BLUE SQUARE LTD v. EDDIE CHANG AND OTHERS

HCA 1555/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1555 OF 2011

_____________

BETWEEN

_____________

_________________________

REASONS FOR DECISIONS

______________________

1.  In the hearing on 26 October 2011, I made a few decisions in this case with most of them relating to the issue of costs. I now give my reasons for these decisions.

Background

2.  Before I do so, I need to set out briefly the background of this case.

3.  The Plaintiff is a limited company in Hong Kong engaging in the business of trading of gifts and promotional products.  The 1^st Defendant previously owned a business which was involved in the production of the same kind of products.  In July 2010, the 1^st Defendant sold his business to the Plaintiff and the 1^st Defendant then worked as a consultant for the Plaintiff.  Upon the recommendation of the 1^st Defendant, the Plaintiff employed the 2^nd, 3^rd and 4^th Defendants to work for it starting from 1 September 2010.  The 5^th Defendant is a company incorporated on 24 May 2011, and the 2^nd Defendant is the sole director and shareholder of the 5^th Defendant.  The 6th Defendant is a limited company mainly controlled by the 1^st Defendant.

4.  The 1^st, 2^nd, 3^rd and 4^th Defendants left the employment of the Plaintiff at various times in 2011.  It is the Plaintiff’s complaint that, shortly before and after these Defendants left the Plaintiff, they had been engaging in various unlawful conducts undermining the Plaintiff’s business interests including, inter alia, diverting the Plaintiff’s business to the Defendants, misusing confidential information of the Plaintiff including design drawings and photographs, soliciting the Plaintiff’s customers and engaging in businesses which are in direct competition with that of the Plaintiff.  The Plaintiff also complains that some of the Defendants had unlawfully copied the data in the Plaintiff’s computer system with a view to facilitate the unlawful activities mentioned above.  These complaints are the basis of the Plaintiff’s claim in this action.

5.  On 12 September 2011, the Plaintiff made an ex parte application before Recorder Jat SC for an order to preserve the evidence (“the Preservation Order”) and a “springboard” injunction to prevent the Defendants to cement the alleged unfair advantage they obtained by undermining the Plaintiff’s business interests (“the Springboard Injunction”). The learned judge allowed the application for the Preservation Order but refused to grant the Springboard Injunction on an ex parte basis.

6.  On 16 September 2011 which was the return date of the said ex parte application, Recorder Jat SC adjourned the inter parte summons for the Preservation Order and the Springboard Injunction (“the Inter Parte Summons”) to an early date to be fixed for argument and gave directions for the filing of evidence in opposition.  The learned judge also refused the Plaintiff’s application to grant an interim Springboard Injunction.  Upon the consent of the parties, the Preservation Order was held over pending the next hearing.

7.  The hearing date of the Inter Parte Summons was subsequently fixed to be 26^th October 2011 with one day reserved.

8.  On 27 September 2011, the Plaintiff took out a summons to vacate the hearing date on 26 October 2011 and asked the Inter Parte Summons to be adjourned sine die with liberty to restore (“the Adjournment Summons”).  No affidavit had been filed to support the Adjournment Summons.  In the hearing before myself on 10 October 2011, the Plaintiff’s solicitor asked the court to vacate the hearing date so that the Plaintiff could have more time to reconsider its position.   I refused the application with the reasons given on the same day.

9.  On 13 October 2011, the Plaintiff took out another summons to amend the Inter Parte Summons with the effect of abandoning the application for the Springboard Injunction (“the Amendment Summons”).  This application came before myself on 19 October 2011.  Since the court could not deal with the Amendment Summons within the schedule time of 15 minutes and there were still outstanding issues relating to the continuation of the Preservation Order, the Amendment Summons was adjourned to 26 October 2011 which was the hearing date of the Inter Parte Summons.

