Cosme De Net Co Ltd v. Lam Kin Ming

DCCJ 5371/2019

[2021] HKDC 445

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5371 OF 2019

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BETWEEN

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Before:  His Honour Judge Leung in Court

Dates of Hearing:  1-4, 7-8 and 30 September 2020

Date of Judgment:  26 April 2021

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J U D G M E N T

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1.In this action, the plaintiff claims against the defendant, its former employee, for engagement in secret business and infringement of its intellectual property rights in breach of his employment agreement and fiduciary duties. The defendant denies the claim and counterclaims for damages for wrongful dismissal.

BACKGROUND

2.The plaintiff (“Cosme”) was and still is a Hong Kong company carrying on the business of trading in cosmetics and beauty products over the Internet. Its parent company is in Japan.  Cosme uses its websites www.cosme-de.net and www.cosme-de.com as well as third party e-commerce platforms such as eBay, Facebook and Amazon for conducting its sales and marketing.  A lot of these cosmetic and beauty products traded by Cosme are well known brands in the consumer market.

3.By a written employment agreement dated 16 June 2014, the defendant (“Lam”) was employed by Cosme as its Senior Business Development Manager (E-Commerce) with effect from the same day.  The terms of his employment were varied by letter dated 11 November 2014 signed by Lam and with effect from 1 January 2015.  The terms of the variation were set out in that letter (“the Variation Letter”) and the Staff Handbook enclosed therewith (“the Handbook”).

4.In his position, Lam was in charge of the overall implementation of Cosme’s e-commerce business, including (i) supervision, management and maintenance of the company websites, (ii) management of the relevant personnel, (iii) general development and growth of on-line business, and (iv) formation of overall online promotional and marketing strategy.

5.According to Cosme, it discovered in February 2016 that Lam had been operating or involved in the operation of other business or businesses in the absence of its prior knowledge or consent.  The secret business was conducted in the names of Best Online Cosme and Best Online Cosme (HK) Co Ltd (collectively “Best Online Cosme”) with website www.bestonlinecosme.com and web-stores on other third party e-commerce platforms similar to those used by Cosme mentioned above. Best Online Cosme sold brands of cosmetics and beauty products that were identical to those traded by Cosme but at a lower price.  It also used many product images and descriptions which were the intellectual properties of Cosme.

6.For alleged breach of the employment agreement and fiduciary duty of good faith on the part of Lam as well as infringement of the company’s intellectual property rights, Lam was summarily dismissed by Cosme by written notice dated 10 March 2016.  He received his accrued outstanding salaries and annual leave pay.

7.By letter dated 22 March 2016, Cosme through its solicitors wrote to Lam putting on record its complaint that Lam had placed or procured to be placed various orders with Cosme for supply of products to Best Online Cosme at discounted prices and causing prejudice to the company.  Lam had or still has control of Best Online Cosme online store either in whole or in part.  Lam and/or Best Online Cosme online store had also infringed Cosme’s intellectual property rights by using the product descriptions and photographic images of Cosme’s product listings, which were compiled by Cosme’s staff and photographers.  The complaint was met with Lam’s denial by email on 24 March 2016.

8.On 14 April 2016, Lam lodged his claim with the Labour Tribunal (LBTC 1091/2016) against Cosme for payment in lieu of notice, year-end payment (bonus) and damages for wrongful dismissal.  In his statement to the Tribunal, Lam explained that the business of Best Online Cosme was not set up by him but by a wholesale customer of Cosme by the name of Miss Angel Yu (later known to be Yu Bi Ying) (“Yu”).  He only helped Yu by selling Cosme’s products to her. Lam also pointed out that Cosme imposed no limit on (how to accord the status of) wholesale customers, and his pricing strategy for wholesale had been set out in the reports to the General Manager and others.  Lam complained that he has been dismissed wrongfully.  Enclosed with his statement was Yu’s statement of the same date in support.

9.On 22 April 2016, statement was filed on behalf of Cosme in response to Lam’s claim in the labour proceedings.  By then, Cosme had also lodged a complaint to the police about Lam.

10.Cosme then commenced legal proceedings against Lam on 20 April 2016, ie HCA  1043/2016.  Lam’s claim against Cosme subsequently became HCA 1553/2016.  In July 2016, the two High Court actions were consolidated and eventually directed to be transferred to the District Court.  Hence the present action.

THE CLAIM

11.Though not all set out in the statement of claim, the employment agreement of Lam included, amongst others, the following terms:

The Variation Letter

“Confidentiality

(a) … You acknowledge that the proprietary information, observations and data obtained by you (orally, in writing, electronic or any other form and media) or otherwise come to you knowledge while employed by the Company concerning the organization, business, interests, technology, finance, transactions or affairs of the Company and its group companies and/or of any of their customers or suppliers or any of their secrets, dealings, transactions or affairs (“Confidential Information”) are the property of the Company and its group companies. Therefore you hereby undertake with the Company (for its own account and acting on behalf of its group companies) both during your employment and thereafter not to directly or indirectly use or disclose to any person (and during the employment to use his best endeavours to prevent the disclosure to any person of) any Confidential Information provided that the provisions of this Clause shall cease to apply to information which enters the public domain other than directly or indirectly by reason of your default.

