SPARKLE CAPITAL LTD v. CHAN WAI MAN also known as CHAN WAI MAN IVAN

DCCJ 836 & 1380/2018 & 289/2021

(Consolidated)

[2024] HKDC 1982

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 836 AND 1380 OF 2018 AND 289 OF 2021

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BETWEEN

(Actions consolidated by Order of
Mr Registrar Ho dated 2^nd May 2018 and
Order of Master B. Mak dated 7^th July 2021)

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JUDGMENT

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A. INTRODUCTION

1.  These proceedings concern an employment dispute between the plaintiff and the defendant.

2.  In gist, the plaintiff company claims against the defendant employee for breaches of employment contract and duty of confidence.

3.  In the Re-Amended Statement of Claim, the plaintiff also relied on alleged breaches of fiduciary duties. However, during their oral opening submissions, the plaintiff’s counsel sensibly informed the court that they would not pursue any claim based on alleged breaches of fiduciary duties, but would focus on the alleged breaches of duty of confidence.

4.  The defendant counterclaims that his summary dismissal was unlawful and claims against the plaintiff for arrears of wages, payment in lieu of notice for termination and payment in lieu of annual leave. There is no dispute that the sums claimed by the defendant remain unpaid.

B. THE PLAINTIFF’S CASE

5.  Paul Tam (“Paul”) was the sole director of the plaintiff at all material times until 17 January 2018. He was also the sole shareholder of the plaintiff at all material times until 22 December 2017.

6.  The plaintiff’s case is that in May 2017, Paul and Nelson Chiu (“Nelson”) came up with the idea of a new smart pillow product together. Since then, there were discussions between the two about developing a smart pillow.

7.  According to the plaintiff, there were certain negative news coverage of Nelson’s previous project. Paul and Nelson therefore agreed to use a company unrelated to Nelson for the purposes of developing the smart pillow project. They agreed to use the plaintiff for such purposes. They also agreed that once the smart pillow product is launched on Kickstarter, shares of the plaintiff would be given to Nelson.

8.  In early July 2017, Paul and Nelson agreed that the plaintiff would be responsible for hiring researcher and engineer for the project and Nelson would be responsible for overseeing the design of the smart pillow, contributing laboratory equipment from his previous project for testing the product, monitoring the research and development (“R&D”) progress and dealing with crowdfunding on Kickstarter.

9.  In around mid-July 2017, Nelson recommended the defendant to the plaintiff. On 25 August 2017, Paul (on behalf of the plaintiff) and the defendant signed an employment contract which was prepared by Nelson (the “Employment Contract”). Under the Employment Contract, the defendant’s employment had commenced on 15 July 2017.

10.  The Employment Contract contains inter alia the following terms:

(a) The defendant’s position is Senior Mechanical Engineer. He must report to the director or to such other person(s) as the plaintiff may direct from time to time. The plaintiff may assign or second the defendant to work at an associated company[1] at such time and on such conditions as the plaintiff may see fit (Clause 1.2).

(b) The defendant has to devote the whole of his time, attention and best of his skills to the carrying out of his duties. He must not engage in or be interested in (whether directly or indirectly) any activities, business or undertaking which, in the plaintiff’s opinion, may conflict with the proper performance of the plaintiff’s business (Clause 1.3.1).

(c) The defendant’s normal working hours are from 9 am to 6 pm, Monday to Friday (inclusive) with an hour’s break for lunch (Clause 3.1).

(d) The defendant “must not at any time during his employment with the plaintiff directly or indirectly render services of any kind in any capacity and in any manner to any person, company or undertaking other than the [plaintiff] (‘Additional Work’) without (a) informing the Director of the number of hours involved in such Additional Work and (b) the prior written consent of the Director…” (Clause 4.1).

(e) The defendant’s basic salary is HKD60,000 per month on a 12-month basis (clause 5.1).

(f) The defendant’s primary place of work is the plaintiff’s offices in Hong Kong but will perform his duties under the contract in any other places “as the Company may reasonably require from time to time” (Clause 7.1).

(g) If the defendant has to apply for sick leave, he must do so “by telephoning the Director as soon as possible and in any event before 9:30 am” (Clause 10.1).

(h) The defendant “must not… without the prior written consent of [the plaintiff] (i) use for [his] own benefit or for the benefit of any other person, company etc; or (ii) directly or indirectly divulge or disclose to any person… any Confidential Information” (Clause 15.2).

(i) “Confidential information” is defined in Clause 15.1 to include inter alia “research and development projects, inventions, designs, discoveries, know-how, methods, processes, techniques… relating to the business of the [plaintiff]”.

(j) The defendant “must forthwith communicate to the [plaintiff] in confidence all Intellectual Property which [he] may make, invest… during [his] employment under this Contract” (Clause 17.1).

(k) “Intellectual property” is defined under Clause 17.1 to include “every invention, discovery, design, trade mark, known-how, secret process or improvement” and “every work in which copyright may exist or subsist”.

