Samsung Semiconductor Europe Ltd V. Chris Docherty (fe) And Another
| Jurisdiction | Scotland |
| Judge | Lord Glennie |
| Neutral Citation | [2011] CSOH 32 |
| Court | Court of Session |
| Published date | 17 February 2011 |
| Year | 2011 |
| Date | 17 February 2011 |
| Docket Number | CA14/10 |
| OUTER HOUSE, COURT OF SESSION [2011] CSOH 32 | |
| CA14/10 | OPINION OF LORD GLENNIE in the cause SAMSUNG SEMICONDUCTOR EUROPE LIMITED Pursuer against (FIRST) CHRIS DOCHERTY and (SECOND) JULIE DOCHERTY Defenders ________________ |
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...
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