Dcl Communication Ltd v. Lam Yim Chi Julia and Another

HCA 252/2022

[2023] HKCFI 98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 252 OF 2022

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Before:  Deputy High Court Judge H. Au-Yeung in Chambers (Open to Public)

Date of Hearing:  4 January 2023

Date of Decision:  4 January 2023

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DECISION

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THE APPLICATION

1.By summons filed on 28 February 2022 (“the Summons”), the plaintiff applies, inter alia, for an injunction to restrain the 2^nd defendant from:

(1)  Using or disclosing any or part of the plaintiff’s clientele list, the date and time when the plaintiff’s contracts with their clients expire, the plaintiff’s profit margins for each contract procured by them, and the time when the plaintiff will commence negotiation with clients for the purpose of renewing such contracts (“Confidential Information”);

(2)  Otherwise misusing the Confidential Information or any of it.

2.While the plaintiff initially also sought a similar injunction against the 1^st defendant by virtue of the Summons, that part of the application has been disposed of by consent by the 1^st defendant’s giving an undertaking to the Court.

3.Hence, what remains to be dealt with herein is the plaintiff’s application against the 2^nd defendant.

BACKGROUND

4.The plaintiff is a company incorporated in Hong Kong providing IT and Electrical & Mechanical infrastructure services to different companies in respect of server rooms and data centres. Such services include the design and installation of facilities as well as the subsequent maintenance thereof.

5.The maintenance contracts entered into between the plaintiff and its clients are subject to renewal every year.

6.The 1^st defendant joined the plaintiff on 12 November 2012 as an Account Executive. During her employment with the plaintiff, she had been responsible for, inter alia, dealing with the plaintiff’s clients.

7.It was provided in the 1^st defendant’s employment contract with the plaintiff, among other things, that:

“You shall not at any time, during and after your employment by the Company, directly or indirectly divulge to third parties any details of the Company business (pricing information and database), finance transactions, affairs or dealings confidential to the Company without the prior express written permission of the Management. The disclosure of such information will expose you to disciplinary action, which may include summary dismissal and may give rise to criminal prosecution.”

8.However, it should be noted that there is no “restraint of trade” clause in the 1^st defendant’s employment contract with the plaintiff.

9.The 1^st defendant left the plaintiff’s employment in September 2019. During her 7 years’ employment with the plaintiff, she had assumed various posts, and her last position in the plaintiff company was its Customer Care Sales Manager.

10.The 1^st defendant only joined the 2^nd defendant in April 2021 (i.e. 1 year and 7 months after she had left the plaintiff) as Sales Manager[1].

11.The 2^nd defendant is an IT infrastructure solution provider. Its business mainly includes (1) building of server rooms and data rooms; and (2) the maintenance thereof. It was set up by Mr. Chow Che Kin (“Mr Chow”) who had worked for the plaintiff for 8 – 9 years (up to June 2015) before he decided to start his own business. He is now one of the directors and shareholders of the 2^nd defendant.

EVENTS LEADING TO THE PRESENT APPLICATION

12.Sometime around December 2021, the plaintiff lost its maintenance contract with Gold Coast Yacht Club (“Yacht Club”). Mr Chui Kwok Wing (“Mr Chui”) (Managing Director of the plaintiff) said the plaintiff was surprised by this because of its long-standing relationship with Yacht Club (such a relationship had led the plaintiff to believe in the past that the negotiation of a renewed maintenance contract was only a matter of formality).

13.Having conducted an investigation into the matter, the plaintiff realised that its original sale contract entered into with Yacht Club on 3 May 2019 was handled by the 1^st defendant. This alerted the plaintiff, which therefore asked its employees to follow up on the matter and pay particular attention to the renewal process of other maintenance contracts.

14.As part of the above process, a meeting was set up by the plaintiff on 30 December 2021 with one of its important clients, Richemont Asia Pacific Limited (“Richemont”). During this meeting, the plaintiff was informed that there were three other companies bidding for Richemont’s maintenance contract which was to be renewed and the prices quoted by them were all significantly lower than the contractual price offered by the plaintiff. However, despite the plaintiff’s further enquiry on the matter, Richemont refused to provide any further information on those other offers.

