XCHRX AXA CHINA REGION INSURANCE CO. LTD. & ANOTHER v. PACIFIC CENTURY INSURANCE CO. LTD. & OTHERS

HCA 9093/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9093 OF 2000

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D E C I S I O N

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Background

1. This is an application by the 1st Defendant, PCI, seeking a stay of the interlocutory order I made on 24 July 2001 pending appeal, or failing that, extension of time to comply, clarification and variation of my order. The Order I made:

"(1) restrains PCI (whether by its directors, officers, agents, employees or otherwise howsoever) from

(a) disclosing, divulging or otherwise making any use of the Client Data;

(b) accepting any application for a life insurance policy by persons whose name appears in any of the Client Data and who have been approached by any agent of PCI at a time when any of the Client Data was in the possession or under the control of PCI;

(c) soliciting any business by representing that certain of its policies match or are comparable with the corresponding policies of AXA;

(d) accepting applications for certain life insurance products from policyholders of AXA to whom a representation of the kind referred to in sub-paragraph (c) above has been made.

(2) Restrains the 2nd to 10th Defendants from disclosing, divulging or otherwise making any use of any of the Client Data.

(3) Orders each of the 1st to 10th Defendants to deliver up, within 7 days, all documents containing Client Data, including copies, in its or his possession, custody, power or control.

(4) Orders each of the 1st to 10th Defendants, within 5 days of delivery up under the preceding paragraph, to swear an affidavit:

(a) verifying compliance with the order in paragraph 3;

(b) disclosing all documents containing information relating to holders or former holders of life insurance policies, and/or insured persons thereunder, issued by AXA which came into its or his possession, custody, power or control since 1 November 1999 stating, with reference to each such document, the date when and the name and address of the person from whom it came;

(c) disclosing all documents containing information relating to holders or former holders of life insurance policies, and/or insured persons thereunder, issued by AXA which it or he has given or divulged to another person since 1 November 1999 stating, with reference to each such document, the date when and the name and address of the person to whom it or he gave or divulged the same;

(d) disclosing the name and address of every holder and former holder of life insurance policies, and/or insured persons thereunder, issued by AXA whose name appears in any of the Client Data who has been approached by any agent of PCI since 1 November 1999, identifying the agent, the nature of the solicitation and stating what if any such business came to PCI as a result;

(e) disclosing the names and addresses of all holders and/or former holders of life insurance policies, and/or insured persons thereunder, issued by AXA to whom any agent of PCI represented that certain life insurance products of PCI match or are comparable with the corresponding life insurance product of AXA stating what if any business came to PCI as a result."

2. Mr Scott SC, who now appears on behalf of PCI in place of Mr Daniel Fung SC, comments that despite a common and well-recognised practice of the Court in a complex case, the order was made without affording PCI an opportunity to address me on the precise terms of the Order to be made. Counsel for AXA, Mr Kotewall SC, says he is not aware of any such alleged common or well-recognised practice. Neither do I. The Order that AXA seek has been fully set out by counsel for AXA at the hearing of the application. PCI as well as the Individual Defendants were fully represented and by extremely strong and competent counsel who argued on every arguable point leaving, as I said, no stone unturned and no issue unexplored. All questions about problems of compliance have been addressed. There was no suggestion by counsel that I should invite them to address me on the precise terms of the Order to be made. In view of the depth the matter has taken, I did not consider it necessary. With hindsight, though, there are points about the precise terms of the Order which could and should have been argued. I remain open to persuasion and am prepared to make variation or clarification where the occasion is warranted by genuine difficulties and ambiguities.

Grounds for stay

3. The grounds for PCI's application for stay are: firstly, that the Order is vague, ambiguous, oppressive and, secondly, the Order is excessively and unnecessarily wide. The thrust of PCI's first ground is that unless the Order is stayed, there is a serious possibility that PCI would be exposed, through no fault of its own and notwithstanding the exercise of judgment and acting in good faith on legal advice, to the risk of contempt proceedings. By complying with the order, PCI's ability to meet its obligations to existing policyholders and its statutory obligation under the Insurance Companies Ordinance would be severely impaired. PCI also argues that its life insurance business would suffer devastating and irreparable damage not adequately compensatable under AXA's unfortified undertaking as to damages. Secondly, the Order is excessively and unnecessarily wide as to be impossible of compliance, which would expose PCI to risk of contempt proceedings.

