XCHRX YEKO TRADING LTD. v. CHOW SAI CHEONG TONY t/a STOCKWIN AND OTHERS

HCA 2163/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2163 OF 2000

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REASONS FOR DECISION

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Introduction

1. On 1 March 2000, prior to the commencement of this action, the Plaintiff applied for and obtained an Anton Pillar order which was executed subsequently.

2. The Plaintiff issued the Writ herein on 1 March 2000. Further, on the same day, the Plaintiff took out an application for an interim injunction against D1 to D3 (D4 not having then been joined as a party). That application was heard by the Court on 10 March 2000. By agreement of the parties, a consent order was made in terms of the Plaintiff's said application (save as to one matter (set out below) which was adjourned for argument). It became one of the subject-matters of the decision made by me on 3 April 2000.

3. The matter in issue between the parties related to paragraph 1(c) of the Plaintiff's said application; that paragraph reads:-

"That each of the Defendants ... be restrained until after judgment in this Action or further order from ... entering into or fulfilling any contract made with or through any person whose name appears in the Plaintiff's aforesaid stock business supplier database removed from the possession of the Plaintiff or copied by any of the Defendants being a person who was approached by the Defendants ... while the Plaintiff's aforesaid stock business supplier database and/or a copy ... was in the possession of the Defendants ... " (emphasis supplied).

4. The words "or fulfilling" were left out of the said consent order of 10 March 2000 because the Defendants contended that the Plaintiff should not be entitled to such an injunction order. In relation to D1-D3, it is the above-said (relatively narrow) point with which the parties' submissions and this "Reasons for Decision" are concerned.

5. Further, by the parties' agreement, although leave was only given to the Plaintiff to join D4 at the beginning of the hearing on 31 March 2000, the Plaintiff's application for an interim injunction was treated as also related to D4.

6. At the end of the hearing on 3 April 2000, I decided in the Plaintiff's favour and indicated that reasons for doing so would be handed down later. These are the reasons.

Merits of the Plaintiff's Claim

7. The Plaintiff's claim against the Defendants is in short as follows. The Plaintiff alleges that one line of its business has been "stock business". In essence, the Plaintiff would locate suppliers which have unwanted stock and are willing to sell them at a reduced price. The Plaintiff would sell the stock goods to its buyers at a profit. The Plaintiff has a "stock business supplier database" ("the said list") which contains information relating to these suppliers and which the Plaintiff has all along (to the knowledge of D1 to D3) treated as confidential information. The Plaintiff alleges that the Defendants have wrongfully taken away or copied the said list.

8. As stated earlier, the Plaintiff obtained an Anton Pillar Order earlier which was executed at the Defendants' premises. The Plaintiff stated that copies of the said list were found. Further, there was evidence that additions (or alterations) have been made to the said list, most probably by the Defendants.

9. The Defendants have made an application to delete certain parts of the consent order. That was disposed of earlier and I do not propose to set out herein the matters relating thereto. In relation to the present application, Mr Yan for the Plaintiff submitted that none of the matters now relied upon by the Defendants amounts to any valid defence in law. His submissions can be summarised as follows.

10. One of the Defendants' arguments in this application was that the said list is not "confidential information" because:-

(a) some of the suppliers in it were personally known to the Defendants;

(b) quite a number of the suppliers in it participated in trade fairs and became known to D1;

(c) the said list contains information of about 1,400 suppliers but (the Defendants asserted) D4 only has dealings with 31 of them;

(d) information of at least 29 of those suppliers could also be found in other publications such as trade magazines or promotional brochure.

11. Mr Yan submitted that the above points could not amount to valid lines of defence in law, relying on the decision in Robb v. Green [1895] 2 Q.B. 1; [1895] 2 Q.B. 315. The passage he referred to was:-

"There is one other contention of the defendant's counsel I must refer to. He contends that the order-book of the plaintiff contained no more information than might be acquired by reference to directories and such-like publications; and, moreover, he says that the defendant's master, in seeking to advance his own business, before the defendant made the copy of the order-book, had published circulars or pamphlets containing the names of many of the customers who had sent him favourable testimonials; so that the defendant had when he made the list complained of materials at his command without making use of his master's book. This to a considerable extent may be true, but it is not so altogether. The order-book contains collected together the names and addresses of purchasers ... spread over the length and breadth of England, Wales, and Scotland. No directory would give this information in this collocation ... The names of all the customers are collected together in the order-book in a manner not to be found in any other book or paper to which the defendant had access ... He would be saved the expense and delay of searches, such as would be necessary to enable him to compile such a list for himself ... It is the compilation which made the book and the list so valuable to the defendant ... " (per Hawkins, J at pp. 18 to 19) (emphasis supplied).

