WORLDCOM, INC. & ANOTHER v. CLINTON ADKINS ROWE

HCA 906/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 906 OF 2001

(Actions consolidated by Order of Master Lung dated 3rd January 2002)

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J U D G M E N T

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1. This is an application for summary judgment or alternatively interim payment by the two Plaintiffs in High Court Action No. 906 of 2001 ("1st Plaintiff", "2nd Plaintiff" and collectively "Plaintiffs") against the Defendant ("Defendant") in that action, which has been consolidated with High Court Action No. 5137 of 2001 involving the same subject matter.

2. The dispute between the parties may be briefly summarised as follows. The Defendant used to be employed by the 2nd Plaintiff as a senior employee; and at the material times, i.e. in 2000, he was the Assistant Vice President Operations of the 2nd Plaintiff. The 1st Plaintiff is the ultimate holding company of the 2nd Plaintiff, both doing business in the telecommunication field.

3. Under his contract of employment, the Defendant could be sacked should he be guilty of misconduct or negligence in his duties, or if he should undertake outside employment without permission of his employer. In a separate document also containing terms relevant to his employment, the Defendant agreed that during his employment he would not without authorisation use or disclose to any outsider any confidential company information, he would not solicit the business of any of the Plaintiffs' customers for the benefit of an enterprise competing with the Plaintiffs and with which the Defendant or someone reporting to the Defendant was materially involved on behalf of the Plaintiffs, and he would not be employed by or have any ownership interest exceeding 1% in any business enterprise in direct competition with any of the Plaintiffs' businesses. Further, as a matter of general law, the Defendant owed to his employer an implied duty of good faith and fidelity.

4. In July 2000, the Defendant was given a so-called "golden handcuff" payment of HK$3,507,840 (i.e. US$450,000) by the 2nd Plaintiff pursuant to an agreement with the 1st Plaintiff, under which, however, the payment would be repayable by the Defendant to the Plaintiffs upon (inter alia) his dismissal for misconduct prior to 1st July 2002.

5. The Defendant was dismissed by the Plaintiffs with effect from 8th December 2000 because of alleged misconduct, namely, that he had during his employment with the 2nd Plaintiff established and operated a business known as "Blue Telecom", an internet and data provider set up to serve e-business in the Asia Pacific region, which was in competition with the 2nd Plaintiff.

6. Therefore in these consolidated actions, the Plaintiffs sue the Defendant for the recovery of HK$3,507,840 paid to the Defendant under the above circumstances, together with interest and costs.

7. At the hearing, Mr. Jat, counsel for the Plaintiffs, submitted that the Plaintiffs' case against the Defendant on the alleged misconduct relating to Blue Telecom is overwhelming. He said the Plaintiffs' investigations revealed that Blue Telecom was a business set up by the Defendant with a number of senior employees and a contractor of the Plaintiffs in direct competition with the 2nd Plaintiff in various Asian countries. There was a detailed investigation report prepared by the Plaintiffs placed in evidence before me. The transcripts of interviews of those involved, including the Defendant, were placed before me. And also exhibited as evidence for the purpose of the hearing was the contemporaneous correspondence between those involved.

8. Mr. Jat argued that the Defendant's story or explanation, namely, that Blue Telecom was a legitimate customer of the 2nd Plaintiff belonging to a Palitha Thenuwara ("Palitha") and a Rosa Chang, and that the Defendant had with the express or tactic approval of the senior management of the 2nd Plaintiff provided services including installation of the Plaintiffs' services to Blue Telecom, which were similar to services provided by him to many other customers of the Plaintiffs, simply cannot stand together with all this hard evidence, and is totally unbelievable.

9. In particular, during submission, Mr. Jat drew my attention to a number of e-mails and other contemporaneous documents, with a view to making good his point that the Defendant's story is incredible. He said they show very clearly that the Defendant together with three other senior employees and a contractor of the Plaintiffs, namely, Fred Moss ("Moss"), John Broadway ("Broadway"), Tatsuo Natsukawa ("Natsukawa"), and Paul Penfold ("Penfold"), were very much involved in setting up and directing Blue Telecom's operations, and indeed the Defendant was the "leading light" amongst these people.