(b) All files, records and documents in whatever format used or prepared by you during your employment are the property of the Company and must on request by the Company or on termination of your employment be returned to the Company together with all copies thereof.

Exclusion of Occupation

You shall not without the prior written consent of the Company during the continuance of your employment be engaged or interest either directly or indirectly in any employment or capacity in any trade, business, occupation or activities whatsoever which is outside the employment with the Company.

Non-competition

If you leave the Company, you would not for a period of six consecutive months following your last date of employment work in any capacity, on his own account or in any type of business organization rendering personnel services similar to those provided by the Company.  If you breach this non-competition agreement, on request by the Company, you will pay the equivalent of one month of your remuneration per year of service with the Company as penalty…”

The Handbook

“4.2  CONFIDENTIALITY

All information including but not limited to customer data, password, login ID, email ID, etc accessible by you are confidential. You are required to treat the information with the strictest confidence. Unless a task so requires and with the approval of the Company, no information should be released to any third parties, including your colleagues, intentionally or unintentionally…

6.2  CONFLICT OF INTEREST

You must not engage or involve any activities in conflict with your duty towards the Company. Any violation of the said rule will lead to Summary Dismissal. In no case will approval be given to you to become associated with any business nature which is similar or the same as the Company whether full time or part time.

6.3  INTELLECTUAL PROPERTY

… When dealing with Intellectual Property, you must be very prudent and careful. You are not allowed to infringe or duplicate the Company’s Intellectual Property rights without the written consent of the Company. You will be subject to civil and/or criminal liability, should such infringement occur. You are not allowed to release the confidential information of the Company to any third party without the prior consent of the Company. You must try your utmost to ensure or to safeguard the Intellectual Property right of the Company.

…

Any violation of the said rule will lead to Summary Dismissal.

6.4  SECONDARY EMPLOYMENT

You may not be a director, agent or be employed in any capacity paid or unpaid, in any other company or firm, without the prior approval by the Administration Department.

6.5  NON-DISCLOSURE OF PROPRIETARY INFORMATION

All information about the company is confidential. The company expects you to be discreet in all matters of a proprietary nature. You must not divulge such information to any person within or outside the Company without proper authorization.

…”

12.Cosme also pleaded the following implied terms of Lam’s employment, namely:-

(1)  he shall serve the company with good faith and fidelity;

(2)  he shall not work in competition with the company during the employment;

(3)  he shall hold the duty of confidentiality in respect of the company’s confidential information and trade secrets;

(4)  he shall not use the company’s confidential information and trade secrets for his own purpose;

(5)  he shall not make secret profits; and

(6)  he shall not take, damage, infringe or otherwise interfere with the company’s tangible or intangible property or rights.

13.Cosme also contends that Lam, in his senior management position, owes the company the following fiduciary duties in the course of his employment:-

(1)  to act honestly and in good faith in the best interest of the company;

(2)  not to make secret profits;

(3)  not to put himself in conflict of interests;

(4)  not to act for his own or third party’s benefit without the informed consent of the company;

(5)  not to compete or take preparatory steps to compete with the company; and

(6)  not to use any information which he obtained in confidence in the course of his employment and to the detriment of the company.

14.Section 9(1) of the Employment Ordinance, Cap 57, which was also repeated in the Variation Letter and the Handbook, provides that:-

“An employer may terminate a contract of employment without notice of payment in lieu-

(a)  if an employee, in relation to his employment-

(i)  willfully disobey a lawful and reasonable order;

(ii)  misconducts himself, such conduct being inconsistent with the due and faithful discharge of his duties;

(iii)  is guilty of fraud or dishonesty; or

(iv)  is habitually neglectful in his duties; or

(b)  on any other ground on which he would be entitled to terminate the contract without notice at common law.”

15.Lam is said to have been in breach of the above terms of employment and his fiduciary duties owed to Cosme.  Cosme contends that it was entitled to, and did, summarily terminate his employment without notice.  Cosme further claims against Lam essentially for the following relief:-

(1)  damages;

(2)  alternatively, liquidated damages pursuant to the employment agreement equivalent to one month’s salary of Lam;

(3)  account of secret profits received by Lam in breach of his fiduciary duty;

(4)  payment of the amount found due on taking of the account;

(5)  equitable damages;

(6)  injunction restraining further breach;

(7)  injunction mandating the handing over of copies of the infringement of Cosme’s intellectual properties and the destruction of all electronic copies of the same; and

(8)  damages for infringement of intellectual properties.

