BEST TECH INTERNATIONAL INDUSTRIAL LTD v. ALBANY INTERNATIONAL CORP AND ANOTHER

HCA 451/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 451 OF 2013

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J U D G M E N T

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1.  The plaintiff in this action is a Hong Kong company specialising in the production of insulation material for clothing in particular.  It has a production factory in Dongguan on the mainland and one or more warehouses in Hong Kong to which its products are delivered from source, and from which they are despatched to its customers.  Its business dealings take place in Hong Kong.

2.  Associated with it is a mainland business known as Tai Fung Non‑woven Fabric Company which is described as a sister‑company.  The exact position of Tai Fung within the structure of Best Tech is not entirely clear but although that has been an issue raised in the course of this appeal I do not consider it material at this stage for reasons which will be apparent in due course.

3.  The nature of the type of insulation product which has been called a variety of proprietary names in the market, e.g. Thinsulate, is such that emphasis is placed on light weight, softness, durability and impermeability.  It is common knowledge that it is to be found in sportswear, especially jackets for outdoor sports, gloves and legwear.  The producers of such apparel constitute a highly competitive industry and, as a consequence, the continuing development and improvement of insulating material is very important.

4.  The 1^st defendant (Albany) is a company incorporated and based in the United States of America.  Its principal business is the processing of textiles and materials involved in the manufacture of and trading in insulating products.  One of its brands is known as Primaloft which had its own division within Albany.  A Vanessa Mason appears to have been its guiding force since April 2000.

5.  The 2^nd defendant (Primaloft) is also a company incorporated and based in the United States of America.  It was formed as a result, it seems, of purchasing the Primaloft division from Albany in June 2012.  Vanessa Mason went with it.  What the true position of the 2^nd defendant is vis-à-vis Albany is not clear.  It may well remain under the aegis of Albany.  It is clear that in any event whatever the Primaloft division of Albany learned, acquired and was privy to, went with it and Vanessa Mason, to the 2^nd defendant.

6.  The 3^rd defendant is well‑known internationally.  It is a Norwegian company which has a high reputation in the outdoor and sports wear market, and has numerous competitors in that market which are themselves well‑known internationally and do not require stating.

7.  It has had and may still have a commercial relationship with Albany, and subsequently,  Primaloft, with regard to the formulation of design and production of the insulation materials.

The insulation product

8.  In or about August 2008, Albany through Vanessa Mason had contact with Tai Fung, through Chan Yee Ching.  The email of 22 August from Miss/Ms Mason to Mr Chan was the introductory letter.

9.  She introduces herself as the technical manager for Primaloft division of Albany. She was looking for a contract manufacturer to produce insulation.  She had been recommended to Tai Fung.  The new product was identified as Primaloft Cresta.  For that Primaloft would provide all raw materials.  Tai Fung was to provide the labour and therefore the production or manufacture.  Tai Fung was asked to reply as to its interest.

10.  Although I do not have the email reply it is clear that Tai Fung was interested and the following emails pick up the progress.  The email from Albany to Tai Fung of 12 September 2012 sets out Albany’s intentions.  It seeks a partner in Asia “that has capabilities our current manufacturers do not have”.

11.  It wants to share “more specific information about the Primaloft CRESTA product” and “ship fibre to Tai Fung to run trials”.  It will “require more information from you regarding any business you currently have that may conflict with the business intentions of Primaloft prior to our collaboration”.

12.  It then asked Tai Fung to consider further the Confidential Agreement (it is not clear when that was sent).  This was to be the consequence of the need to protect “each of our proprietary interests”.

13.  There must have been some exchange of contact before another email from Vanessa Mason which was dated 18 September 2008 which indicated that Albany’s legal department approved changes suggested by Tai Fung.  United Kingdom law was suggested as the governing law instead of Hong Kong law although it was clear that this was no real obstacle. Hong Kong of course applied English common law and this was to be a commercial agreement.

