HARVARD ADDHAIR TECHNOLOGIES LTD. v. SAMSON PROFESSIONAL HAIR WEAVE CENTRE LTD. AND OTHERS

HCA4404/96

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.4404 OF 1996

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J U D G M E N T

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Introduction

1. The Plaintiff brought this action against the three Defendants based on various causes of action. At the beginning of the trial, settlement was reached between the Plaintiff and the 3rd Defendant. This judgment therefore only needs to deal with the Plaintiff's claim against the 1st Defendant ("D1") and the 2nd Defendant ("D2").

2. The background facts are undisputed. The Plaintiff has been operating what is called a hair weaving business since 1990. Since about 1995 or 1996, D1 also operates a similar business. D2 was originally employed by the Plaintiff from about July, 1987 to about July, 1994, initially as the manageress of the Hong Kong shop and later as its general manageress in charge of both the Hong Kong and Kowloon shops. In July, 1994, D2 resigned from the Plaintiff. About two years later, in about 1996, D2 was employed by D1. It is also undisputed that photographs of D2 and one Somson Kwan respectively were commissioned by the Plaintiff to be taken in about 1990 (collectively "the Plaintiff's photographs").

3. The Plaintiff got wind that in about April, 1996 letters signed by D2 were sent to the Plaintiff's customers who were on the Plaintiff's customer list ("the List"). D2 had access to the List while she was in the Plaintiff's employ. The Plaintiff contends that D2 removed the List and used it for D1's business.

4. Further, the Plaintiff found out that D1 possessed a number of documents which the Plaintiff contends are strikingly similar to its documents. These are documents called "General Information Card", "Standard Form Letter", "Free Consultation Card" and "Appointment Card" (collectively "the Plaintiff's documents"). The Plaintiff contends that D2 removed the Plaintiff's documents and copied them for D1's use.

5. In addition, the Plaintiff contends that D1 (through D2) used the Plaintiff's photographs the copyright of which belongs to the Plaintiff.

6. To sum up, the Plaintiff's claim against both D1 and D2 is based on :-

(a) breach of confidence;

(b) breach of copyright; and

(c) conversion.

7. There were expressd terms in D2's employment contract with the Plaintiff. The Plaintiff claims that D2 has breached these terms in removing the above said items from the Plaintiff and/or in using the Plaintiff's confidential information. The Plaintiff also alleges that the said acts of D2 breached the implied terms of her employment contract.

8. The burden of proof is on the Plaintiff to establish its claim based on the above-said causes of action against each of D1 and D2 (as appropriate).

Credibility of Witnesses

9. The Plaintiff called the following witnesses :-

(a) Ms Lee Po Yee Betty, the Plaintiff's manageress at its Kowloon shop;

(b) Ms Lee Pui Kwan Alice, the Plaintiff's manageress in charge of its Hong Kong shop;

(c) Ms Yip Nga Sai Julia, the Plaintiff's receptionist in the Kowloon shop;

(d) Ms Chan Sui Ki, the Plaintiff's assistant manageress at its Hong Kong shop;

(e) Mr Chui Wai Kwok Raymond, the Plaintiff's technical manager at its Hong Kong shop;

(f) Mr Trevor Alan Holland, the director of the Plaintiff and the Plaintiff's sister company; and

(g) Mr Graham Paul Gauntlett, the director of Advertising Concepts International Limited ("ACI"), the company commissioned by the Plaintiff to take the Plaintiff's photographs for use in the Plaintiff's promotion brochure.

Apart from the above witnesses, the following witnesses were also called to confirm the contents of their respective witness statements:-

(a) Ms Chu Sin Kuen Karen, ACI's art director;

(b) Ms Woo Shu Wah Kenvy, the Plaintiff's consultant at its Kowloon shop;

(c) Ms Cheng Lam Ling Winfred, the assistant manageress at the Plaintiff's Kowloon shop;

(d) Mr Lam Yuen Chak, the investigator of Fact Finders Limited.

10. The reason why the above four witnesses were called although D2 did not challenge their testimony was that D1 was absent from 20 September to 21 September, 1999. Mr Garland for the Plaintiff considered (correctly in my view) that in order to establish the Plaintiff's claim against D1, it was necessary to have these witnesses called to confirm in Court their respective statements under oath.