THE DEFENCE AND COUNTERCLAIM

16.Up to the commencement of the trial, the pleaded defence has been mere denial.  Lam has pleaded no positive case but merely contended that Cosme failed to substantiate its allegations against him by evidence.  In view of his case stated in the labour proceedings, this was clearly not the entirety of his case.  This was also obvious from the witness statements of Lam and Yu subsequently served in the present action.  Lam made such assertions too in his opening submissions.

17.In the circumstances so known to the parties well before the trial, I do not favour the approach suggested by Mr Wong, counsel for Cosme, namely to debar Lam from adducing evidence on the basis that he did not have a pleaded positive case.  The need for fair resolution of the central dispute between the parties known to the parties outweighs the strict but unrealistic view of Lam’s pleaded case.  The fact that Lam is not legally represented partly explained the undesirable state of his pleading.

18.After deliberation, Lam put forward amendments to his pleading but, to be fair, limited to introducing the basis for the key assertions that he intended to make and the evidence he would adduce in support.  After consideration, Mr Wong did not object to the amendments, but sought leave to introduce an additional witness to specifically address the assertions concerning that witness.  Mr Wong was able to tender the short witness statement of this new witness.  I therefore gave the parties respective leaves to so proceed.

19.Now the pleaded case of Lam, in line with what he contended in the labour proceedings is that Best Online Cosme and www.bestonlinecosme.com as well as its related business were owned by Yu.  He denies any interest in such business. The proposal and decision in respect of trading with Yu as a customer of Cosme is said to have been approved by the General Manager of Cosme, Ms Maki Hiroe (“Maki”).  He was thus not in breach of the employment agreement or his duties to Cosme.  Maki was indeed the new witness that Cosme considered that it should introduce as mentioned above.

20.As for the counterclaim, Lam confirmed during the pre-trial review to abandon the original claim for defamation.  Consequentially, both his pleading and witness statement were edited to remove the related assertions.  Lam’s claim is now confined to damages for wrongful dismissal or, in other words, for summary dismissal that was not justified.  He claimed for payment in lieu of notice. He also claims for accrued year-end bonus and damages equivalent to 2 months’ salaries.

THE WITNESSES

21.Cosme called the following witnesses:-

(1)  Lam Yeung Lap (“Lam”) was the managing director of Interfocus HK, a corporate consultancy firm engaged by Cosme to assist in the investigation into Best Online Cosme.

(2)  Or Yuk Shuen Shirley (“Or”) is a director of Cosme, and head of human resources at the material time.

(3)  Tung Man Ling (“Tung”) was at the material time the marketing manager (E-Commerce) of Cosme and a direct subordinate of Lam.

(4)  Maki, as mentioned, is the general manager of Cosme.

22.Besides himself, Lam called the following witnesses:-

(1)  Wong Ling Ling (“Wong”) was a former employee of Cosme.

(2)  Chan Kam Tseung (“Chan”) was also a former employee of Cosme.

(3)  Yu, as mentioned, was said to be the owner or proprietor of Best Online Cosme.

HOW THINGS WERE DISCOVERED

23.At the material times, the marketing operation of Cosme was made of two major components.  Retail was conducted online through either the company website or third party online platforms.  In Cosme, the latter was called “marketplace sales”.  Sales could be wholesale or retail.  Wholesale counterparts could be local or overseas.

24.In his position, Lam also wore the head of the global market department with about 40 colleagues.  As such, he was responsible for overseeing the marketing operation of different teams.  After about mid-2015, Lam also personally took up the handling of wholesales to the US, Canada and the UK, and had the discretion and authority to fix and confirm the final agreed price with the foreign customers.

25.Cosme’s witness, Tung, was then Lam’s immediate subordinate in charge of the “marketplace” team.  She explained how Best Online Cosme was discovered.

26.In early 2016, Tung was alerted by her subordinates to the approach by Lam to them since late 2015 for details of the company’s sales through eBay, such as the uploading of the company’s listings of products, item descriptions, customer services and contacts.  This is evidenced by the printouts of some of the Skype communication between Lam and Tung’s team member[1] from November 2015 and January 2016.  All those enquiries were made on the days when Tung was on leave.  Eventually, an intranet super-link to the company file containing the listings of the major products for sale was provided to Lam on 28 January 2016.  According to Tung, they consisted of tens of thousands of the company’s online listings of products.

27.The approach to Tung’s subordinates for such technical information aroused suspicion, as such technical matters were considered to be outside the concern of Lam in his position.  Hence the search by Tung’s team on eBay and their discovery of an online store with the user name of Best Online Cosme selling products that Cosme also did at the time.

28.It was discovered that most of the product images used by Best Online Cosme bore striking resemblance to those product listings of Cosme.  Only that the images of the products used by Cosme were not copies from the product manufacturers but created by Cosme’s own hired professional photographers.  The images used by Best Online Cosme also bore the product identification numbers assigned by Cosme.  They were also unique to Cosme.  The products concerned included the best-selling items of the prime brands.

29.Suspecting infringement of Cosme’s intellectual property rights, Tung lodged an online complaint to eBay about this Best Online Cosme online store on 25 February 2016.

