S.A.S. Electronic Co Ltd v. Lee Sun, Kenneth

DCCJ9287/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 9287 OF 2001

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BETWEEN

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Before: Her Honour District Judge Marlene Ng in Court

Dates of Hearing: 3^rd, 4^th, 5^th and 6^th August, 2004

Date of Handing Down Judgment: 26^th October, 2004

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JUDGMENT

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I.    Introduction

1.The Plaintiff (“P”) was respectively a distributor and seller of IC Media Technology Corporation’s (“ICM’s”) and Grandtech Semiconductor Corporation’s (“GT’s”) products.The Defendant (“D”) joined P as Senior Sales Engineer on 19^th April 1999 and was promoted to Assistant Sales Manager on 1^st August 1999 and to Sales Manager on 1^st May 2000. Heresigned on 27^th April 2001.

2.P alleged that whilst employed by P and without P’s knowledge/consent, D (a) solicited and transferred business from P’s customers to Echroma Technology Limited (“Echroma”) and Altak Technology Limited (“Altak”), (b) disclosed trade secrets or confidential information obtained in the course of employment to ICM’s Robert Wang (“Wang”) and/or Altak’s/Echroma’s Jason Chan Wai Ho (“Chan”) and (c) worked as the Marketing Director of P’s competitor, Echroma.

3.D admitted he owed P implied obligations of good faith, loyalty, fidelity and non-competition under his contract of employment and implied duties of trust and confidence but denied P’s claim. He averred that P assigned him to handle a customer, Reuda De Oroto (“Reuda”), and he communicated with and supplied information to ICM/Reuda and Altak/Echroma/Chan as required by ICM in serving Reuda. Further, P did not suffer any loss since Reuda would not have placed business with P due to lack of adequate support.

4.P admitted D’s defence of set-off for HK$29,390.00being arrears of salary, commission and allowances for March and April 2001 due to D. At the trial, D withdrew his counterclaim for such sum, which was within the Labour Tribunal’s exclusive jurisdiction.

5.D acted in person and gave evidence. P called its managing director, Stanley Yim (“Yim”) as witness.P did not challenge the admissibility of the hearsay statements of Wang and Reuda’s Stanley Ko (“Ko”).

II.    Dramatis personae

6.Yim claimed that e-mails D received and sent whilst during P’s employ (“E-mails”) and discovered by Yim after D resigned evidenced D’s misconduct. E-mails featured the following parties  :

(a)    P, a subsidiary of the SAS group and non-exclusive distributor for ICM products in Hong Kong and Mainland China for 2 years from 3^rd April 2000;

(b)    Chan, the Technical Marketing Manager of Components Agent Limited, to whom D reported when he workedthere from January 1996 to March 1997;

(c)    D, P’s Sales Manager, who joined Echroma as Marketing Manager after he left P;

(d)    ICM, a supplier of CMOS sensors(ie main components for digital still cameras (“DSC”)). Wang was in charge of ICM’s sales activities in Hong Kong, Mainland China and Taiwan andstill oversaw ICM’s business in Hong Kong and Mainland China at the time of trial. Jason Lin (“Lin”) was ICM’s executive vice-president;

(e)    GT, a supplier of camera controllers/digital signal processors (“DSP”) as main components for DSC and PC board (“PCB”) design;

(f)    Altak and Echroma, respectively incorporated in September 2000 and January 2001. In May 2001, Altak transferred Echroma’ssubscriber shares to inter alia Chan (Altak’s former shareholder and Echroma’s current director/shareholder);

(g)    William Liu (“Liu”), a salesman of P’s Shenzhen office.

(h)    Kofrom Reuda’s business development unit.

III.    ICM’s business and the roles of P and D

(1) P’s case

(a) ICM distributorship

7.P offered bundle solutions comprising ICM’s CMOS sensors and DSP from different suppliers (eg GT’s camera controllers) to DSC manufacturers. P’sengineering department helped customers resolve minor technical problems, eg PCB circuit design, software/hardware programming and end product design, and would “design-in” and produce a “demo board” with PCB layout/recommended solution for customer evaluation if the customer had no engineering/fabrication capacity.After acceptance of the solution and agreement on the payment terms, a sample order (pilot run) would be placed, followed by trouble-shooting of the samples, and then mass production with delivery according to the production forecast.Customers with fabrication facilities could choose any DSP from the market (not necessarily GT’s or as recommended by P).

8.For special kit delivery (“SKD”) sales, P would supply the components and arrange for fabrication of semi-products for customers. ICM business in Mainland China was mainly SKD business.

9.Due to intense market competition, sales in any volume were important. P’s sales executives were not allowed to shut off their mobile telephones before midnight and all Sales Managers reported to Yim on a weekly basis on sales/business development.

(b) Confidential information

10.D was entrusted with information on products, price and customer/supplier lists that were sensitive and important to P due to constant technological improvements and keen competitionon price, features and quality. P’s Sales Managers (including D) should by their good sense and the guidance given at office meetings appreciate whether any sales/marketing information was confidential. Confidential information could be shared amongst P’s staff but not disclosed to third parties.

(2) D’s case

11.CMOS sensor supplier (such as ICM) or distributor(such as P) looked for customers interested in developing/manufacturing DSC products and using such non-standardised products as main components. If a customer ran intotechnical problems that the supplier/distributor could not resolve, the supplier would employ a design house to give technical support to the customer.A design house (such as Altak/Echroma) could spend months and considerable efforts to “design-in” a DSC product, so it was accepted industry practice for the design house to secure the customer’s order for CMOS sensors as well. It would be unfair to allow another distributor to take up the order. But a customer with its own “design-in” capacity could decide to whom it would place the order for CMOS sensors.

IV.    D’s mode of operationat P

(1) P’s case

12.After training with ICM, D became P’s only Sales Manager responsible for developing the ICM product line in Hong Kong and Mainland China.  D probably did not handle any other product line as P instructed him to focus on developing ICM products. Until D’s resignation, he only secured 1 sample order for ICM products. It was not unexpected as product designtook a long time (9 months to a year) and it was also necessary to build up long-term partnerships with suppliers/customers. Yim said D’s past performance was satisfactory but by the time he resigned, his performance was only fair.

(2) D’s case

13.In 2000, D was profitable with average revenue and profits (at 6%) of HK$5 million and HK$300,000.00 a month respectively, so he was promoted toSales Manager.D had a comfortable profit/cost ratio as the salary cost of his two-person sales team was HK$50,000.00/month. To maintain profitability and bearing in mind opportunity cost, D concentrated on his 3 existing product lines and only spent 20% of his efforts on the new ICM products. To reduce his workload, D favoured customers with financial/technical strength. It would not be commercially reasonable or cost-effective to focus only on ICM products when there were no orders from August 2000 to April 2001.

V.    P’s China business

14.Wang e-mailed D on 13^th December 2000 (“China E-mail”) expressing concernsas to whether P’s China division was strong enough to handle the business and complained he had to push such division to get business done.

(1) P’s case

15.Yim was unaware of ChinaE-mail and denied the alleged concerns. D never told him about them.

(2) D’s case

16.Wang’s e-mails to D dated 11^th and 12^th December 2000 showed SKD business was important for the China market and Wang even referred a customer to D for possible SKD business. Following his concerns expressed in China E-mail, Wang by his e-mail dated 29^th December 2000 threatened to refer SKD business to customers in Taiwan. D forgot whether he specifically told Yim of these matters but said he consolidated e-mails and provided weekly reports to Yim.

VI.       Dragon States (“DS”)

17.It was common ground that :

(a)    DS, a subsidiary of the SAS group, ran a DSC and other projects.

(b)    D’s forecast for ICM sales sent to Yim on 20^th January 2001 (“P Forecast”) included DS’ schedule for sample run by mid-March 2001 but did not provide any estimation of components sales.

