Greater China Appraisal Ltd v. Tsang Kang Po and Others

HCA 1849/2018

[2018] HKCFI 2552

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1849 OF 2018

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Before: Deputy High Court Judge Sherrington in Chambers

Date of Hearing: 16 October 2018

Date of Judgment: 29 November 2018

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JUDGMENT

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THE PRESENT APPLICATION

1.This is an application by the plaintiff (“GCA”) against the defendants for an interlocutory injunction restraining breach of confidence and for a ‘springboard’ injunction together with ancillary relief.

2.The writ was issued on 8 August 2018.

3.On 9 August 2018 the present summons was issued and was heard on 24 August 2018 before Hon G Lam J who gave directions for the filing of evidence.

THE FACTUAL BACKGROUND

4.The general factual situation is perhaps all too common.  Three employees of a company decide to leave and prior to doing so, but after having given notice, establish a new corporate entity so that they can compete with their employer when they have left.

5.Competition is of course healthy and to be encouraged but notif it is unfair, and here it is alleged that the former employees have breached their contract with, or failed in terms of the fiduciary duties they owed to, their employer.

6.Specifically it is alleged that the employees, who are D1 – D3, sought to divert a maturing business opportunity with a client to their new company which they had established after having given notice, using D4 and D5 as nominees for this purpose, and took away confidential documents which were tantamount to trade secrets which it is alleged were used by them and thus gave them a springboard to start their new business.

7.The plaintiff is a company incorporated in Hong Kong providing services in, inter alia, business and assets valuation.

8.D1 – 3 were previously employees of the plaintiff in its business valuation and transaction advisory team.  Their respective positions and terms of employment are as follows:

Defendant	Last position held	Commencement of employment	Notice of termination	Last day of employment
D1	Director (Business advisory)	22 September 2014	31 January 2018	20 April 2018
D2	Senior Manager	7 October 2013	7 February 2018	7 May 2018
D3	Senior Manager	25 March 2015	8 February 2018	7 May 2018

9.The terms of their employment agreements contain an expressprohibition against the use of confidential information (namely material andinformation regarding the plaintiff’s clients, consultants, and other persons and business entities regarding their business and personal activities).

10.D4 is the wife of D1.

11.D5 has been the wife of D2 since 25 February 2018.

THE PARTIES’ POSITIONS ON THE FACTS

12.It is D1-D3’s case that save for incorporating and obtaining the business registration of D6 through D4 and D5 so that they would be able to commence work as soon as possible, they deny that they performed any preparatory work for setting up their new business prior to leaving the plaintiff’s employment.  D6, it is said, remained dormant and only commenced business in May 2018.

13.Since D6 was incorporated at a time close to the departure of the first three defendants, the nominee arrangement involving D4 and D5 was, according to the defendants, simply to avoid any embarrassment, hostility, misunderstanding or prejudicial impression so far as the plaintiff and its employees were concerned; indeed it is said that such arrangement was made in good faith to protect the morale of the plaintiff’s employees.

14.After commencing business in May 2018, D6 never actively contacted or solicited business from any former clients of the plaintiff but rather in those cases where it did act for former clients it was on the basis that those clients had approached D6.

15.It is also the defendant’s case that notwithstanding D6 was competing with the plaintiff as valuation was part of its services, the scope of business of D6 was broader encompassing consulting, research in IT, business and marketing related matters. In particular, the nature of the services provided to Hung Hing in May 2018 shifted from business valuation to other services in these areas.

16.It is the plaintiff’s case that at all material times the duties of D1-D3 were to provide business and intangible assets valuation service to the plaintiff’s clients (mostly listed companies) for their proposed initial public offering transactions, mergers and acquisitions transactions, as well as for purpose of financial reporting; and by virtue of their duties and senior ranks in the plaintiff, D1 – D3 had access to various confidential information of both the plaintiff and its clients.

17.The specific examples of conduct which the plaintiff says justify the relief sought relate to:

(1)   the Hung Hing project;

(2)   the emailing to D1’s personal email account on 10 April 2018 of a summary of the billing and settlement records of the plaintiff in the year 2017/2018 (“the Billing Records”); and

(3)   the emailing to the D2’s personal email account on 7 May 2018 of the CGA Professional Services Company manual (“the Company Manual”)

I will deal with each one of these in turn.

The Hung Hing Project

18.It is the plaintiff’s case that as early as March 2018 D1 and D2 had been actively involved in the Hung Hing Project.  On 1 March 2018 D1 emailed Hung Hing for permission to allow him and D2 to access Hung Hing’s online data room, which was subsequently granted.  Notwithstanding frequent email communication between the D1 and Hung Hing regarding the Hung Hing Project Hung Hing never engaged the plaintiff for its services.  The plaintiff’s allege that the D1 and D2 intentionally decided not to include the Hung Hing Project in the handoverlist prepared for the plaintiff, and D2 intentionally decided not to disclose the Hung Hing Project in at least two handover meetings before he left.

19.Subsequently on 31 May 2018 D6 was engaged by Hung Hingfor its services and this was only discovered by the plaintiff on 6 June 2018.

