SPARKLE CAPITAL LTD v. CHAN WAI MAN (also known as CHAN WAI MAN IVAN)

DCCJ 836 & 1380/2018 & 289/2021 (Consolidated)

[2022] HKDC 722

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 836 OF 2018

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IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1380 OF 2018

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IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 289 OF 2021

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DECISION

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Introduction

1.  This is a summons taken out by the plaintiff for leave to adduce expert evidence on a work report produced by the defendant referred to in paragraph 14 of the amended statement of claim (“the work report”).

The plaintiff’s case

2.  The plaintiff commenced a project which aimed at the development of smart personal care products including the smart pillow in around the middle of June 2017 (“the pillow project”).

3.  The defendant was employed by the plaintiff to work on the pillow project from 15 July 2017.

4.  The plaintiff says that:-

(a)  the defendant had failed to adequately update the plaintiff on the progress of the work on the development of the smart pillow prototype;

(b)  the defendant repeatedly failed to attend work at the workplace designated by the plaintiff; and

(c)  the defendant falsely represented to the plaintiff that he was not directly or indirectly interested in any business which was in competition with or could potentially compete with the plaintiff. However, the plaintiff discovered that the defendant was the founder owner and the person managing a competitor of the plaintiff by the name of NICADA Research & Development Company Limited (“NICADA”).

5.  The defendant was terminated by the plaintiff on 23 January 2018 for breach of the employment contract.

6.  Before the termination, on 17 January 2018, the plaintiff started to demand the defendant to return all property and information belonging to the plaintiff including “all work-related material and document, detail workings and records as to the development” of the smart pillow prototype.

7.  On 20 January 2018, the defendant provided the plaintiff with the work report.

8.  It is the plaintiff’s case that the work report is defective and could not be used to discharge the defendant’s duties to the plaintiff. Hence, the work report could not be regarded as a due return of confidential information and intellectual property to the plaintiff.

The defendant’s case

9.  The defendant says that the employment contract was subject to a verbal contract between the plaintiff and the defendant that the defendant was given considerable flexibility in the performance of duties for the plaintiff.

10.  NICADA was not involved in the pillow project.

11.  The defendant was retained by Mr Chiu Kung Wan Nelson to work for Nettle Print Limited (“NPL”) in or about 2016 to do the invention and testing works for smart pillow. NPL was the owner of the smart pillow project and owned the rights of intellectual property thereof. The defendant would be subject to the duty of confidentiality owed to NPL and would be required to report to Mr Chiu.

12.  The defendant further says that the arrangement of having the defendant to be employed by the plaintiff was the result of the business collaboration between Mr Chiu and Mr Tam Paul Clement of the plaintiff on the pillow project.

The plaintiff’s argument

13.  Mr Tommy Cheung, counsel for the plaintiff, submitted that the following issues have arisen out of the pleaded case:

(a)  whether the defendant had failed to comply with the reasonable instructions of the plaintiff, such as proper recording of the product specification, design approach and technical architecture of the smart pillow;

(b)  whether the defendant had failed to protect and return the confidential information and intellectual property, and thereby breached the employment contract, equitable duty of confidence and/or fiduciary duties; and

(c)  whether the defendant had been working for the benefits of third parties or failed to undertake the work assigned by the plaintiff concerning the smart pillow/the pillow project in the plaintiff’s best interest during his employment with the plaintiff.

14.  Therefore, it is necessary to look into the work report because its nature, quality and degree of completeness are highly relevant. If the work report did not record all intellectual property rights necessary for the commercial production that were within the defendant’s power, custody and control, this would strengthen the plaintiff’s case that the defendant was in breach of the employment contract and vice versa.

15.  As the work report contains technical information and materials which are beyond the expertise of the legal representatives and the court, expert evidence is required to simplify the technical matters and to assist the court.

16.  Mr Cheung, relying on Ready Set Goal Ltd v Kay-El (Hong Kong) Ltd, HCA 223/2013, 18/11/2014, unreported, submitted that as the defendant has raised an issue on the ownership of the intellectual property rights in the smart pillow project, the court should proceed on the basis that there is a reasonable chance that this issue would be resolved in favour of the plaintiff at the trial.