4. Prior to this hearing, the parties have exchanged views on the certainty and width of the Order. In his affirmation filed on behalf of PCI, Mr Lau raised a number of scenarios which he said presented difficulties in compliance with my Order. Some of these scenarios have been raised by counsel in the course of hearing the application and have been dismissed by me as being unreal and exaggerated. The others have, in my view, been satisfactorily answered by AXA.

5. As I have held in paragraph 224 of my Decision, "it may not be possible to have a formula which will work in all factual situations." Whether an order is unclear, ambiguous and impossible to comply should not be adjudged on the basis of a few scenarios. Imagination and ingenuity could always come up with non-existent and unrealistic situations suggesting the order is unclear and incapable of compliance. I would not suggest that my Order is so perfect as to leave no room for improvement; and indeed I would be making some variations, which would render compliance much less onerous.

6. In my view, in considering these scenarios as well as in considering whether an order is vague, ambiguous, oppressive and excessively wide as to be impossible of compliance, the test is to look at the order through the eyes of a reasonable and law abiding citizen who is willing and earnest in complying with an order of the court and ask whether on a fair reading of the order it identifies to that person with sufficient clarity the subject matter being protected and whether the defendant is in a position to know what he is being enjoined from doing. In arriving at his conclusion, he should discard from his mind remote and unrealistic possibilities. He should also discard considerations whether the order casts an onerous burden on the defendant to comply. That is a matter to be considered before granting the order, and which must have been considered in balancing the convenience or the risk of injustice to the parties. This is the test I shall apply.

Vague, ambiguous or oppressive ground

7. I accept the logic contained in Mr Scott SC's grounds for stay, but I am unable to agree with him that the Order is vague, ambiguous or oppressive. All these issues have been extensively argued by counsel during the hearing of the application for interlocutory injunction. In paragraphs 220 to 222 of my Decision, I have found that "Client Data" as now formulated is not exceptionally and unacceptably wide as to be impossible of compliance. I do not shrink from that view. Under the present formulation, Client Data must have been, firstly, obtained or derived by an agent in the course of his agency with AXA, not being information known to the agent prior to such obtaining or derivation and, secondly, it must be contained in SAMS. The data are source-specific and well defined, being derived only from policyholders qua policyholders.

8. Mr Scott SC complains that the Order presupposes PCI has access to SAMS or a comprehensive list of all of the former and current AXA policyholders. He submits that I was wrong to assume in paragraph 250 of my Decision that PCI's sophisticated computerized system would help it to discover what information is contained in AXA's SAMS. I think counsel is reading far too much into one part of my dicta as to ignore the rest of it. I was referring to PCI as "a company of substantial means and with a sophisticated computerized system" that "it should be able to locate all relevant documents without undue difficulties." The sophisticated computerized system is only part of what I considered as PCI's substantial means. Indeed even according to Mr Lau's affirmation filed on behalf of PCI, whether a PCI policyholder is a former or current AXA policyholder could be ascertained without difficulties. In respect of PMS polices, Mr Lau has confirmed that the information is readily ascertainable from its computer. This supports my point. As for non-PMS polices, reference can be made to and reliance placed on answer to question 19 of PCI's policy application forms. This may involve going through all of the non-PMS policy files. This is not a tremendous exercise in view of the substantial means of PCI. Again this also supports what I held in my Decision.

9. Further, in the course of this hearing, at the suggestion of Mr Scott SC, AXA have come up with a protocol which if accepted by PCI would help PCI to identify AXA's policyholders for the purpose of enabling PCI to comply with my Order. I consider the protocol useful and do not see any reason for PCI rejecting it, unless it has more convenient means from within its own system to identify these policyholders. If the protocol is adopted, I can hardly see any oppressiveness in complying with the Order.