30.From the information obtained from eBay, it was discovered that the account information of Best Online Cosme online store with eBay contained an email address which upon further search by Tung’s team was established to be that of Lam.

31.Further online search revealed that Best Online Cosme had other associated webpages including a Facebook shop with web address of www.bestonlineperfume.com.  This domain name was found to have been registered by Lam.  The first registration was dated 2013, but was seen to have been updated in July 2015.

32.On about 26 February 2016, Tung reported the above discovery to Or.  Or directed Tung to conduct an internal investigation.  Upon search into the company computer system in early March 2016, Tung located a member identification purporting to be a customer in the US with an email address [email protected].  The records of the purchases placed by this account, including the order numbers generated by Cosme’s system, indicated that they were entered as wholesale orders at the backend (ie manually by a staff of Cosme into the company’s system instead of a customer doing so online through the company’s websites remotely).  Whilst those orders purported to have been placed by an overseas wholesale customer, the deliveries somehow took place in Hong Kong.  Because of previous reports from colleagues during the relevant period of time that Lam had on occasions handled sales items from the office after office hours, Tung put together the puzzle that that might have to do with this customer account.

33.By then, there were 14 transactions placed by this customer, amounting to sales in the total sum of about HK$127,000.  However, the prices charged entailed profit margins of less than 5% and on one occasion even at a loss. These were considered to be unusual.

34.Upon further search, Tung and her colleagues were able to obtain 3 months of sales record of Best Online Cosme through eBay.  Over 90% of them matched the wholesale transactions of this account of [email protected] in Cosme’s system mentioned above.  This suggested that Best Online Cosme had sold the products sourced from Cosme by retail.

35.Parallel to the internal investigation, Cosme also retained the service of Interfocus HK to assist the investigation.  Lam of Interfocus HK conducted a test buy from Best Online Cosme online on 27 February 2016.  The purchase was completed with an email response from a Vivian Lam (“Vivian Lam”) that claimed to be the co-founder of Best Online Cosme.  The goods bought reached Interfocus HK.  On the packaging of each item received was a quick response code (QR code) sticker subsequently confirmed to have been applied by Cosme to its stock[2].  That Best Online Cosme was in business and sold products online that were sourced from Cosme was therefore verified.

36.According to Or, with the help of the information technology department of Cosme’s parent company in Japan, they managed to retrieve computer files from the company computer assigned to Lam for his use prior to his dismissal, and they included:-

(1)  images of the designs of a business card apparently of Best Online Cosme with the office address at Langham Place (“the Langham Address”) in the name of Lam;

(2)  images of a virtual office service agreement dated 4 November 2015 in respect of the rental of a virtual office at the Langham Address by a Best Online Cosme (HK) Co Ltd with the name, email address and telephone number of Lam as the contact person as well as what appeared to be his signature on behalf of such company; and

(3)  image of a photograph of a cheque deposit advice apparently issued by an ATM machine with information suggesting deposit of a cheque for the amount of HK$3,650 by Best Online Cosme on 2 December 2015 into the account of the counterpart of the virtual office tenancy agreement mentioned in (2) above, apparently representing the initial payment pursuant to such agreement.

37.With the information obtained from Cosme in the test buy, Lam of Interfocus HK conducted further search and found out that there was no company registered in the Companies Registry by the name of Best Online Cosme.

38.Insofar as the operation of Best Online Cosme and its apparent connection to Lam are concerned, I accept the evidence adduced on behalf of Cosme.  Any hint from the evidence of Lam and his witness, Wong, that Cosme might have put together allegation of misconduct as disguise to legitimize dismissal of employees (one after another) without compensation is an unwarranted sinister view of the matter.  The fact, as Lam admitted in court, was that he was by then the only case of summary dismissal by the company.  In the circumstances mentioned above, the escalating of Cosme’s suspicion about Lam could not reasonably be faulted.

CONNECTION BETWEEN LAM AND BEST ONLINE COSME

39.Yu’s witness statement is almost identical to that she gave to the Labour Tribunal.  According to her, she set out for the first time in e-commerce, and planned to sell cosmetics and beauty products online in 2015.  In about August 2015, she came to known Cosme as a potential supplier and then made enquiry. She approached Cosme and was subsequently passed to contact with Lam. Considering that Cosme was prepared to accept wholesale order for small quantity and would impose no geographical restriction on the further sale of the products, Yu decided to place order with Cosme.  According to Yu, out of the 14 orders placed by her between late October 2015 to end of February 2016, 7 to 8 were handled by Lam while the others were handled by his subordinates.

40.As Tung explained, retail customer could make purchase online through Cosme’s website and its third party platforms.  Wholesale order would have to be placed and entered by the staff of the company (ie the so-called backend). According to Yu, she placed her orders mostly via telephone.  Payment was effected by credit card upon receipt of email confirmation of her order from Cosme.  She normally arranged courier to pick up the products purchased from Cosme’s office, though she had also personally picked up products from Lam personally downstairs his office after office hours.

