WILLWIN DEVELOPMENT (ASIA) CO LTD AND ANOTHER v. WEI XING AND OTHERS

HCA 797/2012

[2021] HKCFI 2933

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 797 OF 2012

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_________________

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JUDGMENT

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Introduction

1.  On 8 April 2020, Master J Wong handed down his decision (“Accounts Decision”) upon the taking of accounts in which he made the following orders:

(1) All three Defendants shall pay the 1st Plaintiff US$500,749.03 (US$603,312.09 x 83%), being accounts of profits for diversion of business (“Profits Order”).

(2) The 1st Plaintiff fails to prove and/or quantify any sum of misappropriation by any of the three Defendants (“Withdrawn Sums Order”).

(3) The 1st Defendant shall pay the 1st Plaintiff US$12,678 and RMB3,000 being ICS receivables.

(4) Interest on the said sums of US$500,749.03, US$12,678 and RMB3,000 will carry interest at 4% per annum from the date of service of the writ herein until judgment and thereafter at judgment rate until full payment (“Interest Order”).

2.  This is the 1st Plaintiff’s appeal against the Profits Order and the Withdrawn Sums Order.

3.  The taking of accounts by Master J Wong was conducted following a Judgment (“Trial Judgment”) handed down by Mimmie Chan J on 8 March 2016 in favour of the 1st Plaintiff against the 1st Defendant (“Xing”), the 2nd Defendant (“ESL”) and the 3rd Defendant (“Ying”). 

4.  The 1st Plaintiff is a company incorporated in Hong Kong in 2004.  Its shares were held as to 70% by the elder brother of Xing viz Wei Wen (“Wen”) and as to 30% by Xing.  The 1st Plaintiff was engaged in the sale and provision of test fixtures, test systems, test equipment and test instruments for electronic and computer hardware products and the supply of related technical services to clients primarily outside Mainland China.  Xing and his wife Ying were former directors of the 1st Plaintiff. 

5.  In this Action, the 1st Plaintiff claimed that Xing and Ying, as directors, acted in breach of their fiduciary duties, and, as employees of the 1st Plaintiff, acted in breach of their duties of fidelity, when they transferred confidential information belonging to the 1st Plaintiff and diverted business opportunities from the 1st Plaintiff to ESL and used ESL to carry on a business in competition with the 1st Plaintiff’s business.  The 1st Plaintiff claimed that the Defendants had used confidential information belonging to it, that ESL had dishonestly assisted Xing and Ying and that Ying had dishonestly assisted Xing’s breaches of duties.  In addition to the aforesaid, the 1st Plaintiff also claimed that the Defendants had passed off their business as and for its business. 

6.  Further, the 1st Plaintiff claimed that, in the course of their employment with or directorship of the 1st Plaintiff, Xing had withdrawn from the 1st Plaintiff’s bank account in Hong Kong a total sum of HK$1,816,000 and US$15,500 while Ying had withdrawn a sum of HK$6,290,000 and US$334,460^[1] (“Withdrawn Sums”) but failed to explain and account for what has become of them.  It is not in dispute that the sums were withdrawn by Xing and Ying. 

7.  In the Trial Judgment, Mimmie Chan J found in favour of the 1st Plaintiff on its claims for breach of fiduciary duties, breach of confidence, dishonest assistance and passing off.  By an Order of Mimmie Chan J also dated 8 March 2016, the learned Judge ordered inter alia (i) an account of the profits for such breaches (at paragraphs 1 - 3, 5 - 6) and (ii) an account of the Withdrawn Sums (at paragraph 10) (“Order”).

8.  Pursuant to the Trial Judgment and the Order, the learned Master proceeded to take account of:

(1) the wrongful profits reaped by the Defendants which culminated in the Profits Order;

(2) the withdrawn Sums which resulted in the Withdrawn Sums Order.

9.  By its Notice of Appeal, the 1st Plaintiff now invites the court:

(1) To substitute the Profits Order with a more favourable one ie an order that the 3 Defendants shall pay the 1st Plaintiff US$545,169 (US$656,830.10 x 83%).

(2) To set aside the Withdrawn Sums Order and substitute it by ordering:

(a) Xing to pay the 1st Plaintiff HK$1,816,000 and US$15,500, being sums withdrawn by him which remain unaccounted for.

(b) Ying to pay the 1st Plaintiff HK$6,290,000 and US$334,460, being sums withdrawn by her which remain unaccounted for.

(c) In the alternative to (a) and (b) above, Xing and Ying to pay the 1st Plaintiff HK$5,076,000 and US$33,000, being sums misappropriated or converted to their own use by them.[2]

(3) To vary the Interest Order accordingly if this court grants the relief at sub-paragraphs (1) and (2).

Deliberation

10.  The present appeal is different from a usual appeal against a Master’s decision in interlocutory matters in that the Master’s Orders are in the nature of final orders and are made pursuant to RHC O 44 r 11.  Hence both RHC O 44 r 12 and O 58 r 1 govern such an appeal so that:

(1) the hearing shall be in open Court unless this court directs otherwise;

(2) the notice of appeal shall state the grounds of appeal; and

(3) whereas normally an appeal from a Master’s decision is by way of an actual rehearing, on appeals under O 44 r 12, the Judge will not interfere with the Master’s findings of fact, or admit fresh evidence, except on appellate grounds.

Hong Kong Civil Procedure 2021 Vol 1 para 44/12/2

Profits Order - Grounds 1 to 3

11.  In the Accounts Decision, Master J Wong found that the gross revenue reaped by ESL arising out of transactions conducted between ESL and the following 5 clients of the 1st Plaintiff must be restored to the 1st Plaintiff upon giving ESL credit for its costs:

1	Apple Inc.	US$412,247.46
2	LG Display Co. Ltd.	US$164,900.00
3	Mektec Corporation	US$3,781.42
4	Flextronics America LLC	US$18,583.21
5	Circuit Check Inc.	US$3,800.00
TOTAL		US$603,312.09

12.  The 1st Plaintiff’s complaint, in Ground 1 and Ground 2, is that the Master should also have accepted the following 2 companies as the 1st Plaintiff’s clients and therefore should have taken into account the gross revenue reaped by ESL arising out of transactions conducted between ESL and them. 

6	Doone Tech Co Ltd (“Doone”)	US$48,826.01
7	Nissha Printing Co Ltd (“Nissha”)	US$4,692.00
TOTAL		US$53,518.01

13.  It is true that both Doone and Nissha were pleaded as the 1st Plaintiff’s clients in Annexure A to the Re-amended Statement of Claim which contains the names of 54 entities.  It is also accepted by Mr Law that that there was evidence that Doone and Nissha had done business with ESL in late 2011 and early 2012 by reference to eg the deposits made by Doone and Nissha into ESL’s bank accounts.  But as pleaded in paragraph 23A of the Re-Amended Statement of Claim, the Plaintiffs only alleged that since July 2011, Xing had been soliciting business opportunities from some of the 1st Plaintiff’s clients for his own benefit.  The fact that Doone and Nissha were pleaded as the 1st Plaintiff’s clients still necessitates the 1st Plaintiff to prove that was so.

14.  Hence, the critical question, formulated by the Master at paragraph 29 of the Accounts Decision, is (i) whether Doone and Nissha were clients of the 1st Plaintiff and (ii) did they make a contract?  If there was only evidence of enquiries and/or discussions between them that would not be sufficient. There is no suggestion from Mr Poon that the Master had erred in formulating the test in this way.

15.  At paragraph 31 of the Accounts Decision, the Master expressly stated he found no or no sufficient evidence to hold that Doone was a client of the 1st Plaintiff.  At paragraph 32 of the Accounts Decision, the Master said he preferred the submissions of Mr Chan regarding “other clients”.  Nissha fell within the category of “other clients” ie neither Apple nor Doone.  As far as Nissha is concerned, the Master recorded at paragraph 28 (4) of the Accounts Decision Mr Chan’s submission, which he accepted, that “P1 admitted that [Nissha] was not its direct client but only an end-user”.  Mr Poon had not explained in what way the Master was wrong in accepting Mr Chan’s said submission.

16.  At the hearing, this court asked Mr Poon whether he could produce 1 concluded agreement or 1 purchase order between the 1st Plaintiff and Doone / Nissha prior to July 2011, the date from which the diversion of the 1st Plaintiff’s business was said to commence, in order to show Doone / Nissha were its clients prior to the diversion.  Mr Poon, very frankly, said he could not.  At most, he could point to some emails exchanged between Doone and the 2nd Plaintiff in April 2012.  That is hardly sufficient evidence that Doone had done business with the 1st Plaintiff prior to its 2 purchase orders with ESL.  Mr Poon also confirmed there was no email exchanged between the 1st Plaintiff and Nissha evidencing any business negotiation between the two.

17.  Ground 2 of the appeal states that the Master erred on the one hand in finding, on balance, only those companies listed under Annexure A of the Re-Amended Statement of Claim, including Doone and Nissha, were clients of the 1st Plaintiff but, on the other hand, not taking into account of funds / deposits received by ESL from Doone and Nissha in calculating the profits wrongfully reaped by the Defendants through business diversion.  Mr Poon therefore submits the Master must have made an oversight in excluding the revenue generated from the 2 said companies in his taking of accounts of profits.

18.  Despite what the Master might appear to have said in paragraph 32 of the Accounts Decision that “only those companies having been listed under Annexure A are accepted by me to be client of [the 1st Plaintiff]”, it seems to this court more probably than not that it was the result of the Master’s imprecision in expressing himself rather than a finding of fact that all 54 entities listed under Annexure A were clients of the 1st Plaintiff.  Looking at paragraphs 26 to 33 of the Accounts Decision as a whole, there is no clear indication that the Master had found all 54 companies to be the 1st Plaintiff’s clients.  Otherwise, he would not have expressly rejected Doone / Nissha.  Of course, the Master could only have chosen from the pool of 54 entities in Annexure A since the 1st Plaintiff was bound by its own pleadings.  But this court is not satisfied that he had chosen all 54 of them for the purpose of taking of accounts and made the rather unlikely mistake of immediately excluding Doone and Nissha.

19.  For the above reasons, Ground 1 and Ground 2 are rejected.  Since Ground 3 is premised on this court accepting Ground 1 and Ground 2, Ground 3 is also rejected.  The appeal against the Profits Order fails.

Withdrawn Sums Order - Grounds 6 - 8[3]

20.  To start with, it is important to understand the context and the reasons upon which Mimmie Chan J ordered the taking of accounts of the Withdrawn Sums.  They were set out in paragraphs 131 to 137 of the Trial Judgment:

“Whether Xing and Ying have a duty to account for the plaintiffs’funds

131. The plaintiffs’ complaint is that between April 2008 and March 2011, Xing and Ying withdrew from WW’s bank account in Hong Kong and received respectively (in Xing’s case) the sums of HK$1,816,000 and US$15,500, and (in Ying’s case) the sums of HK$6,290,000 and US$334,460.

132. It is not disputed that the sums were withdrawn by Xing and Ying on Wen’s instructions and with his approval. … On Ying’s part, she claims that the amounts withdrawn by her had been paid over either to Wen, or to SWT, or to persons designated by Wen. On Xing’s part, he claims that he had paid such amounts withdrawn by him to Wen, ...

133. As directors and agents of WW in making the withdrawals of cash from WW’s bank accounts and in receiving the funds, it cannot be disputed that Xing and Ying had a duty to account for, and explain, how the money they received or withdrew had been used. That Wen knew or must have known of the withdrawals, and might or should have been able to ascertain from the audited accounts of WW the state of any indebtedness between SWT and WW, or between Xing and WW, does not in law absolve Xing and Ying from their duties to keep and give accurate accounts of the monies they withdrew for and received from WW.

134. In Ying’s witness statement, she originally claimed that she had paid over the amounts withdrawn by her to Wen, or to SWT. She finally admitted in her testimony in court that she had paid over some of the cash amounts to Xing, contrary to what she had stated in the witness statement.

135. As for Xing, the emails in evidence show that Wen’s instructions to Ying and Xing with regard to the cash withdrawals were either that the amounts withdrawn were to be deposited into SWT for SWT’s use, or to be given to Xing. There is also evidence that instructions for withdrawal came from Wen, following Xing’s requests for funds for specific purposes, or ‘for loans’.

136. On 15 May 2011, Wen sent to Xing by email a summary of the amounts which had been handled by Xing, with the request that Xing should verify the summary, which sets out the amounts involved, and the alleged use (such as for wages, or for specific projects) of some of the funds withdrawn. There is no evidence, or claim made, of any reply having been given by Xing, as to any matter stated in the email of 15 May 2011 and the summary. Nor is there any other evidence of any account having been given in any way by Xing, either as to the amounts stated in the said summary, or as to the amounts summarized in Annexure B to the Re-amended Statement of Claim.

137. I fail to see what defence Xing has to WW’s claim for an account as to the amounts withdrawn by him, and as to amounts paid to him by Ying out of WW’s funds. Ying likewise has to account for the sums of money she withdrew from WW, including full particulars of the individuals to whom she had given each of the sums, and the dates when the payments were made.” (emphasis added)

21.  On the basis of the above, at paragraph 10 of the Order, Mimmie Chan J ordered “an account to be taken of the sums received by the 1st and 3rd Defendants (as particularised in Annexure B to the Re-Amended Statement of Claim) pursuant to paragraph 52A of the Re-Amended Statement of Claim”. 

22.  After the taking of accounts, Master J Wong did not grant any relief (in the form of a repayment order) to the 1st Plaintiff in relation to the Withdrawn Sums, despite the same was claimed by the 1st Plaintiff.  His reasons can be found in 2 short paragraphs in the Accounts Decision. 

“45. In my view, it is true that the state of evidence regarding misappropriation, as far as WW is concerned is very unsatisfactory, especially in light of the relation of Wen, Xing and Ying as well as the fact that the matters happened years ago. It is difficult, if not impossible, for WW to prove misappropriation, as observed by the Trial Judge as per paragraphs 132 and 150 of the Judgment.

…

47. To recap, as the evidence before me are more or less the same as appeared before the Trial Judge, I do not think that WW has satisfied its burden to prove on balance any misappropriation. In short, on balance, as the Trial Judge did, I also cannot be satisfied of any proof of damages under this head because there are so many uncertainties.” (emphasis added)

23.  In this court’s view, what the learned Master had erred was that he had conflated the 1st Plaintiff’s claim for an account of the Withdrawn Sums and its claim for misappropriation.  The former was dealt with in paragraphs 131 to 137 of the Trial Judgment quoted above in which liability to account on the part of Xing and Ying was established.  That resulted in paragraph 10 of the Order which had nothing to do with the misappropriation claim.  This is made abundantly clear when one looks at paragraph 52A of the Re-Amended Statement of Claim.  As for the latter, which was pleaded at paragraphs 54A and 54B of the Re-Amended Statement of Claim, Mimmie Chan J dealt with it in paragraphs 138 to 151 of the Trial Judgment.  The learned Judge’s conclusion can be found at paragraph 138 that:

“ In the absence of further evidence and prior to an account being given by Xing and Ying, I cannot find on the basis only of withdrawals having been made by Ying and Xing from WW’s bank accounts, between April 2008 and February 2011, that these amounts had been misappropriated by the defendants and should be repaid by them. …”

24.  The Master has also inexplicably erred in treating the account taking exercise as an assessment of damages of the misappropriation claim: see paragraph 47 of the Account Decision quoted above.

25.  It is elementary that claims for a general account of a fiduciary’s administration of a fund may be divided into 3 stages: the first concerns the claimant’s right to an account; the second involves the taking of the account, which ends in a settlement covering the accounting period; the third concerns consequent relief such as an order for payment: Snell’s Equity (34th ed) para 20-14.

26.  In the present case, stage 1 ie the 1st Plaintiff’s right to an account has long been decided by Mimmie Chan J in the Trial Judgment. 

27.  Stage 2 ie the taking of the account had been carried out by the Master.  When it comes to stage 2, what information and documents an accounting party must provide depends on the circumstances and should be considered at the hearing.  The essential requirement is that the beneficiaries receive sufficient material to enable them to understand the movements on the account: Snell’s Equity para 20-17.  Importantly, the burden is on the accounting parties of proving their discharge and they must be prepared to document each item.  Presumptions may be made against them if they have not kept proper records or have destroyed them.  Accounting parties are entitled to a discharge in respect of all payments and transfers necessary to carry out any of the duties and powers they are invested with.  Discharge operates in an accounting to extinguish the accountable parties’ responsibility for their receipts: Snell’s Equity paras 20-018; 20-020.

28.  In the present case, the Master had, with respect, erroneously, acted on the basis that he was dealing with the misappropriation claim, that the burden was on the 1st Plaintiff to prove misappropriation and that the state of the evidence before him was unsatisfactory.  The Master therefore concluded that the 1st Plaintiff had failed to discharge that burden and made the Withdrawn Sums Order.  Since the Master had proceeded on an erroneous basis, the Withdrawn Sums Order must be set aside. The question is what next?

29.  In this regard, it is important to note that, by reason of the unsatisfactory state of the evidence, the Master was unable to and did not conclude that Xing and Ying had provided sufficiently proper or satisfactory account of the Withdrawn Sums - what have become of the Withdrawn Sums remain unclear from the Accounts Decision.  In other words, after the prolonged account taking exercise before the Master, Xing and Ying have not succeeded in proving their discharge. 

30.  Mr Poon submits that this is not a case where a fiduciary fails to give satisfactory account despite having used his best endeavors.  Xing and Ying, who attended the hearing for cross-examination, were expressly found to be unreliable and incredible by the Master[4]. Mr Poon further submits that it would be futile and a waste of time and costs to direct Xing and Ying to provide further and better account or for further inquiry into the Withdrawn Sums.  This court agrees.

31.  Where evidential difficulties faced by the Court are created by a defaulting fiduciary, the Court adopts a robust approach.  In Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681 at [138], Ribeiro PJ said:

“138. The evidential difficulties now faced by the Court form part of the consequences flowing from the defendant’s original wrongdoing as a defaulting fiduciary. In such circumstances, the Court adopts a robust approach. This was explained by Handley JA in the New South Wales Court of Appeal in Houghton v Immer (No 155) Pty Ltd, where equitable compensation was awarded in a case involving equitable fraud (but not a breach of fiduciary duty), as follows:

‘The defendants are entitled to a set-off for the actual cost of the improvements, but there was no evidence of this cost. The accounting issue would normally be referred to a Master but the trial was not conducted on this basis. The defendants would have great difficulty in such an enquiry, since no attempt appears to have been made to keep separate records of the cost of constructing the improvements on the common property. ...

At this stage the Court should only remit the matter to a Master as a last resort, if no other course is fairly open. The defendants, having improved common property without lawful authority, and attempted to effect a fraud on the minority, are wrongdoers, and their failure to keep and produce proper accounts of their actual expenditure on the common property has made it difficult to assess the compensation due to the plaintiff. Compare Armory v Delamirie (1722) 1 Stra 505. ... In my judgment the Court should assess the compensation in a robust manner, relying on the presumption against wrongdoers, the onus of proof, and resolving doubtful questions against the party ‘whose actions have made an accurate determination so problematic’. See WP Investments Pty Ltd v Howard Chia Investments Pty Ltd (1990) 24 NSWLR 499 at 508.’” (emphasis added)

32.  Similar sentiment was expressed by Lord Millet NPJ in the same case at [174]:

“ … Where the absence of evidence is the consequence of the fiduciary’s own breach of duty the court is not without resource, for it can have resort to three principles. First, it may be able to take the fiduciary at his own word and use his falsehoods to establish the facts as if they were true even though they are known to be untrue. Secondly the court is entitled to make every assumption against the party whose conduct has deprived it of necessary evidence. And thirdly the court is entitled to be robust and do rough and ready justice without having to justify the amount of its award with any degree of precision.” (emphasis added)

33.  In the present case, Xing and Ying are the defaulting fiduciaries whose conduct created the evidential uncertainties faced by this court as to the precise amount to order them to repay the 1st Plaintiff. They first failed to properly give credible explanation of what happened to the Withdrawn Sums which led Mimmie Chan J to grant paragraph 10 of the Order for the taking of accounts.  They then failed to discharge their duties to provide a proper or satisfactory account of the Withdrawn Sums at the hearing before the Master.  It seems to this court a robust approach is warranted in order to achieve what Litton NPJ described as “practical justice” or what Lord Millet NPJ described as “rough and ready justice”.  This court is therefore of the view that both Xing and Ying ought to be ordered to restore the entirety of the Withdrawn Sums to the 1st Plaintiff.

34.  To conclude, for the above reasons, the appeal against the Withdrawn Sums Order succeeds.

Disposition and costs order nisi

35.  The appeal against the Profits Order is dismissed.

36.  The appeal against the Withdrawn Sums Order is allowed and the Order is hereby set aside.  There shall be an Order that:

(1) The 1st defendant do pay to the 1st Plaintiff the sums of HK$1,816,000 and US$15,500 forthwith; and

(2) The 3rd defendant do pay to the 1st Plaintiff the sums of HK$6,290,000 and US$334,460 forthwith.

37.  The sums referred to at paragraph 36 (1) and (2) above shall carry interest at 4% per annum from the date of service of the writ herein until judgment and thereafter at judgment rate until full payment by the 1st and 3rd Defendants.

38.  Given that the 1st Plaintiff and the 1st and 3rd Defendants are only partly successful in pursuing or resisting this appeal, there be an order nisi that (i) the 1st Plaintiff is entitled to 50% of the costs of the appeal, to be taxed if not agreed, and paid by the 1st and 3rd Defendants forthwith, (ii) the 1st and 3rd Defendants are entitled to 50% of the costs of the appeal, to be taxed if not agreed, and paid by the 1st Plaintiff forthwith, (iii) certificate for counsel. 

HCA 797/2012

[2020] HKCFI 407

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 797 OF 2012

________________________

________________________

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TAKING OF ACCOUNT

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Introduction

1.  This is a taking of account exercise.

Background

2.  The present action is one of the over 10 sets of proceedings in Hong Kong and the Mainland concerning primarily:

(a) the elder brother Wei Wen (魏文) (“Wen”) and

(b) the younger brother Wei Xing (魏星) (“Xing”) and his wife Hu Ying (胡影) (“Ying”).  

3.  The 1^st and 2^nd plaintiffs (“WW” and “SWT” respectively) are companies controlled by Wen.  Xing and Ying are the 1^st and 3^rd defendants herein respectively.  The 2^nd defendant (“ESL”) is a company.  At the material times, both Xing and Ying were directors of ESL, with the latter as its sole shareholder.  

4.  The plaintiffs said that the defendants had been in breach of fiduciary duties and dishonest assistance.  The latter also transferred confidential information, diverted business, made secret profits, misappropriated funds, so and so forth.  

5.  After a trial of over 20 days in 2014 and 2015, by a judgment (the “Judgment”) dated 8 March 2016, the Hon Mimmie Chan J ruled in favour of the plaintiffs with costs.  Following the Judgment, parties thereafter formally drew up another judgment filed on 8 April 2016. Under it, there were also the following inquires as to damages and taking of accounts. 

“ 1. There be an inquiry as to damages, or at the 1^st Plaintiff’s option an account of profits, and payment of all sums found due upon taking such inquiry or account for the 1^st Defendant’s breach of fiduciary duties owed to the 1^st Plaintiff;

2. There be an inquiry as to damages, or at the 1^st Plaintiff’s option an account of profits, and payment of all sums found due upon taking such inquiry or account for the 2^nd Defendant’s dishonest assistance to the 1^st Defendant in breaching his fiduciary duties owed to the 1^st Plaintiff;

3. There be an inquiry as to damages, or at the 1^st Plaintiff’s option an account of profits, and payment of all sums found due upon taking such inquiry or account for the 3^rd Defendant’s dishonest assistance to the 1^st Defendant in breaching his fiduciary duties owed to the 1^st Plaintiff;

4. …

5. There be an inquiry as to damages, or at the 1^st Plaintiff’s option an account of profits, and payment of all sums found due upon taking such inquiry or account for the wrongful act of passing off on the part of the 1^st and 2^nd Defendants.