10. Mr Scott SC also complains that the Order presupposes PCI or the introducing agent knows or is able to find out whether a particular piece of information was "obtained or derived" not only by himself, but by other AXA agents and whether it was obtained "in the course of his agency" with AXA. This is certainly within the knowledge of the agent. Given the peculiar relationship between the agent and his client, the information is not difficult to ascertain. If the policyholder is not his relative or personal friend, then the information about this policyholder must have been obtained in the course of his agency with AXA. In selling that person a policy, he must have first obtained his information in the course of his agency with AXA. Further, an agent must know the kind of information usually stored in SAMS. Once it is ascertained by the above test or by the agent's own recollection that the information had been obtained in the course of agency, he must be able to say whether the information was obtained or derived from SAMS. PCI being in the insurance business and having been shown printouts from SAMS and the Schedule C documents would likewise have no difficulties in determining these questions.

11. In the end PCI has to rely on its agents to determine whether the data were acquired within or outside the course of their agency with AXA. It may issue questionnaires including a declaration to its agents for the purpose of confirming the information and to impress on the agents the seriousness and need for caution in providing correct information. If PCI has taken all reasonable steps to confirm the position with its agents, it could not be held to be in breach of the Order. That some of the agents may have left PCI and become uncooperative is at best a reason for extension of time or in the extreme case would relieve PCI of part of its liability for non-compliance. Thus the problems suggested by Mr Scott SC are neither insurmountable nor difficult of compliance as to render the Order vague or oppressive.

12. Mr Scott SC argues that an order worded to cover the acts of servants or agents as in paragraph 1 of the Order puts PCI at risk of being held in contempt for the action of agents over whom its control is limited. I think PCI's worry is exaggerated. The scenario as posed by PCI is whether PCI would be in contempt if an agent contacts an AXA policyholder only for social reasons, e.g. to play golf. AXA's reply is that there is no distinction between social and business contact in the Order and the question is whether Client Data is used to initiate the contact. I endorse that "initiation test". However, paragraph 1 of the Order restrains PCI from using the Client Data. PCI is not vicariously liable for whatever its agent does in his social activities unless he does so in the course of PCI's business. Thus, even if the agent has breached paragraph 2 of the Order by using the Client Data to contact the client, for that purpose PCI is not using the Client Data. If the golf game is organised as part of PCI's promotion activity, then the agent's use of Client Data in contacting the client would be attributed to PCI. This conclusion could be easily reached on application of general legal principles. I consider there is no lack of certainty in the Order and no clarification or variation is called for.

13. By applying the above test, I am satisfied, as I was, that AXA have defined the scope of the injunction they seek with sufficient clarity such that the Order is not impossible of compliance. The interesting scenarios raised by Mr Lau in his affirmation have all been satisfactorily replied by AXA or are too remote and unrealistic and the difficulties suggested are exaggerated.

Impact on PCI's business

14. Mr Scott SC submits that absent a stay or significant variation to the Order, the damage to PCI, its agents and customers from the injunctive part of the order, is incalculable and irreversible, even if PCI is ultimately vindicated at trial. He suggests that it would be almost impossible to establish whether the agent or policyholder left PCI because of the injunction or for other reasons; that it would be virtually impossible to measure the number or value of policies which were foregone as a result of the injunction and that the customer connections with the agents may be lost forever. These issues have been fully argued before me at the hearing of the application. I have already considered these matters fully when balancing the convenience and injustice to the parties. I do not shrink from my views as expressed in my Decision and it is not open to the parties to re-litigate on these matters now.

15. Mr Scott SC submits that agents who are not parties to the proceedings would lose out on commissions and forgo customer connections. The injunction does not apply to agents who are not parties to the action. Even if it does apply indirectly through PCI, it is not inequitable if AXA's Client Data are in law entitled to protection. Certainly AXA have a greater interest in protecting their Client Data than the agent has.

16. Mr Scott SC argues that PCI's policyholders would be leaving because of PCI's inability to continue to provide the level of service its policyholders are now receiving; agents may find their working environment so oppressive that they would quit PCI and PCI would suffer loss in commercial reputation and consumer confidence. There is no evidence that the injunction is likely to affect PCI's ability in maintaining its level of service and that agents are leaving. Even if there are such evidence, it is unlikely to change the balance. In the event that PCI succeeds, any damage suffered could be recovered from AXA's undertaking.

