-to-day basis.

OBA testing

[16] "OBA" stands for Out of Box Audit. OBA testing started early in 2004. It was used only for LCDs imported from Korea. Instead of waiting for reports of faults from customers, a proportion of screens received from Korea would be taken out of their box (hence OBA) and tested before they were passed on to the customer. The screens would be switched on and different patterns and combinations of colour systems would be used to detect defects in the screen, such as unexpected white lines, dots or discolouring. It also enabled screening to be carried out for defects discovered by the testing process in Korea after the particular consignment had been shipped (the test used in Korea would be replicated and screens with the relevant defect picked out). There were a number of advantages to this system. Probably the most important was that it reduced the volume of faulty products supplied to Dell. At the beginning of 2004, as part of the "safe launch" programme agreed between it and Samsung HQ, Dell asked for all new LCD products arriving from Korea to be subject to OBA. As each new model proved satisfactory, i.e. as HQ was confident on the quality level being achieved, the sample size to be tested was reduced. Conversely, if the failure rate remained high, Samsung would be likely to continue with full OBA.

[17] OBA was carried out for SSEL by Mr Kelly/ DKV. The defender was the person within SSEL responsible for arranging the part of the model to be put through the OBA process and for selecting the sample size of panels to be tested. He would report the results of the testing in a spreadsheet format both to Mr CS Bae in Glasgow and to Samsung HQ.

The basis of charging for DKV's work

[18] Until 2007, Mr Kelly/ DKV charged an hourly rate for its services in providing OSV and OBA testing. The rate for OBA testing was slightly below that for OSV. The cost of OBA testing, and the need for it, was a matter of concern within SSEL. It was expensive for what it was, a comparatively simple, non-technical process involving minimal equipment and experience. In October 2007, hourly rates were replaced by unit panel rates for OBA, though work on providing OSV continued to be charged on an hourly rate. The question of rates was one of the matters raised by Mr Fosh throughout the period with which this action is concerned. Much of the information concerning the breakdown of the rates charged by DKV was channelled to Mr Fosh through the defender.

Possible alternatives to DKV

[19] Mr Fosh's concern about the cost of the service provided by DKV led to him raising with the defender the question of whether SSEL should change from DKV to one of its competitors. Axiom and Flextronics were two of those competitors. In the e-mails to which I was referred in evidence, the defender was asked to give, and did give, a comparison in terms of rates between DKV, Axiom and Flextronics. He also passed on to Mr Fosh and Mr CS Bae comments about the perceived inferiority of the service provided by DKV's competitors, particularly Flextronics.

Dell's move to Poland

[20] In July 2007 Dell announced a move from Limerick to Poland, with their new facility there to be opened in November 2007, though the sales and procurement side remained in Limerick until much later. The defender remained the person at SSEL looking after Dell; but SSEL needed a third party QA service provider in Poland, near the point of manufacture. SSEL had never had any local presence in Poland. Since procurement was to remain in Ireland at that time, it was thought that the relationship with Dell could continue to be managed by SSEL from within the UK. The defender prepared a PowerPoint presentation document entitled "Dell EMFP Technical Support Plan" ("EMFP" standing for European Manufacturing Facility Poland) which he e-mailed to the relevant people within SSEL. In that Support Plan, he sought to compare DKV's rates with those charged by Axiom and Flextronics. He presented the figures as though DKV were the most competitive, but those figures made a number of false assumptions. Nonetheless, because of "information" given by the defender about Flextronics' poor reputation, it was decided to continue with DKV. It was then that DKV Spolka was set up to act as the third-party service provider in Poland.

