SHENZHEN FUTAIHONG PRECISION INDUSTRY CO., LTD AND OTHERS v. BYD CO LTD AND OTHERS

CACV 3/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 3 OF 2011

(ON APPEAL FROM HCA NO. 2114 OF 2007)

____________

______________

JUDGMENT

______________

Hon Tang VP:

Background

1.  This is the appeal by the Plaintiffs (by original action) and the Defendants (by counterclaim) ("the Foxconn Parties") from the judgment of Deputy Judge L Chan whereby the Foxconn Parties' application to strike out paras 62-68 of the Re-Re-Amended Defence and Counterclaim[1] ("the Counterclaim") of the Defendants (by original action) and the Plaintiffs (by counterclaim) ("the BYD Parties") and other consequential paragraphs was dismissed. 

2.  Foxconn and BYD are well-known names[2].  They are competitors in the mobile handset-related business.  In this action, the Foxconn Parties claimed, inter alia, that they had developed a set of confidential information for the operation of their business, and that certain employees of the Foxconn Parties including Liu Xiang Jun（柳相軍）("Jun"), Si Shao Qing（司少青） ("Si"), Liu Wu Ping（柳吳平）("Ping"), Zhang Jian（張健 also known as 張釗） ("Zhang"), acted in breach of their duties and had disclosed confidential information (constituting trade secrets) ("Confidential Information") to the BYD Parties, and that the BYD Parties had induced and procured them to do so.  The events complained of by the Foxconn Parties allegedly took place in 2005 and 2006 (para 27 of the Re-Amended Statement of Claim ("RASOC")). 

3.  The Foxconn Parties' allegations included allegations that:

(i) Jun "had retained Confidential Information in the computer at his residential address after resigning from the [Foxconn Parties] … " Para 20(a) of the RASOC.

(ii) Si had retained and continued to use Confidential Information via the hard disk/hard drive of his computer at the offices of the BYD Parties.  Para 21A(b) of the RASOC. 

(iii) Jun had induced Si, Zhang and Ping to act in breach of their duties to the Foxconn Parties.  Paras 21A, 23 and 24 of RASOC.

4.  Such allegations have been denied by the BYD Parties and they relate to matters covered by paras 62 to 68 of the Counterclaim.

5.  The BYD Parties' counterclaim for damages for unlawful interference with business is pleaded in para 61 which reads:

"61.   From about 2006 onwards, the 1^st, 2^nd, 3^rd and/or 4^th Defendants wrongfully and unlawfully interfered with the business and economic interests of the Plaintiff by using unlawful means with the object and effect of causing loss and damage to the business of the Plaintiffs.  The matters complained of are set out in paragraphs 62 to 121 below.  During the said period, the 1^st, 2^nd, 3^rd and/or 4^th Defendants embarked upon a course of conduct of procuring and using false or fabricated evidence and/or evidence unlawfully obtained to launch proceedings and prosecution against the Plaintiffs and/or their staff and employees and then made and issued false statements of and concerning the Plaintiffs to the effect that the Plaintiffs and/or their staff had allegedly stolen or misused Defendants' confidential information or trade secrets.  The unlawful means included unlawful detention, illegal planting of documents, intimidation, uttering and using false evidence in proceedings, bribery, including bribing the 7^th Plaintiff's employee to act in breach of confidence and steal documents and defamation." [Emphasis added]

6.  Since Foxconn Parties' strike out application is principally directed at paras 62 to 68, I have to deal with them in some detail.

7.  Para 62 concerns "Unlawful detention of Ping"; and alleges that the Foxconn Parties' employees:

"62.   … arranged for Ping to be unlawfully detained in an attempt to obtain false evidence from him that he had wrongfully misappropriated the 4^th Defendant's business secrets and disclosed the same to [BYD]".

8.  Paras 63 to 65 concern "Illegal planting of documents in Ping's Apartment and on Ping's computer".  They relate to the Foxconn Parties' claim that Jun had retained Confidential Information in the hard drive of his computer at home[3].

9.  Para 66 concerns "Unlawful intimidation of Zhang".  It is alleged that the Foxconn Parties were responsible for the unlawful intimidation of Zhang in order to obtain a false confession from her that she had been procured and/or induced by Jun to divulge confidential documents of the Foxconn Parties to him.  It is alleged that such intimidation took place during a train journey, which lasted approximately 20 hours from Weinan to Shenzhen.  According to the BYD Parties, as a consequence, Zhang had or might have made the admission[4] pleaded in para 3(iv) above.

