New Image Labs Corporation and Another v. New Era Holidings Lted and Others

HCA 1156/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1156 OF 2014

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BETWEEN

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D E C I S I O N

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1.By summons dated 24 June 2014 the plaintiffs applied for an interlocutory injunction to restrain the defendants from, inter alia,:

(1) Using or disclosing the plaintiffs’ confidential information, and

(2) Passing off their goods as those of the 1st plaintiff’s.

2.On 27 June 2014, Au-Yeung J granted an interim injunction order on the express footing that no findings were made on the substantive merits of the summons and adjourned the summons for full arguments. This is the adjourned hearing of the summons.

INTRODUCTION

3.At the outset of this hearing, there were also a number of other applications by summonses returnable before this court, namely :-

(a) The plaintiffs’ summons dated 9 July 2014 to amend the original injunction summons along the lines of the Interim Order;

(b) The plaintiffs’ summons dated 13 August 2014 for leave to place certain exhibits into a sealed envelope, which shall not be made available for inspection save as by the judge hearing this action;

(c) The defendants’ summons dated 19 August for leave to place certain exhibits into a sealed envelope, which shall not be made available for inspection save as by the judge hearing this action; and

(d) The plaintiff’s summons dated 21 August 2014 to join Growthlink Services Limited (“Growthlink”) as the 6^th defendant herein and to amend the Statement of Claim accordingly.

4.The above matters were all dealt with by consent between the parties and disposed of at the commencement of this hearing.

5.Accordingly, this judgment needs only deal with the original injunction summons as amended under (a) above (“the Amended Summons”).

BACKGROUND

General

6.The 1^st plaintiff (“New Image”) was incorporated in 1984 in the USA. It was set up by one Randy Martin to sell expensive wigs and hair pieces, in particular tailor-made wigs as well as ready-made wigs, hair extensions and related accessories (“the Products”). It had customers both in the USA (“the US Customers”) and internationally (“the non-US Customers”).

7.The 2^nd plaintiff (“Emperor”) is a Hong Kong company incorporated on 5 May 2011 and is a wholly-owned subsidiary of New Image. Emperor was set up as a trading agent of New Image in relation to the Products by:

(1) Handling the stock and custom orders and correspondence from New Image’s customers;

(2) Placing orders with the factories as designated by New Image;

(3) Attending to order queries on production from the factories;

(4) Preparing order confirmations to New Image;

(5) Checking the quantity and measurements of the finished Products before delivery;

(6) Arranging delivery of the Products to New Image’s non-US Customers including preparation of expert documents, invoices and packing of goods;

(7) Preparing monthly statements of accounts to various non-US Customers and attending to payments;

(8) Preparing order status reports to New Image;

(9) Issuing payments to the factories on behalf of New Image.

(collectively called “the Services”)

8.The 4^th defendant, (“Alan Cheung”) is in control of all the corporate defendants.

9.In about 1991, New Image wanted to engage factories in the PRC to manufacture the Products, but because Randy Martin did not have the necessary skills and knowledge to properly deal with PRC factories, he enlisted the assistance of Alan Cheung  whom Randy Martin came to know in 1991 as a good friend. Alan Cheung had a wide network in the PRC and knew a number of factories therein.

10.At that time, Alan Cheung provided New Image initially with only liaison services, namely, to ensure the quality of the wigs and timely delivery of the Products, to provide delivery of the Products and to handle customers’ complaints. At a later time, Alan Cheung also provided operational services such as sourcing material for New Image as well as expanding such services to factories located at other places. After June 1999, the services were also enlarged to include collecting payment from or billing some non-US Customers of New Image.

11.Randy Martin passed away on 1^st June 1999 and his business was taken up by his father Les Martin, who was and still is a good friend of Alan Cheung. Alan Cheung continued to provide similar services after the death of Randy Martin to New Image as well as to other hair piece suppliers. This was known to and not only was it permitted by Les Martin, but Les Martin also permitted Alan Cheung to freely use the information acquired during the performance of such services to New Image.

12.In about April 2011, New Image was sold by Les Martin to Shandong Hiking International Co. Ltd (“Hiking”) a PRC company listed on the Shanghai Stock Exchange, which conducted due diligence during which they interviewed Alan Cheung.

13.By email dated 15 May 2014, Alan Cheung informed the plaintiffs that his companies would cease their services to Emperor by end of that day.