14.  The reply from Hendy Chan of Tai Fung indicated acceptance of United Kingdom law, but the important content was the suggestion that the formal relationship (under the Agreement) would be between Albany and Best Tech International Industrial Limited the plaintiff company “through which we could fully separate the Primaloft business with (it must mean ‘from’) our other business”.

15.  This was accepted by Vanessa Mason and the Agreement was sent through with a request that “your address will remain the same”.  It was quite clear, even at this stage, that Tai Fung and Best Tech were in effect the same business and Albany realised this.  The consequence was that identical confidential agreements were sent to both Tai Fung and Best Tech, signed on behalf of both companies/or businesses by Fai Wong, and both signed by Charles Silva on behalf of Albany.  They are both dated 24 September 2008.  This was entirely a mutually sensible arrangement given that Albany’s initial contact had been with Tai Fung.

16.  It was argued before me on behalf of the defendants that somehow, by not disclosing all the material concerning the Tai Fung link before the master on the ex parte application, the plaintiff’s solicitors had failed in their duty of disclosure.  I reject that.  It was not necessary and there was no ignorance about the link.

The Confidentiality Agreement

17.  The preamble was discussions concerning the manufacture of Primaloft products — the project.  Its purpose was to protect both parties in respect of information communicated by one to the other.  That information was defined as:

(i) any information relating to Primaloft blends and specifications so marked in writing; and

(ii) any other information (particularised) or other material of any kind communicated by one to the other considered by either party to be confidential or proprietary so marked in writing.

18.  Certain information was excluded where it had come to the party receiving it as a result of activities not related to the project, or from some other source.

19.  The right and obligations applied to any affiliate of a party receiving or communicating confidential information.  Affiliate meant any entity or person that controls, is controlled by or is under the common control with a party.

20.  This unarguably applies to Tai Fung as well as Best Tech (in the context of their respective agreements), and Primaloft as a division of Albany which was in effect hived off, with Vanessa Mason, in June 2012, from Albany.

21.  The term of the agreement caught all such information received or communicated in relation to the project within two years of its date, i.e. up to and including 23 September 2012.  It is readily apparent, that that period covered the date of incorporation of Primaloft Incorporated and therefore applied to the Primaloft division of Albany in its former guise and to it in its later character.

22.  Moreover in relation to any particular disclosure the period of protection was extended by five years from the date of such disclosure.  That meant that if a disclosure was made on the last day of the agreement, it was protected until 23 September 2015.

23.  There was a provision against assignment without written consent and it was binding upon successors or assigns of the parties to it.  Therefore if arguably Primaloft was not caught as an affiliate of Albany it was caught as a successor or assign.

24.  An e‑mail of 28 October 2008 from Vanessa Mason to Hendy Chan (at his Tai Fung e‑mail address but that is of no significance) identified the reference sample which she had sent as Primaloft Cresta “produced in Europe by one of our contract manufacturers”. It added — “If you are able to improve the migration resistance more than the reference sample then this is good.”

25.  Finally she commented that the samples sent by Tai Fung/Best Tech “displayed good fibre resistance.  But they did not launder well.”

26.  Three days later (31 October 2008) she wrote to Hendy Chan:

“We liked the MFA insulation you sent us.” [She meant WFA and Hendy Chan corrected her in his reply] “Can you please advise price in, $USD/m to purchase the product ‘as is’ from you. Meaning you supply all the fibre as well. Please also let me know the blend of MFA (sic)”

27.  His reply was, after the correction, “good to know that you are interested in our WFA insulation” and he then went on to identify the blend and price reference. It was marked “CONFIDENTIAL”.

