Conpak Management Consultants Ltd v. Luk Wai Ting
Read the full judgment text of DCCJ 3016/2021 on BabelCite. This District Court judgment was delivered on 19 September 2024.
1. This is a trial of the plaintiff’s claim against its former employee for breach of contract, breach of confidence, breach of fiduciary duties and fidelity in relation to the use and disclosure certain information of the plaintiff. The plaintiff claims for injunctive relief and damages and/or an account for profit.
Cites 6 cases
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DCCJ 3016/2021 [2024] HKDC 1545 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 3016 OF 2021 -------------------------------- BETWEEN
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-------------------------------- JUDGMENT -------------------------------- I. INTRODUCTION 1.This is a trial of the plaintiff’s claim against its former employee for breach of contract, breach of confidence, breach of fiduciary duties and fidelity in relation to the use and disclosure certain information of the plaintiff. The plaintiff claims for injunctive relief and damages and/or an account for profit. II. BACKGROUND NOT IN DISPUTE 2.At all material times, the plaintiff was and is a practising certified public accountants firm in Hong Kong. It provided and provides accountancy and related services including tax advice. Among its clients were Angenvoort Asia Pacific Limited (“Angenvoort”) and Tom Lee Music Foundation Limited (“Tom Lee”). 3.Since June 2011, the defendant has owned and controlled a sole proprietorship business under the name “WILTAX & COMPANY” (“WILTAX”). 4.By an employment contract dated 13 July 2016 (the “Employment Contract”), the plaintiff employed the defendant as a Tax Manager with effect from 29 August 2016. The defendant stayed with the plaintiff a bit less than a year. He then resigned with effect from 31 July 2018. 5.The Employment Contract provided:-
6.Despite clauses 13 and 14 of the Employment Contract, the defendant never declared his ownership and control of WILTAX to the plaintiff and never sought any approval from the plaintiff for him to take up any position in WILTAX. 7.During the defendant’s employment with the plaintiff, the plaintiff provided the defendant with the email account [email protected] (the “Defendant’s Conpak Email Account”) for him to communicate with the plaintiff’s clients. In relation to the use of this email account, the plaintiff provided the defendant with a policy document titled “Conpak Management Consultants Limited and Conpak CPA Limited – Email Usage, Internet and Instant message (IM) Monitoring Policy (the “Policy”). The Policy provided that:-
8.On 26 September 2017, using the Defendant’s Conpak Email Account, the defendant sent an email (the “Defendant’s Email of 26 September 2017 re Tom Lee”) to his personal account [email protected]. The Email read:-
9.The attached tax engagement letter provided that WILTAX would be engaged to provide professional services in respect of a letter dated 15 August 2017 issued by the Inland Revenue Department to Tom Lee at a fee of HK$65,000 exclusive of disbursements. 10.Correspondingly, the attached appointment engagement letter provided that Tom Lee would appoint WILTAX as its representative to handle the said letter dated 15 August 2017 issued by the Inland Revenue Department to Tom Lee. 11.Separately, during the employment, the defendant forwarded 223 emails from the Defendant’s Conpak Email Account to his own personal email account [email protected]. The identities of the clients in those emails are not made known in the present case. 12.As mentioned above, the defendant resigned from the plaintiff on 31 July 2018. More than one and a half years later, on 8 April 2020, the defendant, by then a director of APEC Taxation Services Limited (“APEC Tax”), used the email account provided by APEC Tax, namely, [email protected], to send an email (the “Defendant’s Email of 8 April 2020 to Angenvoort”) to Christian Angenvoort of Angenvoort, saying:-
13.Tom Lee remains a client of the plaintiff, and Angenvoort no longer is, although it is not the plaintiff’s case that the defendant diverted Angenvoort to the defendant or his associated business like WILTAX or APEC Tax. III. PLAINTIFF’S CASE 14.The plaintiff’ claims in its re-amended statement of claim are not clear. In order to avoid any misinterpretation of the plaintiff’s claim, in respect of its complaint about confidential information, I would quote the following parts:-
15.On these pleas, Mr Leon Ho, counsel for the plaintiff, opened the plaintiff’s case by submitting that:-
16.In respect of the Defendant’s Email of 26 September 2017 re Tom Lee, similarly, I would like to quote the following parts:-
17.I note that there is no plea that this Defendant’s Email of 27 September 2017 re Tom Lee was indeed sent to Tom Lee. 18.In context, the plaintiff’s claim of the defendant’s conflict of interest is confined to:-