20.I also note that it is further alleged that the plaintiff discovered that D1 – D3 had solicited other clients of the plaintiff and diverted them to engage the services of D6 including but not limited to: China Finance Investment Holdings Ltd, Eagle Legend Asia Ltd and Green Leader Group Holdings Ltd.  No evidence is given of this solicitation however.

21.It is the defendants’ case that Mr Shek Kwok Man (“Man Shek”) who was the CFO and company secretary of Hung Hing was known to D1and D1 had introduced him to the plaintiff in 2017 in connection with certain projects which had been completed.  At all material times, Man Shek was the contact person of Hung Hing while D1 acted on the plaintiff’s behalf.

22.Hung Hing was planning to acquire a target company in the PRC which runs an IT-related photo printing business known as the “Project”. Man Shek approached D1 in February 2018 for the purposes of obtaining a quotation for valuation of the Project.

23.In response, due to the specialized nature of the Project, D1 (with the assistance of D2) prepared a list of documents to be requested from Hung Hing to facilitate a better understanding of the Project for quotation purposes.  D1 replied to Man Shek by e-mail enclosing the said list of documents.

24.On 6 March 2018, Hung Hing granted access to D1 and D2 to an online “Dataroom” (with username/password) for their access to any files to be uploaded by the target company.  However, the “Dataroom” was empty and did not contain the documents requested by Dl at that time and so no quotation could be provided.

25.In mid-March 2018, Man Shek told D1 that the acquisition project had been put on hold and that Hung Hing might not go ahead with the deal.  Accordingly the quotation exercise came to a standstill.

26.It was only when Man Shek e-mailed D1 on 17 April 2018 that D1 appreciated that Hung Hing intended to “reinitiate the DD process Valuation”.  However at the time D1 was on vacation.

27.Man Shek did not give any further information about the Project and did not say whether the documents previously sought for quotation purposes had been uploaded into the “Dataroom”.

28.D1 was very busy dealing with outstanding work and handover matters before his last day on 30 April 2018 and so he says there was no time to follow up about the Project during his two remaining working days in the office on 23 and 24 Apri12018.

29.Thus until 30 April 2018 (the last day of D1’s employment with the plaintiff), the intended valuation project with Hung Hing never moved forward.

30.During his employment, D1 had always dealt with Hung Hing in the capacity of the plaintiff’s representative. The e-mail contacts forwarded by D1 to Hung Hing for the grant of access to the “Dataroom” and all e-mail exchanged between Man Shek and Dl were communicated through D1’s company e-mail.  The 10 April 2018 e-mail was no exception.

31.The reason why D1's personal email address became availableto Man Shek was because the plaintiff’s office e-mail address had suffered a breakdown the previous March/April 2017.  At that time, D1 had to communicate with Man Shek by his personal email address as a matter of urgency.

32.Since D1 was on leave on 17 April 2018 (a fact which was known to Man Shek), it was not surprising, says D1, that Man Shek was worried that D1 might not receive the e-mail at his office email account and thus added the personal e-mail address. 

33.As to the plaintiff’s allegation that the defendants failed todeal with Hung Hing at handover, the defendants’ case is that March/April 2018 was a peak season for business and the handover tasks were done by a “handover list” to which all the members of the team had contributed as a collective effort.

34.During the handover process, D1’s successor (one Mr Victor Chu) had various discussions with all members of the Team about the list which contained no less than 50 ongoing major projects.  The entire process went smoothly.  There was never any complaint from the plaintiff about the sufficiency or progress of the matters listed.

35.D1’s case  is that, having explained that the Project with Hung Hing did not proceed beyond quotation stage, and was put on hold until Man Shek gave intention to process on 17 April 2018 and that Hung Hing did not provide any further documents, there was no instruction from Hung Hing as to how the Project was to be ‘reinitiated’. Accordingly nothing could be ‘handed over’ to D1’s successor; Hung Hing simply did not fall within the scope of an ongoing project to be included into the “handover list”.

The Billing Records

36.It is the plaintiff’s case that D1 obtained from a staff member of the plaintiff a summary of the billing and settlement records of the plaintiff in the year 2017 – 2018, which contained confidential informationsuch as client details and the fees charged by the plaintiff in connection withthe services rendered to them, and then forwarded the same to his personal email account.

37.It is the defendants’ case that D1 had a past history of disputes with the plaintiff about the delayed settlement of bonuses/commission payments to himself and the Team and these were based upon the cash inflows measured by bill settlements from customers of the Team.

38.Before his departure, D1 contemplated that there would likelybe further disputes with the plaintiff about remuneration and that he would no longer be able to access his email account after leaving the plaintiff's employment.  Accordingly it is this case that his action was taken to preserve crucial evidence for the protection of his and his fellow defendants’ interests. Thus, D1 forwardeda copy of the Billing Record to his personal email address on 10 April 2018 (shortly before he began his annual leave/vacation which commenced on 12 April 2018).

