BANNERSHOP HOLDINGS LTD AND OTHERS v. FOO PEI PAN (also known as BENNY FOO) AND OTHERS

HCA 1277/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1277 OF 2014

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J U D G M E N T

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A. INTRODUCTION

1.  This is the plaintiffs’ application for interlocutory injunctions against the defendants (except the 3^rd defendant) to restrain them, until trial or further order, inter alia, from taking part or assisting in the operation of or in any way being involved in the 11^th defendant (the “New Company”), being a business competitor of the plaintiffs allegedly set up by the 1^st and 2^nd defendants.

2.  In a nutshell, the plaintiffs’ case is as follows:

(1) The 1^st and 2^nd defendants are directors of the Bannershop Group.

(2) They have set up the New Company through the 12^th and 13^th defendants (who are the 1^st defendant’s wife and the 4^th defendant’s wife respectively) in direct competition with the Bannershop Group.  They are therefore in breach of their fiduciary duties owed as directors.

(3) The 4^th to 10^th defendants were former employees of the Bannershop Group.  They are now allegedly “dishonestly assisting” the 1^st and 2^nd defendants in breach of their fiduciary duties.

(4) For the same reason, they have conspired together and are guilty of economic torts.

(5) Originally, the plaintiffs’ case for interlocutory relief against the 4^th to 10^th defendants was also based on the breach of their respective restrictive covenants contained in their employment agreements by working for the New Company.  This was expressly abandoned by Mr Patrick Chong, counsel for the plaintiffs, at the hearing on 26 September 2014. On the same occasion, the plaintiffs also withdrew their application for interlocutory relief against the 12^th defendant.  I gave leave for them to do so, with costs be to the 12^th defendant in any event.

B. MATERIAL FACTUAL BACKGROUND

3.  The Bannershop Group is a group of companies specialising in wide format digital printing services, including the production of roll‑up banners, vinyl banners, mounting boards, posters, stickers, lightbox films, exhibition displays and POS displays.

4.  The holding/parent company of the Bannershop Group is the 1^st plaintiff.  The 2^nd to 12^th plaintiffs are the Bannershop Group’s subsidiaries in Hong Kong.

5.  The 1^st defendant (“Benny”) and the 2^nd defendant (“Enoch”) are directors of the Bannershop Group.  They both were, and remain, directors of the 1^st plaintiff as of the present date.  The other two directors of the 1^st plaintiff are Choi Po Kin Anthony (“Anthony”) and one Luk Kai Wai Joseph (“Joseph”).  Anthony is also the permanent director and chairman of the Board of the 1^st plaintiff.

6.  The shareholding of the 1^st plaintiff is divided in the following manner: 70.5% of the shares are held by Anthony (and his partners) through SBZ2 Group (BVI) Ltd (“SBZ2”), with the remaining 29.5% held by Benny, Enoch, the 4^th defendant (“Chris”) and other people through WAB2 Group (BVI) Ltd (“WAB2”). 

7.  In other words, Anthony is (through his corporate vehicle) the majority shareholder of the Bannershop Group, while Chris, Benny and Enoch are the minority shareholders (through WAB2).  Benny, Enoch, Chris and the other defendants in this action are referred to collectively as “Benny’s Camp”.

8.  The 4^th to 10^th defendants (collectively referred to as “the Former Employees”) were all former employees of the Bannershop Group.  They are all now involved in, or providing assistance to, the operation of the New Company.

9.  The 12^th and 13^th defendants are respectively Benny’s wife and Chris’s wife:

(1) Benny’s wife, ie the 12^th defendant, was appointed a director of the New Company on about 4 April 2014.  She purportedly resigned on 20 June 2014.

(2) Chris’s wife, ie the 13^th defendant, has since 4 April 2014 been appointed as a director of the New Company.  Further, she was initially allotted 3 million shares out of 5,999,999 shares on 4 April 2014.  The remaining shares have been allotted to the e‑print Group.  According to her, “for commercial reason”, she has transferred all her shares to one TBC Group Ltd, a BVI company.  Notwithstanding she is not forthcoming in disclosing the ownership of the TBC Group Ltd, the evidence clearly shows that Chris’s wife is the director and the registered shareholder of TBC.  According to Leung Wai Yip, a director of the New Company, TBC is now holding 60% of the shares in the New Company and the e‑print Group is holding the remaining 40%.