28.  What appears clear is that Albany was inclining towards the WFA, a product of Tai Tung/Best Tech, and and in an e‑mail to Hendy Chan (this time to his Best Tech address) dated 20 November 2008, the second paragraph is significant:

“So far WFA [the Tai Fung] Best Tech product] and the Primaloft CRESTA blends are all performing very well in our testing, we prefer the hand feel of WFA to the Cresta blends and I think that we may decide to use WFA as the new Primaloft CRESTA product. We will decide …. by Dec. 1.” (my emphasis)

29.  A later e‑mail of the same day [to Hendy Chan at Best Tech] was concerned with quality control for the “new product” (as referred to in item (2) of the e‑mail) and in (3) is the conclusive commitment, as I find if only for the purpose of the issue argued before me:

“We will ask Best Tech to modify this spreadsheet to fit the product you will produce for us and that we will brand Primaloft CRESTA.”

30.  Further confirmation of Albany’s decision regarding Tai Fung/Best Tech’s product came with Vanessa Mason’s e‑mail of 26 November.  By now Tai Fung has dropped out of the picture and it is Best Tech’s address which features.  Vanessa Mason wrote:

“We have decided to use the WFA product for Primaloft CRESTA …. [can we] change the 4D binder to 2D in your WFA blend?”

31.  Hendy Chan replied the next day:

“We are very glad that you have chosen WFA. We sure can use 2D blinder in WFA blend ….”

32.  On 4 December 2008 Vanessa Mason e‑mailed to Hendy Chan, Albany’s “strategic business decision”:

“Primaloft will cease manufacturing Primaloft products in Albany International owned facilities and will rely entirely on our contract manufacturers to produce product for us.

For our contract manufacturers such as yourself this is very good news.

.…

I’d like to ask Best Tech to be patient with us and request we finalise a contract between our companies in Q1 instead of this December.

….

…. we may decide to ask Best Tech to produce some of our standard products as well as Primaloft CRESTA.”

33.  Between then and the manufacturing agreement dated 1 March 2010 (but signed by the parties on 10 June 2010) there were other e‑mails exchanged the one of most relevance being that of 17 March 2010 from Vanessa Mason to Hendy Chan to which she attaches a copy of the proposed Agreement — she said: “Please note the name we will call the WFA insulation is PRIVATE LABEL not THERMO.”

The Manufacturing Agreement

34.  Best Tech was appointed non‑exclusive contract manufacturer of Albany product for Albany, an insulation material known as Primaloft.  Two products were identified:

“Albany Product 1 (WFA/PRIVATE LABEL)”

and

“Albany Product 2 (NEEDLED ECO)”

It was to be produced in Best Tech’s production facility located in Dongguan, China, using raw materials approved by Albany. Best Tech was to be responsible for the transfer of all goods from Dongguan to its warehouse in Hong Kong.  It was clear that the contract was with Best Tech of Hong Kong — Dongguan was simply the production unit for the Hong Kong company.  The goods were to be collected in Hong Kong by Albany’s customers.

35.  The confidentiality provision included “all information, data and know‑how including Albany’s Manufacturing Technical Information” which was to be used only for manufacturing the Albany Product for Albany.  It went on to itemise the information in the most comprehensive terms and was expressed to be reciprocal — it applied to information, again, in the most comprehensive terms, communicated by Best Tech to Albany.

36.  The remaining restricted terms of the Agreement are also significant. 

37.  Paragraph 9.1 prevented Best Tech from making or selling Albany Product to any third party, apart from the WFA product already sold by it prior to the date of the agreement.  It also imposed an embargo in respect of contact with any Albany customers to whom it shipped any Albany products and it was not to assist any third party making and selling similar products.

38.  Albany recognised that the WFA product is one already being sold by Best Tech to its customers and that it is also an Albany product as defined in the agreement. It was agreed that Best Tech may continue to produce the WFA product for sale to its customers.

39.  The agreement was to be in force from 1 May 2010 until 31 December 2011 and could be terminated earlier or extended; in any event the confidentiality terms (and others allied to them) were to endure beyond the expiration date.  In fact there was an express provision that the confidentiality provisions were to endure for ten years beyond termination or expiration, i.e. until at least June of 2020.

40.  I have set out the position in more detail than would otherwise appear to be necessary but the defendants have sought to argue that there is no case against them or that the case as pleaded has no substance.