17.  Relying on Wong Hoi Fung v American International Assurance Co (Bermuda) Ltd [2002] 3 HKLRD 507, Mr Cheung submitted that if the court cannot form a clear view of the relevance of the expert evidence, leave should be granted.

The defendant’s argument

18.  Mr Joseph Wong, counsel for the defendant, argued that the proposed expert evidence is completely irrelevant because nowhere in the amended statement of claim has pleaded that it is a term of the employment contract (express or implied) that the defendant is required to develop and come up with a prototype capable of being used for commercial production of the smart pillow.

19.  Further, the proposed expert evidence is also unnecessary and of no probative value because the executive summary of the work report has already acknowledged that the existing prototype “still has some defects and the testing result shows that the prototype is not robust enough for real-life customer trials and further studies are needed. In addition, injection moulds and special tooling for manufacturing some critical parts for further functional testing are also needed.”

20.  Mr Wong stressed that the defendant had started the research and development work on the smart pillow project with NPL under the consultant contract dated 20 December 2016, ie before the defendant was employed by the plaintiff on 15 July 2017. It was the agreement and understanding of Mr Tam of the plaintiff and the defendant that NPL continued to be the owner of the product and would own the rights of all intellectual property thereof and that the defendant would be subject to the duty of confidentiality owed to NPL with respect of all trade secrets and technical information of the product.

21.  Therefore, the work report would not have a full and complete record of all intellectual property rights relating to the smart pillow project. The work report would only record the research and development works on the project during the period from 15 July 2017 and 23 January 2018 when the defendant was employed by the plaintiff. The work report would not contain integral components of the smart pillow project such as software and electronic development which were strictly developed by NPL.

Discussion

22.  It is necessary to examine the pleadings.

23.  Paragraph 5A of the amended statement of claim states that:-

“The Defendant owed the following implied duties under the Contract arising as recognized incidents of the employment relationship, and/or to give the same business efficacy, and/or to give effect to the presumed intent of the parties at the time of entering therein and/or in light of the specific duties and responsibilities of his role as Senior Mechanical Engineer:

…

(d) as incidents of duty of good faith and fidelity and the duty of trust and confidence, that he would:

…

(vi) disclose to the Plaintiff all matters relevant to the tasks entrusted to him and/or for which he was responsible or involved in the course of his employment, including but not limited to his knowledge any intellectual property, design or other information relating to the Pillow Project and in particular the prototype smart pillow;

(vii) disclose to the Plaintiff all inventions, designs and discoveries, or improvements to existing inventions or processes, which he made in the course of his employment, including but not limited to those concerned with the smart pillow prototype”

24.  Paragraph 5D of the amended statement of claim states that:-

“The Defendant owed the Plaintiff the following fiduciary duties in respect of his development and/or research into the smart pillow prototype pursuant to common law:

…

(g) a duty to disclose to the Plaintiff all inventions, designs and discoveries, or improvements to existing inventions or processes, which he made in the course of his employment, including but not limited to those concerned with the smart pillow prototype”

25.  At the request of the plaintiff, the defendant delivered the work report to the plaintiff on 20 February 2018.

26.  It is the plaintiff’s case at paragraph 15 of the amended statement of claim that “the product specification, design approach, and technical architecture of the smart pillow were found missing from the Report, which means that even with the Report, it is not possible for the Plaintiff to build another hardware prototype of the smart pillow” and therefore the defendant had failed to return all confidential information and intellectual property to the plaintiff.

27.  By paragraph 6A of the amended defence and counterclaim, the defendant states the following:-

“As to Paragraphs 5A to 5D:-

(1) The Agreement was expressly conditional upon and subject to the terms of the Verbal Contract as pleaded under Paragraph 5(e) above and the latter would prevail in the event of any inconsistency between the two.

