Civil Action2011

WORLD GROUP HOLDINGS LTD AND OTHERS v. LAUCHLAN WILLIAM LEISHMAN AND OTHERS

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82069-EN-2012-06-07

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HCA 1779/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1779 OF 2011

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BETWEEN
	WORLD GROUP HOLDINGS LIMITED	1st Plaintiff
	USA DIRECT LIMITED	2nd Plaintiff
	LONDON DIRECT LIMITED	3rd Plaintiff
and
	LAUCHLAN WILLIAM LEISHMAN	1st Defendant
	SOVEREIGN (CHINA) LIMITED	2nd Defendant
	BERKELEY CAPITAL GROUP LIMITED	3rd Defendant
	(By Original Action)
AND BETWEEN
	LAUCHLAN WILLIAM LEISHMAN	1st Plaintiff
	SOVEREIGN (CHINA) LIMITED	2nd Plaintiff
	BERKELEY CAPITAL GROUP LIMITED	3rd Plaintiff
and
	WORLD GROUP HOLDINGS LIMITED	1st Defendant
	USA DIRECT LIMITED	2nd Defendant
	LONDON DIRECT LIMITED	3rd Defendant
	CAMERON WILLIAM MITCHEL	4th Defendant
	DONALD - OATES
	(By Counterclaim)
------------------------

Before : Hon Poon J in Chambers

Date of Hearing : 23 May 2012

Date of Decision : 23 May 2012

Date of Reasons for Decision : 7 June 2012

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REASONS FOR DECISION

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Introduction

1. The plaintiffs are entities in the same group engaged in the business of buying and selling overseas real properties to investors. The 1^st plaintiff provides general consultancy and administrative services. The 2^nd plaintiff focuses on the sale of USA properties and the 3^rd plaintiff, sale of the UK properties.

2. The defendants are former contractors engaged by the plaintiffs as agents in respect of their property portfolio. The 1^st defendant is the sole director of the two corporate defendants.

3. In October 2011, the plaintiffs commenced the present action, claiming against the defendants for breach of contract, breach of confidence, breach of undertaking, copyright infringement and defamation.

4. On 30 January 2012, the 2^nd plaintiff obtained, ex parte, from Fung J, a preservation order in respect of the confidential materials (as defined) and ancillary orders (“the Ex Parte Order”).

5. The plaintiffs’ inter parte summons dated 30 January 2012 was returned before Deputy Judge Au - yeung on 3 February 2012. After hearing counsel, she made the following orders :

(1) The Ex Parte Order, as amended, was to be continued;
(2) An interim disclosure order concerning the plaintiffs’ confidential information (as defined) (“the Disclosure Order”);
(3) Four interim injunction orders whereby the defendants shall until 12 February 2012 and 12 August 2012 or the substantive hearing of the plaintiffs’ summons or further order, whichever is the earlier, be restrained from breaching the restrictive covenants under the non - disclosure/non - compete agreements signed by the defendants.

6. She then gave directions and adjourned the plaintiffs’ summons for substantive argument, which came before me on 23 May 2012.

7. The plaintiffs now sought continuation of the Ex Parte Order, the Disclosure Order and two of the four injunction orders made by Deputy Judge Au - yeung, which are to expire in August 2012 (“the Injunction Orders”).

8. The defendants sought to discharge the Ex Parte Order and the Disclosure Order on the ground that the 2^nd plaintiff had failed to disclose material facts tantamount to misleading Fung J at the ex parte stage; and that in any event the two Orders have been complied with and it is not necessary to continue the same. The defendants did not otherwise argue that the Ex Parte Order or the Disclosure Order was not properly granted.

9. The defendants also applied to discharge the Injunction Orders, contending that the plaintiffs had not discharged the burden of showing the merits of their case concerning whether the covenants in question are enforceable; that the plaintiffs had failed to demonstrate that damages would not be sufficient or adequate or the balance of convenience would otherwise lie in the favour of granting the Injunction Orders; and that the plaintiffs had not provided meaningful undertaking of damages.