10.  In this hearing on 26 October 2011, there is no dispute that the Plaintiff should be allowed to withdraw the application for the Springboard Injunction.  In such case, I only have to deal with one outstanding issue about the Preservation Order and some issues of costs relating to the withdrawal of the application for the Springboard Injunction and the hearings on 10 & 19 October 2011.

Outstanding issue relating to the Preservation Order

11.  Under the Preservation Order granted in the ex parte application, the Defendants are obliged to preserve all the records of communications from 1 August 2010 onwards as specified in Schedule A and the alleged confidential information and trade secrets as specified in Schedule B of the Order.  On the return date, Recorder Jat SC ordered that the Preservation Order be continued until further order.  In other words, the Defendants are required to preserve all the Schedule A documents from 1 August 2010 up to the date of this hearing.

12.  In this hearing, all the Defendants except the 4^th Defendants are prepared to give an undertaking to preserve the Schedule A documents from 1 August 2010 up to the date hereof pending the trial of this action.  On the other hand, the 4^th Defendant agrees for an order in similar terms to be made against him.  The only difference between the parties is that the Plaintiff wants the Defendants to preserve the Schedule A documents covering a longer period of time, that is from 1 August 2010 to a future date on 12 March 2012 which is 6 months after the issuance of the Writ.

13.  The Plaintiff is afraid that the Defendants may continue the alleged unlawful conducts and so it requires the Defendants to keep some of the future documents which may come into existence from now to 12 March 2012.  However, the Defendants object the Plaintiff’s application on mainly three grounds.  Firstly, there is no evidence before the court that the Defendants will continue the unlawful conducts as alleged by the Plaintiff, otherwise the Plaintiff would have pursued the application for the Springboard Injunction.  If the court were to accede to the Plaintiff’s request, it would virtually mean that the court is granting an interlocutory injunction through the back door.  As there is no reason to believe that the Defendants would continue any of the alleged unlawful acts, there is no basis for the court to order the Defendants to preserve any of these future documents.  Secondly, there is no evidence to suggest that the Defendants would destroy or otherwise tamper with such kind of documents, and the Preservation Order was only made in the ex parte hearing to preserve the status quo.  Further, under the normal rule of discovery, the Defendants are obliged to keep and disclose any documents which are relevant to the claim, and this will offer adequate protection to the Plaintiff.  Thirdly, the Plaintiff has been writing to a lot of the Defendants’ contacts about the present proceedings.  It is the Defendants’ complaint that the Plaintiff has been trying to make use of the Preservation Order to harass the Defendants and to undermine the latter’s reputation.  Hence, there is no basis to extend the duration of the Preservation Order any longer.

14.  I agree.  If the court were to order the Defendants to preserve some of the future documents, such order will be made on the basis that the Defendants will continue some of the alleged unlawful acts and there is a real risk that the Defendants will destroy or otherwise tamper with these documents.  As the Plaintiff withdraws the application for the Springboard Injunction, there is simply no evidence before the court to show that the Defendants will continue any of the alleged unlawful acts.  Further, the court will not try to assist the Plaintiff to enforce the Springboard Injunction through the backdoor.  Coupled with the obligation on the part of the Defendants to disclose relevant documents, I agree with the Defendants that the court should set a time limit to the Preservation Order.  I therefore refuse the Plaintiff’s application to extend the Prevention Order to cover future documents which may come into existence from now to March 2012.

15.  There is no dispute between the parties about the proper costs order of the application for the Preservation Order which is costs in the cause of the proceedings.

Costs of the Adjournment summons

16.  In my judgment, it is clear that the costs of the Adjournment Summons should be borne by the Plaintiff.  On 12 September 2011, the Plaintiff made an ex parte application on an urgent basis.  In the hearing on 16 September 2011, the Plaintiff requested for an early hearing date for the Inter Parte summons.  Just about 10 days later, the Plaintiff suddenly applied to vacate the hearing date on 26 October 2011 without filing any supporting affidavit.  Apart from an oral assertion that the Plaintiff wanted to have more time to reconsider its position, there was no cogent reason or evidence supplied to the court to explain why the Plaintiff had to reconsider its position within such a short period of time.  As the Plaintiff failed in the Adjournment Summons and costs should follow the event, I ordered the Plaintiff to pay for the costs of such summons.

