HONG KONG CENTRAL CHARITABLE FOUNDATION LTD v. KAPLAN HOLDINGS LTD AND OTHERS

HCA 1049/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 1049 OF 2012

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D E C I S I O N

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1.  This was the hearing of the application by the plaintiff (“HKCCFL”) for interlocutory injunction against the 1^st to the 3^rd defendants (collectively “Kaplan”) and the 4^th defendant (“Yip”) on the ground of breach of confidence (in contract and in tort) and infringement of copyright. During the hearing, Kaplan and Yip (collectively, the defendants) offered an undertaking that effectively disposed of the substantive application. What remains to be decided is the issue of costs.

THE DISPUTE

2.  HKCCFL operates the Hong Kong Central College (“the College”), which is an institution in the provision of post-secondary education services in Hong Kong.  The College has received accreditations by the Hong Kong Council for Accreditation of Academic and Vocational Qualifications (“The Council”). The Council is the statutory accreditation body appointed by the Secretary for Education.

3.  Kaplan is part of Kaplan Asia Pacific, which is a global provider of education services for individuals, schools and businesses.  Yip is a senior employee of Kaplan (specifically the 2^nd defendant).

4.  Between 2010 and 2011, there was negotiation for the acquisition of the College by Kaplan. As part of the exercise, HKCCFL had supplied to Kaplan voluminous correspondence and documentation regarding the accreditation and programme validation of the College.  For such purpose, a Non-Disclosure Agreement dated 20 December 2010 was entered into between the parties (“The NDA”).

5.  The documents supplied included 3 sets of previous submissions with appendices to the Council for accreditations in 2007-2008, namely (in abbreviation):

(1)   HKCC IR;

(2)   HKCC PV-ADSM; and

(3)   HKCC PV-ADAC; as well as

4 sets of further documents submitted for revalidation of accredited programmes in 2010, namely (in abbreviation):

(1)   HKCC RV1;

(2)   HKCC RV2;

(3)   HKCC RV3; and

(4)   HKCC RV4.

6.  There were other correspondences in relation to the above submissions (labelled as the additional documents in HKCCFL’s pleading).  Together with the 7 sets of documents mentioned above, they constitute what HKCCFL says to be the confidential information (“the Confidential Information”).

7.  Kaplan eventually decided against concluding the deal; and informed HKCCFL of such decision in writing on 12 April 2011.  Apparently discussion between the parties did not cease forthwith.  But the letter from Kaplan to HKCCFL dated 29 August 2011 left no party in doubt that the deal fell through.

8.  HKCCFL now complains that Kaplan turned round to use the Confidential Information for the design of its own submissions to the Council for accreditation of its own courses.  HKCCFL goes so far as contending that Kaplan in fact had no serious intention in acquiring the College; and the offer to do so was a mere pretext to obtain the Confidential Information for its own programmes.  Once the ulterior purpose had been achieved, Kaplan pulled out of the deal in April 2011 as mentioned above.

9.  Specifically, HKCCFL contends that Kaplan made use of the Confidential Information to prepare, under the direction and management of Yip, documents for submission to the Council in December 2011 for obtaining accreditation of its own Kaplan Business and Accountancy School (“KBAS”) and its programme of High Diploma in Business Administration, namely (in abbreviation):

(1)   KBAS IE; and

(2)   KBAS PV

(collectively “the KBAS Documents”).

10.  HKCCFL alleges that Kaplan and Yip were in breach of the NDA, the duty of confidence under the common law and guilty of infringement of copyright in the 7 sets of documents and the additional documents supplied.

11.  HKCCFL claims for injunctive relief to restrain Kaplan and Yip from using any part of the Confidential Information for any purpose other than for the purpose for which it was supplied, or otherwise exploiting any part of the information.  It also seeks an inquiry as to the damages as a result of the alleged breach on the part of Kaplan and Yip; further or alternatively, an account of the income and profits made from the use of or reliance on the Confidential Information.

12.  Various issues are raised in defence.  Besides denying any misuse of the Confidential Information, it is contended that the 2 sets of KBAS documents were prepared by a contracted professor without using or sight of the Confidential Information. Further, the documents supplied by HKCCFL but one had been shredded by June 2011.  HKCC IR was kept due to innocent oversight; but the same was also destroyed in June 2011.  Kaplan and Yip no longer possess the documents said to be containing the Confidential Information.

