JADEMAN (HOLDIGNS) LTD v. FRANCIS LEUNG PAK TO AND OTHERS

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HEADNOTE

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An order may be granted restraining a professional adviser acting against the interests of a former client if (but only if) the former client can show that there is a real risk of the adviser misusing confidential information of the former client (Rakusen v. Ellis, Munday and Clarke [1912] 1 Ch 831 followed)

Per curiam:

    No application for a restraining order made ex parte should be granted except on an undertaking by the applicant to issue and serve a summons inter partes to continue the order.

1989, No. A805

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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In these proceedings, the question before me is whether or not to continue an interlocutory injunction granted by Mr. Justice de Basto on 13th February 1989. The matter arises in this way. The plaintiff ("Jadmean") is a publisher of (among other things) newspapers and comics. The first defendant ("Mr. Leung") was formerly employed by Citicorp. During the period from November 1987 to March 1988, Citicorp was retained to act for Jademan in relation to a bonus issue which the plaintiff ("Jademan") was intending to make and which it did make. Mr. Leung, who dealt with this, has left Citicorp and he is now with the other defendants ("Peregrine").

2. Peregrine have now been retained to act in connection with an offer made for Jademan by the Spaceman Limited ("Spaceman"), an offer opposed by the Jademan, management. It is said for Jademan that, in the course of acting for Jademan during the period to which I have referred, Mr. Leung, who handled the matter on behalf of Citicorp must have become privy to confidential information about Jadmeman's affairs; and Jademan is concerned that he may make use of that confidential information in advising those who are now seeking to take over Jademan.

3. The offer was announced on 11th February 1989. On 13th February 1989 Jademan applied ex parte for interlocutory relief and under the order of Mr. Justice de Basto to which I have referred, obtained it.

4. The judge made an order restraining the defendants from divulging, publishing, disclosing or otherwise making use of any of the information contained in any of the documents set out in the Schedule to his order, not being information already (to put it shortly) in the public domain.

5. He also made an order restraining them from divulging, publishing, disclosing or otherwise making use of any information acquired by Mr. Leung in the course of his acting as a director, officer or employee of Citicorp, being information supplied to Mr. Leung or Citicorp as financial advisers or otherwise for the purpose of giving advice to Jademan (again, there was a proviso that the order should not restrict them from making use of any information on the public domain).

6. Lastly, he made an order restraining Mr. Leung from participating, in his personal capacity, or in the capacity of an officer, director or employee or otherwise howsoever of peregrine, or any other companies, or in any capacity whatsoever, giving any advice or assistance to Spaceman Limited in relation to the offer made by Spaceman.

7. It is accepted on behalf of the defendants that Mr. Leung is not at liberty to use any confidential information which he obtained from Jademan while acting as Citicorp's representative in connection with Jademan's bonus issue made in 1988. If Mr. Leung has any such confidential information he is bound to keep it confidential and he must not use it in the interests of those opposed to the takeover. But the defendants say first, that Mr. Leung has no such information; and, secondly, that in any case he has not used and has no intention of using any such information.

8. Against that background, I have (as I say) to consider whether or not to continue the injunction granted ex parte on the 13th February 1989. It would I think be helpful if I state, before turning to the evidence, the principles, general and particular, which fall to be applied. The points of general principle to be considered are conveniently summarised in the headnote to the report of Cayne v. Global Natural Resources plc [1984] I All England Law Reports 225. The headnote reads as follows :

"So far as material for the purposes of an application for an interlocutory injunction there is a triable issue between the parties if there is a serious question to be tried (i.e. one for which there is some supporting material) of which the outcome is uncertain. Accordingly, where the plaintiff's cage relies solely on inference and the defendant has sworn a positive affidavit which, if true and accepted destroys that inference, the court should not necessarily conclude that the plaintiff has failed to establish a triable issue because on such an application it is not necessary for the parties to establish firmly the outcome of the case, and the mere fact that a party's case is deposed to does not make it incontrovertible."

