DOUBLE RISE DEVELOPMENT LTD v. LEUNG KIT CHUEN

HCA 1321/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 1321 OF 2010

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BETWEEN

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J U D G M E N T

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Introduction

1.  The plaintiff carries on business in Hong Kong as a Trader.  It sources and supplies various products and sells them to customers.  The business is international in nature.

2.  A major shareholder and a Director in the plaintiff is Mr Perry Lam (“Mr Lam”) and he was the main witness for the plaintiff in this litigation.

3.  The defendant was employed by the plaintiff from December 2004 until 31 May 2009 when of his own volition he resigned from his employment.

4.  The terms of his employment was set out in a contract of employment dated 1 December 2004.

5.  Clause 13 of the contract provides:

“13. Obligations

The Employee must observe the following during employment with the company:

(i) The Employee shall be responsible for normal duties which are generally required by the position offered and any other duties assigned from time to time by the Company.

(ii) The Employee must not engage in any other employment, take up directorship of any other companies or operate own business without prior permission from the Company.

(iii) The Employee shall  not, during the employment and after its termination, disclosure to any party or use to the employee’s own benefit except in the proper course of duties, and shall use best endeavors to prevent the publication or disclosure of, any trade secret, financial or trading information or secret manufacturing process or any other confidential information concerning the business or finances of the Company or any of its dealings, transactions or affairs which have come or may come to the employee’s knowledge by reason of the employee’s employment with the Company.”

6.  Clause 18 provides:

“18. Liability

The Employee shall indemnify the Company for any loss or damage to property (including but not limited to intellectual property) sustained by the Company as a result of or arising from any gross negligence or serious default of the Employee and the company reserves the right to claim against the Employee for such loss or damage.”

7.  On the same day the parties entered into an agreement described as being a “Confidentiality and Codes of Conduct Agreement” (“Confidentiality Agreement”).  It was in these terms:

8.  The defendant wrote a letter to Mr Lam on 12 May 2009 as follows:

9.  Mr Lam learnt shortly after the defendant left that he had taken up employment with one of the plaintiff’s customers Liquid Global Limited (“Liquid Global”).

10.  This employment would according to Mr Lam inevitably lead to the defendant utilizing confidential information in the plaintiff’s possession and constitute a breach of the terms of his employment contract and the Confidentiality Agreement.

11.  Initially the plaintiff sought injunctive relief.  However for the purposes of the present hearing the court is not concerned with this.

12.  Other reliefs which are sought by the plaintiff are:

(1)  Damages for breach of contract and for breach of his fiduciary duties as an employee and for wrongful interference with the plaintiff’s business.

(2)  An account of profits and or equitable compensation for breach of his obligations.

(3)  Payment of any amount found due to the plaintiff upon the taking of the account.

13.  The defendant’s defence is that his position in the plaintiff company was not nearly as senior as was made out by the plaintiff.

14.  Also he denied that the information which was available to him was of a confidential nature.

15.  In addition to this, he denied being employed by Liquid Global or that he had in any way been instrumental in their discontinuing their business relationship with the plaintiff.

16.  Over and above all of this, he denied that he had ever divulged any information of a confidential nature to anyone.

The plaintiff’s evidence

17.  Two witnesses gave oral evidence for the plaintiff.  The first being Mr Lam and the second Ms Wong Sau Ping Elin.  She is presently employed by the plaintiff as a merchandiser.

18.  A witness statement was also available from another merchandiser Mr Au Po Chun and an affirmation made by an Enquiry Agent Mr Cheng Hing but they were not called to the witness stand.

19.  Mr Lam said that he had been friends with the defendant since their school days.

20.  He had kept up with the defendant and another school friend Mr Peter Tang (“Mr Tang”) who is now a solicitor.

21.  He had learnt that the defendant had started his own business which had not been successful.  At the instigation of Mr Tang he had decided to offer the defendant employment in the plaintiff.

22.  His job effectively was to be his right hand man.  He supervised staff in both the plaintiff’s Hong Kong office and the office in Shengzhen.

23.  He was also required to liase with customers and suppliers and negotiate prices subject to his approval in all but the most minor cases.

24.  A lot of trust was reposed in him and he was given a credit card for his use when attending to business matters away from the office.  Also he was given a Blackberry smart cell phone.

