Hong Kong Exchanges and Clearing Ltd v. Shi Huaifang（石怀方） also known as “Frank Shi”
Read the full judgment text of HCA 1170/2018 on BabelCite. This High Court CFI judgment was delivered on 27 May 2019.
1. This is the Plaintiff’s application to continue an injunction granted by Hon Au-Yeung J on 18 May 2018 (and amended on 25 May 2018) (“ Injunction ”), which restrains the Defendant from using, disclosing or misusing specified confidential information of the Plaintiff, and from publishing a statement attached to an email from the Defendant to the Plaintiff on 9 May 2018, containing confidential information of the Plaintiff. The Defendant opposes the application, seeks to discharge the Injuncti
Cited by 1 case · Cites 5 cases
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HCA 1170/2018 [2019] HKCFI 1212 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1170 OF 2018 ____________
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__________________ D E C I S I O N __________________ Background 1.This is the Plaintiff’s application to continue an injunction granted by Hon Au-Yeung J on 18 May 2018 (and amended on 25 May 2018) (“Injunction”), which restrains the Defendant from using, disclosing or misusing specified confidential information of the Plaintiff, and from publishing a statement attached to an email from the Defendant to the Plaintiff on 9 May 2018, containing confidential information of the Plaintiff. The Defendant opposes the application, seeks to discharge the Injunction, and asserts that the Court has no jurisdiction over the matter such that the action should be discontinued. 2.The Plaintiff, Hong Kong Exchanges and Clearing Limited, is a company incorporated in Hong Kong and authorized as a recognized exchange controller under the Securities and Futures Ordinance. It provides facilities for trading and clearing securities and derivatives in equities and commodities, is one of the largest financial market operators in the world, and is listed on the Stock Exchange in Hong Kong. 3.Since 2016, the Plaintiff has been engaged in a project to develop a reliable commodities exchange in the Qianhai-Hong Kong Modern Services Industry Cooperation Zone (“Project”). As part of the preparations for stage 1 approval of the Project, a wholly owned subsidiary of the Plaintiff was established in Shenzhen in April 2016, by the name of Gangrong Trading Services (Shenzhen) Limited (“GTS”). GTS was intended to be the operator of the commodities trading platform to be established by the Plaintiff in Shenzhen. A year later, GTS was renamed Qianhai Mercantile Exchange Co Ltd (“QME”), when it was converted into a joint venture company owned as to 90.01% by the Plaintiff, and the remaining 9.99% by Qianhai Financial Holdings Co Ltd, a subsidiary of a state enterprise on the Mainland. 4.Regulatory requirements relating to the commodities markets on the Mainland constituted a key factor in the development of the Project, making it necessary for the Plaintiff to structure the Project in accordance with the prevailing regulatory and legal requirements on the Mainland. In early 2016, the Plaintiff recruited several senior-level management personnel, to develop the strategy, structure and overall direction of the Project and to oversee the practical implementation of the Project. 5.Between March and August 2016, the Plaintiff began recruiting the second batch of senior staff to work on the Project. As a Hong Kong incorporated company and foreign employer, the Plaintiff was required under section 11 of the PRC Interim Provisions Concerning the Administration of Resident Offices of Foreign Enterprises (“Interim Provisions”) to hire its PRC national staff through a labour dispatch arrangement between its Beijing Representative Office and a qualified labour dispatching company on the Mainland. The labour dispatching company acts as an agency which would enter into a contract with an employee, who would then be dispatched to the employer or host company. The employee so dispatched would undertake his work for and would be supervised by the host company, but he is employed by the dispatch agency which remains responsible for the administrative management of the employee in accordance with PRC laws and regulations, including the payment of workers’ salaries and social insurance. 6.Beijing Foreign Enterprise Human Resources Services Company Limited (“FESCO”) is a qualified labour dispatching company, which provides professional service of human resources to foreign institutions and representative offices of foreign companies on the Mainland, in accordance with PRC laws and regulations. 7.The Defendant, Mr Shi Huaifang, is a PRC resident and PRC qualified lawyer. He was appointed as Senior Vice President of the Plaintiff, in the position of “Senior Vice President, Legal (Grade B)”, as is evidenced by a letter of agreement dated 15 April 2016 issued by the Plaintiff under its letterhead, and countersigned by the Defendant on 19 April 2016 (“Letter of Agreement”). On the Plaintiff’s case, the Defendant was employed by FESCO and dispatched by FESCO to work as senior in-house legal counsel for the Plaintiff through its Beijing Representative Office. 8.The Letter of Agreement refers to consultation with FESCO regarding dispatch of staff to the Beijing Representative Office of the Plaintiff, and confirms the Defendant’s appointment in accordance with the terms and conditions set out in the Letter of Agreement. These terms provide that the Defendant’s service was for a fixed term of 2 years from 25 April 2016 to 24 April 2018. It states the Defendant’s position as “Senior Vice President, Legal (Grade B)”. Clause 4 of the Letter of Agreement sets out the Defendant’s duties, as follows:
9.Clause 5 of the Letter of Agreement refers to the Defendant’s monthly salary being paid to him through FESCO, and clause 7 refers to the Plaintiff bearing the cost of the statutory benefits including the mandatory housing allowance and social insurance provided to the Defendant by FESCO. 10.Clause 8 of the Letter of Agreement provides for the Plaintiff’s right to terminate the Defendant’s service on specified grounds. Clause 9 refers to the Defendant’s duty to comply with the general rules and regulations of the Plaintiff and its Code of Conduct, which covers (inter alia) restrictions in respect of securities and derivatives transactions, conflict of interests and confidentiality of information. 11.The Letter of Agreement concludes with the following sentence:
12.The Defendant signed, to signify his agreement and acceptance of “the terms and conditions as set out in this agreement of service”. 13.The Plaintiff claims that prior to the signing of the Letter of Agreement, on 31 March 2016, a non-disclosure agreement in Chinese (“NDA”) had also been signed by the Plaintiff and the Defendant, pursuant to which the Defendant agreed to accept and abide by confidentiality obligations in relation to the Project. The NDA was issued under the Plaintiff’s letterhead, and signed by the Defendant on 31 March 2016 to confirm his acceptance of the conditions set out in the letter. The NDA states:
14.In gist, the Plaintiff claims that the Defendant was at all material times employed by FESCO, pursuant to the labour dispatch arrangement between FESCO and the Plaintiff, and that the Defendant was dispatched to work for the Plaintiff through its Representative Office in Beijing, as senior in-house legal counsel. Although not a direct employee of the Plaintiff, the Plaintiff maintains that the Defendant was at all material times contractually bound (under clause 9 of the Letter of Agreement) to comply with the rules and regulations set out in the Plaintiff’s Code of Conduct, which regulations include the duty to safeguard any confidential or sensitive information to which the Defendant was given access. 15.Independent of his contractual duties under the Letter of Agreement, the Plaintiff also claims that the Defendant was bound under the NDA to abide by duties of confidentiality in relation to the Project. The Plaintiff’s complaint 16.The Plaintiff’s case is that the Defendant commenced his employment on 25 April 2016, and was dispatched by FESCO to the Plaintiff’s Beijing Representative Office, all in accordance with the terms and conditions set out in the Letter of Agreement. During the course of his employment, the Defendant assisted and provided legal advice to the Plaintiff on compliance with PRC rules and regulations in respect of the Project, the structuring of the Project, and on registration and licensing applications. He worked closely with the Plaintiff’s senior management and legal services staff intimately involved in the Project, and by reason of his position, the Defendant was given access to commercially sensitive confidential information of the Plaintiff and relating to the Project (“Confidential Information”). These include (as pleaded in paragraph 22 of the Amended Statement of Claim): budgets and accounts for the Project, the proposed business plan and scope of the Project, the timeline and strategy for stages of the development of the Project, the development and progress made as well as issues and problems facing the Project, discussions at senior management meetings between senior management of the Plaintiff and various Mainland regulatory authorities, information and documents provided by the Plaintiff to the Defendant for the Defendant’s advisory work in relation to the development of the Project, instructions to and legal advice provided by the Defendant to the Plaintiff in relation to the Project, and correspondence between the Defendant, senior management of the Plaintiff, members of the Plaintiff’s management team, and relevant Mainland authorities and third parties in relation to the Project. Such Confidential Information had not been published or disclosed in the public domain, belongs to the Plaintiff and is of significant value to the Plaintiff, disclosure of which would potentially cause irreparable damage to the Plaintiff and its business. 17.The Plaintiff claims that after signing the Letter of Agreement, and having commenced his service on 25 April 2016, the Defendant refused to sign a written employment agreement with FESCO, and in around May 2016, the Defendant sought to renegotiate his terms of employment, demanding to change his title to a more senior one of “Managing Director (Grade A)”, and to increase his monthly salary. The Plaintiff did not agree to these changes, and suspended the Defendant’s service and his work on the Project in September 2016. When negotiations failed to resolve the differences, FESCO served notice of termination of the Defendant’s employment on 20 March 2017, at the Plaintiff’s request. The Defendant’s employment was terminated with effect from 23 March 2017. 18.The Defendant filed employment claims in the Shenzhen Labour Arbitration Commission, in May 2017 and September 2017, claiming that he had an employment relationship with QME, and not with FESCO, and seeking payment from QME of a total sum of approximately RMB 9 million. His claim for social insurance and housing fund contributions of RMB 5.6 million was dismissed by the Shenzhen Labour Tribunal in August 2017. On 12 September 2017, the Defendant filed an appeal to the Mainland Court in Qianhai, which appeal was dismissed on 1 September 2018. The Court found that there was insufficient evidence to establish any employment relationship between the Defendant and QME, and that the Project was not a project of QME but of the Plaintiff. 19.The Defendant commenced a third employment claim against QME, on 7 September 2018, for double salary payment and social insurance contributions. This and the residual of his first and second employment claims have been stayed pending the Defendant’s further appeal against the Qianhai Court’s dismissal of the Defendant’s claim on 1 September 2018. 20.In these Hong Kong proceedings, the Plaintiff claims that since February 2017, the Defendant had been making extortionate demands and threats against the Plaintiff, to secure a settlement sum higher than that to which the Defendant would otherwise be entitled upon termination of his employment with FESCO. The Plaintiff claims that by emails dated 25 September 2017 and 9 October 2017, the Defendant accused QME of dishonest conduct in the employment proceedings on the Mainland, further accused the Plaintiff of dishonest acts, and threatened to disclose unparticularised dishonest acts of the Plaintiff to the directors of the Plaintiff, the Securities and Futures Commission, the Financial Secretary of Hong Kong, members of the Legislative Council of Hong Kong, and to the media. The Defendant also threatened in his emails between 12 October 2017 and 21 December 2017 to disclose the Plaintiff’s Confidential Information to the public in Hong Kong. 21.In particular, the Plaintiff’s complaint is that on 9 May 2018, the Defendant threatened, in his email to the general counsel of the Plaintiff (“9/5 Email”), to disclose to the Hong Kong media the Plaintiff’s Confidential Information relating to the Project. 22.The 9/5 Email attached a draft press statement (“Statement”), or “draft case brief” as the Defendant described it. By the 9/5 Email, the Defendant asked for a meeting, for him to persuade the Plaintiff “to act honestly and fairly in the court proceedings”, and threatened that if QME should disavow its responsibilities in the Mainland proceedings, he would, in response to the Plaintiff’s “continuing lying and unfair behavior”, make public “the truth relating to the Project” and QME. The threat made in the 9/5 Email was that the Defendant would release the Confidential Information of the Plaintiff in batches, the Defendant stating:
23.By attaching the Statement, the Defendant purported to seek the Plaintiff’s confirmation as to whether any part of the Statement was incorrect. However, there was also intimation in the 9/5 Email of the Defendant’s intention to publish the Statement. The Plaintiff’s complaint is that not only were the contents of the Statement incorrect and the claims against the Plaintiff and QME of impropriety untrue, the Statement contained the Plaintiff’s confidential information relating to the Project which the Defendant was bound to keep confidential, such that publication of the Statement would constitute a breach of the express terms of the Letter of Agreement and the NDA, and also a tort which the Plaintiff is entitled to restrain. On that basis, the Plaintiff applied for and obtained the Injunction. The Defendant’s opposition 24.The Defendant’s opposition to the Injunction is that he was under employment by QME, and that QME, and not the Plaintiff, is the proprietor of any information relating to the Project. He denies that he has any contractual obligation to the Plaintiff, whether under the Letter of Agreement, or the Code of Conduct, or at all. 25.The Defendant denies that FESCO was his employer, claiming that he had not signed any labour contract with FESCO and as such, he did not owe any obligation towards FESCO. Although the Defendant claims to be an employee of QME, he denies any duty of confidentiality, fidelity, or good faith to QME, since he never signed any contract with QME. 26.According to the Defendant, under PRC law, he has no duty of confidentiality, fidelity or good faith towards any of the Plaintiff, its Beijing Representative Office, FESCO or QME. 27.He further claims that under PRC law, commercial secrets (商業秘密) are defined as technical or operational information, not known to the public, which brings economic benefit to the proprietor, has practical use and in respect of which the owner has adopted confidentiality measures. According to the Defendant, not all of the Confidential Information relied upon by the Plaintiff can satisfy these requirements, and some are in the public domain. 28.The Defendant also claims that the Plaintiff was in breach of the Letter of Agreement in failing to assign him to work at the Beijing Representative Office, and further, in failing to arrange for the Defendant to sign an employment contract directly with QME, such that the Defendant is discharged from any obligations under the Letter of Agreement by reason of such breach. 29.The Defendant alleges that the Hong Kong Court has no jurisdiction over the Plaintiff’s claims of breach of confidence, no jurisdiction over the question whether the Plaintiff is the owner of the Confidential Information as it alleges, and that the Plaintiff should await the Mainland courts’ decision in favor of the Plaintiff, before proceeding with the present proceedings. 30.By a separate summons issued on 1 August 2018, the Defendant seeks specific discovery of various documents against the Plaintiff, and to strike out various paragraphs in the Plaintiff’s affirmations filed in support of the application for and continuation of the Injunction. Whether the Injunction should be continued 31.As Counsel for the Plaintiff highlighted, the Plaintiff’s claims against the Defendant for breach of confidence is independent of and separate to any claim based on an employment relationship between the Plaintiff and the Defendant. The Plaintiff relies on a claim in tort and equity, as well as on the Defendant’s contractual covenant contained in or evidenced by the NDA and/or the Letter of Agreement. 32.Express contractual terms may impose a duty of confidentiality even if none would otherwise exist, and a contractual promise not to publish information, even if not inherently confidential, is a form of negative covenant which the Court will enforce (Toulson & Phillips: Confidentiality 3rd edition, para 3-002 to 3-007; Attorney General v Barker [1990] 3 All ER 257). 33.The NDA signed by the Defendant referred to confidential discussions between the Plaintiff and the Defendant in connection with the Project, and the Defendant’s “potential appointment” by the Plaintiff to a position relating to the Project. It was in consideration of the Defendant’s agreement and undertaking in terms of the NDA that information described as “Confidential Information” was disclosed by the Plaintiff to the Defendant. The said confidential information was defined in the NDA to mean and include: all information supplied by, or on behalf of, the Plaintiff, or its affiliates, directors, officers or employees, to the Defendant in connection with the Plaintiff; the fact of the Plaintiff’s interest in the Project; and the existence of the Project. The Defendant agreed, under clause 2 of the NDA, to hold the said confidential information in strict confidence, to use it to advise and assist the Plaintiff only for the purpose of furthering and implementing the Project, and not to disclose the same. 34.The Defendant expressly acknowledged in clause 9 of the NDA that the confidential information described in clause 2 is and remains the property of the Plaintiff. 35.It was in the course of the Defendant’s employment pursuant to the Letter of Agreement, and in the course of his working for the Plaintiff, that the Defendant was supplied with information relating to and concerning the Project, its development, and implementation. Unless such information was in the public domain, any disclosure by the Defendant would be a breach of the covenants set out in clause 2 of the NDA. 36.The Defendant claims that the NDA and any covenants contained therein were only applicable during the time of his being interviewed for his appointment by the Plaintiff, and had lapsed upon his signing of the Letter of Agreement with the Plaintiff on 19 April 2016. 