13.  By summons dated 17 July 2012, HKCCFL applied for interlocutory injunction against Kaplan in the following terms:

(1)   that the defendants be restrained from using or relying on the Confidential Information or copyrighted works in the abovementioned 7 sets of documents for any purpose other than for the purpose for which it was supplied or otherwise exploiting the information or any part thereof until the trial of the action of further order of the court (“Injunction (1)”);

(2)   that Kaplan Institute Limited (the 3^rd defendant) be restrained from relying or continuing to rely on the KBAS Documents until the trial of the action or further order of the court (“Injunction (2)”).

14.  On 20 July 2012, the court gave directions for the filing of affidavits; and the summons was adjourned for argument.

15.  The summons went before Barma J (as he then was) on 10 October 2012.  There was not so much dispute that there were serious questions to be tried, including the alleged breach.  The transcript of the proceedings recorded the concern expressed by Mr Zimmern, appearing for the defendants, and his lordship about the risk of injustice if the injunctions were allowed, balancing all the circumstances.  Upon that, counsel then appearing for HKCCFL indicated that:

(1)   it would not pursue Injunction (2) above; and

(2)   it would seek to amend Injunction (1) above.

16.  The transcript also recorded that Barma J had concern about the significant change to the form of injunction being sought.  His lordship considered that it would not be right to deal with the proposed new form of injunction without proper amendment and evidence.  His lordship indicated that he had 2 options: to dismiss the original summons and let HKCCFL apply to amend the summons.  His lordship opted for the second; and adjourned the matter to enable HKCCFL to apply to properly amend and the parties to file further evidence.

17.  The matter resumed before Barma J on 14 November 2012.  HKCCFL formally applied to amend the summons with the effect that the application for Injunction (2) was apparently dropped; while Injunction (1) would be amended as follows:

“to restrain the 1^st, 2^nd, 3^rd and 4^th defendants and each of them by themselves, their servants or agents or otherwise howsoever from further using or disclosing the plaintiffs’ Confidential Information as particularised in Schedule 1 or any part thereof for the revalidation of existing courses, accreditation of new courses and/or the accreditation of new schools and/or any purpose other than for the purpose for which it was supplied until the trial of this action or further order of the Court.”

18.  In Schedule 1 to the amended summons, some 148 items of documents were set out.  Further, whilst Injunction (2) in respect of the KBAS Documents was no longer sought, Injunction (1) as amended and sought nevertheless was wide enough to restrain the use of the KBAS documents, which HKCCFL contends to have contained or have been derived from the Confidential Information.

19.  Pursuant to Barma J’s directions, this round of affidavits was supposed to finish with the one filed on behalf of HKCCFL on 2 January 2013.  A few days before the present hearing, HKCCFL put in yet another affirmation.

20.  Though Barma J did not direct that no affidavit shall be filed by either side without leave of the court, HKCCFL’s attempt to file yet another affirmation after its last say in the round of affidavits that finished more than 2 months ago and just days before the hearing could only expect scepticism.

21.  More importantly, HKCCFL could not seek an injunction of scope wider than its pleaded case.  I was at a loss as to whether and, if yes, how the 148 items of documents in Schedule 1 were said to relate to the 7 documents and the additional documents of HKCCFL, which allegedly contained the Confidential Information.

22.  During the hearing, Mr Ko for HKCCFL clarified that only 8 items of the documents in Schedule 1 related to the 7 documents pleaded.  He also confirmed that his client would limit the application for Injunction (1) as amended to the 8 items of the documents in the Schedule 1.  The connections between the documents pleaded and the 8 items in Schedule 1 of the amended summons, according to HKCCFL, are set out below:

Document pleaded	Document in Schedule 1
HKCC RV3	Nos.50; 54
HKCC RV4	No.51
HKCC RV1	No.52
HKCC RV2	No.53
HKCC IR	No.69
HKCC PV-ADAC	No.71
HKCC PV-ADSM	No.73

23.  As mentioned, Injunction (1) as amended is apparently wide enough to include a restriction on the use of the KBAS Documents (on the basis of the case of HKCCFL), which was essentially the abandoned Injunction (2) under the original summons.  Mr Ko did not seek to argue otherwise; but suggested that a caveat in relation to the use of the KBAS Documents might be added to the injunction being sought.

