SHIH MEI LING (施美伶) formerly known as SHIH MEI LING (施美玲) v. CHUNG & KWAN (a firm)

HCA 590/2020

[2020] HKCFI 921

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 590 OF 2020

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D E C I S I O N

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1.  On 8 May 2020, the plaintiff (“P”) issued a writ against the defendant law firm (“D”), claiming breach of a duty of confidence, and seeking an injunction to restrain D from continuing to represent or advise P’s sister, Shih Mei Ki (施美琪) (the “Sister”) in HCA 797 of 2018. On the same date, P issued a summons (the “Summons”) pursuant to Order 29 rule 1 RHC, seeking an interlocutory injunction to the same effect.

2.  In essence, P’s complaint is that a solicitor who previously acted for her in HCA 797 of 2018 (the “Action”) subsequently moved to D, which is a law firm representing the opposing party in the Action, namely the Sister; and that accordingly, injunctive relief is required to protect P’s confidential information. 

3.  The Summons came before me on 15 May 2020, by which time D had filed opposing evidence. At the hearing, P indicted (by counsel Ms Dora KH Chan) that she did not wish to file reply evidence.

4.  The parties agreed that the hearing should be treated as the substantive hearing of the Summons, seeking interlocutory injunctive relief pending any trial. 

P’s complaint

5.  In the Action, P is the plaintiff and the Sister is the defendant. Very broadly, the Action concerns a dispute as to the beneficial ownership in a property and the proceeds of its sale. Pleadings have been filed, and the Sister recently issued a summons for directions.

6.  P initially instructed Messrs Ko & Chow (“K&C”) to represent her in the Action. According to P, her case was handled by a solicitor (“Mr Cheung”) of K&C, who was supervised by a partner. 

7.  P’s evidence is that she had five meetings with Mr Cheung (some attended by counsel), and numerous telephone and email exchanges with him. She gave to him detailed instructions about her case, her personal and financial circumstances, intricacies of family relationships, and her assessment of the strengths and weaknesses of the litigation. 

8.  According to P, Mr Cheung well knew that the Sister was represented by D in the Action, and Mr Cheung had various telephone conversations with the solicitor (“Mr Lam”) at D who was handling the case. In May and June 2018, Mr Cheung negotiated directly with Mr Lam of D on potential settlement of the Action, but without success. For these purposes, P had informed Mr Cheung of her preferred terms of settlement and “bottom line”.

9.  P says that in June 2018, she gave Mr Cheung detailed instructions regarding a request for Further and Better Particulars of the Statement of Claim, and gave him all documentary evidence in the Action. Around the end of July 2018, P tried but failed to contact Mr Cheung, and was told by partner of K&C at the start of August, that Mr Cheung had left that firm. 

10.  In November 2018, P retained Messrs Joseph CT Lee & Co (“JCTL”) in the Action, in place of K&C, and thereafter heard nothing of Mr Cheung. 

11.  On 18 March 2020, says P, she received from JCTL a letter in relation to the Action on D’s letterhead, from which she happened to notice that Mr Cheung was listed as an associate of D.

12.  This resulted in correspondence between JCTL and D, by which D inter alia: (i) indicated that Mr Cheung had joined D as a associate in September 2018; (ii) stated that the Action has only been handled by Mr Lam and has never been discussed with Mr Cheung; (iii) offered to provide declarations from Mr Cheung and Mr Lam that they have not discussed the Action and/or would undertake not to do so. 

13.  P was not satisfied by these offers and assurances, resulting in the commencement of the present proceedings (following also, certain correspondence with the Law Society).

D’s evidence

14.  D filed affidavit evidence from: (i) the senior partner of D; (ii) Mr Lam; (iii) Mr Cheung; and (iv) the Sister. That evidence included the following matters.

15.  Mr Cheung was admitted as a solicitor in 2015. His evidence was that at K&C, he worked under the supervision of the managing partner (“Mr Ko”), when handling the Action. He accepted that in relation to the Action: (i) he had attended some meetings and conferences with P (and Mr Ko) for taking instructions and giving advice; (ii) he had telephone and email exchanges with P; and (iii) he (together with Mr Ko) had correspondence and negotiations with a Mr Lam of D. However, Mr Cheung’s evidence was to the effect that, given the lapse of over 20 months, he did not have a clear or specific recollection of the details of such discussions and correspondence. 