10. The documents and correspondence show or suggest, among other things, that in February 2000, the Defendant gave orders to Natsukawa to register a domain name for Blue Telecom, that the Defendant together with the other people involved all had e-mail addresses with Blue Telecom, that in July 2000 the Defendant was sent draft contract documents of Blue Telecom by Moss, that Moss sent the Defendant and others involved an e-mail about a supplier supplying equipment to Blue Telecom, that the Defendant was involved actively in attempting to get business from a third party known as Bloomberg for Blue Telecom, that in September 2000 e-mails were circulated between those involved including the Defendant relating to setting up a new office for Blue Telecom in Japan, setting up a telephone system for these individuals concerning Blue Telecom's operation, preparing business forms and literature of Blue Telecom, setting up an office of Blue Telecom in Korea, and printing of Blue Telecom market literature and even T-shirts, that the Defendant was briefed by Penfold of a meeting attended by Penfold for Blue Telecom with a third party, that the Defendant was asked for instructions by and gave instructions to Penfold with regard to Blue Telecom's operations, that the Defendant was copied with a Blue Telecom business plan, that apparently the Defendant was described as the President and CEO of Blue Telecom in a document called "Key Management Profiles" subsequently obtained from Moss, that Moss wrote to him and the others involved about his idea for customer support for Blue Telecom, and that the Defendant was the person dealing with a potential customer in Indonesia about placing a purchase order for Blue Telecom in November 2000.

11. The documents exhibited also show that neither Rosa Chang nor Palitha was copied in these e-mails and correspondence even though they all concerned Blue Telecom's business and operation, and when they were the supposed owners of Blue Telecom. Furthermore, in November 2000, the Defendant transferred his and his wife's shares in a shelf company registered in Hong Kong to Rosa Chang after changing its name to Blue Telecom Limited. In the exhibits, there were copy Blue Telecom business cards of Moss, Natsukawa and Penfold.

12. On the other hand, the Defendant maintained in pleading and in his affidavits filed in these proceedings that his involvement in Blue Telecom was totally innocent. He claimed that Blue Telecom was set up on condition that it bought "backbone network" from the Plaintiffs and that the Plaintiffs' executives were aware of the circumstances, that Blue Telecom was a legitimate customer of the Plaintiffs, buying the Plaintiff's services and reselling them and there was nothing special about what Blue Telecom was doing, that the services provided by the Defendant to Blue Telecom were similar to services that he had provided to other customers of the Plaintiffs for years and were approved by the Plaintiffs, that he only offered to rename a shelf company he owned in Hong Kong for many years and then transferred it to Rosa Chang, a long-time friend of his, after Blue Telecom faced unexpected delay in registering in Japan, that he resigned his directorship in the shelf company and transferred his shareholding to Rosa Chang after the change of name and he had no interest in Blue Telecom Limited, that there were (company) political reasons for his dismissal, that Blue Telecom was not undercutting the Plaintiffs but was reselling the Plaintiffs' services and adding value to them, and that he and Penfold had fallen out with each other for reasons not concerned with this case and that was why Penfold made false allegations against him regarding Blue Telecom to the Plaintiffs which led to the investigations.

13. The Defendant through Mr. Bell, his counsel, argued that of those interviewed by the Plaintiffs, he and Moss denied all allegations of misconduct, Young and Natsukawa actually said things in support of his case, Penfold had more than enough reasons to frame him, whereas Palitha was confused or lying.

14. Mr. Bell also submitted that the document called "Key Management Profiles" subsequently obtained from Moss did not say at all that it related to Blue Telecom, and in any event he denied that his client was the (unnamed) President and CEO described in the document.

15. Mr. Bell agreed with Mr. Jat that they are two main issues in this case, namely, what was the involvement of the Defendant in Blue Telecom, and whether Blue Telecom was in competition with the business of the Plaintiffs.

16. Mr. Bell submitted that on these two issues, his client has an arguable case. He said his client has answered all the points raised against him in the affirmation evidence filed by the Plaintiffs in support of the present application, but as regards those points argued by Mr. Jat during submission that were based on the exhibited documents and not specifically raised as allegations in the affirmation evidence filed by the Plaintiffs, it would be unrealistic or unfair to expect the Defendant to have been able to anticipate the points and supply answers or explanations to them in advance. In relation to the second issue, Mr. Bell relied on the Defendant's affidavits to say that in fact Blue Telecom was not in competition with the Plaintiffs at all.

17. The applicable principles in an Order 14 application are well-known and may be easily found in Hong Kong Civil Procedure 2002 Vol. 1 para. 14/4/1 et seq., and there is not much point in my repeating them here, save to say that I have taken them into account. In particular, I find the following passages in Man Earn Limited v Wing Ting Fong [1996] 1 HKC 225, 228 and Re Safe Rich Industries Limited Civ. App. No. 81 of 1994 (3/11/94) respectively to be good reminders of the Court's role in this type of applications:

"Unless it is obvious that the defence put forward by the defendant is 'frivolous and practically moonshine, O 14 ought not to be applied': see Codd v Delap (1905) 92 LT 510, per Lord Lindley at 511.

