Axa China Region Insurance Co Ltd and Another v. Pacific Century Insurance Co Ltd and Others

HCA 9093/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9093 OF 2000

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BETWEEN

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Before: Deputy High Court Judge Saunders in Chambers

Dates of Hearing: 24 & 25 May 2005

Date of Judgment: 30 June 2005

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J U D G M E N T

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The Applications:

1.The Plaintiffs, (AXA), by summons dated 28 December 2004, seeks leave to further amend the Re-Re-amended Writ of Summons with Re-Re-Amended Statement of Claim, and to add a further 31 defendants to the action.  Consequential Orders are also sought.

The background:

2.The writ was issued on 21 September 2000, initially against the 1^st to 10^th Defendants, following the departure, en mass, of a large number of insurance agents from AXA, to the 1^st Defendant, (PCI).  The 2^nd to 10^th Defendants, were Senior Sales Managers for AXA.  The 11^th to 29^th Defendants were sales agents for AXA, employed by various of the 2^nd to 10^th Defendants.  The proposed 29^th to 60^th Defendants were also, at all material times, sales agents for AXA, similarly employed.  I shall refer to the 2^nd to proposed 60^th Defendants, collectively, as “the individual defendants”.

3.In the usual way of the insurance, or indeed any business, AXA had collected a large amount of data relating to the personal details of its clients,  AXA policyholders, and held as well, details of the policies taken out by them.  It is AXA’s case that all the documents containing such information and the information itself are secret and confidential and owned by AXA.

4.AXA stored that information on a computer system known as the Sales and Marketing System, (SAMS), general access to which is restricted to Senior Sales Managers and specific access, in relation to their own clients, is permitted to sales agents who deal directly with clients.  The case for AXA is that in a short period of time prior to the departure of the individual defendants from AXA to PCI, print outs of SAMS client data were made, taken with them to PCI, and have been used by PCI and the individual defendants to poach policyholders from AXA to PCI.  It is contended that this was done by a “plan matching scheme”.

5.The causes of action against PCI are breach of confidence and the economic tort of unlawful interference with contract.  The cause of action against the 2^nd to 28^th and the proposed additional defendants is based upon an alleged breach of an implied duty of fidelity by the individual defendants in wrongfully removing confidential information belonging to AXA during the currency of their agency with AXA, for use after the termination of their agency, and to the detriment of AXA.

The interlocutory applications:

6.At the same time as the writ was issued, PCI sought interlocutory injunctions requiring the 1^st to 10^th Defendants to deliver up all SAMS documents and copies thereof in their possession custody and power, to AXA, and to verify compliance of the injunction by affidavit.  On 29 September 2000, Beeson J made an interlocutory order,(ex parte on notice), in AXA’s favour, on the application.  An inter partes hearing came before Deputy Judge To in February 2001, which, between 28 February 2001 and 10 April 2001, occupied 30 days of sitting time, culminating in a 111 page judgement delivered on 24 July 2001.

The conclusions of Deputy Judge To:

7.In the course of his decision Deputy Judge To came to the following conclusions:

(1)	AXA had raised a serious issue to be tried as to whether the individual defendants were in breach of their duty of fidelity to AXA by copying and removing client data during the currency of their agency for the purpose of using that data to AXA’s detriment after the termination of their agency, (paragraph 85);
(2)	AXA had raised a serious issue to be tried as to whether the individual defendants had removed client data during the currency of their agency for use in competition with AXA after the termination of their agency, (paragraph 133);
(3)	AXA had demonstrated a strong arguable case that PCI had knowledge that the information supplied to it by the individual defendants or other ex-AXA agents had the necessary quality of confidence in it and were imparted in circumstances importing an obligation of confidence to PCI, (paragraph 141);
(4)	AXA had established a serious issue to be tried as to whether PCI was under an obligation of confidence in respect of the information that it received and has been in breach of the duty (paragraph 146);
(5)	AXA had raised a triable issue that the intention of PCI must have gone beyond fair and honourable competition and that PCI intended, at least, to cause some harm to AXA, (paragraph 149);
(6)	There was a serious question to be tried as to whether PCI’s breach of confidence constituted an unlawful means for the tort of breach of confidence, (paragraph 152); and
(7)	AXA had raised a serious question to be tried that in the course of the administration of the plan matching scheme PCI agents had misrepresented AXA policies as “Matching Policies” with PCI policies, to AXA policyholders, (paragraph 158).