(c)    On 5^th February 2001, D e-mailed to GT DS’ project schedule as follows : (i) confirm PCB by 9^th February 2001, (ii) “PCB back” and functional test by 23^rd February 2001, (iii) “if okay”, payment for order for production and (iv) pilot run by end of March 2001 (“DS Project Schedule”).

(1) P’s case

18.Although another director of the SAS group managed DS, D discussed DS’ DSC project with Yim and told Yim that DS’ factory in Mainland China and P’s field application engineers in Hong Kong had successfully researched on DSC solution and produced the “demo board”.However, DS’ DSC project was cancelled in early 2001 (Yim could not remember exactly when) pursuant to a high-level business decision, reflecting a concern by the management not to compete with customers. The manufacturing division closed down and 3 projects were dropped. Yim denied any impact of such cancellation on P’s technical support to customers.P’s engineering department had several tens of staff andICM/D did not express any disappointment/complaint to Yim.

(2) D’s case

19.P had noviable engineering department, so DS (with ICM’s support) was designated to develop DSC “demo board/kit”, which would be a useful marketing tool for ICM’s CMOS sensors and for promoting SKD business and without which ICM products would be overrun by the competition. But DS’ project suffered from technical problems from August to the end of October 2000, so Wang came under pressure. Despite D’s efforts to press DS for the“demo board/kit”, DS’ “design-in” was unsuccessful and it failed to produce the DSC solution, soD had no marketing tool. D told Yim he had pressed DS for progress, but Yim did not tell him why DS terminated its DSC project. D said DS’ technical weakness was one reason whyhe preferredservicing large corporations with their own financial/engineering capabilities.

VII.    Reuda

20.The following background and E-mails were not disputed :

(a)    ICM referred Reuda to P. P assigned D to handle Reuda’s account.

(b)    In December 2000, following D’s quotation for ICM105A CMOS sensors and GT8911 camera controllers (“Reuda Quotation”), Reuda (claiming that Mattel/Creative were its customers) placed a 50 kits order with P for evaluation (“Reuda Sample Order”) with expected mass production in February 2001. Reuda Sample Order was delivered and paid for by early January 2001.

(c)    In January 2001, D informed ICM (Wang) about Reuda’s monthly sales forecast of 5K, 15K and 50K for the months from March to May 2001. On 5^th February 2001, D sent e-mail to GT on Reuda’s project schedule on the timing for functional testing of 1^st version PCB, payment for 2^nd version PCB and 5K pilot run (“Reuda 1^st Project Schedule”).ICM (Lin) by e-mail on 9^th February 2001 urged GT to support Reuda’s camera solutionof GT8911 and ICM102A (changed from ICM105A) and noted that Reuda would sign a business contract with P in mid-February 2001 (“Reuda 9/2/01 E-mail”). Wang e-mailed Lin and GT on 10^th February 2001 (with copy to D 2 days later) saying that Reuda had signed a contract with its customer with a forecast for 700K DSC a year.GT sent e-mail to Lin on 12^th February 2001 to push for placing of orders by mid-March 2001.

(d)    In Wang’s e-mail of 10^th February 2001to D on Reuda’s business contract (copied to Echroma), he requiredReuda to place a 20K order for the 1^st shipment right after the contract was signed with corresponding order placed with ICM on the same day. Wang reminded that care be taken about Reuda’s claim for delivery of 700K DSC a year and directed D to discuss with Reuda (Ko) the terms of the order (“Reuda 10/2/01 E-mail”). There is dispute between the parties as to who is the contracting party (P or Altak/Echroma) referred to in this e-mail.

(e)    On 15^th February 2001, D sent e-mail to Altak’s Chan (“Reuda 15/2/01 E-mail”) setting out Reuda’s revised project schedule, namely, 20K order to be released that day with 2K paid in advance for pilot run on/before 15^th March 2001 and the remaining 18K on/before end of March 2001. However, full order would only be confirmed after 2K pilot run was “O.K.” (“Reuda 2^nd Project Schedule”).

(f)    On 12^th March 2001, Wang sent e-mail to Lin (copied to inter alia Echroma’s Chan) noting Reuda was to deliver 16K and 20KDSCin April and May 2002 respectively, and ICM parts (ICM102A) should be shipped a week before for Reuda to meet its production schedule. Wang requested the most updated status for passing to Reuda (“Reuda 12/3/01 E-mail”).

(g)    The customer reports from Echroma’s Chan to GT dated 17^th February and 2^nd March 2001 (“Echroma/GT Reports”) confirmed Reuda’s 2K and 20K orderswith an additional 20K order pending firmware approval. Pilot run and mass production were targeted for 15^th and 31^st March 2001 respectively. Reuda had accepted the camera solution “designed-in” by Echroma.

(1) P’s case

21.In/about late 2000 to early 2001, Yim had neither heard of Altak/Echroma/Chan nor been informed of Reuda 10/2/01, 15/2/01 and 12/3/01 E-mails. He complained that (a) Wang should not have copied Reuda 10/2/01 E-mail on Reuda’s business contract with P to Echroma and (b) D did not seek P’s approval for disclosure of Reuda 2^nd Project Schedule to Altak. Yim suspected (b) was to enable Altak to follow up with Reuda and to divert Reuda’s business to Altak/Echroma.

22.Yim had no reason to doubt (on what he was told by D at that time) Reuda’s claim of delivering 700K DSC a year and of doing business with Mattel and Creative. Reuda Sample Order, Wang’s e-mail to Echroma’s Chan of 23^rd February 2001 (copied to D) and Reuda 12/3/01 E-mail showed that P must have “designed-in” and produced the “demo board” for Reuda. Yet P never received Reuda’s mass production order.

23.Rather, Echroma/GT Reports (which Yim was unaware of at the material time) showed that Reuda had confirmed 2K and 20K orders with Echroma, so Reuda’s business had been diverted from P to Echroma. But neither D nor ICM told Yim that (a) Reuda was not a substantial/worthwhile customer or (b) P gave insufficient technical support for Reuda’s camera solution. The fact that Reuda was an unlimited company was insignificant as even large overseas companies often had small buying offices/agents in Hong Kong.

(2) D’s case

24.Wang and Ko of Reuda came to know each other in August 2000 and agreed to cooperate on DSC solution. Ko received from ICM 3 prototype “demo boards” (unsuitable for mass production because of large PCB size) which requiredfurtherengineering work. Wangpassed Reuda to P as ICM’s only distributor in Hong Kong and Mainland China.

25.Reuda’s Sample Order was for 50 kits of prototype “demo boards” for evaluation by Reuda’s own customer. With no design capability, Reuda hoped P would provide technical “design-in” support. Since P had no effective engineering department, D was instructed to pass such work to DS. Wang/Ko pressed D who in turn pushed DS’ engineers for technical support and progress on Reuda’s project.

26.P/DS injected insufficient manpower into the DSC project (which was ultimately terminated) and failed to produce the “demo board/kit” for Reuda. Without the “demo board/kit”, D could notdemonstrate DSC solution, so hetried to delay committing technical support for Reuda. However, D did not tell Yim the above problems or get Yim to push DS for results. Ko was disappointed and complained to Wang that Reuda’s DSC project ran slow due to lack of P’s engineering support.

27.Wang (who came to know Chan at an exhibition) asked Echroma to follow up on Reuda’s project and introduced Echroma to Ko as a “new distributor of [ICM]” having good knowledge of CMOS sensors and PCB circuit design. He also instructed D to pass Reuda’s account to Echroma.

28.Altak/Echroma as ICM design houses provided engineering support to create marketable products, which role ICM had hoped DS could perform but failed. Altak/Echroma dedicated several engineers for each product line but P could not. D only told Yim ICM had many design houses, but did not specifically identify Altak/Echroma or tell Yim they produced the “demo board” for Reuda.