39.Subsequently it is alleged the plaintiff did refuse to pay any bonus/commission to D1 and his team.  This led to D1’s complaint at the Labour Department and D1’s claim in the Labour Tribunal (LBTC 2751/2018). The Billing Records were adduced as an integral part of D1’s case/evidence in those proceedings.

40.The defendants’ case is that the plaintiff has still not made any payment at all of the outstanding bonuses/commissions due to them for 2017 – 2018. It was, it is said, in retaliation for the threatened Labour Tribunal proceedings that the plaintiff commenced the present action and the writ and summons were actually served on D1 personally at a reconciliation meeting held at the offices of the Labour Department on 9 August 2018.  It was after this on 11 September 2018 that D1 commenced proceedings at the Labour Tribunal against the plaintiff for payment of unpaid commissions/bonuses for the Team. 

The Company Manual

41.It is the plaintiff’s case that on 7 May 2018 D2 emailed a copy of the Company Manual to his personal email account.

42.D2’s case is that a soft copy of an updated version of the Company Manual was only sent to him on 18 April 2018 (it had never previously been updated since D2 began his employment with the plaintiff in 2013).

43.On the last day of D2’s employment with the plaintiff (7 May 2018), D2 took the view that the Company Manual (as updated) may contain matters affecting his interests after leaving employment with the plaintiff.  He wished to keep a copy since he would not enjoy access to his e-mail account in the future and on that basis, D2 sent a copy of the Company Manual to his personal email.

44.It is then said on behalf of the defendants that D1’s cause of action in the Labour Tribunal was partly based on what is set out in the Company Manual.

THE PLAINTIFF’S SUBMISSIONS ON THE APPLICABLE LAW

45.Mr Kwan’s submissions were founded on the defendants’ contractual obligations as well as their fiduciary obligations.  He referred the Court to the specific terms of D1-D3’s contracts with the plaintiffwhich were all substantially in the same terms.  He also referred the Court specifically to the terms of the non-competition clause, which included a restrictive covenant, at clause 7.2 of the contract and its related confidentiality provisions at clause 7.3.  He submitted however that the plaintiff was not trying to enforce paragraph 7 in these proceedings but rather a separate confidentiality agreement itself which was referred to in, and attached to, the respective contracts of the first three defendants and which is wider.  Its material terms are as follows:

“ I understand that in connection with my employment by GreaterChina Appraisal Limited (‘GCA’) I will have access to variousmaterials and information regarding its clients, consultants, and other persons and business entities regarding their business and personal activities (hereinafter referred to as ‘Confidential Information’). I recognize that Confidential Information may involve sensitive business, is often disclosed to GCA with the expectation that it be kept in confidence by GCA, and that the improper disclosure or use of Confidential Information by me could cause irreparable harm to GCA, its clients and other persons.

Therefore, in consideration of my retention by GCA, I agree and maintain the confidentiality of all Confidential Information. Furthermore, I expressly agree that (1) I will not at any time, either during or after my employment by GCA, without GCA’sprior written consent, use any Confidential Information for my own benefit, or (2) disclose any Confidential Information to anyone other than employees of GCA, except when directed to do so by the manager for whom I am working for legitimate business purposes of GCA in representing its clients. I will fully comply with this obligation of whether such Confidential Information has been identified or marked as confidential or proprietary. However, these restrictions shall not apply to anymaterials or information that have, other than through an act or omission on my part, become generally available to the public.

I expressly agree and understand that the agreements and obligations contained herein shall survive any termination of my employment with GCA for any reason whatsoever and shall be binding on me and my heirs, successors and assigns. This Agreement shall be governed by Hong Kong laws irrespective of whether any or all of the activities with which this Agreement is concerned occur in a location other than Hong Kong.

Because of the unique nature of the Confidential Information,and because of the inadequacy of monetary awards for breaches of my agreements and obligations set forth in this Agreement,I further agree that if I fail to comply with any such agreement or obligation, or in the event of a breach or threatened breach of any agreement or obligation herein, in addition to any other remedies available to GCA at law or in equity, GCA will be entitled to injunctive relief to enforce the provisions of this Agreement and will be entitled to recover its reasonable attorney’s fees and expenses incurred with such proceedings.

I also specifically recognize and agree that this Agreement shall not be construed as creating or evidencing any separate or independent obligation of GCA to hire or to retain me as its consultant or employee or otherwise for any specified period of time or to assign to me any particular duties or responsibilities. This agreement contains the full and complete understanding of the parties with respect to the subject matter hereof and supersedes all prior representations and understandings, whether oral or written.”

46.Clause 7.2 is pertinent and clause 7.3 is submitted to be specifically relevant in relation to the order sought for the delivery up of the confidential documents taken by the defendants, namely the Billing Records and the Company Manual.

47.Clauses 7.2 and 7.3 read:

“ 7.2 You acknowledge the value of the business contacts which you and GCA have and will develop in connection with the projects during the course of your employment. You further acknowledge that the identification of such contacts and associations constitutes trade secrets and intangible property rights belonging to GCA, its parents, subsidiaries and other affiliates, as applicable. You therefore agree to restrain from converting any of such information and rights to your own use during the term of this Agreement and for a period of one (1) year following the termination of this agreement for any reason.