10.  The 2^nd to 12^th plaintiffs are wholly owned indirect subsidiaries of the 1^st plaintiff.  The directors of the 2^nd to 12^th plaintiffs are corporate directors, which are also wholly owned by the 1^st plaintiff.  Though (inter alios) Anthony, Benny and Enoch are formally appointed as directors of the 1^st plaintiff only, the 2^nd to 12^th plaintiffs were also managed by the 1^st plaintiff’s board of directors.  Therefore, the same directors, ie including Benny and Enoch, also manage and operate the 2^nd to 12^th plaintiffs.  The commercial reality is that, and in practical terms, the directors and employees work together as a Group.  Accordingly, Benny and Enoch are de jure directors of the 1^st plaintiff and de facto directors of the 2^nd to 12^th plaintiffs. 

11.  The plaintiffs’ case is that Benny and Enoch, as directors of the 1^st plaintiff and de facto directors of the 2^nd to 12^th plaintiffs, are acting in breach of their fiduciary duties in setting up and operating the New Company in competing with the plaintiffs.  The remaining defendants in Benny’s Camp are either dishonestly assisting Benny/Enoch or were part of a conspiracy to injure the plaintiffs’ economic interests by reason of the same conduct.

12.  As deposed to by Anthony, he was told that Benny’s Camp was involved in the operation of the New Company which is directly competing business against the Bannershop Group.

13.  He therefore commissioned private investigators to conduct covert investigation on the New Company.  The surveillance reports clearly show that Benny’s Camp frequently visited the target premises of the New Company, as well as installing new printing machineries for the New Company.

14.  Benny’s and Enoch’s involvement is evident from the following evidence:

(1) the surveillance reports prepared by the investigators; and

(2) the e‑mails exchanged between Benny and e‑print concerning the New Company’s affairs.

15.  The evidence showing Benny’s and Enoch’s involvement and participation in the operation of the New Company is detailed in paragraphs 20 to 35 of the Plaintiffs’ Skeleton Argument dated 11 September 2014, to which I refer and will not be repeated here.

16.  The plaintiffs’ case is that the 3^rd to 10^th defendants also became employed by the New Company.

17.  It is clear that the New Company is in direct competition with the Bannershop Group.

18.  In the premises, the plaintiffs submit that the above matters demonstrate that Benny, Enoch and Chris had orchestrated, through Benny’s wife and Chris’s wife, the setting up of the New Company being a competing business to the Bannershop Group, and they joined forces with the e‑print Group.

C. IS THERE A SERIOUS QUESTION TO BE TRIED?

C1.Regarding the 1^st and 2^nd defendants

19.  Benny and Enoch remain the directors on record of the 1^st plaintiff.

20.  As mentioned above, Benny and Enoch are also arguably de facto directors of the 2^nd to 12^th plaintiffs, as the 1^st plaintiff’s Board of Directors control and manage these subsidiaries.

21.  A de facto director of a company owes the same extent of fiduciary duties to the company as if he were a de jure director.

22.  From the evidence adduced by the plaintiffs against Benny and Enoch (see: paragraphs 14 and 15 above), I am satisfied that there is a serious question to be tried in relation to the plaintiffs’ claim that they have acted in breach of their fiduciary duties owed to the plaintiffs, in carrying on or having interests in the competing business of the New Company.

23.  In fact, on the evidence which I have seen, including the inconsistencies between Benny’s and Enoch’s explanations in their respective affirmations and the contemporaneous documents, I consider that the plaintiffs have demonstrated a strong case, with good prospects of success, that Benny and Enoch are in breach of their fiduciary duties owed to the plaintiffs, by carrying on or having interests in a competing business.

24.  On the other hand, I am not satisfied that there is a serious question to be tried in relation to the plaintiffs’ claim against Benny and Enoch for breach of confidence. 

25.  Benny has explained the invoice system in his affidavit evidence and says that he only had access while he was under the employment of the 2^nd plaintiff.  Enoch explains that he never had access to the invoice system and database.  I agree with Mr Raymond WN Tsui (and with him Mr Quinson Leung), counsel for the 1^st to 4^th defendants, that there is no real evidence that the 1^st, 2^nd and 4^th defendants are in possession of the information in the invoice system and the e‑mail database.

C2. Regarding the 4^th to 10^th defendants

26.  It is the plaintiffs’ case that as former employees who worked for the Bannershop Group for a very long time, the Former Employees knew very well that Benny and Enoch are the directors of the Bannershop Group, and they knew that by setting up a competitor company, Benny and Enoch are now acting in breach of their fiduciary duties.  The Former Employees are dishonestly assisting Benny and Enoch by working for the New Company, which is a sham vehicle used by them.