(l) “All the Relevant Intellectual Property… will be and become the exclusive property of the [plaintiff] and will not be disclosed by [the defendant] to any person… without the prior written consent of the [plaintiff]”. The defendant must also “assign to the [plaintiff] all of [his] proprietary rights (if any) in respect of all Relevant Intellectual Property” (Clause 17.3).

(m) The defendant must “give and supply all such information, data and drawings as may be required to enable the [plaintiff] to exploit all Relevant Intellectual Property to their best advantage” (Clause 17.4.1).

11.  Between June 2017 and early January 2018, Nelson has repeatedly failed to deliver a complete prototype of the smart pillow, which had led to a breakdown of relationship between Nelson and Paul.

12.  Following the aforesaid breakdown of relationship, Paul decided to directly monitor the defendant’s work. He instructed Jessica Lee, the plaintiff’s business development manager, to request the defendant to report to duty. Jessica Lee sent a WhatsApp message to the defendant on 15 January 2018 requesting him to report to duty at the plaintiff’s office in Wanchai (the “Wanchai Office”) and “bring along all work related material”.

13.  In reply, the defendant asked for clarification and proof of insurance and availability of equipment at the Wanchai Office.

14.  The plaintiff told the defendant not to worry about the equipment and simply report to duty. The plaintiff also said that the insurance at the Wanchai Office was ready and warned the defendant of the consequence of being absent from work without prior permission under clause 11.1 of the Employment Contract.

15.  On 16 January 2018, the defendant replied that he “reject to change [his] work location” and that “[w]hen we signed the contract, Paul said [he could work] on flexible working hours, Nelson and Vincent both heard of it. That constitutes as an oral agreement”.

16.  In reply, the plaintiff stated that the defendant had taken leave from work without prior permission on 16 January 2018 and warned the latter of the consequences under clause 11.1 of the Employment Contract and the possibility of summary dismissal. The plaintiff again requested the defendant to bring along all work related materials and report duty at the Wanchai Office.

17.  Between 17 and 19 January 2018, there were further WhatsApp exchanges between the parties. In gist, the plaintiff repeated its request, and the defendant said that he had worked “over 40 hours per week consistently”, refused to “change [his] work location with [his] agreement”, requested proof of insurance, claimed that the Wanchai Office did not have the required equipment, requested a day off on 18 January 2018 “for urgent personal matters”, claimed that he had been sick since 18 January 2018 and requested a sick leave on 19 January 2018, and claimed that he had been helping his wife who was sick to take care of their daughter and doing housework.

18.  Importantly, the defendant alleged that he was “not allowed to take out the hardware prototype of the pillow which has been being [sic] tested in Nelson’s office. However, I can give you my work duty report which is the most important design information of this project”.

19.  In addition to the aforesaid WhatsApp messages, on respectively 15 January 2018, 16 January 2018 and 22 January 2018, the plaintiff also sent warning letters to the defendant, again requesting him to bring all work related materials and report to duty at the Wanchai Office.

20.  On 23 January 2018, the plaintiff terminated the defendant’s employment on the basis of job abandonment. In its termination letter, the plaintiff stated that the defendant had “deliberately refused to report duty [sic] at the assigned place and have taken leave without requesting or receiving prior permission on date 15, 16, 17, 18 and 23 of January 2018. This is seen as a sign of gross negligence of [his] duties and willful [sic] insubordination as the Senior Mechanical Engineer”.

21.  On 19 February 2019, the defendant submitted a work report to the plaintiff (the “Work Report”). It is the plaintiff’s case that the Work Report does not contain confidential information and intellectual property belonging to the plaintiff, including product specification, design approach and technical architecture of the smart pillow.

C. THE DEFENDANT’S CASE

22.  The defendant’s case is that the idea of smart pillow was Nelson’s, who had invented and invested around HK$1.5 million in the smart pillow project through his company Nettle Print Limited (“NPL”) since 2016, before Paul was even involved in the project.

23.  The defendant was hired by Nelson to perform R&D work for the project since 1 January 2017 by way of a consultancy agreement between NPL and the defendant, at a monthly salary of HK$30,000.

24.  In around May 2017, Paul became interested in the smart pillow project after seeing the works of Nelson and suggested to secure funding and investors for the further development of the project.

25.  In around June 2017, the first prototype of the smart pillow was substantially completed, and the second prototype was ready in around July 2017.

26.  On or around 23 July 2017, Paul suggested to Nelson to use the plaintiff as the corporate vehicle for the further R&D of the smart pillow. He also indicated that he intended to list the plaintiff on the Hong Kong Stock Exchange in the future and needed an engineer to be employed by the plaintiff to make its profile look better.

27.  On 25 August 2017, Paul on behalf of the plaintiff and the defendant orally agreed that:

(a) The job title of the defendant would be senior mechanical engineer (Clause 1);

(b) The working hours would be flexible (Clause 2);

(c) The defendant would be seconded to work at NPL for testing the product (Clause 3);

(d) The defendant was required to report to Nelson directly (Clause 4);

(e) The work place would be Nelson’s laboratory in Kwun Tong (the “Laboratory”) and/or the defendant’s home (Clause 5);

(f) The defendant would be subject to the duty of confidentiality owed to NPL (Clause 6)

(the alleged “Oral Agreement”).

