Willwin Development (Asia) Co Ltd and Another v. Wei Xing and Others

HCA 797/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 797 OF 2012

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J U D G M E N T

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Background

1.This is yet another acrimonious dispute between 2 brothers, and their fight over the business of companies which used to be operated by them.  On their evidence, over 10 sets of proceedings have been instituted in Hong Kong and on the Mainland since 2012 as a result of their falling out.

2.In the proceedings before me, the 1^st plaintiff (“WW”) is a company incorporated in Hong Kong in 2004.  The shares of WW are held as to 70% by the elder brother Wei Wen (“Wen”), and as to 30% by the younger brother Wei Xing (“Xing”).  WW is engaged in the sale and provision of test fixtures, test systems, test equipment and test instruments for electronic and computer hardware products and the supply of related technical services (“Business”) to clients primarily outside Mainland China.  The 2^nd plaintiff (“SWT”) is a company incorporated in the Mainland in 2007, and carries on business in Shenzhen on the Mainland, of a nature which is similar if not identical to WW’s.  WW claims that SWT is its subcontractor, although this is disputed by the defendants.  Wen and Xing are beneficially entitled to the shares in SWT, again with Wen being the majority and Xing being the minority shareholder.

3.Wen, Xing and the 3^rd defendant, who is Xing’s wife (“Ying”), were directors of WW.  These proceedings were first commenced by Wen, in the name and on behalf of WW, against Xing, Ying and the 2^nd defendant, Evolution Solution Limited (“ESL”), a company incorporated in Hong Kong with Ying and Xing as directors, Ying being its sole shareholder.  WW claims that as directors of WW, Xing and Ying acted in breach of their fiduciary duties, and as employees of WW, Xing and Ying acted in breach of their duties of fidelity omitted to their employer, when they transferred confidential information belonging to WW and diverted business opportunities from WW to ESL, and used ESL to carry on a business in competition with WW’s business.  It is claimed that the defendants had used confidential information belonging to WW, in the form of lists of clients, lists of suppliers, confidential information of WW’s clients, and WW’s technical confidential information; that ESL had dishonestly assisted Xing and Ying in their breach of their fiduciary duties, duties of fidelity and duties of confidence owed it to WW; and that Ying had dishonestly assisted Xing’s breach of duties.

4.In addition to the above claims of breach of fiduciary duties, duties of fidelity and of confidentiality, and dishonest assistance, WW claims that the defendants have passed off their business as and for WW’s Business.

5.As an alternative to the above, and in response to the claims made by the defendants that WW had no Business, no clients and no reputation in Hong Kong, and that the Business, clients and reputation relied upon by WW in fact belonged to SWT, SWT was joined as 2^nd plaintiff to make the claims of breach of duties of fidelity and confidentiality, and passing off, against the defendants.

6.Further, WW claims that Xing had misappropriated a total sum of HK$1,816,000 and US$15,500, and Ying had misappropriated a sum of HK$6,290,000 and US$334,460 from WW.

7.The defendants deny all claims made against them. They dispute the period of their directorship, deny that they owed any duties to the plaintiffs, particularly after they ceased to be directors, deny that WW had any business at all, nor any clients, or confidential information as claimed, and deny that they had transferred, diverted or passed off any Business of the plaintiffs, or had misappropriated any money of WW.

General observations on credibility

8.Much of this case depends on the credibility of the witnesses and their testimony.  As will be elaborated below, I have not been impressed by the evidence of either Wen or Xing.  Their acrimony and the bitterness of their dispute (which they claim commenced in early 2009 when their relationship began to deteriorate) have affected their evidence, to the extent of their taking inconsistent stances in relation to the same documents on different aspects of their case.  I prefer to rely instead on contemporaneous documents, particularly those prepared and signed by the parties before litigation commenced, and to test the witnesses’ evidence against such documents.

9.Overall, I do not consider Xing and Ying to be reliable witnesses.  Their evidence has been contradicted by the documents, and has evolved from the witness statements to the different versions given in cross-examination at trial.  Instances have been identified by Counsel, which I accept to be contradictions and inconsistencies in the defendants’ evidence.  Particularly noteworthy are Xing’s assertions that he had registered but not used the domain name of caevolution.com for any communication, that he had never given control of the caevolution.com domain name and email addresses to ESL, that he was not associated with ESL or Shenzhen ESL, and that he had not engaged in any form of testing business with Apple after the grant of the injunction in July 2012, all of which are contradicted by the contents of the emails and documents disclosed by Apple.  Ying’s original claim that ESL is only a trading company and does not run any business similar to WW’s is directly contradicted by the claims made by Xing on behalf of ESL, in his affirmation of July 2012, filed to discharge and oppose the continuation of the Mareva injunction order.  The claims made by Xing and Ying as to their position within WW are also inconsistent with the assertions they made in documents filed in their Labour Tribunal proceedings.

10.The length of this judgment is necessitated by the numerous causes of action raised by the plaintiffs, each of which in turn raises different issues, and I will deal with the issues raised by the parties to the extent required for determination of the causes in dispute.

When did Xing and Ying cease to be directors of WW?

11.In the Re-amended Statement of Claim, the plaintiffs claim that Xing was a paid director of WW, the deputy general manager of WW and the general manager of SWT.  The plaintiffs also claim that Ying was a paid director under WW’s employment until about June or July 2011, and that she was employed as an assistant to the general manager of SWT until early December 2011. 

12.Xing claims in his Defence that on 1 December 2011, he had resigned and ceased to be a director of WW, and also resigned as the deputy general manager of SWT.

13.There is no dispute that Ying was appointed as a director of WW upon its incorporation in 2004.  Ying claims (in her witness statement) that she was so appointed because Wen informed her that as a Hong Kong company, WW required at least one Hong Kong resident to act as its director, and as she was a Hong Kong resident, she was told to help out and to take up the title.  She claims that she was never involved in the operation and management of WW at all, and that her role was trivial, acting merely as a postman to deliver documents between Hong Kong and the Mainland, and withdrawing cash from WW’s bank accounts in Hong Kong upon instructions received from Wen.

14.Ying claims that in June 2011, she was dismissed as a director by Wen and that her alleged employment by WW ceased in June 2011.

15.Ying admits to her being employed by SWT as manager, but claims that such employment ceased on 1 December 2011.

16.According to the plaintiffs’ case as pleaded in the Amended Reply, the proposal that Ying should cease to be a director of WW had only been raised for discussion in June 2011, but no decision had been made. WW claims that Ying was continued to be paid as a director of WW until August 2011 and that WW continued to make contributions to its MPF scheme for Ying until November 2011.  WW claims that on 23 May 2012, Ying unilaterally filed notification of her resignation as a secretary and director of WW (“Form D4”) at the Companies Registry, stating the date of her resignation as a director of WW to be 22 June 2011.  According to WW, Ying was employed by SWT as assistant to the general manager (Xing).

17.In a case where the facts are disputed and the evidence from the witnesses are polarized, the Court often places more reliance on contemporaneous documents and public records.  As is recurrent in this case, parties who signed and signified their consent to the contents of documents, particularly documents filed with public authorities, have sought to rely on the contents and truth of such documents for one purpose, but seek to denounce or disown the same contents and the truth of such documents for another purpose, all for their own convenience and on their random choice.  This should not be permitted, least of all in legal proceedings.

18.The annual return filed for WW at the Companies Registry (“Registry”) in Hong Kong on 14 December 2011, and made up to 3 December 2011, reflect Wen, Xing and Ying as directors.  The addresses for Wen and Ying were stated to be in Shenzhen (and not Hong Kong as Ying claims for herself).  Xing’s address was stated to be Hong Kong. 

19.The evidence of Xing and Ying are that it was Wen who attended to matters relating to the preparation of the accounts and documents for filing at the Registry, but upon their appointment as directors, Xing and Ying must have signed consent to act as directors for filing at the Registry.  Ying’s Counsel sought to argue that Ying had never been involved in the internal management and administration of the affairs of WW, that she only had a nominal role to play as a messenger or courier, with no power or discretion to exercise in relation to WW’s business, and that she merely followed Wen’s orders.  I do not accept this offers any excuse for Ying.  So long as she consented to acting as a director, she assumed the role, and the duties which flow in law from that role.

20.The parties are in dispute as to when Xing and Ying effectively ceased to be directors of WW.  Under the relevant provisions of the Articles of Association of WW (“Articles”), the office of a director shall be vacated if the director “resigns his office by notice in writing to the company” or is removed in accordance with Article 77 - which provides that WW may remove any director by special resolution.  There is no evidence of any special resolution having been passed to remove either Xing or Ying as directors of WW.  Nor is there any resignation of either Xing or Ying in respect of their directorship in WW, of which notice had been given to WW in writing.

21.The emails of 3 and 22 June 2011 relied upon by Xing and Ying are not effective to remove Ying as a director, as claimed.  On 3 June 2011, Wen emailed Xing, to inform Xing that with immediate effect, no further arrangements should be made for Ying to go to Hong Kong to deal with WW’s documents and funds, and that these would be dealt with by Wen instead.  Wen also referred in the email to a written proposal which he would make, for resolution by the shareholders.  On 22 June 2011, Wen emailed Xing again, informing Xing that he was considering adjustments to be made to the daily operations of WW, including changes to the board, in view of the declining business and the directors’ remuneration.  In the email of 22 June 2011, Wen referred to his “proposal” to make changes to the facilities and business processes, and went on to state:

“Regarding the directors of the Hong Kong company, immediately terminate the directorship of (Ying), retaining only 2 shareholder directors. Adjustments to be made to the directors’ fees of the remaining shareholder directors, to be discussed and confirmed at the beginning of the next month, on the basis of the actual status of the company.

Please state your opinion on the above arrangements and let me know in time.”

22.As counsel for WW highlighted, the email of 22 June 2011 was not even sent or copied to Ying.  There is no evidence of any reply from Xing to Wen , or to Wen’s email of 22 June 2011.

23.Further, it is not in dispute that there was no contract between WW and either Xing or Ying as to their service as directors of WW.  There is no pleading that Ying was dismissed as a result of any provision in her contract of service.  The only pleaded cause of Ying’s cessation as a director is the fact of her termination as such by WW in June 2011, ie by reference to Wen’s email.  No other particulars or evidence have been adduced in respect of any other event of termination, or any meeting in June 2011 in which the alleged termination took place.

