HUTHART MUGAR & CO. LTD. v. GUY ROBERT HENRY MILLER

HCA1659/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1659 OF 2002

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D E C I S I O N

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The application before the court

1. On 2 May 2002, the plaintiff instituted proceedings against the defendant seeking damages for breach of fiduciary duty and an account of profits. One of the aspects of the alleged breach was that the defendant had been using, for his own purposes or for the purpose of competing with the plaintiff, a database containing information of the plaintiff's clients and other information belonging to it. The writ claims an order for the delivery up of the database and all copies of it and an injunction to restrain the defendant from using the database for any purpose.

2. By a summons dated 14 May 2002, the plaintiff applied for an interim injunction restraining the defendant from :

"(a) Using the Plaintiff's database ('the Database') of clients and candidates for any purpose, or disclosing the Database to any third party;

(b) Soliciting business from the Plaintiff's clients or otherwise competing with the Plaintiff whilst remaining a director of the Plaintiff;"

3. The Prayer to the Statement of Claim pleads the same relief.

4. The matter first came up before me on 28 June 2002. After hearing the defendant (who appears in person), I adjourned so as to enable him to serve further affidavit evidence.

5. The matter resumed on 27 August 2002. Mr Alexander Stock (for the plaintiff) indicated to me that only the injunction regarding the database was pursued by his client. In view of the fact that the defendant had resigned as a director of the plaintiff on 27 May 2002, the second part of the injunction referred to in the summons became otiose.

6. The relevant principles governing the grant of interim injunctions are well known. The guidelines that have evolved and which the court habitually applies, are all rooted in the justice and convenience of the situation confronting the court : see section 21L of the High Court Ordinance. The fundamental principle is that the court will take whichever course appears to carry the lower risk of injustice should it transpire at trial that the court was wrong : see Films Rover International Limited v. Cannon Film Sales Limited [1987] 1 WLR 670, at 680.

7. Two of the main factors that the court examines in this context are the existence of a serious question to be tried on the applicant's claim and the balance of convenience. In most cases, the determination of these two factors will be decisive of the application. The present case is no exception.

Serious question to be tried

8. At this interlocutory stage, I of course make no findings of fact regarding the merits. This will be a matter for trial. However, it is obviously necessary to some extent to deal with the facts as they appear on the affidavit evidence before me in order to see whether the plaintiff is able to demonstrate a serious question to be tried.

9. The plaintiff carries on an executive recruitment consultancy business and has done so since it was set up in March 1995. The defendant joined the plaintiff in September 1995 as a research and recruitment consultant. Initially, he was paid on a commission basis.

10. According to the defendant, when he joined the plaintiff there was no computer based database for the relevant information relating to the business. The defendant describes it thus in his affidavit :

"At the time of joining the Plaintiff Company there was no computer based database. There was only a loose collection of files of previous assignments piled in cabinets around the office, and an ill sorted collection of CVs stored in a filing cabinet. There were no client call records, nor any attempt to formally record same."

11. It was on his own initiative and to enable him to perform his duties that in 1998, the defendant began to create a database recording details of clients and candidates for jobs. The defendant says this was for his own use only but, as I have said, it was to enable him to perform his duties to the plaintiff.

12. The application for an interim injunction relates to a database that the defendant was directed in 1999 to create, compile and maintain, similar to the database or databases that he had earlier created. According to the defendant, it was in early 1999 that he was so directed by the plaintiff and this database was to be used by the plaintiff's staff for the purpose of its business. The defendant's case is that he agreed to do this in consideration of an override payment of 10% of all business invoiced through the plaintiff and he was assured that as long as he maintained the database, he would continue to be paid this override.

13. There is much common ground between the defendant's version and the plaintiff's. It is also the plaintiff's case that the defendant was to be paid in return for the creation of a database, although there is some dispute over the exact terms. What is important for present purposes is that both the plaintiff and the defendant agree that he was paid to create and maintain a database for the plaintiff.

14. The database was created using commercially available software (mainly "Filemaker Pro") and this was integrated into the plaintiff's system so that it could be accessed by the plaintiff's staff across its LAN (local area network). Information was inputted into the database not just by the defendant but also by other members of the plaintiff's staff. It was for common use and the intention (certainly as far as the plaintiff was concerned) was the sharing of information by its staff so as to facilitate its business. The defendant says this :

"The database was made available through a LAN to other consultants, and they were encouraged to add their contacts and call records to it, and it was made fully available to them for their daily use."

15. As I have remarked, it is this database with which the present application is concerned (for convenience, I will refer to this as "the Database"). According to the plaintiff, it contains extensive information comprising relevant details of candidates, clients and competitors. There are about 20,000 entries. The defendant does not really dispute this but adds that it also contains personal notes of his and of other staff regarding these matters. In paragraph 6 of the Defence and Counterclaim, it is pleaded :

"Defendant admits said database contains details of the Plaintiff's clients and personal details of a large number of individuals who might be considered candidates for any respective recruitment mandate Plaintiff may require."