6. There be an inquiry as to damages, or at the 1^st Plaintiff’s option an account of profits, and payment of all sums found due upon taking such inquiry or account for the 1^st Defendant’s breach of confidence and the 2^nd and 3^rd Defendants’ dishonest assistance of the 1^st Defendant’s breach of confidence.

7. …

10. There be an account to be taken of the sums received by the 1^st and 3^rd Defendants (as particularized in Annexure B to the Re-amended Statement of Claim), pursuant to paragraph 52A of the Re-amended Statement of Claim;

11. There be an account to be taken of the sums received by the 1^st Defendant (as particularized in Annexure C of the Re-amended Statement of Claim), pursuant to paragraph 57A of the Re-amended Statement of Claim; and

 12. …”

6.  Later, on 25 July 2016, the learned Judge further directed that the said inquires as to damages and taking of accounts were to be conducted before a Master who would decide the amounts to be paid to the WW by the defendants.  For such purpose, the defendants would prepare the accounts supported by source documents and to be verified on oath. 

7.  Three affirmations were thereafter filed by Ying^[1] and Xing^[2] to purport to comply with the directions of the learned Judge.  

8.  WW found the said three affirmations unsatisfactory.  It issued three Notices of Alleged Omissions and Wen also prepared 3 affirmations^[3] to set out the complaints.  On the other hand, Xing took out a summons before the Trial Judge seeking to deal with the problem.  

9.  By a written decision (the “Decision”) dated 11 August 2017, the learned Judge directed WW and Wen to disclose financial statements sources documents and so forth of SWT to assist Xing in his preparation of accounts.  

“ 1. 第一原告人和魏文須向第一被告人交出其現正管有、保管或控制的第二原告人由2008年4月1日至2010年4月30日期間的財務記錄，包括：賬簿、付款及現金憑證、管理賬戶、利潤表（已被核數及未被核數的）、銀行流水帳和由會計員工編寫分別有關2009年3月31日、2010年3月31日及2011年3月31日會計年度完結的一般日記賬；

2． 魏文須依據高等法院規則第24號命令第7（1）條規則存檔誓章及將之送達予第一被告人，以確認他是否現正管有、保管或控制（i）由2011年3月1日至2011年7月31日期間第二原告人的任何付款及現金憑證和一般日記賬；和（ii）由2011年3月1日至2011年7月31日期間第二原告人的銀行流水帳（除了已披露的中國工商銀行的銀行流水帳）；

3. 如魏文現正管有、保管或控制上段的任何文件的話，其需要向第一被告人交出該些文件的副本；

4． 第一被告人2016年12月6日的傳票及其相關披露申請的訟費歸於本案製備賬目的清算程序的案中；及

 5． 任何關於本案製備賬目的清算程序的進一步申請須向聆聽該程序的聆案官提出及由其處理。”

10.  Wen later did so by his 21^st affirmation.  There were about 5 boxes of exhibits included therein.  WW further issued a summons seeking to cross-examine both Xing and Ying (both in her personal capacity as the 3^rd defendant and as a director of the 2^nd defendant).  In the meantime, WW also issued another summons asking for the taking of account summons to be held. 

11.  Both summonses came before Master Thomas Leung on 22 June 2018.  The Master ordered a total of 7 days for the cross-examination and then taking of the account to be held.  

12.  Parties went before me for the cross-examination from 18 to 22 and 25 March 2019.  After that, on 26 March 2019, with assistance from counsel, directions were given for the taking of accounts, including further discovery and affirmation to be prepared, Scott Schedule to be filed jointly by the parties, skeletons to be lodged and served a number of days before the taking of accounts, transcripts to be prepared and released with sharing of costs.  

13.  Parties further went before me on 5 September 2019 for the taking of account.  However, it transpired that the same could not go ahead as parties were not completely ready.  Among others, I adjourned the matter to be re-fixed with no order as to costs, save that WW was to pay Xing for costs of the day with certificate for counsel.  

14.  Then, parties appeared before me again for 2 days on 19 and 29 November 2019 to complete their arguments.  Decision was reserved and here it is.  

Preliminary issue

15.  Mr Chan, counsel for Xing, started to ask for leave to adduce 3 more documents, namely, the Amended Defence, witness statement and 6^th affirmation of the 1^st defendant.  Mr Poon, leading his junior, Mr Leung, counsel for WW, opposed it.  To avoid any unnecessary adjournment of the matter, I then allowed the application on a de bene esse basis.  Upon thought, I decided to decline the application.  

(a) The application was late.  

(b) No affidavit was prepared to explain the lateness and/or the need to rely on them.  

(c) In any event, even with the oral explanation by Mr Chan, I was not satisfied that they were relevant for the purpose of the present taking of account.  All these documents were before the Trial Judge.  They were considered ruled and decided.  Separate directions were thereafter given for the accounting parties to prepare for the present exercise.  If anything had been missed, the accounting parties would only have to blame themselves.  

Applicable principles

16.  The applicable law and principles relating to account of profits were not in dispute.  

17.  Mr Poon referred to me a number of cases, including Tang Ying Loi v Tang Ying Ip [2015] 1 HKLRD 712.  In short, if a fiduciary has obtained an unauthorized profit for himself, equity will insist on treating him as having obtained it for his beneficiary.  After the fiduciary has provided an account, the beneficiary could falsify and surcharge it.  The basic principle lies primarily restorative but not compensatory. 

18.  The following submissions from Mr Poon are particularly relevant for the present exercise.  

“11. The general principles regarding account of profits has been summarized in Tang Ying Loi v Tang Ying Ip [2015] 1 HHKLRD 712⁹ at [83]: -

(1) …

(7) The object in ordering an account of profits is to ascertain as accurately as possible the true measure of the profits or gain made by the defaulting fiduciary as a consequence of his breach of fiduciary duty ([141])

(8) It may not be possible to adopt an approach that borders on any mathematical exactness and the court may have to work on “a reasonable approximation”. An important guide for the Court here is “flexibility” ([143])

(9) In taking an account of profits, in most cases it will be right to make allowances for expenses, overheads and financial contribution (sometimes even a reasonable salary for the wrongdoer) so as to reflect the “cost” of the profits. This is consistent with the overall object of the remedy of an account of profits, namely, to give to the beneficiary the true extent of the profits made by the fiduciary, not to punish him…

(10) …”

19.  On the other hand, Mr Chan reminded me one thing and I will no doubt bear it in mind. 

“8. In Kao, Lee & Yip (a firm) v Donald Koo Hoi Yan and Ors (unrep, HCA 8847/1993, 7 June 2007) … (the judgment by Reyes J on the account-taking exercise), the defendant failed to keep proper records of the work done for a client of the former solicitor firm he used to work for. This was so despite Mayo J had expressly directed the defendant to keep proper account of the work done for the plaintiff’s former client a few months after the commencement of those proceedings. The absence of proper records posed significant difficulty to the assessment on profits, as the account taking was done 14 years after the accounting period. As such, the plaintiff asked the Court to resolve any doubt in favour of the plaintiff. Whilst accepting that suggestion, Reyes J said:

“14. Subject to a caveat, I agree with that general approach. I should not penalise KLY by reason only of KP’s failure to maintain adequate records contrary to Mayo J’s Order.

15. The caveat is that the presumption cannot be my sole consideration. The presumption is expedient. But it does not license me to draw any inference whatsoever against Mr Koo, however unreasonable or disproportionate. I must still approach a disputed issue with a measure of realism and pragmatism. I must always ask myself whether the result of any application of the presumption accords with common sense.” (emphasis added)”

Credibility of Xing and Ying

20.  Xing and Ying appeared before me and were crossed examined by Mr Poon in quite some depth.  I regret to come to a view that they are not reliable and credible.  

21.  They indeed were so impressed by the Trial Judge, as stated in her Judgment dated 3 March 2016 herein.  

“General observations on credibility

8. Much of this case depends on the credibility of the witnesses and their testimony. As will be elaborated below, I have not been impressed by the evidence of either Wen or Xing. Their acrimony and the bitterness of their dispute (which they claim commenced in early 2009 when their relationship began to deteriorate) have affected their evidence, to the extent of their taking inconsistent stances in relation to the same documents on different aspects of their case. I prefer to rely instead on contemporaneous documents, particularly those prepared and signed by the parties before litigation commenced, and to test the witnesses’ evidence against such documents.

9. Overall, I do not consider Xing and Ying to be reliable witnesses.  Their evidence has been contradicted by the documents, and has evolved from the witness statements to the different versions given in cross-examination at trial.  Instances have been identified by Counsel, which I accept to be contradictions and inconsistencies in the defendants’ evidence. Particularly noteworthy are Xing’s assertions that he had registered but not used the domain name of caevolution.com for any communication, that he had never given control of the caevolution.com domain name and email addresses to ESL, that he was not associated with ESL or Shenzhen ESL, and that he had not engaged in any form of testing business with Apple after the grant of the injunction in July 2012, all of which are contradicted by the contents of the emails and documents disclosed by Apple.  Ying’s original claim that ESL is only a trading company and does not run any business similar to WW’s is directly contradicted by the claims made by Xing on behalf of ESL, in his affirmation of July 2012, filed to discharge and oppose the continuation of the Mareva injunction order.  The claims made by Xing and Ying as to their position within WW are also inconsistent with the assertions they made in documents filed in their Labour Tribunal proceedings.” 

22.  I also agree with the following observations from Mr Poon. 

“C1.1 D1’s evidence / account

16. Aside from maintaining that D2 is a mere “money collecting” (代收錢) company, there are other aspects of his evidence which is contrary to the findings and/or observations of the learned Trial Judge. For instance, he still maintains that the 1^st 7 sums of withdrawal for which he is liable to account were withdrawn by WW… which is inconsistent with his stance at trial as summarized by the learned Trial Judge…

17. D1 was also evasive about whether or not he had sent out an email of 7 April 2011 to Wen… even though it was none other than D1 himself who disclosed this email before… He further claimed that he had forgotten whether or not “[email protected]” was his own email account…

18. When questioned about whether or not he has proof that sums withdrawn by him (the 8^th and 9^th sums per his affirmation… were handed over to P1 and /or used for P1’s purposes, he makes a bare assertion that such proof does exist but he does not have them as they are in the possession of Wen… However, when confronted with accounts and/or ledgers of P1/P2 which do not at all reflect such receipt, he challenges that they are incomplete, inaccurate and/or are all fabricated by Wen…

19. D1 refused to admit that the 8^th sum of US$13,000 was withdrawn by him at first. When confronted with a copy of the relevant Transaction Reference (which was produced none other than by D1 himself in these proceedings) … he refused to acknowledge the authenticity of the same or to confirm his own signature thereon…

20. He was deliberately evasive about D3’s evidence at trial regarding withdrawals made by her… and also during cross-examination, claiming that he forgot if D3 had ever passed any money to him… This is very curious given that he is able to recall with certainty that his subordinate, Xi Yuejiao, had never handed payments received by her from ICS to him…

21. Regarding his role in D2, he claims that he was merely helping his wife / D3 upon request… and was also assisting his “friends” to negotiate and carry out business deals… He asserts that he has not made any financial gain for such alleged assistance rendered and was in effect doing “volunteer work” … However, this is contradicted by him having received at least a sum of HK$10,502 from D2… against which he offered no explanation… At this juncture, D1 even attempted to deny the ownership of his own bank account… Aside from free work, he even arranged for and delivered free products (for example, 50 USB connectors… to his friends’ client…

22. He was very evasive when shown direct evidence of him carrying out business diversion… Regarding his assertion that D2 was merely collecting money and assisting his “friends” in their businesses, and upon being questioned by the Court, he simply could not explain how and against whom Apple Inc (“Apple”) would sue or seek relief if a certain product shipped to the latter is defective, or if his “friends” are in breach of the Non-Disclosure Agreements executed by him for and on behalf of D2… Neither was D1 able to explain how a mere “money-collector” (D2) was able to become an approved vendor of Apple when it is customary for a vendor to have to go through much red-tape and vetting before becoming approved…

23. …

24. Regarding the newly-produced purported Agency Documents (upon which D3 relies to assert that D2 is but a money-collecting company earning 2% commission) …, he was also notably evasive. He first asserts that he was not sure if he had come across those documents before, then says he forgot if he had prepared or typed them out. When asked whether or not they were forged, he curiously answered that he was not sure what P1’s counsel had meant by “forged” ….

25. …

26. …

C1.2 D3’s evidence / account

27. It is evidently clear that D3 is also deliberately trying to alienate herself from business dealings conducted between D2 and Apple, despite being a sole director and shareholder of D2. She claims not to have any knowledge about D2 being an “approved vendor” of Apple and disclaims having seen or handled any of the Apple documents / emails, including the Non-Disclosure Agreements between Apple and D2…

28. During the cross-examination proceedings, D3 emphasized that D2 had no ability or competence to deal with or conduct business with Apple and was merely a trading company. As afore-mentioned, D3’s assertion that D2 is but a trading company and did not carry on any business identical to or in competition with Ps, has already been found to be a lie…

29. During the present account-taking exercise and by way of affirmation… she further expanded her lie in saying that D2 also provided agency services. During cross-examination, she further added, for the first time, that apart from the agency fees, D2’s earnings would come from three other areas, including (i) earning introduction fees (介紹費) for testing devices, (ii) assisting others in purchasing mobile phones and (iii) providing consultancy services and charging fees for the same…

30. She could not explain why the purported written contracts… accompanying the confirmation letters… were never disclosed prior to trial at all, even though they were executed in 2011 and 2012 respectively. She was further unable to produce the originals of the said Agency Documents…

31. …

32. Concerning D3’s assertion that D2 was providing agency and/or money collecting services for the 2 PRC companies, she admits during cross-examination that there was no way for her to ascertain the origin or nature of the funds entering D2’s account and that they could have been crime proceeds. However, upon inquiries by the Court, she could not explain why she still allowed D2’s account to be used in such a dubious way…

33. She was also unable to explain the withdrawal patterns illustrated by the bank account records of D2… which clearly do not support her case that D2 would retain 2% commission payment for each sum of money collected on another’s behalf…

34. Her description of D1’s role in D2 is also different from D1’s account – she even went so far as to claim that all trading business of D2… were in fact handled by D1 alone…

35. She was unable to justify or explain various items set out on D2’s Detailed Income Statement… In attempting to justify traveling expenses, she let slip that some were incurred in visiting clients of D2 (拜訪客戶) including Apple, but later retracted such evidence…

36. In connection to the various cash withdrawals made by her from P1, she claims during cross-examination, for the very first time, that most of the USD cash with drawn by her were handed to Wen (even though this was not so expressly asserted in her affirmation… She also claims that all HKD withdrawals were handed over to finance personnel (財務) of P2 when this was, again, not so described in her own affirmation. Her assertion during cross-examination that she forgot if she had ever given any cash to D1 is in direct contradiction with her evidence at trial… and her testimony in trial…

37. D3 then seeks to explain this by saying that it would have been unsafe for D1 to receive cash from her. However, upon inquiries by the Court, she could not explain why it was safe for her to transport cash across the border…

38. …

39. …

40. …”

23.  Last but not least, during the cross-examination of Xing, I sought to clarify his answers to Mr Poon regarding a relatively simple item, ISC receivables.  In short, where was the money?  The Trial Judge was not satisfied the answers at trial and direct an account to be taken.  However, regrettably, Xing did nothing to try to improve his case.  He remained to try to make things complicated, to side-track the issue and was evasive to the question. 

“官：我試下咁樣同魏先生研究，好唔好？

答：好，好，你說。

…

官：... ICS公司應該就用現金畀咗奚月嬌女士，找咗一啲錢嘅。睇文件，啱唔啱？嗰啲錢...

答：是。

官：... 現金畀咗佢，咁嗰啲錢呢，第一個可能…

官：… 奚女士，自己收埋，走咗，落咗佢袋，係咪？第二個可能性，佢將嗰啲錢交咗畀你，你攞咗落袋，第三個可能性，你或者奚女士將嗰啲錢交番咗去STW公司...

MR POON：SWT，係。

官：SWT公司嘅，啱唔啱？三個可能性。

答：還有一種可能性，就把魏星替代成魏文或者SWT任何一個人，拿了，跑了，就是他也可能給了魏星，因為可能給了那個...（聲音模糊），或者是給了魏文，都沒在財務記上，就是你把魏星這個名字換成可能每一個人，從邏輯上講有這四種可能性。

官：有咁多可能性，我哋唔好理住喇。

答：（證人直接用本地話說）係喇，（普通話）對。

官：你知唔知道奚月嬌女士有冇收到啲錢先？收到啲現金，第一。

答：我不清楚，因為--我可不可以解釋？

官：可以。

答：因為當時有很多--我有帶很多助理，因為是...（聲音模糊），我下面管我的業務助理這十幾個，奚月嬌只是其中一的一個，那麼不同的客戶有時候給現金，大部分都是公賬，公司賬就公司賬花賬，那我安排...

官：呢啲唔聽喇，唔知就唔知，唔好講咁多喇。

答：Okay，所以我安排的工作...

官：… 第二個問題 ...

答：好，好。

官：...奚女士如果睇呢四頁文件，表面上應該係佢收咗啲錢。

答：我少少有點補充，可以嗎？

官：答咗先。

答：不完全同意，首先這個是真的，第二，有的寫著 “paid”的，應該這個英文翻過來是已付，其他的沒蓋章，那到底是付了沒付，不知道，做財務的手續上，那2223跟2224的差異，我看下面寫了一個--這裡蓋了個...（聲音模糊），下面寫著 “paid”，2225就沒了，2226又沒了，然後奚月嬌--每個「奚月嬌」上面那個章子到底是誰都也搞不懂，所以我覺得兩種可能有一種，這...

官：章子唔講，但係嗰個英文 “received by”，你睇唔睇到？

答：哪一個？哪一個寫 “received by”？

官： “Received by”，每一個都有--睇唔睇到？

答：我知道，我知道，是，是。

官：睇唔睇到？

答：看到，看到。

官：即係收款咁解喇，如果奚月嬌女士喺呢四欄裡面都簽名，咁佢一定係收咗嗰啲現金喇，唔係佢做咩嘢簽個名、蓋個章落去？其他印仔我唔睇喇，...

答：這個--對，對。

官：...表面上係咪應該咁解釋呢？

答：是，我同意法官的說法，不過老實講，我跟我太太被魏文的章陷害了也很多次了，...

官：係，得喇，嗰啲唔講。

答：...欠了沒給我錢，真的還有財務可以作證的，當年，所以表面上我是同意。

官：如果呢啲錢係奚月嬌女士收咗，佢冇交過任何一筆畀你，係咪？如果奚女士收咗呢啲現金，佢冇畀過任何一筆你。

答：就是...（聲音模糊）

官：唔。

答：對。

官：2223到到2226。

答：對。

官：冇畀過你？

答：沒畀我，因為從11年1月份開始，魏文就勒令我--包括另外的股東陳永紅...

官：係，唔好嘈。我哋睇番陳法官判決嘅第152頁，剛才嘅...

MR POON：應該係72。

官：...文件A1第72頁。

MR LI：係152。

官：係，最屘嗰句說話，陳法官話嘅，你就呢個問題答過佢嘅，你話喺正常嘅情況之下，嗰啲錢收咗返嚟，應該會交去SWT嘅財政--會計部嘅，啱唔啱？

答：對，我推論是這樣...

官：最後嗰三個字， “without further evidence”，咁就講完喇，冇其他證供喇。

答：對。

官：而家我畀個機會你，如果你有其他嘅證供，可以而家講。

答：那我就希望...

官：即係話如果奚小姐，奚女士收咗啲錢，冇畀過你，佢收咗之後，正常會交番去SWT嘅會計部，咁跟住當時你冇機會或者冇講清楚啲、詳細啲，而家畀你再講，咁又點呢？

答：可以，那我現在可以解釋嗎？

官：係，講喇。

答：好，好，第一個，從--起碼從11年正審文件夾出示的證據開始，我不能觸碰SWT的財務，魏文在11年1月、3月、5月、7月、8月，連續多...（聲音模糊），命令得非常嚴，第二個，奚月嬌當時兼管SWT財務的，是魏文SWI的財務總監，鐵膽馬仔，叫曾恩民。

官：係，呢幾句我都要翻譯。

…

答：1月份，對。在正審文件夾，有多封郵件顯示魏文，從2011年開始嚴控財務，不同我跟陳永紅接觸任何財務東西，第二個，奚月嬌的離職單，在這個文--他的離職單在財務...

…

答：辭工單，就是辭工交接手續的那張單子，因為每個人離職的時候要各個部門簽字，跟公司有關的部門都要簽，那張單子在財務這一截，是曾恩民親自簽字的，所以可不可以麻煩我們律師把這一頁翻出來，給我們看一下。

…

官：等一等，你愈講愈複雜喇，冇咁複雜嘅 [emphasis added]。

答：好，那個...

官：聽住，...

答：還有...

官：...嗰啲錢如果奚女士收咗，交咗返SWT嘅會計部之後，會計部應該有條入賬數，啱唔啱？就係收咗ICS錢咁樣，現金咁樣囉，係咪？

答：那就是我正正要說的第三條，我剛剛說到第三條。

官：係，第一、第二都冇用嘅，你而家講第三喇。

答：因為曾恩民的簽字裡面，沒有指責小奚還有甚麼錢沒有移交完，第三條就是我想說的，剛才這個潘大狀講第八條，就是那個單子的第八條不用。

法庭傳譯主任：（本地話）你頭先話第八條--佢講緊336-60嗰個。

答：六零，這個是不追究的嘛，是不是？所以是認為正常收了錢的，是不是？

官：魏先生，你又離咗題喇，我哋繼續講番，嗰啲錢奚女士收咗現金，交咗返SWT嘅會計部，正常嘅情況之下，跟住會有啲咩嘢事發生呢？

答：我相信財務應該紀錄。

官：係，咁就點呢？你啲咩嘢紀錄呢？

答：我不知道那個專業名詞叫甚麼，就像他們--早一張出來就好了，就是收了誰的甚麼錢是怎麼回事，財務部應該有這種。

官：係，咁譬如我係奚女士，我將啲現金交咗返公司，公司會唔會有啲嘢畀番我？唔係話我落咗格呀、吞咗佢啲錢咁樣喇，啱唔啱？

答：不清楚，不一定的。

官：呢一個你頭先問過幾次，個印圈圈呢，會唔會係呢一個SWT個公司嘅公章嚟㗎？因為都唔係奚女士個人收錢，應該係SWT收錢㗎嘛，呢個會唔會係STW嘅公章嚟㗎？

答：以那個時間段，我不相信他是公章，因為嚴格的被魏文控制的，連我都拿不到的，小奚應該是拿不到的，但是我想講的是已經...（聲音模糊），紀錄有...

官：你凈係答問題，凈係答問題 [emphasis added]。

答：但是他們不公開了，我只是想強調這個事實。

官：你即係話佢而家交上嚟嗰啲文件，冇將呢個奚女士收咗嘅現金反映喺佢嘅數嗰處，其實錢已經交番公司㗎喇？

答：我準確的說法是，他們所謂依照陳法官公開的那些資料不是完整，因為ICS除了當時呢，10年也跟我們做過生意...

官：但係即係錢已經--現金已經交番，透過奚女士嘅手直接交番去公司？

答：我相信公司每個員工都是按照規矩做事的。

官：你可唔可以直接答個問題呢 [emphasis added]？

答：我說我相信他是交回來了。

官：咁你除咗相信，你知唔知佢有交到呢？

答：那我真的不知道。

官：你唔知道，但係你信佢交咗？

答：對，對。

官：如果而家佢係都唔交嗰啲證據出嚟，你有冇辦法去搵啲證據，證明奚女士已經交咗返公司呢？譬如奚女士出嚟幫你做證，幾時、幾時已經交咗嗰啲錢返去呢？佢可能手仲有張收據添，佢唔交啫，你可以去搵㗎嘛。

答：老實講，我沒有辦法證明，這也是我為甚麼向陳法官申請，陳法官最後也接受我的意見，命令魏文公開，因為我真的覺得我一五一十如實交代，而且真的合乎常理、合乎常識...

