TECHTRONIC PRODUCT DEVELOPMENT LTD AND ANOTHER v. FAUTEUX, DENIS GASTON

HCA 1235/2023

[2024] HKCFI 518

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1235 OF 2023

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D E C I S I O N

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1.  There are two contentious matters before me:

(1)  the 1^st and the 2^nd plaintiffs’ (“P1” and “P2” respectively, and “Ps” collectively)  summons dated 8 December 2023 (“the Leave Summons”)  seeking leave to use certain materials and information disclosed by the defendant (“D”)  pursuant to the Order made by me dated 11 August 2023 (“the Aug 2023 Order”)  and the Order made by DHCJ Phoebe Man dated 19 October 2023 (“the Oct 2023 Order”)  for the purposes of (a)  lodging reports and/or criminal complaints to the relevant authorities in Hong Kong and/or in Mainland China (“the Mainland”)  and/or facilitating criminal investigations or proceedings in Hong Kong and/or in the Mainland, against D and/or parties as advised by Ps’ legal advisors, including those listed in Annex 2 to the summons (“the Intended Mainland Defendants”, who are all in the Mainland), and (b)  civil proceedings against D and the Intended Mainland Defendants; and

(2)  costs of Ps’ inter partes injunction summonses dated 7 August 2023 (“the 1^st Injunction Summons”)  and 13 October 2023 (“the 2^nd Injunction Summons”)  respectively, whereby Ps sought to restrain D from using or disclosing certain items, and sought delivery up of the same.

2.  In the hearing before me, Ps are represented by Mr Alexander Stock SC, leading Ms Sheena Wong.  D is represented by Mr John Hui, together with Mr Alex Yeung.

BACKGROUND

3.  P1 and P2 are part of the Techtronic Industries Co Ltd (“TTI”)  group of companies (“TTI Group”), which is in the industry of manufacturing and supply of power tools, products and equipment.  

4.  TTI is a listed company in Hong Kong.

5.  TTI Group is in the industry of producing lithium-ion battery powered tools.  Lithium-ion battery is a type of rechargeable battery, which is the predominant battery type used in power tools, portable consumer electronics and electric vehicles.

6.  P1 is a Hong Kong company engaged in research and development (“R&D”)  activities.

7.  P2 is a general partnership formed in Nevada, USA, which serves as the global trading principal of the TTI Group and holds certain intellectual property rights for the TTI Group.

8.  D is a scientist and engineer.  He first joined the TTI Group as the Director of Engineering in charge of the Battery Group in Techtronic Industries (Dongguan)  Co Ltd on 23 April 2007.  He joined P1 as a Vice President in charge of Engineering and Portable Power System on 1 January 2011.  He was appointed as the Chief Technical Officer in charge of Advanced Energy Solutions (“AES”)  of P1 on 1 January 2017.  On 9 April 2017, P1 and D entered into an employment contract (“the Employment Contract”).  According to Ps, the employment ended on 14 August 2023.  Ps’ case is that on that date, D was summarily dismissed for gross misconduct and serious breach of duties. 

9.  According to Ps:

(1)  In around 2017, D was tasked with (a)  building the cells R&D team for TTI Group from scratch, and in particular (b)  developing “tables cells”.  “Tabless cell” technology is an advanced technology, which is different from traditional “tabbed cells”.

(2)  Since 2017, D led a team to engage in a wide range of R&D works, including:  developing TTI Group’s own cells; building a cell pilot production line in Dongguan; designing development strategies and products; conducting research on cell design and cell recipes (electrolytes, anodes and cathodes); negotiating prices with material / equipment suppliers and building strategic alliance with supplier partners; and designing pilot and mass production lines.  The team is of a substantial size: as of 2023, there are around 160 staff members in the AES Team in the Mainland alone and a team being built in Vietnam (where D also worked).

(3)  Each step of the R&D process undertaken by D’s team involves highly technical and confidential information, as well as secret processes and trade secrets which are carefully guarded by the TTI Group.

(4)  In respect of D’s specific task of developing TTI Group’s own cells, this was a highly technical and complicated matter, given that cell technology is in itself a very advanced technology, with not many companies around the world that have the requisite capability to manufacture quality cells.  The material composition of anodes, cathodes and electrolytes is extremely difficult (if not impossible)  to reverse engineer, meaning that their recipes are regarded as trade secrets.

10.  Ps’ case is as follows:

(1)  During the course of D’s employment with P1 and within the TTI Group, D:  (a)  had routine access to a huge amount of proprietary information and trade secrets belonging to Ps and TTI Group; (b)  occupied senior positions within TTI Group, and (c)  was involved in almost all aspects of TTI cells development.  Such proprietary information is the fruit of vast amounts of investment made by Ps. 

(2)  By an email dated 1 April 2023, D gave written notice to P1’s senior management, indicating that he would like to “retire” and resign.  Pursuant to Clause 5 of the Employment Contract, D’s contractual notice period would have run until 30 September 2023 (but for P1’s summary dismissal of D on 14 August 2023).

(3)  On or around 6 July 2023, D had a phone call with Nate Easter, Executive Vice President of the TTI Group.  In this phone call, Nate Easter tried to persuade D to stay with P1, but was unsuccessful.  D then revealed that (a)  he attended a “ground-breaking ceremony” of a company called “Reliance” on 6 July 2023; (b)  he was planning to help the Chinese lithium-ion battery industry to “become dominant”; and (c)  he was interested in the business of one “Maggie Chen”, and would assist when she is ready to drive the technology.  This was further reflected in D’s email to Nate Easter dated 6 July 2023 stating that he was planning to “help the Chinese lithium ion industry to become dominant”.  As at 6 July 2023, Ps were not yet fully aware of the scale or severity of D’s apparent misconduct.