10. After hearing counsel, I ordered the continuation of the Ex Parte Order, the Disclosure Order and the Injunction Orders and deferred the defendants’ application to discharge the Ex Parte Order and the Disclosure Order to trial. I had indicated that I would reduce the reasons for my decision into writing, which I now do.

Discussion

11. I first consider the Ex Parte Order and the Disclosure Order. As I understand their argument, although the material non - disclosure took place at the ex parte stage, the Disclosure Order, being ancillary to the ExParte Order, was also tainted by it.

12. Two points of material non - disclosure were raised.

13. First, before Fung J, the plaintiffs alleged that the 1^st defendant misrepresented that he had no criminal history when in fact he was involved in some Australian criminal proceedings concerning Mr David Morgan of Benchmark Developments, a property development company, who was prosecuted for frauds involving illegal payments made by the 1^st defendant to him. The plaintiffs obtained the relevant information from a Detective Sergeant Sheridan Heaton who had some email exchanges with Mr Cameron Donald - Oates and referred to some newspaper clippings in support.

14. Mr Maurellet, for the defendants, submitted that the plaintiffs had failed to disclose to Fung J that the emails written by Detective Sergeant Heaton did not specifically mention that the 1^st defendant was involved in the criminal activity and that the newspaper clippings did not mention the 1^st defendant’s name at all.

15. I disagreed. I have reviewed all the evidence then presented before Fung J in the round. When the email exchanges were understood in context, Detective Sergeant Heaton and Mr Donald - Oates were plainly referring to the 1^st defendant’s involvement in the criminal case concerning Mr Morgan. While it is true that the newspaper clippings did not mention the 1^st defendant’s name, it is of little moment because the primary source of information was the Detective Sergeant.

16. The second point of material non disclosure/misrepresentation taken by the defendants is this. Before Fung J, the plaintiffs relied on conversations between Mr Donald - Oates and a Mr Jack Maple since the defendants ceased working for the plaintiffs in August 2011. On the plaintiffs’ case, Mr Maple was one of the plaintiffs’ suppliers that the defendants had been soliciting. Mr Maple told Mr Donald - Oates that the 1^st defendant had admitted to him, among other things, that he had continual access to the 2^nd plaintiff’s emails and documents. Mr Maple has now filed an affidavit for the 1^st defendant, disputing that he had ever had such conversations with Mr Donald - Oates, who in turn insisted that the conversations did take place.

17. As rightly conceded by Mr Maurellet, the court is in no position to resolve the dispute of facts on affidavits, which can only be done at trial. He submitted that the discharge application based on this particular point should be deferred to trial. I agreed.

18. I next turn to the defendants’ contention that they had already complied with the Ex Parte Order and the Disclosure Order, which rendered their continuation otiose, which can be disposed of shortly.

19. When the plaintiffs obtained the Ex Parte Order, the evidence presented to Fung J was rather alarming. The 1^st defendant had continued unauthorized access to the 2^nd plaintiff’s management email system, which contained highly confidential business information including the entire blueprint of the 2^nd plaintiff’s business, since his departure on 13 August 2011 up to 18 October 2011 when the password to the system was changed.

20. The 1^st defendant now admitted that he had continued unauthorized access to the 2^nd plaintiff’s email system since departure and had deceived the plaintiffs into believing that he had already deleted all such accesses when he left the plaintiffs. He put up the lame excuse that he was concerned as to how the plaintiffs had dealt with departing employees/contractors and wanted to protect the defendants by so conducting himself. His commercial morale is very low indeed. In my view, it is too risky to discharge either of the Ex Parte Order or the Disclosure Order simply because he had asserted that there was full compliance, which is not accepted by the plaintiffs insofar as the Disclosure Order is concerned. Without the Ex Parte Order, there is indeed a real risk that the defendants might just continue the acts complained of.

21. For the above reasons, I refused to discharge the Ex Parte Order and the Disclosure Order and ordered the application to be deferred to trial.