The defender's involvement in DKV

[21] Late in December 2007 Mr Fosh became suspicious of the relationship between the defender and Mr Kelly/ DKV. He flew to Ireland to meet Mr Kelly early in February 2008. However, he was unable to confirm those suspicions at that time. It was not until January 2010 that the involvement of the defender in DKV became known. On 26 January 2010, the defender was observed sending a package addressed to DKV Spolka on a Samsung DHL courier account. The package was discovered to contain 12 invoices in the name of the defender's wife addressed to DKV Spolka, one for each month of 2009. The defender was suspended from work, Linx International Limited (a security company retained by the UK parent company) were called in to assist with investigating matters, Mr Kelly was interviewed in the presence of Mr Gill and Mr McCormick of Linx and Mr Fosh, and the defender's computer and mobile phone were interrogated. It emerged that the defender held a 50% shareholding in DKV, the shares being held initially by his wife as nominee for him and, later, in the name of Darren Kelly (in Trust). In his evidence, the defender candidly accepted that the shares were held for him and that he should be treated as the real 50% owner of DKV. In about March 2008, at a time when the defender was considering a move to Australia, Mr Kelly agreed to buy out the defender's shareholding. Part of the consideration for the purchase of the shares was paid over a period of about 18 months by instalments of about 10% of the business being generated by DKV every month. The invoices in the name of the defender's wife related to such instalments, though they were not phrased in that way. Accordingly the defender retained an interest in DKV after the sale of his shares, since part of the price came out of DKV's earnings.

[22] This involvement in DKV is at the heart of the present action by SSEL. SSEL contends that it put the defender in breach of his contract of employment and also gave rise to a clear conflict of interest from which the defender benefited personally (and from which SSEL suffered)

The defender's contract of employment

[23] I have referred to the defender's contract of employment in para.[12] above. The contract contained a confidentiality clause and a non-solicitation clause. Of more direct importance to the issues in the present case is that it referred to the staff handbook and, read in conjunction with the handbook, identified certain parts of that handbook as having contractual effect. The version of the staff handbook in force when the defender joined the pursuer was lodged in process. The defender was uncertain whether or not he saw it at any stage during his employment, but I do not need to decide this point because it was expressly accepted by him, through Mr Cheyne, that the provisions of the staff handbook which appear under the heading "Codes of Conduct" were contractually binding upon him. Those provisions include the following at paragraph 6g (on page 35):

"Employees must disclose all other business activities or gainful occupation whilst in the Company's employment. The Company reserves the right to ascertain any possible conflict of interest or situations where the employee's efficiency or capabilities are being impaired, and require the employee to forego any further involvement."

Mr Cormack, for the pursuer, observed: (i) that the obligation to disclose was mandatory and applied at all times; (ii) that there were two distinct aspects which the pursuer reserved the right to consider, namely (a) conflict of interest and (b) the impact of those other activities and/or that other occupation on the defender's working capabilities; and (iii) that the pursuer was entitled to require the employee to cease any business activity or gainful occupation beyond his employment with the pursuer. Given that there was no disclosure to the pursuer, his sole capacity should have been as an employee of the pursuer. I consider that there is force in these submissions.

[24] However, of greater importance, so it seems to me, is the duty of loyalty (or fidelity, as it is sometimes put) owed by an employee to his employer. It is well established, and Mr Cheyne did not dispute this, that an employee impliedly contracts to render good and faithful service to his employer (Harvey on Industrial Relations and Employment Law at paragraph 597). This means that the employee must be "loyal to [his] employer and to act with good faith in its best interests, devoting [his] time and talents to [his] employer's business": see Berryland Books Ltd. v BK Books Ltd. [2009] EWHC 1877 per HHJ Hodge QC at para.22).

[25] In this case SSEL seek to go further than that. They seek an accounting from the defender on two grounds: (i) that the duties undertaken by the defender in his employment with SSEL were such that he placed himself in the position of a fiduciary, and he breached his duty as fiduciary by putting himself in a position where his interests as a participant in DKV were in conflict with his duties to SSEL, leading to him making a secret profit; and (ii) that in any event, the profits sought were made by the defender by use of his position as an employee or obtained by virtue of his position as an employee. These grounds both rely on the defender coming under some form of fiduciary obligation. (I should record that Mr Cormack disclaimed any argument for an accounting under the alternative case of breach of contract; in respect of that way of putting the case, the claim proceeds as a straightforward claim for damages for loss suffered by SSEL as a result of the defender's actions.)