27.  As regards the 4^th defendant, the New Company has confirmed that it has never employed him.

28.  There is no dispute that the 5^th to 10^th defendants are now working for the New Company as employees.  However, their counsel, Mr Billy Poon, submitted that the plaintiffs’ claims against them for “dishonest assistance” and “conspiracy” are so lacking in supporting evidence that they have no real prospect of success. I agree.

29.  In particular, the fact that the 5^th to 10^th defendants were seen consistently going in and out of the New Company’s office is neither here nor there.  At the material time, the 5^th to 10^th defendants were all under the employment of the New Company.  It is natural that they showed up as they all worked there.  Further, there is simply no supporting evidence whatsoever that the 5^th to 10^th defendants actually knew the directorship of any of the plaintiff companies.

30.  As noted in paragraph 2(5) above, the plaintiffs are no longer relying on alleged breaches of the respective restrictive covenants in their employment contracts as causes of action in support of interlocutory relief.

31.  In the premises, I hold that there is no serious question to be tried as between the plaintiffs and the 4^th to 10^th defendants for the purpose of these applications.

C3. Regarding the 11^th and 13^th defendants

32.  I am satisfied that there is a serious question to be tried in relation to the plaintiffs’ claim against the 11^th defendant (the New Company) and 13^th defendant (Chris’s wife) that they have dishonestly assisted in Benny’s and Enoch’s breaches of their fiduciary duties and conspired to do so.

(1) The investigation reports show that the New Company has been inducing and/or allowing Benny and Enoch to be involved in or participate in the operation of the New Company, in breach of their fiduciary duties owed to the Bannershop Group.

(2) The e‑mail correspondence and quotations adduced by the plaintiffs in evidence indicate that the New Company was inducing and assisting Benny to become involved in or participate in the operation of the New Company, in breach of his fiduciary duties.

(3) The above matters are also to be read in the light of the fact that TBC, which holds a 60% interest in the New Company, is highly likely to be beneficially owned and controlled by Benny, Enoch and/or Chris through their wives as puppets.

(4) In such circumstances, (i) the New Company, which is arguably in effect controlled by Benny, Enoch and Chris (apart from the e‑print Group); and (ii) the 13th defendant (Chris’s wife), clearly have knowledge that Benny and Enoch were acting in breach of their fiduciary duties owed to the Bannershop Group, and on such basis be said that their assistance/inducement is contrary to normally acceptable standards of honest behaviour.

33.  I am not, however, satisfied that there is a serious question to be tried in relation to the plaintiffs’ claim for passing off.

34.  In this regard, I agree with the submissions of Mr Kenneth CL Chan (and with him Mr Billy NP Ma), counsel for the 11^th to 13^th defendants, that the word “Bannershop” is clearly just a “descriptive word”.

35.  In The Chamber of Hong Kong Computer Industry Company Ltd v Hong Kong Computer Association Ltd, HCA 621/2010 (Judgment dated 6/12/13), DHCJ Lok held as follows at paragraphs 40 and 41:

“40. As laid down clearly in the authorities, the law is very reluctant to allow a trader to monopolise the use of descriptive words. If he decides to use descriptive words for his goods or services, he has to take the risk involved. In Office Cleaning Services Ltd v Westminster Window and General Cleaners Ltd [1946] 53 RPC 39, Lord Simonds said the following in p 43 of the judgment:

‘… …So long as descriptive words are used by two traders as part of their respective trade names, it is possible that some members of the public will be confused whatever the differentiating words may be. I am ready to believe that in this case genuine mistakes were made. … It comes in the end, I think, to no more than this, that where a trader adopts words in common use for his trade name, some risk of confusion is inevitable. But the risk must be run unless the first user is allowed unfairly to monopolise the words. The Court will accept comparatively small differences as sufficient to avert confusion. A greater degree of discrimination may fairly be expected from the public where a trade name consists wholly or in part of word descriptive of the articles to be sold or the services to be rendered.’

41. As the plaintiff has decided to use a rather descriptive name for the plaintiff’s Computer Festivals, it has to accept the risk of confusion resulting from the use of similar names by other traders. Based on the facts of the present case, there is no good reason to allow the plaintiff to monopolise the words… ‘computer festival’ ”. (emphasis supplied)

36.  Likewise, I see no good reason to allow the plaintiffs to monopolise the words “banner” or “Bannershop”.

D. BALANCE OF CONVENIENCE

37.  I agree with Mr Patrick Chong that the balance of convenience in this case is in favour of the granting of the interlocutory injunctions.