Emperor’s predecessors

14.Before the establishment of Emperor in May 2011, the Services were rendered by firstly, Dynasty Hair Products Ltd., and then by Emperor (Far East) Ltd. (CR No. 696596) (“Far East #6”) which was subsequently renamed “Emperor Hair Products Ltd.”. Far East #6 was dissolved on 2 February 2007. The plaintiffs says that Far East #6 was replaced by Emperor (Far East) Ltd. (CR No. 975006) (“Far East #9”)

15.On the other hand, the defendants say that Far East #9 was established by Les Martin to process solely the orders placed by New Image, that since about March 2008, Far East #9 only processed the orders placed by New Image and that Les Martin was the beneficial owner of Far East #9 until 16 May 2014.

16.It is also the plaintiffs’ case that when New Image was acquired in 2011, Hiking was given to understand by Les Martin tht he would shut down Far East #9 so that a new company in Hong Kong, (i.e. Emperor) could completely take over all the operations after completion of the transaction. It was only when the defendants served the 1^st Affirmation of Alan Cheung, that the plaintiffs realised that Far East #9 still exists.

Nominee Agreement

17.On 4 May 2011, New Image, Emperor and the 1^st defendant, trading as Fortune House Management (“Fortune House”) entered into a nominee agreement (“Nominee Agreement”) by which New Image as principal appointed Fortune House as an agent or nominee of Emperor.

18.Pursuant to the Nominee Agreement :

(a) Fortune House was appointed to provide general services to Emperor;

(b) The 2^nd defendant was appointed a director of Emperor; and

(c) The 3^rd defendant was appointed the company secretary of Emperor.

19.Since about 4 May 2011, the staff of the 1^st to 4^th defendants under the control of Alan Cheung started to render the Services to New Image on behalf of Emperor.

20.It is the defendants’ case that on 24 July 2012, New Image (acting through its ex President, one Tony Sciara) and Growthlink entered into a new nominee agreement (“the alleged New Nominee Agreement”) in place of the Nominee Agreement. It is also alleged by the defendants that since about 1 October 2011, Growthlink started to provide the Services in place of Fortune House to New Image.

21.On the other hand, the plaintiffs do not accept the validity or authenticity of the alleged New Nominee Agreement, as they were always given to understand that the only service agreement that had been signed was the Nominee Agreement. It was only after the termination of Alan Cheung’s services and upon reviewing the documents subsequently returned by him that the plaintiffs became aware of the existence of Growthlink.

Mode of operation

22.The orders processed by Alan Cheung and his staff on behalf of Emperor can be separated into two different categories, being firstly, orders by New Image for its US Customers (“New Image Orders”) and, secondly, orders for custom-made wigs sent directly to Emperor from New Image’s non-US Customers (“Customer Direct Orders”)

23.For New Image Orders, New Image would send the order information to Alan Cheung and his staff to be forwarded to the designated factories. For these orders, no information concerning the identities, contact details of the customer, or the price New Image charges would be provided to Alan Cheung and his staff. However, they would be fully aware of the prices New Image paid to the factories for each type of products by processing payments to the factories on behalf of New Image.

24.In respect of Customer Direct Orders,

(a) New Image would give Alan Cheung and his staff its up-to-date internal price list from time to time;

(b) If there was a new customer, New Image would tell Alan Cheung and his staff the relevant price level of that customer. By checking the price level against the price list from New Image, Alan Cheung and his staff would know how much New Image charged to each customer;

(c) When placing an order, all customers must fill in an order form provided by New Image with all their contact details, head measurements, specifications and other instructions. The order form would be sent directly to Emperor by email or by post if the order form was enclosed with head moulds. For orders received by post, Alan Cheung and his staff would scan and email the order form to New Image;

(d) After receiving the order form, New Image would issue an order number for each order and notify Alan Cheung and his staff as to which selected factory the order should be sent for production;

(e) When the factory had finished production, the factory would inform Alan Cheung and his staff by email copied to New Image with a status update for that order and enclose their invoice. Alan Cheung and his staff would settle payment with the factory on behalf of the plaintiffs;

(f) Alan Cheung and his staff would also arrange delivery of the finished Products directly to the customers.

25.In respect of both types of orders, Alan Cheung and his staff used an electronic database containing information and records belonging to New Image (“Database”) i.e. information relating to pending orders placed by New Image with the factories, such as specifications and measurements, and a list of all outstanding open factory orders.

