Tung Ga Linen & Cotton Mills Ltd v. Ng Ka Wai Otherwise Known As Steven Ng and Others

HCA 510/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 510 OF 2014

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Before: Deputy High Court Judge Kent Yee in Chambers

Date of Hearing: 11 August 2014

Date of Decision: 5 November 2014

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DECISION

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Introduction

1.Tung Ga Linen & Cotton Mills Limited (“Tung Ga”) took out a summons dated 25 March 2014 (“Injunction Summons”) against Ng Ka Wai (aka Steven Ng)(“Ng”), Wong Ching Ki (aka Olivia Wong)(“Wong”) and Lee Wai Yee (“Lee”) for an injunction restraining them from using its alleged confident information. Ng, Wong and Lee gave an undertaking in terms of the injunction sought when Deputy High Court Judge S.T. Poon first dealt with the Injunction Summons on 28 March 2014.

2.On 8 July 2014, Tung Ga took out another summons (“Delivery Up Summons”) for its application for an order that Ng, Wong and Lee do delivery up those documents and materials containing such alleged confidential information in their possession.

3.This is the substantive hearing of the Injunction Summons and the Delivery Up Summons. All Ng, Wong and Lee oppose the two applications. For the purpose of this Decision, the background facts and the complaints of Tung Ga can be briefly stated as follows.

Factual Background and Tung Ga’s Case

4.Tung Ga is a company incorporated in Hong Kong trading in linen, cotton and other garment fabrics and accessories with a reputable international clientele. One of the clients is New York and Company (“NYCO”) and Tung Ga trades with NYO through its local agent known as F.O.B. Garments Limited (“FOB”).

5.From 2003 to 2007, Ng took part in the trading business of Tung Ga and assumed the position of Sales Manager. Ng then returned to Tung Ga in 2010 and worked again as its Sales Manager. His commercial relationship with Tung Ga was summarily terminated, rightly or wrongly, on 28 February 2014.

6.From May 2012 to October 2013, Wong took part in the business of Tung Ga as merchandiser under the direct supervision of Ng. She was a personal friend of Ng.

7.Lee is the sister-in-law of Ng. She is on public record the sole proprietor of a rival business trading under the name of Protex Textiles Company (“Protex”). Tung Ga alleges that its business was diverted to Protex by the misconducts of Ng, Wong and Lee. Protex was set up on 30 July 2013 and both Ng and Wong have taken part in its business.

8.The case of Tung Ga is that both Ng and Wong were its employees. As such, they owed Tung Ga a duty of loyalty and good faith in the course of their employment and a duty of confidentiality that hey would not make use of or convert to them or any third party any trade secret and/or confidential information entrusted to or acquired by them for their post-employment activities. They further owe Tung Ga fiduciary duties not to make use of confidential document for any purpose other than the business of Tung Ga and not to put their personal interests in conflict with the interests of Tung Ga and even divert any business or business opportunity of Tung Ga arising from the confidential information to themselves or to any third party.

9.In February 2013, Tung Ga discovered the alleged misuse of its confidential information by Ng, Wong and Lee in the business of Protex. On 28 February 2013, the managing directors of Tung Ga confronted with Ng certain suspicious emails with its clients. Ng eventually made a full confession of the misdeeds of all Wong, Lee and he himself. Ng also gave a written confession in a 4-page document (“the 1^st Confession”).

10.In the 1^st Confession, Ng in gist admitted that it was his idea to set up Protex to take over the business of Tung Ga with NYCO with the assistance of a staff of FOB. He first talked to his brother, who then persuaded his wife Lee to assist. He successfully procured the diversion of the business with NYCO to Protex and from July 2013 to February 2014, the sales revenue of Protex reached USD2 million. Ng accepted that all along he knew what he had done was illegal.

11.On the same day, in the evening, Ng brought Ms Ngai Ching Wai (“Ngai”), Managing Director of Tung Ga, to the office of Protex located in Laford Centre, 838 Lai Chi Kok Road, Lai Chi Kok, Kowloon (“the Office”). Ngai was accompanied by her husband, Mr Wong. There, Ngai saw a number of files and folders of Tung Ga containing the confidential information of Tung Ga. The documents related to Tung Ga’s business with FOB and NYCO.