28.  It is the defendant’s case that the Employment Contract was subject to the alleged Oral Agreement. The defendant was all along working at NPL and was responsible for testing the smart pillow which had already been developed, and he was subject to the duty of confidentiality owed to NPL. The prototype of the smart pillow produced belongs to NPL and the plaintiff has no intellectual property in the product.

29.  He had therefore not acted in breach of the Employment Contract, which was entered into subject to the alleged Oral Agreement.

30.  In early December 2017, Paul passed four alleged term sheets from investors to Nelson. Nelson found that such term sheets were fake and/or highly suspicious. He confronted Paul. That was the reason why their relationship broke down in around early January 2018.

D. FACTUAL WITNESSES

The plaintiff’s witness

31.  The plaintiff called Paul, who was its sole shareholder and director, as its witness.

32.  Paul is adamant that he and Nelson came up with the idea of a smart pillow together in around May 2017. No prototype for the smart pillow had been shown to him until he saw the so-called prototype, which was actually nothing more than rectangular bundle of electronic wires, in the Laboratory in November 2017.

33.  I find his evidence that he was not shown any prototype, and that to his understanding and belief no prototype was available, believable. Had Paul known that the prototype was already available as alleged by the defendant, he would not have repeatedly asked about the progress of developing the prototype and chased Nelson for the same between June 2017 and November 2017 through WhatsApp.

34.  However, for reasons explained below, this only means that Paul was led into believing that the prototype was not ready. What Paul believed or was led into believing does not reflect the reality. This will be explained below.

35.  Further, Paul’s evidence in relation to the non-existence of the alleged Oral Agreement is believable. There is no dispute that his company, ie the plaintiff, had to pay the salary of the defendant pursuant to the Employment Contract. It makes no commercial sense for the plaintiff to employ the defendant if all along the defendant was intended to work for NPL, which belongs to Nelson and not Paul, and all the R&D result of the defendant were to belong to NPL.

36.  Indeed, it would be unbelievable for Paul to agree to the alleged Oral Agreement and the terms thereof, which make no commercial sense to the plaintiff.

37.  By reason of the above, I find Paul a credible and honest witness.

The defendant’s witnesses

38.  The defendant called three witnesses. The first witness was Nelson. He was the owner of NPL, which entered into a consultancy agreement dated 20 December 2016 with the defendant.

39.  He was the person who introduced the defendant to Paul. The defendant’s case was that the terms of the alleged Oral Agreement were all proposed by Nelson.

40.  It is Nelson’s evidence that there was no overlapping in the job of the defendant in NPL and in the plaintiff. Since January 2017, the defendant had been helping Nelson develop the smart pillow. The prototype was already completed when the defendant joined the plaintiff. Thereafter, the defendant’s job was limited to testing the smart pillow.

41.  This contradicts the WhatsApp messages between Paul and Nelson from June 2017 to November 2017, which show that Paul had repeatedly chased Nelson for the prototype of the smart pillow, which Nelson had failed to produce. If the prototype had been ready all along as alleged by the defendant, then Nelson must have been hiding such truth and the prototype from Paul by failing to show it the Paul and telling Paul that it was not ready.

42.  This can be explained by the fact that Nelson is directly interested in the outcome of these proceedings because he alleges that the confidential information relating to the prototype of the smart pillow belongs to NPL, on the basis that those confidential information had come about before the defendant’s employment with the plaintiff on 15 July 2017.

43.  His interests directly conflict with that of the plaintiff, whose case is that the smart pillow is a completely new product, the R&D of which only began after the defendant became employed by the plaintiff, and thus the confidential information involved in the prototype belongs to the plaintiff.

44.  Further, if there was no overlapping between the defendant’s job in NPL and the plaintiff as alleged by Nelson, there would have been no need for Nelson to maintain in these proceedings that clause 6 of the alleged Oral Agreement existed, ie the defendant would be subject to the duty of confidentiality owed to NPL, which only serves the purpose of safeguarding NPL/Nelson’s property or confidential information.

45.  I find that when Nelson gave evidence in these proceedings, he did so with the intention and ultimate goal of protecting what he perceives to be property or confidential information belonging to him or NPL. I find him a partial and unreliable witness who is interested in the outcome of these proceedings.

46.  The second witness was the defendant himself. He gave inconsistent and confusing answers to important questions concerning the reason for his joining the plaintiff and those concerning the alleged Oral Agreement.

47.  When being asked why he had to be become the plaintiff’s employee when he had all along been working for NPL and according to him he was doing the same job before and after joining the plaintiff, the defendant said his employment with the plaintiff was to facilitate the intended listing of the plaintiff.

48.  He said that was why the terms of the alleged Oral Agreement was not incorporated into the written Employment Contract, which was entered into to make the plaintiff’s profile look good to facilitate its intended listing. Thus, the simplest thing to do was to use an ordinary contract so that the plaintiff’s profile would look good and investors would not think there was a problem.