26.It is the plaintiffs’ case that the annual turnover from the Customer Direct Orders is about US$1 million, which, although only account for a relatively small proportion of New Image’s annual revenue of about US$13 million, are significant in the context of Emperor. This, the plaintiffs say, is because the main reason New Image started this process of having its non-US custom-made orders handled in Hong Kong via Emperor (and its predecessors) was to offer its non-US Customers the ability to reduce delivery lead times by 10 to 14 days which would lead to increased sales. Therefore the emphasis to the operations in Hong Kong (whether under the vehicles of Far East #6, Far East #9 or Emperor) has been its service to the non-US Customers.

Confidential Information

27.It is the plaintiffs’ contention that in processing the orders in the manner stated above, the 1^st to 4^th defendants have come across substantial confidential information and trade secrets of New Image, namely,

(a) New Image’s price list for non-US Customers and prive level of each non-US Customer;

(b) Individual contact point of each non-US Customer;

(c) Product specifications and product preferences of New Image’s non-US Customers;

(d) Customers’ purchasing volume;

(e) Purchasing prices with the factories; and

(f) Individual contact point of each supplier of New Image

(collectively “Confidential Information”)

28.The plaintiffs say that Alan Cheung and his staff are agents of the plaintiffs and knew or ought to have known the limited purpose for which the Confidential Information was communicated, namely, for the purpose of rendering the Services on behalf of Emperor. As such they are under a duty not to use or disclose any of the Confidential Information without the prior consent of New Image.

Defendants’ post-termination conduct

29.The plaintiffs’ case is that after informing the plaintiffs of their cessation of services to Emperor on 15 May 2014, Alan Cheung started to contact New Image’s customers by email, using Emperor’s usual email address [email protected], with a view to enticing them away from New Image.

30.Moreover, New Image’s customers contacted by Alan Cheung were specifically asked not to copy that email to New Image with these words”

“Please help us not to copy our email to you to New Image because we are in the process of getting a company ready in next week to accept orders from customers we have been servicing for a long time. We are going to cut prices to the existing customers which is in conflict with New Image’s interest”

31.On 11 June 2014, Alan Cheung further sent an email to the customers of New Image and On-Rite, a sister company of New Image being also an internal wholesaler of the Products, using the same email address of Emperor as follows:

“We have now urgently registered a company under the name of ‘Emperor Hair Hong Kong Ltd’. We shall under this company name continue to produce hair pieces for the hair industry and will take orders from the USA market at a much competitive price lower than what you are paying to New Image or On-Rite.”

32.It was subsequently found out by the plaintiffs that:

(a) The 5^th defendant was originally called “Qingdao Hair Direct Limited” and it was only changed to its current name on or about 22 May 2014, about one week after the Nominee Agreement was terminated;

(b) The date of special resolution for the change of name is 15 May 2014, i.e. the date on which Alan Cheung terminated his services to the plaintiffs;

(c) Alan Cheung was appointed a director of the 5^th defendant on or about 23 May 2014;

(d) The 5^th defendant’s registered address was changed to the business address of the 1^st to 3^rd defendants on or about 23 May 2014.

33.It is the plaintiffs’ case that the above acts of the defendants were calculated to lead and are likely to lead existing and potential customers to believe, contrary to the facts, that the 5^th defendant’s products are the Products of New Image or otherwise connected with New Image and/or Emperor.

PLAINTIFFS’ APPLICATION

Confidential Information/Trade Secret

34.The plaintiffs contend that New Image’s price list and price level of each non-US Customer are capable of being trade secret on the basis that:

(a) They are used in a trade and not already in the public domain;

(b) The pricing information can be easily isolated from other information;

(c) Prices are subject to revisions;

(d) The quoted prices and revisions would be sensitive to New Image’s production costs, and a particular customer’s price level is determined in accordance with its annual purchase volume and relationship with New Image;

(e) The price list and price level, if disclosed to a competitor, would enable the competitor to entice away New Image’s customer by offering the same or lower prices, which would clearly cause serious damage to New Image;

(f) There were warnings “Internal Office Use Only – Not to be Sent or Given to Clients” printed on the price list to restrict dissemination.

35.The plaintiffs also contend that the individual contact points of its non-US Customers are capable of being trade secrets on the basis that:

(a) They are used in a trade and can be easily isolated from other information;

(b) Whilst the company names of these customers may be available from the public domain, many of the individual contact (such as person-in-charge, direct email address, direct phone and fax) are not available from the public domain;

(c) Such contact information, if disclosed, would assist a competitor to entice away New Image’s customer by directly contacting the person-in-charge;

(d) New Image has limited the dissemination of such information. In particular, Alan Cheung and his staff were required to cover up the top portion of the order forms from the non-US Customers and make sure that the head moulds and hair samples do not contain any customer information before sending the same to the factories.