12.Ngai also found a number of samples inside the Office. Those samples bore the file and sample numbers and reference numbers of Tung Ga. She further discovered a large volume of commercial documents such as trade emails, laboratory reports, shipping documents, notes and trading records of Tung Ga in the Office relating to its business with FOB and NYCO.

13.Ngai alleges that she on behalf of Tung Ga summarily dismissed Ng there and then. For that purpose, Tung Ga also issued to Ng a letter of the same date. She also, with the consent of Ng, managed to remove some important trade documents of Tung Ga from the Office.

14.On the following day, Ngai went to the Office again and met Ng. Ng gave another written confession (“the 2^nd Confession”). Ng alleged that upon the advice of the staff of FOB, for the purpose of the trade between NYCO and Protex, Wong and he changed their respective email accounts with Tung Ga to their personal email accounts which also contained the trade name of Tung Ga. As a result, Ng’s new email address was [email protected] and Wong’s was [email protected]. They used these two email accounts to trade with FOB and hence NYCO. Obviously, they wanted to create a false link with Tung Ga.

15.From the documents seized from the Office, it is abundantly clear that the business of Tung Ga was diverted to Protex and Ng and Wong very conveniently used the commercial documents of Tung Ga such as lab reports in the trade of Protex with the existing clients of Tung Ga. Such diversions are plainly evidenced by documents and I need not go into any details at this interlocutory stage.

16.Despite the discovery of the misdeeds and the direct confrontation, Ngai found out from the email account of Ng that on 10 March 2014, he continued to use the confidential information of Tung Ga including its fabric number to do business with Songhong Garment Joint Stock Company. Worse still, he now trades under a different business name known as Sotex Textile Co Limited (“Sotex”), which is not yet registered with the Hong Kong Companies Registry.

17.On 21 March 2014, Ngai and Mr Wong went to the Office for another meeting with Ng, only to find that the Office was vacated without any sign of commercial activities. They checked the office building and could not find any indicators of the presence of Protex.

18.Tung Ga commenced these proceedings by Writ issued on 25 March 2014 together with the Injunction Summons. The gravamen of its complaint is that Ng and Wong misused the confident information set out in the Schedules to the Statement of Claim in breach of the aforesaid duties owed to Tung Ga in the business of Protex. Lee has dishonestly assisted them in their breach. As a result, Tung Ga has suffered financial loss on account of the diversion of its business to Protex and/or other businesses carried on by Ng, Wong and Lee traded under the name of Sotex or other names by their unlawful use of the confidential information of Tung Ga.

Defence’s allegation

19.The main thrust of the defence is that neither Ng nor Wong was ever the employees of Tung Ga. Ng claims to be a business partner of Tung Ga and Wong was his own employee. It is thus argued that they did not owe any of such alleged duties to Tung Ga. Ng claims that FOB was his personal client and thus there is never any diversion of business.

20.The defence is further based on the averment that the matters set out in the 1^st Schedule to the Statement of Claim contain any confidential information. Nor do they have any characteristics of confidentiality. 

21.As regards the Confessions, Ng now says that they were extracted from him under duress. The defence further claims that Ngai has already taken all the documents of Tung Ga together with a lot of the documents of Protex from the Office on 28 February 2014 and now they are no longer in possession of any documents of Tung Ga.

22.I note that the defence says nothing about the vacation of the Office and the new business traded under the name of Sotex. The new address of Protex is not disclosed.  

Applicable legal principles

23.The parties agree that the well-known guiding principles in American Cyanamid Co v Ethicon Ltd [1975] AC 396 govern the Injunction Summons. Insofar as the Delivery Up Summons is concerned, Mr Chong, together with Mr Tam, for Tung Ga, rightly draws my attention to the general principles relating to mandatory injunctions expounded by Ma J (as the Chief Justice then was) in Music Advance Ltd v Incorporated Owners of Argyle Centre Phase I [2010] 2 HKLRD 1041, which are again not in dispute. Suffice it to say, the court generally requires a higher degree of assurance of the plaintiff’s case for the grant of a mandatory injunction. However, even in the absence of such an assurance, if the court feels that the withholding of the injunction would carry a greater risk of injustice than granting it, it would be right to grant the injunction. 