24.On the face of the email of 22 June 2011, which only sets out Wen’s proposal, made to Xing (and not to Ying), with a request for Xing’s comments, and in the absence of any evidence of either (1) a special resolution having been passed by the shareholders of WW to remove Ying as a director, or (2) notice in writing of Ying’s resignation as director, there was no effective termination of Ying’s directorship.  She may have been relieved of her duties as a director, but in the absence of an effective removal or resignation in law, she remained a director.  It was only on 23 May 2012 that Ying procured notification to be filed at the Registry of her purported resignation, stated to be on 22 June 2011.  There is no plea of Ying’s acceptance of any repudiation by WW, for there to be any termination of her service as director.

25.Although the plaintiffs’ plea in the Re-amended Statement of Claim is that Ying was a “paid directoruntil June or July 2011”, they expressly deny Ying’s plea in paragraph 6 (2) of her Amended Defence that she had ceased to be a director since June 2011.  The plaintiffs claim in paragraph 4 (ba) of the Amended Reply that no decision had been made on the proposal that Ying should cease to be a director, and they specifically pleaded that WW had continued to pay directors fees to Ying until 8 August 2011, and MPF contributions until November 2011.  I cannot agree that there is any admission by the plaintiffs that Ying had ceased to be a director since June 2011 - as Counsel for Ying submits.

26.The same applies to Xing.  He claimed to have resigned as director of WW on 1 December 2011, but there is no evidence of any notice in writing of such purported resignation having been served on WW.  It was only on 6 November 2012 that Xing through his solicitors unilaterally filed Form D4 and notification of his resignation at the Registry, claiming that he had resigned as director on 1 December 2011.

27.As counsel for the plaintiffs highlighted, Xing himself claimed in the affirmation which he filed in these proceedings on 7 June 2012, in opposition to WW’s application for injunctive relief, that he was one of the directors of WW.  His solicitors also claimed, in their letter of 22 June 2012, that Xing was then still a director of WW, and on that basis asked for documents to be released by WW’s company secretary.  Xing was obviously under legal advice when he claimed to be a director on 22 June 2012.

28.Ying and Xing sought to refer to documents and statements which the parties, including Wen, had filed in the Labour Tribunal, when Ying and Xing brought proceedings against WW in November 2011 for long service payments, severance payments and wages in arrears, claimed to be payable under their employment by WW upon the termination of their employment. Suffices it to say that both Ying and Wen had made statements in the labour proceedings which are inconsistent with the assertions they made in these proceedings[1], and I place little reliance on the self-serving bare assertions which they made. In my view of the entirety of their evidence in this case, including the evidence obtained from Apple Inc, each of Wen, Xing and Ying have chosen to present mere fragments of the whole truth, and they have picked only those fragments which suit their particular purpose in any particular aspect.  Their evidence have shifted like a kaleidoscope, such that I do not trust any of them as honest and reliable witnesses, and prefer to rely on any contemporaneous and independent documents as may exist. 

29.On the entirety of the evidence, since there was no effective termination of Ying’s directorship by the emails of June 2011, and no notice in writing of the resignation of either Xing and Ying, Xing and Ying remained as directors of WW.  Ying was still paid her salary as a director on 8 August 2011. 

30.The earliest time at which it could be argued that they had given notice of their resignation was when Xing filed Form D4 on 6 November 2012, and Ying filed Form D4 on 23 May 2012.

Whether Xing and Ying owe fiduciary duties to WW

31.As I have found that Xing and Ying were directors of WW until November 2012 and May 2012 respectively, they owed fiduciary duties in their capacity as directors during their period of directorship (Foster Bryant Surveying Ltd v Bryant [2007] EWCA Civ 200, Hunter Kane Limited v Watkins [2002] EWHC 186 (Ch), CMS Dolphin Limited v Simonet [2001] 2 BCLC 704).  It is not disputed by Counsel for Ying that:

(1) A director, while acting as such, has a fiduciary relationship with his company.  That is, he has an obligation to deal towards it with loyalty, good faith and avoidance of the conflict of duty and self-interest.

(2)  A requirement to avoid a conflict of duty and self-interest means that a director is precluded from obtaining for himself, either secretly or without the informed approval of the company, any property or business advantage either belonging to the company or for which it has been negotiating, especially where the director or officer is a participant in the negotiations.

(3)  A fiduciary relationship does not continue after the determination of the relationship which gives rise to it.  After the relationship is determined the director is in general not under the continuing obligations which are the features of the fiduciary relationship.

(4)  A director is however precluded from acting in breach of the duty to avoid conflict, even after his resignation where the resignation may fairly be said to have been prompted or influenced by a wish to acquire for himself any maturing business opportunities sought by the company and where it was his position with the company rather than a fresh initiative that led him to the opportunity which he later acquired.

32.Whether Ying incurred any liability after the date of termination of her directorship in June 2011, as she claims, or after May 2012, will be dealt with separately below.

Whether WW had a business and clients at the material time

33.According to the Re-amended Statement of Claim, WW was incorporated in Hong Kong in 2004, and was at all material times engaged in its business of selling and providing test systems, and test fixtures, equipment and instruments for electronic and computer hardware products.  It pleads that its clients consist primarily of overseas and multinational corporations which are in the business of selling and providing electronic consumer products, and WW’s Business is to test their clients’ products before they are released for sale to the general public.  On the other hand, SWT was at all material times incorporated in the Mainland in 2007.  According to the plaintiffs, SWT carried on a business which is similar to WW’s Business, but with a clientele which is largely based in the Mainland, as opposed to WW’s clients which are primarily outside the Mainland.  On the plaintiffs’ case, WW sub-contracted its work to SWT, and utilized SWT’s resources and manpower to carry out production and testing procedures of electronic products in SWT’s factory in Shenzhen, for which sub-contracting charges were paid by WW to SWT.  A list of WW’s clients is appended as Annexure A to the Amended Statement of Claim (“Annexure A companies”).  This sets out 54 entities, including Apple Inc (“Apple”), Cisco Systems Inc, Dell Inc, PICO Denshi (HK) Limited (“PICO”), SMC Pneumatics (Hong Kong) Ltd (“SMC”) and Foxconn Assembly LLC, to name a few.

34.The defendants deny that WW had carried on any active and substantive business.  They claim that WW was only responsible for assisting SWT to issue quotations, to receive purchase orders, to issue invoices and to collect payments from SWT’s overseas clients.  According to the defendants, WW would also order raw materials for SWT from Hong Kong and overseas suppliers, and would arrange payment and delivery for such raw materials.  In short, the defendants’ case is that WW was only an invoice issuing and money collecting entity for SWT.  It had no staff other than WW, Xing and Ying as directors.  It owned no plant, facilities or equipment and did not even have an office in Hong Kong, apart from the address of its secretarial company and/or solicitors.

35.According to the defendants, WW had been set up initially as the invoice issuing and money collecting entity for the Luohu branch of Shenzhen Willwin Industrial Company Limited (深圳市圖創實業羅湖分公司) (“SWI LH”). The operations of SWI LH ceased and were taken over by SWT in about 2007, with WW continuing to act as the invoice issuing and money collecting entity of SWT.

36.The defendants deny that WW had any clients, since it had no business, but that at times, SWT’s staff on the Mainland would issue quotations in WW’s name to SWT’s clients, and if purchase orders were received, these would be executed by SWT, although invoices would be issued by SWT’s staff in the name of WW (paragraphs 8 (4) and 8 (5) of the Amended Defence of ESL and Ying).  According to Xing’s Re-amended Defence, if the clients set out in Annexure A were clients, they were clients of SWT, and not of WW, with the exception of PICO and SMC which were the suppliers of SWT.  The defendants deny that there was any sub-contracting relationship between WW and SWT, and further deny that any subcontracting charges had been paid to SWT.

37.Both Counsel for the plaintiffs and Counsel for ESL and Ying agree that contemporaneous documents which came into existence prior to any dispute arose between the brothers are of greater importance in assessing the credibility of the witnesses and of their respective case.  The testimony of the witnesses should be tested by and against the contemporaneous documents, and I consider that the following documents are relevant to the issue of whether WW had a business, and the relationship between WW and SWT/SWI LH.

38.First, as early as 2006 and 2009, there had been emails from Wen to Xing, in which references were made as to the operations and business relationship between WW and SWI LH/SWT. 

39.On 8 February 2006, Wen sent an email to Xing, which was copied to Ying, in which Wen referred to arrangements he proposed as to how the business dealings and accounting between WW and SWI LH should be dealt with:

(1) on receiving clients’ purchase orders, WW, the Hong Kong company, should issue corresponding purchase orders to the “branch company”, for 70% of the value of the purchase order received from the client;

(2) upon receipt of payment from clients, WW would then make payment to the branch company of the amount specified in its purchase order, to be used for payment of market expenses, cost of production, etc;

(3) the balance remaining with WW in Hong Kong would be used to pay for the equipment and parts to be purchased in Hong Kong, and as profits of WW.

40.On 9 November 2009, Wen emailed Ip (the Hong Kong accountant), in which he referred to various documents, including purchase statistics for 2008 to 2009, based on purchase orders which were issued for purchase of materials and parts.  Wen pointed out that the contract and invoices in respect of the design and production work which WW had entrusted to the Mainland company were still outstanding but would be supplied, and that the amounts involved were approximately 65% of the amount of the contracts received by WW.

41.On 18 November 2009, Wen sent an email to Ip, which was copied to Xing, which related to the accounts for the years 2006 to 2009.  In this email, Wen referred to their discussions on the accounts for WW and figures relating to sales discount, office rental, loss and profits.  Wen stated that WW had engaged SWI LH to carry out engineering design, production and repairs, and related technical support and services on the Mainland.

42.In an earlier email from Wen to Ip on 18 November 2010, Wen also referred to WW’s payment of the cost of purchases, and payment for the products and services of the Shenzhen factory.  This email was similarly copied to Xing.

43.These emails obviously support the plaintiffs’ assertions that WW had a role to play in the production and manufacturing activities of SWI LH and the factory in Shenzhen, and that orders for products were received by WW from clients.

44.The financial statements of WW over the years (from at least 2007 to 2010) also record that WW had received revenue, incurred costs of sales, and paid sub-contracting charges to a related company, in which the directors had beneficial interests.  WW was also recorded to have acquired plant and equipment.