19.Further, the plaintiff claims an account for profit. As can be seen in §12B(a) of the re-amended statement of claim, the plaintiff only pleads that the defendant made use of WILTAX to conduct business in competition with the plaintiff. There is no claim that all the profits made by WILTAX were profits arising only out of the business of WILTAX competitive with the plaintiff. Nor is there any claim that WILTAX’s only business was the one competitive with the plaintiff. Nor is there any plea that the business giving rise to the profits first came to WILTAX or the defendant in the capacity of a plaintiff’s employee. Nor is there any plea that the plaintiff’s claim for an account of profit would be for all the profits made by WILTAX regardless. 20.In his opening submissions, Mr Ho claims that the plaintiff is entitled to the profit earned by WILTAX for the period from 1 April 2017 until 31 July 2018. 21.Further, the plaintiff claims that the defendant diverted a business opportunity of Tom Lee from the plaintiff and breached, among others, clauses 12, 14 and 15 of the Employment Contract and his duties to the plaintiff. The plaintiff claims that as a result, the plaintiff has suffered loss and damage of the sum of at least HK$65,000 as a result of the diversion of the business opportunity. 22.In this regard, Mr Ho contended during the opening submissions that although Tom Lee remains a client of the plaintiff, the business opportunity diverted was in relation to the services in relation to tax matter mentioned in the Defendant’s Email of 27 September 2017 re Tom Lee. But I noted that it remained the fact that the defendant or WILTAX did not enter into any transaction in relation to this “opportunity”. That said, Mr Ho maintained that the business opportunity was still diverted, although he could not point out to whom it was diverted. 23.I also note that there is no plea that the business opportunity was a mature one. Nor is there any plea as to how “as a result [of the Defendant’s Email of 27 September 2017 re Tom Lee], Tom Lee did not approach the Plaintiff”: see §12G of the re-amended statement of claim. 24.The plaintiff prays for the following relief:-
IV. DEFENDANT’S DEFENCE 25.In response to §5 of the re-amended statement of claim, the defendant pleads at §5 of the re-amended defence:-
26.The defendant further avers that he did not disclose the confidential information to any third parties, but only to himself, in sending out the Defendant’s Email of 8 April 2020 to Angenvoort. 27.Further, he relies on the explanation given in a letter prepared by his previous solicitors (Messrs Sun Lawyers LLP) dated 5 May 2021 (the “Sun Lawyers’ Letter of 5 May 2021”):-
28.As regards the Defendant’s Email of 26 September 2017 re Tom Lee, the defendant alleges that he did not have knowledge that Tom Lee has been a client of the plaintiff, and in any event, the plaintiff has only suffered a loss of business opportunity. V. ISSUES 29.The parties put before me an agreed list of issues, which are:-
30.On top of all these, I think the more fundamental question is what the information in question is and whether the information has the quality of confidence for the remedies the plaintiff seeks. VI. CONFIDENTIAL INFORMATION? 31.In respect of confidential information and employers’ contractual right to restrain the employees’ use of confidential information, Mr Brian Lo, counsel for the defendant, draws my attention to the well-established principles as expounded by Riberiro PJ, delivering the unanimous judgment of the Court of Final Appeal in PCCW-HKT Telephone Ltd v Aitken (2009) 12 HKCFAR 114 at §§23-25:-
32.I emphasise that not all information labelled as “confidential information” is confidential information protected by the law post-termination of employment. It is only “confidential information of equivalent status” (besides trade secrets) that is. 33.Mr Ho submits that the defendant does not deny §5 of the re-amended statement of claim, and thus should be taken to admit that the information was confidential. Having read the pleadings, I disagree with Mr Ho, and find that the defendant does not admit (expressly, impliedly or otherwise) the confidentiality of the information, for the following reasons:-
34.Therefore, there is no admission to the confidentiality of the information. I have to analyse whether the information in question is confidential. 35.The burden lies upon the plaintiff to establish the following elements in order to satisfy me that the information is confidential information of an equivalent status as trade secrets:-
See Kuoni Travel (China) Ltd v Kelly Frances Richards and others, HCA 1265/2006, 28 September 2006 at §9 per DHCJ To. 36.With respect to Angenvoort’s contacts, there is no plea or evidence as to (2) above, namely, the information was confidential in that it was not already in the public. Mr Ho, for the plaintiff, submits that it is clear from the pleadings that the information came in the course of the business of the plaintiff, and so it must have been confidential in that it was not publicly available. I disagree – while the information may have come in the course of the business of the plaintiff, it does not follow that the information was not publicly available. 37.During the opening submissions, Mr Ho also relied on Willwin Development (Asia) Company Ltd and another v Wei Xing and others, HCA 797/2012, 8 March 2016 to mount a proposition that names and contact of clients are such confidential information. Such reliance is misplaced. In that case, the names and contact of the clients were not just names and contacts as such, but were associated with their product features and specifications. As explained by Mimmie Chan J in §§91 and 97 of that case:-
38.The present case, on the pleading and on the evidence, is far from that. In the present case, the plaintiff’s contention simply is that the clients’ contacts are “confidential information of an equivalent status”. In the absence of the essential element that the information was not publicly available, I am not satisfied that the contacts of Angenvoort carries the necessary quality of confidence to entitle the plaintiff to the post-termination protection it seeks. 39.Insofar as the 223 emails are relevant to the plaintiff’s claim, the above reasons apply even more strongly to the 223 emails.