49.  This defies common and commercial sense. There is no evidence that the intended listing of the plaintiff would benefit the defendant, who is merely an employee of the plaintiff. As an employee, naturally the defendant would be more concerned about protecting his own interests rather than to facilitate the potential listing of the company in the unknown future. If the terms in the alleged Oral Agreement were actually agreed, there is no reason why they should not be stated clearly and unequivocally in the Employment Contract, especially when some of the terms therein were completely contradictory to the terms of the alleged Oral Agreement.

50.  When being asked whether clause 6 of the alleged Oral Agreement contains any cut-off date, he said there was no need to have any cut-off date because there was no need to say so. The cut-off date is naturally the date of commencement of the Employment Contract, ie 15 July 2017. Everything he produced before that date belongs to NPL and everything after belongs to the plaintiff.

51.  He explained that, as with his last job, if he works for a new company, it goes without saying that things he produced during employment with the old company belongs to the old company and cannot be taken to the new company. He said that one would not have to specify it.

52.  If that was the case, then it begs the question as to why clause 6 of the alleged Oral Agreement was needed. He could simply rely on the fact that things produced during his contractual relationship with NPL naturally belongs to NPL, rather than the plaintiff.

53.  When being asked on this, he explained that Nelson found that there would be overlapping so he proposed clause 6 of the alleged Oral Agreement.

54.  Not only is this inconsistent with his earlier answer that there was no need to so specify, his answer also contradicts what Nelson said. Nelson’s evidence was that there was no overlapping in what the defendant did for NPL and for the plaintiff. The defendant’s job when he worked for NPL was different from his job when he worked for the plaintiff and there was no overlapping. That was why he did not state in black and white that the work produced before the Employment Contract belongs to NPL and those produced after belong to the plaintiff.

55.  All in all, I find the defendant an unreliable and evasive witness.

56.  The third witness called by the defendant was Vincent Poon (“Vincent”), who was the communications manager of NPL. He was a very evasive witness. Most of the time during his giving of evidence, he did not answer questions directly. This happens even for simple and straightforward questions on, for example:

(a) the defendant’s working hours;

(b) whether he saw anyone signing the employment contract;

(c) whether the defendant’s job nature was different when he switched from being a non-full-time staff of NPL to a full-time employee of the plaintiff; and

(d) whether his employment contract with NPL stated that he could have flexible working hours.

57.  All in all, I find him to be an unreliable and evasive witness.

E. EXPERT WITNESSES

58.  The plaintiff called Mr Jimmy Yau (“Mr Yau”) as its expert, and the defendant called Mr Lee Cheuk Wai (“Mr Lee”) as his expert. I find them generally reliable expert witnesses who have tried their best to assist the court.

59.  The experts were asked to opine on inter alia whether the Work Report submitted by the defendant contains any intellectual property relating to the smart pillow prototype, and whether the Work Report shows that the defendant had carried out any work in relation to the R&D of the smart pillow project.

60.  Whilst the experts disagree on whether the Work Report is complete, that must be viewed in the context of what I find the defendant had done during his employment with the plaintiff.

61.  Importantly, the plaintiff’s expert Mr Yau accepts that the defendant had done some work on the smart pillow and both experts agree that the defendant has done a lot of literature review.

62.  Insofar as Mr Yau suggests that the Work Report lacks certain information to show that the defendant had done verification, it does not mean that the defendant has hidden any confidential information.

63.  As Mr Lee commented, the Work Report summaries what work has been done during the defendant’s employment with the plaintiff. Thus, the missing information could simply mean that the defendant may not have performed up to the plaintiff’s expectation. It does not mean that he had breached his duty of confidence or failed to provide certain information as alleged.

64.  In point of fact, in section 6 of the Work Report, the defendant did give a conclusion of his test result, which is that “there are still market gap and technology gap of smart pillow”. It then lists out the technology gaps, ie the areas of improvements which they need to work on. The defendant concludes that “it still has some defects and the testing result shows that the prototype is not robust enough for real-life customer trials and crowdfunding champion. Some minor design changes and further studies are needed. In addition, injection moulds and special tooling for manufacturing some critical parts for further functional testing are also needed”.

65.  According to Mr Lee, these are “… findings of existing technology gaps related to the smart pillow… All those are intellectual property and design information based on solutions worked out by the defendant himself.” Further, “[t]he Work Report contains inventions, designs and discoveries and improvements to the existing inventions or process concerning the smart pillow prototype”.

66.  Putting aside whether such information amounts to intellectual property, they clearly amount to testing results performed by the defendant and the improvements he suggested.

67.  This is consistent with the defendant’s case that he had performed testing and commented on whether the product is ready for mass production. This will be further elaborated below.

