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DCCJ 460/2012
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
CIVIL ACTION NO 460 OF 2012
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BETWEEN
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SPRING COLLECTION CO, LIMITED |
Plaintiff |
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and
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LAU TIN SANG, ANDY |
1st Defendant |
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CHUNG TAK CHUN |
2nd Defendant |
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YEUNG SEUNG MO |
3rd Defendant |
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| Before: Deputy District Judge WY Ho in Chambers (Open to Public) |
| Date of Hearing: 5 – 6, 9 – 10 & 12 March 2015 |
| Date of Judgment: 5 June 2015 |
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JUDGMENT
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1. This is the Plaintiff’s claim against the Defendants for damages arising from breach of fiduciary duties, breach of the duty of fidelity and passing off.
2. The Plaintiff took out a summons for an application to serve voluntary particulars on its Re-Amended Statement of Claim less than 4 weeks before the trial and the application was heard 2 days before the trial. After hearing submissions of counsel, I dismissed the Plaintiff’s summons with reasons reserved to be given in this judgment.
THE ISSUES
3. Counsel for the Plaintiff in his closing submissions has now substantially narrowed down the issues of this case in the following manner:-
(1) Counsel confirms the Plaintiff no longer relies on paragraphs 9(b) and (c) of its Re-Amended Statement of Claim, that is, allegations relating to ACS having sourced products from the same suppliers and having promoted its products to the interior designer firms working with the Plaintiff.
(2) In his closing submissions, counsel conceded there was insufficient evidence to prove the 2nd Defendant breached his contractual and/or equitable duties to the Plaintiff. Hence the Plaintiff now confines its case against the 2nd and 3rd Defendants to liability under section 12 of the Partnership Ordinance only.
(3) The Plaintiff now abandons its claim for exemplary damages.
4. The Plaintiff’s counsel confines his closing submissions on the 1st Defendant on breach of duty of fidelity and/or fiduciary duties to the following:-
(1) The 1st Defendant took photographs of the Plaintiff’s samples and sent the photos to his Gmail Account.
(2) The 1st Defendant diverted the Plaintiff’s business opportunity with Kuan Shan by misusing the Plaintiff's QQ email account.
5. However at paragraph 9(a) Re-Amended Statement of Claim the Plaintiff pleads the 1st Defendant breached his duty of fidelity and/or fiduciary duties by setting up ACS, a rival company, during his employment. Since the Plaintiff has not abandoned this ground of its claim, I shall also consider this issue in this judgment.
6. The issues of this case are now as follows:-
(1) Whether the Plaintiff’s action against the 1st Defendant is barred by the doctrine of res judicata?
(2) Is ACS a rival company? If so, did the 1st Defendant breach his duty of fidelity and/or fiduciary duties by setting up ACS during his employment with the Plaintiff?
(3) Does the 1st Defendant’s act of taking photographs of the Plaintiff’s samples during office hours and sending the said photographs to his personal email account without the Plaintiff’s authorization constitute a breach of his duty of fidelity and/or his fiduciary duties?
(4) Did the 1st Defendant use the email account provided by the Plaintiff to market the products of ACS and/or to divert the business opportunity with Kuan Shan Jin Pin that belonged to the Plaintiff? If so, is this a breach of the 1st Defendant’s fiduciary duties and/or the duty of fidelity?
(5) Did the 1st Defendant pass-off ACS’ business as the Plaintiff’s business when liaising with Mr Chiu of Kuan Shan Jin Pin?
(6) Are all Defendants jointly and severally liable to the Plaintiff by virtue of section 12 Partnership Ordinance (Cap 38)?
7. I shall briefly set out the background below. The facts shall be dealt with in more detail where relevant to the issues.
BACKGROUND
8. The Plaintiff called 4 witnesses: Mr Lam Pin Kuen (“Mr Lam”) is director and sole shareholder of the Plaintiff; Ms Lam Tsz San May (“Ms Lam”) is the Chief Representative and General Manager of the Plaintiff’s China division; Ms Yu Lo Lo (“Ms Yu”) is the Plaintiff’s Business Development Manager; Mr Tong Wing Leung (“Mr Tong”) is the director of the Plaintiff’s China office.
9. The Defendants gave evidence but did not call any additional witnesses.
The Plaintiff’s claim
10. The Plaintiff is a Hong Kong limited company in the business of supplying fabrics, wall-coverings, genuine leathers, wooden furniture and interior decorative accessories.
11. The 1st Defendant was employed by the Plaintiff from 29 August 2008 to 22 July 2011. The 1st Defendant was employed as a Sales Executive and was promoted to Senior Account Executive on 1 April 2011. The Plaintiff claims it is an implied term of the employment contract that the 1st Defendant owed a duty of fidelity to the Plaintiff. Moreover, the 1st Defendant owed fiduciary duties to the company by reason of his position and responsibilities in the company.