10.  Para 67 relates to "Bribery of Zhao Jun" who was allegedly at the relevant time the director of the Beijing JZSC Judicature Appraisal Center for Intellectual Property（北京九州世初知识产权司法鍳定中心）(the "Appraisal Centre").  It is alleged that in or around September 2007, bribes in the total sum of RMB 10 million were paid by the Foxconn Parties to Zhao Jun in order to obtain access to, and, to tamper with, the computer hard drives of Jun and Si which the Appraisal Centre was entrusted by the Supreme People's Court of PRC to appraise for the purpose of what was called the 2006 PRC Action.  This plea is relevant to Foxconn's allegations pleaded in para 3(i) and (ii) above.

11.  Para 68 deals with "Bribery of Zhang Chaozheng".  It said that an employee of the Foxconn Parties paid bribes to Zhang Chaozheng (who was at the time an employee of the BYD Parties):

"68.   … in order to induce him, in breach of his duty of confidence to the [BYD Group], to assist in locating documents from the [BYD Group] and to fabricate evidence that certain documents belonging to the [BYD Group] (but which the [Foxconn Parties] allege belong to them) [Alleged Plagiarised Documents] were passed amongst and/or used by certain of the [BYD Parties'] employees;"

12.  Para 69 of the RASOC went on to allege that the unlawful acts identified in paras 62 to 68 were carried out by the Foxconn Parties with the intention of and in an attempt to fabricate false evidence against the BYD Parties to the effect that the BYD Parties had misappropriated the Foxconn Parties' business secrets in order to support various legal proceedings and criminal complaints commenced by the Foxconn Parties against the BYD Parties and/or their employees "in the PRC and in Hong Kong, namely, the 2005 PRC Action, the 2006 PRC Action, the 1^st HK Action, the 2^nd HK Action and the Criminal Complaint"; as well as to support the publication of various announcements and statements as well as a letter from the Foxconn Parties' lawyers to Mr Warren Buffet and Mr Charles Munger (who are and were, at all material times, the Chief Executive Officer and Vice-Chairman of Berkshire Hathaway Corporation respectively[5]), which were allegedly defamatory of the BYD Parties.

13.  As noted, the BYD Parties' allegations of illegal planting of evidence on Ping's computer and "Bribery of Zhao Jun" concern the 2006 PRC Action.

14.  (i) The 2006 PRC Action was an action by the Foxconn Parties against the BYD Parties, Jun and Si in Shenzhen, claiming that they had obtained, used or disclosed trade secrets belonging to the Foxconn Parties in breach of Article 10 of the Law of the PRC against Unfair Competition.  It was in this action that the Shenzhen Court seized the computer hard drive of the laptop computers of Jun and Si ("the Hard Drives");

(ii) on or about 21 August 2006, the Foxconn Parties applied to the Shenzhen Court to abandon their claim against Jun and Si, and the application was granted on the same day;

(iii) on or about 20 August 2007, the Supreme People's Court of PRC requested appraisal reports to be prepared by the Appraisal Centre in relation to the Hard Drive for the purpose of the 2006 PRC Action;

(iv) on or about 24 December 2007, the Appraisal Centre issued 2 reports in relation to the Hard Drive ("the Reports");

(v) on or about 29 February 2008, the BYD Parties challenged the credibility of the Reports, alleging that the Hard Drive might have been tampered with; and

(vi) on 6 March 2008 (which was the scheduled day for the hearing of the 1^st Plaintiff's challenge of the Reports by the Shenzhen Court), the 3^rd and 4^th Defendants applied for permission to withdraw the 2006 PRC Action and such permission was granted on the same day by the Shenzhen Court.

The Appeal[6]

15.  Mr Adrian Huggins, SC (who appeared for the Foxconn Parties), together with Ms Elizabeth Cheung, submitted that the allegations contained in paras 62 to 68 are very serious.  They amounted to allegations of serious criminal offences including attempts to pervert the course of justice.  However, he submitted that although planting of evidence against someone may be a criminal act, it is not an actionable civil wrong.  He relied on the majority decision in OBG Ltd & Anor v Allan & Ors [2008] 1 AC 1 as authority that criminal conduct[7] cannot support the tort of unlawful interference.

16.  This is how the learned Deputy Judge dealt with this argument:

"24. Leading counsel for the defendants however asks me not to overlook the minority speech of Lord Nicholls in this case.  Lord Nicholls said in paras. 149 to 155:

'149. Although the need for "unlawful means" is well established, the same cannot be said about the content of this expression.  There is some controversy about the scope of this expression in this context.