(4)  On or around 14 July 2023, Ps became aware of various news reports confirming that on 6 July 2023, when D was still an employee of P1, he had indeed attended and was one of the core participants hosting a “ground-breaking ceremony” (“Ground-Breaking Ceremony”)  of Reliance (Jiangsu Ruien New Energy Technology Co Ltd)  (“Reliance”)  for a factory construction project in Changzhou, China.

(5)  Ps then commenced an internal investigation, which uncovered evidence of extremely serious wrongdoing and breaches by D.  Ps’ investigations as at early August 2023 led to the following broad discoveries.

(a)  Unauthorised downloading of over 1,940 documents from TTI system whilst attending the Ground-Breaking Ceremony:

(i)  Reliance is a company in the Mainland engaged in, inter alia, developing and manufacturing lithium-ion batteries, and was or would be a direct competitor of P1 and the TTI Group, providing the same or substantially similar services in the same territories.

(ii)  On or around 20 July 2023, Ps discovered that on 6 July 2023, D covertly mass downloaded Ps’ highly confidential information and valuable trade secrets (ie the proprietary information)  to a removable device, without prior consent or authorisation of P1.  Such information was downloaded mostly from the local drive of the company laptop (reference no. NB1199)  (“Laptop”)  entrusted by P1 to D during and for the purpose of his employment, and some from TTI Group’s “One Drive” online cloud system (with a copy to the local drive of the Laptop).

(iii)  As at 4 August 2023, Ps had identified 1,946 documents which had been downloaded by D in the aforesaid manner, as recorded in a log (“Log”)  generated by TTI Group’s computer system.

(iv)  The documents downloaded by D included a number of patents, which had been assigned by P1 to P2, who remains the current assignee and was thus joined as a party to these proceedings.

(b)  Steps to solicit TTI employees to join Reliance in breach of the Employment Contract:

(i)  The downloaded documents also included HR related files, such as CVs, bonus and remuneration data of Ps’ former/existing employees, organization charts, and HR policies. The evidence suggested that D was taking steps in connection with soliciting former or existing employees of P1 to join a business in direct competition with Ps/TTI Group.  This view was fortified by the following facts.

(ii)  Ps discovered that  Kaiser Wang Kai (“Kaiser Wang”)  and Huang Qing Quan (“QQ Huang”)  had both participated in a team-building activity of Reliance on or around 14 July 2023. Both Kaiser Wang and QQ Huang were in P1’s AES team led by D, before their employments terminated on or around 7 June 2023.

(iii)  On 5 July 2023, Kenny Wang Xi Qing (“Kenny Wang”)  of TTI Group tendered his resignation.  Kenny Wang had been hired by, and reported directly to, D.  Although Kenny Wang stated in his resignation notice that he intended to return to the US, Kenny Wang in fact joined Reliance after his resignation.

(iv)  That Kaiser Wang, QQ Huang and Kenny Wang did all join Reliance was confirmed by D himself in [25] of his 1^st Affirmation filed in these proceedings.

(c)  Setting up company to work with Reliance and misuse / wrongful divulgence of Ps’ proprietary information and trade secrets.  Since December 2022, D had already been taking steps to enter into business relations with Reliance, in direct competition with Ps and the TTI Group, and to set up a company (eventually named “Proteus Consulting Service Inc”)  for that purpose, and to divulge Ps’ confidential information and trade secrets to Reliance or affiliated persons.

11.  D’s case is that on 1 April 2023, after tendering his resignation, D had a phone call with James Wamsley (his direct superior at the time)  (“Wamsley Call”).  D was informed that TTI would place him on garden leave for 3 months, after which D would be free to pursue other ventures (“Garden Leave Arrangement”).  TTI Group had left it deliberately ambiguous as to whether and when D could access TTI Group’s electronic resources following his resignation on 1 April 2023.  D was asked to (1)  keep himself available to attend sporadic meetings, and (2)  to provide his opinion on certain new battery technology on projects which did not appear to relate to TTI Group’s business, all while TTI Group refused to give any clear confirmation as to D’s employment status.

12.  It is also D’s case that on 6 July 2023, after D’s original expected date of termination, D attended the Ground-Breaking Ceremony of Reliance.  There was nothing clandestine or sinister about D’s attendance at the ceremony.  Reliance cannot seriously be TTI Group’s competitor.  Further, D was transparent about his involvement in Reliance.

13.  D does not dispute that on or around 6 July 2023, files were downloaded from Ps’ online servers to a removable USB.  D said that he only did what he had previously done during his course of employment. 

14.  On 4 August 2023, Ps made an ex parte application and obtained an injunction restraining D from using, divulging the 1,946 documents identified in the Log.

15.  On 7 August 2023, Ps took out a summons (“the 1^st Injunction Summons”)  for an order to continue the ex parte injunction and for a disclosure order.

16.  On 11 August 2023, the 1^st Injunction Summons was heard before me.  After hearing submissions from the parties, I made an order (“the Aug 2023 Order”), by which D was also ordered to, inter alia, deliver up and disclose the 1,947 documents in schedule 1 to that order.  I adjourned the 1^st Injunction Summons for substantive arguments.  Directions for filing evidence for the preparation of the substantive hearing were given.  As interim measures, D has offered undertakings (“D’s Undertakings”)  in terms of the non-competition and non-solicitation covenants contained in the Employment Contract, in respect of the 6-month period following the date of termination of his employment.  I also continued the ex parte injunction on an interim interim basis.  Those interim measures would be in force until the determination of the 1^st Injunction Summons or a further order of the court.