45.Xing and Ying claim that Wen had sole control of the financial affairs of WW and the dealings with the accountants, and that he dictated how the accounts of WW should be presented.  Notwithstanding such assertions, Xing had signed the financial statements of WW for the year ending 31 March 2010, and Ying had signed the financial statements of WW for the years ending 31 March 2007, 31 March 2008 and 31 March 2009.  Their signatures must signify their understanding and approval of the contents of the financial statements, which are important documents of the company for which they acted as directors at the material time.  It lies ill in their mouth to assert or even suggest that the accounts are accurate and can be accepted by them for certain purposes only, but not for other purposes, or when disputes arise in legal proceedings.  These are relevant accounts record that sub-contracting charges had been paid over the years by WW to its related company, which on the evidence can only be understood to be either SWI LH or SWT which (the parties do not dispute) took over the business and operations of SWI LH some time in 2007.

46.The nature of WW’s business is also recorded in its tax returns.  On 16 November 2009, Ying declared, as director of WW, on the profit tax return filed with the Inland Revenue Department of Hong Kong that the nature of WW’s main business was the “provision of technical engineering system design and testing services and sales of electrical and electronic apparatus”.

47.On behalf of Ying and ESL, Counsel argued that the amounts recorded in WW’s financial statements as being due to a director and to a related company evidence that there were money transfers from WW, which is allegedly consistent with WW being a money collecting entity of SWT.  Counsel also argued that there were more amounts shown in the financial statements as being due to WW by debtors, than amounts due from WW to its creditors.  I reject these as being inconsistent with WW having any business of its own.  Nor do I agree that these should be taken as evidence of WW being a money collecting agent of SWT.  I also reject Xing’s submission, that a company such as SWT would only accept sub-contracting work, if it has no business of its own, or the profits from the sub-contracted work are very attractive.

48.On all the evidence, it seems clear to me that throughout the years, the brothers had been using WW and SWI LH (and its successor SWT) together, for the operation of their business of providing test systems and equipment or instruments for electronic and computer hardware products, and the related technical services.  SWT and its staff on the Mainland may have been doing the substantial part of the work under orders received from clients, but this is hardly surprising as a manner of business operation these days.  It is material that as evidenced by the documents disclosed by Apple in these proceedings, purchase orders had been placed with WW and in its name.  WW was recorded in Apple’s database as the supplier of the relevant services and hardware.  Purchase orders have been produced in evidence as having been placed by Annexure A companies, such as Apple and others, with WW.  Invoices were issued by WW to Apple and other Annexure A companies.  The defendants do not in fact dispute that invoices were issued by WW, and purchase orders from some clients were placed in the name of WW.  They only claim that that was WW’s only and limited nominal role: as invoice issuers and money collectors for SWT. 

49.There is evidence of representatives from Apple having corresponded with Xing, via email addresses which bear and incorporate the name WW. 

50.The fact that WW may have a factory, or another entity acting on its behalf, on the Mainland to carry out the production, the testing and the technical servicing, even to the knowledge of clients, does not mean that WW has no business, goodwill, or clients of its own.  Pertinently, in the subsequent emails sent by Xing in the name or on behalf of ESL to Apple, relating to Xing’s offer in July 2011 to supply Nemo4 boards to Apple by the “new SMT factory”/ESL, the response from Apple’s Richard  Lim (“Lim”) on 9 July 2011 was:

“I am glad that you are attempting to qualify new SMT factory for Nemo4 board, but I must reiterate that this effort is fully the undertaking of (WW). Apple cannot promise you any business even if you have successfully proven that you now have the capability to produce Nemo4 boards successfully.” (Emphasis added)

This is good evidence of WW’s goodwill as the producer of the relevant part for Apple, which goodwill must be part of WW’s Business.

51.Similarly, on 10 November 2011, when Xing emailed Apple to inform Apple of his new business and his move from his former business, reference was made not to SWT, but to WW :

“Your news is so fast. I with all the key persons in Willwin will move to a new company: (ESL). The new company will locate the manufacturing in Shenzhen and will be the same like Willwin.”

If WW only exists in name, with no business, no goodwill, no credibility, no other reason than to print an invoice to receive payment on behalf of SWT, there is no reason for Xing or anyone else to emphasize to Apple that the new business, and the persons in the new business, are from WW and are the same individuals working within WW. 

52.It seems clear from the evidence that before the disputes which led to the commencement of legal proceedings, Wen and Xing had been content to be flexible with clients as to with whom purchase orders for their products and services should be placed, to facilitate the manner of payment or the currency in which payment was to be made by the clients.  It is common knowledge that there are currency controls on the Mainland, and it is readily apparent that it would be more convenient for WW in Hong Kong to issue invoices to clients which are outside the Mainland and to receive payment from such clients in Hong Kong, in Hong Kong or foreign currency, under purchase orders issued by clients in WW’s name.  On the evidence, Wen and Xing appeared to be content, before 2011, with treating WW and SWT as one entity, or as related entities in one group, before their disputes arose.  Xing and Ying never objected to the treatment of the costs and expenses as reflected in WW’s financial statements, which referred to WW’s payment of sub-contracting charges. Despite the absence of any formal documentation (as emphasized by Ip) relating to the sub-contracting relationship between WW and SWI LH/SWT, or any other related company, Xing and Ying never queried this or the financial statements, when these were signed by them.

53.The letter of confirmation from ICS Engineering & Servicing Pte Limited (“ICS”) (said to be a customer of SWT) simply reflects the realities of the loose and flexible arrangements between WW and SWT, as referred to above. 

54.The distinctions Xing sought to make between WW and SWT, and his claims that it is inconceivable that the staff of SWT should be working on quotations for WW and for WW and SWT to have shared a domain name, appear artificial, when both Wen and Xing had beneficial interests in SWT and WW at the material time, and had treated the 2 companies as being related.  Clearly, these distinctions have only made in retrospect, when the relationship between the brothers has turned sour and trust has broken down.

55.On all the evidence, I accept that WW had a Business, as it claims, and goodwill in such Business. 

Whether WW had clients

56.By reason of the matters referred to under the preceding heading, I find that WW had clients, which dealt with it in the course of its Business, as evidenced by the purchase orders placed with WW, and the invoices issued by WW. It is irrelevant whether WW itself carried out the production work and the technical or other services referred to in the purchase orders and the invoices, whether it sub-contracted such work and services, or whether it entrusted the work and services to its agent, be such agent its related company, or an entirely independent third party.

57.In my judgment, whether SWT is WW’s sub-contractor is irrelevant to the claims made by WW against the defendants. 

Whether Xing and Ying had diverted WW’s business to ESL or were in breach of their duties to WW

58.Xing has clearly been shown to have been lying when he denied in his Defence that he had no business relationship with ESL, and that he had never used ESL’s domain name of caevolution.com (“ESL Domain Name”).  It is also a lie, for Ying to assert in her Defence and in her evidence that ESL was only a trading company, that ESL did not carry on any business identical to or in competition with the plaintiffs, and that Xing had never been involved in ESL’s operations.

59.It was in May 2014 that this Court ordered Apple, on the plaintiffs’ application, to disclose documents relating to its dealings with the defendants in this case.  As a result, Apple produced documents which, by order of the Court made in November 2014, was included as evidence in these proceedings.  These included emails Xing issued to Apple and its representatives, using his email address of [email protected] (“Wilson Email Address”), in which orders were solicited from Apple, and ESL was set up as a vendor account of Apple.

60.First, the allegation made by Ying that ESL was only a trading company set up by her, with no business which is identical to or in competition with that of WW, is in fact contradicted by the initial assertions made by Xing in his affirmation made in July 2012, in support of the application launched by Xing, ESL and Ying to discharge the Mareva injunction granted by the Court in the earlier part of these proceedings, in May 2012.  In that affirmation, Xing sought to establish that as a result of the grant of the Mareva injunction, ESL had not been able to “take on, continue and/or complete most if not all of its projects”.  He produced in evidence copies of some purchase orders placed with ESL and emails sent to ESL, as illustration of the effect of the Mareva injunction on ESL’s business, claiming that ESL had already suffered a loss of at least HK$4.7 million, and that if the injunction were to be continued, ESL would suffer a further loss of HK$5.6 million.  In short, this represented ESL’s alleged loss from the purchase orders and business transactions lost or affected by the Mareva injunction.  The purchase orders and emails exhibited to Xing’s affirmation refer to orders for ESL’s supply of woodpecker boards, MP boards, and test fixtures which appear to be of a similar nature as the test fixtures, equipment and instruments sold and produced by WW and SWT.  If ESL had not conducted any business in competition with that of WW, I fail to see how Xing could have claimed in July 2012 that the Mareva injunction had affected the purchase orders to which he referred, and how the loss of HK$4.7 million to HK$5.6 million could have represented ESL’s damage.

61.The claims made in Xing’s affirmation in July 2012 are patently inconsistent with the assertions made by Xing and Ying in the witness box, that they had only been operating the business of ESL in Shenzhen as a favor for their friend, Mr Zhou, a fact which was never mentioned in any of the pleadings and witness statements filed on behalf of the defendants.

62.The correspondence and documents disclosed by Apple also contradict the claims made by Ying, that ESL was only a trading company with a business which does not compete with that of WW.

63.Bearing in mind that even on Xing’s pleaded case, he only resigned from his directorship on 1 December 2011, the emails produced by Apple show that on 7 July 2011, Xing was communicating with Nihal Kaushal of Apple (“Nihal”) in the following manner, regarding the production of a new part for Apple called the Nemo board:

“For the Nemo board had you ever announced to all the CMs that we cannot do it? As these 2 weeks many CMs still call us to discuss the Nemo, including fujikula, FAT, Mflex, foxxconn guanlan.

I use another vendor to build 10 pcs new Nemo, will ship to you next week after we check it.  I need your help to verify them and just want to approve that we can do.”

The response from Nihal on 8 July 2011 was as follows:

“Hi Wilson:

For the Nemo board had you ever announced to all the CMs that we cannot do it?

I did. It is surprising that they contacted you for Nemo. Are you sure they did not want Woodpeckers?

I use another vendor to build 10 pcs new Nemo, will ship to you next week after we check it. I need your help to verify them and just want to approve that we can do.

I am not sure if we will source these boards from you.  I appreciate your hard work and determination to make the board’s work.  I will let you know within the next 2 weeks if we will consider sourcing Nemo board’s from you as an option.”

