ORIENTAL MACHINERY LTD. v. CHOI KIN ON

HCA 1719/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1719 OF 2000

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J U D G M E N T

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Background

1. The Plaintiff was a trading company within a group of companies held ultimately by Cosmos Machinery Enterprises Limited, a publicly listed company. It traded in machine tools and acted as agents for some famous Japanese suppliers like Sanyo Denki, Sugino, Sharp and Toshiba. Its Chinese name was "東源機械有限公司". The Plaintiff had a Hardware and Mechatronic Department. The Defendant had been working for the Plaintiff in that department from 1987 to November 1999. Before he left the Plaintiff, the Defendant was the head of that department. He tendered his resignation on 8th November 1999 and the resignation took effect on 15th November 1999.

2. Before he left the Plaintiff, the Defendant set up a sole proprietorship called Oriental H.M. Company with a Chinese name of "東源五金機電公司". He obtained a business registration for that company on 14th October 1999. In the business registration application, he described its business as hardware and mechatronic trading. The Defendant also informed the customers and suppliers of the Plaintiff of his intention to leave the Plaintiff and solicited business from them. One of the customers was ASM Assembly Automation Limited ["ASM"], a company who had been ordering Sanyo Denki products from the Plaintiff. The Defendant visited ASM on or before 8th November 1999 and enquired with them whether they would give him business if Sanyo Denki supplied goods to the Defendant. On or before 12th November 1999, the Defendant made arrangement to meet representatives of Sanyo Denki when they came to Hong Kong on 16th November 1999. The Defendant, trading as Oriental H.M. Co., procured 3 orders from ASM shortly after he left the Plaintiff. These were purchase orders Nos. 119904511, 719915736 and 719915768, all dated 18th November 1999.

3. The Plaintiff employed Mr Wicky Chow ["Mr Chow"] after it learnt of the Defendant's departure. Mr Chow had been working for the Plaintiff previously in the hardware and mechatronic department. He left the Plaintiff in 1995. He came back to work for the Plaintiff on 12th November 1999. Upon his return to the Plaintiff, Mr Chow was instructed to read the files of the Plaintiff to familiarize himself with its business dealings with its customers and suppliers during the time when he was away. Mr Chow discovered that no order had been placed with Sanyo Denki in September 1999. He found that strange because the Plaintiff had all along been placing regular orders with Sanyo Denki. He therefore contacted Sanyo Denki to look further into the matter. He learnt that the Defendant had approached Sanyo Denki and faxed a number of letters to Sanyo Denki. The Defendant also wished to place purchase orders with Sanyo Denki. At the request of Mr Chow, a Mr Jin in Sanyo Denki faxed these documents to the Plaintiff.

4. Amongst those documents were two letters, one dated 18th November 1999 and another dated 22nd November 1999 from the Defendant under the letter head of Oriental H.M. Co. to Sanyo Denki. The letter of 18th November 1999 said as follows,

"Re: ASM, China and Hong Kong customers' orders

We received order from ASM as follow:

5 pcs	XSH7123-704
600 pcs	103-770-6
840 pcs	103-715-61
2 pcs	P30B04005PXS1B
2 pcs	P30B04010PCS1B

As the salesmen handling ASM matters had all gone, they have no confidence in OML, so ASM send order to us. Also, they are asking for better price of different range for

1-100 pcs.

101-500 pcs and

501-1000 pcs

of 103-715-61. Pls confirm.

...[There is no need to quote the other parts of the letter.]"

5. I should also set out the contents of the letter of 22nd November 1999.

" After talk with Mr Jin, I'm surprise to yr propose. The most important point that I worry is the delivery schedule. If I deal with OML, we afraid the order will be protracted. Because OML purchasing attitude has been changed. Every L/C opening is slow & troublesome. They usually hold up & accumulate orders up to a certain quantity in order to get best costing price. Once when OML place our orders & open L/C lately, delivery schedule will be affected. Under this circumstance, I have to suffer in all kinds of responsibilities to customers. Thus, SANYO image will be damaged. Customers may lost confidence to yr products & will search for other substitution due to the delivery problem. On the other hand, the new manager, Ms Shen Juan is not experience in this field of business. She does not have any concept about yr products. Although Wicky is back, he has out of this field for a long. He must take a long period of time to come over yr products & the customers. So, he may not catch up the speed of SNAYO business at once. From my point of view, to keep on the running & the sales of yr products in the most important factors. I suggest SANYO could try to run business with me for half year to see my effort & potential. I believe that I can supplement the problem that OML have. When 6 months later, SANYO can re-arrange the supply of yr products. And I certainly respect yr decision. But if you insist direct deal with OML only, I will consider give up. Because I don't want to lost reputation to customers. Please do re-consider & give prompt reply as soon as possible. Customers asking for prompt & deliver schedule everyday."

6. Upon learning of these, the Plaintiff followed up the matter with ASM. According to the Plaintiff's case, at a meeting with ASM, Mr Chow was told that the Defendant had told ASM that Sanyo Denki had stopped supplying the Plaintiff the products which ASM had been purchasing from the Plaintiff and had instead agreed to sell to the Defendant. ASM therefore placed order with the Defendant. The Plaintiff explained to ASM that that was not correct. ASM therefore re-directed the orders back to the Plaintiff.

7. The Plaintiff took the view that the Defendant was acting in breach of a restrictive covenant in his employment contract. On 13th December 1999, the Plaintiff instructed Messrs Liu, Choi & Chan to write a letter to the Defendant to complain about the breach of the covenant and misuse of confidential information. I shall have to come back to this covenant later. It is the defence case that the covenant was not part of the contract and in any event, it was unenforceable on the ground of restraint of trade.

8. After that, there were some negotiations. However, the parties did not come to terms. On 17th February 2000, the Plaintiff issued the Writ in the present action. Statement of Claim was filed on 11th March 2000.

9. On 23rd February 2000, the Defendant set up another company called Eternal H.M. Enterprise Limited (科毅企業有限公司) to take over the business of his sole proprietorship Oriental H.M. Company.