36.Thirdly, the plaintiffs also contend that the product specifications and product preferences are capable of being trade secret on the basis that:

(a) They are used in a trade and not already in the public domain;

(b) The information is easily isolated from other information;

(c) Such information, if disclosed, would assist a competitor in enticing away New Image’s customer because the competitor may use such information to persuade the customer that they would still obtain similar products and services without any “switching costs” i.e. the need to provide such specifications again.

37.Fourthly, the plaintiffs further contend that information on the non-US Customers’ usual purchasing volume can be trade secrets on the basis that:

(a) It is used in the trade and not available in the public domain;

(b) It is easily isolated from other information;

(c) Such information would enable a competitor to understand the customers’ respective buying power, the order quantity that they can afford to buy and their requirements to the finished  goods, thereby enabling a competitor to formulate a specifically tailored package according to the customer’s affordability. This would obvious cause damage to New Image.

38.It is therefore the plaintiffs’ case that the defendants, under the control of Alan Cheung, have acted in breach of duty of confidentiality and without the consent of New Image have used or caused or allowed the 5^th defendant to use:

(1) The individual contact points of New Image’s non-US Customers by contacting the same;

(2) New Image’s price list, price levels of each non-US Customer, purchasing prices with the factories, product specifications and product preferences of New Image’s non-US Customers in offering allegedly more competitive prices than New Image;

(3) Individual contact points of the factories when offering the same products to New Image’s non-US Customers.

39.In contacting New Image’s non-US Customers, and setting up a new company in direct competition with the plaintiffs, the defendants are using such confidential information and trade secrets for their own benefit and in breach of confidence.

40.The plaintiffs also seek a springboard injunction  on the basis that even if the confidential information does not amount to trade secret, a competitor who has obtained such confidential information should not be allowed to get an unfair head-start by being able to offer a price package that would not only be tailored to the specific needs of that customer, but  at the same time beating the terms on which New Image currently offers to that particular customer.

41.The plaintiffs contend that in such case, the competitor would have a much higher chance of enticing away that customer form New Image as compared to an uninformed competitor and this would be grossly unfair.

42.It is therefore crucial to the plaintiffs to protect the confidential information as a whole package.

Passing Off

43.The plaintiffs make this application upon the classical trinity of goodwill, misrepresentation and damages.

44.As for goodwill, the plaintiffs acknowledge that New Image is a foreign plaintiff, but since the 1980’s it has established goodwill and reputation in the supply of its Products, albeit through intermediaries in Hong Kong. Its Products are sold worldwide with an annual turnover in the region of US$13 million in the last 3 years.

45.The plaintiffs’ say that since about December 1999 New Image has engaged corporate entities whose names contain the word “Emperor” to serve as its trading agents for the purpose of processing New Image’s orders and liaising with customers.

46.It is therefore the plaintiffs’ case that the names of “New Image” and “Emperor” have become a collective brand in that existing and potential customers know that they belong to the same corporate organization and the products and services of Emperor are taken as the same as those of New Image and none other.

47.On that basis, the plaintiffs say that any goodwill in the name of “Emperor” or “New Image” belongs to New Image as the customers associate “Emperor” with New Image and the Products are bought on the strength of the reputation of New Image.

48.As for misrepresentation, it is the plaintiffs’ case that the relevant misrepresentation are firstly, the name of the 5^th defendant and secondly, the emails from Alan Cheung and his staffs on 15 May 2014 and 11 June 2014.

49.The plaintiffs submit that there is a likelihood of confusion in the minds of retailers that the goods offered by the 5^th defendant are in some way connected to, associated with or linked to New Image because:

(a) The name of the 5^th defendant is almost identical to that of Emperor;

(b) The 5^th defendant is engaged in the same trade as that of the plaintiffs;

(c) The emails sent out by Alan Cheung and his staff to the customers of New Image do not specify that the 5^th defendant is a company wholly unconnected to New Image;

(d) Moreover, since Alan Cheung and his staff had worked with New Image for so long, customers of New Image have equated them as New Image’s representatives in Hong Kong. Therefore just by telling the customers that they would be serving them under another vehicle with a name almost identical to that of Emperor would likely lead the customers to believe that the 5^th defendant is another subsidiary or affiliate of New Image supplying the same Products.