There are also contained in the Database details of conversations between the plaintiff's employees and clients or candidates.

16. Access to the Database was by password. The defendant disputes that the information in the Database was confidential but does not go so far as to say that the Database could be accessed by persons outside the plaintiff's employment.

17. Following (from the plaintiff's point of view) unsatisfactory work performance from the defendant and (from his point of view) breaches by the plaintiff of payment obligations to him, the defendant resigned in late January 2002. The defendant issued proceedings in the Labour Tribunal (in LBTC 3161 of 2002) claiming wrongful dismissal. The matter was eventually settled for a payment of $80,000 from the plaintiff.

18. Following the defendant's departure, it was discovered that he had taken with him copies of the information contained in the Database. This was either in the form of disks or was contained in the defendant's personal computer. The defendant denies taking any disks or other computer related equipment belonging to the plaintiff other than his own personal computer equipment. It is clear that the defendant retains in some form the information from the Database; indeed this is admitted in his Defence. Further, the defendant has made submissions to me on the basis that he wishes to use the information contained in the Database.

19. The plaintiff's case is straightforward. It claims the property in the Database and the information contained in it. The information is confidential : it contains information which is not freely available to the public, access to the Database was by password (which is changed whenever an employee leaves the plaintiff's employment) and the more recent contracts of employment of the plaintiff refer to all material, whether in hard copy form or in data files, as being a part of the plaintiff's intellectual property rights which would be enforced. Whatever the legal status of previous databases that the defendant had created (and the plaintiff does not make these the subject matter of the present application), it claims that there can be no doubt, in the circumstances I have briefly outlined above, that the Database and information in it belong to the plaintiff. The Database contains information accumulated by the plaintiff over 20 years in the executive recruitment business and the defendant should not be freely permitted to use its property. This is particularly so when the defendant now works for one of the plaintiff's rivals in the business.

20. I am of the view that in the light of the facts that I have set out, the plaintiff has established a serious question to be tried even taking into account the various submissions made by the defendant. I emphasise the following points :

(1) The Database is an accumulation of information relating to the plaintiff's business over the course of many years. I have seen some examples of the type of information contained in the Database. This information was of course inputted not just by the defendant but also by other members of the plaintiff's staff. The Database was also made available for use by the plaintiff's staff. It is at least seriously arguable that this information was confidential and belonged to the plaintiff.

(2) The defendant asserts that a lot of the information in the Database is freely available and contains no trade secrets. This has not been demonstrated to me and certainly not so as to undermine a serious question to be tried on the plaintiff's case. On the contrary, the evidence shows otherwise and, even on the defendant's own case, the type of notes of candidates or clients seems to indicate that this information is anything but freely available.

(3) As to trade secrets, I have taken into account the relevant principles in cases such as Thomas Marshall (Exporters) Limited v. Guinle [1978] Ch. 227; Faccenda Chicken Limited v. Fowler [1987] Ch. 117 and Lansing Linde Limited v. Kerr [1991] 1 WLR 251.

(4) It is of course significant that the relevant information is contained in a database. Cases in this context such as Faccenda Chicken, Robb v. Green [1895] 2 QB 1 and Yeko Trading Limited v. Chow Sai Cheong Tony & Ors [2000] 2 HKC 612, therefore become relevant. I note that the last named case, decided by Chung J on an application for an interim injunction, also involved a database.

(5) The defendant's case is that he has a proprietary right in the Database at least coextensive with that of the plaintiff : see paragraph 9(b) of the Defence and Counterclaim. Reference is made to section 14 of the Copyright Ordinance, Cap. 528, but section 14(1) tends to support the plaintiff's case. In the circumstances I have set out above, it is seriously arguable on the plaintiff's part that it alone held the proprietary right in the Database.

(6) Much of the defendant's submissions (and case law) dealt with the concept of confidential information and the freedom of an ex-employee to utilize his experience and knowhow. I mean no disrespect in not dealing at length with these submissions, but it seems to me that the plaintiff is not seeking to prevent the defendant using his knowledge and experience as such. Rather, and this was confirmed by the way Mr Stock approached the matter, the only focus of the plaintiff's application was the Database itself. This is where the cases I have referred to in subparagaph (4) above become especially relevant. I shall say more about this in the Section headed "The Order".

Balance of convenience

21. The plaintiff has deposed to the irreparable damage that would result if the defendant were able freely to use the Database. This harm would not easily be quantifiable in damages in my view, given the difficulties in the proof of causation amongst other matters.

22. I am of the view that the balance of convenience falls in the plaintiff's favour :

(1) The nature of the Database and its contents are such that if used in particular by a competitor, would have the potential of seriously harming the plaintiff's business. This harm is not easily quantifiable in damages. While the defendant may be liable to account for profits himself (and I note that this is claimed in the Statement of Claim), the company he now works for, is in a different position.