22. I now come to the Injunction Orders. They read :

“3. The Defendants shall : -
…
(c) Until 12 August 2012 or the substantive hearing of the Plaintiffs’ summons filed on 30 January 2012 or further order of the Court, whichever is the earlier, be restrained from (whether by themselves, their servants, agents or otherwise) directly or indirectly soliciting, inducing, enticing, procuring or causing any person, firm or company which is, at the time of such solicitation or enticement, a customer or contact of any the Plaintiffs who has proceeded with or is in the process of proceeding with the purchase of one or more of the Plaintiffs’ overseas properties (‘Purchasing Customer’), or otherwise facilitating the taking away of business of the Purchasing Customer from the Plaintiffs;
(d) Until 12 August 2012, or the substantive hearing of the Plaintiffs’ summons filed on 30 January 2012, or further order of the Court, whichever is the earlier, be restrained from (whether by themselves, their servants, agents or otherwise) dealing with or otherwise having any business dealings with any person who is a Purchasing Customer.”

23. They are based on two restrictive covenants made between the parties :

“6. NON – SOLICITATION OF CLIENTS
A. ...
B. The Contractor hereby covenants and undertakes that it shall not during its appointment nor for a period of twelve (12) months immediately following the termination of its appointment with the Company for whatever reason whether on the Contractor’s own behalf or in conjunction with or on behalf of any other person or business entity or organization whether as an employee, director, principal, agent, consultant or in any other capacity whatsoever directly or indirectly solicit, induce, entice, procure or cause any person, firm or company which is, at the time of such solicitation or enticement, a Purchasing Customer of the Company, or otherwise facilitate the taking away of business of the Purchasing Customer from the Company.
C. For the purpose of this Agreement, a ‘Purchasing Customer’ is a customer or contact of the Company who has proceeded with or is in the process of proceeding with the purchase of one or more of the Company’s overseas properties that is makes available to its customers, potential customers and contacts of the Company, and who is therefore of greater importance and value to the business of the Company.
7. …
8. NON – DEALING
A. ...
B. The Contractor agrees that it will not during its appointment nor for a period of twelve (12) months immediately following the termination of the Contractor’s appointment for whatever reason whether on its own behalf or in conjunction with or on behalf of any other person or business entity or organization whether as an employee, director, principal, agent, consultant, or contractor deal with or otherwise have any business dealings with any person who is a Purchasing Customer.”

24. Mr Maurellet submitted that the plaintiffs had failed to show that the restrictive covenants in question are enforceable. As I understand his submissions, he did not seek to argue that the evidence now before the court points strongly to breach of the covenants.

25. Mr Maurellet submitted that Clauses 6B and 8B have no geographical limitation. The plaintiffs pleaded that they engaged in the business of buying and selling overseas properties. But the 60 Purchasing Customers identified by them had only purchased their properties situated in the USA and the UK, which are areas targeted by the 2^nd and 3^rd plaintiffs. The Clauses are evidently wider than sufficient in seeking to protect the plaintiffs’ legitimate interest.

26. In my view, the plaintiffs’ businesses are partly client - based and partly property - based. So while the properties covered by their businesses are mostly situated in the USA and the UK, it does not necessarily follow that their clients are also situated in these two countries only. In fact, given the nature of their businesses, their customers may well come from different parts of the world. It is therefore reasonable not to impose any geographical limitation.

27. Mr Maurellet next submitted that there is no precise definition of “business dealings” in Clause 8B. It means that the defendants simply could not engage in any sort of business dealings even in business which does not concern the buying and selling of properties or businesses engaged by the plaintiffs. The scope is accordingly wider than necessary in seeking to protect legitimate business interest of the plaintiffs.

28. I disagreed. The advantage of a clause like Clause 8B is that in order to establish a breach of a non - dealing covenant, the ex - employer does not have to establish that it was the ex - employee who solicited the customer. For it is all too easy for the ex - employee to assert that the customer approached the ex - employee (without solicitation by him). This is difficult for the ex - employer to disprove, particularly when the ex - employee and the customer are friendly. See Brearley & Bloch, Employment Covenants and Confidential Information : Law, Practice and Technique. I rejected Mr Maurellet’s submission.