7.3 You acknowledge that all of the business letters, proposals, contracts, appraisal reports, working papers and any other documents which you can access, retain or issue during the course of your employment are strictly the property of GCA,its parent, subsidiaries and other affiliates, as applicable.  You therefore agree not to allow unrelated third parties to access or retain either the original or a copy of or take away any of such documents upon termination of this Agreement.”

48.Mr Kwan’s submission is that the Billing Records in effect constitute a client list which includes the fees charged to those clients in the previous year and that it is the collocation of these names in one place that makes it tantamount to a trade secret.

49.In relation to the Company Manual the plaintiff has only exhibited the contents pages and Mr Kwan’s submission was that it would be “priceless” in the hand of a competitor because to create such a manual from scratch would take a considerable amount of time.  He referred the Court in particular to the sections in the contents pages headed “Technical Manual” and “Finance and Accounting” which he said made clear the extreme confidentiality of the information contained therein although it was difficult to ascertain merely from the contents pages the precise ambit of the information.  He sought to justify not producing the Company Manual itself because of the confidential nature of its contents.

50.Mr Kwan’s starting point based on the decision of Cross J in Printers & Finishers Ltd v Holloway [1965] 1 WLR 1 is that:

“ The mere fact that the confidential information is not embodied in a document but is carried away by the employee in his head is not of course, of itself a reason against the granting of an injunction to prevent its use or disclosure by him. If the information in question can fairly be regarded as a separate partof the employee’s stock of knowledge which a man of ordinary honesty and intelligence would recognise to be the property of his old employer, and not his own to do as he likes with, then the Court, if it thinks that there is a danger of the information being used or disclosed by the ex-employee to the detriment of the old employer, will do what it can to prevent that result by granting an injunction. Thus an ex-employee will be restrainedfrom using or disclosing a chemical formula or a list of customers which he has committed to memory.”

51.He submitted that in an industrial trade setting the kind of information, the misuse of which by ex-employees is likely to be restrained under the principles referred to by Cross J, is information judged in the light of the usage and practices of the industry or trade concerned:

(1)   the release of which the owner believes would be injurious to him or of advantage to his rivals or others; and

(2)   which the owner reasonably believes to be confidential

(per Sir Robert Megarry VC in Thomas Marshall (Exports) Ltd v Guinle [1979] Ch 227).

52.Sir Robert Megarry VC added:

“ It may be that information which does not satisfy all these requirements may be entitled to protection as confidential information or trade secrets: but I think that any information which does satisfy them must be of a type which is entitled to protection.”

53.Mr Kwan directed the Court’s attention to the statement in Faccenda Chicken Ltd v Fowler [1987] Ch 117, 135 – 136 that the duty of good faith, whether expressed or implied, will be broken if “an employee makes or copies a list of the customers of the employer for use after his employment ends or deliberately memorises such a list”.

54.In relation to the Billing Records specifically, Mr Kwan’s submission was that the law jealously guards against the taking away of customer lists and price lists by employees for purposes other than those of their employment.  He referred the Court to Robb v Green [1895] 2 QB 1, a very old case in which a manager had secretly copied from his employer’s order book a list of the names and addresses of the customers with the intention of using it for the purposes of soliciting orders from them after he had left the service and set up a similar business on his own account.  Hawkins J granted an injunction restraining such use and his decision was confirmed on appeal.  At trial, it was contended for the manager (as the defendants contented here) that the customer list was not confidential because the information therein could be obtained from the public domain.  Hawkins J dealt with that argument as follows:

“ The order-book contains collected together the names and addresses of purchasers of pheasants’ eggs spread over the length and breadth of England, Wales, and Scotland. No directory would give this information in this collocation; ... The names of all the customers are collected together in the order-book in a manner not to be found in any other book or paper to which the defendant had access. To him, therefore, the possession of a copy of the order-book would be peculiarly valuable. He would be saved the expense and delay of searches, such as would be necessary to enable him to compile such a list for himself. Practically, to bring all those names together, even though singly each may appear in some directory or other, would be almost impossible; and it would obviously be much more difficult to ascertain whether they would be likely customers for pheasants’ eggs. By making a copy of the order-book defendant was ableto canvass at once each of his master’s customers without trouble or expense; … The collection together of these names and addresses in his order-book was the property of the plaintiff. Itis the compilation which made the book and the list so valuable to the defendant … But I hope [this judgment] will have the effect of deterring every clerk or servant while in service from betraying his master’s confidence and knowingly taking dishonourable advantage of information which, as a servant, he obtains to advance his own interests at the expense of his employer.” (18 – 19)

55.I note here that Mr But was at pains to point out that this was a 19^thcentury case and that the world has moved on.  In support of that submission he referred me to the exhibit (TKP1) to Mr Tsang Kang Po’s affirmation which was a listing of the plaintiff’s clients resulting from a simple internet search although it was apparent on its face that this did not include all of the plaintiff’s clients as shown in the Billing Records and in any event it was Mr Kwan’s submission that it is not the identities of the plaintiff’s clients which are confidential; it is rather the materials and information regarding their business and personal activities. I accept Mr Kwan’s submission to this effect.