F. ISSUES IN DISPUTE

68.  The issues in dispute are as follows:

(a) Whether the alleged Oral Agreement existed? (Issue 1)

(b) Whether the defendant has breached any of the terms of the contract of employment? (Issue 2)

(c) Whether the defendant has committed any breach of his duty of confidence? (Issue 3)[2]

(d) Whether the defendant has made any actionable misrepresentation? (Issue 4)

(e) What loss and damage the plaintiff has suffered as a result of the defendant’s wrongful conduct (if any)? (Issue 5)

(f) What relief is the plaintiff entitled to? (Issue 6)

(g) Whether the defendant’s employment was unlawfully terminated? (Issue 7)

(h) Whether the plaintiff is liable to the defendant for outstanding wages, wages in lieu of notice and annual leave pay? If so, what is the quantum of such damages? (Issue 8)

ISSUE 1: WHETHER THE ALLEGED ORAL AGREEMENT EXISTED?

69.  First, as mentioned above, it defies commercial sense for the plaintiff to enter into the alleged Oral Agreement, pursuant to which it would have to pay the defendant’s salary whilst all the products of the defendant’s R&D would belong to another company unrelated to him, ie NPL.

70.  Secondly, on the question of the ownership of confidential information after the entering into the Oral Agreement, Vincent’s evidence contradicts those of Nelson and the defendant. According to Vincent, during the meeting on 25 August 2017, the parties agreed that everything that the defendant developed after becoming the plaintiff’s employee would belong to NPL, which is directly contradictory to the defendant’s and Nelson’s evidence.

71.  The respective evidence of the defendant and Nelson was that the intention of clause 6 of the alleged Oral Agreement was that everything the defendant produced before joining the plaintiff belongs to NPL, everything after belongs to the plaintiff.

72.  This casts serious doubt on the existence of the alleged Oral Agreement, when the defendant’s own witnesses do not agree amongst themselves as to what was being discussed and agreed, especially in relation to the most important and controversial clause in the alleged Oral Agreement.

73.  Thirdly, the other clauses of the alleged Oral Agreement are either:

(a) unnecessary as it was already specified in the Employment Contract, ie Clause 1 of the alleged Oral Agreement; or

(b) directly contradictory to the terms of the written Employment Contract, ie Clauses 2 to 5 of the alleged Oral Agreement.

74.  I find that the inconsistencies between the alleged Oral Agreement and the Employment Contract also indicate that there was no such alleged Oral Agreement. Had the alleged Oral Agreement existed, there is no reason for the parties to not specifically revise the contradictory terms under the Employment Contract, as it was obvious that effect could not fairly be given to the terms under both agreements.

75.  It is inherently improbable that the parties would sign the Employment Contract if the alleged Oral Agreement had existed.

76.  Fourthly, when the plaintiff sent warning letters and WhatsApp messages to the defendant, demanding the latter to report to the office and to “bring along all work related material”, whilst the defendant rejected those demands, he never in his WhatsApp messages mentioned about clause 6 of the alleged Oral Agreement which can explain why he did not hand over the information about the prototype.

77.  Had the alleged Oral Agreement existed, it would be a valid reason for the defendant to reject the plaintiff’s demands to report to work at the Wanchai Office and to hand over his work related to the prototype. Yet, the defendant never mentioned the alleged Oral Agreement, in particular Clauses 3, 4 and 6 thereof, in his WhatsApp messages to the plaintiff between 15 and 23 January 2018, leading up to his termination of employment on 23 January 2018.

78.  Fifthly, as mentioned above, I do not accept the defendant’s explanation that the Employment Contract was merely there to facilitate the potential listing of the plaintiff in the future.

79.  Finally, I also do not accept Vincent’s evidence that the parties agreed to follow what was orally discussed in the meeting of 25 August 2017. In this regard, Vincent did not directly answer the defendant’s counsel’s question of how the parties intended to deal with the written Employment Contract where its terms were different from those of the alleged Oral Agreement.

80.  By reason of the above, I find that the alleged Oral Agreement did not exist, and the defendant is bound by the Employment Contract, the terms of which are all expressly stated therein.

ISSUE 2: WHETHER THE DEFENDANT HAS BREACHED THE EMPLOYMENT CONTRACT?

81.  I find that the defendant has acted in breach of the Employment Contract by:

(a) refusing to report to duties, in breach of Clauses 1, 3 and 6 of the Employment Contract; and

(b) failing to obtain the plaintiff’s consent for working for his own company, NICADA, in breach of Clause 4.1 of the Employment Contract.

82.  For reasons explained below, I find that the defendant has not acted in breach of the Employment Contract by:

(a) working for Nelson’s benefit during his employment with the plaintiff in breach of Clause 4.1 of the Employment Contract;

(b) divulging or disclosing the plaintiff’s confidential information to others, in breach of Clause 15 of the Employment Contract; or

(c) failing to deliver work products and intellectual properties, in breach of Clause 17 of the Employment Contract.

(1) Failure to report to duties

83.  In relation to the defendant’s failure to report to duties, this is clearly evidenced by the WhatsApp messages between the parties between 15 and 23 January 2018.

