CSAV GROUP (HONG KONG) LTD. AND ANOTHER v. JAMSHED SAFDAR

cacv 133/2006

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. CACV 133 of 2006

(on appeal from DCCJ NO. 586 of 2006)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  This was an appeal from a judgment of HH Judge Chow given on 22 March 2006.  The matter before the judge was the hearing of an inter partes summons issued following the grant of an ex parte preservation order.  At the conclusion of the hearing of this appeal judgment was reserved which we now give.

Background

2.  The defendant was previously the Head of Marketing of the second plaintiff.  The second plaintiff is a sea container transport company and is incorporated in Malta with the first plaintiff as its Hong Kong service company.  As such the defendant’s contract of employment was with the first plaintiff, but nothing turns upon that.  On 3 January 2006 the defendant gave one month’s notice of resignation.  Hence his employment terminated on 2 February 2006.  Nevertheless, it was agreed between the parties that the defendant’s last day of work at the plaintiffs’ offices would be 13 January 2006.

3.  After the defendant had stopped working at the plaintiffs’ offices, an examination of the e-mail files on his computer revealed that over the course of the previous year or so the defendant had sent a number of documents and files from his office computer to his own personal e-mail addresses.  Amongst those were 3 documents which the plaintiffs claim were confidential documents.  The first was a copy of the second plaintiff’s freight rate reports for the third quarter of 2005.  This document had been prepared in January 2006 and was e-mailed to the defendant’s personal e-mail accounts on 5 January 2006.  There was then a list of attendees at a cocktail party which the plaintiffs had held in December 2005 for their largest and most profitable customers.  Finally there was a list of over 75 of the plaintiffs’ trade press contacts around the world, that had been e-mailed on 6 January 2006.

4.  Amongst other items which had been e-mailed was a sheet giving some suggestions as to how the name of a freight shipping company could be chosen and some of the criteria which would be involved.  There was also a sheet headed “Budget-Marketing Expenses March-December 2006- US$”.  There was an item entitled “Web site Brief”.  That set out the basic components which would be required for a company which would operate presumably in the shipping arena.  It listed the need for a public site, an intranet site and an extranet site.  It is also apparent that the defendant had e-mailed copies of what were referred to as the PR Newswire articles.  The PR Newswire is a business media service which provides news and information about different businesses and it includes maritime news and information about developments in the shipping industry.  It is a subscription service costing just under HK$7,000 per year.

5.  After discovering these materials, members of the plaintiffs’ senior management interviewed the defendant at the plaintiffs’ offices on 2 February 2006.  There is some dispute between the parties as to whether the purpose of that interview was made clear to the defendant.  Certainly one thing is clear, the solicitor acting for the plaintiffs attended the meeting and although he gave the defendant his name he did not disclose the fact that he was a solicitor.  When the matters were put to the defendant it is clear that although he admitted there had been various e-mails, clearly, he did not appreciate the full significance of having e-mailed the plaintiffs' documents and materials.  In summary it is clear that he did not consider these materials to be of importance or commercially significant.  At the meeting he said that he would be prepared to let the plaintiffs’ representatives come to his home to inspect the computer on which he had received the e-mails but he objected to one of the plaintiffs’ employees coming since he had been on bad terms with that person.  An arrangement was made that there would be a visit by the plaintiffs’ representatives at 7 p.m. that night.

6.  It was the plaintiffs who did not keep the appointment.  After the allotted hour the plaintiffs’ solicitor telephoned the defendant to fix another appointment.  It was at that stage that the defendant appreciated that the person to whom he was talking was a solicitor.  That was confirmed in the course of the conversation.  Hardly surprisingly, that altered the situation and it would appear that then the defendant engaged solicitors of his own.  As a result the defendant’s solicitors wrote the following day indicating that no inspection would be allowed.

7.  On 7 February 2006 an ex parte application was made, on notice to the defendant, to a District Court Judge seeking an order for preservation of the defendant’s computer.  On that application the judge granted an order that the defendant’s computer together with any storage devices relating to it should be held in the defendant’s solicitors’ custody so that a computer expert could take copies of the storage media.  There was also an order that the defendant should be restrained from using in any way any “information, property, files, documents, or other material belonging to the plaintiffs (“Plaintiffs’ Property”)”.  There was also an order that the defendant should serve on the plaintiffs’ solicitors an affirmation specifying whether any of the so termed Plaintiffs’ Property had been given or forwarded or transferred to any third parties.