25.  This trust extended to the defendant being requested to accompany the most important customers such as Liquid Global when visits were made to the factories of suppliers who were sourcing the goods which were being purchased by the customers.  Of necessity this meant that the defendant was in possession of highly sensitive information.

26.  Mr Lam gave particulars of Liquid Global and its associate companies who were major customers of the plaintiff together with a summary which had been prepared by his accountant which indicated the extent to which these customers contributed to the plaintiff’s business.

27.  For the years 2006/7, 2007/8 and 2008/9 the orders from these companies amounted to approximately 17.2%, 67.9% and 21.5% of the plaintiff’s total annual sales.

28.  A similar exercise was undertaken in respect of suppliers.  Here the group of suppliers subject to the exercise were the group coming within the ambit of Kai Sing International Industries Limited (“Kai Sing”).  They together comprised about 11%, 20% and 33.5% of total purchases made by the plaintiff for the same periods analyzed for customers.

29.  What Mr Lam emphasized was the extent of the knowledge and experience of the defendant in the plaintiff’s business.

30.  The confidential information included price listing, structure and discounts given, lists of customers and suppliers including products ordered and the marketing practices of the plaintiff.

31.  All of this and other information was contained in the plaintiff’s records much of which was stored in the plaintiff’s computers and the Blackberry cell phone which was used by the defendant.

32.  The defendant had access to all of this.

33.  As indicated earlier Mr Lam learnt that shortly after leaving the plaintiff’s employment, he started working for Liquid Global.

34.  After his departure Liquid Global and its associate companies did not place any further orders with the plaintiff.

35.  This led to a significant deterioration in the plaintiff’s business thus necessitating a reduction in the number of employees.

36.  From about September 2009 onwards Mr Lam heard from various sources that the defendant had taken up employment with Liquid Global and that Liquid Global was directly sourcing goods and products from factories which had hitherto been suppliers for the plaintiff.

37.  It was accordingly manifest that if this information was well founded the defendant had deliberately solicited and diverted the plaintiff’s business and enticed away the plaintiff’s suppliers and customers.

38.  From inquiries subsequently undertaken it transpired that the information he had received was indeed well founded.

39.  A meeting was arranged by Mr Tang between Mr Lam and the defendant in February 2010.

40.  At this meeting the defendant continued to deny that he was employed by Liquid Global.  However when he was confronted with the evidence which Mr Lam had obtained from a private investigator he finally admitted that this was the case.

41.  Even then he refused to give him a copy of his employment contract with Liquid Global.  Mr Lam did eventually obtain a copy of the contract from Mr Tang.  The letter was as follows:

42.  Mr Lam also obtained copy credit advice notes issued by the Hang Seng Bank which recorded that monthly payments of HK$37,000 odd had been paid to the defendant and that the payments emanated from Liquid Global.

43.  Mr Lam said that he had taken the matter up with Mr Brian Black (“Mr Black”) the managing partner of Liquid Global and a meeting had been arranged.  An E-mail from Mr Black dated 3 March 2010 recorded his views on the matter.

44.  Notwithstanding Mr Black expressing these sentiments, the defendant is still in Liquid Global’s employment.

45.  Mr Lam also gave evidence in relation to allegations made by Mr Gloria Cheng a former merchandiser with the plaintiff who gave evidence for the defendant.  She made some serious allegations against Mr Lam which will be dealt with later in this judgment.

46.  The thrust of her allegations was that when Nation Unicorn one of the plaintiff’s customers had placed an order for equipment for a spray paint production line for refurbishing cell phones, Mr Lam had entered into a joint venture with Mr Harry Bell the owner of Nation Unicorn.  The plaintiff had ordered the equipment from K.T. Enterprise Group Limited (“K.T. Enterprise”) one of KS Industrial’s associates for US$136,000.

47.  Mr Lam had then misrepresented the position to Nation Unicorn.  Mr Lam had struck an agreement with K.T. Enterprise that if they wanted more business with the plaintiff they would have to install the production line.  K.T. Enterprise would bear half the costs of the production line and the plaintiff and Nation Unicorn would bear the other half of the costs.

48.  Nation Unicorn later paid all of the price quoted by the plaintiff yet they only paid half the price to K.T. Enterprise.

49.  When K.T. Enterprise demanded payment for the half which was outstanding Mr Lam refused to pay it.

50.  Thereafter Mr Lam had interrogated her as to how it had come about that Nation Unicorn had been able to enter into direct contact with K.T. Enterprise.