17.  As a result of the Aug 2023 Order,

(1)  On 14 August 2023, D delivered the Laptop to Ps’ solicitors in Hong Kong.

(2)  On 18 August 2023, D delivered to Ps’ solicitors in Canada the following:

(a)  an “Old Laptop” (reference no. NB0819)  (which D said was also provided by P1 and was used in connection with his previous employment with P1);  and

(b)  6 USBs, comprising (i)  a “Work USB”, (ii)  an “Email USB”, (iii)  3 “Recovery USBs”, and (iv)  an “Old USB”.

18.  The 6 USBs are among the items under Leave Summons for which release from the implied undertaking is being sought.

19.  D filed two affirmations for the purpose of complying the Aug 2023 Order:

(1)  D’s 1^st Affirmation dated 18 August 2023

(2)  D’s 2^nd Affirmation dated 27 September 2023

20.  These two affirmations are also items under the Leave Summons for which Ps seek release from the implied undertaking.  According to Ps, the following matters mentioned in these affirmations are matters of relevance:

(1)  D admitted that he had divulged documents potentially covered by the Aug 2023 Order (ie the 27,692 files downloaded from Ps’ database and/or Laptop on 6 July 2023 and 27 July 2023, see [21] below)  to personnel of Reliance, including Maggie Chen, Kenny Wang, Kaiser Wang and QQ Huang of the Intended Mainland Defendants.

(2)  D admitted that he had originally intended to transfer some “archive” files from Ps’ Laptop to the new work laptop from Reliance.

(3)  In respect of the 6 USBs, D claimed that:

(a)  The Work USB was used for D’s daily work whilst being P1’s employee, and that he “routinely backed-up” the files in Ps’ computer system to which he was given access and Ps’ Laptop so that he could continue accessing and completing his work assignments.

(b)  The Recovery USBs were delivered up on the basis that some of the files covered by the Aug 2023 Order might have been deleted, and hence he took steps to recover the files deleted from the Work USB.

(c)  The Old USB contained files pertaining to or arising out of his previous employment with P1.

(d)  The Email USB contained emails and attachments which D had exchanged with personnel of Reliance (including most of the Intended Other Defendants, and whilst D was still an employee of P1), and which might be covered by the Aug 2023 Order.

21.  Subsequently, Ps undertook further investigations and engaged FTI Consulting (“FTI”)  to conduct forensic analysis.  According to Ps, the forensic analysis revealed that the scale of confidential information and trade secrets which had been misappropriated, misused and/or wrongfully downloaded by D was far greater and more widespread than what was envisaged as at the time of the Aug 2023 Order.  It transpired that there were in fact some 27,692 documents that were apparently downloaded by D on 6 July 2023 from his Laptop to the Work USB.

22.  A report analysing the materials disclosed by D was issued by FTI on 13 October 2023 (“FTI Report”).  The FTI Report is another item listed out in the Leave Summons.

23.  On 13 October 2023, Ps issued another summons (“the 2^nd Injunction Summons”)  for further injunctive relief in light of their discoveries and the FTI Report.  By consent, DHCJ Phoebe Man granted an order on 19 October 2023 (“the Oct 2023 Order”), which included an order for further delivery up and disclosure.

24.  As a result of the Oct 2023 Order, D filed his 3^rd Affirmation dated 7 November 2023, in which he said that he had already delivered up all the items within his possession, and disclosed all the information, covered by the Oct 2023 Order.  D’s 3^rd Affirmation is also an item listed out in the Leave Summons.

25.  D was repeatedly given time to file evidence in opposition to the 1^st Injunction Summons, and finally time was extended to 30 November 2023.  Notwithstanding the repeated time extensions, no evidence in opposition has been filed by D.

26.  On 9 January 2024, Ps filed and served their Statement of Claim.

THE LEAVE SUMMONS

The parties’ respective positions

27.  Mr Stock submits that Ps’ application as per the Leave Summons should be allowed because there are cogent, persuasive reasons and special circumstances in this case, which amply justify the release of Ps’ implied undertaking, and are necessary for achieving the overall justice by enabling Ps:

(1)  to urgently protect Ps’ highly confidential trade secrets and valuable proprietary information which D has already misused and divulged to third parties;

(2)  to mitigate further and potentially very substantial damages (running into hundreds of millions of US dollars)  suffered by Ps;  and

(3)  to report to and facilitate the criminal investigations or prosecutions by the Hong Kong and PRC authorities, of potentially serious and extra-territorial crimes committed.

28.  Mr Hui opposes Ps’ application, mainly on the ground that allowing the application would infringe D’s privilege against

The principles

29.  The principles concerning release from the implied undertaking given by a party who has obtained documents on discovery have been set out by B Chu J in Anite Telecoms Limited v World Best Cargo-Link Company Limited[1]:

“19. …… it has long been established that a party who obtains documents on discovery gives an implied undertaking to the Court that he will make use of them only for the purposes of that action, and no other purpose. While the court has a discretion to release a party from the undertaking, the general and fact sensitive nature of the exercise of such discretion has been emphasized by the Court of Final Appeal in Secretary for Justice v FTCW [2014] 6 HKC 285. The principles in exercising such discretion were set out by Ribeiro PJ therein:

(1)  Where release from the undertaking is sought, it is for the person who obtained the documents to demonstrate cogent and persuasive reasons why it should be released.