11. Besides the above, the Plaintiff adduced a witness statement of Mr Michael Leonard Harris without calling him as a witness. Mr Garland for the Plaintiff argued that this statement was covered by the Plaintiff's Hearsay Notice dated 21 August, 1998 which also stated that Mr Harris was beyond the seas. A Counter-Notice dated 25 August, 1998 was filed by the defence but it did not challenge the ground stated in the Hearsay Notice for not calling Mr Harris. Mr Loughran challenged the admissibility of this statement and argued that I still have a discretion not to admit it. Neither Mr Loughran nor Mr Lau (for D1) challenged that Mr Harris was beyond the seas. Subsequent to the parties' arguments, I ruled that I did not have a discretion over the admissibility of the statement. Reasons for the ruling were given at the time and will not be repeated here.

12. No evidence was adduced by D1. D2 called two witnesses:-

(a) D2; and

(b) Ms Tam Wai Fan, a former hair consultant of the Plaintiff.

(1) Plaintiff's Witnesses

13. There is no reason not to accept the testimony of those Plaintiff's witnesses who testified but were not cross-examined. I accept their testimony to be truthful and reliable. I also accept the evidence of Michael Harris (adduced through his statement) and give full weight to it.

14. In short, the purpose of D2's cross-examination was aimed at:-

(a) putting the Plaintiff to strict proof of the confidentiality of the List;

(b) putting the Plaintiff to strict proof of the ownership and subsistence of copyright in the Plaintiff's photographs; and

(c) challenging the alleged misuse of the List and the Plaintiff's documents by the Defendants.

15. In particular, Mr Loughran submits that it was possible for the List to have been leaked because:-

(a) almost all of the Plaintiff's witness conceded that a determined staff would be able to gain access to the List without authority;

(b) the turnover of staff in the Hong Kong shop from 1993 to 1996 enhanced such possible leakage;

(c) there was also a danger that the List might be leaked to outsiders; and

(d) two of the Plaintiff's witnesses (Ms Chan Sui Ki and Ms Yip Nga Sai Julia) conceded there was some degree of access to List by the Plaintiff's staff.

16. I consider that the "possible" leakage of or unauthorized access to the List relied on by D2 is too remote or fanciful. I also accept the testimony of the other Plaintiff's witnesses to be truthful and reliable and entitles me to make the findings of fact set out below.

(2) Defence Witnesses

17. D2's testimony can be conveniently divided into the following aspects:-

(a) the alleged use of the List;

(b) the alleged use of the Plaintiff's documents; and

(c) the use of the Plaintiff's photographs.

18. I shall deal with D2's testimony relating to the List first. She testified in essence that the customer information which was used to mail D1's promotional materials was provided by a Mr Simon Yu in 1996. I find this part of D2's testimony incredible:-

(a) it is unbelievable that D2 would trust a complete stranger and gave Mr Yu $20,000 for services he promised to provide without finding out who he was or whether his services were worth the price;

(b) the fact that the reference numbers (which D2 said were also provided by Mr Yu) which appeared in D1's promotional materials were extremely similar (if not identical) to the Plaintiff's makes D2's story all the more incredible. D2 said she did not ask Mr Yu to provide these reference numbers, or pay him to do so. It would be inherently incredible for Mr Yu to put in the extra work to provide such reference numbers and to co-relate them to each recipient without asking to be paid for such work; and

(c) coupled with sub-paragraphs (a) and (b) above, D2 only advanced this story in her 5th affirmation.

19. I conclude that this story was made up by D2 so as to provide herself with an explanation as to how she came to use the information contained in the List through an innocent source. Having rejected her testimony and having rejected the possibility of leakage or other means of access (contended for by Mr Loughran) as being remote or fanciful, I find that the proper inference was that D2 has kept (or copied and kept) the List and used it in April, 1996.

20. D2's testimony also dealt with the Plaintiff's documents. She testified that she had kept working drafts of the Plaintiff's documents because (she claimed) she was the one who drafted them. She also said she was unaware of this until she started to draft similar documents for D1 in 1995 or 1996. I also find this to be unbelievable because:-

(a) a comparison of the final version of the Plaintiff's documents with similar documents of D1 shows that there are substantial similarities between the two sets of documents;

(b) in relation to the "General Information Card", the typographical error "Black [Back] View of the Head" in the final version of the Plaintiff's card also appears in D1's "General Information Card"; and

(c) the box in the Plaintiff's "Appointment Card" for "HK" (meaning the Plaintiff's the Hong Kong shop) also appears in D1's card. D1 only has one shop in Kowloon. D2's explanation that this was included because she anticipated future expansion is incredible because the card would still need to be re-printed to set out the new address if a Hong Kong shop were in fact set up later.