On the other hand, the headnote continues:

"Where the grant or refusal of an interlocutory injunction will have the practical effect of putting an end to the action, the court should approach the case on the broad principle of what it can do in its best endeavour to avoid injustice, and to balance the risk of doing an injustice to either party. In such a case the court should bear in mind that to grant the injunction sought by the plaintiff would mean giving him judgment in the case against the defendant without permitting the defendant the right of trial. Accordingly, the established guidelines requiring the court to look at the balance of convenience when deciding whether to grant or refuse an interlocutory injunction do not apply in such a case."

9. Those are the general principles. The field of confidential information is, of course, one in which these principles frequently fall to be applied; some cases involve professional advisers who are found to be offering their services to those in some way in competition or conflict with their former clients. In particular, this problem has been considered more than once in relation to solicitors; and in my judgment, the principles established by the court in relation to solicitors are of some help in deciding what is the proper approach to the present case. I mentioned to counsel, during the course of the argument, one of the cases concerning solicitors, Rakusen v. Ellis, Munday and Clarke [1912] 1 Ch. 831. In that case it was held (I read from the headnote) that:

"There was no general rule that a solicitor who had acted for some person either before or after the litigation began could in no case act for the opposite side; [and] the Court must be satisfied in each case that mischief would result from his so acting."

10. On the facts of the case, the Court of Appeal concluded (reversing the judge) that there was no danger of any breach of confidence and it held that the injunction must be refused.

11. In the judgment of the Master of the Rolls he said this (at p. 835):

"A solicitor can be restrained as a matter of absolute obligation and as a general principle from disclosing any secrets which are confidentially reposed in him. In that respect it does not differ very much from the position of any confidential agent who is employed by a principal."

12. Lord Justice Fletcher Moulton said this (at p.839):

"Before dealing with the case before us I wish to say a few words upon the rights of the parties and the action of the Courts in cases in which there is no question of solicitor and client but in which the feature of confidential relationship is to be found. In almost all businesses there must be person in such a confidential relation to the employers or to the people who are employed by them for purposes connected with the business, that the knowledge which they acquire is not knowledge at their own disposal but consists substantially of the secrets of their employer. Such employments come to an end sometimes at the choice of the master, sometimes at the choice of the servant, and thereupon difficulties necessarily arise, because the person who is no longer in employment still has in his breast secrets which are the property of his past employer. The view that the law takes of the rights of the parties in that position is too clear to be disputed. The employee is quite free to go into the service of people who may be the rivals or the opponents of his former master. The law does not say that the possession of those secrets shall cripple his work, or, sterilize it. He may go into employment quite inconsistent with the employment which he had in the past. All that the law says is You shall not disclose or put at the service of your new employer the secrets that belong to your old employer."

13. Lord Justice Fletcher Moulton added this (at p.840):

"The Court must act in each case according to the circumstances of the case."

And he said (at p. 841):

"As a general rule the Court will not interfere unless there be a case where mischief is rightly anticipated. I do not say that it is necessary to prove that there will be mischief, because that is a thing which you cannot prove, but where there is such a probability of mischief that the Court feels that ...... it ought to interfere, it will do so."

He went on to say (at p. 841):

"In the present case there is an abolute absence of any reasonable probability of any mischief whatever."

14. I have no doubt that in a case where there is, to use the words of Mr. Bunting, counsel for the defendants, "a real risk" of a misuse of confidential information, the court can and will interfere to prevent that from happening. The question in each case is whether such a real risk has been shown. If it has, then the court has jurisdiction (and will, in a proper case, exercise it) to restrain a defendant not only form disclosing the plaintiff's confidential information to others, but from acting for those others at all in circumstances in which there is a real risk of such a breach of confidence. So I see no objection in principle to any of the relief granted by the judge on 13th February 1989. If the court considers that there is a real risk that Mr. Leung will disclose to Spaceman confidential information obtained by him when employed by Citicorp about the affairs of the plaintiff, it can grant all the injunctions which the judge granted. The only question then is whether or not this is in fact a proper case for the continuance of the judge's order; and, upon that question, I intend to be guided by the considerations mentioned in the two cases to which I have referred.

15. The evidence before me includes an affirmation in support of the application for interlocutory relief made by Mr. Tony Wong. He is the chairman of Jademan's board of directors. It appears from his evidence that Jademan is a public company whose shares are listed on the Stock Exchange of Hong Kong, and that Mr. Wong holds about 36.4% of those shares.