56.Mr Kwan referred the court to a number of other cases where ex-employees had been restrained including SBJ Stephenson Ltd v Mandy [2000] FSR 286 and Fong’s National Engineering Co Ltd v Wong Wai Yuk HCA 573/2003, 4 August 2003 and finally he referred the Court to the decision in Crowson Fabrics Ltd v Rider [2008] FSR 17, in which an ex-employee retained documents representing the combination of years of work which he alleged was like the Company Manual here, and which he said would be priceless to the employer’s competitors.  The court in that case held:

“ By retaining these documents the [employees] had saved themselves the trouble and time they would have needed to transform what they retained in their heads and what they could find by research on the internet or other sources or by contacting suppliers and customers. They had mounted a classic springboard operation using the [employer’s] documents to provide themselves with a ready made source of everything they needed for their fledgling business without themselves putting in the effort to put the material together. ([44])”

A person with “a senior role beyond that of a mere employee and was entrusted with senior tasks because he could be trusted” was a fiduciary. ([83])

57.Mr Kwan further submitted that in SSC&B: Lintas New Zealand Ltd v Murphy [1986] 2 NZLR 436, Prichard J had dealt with a situation almost identical with the present case, as least in so far as it relates to the Hung Hing Project:

“ The difficulty, as I see it, is not in relation to the employee’s knowledge of the names and addresses of the ex-employer’s customers; it is in relation to the exploitation of particular and specific information concerning transactions—and especially on-going transactions—between the former employer and his customers. By availing himself of information of this kind an ex-employee is enabled to secure business from his former employer’s customers which he would not otherwise be in a position to obtain. It is my view that, in some circumstances information in this category is not covered by the general principle that from the moment when his employment ceases,a servant is entitled to make use of knowledge and skill acquired while in his master’s service, including knowledge and skill directly obtained from the master in teaching him his business. Whether this is so must, I think, depend not only on the nature and quality of the information, but also on the way in which it is exploited in each particular case.” (456 – 457)

58.I would note in parenthesis here, so to speak, that the evidencebefore the Court, as I have said, is that D1 was the original contact of ManShek of Hung Hing, and he introduced Hung Hing to the plaintiff and then worked on their matters such that it may be considered not altogether surprising that after D1 had left the plaintiff’s employment Man Shek continued to want to speak to his prior contact.

59.Whilst Mr Kwan referred me to the well-known proposition that an employee who, whilst still in the service of his employer, solicits thecustomers of his employer to transfer their business to himself, even thoughthat transfer take effect only after the services terminated, commits a breach of his duty to his employer (Wessex Dairies Limited v Smith [1935] 2 KB 80), it seems to me that the significant omission here was any evidence that this is in fact what happened.

60.Having made these submissions in support of the application for an interlocutory injunction restraining breach of confidence Mr Kwan went on to seek to justify his application for a springboard injunction, by reference to the judgment of Roxburgh J in Terrapin Ltd v Builders’ Supply Company (Hayes) Ltd [1967] RPC 375:

“ As I understand it, the essence of this branch of the law, whatever the origin of it may be, is that a person who has obtained information in confidence is not allowed to use it as a spring- board for activities detrimental to the person who made the confidential communication, and spring-board it remains even when all the features have been published or can be ascertainedby actual inspection by any member of the public … Therefore, the possessor of the confidential information still has a long start over any member of the public. … It is, in my view, inherent in the principle upon which the Saltman case rests that the possessor of such information must be placed under a special disability in the field of completion in order to ensure that he does not get an unfair start”. (391 – 392)

61.Mr Kwan submitted that a springboard injunction is also available in circumstances where the ex-employee is in possession of confidential information, concealed the same from his former employer andmade use of the same after he had left the employment (Cranleigh Precision Engineering Ltd v Bryant [1965] 1 WLR 1293, 1319 per Roskill J).

62.Mr Kwan submitted that the information necessary to found a springboard injunction need not be totally confidential and secretive and that information with a limited degree of confidentiality can support a springboard injunction for an appropriate period.

63.In conclusion he adopted Haddon-Cave J’s summary of the applicable principles taken from the headnote of QBE Management Services (UK) Ltd v Dymoke [2012] IRLR 458:

“ An employee owes his employer a contractual duty of ‘fidelity’ — how far it extends will depend on the facts of each case. The more senior the staff the greater the degree of loyalty, fidelity and diligence required. … The mere fact that activities are described by an employee as ‘preparatory’ to competition does not mean that they are legitimate. It is a breach of the duty of fidelity for an employee to misuse confidential information belonging to his employer. The court will ask whether the activities in which the employee is engaged affect his ability toserve his employer faithfully and honestly and to the best of hisabilities. Directors and senior employees ought to disclose anyactions taken by others that will lead to competitive activity and, unless they resign immediately, any similar actions of their ownas soon as they have formed an irrevocable intention to compete. There has been a tightening of the law in this area. …