40.Mr Ho’s reliance on the accountants’ duties of confidentiality adds nothing. The question remains whether the information in question has the requisite quality of confidentiality. I fail to see why there is confidentiality in the information which is publicly available even in the accountants’ context. 41.As a reality check, I do not see any practical injustice in my conclusion on the non-confidentiality of the information in relation to the contacts. A restraint of trade clause would be found unenforceable as contrary to public policy if the limits imposed in the trade clause are unreasonable, and as a general rule of thumb (not a rule of law), in respect of the time limit, such a clause would usually not be found unenforceable if it were for a restraint of 6 – 12 months absent any special circumstances. Further, where appropriate, the Court may impose a springboard injunction to remove any head start gained by the employee who would, but for the undue advantage gained from the misuse of the information obtained in the previous employment, would have to spend more time to obtain such information. Thus, absent any requisite confidentiality of the contacts of the clients, I do not see why the law should allow the plaintiff to prohibit the defendant from using such information indefinitely, which prohibition would effectively be a restraint of trade clause for no limits. A fortiori, in the present case, there was no restraint of trade clauses. 42.In the opening submissions, Mr Ho slightly raised a contention that the confidential information contained in the Defendant’s Email of 8 April 2020 to Angenvoort was not limited to the contacts, but also the email chains entailed to the Email, which chains are indisputably emails sent during the defendant’s employment with the plaintiff. However, this is not the plaintiff’s pleaded case, and thus the plaintiff is not permitted to run this case at trial. Mr Ho rightly did not pursue this contention during the closing submissions. VII. WHETHER THE PLAINTIFF APPROVED AND CONSENTED TO THE USE OF THE DEFENDANT’S OWN PERSONAL EMAIL ACCOUNT FOR WORK BY THE DEFENDANT DURING THE COURSE OF HIS EMPLOYMENT WITH THE PLAINTIFF 43.In relation to whether there was any approval from the plaintiff for the defendant to forward emails to his own personal account, first, I find that the plaintiff maintained a policy that approval would be required for the defendant to forward emails to his own personal account. I particularly find the evidence contained in §6 of Lee Yuk Fan’s Witness Statement (for the plaintiff) convincing, and so I find, that such a policy was necessary so as to ensure that all the emails would be contained within the plaintiff’s system and replied to within the plaintiff’s system so that for example, if the defendant leaves the employment, his successor would be able to retrieve all the emails readily. 44.Consistently, I also find the evidence convincing, and so I find, that the defendant would be able to set up his own devices (including computers in his home) to access the Defendant’s Conpak Email Account from home or from his mobile phone. In fact, the defendant himself admitted that he had access to the Defendant’s Conpak Email Account from his mobile phone. I do not see why the plaintiff would differentiate between mobile phone and computers employees’ homes. 45.Thus, the defendant could have sought approval for him to access the email system from his computers in his home (as he already had in respect of his mobile phone), and there was no need for him to forward the emails to his personal email account as he did allegedly for him to access the emails from home. 46.On these findings, I find that it would be unusual for the plaintiff to grant approval to any employee (including the defendant) to forward emails from the plaintiff’s email accounts to their own personal email accounts, and that if such unusual approval was given, there would be written record. However, there was no such written record. 47.In the circumstances, I find that the plaintiff did not allow the defendant to forward emails to his own personal account except with approval, and that the defendant did not obtain any such approval for the forwarding of the 223 emails to his own personal account as he alleges. VIII. WHETHER THE DEFENDANT HAD DISCLOSED THE CONFIDENTIAL INFORMATION OF THE PLAINTIFF TO OTHER PERSONS, COMPANIES OR ORGANISATIONS WITHOUT THE PRIOR APPROVAL OR CONSENT OF THE PLAINTIFF 48.As I am not satisfied that the contacts of Angenvoort (as well as the contacts of the clients in the 223 emails) are confidential, this question of disclosure or misuse becomes academic. 