12. Similar observations can be found in Roger Bullivant Ltd. v. Ellis [1987] F.S.R. 172, another authority relied on by Mr Yan. The passage which he relied upon in particular was:-

"The value of the card index to Mr Ellis and the other defendants was that it contained a ready and finite compilation of the names and addresses of those who had brought or might bring business to the plaintiffs ... Most of the cards carried the name of names of particular individuals to be contacted. While I recognise that it would have been possible for Mr Ellis to contact some, perhaps many, of the people concerned without using the card index, ... Having made deliberate and unlawful use of the plaintiffs' property, he cannot complain if he finds that the eye of the law is unable to distinguish between those whom he could, if he chose, have contacted lawfully and those whom he could not" (per Nourse, L J at p. 181) (emphasis supplied).

13. The second line of defence was that the restrictive covenant in the employment contracts of D2 and D3 cannot support the Plaintiff's case. Mr Yan's response to this was that there was no need to rely on the covenant because an employee owes a duty to his employer in any event. In this connection, he relied on the following passages of Robb v. Green:-

"... there is involved in every contract of service an implied obligation, call it by what name you will, on the servant that he shall perform his duty, especially in these essential respects, namely, that he shall honestly and faithfully serve his master; that he shall not abuse his confidence ... ; and that he shall, be all reasonable means in his power, protect his master's interests in respect to matters confided to him in the course of his service ... " (per Hawkins, J, at pp. 10 to 11);

"Great stress was laid by learned counsel fort he defendant upon the fact that a servant having left his master may, unless restrained by contract, lawfully set up in the same line of business ... But the counsel for the defendant go further, and contend that he may canvass his master's customers whilst he remains in his service, and even whilst he is engaged in the discharge of his duty to his master with those very customers; and further still, that he may read his master's business books with a view to learn his customers' names and addresses, and may carry these things away in his head, if his memory will enable him, and that he may write them down at his own residence. Having gone thus far, they are compelled, in order to justify the conduct of the defendant, to contend that a servant might in his master's service, having confidential access to his master's books ... copy, as in this case, the names and addresses of his master's customers with a view to use them to facilitate his canvass for their customer ... I confess this seems to me a startling proposition, and to it I do not assent" (per Hawkins, J at p. 13) (emphasis supplied).

14. Mr Yan also submitted that in relation to the confidential nature of a document, no valid distinction can be made between a customers' list and a suppliers' or manufacturers' list. He relied on Gilman Engineering Ltd. v. Ho Shek On Simon [1986] 1 H.K.C. 523 at 532I in support. That part of the Judgment read:-

"A list of suppliers or manufacturers would rank pari passu with a list of customers and agents. Such a list has been considered on the same footing, see Curry on Breach of Confidence Chap V, pp 93 and 95; The Littlewoods Organisation Ltd v Harris [1978] 1 All ER 1026, 1028; Thomas Marshall (Exports) Ltd v. Guinle [1979] FSR 208, 230; Faccenda Chicken Ltd v. Fowler & Ors [1986] FSR 291, 303, where reference was made to the paper suppliers in E Worsley & Co Ltd v Cooper [1939] 1 All ER 290".

15. I considered that whether a suppliers' or manufacturers' list is a confidential document is not purely a matter of law but one also to be decided according to the facts of the case and applying the criteria set out in pp. 18 to 19 of Robb v. Green.

16. The Defendants did not dispute that the said list had been treated by the Plaintiff as confidential information. The Defendants also did not dispute the correctness of the above cases or passages therein referred to by Mr Yan. Mr Shum for the Defendants relied on Faccenda Chicken Ltd. v. Fowler & Others [1987] Ch. 117 and argued that the said list did not fall within the type of confidential documents in that case. While Mr Yan accepted that the said list is not a "trade secret", he contended that the Faccenda Chicken case did not concern the confidentiality of a customers' (or suppliers') list. I found that Mr Yan was right in this contention. In fact, the principles set out in Robb v. Green were approved in the Faccenda Chicken case: see p. 136A to B thereof.

17. Having considered the information contained therein, especially that at least some of the telephone or fax numbers, or e-mail addresses, and names of contact persons were unavailable elsewhere, I found that the said list was a confidential document. I also agreed with Mr Yan's argument that in the present case the evidence adduced so far shows that the Defendant made use of the said list and there is no evidence that they had tried to compile their own list.

18. In these circumstances, I agreed with Mr Yan that, at least for the purpose of this application, the Defendants had not been able to show an arguable defence to the Plaintiff's claim.

19. The significance of this part of Mr Yan's submissions is as follows. American Cyanamid Co. v. Ethicon Ltd. [1975] A.C. 396 decided that the Court must be satisfied of two matters before granting an interim injunction order: (a) there is a serious question to be tried on the plaintiff's claim, and (b) the "balance of convenience" justifies the grant of the order. Although Mr Yan accepted this to be settled principle, he argued that where the defendant is not even able to show an arguable defence, the Court does not need to (and should not) consider the question of "balance of convenience". He referred to 2 cases in support. In Manchester Corporation v. Connolly & Others [1970] 1 Ch. 420 (a pre-American Cyanamid decision), the Court said:-

"If there were any arguable defence to the plaintiff's claim it would be necessary to consider the balance of convenience ... But if there is no possible defence to the action I agree with the Vice-Chancellor that it is a misuse of the process of the court to withhold from the plaintiffs a remedy, to which they are clearly entitled, while the normal stages preparatory to the trial of a genuinely contested action are being gone through with the inevitable delay" (at pp. 525 to 426).