64.On 9 July 2011, Richard Lim of Apple (“Lim”) emailed Xing, with a copy to Nihal, quoting the above exchange between Wilson and Nihal, and stating as follows:

“I am glad that you are attempting to qualify new SMT factory for Nemo4 board, but I must reiterate that this effort is fully the undertaking of Wilwin Inc. Apple cannot promise you any business even if you have successfully proven that you now have the capability to produce Nemo4 board’s successfully. We will however support you on our answering any technical questions, if you may have or have, in your attempt.”

65.The evidence further shows that on 28 October 2011, ESL already issued a price quotation to Apple in respect of the N41 pressure tester V1.1 fixture, an item which WW and SWT were producing for Apple. Xing’s name and the Wilson Email Address were shown on the price quotation.  The email correspondence disclosed by Apple shows that firstly, on 14 November 2011, Xing sent to Lim, amongst other things, the N41 pressure tester quotation, together with “basic information” on ESL.  There was then email correspondence amongst Apple’s representatives, relating to orders placed with WW for the N41, and whether they were outstanding purchase orders “regardless of (WW) or (ESL)”.

66.In November 2011, there had been a series of emails between Xing and Apple. 

67.On 9 November 2011, Xing emailed Apple:

“Your news is so fast. I with all the key persons in Willwin will move to a new company: Evolution Solution Limited. The new company will locate the manufacturing in Shenzhen and will be the same like willwin.

Attached is my new company’s information, any need just call me.”

68.The response from Lim was:

“Hi Wilson,

I need you to sign NDA for the following projects that your new company may be involved.

N41

N 78

J1/J2

J 65

Attached are their respective NDA documents. Please return to copies for each NDA, with original signature and company stamp.

A representative for my team will visit you to audit your manufacturing facilities and capability at soonest.”

69.On 8 November 2011, Apple’s representative Maria Flores (“Maria”) emailed Xing, to say:

“Hi Wilson,

I have been asked to create a purchase order for (ESL) (quotes attached). The below information is required to set up a new vendor in our system.  Can you kindly provide the information.  I will then be able to start the purchasing process.”

ESL was named in the email as the vendor, and Xing was named as the sales contact, with Xing’s phone number.

70.On 11 November 2011, ESL through Xing executed Non-Disclosure Agreements with Apple in respect of a number of different projects. 

71.On 11 November 2011, there was an email exchange amongst Apple representatives on Nemo and Woodpecker boards (which had been items sold and supplied by WW and SWT).  Pertinently, on 14 November 2011, Maria emailed Xing to ask:

“Hi Wilson,

Please see attached quote and advise if it needs to be reissued from Evolution Solution. Can you please clarify Will-win status? Is Evolution Solution a new name replacing Will-win or is Will-win still an active company?” (Emphasis added)

In response to that inquiry, Xing replied:

“Hi Maria:

I will check and answer you back asap.

Evolution is a new name to replace the Will-win.” (Emphasis added)

72.On 19 November 2011, Xing emailed Philip Sieh of Apple (“Philip”):

“Hi Philip:

We will change from Willwin to Evolution Solution Limited (ESL). Please contact us with this address.

Mine is (Wilson Email Address).

Bai is [email protected].

Please find the attached two quotation you want...” (Emphasis added)

73.On 28 November 2011, Doone Tech Co Ltd (“Doone”), an Annexure A company, placed a purchase order with ESL.  This was revealed only to WW and SWT in April 2012, when WW discovered that despite having made an agreement with Doone for the supply of Woodpecker boards, no purchase order had yet been received by WW.  When SWT emailed Doone in April 2012 about the purchase order, Doone informed SWT that the purchase order had already been placed with ESL in November 2011, for the supply of the Woodpecker boards it had contracted with WW/SWT.  It was also revealed that Xing had been in correspondence with Doone in December 2011 in relation to the purchase order for the Woodpecker boards, using the Wilson Email Address, and that a further purchase order had been placed by Doone with ESL in March 2012, for ESL’s supply of Woodpecker boards.

74.There is further evidence of orders being placed by Apple with ESL, and quotations being made by ESL, through email correspondence with Xing at the Wilson Email Address, in November 2011 and on 1 December 2011, for the supply of Woodpecker USBs and other products.  On 30 November 2011, Xing emailed Philip in relation to the manufacture of Apple’s D401 interposer board, in which he stated:

“Willwin cannot match so fast and no Willwin any more.”

On 1 December 2011, in supplying quotations to Philip, Xing gave his own personal details as contact information for ESL.

75.On 13 December 2011, Xing emailed a list of Apple representatives, informing them that “ESL is now fully established”, and that “the previous Willwin will be going off-line very quickly”.  He further listed 14 projects which had been undertaken by WW and ESL, and informed Apple that those projects would be ESL’s.  These projects include the N41 pressure fixture, the D402 P3 interposer board and the D401 E1 Agdot tester which had been the subject of the email exchanges in November 2011 between Xing and Philip.  The list sets out the names of employees of ESL responsible for the 14 projects, which employees were all former employees of SWT.

76.By spring 2012, Apple was receiving shipments of products from ESL.  Xing was named as the contact person for ESL on 18 January 2012.

77.On all the evidence available, it is clear that Xing was acting in the name of ESL in his email correspondence with Apple, when he represented to Apple that ESL had been set up to take over the Business and projects hitherto undertaken and accepted in the name of WW, and issued quotations for the items to be supplied by ESL, in place of WW and SWT.  It is also clear from the email correspondence and documents disclosed that Xing and ESL represented by Xing were diverting business and opportunities from WW and SWT to ESL.  Xing’s emails to Apple in November 2011 were clear efforts to solicit Apple’s purchase orders in place of WW and SWT, during a time when Xing was still, on his own case, a director of WW.  This was in clear breach of his fiduciary duties owed as a director of WW, to act in the best interests of WW, and not to place himself in a position in which his own interests would conflict with those of WW. 

78.I entirely reject Xing’s excuses, that the emails do not refer to ESL, or his involvement.  There may have been some references in the emails to “Shenzhen Evolution Solution Limited” (“Shenzhen ESL”).  Bearing in mind that Xing himself had informed Apple on 9 November 2011, that they were “moving to a new company: Evolution Solution Limited” (ie ESL), that “the new company will locate the manufacturing in Shenzhen”, and that it would be “the same as (WW)”, “Shenzhen Evolution Solution Limited” is evidently understood as ESL’s manufacturing entity in Shenzhen.  In the November emails, Xing was unequivocally referring to ESL as his company which was replacing WW.  His contact details were given to Apple for ESL. 

79.Shenzhen ESL was set up by Xing and Ying in October 2011, and Xing’s mobile telephone number was included in the official company registration records of Shenzhen ESL.  The domain name and email accounts of caevolution.com, which were used by ESL and Shenzhen ESL in their business correspondence with Apple, were set up by Xing in October 2011, with Xing as the name of the registrant. 

80.The emails exchanged between ESL and Apple in September 2012 make matters clear, beyond any possible dispute, that ESL and Shenzhen ESL are affiliated companies if not the same entity used by Xing and Ying for the manufacture and supply of products to Apple.  On 25 September 2012, at 1:04 am, DeAna Garcia (“Garcia”) of Apple sent an email to Vivian Zhong (“Zhong”) of ESL, referring to a JX fixture, and stated:

“I was trying to put up a Purchase Req for this quote, but I could not find Shenzhen Evolution listed as an Apple supplier. Did your company go by a different name? I cannot find the address listed either.” (Emphasis added)

The Shenzhen address of Shenzhen ESL was then stated.  There is an email from Zhong to Garcia in the following terms on 24 September 2012, at 8:08 pm:

“The below is what you will find in your system?

Seller: 0080150064

Evolution Solution Limited

Unit 04, 7/F, Bright Way Tower #33

Mongkok Rd

Kowloon

Hong Kong”

The number 0080150064 is the same “seller” number or identification stated for ESL in Apple’s purchase orders to ESL, marked for the attention of Xing.

81.On 24 September 2012 at 9:01 pm, Zhong received Garcia’s reply:

“I think this works. There is only one listing for Evolution Solution. For some reason the complete address is not displaying in our PR system, but I think there’s enough matching info to confirm that we have the right address/vendor. More complete info is probably in SAP. I can submit the PR tomorrow for approvals.” (Emphasis added)

The listing for vendor number 80150064, sent by Garcia with the email, lists ESL as the vendor, with an address of Shenzhen ESL in Shenzhen, Xing as the contact for ESL, with Xing’s email address and telephone number.

82.The essential Non Disclosure Agreements which were signed by ESL for its clients were executed by Xing.  Xing was clearly an intricate part of ESL, in the forefront of ESL’s dealings with its key clients such as Apple.  This is evidenced and acknowledged by Xing himself in the affirmation ESL filed in support of its application for the discharge of the Mareva injunction, which contained details of ESL’s purchase orders and business.  Any claims made late in the proceedings and at trial, that Xing and Ying were only lending their names or the name of ESL to other parties for use, are clearly inventions and excuses made in an attempt to distance themselves from the evidence of ESL’s wrongdoing.  The further assertion, that ESL was only the money collecting entity for Shenzhen ESL, is in my view a distorted admission of the close relationship between ESL and Shenzhen ESL.

83.An objective reading of the emails demonstrably show Xing’s active role in putting ESL forward as the supplier of the relevant parts and products which used to be supplied by WW and SWT to Apple, as evidenced by the purchase orders and emails produced for the trial.  The emails and documents supplied by Apple were done so pursuant to an order for discovery made by this Court against Apple.  There is no reason to doubt, nor any evidence to raise any question as to, the authenticity of the documents originating from Apple.  These and the spreadsheet produced by Apple, and relied upon by the plaintiffs in this case, show that purchase orders had been placed by Apple, and invoices had been issued for payment, all with ESL as the vendor, in respect of parts and items which had been sold by WW/SWT to Apple under or arising out of ongoing projects (either for the same products or variations of the products).  Although I do not accept Counsel’s submission that it is necessary to show that the purchase orders had been completed and performed by ESL, before the plaintiffs can complain of a diversion of business, I am satisfied from the documents and spreadsheet produced by Apple that payment had been made by Apple and hence that the orders must have been completed pursuant to the purchase orders placed with ESL.

84.On behalf of Ying, it was argued that there is no evidence of her personal involvement in the diversion of business, and that after Ying’s dismissal as a director in June 2011, she had no further duty owed to WW.