24.  Upon all these, Mr Zimmern took instruction and indicated that his clients offered a voluntary undertaking to refrain from further using or disclosing HKCCFL’s confidential information contained in the HKCCFL documents (above) or any part thereof until the trial of the action or further order of the court, subject to the exception that the same does not prevent the defendants from using the KBAS Documents or its derivatives or by-products.

25.  Upon the undertaking by the defendants, I made no order as to the amended summons; and reserved my decision on costs.  Such costs, according to counsel, consist of:

(1)   costs of the original summons, including the costs reserved at the call-over hearing on 20 July 2012 and the hearing on 10 October 2012;

(2)   costs of the application to amend the summons, including the costs reserved at the hearing on 14 November 2012;

(3)   costs of the amended summons and the present hearing.

26.  In relation to the issue of costs, the parties’ correspondence, including what used to be without prejudice save as to costs, were provided to enable me to have a full picture of the parties’ stance by the time of the present hearing.

DISCUSSION

27.  The principles governing the grant of interlocutory injunction were not in dispute.

28.  There was no serious argument as to whether a serious question to be tried in respect of the alleged breach.  Referring to the pleadings and affirmations, I think this was sensible.

29.  The parties disagreed on HKCCFL’s entitlement to the injunction; and the major argument surrounded the risk of injustice as a result of an order for or against the grant of the injunction.  The terms of injunction would have been relevant to the balancing exercise.

30.  By Injunction (1) under the original summons, HKCCFL sought to restrain the defendants from using the Confidential Information (in the 7 specified documents).  But it was really Injunction (2) that gave rise to concern.  Whilst Injunction (2) would have restricted any use of the KBAS Documents at any time until the trial of the action or further order of the court, that might mean the end of Kaplan’s operation.

31.  More importantly, third party interests would be affected.  The difficulty became highlighted when the summons came before Barma J on 10 October 2012.  As noted during the hearing, by then, Kaplan’s courses had begun; and the students enrolled and their tuition fees paid.

32.  Considering the risk of injustice in terms of the immediate disruption to the students of Kaplan’s courses, the impact could well exceed the stipulated duration of the interlocutory injunction.  The balance of convenience would have hardly tilted in favour of granting the injunctions in those terms.  Counsel then appearing for HKCCFL apparently acknowledged the concern.  Hence his indication to drop the application for Injunction (2) and to add a caveat to Injunction (1) to except the use of the KBAS Documents.

33.  As mentioned, Barma J opted not to dismiss the original summons; and gave HKCCFL the chance to amend the summons in line with the indications made by its counsel in court.  The matter was thus adjourned.

34.  What HKCCFL indicated during the hearing on 12 October 2012 did not turn out to be the case when the amended summons came.  When the amended summons was heard on 14 November 2012, Mr Ko for HKCCFL confirmed the observation by Barma J that Injunction (1) as amended might well include anything in the KBAS Documents that were said to have been derived from the 148 items of documents in Schedule 1 of the amended summons.  The amendment was allowed; and the amended summons was adjourned for argument.

35.  Prior to the present hearing, the solicitors for the defendants wrote on 16 January 2013 to those acting for HKCCFL to seek clarification of the exact scope of the injunction being sought, particularly whether it was seeking to restrain the defendants’ use of the KBAS Documents.

36.  The solicitors for HKCCFL replied on 24 January 2013.  Whilst they clarified that their client was not seeking to restrain the defendants’ use of the KBAS Documents, they left open whether Injunction (1) as amended might nevertheless catch that. They took the stance that if the defendants took the view that the KBAS Documents were not derived from the confidential information in the 148 items of documents, Injunction (1) should not concern the defendants.

37.  I can well understand why the defendants resented such stance of HKCCFL.  As the applying party, HKCCFL had the duty to make clear the scope of the injunction being sought, particularly in view of its pleaded case that the KBAS Documents contained or were derived from the Confidential Information.  Further, the defendants were faced with mixed messages in this respect from the affirmation of HKCCFL and its counsel during the hearing on 14 November 2012.  All those would have had bearing on the position to take by the defendants in the forthcoming hearing of argument.

38.  The solicitors for the defendants wrote on 20 February 2013 and stated their stance.  In the meantime, the defendants through solicitors made a without prejudice offer to those acting for HKCCFL on the same day.  The defendants offered an undertaking to the effect of Injunction (1) under the amended summons with a caveat that the defendants would be entitled to rely on the KBAS Documents and their derivatives as well as HKCCFL’s agreement to withdraw the amended summons and to pay all the costs of and occasioned the original summons (including wasted costs).