Costs of the hearing on 19 October 2011

17.  The Plaintiff took out the Amendment Summons dated 13 October 2011 with the effect of withdrawing the application for the Springboard Injunction.  The Amendment Summons was returnable on 19 October 2011 with only 15 minutes reserved.  After the issuance of the Amendment Summons, the Defendants’ solicitors made various protests about the fixing of hearing date on 19 October 2011, as some of the counsel were not available and the Amendment Summons could be conveniently dealt with in the hearing on 26October 2011.

18.  If the hearing on 19 October 2011 could dispose of all the outstanding matters thereby rendering the hearing on 26 October 2011 unnecessary, there is some basis for the Plaintiff to have insisted on an earlier hearing date.  However in the hearing on 19 October 2011, I was given to understand that there were still some outstanding issues between the parties relating to the Preservation Order and the hearing on 26 October would still be necessary.  Coupled with the fact that 15 minutes would not be sufficient to deal with all the issues between the parties, the Plaintiff should have asked for the Amendment Summons to be heard on the scheduled hearing date of 26 October 2011.  What was important, from the Plaintiff’s point of view, was that it had already notified the Defendants that it would not pursue the application for the Springboard Injunction.  The hearing on 19 October 2011 was, therefore, a complete waste of time and the Plaintiff should pay for all the costs of such hearing.  I therefore so ordered.

Costs of the application for the Springboard Injunction

19.  Normally, if one withdraws an interlocutory application, he would be expected to pay for the costs of the opposite party.

20.  In determining the costs of the application for the Springboard Injunction in the present case, the court has to take into account various factors such as the history of the present legal proceedings and the reason given by the Plaintiff for the withdrawal of the application.

21.  The reason of the withdrawal is contained in the 2^nd Affirmation of Madam Cécile Ducreux filed on 14 October 2011.  According to Madam Ducreux, in view of the unlawful conducts on the part of the Defendants and the loss caused to the Plaintiff, the Plaintiff had to make various commercial decisions as to whether to close the production line or to close the MNS Line, the products of which are the subject matters of the present claim.　The Plaintiff eventually decided to scale down the production line. In light of such decision relating to the MNS Line, there would be little practical or commercial benefit from a Springboard Injunction, and that is the reason for the withdrawal of such application.

22.  Despite such explanation, the time span between the lodging of the application for the Springboard Injunction and its withdrawal is very short.  On 12 September 2011, the Plaintiff was prepared to apply for a Springboard Injunction on an ex parte basis.  It would only be fair for the court to infer that the Plaintiff had, at that stage, amble evidence to support its claim and it was very necessary for the Plaintiff to obtain such an injunction against the Defendants.  However, the Plaintiff then changed its mind and withdrew the application shortly after it was made.  In fact, as early as 27 September 2011 when the Plaintiff took out the Adjournment Summons, the Plaintiff had already indicated its intention to withdraw the application.

23.  Substantial costs have been wasted on the preparation of the application for the Springboard Injunction.  In my judgment, the Plaintiff owes a duty to the court and the Defendants to provide more particulars as to what happened during such short period of time that caused the Plaintiff to withdraw the Springboard Injunction application.   Without disclosing sensitive commercial information, the Plaintiff should be able to supply more particulars to the court as to why the Plaintiff changed its stance, and yet very little information is supplied to the court to justify the decision to withdraw the application.  In such circumstances, the Plaintiff should be asked to pay for the costs of the Springboard Injunction.  However, to avoid the danger of stifling what may perhaps a meritorious claim, I order such costs to be paid by the Plaintiff in any event.

24.  These are the reasons for the various decisions I made in the hearing on 26 October 2011.