51.  Mr Cheng went on to say that Mr Harry Bell was a cousin of Mr Black and they were very dissatisfied with the plaintiff.  This had been the reason why Liquid Global had decided to discontinue their business relationship with the plaintiff.

52.  In his evidence Mr Lam denied that there had been any joint venture arrangement with K.T. Enterprise.

53.  He said that it had only been a straight forward merchandising transaction whereby Nation Unicorn had sought to purchase the equipment in question and the plaintiff had obtained a quotation from K.T. Enterprise which had been acceptable to Nation Unicorn.  The matter had then been proceeded with.  He accepted of course that there had been a significant mark up in the price but in the nature of the business the customer would only be concerned with what he was paying and not with the amount of money which had been expended by the plaintiff.

54.  I will be commenting later in this judgment upon Ms Cheng’s evidence when Mr Hingorani who was representing the plaintiff took Ms Cheng through her evidence drawing her attention to the contemporaneous documentation.

55.  Suffice to say at this point that I accept the evidence of Mr Lam which was supported by the documentation.

56.  Following on from this I do not accept that the reason for Liquid Global terminating their business relationship had anything to do with this transaction.

57.  Mr Lam was cross-examined at length by Ms Lai who was representing the defendant and his testimony was not shaken in any significant way.

58.  I found him to be a truthful and reliable witness.  Where his evidence and the evidence of either the defendant or Ms Cheng is at variance I much prefer Mr Lam’s evidence.

59.  The other witness to give evidence for the plaintiff was Ms Wong Sau Ping Elin (“Ms Wong”).

60.  Ms Wong who is presently a merchandiser with the plaintiff gave brief evidence the effect of which was to corroborate Mr Lam’s evidence concerning the employment status of the defendant when he was employed with them.

61.  She confirmed that besides Mr and Mrs Lam the defendant was the most senior employee in the company.  He supervised the office staff in both the Hong Kong and PRC offices.  He also took an active part in dealing with customers and suppliers and often accompanied customers when visiting suppliers in the PRC.  More particularly she gave evidence that it was the defendant who mainly had dealings with Liquid Global.

62.  She also said that after the defendant left Liquid Global ceased placing further orders with the plaintiff.

63.  The other two people who made witness statements were another merchandiser Ms Au Po Chun and Mr Cheng who was the private investigator who was instructed by Mr Lam.

64.  Mr Hingorani informed me that Ms Au’s evidence would be very similar to Ms Wong’s and so he did not ask her to go into the witness box.

65.  As it eventually transpired that the defendant’s employment with Liquid Global was established it was redundant to call him as a witness.

66.  This concluded the factual evidence for the plaintiff.

The defendant’s evidence

67.  Three witnesses gave evidence for the defendant.  The first was the defendant himself, the second Ms Cheng Yuen Mei Gloria and the third Mr Li Zhi Bo.

68.  The defendant gave similar evidence to Mr Lam’s concerning his background and the fact that they had been long standing friends.

69.  After completing his secondary education he undertook a part time MBA course at Macau University and obtained an MBA degree.

70.  He had operated his own business supplying or manufacturing wooden doors but he had had a close this down as the business failed.

71.  Thereafter he had been a sales manager in China and an insurance salesman.

72.  In December 2004 he had been approached by his friend Perry Lam who invited him to join the plaintiff company as its operations manager.

73.  After he had indicated that he would like to join the plaintiff, he had been asked to sign two documents: one was a contract of employment and the other was a confidentiality code of contract agreement.  After shortly perusing them he signed them.

74.  It was his opinion that there was nothing in either document which prevented him from working for anyone after working for the plaintiff. Also there was nothing to prevent him from starting his own business.  The contracts could be terminated by either party.

75.  The business of the company was selling gifts and premium items to customers which were sourced mainly from factories in China.

76.  This necessitated negotiating with the customers and then organizing the supply of the articles required from the supplier.  The plaintiff through its employees acted as the middleman.

77.  It did not have any in-house designer and normally customers would provide drawings of what they required if this was necessary.

78.  Final decisions relating to any contracts would be made by Mr or Mrs Lam who were the directors of the company.

79.  The defendant said that he always worked to the best of his ability and at no time had he received any complaints relating to the performance of his duties.

80.  His work included administrative duties in the Hong Kong office and performing the functions of merchandisers.

81.  Amongst these duties he attended to correspondence mainly by E-mail with customers and suppliers and accompanying customers when necessary to factories.