The relief sought by the Plaintiff in the Writ and the Statement of Claim

10. In the final version of the Re-Amended Writ and the Re-Re-Amended Statement of Claim, the Plaintiff asked for the following relief,

(1) An injunction to restrain the Defendant whether by himself, his servants agents or otherwise howsoever for a period ending 14th August 2000 from using the name Oriental H.M. Co. and to trade hardware and mechatronics.

(2) An injunction to restrain the Defendant whether by himself, his servants agents or otherwise howsoever for a period ending 14th August 2000 from approaching the suppliers of the Plaintiff for hardware and mechatronics and the customers of the Plaintiff for selling them hardware and mechatronics which the Plaintiff has been dealing in.

(3) An injunction to restrain the Defendant whether by himself, his servants agents or otherwise howsoever for a period ending 14th August 2000 from disclosing the trade secrets and the confidential information as acquired through his service with the Plaintiff.

(4) An order for the delivery up or destruction upon oath of all printed or written matter the use of which would be in breach of the above injunctions.

(5) An enquiry as to damages for breach of the confidence or an account of profits and order for payment of all sums found due together with interest as hereinabove pleaded.

(5A) Damages for malicious falsehood.

(5B) Damages for breach of contract of employment.

(6) Costs.

(7) Further and other relief.

11. When the trial came before me on 17th September 2001, I asked Mr Chau counsel for the Plaintiff how I could grant injunctions for a period which have lapsed by the time of the order. Mr Chau indicated that he realized the difficulty regarding the first four prayers. Mr Chau agreed that the Plaintiff could no longer seek any injunctive relief and those ancillary thereto. Hence, Prayers (1) to (4) are no longer pursued. I was asked to focus on prayers (5), (5A) and (5B), those being the only live claims of the Plaintiff.

12. In respect of prayer (5), Mr Chau said the Plaintiff relied on two causes of action,

(a) breach of the contract of employment;

(b) breach of confidence.

Mr Chau accepted that even in respect of breach of contract, he needed to show misuse of confidential information to sustain prayer (5).

13. I voiced my concern at the beginning of the trial as to the lack of particulars of the alleged confidential information in the pleadings. Mr Chau sought an adjournment to enable him to formulate the same. He came up with some particulars on the second day of the trial. However, those particulars were not supported anywhere in the documents or witness statements. When I pointed out this to him, after a short adjournment to enable him to take further instructions from his client, he decided to abandon that amendment. Hence, the trial proceeded without any amendment as to the particulars of confidential information.

The employment contract

14. As I have said, the Plaintiff relied on the employment contract to support its claim for breach of confidence. Although a cause of action for breach of confidence could exist independently, I would start from the employment contract. The relevant clause was a provision in the Regulations of the Plaintiff. Clause 13, the agreed translation of which is as follows,

"Upon leaving (the company's employ), any confidential matters of the company shall not be leaked out (by the employee), and that within 2 years of leaving, (employees) shall not directly or indirectly be employed or organise any company to buy goods from the company's suppliers; (employees) shall not sell goods to company's purchasing customers, such transactions amounting to competition with the company."

 

Incorporation of Clause 13 into the contract

15. The Defendant took a number of points regarding this clause. First, the Defendant said that this clause had not been incorporated into his contract of employment. In this respect, the Defendant gave the following evidence. The clause first emerged as part of the draft regulations of the Plaintiff put forward for discussion amongst the employees. The Defendant and a number of staff in the sales departments objected to this clause. The Plaintiff did not require them to abide by it. Afterwards, the Defendant said that a copy of the regulations was given to each staff, including himself. He was told that it was only given to him for reading and he was not asked to sign any acknowledgement at that stage. It was given to him again in 1998 when he was asked to sign to acknowledge receipt. The Defendant said on both occasions, it was Ms Canny Cheung ["Cheung"] (the then Administration Manageress of the Plaintiff) who brought the copy of regulations to him. In 1998, before he signed the acknowledgement, the Defendant said he had asked Cheung about it and Cheung again told him that it was for his reading. The Defendant further said there were clauses he did not agree and Cheung told him that he was only asked to acknowledge receipt and there was no need for him to agree to it.

16. There had been a streamlining of the staff force in the Plaintiff in August 1999. The old employment contract of the Defendant was terminated and he was re-employed. The re-employment was effected by a letter of appointment dated 14th August 1999 from the Plaintiff to the Defendant. The last paragraph of that letter was as follows,

"Please confirm that you accept the appointment on the terms stated and agree to comply with all the rules and regulations of the Company, and that you will be able to commence your duties on the commencement date by signing and returning us the duplicate of this letter."

The Defendant signed the letter. Since the Plaintiff only had one set of regulations (viz. the one for which the Defendant had acknowledged receipt) at the material time, it was quite apparent that the rules and regulations referred to in that last paragraph were those regulations.

17. On this aspect, the Defendant gave the following explanation in the witness box. He said he had read the letter of appointment carefully before he signed. He even asked Cheung questions to clarify the matters which he did not understand, including this last paragraph. He said Cheung told him that the rules and regulations referred therein did not mean the Clause 13 which he objected. They referred to the normal hours of work and commission etc. It was on that assurance of Cheung that the Defendant agreed to sign. Although he requested Cheung to write down the assurance, Cheung said it was not necessary since the other staff also signed in the same way.

18. One would have thought that the evidence of conversations with Cheung is very important to the defence case about Clause 13 not being part of his contract of employment. However, it did not appear in his pleadings nor in his witness statement. In fact, his oral evidence about how a copy of the regulations was given to him in 1994 was inconsistent with Paragraph 10 of his witness statement. Instead of saying that the regulations were given to him for reading only, Paragraph 10 of his witness statement stated that when the regulations were given to him, he was asked to acknowledge that they applied to his contract of employment but he refused to do so.

19. Cheung was called by the Plaintiff to give evidence at the trial. She was cross-examined by Mr Chan, counsel for the Defendant with regard to these regulations. Her evidence was that the regulations mentioned in the last paragraph of the appointment letter were the set of regulations containing Clause 13. Mr Chan suggested to her that when she explained the letter of appointment to the Defendant, she did not made specific reference to those regulations. Cheung said that would not be necessary since the Plaintiff had only one set of regulations. What is significant is that none of the allegations of the Defendant (viz. his evidence as set out by me in Paragraphs 15 and 17 above) had been put to Cheung throughout Mr Chan's cross-examination.