21. In relation to D2's testimony dealing with the Plaintiff's photographs, I also find it incredible. D2 sought to explain that Somson Kwan gave her his photographs in 1996 and she used them in D1's brochure (believing Kwan had authorized her to do so). This is inconsistent with the defence solicitors' letter dated 30 July, 1996 which admitted that D2 removed one set of Kwan's photographs when she left the Plaintiff's employment and made copies of them for inclusion in D1's brochure. In the Defence, there was also an admission that D2 "kept" Kwan's photographs (at para.21 thereof).

22. In short, whether considered separately or in its totality, I do not find D2's testimony to be truthful insofar as it seeks to exculpate herself from the wrongful acts alleged by the Plaintiff.

23. Ms Tam Wai Fan's testimony mentioned some degree of access to the List. I do not find this evidence to be of much weight. It is certainly not weighty enough to affect the inference which ought to be drawn from the totality of the evidence that the other "possible" means of access to the List is too remote or fanciful. Further, I note that Ms Tam also agreed that she knew she had to keep the Plaintiff's information confidential as a matter of ethics.

Findings of Fact

24. Based on the evidence which I found to be acceptable, I make the following findings of fact:-

(a) as explained above, D2 has had access to and she either removed, or copied and removed, and kept the List before she left the Plaintiff's employment in July, 1994;

(b) D2 made use of the List for the use of D1's business and this enabled D1 to mail promotional materials to the Plaintiff's customers;

(c) D2 either removed, or copied and removed, and kept the Plaintiff's documents when she resigned from the Plaintiff;

(d) D2 removed Somson Kwan's photographs when she left the Plaintiff's employment;

(e) D2 was at all times aware that copyright subsisted in the Plaintiff's photographs. Alternatively, D2 ought reasonably to have known or at least suspected that copyright subsisted in the Plaintiff's photographs;

(f) no licence was granted by the Plaintiff for D2 to use the Plaintiff's photographs for D1's business;

(g) D2 did not believe that such a licence had been granted to her by the Plaintiff to use the Plaintiff's photographs for D1's business;

(h) D2 substantially copied the Plaintiff's documents when she procured similar documents of D1 to be printed;

(i) D2 used the Plaintiff's photographs for inclusion in D1's brochure; and

(j) the above acts of D2 were done for the purpose of D1's business and in the courses of her employment with D1 and as an agent for D1.

25. In fact, in D2's closing submissions (at para.1 thereof), Mr Loughran fairly accepted that the proper inference must be that some parts of the List were used as a base from which details of some of the Plaintiff's customers were taken by or on behalf of D1 to post promotional materials in about April, 1996.

26. As regards the issue of ownership and subsistence of copyright in the Plaintiff's photographs, I have no hesitation in finding that copyright subsists in them. Mr Garland advanced two arguments on this aspect. One, the Plaintiff owns the copyright by reason of s.4(3) of the Copyright Act 1956 ("the 1956 Act"). Two, the Plaintiff owns the copyright by reason of the confirmatory assignment.

27. As will be set out below (under "Infringement of Copyright (Against D1 and D2)"), I find the confirmatory assignment to be effective in assigning both the past and future copyright in the Plaintiff's photographs to the Plaintiff. If the assignment were ineffective, I would have agreed with Mr Loughran that there is a doubt as to whether the Plaintiff has established that it can rely on s.4(3) of the 1956 Act. This is because there is no direct evidence, and insufficient circumstantial evidence, to show that the Plaintiff has paid or agreed to pay for the Plaintiff's photographs "in money or money's worth". In this connection, it should be noted that although one of the Plaintiff's witnesses called was a director of ACI (the firm commissioned to take the Plaintiff's photographs), no evidence (whether by way of testimony or documents) was adduced to prove payment or an agreement to pay.

Case to Answer

28. As stated earlier, D1 was absent from the trial from 20 September to 21 September, 1999. A firm of solicitors has filed a Notice to Act for D1 on 5 August, 1999. There was a purported "Notice to Act in Person" filed by D1 on 24 August, 1999. I considered (in the ruling on 22 September, 1999 allowing leave to Mr Lau Ka Lun ("Mr Lau") to represent D1) this purported notice did not comply with the Rules of the High Court, especially Order 5, rules 6(2)(b) or 6(3). The said firm of solicitors made an application to cease to act for D1 on 21 September, 1999. This was adjourned due to a number of inadequacies in the application. By the end of the trial hearing on 24 September, 1999, that application has not been dealt with and that firm of solicitors remained as solicitors acting for D1.