(2) Much of the thrust of the defendant's case has been that the information contained in the Database is freely available and not confidential. Whether or not these assertions can be established at trial, they certainly do not indicate any undue concern on the defendant's part that he may be prevented from using the Database or copies of it. Indeed, in his affidavit dated 12 July 2002, he says this :

"As a catalogue of my entire stock of knowledge and a diary of 7 yrs of my personal business experience, the database would be useful but is not crucial to me in my current employ."

The defendant's main concern, rather, as stated in that affidavit, was that he should be permitted to use the Database as evidence of his claims against the plaintiff. The plaintiff does not seek to prevent him from doing that and this will be reflected in the order that I will make.

(3) In his submissions before me, the defendant indicated that he was now of the view that it was crucial for him to use the Database. This was of course different to the position as stated in the affidavit evidence. In seeking to explain this change, the defendant said that he was now of this view owing to the fact that he had not achieved much for his new employer. Be that as it may and whether or not this is true, it is insufficient to tilt the balance in his favour, particularly when seen against the plaintiff's desire that the Database should not be used to assist its competitors.

(4) It was also submitted by the defendant that the plaintiff had delayed in seeking relief. He had left the plaintiff's employment in late January 2002 and yet it was only in May that proceedings were instituted against him. Further, there had been, as I have mentioned, Labour Tribunal proceedings. In the course of those proceedings, an offer had been made by the plaintiff on 3 May 2002 to settle the present action if the defendant paid $25,000 (after taking into account the claim that the defendant was making against the plaintiff for wrongful dismissal). In the circumstances, the defendant questioned the bona fides and seriousness of the present application. In my view, there has not been undue delay. As early as 22 March 2002, the defendant had been warned by the plaintiff in an e-mail message about the use of information belonging to the plaintiff (and this must have included the Database though it was not specifically referred to) and its rights were preserved. That the plaintiff did not institute proceedings until May 2002, is not indicative of their consenting to the use of the Database. On the contrary, the nature of the material in the Database and also the precautions taken by the plaintiff to protect the confidentiality of it (use of password and confidentiality clauses in its employment contracts) would suggest that the plaintiff fully intended to protect its intellectual property rights and that it did the present application seriously.

(5) The defendant also made reference to the plaintiff not taking any action to seek to prevent him from using the databases created by him prior to the Database in question. This does not in my view indicate at all that the plaintiff is content therefore to allow him to use the Database. This simply does not follow. Apart from anything else, unlike any previous databases, the Database contains more up-to-date information.

The Order

23. Being satisfied that there exists a serious question to be tried and that the balance of convenience is in the plaintiff's favour, I am of the view that the plaintiff is entitled to an interim injunction.

24. Bearing in mind the fact that the defendant would wish to use the Database for the purposes of the present action (as I have mentioned above), I propose modifying the injunction as follows :

"The defendant by himself, his agents or servants, or otherwise howsoever be restrained, and that an injunction be granted restraining him until after the trial of this action or until further order from using the plaintiff's database ('the Database') and any copies thereof for any purpose or disclosing the Database to any third party, save for the purposes of the present action."

25. In addition, the undertaking as to damages given by the plaintiff is to be supplemented by a similar undertaking on the part of Mr Robert Anthony Steer Huthart, the chairman and the managing director of the plaintiff.

26. The parties are of course at liberty to come back before me should the form of the Order I propose need refinement.

27. I would like to add the following as to the effect of the Order. The interim injunction sought by the plaintiff (and this Order) relates to the use of the Database and any copies of it. The Order does not cover any information or material that is not contained in the Database. It does not, for example, prevent the use by the defendant of information which he has obtained from sources other than the Database. Neither does it prevent the defendant from utilizing the skill, experience, knowhow and general knowledge he possesses (to borrow a phrase from the judgment of Mummery LJ in FSS Travel and Leisure Systems Limited v. Johnson [1998] IRLR 382 made in a slightly different context) other than where this is obtained from the Database itself. Simply put : the interim injunction and the plaintiff's claim relate solely to the use of the Database itself. It is not intended to nor does it cover the use of information obtained from sources other than the Database (or copies of it) even though such information may be the same as or similar to that contained in the Database. I should also emphasise that by copies, I refer to copies in whatever form (whether in hard form or computer form, or otherwise) of information contained in the Database, whether in whole or in part. The reference to the Database in this Decision and the Order includes copies thereof.

28. As for costs, I make an order nisi that the costs of and occasioned by the summons be costs in the cause. While I accept that on occasion, it is usual to order "plaintiff's costs in the cause" (see Hong Kong Civil Procedure 2002, Vol. 1 at paragraph 29/1/44), I see no particular reason why this should be the appropriate order in the present case. Where it cannot be said that the defendant has acted unreasonably (and particularly taking into account the fact that he has acted in person), it should be left to the outcome of the trial to determine whether it is the plaintiff or the defendant who has been right all along.

29. I would finally add that in the light of the fact an interim injunction has been granted, I would expect the plaintiff to prosecute the present action expeditiously.