官：即係你搵唔到奚女士㗎喇？

答：我沒有這個證據。

MR LI：係，法官閣下，或者...

答：我覺得找不找奚女士沒有意義。

…

官：你搵唔到奚月嬌喇？

答：不是...

官：咁你要證明你自己清白吖嘛。

答：我了解，不過這個可能是一個做人的原則問題，我們在深圳打了幾十個官司，我曾經真的試過去找一兩個財務人員作證...

官：嗰啲唔好講，你有冇...

答：他們不幹，後來我想通了，算了。

官：你有冇試過去搵？你知唔知道佢喺邊度？

答：我可以找得到她，但是我已經不想了，我前面已經找了無數個財務，人家一聽，你們兄弟倆的事，打死不要出去，魏文是甚麼人，誰不知道？

官：好喇，...

答：好了。

官：...夠喇。

答：那我想我何必去勞煩別人，算了。

官：我嘅澄清嘅問題澄清完畢，我交番畀潘大狀。”

Taking of account

24.  I now move to the calculations. 

25.  Broadly speaking, WW sought 3 heads of payment as follows.  

(a) Diversion of business^[4] for US$1,333,532.78 against all 3 defendants.  

(b) Misappropriation^[5] of sums for

(i) HK$1,816,000 and US$15,500^[6] against Xing, and

(ii) HK6,290,000 and US$334,460^[7] against Ying   

(c) ICS receivables^[8] of US$12,678 and RMB3,000 against Xing 

Diversion of business

26.  On the sum of US$1,333,532.78, Mr Poon classified them into 4 main areas. 

(1) Projects from Apple

(2) Projects from Apple (as evidenced by materials disclosed by Apple)

(3) Projects from Dooone

(4) Projects from other clients

27.  Mr Poon further elaborated:

“52. In light of the above, P1 submits that the following sums should be accounted for: -

(1) Items 1-10 and 12: P1 wishes to highlight that save for only one price quotation in the sum of US$4,770.00 was discovered, Ds have failed to make proper accounts. As a result, the amount to be account for under these heads are otherwise unascertainable.

(2) Item 11: As to the project from Apple as evinced by materials disclosed by Apple (Item 11), by simply adding up all the sums in the spreadsheet from Apple, the amount to be account for would be US$931,369.00. However, such sum may not be appropriate since it is noted that a number of sums in the two spreadsheets (invoices to Apple and payments from Apple) has been duplicated.

Through the process of checking each and every sum in the two spreadsheet, P1 respectfully suggests that only the actual sums paid by Apple to SWT … and the unpaid invoices … are taken into account for calculation. Therefore, the total sum to be accounted for under this head would be US$512,221.00 only.

(3) Item 13: On the other hand, P1’s position for projects from Dooone (Item 13) is relatively straightforward. As evidenced by two purchase orders placed by Dooone to D2… the total sum to be accounted for under this head must be US$48,850.00.

(4) Item 14: As to the projects from other entities and/or clients of P1 as listed under Annexure A (Item 14), given the unsatisfactory state of Ds in giving proper accounts, it is P’s primary position that all 46 sums should be accounted for.  In the circumstances, the total sum to be accounted for under this head according to the bank documents would be US$767,691.78.”

28.  In response, Mr Chan commented: 

(1) Projects from Apple

“(c) General allegations relating to “unaccounted projects” of Apple

19. In addition to the quantifiable invoices/POs as analysed above, P1 has made a number of general allegations relating to various projects with Apple which P1 complains that D1, D2 or D3 has failed to account for. 

20. However, if one takes a closer look at the POs, a significant portion of these general allegations on “unaccounted projects” were already covered in the POs placed by Apple Inc. (and all of which were eventually invoiced and paid to D2). 

For example:

Project name	General allegations	Corresponding PO	Bundle reference
10 Nemo4 Boards	Scott/4/#1 Scott/6/#6	492394824	B5/1324-1327
N41	Scott/4-5/#2 Scott/7/#9	492332809	B5/1318-1321
		6000002094	B5/1423-1427
		6000004815	B5/1430-1433
		494482371	B5/1392-1395
		494223466	B5/1370-1373
		493945583	B5/1358-1361
		493488528	B5/1350-1351
Woodpecker boards	Scott/6/#6	493254014	B5/1344-1348
D401	Scott/6/#7 Scott/7/#9	492431388	B5/1328-1329
D402	Scott/6/#7 Scott/7/#9	492371573	B5/1322-1323
Jx fixtures	Scott/7/#9	494140148	B5/1362-1365
Monolith Load Board (#920-2109-01)	Scott/5-6/#5 Scott/7-8/#10	494525848	B5/1396-1398
		494436992	B5/1385-1389
		492366515 (reference made to #920-2109-01)	B5/1462-1467
		493613904	B5/1352-1357

21.       As seen above, the actual deposits into D2’s account resembles the drop in the revenue of P1 from year 2011 to 2012 after the alleged diversion of business.  There are therefore no reasons to suspect or worry that D2 has some other business with Apple Inc. not already reflected by the actual deposits in D2’s bank account.”

(2)               Projects from Apple (as evidenced by materials disclosed by Apple)

“(a) Paid invoices of Apple Inc.

13. The record of invoices … and record of POs … were obtained directly from Apple pursuant to a disclosure order … It has recorded 53 actual invoices issued by D2, and all the invoices were recorded as “paid”.

14. In the 14^th Affirmation of Hu Ying, D3 disclosed the bank statements of the only bank account of D2 (Account no.: 819-437716-838) … As analysed in pages 15-17 of the Scott Schedule, with the exception of items (13) and (15) which appears to be a duplicate of item (14), the remaining 51 invoices can all be matched with the actual deposit into D2’s account. The actual deposits add up to US$ 412,247.46. It is submitted that the actual deposit into D2’s account represents the full picture of D2’s revenue derived from Apple Inc.

15. In this respect, it should be noted that the calculation by P1 at §52 of its skeleton submissions is severely inflated by double-counting the invoices and the actual deposits into D2’s bank accounts.

(b) “Unpaid invoices” of Apple Inc.

16. P1 alleges at §52(2) of its skeleton submissions that the “unpaid invoices” should also be accounted for. However, as analysed above, there were in fact no unpaid invoices. It is most likely that Apple’s record of paid invoices already represents a true and complete record of all paid invoices. Instead, by “unpaid invoices”, P1 might be referring to POs that were not followed by a consequential invoice.

17. From the comparison of the record of invoices … and record of POs …, it could be observed that even for a matching PO and invoice, the amounts would often be different (the invoice figure more often smaller). Whilst an invoice always matches with a PO number … , not every PO would lead to a consequential invoice. Given that the records seem to be complete and accurate, it strongly suggests that the POs without a consequential invoice and a corresponding deposit record into D2’s account were not completed and were not charged.

18. It should be noted that the bank records ran up to June 2016 …  There were no payments from Apple Inc. since its last deposit on 15 August 2013.  There is no basis to speculate that D2 may be in receipt of any further sums from Apple Inc. apart from the payment of the 51 invoices.  Therefore, P1 cannot provide any legal or factual basis to hold D2 accountable for uncompleted and uncharged purchase orders.”

(3) Projects from Dooone

It was submitted that Dooone was not a client of the 1^st plaintiff but the 2^nd plaintiff, and hence outside the scope of the present account.  Further,

“29. Without prejudice to the above, it is further submitted that:

(1) same as the analysis of Apple’s POs which have no consequential invoices, the actual deposit from Dooone into D2’s bank account is a better reference of the revenue derived by D2;

(2) one of the POs concerning Dooone and P2 produced by P1 was dated 15 March 2011 …  D1 pointed out during cross-examination that D2 was only set up in November 2011 … The value of the PO does not correspond to or resemble any deposit by Dooone into D2’s bank account.  As the bank account (shown on the PO) was only opened in October 2011 … the pre-dating PO is most dubious and must therefore be excluded from consideration.”

(4) Projects from other clients

“(e) Payments from other companies

30. Heptagon Micro Optics Pte Ltd and Nitec Precision and Technologies Inc were not listed on Annexure A at all. In the Updated List, P1 admitted that Nissha Printing Co Ltd is not its direct client but only an end-user: see also …

31. Nonetheless, P1 asked the Court to “hold that all of the sums transferred as listed in the confirmation letters constitute wrongful gains / profits received as a result of diversion of business” in §48 of its skeleton submissions.

32. With respect, P1’s request is entirely unreasonable and without legal basis. As noted above, the Court should not allow an adverse inference to become its sole consideration and make findings contrary to the available evidence.

33. The actual deposits received from the remaining Annexure A companies (eg Mectec Corporation, LG Display, etc.) amounts to US$191,064.63[9]. Only those sums should be taken into account.

(f) General allegations as to business allegedly diverted to Shenzhen ESL

34. In the RASOC, nowhere did P1 plead the diversion of business to Shenzhen ESL as a basis of the allegation of D1’s breach of fiduciary duty, passing off or breach of confidence.

35. Similarly, in allowing P1’s claim against D1 for breach of fiduciary duties, passing off and breach of confidence, Chan J found that D1 diverted P1’s business to D2 but never made any express findings in respect of diversion of business to Shenzhen ESL. Issues on D1’s role and level of participation in the management and affairs of Shenzhen ESL and the allegations of business diversion to Shenzhen ESL was not raised and thus remained completely unexplored at trial.

36. It is therefore clear that P1 cannot slip in a new cause of action at the account taking process.”

29.  In relation to this head of claim, I will adopt the following approach to resolve the dispute.  With the evidence before me, on balance, do I accept:  (a) Was that company a client of WW?  (b) Did they made a contract?  Only if there are 2 positive answers, WW proves its damages.  In other words, if the company was only a client of other company, including even SWT (which does not fall within the ambit of the taking of account as ordered by the Trial Judge), or that there was only evidence of enquiries and/or discussion, they do not suffice to prove any damages. 

30.  With the above criteria, (1) project from Apple all fails as they are only bits and pieces of documents showing dealings among the parties.  More importantly, (2) project form Apple (as evidenced by materials disclosed by Apple) proves to be more reliable.  They were obtained from a third party, neutral to the parties hereto.  There was no suggestion that such disclosure had been incomplete or untrue.  Comparing the analysis of both learned counsel, I prefer those of Mr Chan and as such, accept that the sum of US$412,247.46 has been proved.  Indeed, the only substantial difference between them lay on the so called “unpaid invoices”.  To me, such dispute could have been easily resolved by asking Apple to clarify and confirm.  For whatever reason, it has not been done.  As the state of evidence before me, it is more likely than not that the “unpaid invoices” are uncompleted and uncharged purchase orders. Mr Chan’s analysis is more meticulous with convincing to me. It also tends to accord with commercial sense.    

31.  As to Dooone, the difficulty faced by Mr Poon is that there is no or no sufficient evidence before me to hold that, on balance, it is a client of WW.   

32.  Regarding other clients, I generally prefer the submissions of Mr Chan.  With the evidence before me, which is more or less than the same as before the Trial Judge, on balance, only those companies having been listed under Annexure A are accepted by me to be client of WW with transactions concluded shown by the deposits received.  They amounted to US$191,064.63.  

33.  To conclude, I agree with the suggestion of Mr Chan that WW could claim a sum of US$603,312.09 (US$412,247.46 + US$191,064.63, as paragraph 37 of his skeleton). 

34.  Of course, the sum of US$603,312.09 is only the gross revenue.  One needs to understand the costs of them in order to arrive at the profits to be accounted for.  

35.  In this respect, Mr Poon said that it was difficult to decide as the defendants had failed to account at all.  He therefore relied on the only available and limited evidence adduced by them, the financial statement of the 2^nd defendant [p. 637, bundle 2] to suggest 83%.  It was said that the court could such “broad brush approach” in the circumstances. 

36.  Mr Chan disagreed and said that it was too much.  He proposed 5%.  In his skeleton, he said that: 

“(3) Computation on the account for profits

38. D3’s case (which is adopted by D1) is that D2 had entered into two agency agreements with Shenzhen ESL and another third-party PRC company named Shenzhen Jingbang Technology Company Limited. As a money-collecting agent, D3 says that D2 would earn a 2% commission from those receipts.

39. P1’s accusation that the Agency Agreements and the Confirmation Letters were forged is not convincing. First, D3 should not be criticized for not producing the Agency Agreement before trial when an account had yet been ordered. The two documents were not relevant to P1’s claim on the issue of liability. Second, given that the confirmation letter only contains simple information and is possibly obtained upon the request by D2, the fact that two documents may look alike and has similar formatting is not inherently unusual or dubious. More importantly, in respect of the sums received by D2 under the agency agreement with Shenzhen Jingbang Technology Company Limited, most of the payor of the sums stated on the confirmation letter issued by this company were not Annexure A companies.

40. However, even if D3’s evidence is not accepted, it does not follow that the Court should order that P1 be entitled to the entire turnover of D2. In order not to detract from reality, the Court may look at the available evidence and determine an appropriate profit rate to be applied on the revenue.

41. Similar to P1, D2 has no operational offices, factories or plants in Hong Kong. It cannot undertake producing, manufacturing, assembling, testing work or even offer post-sale customer services. It is expected that D2 cannot complete the orders by itself. On the other hand, the revenue of P1 and D2 is both in the factor of a few million HKD per year. It is submitted that P1’s and D2’s profitability might be similar and that P1’s business would be a good reference in deciding the appropriate profit rate to be applied to D2’s revenue.

42. As can been seen from the available financial statements of P1 from 2007-2011, P1 had only earned HK$331,655 in the most profitable year. From 2008-2011, P1 had maintained a rather consistent profit rate of no greater than 4%:

Year	Revenue (HK$)	Profits before tax (HK$)	Bundle ref.	Profit rate
2007	2,816,664	(121,812)	B1/453	-
2008	12,169,555	331,655 (inclusive of losses carried forward)	B1/453	2.73%
2009	4,178,555	99,330	B1/475	2.37%
2010	5,823,149	229,745	B1/483	3.95%
2011	6,708,228	258,766	B1/498	3.86%
			Average:	3.23%

43. In assessing the profit rate of D2, it is recognized that P1 may be given the benefit of doubt.  It is submitted that the appropriate profit rate of to be applied should not exceed 5%.  The accountable profits should therefore be 5% of the revenue found to be relevant to the current assessment on account for profits.”

37.  Upon consideration, I prefer the submissions of Mr Poon on this occasion.  As said, the defendants have virtually failed to provide an account and were very unhelpful throughout the present exercise.  Although 83% appears to be a bit on the high side on first glance, it is still within a range within commercial sense. 

Misappropriation

38.  Mr Poon referred to paragraphs 131 to 151 of the Judgment to explain his client’s claim for misappropriation of sums (or unaccounted-for sums) against the Xing and Ying as well as how the alternative claims occurred only during the trial.  The followings are noted. 

“ 131.  The plaintiffs’ complaint is that between April 2008 and March 2011, Xing and Ying withdrew from WW’s bank account in Hong Kong and received respectively (in Xing’s case) the sums of HK$1,816,000 and US$15,500, and (in Ying’s case) the sums of HK$6,290,000 and US$334,460.

132.  It is not disputed that the sums were withdrawn by Xing and Ying on Wen’s instructions and with his approval.  On Wen’s part, he claims that the withdrawals made by Xing and Ying were made on his instructions, but as a result of requests made by Xing that sums were required for SWT’s operations.  This is evidenced by the emails exchanged between Wen and Xing in 2009 and 2010.  On Ying’s part, she claims that the amounts withdrawn by her had been paid over either to Wen, or to SWT, or to persons designated by Wen.  On Xing’s part, he claims that he had paid such amounts withdrawn by him to Wen, that Wen controlled the bank accounts and the bank statements and audited accounts of WW, such that Wen fully knew the whereabouts of the funds and how they had been utilized.

 133   …

138.  In the absence of further evidence and prior to an account being given by Xing and Ying, I cannot find on the basis only of withdrawals having been made by Ying and Xing from WW’s bank accounts, between April 2008 and February 2011, that these amounts had been misappropriated by the defendants and should be repaid by them… 

139.  In a somewhat exceptional course, after the hearing of the first part of the trial in November 2014, when the trial resumed in August 2015, Xing applied to adduce in evidence (inter alia) the judgment and various other documents relating to the litigation between SWT (represented by Wen), Xing and Ying in Shenzhen on the Mainland, and sought to cross-examine Wen on the claims made and on the evidence adduced in those proceedings… 

140.  On the basis of the same evidence and documents produced by Xing, the plaintiffs then applied to rely on the matters referred to in the Shenzhen judgment (handed down on 19 December 2014, but only coming into effect on 14 February 2015) and the evidence adduced in the Shenzhen court, in order to re-amend their Amended Statement of Claim, in support of the plaintiffs’ pleaded case of the defendants’ misappropriation of WW’s funds.  An alternative claim was put forward by the plaintiffs, that as evidenced by and referred to in the Shenzhen judgment, total sums of HK$5,076,000 and US$33,000, of the amounts withdrawn from WW’s bank account in Hong Kong, had been converted into renminbi (“RMB”) and deposited into SWT’s account and otherwise paid to SWT, but in respect of a total sum of RMB 3,744,999.95, such amount was paid and recorded as a personal loan from Xing (“Shenzhen Misappropriated Amount”).  The plaintiffs claim that Xing and Ying had procured SWT to issue receipts in order to acknowledge the Shenzhen Misappropriated Amount as a personal loan from Xing to SWT, in reliance on which Xing was able to commence proceedings against SWT in Shenzhen, and obtained judgment against SWT for SWT’s repayment to Xing personally of a sum of RMB 3,444,999.95 (the Shenzhen court rejecting a part of Xing’s claim for the entire Shenzhen Misappropriated Amount).  The plaintiffs claim that this is evidence of Xing’s misappropriation of WW’s funds withdrawn from WW’s bank account.

143.  The real issue, however, is whether the fact that the funds withdrawn from WW were paid into SWT as loans from Xing can be treated as misappropriation in the circumstances and on the evidence of the case.

144.  In this regard, it is clear from the evidence that there had been customary transfers and loans between WW, SWT and the companies controlled by the Wei brothers.  Wen and Xing, as shareholders and directors of WW and SWT, had been flexible in the inter-company transfers, as can be seen from the accounts of WW and from the emails between Wen and Xing.

145.  The contents of the emails issued by Wen to Xing, concerning the withdrawal of funds from WW and how such funds were to be used, are pertinent.  Particularly relevant are those dated 24 December 2009 and 10 November 2010, in which Wen referred to deposits of the sums withdrawn from WW as “personal loans”, the email of 10 November 2010 specifically referring to a personal loan from Xing.  The emails refer also to dealings with the money withdrawn “as in the past”, which suggest that there was prior agreement between Wen and Xing as to how deposits should be managed.  Further, the accounts and financial statements of WW demonstrate that there were account entries showing the status of the current accounts between WW and its directors, and between WW and SWT.  There is also evidence of personal loans to SWT from Chen, the other shareholder of SWT.

146.  As the plaintiffs acknowledge, the actual loan receipts relied upon by them have not been adduced in evidence in these proceedings, although 4 of them were specifically identified in the Shenzhen judgment.  There is no evidence as to who had signed the loan receipts on behalf of SWT.  However, as Xing himself seeks to rely on the Shenzhen judgment, he does not, and cannot, dispute that the receipts acknowledge debts due personally from SWT to himself, and were issued by SWT.  It was on such basis that Xing commenced litigation against SWT, and obtained judgment in Shenzhen.

147.  The loan receipts have not been referred to by either Wen or Xing in their witness statements filed in these proceedings.  Nor has any witness given any explanation in these proceedings as to how and why the loan receipts were issued by SWT to Xing, acknowledging personal loans from Xing. 

148.  Xing claims that it was Wen who controlled the finances and the accounts of not only WW, but also SWT.  What cannot be disputed is that at the material time, Wen was the executive director and the legal representative of SWT, besides being the majority beneficial shareholder.  Wen himself asserts (paragraphs 21 to 24 of his supplemental witness statement) that since SWT’s inception in 2007, the primary source of funding for SWT’s business had always been loans from SWI and himself, and that there had been loans from SWI to SWT.  Wen further claims that it was SWT’s practice to prepare “financial statements and ledgers of its financial position on a regular basis”, that there had been financial reports which contained information and particulars of loans from SWI to SWT which he had sent to Xing, and that at least from 2010, SWT had appointed a financial controller to be in charge of maintaining all books and accounts of SWT. 

149.  It is the plaintiffs’ claim that Xing and Ying had procured SWT to issue receipts which acknowledge the personal loans from Xing.  However, there is no evidence whatsoever that the relevant receipts had been procured by Xing and Ying, as alleged, and that such receipts had been issued by SWT without Wen’s knowledge or consent.  Bearing in mind Wen’s position as executive director and legal representative of SWT, and his own evidence as to the financial statements and ledgers prepared of SWT’s financial position on a regular basis, I cannot believe that SWT’s receipts and acknowledgment of Xing’s personal loans (dating from 2009) could have been issued without Wen’s knowledge.  If the personal loans acknowledged in the receipts were not in fact loans from Xing, it is inconceivable that Wen would not have raised questions or rectified the inaccurate records.  Although Wen’s emails with regard to the withdrawal of cash from WW’s bank account contained instructions that the funds were to be used for SWT, it is probable that there had been agreement for such funds to be made available to SWT by way of loans, or to be treated as personal loans, and for subsequent adjustments to be made.  Neither Wen nor Xing has explained in their witness statements how loans to be made from WW/Wen or Xing to SWT for its operating expenses were to be dealt with and adjusted, and how they are reflected in the audited accounts.  It is only after full accounts have been given by Xing and Ying as to the sums withdrawn by them that it can be ascertained whether any funds had been misused or were not authorized by WW, for SWT’s use as specified.  Thereafter, appropriate relief may be obtained by WW against the defendants.

 150.  In summary, and on the limited evidence, I am not satisfied on a balance of probabilities that SWT’s receipts acknowledging personal loans from Xing can be treated as evidence of the defendants’ misappropriation of WW’s funds.

151.  The Shenzhen judgment was handed down on 19 December 2014 and became effective on February 2015.  On the basis of the Court of Appeal’s decision in Lee Yau Wing v Lee Shui Kwan [2007] 2 HKLRD 749, to which I referred Counsel in the course of closing submissions, it is still unclear whether the Shenzhen judgment can be considered as a final judgment, and Counsel has not pursued Ying’s arguments that the plaintiffs are bound by the Shenzhen court’s findings in relation to the status of the debt due from SWT to Xing, and that they are estopped from disputing such facts as found by the Shenzhen court.”

39.  Mr Chan raised a number of objections.  

40.  First, he relied on a number of observations from the Trial Judge on the Judgment and the Decision.  It was said that the claim of misappropriation was inherently unlikely.  On the one hand, WW and SWT only maintained a very loose record of inter-company transfer parties.  On the other, it appeared that Wen and Xing had agreed that they would hold a certain amount of cash to pay expenses.  Further or in the alternative, WW did not make full disclosure and only produced original bank statements of a few isolated and short periods. 

“ 144. In this regard, it is clear from the evidence that there had been customary transfers and loans between WW, SWT and the companies controlled by the Wei brothers. Wen and Xing, as shareholders and directors of WW and SWT, had been flexible in the inter-company transfers, as can be seen from the accounts of WW and from the emails between Wen and Xing.