Fiduciary duty - the law

[26] It is trite that the duty of loyalty owed by an employee to his employer does not, without more, mean that an employee is a fiduciary. The leading authority is the decision of Elias J. (as he then was) in Nottingham University v Fishel [2000] ICR 1462, a decision which has been cited with approval in cases such as Helmet Integrated Systems v. Tunnard [2007] IRLR 126 and Cobbetts LLP v Crowder [2009] EWHC 786. In Scotland, it has been referred to in passing, as though authoritative, in Keith v Davidson Chalmers (unreported, 11 September 2002) at para.[40]. The principles also emerge from Boston Deep Sea Fishing and Ice Company v Ansell (1888) LR 39 Ch. D 339 and Neary v Dean of Westminster [1999] IRLR 288. Mr Cormack submitted that the key propositions which could be taken from those cases were the following:

(i) An employee is not a fiduciary simply by virtue of being an employee (Nottingham University p.1490F-G);

(ii) Circumstances may, however, arise in the context of an employment relationship, which place the employee in the position of a fiduciary (Nottingham University pp.1490G-1491B);

(iii) Any implied fiduciary obligations must be consistent with the contractual terms (Nottingham University p.1491G-H);

(iv) The question in every case is whether the duties undertaken by the employee were such that he put himself in the position where he had to act solely in the interests of the employer (Nottingham University p.1493 E-F). This can be looked at by considering whether the employer could control what the employee did or, conversely, was vulnerable to misuse by the employee of his position (Helmet Integrated paras.44-45). It is not necessary for the employee to be the employer's agent (if the employee is also an agent, he would owe fiduciary duties as such anyway);

(v) An employee may also be put in a position where fiduciary obligations arise because the circumstances are such that the employee is put in a position where he is obliged to account (Nottingham University pp.1490F-1491B). This includes circumstances where the employee uses his position as an employee to further his own interests, or obtains an advantage by virtue of his position as an employee (Nottingham University pp.1497B-C, 1497E-F and 1498A-C)

(vi) Fiduciary obligations may arise in respect of part only of the employment relationship (Nottingham University p.1493G-H);

(vii) A potential conflict between the relevant duty of the employee and his own financial interest is sufficient to give rise to an obligation to account, even if the employee did not in fact act contrary to the interests of his employer (Nottingham University p.1498B). A potential conflict arises where there is a "real sensible possibility of conflict": per Lord Upjohn in Phipps v Boardman [1967] 2 AC 46, 124);

(viii) It is not a requirement of an obligation to account that the employer has suffered a loss (Neary at para.18);

(ix) It does not matter that the return to the employee is for services done for a third party (Boston, pp.363-4;

(x) Nor does it matter that, in obtaining the benefit, the employee is acting under an independent contract (Cobbetts at paragraphs 93-98).

Subject to two qualifications, Mr Cheyne did not join issue with this summary of the law. His qualifications were these. First, he submitted that the duties undertaken by the employee referred to in (iv) above was a reference to duties undertaken in terms of the contract of employment. However, he recognised that an employee can take on additional responsibilities; and, if he did so, the same considerations arose. So I do not detect any difference between the parties on this point. Secondly, he submitted that the first sentence of point (v) was circular, since the question whether the employee is obliged to account depends on whether he owes a fiduciary relationship. I agree with this point, but it makes no difference to the overall analysis presented by Mr Cormack. In circumstances where the law is not in dispute between the parties, to attempt my own summary of the law on this issue would not be helpful. I shall therefore proceed on the basis that the legal principles which I must apply are those set out above. The points of particular importance to this case appear to be those at (iv), the latter part of (v), and (vii).