82.  He would also supervise production undertaken in China and negotiate prices with suppliers.  However the final decision in any of these matters lay with Mr Lam.

83.  He expressed the opinion that Mr Lam in his witness statement had exaggerated the extent of the authority which had been reposed in him.

84.  Also he did not accept that confidential information had been stored in the company’s computers or his blackberry.

85.  All of the computers could be accessed by any of the merchandisers.

86.  The identity of suppliers was not secret and often customers would personally come into contact with suppliers.

87.  He questioned Mr Lam’s evidence that there was a particular system for keeping documents or filing specifying designated pricing structures, discounts or specific requirements or trading behavior.

88.  The defendant agreed that he had had dealings with Liquid Global and its associates while employed by the plaintiff and had accompanied members of the company when visiting factories in China.  He had also been aware that Liquid Global had entered into contracts with K.T. Enterprise direct.

89.  However it was his contention that Liquid Global would in any event have ceased doing business with the plaintiff “because they had become dissatisfied with the business performance and integrity of the plaintiff … and much displeased with the plaintiff’s dishonest dealing”.  I take this from paragraph 35(a) of the defence.

90.  The defendant did not himself condescend to particulars of this alleged dishonesty and was content to rely upon Ms Cheng’s evidence to support it.  This related to the episode earlier referred to in this judgment concerning the Nation Unicorn contract.  When Mr Hingorani taxed the defendant upon this in his cross-examination, the defendant claimed that he had no authority to divulge details of what had transpired.  He did not say whose authority had to be obtained for him to particularize his allegation but as he was at the time of the filing of the defence and the preparation of his witness statement employed by Liquid Global it would appear that he must have had them in mind as it is difficult to imagine who else the defendant might have in mind to “authorize” him to give whatever evidence he may wish to give in litigation.

91.  This matter has been dealt with elsewhere in this judgment.  For the reasons which have been given it has not been established on the balance o f probabilities that Mr Lam acted with any impropriety or that this incident which did not directly affect Liquid Global was the reason for their discontinuing their business relationship with the plaintiff.

92.  This was just one of the matters dealt with by Mr Hingorani in his cross‑examination.  It has to be said as a whole that the cross‑examination was lengthy and thorough while at the same time being fair.

93.  Overall the defendant emerged from the cross-examination as an unconvincing and unsatisfactory witness. 

94.  One of the matters dealt with was the defendant’s employment with Liquid Global.  Initially he insisted that he had never been employed by Liquid Global.

95.  However when confronted with the employment contract with Liquid Global earlier cited in this judgment he said that he had not countersigned the letter as requested and therefore no contract had been entered into.  This was notwithstanding the fact that he did perform the duties required of him referred to in the letter and did receive a monthly payment commensurate with the annual salary referred to.

96.  It needs to be borne in mind that the defendant gave evidence that he gained an MBA degree from Macau University and it is almost inconceivable that the defendant could honestly believe that a contract of employment did not exist between Liquid Global and himself.

97.  The main thrust of the cross-examination was directed to the scope of his duties with the plaintiff while he was an employee and the extent of his involvement with the customers and suppliers referred to by Mr Lam in his evidence.

98.  What emerged from all of this was that the defendant was indeed a senior employee of the plaintiff who was trusted and who had access to the plaintiff’s records and confidential information such as it was.

99.  In addition to this he was privy to negotiations and discussions with nearly all of the important customers and suppliers and on numerous occasions accompanied customers on their visits to suppliers’ factories in China.

100.  He accepted that it was a matter of considerable importance that customers should not know the price which the plaintiff was paying for the goods in question.

101.  A large part of the confidential information was stored in the plaintiff’s computers.  The fact that some other employees may have been able to access the information is not really relevant as they would presumably realize the confidential nature of the information and the obvious requirement of not disclosing it to unauthorized persons.

102.  Mr Hingorani also dealt with some particularity with the defendant’s protestations that the information was not really secret.  He referred to the prices agreed in contracts and the knowledge of the performance of all of the suppliers to meet their contractual commitments.

103.  Eventually the defendant did seem to accept that the knowledge he had obtained from the plaintiff must have been of some value as this had been the reason why Liquid Global had agreed to employ him.

104.  It was obvious that he was a senior employee of the plaintiff and that he was privy to a substantial amount of information.  An important issue was whether in fact the information was confidential.