145. The contents of the emails issued by Wen to Xing, concerning the withdrawal of funds from WW and how such funds were to be used, are pertinent. Particularly relevant are those dated 24 December 2009 and 10 November 2010, in which Wen referred to deposits of the sums withdrawn from WW as “personal loans”, the email of 10 November 2010 specifically referring to a personal loan from Xing. The emails refer also to dealings with the money withdrawn “as in the past”, which suggest that there was prior agreement between Wen and Xing as to how deposits should be managed. Further, the accounts and financial statements of WW demonstrate that there were account entries showing the status of the current accounts between WW and its directors, and between WW and SWT. There is also evidence of personal loans to SWT from Chen, the other shareholder of SWT (emphasis added).”

(The Judgment)

“ 11. Bearing in mind the fact that the withdrawals of the money comprising the Misappropriation Claim took place in 2008 to 2011, it is inconceivable that Xing would be able, and should be expected, to give an account of each and every withdrawal and how each sum withdrawn and/or received by him had been spent, all from memory, and without reference to any documents from WW and SWT…

12. …

13. An account taking exercise requires the cooperation of, and often input from, both sides…

14. In relation to the Misappropriation Claim and on the evidence now contained in Xing 18 and Xing 19, I am satisfied that it is relevant, necessary and proportionate to order the production of the financial records of SWT for the period between 1 April 2008 and 30 April 2010. These “financial records” should include books, payment and cash vouchers, management accounts, profit and loss accounts (audited and unaudited), bank transaction statements, and general ledgers compiled by the accounts staff of SWT for the relevant accounting years ending 31 March 2009, 31 March 2010 and 31 March 2011.” (emphasis added)

(The Decision)

41.  Second, for items 1 to 7, it was said that Xing’s case had not been shaken, namely, he did not withdraw these sums from WW.  It was Wen who did the same.  In fact, the Trial Judge did not make any findings.  My attention was further drawn to the evidence adduced before the Trial Judge when she discharged the ex-parte injunction on the ground of material non-disclosure.  

“ 2. When the Mareva Injunction was sought, it was on the basis that the plaintiff had discovered that defendants had misappropriated the plaintiff’s funds, to the order of HK$10 million.  The plaintiff relied on bank withdrawal slips, and the claim against the defendants was that they had withdrawn money belonging to the plaintiff from the plaintiff’s bank account, and that the money had been unaccounted for, such that it was a claim of money had and received.

  3. However, the evidence filed by the defendants now show that in relation to the 1^st defendant, of the sum of HK$1,816,000 said to have been thus misappropriated, save for HK$116,000, the rest had been withdrawn from the plaintiff’s bank not by the 1^st defendant, but by Wei Wen of the plaintiff who had made the affirmation in support of all the plaintiff’s ex parte applications, including the application for Mareva Injunction. 

…

 12.  Even today, the plaintiff has not in any way particularized or substantiated the assertion now made, let alone adduced evidence in support, that the moneys were withdrawn from the plaintiff’s account, with Wei Wen’s approval, on the basis of pretexts made by the 1^st defendant and the 3^rd defendant, but were not in fact put to the uses claimed by them.  As the defendants rightly pointed out, Wei Wen had the plaintiff’s bank statements all along, and had approved the audited financial accounts of the plaintiff, without any query until (on the defendants’ evidence at least) April or May 2011.” (emphasis added)

42.  Third, for items 8 and 9, Mr Chan said that this court should decline to accept the “spreadsheet”.  Xing denied that it was prepared by him. In the alternative, to his best recollection, he explained that these sums had been handled according to the instructions of Wen for payment to customers, payment of SWT’ expenses, including staff wages, purchase of goods and operation expenses.  Although Xing could not produce contemporaneous written record, not every failure to do so justified an adverse inference.  

43.  Regarding the alternative claim, Mr Chan disagreed that it could be proved.  His submissions could be understood by looking at his response in the Scott Schedule.  

“	Ds’ case
	Response to Allegation
	P1’s claim appears to arise from two different bases: (1) P1 relies on the mere fact that money seemingly from P1 were internally booked by P2 as a personal loan from D1 as the very act of misappropriation. (2) P1 relies heavily on Wen’s email dated 15 May 2011 and the attached excel table [B4/1214] as purporting to show that D1 actually handled some of the money which was withdrawn by D3.  P1 now claims for “unaccounted sums”. General comments for claims based on (1): (a) Wen had on more than one instance expressly instructed and authorized D1 to deposit money with P2 as D1’s own personal loan. (b) The treatment of payments into P2 as D1’s personal loan was precisely the subject matter of the PRC Judgment.  P2 failed its defence on first instance, second hearing and final appeal.  (c) In any event, whether P2 is liable to pay back D1 for such deposits is a matter between P2 and D1.  As the proceedings herein concerning P2 had been stayed, P1 has no standing to claim any relief from D1.  General comments for claims based on (2): (a) The unconfirmed Excel table created by Wen is dubious evidence that money was actually handled by D1. The remarks appear to have been added by Wen.  (b) It appears on the face of the email that Wen may have compiled the table from other primary records, but those records were not adduced as evidence.  (c) P1 gave no reasons why the alternative claim was only raised in 2016, by which time there was already a 6-7 years lapse from the relevant transactions.”

44.  Last but not least, Mr Chan also suggested that the Trial Judge had voiced out a number of reservations about WW’s misappropriation claim.  In light of them (which could not be resolved by the limited evidence presented in the account-taking exercise), it would be appropriate for me to direct further consideration of misappropriation by the Trial Judge pursuant to o 44 r 11 (3) of the Rules of High Court (Cap 4A).  

45.  In my view, it is true that the state of evidence regarding misappropriation, as far as WW is concerned is very unsatisfactory, especially in light of the relation of Wen, Xing and Ying as well as the fact that the matters happened years ago.  It is difficult, if not impossible, for WW to prove misappropriation, as observed by the Trial Judge as per paragraphs 132 and 150 of the Judgment. 

46.  Notwithstanding the above, in any event, I would further specifically reject the submissions by Mr Chan that the matter should be referred back to the Trial Judge.  The taking of account exercise was before this court and he should decide the same with all the evidence available.  

47.  To recap, as the evidence before me are more or less the same as appeared before the Trial Judge, I do not think that WW has satisfied its burden to prove on balance any misappropriation.  In short, on balance, as the Trial Judge did, I also cannot be satisfied of any proof of damages under this head because there are so many uncertainties. 

ICS Receivables 

48.  Mr Poon explained the claim regarding ICS Receivables by reference to 2 paragraphs in the Judgment.

“ 152.  Xing does not dispute that WW had issued invoices to ICS for payment of a total sum of US$12,678 and RMB 3000 due under various purchase orders.  Nor does he dispute that ICS had made payment in cash to Xi, Xing’s subordinate at SWT (and who later joined him at ESL or Shenzhen ESL).  ICS claim that the cash payment had been made on Xing’s instructions and approval. In his evidence, Xing claimed that he had asked Xi to handle the cash payment, and only alleged in his witness statement that “in the usual course, any payments received would be passed to the finance Department of SWT for processing”, without further evidence.

  153.  Clearly, Xing has to give a full and detailed account, by reference to SWT’s and WW’s finance records and ledgers, as to how the sum received from ICS had been dealt with, and in default of such full account, the amount should be repaid to WW.”

It was said that Xing not only repeated what he told the Trial Judge during the taking of account, namely, he only handed the sums to a staff, Xi.  He did not take them himself but also came up with a bare assertion that they were not recorded by the accounting staff of SWT. 

49.  Mr Chan argued that it was WW which did not disclose the relevant cash ledgers and record of bank transactions.  As a result, Xing would not be able to show his explanation with documentary proof.  Further, there was also evidence before me pointing to the fact that the sums had been “set-off”. 

50.  On my assessment, Xing’s explanation is far from satisfactory.  As he admitted that he had taken those monies from ISC, short of evidence accepted by this court for the return to WW, he has to be held accountable. 

Compound interest?

51.  Mr Poon prayed for compound interest to be levied on the sums liable to be paid by the defendants to WW.  He said that profits earned in trade would likely to be used as working capital for earning further profits. (Union Knopf (HK) Ltd v Marcel Sossnowski & Anor (DCCJ 680/2010, DDCJ R Lai, 31 March 2014, unreported), Wallersteiner v Moir (no 2) [1975] 2 WLR 389) If the accounting party has been guilty of some bad conduct, including only repeating his defences having been rejected and unwilling to account or account truthfully and accurately, the court should grant compound interest unless there was reason that it should not be done so(Lau Koon Ying v Lau Tark Wing[2019] HKCFI 995).  

52.  Mr Chan disagreed.  He advanced a number of reasons why compound interest could or should not be granted.  The issue was res judicata as the Trial Judge had already decided that interest of 4% per annum was to be levied.  Further, compound interest was not pleaded and without support of evidence (paragraph 18/8/18 of Hong Kong Civil Procedure 2019, Promo International v Chae Man Tock[2018] HKCFI 284.  

53.  In the present case, I think that the question of compound interest can be easily disposed of.  The Trial Judge did decide the same and it therefore does not form part of the taking of account exercise before me. Paragraph 9 of the relevant order states clearly that:

“ 9. Interest to be paid by the 1^st, 2^nd and /or 3^rd Defendants on all damages or sums found due to the 1^st Plaintiff at 4% per annum [emphasis added], for the period from the date of the service of the Writ and until judgment.”

Summary

54.  To conclude, here are my decisions. 

(a) All three defendants shall pay the 1^st plaintiff US$500,749.03 (US$603,312.09 x 83%), being accounts of profits for diversion of business.

(b) The 1^st plaintiff fails to prove and/or quantify any sum of misappropriation by any of the three defendants.

(c) The 1^st defendant shall also pay the 1^st plaintiff US$12,678 and RMB3,000 being ICS receivables.  

(d) Interest on the said sums of US$500,749.03, US$12,678 and RMB3,000 will carry interest at 4% per annum from the date of service of the writ herein until judgment and thereafter at judgment rate until full payment. 

Costs

55.  Costs generally follows the events.  There is no reason to depart from it in the present exercise. The cross-examination against Xing and Ying was useful.  WW showed that both Xing and Ying were unreliable.  WW also showed that all three defendants should repay it a substantial amount of money, albeit not all the proposed amounts by Mr Poon.  Anyway, the difficulties faced by WW, Mr Poon and Mr Leung are understandable. Hence, there will also be an order nisi that all three defendants shall jointly and severally pay costs of the 1^st plaintiff in the present taking of account exercise, including the cross-examination of Xing/Ying and all costs reserved, as well as certificate for counsel for all hearing days before me, to be taxed, if not agreed.  

56.  I have nothing further to add apart from expressing my sincere gratitude towards Mr Poon, Mr Leung, Mr Li and Mr Chan for their able assistance to me. 

Representation and/or Appearance
  on the Dates of Cross Examination:

Mr Poon Siu Bunn, instructed by Benny Kong & Tsai, for the 1^st plaintiff

Mr Taylor Li, instructed by Khoo & Co, for the 1^st and 2^nd defendants

The 3^rd defendant (who was made a bankrupt on 10 September 2018 in HCB 2027/2017 and HCB 2108/2017 (Consolidated)), acting and appearing in person

Representation and/or Appearance
  on the Dates of Oral Submission:

Mr Poon Siu Bunn, leading Mr Leung Sze Lum, instructed by Lam Lee & Lai, for the 1^st plaintiff

Mr Joey Chan, instructed by Khoo & Co, for the 1^st defendant

The 2^nd defendant acting in person and did not appear

The 3^rd defendant (who was made a bankrupt on 10 September 2018 in HCB 2027/2017 and HCB 2108/2017 (Consolidated)), acting in person and did not appear

HCA 797/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 797 OF 2012

____________

______________

D E C I S I O N

______________

1.  On 8 March 2016, Judgment was handed down in relation to the claims made by the Plaintiffs against the Defendants in this action. The 1^st Defendant (“Xing”), 2^nd Defendant (“ESL”) and the 3^rd Defendant (“Ying”) were ordered (inter alia) to account to the 1^st Plaintiff (“WW”) for profits in respect of the breach of fiduciary duties and breach of confidence owed by Xing to WW, ESL’s and Ying’s dishonest assistance, passing off by Xing and ESL, and sums received by Xing and Ying for and on behalf of WW.

2.  On 25 July 2016, directions were ordered for the accounts to be taken (“July 16 Directions”), whereby (inter alia) affidavits were to be filed by Xing in relation to the accounts, and for the actual hearing in respect of the accounts to be held before a Master.

3.  Various affirmations have since been filed by Xing, including his affirmation of 15 September 2016 (“Xing 18”), whereby Xing purported to give the accounts in attempted compliance with the orders made under the Judgment.  Pursuant to the July 16 Directions, Wei Wen (“Wen”) on behalf of WW filed and served a Notice of Alleged Omissions (“Notice”) in respect of Xing’s accounts, claiming that Xing had failed to render any accounts at all in compliance with the Judgment and the July 16 Directions.

4.  On 6 December 2016, Xing applied by summons (“Summons”) for an order that the WW and the 2^nd Plaintiff (“SWT”) provide to him the financial information or documents of WW and SWT, including their invoices, receipts and financial records for 2011 to 2012.  In his affirmation made on 6 December 2016 in support of the Summons, Xing explained that he could not deal with the Notice or comply with the orders made under the Judgment without the documents sought in the Summons, making reference to paragraph 153 of the Judgment.  Paragraph 153 of the Judgment states that Xing “has to give a full and detailed account, by reference to SWT’s and WW’s finance records and ledgers, as to how the sums received from ICS had been dealt with”, and that in default of such full account, the amount of US$12,678 and RMB 3,000 paid by ICS in cash to Xi (Xing’s subordinate at SWT) between March and July 2011 should be repaid to WW.

5.  In his affirmation made on 6 February 17 (“Xing 19”), Xing further explained the basis of and the reason for his request for discovery by the Summons.  In Xing 19, he referred to the need for financial and other documents, including documents relating to the subcontracting relationship between WW and SWT, in order to deal with the Judgment and the accounts to be rendered by him under the Judgment.  I accept that Xing 19 seeks to justify the Summons by reference not just to paragraph 153, but to the general orders for accounts made under the Judgment. 

6.  Just before the commencement of the hearing of the Summons on 2 August 2017, Xing sought to amend the Summons, to seek discovery of a whole detailed range of financial documents of WW and SWT.  He further sought to clarify that the Summons was not intended to confine the scope of the discovery to serve the purposes of paragraph 153 of the Judgment only, but that he seeks discovery for the purposes of paragraphs 153 and 155 of the Judgment.  Under paragraph 155, orders were made in terms of the prayer for relief in the Re-amended Statement of claim, and for accounts to be taken of the sums received by Xing and Ying, as particularized in Annexure B to the Re-amended Statement of Claim (“Annexure B”), and pursuant to the claim for misappropriation of funds of WW by Xing and by Ying.

7.  Prior to the hearing, there had been no summons filed or served for amendment of the Summons.  In view of the lack of proper application and the lack of the necessary and proper notice served on the Plaintiffs of the alleged need for amendment, I made it clear to the parties at the hearing that I will not be entertaining Xing’s late application for amendment, although I will consider the merits of the Summons as supported by Xing’s affirmations, including Xing 18 and Xing 19 served in time prior to the hearing.

8.  The Summons was issued on 6 December 2016 and served on both WW and SWT.  On 1August 2017, prior to the hearing of the Summons, this Court made an order staying the proceedings against SWT, on the basis of a liquidation order which was made against SWT.  At the hearing on 2 August 2017, the Summons was considered as an application made for discovery and production to be made by WW of the documents of WW and of SWT in the possession, custody or control of WW.

9.  I accept the submissions made by Counsel for WW, that insofar as Xing seeks, by the discovery application or for the accounting exercise, to challenge the findings made in the Judgment, or to reargue his case on the subcontracting arrangement or relationship between WW and SWT, or on whether the clients of WW were in fact clients of SWT, or whether WW had a business at all, that is all impermissible and has no place in the account taking exercise which remains after the Judgment.  Discovery of documents for these purposes is unwarranted, lacks any basis whatsoever, and will not be permitted.

10.  In relation to the misappropriation claim, what Xing has to do is to explain, by reference to documents and evidence, what he has done with the sums of money admitted to have been withdrawn by him from the Hong Kong bank accounts of WW, or withdrawn by Ying and given to him under the misappropriation claim made in the Re-Amended Statement of Claim, and dealt with in paragraphs 138 to 151 of the Judgment (“Misappropriation Claim”). In relation to the ICS Receivables, Xing should explain, by reference to documents and evidence, how he has dealt with the sums received from ICS and dealt with in paragraphs 152 to 153 of the Judgment (“ICS Receivables Claim”).  This includes Xing having to explain whether he had received the sums from Xi, or how he had instructed Xi to deal with the cash received from ICS.

11.  Bearing in mind the fact that the withdrawals of the money comprising the Misappropriation Claim took place in 2008 to 2011, it is inconceivable that Xing would be able, and should be expected, to give an account of each and every withdrawal and how each sum withdrawn and/or received by him had been spent, all from memory, and without reference to any documents from WW and SWT.  Any accounting exercise, to be meaningful, must be done by reference to supporting and accounting documents, and it has been Xing’s case throughout the action, up to trial and until now, that since his departure from WW in about December 2011 and his departure from SWT by 2012, he had not had access to the documents of WW and SWT, and that it was Wen who had all along been in charge of the accounting information and documents of the businesses.

12.  Instead of giving his own account of the funds received by him and the uses he had made of the funds, Xing repeated in Xing 18 assertions of the case maintained by WW and Wen, which is irrelevant for Xing’s accounting exercise.  However, Xing did state in Xing 18 that he had used at least part of the funds withdrawn from WW’s accounts as payment of wages for SWT’s employees, or as loans of SWT, and as payment of the daily operating expenses of SWT.  He claims (in paragraph 32 of Xing 18) that he cannot confirm this without the financial information and documents of SWT, to which he has no access.  In paragraph 33 of Xing 18, he further claims to have used part of the funds withdrawn for entertaining a US client.

13.  An account taking exercise requires the cooperation of, and often input from, both sides.  In this case, I accept that for Xing to be able to give any meaningful account in relation to the Misappropriation Claim, he requires the aid of the accounting and financial documents of SWT for the purpose of tracing the use of the funds withdrawn from WW (the withdrawals of which are not disputed).  I agree that in considering whether discovery should be ordered, the Court should consider the relevance and necessity of the documents, and the proportionality of the discovery sought.

14.  In relation to the Misappropriation Claim and on the evidence now contained in Xing 18 and Xing 19, I am satisfied that it is relevant, necessary and proportionate to order the production of the financial records of SWT for the period between 1 April 2008 and 30 April 2010.  These “financial records” should include books, payment and cash vouchers, management accounts, profit and loss accounts (audited and unaudited), bank transaction statements, and general ledgers compiled by the accounts staff of SWT for the relevant accounting years ending 31 March 2009, 31 March 2010 and 31 March 2011.  The withdrawals made from WW’s bank accounts, and in respect of which Xing has to account for, were made between 8 April 2008 and 18 February 2011 (according to Annexure B).  As recorded in paragraph 134 of the Judgment, Ying claimed that some of the cash she withdrew had been paid over to Xing.

15.  As for the ICS Receivables, Xing claims in paragraph 47 of Xing 18 that SWT had received the amounts, and that he requires the financial documents and statements of SWT to confirm this.

16.  On behalf of WW, it is claimed that WW has already supplied to Xing copies of the purchase orders, invoices, and payment vouchers prepared by ICS in relation to the 7 payments made by ICS to Xi (between March and July 2011).  WW further claims that copies of the bank statements of SWT in respect of its account in Shenzhen with 中國工商銀行 (“Bank”), for the period between May 2011 to October 2011, have also been supplied to Xing, and that neither WW nor SWT has any other financial records relating to the ICS Receivables.

17.  In relation to the ICS Receivables Claim, I will order Wen to state on affidavit (pursuant to O 24 r 7 (1) RHC) whether WW is in possession, custody or control of (i) any payment and cash vouchers and general account ledgers of SWT for the period between 1 March 2011 and 31 July 2011; and (ii) any bank transaction statements for any bank account of SWT (other than from the Bank) for the period from 1 March 2011 to 31 July 2011; and if so, to produce copies of the same to Xing. 

18.  In relation to the account for the profits made by Xing as a result of the acts which constitute breach of fiduciary duties, breach of confidence, and passing off, Xing has to explain the transactions entered into by him or in the name of ESL and the profits he had made under such transactions, with reference to documents in his possession, custody or power.  I do not accept at this stage that he needs to review the accounts and business records of WW or SWT for this accounting exercise.

19.  The costs of the Summons and the application for discovery are to be in the cause of the taking of accounts.

20.  Any further applications relating to the conduct of the taking of accounts should be applied to and dealt with by the Master hearing the accounts taking exercise.

HCA 797/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 797 OF 2012

____________

____________

______________

D E C I S I O N

______________

1.  This is an application made by the 1^st Defendant Wei Xing (“Xing”) in the acrimonious dispute between himself and his brother Wei Wen (“Wen”). Judgment was handed down by this Court in March 2016, whereby Xing, his wife the 3^rd Defendant and Evolution Solution Ltd the 2^nd Defendant are held liable to account to 1^st Plaintiff (“WW”) for profits, on account of the Defendants’ respective breach of fiduciary duties, dishonest assistance, passing off and breach of confidence owed to WW.

2.  Accounts are yet to be taken, directions having been made for affidavits to be filed.  An application for discovery of documents by the Plaintiffs for the accounting exercise is outstanding, as is taxation of the costs of WW and the 2^nd Plaintiff (“SWT”) in the action.

3.  It has transpired that after the conclusion of the trial of the action but before the handing down of the Judgment, SWT, which is a company incorporated on the Mainland, was made the subject of an Order made by the Shenzhen Intermediate Court in February 2016, that it be liquidated, or dissolved (“解散”) (“Liquidation Order”).  According to Wen’s evidence, upon the Liquidation Order coming into effect on 29 February 2016, he convened a shareholders’ meeting of SWT, at which meeting it was resolved that a liquidation committee be formed, consisting of a firm of accountants, Wen, Wei Xueli (“Wei”) and others (“1^st LC”). 

4.  By a Letter of Authorisation issued by the 1^st LC on 13 July 2016 (“Authorisation”), Benny Kong & Tsai (“BKT”) were appointed as the solicitors for SWT for these proceedings, and for the appeal made by Xing against the Judgment (“Appeal”). 

5.  Following an order made by the Luohu Court on 18 July 2016 (“July Luohu Order”), on Wei’s application for the compulsory liquidation of SWT, a second liquidation committee comprising Jingtian Law Firm was designated, by order of the Luohu Court made on 20 December 2016, as the liquidation committee of SWT (“2^nd LC”), with Madam Du Yanzhi (“Du”), a Mainland lawyer, named as the responsible person of the 2^nd LC.

6.  On 25 July 2016, directions had been made by this Court for the further conduct of the proceedings relating to the account of profits to be made by the Defendants under the Judgment.

7.  It was only in January and February 2017 that the Hong Kong Court received notices from the 2^nd LC, advising the Court of the compulsory liquidation of SWT by the July Luohu Order and of the appointment of the 2^nd LC.  The notices stated that during the period of SWT’s liquidation and pursuant to the provisions of the PRC Company Law, only the 2^nd LC is to represent SWT in dealing with all related matters and to take part in civil litigation proceedings.  In the notice to the Hong Kong Court dated 23 February 2017, the 2^nd LC sought to suspend the Appeal, and further stated that the representation of SWT in the litigation in Hong Kong can only be confirmed after the 2^nd LC had completed its taking over of the liquidation of SWT.