50.As for damages, the plaintiffs say that according to the defendants, the 5 defendant has entered into business contracts with some of New Image’s non-US Customers.

51.Therefore for the reasons given above, there is a real likelihood that those customers entered into the contracts on the misunderstanding that the 5^th defendant is an affiliate of New Image offering the same Products and, as such, New Image has suffered damage.

52.If the 5^th defendant is allowed to continue trading in its current name, there is a real likelihood that New Image will continue to suffer damage.

Interlocutory injunction

53.Based on the above matters, the plaintiffs say that the defendants have used the confidential information which the defendants have obtained in the course of their agency to contact New Image’s non-US Customers and promote a business in direct competition with New Image. Some of these customers have been with New Image for as many as 15 to 20 years. If the defendants were not restrained from using such confidential information, there would be serious and adverse impact not only on the business of New Image, but also its relationship with its non-US Customers.

54.In passing off the 5^th defendant’s products as those of New Image, New Image has suffered, and will suffer, dilution in the goodwill and loss of trade.

55.Such loss and damage cannot be quantified, nor can it be compensated by damages. This is particularly so in the case of a springboard injunction.

56.The plaintiffs also submit that at the interlocutory stage in deciding whether or not to grant an injunction, the basic principle is that the court should take whichever course seems likely to cause the least irremediable prejudice to one or the other party. This applies whether the injunction is prohibitory or mandatory.

57.The plaintiffs further submits that although the defendants have asserted that if an interlocutory injunction is granted, their business would likely be stifled, but no evidence or justification has been provided.

58.Moreover, the defendants maintain that all the information they are using is available from the public domain. If that is the case, it is the plaintiffs’ case that the defendants should continue to operate as they are and it is inconceivable what damage would be caused to them if an injunction is in place.

59.In all, the plaintiffs say that the granting of an injunction would cause the least irremediable prejudice to the parties herein, and the balance of convenience lies in favour of granting the injuction sought.

STANCE OF THE DEFENDANTS

60.The defendants oppose the plaintiffs’ application for interlocutory injunction and their grounds of opposing, in a nutshell, are as follows:

(a) There is no serious issue to be tried as to the causes of action underlying each of the reliefs sought

(i) The defendants have confirmed on oath that they have returned and deleted the documents and records that they had and there is no evidence from the plaintiffs to refute that;

(ii) Such information is not confidential and in any event the defendants are not in possession of such confidential information and have not misused it;

(iii) The plaintiffs have failed to prove they have goodwill in “New Image” and “Emperor”. Further the defendants also made it clear to customers that the defendants have divorced from the plaintiffs.

(b) The balance of convenience lies against the grant of an interlocutory injunction

(i) The practical effect of granting the interlocutory injunction sought would at the very least, hang a guillotine over the defendants’ head, essentially imposing a restraint of trade clause that would stifle the defendants’ business at the infant stage; and

(ii) At the very most, a springboard injunction for a short period could be imposed, but since there is no evidence or any basis for the court to form any view as to the length of such injunction, the court could only award damages at trial.

(c) The lack of evidence as to who were the customers in question makes it impossible for the defendants to answer and to comply with any order granted by the court.

61.In saying that there is no serious issue to be tried, it is the defendants’ case that it was Growthlink which provided the Services as from October 2011 to May 2014. Since the plaintiffs have made it plain that they are aiming at the current price list, price levels, purchasing prices, and up-to-date contact information suppliers and customers, and up-to-date product specifications and product preferences of New Image’s non-US Customers, such information should be with Growthlink and not the defendants since Growthlink is not (at the time of this application) a defendant to the action and not a respondent to this application herein.

62.In this application, there is no particulars and no evidence that any of the defendants acquired such information from Growthlink. The case as it was presented to the court is simply that the 1^st to the 4^th defendants obtained information during their services, which was prior to 2011, and the 5^th defendant obtained such information through the 1^st to 4^th defendants.

63.Of note is that the plaintiffs themselves say that they were not aware of the existence of Growthlink which underlines the central problem of the plaintiffs’ case, but have now sought to join Growthlink as a 6^th defendant.

64.The Hiking Group, which now owns New Image, have no personal knowledge of what happened between New Image and the defendants whereas Les Martin and Tony Sciara who were personally involved at the material time, have made affirmations in support of the defendants’ defence.

65.The plaintiffs have also conceded that they were not privy to the dealings between Alan Cheung, the defendants and Les Martin, therefore any attempt by the plaintiffs to refute the defendants’ deposition as to the history between New Image and the defendants cannot be based on any personal knowledge but can only be mere speculation.