12. The 2nd Defendant was employed by the Plaintiff from 16 January 2006 until about June 2011. All employment terms were agreed orally. There is some dispute as to the position occupied by 2nd Defendant and the precise nature of his duties. However it is not disputed that 2nd Defendant worked in the back office and was not involved in sales activities. Since the Plaintiff now confines its case against the 2nd Defendant to liability under the Partnership Ordinance only, the nature of the 2nd Defendant’s duties is no longer important for the purposes of determining the issues of this case.
13. The 3rd Defendant was employed by the Plaintiff as a sales executive from June 2008 until 18 October 2010.
14. Sometime after the 1st Defendant left employment, the Plaintiff discovered the Defendants had set up a rival partnership company by the name of ACS Design (Asia) (“ACS”) back in 28 December 2010. ACS was set up whilst the 1st Defendant and 2nd Defendant were still employed by the Plaintiff.
15. Ms Lam became suspicious of the reasons why the Defendants left the company and therefore checked through the company email accounts. She found the 1st Defendant used his email account in Spring Collection (andylau@springcollection.com.hk) (“the 1st Defendant’s Spring Collection Account”) to send photos of the Plaintiff’s samples and box designs, and photos of his ACS business card to his email address at acs.andy.lau@gmail.com (“the 1st Defendant’s Gmail Account”) during office hours.
16. She also discovered the 1st Defendant sent 2 emails from his Gmail Account to 2nd Defendant’s Gmail account at ac.theo.c@gmail.com (“the 2nd Defendant’s Gmail Account”) during office hours. One email enclosed a picture of Edelman Leather Product Sample Design (the Plaintiff being the sole distributor in China and Hong Kong of Edelman products) and the other email enclosed a scan of ACS’ application form to open a FedEx account.
17. In respect of the QQ email registered under the Plaintiff’s name (1783352419@qq.com) (“the QQ Account”), Ms Lam found 5 emails sent from the 1st Defendant’s Gmail Account to the QQ Account during the period from August to September 2011. The emails were addressed to Mr Chiu of Kuan Shan Jin Pin (“Kuan Shan”) and contained information on leather samples and prices.
18. Ms Lam believes the 1st Defendant diverted the business of Kuan Shan to ACS and argues the emails are evidence in support. Ms Lam explains Mr Chiu had previously asked the Plaintiff for a quotation in June 2011. At the time, Ms Lam asked her staff, Miss Yin, to follow up on Mr Chiu’s enquiries. However for reasons unknown, Miss Yin failed to do so. In the end, no business was concluded between Mr Chiu and the Plaintiff. Ms Lam claims the diversion by the 1st Defendant pre-empted the Plaintiff’s opportunity in providing a quotation to Mr Chiu thereby causing the Plaintiff to lose the business opportunity with Kuan Shan. Ms Lam also speculates the 1st Defendant had conspired with Miss Yin to divert the business of Kuan Shan to ACS.
The Defendants’case
19. The Defendants explain ACS’ target clientele and nature of business are different from the Plaintiff. They explain that unlike the Plaintiff who deals in high-end products and international corporations, ACS deals in cheaper goods and targets clients with a lower budget. By reason of the different products supplied and different target clientele, ACS cannot and does not compete with the Plaintiff for business.
20. The 1st Defendant and 2nd Defendant further deny having breached their duties towards the Plaintiff, be it contractual or equitable.
21. The 1st Defendant explained the emails sent from his Spring Collection Account to his Gmail Account were not sent for the purpose of ACS’ business but cannot remember the purpose of sending the emails. Furthermore, the 1st Defendant denied having diverted Kuan Shan’s business to ACS. He explained it was Mr Chiu who approached him and asked for a quotation.
REASONS FOR REFUSING THE PLAINTIFF’S APPLICATION TO SERVE VOLUNTARY FURTHER AND BETTER PARTICULARS
22. Two days before trial, I heard the Plaintiff’s application to serve voluntary further and better particulars on its Re-Amended Statement of Claim (“the Voluntary Particulars”). After hearing submissions of counsel for the respective parties, I dismissed the Plaintiff’s application with reasons reserved to be given in this judgment. I now set out my reasons below.
23. Counsel of the Plaintiff conceded the application was late and there was no good reason for the delay in the application. Counsel further submitted the Voluntary Particulars were irrelevant for the purposes of deciding the factual disputes of the case and that such particulars would only be relevant if the Plaintiff’s case succeeded and proceeded to an account and inquiry of damages. Counsel informed the court the Plaintiff was prepared to give an undertaking not to rely on such particulars at the trial.
