TIME SUCCESS PROFITS LTD AND ANOTHER v. ANDREW LAM & CO

HCA 3046/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3046 OF 2003

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D E C I S I O N

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Introduction

1. The Plaintiffs in this action are also the plaintiffs in High Court Action No. 1966 of 2003 ("HCA1966/2003"), in which they claimed against Mr Liu Wai Shing, Frederick ("Liu"), for repayment of two loans totalling $37,600,000.00. Liu is legally represented in that action by the Defendant's firm of solicitors. By this application, the Plaintiffs seek to restrain the Defendant from representing, acting or continuing to act for Liu in HCA1966/2003 until trial of this action. The basis for the Plaintiffs' application is that the Defendant had previously obtained confidential information from the Plaintiffs imparted to Andrew Lam of the Defendant during a dinner party held on 14 March 2003 in which Andrew Lam gave advice to the Plaintiffs and other creditors of Liu as a quasi-solicitor on the ways and strategies to recover the debts owed by Liu.

2. Liu was a major shareholder and director of Infocast Limited ("Infocast"), of which China United Cyberworks One Limited ("Cyberworks") was one of its shareholders. The shareholders of Infocast were concerned that Liu was in financial difficulties and might not be able to manage Infocast properly. Eugene Chuang of Cyberworks thus proposed a dinner party for the shareholders of Infocast to discuss the affairs of Infocast and in case any of the shareholders would have a claim against Liu, to discuss possible solutions to resolve the dispute. Joseph Fung, another creditor of Liu, convened the dinner party at his home for the purpose. In addition to inviting six shareholders of Infocast or their representatives and Andrew Lam, Joseph Fung also invited the 2nd Plaintiff to attend after consulting his availability. Presumably, the 2nd Plaintiff and the 1st Plaintiff whom the 2nd Plaintiff represented were Liu's majority creditors.

3. The Defendant has long been retained by Cyberworks as its legal adviser. Hence, Eugene Chuang invited Andrew Lam to accompany him to the dinner party. He informed Andrew Lam that he should only regard the dinner party as a social gathering but alerted him that if necessary he might be required to advise Eugene Chuang as the representative of Cyberworks. Andrew Lam was a common friend to most of the attendees at the dinner party. But neither Eugene Chuang nor Andrew Lam knew the 2nd Plaintiff before this dinner party and had no prior notice of his attendance.

4. What precisely took place during the dinner party was in dispute. Certainly, Liu's debts and his involvements in Infocast and another company Habanos Holdings Limited ("Habanos") were discussed. The 2nd Plaintiff was asked to forward certain documents to the Defendant to enable the Defendant to advise on the loans advanced to Liu. The documents were sent to the Defendant on 17 March 2003. On 19 and 20 March 2003, the Defendant advised that the documents were in order and Liu could be sued for the recovery of the loans. Subsequently, the other attendees reached a settlement with Liu on certain terms which the Plaintiffs considered unacceptable and the 2nd Plaintiff wrote to Liu's father on 8 April 2003 enclosing copies of the loan documents which he gave to the Defendant on 17 March 2003. The Plaintiffs instituted legal proceedings on 30 May 2003 against Liu in HCA1966/2003. These facts are not in dispute.

5. According to the Plaintiffs, during the dinner party, the attendees, including the 2nd Plaintiff discussed about ways and strategies to recover the debts owed by Liu to those present. Andrew Lam participated in the discussion and offered some general advice. It was unanimously agreed that all creditors should send Andrew Lam the relevant documents and retain Andrew Lam to review their respective claims against Liu and to advise on the same.