(2)  Each case turns on its own facts and no general principle can be formulated beyond stating that the Court will not release or modify the implied undertaking save in special circumstances and where the release or modification will not occasion injustice to the person giving discovery.”

30.  A useful summary of the principles can also be found in the decision of DHCJ Maurellet SC in The Jewish Federation of Greater Washington Inc v Aiwo Trading Co Ltd[2]:

“7. As explained at the outset of these reasons, the Plaintiff now seeks a release from its undertakings. The applicable principles pertaining to an application such as the present have been dealt with in a number of judgments, including that of Chu J in Anite Telecoms Ltd v World Best Cargo-Link Co Ltd, Unicredit Bank Austria AG v Dragon Wise Trading Ltd [2013] 2 HKLRD 169 and Re NDT (BVI)  Trading Ltd [2009] 5 HKLRD 615. The following principles can be extracted in summary from those authorities:

(1)  Where release from the undertaking is sought, it is for the person obtaining the documents to demonstrate cogent and persuasive reasons why it should be released.

(2)  Each case turn on its own facts and no general principles can be formulated beyond stating that the court will not release or modify the implied undertaking, save in special circumstances and where the release or modification will not occasion injustice to the person giving discovery.

(3)  While the discretion is at large and unfettered, a number of factors have been identified as militating in favour or against the exercise of such a discretion. The following factors can also be considered in that exercise:

(a)  Whether the proposed collateral use is in court proceedings or outside litigation. If it is for use outside litigation, it is not the court’s function to release for that purpose.

(b)  And insofar as the collateral use is in aid of satellite proceedings in this jurisdiction, if these are criminal proceedings, the court must take into account the possibility of the application being a method of bypassing the privilege against self-incrimination: and

(c)  Insofar as the documents are to be used in proceedings abroad, if the satellite proceedings are criminal, the court in this jurisdiction should be weary of doing anything in this country which may subject the disclosing party to an unfair disadvantage in those proceedings.

(4)  On the other hand, the court will bear in mind that in the absence of any other factors argued to constitute some injustice, the public interest and investigation or prosecution of serious fraud should take precedence over the general concern of the court’s controlled collateral use of compulsorily disclosed documents.

(5)  The implied undertaking would be relaxed where a strong case of fraud had been demonstrated to be committed on the plaintiff and that the public interest in the combat of serious and extraterritorial fraud should take precedence over the general concern of court’s controlled collateral use of bankers documents disclosed under compulsion of court orders.”

31.  The balancing exercise is whether what is sought to be achieved by relaxing the implied undertaking is more important for the administration of justice generally, than in maintaining confidentiality so as not to operate as a disincentive to full and frank discovery.[3] Put it in another way, the discretion must be exercised “to achieve justice on the basis of all the circumstances of the case”.[4]

32.  Factors that may be taken into account include (a)  the nature of the document, (b)  the nature of the information, (c)  any prejudice the author of the document may sustain, (d)  the likely contribution of the document to achieving justice in the second proceedings, and (e)  (where applicable)  the strength of the case of fraud and seriousness of fraud.[5]

33.  There is no absolute requirement that the criminality is involved.[6]  Even where crime is potentially involved, there is no need to demonstrate that crime has been proved beyond reasonable doubt.[7]  Prima facie evidence of fraud, embezzlement or perjury etc. is sufficient.[8]

34.  If the proposed collateral use might concern criminal proceedings:[9]

(1)  if it is in aid of satellite proceedings in Hong Kong, the court must take into account the possibility of the application being a method of by-passing PSI;

(2)  if the satellite proceedings are abroad, the court here should be wary of doing anything in this country which may subject the disclosing party to an unfair disadvantage in those proceedings.

35.  Regarding PSI, some important principles have been set out by DHCJ William Wong SC in Yaron Brown and Others v Lexinta Ltd and Others[10]:

“29. This court has also duly considered the issue of privilege against self-incrimination. In the present case, the Defendants have not claimed such privilege. Privilege against self-incrimination, unlike other forms of privilege, must be claimed by oath by the person asserting it on his own behalf: see Phipson on Evidence (19^th ed, 2017)  at para 24-44, citing Downie v Coe (unreported, English Court of Appeal, 28 November 1997), which in turn cites National Association of Operative Plasters v Smithies [1906] AC 434 at 437:

 

‘It always has been the practice of the Court of Chancery, and that practice is now, under the Act of 1873, s.25,

sub-s.11, universal, that it is no objection to an interrogatory and no ground for taking the interrogatory off the file, if relevant, that the answer might tend to incriminate the party to whom it is exhibited. He may say, if he thinks fit, ‘I refuse to answer on the ground that the answer may tend to criminate me’; but then he must take the objection on his oath, and if he does raise that objection on his oath in the proper way he is not bound to answer the interrogatory.’

30. In O Ltd v Z [2005] EWHC 238 (Ch), Lindsay J held that a person would lose his privilege against self-incrimination if he was not heard to have claimed it before producing the incriminating documents, whether or not he knew of the privilege. That privilege against self-incrimination could be lost simply by reason of its not being claimed was accepted by Madam Justice B Chu in Anite Telecoms v World Best Cargo-Link Co Ltd (unreported, HCA 2560/2013, 19 October 2016)  at paras 131 and 139. The witness will suffer the consequences and no retrospectivity of protection was available: see paras 140 – 141.” (Emphasis added)

36.  The point that PSI must be claimed at the time of the disclosure and cannot be claimed thereafter has also been stated clear by Lam VP (as he then was)  in SJ v FTCW[11], which is an authority binding upon this court.  In that case, the learned judge said:

“41. Counsel submitted that the referral was relevant because the application for access was made after the referral. In our judgment, in principle, the relevant time should be the time when the statements were made and when discovery of documents were given. PSI is an aspect of the guarantee for fair trial under Article 10, see Secretary for Justice v Latker [2009] 2 HKC 100. The essence of PSI is that “no one is bound to answer any question if the answer would have a tendency to expose the deponent to any criminal charge, penalty or forfeiture which the judge regards as reasonably likely to be preferred or sued for.” (per Goddard LJ in Blunt v Park Lane Hotel Ltd [1942] 2 KB 253 at 257, cited by Lord Neuberger MR in Gray v News Group Newspapers Ltd [2012] 2 WLR 848 para 14).

