Sk Hynix Inc v. Vannex International Ltd and Another

HCA 1473/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1473 OF 2014

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J U D G M E N T
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A. INTRODUCTION

1.By summons of 1 August 2014 (“the Summons”), the plaintiff (“Hynix”) applied for an interlocutory injunction against the 1^st defendant (“Vannex”).

B. HYNIX’S CASE

2.Hynix’s case is set out in the affidavit of Mr Sangwon Kang of 31 July 2014 (“Kang”).  The salient parts for present purposes are as follows.

3.Hynix is the world’s second largest manufacturer of memory semiconductors which are used in devices such as personal computers and smart phones.

4.The process of manufacturing semiconductors may be divided into two stages, which Hynix termed “the Front‑end Services” and the “Back‑end Services”.  The Front‑end Services include the production of wafers from silicon, and creating integrated circuits on those wafers.  The Back‑end Services include probe testing of the integrated circuits on the wafers, dicing the wafers into dies, packaging the dies, and laser engraving the relevant product numbers on the finished product.

5.Hynix entered into an agreement with its subsidiary, Hitech Semiconductor (Wuxi) Co Ltd (“Hitech”) for the provision of Back‑end Services from the latter.  Under that agreement, Hynix was at all times to retain the title and ownership of the wafers and dies provided to Hitech for performance of the Back‑end Services.

6.In the course of performing the Back‑end Services, defective or scraped wafers or dies would be identified (“Bad Die Wafers”).  The Bad Die Wafers contain two types of information which Hynix says are confidential (“the Information”).

(1) The latest integrated circuit configurations and patterns of the memory semiconductors (512M DDR 2, 1 Gb DDR 2, 2 Gb DDR 3 and 4 Gb DDR 3) manufactured by Hynix.

(2) Information relating to the 400‑odd manufacturing procedures of the Front‑end Services and skills involved in the procedures, including material composition, thickness of layers, and process conditions concerning the aforesaid memory semi‑conductors.

7.Although the wafers and dies used to produce Hynix’s memory semiconductors are used in popular products on the market which members of the public can buy, Hynix says that the Information is confidential and not readily available in the public domain for two reasons:

(1) First, the Information could only be extracted through a highly technical and difficult process of reverse engineering.  An average person would not be able to do it.

(2) Second, Hynix’s semiconductors do not contain any markings which identify them as its products.  They do bear product numbers, but these are internal references which are known only to Hynix, so that outsiders ought not to be able to tell that the semiconductors were made by Hynix.  Furthermore, most of Hynix’s business partners and users of its products purchase semiconductors from manufacturers other than Hynix, and use them interchangeably with Hynix’s products, so that someone purchasing (say) an iPhone with a view to obtaining Hynix’s semiconductors would not necessarily be able to acquire an item which does contain such semiconductors.

8.In about September 2013, Hynix authorised Hitech to enter into an agreement with Vannex for the disposal of Bad Die Wafers (“the Disposal Agreement”).  The Disposal Agreement contained the following relevant clauses:

(1) The agreement was to be valid from 1 September 2013 to 31 August 2014 (cl.5.1).

(2) Vannex was to grind down the Bad Die Wafers provided by Hynix, with the resulting particles to be 1.5‑2mm in size, at a rate of RMB 5,600 per ton (cl.6).

(3) Vannex was to carry out its obligations through its own staff and was not to assign such obligations to a third party without Hitech’s agreement (cl.13).

(4) Vannex’s staff was not to steal Hitech’s business secrets.  During and after the agreement, Vannex and its staff were not to disclose confidential information (defined as information which, if disclosed to a third party, would cause tangible or intangible harm to Hitech) obtained about Hitech’s business to any third party (cl.14).

(5) Any disputes arising out of the agreement would be submitted to the jurisdiction of the People’s Court in Wuxi in the PRC (cl.19).

9.It is important to Hynix that Bad Die Wafers be destroyed because (1) they contain confidential information which may be extracted and obtained by Hynix’s competitors or someone who would sell the information to Hynix’s competitors, and (2) Hynix has an interest in maintaining its good reputation of producing only high quality semiconductors; Bad Die Wafers should be destroyed so that they will not flow out into the market and find their way into low quality products.

10.On three occasions on 12 September 2013, 17 December 2013, and 24 March 2014, Vannex collected and shipped Bad Die Wafers to Vannex’s base in Hong Kong for disposal.  Hitech sent staff to Hong Kong to observe Vannex grinding down the Bad Die Wafers.