8.  The Appeal was dismissed on 7 March 2017 by reason of Xing’s failure to provide security for costs.

9.  On 6 March 2017, Xing applied by summons (“Summons”) for orders that BKT cease to act for SWT in these proceedings, for the 2^nd LC or its designated representatives to participate in the proceedings, and until the clarification of SWT’s authorized representatives in these proceedings, for these proceedings to be stayed, and for orders to be made in relation to the “breaches” of BKT, and for BKT to pay all related costs of Xing.  He argued that the 2^nd LC appointed by order of the Mainland Court had replaced the 1^st LC, that after the liquidation of SWT, SWT could only act through the 2^nd LC, and the 2^nd LC had never instructed BKT to act for SWT in these proceedings.  Xing claims that BKT had knowledge of their lack of authority, for absence of any engagement or authorization by Du, but that BKT had misled the Court in Hong Kong, by purporting to have the authority from Du to act.

10.  On behalf of BKT and WW, Counsel highlighted that BKT had originally been retained by SWT (acting through Wen), and that under a written letter of engagement dated 3 October 2014 (“Letter of Engagement”), which confirmed SWT’s engagement of BKT since May 2013, BKT was instructed to provide legal services to and act for SWT in these proceedings, upon SWT’s joinder as 2^nd plaintiff.  The engagement extended to the trial of the action and to the enforcement of orders made by the Hong Kong Court.  Clause 5 of the Letter of Engagement expressly provides that it remained effective until after the conclusion of the trial and the enforcement of the judgment or order of the Court.

11.  Under the Authorisation issued by the 1^st LC, BKT was authorized to represent SWT for these proceedings, the Appeal, the related legal procedures and the recovery of related damages and legal costs, for the protection of SWT’s rights.

12.  On the authority of Underwood Son & Piper v Lewis [1894] 2 QB 306 and Donsland Ltd v Van Hoogstraten [2002] EWCA Civ 253, Counsel therefore submitted that the contract of engagement between SWT and BKT is an entire contract, and that BKT is authorized, and contractually bound, to carry on these proceedings to the end, and to take all steps which are necessary to bring the action to a conclusion, pursuant to the terms of the Letter of Engagement and the Authorisation.  Relying on Donsland which was followed in Euroafrica Shipping Lines Co Ltd v Zegluga Polska SA [2004] EWHC 385 (Comm), it was argued for BKT that their authority to act continued even during any period when there was no one from whom to take immediate instructions, such as the time after the 2^nd LC replaced the 1^st LC but Du had not been able to confirm instructions to BKT to act as solicitors for SWT in Hong Kong. 

13.  The facts of Donsland and Euroafrica are obviously different to the facts of the present case, as Xing sought to distinguish them, but the principle relied upon by WW and BKT is that BKT’s contract with SWT is an entire contract, and their authority extends to the conclusion of their engagement for these proceedings.  These proceedings have not been concluded, in view of the ongoing accounts proceedings and taxation.

14.  Yet, as I have sought to point out in the course of the hearing, the pertinent and indisputable feature of this case is that SWT has been ordered to be put into “compulsory liquidation”.  WW and BKT sought to highlight the fact that SWT was still in existence and in operation, according to the records of the National Enterprise Credit Information Publicity System, of the State Administration of Industry and Commerce.  However, there is no expert evidence adduced on PRC law, as to the effect of a liquidation order made by the Mainland Court, and the effect the liquidation has on the powers of the directors, and on proceedings against the company put into liquidation.  In the absence of such expert evidence, this Court can only assume that Mainland law is the same as Hong Kong law, such that upon being put into liquidation and upon the appointment of liquidators as made by the Luohu Court, proceedings against SWT must be stayed, until the 2^nd LC (which has replaced the 1^st LC) decide to take over and continue such proceedings. Such is consistent with the stance of the 2^nd LC, as stated in its 2 notices to the Hong Kong Court.

15.  Irrespective of whether BKT is contractually bound, by their retainer with SWT under the Letter of Engagement, to remain on the court record in these proceedings and to take steps as may be necessary in order to protect SWT’s interests, these proceedings against SWT can only be stayed upon SWT being put into liquidation upon the making of the July Luohu Order, which order also has the effect of replacing the 1^st LC with the 2^nd LC.  The fact that the 2^nd LC had not terminated the authority given by the 1^st LC to BKT cannot alter the fact and effect of SWT’s liquidation.  If the 2^nd LC had not terminated BKT’s authority, it was because (as explained in her email of 9 May 2017, to be elaborated upon below) the 2^nd LC could not confirm any instruction before reporting to the Luohu Court, which they could not do.

16.  As solicitors and officers of the Court, BKT should have informed this Court of SWT having been put into liquidation, after the making of the Liquidation Order and/or the July Luohu Order.  The liquidation affects the status and standing of SWT as a party in these proceedings, its ability to continue the further conduct of the action and to pursue any of its claims made, the orders which may be made by the Court against SWT, and its liability under such orders including any costs order which may be made against it.  It was only when Xing made his application by the Summons that the question of SWT’s status and its capacity to continue these proceedings was brought into focus when Xing challenged BKT’s representation.  In my view, unnecessary time and costs were wasted as a result of BKT’s lack of full candour on this matter, as evidenced by the fact that there had to be 4 hearings, and 2 orders made by the Court, before BKT and Wen filed all their evidence on the question of BKT’s representation of SWT, in response to the Summons. 

17.  In particular, as Xing rightly pointed out, Du had emailed the solicitor at BKT on 9 May 2017, at 10:07am, to inform him that any alleged understanding that she had instructed BKT to continue acting for SWT in the Hong Kong proceedings was wrong.  Du explained in the email that as she had not been able to take over the receivership of SWT from Wen, the 2^nd LC would not instruct BKT to undertake any work on behalf of SWT in Hong Kong, and that they could only confirm their engagement of solicitors after the 2^nd LC had reported to the Luohu Court.  In the email, Du pointed out that BKT was only to report to the 2^nd LC in respect of any related steps or developments.  Xing pointed out that Du had specifically requested BKT to use her email as the basis of any communication to third parties with regard to BKT’s representation of SWT.

18.  I accept the submissions made by Xing, that in view of Du’s email of 9 May 2017, BKT should have informed the Court at the hearing on 10 May 2017 at the latest, in relation to their most recent communication with Du and the statements made in her email with regard to BKT’s role, which statements were not consistent with the claims made in the affirmation of Wen filed on behalf of WW and BKT on 24 March 2017, that Du had confirmed instructions for BKT to continue to represent SWT in these proceedings.

19.  Further, and as this Court observed in the course of the hearing on 26 July 2017, and as accepted by Counsel, at no stage did BKT acting for WW and, purportedly, SWT ever indicate to Xing that they would consent to the proceedings against SWT being stayed, by virtue of either the Liquidation Order in February 2016, or the July Luohu Order.  It was only at the hearing on 26 July 2017, that Counsel for BKT and WW agreed with the Court’s indication that the proceedings should be stayed against SWT.  If the position of WW and BKT as to the stay of proceedings against SWT had been made clear to Xing and the Court at an earlier stage, time and costs would have been saved.

20.  On the Summons, I accordingly make an order that further proceedings in this action be stayed as against SWT, until further order of this Court.  The liquidation of SWT does not affect WW being the 1^st plaintiff, and the conduct of the accounting exercise to WW, which continues.  Any need for documents to be obtained from SWT through the 2^nd LC, and whether WW has possession or custody of those documents, can be addressed at the hearing of the discovery application.

21.  Costs are in the discretion of the Court.  Xing has essentially obtained the stay he seeks by the Summons.  BKT’s resistance to Xing’s application for costs is on the basis that they had the authority to remain as solicitors for SWT by virtue of their retainer being an entire contract.  However, a party’s conduct in the carriage of the proceedings is a relevant matter to be taken into account, when liability for costs are determined. 

22.  In view of the lack of full and candid disclosure by BKT and Wen as to the status of SWT, the stance of the 2^nd LC, and the stay of proceedings against SWT by virtue of its liquidation, and by virtue of the fact that court time and Xing’s costs have been unnecessarily wasted as a result, I order that the costs of Xing’s application by the Summons should be paid by WW and BKT to Xing, to be taxed if not agreed.

HCA 797/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 797 OF 2012

____________

____________

_______________

J U D G M E N T

_______________

Background

1. This is yet another acrimonious dispute between 2 brothers, and their fight over the business of companies which used to be operated by them.  On their evidence, over 10 sets of proceedings have been instituted in Hong Kong and on the Mainland since 2012 as a result of their falling out.

2. In the proceedings before me, the 1^st plaintiff (“WW”) is a company incorporated in Hong Kong in 2004.  The shares of WW are held as to 70% by the elder brother Wei Wen (“Wen”), and as to 30% by the younger brother Wei Xing (“Xing”).  WW is engaged in the sale and provision of test fixtures, test systems, test equipment and test instruments for electronic and computer hardware products and the supply of related technical services (“Business”) to clients primarily outside Mainland China.  The 2^nd plaintiff (“SWT”) is a company incorporated in the Mainland in 2007, and carries on business in Shenzhen on the Mainland, of a nature which is similar if not identical to WW’s.  WW claims that SWT is its subcontractor, although this is disputed by the defendants.  Wen and Xing are beneficially entitled to the shares in SWT, again with Wen being the majority and Xing being the minority shareholder.

3. Wen, Xing and the 3^rd defendant, who is Xing’s wife (“Ying”), were directors of WW.  These proceedings were first commenced by Wen, in the name and on behalf of WW, against Xing, Ying and the 2^nd defendant, Evolution Solution Limited (“ESL”), a company incorporated in Hong Kong with Ying and Xing as directors, Ying being its sole shareholder.  WW claims that as directors of WW, Xing and Ying acted in breach of their fiduciary duties, and as employees of WW, Xing and Ying acted in breach of their duties of fidelity omitted to their employer, when they transferred confidential information belonging to WW and diverted business opportunities from WW to ESL, and used ESL to carry on a business in competition with WW’s business.  It is claimed that the defendants had used confidential information belonging to WW, in the form of lists of clients, lists of suppliers, confidential information of WW’s clients, and WW’s technical confidential information; that ESL had dishonestly assisted Xing and Ying in their breach of their fiduciary duties, duties of fidelity and duties of confidence owed it to WW; and that Ying had dishonestly assisted Xing’s breach of duties.

4. In addition to the above claims of breach of fiduciary duties, duties of fidelity and of confidentiality, and dishonest assistance, WW claims that the defendants have passed off their business as and for WW’s Business.

5. As an alternative to the above, and in response to the claims made by the defendants that WW had no Business, no clients and no reputation in Hong Kong, and that the Business, clients and reputation relied upon by WW in fact belonged to SWT, SWT was joined as 2^nd plaintiff to make the claims of breach of duties of fidelity and confidentiality, and passing off, against the defendants.

6. Further, WW claims that Xing had misappropriated a total sum of HK$1,816,000 and US$15,500, and Ying had misappropriated a sum of HK$6,290,000 and US$334,460 from WW.

7. The defendants deny all claims made against them. They dispute the period of their directorship, deny that they owed any duties to the plaintiffs, particularly after they ceased to be directors, deny that WW had any business at all, nor any clients, or confidential information as claimed, and deny that they had transferred, diverted or passed off any Business of the plaintiffs, or had misappropriated any money of WW.

General observations on credibility

8. Much of this case depends on the credibility of the witnesses and their testimony.  As will be elaborated below, I have not been impressed by the evidence of either Wen or Xing.  Their acrimony and the bitterness of their dispute (which they claim commenced in early 2009 when their relationship began to deteriorate) have affected their evidence, to the extent of their taking inconsistent stances in relation to the same documents on different aspects of their case.  I prefer to rely instead on contemporaneous documents, particularly those prepared and signed by the parties before litigation commenced, and to test the witnesses’ evidence against such documents.

9. Overall, I do not consider Xing and Ying to be reliable witnesses.  Their evidence has been contradicted by the documents, and has evolved from the witness statements to the different versions given in cross-examination at trial.  Instances have been identified by Counsel, which I accept to be contradictions and inconsistencies in the defendants’ evidence.  Particularly noteworthy are Xing’s assertions that he had registered but not used the domain name of caevolution.com for any communication, that he had never given control of the caevolution.com domain name and email addresses to ESL, that he was not associated with ESL or Shenzhen ESL, and that he had not engaged in any form of testing business with Apple after the grant of the injunction in July 2012, all of which are contradicted by the contents of the emails and documents disclosed by Apple.  Ying’s original claim that ESL is only a trading company and does not run any business similar to WW’s is directly contradicted by the claims made by Xing on behalf of ESL, in his affirmation of July 2012, filed to discharge and oppose the continuation of the Mareva injunction order.  The claims made by Xing and Ying as to their position within WW are also inconsistent with the assertions they made in documents filed in their Labour Tribunal proceedings.

10. The length of this judgment is necessitated by the numerous causes of action raised by the plaintiffs, each of which in turn raises different issues, and I will deal with the issues raised by the parties to the extent required for determination of the causes in dispute.

When did Xing and Ying cease to be directors of WW?

11. In the Re-amended Statement of Claim, the plaintiffs claim that Xing was a paid director of WW, the deputy general manager of WW and the general manager of SWT.  The plaintiffs also claim that Ying was a paid director under WW’s employment until about June or July 2011, and that she was employed as an assistant to the general manager of SWT until early December 2011. 

12. Xing claims in his Defence that on 1 December 2011, he had resigned and ceased to be a director of WW, and also resigned as the deputy general manager of SWT.

13. There is no dispute that Ying was appointed as a director of WW upon its incorporation in 2004.  Ying claims (in her witness statement) that she was so appointed because Wen informed her that as a Hong Kong company, WW required at least one Hong Kong resident to act as its director, and as she was a Hong Kong resident, she was told to help out and to take up the title.  She claims that she was never involved in the operation and management of WW at all, and that her role was trivial, acting merely as a postman to deliver documents between Hong Kong and the Mainland, and withdrawing cash from WW’s bank accounts in Hong Kong upon instructions received from Wen.

14. Ying claims that in June 2011, she was dismissed as a director by Wen and that her alleged employment by WW ceased in June 2011.

15. Ying admits to her being employed by SWT as manager, but claims that such employment ceased on 1 December 2011.

16. According to the plaintiffs’ case as pleaded in the Amended Reply, the proposal that Ying should cease to be a director of WW had only been raised for discussion in June 2011, but no decision had been made. WW claims that Ying was continued to be paid as a director of WW until August 2011 and that WW continued to make contributions to its MPF scheme for Ying until November 2011.  WW claims that on 23 May 2012, Ying unilaterally filed notification of her resignation as a secretary and director of WW (“Form D4”) at the Companies Registry, stating the date of her resignation as a director of WW to be 22 June 2011.  According to WW, Ying was employed by SWT as assistant to the general manager (Xing).

17. In a case where the facts are disputed and the evidence from the witnesses are polarized, the Court often places more reliance on contemporaneous documents and public records.  As is recurrent in this case, parties who signed and signified their consent to the contents of documents, particularly documents filed with public authorities, have sought to rely on the contents and truth of such documents for one purpose, but seek to denounce or disown the same contents and the truth of such documents for another purpose, all for their own convenience and on their random choice.  This should not be permitted, least of all in legal proceedings.

18. The annual return filed for WW at the Companies Registry (“Registry”) in Hong Kong on 14 December 2011, and made up to 3 December 2011, reflect Wen, Xing and Ying as directors.  The addresses for Wen and Ying were stated to be in Shenzhen (and not Hong Kong as Ying claims for herself).  Xing’s address was stated to be Hong Kong. 

19. The evidence of Xing and Ying are that it was Wen who attended to matters relating to the preparation of the accounts and documents for filing at the Registry, but upon their appointment as directors, Xing and Ying must have signed consent to act as directors for filing at the Registry.  Ying’s Counsel sought to argue that Ying had never been involved in the internal management and administration of the affairs of WW, that she only had a nominal role to play as a messenger or courier, with no power or discretion to exercise in relation to WW’s business, and that she merely followed Wen’s orders.  I do not accept this offers any excuse for Ying.  So long as she consented to acting as a director, she assumed the role, and the duties which flow in law from that role.

20. The parties are in dispute as to when Xing and Ying effectively ceased to be directors of WW.  Under the relevant provisions of the Articles of Association of WW (“Articles”), the office of a director shall be vacated if the director “resigns his office by notice in writing to the company” or is removed in accordance with Article 77 - which provides that WW may remove any director by special resolution.  There is no evidence of any special resolution having been passed to remove either Xing or Ying as directors of WW.  Nor is there any resignation of either Xing or Ying in respect of their directorship in WW, of which notice had been given to WW in writing.

21. The emails of 3 and 22 June 2011 relied upon by Xing and Ying are not effective to remove Ying as a director, as claimed.  On 3 June 2011, Wen emailed Xing, to inform Xing that with immediate effect, no further arrangements should be made for Ying to go to Hong Kong to deal with WW’s documents and funds, and that these would be dealt with by Wen instead.  Wen also referred in the email to a written proposal which he would make, for resolution by the shareholders.  On 22 June 2011, Wen emailed Xing again, informing Xing that he was considering adjustments to be made to the daily operations of WW, including changes to the board, in view of the declining business and the directors’ remuneration.  In the email of 22 June 2011, Wen referred to his “proposal” to make changes to the facilities and business processes, and went on to state:

“Regarding the directors of the Hong Kong company, immediately terminate the directorship of (Ying), retaining only 2 shareholder directors. Adjustments to be made to the directors’ fees of the remaining shareholder directors, to be discussed and confirmed at the beginning of the next month, on the basis of the actual status of the company.

Please state your opinion on the above arrangements and let me know in time.”

22. As counsel for WW highlighted, the email of 22 June 2011 was not even sent or copied to Ying.  There is no evidence of any reply from Xing to Wen , or to Wen’s email of 22 June 2011.

23. Further, it is not in dispute that there was no contract between WW and either Xing or Ying as to their service as directors of WW.  There is no pleading that Ying was dismissed as a result of any provision in her contract of service.  The only pleaded cause of Ying’s cessation as a director is the fact of her termination as such by WW in June 2011, ie by reference to Wen’s email.  No other particulars or evidence have been adduced in respect of any other event of termination, or any meeting in June 2011 in which the alleged termination took place.

24. On the face of the email of 22 June 2011, which only sets out Wen’s proposal, made to Xing (and not to Ying), with a request for Xing’s comments, and in the absence of any evidence of either (1) a special resolution having been passed by the shareholders of WW to remove Ying as a director, or (2) notice in writing of Ying’s resignation as director, there was no effective termination of Ying’s directorship.  She may have been relieved of her duties as a director, but in the absence of an effective removal or resignation in law, she remained a director.  It was only on 23 May 2012 that Ying procured notification to be filed at the Registry of her purported resignation, stated to be on 22 June 2011.  There is no plea of Ying’s acceptance of any repudiation by WW, for there to be any termination of her service as director.

25. Although the plaintiffs’ plea in the Re-amended Statement of Claim is that Ying was a “paid directoruntil June or July 2011”, they expressly deny Ying’s plea in paragraph 6 (2) of her Amended Defence that she had ceased to be a director since June 2011.  The plaintiffs claim in paragraph 4 (ba) of the Amended Reply that no decision had been made on the proposal that Ying should cease to be a director, and they specifically pleaded that WW had continued to pay directors fees to Ying until 8 August 2011, and MPF contributions until November 2011.  I cannot agree that there is any admission by the plaintiffs that Ying had ceased to be a director since June 2011 - as Counsel for Ying submits.

26. The same applies to Xing.  He claimed to have resigned as director of WW on 1 December 2011, but there is no evidence of any notice in writing of such purported resignation having been served on WW.  It was only on 6 November 2012 that Xing through his solicitors unilaterally filed Form D4 and notification of his resignation at the Registry, claiming that he had resigned as director on 1 December 2011.

27. As counsel for the plaintiffs highlighted, Xing himself claimed in the affirmation which he filed in these proceedings on 7 June 2012, in opposition to WW’s application for injunctive relief, that he was one of the directors of WW.  His solicitors also claimed, in their letter of 22 June 2012, that Xing was then still a director of WW, and on that basis asked for documents to be released by WW’s company secretary.  Xing was obviously under legal advice when he claimed to be a director on 22 June 2012.

28. Ying and Xing sought to refer to documents and statements which the parties, including Wen, had filed in the Labour Tribunal, when Ying and Xing brought proceedings against WW in November 2011 for long service payments, severance payments and wages in arrears, claimed to be payable under their employment by WW upon the termination of their employment. Suffices it to say that both Ying and Wen had made statements in the labour proceedings which are inconsistent with the assertions they made in these proceedings[1], and I place little reliance on the self-serving bare assertions which they made. In my view of the entirety of their evidence in this case, including the evidence obtained from Apple Inc, each of Wen, Xing and Ying have chosen to present mere fragments of the whole truth, and they have picked only those fragments which suit their particular purpose in any particular aspect.  Their evidence have shifted like a kaleidoscope, such that I do not trust any of them as honest and reliable witnesses, and prefer to rely on any contemporaneous and independent documents as may exist. 

29. On the entirety of the evidence, since there was no effective termination of Ying’s directorship by the emails of June 2011, and no notice in writing of the resignation of either Xing and Ying, Xing and Ying remained as directors of WW.  Ying was still paid her salary as a director on 8 August 2011. 

30. The earliest time at which it could be argued that they had given notice of their resignation was when Xing filed Form D4 on 6 November 2012, and Ying filed Form D4 on 23 May 2012.

Whether Xing and Ying owe fiduciary duties to WW

31. As I have found that Xing and Ying were directors of WW until November 2012 and May 2012 respectively, they owed fiduciary duties in their capacity as directors during their period of directorship (Foster Bryant Surveying Ltd v Bryant [2007] EWCA Civ 200, Hunter Kane Limited v Watkins [2002] EWHC 186 (Ch), CMS Dolphin Limited v Simonet [2001] 2 BCLC 704).  It is not disputed by Counsel for Ying that:

(1) A director, while acting as such, has a fiduciary relationship with his company.  That is, he has an obligation to deal towards it with loyalty, good faith and avoidance of the conflict of duty and self-interest.

(2)  A requirement to avoid a conflict of duty and self-interest means that a director is precluded from obtaining for himself, either secretly or without the informed approval of the company, any property or business advantage either belonging to the company or for which it has been negotiating, especially where the director or officer is a participant in the negotiations.

(3)  A fiduciary relationship does not continue after the determination of the relationship which gives rise to it.  After the relationship is determined the director is in general not under the continuing obligations which are the features of the fiduciary relationship.

(4)  A director is however precluded from acting in breach of the duty to avoid conflict, even after his resignation where the resignation may fairly be said to have been prompted or influenced by a wish to acquire for himself any maturing business opportunities sought by the company and where it was his position with the company rather than a fresh initiative that led him to the opportunity which he later acquired.

32. Whether Ying incurred any liability after the date of termination of her directorship in June 2011, as she claims, or after May 2012, will be dealt with separately below.

Whether WW had a business and clients at the material time

33. According to the Re-amended Statement of Claim, WW was incorporated in Hong Kong in 2004, and was at all material times engaged in its business of selling and providing test systems, and test fixtures, equipment and instruments for electronic and computer hardware products.  It pleads that its clients consist primarily of overseas and multinational corporations which are in the business of selling and providing electronic consumer products, and WW’s Business is to test their clients’ products before they are released for sale to the general public.  On the other hand, SWT was at all material times incorporated in the Mainland in 2007.  According to the plaintiffs, SWT carried on a business which is similar to WW’s Business, but with a clientele which is largely based in the Mainland, as opposed to WW’s clients which are primarily outside the Mainland.  On the plaintiffs’ case, WW sub-contracted its work to SWT, and utilized SWT’s resources and manpower to carry out production and testing procedures of electronic products in SWT’s factory in Shenzhen, for which sub-contracting charges were paid by WW to SWT.  A list of WW’s clients is appended as Annexure A to the Amended Statement of Claim (“Annexure A companies”).  This sets out 54 entities, including Apple Inc (“Apple”), Cisco Systems Inc, Dell Inc, PICO Denshi (HK) Limited (“PICO”), SMC Pneumatics (Hong Kong) Ltd (“SMC”) and Foxconn Assembly LLC, to name a few.