15.Shortly after this, the plaintiff was informed by another long-standing client, Chief Securities Limited (“Chief Securities”), that the 1^st defendant, on behalf of the 2^nd defendant, had approached it in an attempt to sell similar services and products that the plaintiff offered.

16.The plaintiff therefore considered that it was also likely that the 1^st defendant was the reason why the plaintiff lost Yacht Club as a client. It was suspected that the 1^st defendant had contacted the plaintiff’s clients “at the right time” (i.e. around the time when those clients’ maintenance contracts were due for renewal) so as to entice those clients away. The plaintiff therefore contacted the representative of Chief Securities and investigated further on this. The investigation result, according to the affirmation evidence of Mr Chui of the plaintiff, was that:

“52. […] After queries, and upon checking our records, we realised the 1^st Defendant was likely in helping the 2^nd Defendant and poaching the Plaintiff’s client.

53. However, the representative was not willing to name, explicitly, who had successfully tendered for the maintenance contract, but I do note that they did not deny the fact that the 1^st Defendant and the 2^nd Defendant were the successful tenders.

54. During this point, we realized that it was likely that it was the 1^st Defendant together with Cyrus[2] and the 2^nd Defendant undercutting the Plaintiff’s prices and poaching clients.

55. After further investigation with the Plaintiff’s sales department, we discovered that some of the employees had, in fact seen the 1^st Defendant at the offices of the Plaintiff’s clients. Of course, as I have stated before, the 1^st Defendant is not barred from meeting with clients who had been the Plaintiff’s clients, but we believe that this is highly suspicious.

56. As stated above, to be able to undercut the Plaintiff, a competitor must possess all of the Confidential Information to be able to approach the right clients at the right time with the right price.

57. Therefore, the only conclusion is that the 1^st Defendant has been providing the Confidential Information to allow the 2^nd Defendant to poach the Plaintiff’s clients and renew the maintenance contract in lieu of the Plaintiff and, in essence, make profits that the Plaintiff is entitled to.”

17.Mr Chui had called up Mr Chow and asked him not to use the Confidential Information for poaching the plaintiff’s clients. While Mr Chow had rebuked him, Mr Chow did not deny that the 1^st defendant had approached the plaintiff’s clients.

18.As the defendants ignored the plaintiff’s requests for them to return all Confidential Information and undertake not to use such information, the plaintiff commenced this action and made the present application.

THE LEGAL PRINCIPLES

19.It is trite that the American Cyanamid principles are applicable in an application for interlocutory injunction. Pursuant to those principles, the Court has to consider:

(1)  Whether there are serious issues to be tried;

(2)  Whether damages would be an adequate remedy for either side and where the balance of convenience lies.

20.The plaintiff is seeking to obtain a springboard injunction against the 2^nd defendant herein. The leading case in this area of the law is QBE Management Services (UK) Limited v Dymoke [2012] IRLR 458. At [240] – [247] thereof, Haddon-Cave J summarised the relevant legal principles as follows:

“240. First, where a person has obtained a ‘head start’ as a result of unlawful acts, the Court has the power to grant an injunction which restrains the wrongdoer, so as to deprive him of the fruits of his unlawful acts. This is often known as ‘springboard’ relief.

241. Second, the purpose of a ‘springboard’ order as Nourse L.J. explained in Roger Bullivant v Ellis [1987] ICR 464 is ‘to prevent the defendants from taking unfair advantage of the springboard which [the Judge] considered they must have built up by their misuse of the information in the card index’ (at page 476G). May L.J. added that an injunction could be granted depriving defendants of the springboard ‘which ex hypothesi they had unlawfully acquired for themselves by the use of the plaintiffs’ customers’ names in breach of the duty of fidelity’ (at 478E-G). The Court of Appeal upheld Falconer J.’s decision restraining an employee who had taken away a customer card index from entering into any contracts made with customers.