8.That decision, delivery nearly four years ago, has not been the subject of any challenge by the Defendants.

The nature of the present disputes:

9.It is clear that the definition of what constitute “SAMS Data” and “Client Data” is at the centre of the action.  PCI, through its counsel, Mr Stokes, properly say that they must know precisely what AXA contend in order that they might answer the case.  The most substantive proposed amendments to the Statement of Claim are directed at revisions to certain paragraphs relating to those definitions.  These are subject to strong challenge by Mr Stokes.  Further amendments attempt to particularise relevant information, and the complaint made by Mr Stokes is that the information relied upon by AXA is not sufficiently particularised so as to enable PCI to properly respond to the pleading.

10.Mr Pun who appeared for the 10^th to 28^th Defendants raised no objections to the proposed amendments to the Statement of Claim, not even to the extent of joining with Mr Stokes in his objections.  He confined his argument to an argument that the proposed additional defendants ought not to be joined.

11.The issue in respect of the proposed amendments to the Statement of Claim fall conveniently into three areas.  They are first, to give a more accurate and comprehensive description of SAMS data, together with appropriate detail of the case on breach of confidence in relation that to that data, leading to an appropriate definition of “Client Data”.  This revolves around paragraphs 18.2, 20.1 and 22.2 of the draft.  I shall call this “the SAMS and Client Data point”.  Next, objection is taken to paragraphs 28 and 29.4 of the draft in which AXA attempt to particularise, for sufficient pleading purposes, the documents upon which they relied for the case against PCI.  The complaint here is that the documents are not sufficiently particularised.  I shall call this the “Identification Point”.

12.The third point relates to a further particularisation of the Identification Point.  This was taken in relation to an attachment to the Statement of Claim, referred to as “Schedule C”, which relates to a series of documents which had been recorded on a computer hard disc by an imaging process, allegedly by one of the defendants.  Following a suggestion made by me in the course of argument, I understand that the parties are looking at a means by which those documents may be copied onto a separate disc and made available to the advisors to PCI under controlled circumstances, for security purposes, which Mr Stokes accepted entirely, and that may resolve this issue.  I will not consider it further now, so unless resolved by agreement, this issue remains alive.

The SAMS and Client Data point:

13.I accept Mr Stokes’s submission that the correct and clear definition of the words “SAMS Data” and “Client Data” is essential, because, to adopt his submission,

“those words determine the scope of information that AXA claim to own beneficially, and by reference to which they contend there has been misuse by the individual defendants in their breach of their duty of fidelity and misuse by PCI in receiving Client Data.  The definition is important in determining the extent of the discovery and the evidence that each defendant will need to obtain.”

14.It is plain that information is not necessarily Client Data merely because was found in the SAMS data system, or on a document printed out from SAMS.  There were circumstances, AXA accepts, in which SAMS documents were produced and given to a client.  If such document was then handed to PCI, by or via a client, it would not be a confidential document.  It is also accepted by AXA that if a policyholder has material in his position, such as a policy itself, the supply of that information, all of which would be in the SAMS data information base, would not be a breach of confidence.

15.Mr Stokes’s objection to paragraph 18.2, 20.1 and 20.2 of the draft pleading was based upon a contention that the definition sought to be advanced in the re-re-re-amended Statement of Claim was inconsistent with, and contrary to past statements by the Court, or admissions made by AXA as to the scope of Client Data.

16.I have come to the conclusion that the objection is unfounded, and that the pleading is sound.  I do so for the following reasons.

17.The starting point for any pleading in a claim for breach of confidential information is Coco v A N Clark (Engineers) Ltd [1969] RPC 41, a decision of Megarry J.  At page 47 the learned Judge recorded just follow:

“In my judgment, three elements are normally required if, apart from contract, a case of breach of confidence is to succeed.  First, the information itself, in the words of Lord Greene, M.R. in the Saltman case, on page 215, must “have the necessary quality of confidence about it”.  Secondly, that information must have been imparted in circumstances importing an obligation of confidence.  Thirdly, there must be an unauthorised use of that information to the detriment of the party communicating it.”

18.In the present case, the pleader has set out to establish the two primary elements that must be established before attention is turned to the use of the information.  This is done in two stages.  First, in paragraph 18.1 the plea is made that SAMS is a network system containing secret and confidential information about the Plaintiff’s policyholders and their policies (“SAMS Data”).  Clause 18.2 proceeds to define SAMS data exclusively.  From that paragraph, it is necessary to turn to paragraph 20.1.  There the plea is made that SAMS data was and remains all times a trade secret and/or confidential information.