In Official Custodian for Charities v. Mackey [1985] 1 Ch. 168 (a post-American Cyanamid decision), Scott J said:-

"... I do not, however, think that this is a case to which the Cyanamid principles can be applied. Those principles are not, in my view, applicable to a case where there is no arguable defence to the plaintiffs' claim.

In Stocker v. Planet Building Society (1879) 27 W.R. 877 in the Court of Appeal, James L J said, at p. 878:

'Balance of convenience has nothing to do with a case of this kind; it can only be considered where there is some question which must be decided at the hearing.'

See also Manchester Corporation ... " (at p. 187D to F).

20. Based on the principles stated in the above cases, I agreed with Mr Yan's argument that there is no need to consider the issue of "balance of convenience", provided the Plaintiff's claim for an injunction order is justified if it should succeed in proving its claim. I considered that this is such a case and there is therefore no need to consider the matter further.

Balance of Convenience

21. Even if I had to consider this issue, I would still have concluded in the Plaintiff's favour for the following reasons.

(1) Adequacy of Damages

22. The Defendants submitted that damages would have been an adequate relief for the Plaintiff but because D4 is a newly established business, an injunction would have a serious effect on its business, for example, existing contracts will not be performed. They further argued that in any event, little (or no) loss would be caused to the Plaintiff because it should be open to a supplier in a free market to choose to sell to any buyer (be it the Plaintiff or D4) who offers the higher price.

23. The Plaintiff disagreed based on 3 grounds. One, despite having been challenged more than once about their ability to pay damages, the Defendants have not put forward any evidence that they would be able to pay any damages which may be awarded against them. The proper inference from this would be the Defendants are probably unable to do so. Two, in any event, the Plaintiff is likely to suffer irreparable damage if there were no injunction. I understand this to be related to the Defendants' further argument (set out above). Because it is open to the Defendants to argue at trial that no damages were caused by the wrongful act, this is either a case where it will be difficult to quantify the loss, or one where damages will not be an appropriate form of relief. Three, if an injunction order is granted, the Plaintiff is prepared to take over all the existing orders which the Defendants need to fulfil. Hence, no claim will be made against the Defendants for breach of these contracts, and no prejudice will be caused to the other contracting parties.

24. Having heard the parties, I agreed with the Plaintiff over this point.

(2) Preservation of the Status Quo

25. Mr Shum argued that the status quo should be maintained, namely, the parties should be permitted to carry on with the state of affairs immediately before the Plaintiff's application for an interim injunction order. I do not agree with this submission because that would usually be the precise reason why a party asks for an interim injunction order.

(3) Relative Risk of Loss and Damage

26. This was already dealt with under the sub-heading "Adequacy of Damages" above. I considered this point to be in the Plaintiff's favour.

(4) Relative Strength of the Parties' Case

27. Even if (contrary to my earlier conclusion under the heading "Merits of the Plaintiff's Claim") the Defendants' lines of defence should raise any triable issue, I considered the relative strength of the parties' case would tip my discretion in this application in the Plaintiff's favour.

Interim Order From 31 March to 3 April

28. The matter was heard on 31 March, Friday, and 3 April, Monday. At the end of the hearing on 31 March, I acceded to the Plaintiff's application and granted an interim order in the same terms as the order granted at the end of the hearing on 3 April to cover the period of the adjournment.

29. Although Mr Shum was in the course of (and has not completed) his submissions by the end of the hearing on 31 March, the Defence has already submitted a written skeleton submissions. Before granting the interim order, I ascertained with Mr Shum (and he fairly confirmed) that his oral submissions would not differ in a material way from his written submissions. In these circumstances, I considered that it was open to me to consider whether there would be high probability that an order would be made in the Plaintiff's favour after the completion of the parties' submissions. I further considered that there would be such a probability and hence found it appropriate to grant the interim order sought by the Plaintiff.

D4's Position

30. Mr Shum argued that D4 may find it impossible to comply with any injunction order because it was not the Plaintiff's former employee and unaware of the said list. As Mr Shum fairly accepted, D4's directors are D1 and his wife. I found it a fair inference that D4 is controlled by D1 (whether alone or together with others). In these circumstances, if an order against D1 to D3 is justified (which I found it is), there is no valid reason why such an order should not be made against D4.

Costs

31. In view of the order made, Mr Shum did not argue against (and I found it appropriate to order) costs of the application to be the Plaintiff's costs in the cause.