Discussion

24.Mr Chu, for Ng, Wong and Lee, at the very outset, accepts that there exists a serious issue to be tried as to whether Ng and Wong were ever the employees of Tung Ga. His concession is plainly appropriate. Indeed on this issue, Tung Ga is able to produce a great deal of cogent documentary evidence indicative of their employment. Such evidence includes those banking documents showing the contribution of Tung Ga to their mandatory provident fund accounts and the employer’s tax returns filed by Tung Ga in respect of their employment. I am just unable to understand how they can now claim that they were never the employees by Tung Ga on the evidence before me.

25.There is hence no debate that both Ng and Wong owe those common duties and fiduciary duties to Tung Ga even after the termination of their employment. Nor is it suggested or argued that if Ng and Wong misused the confidential information (provided the sufficient confidence is established) in the business of Protex and/or Sotex, Ng and Wong were still not in breach of such duties and Lee would not be liable for her dishonest assistance rendered.

26.Mr Chu mainly argues that the confidential information identified in the Injunction Summons does not have the requisite confidentiality to attract legal protection after the termination of the employment of Ng and Wong. Further, he complains that the terms of the injunction sought in the Injunction Summons are too wide, broad and vague. Mr Chu confirms that he has no submission to make relating to the balance of convenience.   

27.Given the express focus of the opposition, it is necessary to explain what the confidential information Tung Ng now seeks to be protected against the misuse by Ng, Wong and Lee in their rival business. According to paragraph 1 of the Injunction Summons, such confidential information is set out in the Schedule and Annexures I and II thereto.

28.The Schedule consists of the following 10 paragraphs:

“1. Identities, means of contact and handling staff of clients, namely NYCO and Polo Ralph Lauren.

2. Identity, means of contact and handling staff of the local agent of NYCO, namely FOB.

3. Identities, means of contact and handling staff of garment manufacturers, namely:-

(a) Song Hong Garment Joint Stock Company and Song Hong Apparel Ltd;

(b) Plummy Garments Ltd;

(c) Po Sang Garment Factory Ltd (寶生製衣廠有限公司);

(d) Hoffen Industries Corp; and

(e) 浙江裕德服裝有限公司.

4. Identities, means of contact and handling staff of fabric suppliers, namely:-

(a) 山東華紡股份有限公司;

(b) 常州市華康進出口有限公司;

(c) 宜興市中長色織有限公司and宜興盛和紡織有限公司;

and

(d) 杭州三錦紡織品開發有限公司;

5. Information relating to the specific and detailed requirements of various kinds of cotton, linen and other fabrics and affiliated products made by the aforesaid clients including the types, qualities, dyes, ranges of colours, quantities, intervals of supplies as contained in the Plaintiff’s files and records.

6. Information relating to the specialization, capabilities and capacities of the aforesaid fabric suppliers to manufacture a specific type or types of cotton, linen and fabrics and affiliated products, and information relating to the specific allocations of specific types of cotton, linen and fabrics and affiliated products required by specific clients to specific fabric suppliers, as contained in the Plaintiff's files and records.

7. Colour chips and samples of cotton, linen and other fabrics and affiliated products of the Plaintiff and the aforesaid fabric suppliers as contained in the Plaintiff’s files and records.

8. Laboratory test reports of the cotton, linen and other fabrics and affiliated products supplied by the Plaintiff and the aforesaid fabric suppliers including but not limited to those prepared by Intertek Testing Services Hong Kong Limited for NYCO as contained in the Plaintiff’s files and records.

9. Price structure of the Plaintiff’s business as contained in the Plaintiff’s files and records.

10. Contracts, purchase orders, invoices, lab dip charts, submission forms, shipping documents and packing lists between the Plaintiff and the aforesaid clients, agents, garment manufacturers and fabric suppliers, as well as all other documents and correspondence evidencing the business relationship between the Plaintiff and the aforesaid clients, agents, garment manufacturers and fabric suppliers as contained in the Plaintiff’s files and records.”