42.  In HKSAR v Lee Ming Tee [2001] 1 HKLRD 599 at p 620, Ribeiro PJ explained the PSI at common law (which is wider in scope than the protection under Article 10, see para 47 below)  by reference to Lam Chi Ming v The Queen [1991] 2 AC 212:

‘It entitles a person; … to refuse to answer a question, or to produce any document to thing, if to do so ‘may tend to bring him into the peril and possibility of being convicted as a criminal’ …’

43.   Further, at p.621, His Lordship said:

 

‘Assuming … that some of the answers were

self-incriminating, once the respondents gave them to the Inspector, their privilege against self-incrimination was extinguished in relation to the answers given.  This is because the essence of the privilege is the withholding of answers.  Having given the answers, the respondents were left with the protection afforded by the prohibition against use of the answers in evidence against them.’

44.  In light of the discussion in the subsequent paragraphs in that judgment, it is apparent that that Ribeiro PJ’s reference to the prohibition against the use of the answers in evidence in the last sentence was referring to the direct use prohibition, viz. using the evidence directly as evidence in the subsequent criminal trial.  There is no free-standing derivative use immunity at common law.

45.  Therefore the relevant moment to consider an entitlement to PSI is the time when the answer is given or when a document is produced. ……”  (Emphasis added)

37.  Mr Hui submits that whether PSI is exhausted once the potentially incriminating document has been produced depends upon the objective circumstances of the case.  Mr Hui is relying upon Lim Suk Ling Priscilla v Amber Compounding Pharmacy Pte Ltd [12] in support of his submission.  In that case, a recipient of disclosure under Anton Piller Orders sought a release from its undertaking not to use the disclosed materials in separate criminal proceedings.  The Court of Appeal of Singapore considered that (1)  at the time of disclosure, there was no suggestion that the disclosed materials would have been used for extraneous purpose, (2)  the disclosure sought was expansive, including all of the disclosing parties’ data storage devices and documents related to trade secrets, (3)  there was a common understanding at the time of disclosure that there would be no collateral use, (4)  the circumstances were such that it would be entirely unreasonable to expect the disclosing party to assert their privilege “in a vacuum”, and (5)  the litigation conduct of the party receiving disclosure.  At the end, the court held that in the circumstances of that case, the invocation of PSI in the first affidavit in response to the collateral use application constituted a timeous and valid assertion of PSI, and this should be given significant weight in deciding whether leave for collateral use would be granted. Mr Hui submits that in the circumstances of this case, it would not be too late for D to claim PSI in his opposition to the Leave Summons.

38.  With respect, I am unable to accept Mr Hui’s submission.  As submitted by Mr Stock, in Lim Suk Ling Priscilla, the plaintiff’s conduct and submissions in support of the applications were misleading as to both the scope of the search, and as representing that the documents seized would be returned to the defendants without any further use or retention of copies.  This was crucial to the reasoning in that case as to why PSI did not have to be asserted at the time of the search order – because those very documents were supposed to be returned to the defendants.  In my view, the facts in that case are very different from the facts in the present case.  In any event, I am bound by the Court of Appeal’s decision in SJ v FTCW.

39.  Both Mr Stock and Mr Hui have referred me to some other principles and some other authorities in their respective submissions.  With no disrespect to the learned counsel, I am not prepared to cite all these other principles and authorities in this decision.  For the reasons set out below, the principles mentioned in the above would be sufficient for the determination of the Leave Summons.

Discussion

40.  Mr Stock submits that there is overwhelming evidence showing that D is in breach of contractual and fiduciary duties owed to Ps; and that the documents covered by the Aug 2023 Order and Oct 2023 Order were wrongfully downloaded or divulged by D to third parties, including Reliance.  On D’s own evidence, the 6 USBs contained documents which D routinely backed up as part of his employment with P1 and/or related to his work for P1.  In particular, the Email USB contained emails and attachments which D had sent (including from his TTI email)  to personnel of Reliance, and included Ps’ proprietary information.

41.  Mr Stock has referred me to the evidence produced by D, which shows that (1)  D had been sending emails and attachments to, and dealing with, Reliance personnel (whilst he was still P1’s employee), and (2)  D might have passed at least some of Ps’ files to Reliance personnel.  The evidence also shows that as early as January 2023, Reliance and D had already started to discuss the remuneration that Reliance was going to pay to D.  As shown in the relevant emails, Reliance was going to pay RMB 4 million to D per year as remuneration in one year, starting from 1 July 2023.

42.  Mr Stock has also drawn my attention to an email dated 27 July 2023 from D to Miss Pauline Su Zhi Yan (the Assistant Supervisor in the Mainland China Legal Department of the TTI Group), in which D said “I am still with TTI on the “notice period” …...”.  As submitted by Mr Stock, this email is strong evidence contradicting the Garden Leave Arrangement as alleged by D.  Further, Ps have filed an Affirmation of James Wamsley dated 25 January 2024, in which James Wamsley has denied the Garden Leave Arrangement on oath.