(2) In any event, it is denied that the alleged terms therein could be imposed or implied into the Agreement as a matter of law.

(3) In the premises, Paragraphs 5A to 5D are denied.”

28.  The defendant also denied the allegation as contained in paragraph 15 of the amended statement of claim.

29.  In my view, expert evidence is obviously relevant and is required of to assist the court in determining the following issues:-

(1)  whether the work report had disclosed all the intellectual property, design or other information relating to the pillow project and the smart pillow prototype;

(2)  whether the work report had disclosed all inventions, designs and discoveries or improvements to the existing inventions or processes which the defendant made in the course of his employment concerning the smart pillow prototype; and

(3)  whether the product specification, design approach, and technical architecture of the smart pillow were missing from the work report.

30.  With respect to Mr Wong, in identifying the issues, the premise that it was not pleaded that the defendant was required to develop and come up with a prototype capable of being used for commercial production of the smart pillow is counter-productive. This would lead to bias and prevent the reader from forming a balanced view of the pleadings.

31.  For obvious reasons, the acknowledgment in the executive summary of the work report is no answer to the issues that I have identified above.

32.  The alleged verbal contract between the defendant and Mr Tam on 25 August 2017 and the allegation that the ownership of the intellectual property rights belonged to NPL are other issues that have to be resolved by the trial. They do not, however, exonerate the trial judge, as the tribunal of fact, from making findings on the issues relating to the work report.

33.  A glance at the work report will find that it contains large amount of computer-aided engineering analysis data and prototype testing data. Those data are not readily assimilable or understood by people without engineering background. In order to give sense to those data, expert evidence is required to assist the trial judge on the interpretation of them.

Conclusion and order

34.  By reasons to the aforesaid, I hold that leave should be granted to the parties to adduce expert evidence on the work report.

35.  In the light of the issues I have identified, the issues of which expert opinion is required have to be modified.

36.  I therefore give the following order and directions:-

(1)  Leave to the parties to adduce expert evidence on the work report referred to paragraph 14 of the amended statement of claim (“the work report”), limited to one for each party, on the following issues:-

(a)  whether the work report contains any the intellectual property, design or other information relating to the pillow project and the smart pillow prototype;

(b)  what other intellectual property and design, if any, are required for:-

(i)  the building of a smart pillow prototype; and

(ii)  the commercial production of the smart pillow;

(c)  whether the work report contains any inventions, designs and discoveries or improvements to the existing inventions or processes concerning the smart pillow prototype, and if so, what they are;

(d)  what product specification, design approach, and technical architecture of the smart pillow are contained in the work report;

(e)  what product specification, design approach, and technical architecture of the smart pillow are required for:-

(i)  the building of a smart pillow prototype; and

(ii)  the commercial production of the smart pillow; and

(f)  whether the work report shows that the defendant had carried out any work in relation to the research and development of the pillow project, and if so, what they are;

(2)  The parties do nominate by letter to court the identity of their respective experts within 28 days from the date of this decision. Failing which, the defaulting party shall be deemed to have elected not to adduce expert evidence at the trial of this action;

(3)  The parties do exchange their respective preliminary expert reports within 42 days thereafter;

(4)  There be a without prejudice meeting of the experts within 28 days thereafter for the purpose of discussing a joint statement of experts indicating those parts of their opinion of which they are, and those on which they are not, in agreement;

(5)  The parties’ experts do prepare a joint statement of experts within 28 days thereafter identifying:-

(a)  the issue or issues on which the experts have reached a common opinion and in respect of each such issue what the common opinion is; and

(b)  the issue or issues on which the experts have failed to reach a common opinion and their competing views on each such issue. Each expert shall also state the reasons for their disagreement;

(6)  The plaintiff doth lodge with court the joint statement of experts within 7 days thereafter.

Costs

37.  I make a costs order nisi that the defendant shall pay the plaintiff the costs of this application with certificate for counsel, to be taxed if not agreed.

38.  In the absence of any application to vary the same by letter within 14 days from the date of this decision, the costs order nisi shall become absolute.