FACE IT LTD v. LUK MEI LING AND OTHERS

HCA 299/2019

[2019] HKCFI 1416

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 299 OF 2019

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J U D G M E N T

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Introduction

1.  This action arises from the circumstances of the movement of certain employees of one business to become owners and/or employees of another similar business.

2.  The matter comes before the Court by way of an inter partes summons dated 25 February 2019, by which the plaintiff (“FIT”) seeks injunctive relief against the first 4 defendants named (out of a total of 8 defendants named) on the writ also dated 25 February 2019.  Mr Vincent Chen is Counsel for the plaintiff, and Mr But Sun Wai is Counsel for the defendants.

3.  The application is for orders that those 4 defendants:

(1)  deliver up information and/or documents containing that information (in whatever form) in their possession, custody or power comprising the name, ID number and/or contact details of FIT’s customers (including their telephone number, address, email address, Facebook/WeChat/WhatsApp profile (“Customers Information”) and all communications or messages with FIT’s customers using those communication channels (“Communication Records”);

(2)  further or alternatively, make an affirmation or affidavit confirming that they do not have the Customers Information or Communication Records, when they ceased to do so, and what has become of it; and

(3)  be restrained from divulging such information to any 3^rd parties, from contacting any of FIT’s customers, from keeping records of the Customers Information or Communication Records, and from using it in any way, in particular in running a business in competition with FIT.

4.  On the first return date of 1 March 2019, no interim injunctive relief was granted, and instead directions were made for the filing of evidence and the fixing of this hearing.

5.  In the intervening period, and in addition to the evidence filed, the case has also been fully pleaded in a Statement of Claim, the Defence of the 1^st to 6^th and 8^th defendants, and a Reply.

6.  I have today also acceded to applications, permitting further evidence from FIT and the 1^st defendant.

Applicable principles

7.  A number of the legal principles which might apply to the facts of this case cannot be, and indeed are not, in significant dispute.

8.  If there is a contract of employment between employer and employee, the obligations of one owed to the other will be determined by reference to that contract.  In this case, the relevant contracts include the Non-disclosure Clause, the terms of which I shall set out later.

9.  Whilst ordinarily implied obligations in an employment situation include the employee’s duty of good faith and fidelity during the employment, the focus in this case relates to the use of allegedly confidential information where there might be an obligation not to use that information even after the termination of the employment.

10.  It is common ground between the parties that information amounting to a trade secret or sufficiently confidential to attract such protection must be information which (a) is used in a trade or business; (b) is confidential in that it does not exist in the public domain; (c) can be isolated from other information which the employee would be free to use without any reasonable person thinking that it is improper; (d) would be of use to a competitor, or cause real or significant harm to the owner; and (e) is limited in its dissemination, or where the employer has at least not encouraged or permitted its widespread publication, or where the information has been provided to the employee in circumstances impressing upon the employee the confidentiality of that information.

11.  Mr But is, of course, correct when he identifies that the duty of confidentiality following termination of employment only extends to trade secrets or the equivalent, and that confidential information falling short of the necessary high degree of confidentiality would not be protected after the end of employment.  Hence, an individual is free to use his skill and knowledge, including any information acquired during the course of his former employment, for his own benefit or that of a new employer in direct competition with his former employer.

12.  I also accept Mr But’s submission that ordinarily following termination of employment, and in the absence of an enforceable restrictive covenant, an employee is free to compete with his former employer and to solicit or approach his former employer’s customers in order to obtain their business.

13.  Hence, it will be necessary to assess the degree of confidentiality in this case – its quality – to see whether it is of the high degree which the law is prepared to protect after termination of employment.  If that high degree of confidentiality is present, it does not matter that there is no non-competition clause.

14.  It is common ground between Mr Chen and Mr But that, with the right quality or qualities, personal particulars of a customer of a business can be confidential information.

15.  Interim injunctions are often granted to restrain a breach of confidence, unless there is good reason to the contrary on the facts of the case.  Even confidential information which might be carried away by the employee in his head may be subject to such injunctive relief.  It is the quality of the information which might trigger the protection, not how it is carried away.