29. On 22 September, 1999, Mr Lau, D1's director, turned up at the trial and indicated he wanted to represent D1 in the trial. After hearing him and Mr. Garland, I granted leave to Mr Lau to do so from 22 September, 1999 onwards.

30. The Plaintiff closed its case on 22 September shortly after Mr Lau appeared. After I explained to Mr Lau the trial procedure, including the right to make a no case to answer submission (but at the expense of being put to election not to adduce any defence evidence if the submission should fail), he indicated he wish to make such a submission.

31. It was apparent from Mr Lau's so-called "no case" submission that he did not understand the nature of such submission, or the related election (not to adduce evidence in defence) to which D1 has been put. This is because Mr Lau said in effect he did not need time to consider the Plaintiff's opening submissions and that he regarded the Plaintiff, being a big company with a lot of resources, was oppressive and tried to stifle D1's business. He asked me to understand this and allow D1 to continue to operate and dismiss this action.

32. These were his personal view and were totally irrelevant to the issues before me. I did not find them to be valid arguments. I also considered it unfair to prohibit D1 from adducing evidence because Mr Lau had made these remarks. Despite Mr Lau's earlier indication, I allowed D1 to adduce evidence but Mr Lau said he would not adduce any.

33. No submission was made by Mr Loughran for D2. Just to avoid any doubt, I considered that the Plaintiff's evidence had clearly established a prima facie case.

Has the Plaintiff Proven the Defendants' Liabilities?

34. By agreement of the Plaintiff and D2, the trial was limited to the question of liability only. Although no express agreement was made by D1 (through Mr Lau), Mr Lau did not object to this course. I also considered it appropriate to defer the issue of quantum taking into account the nature of the Plaintiff's claim herein.

35. As stated earlier, the burden is on the Plaintiff to establish the liabilities of D1 and D2 separately. I shall deal with this aspect under separate sub-headings below.

(1) Breach of Confidential Information (Against D1 and D2)

36. In order for the Plaintiff to be able to establish this part of the claim against D1 and D2, the following will have to be proven:-

(a) the information in question must have the necessary quality of confidence about it;

(b) such information was imparted in circumstances importing an obligation of confidence;

(c) there has been an unauthorized use of such information; and

(d) detriment to the party communicating such information was thereby caused.

(A) Confidentiality

37. Neither D1 nor D2 challenged the confidential nature of the List. Having considered the circumstances of this case, including the employment terms of the Plaintiff's staff and the "culture" of confidentiality regarding the List, and the cases relied upon by the Plaintiff in para.7 of its written opening submissions, I agree with Mr Garland that the List falls within the third category referred to in Faccenda Chicken v. Fowler [1986] FSR 291 and Lancashire Fires v. Lyons [1996] FSR 629.

(B) Obligation of Confidentiality

38. Having consider the circumstances of this case, including the matters set out in the above sub-heading, I am also satisfied that the List was known by the Plaintiff's staff, including D2, to be a confidential document to be used solely for the Plaintiff's business, and not to be disclosed.

(C) Misuse of Confidential Information

39. From the facts I found, D2 has misused the List and she did so as D1's agent.

(D) Detriment

40. I agree with Mr Garland's submission that the possession of the List by a rival such as D1 is likely to put that rival in an unduly advantageous position to approach the Plaintiff's customers to solicit business to the Plaintiff's detriment.

41. D2 stated that the List was no longer used. In view of my finding, in essence, that D2 was not a truthful or reliable witness, there is a risk that the List may still be used in future.

(2) Breach of Contract (Against D2 only)

42. Clause 6d of D2's employment contract provided that:-

"Upon the termination of this employment the Employee shall promptly deliver to the Company at the Company's Office all manual documents ... together with all equipment accessories ... relating to the Company's business or his employment which are in the Employee's possession or control."

43. Clause 7 of D2's employment contract provided that:-

"... The Term 'Proprietary Information' as used herein shall refer to ... procedures ... , marketing plans and strategies relating to the business of the Company and all information and particulars relating to the Company's customers and vendors. ...

AND WHEREAS the Employee acknowledges that in the course of his employment he will be receiving and acquiring or has received or acquired ... the Proprietary Information ... and that such ... is to be or has been received or acquired by him or has been imparted to him by the Company in strict confidence ...