84.  Upon the plaintiff’s request to the defendant to report to work, the defendant kept making excuses, which include:

(a) there being no employees’ insurance in the Wanchai office (although the plaintiff already told him that the insurance was already ready);

(b) there was no high performance computer workstation in the Wanchai office (although he had never been to the Wanchai office);

(c) his wife was sick;

(d) he had to take care of his daughter;

(e) he had to do housework;

(f) he had “urgent personal matters” to deal with; and

(g) he was sick (although the sick leave application procedure provided in the Employment Contract was not complied with).

85.  None of those excuses constitutes valid excuses to not report to duties under the terms of the Employment Contract.

(2) Working for NICADA

86.  As to the undisputed fact that the defendant has been operating his own company, NICADA, the defence is that Nelson had sent the defendant’s LinkedIn profile, which stated that the defendant was a CEO and R&D Director of NICADA, to Paul.

87.  However, Clause 4.1 of the Employment Contract expressly provides that the defendant “must not at any time during his employment with the plaintiff directly or indirectly render services of any kind in any capacity and in any manner to any person, company or undertaking other than the [plaintiff] (‘Additional Work’) without (a) informing the Director of the number of hours involved in such Additional Work and (b) the prior written consent of the Director…”.

88.  The defendant accepted during cross-examination that no such consent was obtained. There is therefore no doubt that the defendant had acted in breach of Clause 4.1 the Employment Contract by operating NICADA without seeking the plaintiff’s prior written consent.

(3) Working for Nelson’s benefit

89.  There is no evidence that the defendant was working for Nelson or NPL during his employment with the plaintiff.

90.  There is no dispute that Nelson was tasked by the plaintiff with the responsibility of supervising the defendant’s work. There is also no dispute that the plaintiff all along knew that the defendant had worked in the Laboratory at times.

91.  That said, it does not mean that the defendant had worked for the benefit of Nelson. Whilst the plaintiff’s counsel placed reliance on the defendant’s counsel’s reference to the defendant as “Nelson’s man”, such reference is insufficient to prove that the defendant had worked for Nelson’s benefit during his employment with the plaintiff.

92.  As will be explained below, there is no evidence that the defendant had performed any work other than those stated in the Work Report.

93.  I therefore find that the defendant had not worked for Nelson’s benefit during his employment with the plaintiff.

(4) Divulging or disclosing confidential information

94.  As to whether the defendant had divulged or disclosed the plaintiff’s confidential information in breach of Clause 15 of the Employment Contract, I find that the plaintiff has failed to particularise or prove what confidential information the plaintiff has disclosed to others, if any.

95.  The plaintiff relies on the Work Report provided by the defendant to the plaintiff on 20 February 2018 and submitted that it was defective and did not amount to a return of the plaintiff’s confidential information and intellectual property to the plaintiff.

96.  First, there is no evidence of what confidential information or intellectual property was possessed by or imparted on the defendant. All that the plaintiff could point to was that the information contained in the Work Report does not enable it to create a prototype of the smart pillow.

97.  However, there is no evidence that any prototype of the smart pillow was created during the defendant’s employment with the plaintiff. On the plaintiff’s case, all that Paul had ever seen was nothing more than a rectangular bundle of electronic wires; and on the defendant’s case, the prototype was already created before the defendant was employed by the plaintiff.

98.  Secondly, according to the defendant, before he was under the employment with the plaintiff, the second prototype was already created. His job during his employment with the plaintiff was to perform R&D for the smart pillow, perform literature review, test the smart pillow and comment on whether the product can proceed to mass production.

99.  It is the defendant’s clear evidence that the prototype of the smart pillow was created before he joined the plaintiff. His work during his employment with the plaintiff therefore did not relate to developing the prototype.

100.  In this regard, as mentioned above, Paul was adamant that the smart pillow was a new product, the R&D of which only started after the plaintiff had employed the defendant. As explained above, I accept that this is his understanding and belief.

101.  That said, it does not mean that such understanding and belief reflected the reality. There is no evidence that the defendant had produced any prototype for the smart pillow during his employment with the plaintiff.

102.  On the contrary, there is evidence, in the form of photographs, that two versions of prototype were produced prior to the defendant’s employment with the plaintiff. On balance, I accept the defendant’s case that the prototype was already produced before he joined the plaintiff, and his duty during his employment with the plaintiff was to test such prototype.

103.  Further, whilst I find the defendant an unreliable and evasive witness. I do not see any reason why he should lie about when he had developed the prototypes. He was merely a consultant of NPL. As he puts it, he is stuck in the middle between Nelson and Paul. The confidential information regarding the prototypes belong either to NPL or the plaintiff. Either way, it will not benefit him.

104.  It is also Paul’s evidence that he did not know what the defendant was doing during his employment with the plaintiff because Nelson was the person who was responsible for supervising the defendant.

105.  The plaintiff relies on Clause 1.5 of the Employment Contract which provides that the defendant was “not bound by or subject to any… agreement, arrangement or undertaking, which in any way restrict[ed] [the defendant] from entering into the Employment Contract] or from performing [his] duties under the [Employment Contract]” and submits that it must mean that there was no prototype already belonging to NPL when the Employment Contract was entered into.