16.  D comprises four partners, four consultants, and five associates.

17.  Mr Cheung was interviewed by partners of D in about June 2018. On this occasion, he mentioned his involvement in Action, and was reminded by the partners that if he were to join D, he should not discuss the case with anyone in the firm, in accordance with firm policy.

18.  In mid-June 2018, Mr Cheung resigned from K&C. In accordance with usual practice, he passed all files and documents to K&C, does not retain any documents in relation to the Action, and no longer has access to his email account from K&C. He also mentioned to Mr Ko that he might join a firm where there would be potential conflict of interest. Mr Ko reminded him that he should not handle anything to do with the Action, and could not bring P with him as a client.

19.  From 25 June 2018, Mr Cheung vacationed away from Hong Kong, and thereafter joined D on 17 September 2018. On his first day of work, Mr Cheung again told the partners of D that he had had involvement in the Action. The partners informed him of a “Chinese Wall” policy, under which it would be strictly forbidden for him to accept instructions from P, he must not handle any matter in relation to the Action, and he must not discuss the Action with Mr Lam. Mr Cheung agreed this approach, and followed it. The partners indicated that they would inform Mr Lam.

20.  Mr Lam is an consultant of D with over 28 years’ litigation experience. In general, consultants at D have a free hand to run their own cases, without reporting to or supervision by partners. This applied to the Action, which was solely handled by Mr Lam since he first received instructions from the Sister in April 2018. 

21.  The filing system is such that Mr Lam’s cases, including the Action, had a specific prefix assigned at the outset, showing that the case was handled by Mr Lam alone. No other person would have access to or supervise such files. Every solicitor at D has a separate computer and email account with its own password, and a personal file in the internal computer network, so there was no risk of inadvertent leakage of information.

22.  Mr Cheung’s work at D mainly involves probate, administration, succession, wills and building management matters, as allocated by supervising partners. He does not handle civil litigation. He does not work for consultants, and accordingly does not work with Mr Lam on any matters.

23.  Ds’ evidence was that Mr Cheung and Mr Lam never discussed the Action, that it was impossible for Mr Cheung to access documents regarding the Action by accident, and that Mr Cheung had never met with the Sister. Mr Cheung undertook not to be involved in the Action in any way or to communicate with anyone on it, unless with P’s consent or under court order.

Substantive law

24.  The substantive principles applicable to claims such as the present were considered by the English Court of Appeal in Koch Shipping Inc v Richards Butler (a firm) [2002] EWCA Civ 1280.

25.  Koch Shipping Inc (“Koch”) sought an injunction to restrain a law firm (“RB”) from continuing to act for Ariadne Maritime Limited against Koch in an arbitration. The basis was that Koch’s solicitors in the arbitration were Jackson Parton, and a partner of that firm who had acted for Koch in the arbitration, had moved to RBs as a consultant (though with no involvement in the arbitration). The injunction was granted at first instance, but overturned by the Court of Appeal, following a detailed consideration of the facts including various measures taken by RB (in terms of information barriers) to prevent potential mis-use of Koch’s confidential information.

26.  The English Court of Appeal considered the applicable principles derived from the case law, most notably the judgments of the House of Lords in Prince Jefri Bolkiah v KPMG [1999] 2 AC 222, and summarised the principles as follows (at §24 per Clarke LJ):

“(1) The court's jurisdiction to intervene is founded on the right of the former client to the protection of his confidential information …

(2) The only duty to the former client which survives the termination of the client relationship is a continuing duty to preserve the confidentiality of information imparted during its subsistence …

(3) The duty to preserve confidentiality is unqualified. It is a duty to keep the information confidential, not merely to take all reasonable steps to do so …

(4) The former client cannot be protected completely from accidental or inadvertent disclosure, but he is entitled to prevent his former solicitor from exposing him to any avoidable risk. This includes the increased risk of the use of the information to his prejudice arising from the acceptance of instructions to act for another client with an adverse interest in a matter to which the information may be relevant …

(5) The former client must establish that the defendant solicitors possess confidential information which is or might be relevant to the matter and to the disclosure of which he has not consented …

(6) The burden then passes to the defendant solicitors to show that there is no risk of disclosure. The court should intervene unless it is satisfied that there is no risk of disclosure. The risk must be a real one, and not merely fanciful or theoretical, but it need not be substantial …

(7) It is wrong in principle to conduct a balancing exercise. If the former client establishes the facts in (5) above, the former client is entitled to an injunction unless the defendant solicitors show that there is no risk of disclosure.