43.  Mr Stock has also submitted that based upon the evidence now available, D may have committed the offence of “access to computer with criminal or dishonest intent” under s.161 of the Crimes Ordinance, and the offence of “theft” under s.9 of the Theft Ordinance.  For the purpose of these offences, the meaning of “dishonesty” is that as laid down by the English Court of Appeal in R v Ghosh[13]. The necessary elements are (a)  what was done must be regarded as dishonest by reasonable and honest people, and (b)  the offender must have realised that what was done was dishonest by such standards, even if the accused believed it was morally justified to act in the way he did.[14]

44.  It is also Ps’ case that Ps would have an arguable civil claim against D and/or others in the Mainland.  Further, D and/or others may have committed the offence of “trade secret infringement” in the Mainland.

45.  Mr Hui does not dispute that for the purpose of this case, Ps have shown a prima facie case against D.  However, Mr Hui submits that there is no sufficient evidence showing that D may have committed any criminal offence in Hong Kong, and D and/or others may have committed any criminal offence in the Mainland.  Mr Hui also submits that there is no sufficient evidence showing that Ps have an arguable civil claim against D and others in the Mainland.

46.  Having consider Mr Stock’s and Mr Hui’s respective submissions, I agree with Mr Stock and refuse to accept Mr Hui’s submissions.

(1)  Mr Hui submits that in respect of the offences in Hong Kong mentioned by Ps, there is no evidence showing that D has subjectively realized that what he had done was dishonest.  With respect, the subjectively element in the Ghosh test is that the offender realized that what he had done was dishonest by the objective standard, even if he believed it was morally justified to act in the way he did.  There is no allegation, let alone credible evidence, from D that he believed that what he had done (downloading numerous documents and information from Ps’ computer system without permissions and divulging the documents and information to Ps’ competitor)  was perfectly honest by the objective standard of reasonable and honest people.  That being the case, in my view, Mr Hui’s submission does not have a proper foundation.

(2)  Mr Hui submits that based upon the expert evidence on the Mainland law now before the court, one of the elements of the offence of “trade secret infringement” in the Mainland is the circumstances in relation to the trade secret infringement are serious or particularly serious.  There is no evidence showing the existence of this element.  With respect, I disagree.

(a)  According to the expert evidence on the Mainland law now available, the circumstances would be considered as serious if the damages suffered by the right-holder of the trade secret or the suspect’s illegal gain is more than RMB 300,000.

(b)  As mentioned in the above, there is evidence showing that from 1 July 2023 onwards, Reliance was prepared to pay RMB 4 million to D as remuneration.  Applying common and commercial sense, it is certainly arguable that Reliance is willing to do so because D has provided and would continue to provide the trade secrets of the TTI Group (including Ps)  to Reliance.  While Reliance is willing to pay RMB 4 million to D in one year, the gain obtained by using the trade secrets divulged by D to Reliance would be a sum more than RMB 4 million in a year.  In my view, there is clear evidence in support of Ps’ argument that D and others may have committed the offence of “trade secret infringement” in the Mainland.

(c)  Regarding civil proceedings against D and others in the Mainland, Mr Hui accepts that if there can be potential criminal proceedings against D and others in the Mainland, Ps would have a potential civil claim against D and others in the Mainland. Accordingly, as a result of my ruling as set out in the above, Ps in fact would also have a potential civil claim against D and others in the Mainland.

47.  Mr Hui has tried to resist the Leave Summons by relying upon PSI. However, the fundamental problem in D’s case is that D has never claimed PSI at the time of making disclosures pursuant to the 2023 Aug Order and the 2023 Oct Order.  The first time that D claimed PSI is in his 4^th Affirmation dated 18 January 2024, which is an affirmation filed in opposition to the Leave Summons.  As held by DHCJ Willaim Wong SC in Yaron Brown and by the Court of Appeal in SJ v FTCW, PSI must be claimed at the time of the disclosure, and cannot be claimed thereafter.  The privilege cannot be claimed retrospectively.  SJ v FTCW is an authority binding upon this court.  By reason of this fundamental problem, D cannot claim PSI for the purpose of resisting the Leave Summons.  In other words, D cannot rely upon PSI as a ground to resist the intended use of the materials and information disclosed by D in these proceedings for the purposes as set out in [1(1)(a)] above.

48.  Without prejudice to the above and for the purpose of discussion, I would briefly discuss the arguments advanced by Mr Hui concerning PSI. Mr Hui submits that D did not have sufficient time to consider the PSI issue before filing his 4^th Affirmation on 26 January 2024, and hence it would not be too late for D to assert his PSI in his 4^th Affirmation, and D should not be denied to have the protection of that privilege.  Mr Hui argues that:

(1)  D only had notice of the fact that Ps were going to seek immediate mandatory orders for the first time on 9 August 2023 at around 6:15 pm, when D had sight of the Ps’ skeleton submissions for the hearing on 11 August 2023.

(2)  In the Aug 2023 Order, the time given to D to comply with the order was very short – the first round of delivery up was due within 3 calendar days from the date of the Order.  Further, unlike usual Mareva injunctions or Anton Piller orders, no notice was given to D as to his ability to assert PSI to resist disclosure in the order.

(3)  In D’s 4^th Affirmation, D said:

“23. …… It is readily apparent from [D’s 1^st Affirmation] that I indeed tried my very best to comply with [the Aug 2023 Order]. Also, it is apparent that my effort to comply with [the Aug 2023 Order] took me and my lawyers substantial time. I simply did not have time during the period to seek detailed legal advice on whether there are any grounds for me to resist disclosure despite [the Aug 2023 Order], even if I wanted to.”