17. As for the disclosure order, Mr Scott SC submits that PCI would have to be engaged in a memory-searching exercise with each of its 2,000 existing agents and about another 2,000 former agents who have left PCI since 1 November 1999. He also submits that in some cases, the agents may need to go back to the customers themselves to find out or to confirm details of the "nature of solicitation" or representations. The 2nd to 10th Defendants have no apparent difficulties in complying and I am unable to see why PCI would have. At worst, the difficulties could be solved by employing additional manpower, which PCI would no doubt have the means to and/or ask for extension of time to comply. If at the end, the injunction should not have been granted, PCI may look to AXA's undertaking for damages.

Excessive and unnecessary width of the Order

18. Mr Scott SC submits that the confidential information that AXA claim to have been misused is to be defined in their pleading by reference to documents allegedly taken by the Individual Defendants and the information contained in those documents, but "Client Data" does not appear in the body of the pleading. Hence, he argues that the relief sought by reference to "Client Data" is much wider than AXA's pleaded case and is not supported by the pleadings. I think this argument is based on the wrong premise that AXA's claim is restricted to documents taken away by the 2nd to 28th Defendants and the information contained therein. In fact, this is not. AXA have made a general claim to the secret and confidential nature of information contained in SAMS and misuse of the information by PCI and its agents in the implementation of the PMS. "Client Data" as referred to in the prayer is a convenient short hand description of what had been scaled down from the secret and confidential information described by AXA in the pleadings. I do not consider the relief sought by AXA is wider than their pleaded case.

19. Mr Scott SC argues that AXA are seeking to prevent the use of information allegedly taken by the 2nd to the 28th named defendants but evidence was only presented against the 2nd to the 10th Defendants while allegations relating to the 11th to 28th Defendants were not addressed. There is no allegation or evidence that any PCI agents who are not defendants in the proceedings removed Client Data. Hence, Mr Scott SC submits the Order has a wide-ranging effect and suggests to vary the definition of Client Data to limit that to information derived by the 2nd to 10th Defendants only. His argument may have some force as regards the 2nd to 10th Defendants but not as regards PCI. Having seen evidence of such a large scale appropriation of Client Data by the 2nd to 10th Defendants and having regard to PCI's mass recruitment of teams of ex-AXA agents and paying them hefty welcoming bonus, there is a real likelihood that Client Data derived by any AXA agent is at risk. It is unrealistic to restrict Client Data in the way as suggested by Mr Scott SC.

20. Next, Mr Scott SC argues that the documents removed from AXA by their former agents were not created for the purposes of PCI's business and do not perform the function of recording PCI's transactions. He submits that while Clause 9 of PCI's agency contract requires agents to keep books of account and other records for the purpose of showing all his transactions on behalf of PCI and his business pursuant to the agreement, as the documents which AXA now seek from PCI fall outside the above ambit, PCI does not have power over the documents. I think this is all academic. Whether a document is within PCI's power to deliver up is a question of fact. If it is, it should be delivered up; if not, PCI is certainly excused from delivery. No question of contempt proceedings would arise. I think Mr Scott SC's worry is unreal and exaggerated.

Nugatory ground

21. As disclosed by Mr Lau's affirmations filed in support of PCI's application for stay, the PMS has been suspended. That as far as AXA are concerned, paragraph 1 of the Order has been complied with if PCI suspends and does not put into effect the PMS or similar schemes targeted at AXA, and that a proper screening process is put in place.

22. In relation to the delivery up and verification order, i.e. paragraph 3 and 4 of the Order, PCI's grounds for applying for a stay is that the appeal will be rendered nugatory if the execution of paragraphs 3 and 4 of my Order is not stayed because once the documents have been delivered up and information disclosed, they cannot be returned even if the appeal is successful.

23. I must confess for my part that I am quite unable to see why the documents and information delivered up cannot be returned if the appeal is successful. The delivery up is limited to Client Data belonging to AXA and AXA will not be given access to information which they otherwise are not entitled to or do not have.

24. If the information have been "mixed" with other untainted confidential information belonging exclusively to PCI and cannot be physically separated from untainted information, for example, being stored in the same CD-Rom, they could be delivered to the Plaintiffs' solicitors as has been done previously with an undertaking that PCI's confidential information shall not be made available to AXA. As I very much suspect, AXA's Client Data would not have been mixed with PCI's client data except where the ex-AXA policyholders have switched over to PCI. For reasons as I shall give later, the delivery up and verification order do not apply to those Client Data. Thus, the severity of paragraphs 3 and 4 of my Order are substantially mitigated. If for no good reason PCI should "mix" AXA's Client Data in respect of policyholders who have not switched to PCI with their own, then PCI has only itself to blame.