11.On 5 May, the 2^nd defendant, Mr Chen Hung‑min (“Mr Chen”), contacted Mr Duk Kwan Park of SK Hynix Semiconductor (China) Ltd (a subsidiary of Hynix), to complain about the quality of wafers and dies that he claimed were manufactured by Hynix.  This led to an investigation which revealed that Vannex had sold 2,880kg of Bad Die Wafers to Mr Chen on 11 Aril 2014, for the price of US$332,535.  However, Hynix says that it was unable to ascertain the total volume of Bad Die Wafers retained by Vannex and whether Vannex still retains any after the sale to Mr Chen. Mr Wilson Kan of Vannex denied that Vannex had retained or sold any Bad Die Wafers which it ought to have destroyed.

12.On 14 June 2014, Mr Chen told Hynix that if it did not come up with a proposal by 31 July 2014 to compensate his loss for having acquired the Bad Die Wafers from Vannex, he would start to deal with them, which Hynix interpreted to mean that he would sell them to recover his loss.

C. THE PRESENT PROCEEDINGS

13.On 31 July 2014, Hynix commenced the present proceedings, claiming against Vannex and Mr Chen for, inter alia, breach of confidence, and seeking injunctive relief, damages and (further or alternatively) an account of profits.

14.On the same day, Hynix sought and obtained from Barnes J an ex parte injunction against Mr Chen to restrain him from (inter alia) disposing of the Bad Die Wafers.

15.On 1 August 2014, Hynix issued the Summons, seeking injunctive relief against Vannex to (inter alia):

(1) restrain it from selling, sending, disposing of, transferring or using (1) the Bad Die Wafers, and (2) the Confidential Information contained therein, which were in its possession, custody, power and/or control;

(2) make disclosure regarding the total quantity of Bad Die Wafers which Vannex had retained without authorisation and the whereabouts of the same, and the identities of persons to whom Vannex had disclosed the Information;

(3) deliver up the Bad Die Wafers in its possession, custody, power and/or control and documents containing any of the Information;

(4) provide affidavit evidence identifying all persons who had had access to the Bad Die Wafers in Vannex’s possession, custody, power and/or control or any part of the Information since September 2013, and confirming that the obligations of delivery up had been complied with.

16.On 14 August 2014, upon the giving of certain undertakings by Vannex that it would not (inter alia) sell, send, dispose of, transfer or use (1) the Bad Die Wafers, and (2) the Confidential Information contained therein which were in its possession, custody, power and/or control, L Chan J made a consent order that Vannex be restrained from (inter alia) selling, sending, disposing of, transferring or using (1) the Bad Die Wafers, and (2) the Confidential Information contained therein which were in its possession, custody, power and/or control.  The Summons was then adjourned to be heard on 10 December 2014.

17.On 15 August 2014, L Chan J continued paragraph 1 of the injunction of 31 July 2014 against Mr Chen pending substantive hearing of Hynix’s application to continue the injunction and Mr Chen’s application to discharge the same.

D. VANNEX’S CASE

18.Vannex relied on two affirmations from Mr Kan Wing Cheung (“Mr Kan”) dated 9 October 2014 (“Kan I”) and 28 November 2014 (“Kan II”).  These did not specifically deny that Vannex had sold any Bad Die Wafers to Mr Chen.  Rather, they averred that:

(1) Vannex had not been aware of the Back‑end Service Agreement or the existence of any confidential information in the Bad Die Wafers;

(2) Vannex did not possess the technology, skill or know how for extracting the Information from the Bad Die Wafers; and

(3) Vannex did not have in its possession, custody, power and/or control any of the Bad Die Wafers (apart from those said by Hynix to have been sold by Vannex to Mr Chen), or documents containing the Information.

E. THE APPROACH TO BE TAKEN

19.At the hearing, in reliance on Sim Kon Fah v JBPB & Co [2011] 4 HKLRD 47, Mr Kenny Lin (for Vannex) submitted that it was necessary for Hynix to demonstrate that it was likely to succeed at trial, given that the injunctive relief sought would finally dispose of Hynix’s claim for injunctive relief.

20.For Hynix’s part, it was argued by Mr Anthony Chan that in relation to the orders with a restraining effect, Hynix only needed to show a serious issue to be tried.  In relation to the orders which would have the effect of finality — and in this regard Mr Chan was referring to those parts of the injunction which were mandatory in effect (the order for delivery up and giving of discovery) — then, even if only a serious issue to be tried could be shown, the relief sought might nevertheless be ordered if the balance of convenience tilted in favour of granting the injunction.

21.Ultimately, what needs to be borne in mind is that the court’s jurisdiction to grant an injunction is based on s.21L of the High Court Ordinance which provides that the court may grant an injunction in all cases in which appears to be “just or convenient” to do so, and that the court will strive to take the course which carries the lower risk of injustice.