20. On the whole, I find Cheung to be an honest and reliable witness. She frankly accepted Mr Chan's suggestion that initially there had been dissent amongst the staff with regard to Clause 13. But she said that they had subsequently indicated agreement by signing an acknowledgement. I do not think it is necessary to deal with the acknowledgement in 1998 because in the case of the Defendant, the letter of appointment dated 14th August 1999 was in very clear terms. I do not believe the Defendant. Given the matters set out in Paragraphs 18 and 19 above, it is quite clear that he improvised and made up his story when he gave evidence in the witness box. I reject his evidence on this aspect of the case.

21. It follows that Clause 13 was effectively incorporated into the contract of employment of the Defendant.

Construction and enforceability of Clause 13

22. Clause 13 can be divided into two parts. The first part related to confidential information. This is the part relevant to the relief claimed by the Plaintiff in Prayer (5). I shall come back to it. The second part is a restraint of trade. The intended effect was to prohibit an employee who left the Plaintiff from dealing with suppliers and customers of the Plaintiff to compete with the Plaintiff for a period of two years. By reason of the matters set out in Paragraph 11 above, it does not relate to any live claims of the Plaintiff.

23. In any event, on the evidence before me, I do not think the latter part of the clause can be enforced. It has been said in a number of cases that in general an employer cannot prohibit an ex-employee from competing with him even in respect of customers of the employers. In Faccenda Chicken Ltd v Fowler [1986] 1 All ER 617 at 625f, Neill LJ said,"... except in special circumstances, there is no general restriction on an ex-employee canvassing or doing business with customers of his former employer." In Universal Thermosensors v Hibben [1992] FSR 361 at p.378-9, Nicholls VC said, "But it is now well-established that in the absence of appropriate restraint provisions in their contracts, after leaving their employment employees are at liberty to enter the same field of business as their former employer and to "target" their former employer's customers when they set up their new business."(See also Austin Knight v Hinds [1994] FSR 52; Ixora Trading v Jones [1990] 1 FSR 251)

24. A restraint provision can only be justified if it is reasonable in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, viz. it is so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public (see Nordenfelt v Maxim Nordenfelt Guns [1894] AC 535 per Lord Macnaghten at p.565; cited with approval by the Privy Council in Bridge v Deacons [1984] 1 AC 705). For a restraint to be reasonable in the interests of the parties it must afford no more than adequate protection to the party in whose favour it is imposed (per Lord Parker in Herbert Morris v Saxelby [1916] 1 AC 688 at 707). The burden is on the employer who seeks to enforce such a covenant to show that it is reasonable in the interests of the parties and in particular that it is designed for the protection of some proprietary or quasi-proprietary interest owned by the employer for which the restraint is necessary (Chitty on Contracts 28th Edn Paras. 17-090 to 17-093). See also the recent judgment of Deputy Judge Gill in the case of Rever Salon v Kung Wai For Danny, HCA No. 10399 of 2000, 24.10.2001. In the present case, the Plaintiff did not adduce any evidence to justify the need for such a prohibition to protect any legitimate interest of the Plaintiff. In fact, the evidence is to the contrary: as soon as Mr Wicky Chow intervened, ASM placed orders back to the Plaintiff instead of the Defendant. There is no question of personal influence by the Defendant over the customers of the Plaintiff.

25. Coming back to the first part of the Clause, it basically hinges on confidential information. The law on this subject has been fully set out by Neill LJ in Faccenda Chicken Ltd v Fowler [1986] 1 All ER 617. Propositions (4) and (5) in the judgment of Neill LJ at p.625-627 are highly relevant. It is clear that after the termination of employment, an employee is entitled to use his general knowledge and skill acquired during the course of his employment. Neill LJ also emphasized that a restrictive covenant will not be enforced unless the protection sought is reasonably necessary to protect a trade secret or to prevent some personal influence over customers being abused in order to entice them away (see p.626h to j). (See also Hoffmann J in Lock v Beswick [1989] 1 WLR 1268) I therefore turn to the crucial question whether the Plaintiff has established that there was any confidential information or trade secret capable of being protected.

26. I have already mentioned about the lack of proper particulars as to confidential information in the pleadings in Paragraph 13 above. As the pleadings stand, the only relevant averments are those contained in the "Particulars of services provided and application of know-how" in Paragraph 6 of the Re-Re-amended Statement of Claim. It is pleaded that the staff of the Plaintiff acquired in-depth knowledge of the Japanese products and advised the customers on suitable products and modifications thereof (including costs, times and technical aspects). One dealing with ASM was pleaded as an example. It is then asserted that such technical modifications and specifications (without setting out what these technical modifications and specifications were) become confidential information and trade secret of the Plaintiff. Paragraph 7 of the Re-Re-amended Statement of Claim went on to plead, "By reason of the aforesaid the Plaintiff is entitled to the confidential information in respect of the Japanese products and the customers' specifications." In Paragraph 22, it was pleaded, "In all circumstances, the Defendant has disclosed such confidential information of the Plaintiff regarding the list of customers and the confidential information acquired from the customers." I do not know where this "list of customers" comes from. It has not been referred to anywhere else, whether in the pleadings or in evidence. As to confidential information acquired from customers, it is not clear what it was and why it has anything to do with the Plaintiff. I cannot find any allegation to support a proper case of misuse of confidential information in the pleadings. I have no doubt that the pleadings of the Plaintiff are seriously defective on the case of breach of confidence.

27. The courts have repeatedly stressed the importance of proper particulars being given in a claim for misuse of confidential information or trade secret. In Lock v Beswick [1989] 1 WLR 1268, Hoffmann J said p.1274B to C,

"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."

In Gilman Engineering v Simon Ho (1986) 8 IPR 313, Liu J said at p.324,

"There seems to be all the more reason, therefore, for an injunction order to be couched in specific and precise terms as to what must not be disclosed or used. In para. (2) as amended, the plaintiff merely refers to 'confidential information'. Unless these matters are sufficiently identified and particularised, an ex-employee would be placed in a most embarrassing if not altogether a hopeless situation, particularly in the narrower meaning of confidentiality as given in the Faccenda Chicken case. Any injunction order granted in broad general terms would be impractical in the extreme."