29.D also said it was his own decision to drop Reuda as a customer. It was part of an exercise D and Chan did with Wang. At that time, Wang allowed D and Chan to select the potential customers they wished to follow up from the name cards Wang showed them. D insisted on retaining P’s existing clientele. He alsoselected well-known/large corporate customers with their own “design-in”capability and discarded small-sized customers requiring substantial technical support (eg Reuda) or thosethat were located far away.

30.D considered Reuda, an unlimited company operating out of a 100 sq ft office with 2 employees and no engineer, not a worthwhile customer. Although Reuda claimed to do business with Mattel/Creative, Echroma/GT Reports showed it only did business with Sweda. D doubted whether Reuda could deliver 700K DSC business as claimed. Reuda’s project also had a lot of design problems requiring technical support which would substantially increase D’s workload under limited resources.

31.D made up his mind to abandon Reuda and he did not object when Wang instructed him to pass Reuda’s account to Chan. Indeed, D thought Wang’s decision to move Reuda’s account to Altak/Echroma reasonable in the circumstances. D did not tell Yim of his decision to abandon Reuda and/or his reasons therefor nor did he ask for assistance in handling Reuda’s account. Hebelieved as Sales Manager he had the authority to decide whether to support or abandon Reuda. But D denied any solicitationfor or transfer of business to Altak/Echroma.

32.Following Reuda 10/2/01 E-mail, D did discuss with Ko about the order. As he was familiar with Reuda’s project schedule and was involved in the handover to Chan, D forwarded Reuda 2^nd Project Schedule to Chanon 15^th February 2001 (D’s last involvement with Reuda).Although Reuda claimed it would place a 20K order, in the end it only confirmed a 2K order with Echroma in March 2001 and decided to wait and see for the 18K balance. D did not tell Yim of these matters. He did not know whether Reuda received 16K and 20K DSC orders as suggested in Reuda 12/3/01 E-mail.

33.Ko said that after referral to Altak/Echroma, Reuda was satisfied and continued to source sensors from them. Reuda’s DSC product was eventually finished and launched on time. Wang said P’s technological capability was weak, so he added 3 more distributors capable of providing technical support for this region.

34.D said even if he were in breach of his obligationsto P (which he denied), P did not suffer any loss because Reuda would not have bought any product from P.

VIII.    P and ICM Forecasts

35.It was agreed that by P Forecast, D reported to Yim that 8 potential customers (including Altak) had accepted bundle ICM/GT camera solution of ICM and GT products with corresponding sample order schedules and sales forecasts for 2001 totalling 5K (HK$500,000.00)by March 2001 and about 1,500K (HK$150 million) for 2001. However, D’s monthly sales forecast for March to May 2001 e-mailed to Wang on the same day (“ICM Forecast”) includedsales forecasts for Reuda and Advanced plus, neither of which was mentioned in P Forecast.

(1) P’s case

36.D hid Reuda’s and Advance plus’ sales forecasts from Yim, who was unaware of ICM Forecast. Apart from Altak (Yim did not know whether it was a design house), the other 7 potential customers named in P Forecast were medium to large-sized Hong Kong customers.

(2) D’s case

37.The potential customers’ acceptance of P’s recommendation of ICM/GT camera solution referred to in P Forecast was only preliminary, not final. The target customers had not yet tested P’s samples (scheduled for March 2001) against competitors’ solutions. D did not include Advance plus and Reuda in P Forecast because he had already discarded them and Chan was due to follow up on them (see below for Advance plus).

IX.    Productinformation/upgrade

38.The following E-mails and background were not disputed :

(a)    On 16^th February 2001, D sent various product information files including ICMSDFL01 circuit layout for VGA solution with flash light to Altak’s Chan and requested him to forward them to 3 customers, ie Advanced plus, FTE and Telepeak (“FL01 E-mail”).

(b)    Echroma/GT Report dated 17^th February 2001 showed that Advance plus and FTE confirmed VGA application “design-in” with Echroma with pilot run and mass production in March/April 2001 and April/May 2001 respectively. Such report noted that for Advance plus, Echroma received 100 pieces order for delivery on 8^th March 2001. Further action noted in such report included “Need PCB design support, requires details of flash light circuit” (“FL01 Further Action”).

(c)    Echroma/GT Report dated 2^nd March 2001 noted some adjustments to the schedule for pilot run and mass production for Advance plus and FTE. However, PL01 Further Action was no longer noted in this report.

(d)    When GT sent information on upgrade of ICMSDFL01 to ICMSDFL01A circuit and of ICMSDFL01B to ICMSDFL01C circuit to Liu/D, D forwarded them to Altak’s/Echroma’s Chan on 26^th February and 26^th March 2001 respectively (“FL01A E-mail” and “FL01C E-mail”).

(e)    Wang replied to DSC enquiries from Hector Hong of Falcontek Corporation(thought to be a DSC manufacturer with a Taiwanese e-mail address) on 7^th March 2001 (copied to D and Echroma’s Chan) saying he had asked D as ICM’s distributor to forward the relevant information and Chan to forward flash light data. Chan in his e-mail to Hector Hong/Wang (copied to D) of the same day claimed that Echroma was ICM’s distributor in Hong Kong supporting both Hong Kong/PRC customers and attached material on ICMSDFL01A circuit. Chan asked Hector Hong to contact him for assistance in respect of Hector Hong’s DSC design (collectively, “Hector Hong E-mails”).

(1) P’s case

39.P sometimes passed product information/upgrades to customers, but as seen in FL01, FL01A and FL01C E-mails, D forwarded suchinformation to Altak/Echroma to follow up with customers and this unfairly enhanced their capabilities to compete on product quality/price. Neither Altak nor Echroma were P’s customer or ICM’s authorised distributor. D did not tell Yim of Hector Hong E-mails.

40.Yim said although the 3 customers named in FL01 E-mail were Taiwanese companies, their orders for ICM products would still be within P’s ICM distributorship territories because they had PRC factory establishments. Under industry practice, orders from such factories would be treated as originating from Mainland China.

(2) D’s case

41.The 3 named customersin FL01 E-mail were discarded by D and taken over by Altak/Echroma. D was careful not to disclose their addresses, telephone numbers and contact persons, which particulars Chan could have obtained from ICM. Chan could also have obtained the VGA solution with flash light from GT (who owned that information). Since D was familiar with the product files and latest updates, which were required by Altak/Echroma to work on customer projects, so D sent the updates to Chan during the handover period. D would also forward technical information (such as product information/upgrades) to customers and their engineers for their information.

X.    Price Update

42.D forwarded Wang’s e-mail attaching ICM’s price book update for 2^nd and 3^rd quarters of 2001 (“Price Update”) to Altak’s Chan on 24^th March 2001 (“Price Update E-mail”).

(1) P’s case

43.Price Update (owned by P) was a road map enablingP to adjust the priceforICM products in line with the projected trend and to identify appropriate camera solutions for and render quotations to customers.It contained confidential information on product model numbers, PCB product packages, product grades (“A” and “B” representing higher and lower performance products respectively) and production timeline. If customers requested price adjustments, Price Update formed the basis for negotiations by P with ICM on price.

44.The sensitive information in Price Update could be shared amongst P’s staff but not released to customers or third parties given the intense market competition on product pricing. D had not sought P’s approval for disclosure of Price Update to Altak. Had Yim known of this, he would have dismissed D.

(2) D’s case

45.D said price information was only important for standardised products. For non-standardised products, there would be changes in price over the “design-in” period (which could take several months to half a year), so such price information was immaterial. Further, D would ordinarily send ICM’s price list to customers for reference. Although Altak was not P’s customer, it was ICM’s design house and could have obtained such information from ICM.