8.  A different judge heard the inter partes summons for the continuation of the injunction.  On that application the judge ordered that the injunction order preventing the use of the Plaintiffs’ Property should continue until trial or further order and further ordered that the defendant should forthwith deliver up to the plaintiffs’ solicitors all copies of the “Plaintiffs’ Property (as defined in the Schedule annexed to hereto, and whether in printed form or stored on portable electronic media including but not limited to USB drives, CD-ROM, DVD-ROM and floppy disks) in the possession of the Defendant”.

9.  The next part of the order dealt with the service of an affidavit requiring the defendant to list all the Plaintiffs’ Property taken received or otherwise dealt with by the defendant over the previous six months.  This part of the order is not in dispute because it is said that it has been complied with.  Paragraph 3 of the order is, however, relevant for the purposes of this appeal.  It reads:

“The forensic images made pursuant to paragraphs 2 and 6 of the Order (“Images”) be dealt with in the following manner:

(1)        There be a joint inspection of the Images by the respective professional representatives of the Plaintiffs and the defendant (“Representatives”).

(2)        Where the Representatives agree that certain files, documents or other data on the Images are the Plaintiffs’ Property and/or are otherwise relevant to this Action, such files, documents or other data shall be printed out and/or copied onto portable electronic media and a copy given to the Plaintiffs’ solicitors.

(3)        Where the Representatives are unable to agree whether certain files, documents or other data on the Images are the Plaintiffs’ Property and/or are otherwise relevant to this Action, such files, documents or other data shall be printed and/or copied onto portable electronic media and sealed in a carton pending further order of the Court.

(4)        The Plaintiffs’ representatives to give an undertaking that save for the items in sub-paragraph (2) above, no disclosure would be made to the Plaintiffs of any of the files, documents or other data on the Images without the leave of the Court.”

10.  The costs of the application were also made costs in the cause.

This appeal

11.  On this appeal, Mr Burns, who appeared on behalf of the defendant, took two major points.  In the first place, he argued that it had been wrong in principle to have made an order in terms of paragraph 3 of the inter partes order.  In the second place, he took exception to the broad terms of paragraph 11 of the Schedule which defined the Plaintiffs’ Property for the purposes of paragraph 2 of the order.

The order for inspection

12.  The argument on behalf of the defendant was that the order in paragraph 3 which provided an unlimited power of inspection of everything which was on the hard disk of the defendant’s computer was wrong at this stage and, indeed, gave the plaintiffs’ solicitors a wider power of inspection than would have been available under the normal discovery procedure.  The reason was that the defendant’s computer was used as his personal computer for personal matters both of himself and his family.  Hence, in addition to containing some of the documents which had been sent from the plaintiffs’ offices to his personal e-mail account it contained many other items to which the plaintiffs and their solicitors would not have access on discovery.  Indeed, it was clear that some of the documents which had been sent from the plaintiffs’ offices had been deleted from the defendant’s computer as being of no interest.  As a result the plaintiffs no doubt had a better record of the documents which had been sent from the defendant’s office computer than did the defendant.

13.  It is apparent that the preservation order which had been made on the ex parte application was clearly sufficient to protect what remained of what had been received on the defendant’s computer and that the plaintiffs were well aware of the contents of that.  In so far as those items, or information derived therefrom, may have been transmitted to other people that would have been to a Mr Vikas Khan, who had been the Chief Executive Officer of the first plaintiff and who had set up a rival business to the plaintiffs.  There may have been other employees who would have gone to the new company but the evidence in respect of that is somewhat vague.  In his first affirmation filed within seven days of the ex parte order, the defendant said quite clearly that the freight rate report had been given to Mr Khan.  It was said that the copy that had been given to Mr Khan had been retrieved and had been in the possession of the defendant’s solicitors since 3 February 2006.

14.  The need for a preservation order is one thing.  The need for inspection and copies of property preserved is another.  One justification which is often the case is that the material required to be revealed would enable the plaintiff to bring other proceedings against other parties.  In this case the plaintiffs have all they need to pursue Mr Khan and his companies should they so choose.  To date they have not so chosen.  In any event, it was not suggested that anything further was needed before such proceedings could be commenced.