(see also Rogers J in Seapower Resources v Lau Pak Shing, HCA No.A10715 of 1993, 15.12.1993 at p.8-9 of his judgment and the summary of the law in this respect by the Singapore Court of Appeal in Chia v Haw Par Brothers International [1993] 27 IPR 55). I would go further. Not only must the injunction be couched in specific terms, the particulars for confidential information and trade secret are essential part of the claim and they must be pleaded as material facts and essential particulars pursuant to Order 18 Rules 7 and 12. A pleading lacking those particulars is liable to be struck out as embarrassing or failing to disclose a reasonable cause of action.

28. If one examines the evidence of the Plaintiff on the alleged confidential information and on the misuse thereof by the Defendant, they were equally vague and general. The evidence adduced by the Plaintiff did not condescend to specific matters which are essential for the court's assessment whether the information in question could be the subject of protection after an employee has left his employment. Further, they come nowhere near to the kind of information which could be protected after an employee ceased his employment. The only evidence came from Mr Wicky Chow. He said the staff in the hardware and mechatronic department of the Plaintiff had in depth understanding of the products. He said they could advise customers on suitability of products and modifications thereon. However, under cross-examination he admitted that they had no technical qualification and was not qualified to advise on technical matters. Basically he was just a salesman although the Plaintiff gave him the title of Sales Engineer. They gave catalogues of the suppliers to customers. They passed on the requests of the customers to the suppliers. They answered customers' questions on the basis of information from suppliers. Mr Chow agreed that the technical aspects of the products were beyond the competence of the staff in the department. Even the evidence concerning the ASM transaction was couched in general terms. Whilst Mr Chow did say that there were occasions where he would venture some advice to customers on technical aspects, he did not elaborate on the same. I am therefore left in the dark as to whether these could be classified as confidential information and whether the Defendant could be said to have possessed and misused the same. In my judgment, whatever technical advice the Plaintiff might have given, they could only be some preliminary advice bearing in mind the Plaintiff's role as a trader only. There was simply no evidence of information which had been imparted by the Plaintiff to the Defendant on a confidential basis and which could be described as outside the scope of the general knowledge, skill and experience acquired in the course of employment.

29. Apart from the letters sent to Sanyo Denki and the meeting with ASM shortly before the Defendant left the Plaintiff, the Plaintiff did not adduce any evidence about any specific instances to support the allegation of misuse of confidential information. So far as the contacts with Sanyo Denki and ASM are concerned, I see no justification for alleging any misuse of confidential information. On the evidence before me, whether put forward on the basis of breach of contract or breach of confidence, the claim under prayer (5) must be dismissed.

Malicious falsehood

30. The Plaintiff pleaded three instances of commission of this tort by the Defendant,

(a) in a letter dated 18th November 1999 written by the Defendant to Sanyo Denki (quoted by me in Paragraph 4 above);

(b) in a letter dated 22nd November 1999 written by the Defendant to Sanyo Denki (quoted by me in Paragraph 5 above); and

(c) Defendant spoke to ASM in or about November 1999 to the effect that Sanyo Denki had stopped supplying the Plaintiff the products which ASM had been purchasing from the Plaintiff (as mentioned in Paragraph 6 above).

31. There is no dispute that the two letters were written by the Defendant. The Defendant denied that there was anything false in those letters and averred that the matters set out therein were based on his honest belief. With regard to the third instance, the Defendant denied that he had said such things to ASM.

32. The tort of malicious falsehood has recently been considered by Chu J in Hong Kong Wing On Travel Service Ltd v Hong Thai Citizens Travel Services Ltd [2001] 2 HKLRD 481. I respectfully adopt her summary of the law (at p.491 of her judgment),

"The essential elements for the tort of malicious falsehood are that :

(1) The defendant has published about the plaintiff words which are false.

(2) The defendant did so maliciously in that either :

(a) he knew when he published the words that they were false or he was reckless as to whether they were true or not; or

(b) he did so for the purpose not of advancing his own interest but of injuring the plaintiff.

(3) Special damage has followed as the direct and natural result of the publication. But special damage needs not be alleged or proved where the words were published in writing and were calculated to cause pecuniary damage to the plaintiff : section 24 Defamation Ordinance, Cap.21 :

Kaye v Robertson [1991] FSR 62 at 67 per Glidewell LJ It is common ground that the plaintiff bears the burden of proving all these elements : Clerk & Lindsell on Torts (18th edn) para.23-09."

Falsity

33. On falsity, the Plaintiff abandoned any reliance on Paragraph 17(iii)(a) of the Re-re-amended Statement of Claim. I find that the Plaintiff has proved that the allegation in the letter of 18th November 1999 to the effect that ASM had no confidence in the Plaintiff was false. Mr Chan argued on behalf of the Defendant that one should infer that due to the departure of Mr Fung and the Defendant, ASM must have lost confidence. But I have clear evidence that as soon as Mr Wicky Chow intervened, ASM placed orders back to the Plaintiff. This fact really speaks for itself in relation to ASM's confidence in the Plaintiff.

34. In this connection, I accept the evidence of Mr Chow that when he contacted Mr Tally Chu of ASM after Mr Chow rejoined the Plaintiff, Mr Chu did not express any dissatisfaction towards the Plaintiff and orders were received from ASM subsequently in the normal manner. I reject the evidence of the Defendant given in the witness box that Terence Chu of ASM had called him and told him he had no confidence in the Plaintiff. This was not set out in his very detail and lengthy witness statement. If this were true, it would be a most important piece of evidence in his defence to the charge of falsity in the letter of 18th November 1999. Like the evidence with regard to the conversations with Ms Canny Cheung about the Regulations, the Defendant just improvised when testifying on this topic. Further, if ASM was so dissatisfied with the service of the Plaintiff that they chose to place orders with the Defendant after he left the Plaintiff, I find it difficult to believe that they would suddenly switch the order back to the Plaintiff as soon as Mr Chow called them up. At least, they would give the Defendant a chance to prove if the Defendant could serve them better than the Plaintiff. Yet this was not what happened. I therefore disbelieve the Defendant. For the same reason, I also reject the argument of Mr Chan that this could be just a temporary restoration of confidence upon Mr Chow's return to the Plaintiff.