XI.    Yu XunTong: P’s case

46.Yu Xun Tong, P’s customer and a DSC manufacturer, required a lens and CMOS sensor module assembled on PCB, so Liu e-mailed Wang on 21^st February 2001 for lens sample. Wang forwarded the e-mail to Echroma’s Chan, saying he had given his quotation price to Yu Xun Tong for ICM’s CMOS sensor and would tell Liu that ICM would not sell lens without sensor (which Wang did on the same day). Wang passed Yu Xun Tong’s contact details to Chan and asked him to consult D for strategy before contacting the customer.

47.Yim was unaware of such e-mails at that time. He said Wang should not have asked Echroma to contact Yu Xun Tong and complained of D assisting in or failing to inform P of the diversion of business to Echroma. But Yimagreed Wang acted reasonably by insisting that lens should be sold with CMOS sensors. After all, ICM was not a lens producer.

XII.    Starline

48.Wang’s e-mail of 23^rd February 2001 was sent to Echroma’s Chan (and copied to D) but addressed to D in its body (“Starline E-mail”). In the e-mail, Wang said ICM’s Taiwanese distributor introduced Starline, which asked for ICM102A (to replace another CMOS sensor) and GT8911camera solution. But Starline did not want GT to know as GT had spent a lot of effort tuning the previous CMOS sensor. Wang gave Starline’s contact details and stated in the e-mail “you are designing 102A + GT8911 and you can design the board for him” but reminded “please be careful don’t put me in bad situation because my local distributor may challenge me for leaking business”.

(1) P’s case

49.D failed to report to Yim about (a) Starline E-mail, (b) Starline as a potential customer and (c) ICM “leaking business” away to Echroma.Yim said Wang’s reference to “local distributor” was to P being ICM’s only authorised distributor for Hong Kong and Mainland China. He complained that due to collusion between Wang and D in “leaking business” to Altak/Echroma, P did not design any PCB for or receive business from Starline.

(2) D’s case

50.Starline had no design/engineering capacity but wanted to manufacture a marketableDSC product. By Starline E-mail Wang wanted Chan to show the “demo board” Echroma made for Reudato Starline for reference. No business was involved but Wang was careful to urge Chan not to put him in a difficult position with the “local distributor” by giving an impression of leaking business. Since P did not make the “demo board” for Reuda (but Echroma did), Starline E-mail should have been addressed to Chan and not “Kenneth” (ie D). Indeed, it was actually sent to Chan with copy to D.

XIII.    Li-ion battery solution

51.The following E-mails and background were not disputed :

(a)    D was named as Echroma’s General Manager when he sent e-mail on 24^th February 2001looking for Li-ion battery solution (“Battery 24/2/01 E-mail”). On 26^th February 2001, D was again named as Echroma’s General Manager in his e-mail enquiry about a high capacity polymer battery, claiming to be a distributor of CMOS sensor and camera controller with a view to develop a watch camera (“Battery 26/2/01 E-mail”). On 12^th March 2001, D named as Echroma’s Market Director e-mailed DXG on specifications for Li-ion battery (“Battery 12/3/01 E-mail”). 

(b)    On 26^th March 2001, D (named as Echroma’s Marketing Director) sent e-mail titled “IC-media distributor”to a Mr Leung referring to a discussion on DSCand claiming to be ICM’s and GT’s distributor. D claimed they were setting up a Shenzhen design centre to support Hong Kong and China markets and urged for Mr Leung’s future support (“Battery 26/3/01 E-mail”).

(1) P’s case

52.P complained in Battery 24/2/01, 26/2/01 and 12/3/01 E-mails that D (a) took on the capacity of Echroma’s General Manager/Marketing Director and (b) claimed that Echroma was ICM’s and GT’s distributor. Although P never sold battery solutions, the specifications in Battery 24/2/01 E-mail showed the battery could be used forDSC as well as mobile telephone or other products. So D’s enquiries touched on P’s business and that of its related company in Taiwan. Further, D should not have madesuch inquiries (which were irrelevant to his work) during office time without Yim’s approval. It was also obvious from Battery 26/3/01 E-mail that D wanted to take on design centre business in Hong Kong and Mainland China in conflict with P’s business.Had Yim beenaware of D’s role as Echroma’s General Manager/MarketingDirector, he would have dismissed D immediately.

(2)D’s case

53.D denied he was Echroma’s General Manager/Marketing Manager or that he held any other position with Echroma before his resignation. He had spoken with Chan and borrowed Echroma’s corporate status to impress the e-mail recipients for his own side businesson Li-ion battery packs.

54.D’s e-mail enquiries on battery packs had nothing to do with and were not in competition against P because P did not sell battery solutions at all. D denied Battery 24/2/01 E-mail referred to batteries for DSC. To save costs, DSC normallyused 2 cheap alkaline dry batteries and not Li-ion batteries. The assertionin Battery 26/2/01 E-mail that Echroma was a distributor of ICM’s CMOS sensors and GT’s camera controllers was correct. Battery 12/3/01 E-mail to DXG (a Taiwanese company) quoting battery specifications and claiming to represent Echroma did not affect P.

55.Battery 26/3/01 E-mail (whose recipient was a Taiwanese company but D did not know whether it had any factory in Mainland China) focused on Echroma’s Shenzhen design centre which was to provide design engineering services to support Hong Kong and China markets. As DS ended its projects andP had no design centre, Echroma’s design centre was not in competition with P/DS. D frankly admitted that he was then thinking of leaving P and positioning himself for joining Echroma.

XIV.    Wang’s conduct

(1) P’s case

56.By reason of the above matters, Yim suspected collusion between D and Wang.

(2) D’s case

57.Wang acted reasonably on 2 occasions in looking after P’s interests, ie(a) when he asked Echroma to approach a customer but reserved sensors, controllers and lens to P and (b) when he informed Liu that ICM would not sell lens without sensors (see paragraphs 46-47 above). 

XV.    Aftermath

(1) P’s case

58.Yim said P had sinceterminated its business relationship with ICM and hence its investmentsin promoting ICM products were wasted. Further, probably after D resigned, Yim met Chan who knewof P’s concerns over D’s conduct and of the fact that Echroma was not ICM’s authorised distributor. Chan told Yim he had quarrelled with D and urged P not to take action against him.

(2) D’s case

59.D did not earn any commission on Reuda’s orders or receive any benefit from Chan prior to 27^th April 2001. He joined Echroma after leaving P but Chan did not promise him any shares in Echroma. Echroma and P were not competitors as they had different marketing strategies and products.

60.After D resigned, Yim went to see ICM’s senior management in Taiwan to fight for Reuda’s order, but he was unsuccessful. ICM recognised Echroma’s added value in DSC design for Reuda’s project and its close cooperation with GT, so it refused to return Reuda’s account to P. P therefore rejected the whole ICM product line.

XVI.    Price: D’s case

61.P’s profit margin for Reuda Sample Order at US$13.00/unit would be about 6%but with a larger quantity order the profit margin could be higher.Dwas not involved in the negotiations for Reuda’s 2K order with Echroma and did not know the price per unit or the profit margin. But assuming that Reuda placed 20K, 16K and 20K ordersin March, April and May 2001, Reuda’s business would have exceeded US$1 million, so a 6% profit margin would have been reasonable.

62.A customer would have better negotiating power on price at the preliminary stage. Once “design-in” work was done, it would be difficult for the customer to give up the tailor-made product or negotiate on pricing. Ultimately the total price depended on the different features required by the customer.

XVII.    Assessment of the evidence

63.Having heard Yim and D gave evidence and having considered the parties’ submissions andrelevant documents,I find on the balance of probabilities that neither Yim nor D told the entire truth. I am not convinced that P/DS had or was prepared to invest in the engineering or technical capability required to handle “design-in” work, run up “demo board/kit” or fine tune DSP for DSC solutions. In any event, DS’ DSC project was terminated in early 2001. No doubt all this caused some frustration (or even alienation) on the part of D/ICM, which set the stage for D to facilitate Wang’s and D’s own efforts to turn customers away from P to Altak/Echroma. Given the surrounding circumstances, D’s conduct, Altak’s/Echroma’s involvement, D’s connections with Altak/Echroma/Chan, ICM’s support as well as the fact that D joined Echroma after leaving P, on balance I do not accept D’s excuses and I find that D’s conduct was part of his plan to gain Echroma’s acceptance or acquiescence in using Echroma’s corporate status for his own side business and/or to position himself in anticipation of joining Echroma after leaving P.