25. If the difficulty is because the process of coming up with the information will take time, then as suggested by AXA's solicitors in their letters dated 2nd and 17th August 2001, the filing of the affidavits required under paragraph 4(b) to (e) of the Order may be delayed until the disposal of the appeal. However, in any event, the documents will have to be disclosed on discovery and exchange of lists of documents has been scheduled to take place in mid November 2001. This will render any argument for stay based on nugatory ground unsustainable. I am not satisfied that compliance with paragraphs 3 and 4 of the Order would render the appeal nugatory or burdensome.

26. Mr Scott SC submits that the 1st Defendant has suspended the PMS further than what the Plaintiffs have sought and with the other 9 Individual Defendants being bound by the injunction order, AXA's interest is adequately protected. I think this is an over simplified view of the action. Mr Scott SC has totally ignored that the mandatory injunction is only part of the remedy sought by AXA. AXA are also seeking the aid under the principle in Norwich Pharmacal Co v Customs and Excise Commissioners [1974] AC 133 to identify likely parties to the wrongful act so that AXA could bring them to justice and have their loss compensated for.

27. Mr Scott SC submits that the benefit to AXA does not justify the onerous burden on PCI. Verifying compliance with paragraphs 1 and 3 of the Order cannot be any real burden, unless there is non-compliance. The burden is only attached to paragraphs (d) and (e). But the burden is not at all onerous as AXA have confirmed that PCI is not required to make any disclosure if no policy has been issued as a result. This would significantly reduce the volume of disclosure required. Where the approach by PCI's agent has resulted in business, AXA are entitled to the disclosure to enable it to bring the wrongdoer to justice and to assess its damages. If PCI should succeed on appeal, the information disclosed could be returned and the expenses incurred compensated for. It could therefore not be said that without a stay the appeal would be rendered nugatory.

Timing

28. Mr Scott SC refers to the fact that the individual defendants were registered as agents of PCI on or after 21 July 2000 and the injunction order was not made until a year later. He submits a stay of my Order until the hearing of the appeal on 30th January 2002 will be inconsequential to AXA's business whereas the effect of the order on PCI's business has been and will be enormous.

29. The suggestion is indeed both convenient and tempting, but in my view, wrong in principle. I have applied the American Cyanamid test and satisfied myself that AXA have raised a serious legal issue to be tried as to whether AXA's Client Data are trade secrets or confidential information amounting to trade secrets as to be protected by the law of confidence. I have directed my mind to the possible result of a postulated trial, first one way and then the other and considered the question of adequacy of damages to AXA and to PCI. I have, in addition, put into the weighing balance considerations such as risk of injustice, appropriateness of injunction against PCI as a third party, the alleged delay in instituting proceedings by AXA, maintenance of status quo and the utility of the Client Data after the lapse of time pending litigation. As I have found after this careful exercise that the balance is in favour of granting the injunction and that damages are inadequate for AXA, there is no reason why AXA should be exposed to the wrongful act a day more, merely because an appeal is pending. Taken literarily, Mr Scott SC's suggestion would mean there shall be automatic stay once leave to appeal against an interlocutory order is granted. I do not understand that to be the law. To take up Mr Scott SC's suggestion, without satisfying myself that PCI has a good prospect of success on appeal, would be to degrade the Court of Appeal to a first instance court. In the light of the above analysis, I am not satisfied that PCI has a good prospect of success. Hence, I do not consider the imminent appeal a good ground for staying the Order.

Variation and clarification

30. Assuming that a PCI policy has been issued as a result of wrongful use of Client Data, PCI queries whether its agent may contact that policyholder for the purpose of providing him service. AXA agree that the Order does not prevent PCI from servicing its policyholders but resist PCI's suggestion to amend the Order.