35. With regard to the letter of 22nd November 1999, the Plaintiff abandoned any reliance on Paragraph 18(iii)(a) of the Re-re-amended Statement of Claim. Mr Chow said in his evidence in chief that Shen Juan was newly assigned to the department and she had no knowledge of its products. This support the Defendant's own evidence that Shen Juan was ignorant about the products. I am not satisfied that the statement about her in that letter was false.

36. With regard to Wicky Chow, the letter said that he had been out of the field for a long time and he would take a long time to catch up. Mr Chow himself testified that although he left the Plaintiff in 1995, he remained in the field and marketed similar products. Although Mr Chan cross-examined him at some length on this point, I do not think he succeeded in showing that Mr Chow left the field. I accepted Mr Chow's testimony. In any event, given the role played by the Plaintiff as a trader rather than a manufacturer, it did not take a long time for a marketing personnel like Mr Chow to pick up the business after he rejoined the Plaintiff. The dealings conducted by him with Sanyo Denki and ASM after he learnt about the letters written by the Defendant showed that Mr Chow was more than competent in handling the matter on behalf of the Plaintiff. There was no sign of Mr Chow failing to catch up promptly. It was a letter written on 22nd November 1999. The clear message behind these statements relating to Mr Chow was that he would still require some time after 22nd November 1999 to catch up. Otherwise, it would be pointless to mention the same. I therefore reject the submission of Mr Chan that it was just a subjective opinion of the Defendant as to the need of Mr Chow to have "a long time" catch up. I find that the statements in the letter of 22nd November 1999 relating to Mr Chow were false.

37. With regard to the alleged conversation with ASM about Sanyo Denki stopping supply to the Plaintiff, there was no direct evidence from the Plaintiff. Mr Chow could only say that he was told by Tally Chu and Terence Chu that the Defendant said so. On the other hand, the Defendant denied that he had said so in the witness box. The Defendant said in his witness statement that the meeting on or before 8th November 1999 with Terence Chu was his first visit to ASM and he went there to inform them that he was leaving the Plaintiff to start his own business in the same field. ASM complained about the Plaintiff and the Defendant asked whether ASM would place order with him if Sanyo Denki supplied goods to the Defendant. ASM indicated positively. The Defendant added further details to the evidence in his witness statement when he was cross-examined. He said he even used his mobile phone to contact Mr Jin to confirm that Sanyo Denki would agree to supply goods to the Defendant in principle in the presence of Terence Chu and C.M. Chan of ASM. Mr Jin also told him in the telephone conversation that Sanyo Denki had received the letter of credit from the Plaintiff and goods would be shipped.

38. I do not accept the evidence of the Defendant. Such evidence is contradictory to the stance of Sanyo Denki as reflected in subsequent dealings in which the latter refused to supply goods to the Defendant directly. There was no reference to such promise by Mr Jin in the letters wrote by the Defendant to Sanyo Denki (see p.151 to 154 and p.165 of the bundle of documents). It is clear to me that the underlying purpose of these letters was to impress Sanyo Denki by orders the Defendant obtained with a view of procuring the supply from Sanyo Denki. Further, the alleged telephone conversation with Mr Jin was not set out in his witness statement. The Defendant's explanation was that this event just came to his mind. In my judgment, this is just another instance of his improvisation.

39. On the balance of probabilities, I accept the evidence of Mr Chow and find that the Defendant did say to Terence Chu during that visit that Sanyo Denki stopped supplying goods to the Plaintiff. In coming to this conclusion, I also bear in mind of the fact that shortly afterwards, ASM placed a number of orders and directed queries with regard to Sanyo Denki products to the Defendant (see p.156 to 160 of Bundle of Documents). At least one of the orders (PO No.719915736) was quite substantial in the amount of $165,000. They could not be regarded as just a testing exercise by ASM. It is difficult to explain why ASM would suddenly direct all these orders to the Defendant, particularly in the light of their subsequent attitude (in switching the orders back to the Plaintiff), unless the Defendant had said something seriously detrimental to the Plaintiff at that meeting with ASM.

40. There is no doubt that the statement by the Defendant that Sanyo Denki had stopped to supply goods to the Plaintiff was false.

Malice

41. In respect of the second element, viz. malice, there are two limbs for the same to be established (see Paragraph 32 above). In the Re-Re-amended Statement of Claim, the Plaintiff relied on the first limb. It is pleaded that the Defendant knew when he published the words that they were false or he was reckless as to whether they were true or not. Other matters were also referred to in the particulars of malice, namely the fact that the Defendant was a business competitor using a trade name similar to that of the Plaintiff and the Defendant's previous association with the Plaintiff and the Plaintiff's scale of operation in the field.

42. It is not enough to satisfy the second limb if incidental to the advancement of one's own interest, the other was being injured. On this point, I again respectfully agree with the following conclusions in the judgment of Chu J at p.493,

"On the other hand, I must also acknowledge the force of Lord Diplock's observation in the same judgment that the motives with which human beings act are mixed. Indeed, it is often difficult to divorce a motive to advance one's interest from a motive to injure another's interest, especially in the case of trade rivals. It is not unusual for an objective to promote one's business to be accompanied by an incidental desire to weaken that of a trade rival. It will be casting the net too wide if malice can be inferred for a defendant who published words in pursuit of his own interest but with the incidental consequence of harming the plaintiff. In DPT Co. (Limited) v Mason Talbot & Ors (1904) 20 TLR 579 at 581, Collins MR held that "... it [is] not malice if the object of the writer was to push his own business, though at the same time it might incidentally injure another person's business. To make the act malicious it must be done with the direct object of injuring that other person's business. Therefore, the mere fact that it would injure another person's business was no evidence of malice." I respectfully agree. In my view, it will be so even where the writer was aware of the incidental consequence of the publication, so that he may be said to have harboured an agenda of harming his opponent. Having regard to human complexities and to avoid the danger of unduly widening the tort of malicious falsehood, I have come to the view that the improper motive or the motive to injure has to be a direct and dominant one."

Both counsel accepted the law as stated by Chu J.