41.Lam gave a similar account of how he came to receive the telephone enquiry from Yu in about September 2016 about the wholesale order of Cosme.  He admitted that he ventured to assist Yu, as she appealed to him to be eager to develop her business in a field with which she was not actually familiar.  He also had in mind the orders that she might be placing with Cosme afterwards.

42.Both Lam and Yu stated that after receipt of the letter before action from Cosme’s solicitors in late March 2016, Lam put Yu on notice of Cosme’s allegations against him.  As a result, Yu had allegedly caused the cessation of the operation of her business website and the replacement of the product images used for her other online store.

43.Yu admitted that Lam had taught her a lot about the setting up of her online business operation, and his advice included even that on her choice of business name.  She consulted him whenever she met problems.  Finding out that Lam had been dismissed by Cosme in March 2016 was a surprise to her.

44.Except for their very brief mention, neither Yu nor Lam gave in their statements any detail of the assistance by Lam to Yu concerning the setup of her business at the time.  This caused Cosme’s solicitors to serve interrogatories on Lam in mid-2018.  Lam filed his answers in early 2019.  When Lam came to testify, he elaborated his evidence in chief.  Oddly the very paragraph of his statement touching upon his assistance to Yu in setting up her business[3] was still not elaborated.  He did that only upon cross examination.

45.Lam admitted that he had advised Yu including her choice of business name but only the criteria for that.  The name which, according to him, Yu adopted on her own, Best Online Cosme, happened to coincide with an existing website domain that he had previously registered for his wife, namely www.bestonlineperfume.com.  The domain was registered in 2013.  On the one hand, he had allowed the registration to be updated in July 2015.  On the other hand, according to him, it was of no use to him and therefore he agreed to let Yu use it.

46.The search result revealed that the registration of www.bestonlineperfume.com was actually further updated 2 months later in September 2015 whereby the registrant changed from Lam to Vivian Lam.  As discovered by Cosme and admitted by Yu, her partner in Best Online Cosme was Vivian Lam.  Yet according to both Lam and Yu, they did not know each other in September 2015, and her partner Vivian Lam did not even know Lam at all.

47.The telephone number of the registrant of the domain since 2013 until even after this Vivian Lam took over in September 2015 remained the same.  According to the personal particulars that Lam provided to Cosme when he started his employment, that was the office telephone number of his wife.  The same telephone number also appeared on the alleged business card of Lam under Best Online Cosme, which will be referred to below.

48.Yu had to say that that the Vivian Lam appearing as the registrant of www.bestonlineperfume.com could not be her partner.  She had no idea who that Vivian Lam was, and that might just be coincidence of common names.  She added that because of the present dispute, she and her partner Vivian Lam had split and ceased contact.  The evidence of Yu in this respect just did not add up.

49.The website www.beecrazy.hk was another platform where Best Online Cosme placed its products for sale.  According to Lam, he had no knowledge about that at all.  However, the Best Online Cosme webpage on that platform showed the telephone number of the contract person who was no other but Lam.  As to how such state of affairs came to exist and continue, neither Lam nor Yu could provide satisfactory explanation.

50.Lam eventually admitted in court that he set up Yu’s web-store on eBay for her.  He claimed he did not pay attention to the fact that the correspondence details of that web-store on eBay was his email address.  As to whether it follows that eBay would send business reports to this email address, Lam did not rule that out but again he paid no attention to that.  Nor did he ever forward any of those reports to Yu.  However, according to Yu, she did not manage to open a web-store account with eBay, and therefore asked Lam for help.  Lam agreed, and opened the account for her.  She had requested Lam to change the correspondence from his email to hers, but Lam, according to her, replied that he could not do so.  Further, whilst Lam did not forward the business report from eBay to her, he, according to her, did inform her on the telephone.  Their evidence in these respects cannot be said to align with each other.

51.Regarding the image of what appeared to be the design of a business card of Best Online Cosme for Lam, Lam denied that it existed in his company computer before he was dismissed.  According to Yu, only one business card of Best Online Cosme had ever existed, and it was that of her produced solely for the purpose of facilitating her conclusion of the virtual office tenancy agreement mentioned above.  This was arranged at the time when the business registration of her business was lacking.

52.Yu first claimed to have never seen what appeared to be an English version of her business card.  When pointed out that the copy containing both business card images was amongst the documents disclosed, Yu became equivocal as to whether or not she might have sent the softcopy of the computer design of the card to him.  Yet then it would not be true that she had not even seen this before.  Further, the circumstances that would cause her to do that, in the absence of any suggestion that even the design of the business card would interest Lam as an alleged outsider, become unclear.  Also worth noting is that the features that according to Yu distinguish the design of her only business card from that she denied to be genuine in fact existed in the image of what appears to be such business card of Lam.

53.What Lam and Yu averred in this respect, if true, would mean that the images of the business card of Lam, said to be retrieved from Lam’s company computer, was fabricated and planted after his dismissal.  The seriousness of such averment would have entailed evidence in support with commensurate cogency. However, the issue was not properly or at all raised by Lam, notwithstanding the disclosure of the documents.