24. Though I recognize delay in itself is not a determinative factor, the fact there has been an inexplicable inordinate delay on the Plaintiff’s part in making the application weighs heavily in favour of dismissing the application. In considering the Plaintiff’s delayed application, the court must consider where the interest of justice lies and the importance of ensuring the just resolution of all disputes between the parties.
25. Despite having amended its Re-Amended Statement of Claim twice with both amendments being settled by trial counsel, the Plaintiff chose not to plead particulars relating to the quantum of damages. No split trial has ever been ordered on damages and hence all parties were fully aware that the trial would deal with the merits as well as quantum.
26. In considering the nature of the Voluntary Particulars, I noted paragraph 2 of the Voluntary Particulars is directly contradictory to paragraph 13 of Mr Lam’s supplemental witness statement. The Voluntary Particulars seek to change the calculation of the Plaintiff’s loss of profit, thereby changing the Plaintiff’s case on loss of profit. This would inevitably necessitate further discovery and further amendment to pleadings which would inevitably disrupt the trial date.
27. Having considered the matters set out above, I was of the view the Plaintiff should not be allowed to change its case on the eve of trial and, in absence of any good reason, should not be allowed to make good its case on quantum at such a late stage.
28. I therefore dismissed the Plaintiff’s application and ordered costs be to the Defendants, with certificate for counsel, to be taxed if not agreed.
RES JUDICATA
29. The 1st Defendant claims that the settlement reached through the Labour Department with the Plaintiff includes settlement of all claims relating to the employment contract. Hence defence counsel submitted the Plaintiff’s action against the 1st Defendant should be barred by reason of being res judicata. However I disagree with counsel’s submissions.
30. The Labour Department only provides voluntary conciliation service on the resolution of employment claims and disputes arising from the Employment Ordinance (Cap 57): see the Labour Department’s letter dated 28 October 2014 (page 251 Bundle C).
31. The Employment Ordinance does not deal with common law claims especially that of breach in fiduciary duties or passing off. This is evident in the settlement agreement signed by the 1st Defendant which states:
“ 本人亦同意在 . . . 上述支票兌現後，免除及解除上述僱主 . . . 對本人現時或日後就僱傭條例、最低工資條例及僱傭合約所提出的任何民事申索責任。收取上述款項，只與本人根據僱傭條例 、 最低工資條例及僱傭合約的規定而作出的民事申索有關。”
(The English meaning of the declaration is as follows: the 1st Defendant agrees to absolve the Plaintiff from and waives all civil claims against the Plaintiff arising out of the Employment Ordinance, Minimum Wage Ordinance and the employment contract.)
32. The wording of the settlement agreement states only the 1st Defendant has waived his claims against Mr Lam and not vice versa. Hence any settlement reached between the parties on 18 October 2011 could not have included a settlement on the common law claims now made by the Plaintiff based on breach of duty of fidelity, breach of fiduciary duties and passing off.
33. Having considered the settlement agreement and the nature of conciliation services as provided by the Labour Department, I find the settlement signed by the 1st Defendant on 18 October 2011 does not include the present claims made by the Plaintiff against the 1st Defendant.
34. I find there is no issue of res judicata in the present proceedings and the 1st Defendant’s counterclaim is not made out. I therefore dismiss the 1st Defendant’s counterclaim.
WHETHER ACS IS A RIVAL COMPANY AND WHETHER THE 1st DEFENDANT BREACHED HIS DUTY OF FIDELITY AND/OR FIDUCIARY DUTY IN SETTING UP ACS DURING HIS EMPLOYMENT WITH THE PLAINTIFF
35. One of the main contentions between the parties is whether ACS’ business is in direct competition with the Plaintiff.
36. The following facts are not disputed:-
(1) The Defendants set up ACS whilst the 1st and 2nd Defendants were still employed by the Plaintiff.
(2) The ACS partnership was dissolved on 20 June 2012.
(3) On or about 2 November 2011, the 1st and 3rd Defendants set up a company called ACS Design (Asia) Limited (“ACS Limited”).
(4) The registered address of ACS and ACS Limited are the same.
37. The Plaintiff relies on the sample proposals sent by designers on various projects to prove ACS is in fact in direct competition with the Plaintiff. The documents at pages 51 - 58 Bundle C show ACS Design was considered a potential supplier in high-end projects such as Shanghai Hong Qiao Holiday Inn, and New World Qing Dao project. However, the documents are dated after the incorporation of ACS Limited. The documents relating to the project Shanghai Hong Qiao Holiday Inn are dated in early 2012; the time when both ACS and ACS Limited were still in operation. On a reading of the documents, it is unclear whether the designers were proposing ACS or ACS Limited to be the supplier of the designated material/fabrics.