Did the defender owe a fiduciary relationship in the present case?

[27] I have set out earlier in this opinion the overall structure within which the defender worked as QA Manager and Senior QA Manager for SSEL. Expanding somewhat on that, and basing myself on the evidence given by Mr Fosh and Mr CS Bae, the position can, in my opinion, be summarised in this way. The defender was responsible for QA matters in relation to Dell, SSEL's most important customer and the customer with whom SSEL transacted a very significant amount of its business. His responsibilities included delivering technical solutions to customers and attending weekly meetings with them. He had, according to Mr Fosh, "authority to represent SSEL in front of Dell in regard to all QA related issues". The defender himself accepted, in cross-examination, that, although he had to report back to HQ, he was responsible for communication with Dell in relation to QA and represented SSEL in that capacity. This was a position of great responsibility within SSEL. He established a good relationship with Dell and appeared to perform his duties well. He was responsible for managing, or overseeing, Mr Kelly/ DKV in respect of the provision of third party QA services for Dell products. He had authority to obtain quotations, negotiate prices (though in most cases having to refer up the line for final approval), and issue instructions and directions for how work was to be carried out. Further, since DKV's services themselves cost the pursuer a substantial amount, he was handling a large budget, albeit that the final decisions would be taken by people to whom he reported.

[28] Both Mr Fosh and Mr Bae spoke to the level of trust and reliance placed upon the defender. I am satisfied from the evidence given at the proof that the defender would have been fully aware of the reliance which was placed upon a recommendation made by him.

[29] In his helpful written submissions at the close of the evidence, Mr Cormack gave a number of illustrations of duties undertaken by the defender which showed the position of trust which he occupied.

(i) He obtained prices from suppliers and potential suppliers. The defender undertook pricing enquiries in anticipation of Dell opening in Poland in 2007. This was evident, for example, from the email chain at tab 19 of the Joint Bundle, and from the defender's email of 20 July 2007 (JB/22) in which he stated "I have investigated the costs to set up the technical support in Poland with 3 separate companies". One of those companies was DKV.

(ii) The defender reviewed prices and the service provided by DKV on a periodic basis. For example, in his email to Mr CS Bae of 30 July 2007 (JB/23) he said "What I do is review the costs on a yearly basis." The defender ultimately accepted this in cross examination.

(iii) He carried out negotiations with DKV on behalf of SSEL in relation to a number of matters, including charges for overtime and night time rates, the payment of a holding payment to DKV to enable it to keep manpower in place during a period when OBA was suspended, and the move from an hourly rate to a per panel rate. This was apparent from a number of e-mails, in particular those of 24 March 2005 (JB/11 p.1), 14 September 2005 (JB/13 p.2), 26 January 2008 (JB/28) and 18 February 2008 (JB/39). Despite initial reluctance, the defender ultimately accepted this.

(iv) Generally he undertook the great bulk of the contact between SSEL and DKV;

(v) He issued instructions to DKV as to the work that they were to do. It was within his discretion to approve some requests for DKV to do additional work. The defender ultimately accepted this in cross-examination; and see, in any event, his emails of 29 February 2008 (JB/52 p.2) and 26 January 2009 (JB/73 p.1 and JB/74 p.3);

(vi) He verified DKV's invoices for payment; see his email of 29 February 2008 (JB/52 p.2); and see also JB/11. In his e-mail of 26 January 2008 (JB/73) he said: "I do check every invoice that comes in and compare it to the work I believe has been completed by DKV ...." When the charge was on an hourly rate, as in the case of OBA testing at the beginning, this checking of the invoices against the hours worked and the work done involved an exercise of judgment on his part.