43. The Defendant relied on a plea of honest belief. In this connection, the dicta of Scrutton LJ in Greers Ltd v Pearman & Corder Ltd (1922) 39 RPC 406 at 417 is pertinent,

"Honest belief in an unfounded claim is not malice, but the nature of the unfounded claim may be evidence that there is not an honest belief in it. It may be so unfounded that the particular fact that it is put forward may be evidence that it is not honestly believed."

I respectfully adopt the same approach.

44. In respect of the first statement (viz. the one in the letter of 18th November 1999 to Sanyo Denki), once I reject the evidence of the Defendant in respect of his dealings with ASM (which I did for reasons given in Paragraphs 34, 38 and 39 above), there is nothing to justify any honest belief on the part of the Defendant that ASM had lost confidence in the Plaintiff. On the whole, I do not find the Defendant to be a credible witness. Apart from the various instances where he embellished his evidence which I have already referred, his evidence about why he set up a firm and chose a name so similar to the Plaintiff for his own company is wholly incredible. He said in the witness box that he applied for a business registration just as a precaution in the light of the financial difficulty encountered by the Plaintiff. He thought he would at least have a company in case he lost his job. This is clearly not true because his employment was not terminated by a dismissal by the Plaintiff in November 1999. He resigned on his own accord. This assertion in the witness box is markedly different from his own evidence in paragraphs 39 and 40 of his witness statement. In those paragraphs, he admitted that he formed a desire to leave the Plaintiff in October 1999 with a view to start his own business as soon as possible. Further, the evidence showed that he had made preparations for his own business before he left the Plaintiff. On his own evidence, he visited ASM and arranged to meet representatives from Sanyo Denki towards the end of his employment with the Plaintiff.

45. The Defendant's explanation as to why he chose the name of Oriental and "東源五金機電公司" is equally dubious. In paragraph 44 of his witness statement, he said he chose this name because he had associated himself to this name and it was a better name than Choi Kee. However, he changed his story in witness box and said since he saw the name Oriental was being used everywhere, he got the idea of using the same. He further explained the discrepancy with his witness statement by saying that he did not know what was said therein since it was in English and he did not catch the meaning of the words. After some cross-examination, he finally agreed that part of his reason for adopting this name was that part of his business would be the same as the business of the Plaintiff. In other words, he saw some benefit in using a name similar to the Plaintiff since they were in the same field. It is obvious that the Defendant was not as forthcoming as an honest witness should be in giving evidence under oath. I find the Defendant to be an unreliable witness and I reject his evidence. I therefore find that the first false statement was published by him either with the knowledge that the same was untrue or he was at least reckless as to the truth thereof.

46. In respect of the second false statement, viz. the allegation of Chow taking a long time to catch up in the letter of 22nd November 1999, I again see no justification for the Defendant holding any honest belief as to the same. Bearing in mind the nature of the jobs performed by the Defendant as stated by himself in paragraphs 20 to 26 of his witness statement, I see no reason why he would believe that Mr Chow would require a long time before picking up. He said in the witness box that he did not know where Mr Chow had been working after he left the Plaintiff in 1995 except the company called R & D. His assertion (which he maintained in witness box) that he was sure that Mr Chow had been out of the field was, to say the least, reckless. I find that when the second false statement was published by him, he was at least reckless as to the truth thereof.

47. In respect of the third false statement, viz. that Sanyo Denki had stopped supply to the Plaintiff, there is absolutely no basis for the Defendant believing in the same. Once I reject his defence that the statement had not been made, he basically has no other defence. The Defendant did not adduce any evidence to suggest he honestly believed that Sanyo Denki stopped supplying goods to the Plaintiff. He was at least reckless in saying so to the representatives of ASM.

48. I therefore hold that malice was established regarding to all three statements under the first limb. Hence, I do not find it necessary to deal with the second limb of malice. I will just mention the same briefly. Mr Chau argued that the Defendant was acting maliciously because he was not happy with the Plaintiff in changing the condition of employment in August 1999. That may be true but in my judgment, that does not necessarily mean that when he wrote the letters to Sanyo Denki in November 1999, he was acting out of spite. He also relied on the fact that the Defendant adopted a name similar to that of the Plaintiff and the Defendant was doing that to steal the business from the Plaintiff. However, that might have been done more with a view to benefit himself than to injure the Plaintiff. This was in fact acknowledged by PW3 when he was cross-examined. Whilst it can be said that the Defendant was aware of the harm to the Plaintiff caused by these statements, I am not satisfied that this was his dominant motive. I therefore rest my finding of malice on the basis of the first limb.

Damages

49. With regard to the last element of the tort, Section 24 of the Defamation Ordinance, Cap.21 is relevant. It reads,

"(1) In an action for slander of title, slander of goods or other malicious falsehood, it shall not be necessary to allege or prove special damage-

(a) if the words upon which the action is founded are calculated to cause pecuniary damage to the plaintiff and are published in writing or other permanent form; or

(b) if the said words are calculated to cause pecuniary damage to the plaintiff in respect of any office, profession, calling, trade or business held or carried on by him at the time of the publication."

50. Insofar as the first and second false statements are concerned, they were published in writing. They were clearly written to Sanyo Denki to the detriment of the Plaintiff in its business. I am therefore satisfied that they were calculated to cause pecuniary damages in respect of the trade and business of the Plaintiff (in the sense that such would be a likely result, see Customglass Boats v Salthouse Brothers [1976] RPC 589). The third false statement was made orally to ASM. It was made with a view to persuade ASM to place orders with the Defendant in place of the Plaintiff. This objective was achieved (see Paragraph 2 above). I am satisfied that it was calculated to cause pecuniary damages in respect of the trade and business of the Plaintiff. The requirements of Section 24 were fulfilled in respect to all 3 statements. The Plaintiff only asked for nominal damages. I hold that the Defendant is liable to the Plaintiff for malicious falsehood regarding the 3 statements.

Breach of implied term

51. Three implied terms were pleaded in Paragraph 10 of the Re-re-Amended Statement of Claim. Insofar as paragraph 10(iii) is concerned, it is directed towards the use of trade secrets or confidential information of the Plaintiff after the termination of employment. For the reasons given in Paragraphs 23 to 29 above, I hold that there is no viable claim in respect of the same.