38. The evidence of the 1st Defendant is that these documents were in fact referring to ACS Limited and not ACS. The Plaintiff has been unable to rebut the same or prove the contrary. Moreover, the 1st Defendant’s evidence is that there was initially a slight difference in the business of ACS and ACS Limited, for example, ACS would be involved in manufacturing goods. Again, there is no evidence to the contrary or to prove ACS’ business was the same as that of ACS Limited.
39. Moreover, the Plaintiff is unable to prove ACS was actively operating whilst the 1st and 2nd Defendants were still in employment with the Plaintiff. The documents that show any business activity of ACS and/or ACS Limited are dated after the 1st and 2nd Defendants left the Plaintiff’s employment.
40. In the absence of any evidence proving ACS’ business is the same as ACS Limited or that ACS’ business itself is directly in competition with the Plaintiff’s business, I find the Plaintiff is unable to prove on a balance of probabilities that ACS’ business was in direct competition with the Plaintiff’s business.
41. Hence even if the 1st Defendant set up ACS during his employment, the Plaintiff is unable to prove this is a breach of his duty of fidelity and/or fiduciary duties on this ground.
WHETHER THE 1st DEFENDANT BREACH THE IMPLIED DUTY OF FIDELITY AND/OR HIS FIDUCIARY DUTIES BY TAKING PHOTOGRAPHS OF THE PLAINTIFF’S SAMPLES AND SENDING THE SAID PHOTOS TO THE 1st DEFENDANT’S GMAIL ACCOUNT
The 1st Defendant’s fiduciary duties
42. In paragraph 9 of the Re-Re-Amended Defence and Counterclaim, the 1st Defendant admitted “as a matter of law” he owed the following fiduciary duties to the Plaintiff:-
(1) The duty to act in good faith and in the best interests of the Plaintiff;
(2) The duty not to place himself in a position where his duty and interest may conflict;
(3) The duty not to make any profit or retain any personal benefit resulting from his position as a fiduciary; and
(4) The duty not to divert any maturing business opportunity from the Plaintiff.
43. During the course of trial and in his submissions to the court, defence counsel did not dispute the 1st Defendant owes the duties set out in paragraph 8 of the Re-Amended Statement of Claim. The only real complaint of the 1st Defendant is that his duties ceased as soon as he left the Plaintiff’s employment.
The extent of the 1st Defendant’s duties
44. The extent of the 1st Defendant’s common law duties is determined according to the nature of his work duties with the Plaintiff.
45. The Plaintiff claims the 1st Defendant owed duties over and above his position as Senior Account Executive because the 1st Defendant was the Assistant Manager of the Plaintiff’s Shanghai operations, namely 上海春翹裝飾材料貿易有限公司 (“Shanghai Chun Qiao”). In support of his assertion, Mr Lam produced the Plaintiff’s organization chart (page 61 of the Bundle B). Mr Lam claims the 1st Defendant was entrusted with managerial duties such as supervising the Plaintiff’s business operation in Shanghai, and making important business decisions, including marking the price of the Plaintiff’s products. Moreover, the 1st Defendant led a team of sales executives to search for business opportunities on behalf of the Plaintiff and handled the Plaintiff’s most important clients.
46. Having considered the Plaintiff’s evidence and the 1st Defendant’s evidence in this regard, I find the Plaintiff has exaggerated the duties of the 1st Defendant. I set out my reasons below.
47. Firstly, Mr Lam assertions as set out above are contradictory to the documentary evidence.
48. In a public document entitled 全國企業信用信息公示系統 (Credit Information Disclosure System for Enterprises Nationwide), the director of Shanghai Chun Qiao is a Mr Chan. Mr Tong Wing Leung was the general manager, shareholder, executive director, and authorized person. The public documents do not show Shanghai Chun Qiao to be owned by the Plaintiff.
49. It was not until 8 September 2011 did the Plaintiff officially open a branch office in Shanghai in the name of上海永翹裝飾材料有限公司（Shanghai Yong Qiao）. According to the Credit Disclosure Information System, Shanghai Yong Qiao is wholly owned by the Plaintiff and the director is Mr Tong. The executive director and the general manager is Ms Lam.
50. There is no documentary evidence to support Mr Lam’s contention that the 1st Defendant occupied any managerial role in Shanghai Chun Qiao or Shanghai Yong Qiao.
51. The last employment contract the Plaintiff signed with the 1st Defendant only employed him as a Senior Account Executive. His duties are listed in the employment as follows:-
“4. Duties
a You are required to provide with [sic] sales services to company client such as sales call, collection of outstanding payment, official entertainment, supervision to sales force in shanghai and other miscellaneous administration works if necessary.”
52. There is no mention of assumption of managerial duties in either Hong Kong or in Shanghai.
53. Secondly, Mr Lam’s assertions are contrary to his own evidence and the evidence of Mr Tong. Mr Tong confirmed that in so far as the affairs of Shanghai Chun Qiao are concerned, all matters are arranged and decided by Mr Lam. In respect of general affairs of Shanghai Chun Qiao, the 1st Defendant would report to Mr Lam and Mr Tong.