For those who may believe that these sentiments are outdated, a salutary reminder is provided in Crown House Engineering v Amec Projects Ltd (1990) 6 Const LJ 141, where at 154, Bingham LJ says this:

' ... Order 14 is for clear cases; that is, cases in which there is no serious material factual dispute and, if a legal issue, then no more than a crisp legal question as well decided summarily as otherwise. ... The procedure is entirely inappropriate where the plaintiff's entitlement to recover any sum is the subject of any serious dispute, whether of law or fact. This is not to say ... that a defendant with no or no more than a partial defence can cheat a plaintiff of his just deserts by producing hefty affidavits and voluminous exhibits to create an illusion of complexity where none exists. Where the point at issue is at heart a short one the court will recognize the fact and act accordingly no matter how bulky its outer garments. But it does mean that where there are substantial issues of genuine complexity the parties should prepare for trial ... rather than dissipate their energy and resources on deceptively attractive short-cuts.'

I would express the hope that those practitioners, of whom there are too many, who appear to be prepared to advise every client with what seems to be a good case to invoke this extraordinary procedure, without reflecting on the fact that, if the attempt fails, the result will be to keep the plaintiff out of the judgment to which he may well be entitled for far longer than would have been the case if they had concentrated, instead, on bringing the matter to trial, will in future think twice before giving such advice." (per Godfrey J.A., as he then was, in Man Earn)

"The test at the summary stage is indeed as simple as whether the defendant's assertions are believable. But it must be recognised - because failure to recognise it would create a debt-dodgers' charter - that whether the defendant's assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute." (per Bokhary J.A., as he then was, in Re Safe Rich)

18. For my part, I can see the strength of the Plaintiffs' case as disclosed by the exhibited documents and correspondence. They suggest strongly that the Defendant's involvement in Blue Telecom was much more than that of normal provision of services to a customer. His involvements in T-shirts of Blue Telecom at one extreme and draft contract documents of Blue Telecom at the other as demonstrated by the correspondence point towards heavy involvement on his part in Blue Telecom's business and operation and suggest personal interest in Blue Telecom and its business. Another key player in the team, Moss, actually had a Blue Telecom business overview plan found stored in his personal computer and as I mentioned above he had a business card of Blue Telecom. It is true that the Defendant has not been found to have any business card of Blue Telecom, but his very close involvement with Moss as a team running or operating Blue Telecom or directing its running and operation does not inspire much confidence in his story about his connection with the company.

19. But I must remind myself, as Mr. Bell reminded me during submission, that I must not conduct a mini-trial on affidavits. My function in this application is to see whether the Defendant has shown an arguable case, or put another way, whether his story is totally unbelievable or incredible; or whether there exists some other reason for trial. Mr. Jat agreed with me during submission that so far as the Defendant is concerned, there is no "direct" evidence of his interest or ownership in Blue Telecom, such as a business card. Before the shelf company was renamed Blue Telecom Limited, it was indeed beneficially owned by the Defendant. But then there was no evidence that the company was involved in Blue Telecom's business and operation at that stage. After the name was changed, and the shelf company became Blue Telecom Limited, the Defendant duly transferred his shares to Rosa Chang and resigned from his directorship in the company. Mr. Jat accepted that in those circumstances the company itself does not form a piece of direct evidence of the Defendant's interest or ownership in Blue Telecom.

20. What Mr. Jat in effect asked me to do is to draw inferences from the correspondence and documents against the Defendant, a task that is usually performed by a trial judge. Of course, if the inference was an irresistible one, I suppose there should be no objection for the Court hearing an Order 14 application to draw it from the evidence, bearing in mind always that no mini-trial on affidavits should nonetheless be conducted. But in my judgment, anything short of that would not do.

21. In my judgment, whilst the Plaintiffs may legitimately consider that their case against the Defendant is reasonably strong on the evidence, I would not say that the Defendant's story is totally unbelievable or incredible, so much so that he should be denied a trial where he can really test the strength of the Plaintiffs' evidence and cross-examine those whose evidence the Plaintiffs rely on in support of their case against the Defendant, and where he may if he so wishes go to the box and explain on oath his case and be cross-examined on all matters that the Plaintiffs rely on to prove their allegations. In other words, I am not minded to grant summary judgment in favour of the Plaintiffs against the Defendant.