19.But that plea is not, as was contended by Mr Stokes, in a grammatical argument based upon the location of commas, a plea that ALL SAMS data constitutes trade secrets and/or confidential information.  The plea carefully limits the data which constitutes confidential information to data which:

“was and is created, obtained, derived and/or collected in the course of and for the purposes of the Plaintiff’s insurance business by or through their offices, employee and/or agents”.

20.Those two paragraphs, 18.2 and 20.1, when read together consecutively, as they must be, in order to import the necessary limitation factors, are the paragraphs upon which the pleader has relied to establish the first of the elements required by Megarry J.  To adopt the expression used by Mr Strachan in his reply, the pleading establishes “the confidentiality of the corpus of the information” held by AXA.

21.Megarry J’s second requirement was the information must have been imparted in circumstances importing an obligation of confidence, in other words, the pleader must establish a duty in relation to that corpus of information.  It is apparent in the present case, that in respect of individual agents, the “corpus of information” to which their duties lies will differ for each agent.  That necessarily follows from the type of limitations I have referred to the paragraph 14 above.

22.In paragraph 20.2 of the draft the duty is expressed, and is appropriately limited to accommodate those different positions by two expressions.  They are first,

“obtained or derived by an agent in the course of his agency with the Plaintiff”,

and secondly,

“save where the information was known to the agent prior to such obtaining or derivation”.

The data thus defined is then internally defined in the draft amendment, by the expression “Client Data”.  The pleading then proceeds to allege that there is a duty upon the defendants to keep Client Data secret and/or confidential. 

23.When the pleading is analysed in this way, it may be seen that the expression “Client Data” will mean one thing for one sales agent and another thing for another sales agent, and yet another thing for a Senior Sales Manager.  The distinguishing features are however generically common throughout.  They are:

(i)	The SAMS data must have been obtained or derived by an agent or manager in the course of his agency with the Plaintiff: if he obtained information that falls within the definition of SAMS data, not from the SAMS system, but from some other separate independent and outside source, then the data is not Client Data, and the duty will not arise, and;
(ii)	Where the information was known to the agent or manager  prior to his obtaining or deriving the information as well from the SAMS system, then the data is not Client Data, and the duty will not arise.

24.It must be remembered also that while the data to which the duty will apply may vary from agent to agent, insofar as PCI is concerned, depending upon the source of the information to them, there may be no variation in the data.  It will only be where an agent, who by virtue of the limitations, is exempted from duty, supplies the data to PCI, that PCI will be able to seek refuge in the exemption.  If the information is supplied on a general basis to PCI, for example by a senior manager, who does not have the direct links with clients which may otherwise provide the limitation exemptions to an individual agent, then the information will be confidential and limitations on its use by PCI may well arise.

The identification point:

25.I turn now to consider the question of the particularisation of documents.  The pleading at the centre of this issue is paragraph 29.3.  This is an issue which appears to arise in most breach of confidentiality cases, where a large bulk of information is taken by an employee who then goes to a new employer and gives that information to the new employer.  It will often be, and is the case here, that it is extremely difficult for the old employer, in this case AXA, to precisely identify what documents or information has been taken.  It may be that electronic trails in computers will often now assist in the resolution of this issue.  That may still be, in part, a solution here, but I am told by Mr Strachan that there is a limit as to the amount to information that is available from the computers to enable precise identification of the documents or information taken.

26.It is a well-known principle of pleading that it is no answer for a plaintiff the to say to a defendant “you have the information and are well aware of the nature of my complaint”.  The Plaintiff must particularize his complaint.

27.Mr Stokes relied upon Harbord v. Monk (1878) 38 LT 411.  There, in an action against a stockbroker to reopen accounts on the ground of fraud, the plaintiff alleged that the accounts delivered were untrue and unfair and that brokerage and commission had been improperly charged and excessive and unfair profits had been made.  The stockbroker sought further and better particulars.  The plaintiff amended his statement of claim by stating that all the accounts rendered were untrue, and the defendant had the particulars of the profits made by him, that the improper and excessive charges appeared in the accounts, and that the defendant was well aware of them.  The plea was rejected by Bacon VC who gave the plaintiff four days to amend.