106.  However, given my finding that the defendant had already developed the prototype before his employment with the plaintiff, and his duty during his employment with the plaintiff was to test such prototype, the plaintiff’s duty to NPL therefore does not restrict his performance of his duties under the Employment Contract. The plaintiff’s argument based on Clause 1.5 therefore fails.

107.  Thirdly, in relation to the Work Report, I refer to my analysis of the experts’ evidence in Section E above.

108.  Further, the Executive Summary of the Work Report clearly states that its purpose is to show what work has been done during the defendant’s employment with the plaintiff. There is no evidence that he had done anything else that is not mentioned in the Work Report during his employment with the plaintiff.

109.  It is indisputable that the Work Report contains literature review and test results performed by the defendant during his employment. The defendant also identified certain areas which have to be improved technologically before the existing prototype could be ready for real-life customer trials and crowdfunding.

110.  In fact, the plaintiff’s expert Mr Yau accepts that the defendant had done some work on the smart pillow and both experts agreed that the defendant had done a lot of literature review.

111.  I find that the Work Report contains information of the work which the defendant said he had performed during his employment with the plaintiff. The plaintiff has failed to prove that there are other matters which the defendant had performed or achieved which have not been included in the Work Report.

112.  Finally, the fact that the Work Report may not meet the plaintiff’s expectation does not mean that the defendant has divulged or disclosed confidential information or intellectual property or failed to deliver work products.

113.  I find that the plaintiff has failed to prove that the defendant has disclosed any confidential information belonging to the plaintiff to others.

114.  On balance, I accept the defendant’s evidence that the prototypes were developed when he was working for NPL, and that he had handed over everything that he had done during his employment with the plaintiff in the form of his Work Report.

(5) Failure to deliver work products

115.  The plaintiff relies on the same arguments as (4) above to allege that the defendant has failed to deliver work products and intellectual properties in breach of Clause 17 of the Employment Contract.

116.  For the same reasons given above, I find that the plaintiff’s claim is not substantiated. In gist, there is no evidence that the defendant has produced any work product during his employment with the plaintiff other than those disclosed in the Work Report.

117.  The fact that the information contained in the Work Report does not enable the plaintiff to build a prototype is due to the fact that no prototype was created by the defendant during the defendant’s employment with the plaintiff. The plaintiff has failed to adduce evidence to prove otherwise.

ISSUE 3: WHETHER THE DEFENDANT HAS BREACHED HIS DUTY OF CONFIDENCE?

118.  The plaintiff fairly indicated that it will not pursue its claim based on breach of fiduciary duties. It, however, maintains that the defendant has breached his implied duty of confidence.

119.  The plaintiff relies on:

(a) the fact that the defendant owns NICADA and the allegation that he worked for Nelson; and

(b) the allegation that the defendant had failed to return the plaintiff’s confidential information and intellectual property,

and alleges that the defendant has breached its duty of confidence.

120.  As submitted by the plaintiff, the three elements which have to be established for a claim for breach of confidence are:

(a) the information itself has “the necessary quality of confidence about it”;

(b) the information has been “imparted in circumstances importing an obligation of confidence”; and

(c) unless restrained there is “likely to be an unauthorised use of that information” to the detriment of the plaintiff.

See, eg Smart Trike Mnf Ptd Ltd v Chiu Sui Chan [2024] HKCFI 1562, §§15, 248-249 per Lok J; Mammy Pancake Co Ltd v Carla Day Ltd [2024] 3 HKLRD 17, §§34 & 39 per Fung J.

121.  First, whilst there is no dispute that the defendant owns NICADA, there is no evidence as to what NICADA actually does. All that we know is that it uses computer-aided design (“CAD”), which is a way to digitally create two-dimensional drawings or three-dimensional models of future products.

122.  However, the fact that NICADA uses CAD which the plaintiff also uses does not mean that NICADA is a competitor of the plaintiff or that the defendant has breached its duty of confidence. The plaintiff has failed to prove that there is any information that has “the necessary quality of confidence about it”.

123.  Secondly, as to the allegation that the defendant has breached his duty of confidence by working for Nelson, given my finding above that there is no evidence that the defendant was working for Nelson or NPL during his employment with the plaintiff, this allegation is also rejected.

124.  Thirdly, as explained above, there is no evidence that the defendant had produced any prototype for the smart pillow during his employment with the plaintiff. The plaintiff has failed to prove that there is any information that has “the necessary quality of confidence about it”. I therefore find that there was no breach of confidence or failure to return confidential information on the part of the defendant.

ISSUE 4: WHETHER THE DEFENDANT HAS MADE ANY ACTIONABLE MISREPRESENTATION?

125.  The plaintiff claims that when the parties entered into the Employment Contract, the defendant represented that he was not related or interested in any business which competed or potentially competed with the plaintiff.