64.I also do not accept all of Yim’s interpretation of E-mails. His knowledge was oftentimes secondary and dependant on reports by Sales Managers (including D). On the other hand, D in the front-line had direct knowledge of P’s ICM business. However, I regard some of D’s excuses/perceptions self-serving and unreliable as they were coloured by attempts to exonerate himself or justify his actions.

65.I have carefully observed Yim’s and D’s demeanour in the witness box but have warned myself that demeanour is not necessarily determinative. There are certain parts of their evidence that I accept and other parts that I reject. Parts of their evidence that I reject have no adverse effect on the parts that I accept.

XVIII.    Soliciting business from P’s customers and transferring business to Altak/Echroma

66.An employee performing his services should do so faithfully and entirely for his employer’s benefit and should not further his own interests (save in earning remuneration) or those of any third party contrary to his employer’s interests or undermine/injure the trade/business of his employer (see Crump & Pugsley, Contracts of Employment 7^th ed (1997) para.10.01 at p.186 and Gilligan v AHK Air Hong Kong Ltd [1989] 2 HKC 189).

67.There is dispute between the parties as to (a) how Reuda’s account was handled, (b) why Reuda’s account was so handled, (c) whether P had the capability to deliver the required technical support and to meet any orders to be placed by Reuda, and (d) whether DS’ engineering capability and/or the termination of its DSC project had any impact on Reuda’s account.

68.On the balance of probabilities, I set out my analysis and findings as follows :

(a)    ICM was not a design house capable of providing “design-in” technical support for customers. If it were, Wang would not have to look towards Altak/Echroma for technical assistance for Reuda.

(b)    P’s technical capability and support for its customers were important for the development of the ICM product line, especially where the customer had no fabrication/engineering capability. Since the gestation period for a product solution could take severalmonths to a year, dedicated engineering support was required. Further, P’s ICM business in Mainland China was essentially SKD business, so fabrication of semi-products (which necessarily entailed engineering/technical support) was also important.

(c)    On balance I prefer D’s evidence that P’s engineering department was ineffective and instead DS was designated to develop the “demo board/kit” or DSC product. I find Yim’s claim that P’s engineering department had several tens of staff including Hong Kong field application engineers doubtful.

Yim admitted DS had a DSC project for developing a “demo board/kit” and P Forecast showed DS was interested in DSC solution with sample schedule targeted for March 2001. There was no commercial reason why P and DS, both of the SAS group, should compete by providing similar technical support and developing a “demo board/kit”. Non-competition appeared to be a key consideration with P. Indeed, Yim said DS terminated its DSC project in early 2001 because it did not wish to compete with its manufacturer customers.

Yim did not mention that P had any factory but confirmed that DS had a factory in Mainland China. He said that when DS dropped its 3 projects it closed its manufacturing arm. Yim also said the number of P’s employees fell significantly by about 600 upon closure of the manufacturing division. The reduction in the number of employees is suggestive of closure of a factory. I find it likely that Yim referred to P and DS interchangeably in respect of manufacturing capability and technical/engineering support for customers.

(d)    Wang’s e-mails in December 2000 indicated his concern over P’s capability for SKD business. DS faced technical problems between August to end of October 2000 and was unable to deliver the “design-in” support and/or develop the “demo board/kit” as hoped for by D and ICM/Wang.The uncertainty over DS’ ability to deliver the product was reflected in the absence of any estimation for sales orders for 2001 in P Forecast in contra-distinction to other customers named therein. The difficulties became a reality when DS’ DSC project was terminated in early 2001.

Yim was unable to give any details to support his claim (save to say he was so told by D) that DS/P successfully researched DSC solution and produced the “demo board”. I reject such assertion and further reject the suggestion that as ICM did not complain (but see Wang’s e-mails in December 2000 and his dissatisfaction over Reuda) or voice any disappointment to Yim, it evidenced P’s success in producing the “demo board/kit”.

(e)    Yim discussed DS’ DSC project with D but did not tell D of the management decision to terminate DS’ DSC project, leaving D to hope and press DS for a viable DSC solution and to struggle with promoting the ICM product line empty-handed.

(f)    It is common ground that Reuda was a new customer referred by Wang to P. Since I have found that P did not have a viable engineering department and DS’ DSC project was terminated, I accept D’s evidence that P/DS never came up with a “demo board/kit” for Reuda and that this partly caused D (much to Wang’s/Ko’s displeasure) to delay commitment of technical support for Reuda.

I accept D’s evidence that Reuda Sample Order was for ICM’s prototype “demo board” for evaluation by Reuda’s own customer and not for mass production, and thus it could not have been post-“design-in”. Indeed, Reuda’s 2^nd Project Schedule targeted the post-“design in” 2K pilot run (ie sample order) for February 2001, but I find that such order was never placed with P but with Echroma in March 2001.

I do not accept that D was still hopeful about DS’ DSC project as at 20^th January or 5^th February 2001. Reuda appeared in ICM Forecast but not in P Forecast because by 20^th January 2001 D had discarded Reuda as a customer. D still reported Reuda’s anticipated sales to ICM because it was the handover period (from D to Altak/Echroma). D sent Reuda 2^nd Project Schedule to GT on 5^th February 2001 because GT was in any event involved in Reuda’s project. This was not reflective of the viability of DS’ project. Although Yim said Reuda 9/2/01 E-mail suggested that Reuda would sign a business contract with P, I find it was merely due to (as D claimed) Lin’s ignorance of D’s decision to abandon Reuda and Wang’s instructions to transfer Reuda’s account to Altak/Echroma. Wang’s e-mail of 23^rd February 2001 also clearly referred to Reuda’s “demo board” made by Altak/Echroma (see below).

(g)    However, I find that D’s failure to tell Yim/P the above technical problems and Wang’s/Ko’s disappointment or to get Yim to push for better results from DS at senior management level was quite inexplicable and posed a real risk of P losing Reuda’s potential business.

In my view, there is a duty to disclose matters within the employee’s knowledge which affect the employer’s business interests. When information which benefits his employer comes into an employee’s possession, he should disclose it to his employer. Likewise, information which brings business detriment or risk to the employer should be similarly treated.

(h)    D claimed there was no point in telling Yim/P because Reuda was an insignificant company. I do not accept D’s bare assertion that Reuda was not a worthwhile or substantial customer due to its small size in terms of its office and employees, exaggeration of business partnerships and doubtful ability to deliver 700K DSC business. First, ICM considered Reuda worthwhile enough to refer to its distributor, P. Even when P/DS was unable to provide Reuda with technical support, Wang was anxious to have a design house follow up Reuda’s account. Secondly, Reuda eventually committed 2K and 20K orders with Echroma (see Echroma/GT Reports). Thirdly, Reuda 12/3/01 E-mail suggested that Reuda was to deliver 16K and 20K DSC in April and May 2001. Fourthly, Ko’s statement stated Reuda’s DSC project was eventually launched on the market. Fifthly, D was unable to give any satisfactory explanation why, when he regarded Reuda as patently unsupportable, he did not tell Yim/P his concerns.

(i)    I also find that D came to a deliberate decision to discard Reuda as P’s customer and this also contributed to Wang’s decision to look elsewhere for technical support. I accept D’s evidence that he handled 3 product lines apart from ICM products and that he found nursing the new ICM product line time and effort consuming. So D decided only to supportP’s existing corporate customer base and/or solicit new substantial customers that required the least effort from him, and refused to commit technical support for customers that would increase his workload.This is also reflected in D’s admission that he only dedicated a small portion of his efforts to the ICM product line.