54. In his evidence in court, Mr Lam confirmed all company management instructions would be given by Mr Lam himself. Moreover he confirmed he was the person who made all decisions relating to employment, wages and commissions relating to the Shanghai Chun Qiao business.
55. Hence having considered the evidence and submissions of counsel, I prefer the evidence of the 1st Defendant on matters relating to his duties in Shanghai as being the more probable version of events. The evidence of Mr Tong and the documentary evidence supports the 1st Defendant’s case that he was on loan from the Plaintiff to help Shanghai Chun Qiao. I do not accept the 1st Defendant had assumed managerial responsibilities whilst working in Shanghai whether under Shanghai Chun Qiao or Shanghai Yong Qiao. Furthermore, I do not accept the 1st Defendant came across any confidential information over and above his duties as a Senior Account Executive by reason of his work in Shanghai Chun Qiao and Shanghai Yong Qiao.
56. As for the scope of the 1st Defendant’s duties to the Plaintiff arising from his work duties in Hong Kong, the Plaintiff’s witnesses have not set out what special information the 1st Defendant had access to by virtue of his position in Hong Kong. Moreover, the Plaintiff did not put to 1st Defendant he took on duties in respect of the Plaintiff’s Hong Kong business that was beyond those set out in his employment contract so as to extend the scope of the 1st Defendant’s common law duties beyond that which a Senior Account Executive would owe to the Plaintiff.
57. Hence I find that any duties owed by the 1st Defendant to the Plaintiff would only be to the extent of his employment duties as a Senior Account Executive, as more particularly set out in his employment contract.
Emails sent to the 1st and 2nd Defendants’ Gmail Account with photo attachments
58. The 1st Defendant does not dispute he used his Spring Collection Account to send various photos to his Gmail Account. Furthermore, the 1st and 2nd Defendants do not dispute the email with the FedEx application attachment.
59. The content of the emails are briefly summarized below:-
(1) 18 February 2011: sent from the 1st Defendant’s Spring Collection Account to his Gmail Account containing photos of Spring PU samples and box design.
(2) 19 February 2011: sent from the 1st Defendant’s Spring Collection Account to his Gmail Account containing photos of 1st Defendant’s business card.
(3) 19 February 2011: sent from the 1st Defendant’s Spring Collection Account to his Gmail Account containing photos of the Plaintiff’s product samples.
(4) 28 February 2011: sent to 2nd Defendant’s Gmail Account containing pictures of Edelman Leather Products sample design.
(5) 31 March 2011: email sent from the Plaintiff’s main email account to 1st Defendant’s Spring Collection Account and then forwarded to 2nd Defendant’s email account. The email was sent during lunch time and contained a copy of ACS’ corporate account registration form sent to FedEx to open an account.
(6) 31 March 2011: sent from 1st Defendant’s Spring Collection Account to his Gmail Account containing photos of Plaintiff’s leather samples.
(7) 25 June 2011: sent from 1st Defendant’s Gmail Account to his Spring Collection Account containing photos of Plaintiff’s leather samples.
60. The 1st and 2nd Defendants do not dispute they sent and/or received the respective emails and that the said emails are not related to their work with the Plaintiff. It is also not disputed that some of the emails are sent during work hours, though there is one email sent on 31 March 2011 which was sent during lunch hour. Furthermore, the 1st Defendant does not dispute the Plaintiff has assigned the 1st Defendant’s Spring Collection Account for the 1st Defendant’s use in his employment duties.
61. The 1st Defendant denies he sent the emails for the purposes of the ACS business but does not remember the purpose of sending those emails.
62. In respect of the purpose of setting up the Gmail Account, the 1st Defendant denies that this email was solely used for the purposes of ACS’ business. He concedes that sometimes the email would be used for ACS’ business but the email account was also for his personal use unrelated to ACS. On further cross-examination, he conceded that he has another personal email account not in the name of acs.andy.lau@gmail.com and that this Gmail Account was only used after ACS was set up.
63. Having considered the 1st Defendant’s evidence regarding the said emails, I do not accept he sent the pictures of the Plaintiff’s samples and sample boxes to his Gmail Account for no special purpose. Having considered the evidence regarding the emails, I draw the adverse inference that the emails were sent to the 1st Defendant’s Gmail Account for matters related to ACS for the reasons set out below.
64. Firstly, the user names of the 1st and 2nd Defendant’s Gmail Accounts indicate the email accounts were used for matters relating to ACS. The user names of the 2 Gmail accounts are of similar format in that ACS is placed before their names. The format of these usernames cannot have been adopted coincidentally. Moreover, the 1st and 2nd Defendants conceded their respective Gmail Accounts were used for business and personal emails. This must imply that the Gmail Account was also used for matters relating to ACS.