28.The case is an old one, but while still good law, it must be viewed in the light of modern circumstances.  Where, as so often today, information is stored electronically, and may be printed at will, apparently with no electronic trail to identify precisely the document printed, although as here, the printer and the location from which the data has been retrieved may be identified, there may be no information at all available as to precisely which document has be copied and taken.  This casts matters of the obligation of the identification of information taken in an entirely new light. 

29.Again, the pleading for which primary complaint has made, paragraph 29.3, and its reference to a particular exhibit, must not be read in isolation.  It is part of a series of pleadings commencing with paragraph 18 and concluding with paragraph 29.6, and must be read in the context of those pleadings.  Each of those previous and subsequent pleadings, when read together, serve to provide particulars of the classes of documents upon which the Plaintiff relies.  It is right that the pleading does not identify, on an individual basis, all of the documents upon which the Plaintiff relies.  Some further progress may be made by the supply of the detail of certain codes referred to on the exhibits identifying the documents, and I am assured by Mr Strachan that AXA will, if it is considered useful in identifying the documents, supply the details of the relevant codes.

30.What PCI asks however is that individual identification of each document upon which AXA intends to rely should be given.

31.Having regard to the nature of an action for breach of confidential information, and the manner in which documentation is stored and may be retrieved electronically, I have come to the conclusion that, subject to the provision of details as to the codes available from the computers, there is sufficient particularisation if the class of documents or information allegedly taken is appropriately identified.

32.I am satisfied the expressions used in the draft re-re-re-amended statement of claim sufficiently identify the relevant classes of documents.  It will be perfectly clear to the defendants, all of whom are involved in the insurance industry, and familiar with the types of documents used, by referring to the classes of documents identified in the pleadings, and bearing in mind the limitations on the classes set out in the pleadings, what will be relevant.

Joinder of Parties

33.Pursuant to O 15 R 4, AXA seeks to join 31 further defendants.  These proposed additional defendants are all sales agents formerly employed by AXA, who, at a number same time as the 1^st to 28^th defendants left AXA, also left and joined PCI.  They are in precisely the same category as the 11^th to 28^th defendants.  Mr Pun, for a small number, (only 6 of the 17), of this latter group oppose the application for joinder.

34.I am satisfied that Mr Strachan is correct in his submission that the opposition to the joinder is misconceived.  In the first place while it is right that there will be distinctions between each of the 11^th to 69^th in relation to the clients they served, the extent of common issues are simply overwhelming and demand that all the joined as defendants.  I am confident that by appropriate case management by the trial judge, if any of the 2^nd to proposed 60th defendants found it necessary to instruct separate counsel, it will be not be necessary for that counsel to sit through days of evidence which are irrelevant to his case.  No suggestion is made that there may be any conflict of interest between the individual defendants and so there appears to be no reason why they should not all be represented by the same solicitors and counsel.  To do so would have enormous costs savings and is to be commended to them.

35.Second, I am satisfied that it is not necessary in this case for the summons for joinder to have been served on the proposed additional defendants.  The very fact that the present defendants, of the same class, have made no application for separate trials for each of their cases demonstrates that this is not a case where it can be suggested that there would be any reasoned opposition to the making of the order.

36.There will be an order for joinder of the additional defendants in terms of the summons.  All questions of costs are reserved.

Mr Mark Strachan & Mr Stewart K M Wong, instructed by Messrs Herbert Smith, for 1^st and 2^nd Plaintiffs

Mr David Stokes, instructed by Messrs Richard Butler, for 1^st Defendant

Messrs Hoosenally & Neo, for 2^nd to 9^th & 27^th to 28^th Defendants – Absent

Mr Hectar H Pun, instructed by Messrs Cheng, Yeung & Co., for 12^th to 13^th, 18^th, 21^st, 23^rd and 24^th Defendants

Chan Shui Lam, Anita, 11^th Defendant in person – Absent

Chan Wai Ling, Stella, 14^th Defendant in person – Absent

Choy Kin Lun, Alan, 15^th Defendant in person

Chan Yick Cheung, Francis, 16^th Defendant in person – Absent

Kong Miu Yee, 17^th Defendant in person – Absent

Chu Hak Nam, Kenneth, 19^th Defendant in person – Absent

Biswakarma Tibahadur, 20^th Defendant in person – Absent

Lau Mei Yuk, May, 22^nd Defendant in person – Absent

Poon Yuen Kan, 25^th Defendant in person – Absent

Lee Lung Cheung, Derek, 26^th Defendant in person