15.  In coming to his conclusion that such an order should be made the judge took into account the fact that the defendant had sent copies of the PR Newswire articles from the plaintiffs’ offices.  When it was put to Mr Smith SC, who appeared on behalf of the plaintiffs on this appeal, he did not seek to argue that the plaintiffs could have any claim to copyright or confidential information in the Newswires.  He argued that they were the plaintiffs’ property in the sense that they had paid for them but he went no further than saying that it could be said that the defendant had been in breach of his contract of employment in making such use of them as he did.  In my view the Newswire articles were no more than electronic newspapers and there is no suggestion that they would not have been available to any member of the public who chose to pay for them.  As such they did not constitute confidential information and it is not clear why the judge thought it significant to refer to one of those articles at the outset of his consideration of whether to grant the inspection order.

16.  The order for inspection which was granted by the judge on the inter partes summons went further than any order for discovery.  It enabled the solicitors for the plaintiffs to have access to everything on the computer disks, even if the material were wholly irrelevant.  Once seen, it could not be blotted out of the person’s mind.

17.  The only materials which were alleged to have constituted confidential information were the three items referred to in paragraph 17 of the statement of claim, which have been referred to in paragraph 3 above.  Although the immediate reaction might be that the freight rate reports would have constituted important information, when those documents are considered they appear to have been merely generalised reports containing average freight rates but they do not show the prices charged by the second plaintiff.  What they show is, perhaps, that the second plaintiff’s average rates were lower than the market average.  As discussed with Mr Smith in the course of argument, that information would hardly have come as a surprise to Mr Khan since he had no doubt been in charge of the plaintiffs’ marketing policies for a considerable period of time and there is no suggestion that those policies might have changed.  Although invited to by this court, Mr Smith did not seek to argue that the freight rate reports contained anything more.  No doubt, the list of attendees at the cocktail reception was a document which the defendant should not have used for his own purposes or the purposes of a rival business.  Again, the names of the attendees at that cocktail would probably have been known to Mr Khan.  Likewise the list of trade press contacts was probably a useful list which the plaintiffs were entitled to keep to themselves but the information contained was not something which it would have been devastating if a rival were to obtain.

18.  Probably one of the difficulties that faces the plaintiffs is that even if an injunction were to be imposed against Mr Khan and his companies to require them to deliver up any of the material which had been passed to them and to prevent them from using information obtained therefrom, it would be almost impossible to show that any subsequent acts by Mr Khan or any of his companies were based thereon because of the generalised and, perhaps, vague information contained in the freight rate reports and of the knowledge which Mr Khan would have had in any event in relation to potential customers and trade press contacts.

19.  In my view there was no need for the inspection order at this stage and in view of the fact that it was potentially harmful to the defendant, it should not have been made.  I would therefore be disposed to set aside that part of the order.

20.  Without, it is hoped, being unduly pernickety it has to be observed that paragraph 1 of the inter partes order, continuing, as it does, paragraph 4 of the ex parte order, restrains the defendant from using or disclosing the “Plaintiffs’ Property” which is defined in the ex parte order as meaning any information, property, files, documents, or other material belonging to the plaintiffs.  In contrast paragraph 2 of the inter partes order also refers to “Plaintiffs’ Property” but in that case the definition is different.  For the purposes of paragraph 2 “Plaintiffs’ Property” is said to be as defined in the Schedule annexed to the order.  The next observation that might be made is that the Schedule does not relate to the “Plaintiffs’ Property” but to the “Plaintiffs’ Documents”.

21.  Those discrepancies are perhaps but minor issues.  The point taken by Mr Burns on behalf of the defendant was that paragraph 11 was clearly too wide since it related to documents which had been prepared by the defendant during the period of his employment with the plaintiffs including any documents prepared for third parties and that would include documents which he had prepared in his spare time.  The force of that submission was partially acknowledged by the plaintiffs who, as a fall back argument, were prepared to concede a limitation of the orders sought to documents produced during office hours in the plaintiffs’ offices.  In my view the correct course would be to limit paragraph 11 of the Schedule to documents over which the plaintiffs can be said to have an arguable case in the action namely the confidential documents as pleaded in paragraph 17 of the statement of claim. 

22.  I would therefore so limit the order.  In doing so I would make an order nisi that the costs of this appeal be to the defendant.  I would also vary the costs below to defendant’s costs in the cause in view of the fact that although it was clearly necessary for there to be a hearing in the court below following the grant of the ex parte order, the order which was obtained was excessive in material respects.

Hon Le Pichon JA:

23.  I agree.