WORLD GROUP HOLDINGS LTD AND OTHERS v. LAUCHLAN WILLIAM LEISHMAN AND OTHERS

HCA 1779/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1779 OF 2011

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BETWEEN

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D E C I S I O N

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1.  The plaintiff applies for (A) a preservation order concerning confidential materials; (B) ancillary disclosure order against the defendants in respect of confidential materials; and (C) continuation of an interim injunction restraining the defendants from breaching the provisions of the non-disclosure/non-compete agreements signed by the defendants. The preservation order has been dealt with after discussion. The question is whether, pending the substantive hearing of the plaintiffs' application, I should make an interim disclosure order and continue the interim injunction of accepting an undertaking from the defendants.

2.  The plaintiffs are entities in the same company group engaged in the business of buying and selling overseas real properties to investors. The defendants were former contractors engaged by the plaintiffs as agents in respect of the plaintiff's property portfolio. D1 is the sole director of both D2 and D3.

3.  On the 13 August 2011, the independent contractors contract was terminated. Those contracts contained non-disclosure of confidential information clauses.

4.  The defendants are said to have access to the confidential information of the plaintiffs after termination of the contract. They also appeared to have contacted two of the plaintiffs’ exclusive third-party agents and have set up and are carrying on a competing property business in Hong Kong through D3.

5.  The plaintiffs commenced this action for breach of contract, breach of confidence and torts committed by the defendants during and/or after their termination as contractors. In amending the writ, the plaintiffs further sued in breach of undertaking, copyright infringement and defamation.

6.  On 30 January 2012, the plaintiffs obtained, on ex parte basis, a preservation order from Fung J concerning materials comprising P2’s confidential information which the defendants wrongly had access to since termination of the contractual relationship.  The ex parte order was served on Hamilton Brand, Plaintiffs’ e-mail service provider and an entity mentioned in paragraph 3(2) of the ex parte order, on the following day.

7.  On 1 February, 2012, the plaintiffs solicitors received information from Hamilton Brand showing that D1 had contacted that entity on 31 January and 1 January by e-mail and by phone:

(i) informing him that the defenders will transfer their IT services elsewhere; and

(ii) requesting access to “DNS records/ MX records” and “administration details for the above rights to log in and change the records”.

8.  Such contact showed an attempt by the defendants to breach paragraph 3(2) of the ex parte order because gaining access to the relevant MX records (concerning the defendants e-mail accounts) would make it possible that the records contained in the archive repository could be tempered with or deleted.  It was also confirmed by server access logs kept by Hamilton Brand that there had been successful access to the plaintiffs’ management accounts. The un-authorised accesses to e-mails were over 14,000. The e-mails contained confidential information and trade secrets.

9.  P2 seeks an ancillary disclosure order compelling the defendants to disclose full details of the un-authorised access to e-mails in their possession custody or power since their termination on 13 August 2011. Such an order is said to be urgently required by the plaintiffs to identify any third parties who may have (through the defendants) wrongfully received the confidential information such that urgent curative measures might be put in place and additional third parties named as defendants.

10.  The plaintiffs also seek for continuation of the interim injunction against the defendants on the ground that there was evidence of breach of the non-disclosure agreement which bars the defendants from dealing with the supplier, agent, customers for periods ranging from 6 to 12 months

The disclosure order

11.  Mr Chau for the defendants contend that:

(i) there is no urgency to make the disclosure order today and should be left to the substantive hearing;

(ii) the scope of the order sought is too wide and failed to follow the standard terms for disclosure orders as set out in PD 11.2;

(iii) the plaintiff should not be permitted to have early discovery/inspection of documents.

12.  Mr Chau suggests that there is no urgency in making an interim preservation order now but only after arguments.  A tight timetable for filing of evidence and hearing can be imposed.    I do not think this is realistic. The supporting affidavits which the defendants need to answer are hefty.

13.  The plaintiffs are involved in the business of buying and selling of properties. The information is time sensitive.  By its nature, the confidential information, once disclosed to third parties, will lose its confidentiality and cause damage to the plaintiffs. The clientele will be lost. Urgency is demonstrated.

14.  A disclosure order can be made in aid of the preservation order. I accept that this application is not for early discovery or inspection but with a view to ascertaining persons to whom the confidential information might have been disclosed, such that those third parties might be made defendants if necessary. In CSAV Group (Hong Kong) Ltd v Jamshed Safdar, unrep, CACV133/2006, 28.4.2006, Rogers VP, the Court of Appeal upheld the disclosure order made in aid of the preservation order. The Court of Appeal, however, refused to allow inspection and taking of copies.

15.  The disclosure order should be framed in clear terms that should leave a defendant in no doubt of what he has to disclose and that the ambit must not be too wide as to be oppressive.  The complaint that the proposed terms of the disclosure order do not follow the standard terms in PD 11.2 can be dealt with easily.  The standard terms (paragraph 5 under “disclosure of information by the defendant”) are just the starting point which can be adjusted as and when the case requires.  The standard terms require a defendant  to state where the listed items are, those to whom he has supplied those listed items, and the names and address of everyone to whom he has supplied the listed items, full details of the dates and quantities of every such supply.