150. One view is that this concept comprises, quite simply, all acts which a person is not permitted to do.  The distinction is between "doing what you have a legal right to do and doing what you have no legal right to do": Lord Reid in Rookes v Barnard [1964] AC 1129, 1168-1169.  So understood, the concept of "unlawful means" stretches far and wide.  It covers common law torts, statutory torts, crimes, breaches of contract, breaches of trust and equitable obligations, breaches of confidence, and so on.

151. Another view is that in this context "unlawful means" comprise only civil wrongs.  Thus in Allen v Flood itself Lord Watson described illegal means as "means which in themselves are in the nature of civil wrongs": [1898] AC I, 97-98.  A variant on this view is even more restricted in its scope: "unlawful means" are limited to torts and breaches of contract.

152. The principal criticism of the first, wider view is that it "tortifies" criminal conduct.  The principal criticism of the second, narrower view is that it would be surprising if criminal conduct were excluded from the category of "unlawful" means in this context.  In the classical "three-party" form of this tort the defendant seeks to injure the claimant’s business through the instrumentality of a third party.  By this means, as Lord Lindley said, the claimant is "wrongfully and intentionally struck at through others, and is thereby damnified": Quinn v Leathem [1901] AC 495, 535.  It would be very odd if in such a case the law were to afford the claimant a remedy where the defendant committed or threatened to commit a tort or breach of contract against the third party but not if he committed or threatened to commit a crime against him.  In seeking to distinguish between acceptable and unacceptable conduct it would be passing strange that a breach of contract should be proscribed but not a crime.  In Rookes v Barnard [1964] AC 1129, 1206-1207, Lord Devlin noted it was "of course" accepted that a threat to commit a crime was an unlawful threat and continued:

"It cannot be said that every form of coercion is wrong.  A dividing line must be drawn and the natural line runs between what is lawful and unlawful as against the party threatened."

153. These different views are founded on different perceptions of the rationale underlying the unlawful interference tort.  On the wider interpretation of "unlawful means" the rationale is that by this tort the law seeks to curb clearly excessive conduct.  The law seeks to provide a remedy for intentional economic harm caused by unacceptable means.  The law regards all unlawful means as unacceptable in this context.

154. On the narrower interpretation this tort has a much more limited role.  On this interpretation the function of the tort of unlawful interference is a modest one.  Its function is to provide a claimant with a remedy where intentional harm is inflicted indirectly a distinct from directly.  If a defendant intentionally harms a claimant directly by committing an actionable wrong against him, the usual remedies are available to the claimant.  The unlawful interference tort affords a claimant a like remedy if the defendant intentionally damages him by committing an actionable wrong against a third party.  The defendant’s civil liability is expanded thus far, but no further, in respect of damage intentionally caused by his conduct.

155. In my view the former is the true rationale of this tort.  The second interpretation represents a radical departure from the purpose for which this tort has been developed. If adopted, this interpretation would bring about an unjustified and unfortunate curtailment of the scope of this tort.'

25. Leading counsel for the defendants further refers to the speech of Lord Walker in the same case.  Lord Walker suggested that neither of the views of Lord Hoffman and Lord Nicholls would be the last word on this difficult and important area of the law (para. 269).

26. Leading counsel also refers to Revenue and Customers Commissioners v Total Network SL [2008] 1 AC 1174 at para. 43 where Lord Hope expressed his reservation on Lord Hoffman’s view in OBG Ltd on unlawful means.

27. Leading counsel submits that the law of unlawful interference is developing and unlawful means should not be limited to actionable wrongs, but should include other wrongful acts like criminal conduct.  Counsel asks me to at least leave this issue for the trial judge who will have the advantage of hearing all the evidence."

17.  For these reasons, the learned Deputy Judge has dismissed the strike out application.  With respect, I agree with the learned Deputy Judge that the law on the subject cannot be regarded as settled.  Nor do I agree with Mr Huggins that we are concerned with a point of law which can be decided just as well now as at trial.  I have in mind the words of Lord Browne-Wilkinson in Barrett v Enfield London Borough Council [2001] 2 A.C. 550 at 557 that:

"… in an area of law which was uncertain and developing … it is not normally appropriate to strike out.  In my judgment it is of great importance that such development should be on the basis of actual facts found at trial not on hypothetical facts assumed …"

18.  However, Mr Huggins also submitted (rightly in my view) that it is a necessary ingredient of the cause of action in unlawful interference that the plaintiff must in fact have suffered loss as a result of the alleged wrongful act which constitutes an unlawful means. 