65. Secondly, the 1st Defendant admits the emails and photos attached were not related to the 1st Defendant’s work duties with the Plaintiff. It is also not disputed the 1st Defendant did not have the Plaintiff’s consent or authorization to take the said photos and to send them to his Gmail Account.
66. By reason of the above matters, I am of the view that, prima facie, the 1st Defendant took the photos and sent the photos to his Gmail Account for matters relating to ACS. This must be illegitimate use of the Plaintiff’s information by the 1st Defendant.
67. Defence counsel argued that the contents of the attachments do not constitute trade secrets. Moreover, he argued that the 1st and 2nd Defendants were entitled to use their spare time to do acts which are preparatory to ACS’ business. However I do not accept those submissions.
68. The authorities are clear in that an ex-employee cannot copy or deliberately memorize his employer’s information for post-termination use, irrespective of whether the information is confidential or not. Crowson Fabrics Ltd v Rider [2008] FSR 17 at paragraph 107 which states, “It is well-established that if an ex-employee deliberately copies or even deliberately memorises information for use post termination that is illegitimate and the ex-employee can be restrained from so acting. It is no defence to claim for breach of an implied obligation of good faith and fidelity and breach of confidence for an employee who has taken a customer list to say that some or all of the information on the list is publicly available . . .”
69. Hence I find the 1st Defendant to have breached his duty of fidelity to the Plaintiff by taking photos of the Plaintiff’s samples and thereafter sending the photos to his Gmail Account without the Plaintiff’s authorization or consent.
WHETHER THE 1st DEFENDANT USED THE QQ ACCOUNT TO MARKET THE PRODUCTS OF ACS AND/OR TO DIVERT THE BUSINESS OPPORTUNITY WITH KUAN SHAN JIN PIN THAT BELONGED TO THE PLAINTIFF
70. The pleading at paragraph 9(d) of the Plaintiff’s Re-Amended Statement of Claim primarily complains of the emails sent to Kuan Shan. The Plaintiff makes 2 allegations:-
(1) The 1st Defendantused the Plaintiff’s email account to sell the products dealt with by ACS; and
(2) The 1st Defendantdiverted the Plaintiff’s business opportunity with Kuan Shan by answering Kuan Shan’s enquiry.
71. The 1st Defendant does not dispute he sent the subject emails to the QQ Account. He explained the address was incorrectly given to them by Kuan Shan and so the 1st Defendant was unaware the emails failed to reach Kuan Shan.
72. Counsel for the Plaintiff asks this court to draw the adverse inference that the 1st Defendant misused the Plaintiff’s QQ Account for the purposes of ACS’ business by reason of circumstantial evidence and the undisputed facts. I have considered the circumstantial evidence and undisputed facts as listed by counsel in his closing submissions. I shall not repeat counsel’s submissions or the facts set out therein. I have considered the circumstances under which an adverse inference can be drawn, the test of which is set out in the case of Ip Man Shan Henry v Ching Hing Construction Co Ltd, unrep, HCA 3567/1985.
73. In order for the court to draw the adverse inference suggested by the Plaintiff, the underlying assumptions as set out below must be made.
74. Firstly, the inference to be drawn is based on the assumption that the Miss Yin (the Plaintiff’s staff) did deliberately delete emails related to the 1st Defendant from the QQ Account. However Ms Lam’s evidence in this regard is based on what another staff, Ms Cao, purportedly saw. This is hearsay evidence. Ms Lam herself did not see Miss Yin delete the said emails and could not verify whether in fact the deleted emails relate to the 1st Defendant. Hence without further evidence in support of Miss Cao’s allegations and in the absence of any evidence from Miss Cao as to what she actually saw, the court is unable to assume this piece of evidence is correct and accurate.
75. Secondly, the Plaintiff requires the court to assume Miss Yin was working for ACS at the time when the Plaintiff received the enquiry from Kuan Shan. Ms Lam speculates that Miss Yin did not follow up on the Kuan Shan enquiry due to ulterior motives. She bases her speculation on the fact that Miss Yin had admitted she worked for ACS during her employment with the Plaintiff. However there is no information on when Miss Yin commenced working for ACS and it is unknown whether she was working for ACS when she was instructed by Ms Lam to follow up the enquiry with Kuan Shan. Hence even if Miss Yin was working for ACS before she left the Plaintiff, there is no evidence to suggest she was working for ACS at the time she was designated to follow up Kuan Shan’s enquiry.