16.  However, as Mr Chen accepts, the courts have repeatedly stressed the importance of proper particulars being given in a claim for misuse of confidential information or trade secret.  Not only must the injunction be couched in specific terms, the particulars for confidential information are an essential part of the claim and they must be pleaded as material facts and essential particulars.  A pleading lacking those particulars is liable to be struck out as embarrassing or failing to disclose the relevant reasonable cause of action.  Vague and general particulars will not suffice.

17.  As to the principles relating to the grant or refusal of interim interlocutory relief, they are well known.  The starting position is that the applicant for an interlocutory injunction must identify (a) there is a serious question to be tried on its claim; (b) damages would not be an adequate remedy, and that damages would be a sufficient remedy for the defendant if the injunction is wrongly granted; and (c) the balance of convenience is in favour of the grant of the injunction.

18.  As to the adequacy of damages, this is not just limited to possible mathematical difficulties in quantification, but can also apply to difficulties of proof.  Reference might also be made to the financial ability of the person who might be ordered to pay damages.

19.  Where an interlocutory mandatory injunction is sought, the court will not grant one unless it feels a high degree of assurance that at the trial of the action it will be shown that the injunction was rightly granted.  This means that the applicant’s case on the merits has to be made out to a higher standard of proof than in the case of a prohibitory injunction.

20.  As already mentioned, obviously if an injunction is to be granted restraining the misuse of confidential information, it is important and necessary to provide proper and sufficient particulars of the relevant confidential information, so that the defendant employee can know clearly what he can and cannot do in relation to certain information.

21.  As to the balance of convenience, the modern approach is to look at the balance of fairness.  In effect, that requires a consideration as to the likely potential for greater prejudice to one party or the other depending on whether the injunctive relief is granted or refused.  The court will take whichever course appears to carry the lower risk of injustice, if it should turn out that the interlocutory decision is wrong.

22.  In the context of mandatory injunctions, the risk of injustice can be acute.  Also, an order requiring someone to do something is usually perceived as a more intrusive exercise of the coercive power of the court than an order requiring temporary refraining from action, so requiring more cogent or persuasive evidence.

23.  In this case, it might be said that the relief sought comprises both prohibitory and mandatory elements.  The real relief – the core usefulness in addressing the alleged mischief – is in the prevention of the use of the confidential information (if it amounts to the necessary level of confidentiality).  The order for delivery up is more the way of ensuring or policing the non-use.  But, it seems to me that however one views the relief, in effect the grant of an order may well give the applicant the whole of the primary relief which he claims in his writ, making it less likely that there will even be a trial.

24.  In short, close and questioning scrutiny of the merits of the applicant’s case are required in identifying where the lower risk of injustice lies.

The evidence and analysis

25.  FIT is a Hong Kong company incorporated in April 2012, since when it has carried on business as a medical cosmetic centre under the trade name “Face It Rejuvenation Solutions”.  The services are provided at an address in TST, Kowloon, and include cosmetic and aesthetic treatments, and healthcare and nutrition consultation.  A fair overall description of those services might be “aesthetics and wellness”.

26.  Since the time of the incorporation of FIT, its shares have been held as to 90% by a BVI company which is the corporate vehicle of Dr Lau Kwan Chark (“Dr Lau”) and/or his wife Kwan Suk Fun, Connie (“Kwan”), and 5% each by Chan Ching Yee (“Chan”) and the 1^st defendant Luk Mei Ling (“Luk”).

27.  Luk was also a director of FIT until her resignation from that post on 29 August 2013, and an employee until 27 January 2019 (having given notice tendered on 28 December 2018).  Luk was employed under a contract of employment dated 9 July 2012, as the General Manager, conducting the day-to-day management of the business.  At the time she signed the contract, she was both a director and shareholder of FIT.  That day-to-day management did not normally require direct communication with customers of FIT, though that might occasionally occur when other employees were occupied or circumstances might demand it.

28.  There was an express term of Luk’s contract of employment relating to the protection of confidential information (“Non-disclosure Clause”), being:

“[FIT’s] administration, business strategies and any documents and customers information are all to be regarded as confidential information of [FIT]. Employees (whether in the course of his/her employment or post-employment) shall not divulge any information of [FIT] to persons being neither [FIT’s] personnel nor persons in connection with [FIT]. Upon termination of his/her employment, the Employee shall not contact any customers of [FIT], or retain in his/her possession any of such information.”