(j)    Yet D knewproduct sales were P’s lifeblood. D himself also emphasised sales productivity. Indeed, sales were so important to P that its sales executives would not switch off their mobile telephones before midnight. Yim also had weekly meetings with P’s Sales Managers.Yim said (and I accept)P would not forsake customers’ orders simply because of their small volume. I find no justifiable reason (except for DS’ technical weakness which D did not even seek to address with P/Yim) for D to discard Reuda as a customer.

(k)         In light of the above and for reasons set out below, I find that D’s deliberate decision to abandon customers requiring technical support (including Reuda) was partly driven by his private interest to foster customers’ disappointment over P’s services or technical support, thereby spurring them towards Altak/Echroma.I further find that D’s private interest was for positioning himself for a future role with Echroma and/or gaining Chan’s/Echroma’s permission to use Echroma’s guise to pursue his own battery pack side business.

I make the following findings :

(i)    D knew Altak/Echroma were ICM’s design houses and Chan’s companies (which were newly established), but D never mentioned to Yim/P that Altak/Echroma were ICM’s design houses;

(ii)    D never told Yim/P of his owncriteria for supporting and abandoning customers, and never explored with Yim/P about other possible ways to support Reuda (eg by asking Yim to push DS for prompt and effective support, seeking assistance from other sales executive(s) to handle Reuda’s account or to relieve D from some of his other workload) before abandoning Reuda as a customer;

(iii)    D knew that if he refrained from supporting Reuda, Wang/ICM would have to approach a design house (likely to be Altak/Echroma as they were ICM’s design houses) to provide the needed technical support for Reuda and this would drive Reuda’s account into the hands of Altak/Echroma;

(iv)    D knew that Altak/Echroma were capable of performing the “design-in” work, producing the “demo board”and providing the relevant technical support to Reuda, and Altak/Echroma did actually carry out these tasks;

(v)    according to industry practice, if Altak/Echroma successfully created DSC solution for Reuda, they would earn the right to sell ICM’s CMOS sensors to Reuda as part of its service;

(vi)    D therefore knew Altak/Echroma would in those circumstances compete against P by selling ICM’s CMOS sensors within P’s ICM distributorship territories.

In my view, even though P/DS might not have sufficient technical or engineering capability to support Reuda, D had made his own deliberate decision (and was therefore in breach of his duties as P’s employee)to abandon Reuda and facilitate or contributeto the transfer of Reuda’s account to Altak/Echroma.

(l)    I find D positively helped Altak/Echroma hit the ground running in respect of Reuda’s account by providing them with information about Reuda’s project and liaising with Reuda’s Ko during the handover. D admitted that by the time of Reuda 10/2/01 E-mail he knew Reuda’s potential orders were for Altak/Echroma and he actually discussed the terms with Kobut never alerted P/Yim of such e-mail. D also forwarded Reuda 2^nd Project Schedule to Altak’s Chan without P’s/Yim’s prior knowledge or approval.

(m)    In the circumstances, D was in breach of his obligations of loyalty and good faith in facilitating or contributing to the transfer of Reuda’s account from P to Altak/Echroma.

69.In relation to Yu Xun Tong, Yim acceptedthat Wang acted reasonably in insisting that lens and CMOS sensors be sold together, but complained that Wang should not have asked Chan to contact Yu Xun Tong for business. I consider that P cannot blame D for Wang’s decision to ask Chan (presumably as lens distributor) to follow up on Xu Xun Tong. Further, Wang told Liu upfront by e-mail on 22^nd February 2001 that ICM would not sell lens without CMOS sensors and that it would ask a lens distributor to contact Xu Xun Tong. P was unable to point to any act by D for diverting business or in hiding information from P. There is no merit in this complaint.

70.Yim complained of Starline E-mail but I do not agree with his interpretation. Starline E-mail was actually sent to Chan with copy to D although it was addressed to “Kenneth”. Its tenor was to ask Chan to lend the “demo board/kit” made for Reuda to Starline for reference and to approach Starline for “design-in” work. It would have been meaningless for Wang to so ask P as P did not make such “demo board/kit” or had the capacity for such work.

71.Wang expressed worries in Starline E-mail that the “local distributor” might challenge him for “leaking business” to Echroma. Yim said this showed P could challenge ICM for leaking Starline’s business to Echroma. I do not agree with Yim’s interpretation.

72.First, Starline was obviously a Taiwanese company (it had a Taipei telephone number and was introduced by ICM’s Taiwanese distributor) although it had a manufacturer in Guangdong Province. It is only if the PRC manufacturer (not Starline in Taipei) placed orders for ICM products that such orders would fall within P’s ICM distributorship territories. There is therefore no certainty that P’s business would be affected at all. Secondly, Wang in Starline E-mail said “[his] local distributor” was with him at the conference call. Wang himself was stationed in Taiwan (see suffix “tw” in his e-mail address). It is common ground that ICM had a branch office in Taiwan (see also ICM’s Taipei address in e-mail from ICM’s Vivian Chiang to D dated 12^th April 2001). Therefore, Wang must have been referring to ICM’s Taiwanese distributor when he referred to “local distributor” in Starline E-mail. If there were any leakage of business, it would have been that of ICM’s Taiwanese distributor and not P.

XIX.    Disclosing trade secrets or confidential information

73.An employee’s responsibilities may include possessing confidential information either with regard to customers, suppliers or technical/industrial/trade matters peculiar to his employment. Such information is his employer’s intangible property. Thus an employee owed a duty to his employer to look after and preserve such information, and not to misuse such informationacquired in the course of his employment. The extent of that duty depends on the facts and circumstances of each case (Faccenda Chicken Ltd v Fowler [1986] 1 All ER 617).

74.“What is protected is information or ‘know how’ which is special to the employer and it is extremely difficult to define its limits. The best that can be said is that each case is looked at on its facts to ascertain if the employer has an interest which he properly seeks to protect” (Crump & Pugsley, Contracts of Employment (supra) para.10.07 at p.190). Mr Leung referred to the judgment of Deputy Judge Saied in Gilligan (supra) at p.208 as follows :

“With regard to the issue of disclosure by the plaintiff of alleged confidential information, I was referred to the authority of Thomas Marshall (Exports) Ltd v Guinle & Ors 1978 3 All ER 193; [1979] Ch 227; (1978) ICR 950, where Megarry VC suggested, per curiam, four elements in identifying confidential information of trade secrets which the court will protect: first, the owner must believe that the release of the information would be injurious to him or of advantage to his rivals; second, the owner must believe that the information is confidential or secret; third, his belief under the two previous heads must be reasonable; fourth, the information must be judged in the light of the usage and practices of the particular industry on trade concerned.”

75.Yim said that technical product information, price, customer and supplier lists were confidential and should not be disclosed to third parties due to intense market competition and constant improvement in technology.D accepted there was market competition over product features as customers would test P’s recommended DSC solution against other products in the market before formal acceptance. I accept (and find that D knew) that pricing and product quality/features are of particular importance to P’s trade/business.

76.P complained that D without P’s approval disclosed to :

(a)    Wang confidential sales forecast information as per ICM Forecast; and

(b)    Altak/Echroma or Chan product information/upgrades as well as pricing as per (i) FL01, FL01A and FL01C E-mails and (ii) Price Update E-mail.

77.There is no objection on a general basis for passing sales forecast information to ICM and Mr Leung did not dwell on this issue in his final submissions. Clause 2.8 of the non-exclusive distributorship agreement between P and ICM dated 21^st April 2000 (“Agreement”) provides inter alia that P would confer with ICM from time to time at ICM’s request on matters relating to market conditions, sales forecasting and product planning relating to ICM products. Under clause 4.3 of Agreement, P was obliged on the 1^st day of every month during the term of Agreement to provide ICM with a written 6 months’ forecast of its needs for ICM products.