54.The same observation can also be made in respect of the virtual office tenancy agreement not only insofar as the disputed existence of that in Lam’s computer but also insofar as its content are concerned.  The agreement contained information about Lam and what appeared to be his signature on behalf of Best Online Cosme.  According to Yu, she handled the tenancy agreement by herself and made the initial payment pursuant to the agreement.  On the one hand, she said she did not ask Lam for advice regarding the virtual office tenancy, and she signed the agreement which happened to be dated the same date as that appearing on the copy agreement said to be retrieved from Lam’s computer.  Yet the agreement she has allegedly signed was not disclosed.  On the other hand, she said she did send to Lam the tenancy agreement that she signed with a view to obtaining advice about water and fire insurance.  Yet upon being questioned as to how the personal concern about water and fire insurance could arise in respect of a virtual office arrangement, Yu backed out from her earlier evidence and claimed that she probably did not send the tenancy agreement to Lam.

55.As mentioned, Lam denied the existence of the photograph of the ATM deposit advice which suggested payment of the contractual sum under the virtual office tenancy agreement mentioned above on the date of that agreement, 2 December 2015.  In his answers to interrogatories, Lam also denied making such payment, as he found no such record after checking his e-banking account.  He did not disclose printout of that or his consolidated bank statement record of the relevant time.  In court, he explained that he could no longer locate such record. Yet he managed to locate and disclose such record dated half a year earlier in support of his alleged deposits of cash bonus from his boss, which will be discussed below.

56.At the end of the day, Lam could cast no light on how there was such tenancy agreement in the form and apparently signed by Lam as said to be retrieved from his company computer.  Nor could he cast light on the evidence of the making of the initial payment for such tenancy apparently by him as said to be retrieved from his computer.  No such agreement allegedly signed by Yu or evidence of the making of the initial payment by Yu was produced to support him and to rebut Cosme.

57.I find what Cosme discovered to have happened were true.  The picture depicts a series and an extent of involvement by Lam with and in Best Online Cosme that exceeded what would reasonably be expected and appreciated as mere assistance to a customer yet complete stranger.  In my judgment, Yu and Lam have not been entirely truthful in their evidence, and thus preventing the whole truth to be discovered of what might lie behind his going the extra mile to do all those in the case of her.  That is however not to say that whether Lam has therefore infringed the terms of this employment cannot be answered by reference to what is known.

COSME’S PRODUCT LISTINGS

58.As to the company’s photographic images of products, the evidence of Cosme’s witnesses was that the company designated staff and engaged freelance photographer for composing the photographic images of most of the products for its website and online store – so called product listings.  Specific code was assigned by Cosme to the electronic file of each of such listings.  In other words, they were original instead of downloads from the product manufacturers. Invoices for these services were produced.  Not only was such evidence not controverted, Lam, in his position then, could not claim no knowledge about that practice.

59.The suspicion about the connection between Lam and the product images used by Best Online Cosme is not without basis.  At the latest, the team members of Tung even provided the intranet link to the storage of the product listings to Lam as prompted by him.  Tung was able to identify most of those images used by Best Online Cosme for its web-stores as identical to those created and kept by her company[4].  She was further able to explain that by reviewing the source code of Best Online Cosme’s webpage, she managed to identify the file of the specific photographic image with identical photo-identification code to that assigned by Cosme to its product image.  Some of the images used by Best Online Cosme also contained the identical product descriptions originated from Cosme on its website that could not be coincidence.  This gave rise to the question of how Yu came to be able to use those product images and descriptions originated from Cosme.

60.Yu did not actually deny the possibility of the product images used on her web-stores being originated from Cosme.  However, she claimed no knowledge about the actual situation, as the collection was put together for her by the information technology freelance contractors engaged by her.  Yu said now she could not remember any one of these contractors.  Nor was there documentary evidence of or in connection with such engagements.  However, she expressed her understanding that the product images compiled for her by her contractors might have been downloaded online for free, as many were made available for sharing. However, she could not really tell that the product images used in her online business that were originated from the product listings of Cosme were in fact so made available for sharing online and so put together by the contractors for her this way.  More importantly, no part of this explanation was ever put to Tung when she testified in respect of the originality and uniqueness of the product listings compiled by Cosme.

61.As a matter of fact, I find that Lam’s query about the intellectual property status of the images of the product listings of Cosme to be unfounded.  The assertions of Yu in explanation of how she came to be able to use those images are not supported by any independent evidence.  As mentioned, such assertions, which are clearly pertinent, were not even made known or put to Cosme’s witness during the trial.  On a balance of probabilities, such assertions are not preferable to Cosme’s case that the source of those product images being Lam, who had access to them in the course of his employment with Cosme.