242. Third, ‘springboard’ relief is not confined to cases of breach of confidence. It can be granted in relation to breaches of contractual and fiduciary duties (see Midas IT Services v Opus Portfolio Ltd., unreported Ch.D, Blackburne J. 21/12/99, pp. 18-19), and flows from a wider principle that the court may grant an injunction to deprive a wrongdoer of the unlawful advantage derived from his wrongdoing. As Openshaw J. explained in UBS v Vestra Wealth (supra) at paragraphs [3] and [4]:

‘There is some discussion in the authorities as to whether springboard relief is limited to cases where there is a misuse of confidential information. Such a limitation was expressly rejected in Midas IT Services v Opus Portfolio Ltd, an unreported decision of Blackburne J made on 21 December 1999, although it seems to have been accepted by Scott J in Balston Ltd v Headline Filters Ltd [1987] FSR 330 at 340. In the 20 years which have passed since that case, it seems to me that the law has developed; and I see no reason in principle by which it should be so limited.

In my judgment, springboard relief is not confined to cases where former employees threaten to abuse confidential information acquired during the currency of their employment. It is available to prevent any future or further economic loss to a previous employer caused by former staff members taking an unfair advantage, and ‘unfair start’, of any serious breaches of their contract of employment (or if they are acting in concert with others, of any breach by any of those others). That unfair advantage must still exist at the time that the injunction is sought, and it must be shown that it would continue unless retrained. I accept that injunctions are to protect against and to prevent future and further losses and must not be used merely to punish breaches of contract.’

243. Fourth, ‘springboard’ relief must, however, be sought and obtained at a time when any unlawful advantage is still being enjoyed by the wrongdoer: Universal Thermosensors v. Hibben [1992] 1 WLR 840 Nicholls V-C; see also Sun Valley Foods Ltd v. Vincent [2000] FSR 825 esp at 834.

244. Fifth, ‘springboard’ relief should have the aim ‘simply of restoring the parties to the competitive position they each set out to occupy and would have occupied but for the defendant’s misconduct’ (per Sir David Nicholls VC Universal Thermosensors v. Hibben [1992] 1 WLR 840 at [855A]). It is not fair and just if it has a much more far-reaching effect than this, such as driving the defendant out of business [855A].

245. Sixth, ‘springboard’ relief will not be granted where a monetary award would have provided an adequate remedy to the Claimant for the wrong done to it (Universal Thermosensors v. Hibben [1992] 1 WLR 840 at [855B]).

246. Seventh, ‘springboard’ relief is not intended to punish the Defendant for wrongdoing. It is merely to provide fair and just protection for unlawful harm on an interim basis. What is fair and just in any particular circumstances will be measured by (i) the effect of the unlawful acts upon the Claimant; and (ii) the extent to which the Defendant has gained an illegitimate competitive advantage (see Sectrack NV. v. (1) Satamatics Ltd (2) Jan Leemans [2007] EWHC 3003 Flaux J.). The seriousness or egregiousness of the particular breach has no bearing on the period for which the injunction should be granted. In this regard, it is worth bearing in mind what Flaux J, said at paragraph [68]:

‘[68] I agree with Mr Lowenstein that logically, the seriousness of the breach and the egregiousness of the Defendants’ conduct cannot have any bearing on the period for which the injunction should be granted - what matters is the effect of the breach of confidence upon the Claimant in the sense of the extent to which the First Defendant has gained an illegitimate competitive advantage. In my judgment, Mr Cohen’s submissions seriously underestimate the unfair competitive advantage gained by the Defendants from access to the Claimant’s ‘customer list’ and ignore, in any event, the impact (if the injunction were lifted) of actual or potential misuse of other confidential information such as volume of business or pricing information. It is important in that context to have in mind that the Claimant maintains in its evidence that all the information said to be confidential remains confidential.’ (emphasis added)

247. Eighth, the burden is on the Claimant to spell out the precise nature and period of the competitive advantage. An ‘ephemeral’ and ‘short term’ advantage will not be sufficient (per Jonathan Parker J. in Sun Valley Foods Ltd v. Vincent [2000] FSR 825 esp at 834).”