78.Rather the concern lay in D hiding from Yim/P Reuda’s and Advance plus’ sales forecasts that D made known to Wang. I find that such concealment is this : although there was anticipated business from these 2 customers, D had decided to discard them as customers for P and had turned them towards Altak/Echroma (see analysis in relation to Reuda above and FL01 E-mail below).

79.The product information/upgrades in FL01, FL01A and FL01C E-mails came to P as ICM’s distributor. Such information obviously gave P a competitive edge in marketing bundle solutions to customers. This is information which “the employer has an interest which he properly seeks to protect”. Even D admitted that such information was necessary for working on customer projects.

80.By FL01 E-mail D passed product information (circuit layout of VGA solution with flash light) to Altak/Echroma to enable them to approach 3 potential customers which D discarded. D suggested that it was not a breach of duty to provide customers’ names without giving contact particulars as such limited information would not necessarily result in customers’ orders, and Altak/Echroma only secured orders by their own efforts. I disagree. It was obvious from FL01 Further Action and GT/Echroma Reports that such circuit layout was actually used for Advance plus camera solution by Echroma, and that with such product information, Altak/Echroma was better equipped in approaching and getting business from these customers. D was serving the interests of ICM and/or Altak/Echroma and not that of P when he sent FL01 E-mail.I have also found, when considering Reuda’s account, that Altak/Echroma were P’s competitors and clearly D was in breach of duty as employee in sending FL01 E-mail.

81.FL01A and FL01C E-mails contain product upgrade information on circuit layouthelpfulto Altak/Echroma in marketing the latest technology and in rendering “design-in” service for customers. I note from Hector Hong E-mails that Chan sent material on ICMSDFL01A circuit (ie information received from D by FL01A E-mail a few days earlier) to Hector Hong/Falcontek Corporation. P clearly had an interest in such information which was peculiar to its trade and I cannot see how passing such information to Altak/Echroma serves P’s interests at all.

82.I do not accept D’s claim that Altak/Echroma could have obtained all the product information/upgrades from GT. Had Altak/Echroma been able to do so, there would have been no need for Dto repeatedly forward such information to them. In any event, the fact that Altak/Echroma could, if they wished, have asked GT for such information did not give D a right to pass such information to them, particularly when such information could be used in competition with P.

83.It has been suggested that normally product information/upgradeswere passed to P’s customers. This argument cannot help D becauseeven on his case, Altak/Echroma were ICM’s design houses, not P’s customers. Indeed, I have found they were P’s competitors.

84.It has also been suggested that since the customers named in FL01 E-mail and Hector Hong/Falcontek Corporation were Taiwanese entities falling outside P’s ICM distributorship territories, D’s conduct in passing product information/upgrades to Altak/Echroma to enable them to approach these entities should not be a problem. Even if that were right, still D had no right to disclose such sensitive information which only served the interests of P’s competitors. After all, Altak/Echroma as design houses operating in Hong Kong also served customersin Hong Kong and Mainland China. Once the product information/upgradeswere disclosed to Altak/Echroma, such information could be used by them generally and there was no restriction of usage for serving Taiwanese customers.

85.As for Price Update, on balance I do not accept D’s explanation that it was unimportant because the price would fluctuate duringthe “design-in” period. The price list/Price Update gave the price trend and constituted, as Yim said, a road map for P to makeits own price adjustment for ICM products and to determine its marketing strategy. Such information was also important in showingthe availability of relevant product packages and production timeline. Yim said (and I accept) that sometimes due to customer’s request, P would have to negotiate with ICM on price based on the price list. I therefore find Price Update was important for P to set its price forICM products and in light of price competition in the market, P had a keen interest in protecting such information.

86.I am not satisfied that ICM would regularly and automatically provide such information to Altak/Echroma. If it were otherwise, there would have been no need for D to forward the information to them. I find that Price Update is confidential information and the release of such information by D to a potential rival without P’s prior approval was injurious to P’s interest.

XX.    Working as Echroma’s Marketing Director

87.Although in general an employee’s skills and his spare time are his own, an employee (as part of his duties of fidelity and good faith) should not engage in other businessesor part-time employments or other activities which are in direct competition with his employer or which can be shown to be harming the employer’s business (see Halsbury’s Laws of Hong Kong Vol.10(2) 2001 Reissue para.145.040 at p.65 and Crump & Pugsley, Contracts of Employment (supra) para.10.3 at pp.187-188). Other than the aforesaid principle, not every act by an employee in his spare time even for his employer’s rival amounts to a breach of fidelity (see Nova Plastics Ltd v Froggatt [1982] IRLR 146).

88.There is no dispute that D issued Battery 24/2/01, 26/2/01 and 12/3/01 E-mails in the capacities of Echroma’s General Manager/Marketing Director. Ddenied he was employed by Echroma in any capacity prior to his resignationfrom P and only admitted to borrowing the aforesaid capacitiesto puff up his credibility when dealing with third parties for his own battery pack side business.

89.Yim admitted P’s business did not include battery solutions. I reject Yim’s bare assertion that the specifications in Battery 24/2/01 E-mail showed such batteries could be used for DSC and I prefer D’s evidence that Li-ion batteries would be too expensive forsuch purpose. There is also no evidence that D’s e-mail enquiries resulted in any contract/business that would harm P’s interests. Although Yim complained D’s enquiries would affect the interests of P’s sister company in Taiwan, D owed no duty of fidelity, loyalty and/or good faith to such company, which was not his employer.

90.Mr Leung argued that these e-mails had a more sinister connotation in that they were part of an orchestrated plan by Wang, Chan and D to set up Altak/Echroma as another ICM distributor for Hong Kong and Mainland China in competition with P. He referred to the close relationship amongst these parties, their sharing of business information, the inclusion of D into the e-mail loop between ICM and Altak/Echroma, D’s contemplation some time before April 2001 to resign and D’s failure to report problems with and Wang’s instructions in respect of the ICM product line.

91.D said he had spoken with Chan about his adoption of Echroma’s mantle for his side business. There was no suggestion Chan refused such request or asked D to desist. I find it odd that any company carrying on its own business would for no commercial reason agree to lend or acquiesce in lending its name to a third party or to allow such third party to assume the role of its senior management to communicate with others on business matters. Chan must have known that such conduct might open Echroma to unwarranted legal or commercial liability. I find on balance that Chan/Echroma being new fledgling companies allowed D to do so for his own side business because they hoped to and did receive much assistance from D in respect of discarded customers, production information/upgrades, price information and other co-ordination.

92.However, I cannot see how the e-mails enquiring about battery solutions harm P’s business or improperly compete with P. Of more concern is Battery 26/3/01 E-mail. D admitted he had selfish reasons because by that time he already planned to leave P and join Echroma, so he was positioning himself by soliciting support for Echroma’s Shenzhen design centre that targeted Hong Kong and China markets. I find this a blatantly disloyal act as it clearly harmed P’s interests. D denied this by saying thatDS’ DSC project was terminated and P/DS had no design centre, but this is a superficial view. Even on D’s case, any design house which did “design-in” work would be entitled to sell CMOS sensors to customers and even the supplier would not interfere with such industry practice. D in promoting Echroma’s design centre with a view to soliciting support within P’s ICM distributorship territories must therefore be competing against P.

93.Although I am not satisfied that D actually worked for or received remuneration from Echroma prior to his resignation, I find that D had breached his obligations of fidelity and good faith to P.

XXI.    Miscellaneous issues

94.Mr Leung submitted that I should accept Yim’s evidence (a) that it was P who took the initiative to terminate Agreement instead of D’s suggestion that P only did so because ICM refused to “return” Reuda’s account from Altak/Echroma to P and (b) as to what passed between Yim and Chan after D resigned. However, theseevents which occurred after D left P are at most of marginal relevance (if at all) to the key issues. I do not propose to make findings or place weight on these matters.