29. Mr Maurellet then submitted that the balance of convenience lied in favour of the defendants. However, I accepted Mr Lo’s submission that the balance clearly lied in favour of the plaintiffs. Damages are plainly not an adequate remedy. When a customer is lost, he is lost. It would be difficult to quantify the loss and damage suffered.

30. Finally, I rejected Mr Maurellet’s submission that the undertakings as to damages are not sufficient. The evidence presented before me shows that the plaintiffs are financially capable of giving a meaningful undertakings as to damages.

Conclusion

31. For the above reasons, I made the order as I did.

(J Poon)
Judge of the Court of First Instance
High Court

Mr Benny Lo, instructed by Reed Smith Richards Butler, for the 1^st to 3^rd plaintiffs (By Original Action)

Mr Jose – Antonio Maurellet and Ms Connie Lee, instructed by Tanner De Witt, for the 1^st to 3^rd defendants (By Original Action)

80215-EN-2012-02-03

WORLD GROUP HOLDINGS LTD AND OTHERS v. LAUCHLAN WILLIAM LEISHMAN AND OTHERS

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HCA 1779/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1779 OF 2011

-----------------------------

BETWEEN

	WORLD GROUP HOLDINGS LIMITED	1^st Plaintiff
	USA DIRECT LIMITED	2^nd Plaintiff
	LONDON DIRECT LIMITED	3^rd Plaintiff
and
	LAUCHLAN WILLIAM LEISHMAN	1^st Defendant
	SOVEREIGN (CHINA) LIMITED	2^nd Defendant
	BERKELEY CAPITAL GROUP LIMITED	3^rd Defendant

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Before : Deputy High Court Judge Au-Yeung in Chambers

Date of Hearing : 3 February 2012

Date of Decision : 3 February 2012

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D E C I S I O N

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1. The plaintiff applies for (A) a preservation order concerning confidential materials; (B) ancillary disclosure order against the defendants in respect of confidential materials; and (C) continuation of an interim injunction restraining the defendants from breaching the provisions of the non-disclosure/non-compete agreements signed by the defendants. The preservation order has been dealt with after discussion. The question is whether, pending the substantive hearing of the plaintiffs' application, I should make an interim disclosure order and continue the interim injunction of accepting an undertaking from the defendants.

2. The plaintiffs are entities in the same company group engaged in the business of buying and selling overseas real properties to investors. The defendants were former contractors engaged by the plaintiffs as agents in respect of the plaintiff's property portfolio. D1 is the sole director of both D2 and D3.

3. On the 13 August 2011, the independent contractors contract was terminated. Those contracts contained non-disclosure of confidential information clauses.

4. The defendants are said to have access to the confidential information of the plaintiffs after termination of the contract. They also appeared to have contacted two of the plaintiffs’ exclusive third-party agents and have set up and are carrying on a competing property business in Hong Kong through D3.

5. The plaintiffs commenced this action for breach of contract, breach of confidence and torts committed by the defendants during and/or after their termination as contractors. In amending the writ, the plaintiffs further sued in breach of undertaking, copyright infringement and defamation.

6. On 30 January 2012, the plaintiffs obtained, on ex parte basis, a preservation order from Fung J concerning materials comprising P2’s confidential information which the defendants wrongly had access to since termination of the contractual relationship. The ex parte order was served on Hamilton Brand, Plaintiffs’ e-mail service provider and an entity mentioned in paragraph 3(2) of the ex parte order, on the following day.

7. On 1 February, 2012, the plaintiffs solicitors received information from Hamilton Brand showing that D1 had contacted that entity on 31 January and 1 January by e-mail and by phone:

(i) informing him that the defenders will transfer their IT services elsewhere; and
(ii) requesting access to “DNS records/ MX records” and “administration details for the above rights to log in and change the records”.