6. The Plaintiffs' assertions above were denied by Andrew Lam. In his affidavit, Andrew Lam said that the main purpose of the dinner party was to ascertain and estimate the total indebtedness of Liu and to unit the attendees in an effort to resolve any contention by way of settlement without resorting to litigation so as to save the good reputation of the Liu family. The party discussed whether there had been any mismanagement of Infocast and Habanos and if Liu as their director should be liable. Andrew Lam undertook to present a comprehensive analysis as to the state of affairs of these two companies and Liu's possible liabilities. There was no discussion about ways and strategies for recovering the debts. Andrew Lam did not receive any information or instruction from the 2nd Plaintiff, save for his assertion to the other attendees that Liu was indebted to him for some loans. It was resolved that the attendees should nominate Eugene Chuang to represent them as an alliance to discuss with Liu for a settlement. Except for the Plaintiffs, the attendees were close friends of Liu. The Plaintiffs were eager to become a member of the alliance and Eugene Chuang asked the 2nd Plaintiff to submit documents to the Defendant in order to prove he had a legitimate claim against Liu.

Whether the American Cyanamid principle is applicable

7. It is Mr Sarony SC's submission that in reality the Court's decision in this application will determine the issue definitively and as such this application could not be determined on the American Cyanamid principle by a mere balance of convenience. He submitted that the appropriate principles are as set out under paragraph 29/1/18 of the Hong Kong White Book:

"Where the grant or refusal of an interlocutory injunction will effectively end the action, it is appropriate for the court in assessing the balance of convenience to investigate "the degree of likelihood" of the plaintiff succeeding at trial ... where it is clear that, whatever decision the court reaches as to the granting of an injunction, the commercial realities are likely to weigh very heavily on either or both parties, with the result that almost inevitably the proceedings will be at an end, it may be asking too much to expect the court to reach a decision purely on the basis of whether there is a serious question to be tried. It is perhaps for this reason that (contrary to the American Cyanamid principle) a consideration of the plaintiff's prospects of success has been regarded as of particular importance in passing off actions where the strength or weakness of the parties' case turned the day."

He cited the English Court of Appeal decision in Cayne and another v Global Natural Resources plc [1984] 1 All ER 225 (CA) and the local decisions in Harbour Fit Industrial Ltd v Tan Kwai Garden Seafood Restaurant Ltd [2002] 2 HKC 487 at 493 and Zheng Lie Lie & Ors v Prosperfield Ventures Ltd & Anor (No 1) [2003] 2 HKC 33 in support of his proposition that the established guidelines in American Cyanamid did not apply under such circumstances. Mr Sarony SC submitted that the interlocutory relief should be refused as the Plaintiffs have no likelihood of succeeding at trial.

8. I do not think that the present case is one where the interlocutory injunction will effectively dispose of the action. There are two separate actions here. The first action is an action between the Plaintiffs and Liu for the recovery of the two loans, i.e. HCA1966/2003. The other is the present action by the Plaintiffs for an injunction restraining the Defendant from acting for Liu in HCA1966/2003. If an interlocutory injunction is granted, the Defendant will have to cease acting for Liu in HCA1966/2003. Thus Liu will have to instruct another firm of solicitors to represent him. Once that happens, especially as the proceedings in that action progress, the likelihood of Liu discharging his new solicitors and reverting to the Defendant upon conclusion of this action in the Defendant's favour diminishes. It will not take too long before this likelihood will become commercially or practically non-viable. What then is the consequence to the Defendant? He would lose the opportunity of earning profits costs in defending Liu in HCA1966/2003, which could be very ludicrous. Such costs will not be difficult to assess. Even though there is no prospect of his being reinstated as Liu's solicitor if the interlocutory injunction is granted, this is clearly not a case where there would be nothing left on which it was in the Defendant's interest to proceed to trial. The Defendant can recover substantial loss of profits for being enjoined from representing Liu. This is clearly not the typical Cayne v Global situation where there will be no trial. In my judgment, the American Cyanamid principle does not cease to apply in this present case.