39.  By letter dated 1 March 2013, HKCCFL’s solicitors essentially repeated its stance as previously stated.  By separate letter on the same day, they responded to the defendants’ without prejudice offer.  They were prepared to accept the defendants’ undertaking in terms as proposed but not the proposed costs order. HKCCFL suggested that all the costs of the application for injunction should be reserved to the trial judge.

40.  By letter dated 14 March 2013, the defendants’ solicitors counter-proposed that all the wasted costs of the original summons be paid by HKCCFL to the defendants forthwith; and all the costs of and occasioned by the amended summons be reserved.

41.  Finally HKCCFL’s solicitors by letter dated 18 March 2013 reiterated their stance in respect of costs as previously proposed.

42.  Then, the present hearing.  As mentioned, during the hearing, HKCCFL dropped its reliance on 140 out of the 148 items of documents for the purpose of its application.  Further, the caveat to Injunction (1) as amended in relation to the KBAS Documents was revisited.  Immediately apparent from that was that costs incidental to the reference to the 140 items of documents in Schedule 1 were basically wasted.

43.  Referring to the abovementioned correspondence, Mr Ko submitted that costs of his client’s application prior to 1 March 2013 should be its costs in the cause subject to any costs wasted and the costs of the amendment.  He submitted that his client should be entitled to the costs since 1 March 2013.

44.  Mr Zimmern asked for costs of the original summons and the amended summons be to his clients in any event to be taxed forthwith.

45.  Considering what happened as mentioned above, I have the following observations:

(1)   The parties were supposed to argue the original summons on 12 October 2012.  I echo Barma J’s concern about the risk of injustice if the injunctions were granted in terms as sought then.  HKCCFL then proposed adjustments to the terms of Injunction (1) and to drop the application for Injunction (2).  At that juncture, HKCCFL could have been faced with dismissal of the original summons. That Barma J decided to adjourn the matter to allow HKCCFL to amend the summons did not change the fact that the hearing was wasted as a result.

(2)   The hearing on 14 November 2012 started off with Barma J’s query as to why HKCCFL’s application to amend the summons could not have been disposed of by way of consent.  Whilst the amendment was at the end allowed, I take the view that the defendants should not be reasonably expected to consent to the amendment in the circumstances where clarification of the exact scope of the injunctions being sought under the amended summons was necessary.  This proved to be the case, when Mr Ko for HKCCFL confirmed the defendants’ concern and the court’s understanding during the hearing that Injunction (1) as amended might well restrict the use of the KBAS Documents, albeit that Injunction (2) under the original summons was dropped.  That the hearing on that day was spent on the application for amendment of the summons and clarification by HKCCFL once again caused the further adjournment of the substantive argument.

(3)   When the amended summons was finally argued before me, HKCCFL had to abandon reliance on 140 of the 148 items of documents in Schedule 1 of the amended summons.  Further the caveat to Injunction (1), which was first indicated at the hearing on 12 October 2012 but later withdrawn, was revisited.  The caveat was added eventually.

(4)   By correspondence, the defendants have prior to the present hearing offered undertaking in terms of Injunction (1) as amended, ie, even wider than the scope of the one eventually given in the present hearing.  As to costs, the defendants proposed that all wasted costs of the summons by paid by HKCCFL forthwith and the costs of the amended summons be reserved.  Had that been accepted, the parties could have been saved from the further costs of the present hearing.

46.  In the circumstances, I think the fair costs order will be:

(1) HKCCFL shall pay the following costs of the defendants in any event:

(a) costs of the hearing on 12 October 2012;

(b) costs of and occasioned by HKCCFL’s application to amend the original summons;

(c) costs of the hearing on 14 November 2012; and

(d) costs of the present hearing.

(2) Costs shall be taxed forthwith, if not agreed, with certificate for counsel.

(3) Subject to the above and in any event disallowance of HKCCFL’s costs occasioned by the reference to the documents in Schedule 1 in the summons, save and except the 8 documents identified as mentioned above, costs of the original summons and the amended summons be its costs in the cause.

ORDER AS TO COSTS

47.  I make an order as to costs in the above terms.