16. In October 1987, Jademan thought it right to consider taking advice about its financial position. At the suggestion of its solicitors, Mr. Wong approached Mr. Leung, then a director of Citicorp. The idea was that Jademan would appoint Citicorp to advise generally. In this connection Mr. Wong was in constant contact with Mr. Leung and held numerous discussions with him, both on the financial position of Jademan and on virtually all aspects of its projection and development. During one of their many meetings, Mr. Leung mentioned to Mr. Wong the possibility of improving Jademan's financial position by a reduction of the share premium account and the issuing of a bouns issue of warrants to subscribe for shares.

17. Eventually, an arrangement was worked out which included Citicorp as one of two joint financial advisers to the company.

18. During the period from November 1987 to March 1988, when Mr. Leung was advising Jademan on the capital reduction and bonus issue, another company approached Jademan with a view to subscribing about 20% of its shares. Mr. Wong asked Mr. Leung for advice in relation to this, too.

19. As about the date of the general meeting held for approving the capital reduction and bonus issue, Mr. Wong, at one of his meetings with Mr. Leung, informed Mr. Leung that, in Mr. Wong's view, Jademan's 70% shareholding in a company called Tin Tin Publication Development Limited was very valuable as this company (whose main business it was to publish a newspaper called Tin Tin Daily News) showed great improvement and was showing a very good profit. Mr. Wong told Mr. Leung of his plan to spin off the assets of Tin Tin Daily News, and various other magazine publications, and to seek a separate stock exchange listing for the company. They had along discussion on the possibility of the idea. Mr. Leung endorsed the idea and advised in favour of it.

20. There were further meetings between Mr. Wong and Mr. Leung. During these, Mr. Wong says, there were many occasions on which Mr. Leung was given confidential information about Jademan. Mr. Wong says that Mr. Leung was also supplied with copy documents of the company. From recollection, Mr. Wong sets out a list of confidential documents "which must have been supplied" by Jademan to Mr. Leung during the period when Mr. Leung acted as Jademan's the finanical adviser. (This is a list, not of documents which he knows were supplied to Mr. Leungbut which he thinks must have been.) This list is the subject of the order made by the judge on 13th February 1989. Yet, even now, copies of those documents have not in fact been supplied to the defendants or put in evidence.

21. Mr. Wong says that, on or about 11th February 1989, he came to know that Peregrine, acting on behalf of Spaceman, intended to make a general offer for all the issued shares and outstanding warrants of the company. Mr. Wong was right. In the South China Morning Post of 13th February 1989, there appeared an announcement by Peregrine on behalf of Spaceman giving details of the offers to be made. The announcement stated that it had been appointed financial adviser to Spaceman.

22. Spaceman is a company controlled by one Albert Cheng and his wife, who are in a business competing With Jademan. Mr. Albert Cheng is chairman of the Society of Hong Kong Publishers. At a press conference, held on 11th February 1989, Mr. Cheng gave certain information to those assembled. Mr. Wong says he believes that some of this information must have been derived from Mr. Leung, and in particular he refers to certain information concerning the advertising income of Tin Tin Daily News. Mr. Wong says he believes that this information was obtained by Mr. Leung in the course of his acting as Jademan's financial adviser. He says that, during the time when Mr. Leung was so acting, Jademan had made a computer printout of the profit forecast of Tin Tin publication Development Limited and that this computer printout showed that the actual advertising revenue (up to November 1987) together with the income forecast (for December 1987 to March 1988) would give the particular figure for annual advertising revenue which Mr. Cheng mentioned. (I do not propose to repeat the figure, because for all I know this may still be confidential information what was put in evidence was a copy of the computer printout contained in an envelope which has not been opened. So, because this judgment may receive currency outside chambers after I have finished giving it, I think it best to omit the figure.)

23. Mr. Wong says that the actual advertsing revenue of the newspaper as given to the press conference was a figure which shows that the person giving it must have been privy to this confidential information. Founding itself on this point, Jademan went to the court and also protested (through Morgan Grenfell Hong Kong Limited) to the chairman of the committee on Takeovers and Mergers Securities and Commodities Trading.