126.  However, there is no evidence that the defendant had made any such representation. In fact, it is Paul’s own evidence that he employed the defendant because the defendant was recommended by Nelson, whom he trusted. He never received the defendant’s resume and did not bother to open the defendant’s LinkedIn profile sent to him by Nelson.

127.  He had not even spoken or met with the defendant before they signed the Employment Contract on 25 August 2017.

128.  In the circumstances, not only do I find that the defendant did not make the alleged representation, I also find that the plaintiff did not rely on the alleged misrepresentation (if any) when it entered into the Employment Contract.

129.  The plaintiff’s claim that there was misrepresentation on the defendant’s part therefore fails.

ISSUE 5: WHAT LOSS AND DAMAGE DID THE PLAINTIFF SUFFER?

130.  Although I find that the defendant has acted in breach of the Employment Contract by:

(1) refusing to report to duties, in breach of Clauses 1, 3 and 6 of the Employment Contract; and

(2) failing to obtain the plaintiff’s consent for working for his own company, NICADA, in breach of Clause 4.1 of the Employment Contract,

the plaintiff’s claim for loss and damages is unsubstantiated.

131.  First, whilst the plaintiff seeks damages for the loss of the amount of salaries paid to the defendant on the principle of “no work, no pay” in Sykes v Minister of National Security and Justice [2000] 59 WIR 411 and White v Bristol Rugby Ltd [2002] IRLR 204, I find that the plaintiff has failed to prove that the defendant had actually done no work during the period when he refused to report to work at the Wanchai Office.

132.  According to the defendant, he was working from home or in the Laboratory during that period and the plaintiff has failed to prove otherwise.

133.  Secondly, the plaintiff appears to rely on Nelson’s projection or forecast of the profit of the smart pillow project to say that it has suffered loss and damages in the amount of USD 16,720. However, that was only Nelson’s projection. It is unsupported by evidence.

134.  In any event, I agree with the defendant that it is too remote to suggest that the plaintiff could have made that amount of profit had there not been any breach by the defendant.

135.  As to the defendant’s failure to obtain the plaintiff’s consent for working for NICADA, again, there is no evidence of any loss suffered by the plaintiff.

136.  I therefore find that the plaintiff has failed to prove that it has suffered any loss or damage as a result of the defendant’s breach of the Employment Contract.

ISSUE 6: WHAT RELIEF IS THE PLAINTIFF ENTITLED TO?

137.  By reason of my finding in relation to issues above, the plaintiff is only entitled to nominal damages for the defendant’s breach of the Employment Contract.

ISSUE 7: WHETHER THE DEFENDANT WAS UNLAWFULLY TERMINATED?

138.  By reason of my finding above that the alleged Oral Agreement did not exist and the defendant had refused to report to duty despite repeated demands from the plaintiff, the defendant had wilfully disobeyed a lawful and reasonable order of the plaintiff.

139.  The plaintiff is therefore entitled to terminate the Employment Contract without notice or payment in lieu under s 9(1) of the Employment Ordinance (Cap 57).

140.  In the premises, I find that the defendant was lawfully terminated.

ISSUE 8: WHETHER THE PLAINTIFF IS LIABLE TO THE DEFENDANT FOR OUTSTANDING WAGES, WAGES IN LIEU OF NOTICE AND ANNUAL LEAVE PAY?

141.  By reason of my finding above, the defendant is not entitled to payment in lieu of notice for his termination.

142.  The parties do not dispute that the plaintiff is liable to pay arrears of wages in the sum of HK$75,048.38 and annual pay leave in the sum of HK$14,483.32 to the defendant if I reject the plaintiff’s submission based on the “no work, no pay” principle.

G. CONCLUSION

143.  For the reasons above, I find that:

(a) The plaintiff’s claim for breach of the Employment Contract by the defendant is allowed.

(b) All the other claims of the plaintiff are dismissed.

(c) The defendant’s counterclaim for unlawful termination of his Employment Contract and wages in lieu of notice is dismissed.

(d) The defendant’s counterclaim for outstanding wages and annual leave pay is allowed.

144.  I therefore order that:

(a) The defendant do pay nominal damages of HK$1 to the plaintiff; and

(b) The plaintiff do pay arrears of wages in the sum of HK$75,048.38 and annual pay leave in the sum of HK$14,483.32 to the defendant.

145.  In relation to costs, I take into account the following considerations:

(a) The main disputes in these proceedings concern the existence of the alleged Oral Agreement and defendant’s breaches of the Employment Contract, both of which I find in favour of the plaintiff.

(b) The above led to the dismissal of the defendant’s counterclaim in respect of unlawful termination of his employment and payment in lieu of notice.

(c) No or minimal time was spent on the defendant’s counterclaim for arrears of wages and annual pay leave.

(d) Some of the alleged breaches of the Employment Contract and the plaintiff’s claim in misrepresentation and breach of confidence failed.

146.  In light of the above, I make a costs order nisi that the defendant do pay 50% of the plaintiff’s costs of this action (including all costs reserved), with certificate for one counsel, to be taxed if not agreed. Any application to vary such costs order nisi should be made within 14 days from the date of this judgment.