85.It is true that whilst Xing can clearly be seen to have been in correspondence with Apple from July to early December 2011, concerning the setting up of ESL to take over the production of WW and the issue of price quotations, there is no evidence of Ying’s personal involvement. Although she was involved in the setting up or acquisition of ESL, acting as its director and sole shareholder, that by itself is not sufficient evidence of her breach of fiduciary duty as a director, even if such setting up was with the intention to use the business in competition with the company after her directorship (Balston Limited v Headline Filters Limited [1990] FSR 385). As summarized in the statement of Lord Justice Rix in para 76 of his judgment in Foster Bryant Surveying Limited  v Bryant [2007] EWCA  Civ 200,

“... I would find it difficult accurately encapsulate the circumstances in which a retiring director may or may not be found to have breached his fiduciary duty. As has been frequently stated, the problem is highly fact sensitive.”

86.Balston Limited v Headline Filters Limited [1990] FSR 385 is a case in which, absent any actual competitive commercial activity on the part of the director while he remained a director, the court found that his setting up of a business, and his taking preliminary steps to investigate or forward the intention to use such business to compete with the company after his directorship had ceased, did not constitute conflict or breach of his fiduciary duty.  The cases of In Plus Group Ltd v Pyke [2002] EWCA Civ 370 and Balston Limited v Headline Filters Limited show that all the circumstances relating to the director’s resignation or the termination of his duties, the conduct of the director complained of, his mala fide, how the client’s business was taken over by the new company, etc have to be considered.

87.On the facts and evidence of the present case, Wen does not dispute that he had suspended Ying’s duties as a director from June 2011, due to financial considerations.  ESL was acquired by Ying in September 2011, with Ying as the sole shareholder, and Shenzhen ESL was apparently set up in December 2011.

88.I do not accept the submissions made for Ying, that she was only a director of WW in name, and reject Ying’s case that she was only a courier for WW, delivering documents between Hong Kong and Shenzhen.  It is not disputed that she was responsible for coming to Hong Kong on numerous occasions to withdraw substantial amounts in cash from WW’s bank account in Hong Kong, albeit as she claims only on Wen’s instructions and with the company chop kept by Wen.  She was Xing’s wife as well as a director, and was entrusted with the cash.  She was the authorized signatory of WW’s bank account in Hong Kong.  She signed WW’s financial statements as director.  She claimed she had no part to play in the management decisions of WW, but having consented to act as director, being recorded in the Registry and held out to the public as a director, and having been paid as a director, she has the consequent fiduciary duties of a director.

89.It is Ying’s case that ESL was only used by her as a “trading company”, and that she had used ESL to help her friends purchase, or sell, parts for electrical or electronic products in Hong Kong, and to assist these friends to collect payment in Hong Kong.  She claimed that ESL had no role to play in the manufacture of parts.  This was never disclosed in her witness statement.  However, on Ying’s testimony, when she was confronted with the documents disclosed by Apple, she admits that she had asked Xing in November 2011 to enter into email correspondence with Apple, and to sign Non Disclosure Agreements with Apple for the supply of parts (which had formerly been supplied by WW).  She claimed that this was only to enable ESL to acquire the status of a qualified supplier for Apple, and because she could not use English nor emails.  The defendants have emphasized that any company can apply to be Apple’s qualified supplier, and it is for Apple to decide whether to accept parts from any company which it considers to be up to its standard.  The application for the status of a qualified supplier does not immediately follow that business will or can follow.

90.Ying’s evidence on the allegedly restricted role played by ESL is not believable, in view of the documents disclosed by Apple which clearly show the purchase orders, invoices and payments made to ESL.  Yet, bearing in mind that she was relieved of her duties since June 2011, and that Wen obviously did not treat her as a director of WW at the latest after November 2011 (when even contributions to her MPF ceased), I find that there is insufficient evidence of any acts on Ying’s part during the relevant period which constitute competitive commercial activity against WW/SWT, so as to render her liable for breach of fiduciary duties as a director.  Any role she played in the recruitment of staff for ESL in December 2011 is equivocal, and not sufficient as conflict or competition.  On the facts and evidence of this case, I am not satisfied that Ying’s authorization of and procuring Xing to sign the Non-Disclosure Agreements with Apple in November 2011 constitutes diversion of business from WW or competition with WW.  I can find no evidence of Ying’s personal involvement in the diversion of any business opportunities of WW during the time when she was a director and bound by her fiduciary duties. 

Whether Xing and Ying breached duties of confidentiality

91.According to paragraphs 9 and 11 of the Re-amended Statement of Claim, WW claims that in its course of undertaking and carrying out orders for its clients, WW and SWT in turn were provided with clients’ highly confidential information relating to their projects, including clients’ product designs, product plans and specifications, forecasts, research and other information, which are necessary for WW to perform its orders and testing procedures (“Clients’ Confidential Information”).  Clients’ Confidential Information includes, in particular, the design and makeup of the product known as “Woodpecker Board”.  The plaintiffs claim that WW further owns confidential information consisting of: the identities and contact information of its clients; the identities and contact information of its suppliers for raw materials, parts and components for its Business operations; and information relating to WW’s own technical operations and test procedures which arose in the course of WW’s Business. 

92.The foregoing categories of confidential information (as pleaded in paragraphs 9 and 11 of the Re-amended Statement of Claim) are all referred to hereinafter as “Confidential Information”.

93.The plaintiffs claim that Xing and Ying had received, become privy to and had dealt with such Confidential Information in the course of their carrying out their powers and duties as directors of WW and as senior employees of SWT occupying fiduciary positions, in the case of Xing, as general manager of SWT, and in the case of Ying, as assistant to the general manager of SWT.  The plaintiffs’ case is that by reason of the sub-contracting relationship between WW and SWT, Xing and Ying as employees of SWT became privy to the Confidential Information.  They claim that employees of SWT were all required to enter into standard form confidentiality agreements with SWT, to protect WW’s Confidential Information.

94.WW claims that both Xing and Ying owed duties not to use the Confidential Information, otherwise than in the interests of WW. In the alternative, SWT claims that if the Confidential Information was owned not by WW but by SWT, Xing and Ying were similarly under a duty of confidence towards SWT.  In this respect, I have already found that the Business was that of WW, so it is not necessary to deal with SWT’s alternative claim.

95.On the plaintiffs’ case, Xing and Ying had breached their duty of confidence owed to WW and/or SWT, by divulging to ESL the Confidential Information they had acquired from WW and SWT, and by misusing the said Confidential Information.  They claim that WW and SWT have sustained damage as a result of such breach of confidence. 

A.  Whether the information has the quality of confidence and was imparted in circumstances importing an obligation of confidence

96.In relation to the 3 categories of Confidential Information asserted by the plaintiffs, they have not been able to identify, either in their pleadings or by way of explanation in their witness statements, what particular aspects of WW’s “technical operations and test procedures” constitute WW’s “Technical Confidential Information” as defined in paragraph 11 (c) of the Re-amended Statement of Claim.  The general references to WW’s “technical know-how”, test designs and internal sequence of testing, and the alleged inventions and development of WW’s “internal plant”, have never been explained by Wen in his evidence.  Without the particulars and evidence on such information, which is claimed to be confidential and not available to the public, the Court cannot decide whether they constitute either trade secrets or information which has the necessary quality of confidence to deserve protection.  The courts have emphasized that plaintiffs should give full and proper particulars of the confidential information sought to be relied upon in a claim of misuse (Ocular Sciences Ltd v Aspect Vision Care Ltd [1997] RPC 289, 359-360).  As injunctions are sought by the plaintiffs to restrain the use of their alleged confidential information, the Court must be able to identify precisely the information which a defendant is restrained from disclosing or using.  A reference in a Court order to “all confidential information” relating to a plaintiff’s “technical operations and test procedures” is simply not good enough for its lack of certainty and precision.

97.I am prepared to accept on the facts of this case that the names and contact details of WW’s clients and suppliers are confidential information which have the necessary quality of confidence.  The contact details of different employees in different departments of the clients of WW/SWT are not available to the public.  As the plaintiffs have highlighted, uncommon materials and parts are often specified for production (eg of the Woodpecker Boards), and suppliers of Apple have to attain an approved status.  Bearing in mind the nature and practices of the business and industry in question, the nature of Xing’s and Ying’s employment and work, and the detriment to WW/SWT if such information is imparted to its competitor, I am satisfied that the names and contact details of WW’s and SWT’s clients and suppliers are confidential information.

98.I also accept that the technical information WW, SWT and Xing, in the course of his operation of the business of WW and SWT, acquired from clients such as Apple and which relate to clients’ products, designs, product and test specifications, research, marketing plans, costs and forecasts, are all information which have the necessary quality of confidence required (Coco v AN Clark (Engineers) Ltd [1969] RPC 41).  They cannot be generally available to the public or to suppliers which do not contract with these clients under confidentiality terms, and only upon acquiring Apple’s approved status.

99.Although the plaintiffs claim that all employees of SWT were required to sign standard form confidentiality agreements, they have not been able to produce those agreements which had been signed by either Xing or Ying.  Wen’s bare assertion that Xing and/or Ying had removed these from SWT’s office is unsubstantiated in any way.  In cross-examination, Wen accepted that he had not signed any form of confidentiality agreement.  Hence, it is probable that Xing and Ying were likewise not required to sign any. 

100.I accept however the plaintiffs’ argument that by virtue of Xing’s position, and his dealings with Apple, he must have been aware of the confidentiality of the technical information he acquired, in the course of his operation of the business of WW and SWT, from clients such as Apple which relate to clients’ products, designs and testing specifications.  Since Ying accepted that she had authorized Xing to sign Non-Disclosure Agreements with Apple in November 2011, I consider that she must likewise have been aware that ESL would be acquiring information from Apple and clients of ESL which would be confidential.  Both Xing and Ying were aware that employees of SWT had to sign confidentiality agreements to keep confidential the information they would acquire in the course of carrying out work undertaken by SWT.  The fact that the secrecy or confidentiality of some of the information from clients may be short lived (as Xing emphasized) does not mean that such information is not confidential during the time when it is not accessible to the public or the trade.  In all the circumstances, I accept that objectively, a reasonable person in the position of Xing and Ying would have knowledge that the information they acquired from clients of WW and SWT was confidential, and should have been kept confidential (SNE Engineering Co Ltd v Hsin Chong Construction Co Ltd [2015] 4 HKLRD 517).

B.  Whether there was unauthorized use of the information

101.Mere confidential information will only be protected during employment and not thereafter, in the absence of any express covenant from the employee (Faccenda Chicken Ltd v Fowler [1986] 3 WLR 288).  This is as opposed to trade secrets of the employer, which will be protected even after termination of employment of the employee.