Where a person has obtained a ‘head start’ as a result of unlawful acts, the court has the power to grant an injunction which restrains the wrongdoer so as to deprive him of the fruits of hisunlawful acts (‘springboard relief’).  The relief is not confined to cases of breach of confidence.  It can be granted in relation to breaches of contractual and fiduciary duties and flows from a wider principle that the court may grant an injunction to deprive a wrongdoer of the unlawful advantage derived from hiswrongdoing.  The purpose of the relief is to prevent defendants from taking unfair advantage of the springboard which they have built up by their unlawful acts.  The relief has the aim of restoring the parties to the competitive position they each set out to occupy and would have occupied but for the defendant’smisconduct … What is fair and just in any particular circumstances will be measured by the effect of the unlawful acts upon the claimant and the extent to which the defendant has gained an illegitimate competitive advantage.”

64.Mr Kwan then sought to apply the established principles for the grant of an interlocutory injunction set out in American Cyanamid and submitted that this was a clear case where there was a serious issue to be tried arising from the confidential information which D1 and D2 admitted having taken away even if the question of whether the confidential information was used by the Defendants could only be resolved at trial.  Furthermore he submitted that the involvement of D4 and D5 and the establishment of D6 begged the question whether the extent of their knowledge rendered their involvement and assistance, and the incorporation of D6, as dishonest and again this could only be resolved at trial.

65.Turning to the question of balance of convenience it was his submission that if no injunction were granted serious and severe consequences would attend on the plaintiff in terms of loss business directed to D6 and such loss would be irreparable, probably permanent and impossible to quantify with precision.  Against that, he said, D6 is newly incorporated and trading with the unfair advantage of a head start and so it could not be said that it would suffer any real hardship if an injunction were granted.  D1 – D3 would in any event be free to compete with the plaintiff for new clients, and if the injunction were found to be wrongly granted, the defendants could be adequately compensated by the plaintiff’s undertaking in damages.

THE DEFENDANTS’ SUBMISSIONS ON THE APPLICABLE LAW

66.Mr But for the defendants submitted that there were serious objections to the way the plaintiff’s case was framed which I summarize as follows:

(1)   The scope of the confidential information sought to be protected was too broad and too vaguely expressed to be enforceable in law and the relief as originally sought did not even acknowledge the exception for information in the public domain (although Mr Kwan sought to correct this in submitting an alternative revised schedule to the summons during the course of the hearing).

(2)   In any event the only example of documents which the plaintiff had taken were not documents which were tantamountto trade secrets and there was no evidence at all of there having been disclosed to anyone or misused.  Further he submitted there is no evidence at all of them having gained any advantage by the use of the so-called confidential information and so a springboard injunction was inappropriate.

(3)   In relation to the Hung Hing project there is no evidence to justify a claim that this was the improper appropriation of a maturing business opportunity.

(4)   The defendants were entitled to take proprietary steps with a view to setting up a competing business after their employment ceased with the plaintiff and they did no more than this.  Subsequent to the termination of their employment they have worked in competition with the plaintiff but utilizing their general skill and knowledge acquired over the years.  Furthermore the evidence disclosed to the court shows that where they have acted for companies who had previously worked with the plaintiff this was the result of those companies approaching the defendants and there is no evidence of solicitation on the part of the defendants.

(5)   The defendants had legitimate grounds for believing there would be a dispute with their former employer over the bonus/ commissions to which they were due and this had transpired;indeed the fact that this application was taken out and served on the defendants at a conciliation hearing in connection with his Labour Tribunal application speaks to its motivation and demonstrates, because of the delay inherent to that point, that no damage had been suffered by the plaintiffs.

(6)   In relation to the application of the well-known American Cyanamid principles it was Mr But's submission that the mandatory nature of some of the orders sought demanded a higher standard of proof on the merits, namely that the claim was likely to succeed rather than there was nearly a serious issue to be tried.  I will deal with each of these in turn by reference to the defendants’ submissions.

67.Essentially his submission relying as he does on Faccenda Chicken, was that ex-employees were free to use such information as is trivial or available from public sources even after employment, similarly with information which is “confidential” but which once learned becomes part of their own skill and knowledge.  Thus is it only in the case of specific trade secrets that an ex-employee is bound by his duty of confidentiality to his previous employer. If an employer wants to prevent an employee from utilizing confidential information falling short of trade secrets from competing with him post-employment he can only do so by a suitably worded restrictive covenant against competition.

68.The plaintiff’s case in reply is that that is exactly the position here and Mr Kwan referred the court to the decision in SBJ Stephenson Ltd v Mandy [2000] FSR 286 where the relevant confidentiality clause read:

“ 12(A) The Executive shall not either before or after the termination of his employment hereunder disclose to any person or persons any information in relation to the affairs of the Company any other Group Company or any client thereof of which he has become or may have become possessed whilst in the service of the Company except in the proper course of his duties hereunder or as authorised by the Board or as ordered by a Court of competent jurisdiction.”

