NICER HOLDINGS LTD v. LAM SUET FAN AND ANOTHER

HCA 2008/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2008 OF 2009

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BETWEEN

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D E C I S I O N

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1.  This is an application by the plaintiff for interlocutory injunctions against the defendants to enjoin them from abusing the plaintiff’s trade secrets and confidential information. The summons prays for an order that each of the defendants be restrained from:

(1)  using and/or disclosing any confidential information acquired by each of them during the course of their previous employments by the plaintiff and/or any trade secrets of the plaintiff, including but without prejudice to the generality of the foregoing;

(A)  data of the exporters and/or foreign importers, price range offered by the plaintiff to the exporters and/or foreign importers and vice versa and cost quotations exchanged between the plaintiff and the designated production line contractors, and

(B)  the production database referred to in paragraph 4(b) of the statement of claim to H Grossman (HK) Limited (“Grossman”), their employees or agents or any other party.

(2)  acting in further breach of their previous contracts of employment with the plaintiff;

(3)  inducing or procuring breaches of and/or interfering in an agreement dated 4 December 2006 between the plaintiff and 中山市利格爾電子電器有限公司/中山市吉高電子有限公司–Zhongshan Jigao Electron Company Limited/中山古鎮力新電器廠 (“Jigao”) and/or similar agreements the plaintiff entered with other production line contractors.

until the trial of this action or further order.

2.  The 1st defendant is a former employee of the plaintiff. She worked there from August 2006 to the end of December 2008 when the plaintiff dismissed her. She was a shipping clerk who had the additional duties of performing checks on goods produced by the plaintiff’s contractors. The plaintiff employed the 2nd defendant in January 2006 and she resigned in early August 2008. She was a merchandising clerk and was responsible for liaising with the plaintiff’s contractors, handling the shipping of goods, invoicing customers and preparing packing lists. Both defendants now work for Grossman, one of the plaintiff’s local exporters. Both defendants resist the application.

3.  At the hearing, the plaintiff only focused on a list containing the information of its raw material suppliers, production contractors and accessory makers in the Pearl River Delta and produced as Exhibit CCW-9 in an affirmation of one Madam Chan, a director of the plaintiff, filed on 12 November 2009, but the plaintiff did not want protection for the information regarding Jigao. This database is the one referred to in paragraph 4(b) of the statement of claim.

4.  The plaintiff did not push for any injunction regarding the price range offered by the plaintiff to its local exporters or foreign importers or the costs quotations exchanged between the plaintiff and its contractors. This is understandable because the 1st defendant has left the plaintiff for one year and the 2nd defendant has left for more than one year and three months. All the economics about costing and pricing have changed particularly because of the financial tsunami that happened about a year ago. The plaintiff’s pricing and costing information used in August to December 2008 may not be of relevance now.

5.  The plaintiff is also not pushing for injunctions to enjoin the defendants from interfering in the plaintiff’s agreement dated 4 December 2006 between the plaintiff and Jigao. The obvious reason being that Jigao had terminated this agreement with the plaintiff in February 2009 and the plaintiff had accepted the termination.

6.  I also note that Jigao has been manufacturing toys for Grossman direct since the beginning of 2009. Jigao was also known to Grossman because Grossman’s representative had been to Jigao’s factory in August 2008. There is no evidence that the termination of the agreement of 4 December 2006 had anything to do with the 1st or 2nd defendant. There is also no application for injunction against Grossman from trading with Jigao.

7.  The plaintiff is a toys trader. Its director, Miss Chan, said on affirmation that it had designed and developed toys like scooters, skateboards, tricycles and associated outdoor products. It engaged contractors and suppliers to manufacture goods for it and sold the goods through local exporters or foreign importers. Through these importers and exporters, its products had been sold to many foreign countries. Grossman was one of its local exporters.

8.  Miss Chan further said that the plaintiff had through trial and error selected a number of raw material suppliers, production contractors and accessory makers that were of top quality and efficiency from amongst the hundreds and thousands of such entities in the Pearl River Delta. The database of these selected entities also contained the names and identities of their contacts. The contractor Jigao mentioned above was one of the contractors in this database. Jigao had entered into the agreement dated 4 December 2006 with the plaintiff, agreeing to be its exclusive contractor for five years subject to agreement on pricing of the goods to be manufactured.

9.  Grossman had also been doing business with the plaintiff for a number of years. Grossman was a major exporter of the plaintiff as its business accounted for some 70% of the plaintiff’s business in 2007 and 2008.