(4)  In these circumstances, the fact that D asserted his PSI in his 4^th Affirmation is understandable, and it would not be too late for D to do so.

49.  With respect, I am unable to agree.

(1)  Based upon the evidence before me, the sequence of events is as follows:

(a)  Ps’ skeleton submissions placed before the court in the ex parte hearing on 4 August 2023 (“Ps’ Ex Parte Skeleton”)  was sent to D by email on 4 August 2023. In Ps’ Ex Parte Skeleton at [7] and [34], Ps stated that at the return date hearing on 11 August 2023, Ps would seek further interim relief on an inter partes basis, including for delivery up and disclosure orders, and that those additional orders were not sought at the ex parte hearing so to be as fair as possible to D.

(b)  Ps served the 1^st Injunction Summons on D on 7 August 2023.  In the 1^st Injunction Summons, it is stated that mandatory disclosure and delivery up orders would be sought at the return date hearing on 11 August 2023.

(2)  As submitted by Mr Stock, when D first subjectively realised the orders sought by Ps plainly does not mean that Ps had failed in proper service and giving fair notice of its Aug 2023 Summons.

(3)  Further, [4] of the draft order prepared by Ps placed before the court in the hearing on 11 August 2023 is as follows:

“4. [Ps] do have leave to use the information disclosed pursuant to paragraph 3 above for the purpose of civil or criminal proceedings against [D] and/or third parties in Hong Kong or other jurisdictions”

(4)  In the hearing on 11 August 2023 (both Ps and D were legally represented in that hearing), having considered the parties’ submissions, I decided not to grant an order in terms of that paragraph in that hearing, but I told the parties that Ps might seek that order at a later time.  Hence, D was fully aware that Ps might seek an order in terms of the [4] of that draft or in similar terms at a later time.

(5)  D was and is legally represented in these proceedings at all times.  No doubt his lawyers would give him proper advice at all times in these proceedings, including reminding him that he would have PSI.

(6)  In the circumstances as set out in the above, it is inconceivable that D did not know that he had to claim PSI at the time of making disclosures and he could not claim the privilege thereafter.  In fact, there is no evidence that D in fact did not know that he had to claim PSI at the time of making disclosures.

(7)  If D really did not have sufficient time to prepare his claim for PSI before making the disclosures, what he should do would be making a time extension application to the court.  If necessary, the court would hear a time extension application on an urgent basis.

(8)  With respect to Mr Hui, I am unable to agree that D did not have a reasonable opportunity to claim PSI before making the disclosures.  In my judgment, the fact that D did not claim PSI at the time of making the disclosures is inexcusable.

50.  The aforesaid would be sufficient for disposing D’s arguments based upon PSI.

51.  D claims that there is nothing clandestine or sinister in what he has done.  As pointed out by Mr Stock, the observation made by B Chu J in Anite Telecoms at [158] is very apposite:

“158. …… the main thrust of D’s case was that there was no prima facie case of fraud, and that the HSBC Documents would not further any investigation of fraud. If D is right, then there would not be any prejudice to D, and if D is wrong, I do not see why there would be prejudice.” (Emphasis in original)

Conclusion

52.  For the reasons above, I agree with Mr Stock and accept Ps’ case on the Leave Summons.  I would allow Ps’ application as per the Leave Summons and make an order in terms of [1] and [2] of that summons.

COSTS OF THE 1^ST AND THE 2^ND INJUNCTION SUMMONSES

53.  Mr Stock is seeking an order that costs of the 1^st Injunction Summons and costs of the 2^nd Injunction Summons be to Ps forthwith with a certificate for two counsel, to be taxed if not agreed.  Mr Hui submits that costs of the two summonses should be in the cause.

54.  The relevant principles have been summarized by Au-Yeung J in Hengshi International Investments Ltd v Bayspring International Ltd and Another[15], in which the learned judge said:

“40. In Hong Kong, it has been held that it is not now right to say that as a matter of principle, the costs of an interlocutory injunction should be in the cause unless there is justification for its departure. The Court is entitled to and should look at the merits of the injunction itself as at the time of the application to decide what should be the proper costs order for that application in all the circumstances, which do not necessarily depend on the outcome of the trial. Mendlowitz & Associates Inc v Winner International Group Ltd & anor,HCA 574/2009 (unrep, 14 May 2010), §28, per Au J.

41. The caveat is that an injunction is an interlocutory remedy granted on affidavit which has not been tested in cross-examination and when the evidence is incomplete. Accordingly, the Court should balance, on the one hand, the risk of injustice to the defendant in making a final costs order in favour of the plaintiff when upon a mature consideration at the trial it would not have been made against the risk of injustice to the plaintiff, on the other, by delaying its decision until conclusion of the trial which might have the practical effect of depriving the plaintiff of some or all of the costs which he should in fairness have been awarded”: Wah Cheong Construction Company Limited v Super Bright Engineering Limited & ors, HCCT 10/2013 (unrep, 6 June 2003),§6, per To J.

42. There can be serious disadvantages in leaving the question of interlocutory costs to the trial judge.

“One is the difficulty of reconstructing for the trial judge how things looked at the time of the interlocutory application, particularly when it involved questions of balance of convenience which were irrelevant at the trial. But the more important reason is that very often there is no trial. In such a case, an order that costs be in the cause or reserved to the trial judge is in practice a decision that there should be no order as to costs.” Kickers International SA v Paul Kettle Agencies Limited and anor [1990] FSR 436, at 438, per Hoffmann J, as he then was, followed in Wah Cheong, §3.