22.Thus, in Music Advance Ltd v Incorporated Owners of Argyle Centre Phase I [2010] 2 HKLRD 1041, Ma J (as he then was) stated the following:

“11. The applicable principles for interlocutory injunctions are well known and do not need repetition. Generally, one needs to look no further than American Cyanamid Co v Ethicon Ltd [1975] AC 396 …

12. I would, however, only highlight one aspect. Where, as in the present case, the plaintiffs seek an interlocutory mandatory injunction (that is, an order requiring the defendant to do something, in contrast to a prohibitory injunction which restrains the defendant from doing something), the following matters should be borne in mind as being the Court’s approach:

(a) In the case of interlocutory mandatory injunctions, it is often said or assumed that a court will not grant one unless it feels a high degree of assurance that at the trial of the action, it will be shown that the injunction was rightly granted: see Shepherd Homes Ltd v Sandham [1971] Ch 340, 351. This has been explained and sometimes understood as meaning that in the case of an interlocutory mandatory injunction, the applicant’s case on the merits has to be made out to a higher standard of proof than in the case of prohibitory injunction: see the Court of Appeal’s observations in TKI Ltd v New Happy Ltd [1995] 1 HKC 551, 554B‑D.

(b) Broad statements such as the above must, however, be properly put in context.

(c) The basic approach to interlocutory injunctions, whether mandatory or prohibitory, is the same. Section 21L of the High Court Ordinance (Cap.4) makes no distinction between these two types of injunctions and simply states that interlocutory injunctions may be granted if it appears to be just or convenient to do so.

(d) At the interlocutory injunction stage, the principal concern of the court is that it might make a wrong decision in the sense that after trial, the party to whom an interlocutory injunction has been granted may lose or the party who has been refused one, may win. The Court will therefore take whichever course appears to carry the lower risk of injustice if it should turn out that it is wrong. This ‘fundamental’ principle is the source of the guidelines that have evolved for the determination of interlocutory injunctions (included are, of course, the American Cyanamid guidelines) and therefore, in the application of any guidelines, sight must not be lost of this principle…

(e) Two common guidelines are of course the consideration of the merits of the plaintiffs’ claim and the balance of convenience. Here, it is of course easy to see at once how they are linked to the fundamental principle: there must be a risk of injustice if the plaintiff cannot even establish a serious question to be tried or that one or the other party will be put to substantial inconvenience or prejudice if an interlocutory injunction were or were not granted.

(f) In the case of interlocutory mandatory injunctions, the risk of injustice (being wrong in the sense referred to above) can be quite acute. In Films Rover International Ltd v Cannon Film Sales Ltd, it was put thus by Hoffmann J at p.681B‑E:

‘In Shepherd Homes Ltd v Sandham, Megarry J spelled out some of the reasons why mandatory injunctions generally carry a higher risk of injustice if granted at the interlocutory stage: they usually go further than the preservation of the status quo by requiring a party to take some new positive step or undo what he has done in the past; an order requiring a party to take positive steps usually causes more waste of time and money if it turns out to have been wrongly granted than an order which merely causes delay by restraining him from doing something which it appears at the trial he was entitled to do; a mandatory order usually gives a party the whole of the relief which he claims in the writ and makes it unlikely that there will be a trial. One could add other reasons, such as that mandatory injunctions (whether interlocutory or final) are often difficult to formulate with sufficient precision to be enforceable. In addition to all these practical considerations, there is also what might be loosely called a “due process” question. An order requiring someone to do something is usually perceived as a more intrusive exercise of the coercive power of the state than an order requiring him temporarily to refrain from action. The court is therefore more reluctant to make such an order against a party who has not had the protection of a full hearing at trial.’

(g) This passage in my view explains just why it is that generally a court will have to feel a high degree of assurance that at the trial of an action it will be shown that the interlocutory injunction was rightly granted before an interlocutory mandatory injunction will be given; all this being an exercise in assessing the strength of the plaintiffs’ case: see sub‑para. (a) above. However, I emphasise that this is only generally the court's approach. Where it is shown, as an exception to this general approach, that the case is one in which the withholding of an interlocutory mandatory injunction ‘would in fact carry a greater risk of injustice than granting it even though the court does not feel the high degree of assurance’ as aforesaid, it would be right to grant an interlocutory mandatory injunction, see Films Rover International Ltd v Cannon Film Sales Ltd, p.681A‑B.

(h) This of course brings into focus the balance of convenience. Thus, if a plaintiff in seeking an interlocutory mandatory injunction cannot demonstrate more than a serious question to be tried, it will have to show that the balance of convenience tilts so much in its favour that justice requires such an injunction to be granted, even taking into account those aspects of an interlocutory mandatory injunction expressed by Hoffmann J in Films Rover International Ltd v Cannon Film Sales Ltd.