76. Thirdly, the Plaintiff requires the court to assume there was an agreement between the 1st Defendant and/or ACS and Miss Yin that Miss Yin would assist the 1st Defendant and/or ACS in using the Plaintiff’s QQ Account to divert the business of Kuan Shan. However there is no evidence to show, even prima facie, Miss Yin deliberately failed to follow up on the Kuan Shan enquiry. Moreover, there is no evidence to suggest Miss Yin and 1st Defendant cooperated together so that Miss Yin would use the Plaintiff’s QQ Account to assist in the diversion of the Kuan Shan’s business. The purported meeting of Miss Yin and the 1st Defendant at the massage parlour alone is insufficient to give rise to the assumption of any agreement between the parties since Ms Lam could not hear the contents of their conversation.
77. Having considered all the evidence, I am of the view that the evidence in this case, the circumstantial evidence, and facts as listed by counsel do not make a prima facie case for such an adverse inference to be drawn. I find the Plaintiff is unable to prove on a balance of probabilities the improper use of its QQ Account by the 1st Defendant in marketing the products of ACS.
Diversion of maturing business opportunity
78. The leading Hong Kong case on the principles governing the diversion of business opportunities is the case of Kishimoto Sangyo Co Ltd & Anor v Oba & others [1996] 2 HKC 260.
79. In summary, it is recognized that diversion of a maturing business opportunity is the amalgamation of the following fiduciary duties: the duty of an employee not to profit personally from his position and the duty not to place himself in a position of conflict with the employer’s interest.
80. In order for the Plaintiff to prove they have suffered loss by reason of the aforesaid breaches, the Plaintiff must show the business opportunity was not merely prospective but was a mature one.
81. Firstly, the business opportunity with Kuan Shan cannot be described as a “maturing business opportunity”. There is no evidence to prove the Plaintiff would have successfully obtained the business even if they responded to the quote timely. It is also noted that the email sent from Kuan Shan to the Plaintiff does not promise to place an order. The wording of the email is such that Kuan Shan needed to report to another company before they would place an order with the Plaintiff. The Plaintiff merely speculates, without proper evidential basis, they would be able to successfully obtain Kuan Shan’s business.
82. Secondly, the evidence shows the 1st Defendant began to liaise with Kuan Shan after the Plaintiff failed to follow up on their enquiry. The 1st Defendant first sent an email to Kuan Shan on 23 August 2011. This email was sent more than 2 months after Kuan Shan made an enquiry with the Plaintiff. By the time the 1st Defendant sent the email to Kuan Shan, he had already left the Plaintiff’s employment.
83. Thirdly, there is no evidence to show that the Defendants had successfully diverted the business to ACS.
84. Hence I find the Plaintiff has failed to prove the Defendants had diverted a maturing business opportunity.
DID THE DEFENDANTS CAUSE ACS TO PASS OFF ITS BUSINESS AS THE PLAINTIFF’S BUSINESS?
85. There are 3 requirements for the tort of passing off known as the “classic trinity” and are paraphrased as follows:-
(1) The Plaintiff’s reputation (or goodwill) in its goods, name, business etc;
(2) A misrepresentation by the Defendants leading to confusion or deception; and
(3) Damage to the Plaintiff.
(See Reckitt & Colman v Borden [1990] 1 WLR 491, and The Law of Passing Off: Unfair Competition by misrepresentation, 4th Ed, paragraph 1-023).
86. The classic trinity derives from the leading case of Erven Warnink Vennootschap v J Townsend & Sons (Hull) Ltd [1979] AC 731 in which Lord Diplock set out the five characteristics of a valid cause of action in passing off:-
(1) A misrepresentation;
(2) Made by a trader in the course of trade;
(3) To prospective customers of his or ultimate consumer goods or services supplied by him;
(4) Which is calculated to injure the business or goodwill of another trader (in the sense that this is a reasonably foreseeable consequence); and
(5) Which causes actual damage to the business or goodwill of the trader by whom the action is brought.
87. The basis of the Plaintiff’s claim for passing off is set out in paragraph 9(d) of the Re-Amended Statement of Claim. Essentially the Plaintiff alleges that the 1st Defendant sent the emails to Kuan Shan using the Plaintiff’s QQ Account causing Kuan Shan to believe ACS’ business was the Plaintiff’s business.
88. However for reasons I have given above, the Plaintiff is unable to prove the Defendants used the Plaintiff’s email to liaise with Kuan Shan in respect of the quotations on curtains. Hence, there is insufficient evidence to prove the 1st Defendant had made a misrepresentation to Kuan Shan in respect of ACS’ business representing or in any way being affiliated with the Plaintiff’s business. Moreover, the Plaintiff is unable to prove any damage suffered by the acts of 1st Defendant in this matter.
89. Hence I find the Plaintiff is unable to prove its claim based on the tort of passing off.
WHETHER THE 2nd AND 3rd DEFENDANTS LIABLE UNDER PARTNERSHIP ORDINANCE
90. Section 12 Partnership Ordinance states:-
“Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the firm or with the authority of his co-partners, loss or injury is caused to any person not being a partner in the firm, or any penalty is incurred, the firm is liable therefore to the same extent as the partner so acting or omitting to act.”