29.  The latter part of that clause is redolent of a non-solicitation clause, but it seems to me likely to be part and parcel of the underlying point that the employee should not divulge confidential information to others, and should not himself or herself use that information, in particular for the purposes of contacting any customer.

30.  There was a similar express Non-disclosure Clause in the employment contracts between FIT and other employees including the 2^nd defendant (“Ngai”), the 3^rd defendant (“Yip”) and the 4^th defendant (“Lai”).  Luk signed those contracts for FIT.  Ngai and Lai held posts as Senior Aestheticians, whilst Yip was an Aesthetician.  They had been employed by FIT since around 2012, and might properly be regarded as established and senior employees.

31.  It may be helpful at this point to note that there is no express non-competition clause in any of the contracts of employment.

32.  Ngai, Yip and Lai tendered their resignation from FIT on 19, 18 and 16 January 2019 respectively.  Though they are not the subject of the current application, it can also be noted that the 5^th, 6^th and 7^th defendants also tendered their resignations from FIT on various dates in January 2019.

33.  It is not in dispute that all 7 individual defendants are now or have been involved in the operation of the business conducted by the 8^th defendant (“CGL”), and that they left employment with FIT to join employment with CGL.

34.  CGL is a Hong Kong company, incorporated on 26 November 2018.  Since around early March 2019, it has carried on business under the name “Caly Medical Group” at premises approximately 200 metres from FIT’s business premises.  One issue to which I shall return is as to whether or not the two businesses are in competition.

35.  Upon incorporation, CGL’s shares were held through various corporate vehicles in which at least Luk, Ngai and Yip were beneficially interested.  The directors of CGL were Luk and Astute Insight Limited (“Astute”), the corporate vehicle of which Luk was sole shareholder and director.  Obviously, Luk had management control of CGL.  However, it seems that from 26 February 2019, Astute nor Luk resigned as directors of CGL, and on the same date Astute transferred its shares in CGL to another shareholder (the owner of which is Yip).  But it is not clear that Luk has no continued involvement with CGL, and even today she has sought leave to file an affirmation to oppose the injunction.

36.  FIT says that during the course of its business, its customers were required to fill in a form known as the Customer Record, so as to provide their personal information including names (English and Chinese), gender, ID number, date of birth, contact number, email and correspondence addresses, age, marital status, occupation, Facebook address, job nature and previous medical conditions.  This information is said to comprise the Customers Information.

37.  The defendants say that it may not have been a requirement to fill in all parts of the form, and that some of it might have been optional.  But I would have thought that at least the contact information would have been required and indeed pursued.  Anyway, if it was collected it was recorded.

38.  Some of the Customers Information, together with treatments received and payment records, were securely stored on a management system named the B2B system.  There is an issue as to which employees of FIT had free or unlimited access to that B2B system; FIT’s pleaded case is that all employees had such access, and that the information on the B2B system could be downloaded onto any computer and be exported as spreadsheets.  But the defendants deny this in their Defence and in their evidence (though, as will be seen, in fact for present purposes they place reliance on the FIT case).

39.  Although Luk’s duties did not ordinarily require direct communication with customers, the duties of Ngai, Yip and Lai did require such communication, to promote services and treatments and to follow up on customers.  FIT says that for that purpose it provided Ngai and Yip with a work tablet (with Sim cards) whilst Lai was provided with a work phone (with Sim card).  FIT says it was company policy for them to use only those devices for contacting FIT’s customers, via calls and instant messaging, so that FIT could retrieve and maintain a complete record of communications between them and the customers.  This is what has been described as the Communication Records.

40.  The defendants deny any such policy, or being informed of any such policy if one existed.  Mr But described it as an ‘afterthought’.  It is fair to point out that there is no evidence of any written policy, or even oral warning or explanation given by FIT to its employees.  Nor is there evidence of any verbal warnings given to employees when FIT seemed to know that they were using their own personal devices to contact customers.

41.  I also note that the devices given by FIT to its employees occurred in around 2014 or 2015, some considerable time after the employment started in 2012 or 2013.  So, the evidence of an actual promulgated policy is thin.