49.That said, for the sake of completeness, I find that the contacts of Angenvoort were indeed disclosed to a third party, namely, APEC Tax. Although it remained the same person, namely, the defendant to send out the Email to Angenvoort, it is clear that the defendant send out the Email on behalf of APEX Tax, because the Email was sent by the email account [email protected], and made an introduction that the defendant had set up a new “professional firm” and solicited business for this new firm. Thus, the information was in this sense disclosed to APEC Tax through the defendant, and through the defendant APEX Tax used this information. 50.As regards the contacts of the other clients in the 223 emails, there is no evidence of any disclosure to any third parties. In fact, although the plaintiff could know from the 223 emails who the clients were, there is no evidence before me that the plaintiff even checked with any of those clients whether the defendant had contacted them, like Angenvoort. Thus, I am not satisfied that there has been any disclosure to third parties. 51.Where necessary, I also find that the emails forwarded to the defendant’s personal account have not been deleted. The defendant’s evidence in this regard is incoherent and inconsistent. At one time, he said that he deleted the emails, but at other times, he said that the emails had already been downloaded to his mobile phone and thus could be read offline. His evidence as to how he found out that the emails had been downloaded to his mobile phone and could be read offline is incredible. He said that his mobile phone had not been used for a long time, and it was just that one day, when he suddenly would like to retrieve his daughter’ photos, he then opened the mail app and found Angenvoort’s email on the top. He then said that his phone went out of service. Such allegations were made for the first time, and simply did not make sense – notably, he would like to retrieve his daughters’ photos, but for no reasons, he instead opened the mail app and found Angenvoort’s email on the top. On the contrary, Sun Lawyer’s Letter of 5 May 2021 referred to the emails in plural, clearly indicating that the defendant still kept the emails. 52.Further, even towards the last day of his employment, namely, 31 July 2018, the defendant still forwarded various emails from the Defendant’s Conpak Email Account to his own personal account. This clearly cannot be for the plaintiff’s work as he alleges. 53.All in all, the defendant is incredible in respect of the purpose of his forwarding of the 223 emails. IX. WHETHER THE DEFENDANT ACTED IN CONFLICT OF INTEREST WITH THE PLAINTIFF BY WRONGFULLY AND UNLAWFULLY TRANSFERRING CUSTOM FROM A CLIENT OF THE PLAINTIFF TO HIMSELF AND/OR HIS SOLE PROPRIETORSHIP, WILTAX & COMPANY, AND RECEIVING SUCH CUSTOM ON HIS BEHALF 54.The defendant was an employee of the plaintiff. There is no dispute that he owed a duty of fidelity to the plaintiff. 55.As regards whether he owed fiduciary duties to the plaintiff, the defendant, in terms of the grade of office, a manager. The total number of managers and directors in the plaintiff were about 10-20 only, out of 80-90 employees employed by the plaintiff in Hong Kong. He was under supervision of Mr Law Hon Man, but he directly dealt, on behalf of the plaintiff, with clients and potential clients. Unique to his role was that the defendant was the only Tax Adviser in the plaintiff. Anything related to tax would be referred to him for his handling. In the circumstances, I find that he was a fiduciary to the plaintiff in the limited respect of the tax parts of the plaintiff’s business. 56.It is clear that in drafting the Defendant’s Email of 26 September 2017 re Tom Lee (with the attachments to it) in the name of WILTAX using the Defendant’s Conpak Email Account, there was conflict of interest. However, as mentioned above, there is no plea that this Email was indeed sent to Tom Lee. Nor is there any such evidence. Had Tom Lee engaged WILTAX, this might have constituted a basis that the Email was sent, but the fact is that Tom Lee has not engaged WILTAX at all. 57.I note that in his oral evidence, for the first time, he said that he had told Tom Lee that he would not take up the matter in any event despite the drafting of the Defendant’s Email of 27 September 2017 re Tom Lee, because shortly after the drafting, he found out that it was impossible to achieve what Tom Lee would like him to, namely, to restore the status of charity for the purpose of tax. I do not accept such evidence for the reason that had this been true, which would be so important to his case that in any event, the business opportunity simply which he would not have accepted, this would have been (but has not as a matter of fact) pleaded or at least mentioned in his witness statement. 58.In the absence of any finding that the Defendant’s Email of 27 September 2017 was sent, and in the absence of any engagement of WILTAX by Tom Lee, I find that the conflict of interest on the part of the defendant stopped at the drafting of the said Email and went no further. There was no diversion of business at all. 59.Therefore, the answer to this question is in the negative. 