37.The Plaintiff relies on clause 2 (ii) and clause 12 of the NDA, to say that the NDA was intended to continue in effect and that there is no expiration provision. Under clause 2 (ii), the Defendant agreed to use the confidential information defined in the NDA “to advise and assist (the Plaintiff) only for the purpose of furthering and implementing the Project”. It was clearly envisaged that the confidential information supplied and to be supplied under the NDA extended to its use after the time of signing of the NDA and the employment of the Defendant, and that the NDA would govern the Defendant’s manner of use of the confidential information. Clause 12 of the NDA also expressly states that the NDA “will remain effective whether or not the Project is implemented and whether or not any discussions between (the Plaintiff) or any of its Connected Persons and (the Defendant) have ceased or terminated.” I agree with the Plaintiff, that this contradicts the Defendant’s assertion that the NDA ceased to have effect after the Defendant’s acceptance of the Letter of Agreement on 19 April 2016. 38.At this stage, all that the Plaintiff is required to establish is that there is a serious question to be tried as to its claims against the Defendant for breach of confidence. I am satisfied that the Plaintiff has shown the existence on the Defendant’s part of a duty under the NDA to keep in confidence the confidential information imparted to him relating to the Project, its content, status and development. 39.The Letter of Agreement clearly evidences the Plaintiff’s appointment of the Defendant as Senior Vice President, Legal, and the Defendant’s duty to perform such functions and business of the Plaintiff as he may be assigned from time to time. Clause 4.1 of the Letter of Agreement provides that the Defendant may be required to be transferred to other posts in the Representative Office of the Plaintiff, and may be transferred to other positions required by or available in any subsidiary of the Plaintiff incorporated on the Mainland. It is only where such a transfer to another subsidiary is in fact made, that the subsidiary will enter into a direct contract with the Defendant. 40.On a plain reading of clause 4.1, there is neither duty on the Plaintiff’s part, nor right on the Defendant’s part, to arrange for the Defendant to work at a position within the Plaintiff’s subsidiary on the Mainland, or for a direct employment contract to be made between the subsidiary and the Defendant. I see no substance to the Defendant’s claim of the Plaintiff’s breach of clause 4 of the Letter of Agreement such as to release the Defendant from his obligations under the Letter of Agreement. 41.On the materials available, I can see no basis for the Defendant to claim that his employment was by QME, and not FESCO or the Plaintiff. His assertions of employment by QME, that he had carried out work for QME, or on instructions from QME, and that the Project and information relating to the Project belonged to QME (and not the Plaintiff) remain bare assertions, which are contrary to the evidence adduced by the Plaintiff as to how the Project was developed, held and planned. The Plaintiff’s claim, that QME has been a corporate vehicle of the Plaintiff for the purpose of implementing the Project, with the Plaintiff holding 90.01% interest in QME, has not been disputed by the Defendant. On the Plaintiff’s case, the Confidential Information which is the subject matter of these proceedings has at all material times been produced and developed by the Plaintiff, or otherwise on its behalf, and at its expense, for the purpose of the Project. The Defendant has not produced any evidence to raise any dispute in this regard. 42.It is pertinent that the Defendant’s claims of employment by QME have been rejected by the Mainland Labour Commission and by the Qianhai Court. The Qianhai Court found that at the time when the Defendant was working on the Project, the Project was the Plaintiff’s, and not QME’s. In any event, the Plaintiff’s claims for breach of confidence in tort/equity, or in contract, are independent of any employment relationship between the Plaintiff and the Defendant. 43.As for the Defendant’s claim, that the Plaintiff is not the “owner” of, or does not have ownership rights over, the Confidential Information, Counsel for the Plaintiff has emphasized that the Plaintiff has locus standi to sue for breach of confidence so long as it has “sufficient interest” to protect the confidential information concerned, and to whom a duty of confidence is owed (Clerk & Lindsell on Torts 22nd Edition, para 27-08, footnotes 49 and 50; Gurry on Breach of Confidence 2nd Edition, para 8.13-8.20; Jones v IOS (RUK) Ltd [2012] EWHC 348 (Ch) at paras 39-40). On the evidence available, the Plaintiff has sufficient interest in protecting the Confidential Information relating to the Project, whether in its own right or as the substantial indirect shareholder of 90.01% of QME, which is now the vehicle through which the commodities exchange is being operated. I am satisfied that unauthorized disclosure of the Confidential Information will potentially result in losses and damage to the Plaintiff. 44.To establish a claim of breach of confidence in tort/equity, it has to be shown that the subject information has the necessary quality of confidence; the information must have been imparted in circumstances imposing an obligation of confidence; and there must have been unauthorized use or disclosure of that information. I am satisfied that the Plaintiff has raised a serious question to be tried in respect of its claims of the Defendant’s breach. 45.The Confidential Information claimed by the Plaintiff has the necessary quality of confidence. It was produced and developed by the Plaintiff, on its behalf, and at its expense for the purpose of the Project. It is not assessable by the general public, and there is no evidence that it is a matter of common knowledge. The information is of significant commercial value to the Plaintiff and if disclosed or exploited for a purpose other than the Project, it would potentially cause real and irreparable harm to the Plaintiff. 