42.  However, it seems to me at least strongly arguable that the main purpose of being provided with work devices was for the employees to use them for work, and there is no dispute that the business name cards of Ngai, Yip and Lai contained their Hong Kong and China work phone numbers (rather than their personal phone numbers).  It also seems to be common ground that the devices were used for work at least on some occasions, and those occasions must have generated a record which might have been of use to FIT.  Another feature of having a work tablet/phone, separate from a personal device, is that it would enable the easy separation of work and personal information and communications traffic.

43.  I note the point that the devices were provided more recently than the commencement of the employment, but that seems to me to be a point from which the defendant employees would have understood even more the distinction between business and personal information, as the provision of those work devices would make that clearer.

44.  FIT also had a pricing list (“Price List”) of the various services and treatments rendered, which it says were not generally disclosed to its customers and the public, at least not as whole document.  The defendants say otherwise, and certainly it seems that prices were readily and regularly quoted to customers and potential customers for services and treatments, often in prepaid package form.  Anyway, there is no claim to injunctive relief relating to the Price List – and the point seems to have been made by FIT more as part of the context, and to show that the defendants would have known where to pitch their own prices had they wished to undercut FIT in a competitive business.

45.  FIT says – and it is specifically pleaded – that the Customers Information, the Communication Record (and the Price List) were of a confidential nature and constituted confidential information, which was of vital importance to the success of FIT’s business, facilitated constant and instant contact with customers, had been accumulated over 6 years of business, permitted follow-up with knowledge of prior services, and which would be valuable to any business competitor seeking to poach or persuade FIT’s customers to shift their business away from FIT to the competitor in a large-scale and systematic manner.

46.  Indeed, FIT says that is why the Non-disclosure Clause was made express in all contracts of employment.  In addition, FIT says that the employment contracts contained implied terms of good faith and fidelity that employees, whilst employed by FIT, would not engage in activities in competition with FIT’s business, or seek to poach or persuade employees away to join a competitor, and not to use or permit a 3^rd party to use the Confidential Information for any other or collateral purpose and the purpose for which it was imparted to them.

47.  Mr But relies on FIT’s own case that the B2B system might have been accessed by all its staff without limitation and without the necessity for using a password.  He also submits that the information could be freely downloaded to onto any computers and be exported to spreadsheets without restriction or monitoring.  He also points to the fact that the employees did use their own personal mobile devices to store customer contact information and to contact them.  Hence, he says that the information cannot really be regarded as being confidential to the necessary high standard.  I disagree.

48.  That there may have been unlimited and free internal access to the information does not amount to freedom to disseminate the information externally.  There can be little doubt about that where there is a term in every employee’s contract expressly identifying that customer information is regarded as confidential, which is certainly discouragement against widespread dissemination.

49.  As to the use of personal devices, that appears to have arisen before work devices were issued.  But that use was, of course, against the contractually imposed and agreed statement that customer information was and was to be treated as confidential information.  Though the use of personal devices continued after work devices were issued, apparently to the knowledge of some other members of FIT senior staff, that may have been a matter of convenience, and in any event I do not think that fact alone would have changed something which was confidential into something which was not.

50.  FIT complains that from around September 2018 to January 2019 its sales revenue dropped dramatically by more than half, which is contrary to the previous trend that November to February would be “boom” months. FIT also complains that in the same period an increasing number of its customers who had previously deposited money to purchase packages of treatments suddenly opted for more expensive treatments to use up remaining balances in their accounts with FIT.  FIT says this evidences a concerted shift of business engineered by the defendants in preparation for the setting up of the business conducted by CGL.  But I am not sure I can make much of this evidence either way, not least where the defendants assert Kwan was encouraging the quicker use of sums held to customers’ accounts.

51.  Following the resignations of Ngai, Yip and Lai in January 2019, they were instructed to return their tablets/phone.  But, FIT says, when they did so, it discovered that the contents were almost wiped clean. Hence, FIT says that they have refused to hand over the Communication Record, rendering it difficult (if not impossible) for FIT effectively to follow up on those customers previously served by Ngai, Yip and Lai.