34. The defendants deny that WW had carried on any active and substantive business.  They claim that WW was only responsible for assisting SWT to issue quotations, to receive purchase orders, to issue invoices and to collect payments from SWT’s overseas clients.  According to the defendants, WW would also order raw materials for SWT from Hong Kong and overseas suppliers, and would arrange payment and delivery for such raw materials.  In short, the defendants’ case is that WW was only an invoice issuing and money collecting entity for SWT.  It had no staff other than WW, Xing and Ying as directors.  It owned no plant, facilities or equipment and did not even have an office in Hong Kong, apart from the address of its secretarial company and/or solicitors.

35. According to the defendants, WW had been set up initially as the invoice issuing and money collecting entity for the Luohu branch of Shenzhen Willwin Industrial Company Limited (深圳市圖創實業羅湖分公司) (“SWI LH”). The operations of SWI LH ceased and were taken over by SWT in about 2007, with WW continuing to act as the invoice issuing and money collecting entity of SWT.

36. The defendants deny that WW had any clients, since it had no business, but that at times, SWT’s staff on the Mainland would issue quotations in WW’s name to SWT’s clients, and if purchase orders were received, these would be executed by SWT, although invoices would be issued by SWT’s staff in the name of WW (paragraphs 8 (4) and 8 (5) of the Amended Defence of ESL and Ying).  According to Xing’s Re-amended Defence, if the clients set out in Annexure A were clients, they were clients of SWT, and not of WW, with the exception of PICO and SMC which were the suppliers of SWT.  The defendants deny that there was any sub-contracting relationship between WW and SWT, and further deny that any subcontracting charges had been paid to SWT.

37. Both Counsel for the plaintiffs and Counsel for ESL and Ying agree that contemporaneous documents which came into existence prior to any dispute arose between the brothers are of greater importance in assessing the credibility of the witnesses and of their respective case.  The testimony of the witnesses should be tested by and against the contemporaneous documents, and I consider that the following documents are relevant to the issue of whether WW had a business, and the relationship between WW and SWT/SWI LH.

38. First, as early as 2006 and 2009, there had been emails from Wen to Xing, in which references were made as to the operations and business relationship between WW and SWI LH/SWT. 

39. On 8 February 2006, Wen sent an email to Xing, which was copied to Ying, in which Wen referred to arrangements he proposed as to how the business dealings and accounting between WW and SWI LH should be dealt with:

(1) on receiving clients’ purchase orders, WW, the Hong Kong company, should issue corresponding purchase orders to the “branch company”, for 70% of the value of the purchase order received from the client;

(2) upon receipt of payment from clients, WW would then make payment to the branch company of the amount specified in its purchase order, to be used for payment of market expenses, cost of production, etc;

(3) the balance remaining with WW in Hong Kong would be used to pay for the equipment and parts to be purchased in Hong Kong, and as profits of WW.

40. On 9 November 2009, Wen emailed Ip (the Hong Kong accountant), in which he referred to various documents, including purchase statistics for 2008 to 2009, based on purchase orders which were issued for purchase of materials and parts.  Wen pointed out that the contract and invoices in respect of the design and production work which WW had entrusted to the Mainland company were still outstanding but would be supplied, and that the amounts involved were approximately 65% of the amount of the contracts received by WW.

41. On 18 November 2009, Wen sent an email to Ip, which was copied to Xing, which related to the accounts for the years 2006 to 2009.  In this email, Wen referred to their discussions on the accounts for WW and figures relating to sales discount, office rental, loss and profits.  Wen stated that WW had engaged SWI LH to carry out engineering design, production and repairs, and related technical support and services on the Mainland.

42. In an earlier email from Wen to Ip on 18 November 2010, Wen also referred to WW’s payment of the cost of purchases, and payment for the products and services of the Shenzhen factory.  This email was similarly copied to Xing.

43. These emails obviously support the plaintiffs’ assertions that WW had a role to play in the production and manufacturing activities of SWI LH and the factory in Shenzhen, and that orders for products were received by WW from clients.

44. The financial statements of WW over the years (from at least 2007 to 2010) also record that WW had received revenue, incurred costs of sales, and paid sub-contracting charges to a related company, in which the directors had beneficial interests.  WW was also recorded to have acquired plant and equipment.

45. Xing and Ying claim that Wen had sole control of the financial affairs of WW and the dealings with the accountants, and that he dictated how the accounts of WW should be presented.  Notwithstanding such assertions, Xing had signed the financial statements of WW for the year ending 31 March 2010, and Ying had signed the financial statements of WW for the years ending 31 March 2007, 31 March 2008 and 31 March 2009.  Their signatures must signify their understanding and approval of the contents of the financial statements, which are important documents of the company for which they acted as directors at the material time.  It lies ill in their mouth to assert or even suggest that the accounts are accurate and can be accepted by them for certain purposes only, but not for other purposes, or when disputes arise in legal proceedings.  These are relevant accounts record that sub-contracting charges had been paid over the years by WW to its related company, which on the evidence can only be understood to be either SWI LH or SWT which (the parties do not dispute) took over the business and operations of SWI LH some time in 2007.

46. The nature of WW’s business is also recorded in its tax returns.  On 16 November 2009, Ying declared, as director of WW, on the profit tax return filed with the Inland Revenue Department of Hong Kong that the nature of WW’s main business was the “provision of technical engineering system design and testing services and sales of electrical and electronic apparatus”.

47. On behalf of Ying and ESL, Counsel argued that the amounts recorded in WW’s financial statements as being due to a director and to a related company evidence that there were money transfers from WW, which is allegedly consistent with WW being a money collecting entity of SWT.  Counsel also argued that there were more amounts shown in the financial statements as being due to WW by debtors, than amounts due from WW to its creditors.  I reject these as being inconsistent with WW having any business of its own.  Nor do I agree that these should be taken as evidence of WW being a money collecting agent of SWT.  I also reject Xing’s submission, that a company such as SWT would only accept sub-contracting work, if it has no business of its own, or the profits from the sub-contracted work are very attractive.

48. On all the evidence, it seems clear to me that throughout the years, the brothers had been using WW and SWI LH (and its successor SWT) together, for the operation of their business of providing test systems and equipment or instruments for electronic and computer hardware products, and the related technical services.  SWT and its staff on the Mainland may have been doing the substantial part of the work under orders received from clients, but this is hardly surprising as a manner of business operation these days.  It is material that as evidenced by the documents disclosed by Apple in these proceedings, purchase orders had been placed with WW and in its name.  WW was recorded in Apple’s database as the supplier of the relevant services and hardware.  Purchase orders have been produced in evidence as having been placed by Annexure A companies, such as Apple and others, with WW.  Invoices were issued by WW to Apple and other Annexure A companies.  The defendants do not in fact dispute that invoices were issued by WW, and purchase orders from some clients were placed in the name of WW.  They only claim that that was WW’s only and limited nominal role: as invoice issuers and money collectors for SWT. 

49. There is evidence of representatives from Apple having corresponded with Xing, via email addresses which bear and incorporate the name WW. 

50. The fact that WW may have a factory, or another entity acting on its behalf, on the Mainland to carry out the production, the testing and the technical servicing, even to the knowledge of clients, does not mean that WW has no business, goodwill, or clients of its own.  Pertinently, in the subsequent emails sent by Xing in the name or on behalf of ESL to Apple, relating to Xing’s offer in July 2011 to supply Nemo4 boards to Apple by the “new SMT factory”/ESL, the response from Apple’s Richard  Lim (“Lim”) on 9 July 2011 was:

“I am glad that you are attempting to qualify new SMT factory for Nemo4 board, but I must reiterate that this effort is fully the undertaking of (WW). Apple cannot promise you any business even if you have successfully proven that you now have the capability to produce Nemo4 boards successfully.” (Emphasis added)

This is good evidence of WW’s goodwill as the producer of the relevant part for Apple, which goodwill must be part of WW’s Business.

51. Similarly, on 10 November 2011, when Xing emailed Apple to inform Apple of his new business and his move from his former business, reference was made not to SWT, but to WW :

“Your news is so fast. I with all the key persons inWillwin will move to a new company: (ESL). The new company will locate the manufacturing in Shenzhen and will be the same like Willwin.”

If WW only exists in name, with no business, no goodwill, no credibility, no other reason than to print an invoice to receive payment on behalf of SWT, there is no reason for Xing or anyone else to emphasize to Apple that the new business, and the persons in the new business, are from WW and are the same individuals working within WW. 

52. It seems clear from the evidence that before the disputes which led to the commencement of legal proceedings, Wen and Xing had been content to be flexible with clients as to with whom purchase orders for their products and services should be placed, to facilitate the manner of payment or the currency in which payment was to be made by the clients.  It is common knowledge that there are currency controls on the Mainland, and it is readily apparent that it would be more convenient for WW in Hong Kong to issue invoices to clients which are outside the Mainland and to receive payment from such clients in Hong Kong, in Hong Kong or foreign currency, under purchase orders issued by clients in WW’s name.  On the evidence, Wen and Xing appeared to be content, before 2011, with treating WW and SWT as one entity, or as related entities in one group, before their disputes arose.  Xing and Ying never objected to the treatment of the costs and expenses as reflected in WW’s financial statements, which referred to WW’s payment of sub-contracting charges. Despite the absence of any formal documentation (as emphasized by Ip) relating to the sub-contracting relationship between WW and SWI LH/SWT, or any other related company, Xing and Ying never queried this or the financial statements, when these were signed by them.

53. The letter of confirmation from ICS Engineering & Servicing Pte Limited (“ICS”) (said to be a customer of SWT) simply reflects the realities of the loose and flexible arrangements between WW and SWT, as referred to above. 

54. The distinctions Xing sought to make between WW and SWT, and his claims that it is inconceivable that the staff of SWT should be working on quotations for WW and for WW and SWT to have shared a domain name, appear artificial, when both Wen and Xing had beneficial interests in SWT and WW at the material time, and had treated the 2 companies as being related.  Clearly, these distinctions have only made in retrospect, when the relationship between the brothers has turned sour and trust has broken down.

55. On all the evidence, I accept that WW had a Business, as it claims, and goodwill in such Business. 

Whether WW had clients

56. By reason of the matters referred to under the preceding heading, I find that WW had clients, which dealt with it in the course of its Business, as evidenced by the purchase orders placed with WW, and the invoices issued by WW. It is irrelevant whether WW itself carried out the production work and the technical or other services referred to in the purchase orders and the invoices, whether it sub-contracted such work and services, or whether it entrusted the work and services to its agent, be such agent its related company, or an entirely independent third party.

57. In my judgment, whether SWT is WW’s sub-contractor is irrelevant to the claims made by WW against the defendants. 

Whether Xing and Ying had diverted WW’s business to ESL or were in breach of their duties to WW

58. Xing has clearly been shown to have been lying when he denied in his Defence that he had no business relationship with ESL, and that he had never used ESL’s domain name of caevolution.com (“ESL Domain Name”).  It is also a lie, for Ying to assert in her Defence and in her evidence that ESL was only a trading company, that ESL did not carry on any business identical to or in competition with the plaintiffs, and that Xing had never been involved in ESL’s operations.

59. It was in May 2014 that this Court ordered Apple, on the plaintiffs’ application, to disclose documents relating to its dealings with the defendants in this case.  As a result, Apple produced documents which, by order of the Court made in November 2014, was included as evidence in these proceedings.  These included emails Xing issued to Apple and its representatives, using his email address of [email protected] (“Wilson Email Address”), in which orders were solicited from Apple, and ESL was set up as a vendor account of Apple.

60. First, the allegation made by Ying that ESL was only a trading company set up by her, with no business which is identical to or in competition with that of WW, is in fact contradicted by the initial assertions made by Xing in his affirmation made in July 2012, in support of the application launched by Xing, ESL and Ying to discharge the Mareva injunction granted by the Court in the earlier part of these proceedings, in May 2012.  In that affirmation, Xing sought to establish that as a result of the grant of the Mareva injunction, ESL had not been able to “take on, continue and/or complete most if not all of its projects”.  He produced in evidence copies of some purchase orders placed with ESL and emails sent to ESL, as illustration of the effect of the Mareva injunction on ESL’s business, claiming that ESL had already suffered a loss of at least HK$4.7 million, and that if the injunction were to be continued, ESL would suffer a further loss of HK$5.6 million.  In short, this represented ESL’s alleged loss from the purchase orders and business transactions lost or affected by the Mareva injunction.  The purchase orders and emails exhibited to Xing’s affirmation refer to orders for ESL’s supply of woodpecker boards, MP boards, and test fixtures which appear to be of a similar nature as the test fixtures, equipment and instruments sold and produced by WW and SWT.  If ESL had not conducted any business in competition with that of WW, I fail to see how Xing could have claimed in July 2012 that the Mareva injunction had affected the purchase orders to which he referred, and how the loss of HK$4.7 million to HK$5.6 million could have represented ESL’s damage.

61. The claims made in Xing’s affirmation in July 2012 are patently inconsistent with the assertions made by Xing and Ying in the witness box, that they had only been operating the business of ESL in Shenzhen as a favor for their friend, Mr Zhou, a fact which was never mentioned in any of the pleadings and witness statements filed on behalf of the defendants.

62. The correspondence and documents disclosed by Apple also contradict the claims made by Ying, that ESL was only a trading company with a business which does not compete with that of WW.

63. Bearing in mind that even on Xing’s pleaded case, he only resigned from his directorship on 1 December 2011, the emails produced by Apple show that on 7 July 2011, Xing was communicating with Nihal Kaushal of Apple (“Nihal”) in the following manner, regarding the production of a new part for Apple called the Nemo board:

“For the Nemo board had you ever announced to all the CMs that we cannot do it? As these 2 weeks many CMs still call us to discuss the Nemo, including fujikula, FAT, Mflex, foxxconn guanlan.

I use another vendor to build 10 pcs new Nemo, will ship to you next week after we check it.  I need your help to verify them and just want to approve that we can do.”

The response from Nihal on 8 July 2011 was as follows:

“Hi Wilson:

For the Nemo board had you ever announced to all the CMs that we cannot do it?

I did. It is surprising that they contacted you for Nemo. Are you sure they did not want Woodpeckers?

I use another vendor to build 10 pcs new Nemo, will ship to you next week after we check it. I need your help to verify them and just want to approve that we can do.

I am not sure if we will source these boards from you.  I appreciate your hard work and determination to make the board’s work.  I will let you know within the next 2 weeks if we will consider sourcing Nemo board’s from you as an option.”

64. On 9 July 2011, Richard Lim of Apple (“Lim”) emailed Xing, with a copy to Nihal, quoting the above exchange between Wilson and Nihal, and stating as follows:

“I am glad that you are attempting to qualify new SMT factory for Nemo4 board, but I must reiterate that this effort is fully the undertaking of Wilwin Inc. Apple cannot promise you any business even if you have successfully proven that you now have the capability to produce Nemo4 board’s successfully. We will however support you on our answering any technical questions, if you may have or have, in your attempt.”

65. The evidence further shows that on 28 October 2011, ESL already issued a price quotation to Apple in respect of the N41 pressure tester V1.1 fixture, an item which WW and SWT were producing for Apple. Xing’s name and the Wilson Email Address were shown on the price quotation.  The email correspondence disclosed by Apple shows that firstly, on 14 November 2011, Xing sent to Lim, amongst other things, the N41 pressure tester quotation, together with “basic information” on ESL.  There was then email correspondence amongst Apple’s representatives, relating to orders placed with WW for the N41, and whether they were outstanding purchase orders “regardless of (WW) or (ESL)”.

66. In November 2011, there had been a series of emails between Xing and Apple. 

67. On 9 November 2011, Xing emailed Apple:

“Your news is so fast. I with all the key persons in Willwin will move to a new company: Evolution Solution Limited. The new company will locate the manufacturing in Shenzhen and will be the same like willwin.

Attached is my new company’s information, any need just call me.”

68. The response from Lim was:

“Hi Wilson,

I need you to sign NDA for the following projects that your new company may be involved.

N41

N 78

J1/J2

J 65

Attached are their respective NDA documents. Please return to copies for each NDA, with original signature and company stamp.

A representative for my team will visit you to audit your manufacturing facilities and capability at soonest.”

69. On 8 November 2011, Apple’s representative Maria Flores (“Maria”) emailed Xing, to say:

“Hi Wilson,

I have been asked to create a purchase order for (ESL) (quotes attached). The below information is required to set up a new vendor in our system.  Can you kindly provide the information.  I will then be able to start the purchasing process.”

ESL was named in the email as the vendor, and Xing was named as the sales contact, with Xing’s phone number.

70. On 11 November 2011, ESL through Xing executed Non-Disclosure Agreements with Apple in respect of a number of different projects. 

71. On 11 November 2011, there was an email exchange amongst Apple representatives on Nemo and Woodpecker boards (which had been items sold and supplied by WW and SWT).  Pertinently, on 14 November 2011, Maria emailed Xing to ask:

“Hi Wilson,

Please see attached quote and advise if it needs to be reissued from Evolution Solution. Can you please clarify Will-win status? Is Evolution Solution a new name replacing Will-win or is Will-win still an active company?” (Emphasis added)

In response to that inquiry, Xing replied:

“Hi Maria:

I will check and answer you back asap.

Evolution is a new name to replace the Will-win.” (Emphasis added)

72. On 19 November 2011, Xing emailed Philip Sieh of Apple (“Philip”):

“Hi Philip:

We will change from Willwin to Evolution Solution Limited (ESL). Please contact us with this address.

Mine is (Wilson Email Address).

Bai is [email protected].

Please find the attached two quotation you want...” (Emphasis added)

73. On 28 November 2011, Doone Tech Co Ltd (“Doone”), an Annexure A company, placed a purchase order with ESL.  This was revealed only to WW and SWT in April 2012, when WW discovered that despite having made an agreement with Doone for the supply of Woodpecker boards, no purchase order had yet been received by WW.  When SWT emailed Doone in April 2012 about the purchase order, Doone informed SWT that the purchase order had already been placed with ESL in November 2011, for the supply of the Woodpecker boards it had contracted with WW/SWT.  It was also revealed that Xing had been in correspondence with Doone in December 2011 in relation to the purchase order for the Woodpecker boards, using the Wilson Email Address, and that a further purchase order had been placed by Doone with ESL in March 2012, for ESL’s supply of Woodpecker boards.

74. There is further evidence of orders being placed by Apple with ESL, and quotations being made by ESL, through email correspondence with Xing at the Wilson Email Address, in November 2011 and on 1 December 2011, for the supply of Woodpecker USBs and other products.  On 30 November 2011, Xing emailed Philip in relation to the manufacture of Apple’s D401 interposer board, in which he stated:

“Willwin cannot match so fast and no Willwin any more.”

On 1 December 2011, in supplying quotations to Philip, Xing gave his own personal details as contact information for ESL.

75. On 13 December 2011, Xing emailed a list of Apple representatives, informing them that “ESL is now fully established”, and that “the previous Willwin will be going off-line very quickly”.  He further listed 14 projects which had been undertaken by WW and ESL, and informed Apple that those projects would be ESL’s.  These projects include the N41 pressure fixture, the D402 P3 interposer board and the D401 E1 Agdot tester which had been the subject of the email exchanges in November 2011 between Xing and Philip.  The list sets out the names of employees of ESL responsible for the 14 projects, which employees were all former employees of SWT.

76. By spring 2012, Apple was receiving shipments of products from ESL.  Xing was named as the contact person for ESL on 18 January 2012.

77. On all the evidence available, it is clear that Xing was acting in the name of ESL in his email correspondence with Apple, when he represented to Apple that ESL had been set up to take over the Business and projects hitherto undertaken and accepted in the name of WW, and issued quotations for the items to be supplied by ESL, in place of WW and SWT.  It is also clear from the email correspondence and documents disclosed that Xing and ESL represented by Xing were diverting business and opportunities from WW and SWT to ESL.  Xing’s emails to Apple in November 2011 were clear efforts to solicit Apple’s purchase orders in place of WW and SWT, during a time when Xing was still, on his own case, a director of WW.  This was in clear breach of his fiduciary duties owed as a director of WW, to act in the best interests of WW, and not to place himself in a position in which his own interests would conflict with those of WW. 

78. I entirely reject Xing’s excuses, that the emails do not refer to ESL, or his involvement.  There may have been some references in the emails to “Shenzhen Evolution Solution Limited” (“Shenzhen ESL”).  Bearing in mind that Xing himself had informed Apple on 9 November 2011, that they were “moving to a new company: Evolution Solution Limited” (ie ESL), that “the new company will locate the manufacturing in Shenzhen”, and that it would be “the same as (WW)”, “Shenzhen Evolution Solution Limited” is evidently understood as ESL’s manufacturing entity in Shenzhen.  In the November emails, Xing was unequivocally referring to ESL as his company which was replacing WW.  His contact details were given to Apple for ESL. 

79. Shenzhen ESL was set up by Xing and Ying in October 2011, and Xing’s mobile telephone number was included in the official company registration records of Shenzhen ESL.  The domain name and email accounts of caevolution.com, which were used by ESL and Shenzhen ESL in their business correspondence with Apple, were set up by Xing in October 2011, with Xing as the name of the registrant. 

80. The emails exchanged between ESL and Apple in September 2012 make matters clear, beyond any possible dispute, that ESL and Shenzhen ESL are affiliated companies if not the same entity used by Xing and Ying for the manufacture and supply of products to Apple.  On 25 September 2012, at 1:04 am, DeAna Garcia (“Garcia”) of Apple sent an email to Vivian Zhong (“Zhong”) of ESL, referring to a JX fixture, and stated:

“I was trying to put up a Purchase Req for this quote, but I could not find Shenzhen Evolution listed as an Apple supplier. Did your company go by a different name? I cannot find the address listed either.” (Emphasis added)

The Shenzhen address of Shenzhen ESL was then stated.  There is an email from Zhong to Garcia in the following terms on 24 September 2012, at 8:08 pm:

“The below is what you will find in your system?

Seller: 0080150064

Evolution Solution Limited

Unit 04, 7/F, Bright Way Tower #33

Mongkok Rd

Kowloon

Hong Kong”

The number 0080150064 is the same “seller” number or identification stated for ESL in Apple’s purchase orders to ESL, marked for the attention of Xing.

81. On 24 September 2012 at 9:01 pm, Zhong received Garcia’s reply:

“I think this works. There is only one listing for Evolution Solution. For some reason the complete address is not displaying in our PR system, but I think there’s enough matching info to confirm that we have the right address/vendor. More complete info is probably in SAP. I can submit the PR tomorrow for approvals.” (Emphasis added)

The listing for vendor number 80150064, sent by Garcia with the email, lists ESL as the vendor, with an address of Shenzhen ESL in Shenzhen, Xing as the contact for ESL, with Xing’s email address and telephone number.

82. The essential Non Disclosure Agreements which were signed by ESL for its clients were executed by Xing.  Xing was clearly an intricate part of ESL, in the forefront of ESL’s dealings with its key clients such as Apple.  This is evidenced and acknowledged by Xing himself in the affirmation ESL filed in support of its application for the discharge of the Mareva injunction, which contained details of ESL’s purchase orders and business.  Any claims made late in the proceedings and at trial, that Xing and Ying were only lending their names or the name of ESL to other parties for use, are clearly inventions and excuses made in an attempt to distance themselves from the evidence of ESL’s wrongdoing.  The further assertion, that ESL was only the money collecting entity for Shenzhen ESL, is in my view a distorted admission of the close relationship between ESL and Shenzhen ESL.