52. The same applies to misuse of confidential information pleaded in paragraph 10(ii). The only implied term which I have to consider at greater length is the duty of good faith and fidelity pleaded in Paragraph 10(i) of the Re-re-Amended Statement of Claim. There is no doubt that there is a distinction between the period whilst the Defendant was the employee of the Plaintiff and that afterwards (see Faccenda Chicken v Fowler [1986] 1 All ER 617). Again for the reasons given in Paragraphs 23 to 29 above, I hold that there was no breach of the implied term after the employment of the Defendant has been terminated on 15th November 1999. I do not consider the writing of the letters of 18th and 22nd November 1999 as breach of such implied term. As I have held, the Defendant was free to compete with the Plaintiff after the termination of his employment (see Paragraphs 23 and 24 above). If what he said in the letters did not amount to malicious falsehood, I do not think the Plaintiff could complain. The Defendant was free to solicit orders from customers of the Plaintiff by way of competition.

53. With regard to the period whilst the Defendant was still employed by the Plaintiff, the Plaintiff relied on the following acts as breach of the implied term,

(a) the setting up of Oriental H.M. Company by the Defendant;

(b) the approach by the Defendant to ASM in early November 1999 as mentioned in Paragraphs 37 and 39 above.

54. Mr Chan submitted on behalf of the Defendant that there would only be a breach of such implied duty of fidelity where the employee secretly set himself to solicit the customer of the employer. He cited the case of Hivac v Park Royal Scientific Instruments [1946] Ch 169. I do not think that case decided anything of that sort. Lord Greene MR was of the view that whether such a duty has been breached was a question which could only be determined on the facts of a particular case (see p.174). The leading authority on solicitation as breach of such implied term was Wessex Dairies v Smith [1935] 2 KB 80, the case of the dairy roundsman who tried to induce the customers of his employer to become his own customers after his employment. That case was cited extensively by Lord Green (at p.175-177) and considered by Morton LJ (at p.182) in Hivac without any disapproval. To the contrary, both of them held that the principle in Wessex Dairies applied not only when the employee carried out such activities during his work hours, it applied even when he did so in his spare time. Whilst the court did refer to the secret manner in which the activities of the defendants were conducted in Hivac, I read it as only one of the factor taken into account in deciding the case before the court. There is nothing in the judgment which warrants the submission that the activities must be conducted secretly and must inflict great harm on the employer before they constitute breach of the implied duty of fidelity.

55. Further, there is nothing before me to suggest that the Defendant had told the Plaintiff that he would set up this firm and approach ASM in the manner as he did. As far as the Plaintiff was concerned, the Defendant acted secretly. Applying the test postulated by Morton LJ in Hivac, I have no doubt that if the Plaintiff has been asked, they would object to the Defendant's activities.

56. Mr Chan submitted that the implied duty was only breached where the employee intended and continued to be employed and competed with the employer dishonestly. I do not agree. In Wessex Dairies, the roundsman was about to leave his employment and set up his own business. I see no material distinction between that case and the present one.

57. Mr Chan then said that the implied duty did not apply to an employee under probation. He cited no authority for this submission and I see no reason why an employee under probation did not owe any duty of fidelity to his employer.

58. Mr Chan also argued that there was no breach if an employee merely indicated an intention to set up competition with the employer in the future. He referred me to Laughton & Hawley v Bapp Industrial Supplies [1986] IRLR 245 and Adamson v B & L Cleaning Services [1995] IRLR 193. Whilst there is some superficial similarly between the Laughton case and the present case, that case has to be read carefully. In Laughton, the Employment Appeal Tribunal allowed the appeal of two workers who were dismissed summarily because they wrote letters to suppliers of their employer stating that they intended to start trading in the same line of business and asking for product lists, price lists and terms. At p.247, the two workers were described as "two modestly paid young warehousemen who never traded and never even placed an order with a supplier". Peter Gibson J held that an employee did not breach the duty of loyalty merely by indicating his intention to set up in competition with his employer in the future. He laid emphasis on the fact that the letters were written in the spare time of the employee. He held that an employee was normally entitled to do what he liked in his spare time when he was not obliged to work for his employer provided that it does not inflict great harm on his employer's business. On this proposition, he cited the Hivac case as authority. For the reasons given by me in Paragraph 54 above, I have, with respect, reservation about the same. Laughton was decided on the basis that what the employees did was no more than an enquiry as to price (see p.247 where Peter Gibson J dealt with the submission of counsel for the employer on the basis of Thomas Marshall v Guinle [1978] IRLR 174). That was a decision on the facts of that particular case and I have to decide the present case on its own facts.

59. Laughton was considered in several cases. Before I come to Adamson v B & L Cleaning Services [1995] IRLR 193, I need to refer to other cases. The first one is Balston v Headline Filters [1990] FSR 385. Falconer J. considered the duty of fidelity in the context of an employee who had tendered his resignation and was serving out his notice period. After citation of Laughton, His Lordship applied the test of Hawkins J in Robb v Green [1895] 2 QB at p.15,

"In what I have said I do not intend to convey that while the contract of service exists a person intending to enter into business for himself may not do anything by way of preparation, provided only that he does not, when serving his master, fraudulently undermine him by breaking the confidence reposed in him. For instance, he may legitimately canvass, issue his circulars, have his place of business in readiness, hire his servants, etc. Each case must depend on its own circumstances."

Falconer J continued at p. 414,

"In that passage, by 'legitimately canvassing', with all due respect to Maugham LJ, who in the Wessex Dairies case [1935] 2 KB 80 at 87, said that he did not know what the judge meant by 'legitimately canvassing' --- it seems to me from a perusal of the earlier part of Hawkins J's judgment that he was meaning to refer to canvassing persons other than the employers' customers." (my emphasis)

Falconer J drew the line between preparation for one's business and the active competition for the business of a customer of the employer (see also p.416-7).

60. For the sake of completeness, I also set out Maugham LJ's observations in the Wessex Dairies case [1935] 2 KB 80 at 87 regarding the dicta of Hawkins J,

"I do not know what the judge meant by 'legitimately canvassing', but if he meant that the servant while going his rounds or while he was employed in some way on behalf of the master is entitled to use the opportunity to canvass his customers for himself as from the day when he ceases to be in the master's service, I doubt whether that view is correct, and I observe that when that case went to the Court of Appeal nothing to that effect is to be found in the judgments."