9. In an appropriate case, a plaintiff's likelihood of success never ceases to be a factor to be considered under the American Cyanamid principle. Indeed, Lord Diplock deliberately left open as to what to put onto the weighing scale when assessing where the convenience lies as this will vary from case to case. In N W L Ltd V Woods [1979] 1 WLR 1294, which was a case where the interlocutory injunction will in effect dispose of the action finally, he took into account the degree of likelihood that the plaintiff would have succeeded in establishing his right to an injunction if the action had gone to trial as a factor to be brought into the balance by the judge in weighing the risk that injustice may result from his deciding the application one way rather than the other. In Centalic Technology Development Ltd v Worldwide Industrial Ltd [1996] 3 HKC 498, Godfrey JA, as he then was, took into account the strength of the applicant's case as one of the factors in favour of granting the interlocutory relief. While strength of the respective parties' case is irrelevant for the purpose of considering whether there is a serious issue to be tried, when it comes to the stage of balancing the convenience or the risk of injustice as it should be called, it may be relevant. Where all other factors are nicely balanced, strength of the plaintiff's case may be decisive in tilting the balance in favour of grant of the interlocutory relief. Where the grant of interlocutory injunction effectively precludes a defendant from a full trial, interests of justice must require that the injunction should not be granted unless satisfied that the plaintiff has a good prospect of success. It is an injustice to grant an injunction at the interlocutory stage if this effectively precludes a defendant the opportunity of having his rights determined in a full trial. In such circumstances, the strength of the plaintiff's case is a very important and probably the most important factor to be put onto the weighing scale, which may have to be balanced against the plaintiff's undertaking of damages. On the other hand, it is equally an injustice to allow a defendant to continue to infringe a plaintiff's right pending trial of the action when damages are inadequate and the defendant clearly is not good for the damages. In such circumstances, what is left is to balance the strength of the plaintiff's or the respective parties' case against the plaintiff's undertaking of damages. But there may well be cases where at the interlocutory stage because of the nature or the urgency of the case it is impossible for the plaintiff to prepare a formidable case. In those circumstances, it is impossible to assess the strength of the parties' case or even the strength of the plaintiff's case. In my view, for reasons as I shall explain, this is such a case.

Delay and effect of summary judgment

10. Mr Sarony SC said that the interlocutory relief sought mirrors exactly the same as that sought in the statement of claim which contained no claim for damages. He submitted that the effect of this application equates to granting summary judgment for the entirety of the Plaintiffs' claim and denying the Defendant the right to a full trial and that in the circumstances, the issue of delay features even more prominently than it otherwise would in an application for an interlocutory injunction.

11. Where the main action is for an injunction, the interlocutory relief sought could not be anything but an interim injunction in similar terms. The fact that no damages are claimed, if at all relevant, only reflects the Plaintiffs' case that damages are not adequate. An interlocutory application of this nature cannot be treated as a summary judgment for the entirety of the Plaintiffs' claim because as explained above the opportunity is still open for the matter to be fully investigated and determined at the final trial and this is not the type of case where there would be nothing left on which it is in the Defendant's interest to proceed to trial.

12. I think the Defendant's allegation of delay is misconceived. The Plaintiffs' solicitors made their first complaint to the Defendant on 25 June 2003. When it became clear on 7 July 2003 that the Defendant would not give in to the Plaintiffs' demand to cease acting for Liu, the Plaintiffs issued proceedings on 15 August 2003. Allowing for the 2nd Plaintiff absence in Hong Kong in July, I do not think there was any inordinate delay. Prior to the parties appearing before Sakhrani J on 22 August 2003, the hearing was adjourned by consent for the purpose of filing affidavits as the application was contested. No adverse inference could be drawn for the adjournment.

The law

13. The leading authorities relevant to the legal issues raised in this application are In re A Firm of Solicitors [1992] 1 QB 959 and Prince Jefri Bolkiah and KPMF (a firm) [1999] 2 AC 222.