43.  A costs order should be made against the unsuccessful defendant in an application for interlocutory injunction where (a)  the outcome of the hearing might be so plain to the parties that the court should conclude that an order should be made against the defendant for wasting time and money in fighting the issue (whether or not the defendant eventually concedes (at §12), or (b)  where the substantive merits were very plain and the court did not expect the case to go any further (at §§13-14).  Picnic at Ascot v Kalus Derigs [2001] FSR 2, Neuberger J (as he then was).”

55.  As to whether immediate taxation is ordered, the principles have been set out by Lam J (as he then was)  in Midland Business Management Ltd v Lo Man Kui (No 2)[16]. The relevant considerations include:  the extent to which the proceedings are from a taxation point of view severable and self-contained from the rest of the action; the justice of the order having regard to the effect on cash flow of the respective parties; whether the amount at stake on taxation was sufficient to justify the expense of a separate taxation.  Under the CJR, the court is encouraged to order immediate payment of interlocutory proceedings, and the lack of immediacy of an order for costs in the cause or in any event, weakens cost as a sanction against unwarranted applications or resistance.  If there is no order for immediate payment, this is a form of prejudice to the successful party.  In reaching its conclusion the court is entitled to take into account, the unsuccessful party’s lack of merits.

56.  It is now clear that D is no longer resisting the 1^st Injunction Summons.  To conclude that summons, I would make an order to continue [5] of the 2023 Aug Order until final determination of these proceedings or further order of the court.  Mr Hui has confirmed that D’s Undertakings would also continue.

57.  For the 1^st Injunction Summons, Ps are the successful parties.  Mr Hui submits that notwithstanding this outcome, costs of the 1^st Injunction Summons should be costs in the cause, for the outcome of the the 1^st Injunction Summons is due to the fact that D has chosen not to contest that summons.  The court is not in a position to find on untested evidence that Ps’ case is truly strong and justified as claimed by Ps.  One matter which cannot be ignored is that D has not yet filed his defence in this case.  It would be premature to say that Ps must have a strong case against D.

58.  With respect, I am not persuaded by Mr Hui.  As said in the above, D raised his objection to the 1^st Injunction Summons in the hearing on 11 August 2023 and was given leave to file evidence in opposition.  However, notwithstanding the repeated time extensions given to D, D chose not to file any evidence in opposition eventually.  Further, knowing that the issue of costs would be argued in this hearing, D chose not to file any evidence in support of his position on the costs issue.  In the circumstances, D cannot ask the court to ignore the strong case as demonstrated by Ps’ evidence in considering the issue of costs.  Based upon the evidence now before me, the substantive merits of Ps’ case is plain.  In the circumstances, there is no reason why Ps should not be given costs of the 1^st Injunction Summons immediately.

59.  Mr Stock also seeks the costs of the 2^nd Injunction Summons. Mr Stock submits that there were numerous deficiencies and unsatisfactory aspects of D’s disclosures.  This eventually led to D voluntarily filing his 2^nd Affirmation, and necessitated the need for Ps to take out the 2^nd Injunction Summons to protect a mass volume of confidential materials, which were not previously known to Ps and only came to light after FTI’s forensic analysis and Ps’ ongoing investigations.  Had D been upfront and disclosed in D’s 1^st Affirmation the full extent and particulars of the documents he had downloaded, divulged and misused, the 2^nd Injunction Summons might have been unnecessary.

60.  Mr Hui submits that costs of the 2^nd Injunction Summons should be in the cause.  Mr Hui submits that the substance of the 2^nd Injunction Summons could well have been disposed of by voluntary undertakings and disclosures had Ps issued a pre-action letter, which would have saved costs.  The 2^nd Injunction Summons was also not contested by D.  The filing of D’s 2^nd Affirmation on a voluntary basis demonstrates that D is cooperative, and it would not be necessary for Ps to issue the 2^nd Injunction Summons.

61.  I appreciate that the 2^nd Injunction Summons has been disposed of by consent.  That would mean that much costs have been saved.  I am aware that the 2^nd Injunction Summons is supported by the 3^rd Affirmation of Hu Bin dated 13 October 2023.  If the substance of the 2^nd Injunction Summons is dealt with by correspondence, the subject matters in Hu’s 3^rd Affirmation would be the contents of the letters passing between Ps’ solicitors and D’s solicitors.  In my view, the costs incurred in disposing the substance of the 2^nd Injunction Summons in the present way (ie by a consent order), and the costs incurred in disposing the matter by correspondence and by undertakings, would not differ substantially. 

62.  Ps are entitled to have an order in terms of the 2^nd Injunction Summons because of the strong merits of the 1^st Injunction Summons and the unsatisfactory disclosures made by D following the Aug 2023 Order.  I have held that Ps should get the costs of the 1^st Injunction Summons.  In my view, Ps should also be given the costs of the 2^nd Injunction Summons.

63.  I would order that both costs of the 1^st Injunction Summons and costs of the 2^nd Injunction Summons (including costs reserved)  be to Ps forthwith, with a certificate for two counsel, to be taxed if not agreed.

DISPOSITION

64.  I make the orders as set out in [52], [56] and [63] above.  Costs of the Leave Summons, including the costs of this hearing, should follow the event and be to Ps forthwith, with a certificate for two counsel, to be taxed if not agreed.

65.  Lastly, it remains for me to thank all counsel for the helpful assistance rendered to the court.