83. An objective reading of the emails demonstrably show Xing’s active role in putting ESL forward as the supplier of the relevant parts and products which used to be supplied by WW and SWT to Apple, as evidenced by the purchase orders and emails produced for the trial.  The emails and documents supplied by Apple were done so pursuant to an order for discovery made by this Court against Apple.  There is no reason to doubt, nor any evidence to raise any question as to, the authenticity of the documents originating from Apple.  These and the spreadsheet produced by Apple, and relied upon by the plaintiffs in this case, show that purchase orders had been placed by Apple, and invoices had been issued for payment, all with ESL as the vendor, in respect of parts and items which had been sold by WW/SWT to Apple under or arising out of ongoing projects (either for the same products or variations of the products).  Although I do not accept Counsel’s submission that it is necessary to show that the purchase orders had been completed and performed by ESL, before the plaintiffs can complain of a diversion of business, I am satisfied from the documents and spreadsheet produced by Apple that payment had been made by Apple and hence that the orders must have been completed pursuant to the purchase orders placed with ESL.

84. On behalf of Ying, it was argued that there is no evidence of her personal involvement in the diversion of business, and that after Ying’s dismissal as a director in June 2011, she had no further duty owed to WW.

85. It is true that whilst Xing can clearly be seen to have been in correspondence with Apple from July to early December 2011, concerning the setting up of ESL to take over the production of WW and the issue of price quotations, there is no evidence of Ying’s personal involvement. Although she was involved in the setting up or acquisition of ESL, acting as its director and sole shareholder, that by itself is not sufficient evidence of her breach of fiduciary duty as a director, even if such setting up was with the intention to use the business in competition with the company after her directorship (Balston Limited v Headline Filters Limited [1990] FSR 385). As summarized in the statement of Lord Justice Rix in para 76 of his judgment in Foster Bryant Surveying Limited  v Bryant [2007] EWCA  Civ 200,

“... I would find it difficult accurately encapsulate the circumstances in which a retiring director may or may not be found to have breached his fiduciary duty. As has been frequently stated, the problem is highly fact sensitive.”

86. Balston Limited v Headline Filters Limited [1990] FSR 385 is a case in which, absent any actual competitive commercial activity on the part of the director while he remained a director, the court found that his setting up of a business, and his taking preliminary steps to investigate or forward the intention to use such business to compete with the company after his directorship had ceased, did not constitute conflict or breach of his fiduciary duty.  The cases of In Plus Group Ltd v Pyke [2002] EWCA Civ 370 and Balston Limited v Headline Filters Limited show that all the circumstances relating to the director’s resignation or the termination of his duties, the conduct of the director complained of, his mala fide, how the client’s business was taken over by the new company, etc have to be considered.

87. On the facts and evidence of the present case, Wen does not dispute that he had suspended Ying’s duties as a director from June 2011, due to financial considerations.  ESL was acquired by Ying in September 2011, with Ying as the sole shareholder, and Shenzhen ESL was apparently set up in December 2011.

88. I do not accept the submissions made for Ying, that she was only a director of WW in name, and reject Ying’s case that she was only a courier for WW, delivering documents between Hong Kong and Shenzhen.  It is not disputed that she was responsible for coming to Hong Kong on numerous occasions to withdraw substantial amounts in cash from WW’s bank account in Hong Kong, albeit as she claims only on Wen’s instructions and with the company chop kept by Wen.  She was Xing’s wife as well as a director, and was entrusted with the cash.  She was the authorized signatory of WW’s bank account in Hong Kong.  She signed WW’s financial statements as director.  She claimed she had no part to play in the management decisions of WW, but having consented to act as director, being recorded in the Registry and held out to the public as a director, and having been paid as a director, she has the consequent fiduciary duties of a director.

89. It is Ying’s case that ESL was only used by her as a “trading company”, and that she had used ESL to help her friends purchase, or sell, parts for electrical or electronic products in Hong Kong, and to assist these friends to collect payment in Hong Kong.  She claimed that ESL had no role to play in the manufacture of parts.  This was never disclosed in her witness statement.  However, on Ying’s testimony, when she was confronted with the documents disclosed by Apple, she admits that she had asked Xing in November 2011 to enter into email correspondence with Apple, and to sign Non Disclosure Agreements with Apple for the supply of parts (which had formerly been supplied by WW).  She claimed that this was only to enable ESL to acquire the status of a qualified supplier for Apple, and because she could not use English nor emails.  The defendants have emphasized that any company can apply to be Apple’s qualified supplier, and it is for Apple to decide whether to accept parts from any company which it considers to be up to its standard.  The application for the status of a qualified supplier does not immediately follow that business will or can follow.

90. Ying’s evidence on the allegedly restricted role played by ESL is not believable, in view of the documents disclosed by Apple which clearly show the purchase orders, invoices and payments made to ESL.  Yet, bearing in mind that she was relieved of her duties since June 2011, and that Wen obviously did not treat her as a director of WW at the latest after November 2011 (when even contributions to her MPF ceased), I find that there is insufficient evidence of any acts on Ying’s part during the relevant period which constitute competitive commercial activity against WW/SWT, so as to render her liable for breach of fiduciary duties as a director.  Any role she played in the recruitment of staff for ESL in December 2011 is equivocal, and not sufficient as conflict or competition.  On the facts and evidence of this case, I am not satisfied that Ying’s authorization of and procuring Xing to sign the Non-Disclosure Agreements with Apple in November 2011 constitutes diversion of business from WW or competition with WW.  I can find no evidence of Ying’s personal involvement in the diversion of any business opportunities of WW during the time when she was a director and bound by her fiduciary duties. 

Whether Xing and Ying breached duties of confidentiality

91. According to paragraphs 9 and 11 of the Re-amended Statement of Claim, WW claims that in its course of undertaking and carrying out orders for its clients, WW and SWT in turn were provided with clients’ highly confidential information relating to their projects, including clients’ product designs, product plans and specifications, forecasts, research and other information, which are necessary for WW to perform its orders and testing procedures (“Clients’ Confidential Information”).  Clients’ Confidential Information includes, in particular, the design and makeup of the product known as “Woodpecker Board”.  The plaintiffs claim that WW further owns confidential information consisting of: the identities and contact information of its clients; the identities and contact information of its suppliers for raw materials, parts and components for its Business operations; and information relating to WW’s own technical operations and test procedures which arose in the course of WW’s Business. 

92. The foregoing categories of confidential information (as pleaded in paragraphs 9 and 11 of the Re-amended Statement of Claim) are all referred to hereinafter as “Confidential Information”.

93. The plaintiffs claim that Xing and Ying had received, become privy to and had dealt with such Confidential Information in the course of their carrying out their powers and duties as directors of WW and as senior employees of SWT occupying fiduciary positions, in the case of Xing, as general manager of SWT, and in the case of Ying, as assistant to the general manager of SWT.  The plaintiffs’ case is that by reason of the sub-contracting relationship between WW and SWT, Xing and Ying as employees of SWT became privy to the Confidential Information.  They claim that employees of SWT were all required to enter into standard form confidentiality agreements with SWT, to protect WW’s Confidential Information.

94. WW claims that both Xing and Ying owed duties not to use the Confidential Information, otherwise than in the interests of WW. In the alternative, SWT claims that if the Confidential Information was owned not by WW but by SWT, Xing and Ying were similarly under a duty of confidence towards SWT.  In this respect, I have already found that the Business was that of WW, so it is not necessary to deal with SWT’s alternative claim.

95. On the plaintiffs’ case, Xing and Ying had breached their duty of confidence owed to WW and/or SWT, by divulging to ESL the Confidential Information they had acquired from WW and SWT, and by misusing the said Confidential Information.  They claim that WW and SWT have sustained damage as a result of such breach of confidence. 

A.  Whether the information has the quality of confidence and was imparted in circumstances importing an obligation of confidence

96. In relation to the 3 categories of Confidential Information asserted by the plaintiffs, they have not been able to identify, either in their pleadings or by way of explanation in their witness statements, what particular aspects of WW’s “technical operations and test procedures” constitute WW’s “Technical Confidential Information” as defined in paragraph 11 (c) of the Re-amended Statement of Claim.  The general references to WW’s “technical know-how”, test designs and internal sequence of testing, and the alleged inventions and development of WW’s “internal plant”, have never been explained by Wen in his evidence.  Without the particulars and evidence on such information, which is claimed to be confidential and not available to the public, the Court cannot decide whether they constitute either trade secrets or information which has the necessary quality of confidence to deserve protection.  The courts have emphasized that plaintiffs should give full and proper particulars of the confidential information sought to be relied upon in a claim of misuse (Ocular Sciences Ltd v Aspect Vision Care Ltd [1997] RPC 289, 359-360).  As injunctions are sought by the plaintiffs to restrain the use of their alleged confidential information, the Court must be able to identify precisely the information which a defendant is restrained from disclosing or using.  A reference in a Court order to “all confidential information” relating to a plaintiff’s “technical operations and test procedures” is simply not good enough for its lack of certainty and precision.

97. I am prepared to accept on the facts of this case that the names and contact details of WW’s clients and suppliers are confidential information which have the necessary quality of confidence.  The contact details of different employees in different departments of the clients of WW/SWT are not available to the public.  As the plaintiffs have highlighted, uncommon materials and parts are often specified for production (eg of the Woodpecker Boards), and suppliers of Apple have to attain an approved status.  Bearing in mind the nature and practices of the business and industry in question, the nature of Xing’s and Ying’s employment and work, and the detriment to WW/SWT if such information is imparted to its competitor, I am satisfied that the names and contact details of WW’s and SWT’s clients and suppliers are confidential information.

98. I also accept that the technical information WW, SWT and Xing, in the course of his operation of the business of WW and SWT, acquired from clients such as Apple and which relate to clients’ products, designs, product and test specifications, research, marketing plans, costs and forecasts, are all information which have the necessary quality of confidence required (Coco v AN Clark (Engineers) Ltd [1969] RPC 41).  They cannot be generally available to the public or to suppliers which do not contract with these clients under confidentiality terms, and only upon acquiring Apple’s approved status.

99. Although the plaintiffs claim that all employees of SWT were required to sign standard form confidentiality agreements, they have not been able to produce those agreements which had been signed by either Xing or Ying.  Wen’s bare assertion that Xing and/or Ying had removed these from SWT’s office is unsubstantiated in any way.  In cross-examination, Wen accepted that he had not signed any form of confidentiality agreement.  Hence, it is probable that Xing and Ying were likewise not required to sign any. 

100. I accept however the plaintiffs’ argument that by virtue of Xing’s position, and his dealings with Apple, he must have been aware of the confidentiality of the technical information he acquired, in the course of his operation of the business of WW and SWT, from clients such as Apple which relate to clients’ products, designs and testing specifications.  Since Ying accepted that she had authorized Xing to sign Non-Disclosure Agreements with Apple in November 2011, I consider that she must likewise have been aware that ESL would be acquiring information from Apple and clients of ESL which would be confidential.  Both Xing and Ying were aware that employees of SWT had to sign confidentiality agreements to keep confidential the information they would acquire in the course of carrying out work undertaken by SWT.  The fact that the secrecy or confidentiality of some of the information from clients may be short lived (as Xing emphasized) does not mean that such information is not confidential during the time when it is not accessible to the public or the trade.  In all the circumstances, I accept that objectively, a reasonable person in the position of Xing and Ying would have knowledge that the information they acquired from clients of WW and SWT was confidential, and should have been kept confidential (SNE Engineering Co Ltd v Hsin Chong Construction Co Ltd [2015] 4 HKLRD 517).

B.  Whether there was unauthorized use of the information

101. Mere confidential information will only be protected during employment and not thereafter, in the absence of any express covenant from the employee (Faccenda Chicken Ltd v Fowler [1986] 3 WLR 288).  This is as opposed to trade secrets of the employer, which will be protected even after termination of employment of the employee.

102. There is evidence, from the emails exchanged between Xing and Philip of Apple in November and early December 2011, that orders were procured and obtained by ESL from Apple (on the basis of Xing’s representation that WW will change to ESL) for the manufacture of Apple’s D401 Interposer board.  By 13 December 2011, there were at least 14 projects which ESL was undertaking for Apple, which were formerly WW’s ongoing projects. 

103. On 30 November 2011, Philip emailed Xing to ask for price quotes for (inter alia) the D401 E1 and the D402 E1 Ag dot tester design and interposer boards “with quick leadtime”.  Phillip stated that the 401 E1 and the 402 E1 interposer boards would be “very similar to 402P3”.  The quotations were sent by Xing on 1 December 2011, giving a leadtime of “around 10 days” and asking:

“For the fixture do you want the brand new build or just retrofit on the old one?”

According to the plaintiffs’ evidence, “retrofit” means to modify old products and/or to improve same to suit the client’s needs, instead of building and manufacturing a new product from scratch.

104. The reply from Philip on 1 December 2011 was:

“For fixture, just retrofit.”

105. There is also in evidence an email from Xing to Philip on 30 November 2011, in which he stated:

“Lead time depends on your request, please give us the gerber asap.

Last time actually we start ahead. Be sure we will update the schedule after we receive the gerber and of course we will push as vast as possible. Willwin cannot match so fast and no Willwin anymore.

The quotation is for new build fixture, if you want just retrofit I need quote you again and depends on what you want change.  If retrofit is a problem, although a fixture are in different places, ask them to ship us back?”

106. In response, Philip sent to Xing the gerber file for the D401 E1 Interposer board, stating:

“Please start manufacturing of this board and provide schedule. I will release PO for this and 402 E1 ag dot tester this week...”

107. Even on Xing’s own pleaded case, he only resigned as a director of WW and as deputy general manager of SWT on 1 December 2011.  His making price quotations and procuring orders for ESL from Apple for the D401 and D402 interposer boards and tester designs, on the basis of the confidential information in and relating to the D402 P3 tester and boards manufactured and supplied by WW and SWT to Apple, was misuse of WW’s Clients’ Confidential Information during a time when he was a director of WW, and deputy general manager of SWT.

108. Counsel for the plaintiffs referred to evidence of ESL’s possession on 14 January 2012 of the Woodpecker Boards which were produced by WW/SWT for Apple.  On 14 January 2012, Vivian Zhong of ESL (“Vivian”) emailed Apple, and stated that ESL then had 2 versions of the Woodpecker Board, the old version of which was clearly manufactured by WW.  Even if it can be inferred from such email that ESL was, in January 2012, using any confidential information of WW, there is no clear evidence that the Woodpecker Board in ESL’s possession was obtained by ESL from either Xing or Ying, as opposed to Vivian or other employees of SWT who left SWT to join ESL.  It has also to be borne in mind that the plaintiffs cannot complain of ESL’s use of any confidential information belonging to Apple, and which was provided by Apple to ESL.

109. Although Counsel for the plaintiffs referred to the list of projects undertaken by ESL by 13 December 2011, reference has not been made to any particular evidence to show that, apart from the D401 and D402 interposer boards and dot tester designs dealt with above, the other projects had been procured by the defendants’ misuse of the plaintiffs’ confidential information, and I can make no express findings in respect thereof.

110. Since there is no evidence of Xing and Ying having signed any confidentiality agreement with either WW or SWT, any use by them of any Confidential Information of the plaintiffs after they ceased to be directors and employees cannot be restrained by the plaintiffs.

Whether Ying and ESL had dishonestly assisted Xing’s breach of fiduciary duties and duties of confidentiality

111. The plaintiffs plead in the Re-amended Statement of Claim that by Ying’s involvement in ESL’s business, she had rendered dishonest assistance to Xing’s breach of his fiduciary duties and/or duties of confidence owed to WW.

112. It was argued on behalf of Ying that she established ESL’s business by virtue of her own work experience and connections, and that ESL was only involved in purchasing raw materials and collecting money for its clients.  As particularized in the earlier parts of this Judgment, ESL had been engaged in more than purchasing raw materials.  On the evidence, ESL had issued quotations to Apple, had received purchase orders from Apple between December 2011 and September 2014 for the same testing apparatus and parts as those supplied by WW and SWT, and ESL had received payment from Apple up to August 2013.

113. Although it was claimed that ESL had acquired its vendor status with Apple and other companies because these companies knew Ying, the emails disclosed by Apple as having been exchanged between Apple and Xing never mentioned Ying at all, when ESL applied for the status of being Apple’s qualified vendor or supplier.  Instead, Xing was referred to and recorded on Apple’s database as ESL’s contact person, and references had been made initially by Xing and Apple to WW.

114. I reject the claims made by Ying that Apple’s references to ESL should have been made to Shenzhen ESL.

115. Ying admits that she had asked Xing to sign the Non-Disclosure Agreements on behalf of ESL, in order to acquire status as a qualified supplier to Apple.  This contradicts her claim that ESL was only a trading company and was not involved in any manufacturing or production activity.  Ying accepted that when Xing signed Non Disclosure Agreements with Apple in the name and on behalf of ESL, Xing was still a director of WW.  She admits that she was the person who controlled ESL’s bank accounts.  She further admits that she had supplied ESL’s name and account details to Xing.  She alleges and emphasized repeatedly that she had “lent” ESL’s name and account to her friends (such as Zhou) for their business and to collect money from such business. 

116. The claim and admission that Ying had lent ESL and its name to Xing/Zhou, allegedly for their business, is sufficient evidence of Ying’s assistance to Xing and such friends for their dealings using ESL’s name.

117. Although Ying denies that she had any knowledge of Xing’s emails with Apple for the supply of testing equipment and parts such as N41 and N78, it cannot be disputed that there were in fact dealings between Apple and ESL and purchase orders placed by Apple with ESL, even after the grant of the injunction by the Court in May 2012.  As the person who had control of ESL’s bank accounts, I reject Ying’s evidence that she had not seen ESL’s bank statements and was not aware of payments having been received by ESL from Apple.

118. Under the order made by the Court on 14 May 2012 (“Order”), Xing was injuncted from performing or continuing to perform any contract with WW’s clients for the sale or provision of test systems, test fixtures, equipment and instruments, and ESL was injuncted by itself, it directors and agents from soliciting, entering into, or performing any contract with WW’s clients for the sale or provision of test systems, fixtures, equipment, etc.  Both Xing and ESL were further injuncted from divulging any confidential information of WW.  At the material time of the injunction, Ying was a director of ESL and must have been served or given notice of the terms of the Order, and of the claims made by WW and SWT in these proceedings.  Apple was named as WW’s client in the Order, to which the injunction extended.

119. On the evidence, I find that Ying had assisted Xing’s breach of his fiduciary duties (by diverting business from WW to ESL) and breach of his duty of confidentiality, by letting Xing use ESL as the company to accept the diverted business and confidential information, by permitting Xing to have use of ESL’s bank account to accept payment under Apple’s purchase orders, and by her assistance in the operation of ESL’s bank accounts for Apple’s purchase orders in the course of ESL’s business.  All these took place during the time when Xing was still a director of WW.

120. Dishonestly is required before Ying can be found to be liable for dishonest assistance.  Counsel for the plaintiffs referred to Bearsley & Bloch QC, Employment Covenants and Confidential Information (3^rd edition, para 4.171), where the learned authors referred to the principles summarized in Ultraframe (UK) Limited v Fielding [2005] EW HC 1638 (Ch D).  Honesty is to be assessed on the basis of what the person alleged to have acted dishonestly actually knew at the time, as distinct from what a person would have known or appreciated.  In Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 (PC), Lord Nicholls of Birkenhead succintly explained the concept of dishonesty:

“ ... in the context of the assessory liability principle acting dishonestly, or with a lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances. This is an objective standard. At first sight this may seem surprising. Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence. Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated. Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness is not dishonesty. Thus for the most part dishonesty is to be equated with conscious impropriety.

However, these subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particular circumstances.  The standard of what constitutes honest conduct is not subjective.  Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual.  If a person knowingly appropriates another’s property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behavior.”

121. In summarizing the relevant principles in Ultraframe, the learned authors ofBearsley & Bloch QC, Employment Covenants and Confidential Information, referred to Barlow Clowes Limited v Eurotrust Limited [2006] 1 WLR 1476 (PC), to explain that suspicion combined with a conscious decision not to make inquiries about a matter may result in a person being treated as having knowledge of the matter, and that a person may be held to have sufficient knowledge of the underlying transaction and to have acted dishonestly without knowing all the details of that transaction.  In delivering the judgment of the Court in Barlow Clowes Limited v Eurotrust Limited, Lord Hoffman stated:

“ ... The statement that a dishonest state of mind meant ‘consciousness that one is transgressing ordinary standards of honest behaviour’ was in their Lordships’ view intended to require consciousness of those elements of the transaction which make participation transgress standards of honest behaviour. It did not also require him to have thought about what those standards were.”

122. In this case, Ying had knowledge of the fact that Xing, like her, was a director of WW in October and November 2011, when she asked Xing to sign Non Disclosure Agreements with Apple, and that this was to apply for ESL’s status as Apple’s qualified supplier.  She must have knowledge that ESL would be supplying parts to Apple, after it acquired the status of a qualified supplier for Apple.  Ying had knowledge of the Order made in May 2012.  She was in fact joined as 3^rd defendant in these proceedings, and a Mareva injunction was granted by the Court on 21 September 2012, restraining her, Xing and ESL from disposing of their assets on the basis of the claims made by WW in these proceedings.  I reject Ying’s claim that she had no knowledge of the fact that ESL was receiving payment from Apple up to 2013.  If she had not known of this, or had not looked at ESL’s bank statements or bank balances, she must have deliberately turned a blind eye to these.

123. The judgment in Royal Brunei Airlines Sdn Bhd v Tan is enlightening as to cases in which the third party assisting the fiduciary may have doubts as to whether a transaction is authorized, or lacking in probity.  Lord Nicholls explained in his judgment that the accessory is required to act honestly, and when an honest person knows there is doubt, honesty requires him to attain the standard which would be observed by an honest person placed in those circumstances:

“The only answer to these questions lies in keeping in mind that honesty is an objective standard. The individual is expected to attain the standard which would be observed by an honest person placed in those circumstances. It is impossible to be more specific. Knox J captured the flavor of this, in a case with a commercial setting, when he referred to a person who is “guilty of commercially unacceptable conduct in the particular context involved”: see Cowan de Groot Properties Ltd v Eagle Trust plc [1992] 4 AER 700, 761. Acting in reckless disregard of others’ rights or possible rights can be a telltale sign of dishonesty. An honest person would have regard to the circumstances known to him, including the nature and importance of the proposed transaction, the nature and importance of his role, the ordinary course of business, the degree of doubt, the practicability of the trustee or the third party proceeding otherwise, and the seriousness of the adverse consequences to the beneficiaries. The circumstances will dictate which one or more of the possible courses should be taken by an honest person. He might, for instance, flatly decline to become involved. He might ask further questions. He might seek advice, or insist on further advice being obtained. He might advise the trustee of the risks but then proceed with his role in the transaction. He might do many things. Ultimately, in most cases, an honest person should have little difficulty in knowing whether a proposed transaction, or his participation in it, would offend the normally accepted standards of honest conduct.

Likewise, when called upon to decide whether a person was acting honestly, a court will look at all the circumstances known to the third party at the time.  The court will also have regard to personal attributes of the third party such as his experience and intelligence, and the reason why he acted as he did.”

124. Despite her knowledge of the claims made by WW against Xing for breach of fiduciary duties, on the basis that Apple and other Annexure A companies were clients of WW, and despite the terms of the Order, Ying permitted ESL to be used, and continued to operate ESL’s bank accounts for the receipt of payments from Apple.  I have borne in mind the claim made by the defendants, that any company apart from WW and SWT can apply to Apple to be a qualified supplier and to supply parts to Apple.  I also bear in mind Ying’s assertion that she had no knowledge, or did not accept, that Xing was in breach of any fiduciary duty by accepting orders from Apple.  Yet, applying the principles set down in Royal Brunei Airlines Sdn Bdh v Tan and Barlow Clowes Limited v Eurotrust Limited, I find that Ying had sufficient knowledge of the dealings between Xing and Apple, and of the relationship between Xing and WW/SWT, which should have at least raised suspicion in the mind of an honest person in her circumstances as to whether it would be proper for ESL and Xing to enter into dealings and contracts with Apple for the supply of the products which had hitherto been supplied by WW and SWT.  On the one hand, Ying seeks to portray herself as an ignorant housewife who knew nothing of the dealings and emails between Xing and Apple.  On the other hand, where it suits ESL and herself, she claims to be experienced in her own right in the electronic industry with connections to Foxconn and other companies, to be able to establish the business of ESL without recourse to WW or SWT.  I consider that, based on her involvement in the businesses of SWT, WW and ESL at different times, her relationship with Xing, and her own professed experience or connections in the industry, Ying had sufficient knowledge of the dealings of Xing and ESL with Apple from November 2011 throughout to 2014 at least, and that an honest and objective person in her circumstances would have suspicions as to the probity of the transactions between Apple and ESL and Xing.  An honest person in her circumstances would have questions as to whether ESL’s and Xing’s dealings in the testing apparatus and parts formerly manufactured and sold by WW and SWT to Apple can possibly be in breach of the rights of WW and/or SWT.  Her turning a blind eye to the propriety of these transactions, and the payments received from Apple, and proceeding recklessly with such transactions and dealings, is typical of a person who deliberately abstains from finding out more and asking questions, lest she learns something which she would prefer not to know.