14. The Plaintiffs' case is founded on the Defendant's breach of duty of confidence owed to them as their quasi-solicitor. As a general rule, when information which has the necessary quality of confidence is imparted by one person to another under circumstances which create an obligation of confidentiality and the recipient knows about the confidential nature of the information, the recipient of the information owes a duty to the owner of the information not to disclose or use that information otherwise than for the purpose for which the information was imparted to him, especially when it would be to the detriment of the owner of the information. Similarly, when a solicitor receives confidential information from his client, for the purpose of advising him in a matter which subsequently becomes the subject matter of a litigation and that information would not have been imparted to the solicitor otherwise than for the purpose of advising the owner of the information, it creates an obligation of confidentiality. The solicitor is under a duty not to disclose or use that information otherwise than for the purpose for which the information was imparted to him. In re A Firm of Solicitors [1992] 1 QB 959, Parker LJ extended the solicitor's duty as respects the confidential information to persons, who may conveniently be called a "quasi-client", in the course of this quasi-solicitor-client relationship. He held at 965 that when a person supplies detailed information to a solicitor concerning the very matters that will be explored in the main action, the relationship between them was such that the person can properly be described as an informal client of the solicitor and the solicitor owes to that person very similar duties as those which he would have owed had that person been a client in the strict sense.

15. This duty of confidence survives the termination of the solicitor-client or quasi-solicitor-client relationship. The solicitor is under a continuing duty to preserve the confidentiality of the information imparted to him during the subsistence of that relationship. There is a public interest that everyone seeking legal professional advice should feel free to communicate confidential information to his legal advisor with the confidence that such information will under no circumstances be used against him. Thus, not only may a quasi-client restrain his quasi-solicitor from using the information, he may even restrain him from acting for another client with an adverse interest to himself in the same matter. He has every right to expect the confidential information communicated to his solicitor will under no circumstances be used against him through that solicitor, whether directly or indirectly, in any subsequent circumstances. The right of the solicitor to act subsequently for whatever party that chooses to instruct him and likewise the right of third parties to instruct solicitors of their choice must yield to the overriding right of the former client to preserve the confidentiality of the information he communicated to his former solicitor in confidence.

16. In order to restrain his former solicitor or quasi-solicitor from acting for another client in the same matter, the former client has to establish, firstly, that the solicitor or quasi-solicitor is in possession of information which is confidential to him and to the disclosure of which he has not consented and, secondly, that the information is or may be relevant to the new matter in which the interest of the other client is or may be adverse to his own ("relevant confidential information"): see Prince Jefri Bolkiah v KPMF per Lord Millett at 235. While the burden of proof is on the plaintiff, it is not a heavy one. The former may be readily inferred from the quasi-solicitor-client relationship, while the latter will often be obvious.

17. An injunction will not be granted unless there is a real risk of misuse or disclosure of the confidential information as opposed to a merely fanciful or theoretical risk. A solicitor's duty of confidentiality extends beyond that of refraining from deliberate disclosure to a duty of ensuring that his former client is not put at risk that any confidential information which he has obtained from the former relationship may be used against him in any circumstances: see Prince Jefri Bolkiah v KPMF per Lord Hope at 227. Furthermore, when a solicitor in possession of confidential information imparted to him by a former client acts for another client with an interest adverse to that of the former client, such risk can also be readily inferred. Thus, when a former client has proved that the solicitor in possession of relevant confidential information is acting or about to act for a client with an adverse interest, the court shall intervene unless satisfied that there is no risk of disclosure. The evidential burden of proving no risk of disclosure is shifted to the solicitor.

Whether there is a serious question to be tried

18. Though the Defendant was invited to attend the dinner party as a social function, he was alerted in advance by Eugene Chuang of the possibility of having to advise him in relation to Cyberworks and to explore possible ways to obtain settlement from Liu without resorting to litigation. Liu's indebtedness was discussed at the party. Legal issues relating to the operation of Infocast and Habanos and Liu's liability therein were discussed during which undoubtedly the Defendant's views as a solicitor was sought. The attendees voiced their claims and complaints against Liu. The Plaintiffs' claims were also mentioned, though it is not clear whether discussion of any depth ensued. Throughout the dinner party there was discussion among the attendees as to what was the best way to obtain a solution without resorting to litigation, including whether or not to approach Liu's father. The Defendant undertook to advise and did advise subsequently, though without being formally instructed by the attendees or the Plaintiffs. It was agreed that an alliance under the leadership of Eugene Chuang be formed to seek a settlement of Liu's debt without resorting to litigation. Clearly at some stage during the dinner party, the Defendant's role changed from that of a social guest to that of a quasi-solicitor to the attendees, including the Plaintiffs. The attendees were asked to submit documents in support of their claim. The Defendant gave advice subsequently in his two letters of 19 and 20 March 2003 as to Liu's liability including his liability towards the Plaintiffs in respect of the two loans. Even though he had not been formally instructed by the Plaintiffs, he stood in the position of a quasi-solicitor to the Plaintiffs. As a quasi-solicitor, the Defendant owed the same duty of confidence to the Plaintiffs as his quasi-clients as he would have owed had the Plaintiffs been his formal clients.