41.  The first defendant Albany has described the exclusive insulation product in a number of terms: Primaloft, Albany Product, WFA product, Albany Product 1, WFA/PRIVATE LABEL and PRIVATE LABEL.  The expressions are used interchangeably.

42.  Although the agreement ended on 31 December 2011 negotiations were afoot for its renewal and supplies were continued by the plaintiff to the 1^st defendant on an order by order basis up to April 2012.

43.  In that month it transpired that the 1^st defendant had placed an order with a mainland business for “Warmcore” (its full name being “Warmcore by Primaloft”).  This was shortly before the Primaloft division of Albany was hived off.

44.  As a result of some customer complaint the order was then placed with Best Tech as an order for “PRIVATE LABEL”.  It became apparent that “Warmcore by Primaloft” — the product ordered by the 1^st defendant from the mainland factory – was in fact “WFA/PRIVATE LABEL”, the very product the 1^st defendant had ordered from the plaintiff and which had been the subject of the confidential and manufacturing agreements, and the e‑mail communications passing between Vanessa Mason for Albany and Hendy Chan for Best Tech.  The inference, if all those alleged facts be true, and there can be no dispute on the documents, was that Albany had breached the confidential clauses of the agreements and prejudiced Best Tech’s ownership of the brand and/or the technical secrets to possesses.

45.  The Statement of Claim adequately sets out the nature of the claim against the 1^st defendant as a consequence of the alleged order.  It is not necessary for me to consider the niceties of the various types of torts alleged.  Nor is it appropriate for me to quibble about the form and content of the pleading, even though it may lend itself to a request for further and better particulars.

46.  The position in respect of the claim against the 2^nd defendant is equally straightforward.  The formation of Primaloft Inc and its acquisition of the insulation business from Albany fell well within the overall protection period of confidentiality.  The Albany Primaloft team under the direction of Vanessa Mason moved to Primaloft Inc of which she became Global Director.

47.  It knew of the confidential and manufacturing agreements and Best Tech’s interests.  It knew “Warmcore by Primaloft” was  developed with Best Tech.  It is alleged to have entered a co‑branding agreement.  It certainly continued and benefited from the Helly Hansen connection and publicity with the 3^rd defendant Helly Hansen.  That is, certainly on the face of it, a breach of the agreements with Best Tech.  It is properly pleaded as such even though, there may be, in due course, arguments about the proper terminology to be applied to the alleged breaches, just as there may be technical evidence and arguments about the nature of the product and the terminology.

48.  Finally the position of Helly Hansen falls to be considered.  The Norwegian company published a press release on 26 November 2010 in Oslo.  That was at a time when the confidentiality agreement and the manufacturing agreement between Albany and Best Tech were still valid, and they remain valid today and for the foreseeable future.  It was within six months of the manufacturing agreement dated 10 June 2010. 

49.  The release stated unequivocally that Helly Hansen “will exclusively feature Primaloft Insulation Technology for its entire FW product line”, obviously a substantial aspect of Helly Hansen’s business, and “will use …. The new “Warmcore by Primaloft …. a proprietary insulation developed in cooperation with Helly Hansen for the brand’s exclusive use in its apparel line”.  It goes on to give a short history of the development of Primaloft without any attribution to Best Tech.

50.  The pleaded case against Helly Hansen is based on the plaintiff’s claim in respect of Primaloft ® and in particular that “Warmcore by Primaloft® is a proprietary insulation developed in cooperation with Helly Hansen for the brand’s exclusive use in its apparent line.”

51.  Helly Hansen is clearly claiming that the insulation material is the product of its cooperation with Primaloft.  There is a clear inference that Albany has disclosed to Helly Hansen the trade secret developed by Best Tech, albeit in cooperation with Albany, for which trade secret Albany (and its successor, assign or affiliate, Primaloft Inc) guaranteed confidentiality.  It can go beyond that.  Helly Hansen, of its own accord or on the assurance of Albany, is claiming that the product is its proprietary insulation.