105.  He may have utilized the information he had obtained to his and Liquid Global’s advantage when he became their employee.

106.  As I have earlier indicated Ms Cheng gave evidence for the defendant.

107.  This almost exclusively related to the Nation Unicorn matter.

108.  She was cross-examined at some length by Mr Hingorani.

109.  All of the relevant documentation relating to the transactions were put to her.  The invoice and purchase order had been signed by her.

110.  It was put to her that the documentation was consistent with Mr Lam’s evidence that it was a straight forward transaction whereby Nation Unicorn had sought to purchase spray production line for cell phones. The plaintiff had offered to supply these at the price which was given.

111.  The plaintiff had in turn negotiated the price for this product with K.T. Enterprise.  It is true that the price was considerably less than the amount which had been contracted for between the plaintiff and Nation Unicorn.  However as was pointed out by Mr Lam this was of no concern to Nation Unicorn.  They got what they paid for.

112.  Ms Cheng did say that she had become aware of the fact that Nation Unicorn had directly contacted K.T. Enterprise and had learnt of the considerable disparity between the price they had paid under the contract and the amount which the plaintiff had paid to obtain the production line.

113.  It is possible that this might have made Nation Unicorn unhappy but it falls far short of constituting dishonesty on the part of the plaintiff.

114.  The final witness to give evidence for the defendant was Mr Li Zi Bo. He is a shareholder in Kai Sing International Industries.

115.  He said that he had known the defendant over a number of years and regarded him as being a friend.  He had always found him to be honest.  He did however refer to a telephone call he had received from Mr Brian Black of Liquid Global when he had been told that he had been considering placing orders direct with Kai Sing as he questioned Mr Lam’s integrity and thought he charged a hefty price for orders placed.

116.  I do not think that this takes matters further.

117.  I say this because Mr Li described himself as a shareholder and not as a director in Kai Sing.

118.  This being the case it seems likely that the information he received was hearsay and did not contribute anything further than was already known.

Analysis of the evidence and the law

119.  The fact that the defendant was in many respects a less than satisfactory witness is by no means determinative of this case.

120.  What is necessary is to consider the evidence as a whole.

121.  As indicated earlier in this judgment their main role is to receive requests from customers for various artifacts such as gift items and plastic and metal items.  The customers usually describe the nature of the articles they require.  It is only in a minority of cases that it is necessary for a design or pictorial representation is provided.  In any event there is no in-house designer or person employed to assist in the design of the articles or make drawings to facilitate this.

122.  After the request has been received the plaintiff with the assistance of employees described or styled as “merchandisers” are required to liase with suppliers who are able to manufacture the article and who quote a price for the product.  It is true that there is a record kept by the plaintiff which is normally stored in its computers giving particulars of the suppliers who have given satisfaction in the past.  In view of the apparent diversity of the products being purchased, it would in many cases be necessary for a separate and distinct appraisal to be made of the situation in determining what price would be agreed for the article.

123.  Once that has tentatively been agreed a price is then quoted to the customer which would include a significant mark up for the plaintiff.

124.  On the question of the agreement on the prices to apply both for the customer and the supplier it was also common ground that save for the most minor cases it would be Mr Lam who would decide what the price would be.  There was no evidence that Mr Lam would discuss with the defendant how he would reach this decision on the price.  In the circumstances having regard to the diverse nature of the subject matter of the contracts, it is not surprising that there should not be an overall formula or policy as to what the price should be in any particular case.

125.  There is every reason to suppose that the information stored in the computer would not go beyond particulars of the customers and suppliers and the prices charged on each of the contracts which had been concluded.  It is doubtful whether much information would have been stored giving details as to how the price had been determined.

126.  It is common ground that in many cases the customer would be taken to the suppliers factory by either Mr Lam himself or the defendant or sometimes by a merchandiser.

127.  This being the case it can hardly be said that the identity of many of the suppliers amounted to secret or confidential information.

128.  I do however accept the price which the plaintiff negotiated with the supplier and the customer would be highly confidential due to the risk that either the supplier or customer might decide to make a deal between themselves thus cutting out the plaintiff.

129.  There is no evidence that the defendant ever divulged information of this nature save for the one occasion.

130.  This was an occasion when the defendant was in China negotiating a contract with Nation Unicorn.  Mr John Bell of that company was seeking information from him.  He did not have it to hand but knew that the plaintiff’s Accounts Department had the information.