52.  By the Defence filed, Ngai, Yip and Lai (amongst others) specifically deny the allegation that the Communication Record is in their possession, custody or power as alleged or at all.  FIT says this stance (a new stance, as it is not in the affirmation evidence previously filed) should be sworn to or affirmed to by an affidavit/affirmation to that effect.

53.  The effect of the point pleaded in the Defence was put into doubt during Mr But’s submissions, when he said the denial that the Communication Record is in the defendants’ possession was focused on the denial that any part of that record was confidential.  I specifically asked him to take instructions on the point, and his position in the light of the instructions was that Luk, Ngai, Yip and Lai might have some records of communication between themselves and customers in their possession, but that it is denied that any such communications were of a confidential nature.

54.  That point of possession aside, the central issue for the current hearing is whether or not Luk, Ngai, Yip and Lai should be restrained from using the Customers Information in running the business of CGL, in particular being restrained from contacting FIT’s customers for the purpose of diverting them to CGL’s business.

55.  FIT emphasises that no part of its application is meant to stifle competition.  Rather, all that it seeks to prevent is the unfair poaching of FIT’s customers through use of the Confidential Information. That would not prevent CGL and its employees from promoting CGL’s business to the public at large, namely customers who were not previously FIT’s customers.

56.  It seems to be common ground that the services offered by FIT are of a personal nature, such that the business is highly dependent on a good relationship between its employees and its customers.  Information about customers, and the services and treatments provided to them, is obviously valuable to FIT, and would be valuable to any would-be competitor.

57.  Mr But referred to the Non-disclosure Clause and its apparent width.  He suggested that reading the clause, and its reference to “administration, business strategies and any documents and customers information are all to be regarded as confidential” would make everything in the company confidential.  So, he suggested, when everything is confidential, nothing is confidential.

58.  Attractive though the submission may be in its soundbite, I am afraid I disagree.  The focus of the particular point in issue is in relation to customer information, and though that label may cover various matters relating to customers (including all contact details, treatment history and preferences, and so forth), there can be little doubt that the employees would have understood that, irrespective of anything else, customer information was regarded as and was to be treated as confidential.  The temporal references to during employment and post-employment only reinforce that point.

59.  I note the argument for the defendants that many of the customers are friends.  Mr But points to FIT’s own evidence which says that employees were encouraged to form and maintain personal relationships with customers.  But to my mind there is a difference between a customer with whom one is friendly, and an actual friend.  Anyway, this may not be the exact point to grapple with.  Of course, if an employee has persuaded a close friend to become a customer, that employee would not have need of any confidential information as such to contact that person again.  But I accept Mr Chen’s submission that the defendants cannot be friends with all the persons whose details comprise the Customers Information, and they have failed to descend to particulars of any individuals they say are their friends.

60.  It would also seem to me to be logical that FIT would wish to protect confidential information gathered in the course of its business, and to maintain a complete record of communications with its customers.  I accept that that must have been at least part of the reason, probably the main reason, why employees were provided with a tablet or phone (with Sim card) and that their business cards identified those as contact numbers.  I have already noted the ability to keep business and personal communications separate.

61.  It must also be the reason why the contract of employment contained the Non-disclosure Clause.  The inclusion of such a clause in its terms – including the express statement that customer information is to be regarded as confidential information – would have impressed upon each employee that he or she was being asked to handle on a habitual basis material of a confidential nature which should be treated as confidential to FIT, and which would obviously be of use to a competitor if disclosed to that competitor.

62.  I acknowledge Mr But’s submission that it does not sound right to elevate a phone number to being a trade secret, not least in the absence of a non-competition clause.  But this is one of those cases where, it seems to me, the circumstances in which the various contact details were collected and collated and used changes the nature or quality of the information.  The collation of the information relating to numerous customers also seems to me to be an indicator of sufficient confidentiality to warrant protection from improper disclosure to or use by third parties.

63.  As to the suggestion that contact details and treatment preferences might be carried away as part of the skill and expertise and personal knowledge of the employees, which they can freely use in new employment, I do not agree.  First, there is the practical likelihood of not actually memorizing this information (not least in these times where people rarely bother or need to memorize contact details as they are stored on and accessed from mobile devices).  Secondly, I do not think the material sought by FIT is part of the skill or expertise or personal knowledge of the employees.