(vii) The defender providing others within SSEL with advice, presenting factual information and expressions of opinion, usually favourable to DKV, in the expectation that reliance would be placed on his interpretation and recommendations. Examples include the emails at JB/13 p.1, JB/15 p.2, JB/25 p.1, JB/28 p.5, JB/41 p.6, JB/45 p.1, JB/48 p.1, JB/49 p.1, JB/52 p.1, JB/60 p.1, JB/68 pp.1-2, and JB/69 p.1. I refer to two of these as illustrative. The first is an e-mail chain in September 2005 (at JB/13) between defender and Mr CS Bae and Mr Fosh concerning rates to be charged by DKV for the following year. I need not set out the whole of it. The defender passes up certain information to Mr CS Bae about DKV's OBA costings. Mr CS Bae tells him at one point to "please look at the labor cost once again and have a good negotiation [with] DK". The defender comes back and explains that he has "negotiated the overtime and night time rates down from last year". Mr Fosh intervenes to say (both to the defender and Mr CS Bae) that "the rate still seems a little high to me but I guess we have little alternative". The defender responds by emphasising that they have been using Darren Kelly now for about 5 or 6 years. His rate has not increased much over the years and is at the bottom end of "the going rate in Limerick for Dell support". He emphasises that "Darren has great contacts in Dell and is the recognised support for Samsung, he is the one which Dell will only want us to use". He "would not consider any other alternative as he has supported this process now for almost 2 years and fully understands it inside out!". Mr Fosh's reply is: "When you put it like that ... . It is high but given the issues then probably fair." The second illustration is an e-mail chain in February 2008 (at JB/49) in which the defender passes on information about Flextronics obtained from other people, suggesting that Flextronics enjoyed a poor reputation for reliability. Included amongst these adverse comments was one from Kamil Gaj, who works at another logistics company, which was apparently unsolicited. It emerged in cross-examination that Kamil Gaj worked for DKV.

[30] Mr Cheyne submitted that there was no evidence in this case to support the proposition that, in terms of his contract of employment, the defender had any authority to negotiate the terms of business between SSEL and DKV. In general I agree with that, though clearly he was able to instruct certain work. But that misses the main point. He was the point of contact with DKV, the source of information about DKV, its activities, its pricing and its rivals. He was in a position to recommend DKV, and others would take decisions based on his recommendations. As the relationship developed, he did make reports and recommendation knowing they would be relied upon as the basis for decisions concerning DKV. Mr Cheyne also submitted that there was no evidence that the additional obligations or duties conferred on him by Mr CS Bae were conferred in such a way that it would have been clear to him that his own obligations to SSEL were enhanced. That may be so, but I do not think it matters. Fiduciary obligations arise out of the relationship between the parties, without there being any necessity to attach the label "fiduciary" to the relationship at the time. Mr Cheyne very properly accepted that, on the evidence, it appeared that the defender was aware that his reports and recommendations would be taken into account by his superiors. In those circumstances I do not think it necessary to ask whether the defender was consciously assuming fiduciary duties - the fiduciary obligations flow from that fact and the other facts to which I have referred.

[31] I accept Mr Cormack's summary as set out in para.[29] above. It is clear from that summary that there was potentially a conflict between, on the one hand, the defender's duties as a QA Manager and Senior QA Manager for SSEL to act in the best interests of his employer and, on the other, his interest as, in effect, a 50% shareholder in DKV. As QA Manager acting for SSEL, he was in a position, at the very least, to influence decisions about the work to be given to DKV and the payment for that work; and as a 50% shareholder in DKV he stood to gain if decisions made by SSEL (whether taken by him or others) resulted in DKV's services being retained by SSEL, or in DKV being given more work, or in DKV being paid more generously for its work than it might otherwise have been. In cross-examination, the defender accepted that in the matters summarised above, it was reasonable for SSEL to expect that he would act only in its interests when carrying out his duties; his undisclosed financial interest in DKV put him in a position where he had a potentially conflicting interest.