131.  He used his Blackberry cell phone to email the Accounts Department and request them to give him the information.  The Accounts Department provided the information which unfortunately included information concerning all of the pricing of the contract and inadvertently he passed this on to Mr John Bell.

132.  His explanation for this inadvertence was that it is not simple to retrieve data from a Blackberry and it had not occurred to him that this additional information had been forwarded.  The correspondence had been copied to Mr Lam and he had accepted the explanation proffered by him.

133.  The next matter which needs to be considered is the defendant’s position in the plaintiff company.  I have already alluded to my view that he held a more senior position than simply being a merchandiser.

134.  However I do not accept that his position could realistically be equated with that of a manager much less so a director.

135.  In this connection it can be seen from his employment contract which was entered into in 2004 that his salary was only HK$15,000 per month. Even comparatively recently his salary was less than HK$40,000 per month.  I do not accept that he had been privy to any information which could properly be described as confidential.

136.  It needs to be emphasized that it is not what Mr Lam regards as being confidential which governs the position.  There is a most helpful commentary on this by Ribeiro PJ in PCCW-HKT Telephone Ltd v Aitken [2009] 12 HKCFAR 114 at p.124:

“D. The legal principles

D.1 Former employees and confidential information

21. The law adopts a policy in favour of freedom of employment and against restraint of trade. As Lord Atkinson stated in Herbert Morris Ltd v Saxelby,[4] ‘no person has an abstract right to be protected against competition per se in his trade or business’ and an employer must therefore be prepared to encounter competition ‘even at the hands of a former employee’.

22. It is recognized, however, that an employer has a legitimate interest in protecting his trade secrets and confidential information of an equivalent status when an employee leaves. To quote Lord Atkinson again:

“[An employer] is undoubtedly entitled to have his interest in his trade secrets protected, such as secret processes of manufacture which may be of vast value. And that protection may be secured by restraining the employee from divulging these secrets or putting them to his own use. He is also entitled not to have his old customers by solicitation or such other means enticed away from him. But freedom from all competition per se apart from both these things, however lucrative it might be to him, he is not entitled to be protected against.”[5]

23. The injunctive relief obtainable against such former employees is therefore subject to certain limits.  An employee, while employed, is subject to an implied duty of fidelity which requires him not to divulge or use, save for his employer’s benefit, any confidential information appertaining to the employer’s business.  However, post-termination relief against an employee is confined to restraining misuse or disclosure only of trade secrets and confidential information of an equivalent status.  Confidential information of lesser significance is not subject to such protection.[6] 

24. The law acknowledges that an employee often brings to a job his own stock of skill, knowledge and experience.  Indeed, his possession of such assets will often be the reason for hiring him.  And frequently, employees will add to such knowledge and experience in the course of the employment.  Where restraint is sought, it is important to distinguish between the employer’s trade secrets and the employee’s own skill and knowledge which he necessarily carries away with him when changing jobs.  While an employer may properly claim protection for his trade secrets, he is not entitled to restrain the former employee from deploying his own skill and knowledge for the benefit of himself and his new employer.[7] 

25. Thus, where an employer seeks to restrain an employee against misuse or disclosure of his trade secrets, he has the burden of identifying with precision what trade secrets (or confidential information of equivalent status) he seeks to protect. As Hoffmann J (as Lord Hoffmann then was) explained in Lock v Beswick[8] :

“The employee may not, after leaving his employment, make use of, in the words of Neil LJ [in Faccenda Chicken Ltd v Fowler [1987] 1 Ch 117 at 136]:

… secret processes of manufacture such as chemical formulae … or designs or special methods of construction ... and other information which is of a sufficiently high degree of confidentiality as to amount to a trade secret.’

On the other hand, there will be a good deal of other information which an employee could not without breach of duty disclose while he was employed but which he is free to use as part of his own skill and knowledge after his employment has ceased. It is therefore of the essence of a claim against an employee for misuse of confidential information that the employer should be able to identify with particularity the trade secret or similar confidential information to which he lays claim. The terms of any injunction must also be capable of being framed in sufficient detail to enable the defendant to know exactly what information he is not free to use on behalf of his new employer.”