64.  The chronology of the various resignations of employees from FIT and their joining the business of CGL cannot have been a coincidence.  But, of itself, that does not necessarily identify any wrongdoing which might give rise to equitable relief.  It is Luk’s evidence that she had various reasons to be dissatisfied with FIT and Dr Lau, and felt there was no viable exit plan as a shareholder so that finally she gave up and tendered her resignation.  This may well be true.  Where other employees might have been similarly disgruntled, whatever their individual personal reasons, it is not entirely surprising that they might choose to leave and join the business to which Luk went.

65.  But, where at least Ngai and Yip obtained an ownership interest in CGL, and where there is evidence that Lai was also offered such an ownership interest in CGL, it is difficult to accept that there was no coordination or “orchestration” of the collective resignations of so many staff within such a short period of time.  I accept that of itself such coordination may not be nefarious, but if so why deny it?

66.  As to the question of competition, Luk says that when she lost hope in FIT and decided to run her own business, she did not intend to compete with FIT.  She says the business she set up, CGL, was meant to focus on body check and wellness.  There seems to me to be significant evidence to the contrary.  First, the very fact that CGL employed aestheticians tends to suggest that they were employed to provide the same services as they were performing for FIT in that role.  Secondly, the business registration documents, and certain advertising or promotional materials, identify that CGL is not providing services of a different business nature from FIT, but rather is providing mirroring services.  Particular reference has been made to the use and promotion of a Picoplus Laser Machine, which is used for providing laser facial treatments and other treatments which can only be cosmetic or aesthetic in nature.  As with FIT, I think the services provided by CGL can also fairly be described as “aesthetics and wellness”, and indeed that was precisely the nature of business identified in CGL’s own BR application on 26 November 2018 (which must have been filled out by or at the direction of Luk).

67.  Of itself, and as FIT has recognised, just entering into that kind of competition is not something about which FIT can make proper legal complaint.  However, I take into account in considering all the circumstances the fact that the denial that CGL was intended to or does conduct a business in competition with that of FIT is contradicted by significant evidence, which must affect the credibility of other evidence and assertion put forward on behalf of the defendants.

68.  Hence, when Ngai, Yip and Lai have asserted that the data added by them to their tablets/phone subsequent to the provision to them might have been deleted without deleting any data belonging to FIT, there must be at least serious doubt as to the true motive for deleting that material.

69.  Added to that is the evidence of actual poaching or attempted poaching of customers.  I take the point that some of the evidence is circumstantial, and requires certain inferences to be drawn which may not be the only inferences which might be drawn.  I note that the evidence which FIT has been able to produce relates to a “handful” (to use Mr But’s word) of persons said to have been solicited.  I also note that the allegations are denied, essentially by the defendants’ assertion that any contact with customers was initiated by the latter once they learned of resignation from FIT, and the defendants merely politely replied as to what they were doing next.

70.  However, in my view, looking at the materials overall and adopting broad common sense (including my assessment of other evidence), it seems to me that those materials do support FIT’s assertion that there was active poaching of customers from FIT to CGL by at least Ngai and Yip, using the information which they knew to be confidential to FIT.  On the materials, that unfair contact occurred even whilst they remained employed by FIT – a prima facie breach of duties owed – and it seems to me likely it continued after they left FIT’s employment.

71.  Indeed, it might also be pointed out that if (as was the assertion) CGL was intended to engage in a business different from and not in competition with that of FIT, neither side to the alleged poaching conversations would have had any interest in any such conversation.

72.  Though Luk and her corporate vehicle, Astute, have resigned their directorships in CGL, it is not clear that she has no continuing involvement in the business.  I do not think the way in which Luk dealt with this in her evidence makes good Mr But’s submission that she has already severed her relationship with CGL directly and indirectly on 26 February 2016.  But, anyway, that is not the point if there are materials amounting to confidential information which ought not to have been used, and/or ought not to be used, if Luk had some involvement in that.

73.  On this point, I take into account Luk’s new affirmation and made yesterday and filed today, and that there is no perceived conflict between the position of Luk on the one hand and Ngai, Yip and Lai on the other, when they are commonly represented by the same solicitors and counsel.