16.  I am satisfied that the plaintiffs are not asking beyond what is standard and justifiable with the terms as amended by me. The defendants are required to do no more than disclose whether and what confidential information they have disclosed or supplied to third parties and to ascertain the current whereabouts of the confidential information. They are not required to disclose how else they themselves have used the confidential materials at this stage.  That might be a matter for future discovery.  Nor are they required to contact the third parties to ascertain how the confidential materials have been used by them.

The interim injunction

17.  The only issue is whether or not the terms of the interim injunction should continue in the form of an order or undertaking.  Mr Chau submits that an undertaking and an injunction are, in effect, the same thing. Yet, an injunction might create future procedural problems as it might be more difficult to set aside. An undertaking is more suitable in view of the fact that there will be a substantive hearing for arguments.

18.  The evidence points strongly to breach of the contracts.  The defendants had contacted the exclusive agents is engaged by the plaintiffs to provide ancillary services to the plaintiff's customers, trying to convince those exclusive agents to work for the defendants instead of the plaintiffs and sought to persuade them to deliver future clients to the defendants and not P2 for financial reward.  The defendants had interfered with a purchase contract under which the purchasers allowed their deposit to be forfeited and became uncontactable thereafter. Further, D1 wrongly accessed P2’s management account without authority, and commented on the plaintiffs being “stupid” not to have changed the code of access to those of management accounts.

19.  The defendants were bound by the nondisclosure agreement. On termination of the contract, D1 had deceived the plaintiffs into believing that he did not possess the plaintiffs’ confidential information.  Despite the plaintiffs’ reminder by letter dated 16 August 2011 of the defendants’ non disclosure obligation and the defendant’s confirmation on 26 September 2011 and undertaking not to breach the non-solicitation and nondisclosure agreements, that undertaking had been breached.

20.  I agree with Mr Lo that the defendants’ word is not to be trusted.  In my view, the proper thing to do is to continue with the interim injunction instead of accepting an undertaking from them. I therefore grant an order in terms of paragraph 3 of the plaintiffs summons with the slight amendment that the injunction shall continue until the contractual date of expiry of the restraint clause, “or the substantive hearing of the plaintiffs summons, or” further order of the court, “whichever is the earlier”.

Order

21.  With regard to the plaintiffs’ summons, I order that:

(1) The Order made by the Honourable Mr. Justice Fung on 30 January 2012 upon the 2^nd Plaintiff’s ex parte application herein be continued and shall remain in force until the conclusion of trial or further order of the Court; subject to the revisions as handed up this morning as further revised by me. All other respect of Schedule 3 to the Order shall remain unaltered.

(2) The Defendants shall, within 21 days of the Order to be made herein, file and serve on the Plaintiff’s solicitors an affidavit or an affirmation giving:-

(i) The date, time, quantity, author and recipient of all documents, emails and other printed and non-printed materials (including those stored electronically, on microfilm or by any other means) that are or have been in the possession, custody, power or control of the Defendants since 13 August 2011 which contain “Confidential Information”, classified in accordance with the categories in Schedule 3 (collectively, “Confidential Materials”);

(ii) Full particulars of any disclosure and/or supply by the Defendants of each item of the Confidential Information and/or Confidential Materials since 13 August 2011, identifying in relation to each item:

(a) The dates on which the particular item of Confidential Information and/or Confidential Material was disclosed or supplied;

(b) The identities and addresses of the persons to whom the particular item of Confidential Information and/or Confidential Material have been disclosed and/or supplied and the medium by which such disclosure and/or supply was made;

(c) …

(d) Insofar as it is known to the defendants, the current whereabouts of the particular item of Confidential Information and/or Confidential Material identified above including whether it has been incorporated into any electronic record systems, if any, and the identity of the owners of such systems;

(3) The date, time, quantity, author and recipient of any item of the Confidential Information and/or the Confidential Materials that has been copied and/or adapted by the Defendants and full particulars as to the use to which such copies and/or adaptations have been put giving the names and addresses of any persons to whom the Defendant supplied, or offered to supply, such copies or adaptations.

Costs

22.  The preservation order has been dealt with after discussion of the parties. There have been variations to the terms of the ex parte order. Whilst I appreciate the efforts of the defendants in trying to discuss with the plaintiffs on varying the terms of the preservation order, the time available since grant of the ex parte preservation order until today was too short for a consent summons to be signed to dispense with hearing of this part of the plaintiffs’ application. I therefore ordered that costs should be in the cause of the action.

23.  The defendants have resisted, without success, the application for interim disclosure order and continuation of the injunction. It is true that the terms of the disclosure order have been modified in the course of the arguments. However the plaintiffs are eventually able to convince me that there is sufficient urgency to make an interim order to day. I consider it appropriate to order the costs in relation to these two limbs of the application to be the plaintiffs’ costs in the cause of the plaintiffs summons.