THE SALES TO BEST ONLINE COSME

62.By his latest amendment to the defence, Lam contends that the decision on trading with Best Online Cosme was approved by Maki.  The evidence however does not suggest that transactions with a specific customer, be it wholesale or retail, in the course of business required approval by the senior management. This also does not sound realistic objectively.

63.All along, what Lam referred to was approval by Maki of the pricing strategy for wholesale, namely the mark-up of 5-10% over product cost, instead of trading with a specific customer or offering a specific customer wholesale pricing. There is no dispute that wholesale pricing was lower than retail pricing.

64.In this respect, Chan’s statement is almost identical to that of Lam. According to them, they discussed the pricing strategy for wholesale in about August to September 2015, and came up with the proposal of mark-up of 5-10% above cost.  The proposal was made known during one to two weekly meetings which Maki also attended.  No objection was heard during the meetings.  Nor was objection heard after the implementation of such wholesale pricing strategy.  Such pricing strategy was also referred to in Lam’s weekly written report to the company for the week of 11-16 October 2015.  A copy of that was produced.

65.Essentially Lam contends that the pricing for the transactions with Best Online Cosme was in line with the above pricing strategy.  Maki, Cosme’s new witness, admittedly could not recall such proposal and meetings.  All she managed to say was that she could not have approved such proposal as that would make no business sense.  The evidence of Cosme’s witness did demonstrate that such pricing could lead to loss when the mark-up margin could not cover the unit business cost.  That happened in the case of some of Yu’s orders.

66.The pricing strategy of mark-up of 5-10% above product cost might be commercially unsound.  However, it is arguable whether the making of unsound business decision, when short of gross incompetence, suffices to qualify as ground for summary dismissal.  That said, the allegation of Cosme focuses not merely on the pricing strategy.  According to Cosme’s witnesses, the margin for most of orders placed by Yu was even less than 5%.  The combined effect of Lam’s involvement in the setting up of Best Online Cosme without his employer’s prior knowledge and in the manner as discovered as well as the offering of such wholesale pricing to Best Online Cosme, notwithstanding the evidently small order amount, can only be objectively viewed as working to the advantage of Best Online Cosme and hardly in the (best) interest of his employer.

WHETHER LAM WAS IN BREACH

67.On the count of engagement in any capacity (whatsoever) in any trade, business, occupation or activities which is outside his employment without prior consent of Cosme or alternatively association with any business of nature similar to his employment and in conflict with his duty to Cosme, I find Lam was in breach.  I also find that Lam was in breach of the similar implied terms of his employment as pleaded.  Such breach existed irrespective of whether or not Lam had any financial gain from such other business.

68.I also find that Lam was in breach of the intellectual property and business information and confidentiality provisions of the Variation Letter and the Handbook.

69.On the same facts, I also find that Lam was in breach of his fiduciary duty to act in good faith in the best interest of the company.

70.Lam argues that the restraint of trade provision is void for being contrary to public policy.  He could only be referring to non-competition provision in the Variation Letter as set out above.  The provision literally covered the situation after Lam has left his employment.  Therefore, this should not really concern him in the circumstances of this case.

71.That said, whether or not such kind of restraint of trade provision shall be declared void and unenforceable must be fact sensitive.  There was no pleading of the facts and circumstances in the present case on which Lam based for such contention.  In any event, the restriction during the subsistence of his employment was necessary in line with his duty as an employee.  The restriction to be effective after the termination of his employment but limited to a duration of 6 months was not prima facie unreasonable either.

72.The statutory provisions and authorities cited by Lam have been considered, but none of them serves to support or advance even the contention or argument for which those were cited by him.

73.So long as Cosme manages to establish, even only after the dismissal, the presence of the basis for the summary dismissal of Lam at the time of the dismissal, such dismissal would be justified.

THE COUNTERCLAIM

74.It follows from the above that the counterclaim lacks factual footing.

75.For completeness, bonus award in the present case could only fall within the following provision of the employment agreement:-

“The company may also provide other benefit program from time to time. As with all discretionary programs, the Company retains the right to amend, modify, improve, or cancel any or all such programs in the future.”

76.The discretionary nature of bonus award was clearly stated.  Or denied the alleged oral agreement between her and Lam in respect of his entitlement to bonus award.  Objectively, any representation to Lam by Or at that time, if at all, could only be that as to the prospect of the award of bonus, however confident she might feel about that in Lam’s case, when Lam was just about to commence his employment.  That Lam considered that his new employer ought to be aware of his expectation would not serve to elevate the nature of such understanding into an oral agreement, let alone to potentially contradict the written terms mentioned above.

77.The discretionary nature of bonus award was subsequently reiterated by the Variation Letter with reference to the Handbook:-

“1.6  DISCRETIONARY BONUS AWARD

You will be considered for a discretionary bonus depending on your annual performance during the previous calendar year. Any such payment will usually be made in or around Lunar New Year. This will enable the success of the Company, measured by its overall Net Profit, to be established before discretionary awards are announced. The discretionary bonus is calculated based upon your basic salary as at the end of the previous calendar year. The payment and amount of any bonus will be entirely at the discretion of the Company, and there is no contractual entitlement for you to receive a bonus at any time, irrespective of whether a bonus has been paid to you or others on the same or previous occasions.