74.  On the materials overall, I find that there is sufficient evidence – and not merely bare “suspicion” (despite the occasional use of language in that vein) – that the defendants have kept and used confidential information, actions from which they should be restrained.

75.  Whilst Mr But said there was no evidence that they had taken the information, that is inconsistent with the defendants’ own case that they used their own personal phones or devices to contact the customers, so that contact information and record of communication would be taken with them or held by them.

76.  Indeed, on his clarified instructions, Mr But accepted that there are some messages which are in the defendants’ possession which might fall within the definition of Communication Records (if for the moment one ignores the quality of the communication and whether or not it is of sufficient confidentiality to warrant protection).  As I have found that sufficient quality of confidentiality to exist, then the first blush reading of the Defence in this regard is not made out.

77.  I have considered the argument that the Non-disclosure Clause should be held unenforceable because of the lack of a temporal limit.  However, I agree with Mr Chen that the clause is not a restraint of trade or non-competition clause.  It simply protects a legitimate interest in the confidential information after an employee has left employment. Indeed, I agree that where the relevant confidential information belongs to FIT, it is difficult to see why Luk, Ngai, Yip or Lai should be allowed to make use of that information at any point in the future, not least if it is to help them in a competing business.

78.  If CGL is not in competition with FIT, there is no purpose in using this confidential information.  If CGL is in competition with FIT, it should not be permitted to make use of it.

79.  As to the adequacy of damages, Mr But submits that if FIT were to succeed at trial, it would be adequately compensated by damages for any loss caused by the refusal to grant the interlocutory injunction.  He says that at this stage of the balancing exercise, the burden is on FIT to show that damages are inadequate and/or that Ngai, Yip and Lai are not in a financial position to pay them.  Further, he says the claim is to damages for loss of business, pointing out that there is no claim for damage to goodwill, so that there could be no difficulty of quantification (and FIT has already identified certain financial data and sales figures from which quantification might be made).

80.  However, it seems to me that those figures are unlikely to be figures from which quantification of damages can readily proceed. Whilst they may indicate a general reduction in business, some of which might be attributable to the shift, it is in the nature of this type of claim that the quantification of damage actually flowing from the breaches is notoriously difficult to make.  As the authorities recognise, there is also difficulty in proof in circumstances such as these.  Indeed, it seems to me the potential unfairness in quantification, arising from its inherent difficulty, if not impossibility, is an unfairness which might work as much against the defendants as it might against FIT.

81.  As to the balance of convenience or fairness, here FIT is seeking the delivery up of documents and information which belong to it, and additionally seeking that Luk, Ngai, Yip and Lai make no use of that information in the course of their competitive business.  There is no restraint from competition as such, merely restraint from unfair competition through the use of materials which they do not own and should not be permitted to use, and which they contractually agreed they understood as being confidential and not open to external use.

82.  I also take the point that if CGL is said not to be in competition, it would follow that there is no harm or prejudice to CGL or to Luk, Ngai, Yip and Lai in not using the information to contact FIT’s customers.

83.  As to the wording of the proposed injunction, Mr But describes it as “problematic”.  By reference to the legal submissions made by him, he must be asserting that the wording is insufficiently precise.  But I agree with Mr Chen that the wording is sufficiently clear, such that the defendants will know what information falls within the terms of the order.

84.  On the basis that paragraph 1 of the summons, if ordered, requires the 1^st to 4^th defendants to produce certain information and documents in their possession, custody or power, plainly they cannot and would not be required to produce information or documents not in their possession, custody or power.  In those circumstances, I am not persuaded that I should grant the alternative relief sought by paragraph 2 of the summons that the 1^st to 4^th defendants make an affidavit or affirmation confirming that they don’t have any part of the Confidential Information, and if they previously did what has happened to it.

85.  As to the proposed injunction restraining contact with any customer of FIT, sought by paragraph 3 of the summons, I explored with Mr Chen and Mr But during oral submissions the appropriate width of any such order.  The real mischief aimed at is contacting customers using information obtained through the employment with FIT for the purpose of running a business in competition with FIT.  On that basis, restricting any contact with customers is plainly excessive, and it seems to me the appropriate place to draw the line is to restrain contact with customers when the contact information of the particular customer was not known by the individual Luk, Ngai, Yip or Lai before that particular customer became a customer of FIT.