69.His submission was that this could be said to be broad, vague, uncertain and generic when compared to the confidentiality clause in the present case and yet this did not deter Bell J from granting an injunction to enforce it.  In doing so the learned judge said this:

“ As Mr Browne-Wilkinson QC pointed out, no clause could be so long or detailed that it specifically and expressly provided forevery item of information which could legitimately be protected. ‌… The ordinary sensible person reading clause 12(A) would read it as applying to information which could justify a restriction. That as Staughton L.J. said in Lansing Linde at page 260B–D meant information which its owner used in a trade or business; dissemination of which he limited or at least did not encourage or permit on a widespread basis; and which, if disclosed to a competitor, would be liable to cause real or significant harm tothe owner. The class of such information was wider than trade secrets, strictly so called, but was narrower than confidential information, generally so called. The bounds of the class can only be decided by examination of each case: see Mummery L.J. in FSS Travel, at pages 51[2]–513, where he approved what Staughton L.J. had said in Lansing Linde.

In my judgment Mr Browne-Wilkinson’s argument is sound.

Of course, the ordinary reader of clause 12(A) would not be familiar with the judgments in Lansing Linde and FSS Travel, but in my view he would be quite clear in his own mind that its purpose was to protect the sort of information which a man of ordinary honesty and intelligence would recognise to be the property of his old employer and not his own to do as he likes with”.

70.Indeed in this connection Mr Kwan also sought to rely on Sim Kon Fah v JBPB & Co [2011] 4 HKLRD 45 and Recorder Chow SC’sfinding at paragraphs 53 and 54 which explained the need for common sense in the application of general principles to a particular case and the impossibility of always being able to describe precisely the documents which are sought to be protected:

“ It would be asking the impossible to require the plaintiff to identify by dates, senders/receivers or subject matters all the documents for which the plaintiff seeks protection in the present application.”

71.In cases such as this where there is, as Mr Kwan put it, in effect an application to enforce a restrictive covenant the confidential information is to be “particularised sufficiently to enable the Court to be satisfied that the plaintiff has a legitimate interest to protect … but no more is necessary.” (Scully UK Ltd v Lee [1998] IRLR 259).

72.Aldous LJ’s dicta in Scully was cited with approval in Thomas v Farr plc [2007] IRLR 419 at paragraph 41 by Toulson LJ and His Lordship went on to say at paragraph 42:

“ Provided that the employer overcomes that hurdle, it is no argument against a restrictive covenant that it may be very difficult for either the employer or the employee to know where exactly the line may lie between information which remains confidential after the end of employment and the information which does not.”

73.Mr But’s further submission was that bare suspicion of misuse of information is no touchstone for the grant of an injunction.  The mere fact that an ex-employee knew or possessed confidential information is insufficient.  It is essential that an employer must provide a sufficient degree of direct evidence of breach or actual misuse of such information before any injunction could be granted.  Mr But referred the court to the judgment of DHCJ Wilson Chan (as he then was) in Devere Group Hong Kong Ltd v Nicholas Edward John Smith HCA 1950/2013 (2 April 2014) but again the facts of that case are so far removed from the present that I cannot accept its relevance. In Devere the issue was whether there was any basis for supposing that the defendant as opposed to any number of other potential sources were the source of the leaked confidential information.

74.Turning to the Company Manual it was Mr But’s submission that the plaintiff never demanded the return of the Company Manual and furthermore that it did not contain any confidential information tantamount to trade secrets being no more than a staff manual containing matters and guidance in relation to the daily operations of the plaintiff.  As such the knowledge derived from it was part and parcel of the defendants’ personalskill and knowledge.  Having said that he says there is no evidence produced of the Company Manual having been divulged to anyone, disseminated or misused for any purpose.

75.Mr But submits further that in circumstances where a dispute is anticipated it is entirely proper that the defendants should be able to use documents with which they had been provided as part of their employment contract in framing their claim.

76.In relation to the billing information the defendants’ case is that neither is this tantamount to a trade secret since the list of the plaintiff’sclients is easily ascertained by a web search such as that exhibited by Tsang Kang Po at TKP1 but furthermore that again there is no evidence adduced as the information having been divulged disseminated or misused by the defendants.

77.The only allegation related to the defendants having taken preparatory steps prior to their employment terminating other than the establishment of D6 is in relation to the Hung Hing Project.  Mr But referred the court to Foster Bryant Surveying Ltd v Bryant [2007] Bus LR 1565 (CA) and it was his submission that based on this case the following propositions of law can be stated:

(1)   While an employee/director has a duty of loyalty good faith and/or other fiduciary obligations towards his employer, such duty does not continue after the term of his employment

(2)   Acts done by a director while the contract of employment subsisted, but which were “preparatory to competition” after it terminated, were not necessarily in themselves a breach of the implied terms as to loyalty and fidelity.

(3)   A director shall not be prohibited from using his general fund of skill and knowledge acquired during his employment, even including things such as business contacts and personal connections made as a result of his directorship.

(4)   A resigning director shall only be precluded from obtaining any “maturing business opportunities” sought by the employer “where the resignation might fairly be said to have been prompted or influenced by a wish to acquire for himself thoseopportunities and where it was his position with the employer, rather than a fresh initiative, that led him to them.”