8. Such contact showed an attempt by the defendants to breach paragraph 3(2) of the ex parte order because gaining access to the relevant MX records (concerning the defendants e-mail accounts) would make it possible that the records contained in the archive repository could be tempered with or deleted. It was also confirmed by server access logs kept by Hamilton Brand that there had been successful access to the plaintiffs’ management accounts. The un-authorised accesses to e-mails were over 14,000. The e-mails contained confidential information and trade secrets.

9. P2 seeks an ancillary disclosure order compelling the defendants to disclose full details of the un-authorised access to e-mails in their possession custody or power since their termination on 13 August 2011. Such an order is said to be urgently required by the plaintiffs to identify any third parties who may have (through the defendants) wrongfully received the confidential information such that urgent curative measures might be put in place and additional third parties named as defendants.

10. The plaintiffs also seek for continuation of the interim injunction against the defendants on the ground that there was evidence of breach of the non-disclosure agreement which bars the defendants from dealing with the supplier, agent, customers for periods ranging from 6 to 12 months

The disclosure order

11. Mr Chau for the defendants contend that:

(i) there is no urgency to make the disclosure order today and should be left to the substantive hearing;
(ii) the scope of the order sought is too wide and failed to follow the standard terms for disclosure orders as set out in PD 11.2;
(iii) the plaintiff should not be permitted to have early discovery/inspection of documents.

12. Mr Chau suggests that there is no urgency in making an interim preservation order now but only after arguments. A tight timetable for filing of evidence and hearing can be imposed. I do not think this is realistic. The supporting affidavits which the defendants need to answer are hefty.

13. The plaintiffs are involved in the business of buying and selling of properties. The information is time sensitive. By its nature, the confidential information, once disclosed to third parties, will lose its confidentiality and cause damage to the plaintiffs. The clientele will be lost. Urgency is demonstrated.

14. A disclosure order can be made in aid of the preservation order. I accept that this application is not for early discovery or inspection but with a view to ascertaining persons to whom the confidential information might have been disclosed, such that those third parties might be made defendants if necessary. In CSAV Group (Hong Kong) Ltd v Jamshed Safdar, unrep, CACV133/2006, 28.4.2006, Rogers VP, the Court of Appeal upheld the disclosure order made in aid of the preservation order. The Court of Appeal, however, refused to allow inspection and taking of copies.

15. The disclosure order should be framed in clear terms that should leave a defendant in no doubt of what he has to disclose and that the ambit must not be too wide as to be oppressive. The complaint that the proposed terms of the disclosure order do not follow the standard terms in PD 11.2 can be dealt with easily. The standard terms (paragraph 5 under “disclosure of information by the defendant”) are just the starting point which can be adjusted as and when the case requires. The standard terms require a defendant to state where the listed items are, those to whom he has supplied those listed items, and the names and address of everyone to whom he has supplied the listed items, full details of the dates and quantities of every such supply.

16. I am satisfied that the plaintiffs are not asking beyond what is standard and justifiable with the terms as amended by me. The defendants are required to do no more than disclose whether and what confidential information they have disclosed or supplied to third parties and to ascertain the current whereabouts of the confidential information. They are not required to disclose how else they themselves have used the confidential materials at this stage. That might be a matter for future discovery. Nor are they required to contact the third parties to ascertain how the confidential materials have been used by them.

The interim injunction

17. The only issue is whether or not the terms of the interim injunction should continue in the form of an order or undertaking. Mr Chau submits that an undertaking and an injunction are, in effect, the same thing. Yet, an injunction might create future procedural problems as it might be more difficult to set aside. An undertaking is more suitable in view of the fact that there will be a substantive hearing for arguments.

18. The evidence points strongly to breach of the contracts. The defendants had contacted the exclusive agents is engaged by the plaintiffs to provide ancillary services to the plaintiff's customers, trying to convince those exclusive agents to work for the defendants instead of the plaintiffs and sought to persuade them to deliver future clients to the defendants and not P2 for financial reward. The defendants had interfered with a purchase contract under which the purchasers allowed their deposit to be forfeited and became uncontactable thereafter. Further, D1 wrongly accessed P2’s management account without authority, and commented on the plaintiffs being “stupid” not to have changed the code of access to those of management accounts.