(i) At no stage, however, in the consideration of the matter does the court lose sight of the practical realities of the situation to which the injunction will apply: see NWL Ltd v Woods [1979] 1 WLR 1294, 1306C per Lord Diplock.”

23.In Lai Hoi Ping and Tam Chun Hung v Persons Occupying Portions of Nathan Road near to and between Argyle Street and Dundas Street to prevent or obstruct normal vehicular traffic from passing and repassing the occupied areas and others, unreported, HCMP 2975/14, 15 November 2014, Lam CJHC (giving the judgment of the court) stated:

“9. …In this regard, it has to be firmly borne in mind that the court’s jurisdiction to grant an injunction, whether interlocutory or final, is based on section 21L of the High Court Ordinance (Cap 4) which provides that where it appears to the court to be “just or convenient” to grant an injunction, the court may do so.  The cases have given various guidelines on when it is ‘just or convenient’ to grant an interlocutory injunction, which, if granted, is, by definition, granted before the final outcome at trial is known.  It is to address this peculiar feature of an interlocutory injunction that considerations such as whether there is a serious question to be tried (so that the plaintiff’s claim is not a ‘frivolous or vexatious’ one), whether damages is an adequate remedy, and where the balance of convenience lies, come into the picture, so that the court may, putting it negatively, choose the course of ‘lesser evil’, or putting it positively, decide whether it is ‘just or convenient’ to grant an interlocutory injunction before the final outcome at trial is known.

10. There are undoubtedly authorities which say that in cases where the grant or refusal of an injunction would in effect dispose of the action finally the court will have more regard to the prospect of success.  But it should be firmly borne in mind that this higher regard to the merits of the case is but one factor in the consideration of the balance of convenience.  In NWL Ltd v Woods [1979] 1 WLR 1294, 1306F/G, Lord Diplock explained:

‘Cases of this kind are exceptional, but when they do occur they bring into the balance of convenience an important additional element. In assessing whether what is compendiously called the balance of convenience lies in granting or refusing interlocutory injunctions in actions between parties of undoubted solvency the judge is engaged in weighing the respective risks that injustice may result from his deciding one way rather than the other at a stage when the evidence is incomplete. On the one hand there is the risk that if the interlocutory injunction is refused but the plaintiff succeeds in establishing at the trial his legal right for the protection of which the injunction had been sought he may in the meantime have suffered harm and inconvenience for which an award of money can provide no adequate recompense. On the other hand there is the risk that if the interlocutory injunction is granted but the plaintiff fails at the trial, the defendant may in the meantime have suffered harm and inconvenience which is similarly irrecompensable. The nature and degree of harm and inconvenience that are likely to be sustained in these two events by the defendant and the plaintiff respectively in consequence of the grant or the refusal of the injunction are generally sufficiently disproportionate to bring down, by themselves, the balance on one side or the other; and this is what I understand to be the thrust of the decision of this House in American Cyanamid Co. v. Ethicon Ltd. Where, however, the grant or refusal of the interlocutory injunction will have the practical effect of putting an end to the action because the harm that will have been already caused to the losing party by its grant or its refusal is complete and of a kind for which money cannot constitute any worthwhile recompense, the degree of likelihood that the plaintiff would have succeeded in establishing his right to an injunction if the action had gone to trial, is a factor to be brought into the balance by the judge in weighing the risks that injustice may result from his deciding the application one way rather than the other.’

24.I have borne these principles in mind in approaching this application.

F. THE CLAIM FOR BREACH OF CONFIDENCE

25.For a plaintiff to succeed in a breach of confidence action,[1] he must address four matters:

(1) identify clearly what information he is relying on;

(2) show that it is information of the type which can be treated as confidential;

(3) show that it was handed over in circumstances of confidence; and

(4) show that it was used without his licence or there must be a threat to so use it.

See Cmi‑Centres for Medical Innovation GmBH and anor v Phytopharm plc and anor (1998) IP & T Digest 6; Clerk & Lindsell on Torts, 21^st edn, para 27‑06.

26.As I explain in the rest of this section F, I consider that Hynix has established at least a serious issue to be tried on this cause of action.

F1. Whether Information sufficiently particularised

27.Mr Lin submitted that Hynix had failed to identify the Information with any precision.  Where injunctive relief is sought, it is necessary for a defendant to know what he is prohibited from doing: Sim Kon Fah, supra, at [50]; Cmi‑Centres for Medical Innovation GmBH, supra, at [27]; and PA Thomas & Co and ors v Mould and ors [1967] 2 QB 913 at 922F.