46.The Statement attached to the 9/5 Email, which the Defendant threatened to make public, contains: information on the contents of QME’s draft trading rules, the fact that the Plaintiff/QME had considered different trading models, the contents of a meeting relating to the Project which was held in September 2016 and the views expressed at the meeting, the fact that the HOMS trading system had been considered by the Plaintiff, the fact that a Shanghai office had been considered for QME, the circumstances of Mr Guo’s departure from a previous post to join the Project, the contractual employment arrangements of the Plaintiff’s staff, and the consideration of different outsourcing arrangements. All such information was not known to the public, is commercially sensitive, and constitutes Confidential Information relating to the Project. 47.The aforesaid information was provided to and acquired by the Defendant in the course of his working on the Project, and was provided to him for the purpose of enabling him to fulfill his duties as in-house legal counsel to the Project. When he acquired such information, the Defendant must have known that the documents and information was confidential to the Plaintiff/QMS, and was commercially sensitive, since he had been required to sign the NDA with express confidentiality provisions. On his signing the Letter of Agreement, he was also given notice of the fact that he had to comply with the Plaintiff’s Code of Conduct which covers confidentiality of the Plaintiff’s information. 48.Further, on the Plaintiff’s evidence, the Confidential Information had been treated by the Plaintiff in a confidential manner. Some documents were expressly marked as “highly confidential”, “confidential” and/or “private”, and only a limited number of staff of the Plaintiff involved in the Project was given access to the Confidential Information. Access to the Plaintiff’s computer system was password protected, and the Plaintiff’s policies concerning information security was assessable to employees of the Plaintiff and to the Defendant through the Plaintiff’s intranet portal. 49.Having regard to the 9/5 Email, and his letters of 1 October, 17 October and 5 November 2018, the Defendant has clearly demonstrated an intention to disclose the Confidential Information of the Plaintiff, which he contends he is entitled so to do. 50.Whilst the Defendant asserts that there is a public interest in his disclosure of what he claims to be illegal and dishonest acts of the Plaintiff’s officers, what he claims he is entitled and at liberty to do is to disclose the Confidential Information to the public at large through the press. The Plaintiff has emphasized that public interest is in disclosure to a person who has “proper interest” to receive the information (Initial Services Ltd v Putterill [1968] 1 QB 396, 405-406). The Plaintiff made clear its position that the Defendant is at liberty to make reports or complaints to any regulatory authority with competent jurisdiction over the Plaintiff, but there is no public interest for the Defendant to disclose the Confidential Information to the public at large. Reference has been made to the judgment of Scott J in Re A Company’s Application [1989] Ch 477 at 481:
51.The fact that there are inaccuracies in the Statement and in the facts threatened to be disclosed by the Defendant does not obliterate the confidential nature of the subject matter. The Plaintiff relies on Toulson and Phipps para 3-093-3-096 and McKennitt v Ash [2005] EW HC 3003 (QB) (approved on appeal [2008] 1 QB 103). 52.The Defendant has suggested that the Confidential information has not been sufficiently or clearly identified. He argued that the Plaintiff should be required to set out the general contents of the Confidential Information, the precise time and place at which and by whom the Confidential Information was provided to the Defendant, what documents are considered to be confidential in nature, and the exact number of the confidential documents. 53.I agree that as a matter of general principle, the terms of an injunction have to be sufficiently clear and framed in adequate details to enable a defendant to know what information he is not free to use. However, as the cases of Sim Kon Fah v JBPB & Co [2014] 4 HKLRD, Browne v Associated Newspapers Ltd (CA) [2008] QB 103, and Tchenguiz v Imerman [2011] Fam 116 (CA) illustrate, each case involving the terms of the injunction and their adequacy by way of particularity depends on its own facts. The Defendant as legal counsel acquired the Confidential Information in a clearly confidential relationship. The Injunction is not in such wide and uncertain terms, as to restrain the Defendant from disclosing or using, generally, “any confidential information of the Plaintiff”, or “documents which are private or confidential to the Plaintiff” without particularity, so as to leave room for doubt, as to what the Defendant is prohibited from doing. As defined in Schedule 1 to the Injunction, it covers essentially the information obtained by the Defendant in the course of his service to the Plaintiff, during a specified period, in relation to the Project, and legal advice provided by the Defendant in relation to the Project (other than what is already in the public domain). The Defendant is himself legally trained. He should not be in any doubt as to what information he had obtained, or been given, in the course of his service for the Plaintiff/QME, and whether such information relates to the Project with which he was and is familiar, for which he was engaged to work, and on which he had been advising the Plaintiff. There can hardly be any doubt that legal advice as such is confidential. The terms of the covenant contained in the NDA are sufficiently wide to include all such information. 54.In all, I accept the Plaintiff’s submission, that it has shown overwhelming merits in its claims for an injunction against the Defendant to restrain his disclosure and misuse of the Confidential Information. In any event, a serious question to be tried has been clearly demonstrated. 55.If it was necessary to consider the balance of convenience, I accept that the balance lies clearly in favor of continuing the Injunction until trial. The Plaintiff would suffer irreparable harm if the Injunction is not continued. The disclosure of the Confidential Information, as the Defendant has threatened to do, will draw widespread negative attention given the Plaintiff’s role in the financial market. It would undermine the Project and the loss and damage which may result from disclosure could be irreparable and substantial. On the other hand, the Defendant cannot be seen to suffer any real prejudice or financial loss as a result of the grant and continuation of the Injunction. Whether the Court has jurisdiction and whether the Injunction should be discharged for the Court’s lack of jurisdiction 56.To the extent that the Defendant relies on the claims that the Plaintiff is not the owner of the Confidential Information, that the Confidential Information cannot be protected under the law, and that the Defendant has no duties of confidentiality or fidelity/in good faith, to support his challenge to the jurisdiction of the Court, the preceding paragraphs have dealt with these grounds by rejecting such claims. 