26. A further limitation on post-termination relief reflects the policy of securing the freedom of individuals to seek employment on the labour market.  The law is astute to prevent claims for protection of trade secrets or confidential information from undermining that policy.  It will generally refuse an injunction to restrict an employee’s field of activity (as opposed to restraining misuse or disclosure) except insofar as such restriction flows from an enforceable restrictive covenant.  This was summarised by Scott J (as he then was) in Balston Ltd v Headline Filters Ltd,[9] as follows:

The use of confidential information restrictions in order to fetter the ability of these employees to use their skills and experience after determination of their employment to compete with their ex-employer is, in my view, potentially harmful. It would be capable of imposing a new form of servitude or serfdom, to use Cumming-Bruce LJ’s words [in G D Searle & Co Ltd v Celltech Ltd [1982] FSR 92], on technologically qualified employees. It would render them unable in practice to leave their employment for want of an ability to use their skills and experience after leaving.  Employers who want to impose fetters of this sort on their employees ought in my view to be expected to do so by express covenant. The reasonableness of the covenant can then be subjected to the rigorous attention to which all employee covenants in restraint of trade are subject.”

137.  While “confidential” information is defined in both Clause 13 of the contract and in the Confidentiality and Codes of Conduct Agreement this definition and the evidence as a whole falls far short of the sort of confidential information which is protected by the law.

138.  Paragraphs 7 and 8 of the Statement of Claim read:

“7. Further, as a senior employee and manager of the Plaintiff, the Defendant was subject to the implied fiduciary duty to serve the Plaintiff with good faith and fidelity owed to the Plaintiff, the equitable obligation of rendering of true accounts and full information of all things affecting the affairs of the Plaintiff.

8. As a matter of business efficacy, the Plaintiff avers that the Employment Contract and the Confidentially and Codes of Conduct Agreement contained the implied terms to the effect that:

(a) the Defendant shall not solicit business or entice away, with a view to compete with the Plaintiff, the Plaintiff’s customers, suppliers, manufacturers and their associates; and

(b)   the Defendant shall not interfere or attempt to interfere with the Plaintiff’s business by unlawful means.”

139.  So far as these claims are concerned the observations made by Suffiad J in respect of restrictive covenants which were spelt out in the contract between the parties in Lepi China Ltd v Wong Chi Hin & Ors [2007] HKCU 1242 are relevant.  In the present case reliance is being placed on implied terms which by their nature do not provide for any limit on time or geographical location.

140.  Paragraphs 26-30 of Suffiad J’s judgment reads:

“ The wording of the restrictive covenants in all three cases of the 1^st, 2^nd and 5^th defendants are identical and are as follows :

‘6) Negative Covenants

You shall not be at any time hereafter without the consent in writing of the [Plaintiff], divulge or making known any one or more of trade secrets, accounts or dealings of or relating to the business and policies of the [Plaintiff] and shall not at any time during or after the continuance hereof either on your own account or for any other person, firm or Company solicit, interfere with or endeavor to interfere with or entice away from the [Plaintiff] any person, firm or company during the period or at the end of your employment thereunder who was a customer of or in the habit of dealing with the [Plaintiff] or was an employee of the [Plaintiff].’

27. It will at once be seen from the wording above, that the restrictive covenant is not limited by any period of time in so far as it relates to post termination interference or enticing away customers of the plaintiff.

28. That was readily recognized by Mr Remedios, counsel appearing for the plaintiff in this matter. With that realization, Mr Remedios suggested that it would be reasonable for the court to limit the injunctive relief sought in that respect to say, a period of no more than 12 months after termination by the 1^st, 2^nd and 5^th defendants. Therefore to injunct the plaintiff up to the end of December 2007 would, considering that they left the plaintiff in January or February 2007, in effect be less than 12 months from termination.

29. My own view of the matter is that on the wording of the restrictive covenants, there being no prescribed time limit, such restrictive covenant will not be enforceable against the 1^st, 2^nd and 5^th defendants as being far too wide and therefore unreasonable in so far as enticing away the plaintiff’s customer is concerned.

30. Once that premise is reached, to accede to the suggestion of Mr Remedios for the court to impose a time limit of not more than 12 months, would effectively be for the court to re-write what would otherwise be an unenforceable term of the contract between the parties.  That is something the court cannot do and will not do.”

141.  This would appear to dispose of all of the claims being made by the plaintiff.

142.  The plaintiff’s claim is accordingly dismissed and judgment will entered for the defendant.

143.  I make an order nisi that the defendant will have his costs which in the absence of agreement will be taxed.