28.However, in applying this principle, one also needs to apply a degree of practical common sense: Sim Kon Fah at [53].  I do not see any real difficulty in compliance in the present case.

(1) In paragraphs 1.2 and 1.3 of the Summons, Hynix is essentially seeking an order that Vannex should not attempt to extract any information from the Bad Die Wafers, and use or pass such information onto others.  It is not necessary for Hynix to specify any technical details regarding the Information in order for Vannex to be able to know what it is not supposed to do under these paragraphs.  Given that the Information cannot be unwittingly obtained from the Bad Die Wafers by Vannex, there is no risk of Vannex unknowingly breaching such an order.

(2) In paragraphs 2.4 and 4.1 of the Summons, Hynix is essentially seeking an order that Vannex should identify the persons to whom it has disclosed the Information.  Again, given that the Information cannot be unwittingly obtained from the Bad Die Wafers, Vannex would not have difficulty complying with these paragraphs.  The technical details of the Information are not necessary in order for Vannex to know whether or not it has disclosed the same to others.

(3) In paragraphs 3.2 and 4.2 of the Summons, Hynix is essentially seeking an order that Vannex should deliver up any documents it has containing the Information, and that Vannex should confirm on oath that it has done so.  Again, given that the Information cannot be unwittingly obtained from the Bad Die Wafers, Vannex would not have difficulty complying with these paragraphs.  If (as it says) it has not and cannot extract any information from the Bad Die Wafers, it will have nothing to deliver up.

(4) The other paragraphs of the Summons do not specifically refer to the Information.

29.Mr Lin posited the situation where information from the Bad Die Wafers somehow became available in the market.  It was said that Vannex would not be able to defend itself if it should be accused of being responsible for divulging that information, if it did not even know whether the information was on the Bad Die Wafers in the first place.  However, surely all that Vannex would need to do would be to demonstrate that it did not extract any information from the Bad Die Wafers.

30.Mr Lin further submitted that it was necessary for the court to know what the Information consisted of before it could decide whether it constituted confidential information.  It was said that insufficient particulars of the Information were given for this purpose.  However, Vannex’s challenge to whether the Information is confidential was based on the fact that the Information could be extracted from semiconductors installed in products available on the market by a process of reverse engineering, and no further particulars of the Information are necessary in order to determine this issue.

31.I therefore do not agree that the Information is insufficiently particularised.

F2. Whether Information confidential in nature

32.For information to be confidential, it must not be something which is public property and public knowledge: Saltman Engineering Co, Ltd v Campbell Engineering Co, Ltd [1948] RPC 203 at p.215, per Lord Greene.

33.Mr Lin relied on Mars UK Ltd v Teknowledge Ltd [1999] IP & T 26, an action for (inter alia) breach of confidence in relation to encrypted information found in coin discriminator machines which the defendant had successfully reverse engineered.  Jacob J held that the encrypted information did not have the necessary quality of confidence, as:

“31. …The Cashflow is on the market. Anyone can buy it. And anyone with the skills to de‑encrypt has access to the information. The fact that only a few have those skills is, as it seems to me, neither here nor there. Anyone can acquire the skills and anyway, a buyer is free to go to a man who has them. Mars suggest that the owner, although he owns the machine, does not own the information within it. That is too glib. What the owner has is the full right of ownership. With that goes an entitlement ‘to dismantle the machine to find out how it works and tell anyone he pleases’ (a right recognised by Morritt J in Alfa Laval Cheese Systems Ltd v Wincanton Engineering Ltd [1990] FSR 583.)

32. In so holding, I am of course not saying that were anyone to steal the information direct from Mars, thus saving themselves reverse engineering and de‑encryption, would not be liable for breach of confidence.  The un‑encrypted information remains confidential in the sense that in that form it has never been published. …”

34.However, as Mr Chan pointed out, these passages were obiter, Jacob J having found in favour of the plaintiff on the claim of copyright infringement and misuse of data.  Jacob J’s observations were also made in the context of a factual situation in which the machine on which the exercise of reverse engineering was carried out had been lawfully acquired, rather than a situation in which the defendant had not established his right to carry out any reverse engineering.

35.Furthermore, there are a number of authorities to the effect that the mere manufacture and sale of an item does not mean that any information about it is thereby rendered public, if work has to be done on the item to make that information available.  It is a question of fact in each case as to whether the information in question is available to the public.  See Ackroyds (London) Ltd v Islington Plastics Ltd [1962] RPC 97 at 104; Yates Circuit Foil Company and anor v Electrofoils Ltd and anor [1976] FSR 345 at 387; Alfa Laval Cheese Systems Ltd and anor v Wincanton Engineering Limited [1990] FSR 583 at 590‑591.