102.There is evidence, from the emails exchanged between Xing and Philip of Apple in November and early December 2011, that orders were procured and obtained by ESL from Apple (on the basis of Xing’s representation that WW will change to ESL) for the manufacture of Apple’s D401 Interposer board.  By 13 December 2011, there were at least 14 projects which ESL was undertaking for Apple, which were formerly WW’s ongoing projects. 

103.On 30 November 2011, Philip emailed Xing to ask for price quotes for (inter alia) the D401 E1 and the D402 E1 Ag dot tester design and interposer boards “with quick leadtime”.  Phillip stated that the 401 E1 and the 402 E1 interposer boards would be “very similar to 402P3”.  The quotations were sent by Xing on 1 December 2011, giving a leadtime of “around 10 days” and asking:

“For the fixture do you want the brand new build or just retrofit on the old one?”

According to the plaintiffs’ evidence, “retrofit” means to modify old products and/or to improve same to suit the client’s needs, instead of building and manufacturing a new product from scratch.

104.The reply from Philip on 1 December 2011 was:

“For fixture, just retrofit.”

105.There is also in evidence an email from Xing to Philip on 30 November 2011, in which he stated:

“Lead time depends on your request, please give us the gerber asap.

Last time actually we start ahead. Be sure we will update the schedule after we receive the gerber and of course we will push as vast as possible. Willwin cannot match so fast and no Willwin anymore.

The quotation is for new build fixture, if you want just retrofit I need quote you again and depends on what you want change.  If retrofit is a problem, although a fixture are in different places, ask them to ship us back?”

106.In response, Philip sent to Xing the gerber file for the D401 E1 Interposer board, stating:

“Please start manufacturing of this board and provide schedule. I will release PO for this and 402 E1 ag dot tester this week...”

107.Even on Xing’s own pleaded case, he only resigned as a director of WW and as deputy general manager of SWT on 1 December 2011.  His making price quotations and procuring orders for ESL from Apple for the D401 and D402 interposer boards and tester designs, on the basis of the confidential information in and relating to the D402 P3 tester and boards manufactured and supplied by WW and SWT to Apple, was misuse of WW’s Clients’ Confidential Information during a time when he was a director of WW, and deputy general manager of SWT.

108.Counsel for the plaintiffs referred to evidence of ESL’s possession on 14 January 2012 of the Woodpecker Boards which were produced by WW/SWT for Apple.  On 14 January 2012, Vivian Zhong of ESL (“Vivian”) emailed Apple, and stated that ESL then had 2 versions of the Woodpecker Board, the old version of which was clearly manufactured by WW.  Even if it can be inferred from such email that ESL was, in January 2012, using any confidential information of WW, there is no clear evidence that the Woodpecker Board in ESL’s possession was obtained by ESL from either Xing or Ying, as opposed to Vivian or other employees of SWT who left SWT to join ESL.  It has also to be borne in mind that the plaintiffs cannot complain of ESL’s use of any confidential information belonging to Apple, and which was provided by Apple to ESL.

109.Although Counsel for the plaintiffs referred to the list of projects undertaken by ESL by 13 December 2011, reference has not been made to any particular evidence to show that, apart from the D401 and D402 interposer boards and dot tester designs dealt with above, the other projects had been procured by the defendants’ misuse of the plaintiffs’ confidential information, and I can make no express findings in respect thereof.

110.Since there is no evidence of Xing and Ying having signed any confidentiality agreement with either WW or SWT, any use by them of any Confidential Information of the plaintiffs after they ceased to be directors and employees cannot be restrained by the plaintiffs.

Whether Ying and ESL had dishonestly assisted Xing’s breach of fiduciary duties and duties of confidentiality

111.The plaintiffs plead in the Re-amended Statement of Claim that by Ying’s involvement in ESL’s business, she had rendered dishonest assistance to Xing’s breach of his fiduciary duties and/or duties of confidence owed to WW.

112.It was argued on behalf of Ying that she established ESL’s business by virtue of her own work experience and connections, and that ESL was only involved in purchasing raw materials and collecting money for its clients.  As particularized in the earlier parts of this Judgment, ESL had been engaged in more than purchasing raw materials.  On the evidence, ESL had issued quotations to Apple, had received purchase orders from Apple between December 2011 and September 2014 for the same testing apparatus and parts as those supplied by WW and SWT, and ESL had received payment from Apple up to August 2013.

113.Although it was claimed that ESL had acquired its vendor status with Apple and other companies because these companies knew Ying, the emails disclosed by Apple as having been exchanged between Apple and Xing never mentioned Ying at all, when ESL applied for the status of being Apple’s qualified vendor or supplier.  Instead, Xing was referred to and recorded on Apple’s database as ESL’s contact person, and references had been made initially by Xing and Apple to WW.

114.I reject the claims made by Ying that Apple’s references to ESL should have been made to Shenzhen ESL.

115.Ying admits that she had asked Xing to sign the Non-Disclosure Agreements on behalf of ESL, in order to acquire status as a qualified supplier to Apple.  This contradicts her claim that ESL was only a trading company and was not involved in any manufacturing or production activity.  Ying accepted that when Xing signed Non Disclosure Agreements with Apple in the name and on behalf of ESL, Xing was still a director of WW.  She admits that she was the person who controlled ESL’s bank accounts.  She further admits that she had supplied ESL’s name and account details to Xing.  She alleges and emphasized repeatedly that she had “lent” ESL’s name and account to her friends (such as Zhou) for their business and to collect money from such business. 

116.The claim and admission that Ying had lent ESL and its name to Xing/Zhou, allegedly for their business, is sufficient evidence of Ying’s assistance to Xing and such friends for their dealings using ESL’s name.

117.Although Ying denies that she had any knowledge of Xing’s emails with Apple for the supply of testing equipment and parts such as N41 and N78, it cannot be disputed that there were in fact dealings between Apple and ESL and purchase orders placed by Apple with ESL, even after the grant of the injunction by the Court in May 2012.  As the person who had control of ESL’s bank accounts, I reject Ying’s evidence that she had not seen ESL’s bank statements and was not aware of payments having been received by ESL from Apple.

118.Under the order made by the Court on 14 May 2012 (“Order”), Xing was injuncted from performing or continuing to perform any contract with WW’s clients for the sale or provision of test systems, test fixtures, equipment and instruments, and ESL was injuncted by itself, it directors and agents from soliciting, entering into, or performing any contract with WW’s clients for the sale or provision of test systems, fixtures, equipment, etc.  Both Xing and ESL were further injuncted from divulging any confidential information of WW.  At the material time of the injunction, Ying was a director of ESL and must have been served or given notice of the terms of the Order, and of the claims made by WW and SWT in these proceedings.  Apple was named as WW’s client in the Order, to which the injunction extended.

119.On the evidence, I find that Ying had assisted Xing’s breach of his fiduciary duties (by diverting business from WW to ESL) and breach of his duty of confidentiality, by letting Xing use ESL as the company to accept the diverted business and confidential information, by permitting Xing to have use of ESL’s bank account to accept payment under Apple’s purchase orders, and by her assistance in the operation of ESL’s bank accounts for Apple’s purchase orders in the course of ESL’s business.  All these took place during the time when Xing was still a director of WW.

120.Dishonestly is required before Ying can be found to be liable for dishonest assistance.  Counsel for the plaintiffs referred to Bearsley & Bloch QC, Employment Covenants and Confidential Information (3^rd edition, para 4.171), where the learned authors referred to the principles summarized in Ultraframe (UK) Limited v Fielding [2005] EW HC 1638 (Ch D).  Honesty is to be assessed on the basis of what the person alleged to have acted dishonestly actually knew at the time, as distinct from what a person would have known or appreciated.  In Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 (PC), Lord Nicholls of Birkenhead succintly explained the concept of dishonesty:

“ ... in the context of the assessory liability principle acting dishonestly, or with a lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances. This is an objective standard. At first sight this may seem surprising. Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence. Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated. Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness is not dishonesty. Thus for the most part dishonesty is to be equated with conscious impropriety.

However, these subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particular circumstances.  The standard of what constitutes honest conduct is not subjective.  Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual.  If a person knowingly appropriates another’s property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behavior.”

121.In summarizing the relevant principles in Ultraframe, the learned authors ofBearsley & Bloch QC, Employment Covenants and Confidential Information, referred to Barlow Clowes Limited v Eurotrust Limited [2006] 1 WLR 1476 (PC), to explain that suspicion combined with a conscious decision not to make inquiries about a matter may result in a person being treated as having knowledge of the matter, and that a person may be held to have sufficient knowledge of the underlying transaction and to have acted dishonestly without knowing all the details of that transaction.  In delivering the judgment of the Court in Barlow Clowes Limited v Eurotrust Limited, Lord Hoffman stated:

“ ... The statement that a dishonest state of mind meant ‘consciousness that one is transgressing ordinary standards of honest behaviour’ was in their Lordships’ view intended to require consciousness of those elements of the transaction which make participation transgress standards of honest behaviour. It did not also require him to have thought about what those standards were.”

122.In this case, Ying had knowledge of the fact that Xing, like her, was a director of WW in October and November 2011, when she asked Xing to sign Non Disclosure Agreements with Apple, and that this was to apply for ESL’s status as Apple’s qualified supplier.  She must have knowledge that ESL would be supplying parts to Apple, after it acquired the status of a qualified supplier for Apple.  Ying had knowledge of the Order made in May 2012.  She was in fact joined as 3^rd defendant in these proceedings, and a Mareva injunction was granted by the Court on 21 September 2012, restraining her, Xing and ESL from disposing of their assets on the basis of the claims made by WW in these proceedings.  I reject Ying’s claim that she had no knowledge of the fact that ESL was receiving payment from Apple up to 2013.  If she had not known of this, or had not looked at ESL’s bank statements or bank balances, she must have deliberately turned a blind eye to these.