(5)   In considering whether a director was in breach of diverting “maturing business opportunities”, the factors to take into account were many including the individual’s position of office, the nature of the corporate opportunity, its ripeness, and the amount of knowledge possessed.

78.The undisputed evidence before the court Mr But submits is that the defendants had all given notice to terminate before the prospectiveHung Hing matter was first raised and here as in the case of the other former clients of the plaintiff who have not instructed D6, the evidence is that the initiative to move forward with D6 came from the client as opposed to any solicitation attempts by the defendants.

79.In any event Mr But says this was a one-off deal which has now been completed such that any loss which a court might subsequently find the plaintiff has suffered is readily assessable and capable of sounding in damages.

80.Finally Mr But relied on the decision in POAD Group Ltd v S Cube Media Ltd HCA 761/2014 which emphasized the importance of an application for an interlocutory injunction being made promptly.  In the present circumstances where the plaintiff admitted to a delay of nine weeksbefore proceedings were issued that, taken with the coincidence of the timingof the launch of those proceedings with D1’s commencement of his Labour Tribunal complaint, raised at the very least an inference that the plaintiff had not considered any irreparable damage to have been caused because otherwise they would have acted earlier.

THE COURT’S DECISION

81.In reaching my decision I am confronted by a welter of conflicting facts:

(1)   A delayed application for relief, which the plaintiff admits to having been some nine weeks, which carries with it an inference at the least, that no irreparable harm was suffered.

(2)   The coincidence, again at the least, of the commencement of these proceedings by the plaintiff at a time when it was clear D1 was pursuing proceedings in the Labour Tribunal for unpaid bonus and/or commissions and their service at a conciliation meeting attended by the parties.

(3)   An admission that the Billing Information and the Company Manual being confidential information, were taken by D1 and D2 respectively

(4)   A lack of evidence that the confidential information has been misused or has been divulged to anyone.

(5)   A lack of evidence to support the allegation that the defendants have solicited the plaintiff’s former clients unfairly.

(6)   A dispute over whether the plaintiff’s claim in relation to the Hung Hing Project is sustainable but that having been completed some time ago, a recognition that damages is an adequate remedy for such a breach if such is found at trial.

(7)   No evidence before the court of inappropriate behavior by D1 – D3 prior to the termination of their employment other than in setting up a company using nominees to conduct a partially competing business after their employment with the plaintiff ceased.

82.I seek to make no findings on any of the contentious issues; they are all matters for trial, but in approaching the exercise of my discretion as to whether to grant the interlocutory relief sought I need to have regard to all of the circumstances, including the evidence before the court on this application.

83.I am satisfied for the reasons advanced by Mr Kwan that the plaintiff has made out its case for the relief sought by paragraphs 1, 2, 3(a) and 3(b) of the summons.  I am satisfied that the defendants are bound by the terms of the confidentiality clause which was an integral part of their respective contracts of employment with the plaintiff as well as the other restraints imposed thereby and that whilst the confidential information sought to be protected is widely drawn the defendants would nonetheless be clear in their own minds as to the ambit of the protection they had agreed to provide their former employer.

84.I am not satisfied however on the evidence before me that theplaintiff has made out a sufficient case for the relief sought in paragraph 3(c). D6 is entitled to compete with the plaintiff provided none of D1-D3defendants breach the terms of their contracts with the plaintiff and the onlyevidence before the court is that such former clients of the plaintiff who have now instructed D6 have approach D6 themselves and not been solicited.

85.Similarly I am not persuaded that a springboard injunction is warranted in circumstances where the precise ambit of the confidential information admittedly taken and particularly the Company Manual has yetto be clarified and against the background of there being no evidence of thisinformation, whether the Billing Records or the Company Manual, having been divulged to anyone or in any way misused. In the circumstances I do not think that in the exercise of my discretion I am able to conclude that it would be proportionate in effect to stop D6’s business in its tracks for six months so far as it might legitimately be able to compete fairly with the plaintiff.

86.In reaching the conclusion I have had regard to the admitted delay of nine weeks in bringing the application and the coincidence of the timing of their launch but I accept the plaintiff’s need to have carried out some further investigations into the parties’ respective roles before it couldlaunch proceedings and in these circumstances I do not think the delay here is disproportionately long such that it should be the predominant factor in reaching my decision.

87.Accordingly I have concluded that there is a serious issue to be tried and that whilst damages might be an adequate remedy in relation to the alleged claim in relation to the Hung Hing Project, which is now complete, that is not the case in relation to any existing or future breaches of confidentiality by the defendants.  Accordingly I think that the balance of convenience favours the grant of the restraining injunction to the extent I have indicated but not the springboard injunction.

88.In all of the circumstances I make an order nisi that the costs be in the cause.

Mr Steven Kwan and Ms Charlotte O Chan, instructed by Cheung & Yip, for the plaintiff

Mr Adrian But and Mr Avery Chan, instructed by Tsang, Chan & Woo,for the 1^st to 6^th defendants