36.Mr Chan argued that on the evidence currently available, the Information is not available to the public, since (1) it can only be obtained through an elaborate and difficult process of reverse engineering, and (2) Hynix’s semiconductors do not bear markings, so that outsiders ought not to be able to tell which semiconductors in (say) an iPhone bought from the market were manufactured by Hynix; the semiconductors are not sold to the public save as components incorporated into other products.

37.In the light of this evidence and the authorities cited by Mr Chan, I would accept that there is at least a serious issue to be tried as to whether the Information has the necessary quality of confidence which enables Hynix to pursue a claim for breach of confidence.  I do not think that there is sufficient material to go further to make a judgment as to whether Hynix is likely to succeed on this issue.  In this regard, I note that Mr Chan relies on a number of other factors in support of his argument that the Information has the necessary quality of confidence.  However, these factors do not take the matter much further.

(1) It was said that Hynix had spent a great deal of time and money on research and development of the Information.  This does not however indicate whether that Information is confidential.

(2) It was said that Hynix imposed obligations of confidence on those who had access to the Information, including its staff, the companies carrying out the Front‑end and Back‑end Services and the staff of those companies, and used a system of encryption to prevent unauthorised copying of the Information.  Hitech had also imposed obligations of confidence on Vannex in the Disposal Agreement.  Whilst these obligations and encryption system are consistent with Hynix’s case that the Information is not made available to the public, they do not have much bearing on the issue of whether the Information has been rendered public by virtue of the fact that it can be obtained by a process of reverse engineering semiconductors found in publicly available products.

(3) Mr Chan also relied on Hynix’s procedures for removing the Information from Bad Die Wafers. Again, these do not have much bearing on the issue of whether the Information has been rendered public by virtue of the fact that reverse engineering is possible.

F3. Whether Information communicated in circumstances importing obligation of confidence

38.The next requirement for an action for breach of confidence is that the information in question must have been communicated in circumstances importing an obligation of confidence.  Where the circumstances are such that any reasonable man standing in the shoes of the recipient of the information would have realised that it was being given to him in confidence, then this should suffice to impose the obligation on him.  See Coco v AN Clark (Engineers) Ltd [1969] RPC 41 at p.48.

39.Vannex says that it was not aware of any relationship between Hitech and Hynix, that Hynix owned the Bad Die Wafers, or that the Bad Die Wafers contained the Information.  However, at the same time, it did not specifically deny the evidence from Hynix that (1) Hynix had selected Vannex to carry out the destruction of the Bad Die Wafers and that (2) prior to Vannex entering into the Disposal Agreement with Hitech, Hynix had told Vannex that it had previously disposed of Bad Die Wafersin a different manner (erasure of confidential information using chemicals and sale of remaining silicon) but could no longer do so due to the low cost of selling silicon and environmental law issues.  This evidence from Hynix, if established at trial, would indicate that Vannex was aware (or ought to have been aware) that it was not simply being provided with Bad Die Wafers, but also that they contained information which was confidential to Hynix and which Hynix wanted to be destroyed.

40.The fact that Vannex was engaged, at a fee, to grind the Bad Die Wafers down to powder (and was not allowed to subcontract this task without Hitech’s consent) further suggests that there was important information contained on the Bad Die Wafers which Hynix did not want to fall into the hands of third parties.  Vannex has not suggested that it thought that there was some other reason why it was asked to provide its services under the Disposal Agreement.

41.Furthermore, Mr Chen’s evidence is that he was told by Mr Vincent Kan of Vannex that the Bad Die Wafers had been acquired from Hynix.  This was presumably why Mr Chen was able to contact Hynix to complain about the quality of the Bad Die Wafers.  This evidence would indicate that Vannex did know that the Bad Die Wafers had been made by Hynix.  Although this was referred to in Kang, neither Kan I nor Kan II dealt with it (other than through the bald assertion that Vannex was not aware of the ownership of the Bad Die Wafers and the relationship between Hynix and Hitech).

42.Given the paucity of evidence from Vannex, I consider that Hynix would be likely to succeed at trial on the question of whether the Information was communicated in circumstances importing an obligation of confidence.[2]

F4. Whether unauthorised use or disclosure of Information

43.The final element of the cause of action for breach of confidence is the actual or threatened, unauthorised use or disclosure of the confidential information: Cmi‑Centres, supra, at [25].