[32] Mr Cheyne accepted, as he was bound to, that where a fiduciary relationship was shown to exist, the existence of a potential conflict of interest without more gave rise to a duty to account: see point (vi) in para.[26] above. It follows, as he also accepted, that it was no answer for the defender to suggest, as at times in his evidence he did suggest, that his performance of his duties to SSEL was not in fact influenced in a manner adverse to SSEL by the fact that he had a financial interest in DKV. But, in any event, I am satisfied that he did use his position at SSEL to favour DKV at the expense of alternative providers of services and, therefore, to the detriment of SSEL who might otherwise have been able to secure third party QA services at a cost lower than that which they ended up paying DKV. I am also satisfied that the defender did nothing for DKV to justify the payments made to him, other than by holding a position at SSEL which enabled him to influence decisions in its favour. Most of DKV's business came from SSEL, which accounted for 83% and 78% of DKV's turnover in 2006 and 2007. When Samsung ceased to trade with DKV, DKV's business folded.

[33] Therefore, in case it is relevant hereafter to consider whether the defender's advice to SSEL concerning DKV was influenced adversely to SSEL by his financial interest in DKV, I have no doubt that it was so influenced.

[34] I find, therefore, that the defender was in breach of his fiduciary duty to the pursuer throughout the period of his involvement in DKV. He is under an obligation to account for the profits derived from that interest.

Quantum

[35] As I have noted above, parties were agreed that if I held that the defender was under a duty to account, I should proceed on the evidence adduced at the proof to determine the amount to be accounted for. In the course of these proceedings, the defender has produced his bank statements. These were lodged in process and spoken to by the defender and Mr Fosh. Mr Cheyne accepted that the duty to account, if established, would cover all sums received by the defender from DKV. He accepted that nothing turned on whether the sums received by the defender from DKV were received in name of salary, share of profit or payment for shares. The sums received by the defender from DKV, as shown by his bank accounts, was €340,808.92. On the basis of comparing the sums paid into the defender's account with Allied Irish Bank with payments apparently made to him from DKV's own records, it was suggested that he must have received a further sum of €37,721.19. I am not satisfied that that is the case. Nor do I bring into account payments received from DKV Spolka once it was set up, since the proper claimant for any such sums would be SSEG and not SSEL.

Breach of contract and damages

[36] In light of my conclusion that the defender is liable to account to SSEL in the sum of €340,808.92, I need only consider SSEL's alternative claim for damages for breach of contract if by this route SSEL stands to recover a greater sum. Although Mr Fosh put forward a calculation showing a probable loss to SSEL of €421,113.33 from the defender's conduct - calculated on the basis that had SSEL known about the defender's interest in DKV and, in consequence, not have been swayed by his recommendation in favour of continuing to use DKV, it would instead have used Flextronics or another third party, at considerable saving to itself - Mr Cormack was content to limit his claim for damages to the same amount of €340,808.92 mentioned above. In those circumstances I do not need to go into any detail on the damages claim. There was no issue but that the defender was in breach. Mr Cheyne did not dispute that the defender was in breach of his duty of loyalty to SSEL and it is clear that he was in breach also of the contractual term to which I have referred in para.[23] above. The only issue was as to whether SSEL had proved the necessary elements of causation and quantification. I am satisfied, on the basis of the evidence given by Mr Fosh that SSEL has suffered loss and damage as a result of the defender's breach of contract. I would, therefore, had it been relevant, have awarded damages on the basis of the approach shown in para.111 of his witness statement (the damages being limited to the impact of his actions on DKV alone, and not on DKV Spolka or SECL), capped at the sum of €340,808.92 in accordance with Mr Cormack's concession.

Disposal

[37] I shall therefore sustain the first plea in law for the pursuer and order an account to be taken for the whole profits made by the defender from his dealings with or any interest in DK Verification Limited in terms of the first Conclusion. I shall thereupon find those profits to amount to €340,808.92; and grant decree for payment of that sum, or the equivalent in sterling at the date of payment or extract (whichever is earlier), together with interest thereon at the rate of 8% a year from the date of citation until payment.