19. The confidential information relied on by the Plaintiffs was the content of the discussion about ways and strategies in seeking an out of court settlement with Liu and the documents delivered to the Defendant. Mr Sarony SC argued that there was a total lack of evidence of any confidential information having been allegedly passed to the Defendant and despite the Defendant's denial of having received any such information the Plaintiffs failed to condescend to particulars of the confidential information in their affirmation in reply.

20. So far as the documents are concerned, whatever confidentiality that was attached to the documents when they were delivered to the Defendant has been waived or otherwise ceased to be confidential by reason of the subsequent events. These are just loan documents. They had been sent to Liu's father by the Plaintiffs on 8 April 2003 in an attempt to "entice" a settlement proposal from Liu's father out of court. Liu's father then forwarded them to the Defendant. By that time, the confidentiality attached to these documents must have been spent. Furthermore, when the effort to settle failed, the Plaintiffs issued proceedings. These documents were pleaded in the statement of claim. As the Plaintiffs' claims are based on these documents, they must in due course be disclosed to Liu by way of discovery. The confidentiality in the documents must have been lost.

21. As for the ways and strategies, they referred to the settlement between the alliance and Liu, which came to fruition so far as the other attendees were concerned but not the Plaintiffs. The Plaintiffs made their own attempt to settle by writing to Liu's father and have since instituted legal action. These ways and strategies may also cease to have any significance. But this does not mean that the discussion which led to the formulation of these ways and strategies disappeared like a puff of smoke in the air. It is not sufficient for a former client to make a general allegation that a solicitor is in possession of relevant confidential information if this is in issue. Some particularity as to the confidential information is required. But the degree of particularity required must depend upon the facts of the particular case. It is true that the Plaintiffs have not disclosed details of the discussion on which their claim to confidentiality is based. But in a case such as this, where the attendees discussed and exchanged views on ways and strategies, it can readily be inferred that these exchanges must by themselves be confidential. This together with the proximity in time between the date of the dinner party and the date when the Defendant was retained by Liu and the subject matter of the discussion are sufficient to establish possession by the Defendant of relevant confidential information. The brevity of the dinner party is, in my view, not sufficient to displace the very strong inference to be drawn from the above circumstances. As Mr Griffiths SC submitted, the 2nd Plaintiff might have offered his own views as regards his claims and his bottom line in a settlement, or might have exposed his way of thinking and attitude towards his claims and towards Liu and how keen he was to litigate. Mr Sarony SC argued that these suggestions were speculations and not supported by the Plaintiffs' affirmation. This is the type of case where it is difficult to particularise the information, at least at the interlocutory stage. There is no better tool in a negotiation than to know what is in the mind of one's opponent. In my view, for the purpose of an urgent interlocutory application of this nature, the confidential information has been sufficiently particularised.

22. Mr Sarony SC referred to the 2nd Plaintiff's affirmation in which he said he could not remember the details of the Defendant's advice in respect of the other attendees' claims as they did not concern him and that as regards the Plaintiffs' claims the Defendant's advice was that it was a simple loan recovery claim. This also accords with Liu's Defence to the Plaintiffs' claim in which neither the execution of the loan agreement nor the fact of the $8,000,000 having been deposited in the Plaintiffs' company is disputed. In his defence, Liu pleaded the complex background matters to the loans, which had never been communicated by the 2nd Plaintiff to the Defendant during the dinner party. While these matters are indicative that little information about the loans has been passed to the Defendant, they do not address the Plaintiffs' complaint about confidential information relating to the discussion about the ways and strategies of settlement.