22. That said, I must confess that I was at more stage than one very tempted to accede to the Plaintiffs' application. Put another way, I was prepared very nearly to give judgment for the Plaintiffs, and I do find the defence rather shadowy. Many of the points made by Mr. Jat based on the correspondence and documents exhibited were obvious matters or points crying for an explanation, if one could be supplied, even though they were not specifically referred to in the supporting affirmations filed on behalf of the Plaintiffs. Yet the Defendant did not respond to them in his affidavits. An obvious example one can immediately think of is the e-mail about Blue Telecom T-shirts. Why on earth were the Defendant and the others involved in the printing of Blue Telecom T-shirts and what legitimate concern could they have over the T-shirts? And as regards the Blue Telecom business cards of Moss and Natsukawa, both senior personnel of the Plaintiffs, which evidence their undeniable interest or involvement in Blue Telecom, was the Defendant aware of these at the material time? And if he was, why did he continue to deal with Blue Telecom without informing the Plaintiffs' management of the involvement of their senior staff in a customer company? And in the light of the correspondence, is it really possible for the Defendant to deny knowledge of these business cards or Moss' and Natsukawa's real involvement in Blue Telecom? And if they had personal interests in Blue Telecom, can the Defendant realistically suggest that he had none?

23. None of all this, picked by me randomly as examples only, was dealt with or satisfactorily dealt with by the Defendant in his two affidavits. Mr. Bell said the Defendant would put forward his case on the alleged misconduct in greater detail in a rejoinder to be filed by him. I would have thought that regardless of the state of the pleadings, it is for a defendant in defending a summary judgment application to condescend on particulars and meet his opponent's case as best he can so as to demonstrate an arguable defence or some other reason for trial. I find the idea of leaving something else to be pleaded in a rejoinder to be rather surprising as a way to defend an Order 14 application.

24. As regards whether the business of Blue Telecom was in direct competition with the Plaintiffs', I am far from satisfied that this was not so based on the bare allegation of the Defendant.

25. In the light of my above conclusion that the Defendant should be given leave to defend, I refrain from going into the dispute or issues between the parties in any greater detail lest it might affect the future conduct of the case.

26. However, for present purpose, I must indicate that on the whole, I am far from being impressed by the defence put forward or the way it has been presented. In the exercise of my discretion, I consider that a condition of payment into court should be imposed.

27. As to the amount of payment in, I note that this is entirely in my discretion based on the whole of the circumstances of the case. As I said, the Plaintiffs' claim is for slightly over HK$3.5 million. This is by no means a humble amount, but on the other hand despite the Plaintiffs' application for summary judgment or alternatively interim payment, the Defendant has not put in any evidence of his financial means or any difficulties in relation to the same.

28. I should mention that the Defendant has a counterclaim against the Plaintiffs. Part of the counterclaim relating to payments and damages based on (alleged) wrongful dismissal will stand or fall together with the defence. The rest, namely, the claim for unliquidated damages for breach of an implied duty on the part of the employer to maintain a relationship of trust and confidence, slander and the 2nd Plaintiff's alleged wrongful requirement of the Defendant to become involved in illegal practices in conducting the Plaintiffs' business in Asia, may survive independently, in whole or in part, even with the collapse of the defence. I bear in mind the counterclaim and the potential amount of damages that may be recovered by the Defendant against the Plaintiffs in case of success, in determining the appropriate amount of payment in.

29. Looking at the matter in the round, and in the exercise of my discretion in the matter, I fix the amount of payment in at HK$2.5 million.

30. In short, I order that leave be granted to the Defendant to defend the Plaintiffs' claim in the consolidated actions, on the condition that the Defendant shall pay into court a sum of HK$2.5 million within 28 days from the date this judgment is handed down, failing which the Plaintiffs shall be at liberty to enter final judgment against the Defendant for the sum of HK$3,507,840 together with interest thereon at the rate of 5% per annum from the date of Writ to the date of judgment and thereafter at the judgment rate until full payment and costs of their claim in the consolidated actions to be taxed if not agreed.

31. I make no order regarding the Plaintiffs' alternative application for interim payment.

32. The parties have not addressed me on directions for the further conduct of the case. I do not see fit to give any, but would simply give the parties liberty to apply for directions.

33. As regards costs, I make an order nisi that if the Defendant complies with the aforesaid condition, the costs of and occasioned by the Plaintiffs' application for summary judgment or alternatively interim payment shall be costs in the cause; and if the Defendant fails to so comply with the aforesaid condition, the Defendant shall pay to the Plaintiffs the costs of their claim in the consolidated actions to be taxed if not agreed. Unless either party applies to vary this order nisi within 14 days after the handing down of this judgment, the same shall become an absolute order.