44.Hynix relied on the information provided by Mr Chen indicating that Vannex sold Bad Die Wafers to him in April 2014.  Vannex does not admit that it sold the Bad Die Wafers to Mr Chen, but it does not have any positive explanation for the US$332,535 which Mr Chen says it paid to Vannex for the Bad Die Wafers, including a receipt for US$300,000 bearing Mr Vincent Kan’s handwritten acknowledgment of receipt.

45.Mr Lin’s argument was that it was necessary, for the cause of action for breach of confidence to be complete, that there be an attempt to extract the Information from the Bad Die Wafers, and in the present case, there was no evidence that anybody had attempted, or even had the ability, to do so, let alone pass on that information to third parties.  Mr Chan’s response was that it was not necessary for him to demonstrate that there had been any such attempt; Vannex’s obligation had been to destroy the Bad Die Wafers, and a sale to Mr Chen in breach of that obligation created the risk that third parties would attempt to extract the Information and (since it was now known that the Wafers had been made by Hynix) link it to Hynix.  Indeed, I note that Mr Chen had passed on some of the Bad Die Wafers to his friend for testing.

46.The question is whether mere selling of the Bad Die Wafers amounts to use or disclosure of the Information contained within the Bad Die Wafers.  This question has to be approached in the context of my views set out in section F3 above, namely, that Hynix would be likely to succeed at trial in showing that Vannex was aware that the Bad Die Wafers contained confidential information.  On that basis, I consider that Hynix would also be likely to succeed at trial in showing that Vannex has used or disclosed the Information.  If it was aware that the Bad Die Wafers contained confidential information, then, even if Vannex did not itself attempt to extract that information, its act of selling the Bad Die Wafers to Mr Chen would likely amount to a use or disclosure of the information.

G. WHETHER DAMAGES ADEQUATE REMEDY

47.Vannex argued that if the injunctive relief were refused, and later found to have been wrongly refused, damages would be an adequate remedy for Hynix, as Mr Kan has already gone on oath to say that apart from the 2,880kg of Bad Die Wafers “said to have been” sold by it to Mr Chen, Vannex has not sold any of the rest of the Bad Die Wafers, or retained any of the crushed Bad Died Wafers.

48.I accept Mr Chan’s submission that despite Mr Kan’s evidence, a number of matters remain unclear, including whether Vannex had in the past retained Bad Die Wafers that it should have, but had not, destroyed, whether anyone had had access to, or extracted the Information from, the Bad Die Wafers in Vannex’s possession, power or control, and whether Vannex had disposed of documents containing any part of the Confidential Information.  Thus Vannex’s argument is no answer to the relief sought.  There remains the possibility that there has been unauthorised access to the Bad Die Wafers whilst they were in the possession, power or control of Vannex and that the Information has or will fall into the hands of unauthorised persons.  I accept this might lead to the loss of Hynix’s advantage that it currently enjoys in the production of memory semiconductors, and that the damage which would result would not be readily quantifiable or compensable in damages.

49.I also bear in mind what Lord Neuberger MR said in Imerman v Tchenguiz [2011] Fam 116 at [69]:

“…It seems to us, as a matter of principle, that again in the absence of any defence on the particular facts, a claimant who establishes a right of confidence in certain information contained in a document should be able to restrain any threat by an unauthorised defendant to look at, copy, distribute any copies of, or to communicate, or utilise the contents of the document (or any copy), and also be able to enforce the return (or destruction) of any such document or copy. Without the court having the power to grant such relief, the information will, through the unauthorised act of the defendant, either lose its confidential character, or will at least be at risk of doing so. The claimant should not be at risk, through the unauthorised act of the defendant, of having the confidentiality of the information lost, or even potentially lost.”

50.Furthermore, I accept that even if Hynix’s loss could be quantified, there is no evidence that Vannex would have the means to pay damages.

51.It was not suggested by Vannex that in the event that any injunctive relief against it were found to have been wrongly granted, damages would not be an adequate remedy.  After all, if it is indeed the case Vannex had not sold any Bad Die Wafers (other than to Mr Chen as alleged by Hynix) or retained any, then it would have little difficulty in complying with the orders sought, and compliance ought not to cause it any damage.  Furthermore, Hynix is willing to provide a cross‑undertaking in damages, and Vannex has not suggested that Hynix would be unable to honour that undertaking.

H. BALANCE OF CONVENIENCE

52.I go on to consider where the balance of convenience lies.

53.In paragraphs 2 and 4 of the Summons, Hynix is seeking a mandatory injunction that Vannex give disclosure of certain information, and that in paragraph 3, Hynix is seeking a mandatory order for delivery up of the Bad Die Wafers and documents containing the Information.  Should these orders be given, then that will effectively be the end of that part of the claim (although it would not however necessarily be the end of the entire claim: Hynix may wish to pursue its claim for damages or an account of profits against Vannex, which has received US$332,535 for what Mr Chen says is the sale of Bad Die Wafers).