19.  Mr Huggins submitted that although the BYD Parties counterclaimed that the "unlawful acts as identified in paras 62 to 68 above … were conducted" by the Foxconn Parties "with specific intent to damage the BYD Parties …" no such damage could be shown.  He submitted that, for example, it has not been alleged that the detention of Ping or the unlawful intimidation of Zhang has caused any loss or damage to the BYD Parties.  Nor that any evidence had in fact been fabricated or obtained as a result of the detention of Ping or the unlawful intimidation of Zhang.

20.  In the Counterclaim, the BYD Parties asked for

"(1) Damages for unlawful interference with business (as pleaded in para 86 above)".

Para 86 reads:

"By reason of the matters pleaded in paragraphs 62[8] to 85 above, the Plaintiffs have suffered loss and damage, including loss of business and business opportunities (to be assessed)."

21.  I would say that the bare bones of a claim for damages have been pleaded.  Of course, they cry out for particulars.

22.  But Mr Benjamin Yu, SC leading Ms Sara Tong (for the BYD Parties) told us that the Foxconn Parties had issued the summons to strike out without prior warning.  Nor had they sought particulars regarding damages. Mr Yu also submitted that it is at least arguable that where a wrongful act would ordinarily cause loss, it is unnecessary to demonstrate and prove particular items of loss, and damages would be "at large" (see Bullen & Leake & Jacobs: Precedents of Pleadings Vol 2, 16^th ed, at para 52-06; British Motor Trade Association v. Salvadori & Others [1949] 1 Ch 556 at page 566-567). 

23.  In Exchange Telegraph Company Limited v Gregory & Co [1896] 1 QB 147 (CA), it was held that to support an action for maliciously inducing persons to break their business contracts with the plaintiff, it is sufficient to prove facts from which it may properly be inferred that some damage must result to the plaintiff from the defendant's wrongful acts.  Kay LJ said "if a judge or jury could properly infer from the acts complained of that those acts must result in damage to the plaintiffs, that is enough".  Also, as a matter of general principle, the costs of wasted staff time spent on investigating and/or mitigating the effects of the tort of conspiracy is recoverable (provided that it can be shown that the time wasted was indeed attributable to the tort), notwithstanding that no additional expenditure "loss" or loss of revenue or profit can be shown (see R+V Versicherung Attorney General v Risk Insurance and Reinsurance Solutions SA & Others [2006] EWHC 42 (Comm), per Gloster J at para 77).

24.  Mr Yu also told us that it is the intention of the BYD Parties to serve voluntary particulars of damages on the Foxconn Parties in due course.

25.  I am satisfied that this is not a case where it is plain that the BYD Parties had not suffered any damage by reason of the matters pleaded in paras 62 to 68.

26.  At the resumed hearing, Mr Huggins accepted that he found it difficult to maintain that the allegations relating to the planting of evidence in paras 63 to 65 are so plainly unsustainable that they could be determined on paper.  That is a reasonable concession.  In my view, the pleaded facts, if proved, could well support those inferences.  Earlier, he had submitted that the pleaded facts could not support the suggested "inferences".

27.  Mr Yu also submitted that there are other reasons why the application to strike out should fail, including the fact that the matters pleaded therein are relevant to the BYD Parties' defence to the Foxconn Parties' claim, and that they formed part of the basis of the BYD Parties' Counterclaim for conspiracy (para 122) and for defamation (paras 98 to 100, 107 to 109 and 116 to 118).  These submissions pertain to Mr Huggins' submission that the offending paragraphs were scandalous and an abuse of process.  I have to say although the allegations are serious, it is not plainly obvious that they cannot be established, so I would not in any event have agreed to strike them out on the basis that they are scandalous or an abuse of process.  However, it is unnecessary for me to go on to deal with these submissions, since I am satisfied that the learned Deputy Judge's decision not to strike out cannot be faulted.  This is obviously not a suitable case for a summary determination of the viability of the unlawful interference claim insofar as it depends on paras 62 to 68 of the Counterclaim.

28.  For the above reasons, I would dismiss the appeal and make a cost order nisi in favour of the BYD Parties with certificate for two counsel.

Hon Fok JA:

29.  I agree with the judgment of Tang VP.

Hon Chu JA:

30.  I agree.