(8) In considering whether the solicitors have shown that there is no risk of disclosure, the starting point must be that, unless special measures are taken, information moves within a firm … However, that is only the starting point. Bolkiah’s case does not establish a rule of law that special measures have to be taken to prevent the information passing within a firm … On the other hand, the courts should restrain the solicitors from acting unless satisfied on the basis of clear and convincing evidence that all effective measures have been taken to ensure that no disclosure will occur … This is a heavy burden …”.

27.  The Court of Appeal stressed that the analysis in a particular case is fact-sensitive: §§25 to 32.

28.  Ultimately, Ms Chan (for P) and Mr Andrew YS Mak[1] (for D) agreed that the principles summarised in Koch Shipping apply to the present case. 

Whether to apply an American Cyanamid approach

29.  Ms Chan contended that the American Cyanamid principles should be applied. Mr Mak argued that disposal of the Summons would finally resolve these proceedings, such that a modified approach was required with a greater focus on assessment of the parties’ merits, and an elevated merits threshold for P.

30.  In Time Success Profits Ltd v Andrew Lam & Company HCA 3046/2003, 12 November 2003, Deputy High Court Judge To considered similar arguments, in an approximately comparable scenario[2].

31.  At §§7 to 9, the court considered that the application for interlocutory injunctive relief would not finally dispose of the matter. If such relief were granted, although the defendant law firm would likely be replaced as solicitors in the other litigation, the injunction action could still proceed to final determination; and if the defendant law firm ultimately succeeded, it might claim from the plaintiff for profits that would have been earned from the lost litigation, under the plaintiff’s cross-undertaking in damages. 

32.  I agree with the approach in Time Success, and apply an American Cyanamid approach.

Serious Issue to be tried

33.  There can be no doubt that there is a serious issue to be tried.

34.  As noted above, D’s evidence accepts (inter alia) that Mr Cheung participated in various meetings with P as her solicitor in the Action, at which instructions were taken and advice given, as well as in negotiations with Mr Lam who was acting for the Sister.

35.  Mr Cheung has therefore been privy in his capacity as a solicitor for P to information confidential to P. The nature of that information is of some considerable importance in the context of the ongoing conduct of the Action.

36.  Further, I do not think that the suggestions in Mr Cheung’s evidence that he does not recall the specific details of what was discussed, detract from this conclusion.

37.  Accordingly, the burden shifts to D to show that, notwithstanding Mr Cheung’s employment by the law firm acting for the Sister in the Action, the measures taken to protect P’s confidential information and undertakings offered are such that there is no riskof disclosure to those acting for the Sister. See: principles set out above. When pressed, Mr Mak did not dispute that the burden so shifted to D. 

38.  Whilst there may be argument as to the sufficiency of D’s measures, there is at the very least a serious issue to be tried.

39.  Indeed, even if a higher merits threshold were required (as Mr Mak contended), I consider that it would be met on the present evidence. I note a few points. 

40.  First, the cases establish the importance and primacy that is afforded to P’s interest in the protection of confidential information imparted to her solicitor. See eg §26(3) above (unqualified duty to preserve confidentiality, not merely to take reasonable steps), §26(7) above (wrong in principle to conduct a balancing exercise)[3].

41.  Second, the burden imposed on D is a high one: the court should intervene unless it is satisfied that there is no risk of disclosure. The risk must be a real one, and more than merely fanciful or theoretical, but it need not be substantial.

42.  Third, a number of features of the case suggest, on a preliminary basis, that P’s concerns are justified, and the measures in place at D may be insufficient.

43.  I bear in mind, in particular, that: (i) Mr Cheung is a comparatively junior solicitor; and (ii) D is a small law firm. In the context of such a firm, one would in the usual course expect there to be rather frequent contact between the two solicitors in question, eg in common areas, at lunches or firm gatherings. There may be conversations with other lawyers and staff or use of common facilities (such as photocopiers and mailing facilities). Even with the best of intentions, this may lead to inadvertent disclosures[4].