91. In the case of Dubai Aluminium Co Ltd v Salaam and others [2003] AC 366 at page 397D, Lord Millet succinctly summarized the requirements under section 10 and 11 of the Partnership Act 1890 (the equivalent of section 12 and 11 Partnership Ordinance respectively) as follows:-
“The firm (section 10) and its innocent partners (section 11) are vicariously liable for a partner’s conduct provided that three conditions are satisfied: (i) his conduct must be wrongful, that is to say it must give rise to fault-based liability and not, for example, merely receipt-based liability in unjust enrichment; (ii) it must cause damage to the claimant; and (iii) it must be carried out in the ordinary course of the firm’s business.”
92. Whether the 1st Defendant had acted in the ordinary course of ACS’ business is a question of fact: see Dubai Aluminium Co Ltd at page 397F.
93. The only act the court has found to have been a breach of duty is the act of taking photos of the Plaintiff’s samples and thereafter emailing such photographs to himself. The Plaintiff has not proved how the 1st Defendant’s acts of taking photographs of the Plaintiff’s samples and sample boxes, and sending the said photos to his Gmail Account are acts in the ordinary course of ACS’ business.
94. Even if it is assumed the 1st Defendant’s acts were in the ordinary course of ACS’ business, there is no evidence to prove the 1st Defendant’s wrongful acts caused damage to the Plaintiff. Moreover, there is no evidence to prove the Plaintiff suffered any loss arising from the 1st Defendant’s wrongful acts.
95. Hence the Plaintiff is unable to prove liability against the 2nd and 3rd Defendants under section 12 Partnership Ordinance. I therefore dismiss the Plaintiff’s claim against the 2nd and 3rd Defendants.
DAMAGES
96. By reason of the matters set out above, I find the Plaintiff could only prove the 1st Defendant breached his duty of fidelity to the Plaintiff by reason of taking photos of the Plaintiff’s samples and sample boxes and subsequently sending the said photos to his Gmail Account. Since the Plaintiff has failed to prove any loss or damages arising from the 1st Defendant’s breach, the Plaintiff is only entitled to nominal damages.
97. I therefore order the 1st Defendant to pay nominal damages to the Plaintiff in the sum of $100.
COSTS
98. Since the 1st Defendant is unsuccessful in proving his Counterclaim, he should pay the Plaintiff’s costs in so far as the Counterclaim is concerned.
99. Having considered the overall time spent on the issues raised in the Counterclaim, I am of the view that 1/3 of the trial was spent on the counterclaim.
100. In respect of the Plaintiff’s claim against the 2nd and 3rd Defendants, by reason of having dismissed the Plaintiff’s claim against 2nd and 3rd Defendants, the Plaintiff should pay their costs of the action.
101. As for the claim against the 1st Defendant in the main claim, the Plaintiff only succeeded in establishing a breach of duty of fidelity but lost in the other allegations against the 1st Defendant.
102. In the case of Union Knopf (HK) Ltd v Marcel Sossnowski and another, DCCJ 680/2010 (unrep), the learned Deputy District Judge R Lai stated, “In the post-CJR era, a Plaintiff recovers nominal damages shall prepare to bear the Defendant’s costs unless the verdict for nominal damages is a means to establish, determine, or protect a legal right. The Plaintiff’s claim herein for breach of the restrictive covenants in the Employment Agreement was not such claim.”
103. Having considered the conduct of the 1st Defendant, I am prepared to depart from the usual costs order and make no order as to costs on the main claim. I am sympathetic to the Plaintiff’s zealousness in the protection of its company information and in securing the legitimate use of that information. Although there is no evidence to prove how the 1st Defendant ultimately used such information, I am of the view that such acts by employees or ex-employee cannot be condoned and the Plaintiff should not be made to pay the costs of the 1st Defendant if he is found guilty of illegitimate use of the Plaintiff’s information.
104. I therefore make the following costs order nisi:-
(1) Costs of the counterclaim be paid by the 1st Defendant to the Plaintiff, with certificate for counsel, to be taxed if not agreed.
(2) The 2nd and 3rd Defendants’ costs of the main action be paid by the Plaintiff, with certificate for counsel, to be taxed if not agreed.
(3) There be no order as to costs of the main action as between the Plaintiff and the 1st Defendant.
105. Unless any party applies to vary the costs order within 14 days hereof, the costs order shall become an order absolute.
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( WY Ho ) |
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Deputy District Judge |
Mr Kevin Poon, instructed by Darin Leung & Partners, for the Plaintiff
Mr George Chu, instructed by Patrick Mak & Tse, for the 1st to 3rd Defendants
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