Mr. Wong says :

"I verily believe [the defendants] will disclose and make use of confidential information acquired from [Jademan] in connection with the takeover offer unless restrained by this Honourable Court;"

and he says:

"If the confidential information of [Jademan] was made public or disclosed in the general offer ..... irrespective of whether the takeover will be successful or not, the company will suffer irreparable harm as the confidential information of the company would then be known to its trade competitors."

24. The evidence in answer includes of an affirmation by Mr. Leung and three other affirmations, one of them by Albert Cheng.

25. In Mr. Cheng's affirmation he says that he is a director and shareholder of Spaceman and that he is the current Chairman of the Society of Hong Kong Publishers. He accepts that, on 10th February 1989, Spaceman appointed Peregrine as its financial adviser in connection with an offer to be made on behalf of Spaceman for all the issued shares and outstanding warrants of Jademan. Mr. Cheng goes on to say this (in a passage which I regard as

particularly important)

"Before appointing [Peregrine] as aforesaid I had already made my own assessment on the potential of [Jademan] were it to come under my management and had decided to make the offer, and the terms of the announcement were based upon the information I had got before making that appointment. [Mr. Leung] gave me no advice or information relating to the commerical value of [Jademan]. The information that I received from Mr. Leung related only to the extent of the shareholding of Tony Wong and his advice related to the mechanics of making a successful offer. He did show me figures on the net asset value per share of [Jademan] which he obtained from the published annual accounts of [Jademan] for the year ended 31st March 1988. In our earlier conversations he had indicated that according to information of which I was already aware and which I understood to be generally available, [Jademan] was a possible target for a takeover, as it was believed in the market that Tony Wong had only a minority interest in [Jademan] and it was remoured that an expected placement of shares (reported in the Chinese press before the Chinese New Year) was to strengthen Tony Wong's position which was then vulnerable."

26. Mr. Cheng denies that he relied, for the figures he gave to the press conference in relation to the Tin Tin Daily News advertising revenue, on any information given to him by Mr. Leung. He says he obtained that information form material in the public domain and he gives a detailed explanation of how he came to the figure which he gave. He expresses his concern that, without the assistance of Mr. Leung in the offer, Peregrine will not be able properly to promote the offer.

27. Mr. Leung in his affirmation accepts that in November or early December 1987 he was approached by Mr. Wong, at a time when Jademan had already decided to reduce its share premium account and to make a bonus issue of warrants, and that Citicorp and another company were in due course appointed joint financial advisers to Jademan in connection with the proposals I have mentioned.

28. He accepts that, from about early December 1987 to March 1988, Jademan supplied Citicorp with a number of documents concerning Jademan's affairs (and other such information). He says that he cannot recall with certainty what documents were provided, but, so far as he can recall, they would have included certain of the documents listed by Mr. Wong. He does recall Mr. Wong asking his advice in relation to the approach from a public company referred to in Mr. Wong's affirmation; but there was no new information provided to him in that connection. He accepts that there was a meeting at which he had a discussion with Mr. Wong over the matter of Tin Tin Publication Development Limited. He says that he was not supplied with any documents concerning this proposal at that meeting. He says that, when he left Citicorp in September 1988, He did not take with him any papers relating to Jademan to Citicorp which have not since been returned or destroyed remain in the possession of Citicorp. He says that none of the defendants hold any documents which are the property of Jademan, in particular any of the documents which are the subject of the order made on 13^th February 1989.

29. He says that he has no specific recollection of the computer printout to which I have referred , but that it is possible that such a document was generated at the time stated by Mr. Wong. He says that the fears expressed by Mr. Wong are groundless; none of the deformation would only relate to the matters already identified; would have pre-dated March 1988; and would not now be of any assistance to an offeror because it would be out of date. He says that, if the injunction is not discharged, Peregrine would be prevented from carrying out properly their duties to The Spaceman Limited. He is one of two individuals principally concerned with running Peregrine's business, the other being Mr. Philip Tose. Without his assistance Mr. Tose could not cope with the offer made by Spaceman. In any event, of the two of them, it is Mr. Leung who deals with matters of corporate finance such as this offer. If he is unavailable to assist, Peregrine would be severely handicapped in dealing properly with the offer. He says that these proceedings interfere with the conduct of the doffer and prejudice the interests of Jademan's shareholders a s well as those if Spaceman. That is Mr. Leung's evidence.