(1) The Bannershop Group has spent more than 10 years building its reputation and goodwill in the industry.  It is a market leader in digital printing in Hong Kong.

(2) There is evidence showing that business opportunities have been diverted to the New Company.

(3) It is not easy to quantify the plaintiffs’ loss.

(4) Even though the plaintiffs may be entitled to the relief of account for profits, there is a serious risk that the relevant defendants will not fully and honestly account for the profits made.  “An assessment of damages on the basis of incomplete and inaccurate books cannot produce an award which can adequately compensate the plaintiff for his loss”: see Kung Cheong Kai v Kung Cheong Ki & Others, HCA 704/2013 (Judgment of Mimmie Chan J dated 31/05/13).

(5) It is in any event doubtful whether the relevant defendants have the means to pay damages.

(6) The plaintiffs, which are substantial companies, are prepared to give the usual undertaking as to damages.

(7) Finally, as noted in paragraph 23 above, the plaintiffs have a strong case that Benny and Enoch are in breach of their fiduciary duties owed to the plaintiffs.  Bearing in mind the strong merits of the plaintiffs’ claims, the balance of convenience would be in favour of the grant of an injunction [see: the Kung Cheong Kai case, supra, paragraph 30].

E. DISPOSITION

38.  Having considered all the relevant circumstances in this case and for the reasons stated above, I grant the following injunctions against the 1^st, 2^nd, 11^th and 13^th defendants.

Regarding the 1^st and 2^nd defendants

39.  Each of the 1^st and 2^nd defendants be restrained, whether acting by himself, his servants, agents alone or jointly or between any of them or otherwise howsoever directly or indirectly, until trial or further order, from:

(1) taking part in the business or in any way being involved in the business or operation of the 11^th defendant, in breach of his fiduciary duties owed to the plaintiffs;

(2) undertaking or continuing employment with or providing information, advice, assistance or services to the 11^th defendant, or in any other way be engaged either directly or indirectly in any capacity in the 11^th defendant’s business;

(3) in any manner directly or indirectly soliciting or procuring the solicitation of the employee who is under the employment and/or service of the plaintiffs; and

(4) diverting or procuring the diversion of any business opportunities of the plaintiffs to the 11^th defendant, or at all.

Regarding the 11^th defendant

40.  The 11^th defendant, whether acting by itself, its servants, agents alone or jointly or between any of them or otherwise howsoever directly or indirectly, be restrained, until trial or further order, from:

(1) employing, engaging or in any way allowing the 1^st and 2^nd defendants in participating or be involved in its business or operation;

(2) in any manner directly or indirectly assisting or procuring the 1^st and 2^nd defendants in soliciting customers who used to deal with them when they were formerly under the employment and/or service of the plaintiffs; and

(3) diverting and/or assisting and/or procuring the 1^st and 2^nd defendants in diverting business opportunities of the plaintiffs to itself or at all.

Regarding the 13^th defendant

41.  The 13^th defendant, whether acting by herself, her servants, agents alone or jointly or between any of them or otherwise howsoever directly or indirectly, be restrained, until trial or further order, from:

(1) taking part or assisting in the business or in any way being involved in the business, operation or otherwise of the 11^th defendant, in breach of the 1^st and 2^nd defendants’ fiduciary duties owed to the plaintiffs;

(2) employing, engaging or in any way allowing the 1^st and 2^nd defendants in participating or be involved in the business or operation of the 11^th defendant;

(3) in any manner directly or indirectly assisting or procuring the 1^st and 2^nd defendants in soliciting customers who used to deal with them when they were formerly under the employment and/or service of the plaintiffs; and

(4) diverting and/or assisting and/or procuring the 1^st, 2^nd and 11^th defendants in diverting business opportunities of the plaintiffs to itself or at all.

Costs

42.  The costs of and occasioned by the plaintiffs’ application regarding the 1^st, 2^nd, 11^th and 13^th defendants be the plaintiffs’ costs in the cause.

43.  The costs of and occasioned by the plaintiffs’ application regarding the 4^th to 10^th defendants be the 4^th to 10^th defendants’ costs in the cause.

44.  The above costs orders are nisi and shall become absolute in the absence of application to vary within 14 days.

45.  Lastly, I thank counsel for their helpful assistance in this matter.