60.Insofar as the plaintiff’s claim that there was conflict of interest in the defendant’s operation of WILTAX, I agree. It is clear from the Defendant’s Email of 27 September 2017 that at least part of WILTAX’s business overlapped, and thus was in competition, with the plaintiff. 61.Mr Ho goes further. Going beyond the plea at §12B of the re-amended statement of claim, which was carefully crafted to say only that the defendant used WILTAX to compete with the plaintiff and further his wrongful acts (see §19 above), he seems to submit that all the business of WILTAX was in competition with the plaintiff. He also refers to the fact that in answering the plaintiff’s application for specific discovery of WILTAX’s financial statements, the defendant must have accepted that the income and profit of WILTAX are relevant, apparently implying that all the business was in competition with the plaintiff or otherwise, the defendant would not have agreed to discover all the financial statements. Whether evidence is relevant is determined with reference to pleadings, not whether the defendant answered the specific discovery application. The pleadings remain that there is no plea that all the business of WILTAX were in competition with the plaintiff, a matter the plaintiff would have to plead if this is the plaintiff’s case. X. WHETHER THERE WAS ANY BREACH BY THE DEFENDANT OF HIS UNAUTHORIZED DISCLOSURE OF THE CONFIDENTIAL INFORMATION AND DIVERSION OF CUSTOM TO HIMSELF AND WHETHER THE DEFENDANT SHOULD BE RESTRAINED 62.For the reasons set out above, there was no breach of confidentiality. Therefore, no injunctive relief should be granted. 63.For the sake of completeness, had there been any breaches of confidentiality, I do not agree with the defendant that the undertaking offered by the defendant in Sun Lawyers’ Letter of 5 May 2021 would be sufficient to dispense with any court injunction. The undertaking in the said Letter, if accepted, would give rise to contractual obligations only or obligations akin to those. If the defendant had breached the Employment Contract, there would be no basis for this Court to think that yet another set of contractual or similar obligations would be sufficient. I would, in the event that there was breach of confidentiality as alleged by the plaintiff, grant the injunctive relief sought, subject to modification of the terms to make them more precise and clear. 64.I should also note that during the closing submissions, the defendant unilaterally offered an undertaking basically in terms of the injunctive relief sought by the plaintiff. In the light of my findings of absence of breach above, I do not need to, and thus I do not, accept the undertaking. XI. WHETHER THE PLAINTIFF HAD SUFFERED LOSS AND DAMAGE, ETC 65.During the closing submissions, Mr Ho, for the plaintiff, informed me that the plaintiff no long pursues the claim for loss of business opportunity. This is a right decision to make. For claim for loss of business opportunity, the opportunity has to be a “real”, “substantial”, “tangible” or “mature” opportunity, usually with reference to evidence to quantify the percentage and proportions: see Cheung Shun Yee v Rich Resource Development Ltd [2019] HKCFI 2835 at §§27-28 per Wilson Chan J; Kwok Lau Chu v Kwok Chi Yau & another, HCA 3197/2016, 31 August 2017 at §§100-102 per DHCJ William Wong SC (as he then was). 66.In the present case, there simply is no plea and evidence as to the chance of this opportunity. This head would not be allowed even if the plaintiff still pursued this claim. XII. WHETHER THE PLAINTIFF IS ENTITLED TO AN INQUIRY INTO DAMAGES OR AN ACCOUNT OF PROFITS 67.The plaintiff elects an account of profits. 68.In general, it is only when a fiduciary relationship exists that there could be an account of profits. I accept, however, that in some circumstances, there is a legitimate interest even in a pure contractual relationship to prevent the wrongdoer from keeping the profits arising from the breach of contract: see AG v Blake [2001] 1 AC 268 and McGregor on Damages (22nd ed) §§16-017 – 16-020. But the present case is not an appropriate occasion to express any definite view, given my findings above that there were no breaches and in any event, in relation to Tom Lee, the defendant or WILTAX did not manage to strike any deal with Tom Lee, and thus the defendant did not gain any profit at all. 69.Insofar as the plaintiff would like to rely upon the conflict of interest arising from the defendant’s operation of WILTAX to claim profit, I would dismiss such claim for the following reasons:-
XIII. ORDER 70.In the circumstances, I dismiss the plaintiff’s action. 71.I make a costs order nisi that the plaintiff do pay the defendant’s costs of this action (including all the costs reserved), to be taxed if not agreed, with certificate for counsel.
Mr Leon Ho, instructed by Robertsons, for the plaintiff Mr Brian Lo, instructed by Humphrey & Associates, for the defendant | |||||||||||||||||||
Cases cited in this judgment