21.In Universal Thermosensors Limited v Hibben & Others [1992] 1 WLR 840, Sir Donald Nicholls V-C held that:

“Save on one point the underlying applicable legal principles were not in dispute. The contracts of employment between the plaintiff and the three individual defendants did not include any provision restricting their activities after their employment ended. So when they left they were free to set up at once a directly competing business in the immediate locality. Further, they were entitled to approach the plaintiff’s customers, and seek and accept orders from them. Still further, they were entitled to use for their own purposes any information they carried in their heads regarding the identity of the plaintiff’s customers, or customer contacts, or the nature of the customers’ product requirements, or the plaintiff’s pricing policies, provided they had acquired the information honestly in the ordinary course of their employment and had not, for instance, deliberately sought to memorise lists of names for the purposes of their own business. What the defendants were not entitled to do was to steal documents belonging to the plaintiff, or to use for their own purposes information, which can sensibly be regarded as confidential information, contained in such documents regarding the plaintiff’s customers or customer contacts or customer requirements or the prices charged. Nor were they entitled to copy such information onto scraps of paper and take these away and then use the information in their own business.” (at 850D – G) (emphasis added)

22.With the above authorities in mind, I am of the view that the Court has to consider the following questions in this application:

(1)  Whether there has been any unlawful behaviour on the part of the 1^st and 2^nd defendants;

(2)  If so, whether an unfair competitive advantage over the plaintiff as a result of the unlawful behaviour has been obtained;

(3)  If so, whether the nature and period of the competitive advantage is more than “ephemeral” and “short term”, and whether the 1^st and 2^nd defendants are still enjoying and will continue to enjoy any unlawful advantage unless the injunction sought is granted;

(4)  Whether monetary award would have provided an adequate remedy to the plaintiff.

DISCUSSION

Unlawful behaviour?

23.Parties have adduced evidence for and against the proposition that the 1^st defendant had had access to the Confidential Information while she was still employed by the plaintiff. I do not think the Court should conduct a mini-trial on this issue on affidavits. It suffices for me to say that the plaintiff has raised a serious issue to be tried in this aspect of its case.

24.However, that is not enough for the purpose of this application. Even if the 1^st defendant did have access to the Confidential Information, the Court still has to consider whether there has been any unlawful behaviour on the part of the 1^st and 2^nd defendants. If not, that would be the end of the plaintiff’s application.

25.The burden of establishing such unlawful behaviour is on the plaintiff. Such a burden is not a heavy one in the context of an interlocutory injunction application.

26.Be that as it may, I am afraid the plaintiff has simply failed to discharge this burden.

27.Firstly, the plaintiff’s suspicion about the unlawful behaviour on the part of the 1^st defendant started with its loss of a maintenance contract with Yacht Club. However, I do not think that this fact, even coupled with the fact that the 1^st defendant has joined the 2^nd defendant, would be enough for the Court to infer that the 1^st defendant had misused the Confidential Information for the purpose of contacting the plaintiff’s clients “at the right time” and poaching them from the plaintiff. This is particularly so when it is now confirmed by Mr Calvin Lee of Yacht Club by letter dated 21 March 2022 that it was he who initiated the contact with the 1^st defendant rather than the other way round, and that it was he who requested the 1^st defendant to provide a quotation for provision of maintenance service.

28.Mr Pang for the plaintiff queried that if the 1^st defendant had not approached Yacht Club in the first place, how come Mr Calvin Lee would all of a sudden contact the 1^st defendant. However, it should be noted that while the plaintiff had not placed any evidence before this Court to support its case that it was the 1^st defendant who initiated the communication with Yacht Club, the 1^st defendant was able to produce the said letter from Mr Calvin Lee for the purpose of negating the plaintiff’s speculation. For the purpose of this application, there is no doubt that this Court should place much heavier weight on the said letter.