30. I have also an affirmation by one William Kwong, who is an associate director of B.T. Asia Limited and who at the material time was an assistant Vice President of Citicorp. He says that Citicorp was not asked to give Jademan general financial advice; nor did Citicorp investigate Jademan's financial position generally. He says that, so far as he was aware, Jademanprovided no confidential information that could assist an offeror now or a trade competitor. He says that most of the information has been superseded by published audited annual accounts or other public documents.

31. Mr. Wong has made an affirmation in reply. In dealing with Mr. Cheng's affirmation, he argues that it is inconceivable for a merchant banker involved as financial adviser to an offeror to give no advice to the offeror on the commercial value of the target of the takeover. He does not accept the important paragraph 4 in Mr. Cheng's affidavit to which I have already referred, which suggests that, on the commercial aspects of the takeover, Mr. Cheng made up his own mind without the assistance of any information, whether confidential or otherwise, supplied to him by Mr. Leung.

32. He accepts that there were public sources of information on the advertising revenue of Tin Tin Daily News but persists in his contention that Mr. Cheng must have obtained his information from Mr. Leung and not from that published information. He goes so far as to say that he believes that the reference to the figures which Mr. Cheng made was "merely a false pretext for him to justify his having made use of the confidential information derived from the plaintiff". He does not accept that the information which Mr. Leung had related only to matters predating March 1988 and he rejects the suggestion that such information would not be of any assistance to an offeror.

33. He makes reference to a number of newspaper reports concerning the matters with which the court is now concerned. I must protest at this. The court is not in the least concerned with what newspaper reporters say about events at which they claim to have been present. Whether at a tria1 or an interlocutory hearing, such material should find no place whatever. The exhibition of newspaper cuttings is not evidence. It is not of the slightest assistance to the court I pay no attention to these reports.

34. I do, however, now have to consider whether, in the light of all the evidence, and in the light of the principles I have already stated, I ought to continue the injunctions granted on 13th February 1989. In my judgment, I ought not to do so. I am not satisfied on the evidence that there is any real risk of the misuse by Mr. Leung of any confidential information. If Jademan had shown that there was such a real risk, then it would have been entitled to the relief sought. But, in my judgment, Jademan has not shown this. Accordingly, I do not think this is a proper case for the continuance of the injunctions.

35. For these reasons, I shall not continue the injunctions. The defendants' costs of this application must be taxed (if not agreed) and paid by the plaintiff to the defendants.

36. I must add that I deplore the fact that the relief granted on 13th February 1989 was sought and obtained ex parte. The grant of ex parse relief is necessary when the relief claimed is a Mareva or Anton Pillar injunction (in that sort of case the chances are that the whole object of the order would be defeated if the intended defendant was given notice of the application). But these are exceptional cases. It is a fundamental rule of natural justice that no order should be made after hearing only one side; and only in cases of extreme urgency should that rule be broken. So, for the protection of the intended defendant, any court dealing with an ex parte application for a restraining order should, if it decides that ex parte relief should, exceptionally, be granted, obtain an undertaking from the applicant to issue and serve on the intended defendant a summons inter partes to continue the order soughy being a summons to be made returnable at a fixed and early date. The ex parte relief should be granted only until after the hearing of the summons, at which hearing the burden will lie on the applicant to satisfy the court that the relief granted ought to be continued. In the present case this was not done. Jademan asked for, and obtained, ex parte, the relief granted on 13th February 1989, without giving any undertaking to issue a summons inter partes. This put the burden on the defendants to apply to discharge it. All this was wholly wrong and grossly unfair. The case was in fact unsuitable for the grant of ex parte relief. It would, with respect, have been enough to abridge time for service of the summons inter partes so that it could come on within a day or two or notice to the defendants. I express the hope that (except in the Anton Pillar type of case, where the order has to be executed before the intended defendant can frustrate it) no grant of ex parte relief will ever be made again in the absence of an undertaking by applicant to issue and serve a summons inter partes to continue the relief sought; nor at all if it is possible (as it would have been here) to hold the balance fairly between the parties by refusing the applicant ex parte, but giving him leave to serve a summons inter partes on short notice.