28.Annexure I contains the names of 424 customers of Tung Ga and Annexure II contains the names of 285 suppliers of Tung Ga. The two Annexures are not defined in the Injunction Summons. They are however annexed to the Statement of Claim as well and in the 1^st Schedule thereto, it is explained that the two Annexures in fact are two lists accessible by staff members from the files and records and the computer drive of Tung Ga. There is no contrary evidence adduced by the defence in this regard.

29.The principal plank of Mr Chu’s submission is that according to Faccenda Chicken Ltd v Fowler [1987] 1 Ch117, an employee is obliged to keep confidential during employment, but not after the termination of the employment, confidential information, as opposed to trade secrets, in the absence of a restrictive covenant in the employment contract.

30.Mr Chu argues that the information now Tung Ga seeks to protect at best falls within the definition of confidential information and not trade secret. Therefore, without any restrictive covenants, Ng and Wong are free to use the same after the cessation of their employment with Tung Ga.

31.Mr Chu further highlights that on the evidence, Tung Ga does not allege that there is a list or any other documents containing the confidential information in question. He argues that any injunction granted must be document specific and cannot merely protect the information itself.

32.Mr Chong refers to PCCW-HKT Telephone Ltd v Aitken (2009) 12 HKCFAR 114 for the law relating to breach of confidence by a former employee. There, the law since Faccenda Chicken Ltd was reviewed in detail. The relevant part of the speech of Ribeiro PJ (with whom Bokhary and Chan PJJ and Litton NPJ expressly agreed) is as follows (§§21-25):

D.1 Former employees and confidential information

21. The law adopts a policy in favour of freedom of employment and against restraint of trade.  As Lord Atkinson stated in Herbert Morris Ltd v Saxelby,[1] “no person has an abstract right to be protected against competition per se in his trade or business” and an employer must therefore be prepared to encounter competition “even at the hands of a former employee”.

22. It is recognized, however, that an employer has a legitimate interest in protecting his trade secrets and confidential information of an equivalent status when an employee leaves.  To quote Lord Atkinson again:

“[An employer] is undoubtedly entitled to have his interest in his trade secrets protected, such as secret processes of manufacture which may be of vast value. And that protection may be secured by restraining the employee from divulging these secrets or putting them to his own use. He is also entitled not to have his old customers by solicitation or such other means enticed away from him. But freedom from all competition per se apart from both these things, however lucrative it might be to him, he is not entitled to be protected against.”[2]

23. The injunctive relief obtainable against such former employees is therefore subject to certain limits.  An employee, while employed, is subject to an implied duty of fidelity which requires him not to divulge or use, save for his employer’s benefit, any confidential information appertaining to the employer’s business.  However, post-termination relief against an employee is confined to restraining misuse or disclosure only of trade secrets and confidential information of an equivalent status.  Confidential information of lesser significance is not subject to such protection.[3] 

24. The law acknowledges that an employee often brings to a job his own stock of skill, knowledge and experience.  Indeed, his possession of such assets will often be the reason for hiring him.  And frequently, employees will add to such knowledge and experience in the course of the employment.  Where restraint is sought, it is important to distinguish between the employer’s trade secrets and the employee’s own skill and knowledge which he necessarily carries away with him when changing jobs.  While an employer may properly claim protection for his trade secrets, he is not entitled to restrain the former employee from deploying his own skill and knowledge for the benefit of himself and his new employer.[4] 

25. Thus, where an employer seeks to restrain an employee against misuse or disclosure of his trade secrets, he has the burden of identifying with precision what trade secrets (or confidential information of equivalent status) he seeks to protect.  As Hoffmann J (as Lord Hoffmann then was) explained in Lock v Beswick[5]:

“The employee may not, after leaving his employment, make use of, in the words of Neil LJ [in Faccenda Chicken Ltd v Fowler [1987] 1 Ch 117 at 136]: ‘secret processes of manufacture such as chemical formulae ... or designs or special methods of construction ... and other information which is of a sufficiently high degree of confidentiality as to amount to a trade secret.’ On the other hand, there will be a good deal of other information which an employee could not without breach of duty disclose while he was employed but which he is free to use as part of his own skill and knowledge after his employment has ceased. It is therefore of the essence of a claim against an employee for misuse of confidential information that the employer should be able to identify with particularity the trade secret or similar confidential information to which he lays claim. The terms of any injunction must also be capable of being framed in sufficient detail to enable the defendant to know exactly what information he is not free to use on behalf of his new employer.”