61. In Wessex Dairies at p.85, Lord Greer LJ cited with approval a dicta of Hawkins J in Robb v Green at p.14 which is relevant for present purposes,

"...I cannot help asking myself whether at the present day Lord Kenyon, after considering the matter, would have considered it no breach of the duty of a servant deliberately to utilise his hours of service by being false to his master's interests and endeavouring to induce his master's customers to transfer their custom to him on a near approaching day. It was certainly against his master's interests that he should do so. It may be under particular circumstances that the injury done to his master would hardly be greater than if he had waited till he had left the service before he made his canvass. But that is not the question. The obligation to protect his master's interests lasts until the last hour of his service. The dividing line between owing his master a duty and owing him none is that imperceptible period of time between the termination of his service and the moment he acquires freedom of action after his service has terminated."

62. The other case I would refer to is Marshall v Industrial Systems & Control [1992] IRLR 294, also a decision of the Employment Appeal Tribunal. The Appeal Tribunal upheld a summary dismissal of a managing director (who knew that his employment was about to be terminated) by a company on the ground that he approached a customer of the company with a view to take over the business of that customer by his new company. Laughton was distinguished. The submission on behalf of the employee was that since he was under threat of dismissal, it was reasonable for him to take some steps to look after his own interest. This was rejected.

63. I now come to Adamson v B & L Cleaning Services [1995] IRLR 193, another case relied on by Mr Chan. The decision was actually against him. The case concerned the dismissal of a foreman employed by a cleaning company who indicated that he would tender in competition with the company for a contract whilst he was still employed. The dismissal was upheld by the Employment Appeal Tribunal. It was held that an employee was in breach of the implied duty to give faithful service by tendering for the future business of the employer's customers in competition with the employer. Laughton and Marshall were cited. Pill J said at p.194,

"We accept that tendering for the future business of an employer's customers in competition with the employer is factually different from an employee soliciting his employer's customers to transfer their custom after he has left the employment, action which has been held to be a breach of duty. However, in our judgment it is as much a breach of the obligation to give faithful service. It is different from indicating an intention to set up in competition with the employer in the future. It is competing with the employer while still employed. An employer is entitled to expect an employee not to compete with him for contracts with the employer's existing customers."

64. Mr Chan submitted that there was a distinction between preparatory acts and actual competition. This is of course correct as shown in the authorities cited by me in Paragraph 59 above. What I cannot agree is his further submission that what the Defendant did in the present case did not amount to breach of the implied duty. It is quite clear to me that what he did in his approach to ASM was active solicitation of business for himself whilst he was still employed by the Plaintiff. ASM was a customer of the Plaintiff. Moreover, the Defendant solicited the business by uttering disparaging remarks against the Plaintiff (see my finding in Paragraphs 37 and 39 above). That must be against the interest of the Plaintiff and no reasonable man would regard that as a faithful act on the part of an employee. In my judgment, that was a clear breach of his implied duty of fidelity.

65. Mr Chan made a further point based on the alleged failure of the Plaintiff to perform its reverse duty of fidelity. As Mr Chau pointed out, this was not pleaded and the matters were not alluded to in the evidence. I hold that this point is not open to the Defendant. In any event, the facts of the present case are miles away from those authorities cited by Mr Chan. Further, if there was any breach of duty on the part of the Plaintiff (as to which I make no finding since the issue has not been properly canvassed before me in terms of evidence for lack of proper pleadings), there is nothing to suggest that the Defendant had regarded such breach to be repudiatory nor that he had accepted the repudiation. As long as his employment continued up to 14th November 1999 (on which there is no dispute), it was incumbent on the Defendant to observe the duty of fidelity .

66. I therefore hold that the Defendant was liable to the Plaintiff for breach of the implied duty of fidelity by reason of his conducts in approaching ASM on or about 8th November 1999 whilst he was still employed by the Plaintiff. With regard to the setting up of his own firm, I hold that it was just a preparatory act and as such it did not constitute a breach of the implied duty. Whilst the Plaintiff might have a claim on the basis of passing off, it is neither here nor there when one considers whether the conducts constituted breach of implied duty of fidelity.

67. The Plaintiff only asked for nominal damages. I hold that the Plaintiff is entitled to the same under this head of claim.

Counterclaim

68. The counterclaim of the Defendant was in respect of commission. The Defendant did not adduce any evidence as to how the claim of $33,768.07 was arrived at. Under cross-examination, the Defendant agreed that commission would only be payable upon payment received from customers (see also p.123 and 126 of the Bundle of Documents). In the absence of any evidence as to actual payment received, I am not satisfied that this amount was due to the Defendant. It is no excuse for Mr Chan to submit that the Defendant did not have such information. He could apply for discovery of the relevant documents and administer appropriate interrogatories. Mr Chan also referred to the draft settlement deed at p.190 of the Bundle of Document, in particular Recital 6 thereof, to establish the figure of $33,768.07. However, as Mr Chau rightly pointed out, Recital 5 thereof showed that the Defendant had some outstanding obligations regarding collection of sale proceeds before the amount was due. I do not regard such draft Deed as sufficient evidence to prove the Defendant's counterclaim. I therefore dismiss the same.

Conclusions

69. In the circumstances, I hold that the Defendant is liable to the Plaintiff in respect of the claim for malicious falsehood and the claim of breach of implied duty of fidelity. I order that judgment be entered in favour of the Plaintiff against Defendant in the sum of $100 as nominal damages for these claims. I dismiss the other claims of the Plaintiff. I also dismiss the Counterclaim of the Defendant.

70. On the question of costs, I take into account that the Plaintiff is not successful in some of the claims, and in respect of the implied duty claim, the prayer was only added by a very late re-re-amendment. On the other hand, some of the points raised by the defence are wholly without merits. Bearing in mind the time spent on the respective claims and the other factors as stated, I make an order nisi that the Defendant pays half of the Plaintiff's costs of the action, such costs to be taxed if not agreed.