57.On the question of jurisdiction, the Plaintiff has highlighted that the Writ was served personally on the Defendant in Hong Kong, such that the jurisdiction of the Court has been established as of right. This, the Plaintiff argued, gives rise to a presumption that the Hong Kong Court will proceed to hear the merits of the case. 58.In any event, the Defendant has not, by way of challenge to the Court’s jurisdiction, made any application to set aside the Writ or to stay the proceedings under Order 12 rule 8 RHC, within the time limited for the filing of the Defence. By his summons of 10 July 2018, the Defendant merely asserts that the Plaintiff must first obtain a judgment in its favor from the Mainland court before it can make any claims against the Defendant. By applying for discovery, the Defendant has also submitted to the jurisdiction of this Court. 59.If this Court is to treat the Defendant’s 10 July 2018 summons as an application to stay these proceedings on the ground of forum non conveniens, the burden is on the Defendant to show not only that Hong Kong is not the natural and appropriate forum for the trial of this action, but that some other court is clearly or distinctly more appropriate than Hong Kong as the forum (Spiliada Maritime Corp v Cansulex Ltd [1987] AC 460). In his summons, the Defendant has failed to identify any court on the Mainland which he claims is the natural and appropriate forum for the trial. The Plaintiff pointed out that this is not sufficient (Greenwood Ltd v Pearl River Container Transportation Ltd unreported, CACV 27/1994, 25 May 1994). It was only in his Defence and his 3rd affirmation that the Defendant asserted that as his residence, place of employment, the location of the Project and where he obtained the Confidential Information is in Shenzhen, the court of Shenzhen should have jurisdiction. 60.The Plaintiff highlights the fact that where an action is founded as of right in a forum, such right should not be lightly disturbed and the fact that there are concurrent proceedings in the alternative forum alone is generally not a relevant factor to be considered, especially if such proceedings involve different issues (Pei Zheng Middle School v China Pui Ching Education Foundation Ltd (CACV 262/2005, 21 February 2006), SCB (Hong Kong) v Independent Power [2016] 1 All ER (Comm) 233). The lack of an arguable defence is also a strong reason to refuse a stay on the ground of forum. 61.The legal principles established in Spiliada are clear. The objective of the Court is to determine the forum in which the case can be tried more suitably for the interests of all parties and for the ends of justice. A stay will only be granted if there is some other appropriate forum which is clearly and distinctly more appropriate than Hong Kong. The Court is to consider the forum with which the action has the most real and substantial connection, taking into consideration factors of convenience or expense, the law governing the relevant transaction, as well as the places where the parties respectively reside or carry on business. The Court has emphasized that the approach is not just an exercise in loading up factors which point to any particular jurisdiction in the abstract, the focus should be the appropriateness of a forum from the point of view of the trial of the action (New Link Consultants Ltd v Air China [2005] 2 HKC 260). 62.The lack of an arguable defence on the part of a defendant is a strong reason to refuse any stay on the ground of forum (Johnson & Harris: Conflict of Laws in Hong Kong 3rd edition para 3.096; Bayer Polymers Co Ltd v Industrial and Commercial Bank of China [2000] 1 HKC 805. 63.I accept the Plaintiff’s submission that the Defendant has failed to show any arguable defence to the Plaintiff’s claims. On this ground alone, his application for stay should be refused. 64.In any event, I agree that the action has real and substantial connections with Hong Kong. The Plaintiff is incorporated in Hong Kong, its shares are listed in Hong Kong and it is an exchange controller recognized and operating in Hong Kong. During the time when the Defendant was involved in working on the Project, it was a project of the Plaintiff (as the Mainland court has accepted and found). Most of the staff involved in the implementation and in the decision making of the Project were senior staff of the Plaintiff in Hong Kong. The Confidential Information relating to the Project was created and developed by the Plaintiff or on its behalf, and at its expense. The Defendant acted at all material times on the instructions of the Plaintiff and its management. In his email dated 25 September 2017, even the Defendant acknowledged that he was recruited by the Plaintiff as the Head of Legal of QME. The Defendant’s threats were to disclose the Confidential Information in Hong Kong, including to the Hong Kong media. His threats were made to members of the Plaintiff’s senior management in Hong Kong. The injunctive relief is sought by the Plaintiff in Hong Kong to restrain the Defendant’s acts in Hong Kong. The damage caused by the threatened breaches of the Defendant would be suffered by the Plaintiff in Hong Kong. Most if not all of the Plaintiff’s witnesses, including members of its senior management who had contact with the Defendant during the term of his service, and to give evidence at trial on the Defendant’s employment, terms of service, access to the Confidential Information, etc are in Hong Kong. The Plaintiff’s documentary evidence relating to the pleaded issues is substantially located in Hong Kong. 65.The governing law relating to the Plaintiff’s claims, for the Defendant’s breach of the NDA and breach of confidence in tort and equity, should be Hong Kong law. 66.The NDA expressly provides for Hong Kong law as the governing law. 67.The law governing a claim in tort is that of the place where the series of events constituting the tort occurred in substance (Shanghai Reeferco Container Co Ltd v Waggonbau Elze Gmbh & Co Besitz Kg [2005] 2 HKLRD 711). In Metall und Rohstoff v Donaldson Lufkin & Jenrette [1990] 1 QB 391, the English Court of Appeal observed:
68.Counsel for the Plaintiff also relies on the passage in Gurry on Breach of Confidence 2nd edition para 23.19:
69.In this case, the threatened disclosure of the Confidential Information is to the media in Hong Kong. The threats were made to the Plaintiff’s senior management in Hong Kong, and the damage flowing from the breach would be suffered by the Plaintiff in Hong Kong. 70.Although the Defendant claims to reside and work in Hong Kong, he also has connections with Hong Kong, holding a Hong Kong Identity card, maintaining at least one bank account in Hong Kong, and being a frequent visitor to Hong Kong. 71.The Project was a project of the Plaintiff. The Defendant regularly traveled to Hong Kong to have meetings with the Plaintiff’s staff and senior management in Hong Kong. A substantial part of the Confidential Information was generated in Hong Kong, where decisions were made by the senior management here. The Defendant himself accepted that he had acted according to the instructions of the Plaintiff, when he was involved in the Project. A substantial part of the Confidential Information was imparted to the Defendant from Hong Kong. 72.The fact that some relevant provisions or regulations of PRC law may have to be considered does not by itself render Hong Kong not the natural and appropriate forum. The Hong Kong Court can refer to expert evidence on PRC law, as it is frequently called upon to do. 73.In all the circumstances of the case, I am not satisfied that the Defendant has discharged his onus of showing that Hong Kong is not the natural and appropriate forum for the trial of the action, and that some other court on the Mainland is clearly or distinctly more appropriate than Hong Kong to try the Plaintiff’s claims. The Defendant’s application for discovery 74.By his summons of 1 August 2018, the Defendant seeks discovery of various emails and documents. The Defendant claims that these relate on a train of inquiry ultimately to the identity of his employer, and the validity or otherwise of the labour dispatch arrangement through FESCO. 75.Bearing in mind that the claims made by the Plaintiff for breach of confidence, and under the NDA issued by the Plaintiff and signed by the Defendant, are independent of any employment relationship, the question to which the documents relate are irrelevant, and are unnecessary under Order 24 rule 8. 76.The application for discovery is dismissed, with costs. The Defendant’s application to strike out parts of the Plaintiff’s affirmations 77.The Defendant seeks to expunge and strike out references to without prejudice correspondence exhibited to an affirmation filed and served on behalf of the Plaintiff. These concern settlement negotiations and emails exchanged between the Defendant and the Plaintiff’s solicitor, Mr Morrison (“May 2018 Emails”). The Defendant claims that such without prejudice correspondence and communications should not be used as evidence. 78.The relevant negotiations were conducted and the emails were exchanged on 31 May 2018. They commenced with the Defendant’s proposal of settlement, in an email to Mr Morrison, marked “confidential and privileged”, and “without prejudice save for costs”. The Plaintiff highlighted the fact that this was after the Plaintiff had already obtained the Injunction from the Court, whereby the Defendant was prohibited from using and disclosing the Confidential Information. 79.In the first email on 31 May 2018, the Defendant proposed to Mr Morrison a settlement frame involving (inter alia) the Plaintiff recognizing a direct employment relationship between QME and the Defendant, the payment to the Defendant of “all payables due up to date (including salaries, bonuses and compensation for annual leaves)”, and the option to the Plaintiff of either paying compensation in exchange for the Defendant’s consent to termination of employment, or continuing the employment between QME and the Defendant. The Defendant then stated that upon the overall settlement being signed and the payment being made, he would undertake not to disclose the Confidential Information, and would also cancel his actions in Shenzhen whilst the Plaintiff should cancel its action in Hong Kong. 80.Upon Mr Morrison seeking clarification as to the “sum due” as alleged by the Defendant, the Defendant responded to give a break-down of a sum of RMB 6,013,481.48 as “payables up to date”, and a further sum of RMB 6,750,000 as compensation equivalent to “3 years’ expectable salaries and bonuses”. Mr Morrison pointed out that the total settlement sum sought by the Defendant was accordingly RMB 12,763,481.48, when the Defendant had already received from FESCO as termination payment an amount of RMB 397,349.99 which was made in accordance with all relevant PRC legal requirements, in respect of his fixed term contract of 2 years and a month salary of RMB 150,000. 81.Mr Morrison had also asked the Defendant to clarify “the compromise” he was offering in the settlement proposal. In reply, the Defendant stated that this comprised: (1) reduced claims and amounts; (2) consent to termination of employment; and (3) his voluntary undertaking not to disclose the Confidential Information. He also reminded Mr Morrison that although his employment claim on the Mainland had been rejected by the Mainland court, the action in Shenzhen was (according to the Defendant) still awaiting trial, and further, “more actions are expected to be brought”. 82.The Plaintiff claims that the without prejudice negotiations and the May 2018 Emails are admissible, as they are an abuse by the Defendant of the alleged privileged occasion, and further, on the basis that the Defendant had himself deployed in evidence without prejudice negotiations between the Plaintiff and the Defendant on the conditions of the termination of the Defendant’s employment with FESCO, and the amount to be paid by the Plaintiff to the Defendant. In his 1st affirmation filed in opposition to the application for and the continuation of the Injunction, the Defendant had referred to without prejudice negotiations between himself and representatives of the Plaintiff, and exhibited copies of the emails exchanged between the Defendant and the Plaintiff’s Mr Dave Li in March 2017. These negotiations and emails set out the terms of the termination package then negotiated, including the amounts discussed as payments to be made by the Plaintiff to the Defendant. The Defendant in his affirmation compared the figures which had been raised for discussion, and claimed that these negotiations and correspondence show that there had never been any extortion on his part, but that the Plaintiff had unilaterally withdrawn offers of payment agreed, and had never set out the breakdown of the amounts discussed. 