19. The defendants were bound by the nondisclosure agreement. On termination of the contract, D1 had deceived the plaintiffs into believing that he did not possess the plaintiffs’ confidential information. Despite the plaintiffs’ reminder by letter dated 16 August 2011 of the defendants’ non disclosure obligation and the defendant’s confirmation on 26 September 2011 and undertaking not to breach the non-solicitation and nondisclosure agreements, that undertaking had been breached.

20. I agree with Mr Lo that the defendants’ word is not to be trusted. In my view, the proper thing to do is to continue with the interim injunction instead of accepting an undertaking from them. I therefore grant an order in terms of paragraph 3 of the plaintiffs summons with the slight amendment that the injunction shall continue until the contractual date of expiry of the restraint clause, “or the substantive hearing of the plaintiffs summons, or” further order of the court, “whichever is the earlier”.

Order

21. With regard to the plaintiffs’ summons, I order that:

(1) The Order made by the Honourable Mr. Justice Fung on 30 January 2012 upon the 2^nd Plaintiff’s ex parte application herein be continued and shall remain in force until the conclusion of trial or further order of the Court; subject to the revisions as handed up this morning as further revised by me. All other respect of Schedule 3 to the Order shall remain unaltered.
(2) The Defendants shall, within 21 days of the Order to be made herein, file and serve on the Plaintiff’s solicitors an affidavit or an affirmation giving:-
(i) The date, time, quantity, author and recipient of all documents, emails and other printed and non-printed materials (including those stored electronically, on microfilm or by any other means) that are or have been in the possession, custody, power or control of the Defendants since 13 August 2011 which contain “Confidential Information”, classified in accordance with the categories in Schedule 3 (collectively, “Confidential Materials”);
(ii) Full particulars of any disclosure and/or supply by the Defendants of each item of the Confidential Information and/or Confidential Materials since 13 August 2011, identifying in relation to each item:
(a) The dates on which the particular item of Confidential Information and/or Confidential Material was disclosed or supplied;
(b) The identities and addresses of the persons to whom the particular item of Confidential Information and/or Confidential Material have been disclosed and/or supplied and the medium by which such disclosure and/or supply was made;
(c) …
(d) Insofar as it is known to the defendants, the current whereabouts of the particular item of Confidential Information and/or Confidential Material identified above including whether it has been incorporated into any electronic record systems, if any, and the identity of the owners of such systems;
(3) The date, time, quantity, author and recipient of any item of the Confidential Information and/or the Confidential Materials that has been copied and/or adapted by the Defendants and full particulars as to the use to which such copies and/or adaptations have been put giving the names and addresses of any persons to whom the Defendant supplied, or offered to supply, such copies or adaptations.

Costs

22. The preservation order has been dealt with after discussion of the parties. There have been variations to the terms of the ex parte order. Whilst I appreciate the efforts of the defendants in trying to discuss with the plaintiffs on varying the terms of the preservation order, the time available since grant of the ex parte preservation order until today was too short for a consent summons to be signed to dispense with hearing of this part of the plaintiffs’ application. I therefore ordered that costs should be in the cause of the action.

23. The defendants have resisted, without success, the application for interim disclosure order and continuation of the injunction. It is true that the terms of the disclosure order have been modified in the course of the arguments. However the plaintiffs are eventually able to convince me that there is sufficient urgency to make an interim order to day. I consider it appropriate to order the costs in relation to these two limbs of the application to be the plaintiffs’ costs in the cause of the plaintiffs summons.

(Queeny Au-Yeung)
Deputy High Court Judge

Mr Benny Lo, instructed by Reed Smith Richards Butler, for the 1^st to 3^rd Plaintiffs

Mr Jeffrey Chan, instructed by Tanner De Witt, for the 1^st to 3^rd Defendants