23. As the Plaintiffs have shown a case that the Defendant is in possession of information which is confidential to him, to the disclosure of which he has not consented and that the information may be relevant to the new matter in which the Defendant is acting for another client whose interest is adverse to him, the evidential burden is shifted to the Defendant to show that there is no risk of disclosure. Save arguing for the absence of confidential information and the change of stance to litigate instead of to seek a compromise, the Defendant offered little to discharge his burden of showing there is no risk of disclosure of the confidential information. Even though the discussion was about settlement and not litigation, in view of the proximity of the dinner party and Liu's retainer and the subject matter of the discussion, to allow the Defendant to act for Liu would provide a peep hole into the minds of the Plaintiffs. This applies as much to litigation as to negotiation. In my view, the risk of disclosure is not dispelled.

The balance of convenience

24. Applying the American Cyanamid guideline, the Plaintiffs have satisfied me that there is a serious question to be tried in that the claim is not frivolous or vexatious. The Plaintiffs' case at this stage is very rudimentary and not very formidable. For the purposes of these proceedings, the Plaintiffs are not required to discharge the same standard of proof as required in a full trial. In this context, it is irrelevant whether the court thinks that the Plaintiffs' chances of success in establishing liability are 90 percent or 20 percent: Alfred Dunhill Ltd v Sunoptic SA, [1979] FSR 337 per Megaw LJ at 373.

25. Having passed that hurdle, the court next considers the question of adequacy of damages. If the interlocutory injunction is refused and the Plaintiffs succeed at trial but lose in HCA1966/2003, the damage to the Plaintiffs is incapable of assessment. It is difficult to assess which information was operative and instrumental to Liu's success and what damage was caused by the unlawful use of the Plaintiffs' confidential information. If that results in the Plaintiffs' claims being wholly defeated, it is doubtful whether the Defendant would be in a position to pay damages. Thus damages to the Plaintiffs are clearly inadequate. On the other hand, if the Defendant is wrongly restrained, the loss to him is the profits costs which he would have earned in, what is at best, a long and expensive litigation. There is nothing to suggest that the Plaintiffs who could afford lending $37,600,000 are not good for such damages. On this count, the balance of convenience is clearly in favour of the Plaintiffs.

26. On the basis of the evidence now before me, it is difficult to assess the prospect of the Plaintiffs' chances of success. At this stage, the Plaintiffs are not required to put forth the entirety of their case and they have not done so. It would be unjust to assess their chances of success on the basis of the inchoate evidence now before me. In any event, this is not a case in which the interlocutory proceedings would dispose of the action finally, it would be inappropriate to give undue weight to the Plaintiffs' chances of success.

27. There are no other factors that I can possibly put onto the weighing scale. Accordingly, the question of adequacy of damages remains the sole determinant consideration. The balance is clearly in favour of the Plaintiffs. The Plaintiffs are therefore entitled to an interlocutory injunction. The threshold required by the test in American Cyanamid is not a difficult one to pass. This may boomerang on a plaintiff who will be called upon on his undertaking of damages should he fail at the trial of the main action. That is a risk which I am unable to assess for Plaintiffs. I can only assume the risk has been properly evaluated by those advising them. Their advisors are in the best position to assess the Plaintiffs of that risk and decide whether to seek the interlocutory injunction.

28. I can appreciate the Defendant's grievance in being enjoined from acting for a close friend merely because of the role he played during a prior brief dinner party, the very scanty particulars about the confidential information and that the Plaintiffs' stance had changed since. This is unsatisfactory. However, there is no injustice to the Defendant as he would be adequately compensated by the Plaintiffs' undertaking of damages. To address the Defendant's concern, I shall order a speedy trial in the hope that this matter could be disposed of finally before the stage is reached in HCA1966/2003 when a change of solicitors is required. This will minimise the damages to the Defendant and inconvenience to Liu should I be wrong in granting the interlocutory injunction.

29. The injunction is granted purely for the purpose of holding the ring. Accordingly, I order that costs of this application be in the cause of the main action.