33.For the need for specificity of the injunctive relief, the decision of Recorder Anderson Chow SC (as he then was) in Sim Kon Fah v JBPB & Co [2011] 4 HKLRD 45 is pertinent. There, the learned Recorder expressly agreed with the dicta of Deputy Thomas Au (as he then was) in the PCCW-HKT Telephone Ltd case[6] to the effect that in seeking injunction in a claim for misuse of confidential information or trade secrets, it is of utmost importance and necessary to provide proper and sufficient particulars of the relevant confidential information. Yet, the learned Recorder also pointed out that one needs to apply a degree of practice common sense and in some circumstances a plaintiff cannot possibly be required to identify by dates, senders/receivers or subject matters all the documents for which he seeks protection[7].

34.Lastly, I find the following summary of the law relating to the requirements of trade secret or confidential information of equivalent status by Deputy High Court Judge To (as he then was) in AXA China Region Insurance Co Ltd & Anor v Pacific Century Insurance Co Ltd & Ors. [2003] 3 HKC 1 at §38 to be instructive:

“38. The principle to be distilled from all these well considered authorities is that a trade secret or its equivalent must be information:

(1) used in a trade or business (Lansing Linde and Faccenda Chicken 5(b));

(2) is confidential, i.e. not already in the public domain(Thomas Marshall v. Guinleand Faccenda Chicken);

(3) can be easily isolated from other information which the employee is free to use so that any man of average intelligence and honesty would think it is improper to use the information at the disposal of his new employer (Faccenda Chicken 5(d) and Printers & Finishers)

(4) which, if disclosed to a competitor, would be liable to cause real or significant harm to the owner, (Lansing Linde and Thomas Marshall v. Guinle); and

(5) which the owner of the information must limit its dissemination or at least not encourage or permit its widespread publication or otherwise impress upon the employee the confidentiality of the information (Lansing Lindeand Faccenda Chicken 5(c)).

The test to be applied for items (2) and (4) is that of the owner’s subjective belief in the light of the usage and practices of the trade and industry. All circumstances must be taken into account, including the nature of the employment, for example whether the employment is in a capacity where confidential material is habitually handled by the employee or agent (Faccenda Chicken 5(a) and Printers & Finishers).

35.With these principles in mind, I proceed to assess the confidentiality of the information sought to be protected bearing in mind at the same time the threshold this interlocutory application commands.

36.First and foremost, I should point out that I do not find the Confessions to be of much probate value on the question of the confidentiality of such information allegedly misused by Ng, Wong and Lee. The Confessions are at best equivocal in this regard and also a mere expression of his personal view should not be able to confer any confidentiality on such information.

37.For paragraphs 1 to 4 of the Schedule, Mr Chu’s complaint is valid in that there is no mention of any particular documents or database containing the alleged confidential information. However, this does not mean that such confidential information needs no protection. These paragraphs with proper amendments can still serve meaningful purpose. All that has to be added to such paragraphs is, like the remaining paragraphs of the Schedule, that the phrase “as contained in the Plaintiff’s files and records” should be added at the end of such paragraphs.

38.For the confidential information identified in all of the 10 paragraphs, I have considered each of them separately and at the end, I am satisfied that, to say the least, there is a serious question to be tried as to whether they are of such confidentiality having an equivalent status of trade secrets for the following reasons.

39.Firstly, all the confidential information was prima facie used in the business of Tung Ga and there is no contrary evidence.   

40.Secondly, this information was prima facie not already in the public domain in a readily available form.