44.  Fourth, in the context of the ongoing conduct of the Action, the information which P says has been imparted to Mr Cheung (including her assessment of the merits and bottom line for settlement), is highly sensitive.

Adequacy of damages as a remedy to P

45.  I accept Ms Chan’s submission that in the event that injunctive relief is refused at this stage, but ultimately held to be warranted, P may potentially suffer prejudice which could not be adequately compensated in damages.

46.  The nature of P’s complaint is such that it would be difficult to establish by evidence that any of her confidential information had actually passed to Mr Lam, or to quantify any damage resulting. Compare: Time Success Profits (supra) at §25.

Adequacy of damages as a remedy to D

47.  I also accept Ms Chan’s submission that in the event that injunctive relief is granted at this stage, but ultimately held to be unjustified, then D’s potential prejudice, in the form of lost profits from the conduct of the Action, could potentially be compensated in damages under P’s cross-undertaking. Compare: Time Success Profits at §25.

Potential prejudice to the Sister

48.  The Sister filed brief evidence for D, to the effect that the injunction sought would cause her prejudice, in the form of time and legal costs incurred to appoint replacement solicitors in the Action, and would also deprive her of her choice of solicitors.

49.  In Western Avenue Properties v Soni [2018] PNLR 10, HH Judge Curran QC injuncted solicitors from acting for a party (T) in proceedings concerning the claimant, on the basis of the need to protect the claimants’ confidential information. Having concluded that the solicitors failed to discharge their burden to show no risk of disclosure/misuse of the confidential information, the court considered argument as to T’s prejudice by being deprived of their choice of legal representation. The court concluded that this factor was irrelevant, since the approach was not to conduct a balancing exercise: §50.

50.  In Lee & Co Ltd v Coward Chance [1991] Ch 259, the court restrained a law firm from acting for liquidators in litigation, on the basis of the need to protect confidential information of certain defendants to that litigation (acquired by the defendant’s solicitors prior to the merger of their law firm with that acting for the liquidators). Having concluded that the evidence on an information barrier was insufficient to demonstrate no risk of leakage of confidential information, Browne-Wilkinson VC went on to consider argument based on prejudice to the liquidators in the form of the costs of re-educating a fresh firm of solicitors (270C-E). The court held that on the facts, the hardship to the liquidators could not overcome the defendants’ right to ensure that their confidential information of such a very delicate kind (in that case potentially damaging to their defence in a fraud case) may reach the opposing side.

51.  By post-hearing correspondence, I sought clarification whether P would offer a cross-undertaking in damages extending not only to D, but also to the Sister, which P confirmed[5].

52.  I consider that this provides sufficient protection to the Sister, in the event that it is later determined that injunctive relief is inappropriate. 

Balance of convenience

53.  In light of the above, I am of the view that the balance of convenience favours granting the interlocutory injunction sought.

D’s other arguments

54.  Mr Mak made number of other arguments, which can be dealt with briefly.

55.  First, D claimed that the application was for tactical purposes in the Action, and generated undesirable satellite litigation. I do not accept this. For the reasons canvassed above, I consider that the application raises, at the least, substantial legitimate concerns in respect of P’s confidential information.

56.  Second, D argued that P failed to demonstrate any actual breach of confidence or mis-use of her confidential information. However, as the case law demonstrates, this is not a requirement for injunctive relief in comparable circumstances.

57.  Third, D argued that P delayed in seeking an injunction, apparently on the basis that: (i) earlier letters sent by D in the Action also featured a letterhead listing Mr Cheung as an associate; accordingly, (ii) P must or should have known at an earlier stage, that Mr Cheung had joined D, and should have complained earlier.

58.  I am not persuaded by this. I do not think it was incumbent on P or her solicitors to examine each letterhead of D’s firm to ascertain whether Mr Cheung had joined D; nor that it is inherently incredible that P only noticed Mr Cheung’s name on D’s letterhead in March 2020[6].

Disposition

59.  I will make an order that pending the final disposal of this action or further order of the court, the defendant be restrained from continuing to represent or advise Shih Mei Ki (施美琪) in respect of High Court Action No 797 of 2018.

60.  The order is made on the basis of the cross-undertaking offered by P: see footnote 5.

61.  As to costs, I consider the fair order to be costs in the cause. I will make an order nisi to that effect.