83.As explained in Somatra Ltd v Sinclair Roche & Temperly [2002] 2 Lloyd’s Rep 673, the underlying principle for waiver is one of fairness. It is not just to allow one party to obtain an advantage by relying on without prejudice material to advance his own case, and then to seek the protection of the without prejudice nature of the communications, to prevent the other party from relying upon the discussions which form a part of the same negotiations. 84.Although the negotiations and emails deployed by the Defendant in his evidence were dated March 2017, I agree that having regard to the contents of the emails exchanged in March 2017 and May 2018, and in the proper context as to how references were made by the Defendant and the Plaintiff respectively to the negotiations, the May 2018 Emails were part and parcel of the discussions which took place in March 2017, such that they have to be read together. Having deployed the March 2017 without prejudice discussions and correspondence in evidence, and seeking to reply on these emails to assert that there had been no “extortion” on his part, the Defendant has no ground to complain when the Plaintiff seeks to refer to the May 2018 Emails, and the terms which the parties had raised and discussed then, to demonstrate that the Defendant made extortionate demands. 85.As to whether the May 2018 Emails should be admitted into evidence as an exception of “unambiguous impropriety”, I agree that the conditions proposed and the amounts demanded by the Defendant in May 2018 were extortionate and unreasonable, in view of the term and short duration of his employment, the payments already made by FESCO, the decisions of the Mainland court and tribunal, and the fact that the Injunction was already in place. I come very near to finding that the May 2018 Emails are a veiled threat to continue with unwarranted proceedings, and to comply with a Court order only in the event of the Plaintiff conceding to make payment of the grossly inflated sums demanded by the Defendant. However, the courts have emphasized that the great public interest of facilitating frank exchanges in aid of reaching settlement “should not be sacrificed save in truly exceptional and need the circumstances” (Ferster v Ferster [2016] EW CA 717). In Fazil-Alizadeh v Nikbin (1993) CAT 205, Simon Brown LJ stated:
86.In Forster v Friedland (1992) CAT 1052, the Court of Appeal held that discussions between the parties were protected by the without prejudice rule in that they were “genuinely aimed at settlement” in the sense of being aimed at the avoidance of litigation, and there was an underlying dispute between the parties as to whether the agreement was legally binding. In that context, Hoffman LJ stated:
87.The demands made by the Defendant in his emails of 31 May 2018 can be said to be shameless, but taking heed of the reminders of the Court as set out in the preceding paragraphs, I am reluctant to conclude that the 31 May Emails constitute “threats which unambiguously exceeded what was permissible in settlement of hard fought commercial litigation” (Boreh v Republic of Djibouti [2015] EQHC 769 (Comm)), such that they should fall within the exception to the without prejudice rule, as stated in Unilever plc v The Procter & Gamble Co [2000] 1 WLR 2436. 88.Finally, the Defendant in his summons of 1 August 2018 seeks to strike out paragraph 73 (b) of the 1st affirmation of Ferheen Mahomed (“FM”) (filed on behalf of the Plaintiff in support of its application for the Injunction), in which FM stated that she verily believed that the Defendant was “divorced”. The Defendant states that this should be struck out and no further mention should be made as to his marital status, as it comprised his personal information. 89.In an application for striking out, it is for the Defendant as applicant to show that it is “plain and obvious” that the relevant paragraph in the affirmation should be struck out, or that they are grounds for it to be expunged from the evidence and court record. The Defendant has not asserted that the statement as to his being divorced is either untrue, inaccurate, or is scandalous in any way. The affirmation of FM was filed in support of the Plaintiff’s ex parte application for the Injunction, and the Plaintiff had a duty to make full and frank disclosure, and to put before the Court all relevant facts and evidence to explain the need for the injunctive relief, the urgency for the relief and, and in this case, the Plaintiff’s concerns caused by the Defendant’s hostile attitude to the termination of his services, the extortionate demands he had made and the repeated threats to disclose the Confidential Information if such demands of his were not met. By referring to the Defendant’s divorce and the termination of his employment, the Plaintiff was relating the Defendant’s personal circumstances which the Plaintiff claimed gave rise to legitimate and serious concerns on its part that the Defendant would indeed take steps to put his threats into action. In the particular circumstances of this case, I am not satisfied that the statement in FM’s affirmation as to the Defendant’s personal situation including his divorce is plainly and obviously irrelevant to the ex parte application and the Court’s assessment of the risks asserted by the Plaintiff against a professional lawyer such as the Defendant, in deciding whether to grant the relief sought. The statement is neither immaterial, nor vexatious and scandalous, to justify striking out. Disposition 90.For all the above reasons, I continue the Injunction until trial or further order. The costs order nisi for the Plaintiff’s summons of 18 May 2018 is for such costs to be in the cause. 91.The Defendant’s application to challenge this Court’s jurisdiction, to discontinue these proceedings and to discharge the Injunction is dismissed, all with costs to the Plaintiff. 92.The Defendant’s further application for discovery and striking out is also dismissed, with costs to the Plaintiff.
Ms Sara Tong, instructed by MinterEllison LLP, for the plaintiff The defendant appeared in person | ||||||||||||||||||||||||||||
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