41.Thirdly, it can be easily isolated from other information which the employee is free to use so that any man of average intelligence and honestly would think it is improper to use the information at the disposal of his new employer.

42.Fourthly, if this information is disclosed to a competitor such as Protex, Tung Ga would undoubtedly suffer significant harm as a result of unfair competition. There is no reason why its competitors should be allowed to have such information as a springboard for their rival commercial activities.

43.Lastly, Tung Ga has prima facie limited its dissemination or at least not encourage or permit its widespread publication by its employees.

44.In addition, I am satisfied that the terms of Schedule are sufficiently specific and precise. Of course it would be better if each and every of the folders and records of Tung Ga allegedly containing such confidential information could be clearly identified. Yet, given the allegation of Tung Ga that the bulk of such folders and records have been taken away from its office and are still in the possession of Ng, Wong and Lee, I am satisfied that Tung Ga should not be faulted for its failure to give particulars of its folders and records. In any event, I do not believe the defence would have any difficulties in identifying those folders and records of Tung Ga if they are still in their possession.

45.In regard to Annexures I and II, they are basically the customer list and the supplier list of Tung Ga. These documents have been jealously guarded by the courts against unauthorized use: Gilman Engineering Ltd v Simon Ho Shek On [1986] 1 HKC 523 at 531I per Liu J (as he then was).

46.Moreover, the springboard doctrine as explained by Deputy High Court Judge Wong Yan Lung, SC in Fong’s National Engineering Company Limited and Ors v Wong Wai Yuk and Anor., unreported, HCA573/2003, 4.8.2003 at §63 provides an additional reason why the defence should be restrained from using the confidential information identified in the Schedule and the Annexures. There is no reason why they should be entitled to the head start obtained unfairly to the detriment of Tung Ga.

47.For the reasons given above, in the absence of any submission on the balance of convenience by the defence, I am convinced that the various complaints of Tung Ga raise a serious question to be tried and it is just and convenient that an injunction in terms of paragraph 1 of the Injunction Summons (with minor amendments to paragraphs 1 to 4 of the Schedule) be granted to hold the ring. In passing, I note that on the evidence before this court, there indeed may be other causes of action available to Tung Ga.

Delivery Up Summons

48.Mr Chu does not seriously oppose this application. He merely relies on the affirmation evidence of Ng to the effect that none of them now still has in possession, custody, power or control of any documents, files or records of Tung Ga and/or any of its sample products.

49.Tung Ga understandably is not happy with this confirmation in light of the evidence of Ngai that there were still a large volume of the trade documents of Tung Ga left behind the Office.

50.Mr Chong submits that even if the defence subsequently provides the same confirmation in their affirmations in purported compliance with the delivery up order now sought, at least, Tung Ga can enforce the order by way of committal proceedings should it turn out that the confirmation is false and misleading. I agree.

51.Such trade documents of Tung Ga were wrongfully obtained by Ng, Wong and Lee in the first place. There is no legitimate reason why the defence can retain any of them especially when they contain prima facie confidential information of Tung Ga. I have little hesitation in the exercise of my discretion in favour of a grant of the injunctions in terms of paragraphs 1 and 2 of the Delivery Up Summons.

Conclusion and Orders

52.To sum up, I would accede to both applications of Tung Ga. I make an order in terms of paragraph 1 of the Injunction Summons with minor amendments made to paragraphs 1 to 4 of the Schedule thereto to include the phrase “as contained in the Plaintiff’s files and records” at the end of each of those paragraphs.

53.I further make an order in terms of paragraphs 1 and 2 of the Delivery Up Summons.

54.For each of the two Summons, I make the identical costs order nisi, subject to variations by application by summons within 14 days from the date hereof, that the costs of and occasion by the Summons be the Plaintiff’s costs in the cause.

55.Finally, I thank counsel on both sides for their helpful assistance. 

Mr K.M. Chong and Mr Aidan Tam, instructed by Messrs. Au, Thong & Tsang for the Plaintiff

Mr Chu Ming Tung, instructed by Messrs. Brian Chan & Associates for the 1^st, 2^nd and 3^rd Defendants