If you leave the Company prior to the payment date or are under notice of leaving the Company but are still employed at the payment date, you will not receive any bonus.”

78.The attempt of Lam to categorise the introduction of the above provision under the Variation as a “tricky strategy” of his employer is futile.  Had it been considered that he had a valid and enforceable contractual right to bonus, the introduction of the above provision would have been repudiation of the employment agreement by Cosme.  No such issue was taken at the time.  Instead, Lam signed and acknowledged the incorporation of that as a term of his employment.

79.Post-contractual conduct of the contractual parties may be admissible as extrinsic evidence to show the existence of an agreement.  Lam referred to the episode of the Chief Executive Officer of Cosme, Hajima Hiroyuki (“Hajima”), allegedly giving him a total sum of HK$200,000 as bonus by mid-2015.  Whilst Or denied that, Cosme did not call Hajima to rebut that.

80.That the staff of Cosme claimed no contemporaneous knowledge about such alleged episode is no surprise, as even Lam’s own case is that this happened as strictly a matter between Hajima and him in secret.  The secrecy, according to him, was requested by Hajima.  The way the money in cash was said to have been given and handled, as Lam described in his evidence, was most unusual in an employment context.  In the circumstances, even assuming that what Lam said between Hajima and him had happened, such obviously personal design of Hajima could hardly be imputed to the company as its acknowledgement of the existence of a binding and enforceable contractual right of Lam to bonus award.

81.In any event, summarily dismissed by Cosme, Lam is not entitled to claim bonus award as if it were accrued contractual entitlement.

82.Cosme is not liable under section 9 of the EO to make payment in lieu of notice pursuant to section 7.  I would add that even assuming that Cosme was not entitled to dismiss him summarily, there will be no basis for the claim for damages and in the sum equivalent to two months’ salaries on top of the payment in lieu of notice.

RELIEF

83.Mr Wong addressed the question of relief only in his oral closing submissions.

84.Cosme claims damages for breach of the Employment Agreement.  As an alternative, it claims for liquidated damages and damages for breach of the agreement.  I can only take the claim for damages and liquidated damages to be alternatives.

85.The heads of damages and how they should be assessed for the breach as found against Lam are unclear.  Mr Wong opted for liquidated damages.  However, as mentioned, the liquidated damages provision was expressly set out under, and literally linked to, the restraint of trade provision under the non-competition clause contained in the Variation Letter.  In other words, it operates in case of breach of the restraint of trade clause (for a duration of 6 months after Lam has left the employment).  There is no issue of such breach in the present case.  Hence my earlier comment that that should not concern Lam.  Strictly, the wordings of the terms of employment did not provide for the operation of such liquidated damages provision in any other cases of breach of the employment agreement.

86.There is no assertion or evidence of loss of business or customers as a result of Lam’s breach.

87.Cosme also claims for an account of secret profits received by Lam in breach of his fiduciary duty and payment of the amount as found due upon the taking of such account.  However, the factual basis on which Lam is found to be in breach was his engagement and involvement in the setting up of the business of Best Online Cosme, which fell into the category of competing business, without prior consent of Cosme.  I do not find that Lam was in fact involved in a way that would entitle him to sharing of financial gain from the business of Best Online Cosme during its short lifespan until March 2016.

88.Cosme claims for an injunction restraining Lam or his servants or agents from using its intellectual properties, which could only be referring to the images and descriptions of the product listings created by Cosme (prayer (6) of the statement of claim).  It also claims for an injunction mandating Lam to return all copies of such properties and to destroy all electronic copies of such properties obtained from Cosme in the course and because of his employment (prayer (7) of the statement of claim).  Whilst the business of Best Online Cosme or its use of the product images originated from Cosme, according to the evidence, might have ceased, I am of the view that Cosme is entitled to the protection of the injunctive relief.

89.Cosme also claims damages for infringement of intellectual property rights.  The exact loss and its assessment are not explained by evidence.  The suggestion of assessment by reference to the production cost of the 87 items of such properties in question[5] lacks sound basis.

ORDER

90.Judgment is entered in favour of Cosme against Lam.  I make an order in terms of the injunctions sought under (6) and (7) of the prayer of the statement of claim as explained above.  Compliance, including confirmation of whether or not Lam has present control over any such copies of Cosme’s intellectual properties, may be verified by him by way of affidavit filed within 28 days of the service of the order herein.

91.The counterclaim is dismissed.

92.Following the event, I make a nisi order that Lam shall pay Cosme’s costs of this action (since the transfer of proceedings to this level of court), including any costs reserved.  Costs shall be taxed if not agreed with certificate for counsel.  In the absence of application in 14 days to vary, the costs order shall become absolute without further order.

Mr James LW Wong, instructed by Rowdget W Young & Co, for the plaintiff

The defendant appeared in person