XXII.    Summary on the issue of liability

95.In the circumstances, I find that D had breached his implied obligations of good faith, loyalty, fidelity, non-competition, and duties of trust and good faith as P’s employee during his period of employment.

XXIII.    Damages

96.P only claimed damages for breach of contract and breach of implied duties of trust and confidence. P did not ask for an order for accounts against D. At the commencement of the trial, I raised with Mr Leung on the sparsity of information on damages in the trial bundle. After all, P carried the burden of proof. Mr Leung informed me that no amendment of pleadings was necessary. In his oral final submissions, Mr Leung made a half-hearted attempt to amend P’s pleadings to add a claim for accounts but in the end he did not insist on it. Anyway, it was not raised in Mr Leung’s written final submissions and made very late in the day after D’s closing submissions.

97.Yim claimed P suffered loss as it broke off Agreement with ICM following discovery of D’s misconduct but gave no evidence on P’s investment costs for Agreement, which he said was hard to quantify. Anyway, Mr Leung did not pursue this head of claim in his final submissions. I find P has failed to satisfactorily prove this head of loss.

98.D denied receipt of any income, profits or inducement in relation to his misconduct and P was unable to adduce any evidence to infer the contrary. Mr Leung fairly conceded there was no evidence of any secret profits by D, so P also failed to prove loss under this head.

99.Mr Leung next submitted that P lost the benefit of orders from Reuda. He argued that at 6% profit which according to D was applicable to such orders, P’s loss would either be (a) 38K (being 2K, 16K and 20K in March, April and May 2001) x US$13.00 (see Reuda Quotation) x 6% = US$29,640.00 or (b) 2K (March 2001) x US$13.00 x 6% = US$1,560.00.

100.I find that Reuda placed a 2K pilot run order with Echroma in March 2001 (see D’s evidence and Echroma/GT Reports) but decided to wait and see for the remaining balance of the original 20K order. Although Wang stated in Reuda 12/3/01 E-mail that Reuda was to deliver 16K and 20K DSC to its customers in April and May 2002, he only asked Lin for an updated status on delivery for reverting to Reuda. It is not clear from Reuda 12/3/01 E-mail and D did not know whether corresponding 16K and 20K orders were placed by Echroma with ICM/GT or not. Echroma/GT Reports made no mention of any 16K order but noted that Reuda confirmed a 20K order with Echroma. Such reports referred to an additional 20K order pending firmware approval but there is no evidence whether such order was eventually confirmed or not. I therefore conclude on balance that Reuda only placed 2 orders (2K and 20K) with Altak/Echroma.

101.The first hurdle P faces in claiming damages for the 2K and 20K orders is P’s and/or DS’ lack of technical and engineering capabilities. In light of my earlier findings, I find that P would not have been capable of rendering the requisite technical/engineering support to secure Reuda’s orders even if there were no competition from Altak/Echroma.

102.Even if I were wrong, there is in any event no direct evidence of the relevant price. Despite being in charge of P’s sales, Yim did not give evidence on price.Further, D did not know whether the 2K order was at US$13.00/unit or not. I reject Mr Leung’s submission that P’s loss should be calculated on the basis of US$13.00/unit. Reuda Quotation of US$13.00/unit was for ICM105A CMOS sensor (US$8.00) and GT8911 camera controller (US$5.00). By the time of Reuda 9/2/01 E-mail, ICM105A was changed to ICM102A. Even up 12^th March 2001, Reuda 12/3/01 E-mail still referred to ICM102A for Reuda’s bundle solution. I accept D’s evidence that different types of CMOS sensors had different prices (see also Price Update), so the price in Reuda Quotation for CMOS sensor ICM105A and the total unit price of US$13.00/unit were not applicable to Reuda’s orders.

103.Mr Leung then asked me to refer to the price of CMOS sensor ICM102A in Price Update. But there are 6 items under the code ICM102A with various prices ranging from US$3.50, US$4.75 to US$8.50. Mr Leung urged me to adopt US$3.50/unit but I find such approach speculative. There is no evidence which of the 6 items (if at all) was used for Reuda’s orders. I accept D’s evidence that the recommendation for CMOS sensor was to meet the customer’s DSC camera features, so it is not necessarily a matter of finding the lowest cost item. I also bear in mind Yim’s evidence that P would offer “A” or “B” grade CMOS sensor depending on the customer’s need and budget. There is no evidence whether the 2 ICM102A items in Price Update at US$3.50/unit were actually used for Reuda’s orders.

104.Further, the 6 ICM102A items in Price Update were part of the price book update but it is unclear that they were the only ICM’s CMOS sensors bearing the code ICM102A. Price Update E-mail shows there was a price book as well as update information. Exhibit A of Agreement refers to more products than listed in Price Update. In the absence of evidence on the particular ICM102A item used for Reuda’s orders, one cannot say that US$3.50/unit was the lowest priced ICM102A item amongst ICM products.

105.The aforesaid analysis is based on Reuda Quotation and Price Update. However, there is no evidence as to (a) what price Altak/Echroma quoted to Reuda, (b) what price P would have quoted for pilot run/mass production of the Reuda bundle solution or (c) whether any quotation for pilot run/mass production orders would likely be the same as contemplated in Reuda Quotation or Price Update. In my view, Reuda Quotation for 50 kits prototype “demo board/kit” before the “design-in” stage was not reflective of pricing for pilot run (ie after acceptance of end-product solution) and mass production products. I also accept D’s evidence that there might be price fluctuation over the “design-in” period. No evidence was led from Yim as to what would have been a reasonable price for 2K and 20K orders after “design-in”.

106.On the other hand, there is evidence that P would not have been rigidly bound by ICM’s price list. Yim said the price list or Price Update enabled P to make its own price adjustments based on the projected trend and to negotiate with ICM on price if so requested by the customer. He did not say that P would simply adopt ICM’s prices. There is also no evidence that Altak/Echroma were bound by the straightjacket of ICM’s price list or Price Update.

107.Again, there is no evidence that the price of GT8911 as at March 2001 would have been the same as that quoted in Reuda Quotation. D said (and I accept) that non-standardised products had fluctuations in price over time. There is evidence that the requisite technical support included fine-tuning DSP but there is no evidence that the price quoted for GT8911 in early December 2000 before “design-in” would hold good after “design-in” at February/March 2001 and thereafter. P did not attempt to lead such evidence from Yim.

108.Therefore, even assuming that P were able to take up Reuda’s orders (which I do not agree) and that a 6% profit margin would have been reasonable for 2K or 20K orders, I find that P has failed to establish on the balance of probabilities the relevant price as the basis for determining the loss of profit.

109.However, as D is liable for breach of implied duties of his contract of employment, P should be entitled to nominal damages although substantial loss and damages have not been satisfactorily proved (Chitty on Contracts 29^th ed. Vol.1 para.26-008 at pp.1427-1428). But since Phas conceded D’s defence of set-off for HK$29,390.00, such set-off would extinguish any nominal damages to which P was entitled. I find P has failed to establish any loss and damages on the balance of probabilities.

XXIV.    Conclusion

110.In the circumstances, P’s claim is dismissed. Costs are in the discretion of the court and normally costs follow event. Generally, the court’s discretion will not be exercised against a successful party except for some reason connected with the case. Here P is successful in establishing liability but failed to prove loss. Further, any nominal damages to which P is entitled are extinguished by D’s defence of set-off. However, Mr Leung reminded me that almost the whole of the trial time (save for a small part of the evidence and part of the final submissions) dealt with the matter of liability and D failed on the issue of liability.  Looking at the matter in the round, I consider that the appropriate order is no order as to costs. I therefore grant a costs order nisi that there be no order as to costs in respect of this action (including all costs reserved).

Mr Richard Leung instructed by Messrs C P Cheung & Co for the Plaintiff.

Defendant acting in person and present.