The Employee acknowledges that the Proprietary Information is a special, confidential, valuable asset of the Company and the Employee agrees that he will at all times during or after the termination of his employment keep in confidence and trust ... and that he will not ... use the Proprietary Information .... "

44. There is no dispute that if the alleged wrongful acts were proven, the above clauses of D2's employment contract have been breached.

(A) Breach of Express Terms: Clauses 6d and 7

45. I find that D2 has breached Clauses 6d and 7 in that:-

(a) she had removed (or copied and removed) and kept the List and used the information therein for D1's business; and

(b) she had removed and used the Plaintiff's documents and Somso Kwan's photographs for D1's business.

(B) Breach of Implied Terms

46. It is undisputed in the course of the trial that the law implies terms into D2's employment contract that she should serve the Plaintiff with fidelity and in good faith and that she was not to disclose confidential information acquired during her employment or to use it to the Plaintiff's detriment.

47. From the facts I found above, I consider that D2 has breached the said implied terms.

(3) Infringement of Copyright (Against D1 and D2)

48. Mr Loughran argues that s.36(3) of the 1956 Act requires an assignment of copyright to be in writing in order to be effective. Based on this provision, he argued that the Plaintiff did not own the copyright in the Plaintiff's photographs at the time of the infringing acts because the written assignment was only executed on 10 April, 1996.

49. I agree with Mr Garland's submissions that an assignment (as the one made between the Plaintiff and ACI herein) containing the words:-

" ... the Assignor as beneficial owner hereby assigns to the Assignee absolutely all copyright in the Photographs ... for the residue of the term of copyright subsisting therein together with all rights of action in respect of any past or existing infringement of such copyright ... "

is capable of vesting the past and future copyright in the Plaintiff's photographs in the Plaintiff: see Copinger and Skone James on Copyright (1999) 14th Ed., Vol.1, paragraphs 5-82, text to n.21 and 9(2) Halsbury's Laws of England (1998) 4th Ed., para.167. This assignment is also sufficient to enable the Plaintiff (on its own) to bring this action against the Defendants in equity: see Copinger and Skone James, paragraphs 5-82, text to n.23 to 25 and footnote 25.

50. From the facts I found above, I consider that D1 and D2 had infringed the Plaintiff's copyright in the Plaintiff's photographs in including them in D1's brochure.

51. Mr Loughran relied on s.17(2) of the 1956 Act. I have rejected D2's testimony (among other things) regarding her belief and knowledge relating to the copyright of the Plaintiff's photographs. Even if D2's testimony be accepted, I do not consider it is capable of establishing a defence thereunder since the provision relates to knowledge or belief regarding the subsistence of copyright.

52. Mr Loughran also relied on s.18(2)(b) of the 1956 Act. Since I have rejected the relevant parts of D2's testimony, I do not find that any defence has been successfully established thereunder.

(4) Conversion (Against D1 and D2)

53. Clarke and Lindsell on Torts (1995) 17th Ed., paragraphs 13-14:-

"Anyone who without authority receives or takes possession of another's goods with the intention of asserting some right dominion over them, or deals with them in a manner inconsistent with the right of the true owner is prima facie guilty of conversion; provided there is an intention on the part of the person so dealing with them to negative the right of the true owner or to assert a right inconsistent therewith."

54. From the facts found by me above, I consider D1 (through D2) and D2 had converted the Plaintiff's rights in the Plaintiff's documents and the Plaintiff's photographs by using them unlawfully for D1's business.

Conclusion on Liabilities and Relief

55. It was agreed by the parties that the trial be limited to the liability of D1 and D2, leaving the question of quantum to be decided later. In paragraphs 29 to 32 of the Plaintiff's closing submissions, Mr Garland asks for various kinds of relief. Neither Mr Lau nor Mr Loughran for D2 made any submissions in opposition in relation thereto. Having found in the Plaintiff's favour on liability, I consider it appropriate to grant the following relief:-

(a) the injunction order restraining the use, disclosure or infringement (as appropriate) of the various items belonging to the Plaintiff as more particularly set out in paragraph 29 of the Plaintiff's closing submissions;

(b) a delivery up order in terms of paragraphs (2) and (5) of the prayer for relief of the Re-Re-Re-Amended Statement of Claim;

(c) enquiry as to damages or, at the Plaintiff's option, an account as to profits; and

(d) a discovery order for the purpose of the said enquiry or account.

Costs

56. The parties agreed that arguments may be raised regarding the question of costs. For this reason, no costs nisi is made herein.