86.  So, by way of example, if one of the defendant’s sisters became a customer of FIT, that defendant would not have needed her sister to become a customer before her contact details were known.  But it seems to me likely that the vast majority of customers would not fall into that category.

87.  A question arises as to the cross-undertaking from the plaintiff.  I have allowed into evidence today the 2^nd affidavit of Luk, which amongst other things exhibits the audited financial statements of FIT for the period ending 31 March 2018.  Luk says, and I agree, that the content of the financial statements must be relevant to the financial means of FIT to cover its cross undertaking as to damages.

88.  The accounts show that FIT made an operating loss in each of the years to 31 March 2017 and 2018, in the amounts of $2,226,160 and $742,444 respectively.  The decrease in the loss in 2018 may partly be the result of an increase in revenue.  However, there was also an increase in the net liabilities and shareholders’ deficit from $4,596,964 in 2017 to $5,339,408 in 2018.

89.  All these figures predate the downturn in business about which FIT complains, occurring in the last quarter or so of 2018. Further, the audit opinion is a qualified opinion.  The basis for the qualification appears to reflect the auditors’ view that there is insufficient information concerning a subsidiary of FIT, and also an inability to determine whether adequate accounting records had been kept, so that the auditors have not obtained all the information and explanations which they consider necessary and material for the purposes of the audit.

90.  The auditors also make reference to the material uncertainty relating to going concern.  Whilst the financial statements have been prepared on a going concern basis, the validity of that basis depends on the future funding being available and the ability of FIT to meet its financial obligations as they fall due.

91.  Mr Chen says that one of the current liabilities which contributes to the large net deficit figure is the amount of customer deposits held against future treatment.  That sum is over $18.6 million, and there is in addition over $2 million cash at bank.  But, I do not think the customer deposit figure helps when that sum is held on account of services yet to be provided, presumably at costs yet to be incurred.

92.  I, therefore, agree that there is concern properly raised as to the value in the cross-undertaking offered.  Whilst I have found the necessary high degree of assurance as to the merits of the application, and the underlying claim, I think in the exercise of my discretion that such concern as to the cross-undertaking should be met by fortification.

93.  Subject to hearing from Mr Chen as to possible timing, I think an appropriate figure fortification might be $1 million.  I can do nothing other than reach that figure on a relatively rough and ready basis on the materials available to me, but it seems an appropriate figure by reference to what may be suitable turnover and profitability levels in the line of business in which FIT and CGL (and so indirectly Luk, Ngai, Yip and Lai) are involved.

94.  I will include liberty to apply as to this fortification matter as well as any other matters as might arise suitable for an application within that liberty.

Result

95.  Therefore, in the exercise of my discretion it seems to me to be appropriate for there to be the following orders, in place until trial or further order:

(1)  the 1^st to 4^th defendants shall, within 10 days, deliver up and hand over to the plaintiff the following information and/or any documents containing such information (whether in electronic form or in hard copy or otherwise) which are in their possession, custody or power (collectively the “Confidential Information”), namely:

(i)  the name, the ID number and all contact details of the customers of the plaintiff (including the telephone number, address, email address, Facebook/WeChat/ WhatsApp profile information) (“Customers Information”); and

(ii)  all communications/messages with the customers of the plaintiff in the aforesaid communication channels (“Communication Records”);

(2)  the 1^st to 4^th defendant be restrained from divulging the Confidential Information to any 3^rd parties, from keeping records of the Confidential Information and from using it in any way to contact any customers of the plaintiff (in particular for running a business in competition with the plaintiff), save that the injunction shall not apply where the Customers Information of the particular customer of the plaintiff was obtained by the 1^st to 4^th defendants otherwise than in the course of and as a result of their employment with the plaintiff.

(3)  The plaintiff is to provide fortification for its cross-undertaking in damages by the payment of $1 million into court, to be held in an interest-bearing account.  Fortification must be provided within 21 days, failing which paragraphs 1 and 2 of this order shall stand discharged without need for further order.

96.  I will also grant liberty to apply.

97.  Having heard the parties on costs, in the exercise of my discretion, I order the costs of the application to be the plaintiff’s costs in the cause.