29.Secondly, even the plaintiff accepted that most of its clients would ask for quotations from different service providers when their maintenance contracts with the plaintiff were going to expire. This further weakens the plaintiff’s case. As far as the aforesaid quotation process is concerned, I do not accept Mr Chui’s evidence that it was “a mere matter of formality”[3], because (1) this assertion does not make commercial sense; and (2) more importantly, this contradicts his own evidence that the successful renewal of such maintenance contracts would depend on, inter alia, the pricing of the new contract[4].

30.Thirdly, Mr Chui of the plaintiff admitted that he was informed by Richemont in December 2021 that there were three other companies bidding for the maintenance contract of Richemont which was due for renewal in March 2022. Even assuming that one of those companies was the 2^nd defendant, this demonstrates that there were two other companies which had provided Richemont with a quotation for maintenance services. This is not surprising at all, because it is evident by a letter dated 16 March 2022 issued by Mr Franklin Fung of Richemont that it was he who contacted the 1^st defendant and requested her to provide a quotation. It can be inferred (and it makes perfect commercial sense) that Richemont had requested for quotations from other companies as well. On the other hand, it is bizarre for Mr Chui to suggest that it was the 1^st defendant who divulged the Confidential Information in relation to Richemont to other competitors such that they could bid for the new maintenance contract[5].

31.All these show that the fact that the 2^nd defendant had bidded a much lower price than that offered by the plaintiff (if that was the case) does not necessarily mean that there has been any unlawful behaviour on the part of the 1^st and/or the 2^nd defendants.

32.Fourthly, in respect of the plaintiff’s complaint that the 1^st defendant had approached Chief Securities and offered to provide maintenance services, Mr Chui stated that:

“[…] the representative of Chief Securities Limited was a bit more willing to divulge information, and we were informed explicitly that it was the 1^st Defendant who had approached them and that the 1^st Defendant was attempting to sell similar services and products that the 1^st Defendant offers. It was at this point when the matter became apparent that the 1^st Defendant was using the Confidential Information to poach the Plaintiff’s client.”[6]

33.Order 41 rule 5(2) of the Rules of the High Court (Cap.4A, Laws of Hong Kong) provides that:

“An affidavit sworn for the purpose of being used in interlocutory proceedings may contain statements of information or belief with the sources and grounds thereof.”

34.Mr Chui did not name the person who was “the representative of Chief Securities Limited”. In such circumstances, as accepted by Mr Pang for the plaintiff, the said Order 41 rule 5(2) was not satisfied, and therefore this part of his evidence is inadmissible.

35.Moreover, it is noted that Mr Chui said that “they were informed” that it was the 1^st defendant who approached Chief Securities. It is thus not clear as to whether such evidence involves multiple hearsay. Hence, even if such evidence is admissible for the purpose of this application, minimal weight should be given thereto.

36.In any event, even if the 1^st defendant had indeed approached Chief Securities and offered to provide maintenance services, that per se cannot amount to any unlawful act on the part of the 1^st defendant[7]. I should also note that, as aforesaid, there is no “restraint of trade” clause in the 1^st defendant’s employment contract with the plaintiff.

37.It can also be seen that Mr Chui had made a quantum leap when he said it became apparent that the 1^st defendant was using the Confidential Information to poach the plaintiff’s clients – when his only basis for saying so was that the 1^st defendant had approached a client of the plaintiff.

38.Fifthly, it must be borne in mind that the 1^st defendant only joined the 2^nd defendant more than 1½ year after she had left the plaintiff’s employment. All maintenance contracts had at least been renewed once[8] if not twice by then. The plaintiff has not made out any case that the Confidential Information could still be useful for the 2^nd defendant to poach the plaintiff’s clients away. In such circumstances, there is no serious issue to be tried that the 2^nd defendant had made any unlawful use thereof.

39.All in all, I am of the view that the plaintiff’s case is very weak and has no proper foundation at all. This was recognised by Mr Chui in his 2^nd Affirmation:

“40. The Plaintiff cannot be privy to the conversations and/or acts of the Defendants and can only infer from context or the surrounding circumstances.