123.The judgment in Royal Brunei Airlines Sdn Bhd v Tan is enlightening as to cases in which the third party assisting the fiduciary may have doubts as to whether a transaction is authorized, or lacking in probity.  Lord Nicholls explained in his judgment that the accessory is required to act honestly, and when an honest person knows there is doubt, honesty requires him to attain the standard which would be observed by an honest person placed in those circumstances:

“The only answer to these questions lies in keeping in mind that honesty is an objective standard. The individual is expected to attain the standard which would be observed by an honest person placed in those circumstances. It is impossible to be more specific. Knox J captured the flavor of this, in a case with a commercial setting, when he referred to a person who is “guilty of commercially unacceptable conduct in the particular context involved”: see Cowan de Groot Properties Ltd v Eagle Trust plc [1992] 4 AER 700, 761. Acting in reckless disregard of others’ rights or possible rights can be a telltale sign of dishonesty. An honest person would have regard to the circumstances known to him, including the nature and importance of the proposed transaction, the nature and importance of his role, the ordinary course of business, the degree of doubt, the practicability of the trustee or the third party proceeding otherwise, and the seriousness of the adverse consequences to the beneficiaries. The circumstances will dictate which one or more of the possible courses should be taken by an honest person. He might, for instance, flatly decline to become involved. He might ask further questions. He might seek advice, or insist on further advice being obtained. He might advise the trustee of the risks but then proceed with his role in the transaction. He might do many things. Ultimately, in most cases, an honest person should have little difficulty in knowing whether a proposed transaction, or his participation in it, would offend the normally accepted standards of honest conduct.

Likewise, when called upon to decide whether a person was acting honestly, a court will look at all the circumstances known to the third party at the time.  The court will also have regard to personal attributes of the third party such as his experience and intelligence, and the reason why he acted as he did.”

124.Despite her knowledge of the claims made by WW against Xing for breach of fiduciary duties, on the basis that Apple and other Annexure A companies were clients of WW, and despite the terms of the Order, Ying permitted ESL to be used, and continued to operate ESL’s bank accounts for the receipt of payments from Apple.  I have borne in mind the claim made by the defendants, that any company apart from WW and SWT can apply to Apple to be a qualified supplier and to supply parts to Apple.  I also bear in mind Ying’s assertion that she had no knowledge, or did not accept, that Xing was in breach of any fiduciary duty by accepting orders from Apple.  Yet, applying the principles set down in Royal Brunei Airlines Sdn Bdh v Tan and Barlow Clowes Limited v Eurotrust Limited, I find that Ying had sufficient knowledge of the dealings between Xing and Apple, and of the relationship between Xing and WW/SWT, which should have at least raised suspicion in the mind of an honest person in her circumstances as to whether it would be proper for ESL and Xing to enter into dealings and contracts with Apple for the supply of the products which had hitherto been supplied by WW and SWT.  On the one hand, Ying seeks to portray herself as an ignorant housewife who knew nothing of the dealings and emails between Xing and Apple.  On the other hand, where it suits ESL and herself, she claims to be experienced in her own right in the electronic industry with connections to Foxconn and other companies, to be able to establish the business of ESL without recourse to WW or SWT.  I consider that, based on her involvement in the businesses of SWT, WW and ESL at different times, her relationship with Xing, and her own professed experience or connections in the industry, Ying had sufficient knowledge of the dealings of Xing and ESL with Apple from November 2011 throughout to 2014 at least, and that an honest and objective person in her circumstances would have suspicions as to the probity of the transactions between Apple and ESL and Xing.  An honest person in her circumstances would have questions as to whether ESL’s and Xing’s dealings in the testing apparatus and parts formerly manufactured and sold by WW and SWT to Apple can possibly be in breach of the rights of WW and/or SWT.  Her turning a blind eye to the propriety of these transactions, and the payments received from Apple, and proceeding recklessly with such transactions and dealings, is typical of a person who deliberately abstains from finding out more and asking questions, lest she learns something which she would prefer not to know.

125.To conclude, I find that Ying had dishonestly assisted Xing’s breach of fiduciary duties and duties of confidentiality.

126.As to whether ESL can be said to have dishonestly assisted Xing’s breach, it is necessary to establish that Ying’s state of mind and knowledge can be attributed to ESL.  The alter ego doctrine, or the doctrine of the directing mind and will of the company, attributes to the company the mind and will of the natural person or persons who manage and control its actions (El Ajou v Dollar Land Holdings plc [1994] BCC 143).  In this regard, “it is necessary to identify the natural person or persons having management and control in relation to the act or omission in point” (per Nourse LJ in El Ajou v Dollar Land Holdings plc [1994] BCC 143, at 151).

127.Ying was the registered shareholder and sole director of ESL at all material times, from October/November 2011 when Xing signed the Non Disclosure Agreements with Apple, to Ying’s knowledge and with her consent, to May 2012 (and right to August 2013) when payments were still received by ESL from Apple.  It may be that, like the director Mr Ferdman in El Ajou v Dollar Land Holdings plc, Ying was at some stage acting on the directions of Xing, who can be seen from the email correspondence to be directing and having the management of the business and activities of ESL.  Nevertheless, as Nourse LJ emphasized in El Ajou v Dollar Land Holdings plc, management and control is not to be considered generally.  Lord Hoffman also explained in his judgment that different persons may for different purposes satisfy the requirements of being the company’s directing mind and will.  The question is whether, in relation to the use of ESL’s bank accounts, and the use of ESL’s name to accept the business diverted from WW and SWT, Ying exercised powers on behalf of ESL to commit ESL to the transactions with Apple, and can be said to be the person having the management and control of these acts.  I consider that she is, such that she can be identified as the directing mind of ESL.

128.Accordingly, I find that Ying’s knowledge can be imputed to ESL, such that ESL can be said to have dishonestly assisted Xing’s breach of duties owed to WW.

Whether the defendants had passed off their business as WW’s

129.On the evidence, I have found that WW had a Business, and from the documents disclosed by Apple, there is adequate evidence that WW had goodwill in its name “Willwin” and its Business.  The emails from Apple, in particular Lim’s email to Xing of 9 July 2011, show that Apple had trust in the products and services of WW, evidently by reason of their past dealings.  Xing’s emails to Apple of 9 November 2011, 19 November 2011, 14 November 2011 and 14 December 2011 are clearly misrepresentations made by Xing in the name and on behalf of ESL, that ESL was the same as WW (“Willwin Inc is now Evolution Solution Limited”), that ESL was replacing WW (“Evolution is a new name to replace the Willwin”), and that WW no longer existed (“no Willwin anymore”), such that Apple’s business and orders should be transferred to and taken over by ESL.  As a result of such misrepresentation, WW clearly sustained damage as purchase orders for goods hitherto supplied by WW were placed with ESL.

130.All the essential elements of passing off have been established (Reckitt v Coleman Products Ltd v Borden Inc [1991] 1 WLR 491).  On the evidence, I find Xing and ESL to be liable to WW in passing off.

Whether Xing and Ying have a duty to account for the plaintiffs’ funds

131.The plaintiffs’ complaint is that between April 2008 and March 2011, Xing and Ying withdrew from WW’s bank account in Hong Kong and received respectively (in Xing’s case) the sums of HK$1,816,000 and US$15,500, and (in Ying’s case) the sums of HK$6,290,000 and US$334,460.

132.It is not disputed that the sums were withdrawn by Xing and Ying on Wen’s instructions and with his approval.  On Wen’s part, he claims that the withdrawals made by Xing and Ying were made on his instructions, but as a result of requests made by Xing that sums were required for SWT’s operations.  This is evidenced by the emails exchanged between Wen and Xing in 2009 and 2010.  On Ying’s part, she claims that the amounts withdrawn by her had been paid over either to Wen, or to SWT, or to persons designated by Wen.  On Xing’s part, he claims that he had paid such amounts withdrawn by him to Wen, that Wen controlled the bank accounts and the bank statements and audited accounts of WW, such that Wen fully knew the whereabouts of the funds and how they had been utilized.

133.As directors and agents of WW in making the withdrawals of cash from WW’s bank accounts and in receiving the funds, it cannot be disputed that Xing and Ying had a duty to account for, and explain, how the money they received or withdrew had been used.  That Wen knew or must have known of the withdrawals, and might or should have been able to ascertain from the audited accounts of WW the state of any indebtedness between SWT and WW, or between Xing and WW, does not in law absolve Xing and Ying from their duties to keep and give accurate accounts of the monies they withdrew for and received from WW.

134.In Ying’s witness statement, she originally claimed that she had paid over the amounts withdrawn by her to Wen, or to SWT. She finally admitted in her testimony in court that she had paid over some of the cash amounts to Xing, contrary to what she had stated in the witness statement. 

135.As for Xing, the emails in evidence show that Wen’s instructions to Ying and Xing with regard to the cash withdrawals were either that the amounts withdrawn were to be deposited into SWT for SWT’s use, or to be given to Xing.  There is also evidence that instructions for withdrawal came from Wen, following Xing’s requests for funds for specific purposes, or “for loans”.

136.On 15 May 2011, Wen sent to Xing by email a summary of the amounts which had been handled by Xing, with the request that Xing should verify the summary , which sets out the amounts involved, and the alleged use (such as for wages, or for specific projects) of some of the funds withdrawn.  There is no evidence, or claim made, of any reply having been given by Xing, as to any matter stated in the email of 15 May 2011 and the summary.  Nor is there any other evidence of any account having been given in any way by Xing, either as to the amounts stated in the said summary, or as to the amounts summarized in Annexure B to the Re-amended Statement of Claim.

137.I fail to see what defence Xing has to WW’s claim for an account as to the amounts withdrawn by him, and as to amounts paid to him by Ying out of WW’s funds.  Ying likewise has to account for the sums of money she withdrew from WW, including full particulars of the individuals to whom she had given each of the sums, and the dates when the payments were made.

Whether Xing and Ying had misappropriated the plaintiffs’ funds

138.In the absence of further evidence and prior to an account being given by Xing and Ying, I cannot find on the basis only of withdrawals having been made by Ying and Xing from WW’s bank accounts, between April 2008 and February 2011, that these amounts had been misappropriated by the defendants and should be repaid by them.  It can be seen from Wen’s emails produced in evidence that he had specifically asked for some of the amounts withdrawn to be paid to Xing for SWT, or to be used for SWT’s operational expenses.  On the defendants’ case, the money they had received have been duly paid into SWT, or otherwise for SWT’s operating expenses.  On 24 December 2009, Wen gave specific instructions that the sum of HK$200,000 withdrawn from WW was to be paid to SWT as a “personal loan” or “individual loan” (“個人借款”).  It is unclear whether it was to be a personal loan from WW, Wen, Xing, or anyone else.  In other cases, Wen’s instructions were to deal with the money “as before/as in the past” (“如之前”/“照舊”).