66.In respect of the first relief claimed, the defendants submit that what is asked for in the Amended Summons is wider than what is prayed for in the Writ and the Statement of Claim in that the word “customer” in the Amended Summons is not qualified by the words “non-US”.

67.In this respect, the plaintiffs agree that in the Amended Summons the first relief should refer to “non-US Customers”.

68.There is a further complaint by the defendants that the first relief being  a mandatory injunction, the plaintiffs need to show a good prospect of success. In this regard, the defendants say that they have already deposed that the defendants have returned 23 boxes of books and records to the plaintiffs on 26 May 2014 and have also deposed that they deleted the so-called Confidential Information from time to time. Notwithstanding that, the plaintiffs have not adduced any evidence to rebut what the defendants have deposed to, but the plaintiffs’ claim is based on speculation simply because the defendants have offered go give prices more competitive than the plaintiffs’. It does not follow from that that the defendants are in possession of the latest information since it is not unusual for a new comer to ask a potential customer about the prices it has been getting from a competitor, and the new comer, to get the business, would then offer more competitive prices.

69.The plaintiffs have never been specific about what books and records they have in mind in respect of the first relief which makes it impossible for the defendant to know what to do to comply with the order, if granted.

70.In respect of the second relief claimed in the Amended Summons, the defendants submit that it is an attempt to impose a restraint of trade clause in disguise.

71.Firstly the information re the non-US Customers are already in the public domain.

72.Secondly, such information if still kept by the defendants will have been all outdated and cannot cause harm to the plaintiffs, and that the plaintiffs’ case as presented is not based on the plaintiffs’ acquiring such information from Growthlink.

73.Neither is it the plaintiffs’ case that any permission to use the confidential information ceased upon Hiking Group’s acquisition of New Image. If that was the case, since the defendants had been rendering  the same services to New Image all along, it was impossible to isolate pre-acquisition information (permitted by Les Martin to be used) from post-acquisition information, when the same customers were being served.

74.It was also submitted by the defendants that the services rendered by the defendants to New Image and Far East #9 were not exclusive since Les Martin had, before the acquisition by Hiking Group, permitted the defendants to use the so-called confidential information. This is confirmed by Les Martin on oath and uncontradicted by any evidence from the plaintiffs.

75.During the due diligence by Hiking Group before acquisition, they were told that the defendants’ services were not exclusive, but did not request any change of term.

76.There is also no evidence that the plaintiffs were in possession of such confidential information and had misused it, merely speculation on the part of the plaintiffs that because the defendants had contacted customers whose contact information is available online and had made offer of competitive prices to such customer. That could have been done by enquiring with the customers what prices they were getting from others.

77.As for the third relief in the Amended Summons, namely passing off, it is submitted by the defendants that firstly, the plaintiff has failed to show any evidence of goodwill or reputation in Hong Kong.

78.Secondly, there can be no goodwill in “Emperor” since the names of both Far East #6 and Far East #9 begin with the word “Emperor”. It should also be noted that Hiking Group decided not to acquire Far East #9.

79.It is also submitted by the defendants that there is no misrepresentation since the defendants had made it quite clear to the customers they contacted that they have divorced from the plaintiffs.

80.Accordingly, the defendants say that there is therefore no issue to be tried in passing off.

81.As for the springboard injunction, the defendants submit that this was meant to prohibit the use of certain information temporarily so as not to give a defendant an unfair head start over other competitors.

82.However, the defendants say that in the present case, there is no evidence for this court to form any view as to the temporal advantage gained by using the confidential information, therefore there is no basis for the court to say how long the springboard injunction should be. In such circumstances, the defendants say that a court would simply award damages at the end of the day.

DECISION

83.I will deal firstly with the first and second reliefs sought in the Amended Summons both of which can be dealt with together since they both relate to the confidential information.

84.The crux of the plaintiffs’ case against the defendants in this matter is that almost immediately after the termination by Alan Cheung of the Services which he and the other defendants had been rendering to New Image, Alan Cheung and his staff had approached some of the non-US Customers with a view to enticing their business away from New Image by promising to offer more competitive prices than what had been offered by New Image and Emperor.

85.It is on this basis that the plaintiffs allege that the defendants are not only in possession of confidential information belonging to New Image and/or the plaintiffs but which had been made available to the defendants during the time when the defendants acted as the trading agents of the plaintiffs in Hong Kong, but that the defendants have also wrongfully made use of such confidential information for their own benefit in a competing business and against the interest of New Image.