41. In this particular circumstance, the Plaintiff’s evidence of the 1^st Defendant having meetings with the Plaintiff’s clients is clearly one of the strong pieces of evidence to suggest that there may be a possibility of the Defendants utilizing the Confidential Information.”

40.In my view, the plaintiff’s case is only built upon suspicion and speculation without concrete evidence which may be relied upon by the Court.

41.The plaintiff’s application against the 2^nd defendant should therefore be dismissed.

Unfair competitive advantage?

42.Strictly speaking, in light of the above conclusion, there is no further need to consider the rest of the questions posed in paragraph 22 of this Decision. However, for the sake of completeness, I will deal with them briefly.

43.To recap, the alleged Confidential Information includes:

(1)  The plaintiff’s clientele list;

(2)  The date and time when the plaintiff’s contracts with their clients expire;

(3)  The plaintiff’s profit margin for each contract;

(4)  The time when the plaintiff will commence negotiation with clients for the purpose of renewing such contracts.

44.For items (1), (2) and (4), it is apparent that most, if not all, of the plaintiff’s clients would ask different service providers for quotations when their maintenance contracts were going to expire soon. In such circumstances, even if the 1^st defendant had divulged such information to the 2^nd defendant, it would not have given the 2^nd defendant any unfair competitive edge or head start over the plaintiff.

45.In relation to item (3), the evidence adduced by Mr Chui himself shows that there were altogether three service providers which had quoted much lower price than the plaintiff for the purpose of bidding for the maintenance contract with Richemont. As discussed, even assuming that the 2^nd defendant was one of them, it is bizarre to suggest that the 1^st defendant had informed the other two companies about the plaintiff’s profit margin so that they could bid a price which was (much) lower than that offered by the plaintiff. In other words, even if the plaintiff’s profit margin remained the same after one or two renewals of maintenance contracts since the 1^st defendant’s departure from the plaintiff, it can be seen that other competitors were able to compete with the plaintiff without such information.

46.Therefore, I hold that even if the 1^st defendant had unlawfully divulged the Confidential Information to the 2^nd defendant, the latter would not as a result have obtained any unfair competitive advantage over the plaintiff.

Nature and period of the competitive advantage

47.As mentioned above, by the time when the 1^st defendant joined the 2^nd defendant, she had already left the plaintiff for more than 1½ year, not to mention that, by the time of this hearing, the 1^st defendant had not worked for the plaintiff for 3 years and 4 months.

48.In my view, any information about profit margin must have become outdated.

49.Hence, any competitive advantage, if existed at all, must have vanished by now.

50.In such circumstances, the injunction sought should not be granted.

Damages – adequate remedy?

51.Furthermore, the balance of convenience also lies against the grant of any injunction, because in the event the plaintiff succeeds at the trial, damages would no doubt be an adequate remedy for the purpose of compensating the plaintiff’s loss of profit.

52.Mr Pang argued that if the injunction sought is not granted, the 2^nd defendant would be at liberty to disclose the Confidential Information to other competitors and this would cause an upsurge of competitors which would lead to saturation of the market.

53.With greatest respect, this submission is totally without merit and lacks commercial sense. If the Confidential Information is as valuable as the plaintiff alleges, it is beyond imagination that the 2^nd defendant would spread it around for the benefit of others rather than keeping such information for its own use.

ORDER

54.By reasons of the aforesaid, the Summons is dismissed.

COSTS

55.There is no reason why costs should not follow the event. I therefore make a costs order that the plaintiff shall bear the 2^nd defendant’s costs of the Summons.

56.The 2^nd defendant’s cost of the Summons is summarily assessed in lieu of taxation pursuant to Order 62 rule 9A(1)(a) of the RHC at $240,000 and shall be paid on or before 18 January 2023.

Mr Ronald Pang, instructed by KCL & Partners, for the plaintiff

Attendance of the 1^st defendant excused

Mr Thomas Nip, instructed by Cheng & Co, for the 2^nd defendant