139.In a somewhat exceptional course, after the hearing of the first part of the trial in November 2014, when the trial resumed in August 2015, Xing applied to adduce in evidence (inter alia) the judgment and various other documents relating to the litigation between SWT (represented by Wen), Xing and Ying in Shenzhen on the Mainland, and sought to cross-examine Wen on the claims made and on the evidence adduced in those proceedings.  I allowed a small part of the documents Xing sought to produce, and granted Xing’s application to recall Wen to be cross-examined on such matters, but for a limited period of time.

140.On the basis of the same evidence and documents produced by Xing, the plaintiffs then applied to rely on the matters referred to in the Shenzhen judgment (handed down on 19 December 2014, but only coming into effect on 14 February 2015) and the evidence adduced in the Shenzhen court, in order to re-amend their Amended Statement of Claim, in support of the plaintiffs’ pleaded case of the defendants’ misappropriation of WW’s funds.  An alternative claim was put forward by the plaintiffs, that as evidenced by and referred to in the Shenzhen judgment, total sums of HK$5,076,000 and US$33,000, of the amounts withdrawn from WW’s bank account in Hong Kong, had been converted into renminbi (“RMB”) and deposited into SWT’s account and otherwise paid to SWT, but in respect of a total sum of RMB 3,744,999.95, such amount was paid and recorded as a personal loan from Xing (“Shenzhen Misappropriated Amount”).  The plaintiffs claim that Xing and Ying had procured SWT to issue receipts in order to acknowledge the Shenzhen Misappropriated Amount as a personal loan from Xing to SWT, in reliance on which Xing was able to commence proceedings against SWT in Shenzhen, and obtained judgment against SWT for SWT’s repayment to Xing personally of a sum of RMB 3,444,999.95 (the Shenzhen court rejecting a part of Xing’s claim for the entire Shenzhen Misappropriated Amount).  The plaintiffs claim that this is evidence of Xing’s misappropriation of WW’s funds withdrawn from WW’s bank account.

141.Bearing in mind that: (1) Xing was a party to the Shenzhen proceedings and the Shenzhen judgment, and was familiar with the matters which arose and were argued in those proceedings; (2) the defendants themselves had sought to rely on the evidence and arguments made at the trial in Shenzhen, in cross-examination of Wen in these proceedings; such that (3) the defendants cannot be said to have been surprised by the matters which the plaintiffs sought to raise by the re-amendments; and (4) the Shenzhen judgment, which was handed down after the hearing in November 2014, and the evidence adduced are relevant to the pleaded claims of misappropriation made in this action; I exceptionally allowed the plaintiffs on 31 August 2015 (Day 18 of the trial) to make the re-amendments and to include the Shenzhen judgment in their evidence.

142.Considering the table prepared by the plaintiffs which shows the chronology of the cash withdrawals made by Xing and Ying from WW’s account in Hong Kong, the almost simultaneous deposits of the converted RMB into SWT’s account, and the issue of the 29 corresponding loan acknowledgment receipts from SWT to Xing, there is much persuasiveness in the argument that the cash withdrawals from WW were all paid by Xing to SWT, and that they made up the same loans which were acknowledged by SWT to be due personally to Xing.  Despite Xing’s denial, the natural inference is that the Shenzhen Misappropriated Amount came from the cash withdrawals from WW’s account.  On the available evidence, it is not believable that Xing had sourced the alleged loans from his own resources.

143.The real issue, however, is whether the fact that the funds withdrawn from WW were paid into SWT as loans from Xing can be treated as misappropriation in the circumstances and on the evidence of the case.

144.In this regard, it is clear from the evidence that there had been customary transfers and loans between WW, SWT and the companies controlled by the Wei brothers.  Wen and Xing, as shareholders and directors of WW and SWT, had been flexible in the inter-company transfers, as can be seen from the accounts of WW and from the emails between Wen and Xing.

145.The contents of the emails issued by Wen to Xing, concerning the withdrawal of funds from WW and how such funds were to be used, are pertinent.  Particularly relevant are those dated 24 December 2009 and 10 November 2010, in which Wen referred to deposits of the sums withdrawn from WW as “personal loans”, the email of 10 November 2010 specifically referring to a personal loan from Xing.  The emails refer also to dealings with the money withdrawn “as in the past”, which suggest that there was prior agreement between Wen and Xing as to how deposits should be managed.  Further, the accounts and financial statements of WW demonstrate that there were account entries showing the status of the current accounts between WW and its directors, and between WW and SWT.  There is also evidence of personal loans to SWT from Chen, the other shareholder of SWT.

146.As the plaintiffs acknowledge, the actual loan receipts relied upon by them have not been adduced in evidence in these proceedings, although 4 of them were specifically identified in the Shenzhen judgment.  There is no evidence as to who had signed the loan receipts on behalf of SWT.  However, as Xing himself seeks to rely on the Shenzhen judgment, he does not, and cannot, dispute that the receipts acknowledge debts due personally from SWT to himself, and were issued by SWT.  It was on such basis that Xing commenced litigation against SWT, and obtained judgment in Shenzhen.

147.The loan receipts have not been referred to by either Wen or Xing in their witness statements filed in these proceedings.  Nor has any witness given any explanation in these proceedings as to how and why the loan receipts were issued by SWT to Xing, acknowledging personal loans from Xing. 

148.Xing claims that it was Wen who controlled the finances and the accounts of not only WW, but also SWT.  What cannot be disputed is that at the material time, Wen was the executive director and the legal representative of SWT, besides being the majority beneficial shareholder.  Wen himself asserts (paragraphs 21 to 24 of his supplemental witness statement) that since SWT’s inception in 2007, the primary source of funding for SWT’s business had always been loans from SWI and himself, and that there had been loans from SWI to SWT.  Wen further claims that it was SWT’s practice to prepare “financial statements and ledgers of its financial position on a regular basis”, that there had been financial reports which contained information and particulars of loans from SWI to SWT which he had sent to Xing, and that at least from 2010, SWT had appointed a financial controller to be in charge of maintaining all books and accounts of SWT. 

149.It is the plaintiffs’ claim that Xing and Ying had procured SWT to issue receipts which acknowledge the personal loans from Xing.  However, there is no evidence whatsoever that the relevant receipts had been procured by Xing and Ying, as alleged, and that such receipts had been issued by SWT without Wen’s knowledge or consent.  Bearing in mind Wen’s position as executive director and legal representative of SWT, and his own evidence as to the financial statements and ledgers prepared of SWT’s financial position on a regular basis, I cannot believe that SWT’s receipts and acknowledgment of Xing’s personal loans (dating from 2009) could have been issued without Wen’s knowledge.  If the personal loans acknowledged in the receipts were not in fact loans from Xing, it is inconceivable that Wen would not have raised questions or rectified the inaccurate records.  Although Wen’s emails with regard to the withdrawal of cash from WW’s bank account contained instructions that the funds were to be used for SWT, it is probable that there had been agreement for such funds to be made available to SWT by way of loans, or to be treated as personal loans, and for subsequent adjustments to be made.  Neither Wen nor Xing has explained in their witness statements how loans to be made from WW/Wen or Xing to SWT for its operating expenses were to be dealt with and adjusted, and how they are reflected in the audited accounts.  It is only after full accounts have been given by Xing and Ying as to the sums withdrawn by them that it can be ascertained whether any funds had been misused or were not authorized by WW, for SWT’s use as specified.  Thereafter, appropriate relief may be obtained by WW against the defendants.

150.In summary, and on the limited evidence, I am not satisfied on a balance of probabilities that SWT’s receipts acknowledging personal loans from Xing can be treated as evidence of the defendants’ misappropriation of WW’s funds.

151.The Shenzhen judgment was handed down on 19 December 2014 and became effective on February 2015.  On the basis of the Court of Appeal’s decision in Lee Yau Wing v Lee Shui Kwan [2007] 2 HKLRD 749, to which I referred Counsel in the course of closing submissions, it is still unclear whether the Shenzhen judgment can be considered as a final judgment, and Counsel has not pursued Ying’s arguments that the plaintiffs are bound by the Shenzhen court’s findings in relation to the status of the debt due from SWT to Xing, and that they are estopped from disputing such facts as found by the Shenzhen court.

Whether Xing has duty to account for/misappropriated the ICS Receivables

152.Xing does not dispute that WW had issued invoices to ICS for payment of a total sum of US$12,678 and RMB 3000 due under various purchase orders.  Nor does he dispute that ICS had made payment in cash to Xi, Xing’s subordinate at SWT (and who later joined him at ESL or Shenzhen ESL).  ICS claim that the cash payment had been made on Xing’s instructions and approval.  In his evidence, Xing claimed that he had asked Xi to handle the cash payment, and only alleged in his witness statement that “in the usual course, any payments received would be passed to the finance Department of SWT for processing”, without further evidence.

153.Clearly, Xing has to give a full and detailed account, by reference to SWT’s and WW’s finance records and ledgers, as to how the sum received from ICS had been dealt with, and in default of such full account, the amount should be repaid to WW.

SWT’s alternative claims

154.Since I have found that WW has its own business, clients and goodwill, the alternative claims made by SWT do not have to be dealt with.

Orders made

155.I have found in favor of WW on its claims of breach of fiduciary duties and duties of confidence, dishonest assistance, passing off and for accounts.  Since Xing and Ying ceased to be directors and employees of WW, WW is no longer entitled to any injunction to restrain their use of any confidential information.  Accordingly, I will only grant orders in terms of paragraphs (2), (7), (7A), (10A), (10B), (13), (15), (17), (18) and (20) of the prayer for relief in the Re-amended Statement of Claim.  I further order an account to be taken of the sums received by Xing and Ying (as particularized in Annexure B to the Re-amended Statement of Claim), pursuant to paragraphs 52A and 57A of the Re-amended Statement of Claim.

156.I will make a costs order nisi that the plaintiffs’ costs of the action are to be paid by the defendants, with certificate for 2 counsel, to be taxed if not agreed. 

Ms Sara Tong (appearing on 3-7 & 10-14 November 2014), Mr Andy Hung (appearing on 2 & 3 June, 24-28 & 31 August, 1-2 & 8 September, and 3 & 4 November 2015) and Mr Poon Siu Bunn (appearing on 3-7 & 10-14 November 2014, 24-28 & 31 August, 1-2 & 8 September, and 3 & 4 November 2015), instructed by Benny Kong & Tsai, for the 1^st & 2^nd plaintiffs

The 1^st defendant appeared in person

Mr Tim Yu, instructed by Johnny KK Leung & Co, for the 2^nd & 3^rd defendants