86.There are a number of major disputed facts between the parties.

87.While it is the defendants’ assertion that when New Image was under the control of Les Martin, the defendants, being the trading agents, were permitted by Les Martin to make use of the alleged confidential information for themselves.

88.The plaintiffs, on the other hand, while acknowledging that no one on the plaintiffs’ side were privy to what had transpired between Les Martin and Alan Cheung, dispute that Les Martin would have allowed the defendants to make use of such confidential information without restraint since Les Martin was paying for the services rendered by Alan Cheung and his staff.

89.Secondly, it is the defendants’ case that the present defendants (not including Growthlink) cannot be in possession of the update or current information alleged by the plaintiffs to be confidential by reason of the fact that since October 2011 it was Growthlink who had rendered the Services to New Image, (having replaced Fortune House) until its termination in May 2014.

90.This too is disputed by the plaintiffs who say that Hiking was not aware of and had never been told of Growthlink (and have no knowledge at all of the New Nominee Agreement) being the entity rendering the Services to New Image in place of Fortune House until they learned of that from the affirmation of Alan Cheung.

91.Thirdly, the plaintiffs say that the defendants have been misusing such confidential information, in particular the identity and contact information of the non-US Customers  as well as the price list and price levels of those customers. Once again this is denied by the defendants whose case is that the customer contact information of the non-US Customers is something which is already in the public domain and the prices being charged by New Image of those customers are matters which can be asked from the customer by a competitor.

92.There are also other less significant but nonetheless disputed facts between the parties.

93.In the interlocutory stage, it would not be the correct approach for a court to try to decide contested issues based on disputed facts since finding of facts on such disputed facts can and should only be made at trial when calling evidence and cross examination are carried out and completed.

94.The proper approach at the interlocutory stage when there are disputed facts upon an application for an interlocutory injunction is for the court to decide whether the granting or refusing of the interlocutory injunction will carry with it the least injustice to the parties.

95.Given the disputed facts between the parties which go to the very root of the injunctive relief claimed by the plaintiffs, there can be little doubt that there are here serious issues to be tried between them.

96.In balancing the convenience between the parties, the questions to ask is firstly, what would be the effect and consequences to the plaintiffs if an injunction is wrongly refused and, secondly, what would be the effect to the defendant if an injunction is wrongly granted. In answering those two questions, the court will have to decide where the balance of convenience lies.

97.In the present case, the plaintiffs have built up an international client base of its non-US Customers since about the early nineties through Alan Cheung providing services as a trading agent in Hong Kong.

98.If an injunction is wrongly refused to the plaintiffs, this can entail serious and severe consequences to the plaintiffs in that the plaintiffs stand to lose out not only on a large part of the business and custom from its non-US Customers, but may also lose a large part of its non-US Customers to the 5^th defendant being a competitor in the same line of business.

99.While damages for the loss of business which the plaintiffs stand to lose may still be quantifiable at the end of the day, albeit with difficulties, the loss of a portion of its non-US Customers will be irreparable, possibly permanent and cannot be quantified with any precision.

100.On the other hand, the defendants stand in a very different light and if an injunction was wrongly granted, the consequences to the defendants will have a much less severe effect on the defendants.

101.The reason is that the 5^th defendant was only recently set up to carry out the same line of business as the plaintiffs. Damages for any business which the 5^th defendant may lose out on due to an injunction being wrongly granted can still be assessed and quantified in the same way as the business lost by the plaintiffs. However, the difference is that the 5^th defendants does not have a client base already built up as the plaintiffs do and therefore there is no question of the 5^th defendant losing out on any part of such a client base which cannot be quantified.

102.Moreover, the plaintiffs are agreeable to qualifying such injunctive order sought by allowing the defendants to use information which is available on the internet and other public domain. This would serve to lessen the restriction caused to the defendants due to the injunction, and therefore lessen any damage that may ensue.

103.If any damage is caused to the defendants at the end of the day due to the injuction being wrongly granted, the undertaking of the plaintiffs will kick in to compensate the defendants for such damage.

104.For the reasons given, I am of the view that the balance of convenience is in favour of the plaintiffs.

105.I turn now to deal with the third relief based on passing off.

106.In so far as goodwill is concerned, the plaintiffs’ case is thin, to say the least, where “New Image” is concerned. All the promotion relating to “New Image” aims at overseas market.

107.The list of non-US Customers (which had been sealed) show only one contact in Hong Kong.