54.On the other hand, given that Vannex’s case is that it no longer has any Bad Die Wafers, and did not sell them to any third party (other than the ones said to have been sold to Mr Chen), compliance with the orders sought would not be difficult or oppressive, and would cause little, if any, damage; and in any event such damage ought to be capable of compensation in damages.

55.If, instead, the orders sought were not granted, then the damage which Hynix might suffer could turn out to be significant and difficult to quantify or compensate by way of damages; furthermore, Vannex does not suggest that it would be able to pay an award of damages.

56.Thus, although that I have concluded that Hynix has only established a serious issue to be tried on the issue of whether the Information is confidential (although a stronger case on the other elements of the cause of action relied upon), I consider that nevertheless, the balance of convenience tips so strongly in favour of Hynix that the orders sought should be granted.  The risk of injustice to Hynix occurring if they were not to be granted is much higher than the risk of injustice to Vannex if they were granted.

I. ORDERS

57.I will therefore make an order in terms of the paragraphs 1 to 4 of the Summons as follows:

(1) Vannex be restrained until after the trial of this action or until further order from doing, whether by its directors, officers, servants or agents or any of them or otherwise howsoever, the following acts or any of them that is to say:

(i) Sell, send, dispose of, transfer or in any way use any or any part of the defective or scraped parts of wafers and dies of which Hynix is the owner or otherwise beneficially entitled to deal with (“Bad Die Wafers”) that are in the possession, custody, power and/or control of Vannex.

(ii) Sell, send, dispose of, transfer, disclose, divulge, communicate, copy, publish or in any way use (a) any or any part of the information that is confidential in nature of which Hynix is the owner or otherwise beneficially entitled to deal with, as particularised in the Writ of Summons issued on 31 July 2014 and the Affidavit of Sangwon Kang filed on 1 August 2014 (“the Confidential Information”), contained in or stored upon the Bad Die Wafers that are in Vannex’s possession, custody, power and/or control, or (b) any information derived wholly or in part from the Confidential Information.

(iii) Enable, assist, cause, counsel, procure, instigate, incite, aid, abet or authorise others to commit any of the aforesaid acts or participate in any of the aforesaid acts.

(2) Vannex do disclose to Hynix by way of affirmation/affidavit evidence to be filed within seven days from the date of this order:

(i) The total quantity and volume of Bad Die Wafers from the three shipments of Bad Die Wafers from Hitech to Vannex on 12 September 2013, 17 December 2013 and 24 March 2014 that Vannex has retained in its possession, custody, power and/or control (“the unlawfully retained Bad Die Wafers”).

(ii) Whether any of the unlawfully retained Bad Die Wafers are still in Vannex’s possession, custody, power and/or control and if so, the total quantity and volume in its possession, custody, power and/or control.

(iii) The names and addresses of all persons or companies to whom Vannex has sold, sent, disposed of, transferred any or any part of the unlawfully retained Bad Die Wafers and the quantity and volume that was sold, sent, disposed of or transferred.

(iv) The names and addresses of all persons or companies to whom Vannex has sold, sent, disposed of, transferred, disclosed, divulged, communicated, copied, or published any or any part of the Confidential Information or any information derived wholly or in part from the Confidential Information.

(3) Vannex shall deliver up and return to Hynix’s solicitors within seven days of the date of this order:

(i) All the Bad Die Wafers that are in Hynix’s possession, custody, power and/or control.

(ii) All documents or copies of documents (in whatever form) containing any or any part of the Confidential Information or any information derived wholly or in part from the Confidential Information.

(4) Vannex do provide affirmation/affidavit evidence to be filed within seven days of the date of this order:

(i) Identifying all persons who have had access to (a) the Bad Die Wafers in Vannex’s possession, custody, power and/or control since 1 September 2013 and (b) any or any part of the Confidential Information or any information derived wholly or in part from the Confidential Information since 1 September 2013.

(ii) Confirming that all of the Bad Die Wafers in Vannex’s possession, custody, power and/or control and all documents or copies of documents (in whatever form) containing any or any part of the Confidential Information or any information derived wholly or in part from the Confidential Information have been delivered up to Hynix’s solicitors.

58.I further make a costs order nisi that the costs of and occasioned by Hynix’s application be Hynix’s costs in the cause.

Mr Anthony Chan, instructed by Deacons, for the plaintiff

Mr Kenny Lin Ching Pui, instructed by Chiu, Szeto & Cheng,for the 1^st defendant

The 2^nd defendant, not represented and absent