52.  All the material I have set out satisfies me that Best Tech has, better than a prima facie case and certainly, on an objective view of the circumstances as they currently are, a strong case against all three defendants.  Although I have set out in some detail the position disclosed by the documents, and considered the pleaded case in the Statement of Claim, it is arguable that I do not need to go that far.

53.  I have borne in mind the parts of Lord Neuberger’s judgment in VTB Capital plc v Nutritek International Corporation (SC5) which though essentially “obiter dicta” at paragraphs 82 to 85 are highly apposite:

“It is self-defeating if, in order to determine whether an action should proceed to trial in this jurisdiction, the parties prepare for and conduct a hearing, which approaches a putative trial itself, in terms of effort, time and cost.”

“The essentially relevant factors should, in the main …. be capable of being identified relatively simply, and in many respects, uncontroversially. …… The court can only form preliminary views on most of the relevant legal issues and cannot be anything like certain about which issues and what evidence will eventuate if the matter proceeds to trial.”

Waller, LJ said in Cherney v Deripaska (No.2) [2010] 2 All ER (Comm) 456— “…… it would have been better for both parties and better use of court time if they had expended their money and their energy on fighting the merits of the claim.”

Peter Smith J in Friis v Colburn [2009] EWHC 903 (Ch) in a hearing which had resulted in a party’s schedule of costs reaching an unacceptable level said that the hearing had been:

‘strung out by unrealistic stances and unnecessarily prolonged and complicated submissions which seem to achieve nothing other than create fogs of irrelevancy.’

54.  In my judgment the defendants in this appeal before me from the Master, has offended the practical and realistic approaches reflected by those courts.  I have spent some time seeking to lift the fogs created in my earlier review.

55.  I have therefore concluded, with some ease nonetheless, that all the criteria in relation to Order 11, rule 1 have been met.

56.  Because the defendants have argued that there are no ground to support a claim for an injunction — no prospect of success and that the basis of the claim is embarrassing (whatever that may mean in the context of this case) — it is worth making a few simple points.  The strong case the plaintiff has, means that there have been breaches of the confidentiality clause, the plaintiff’s trade secrets have been revealed and used to the plaintiff’s disadvantage, and claims have been made by the defendants which are false in that they claim to own the product as a result of joint development to their exclusive advantage.  If these are, in fact proved one of the plaintiff’s proper remedies is an injunction to restrain them from so doing.  I do not need to go into the niceties of what constituted copyright and intellectual property rights.  All these matters will fall for full consideration and argument at trial.

57.  The contract between Albany and Best Tech was made within the jurisdiction of Hong Kong.  The contract is by its terms governed by Hong Kong Law which of course applies the English common law.  The e‑mail from Vanessa Mason to Hendy Chan to which I have already referred (18 September 2008) makes it clear that in effect either UK or HK law was acceptable:

“Is UK governing law OK to you? If not, we’ll stay with HK governing law.”

Hong Kong is the “forum conveniens” for this action to be tried.  The contract was made in Hong Kong, the product was delivered to Hong Kong, Albany’s customers had to collect the product from Best Tech’s warehouse in Hong Kong and payment was made to Best Tech in Hong Kong.  All the contact by Albany was with Best Tech after initial contact with Tai Fung.  The losses claimed by Best Tech as a result of the alleged actions of Albany, Primaloft and Helly Hansen are suffered by the plaintiff in Hong Kong.

58.  The Master’s decision was in my judgment the correct one and will stand.  The service out of the jurisdiction upon the first and second defendants was good and valid service; the 1^st and 2^nd defendants’ summonses to set aside service are dismissed.  His order that service upon the 3^rd defendant, in accordance with the plaintiffs undertaking to effect proper service in Norway, shall, upon such compliance, stand, will also remain in effect.

59.  Accordingly, this appeal is dismissed with costs to the plaintiff.