108.The fact that New Image has a website accessible to all the world does not necessarily show that the mark is used over the world and does not give rise to goodwill. (see 800-Flowers Trade Mark [2000] FSR 697 at 705 per Jacob J.)

109.As for “Emperor”, while that word is contained in the name of the 2^nd plaintiff, it has to be borne in mind that the 2^nd plaintiff was incorporated in Hong Kong only in May 2011. Prior to that time, Far East #6 and Far East #9, both of which had the word “Emperor” as the first letter of their names, had been rendering the Services to New Image.

110.It should also be noted that when Hiking acquired New Image, Hiking declined to take on Far East #9 as well, but opted to incorporate the 2^nd plaintiff.

111.Given the circumstances,  I have grave reservations that the plaintiffs can claim exclusivity in the word “Emperor” or for that matter goodwill or reputation therein which attaches to the 2^nd plaintiff.

112.Moreover, when it comes to misrepresentation, the evidence upon which the plaintiffs rely quite clearly show that there is no misrepresentation by the defendants.

113.The emails which the plaintiffs rely on sent by Alan Cheung or his staff to some of the non-US Customers quite clearly show that they have made it very clear to those customers that the defendants are no longer connected or associated with the plaintiffs. The words “We are going to cut prices to the existing customers which is in conflict with New Image’s interest” shows quite clearly that the defendants are now in competition with and no longer a part of New Image.

114.The only conclusion one can come to is that the defendants have made it very clear to the customers which they contacted that they were no longer a part of New Image, but had set up a company in competition with New Image.

115.In the circumstances, it is not possible for the plaintiffs to say that there is any misrepresentation such that the customers contacted by the defendants are liable to be confused into believing that the goods now being offered by the defendants are being passed off as being the goods of New Image.

116.On the evidence before me I therefore find that there is no misrepresentation by the defendants.

117.In the absence of misrepresentation, there cannot be any passing off.

118.Accordingly, I decline to make the order sought for the third relief in the Amended Summons.

The Order

119.There will be the following orders:

(1) Each of the 1^st to 5^th defendants do forthwith:

(a) Return to the plaintiffs all documents, books, records and property belonging  to the plaintiffs;

(b) Where any of the items in (a) above exist only in computer readable form, immediately provide the plaintiffs with soft copies of same to enable such items to be read, printed out or copied electronically;

(c) Return to the plaintiffs all documents and records containing confidential information relating to any of the plaintiffs’ non-US Customers, namely, a database containing information and records  (such as specifications and measurements) relating to pending orders placed by the plaintiffs with the factories and a list of all outstanding open factory orders for the plaintiffs’ stock, custom and custom-direct orders, the plaintiffs’ pricing list, price levels of each customer, purchasing prices with the factories, individual contact point of each customer (such as name of person-in-charge, direct line number, email address and address), the customers’ respective purchasing volume, individual contact point of each supplier (such as name of person-in-charge, direct line number, email address and address), product specifications and product preference of the plaintiffs’ non-US Customers, save and except that the defendants are at liberty to use information available on the internet and other public domain (“Confidential Information”)

(d) Upon compliance with sub-paragraph (b) and (c) above, delete the Confidential Information permanently, where such Confidential Information is stored electronically in any computer disk drives in whatever form belonging to or in the power, custody or possession of any of the defendants, their servants, employees, agents, members or associated persons or entities;

(e) Within 14 days of the making of this order, put on oath by way of affidavit that the matters stated in sub paras. (a), (b), (c) and (d) above have been complied with.

(2) Each of the 1st to 5th defendants, whether by themselves or through their servants, employees, agents, members or associated persons or entities (as the case may be), or in combination with any persons or entities or otherwise howsoever, be strictly enjoined and restrained until after trial of this action or until further order of the Court, from using, publishing, or disclosing any Confidential Information relating to the plaintiffs’ business.

Costs

120.The plaintiffs have only succeeded partially in this application for interlocutory injunction, the entirety of which was opposed by the defendants.

121.It would seem that the final outcome of this matter very much depends upon findings being made at trial on the disputed facts between the parties.

122.In all the circumstances, it would appear that the fairest cost order would be that the costs of and occasioned by this application should be the plaintiffs’ costs in the cause.

123.There will accordingly be an order nisi to that effect.

Ms Zabrina Lau, instructed by Sun Lawyers, for the 1^st and 2^nd plaintiffs

Mr Lam Chin Ching Gary, instructed by Chui & Lau, for the 1^st – 5^th defendants