31. The same difficulty arises also in relation to delivery up of the Client Data of these policyholders under paragraph 3 of the Order which would disable PCI from servicing these clients. AXA's reply is that the Order does not prevent PCI from servicing its policyholders or compel it to deliver up its entire policy files, application forms, policies, claim forms and correspondence with policyholders. Hence, PCI could still service its clients by using information in its policy files. AXA are certainly correct. However, the purpose of the injunction is to protect and not to punish. These ex-AXA policyholders have left AXA. There is nothing to be gained and nothing to be protected by delivery up of Client Data relating to these policyholders. So far as these policyholders are concerned, AXA's position has crystallised. Their only remedy is in damages. Balancing on the one hand the total lack of benefit to AXA by the delivery up and the costs and burden to PCI in servicing these policyholders without the Client Data on the other, I think justice would require that these Client Data should not be delivered up.

32. These two points have not occurred to counsel at the hearing of the application, in fact it is never my intention that the injunction should extend to Client Data in respect of those ex-AXA policyholders who have joined PCI. Accordingly, I shall vary paragraph 3 of my Order by exempting Client Data in respect of ex-AXA policyholders who have switched to PCI. Similarly, for the sake of clarity, paragraph 1(a) as applies to PCI shall be varied accordingly.

33. In relation to the disclosure order in paragraph 4(b) and (c), PCI complains that the issues addressed at the hearing related only to the use of documents allegedly removed from AXA by the 2nd to 10th Defendants. As the Defendants only joined PCI on or after 21 July 2000, a search extending to 1 November 1999 would place an unduly heavy burden on PCI. AXA concede to amend the cut off date to 19 January 2000, the date of commencement of the lease of Room 701 Miramar Tower, as the date to be used to limit the obligation of the 1st Defendant's duty of disclosure. The date of 1 November 1999 was arbitrarily chosen in the case against the Individual Defendants and in my view rightly so in the circumstances. However, as regards the 1st Defendant, it is arguable that to use the same cut off date may be unduly onerous as the August PMS was introduced in August 2000. Bearing in mind that this is only an interlocutory order and having regard to the burden on the 1st Defendant, I would bend in favour of the 1st Defendant. Accordingly, I amend the cut off date in paragraph 4(b), (c) and (d) to 21 July 2000. If the result of the disclosure by the 1st Defendant or indeed by any of the defendants or the result of discovery suggests an earlier cut off date is appropriate, AXA always have the liberty to apply.

34. There are other minor variations agreed upon by the parties during their exchange of views before the hearing. I endorse those variations. Apart from these variations and the variations referred to in the above paragraphs, I do not consider any other variations appropriate.

Stay and extension of time

35. I do not consider a case of stay has been made out on the grounds advanced by the 1st Defendant nor am I satisfied that the appeal will be rendered nugatory in the absence of a stay. Mr Scott SC has raised certain difficulties of compliance. In my view, they are less real than counsel was able to impress on me. Those difficulties are not insurmountable. That apart, much of those difficulties have been removed by my variation order excluding delivery up of Client Data in respect of ex-AXA policyholders who have switched to PCI. I have also reduced the volume of information to be disclosed by adjusting the cut off date. The helpful protocol offered by AXA has relieved much of PCI's burden in identifying the policyholders concerned. The clarification and variation to my Order made as a result of this hearing have given PCI further relief. I am not satisfied that the costs to PCI of compliance outweigh the benefit to AXA. Applying the test I formulated at paragraph 7, the law abiding citizen earnest and willing to comply with the order, I am not satisfied that the Order is vague, ambiguous, oppressive and excessively and unnecessarily wide, nor is it unduly burdensome or impossible to comply. Accordingly the application for stay is dismissed.

36. I have already indicated to the parties at the last hearing on 9 August 2001 that I shall take into account the intervening period between then and the date of hearing in considering any application for extension of time. Four months have now lapsed since my Order of 24 July 2001. As PCI has already complied with paragraph 1 of the Order and as PCI's burden of discovery and disclosure under paragraphs 3 and 4 has been very substantially reduced as a result of the clarification and variation order, I consider an extension of time by three weeks from 2 November 2001 in respect of PMS policies and five weeks from 2 November 2001 in respect of non-PMS policies sufficient to enable compliance. Accordingly, I grant the above extension and with liberty to apply.

37. I shall invite counsel to address me on question of costs.