10.  The 1st defendant since 2007 had been assigned by the plaintiff to handle Grossman’s orders and was familiar with the accounts of Grossman with the plaintiff. The 2nd defendant also assisted in processing the purchases by Grossman.

11.  In about October 2008, Grossman offered to the plaintiff to take over the 1st defendant as Grossman’s employee, but the plaintiff declined. After the 1st defendant was dismissed, she joined Grossman. The 2nd defendant likewise joined Grossman after her resignation from the plaintiff.

12.  The employment agreements of the plaintiff with the 1st and 2nd defendants both provided the following: “Employee resigned: the employee resigned, shall not take away company’s data/data and cards of customers/factories...”

13.  In addition to the common law rule that an employee should not abuse the employer’s trade secrets after cessation of employment, counsel for the plaintiff also asked me to imply from this employment covenant that the employee should not abuse the employer’s confidential information after cessation of employment even when such information may not amount to trade secret.

14.  Counsel further submitted that the database referred to above and pleaded in paragraph 4(b) of the statement of claim is the plaintiff’s trade secret or, alternatively, confidential information that should be protected by the said implied term. I am prepared to agree with counsel for the plaintiff on this issue for the purpose of this application.

15.  Miss Chan of the plaintiff then said that in February 2009 and after the two defendants had joined Grossman, Jigao had abruptly terminated its agreement with the plaintiff. Grossman’s orders also took a huge drop since the beginning of 2009. It turned out that Grossman was ordering goods directly from Jigao. Miss Chan then concluded that the cessation of business by Grossman and Jigao with the plaintiff was the concerted efforts of both of them. Both Jigao and Grossman had given reasons on affirmation on why they had stopped their business with the plaintiff, but I do not think I should give weight to such evidence for the purpose of this application.

16.  Counsel then invited me to grant an injunction to enjoin the defendants from abusing the plaintiff’s trade secret in the said database on the ground that what happened in relation to Jigao and Grossman showed likelihood that the defendants would entice more of the plaintiff’s suppliers, contractors and accessory makers in the database away from the plaintiff. The plaintiff sought a quia timet injunction (see paragraph 29/1/1 of Hong Kong Civil Procedure 2010).

17.  In support of this application, Miss Chan said in her second affirmation filed on 12 November 2009 that:

“In fact, in about June 2009, Polly made use of the list and approached “毅業” and “隆勝” (item nos. 3 and 4 in CCW‑9).  Polly enticed them to terminate the cooperation relationship with the plaintiff and in return to deal directly with Grossman.  As a result, “毅業” ceased its business relationship with the plaintiff.”

18.  However, Miss Chan gave no details of the conduct of either defendant in enticing “毅業” or “隆勝” or how or from what source did she learn about such conduct. There is also no documentary evidence or investigator’s report. I do not think I can rely on this bare statement.

19.  I would record here that after I have pointed out the lacuna of the plaintiff’s evidence, the plaintiff applied for an adjournment to put in further evidence, but that would necessitate a further round of evidence by both sides and the hearing will have to be adjourned for a considerable period. I think such course is most undesirable particularly for an application for injunction of this nature which should be disposed of quickly. I therefore declined the application for adjournment.

20.  I do not think what happened between the plaintiff on the one hand and Jigao and Grossman on the other can be regarded as evidence showing likelihood of the 1st or 2nd defendant to abuse the information in the database, the reason being that Jigao was known to Grossman and Grossman did not require the help of either defendant so as to find out or make contact with Jigao. Both the 1st and 2nd defendants also deny of having enticed Jigao away from the plaintiff.

21.  The plaintiff’s investigators have also obtained some emails exchanged between Grossman and Jigao which involved both defendants as some of the addressees, but none of the emails show that they were responsible for placing orders on behalf of Grossman to Jigao. It seems that they were just doing what they had previously done for the plaintiff.

22.  The defendants have also left the employ of the plaintiff for one year or over one year. So far, only Jigao has stopped its business with the plaintiff and deals directly with Grossman, and Jigao was known to Grossman. The plaintiff is also not seeking any injunction in relation to Jigao’s business with Grossman, which is no doubt a correct decision of the plaintiff. There is no evidence of any other supplier, contractor or accessory maker has or will be leaving the plaintiff for Grossman. I have already held that I will not rely on Miss Chan’s bare statement relating to “毅業” or “隆勝”.

23.  In the premises, I am of the view that the plaintiff’s application lacks the necessary basis and I dismiss it.

(Discussion re costs)

24.  I order the plaintiff to pay the defendants the costs of this application in any event, with certificate for counsel.