125. To conclude, I find that Ying had dishonestly assisted Xing’s breach of fiduciary duties and duties of confidentiality.

126. As to whether ESL can be said to have dishonestly assisted Xing’s breach, it is necessary to establish that Ying’s state of mind and knowledge can be attributed to ESL.  The alter ego doctrine, or the doctrine of the directing mind and will of the company, attributes to the company the mind and will of the natural person or persons who manage and control its actions (El Ajou v Dollar Land Holdings plc [1994] BCC 143).  In this regard, “it is necessary to identify the natural person or persons having management and control in relation to the act or omission in point” (per Nourse LJ in El Ajou v Dollar Land Holdings plc [1994] BCC 143, at 151).

127. Ying was the registered shareholder and sole director of ESL at all material times, from October/November 2011 when Xing signed the Non Disclosure Agreements with Apple, to Ying’s knowledge and with her consent, to May 2012 (and right to August 2013) when payments were still received by ESL from Apple.  It may be that, like the director Mr Ferdman in El Ajou v Dollar Land Holdings plc, Ying was at some stage acting on the directions of Xing, who can be seen from the email correspondence to be directing and having the management of the business and activities of ESL.  Nevertheless, as Nourse LJ emphasized in El Ajou v Dollar Land Holdings plc, management and control is not to be considered generally.  Lord Hoffman also explained in his judgment that different persons may for different purposes satisfy the requirements of being the company’s directing mind and will.  The question is whether, in relation to the use of ESL’s bank accounts, and the use of ESL’s name to accept the business diverted from WW and SWT, Ying exercised powers on behalf of ESL to commit ESL to the transactions with Apple, and can be said to be the person having the management and control of these acts.  I consider that she is, such that she can be identified as the directing mind of ESL.

128. Accordingly, I find that Ying’s knowledge can be imputed to ESL, such that ESL can be said to have dishonestly assisted Xing’s breach of duties owed to WW.

Whether the defendants had passed off their business as WW’s

129. On the evidence, I have found that WW had a Business, and from the documents disclosed by Apple, there is adequate evidence that WW had goodwill in its name “Willwin” and its Business.  The emails from Apple, in particular Lim’s email to Xing of 9 July 2011, show that Apple had trust in the products and services of WW, evidently by reason of their past dealings.  Xing’s emails to Apple of 9 November 2011, 19 November 2011, 14 November 2011 and 14 December 2011 are clearly misrepresentations made by Xing in the name and on behalf of ESL, that ESL was the same as WW (“Willwin Inc is now Evolution Solution Limited”), that ESL was replacing WW (“Evolution is a new name to replace the Willwin”), and that WW no longer existed (“no Willwin anymore”), such that Apple’s business and orders should be transferred to and taken over by ESL.  As a result of such misrepresentation, WW clearly sustained damage as purchase orders for goods hitherto supplied by WW were placed with ESL.

130. All the essential elements of passing off have been established (Reckitt v Coleman Products Ltd v Borden Inc [1991] 1 WLR 491).  On the evidence, I find Xing and ESL to be liable to WW in passing off.

Whether Xing and Ying have a duty to account for the plaintiffs’ funds

131. The plaintiffs’ complaint is that between April 2008 and March 2011, Xing and Ying withdrew from WW’s bank account in Hong Kong and received respectively (in Xing’s case) the sums of HK$1,816,000 and US$15,500, and (in Ying’s case) the sums of HK$6,290,000 and US$334,460.

132. It is not disputed that the sums were withdrawn by Xing and Ying on Wen’s instructions and with his approval.  On Wen’s part, he claims that the withdrawals made by Xing and Ying were made on his instructions, but as a result of requests made by Xing that sums were required for SWT’s operations.  This is evidenced by the emails exchanged between Wen and Xing in 2009 and 2010.  On Ying’s part, she claims that the amounts withdrawn by her had been paid over either to Wen, or to SWT, or to persons designated by Wen.  On Xing’s part, he claims that he had paid such amounts withdrawn by him to Wen, that Wen controlled the bank accounts and the bank statements and audited accounts of WW, such that Wen fully knew the whereabouts of the funds and how they had been utilized.

133. As directors and agents of WW in making the withdrawals of cash from WW’s bank accounts and in receiving the funds, it cannot be disputed that Xing and Ying had a duty to account for, and explain, how the money they received or withdrew had been used.  That Wen knew or must have known of the withdrawals, and might or should have been able to ascertain from the audited accounts of WW the state of any indebtedness between SWT and WW, or between Xing and WW, does not in law absolve Xing and Ying from their duties to keep and give accurate accounts of the monies they withdrew for and received from WW.

134. In Ying’s witness statement, she originally claimed that she had paid over the amounts withdrawn by her to Wen, or to SWT. She finally admitted in her testimony in court that she had paid over some of the cash amounts to Xing, contrary to what she had stated in the witness statement. 

135. As for Xing, the emails in evidence show that Wen’s instructions to Ying and Xing with regard to the cash withdrawals were either that the amounts withdrawn were to be deposited into SWT for SWT’s use, or to be given to Xing.  There is also evidence that instructions for withdrawal came from Wen, following Xing’s requests for funds for specific purposes, or “for loans”.

136. On 15 May 2011, Wen sent to Xing by email a summary of the amounts which had been handled by Xing, with the request that Xing should verify the summary , which sets out the amounts involved, and the alleged use (such as for wages, or for specific projects) of some of the funds withdrawn.  There is no evidence, or claim made, of any reply having been given by Xing, as to any matter stated in the email of 15 May 2011 and the summary.  Nor is there any other evidence of any account having been given in any way by Xing, either as to the amounts stated in the said summary, or as to the amounts summarized in Annexure B to the Re-amended Statement of Claim.

137. I fail to see what defence Xing has to WW’s claim for an account as to the amounts withdrawn by him, and as to amounts paid to him by Ying out of WW’s funds.  Ying likewise has to account for the sums of money she withdrew from WW, including full particulars of the individuals to whom she had given each of the sums, and the dates when the payments were made.

Whether Xing and Ying had misappropriated the plaintiffs’ funds

138. In the absence of further evidence and prior to an account being given by Xing and Ying, I cannot find on the basis only of withdrawals having been made by Ying and Xing from WW’s bank accounts, between April 2008 and February 2011, that these amounts had been misappropriated by the defendants and should be repaid by them.  It can be seen from Wen’s emails produced in evidence that he had specifically asked for some of the amounts withdrawn to be paid to Xing for SWT, or to be used for SWT’s operational expenses.  On the defendants’ case, the money they had received have been duly paid into SWT, or otherwise for SWT’s operating expenses.  On 24 December 2009, Wen gave specific instructions that the sum of HK$200,000 withdrawn from WW was to be paid to SWT as a “personal loan” or “individual loan” (“個人借款”).  It is unclear whether it was to be a personal loan from WW, Wen, Xing, or anyone else.  In other cases, Wen’s instructions were to deal with the money “as before/as in the past” (“如之前”/“照舊”).

139. In a somewhat exceptional course, after the hearing of the first part of the trial in November 2014, when the trial resumed in August 2015, Xing applied to adduce in evidence (inter alia) the judgment and various other documents relating to the litigation between SWT (represented by Wen), Xing and Ying in Shenzhen on the Mainland, and sought to cross-examine Wen on the claims made and on the evidence adduced in those proceedings.  I allowed a small part of the documents Xing sought to produce, and granted Xing’s application to recall Wen to be cross-examined on such matters, but for a limited period of time.

140. On the basis of the same evidence and documents produced by Xing, the plaintiffs then applied to rely on the matters referred to in the Shenzhen judgment (handed down on 19 December 2014, but only coming into effect on 14 February 2015) and the evidence adduced in the Shenzhen court, in order to re-amend their Amended Statement of Claim, in support of the plaintiffs’ pleaded case of the defendants’ misappropriation of WW’s funds.  An alternative claim was put forward by the plaintiffs, that as evidenced by and referred to in the Shenzhen judgment, total sums of HK$5,076,000 and US$33,000, of the amounts withdrawn from WW’s bank account in Hong Kong, had been converted into renminbi (“RMB”) and deposited into SWT’s account and otherwise paid to SWT, but in respect of a total sum of RMB 3,744,999.95, such amount was paid and recorded as a personal loan from Xing (“Shenzhen Misappropriated Amount”).  The plaintiffs claim that Xing and Ying had procured SWT to issue receipts in order to acknowledge the Shenzhen Misappropriated Amount as a personal loan from Xing to SWT, in reliance on which Xing was able to commence proceedings against SWT in Shenzhen, and obtained judgment against SWT for SWT’s repayment to Xing personally of a sum of RMB 3,444,999.95 (the Shenzhen court rejecting a part of Xing’s claim for the entire Shenzhen Misappropriated Amount).  The plaintiffs claim that this is evidence of Xing’s misappropriation of WW’s funds withdrawn from WW’s bank account.

141. Bearing in mind that: (1) Xing was a party to the Shenzhen proceedings and the Shenzhen judgment, and was familiar with the matters which arose and were argued in those proceedings; (2) the defendants themselves had sought to rely on the evidence and arguments made at the trial in Shenzhen, in cross-examination of Wen in these proceedings; such that (3) the defendants cannot be said to have been surprised by the matters which the plaintiffs sought to raise by the re-amendments; and (4) the Shenzhen judgment, which was handed down after the hearing in November 2014, and the evidence adduced are relevant to the pleaded claims of misappropriation made in this action; I exceptionally allowed the plaintiffs on 31 August 2015 (Day 18 of the trial) to make the re-amendments and to include the Shenzhen judgment in their evidence.

142. Considering the table prepared by the plaintiffs which shows the chronology of the cash withdrawals made by Xing and Ying from WW’s account in Hong Kong, the almost simultaneous deposits of the converted RMB into SWT’s account, and the issue of the 29 corresponding loan acknowledgment receipts from SWT to Xing, there is much persuasiveness in the argument that the cash withdrawals from WW were all paid by Xing to SWT, and that they made up the same loans which were acknowledged by SWT to be due personally to Xing.  Despite Xing’s denial, the natural inference is that the Shenzhen Misappropriated Amount came from the cash withdrawals from WW’s account.  On the available evidence, it is not believable that Xing had sourced the alleged loans from his own resources.

143. The real issue, however, is whether the fact that the funds withdrawn from WW were paid into SWT as loans from Xing can be treated as misappropriation in the circumstances and on the evidence of the case.

144. In this regard, it is clear from the evidence that there had been customary transfers and loans between WW, SWT and the companies controlled by the Wei brothers.  Wen and Xing, as shareholders and directors of WW and SWT, had been flexible in the inter-company transfers, as can be seen from the accounts of WW and from the emails between Wen and Xing.

145. The contents of the emails issued by Wen to Xing, concerning the withdrawal of funds from WW and how such funds were to be used, are pertinent.  Particularly relevant are those dated 24 December 2009 and 10 November 2010, in which Wen referred to deposits of the sums withdrawn from WW as “personal loans”, the email of 10 November 2010 specifically referring to a personal loan from Xing.  The emails refer also to dealings with the money withdrawn “as in the past”, which suggest that there was prior agreement between Wen and Xing as to how deposits should be managed.  Further, the accounts and financial statements of WW demonstrate that there were account entries showing the status of the current accounts between WW and its directors, and between WW and SWT.  There is also evidence of personal loans to SWT from Chen, the other shareholder of SWT.

146. As the plaintiffs acknowledge, the actual loan receipts relied upon by them have not been adduced in evidence in these proceedings, although 4 of them were specifically identified in the Shenzhen judgment.  There is no evidence as to who had signed the loan receipts on behalf of SWT.  However, as Xing himself seeks to rely on the Shenzhen judgment, he does not, and cannot, dispute that the receipts acknowledge debts due personally from SWT to himself, and were issued by SWT.  It was on such basis that Xing commenced litigation against SWT, and obtained judgment in Shenzhen.

147. The loan receipts have not been referred to by either Wen or Xing in their witness statements filed in these proceedings.  Nor has any witness given any explanation in these proceedings as to how and why the loan receipts were issued by SWT to Xing, acknowledging personal loans from Xing. 

148. Xing claims that it was Wen who controlled the finances and the accounts of not only WW, but also SWT.  What cannot be disputed is that at the material time, Wen was the executive director and the legal representative of SWT, besides being the majority beneficial shareholder.  Wen himself asserts (paragraphs 21 to 24 of his supplemental witness statement) that since SWT’s inception in 2007, the primary source of funding for SWT’s business had always been loans from SWI and himself, and that there had been loans from SWI to SWT.  Wen further claims that it was SWT’s practice to prepare “financial statements and ledgers of its financial position on a regular basis”, that there had been financial reports which contained information and particulars of loans from SWI to SWT which he had sent to Xing, and that at least from 2010, SWT had appointed a financial controller to be in charge of maintaining all books and accounts of SWT. 

149. It is the plaintiffs’ claim that Xing and Ying had procured SWT to issue receipts which acknowledge the personal loans from Xing.  However, there is no evidence whatsoever that the relevant receipts had been procured by Xing and Ying, as alleged, and that such receipts had been issued by SWT without Wen’s knowledge or consent.  Bearing in mind Wen’s position as executive director and legal representative of SWT, and his own evidence as to the financial statements and ledgers prepared of SWT’s financial position on a regular basis, I cannot believe that SWT’s receipts and acknowledgment of Xing’s personal loans (dating from 2009) could have been issued without Wen’s knowledge.  If the personal loans acknowledged in the receipts were not in fact loans from Xing, it is inconceivable that Wen would not have raised questions or rectified the inaccurate records.  Although Wen’s emails with regard to the withdrawal of cash from WW’s bank account contained instructions that the funds were to be used for SWT, it is probable that there had been agreement for such funds to be made available to SWT by way of loans, or to be treated as personal loans, and for subsequent adjustments to be made.  Neither Wen nor Xing has explained in their witness statements how loans to be made from WW/Wen or Xing to SWT for its operating expenses were to be dealt with and adjusted, and how they are reflected in the audited accounts.  It is only after full accounts have been given by Xing and Ying as to the sums withdrawn by them that it can be ascertained whether any funds had been misused or were not authorized by WW, for SWT’s use as specified.  Thereafter, appropriate relief may be obtained by WW against the defendants.

150. In summary, and on the limited evidence, I am not satisfied on a balance of probabilities that SWT’s receipts acknowledging personal loans from Xing can be treated as evidence of the defendants’ misappropriation of WW’s funds.

151. The Shenzhen judgment was handed down on 19 December 2014 and became effective on February 2015.  On the basis of the Court of Appeal’s decision in Lee Yau Wing v Lee Shui Kwan [2007] 2 HKLRD 749, to which I referred Counsel in the course of closing submissions, it is still unclear whether the Shenzhen judgment can be considered as a final judgment, and Counsel has not pursued Ying’s arguments that the plaintiffs are bound by the Shenzhen court’s findings in relation to the status of the debt due from SWT to Xing, and that they are estopped from disputing such facts as found by the Shenzhen court.

Whether Xing has duty to account for/misappropriated the ICS Receivables

152. Xing does not dispute that WW had issued invoices to ICS for payment of a total sum of US$12,678 and RMB 3000 due under various purchase orders.  Nor does he dispute that ICS had made payment in cash to Xi, Xing’s subordinate at SWT (and who later joined him at ESL or Shenzhen ESL).  ICS claim that the cash payment had been made on Xing’s instructions and approval.  In his evidence, Xing claimed that he had asked Xi to handle the cash payment, and only alleged in his witness statement that “in the usual course, any payments received would be passed to the finance Department of SWT for processing”, without further evidence.

153. Clearly, Xing has to give a full and detailed account, by reference to SWT’s and WW’s finance records and ledgers, as to how the sum received from ICS had been dealt with, and in default of such full account, the amount should be repaid to WW.

SWT’s alternative claims

154. Since I have found that WW has its own business, clients and goodwill, the alternative claims made by SWT do not have to be dealt with.

Orders made

155. I have found in favor of WW on its claims of breach of fiduciary duties and duties of confidence, dishonest assistance, passing off and for accounts.  Since Xing and Ying ceased to be directors and employees of WW, WW is no longer entitled to any injunction to restrain their use of any confidential information.  Accordingly, I will only grant orders in terms of paragraphs (2), (7), (7A), (10A), (10B), (13), (15), (17), (18) and (20) of the prayer for relief in the Re-amended Statement of Claim.  I further order an account to be taken of the sums received by Xing and Ying (as particularized in Annexure B to the Re-amended Statement of Claim), pursuant to paragraphs 52A and 57A of the Re-amended Statement of Claim.

156. I will make a costs order nisi that the plaintiffs’ costs of the action are to be paid by the defendants, with certificate for 2 counsel, to be taxed if not agreed. 

HCA 797/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 797 OF 2012

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D E C I S I O N

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Background

1.  This is the plaintiff’s application for an order that the interrogatories served by the 2^nd and 3^rd defendants on 30 September 2013 be withdrawn.

2.  The principles governing applications for interrogatories are clear, and are set out in Lee Nui Foon v Ocean Park Corporation (No 2) [1995] 2 HKC 395 and Kao Lee & Yip v Donald Koo Hoi Yan HCA 8847/1993, unreported 23 April 2002.  Interrogatories are for the discovery of facts.  They are admissible where they go to support the applicant’s case or destroy the opponent’s, but the court will in the exercise of its discretion only order interrogatories where they are necessary either for disposing fairly of the cause or matter, or for saving costs (O 26 r 1(1) Hong Kong Civil Procedure).  Particularly in the aftermath of the Civil Justice Reform, the question of necessity should be the prime consideration for the court when it decides whether interrogatories should be ordered, or permitted to stand.  If interrogatories are not necessary for disposing fairly of the cause or matter, or will only increase and not save costs, there is no justification why they should be allowed even if they can be said to be relevant to the facts in issue, and not otherwise impermissible.

3.  In this case, pleadings have been filed.  Particulars of pleadings have been requested and served.  Discovery was made and is apparently ongoing, and witness statements have been exchanged.  The trial is set down for 10 days, commencing on 3 November 2014.

4.  The plaintiff claims against the defendants for breach of fiduciary and equitable duties on the part of the 1^st and 3^rd defendants as directors and paid employees of the plaintiff, for breach of confidence, and in respect of their alleged diversion of the plaintiff’s business, their misappropriation of the plaintiff’s funds, and their passing off of the plaintiff’s business.

5.  By way of defence, the defendants deny that the plaintiff had owned any business as it alleges, and claim that the business alleged to have been carried on by the plaintiff in fact belonged to Shenzhen Willwin Technology Company Limited (“SWT”).  They claim that the plaintiff’s clients are the clients of SWT, and that any confidential information or reputation asserted by the plaintiff belong to SWT, and not to the plaintiff.  They deny the plaintiff had any confidential information, and also deny any use of the plaintiff’s alleged confidential information.  The defendants further deny that there was any misappropriation of the plaintiff’s funds.

6.  It is against this background that the defendants’ interrogatories will be considered.

Item 1 (1) of the disputed interrogatories

7.  The defendants seek interrogatories of “when the plaintiff ceased to pay the 3^rd defendant’s remuneration”.

8.  I do not allow this interrogatory to stand.

9.  On the face of the pleadings and the statements, it is claimed by the plaintiff and not disputed by the defendants that the 3^rd defendant was a director of the plaintiff, was paid by the plaintiff, and that she ceased to be a director of the plaintiff when Wei Wen of the plaintiff (“WW”) terminated the 3^rd defendant’s employment in June 2011 (paragraph 8 of WW’s statement, and paragraph 4 of the 3^rd defendant’s supplemental statement). 

10.  On the plaintiff’s case, the 3^rd defendant was also employed by SWT as a manager, and she ceased to be under SWT’s employment since 1 December 2011. 

11.  The 3^rd defendant admits that she was paid monthly remuneration of $6000 by the plaintiff, which formed part of her remuneration by SWT. 

12.  The plaintiff claims that the 3^rd defendant was a paid director under the plaintiff’s employment (paragraph 5 (b) of the Statement of Claim), and that as a paid employee of the plaintiff, the 3^rd defendant owed a fiduciary and contractual duty (paragraph 18 of the Statement of Claim) to the plaintiff.  The plaintiff claims that although the 3^rd defendant ceased to be a director of the plaintiff by the end of 2011, she continued to owe a duty not to divert business from the plaintiff (paragraph 19 of the Statement of Claim).  The plaintiff’s case is that the 3^rd defendant’s duties continued after she ceased to be a director, so whether the 3^rd defendant was paid, and when she ceased to be paid, are not relevant (on the plaintiff’s case).  In any event, WW already stated in paragraph 24 of his witness statement that the 3^rd defendant received monthly remuneration of $9,500 until 8 August 2011.

13.  As counsel for the plaintiff pointed out, the defendants have not either in their pleadings or in their witness statements raised any issue or case as to when the plaintiff had ceased to pay the 3^rd defendant’s remuneration, and how it would affect the plaintiff’s case against her.  I fail to see why this interrogatory is necessary in view of the matters already contained in WW’s statement.  If there are any inconsistencies in his statement, then they can be dealt with in cross-examination.

Item 1 (2)

14.  The defendants require the plaintiff to “explain how the plaintiff’s business was in decline prior to June 2011”.  This was in the context of paragraph 8 of WW’s witness statement, in which he states: “Based on my recollection, I had in or about June 2011 and by way of an email relieved the 3^rd defendant from her position as a director of the plaintiff and the plaintiff had thereafter ceased paying her monthly remuneration.  At that time, I had come to that decision because of a decline in the plaintiff’s business - it was solely a business decision made in the interests of the plaintiff.”

15.  This interrogatory cannot be allowed, as I fail to see how it can be said to be necessary for disposing fairly of the cause or matter or for saving costs.  In my view, the interrogatory is totally imprecise and prolix in character as an interrogatory.  The defendants seek an “explanation” as to how the plaintiff’s business “was in decline prior to June 2011”.  They seek to justify the interrogatory on the basis that the plaintiff seeks damages from the defendants in respect of their alleged breach of fiduciary and confidentiality duties, and that the decline of the plaintiff’s business is relevant to the quantum of damages recoverable by the plaintiff. 

16.  As Kay LJ pointed out in Oppenheim & Co v Sheffield [1893] 1 QB 5 at 15-16, if on a general view, the court considers that the length and character of the form of interrogatories are prolix or unnecessary, it is no answer to say that there are some aspects or features of the whole set of interrogatories which might be admissible if they stood alone.  In my view, it is for the defendants to frame the interrogatories in a precise and clear manner, limited to precise points on which information or admission is sought. The objective of interrogatories is to obtain information as to material facts which the applicant needs to prove in support of his case, or to reveal weaknesses in the other party’s case (Discovery, Matthews and Malek, paragraph 13.01) It would not be necessary for the trial judge to have a lengthy explanation from the plaintiff as to how the plaintiff’s business declined before June 2011, for the purpose either of deciding the facts in dispute in this case, or determining the quantum of damages claimed by the plaintiff.  To allow the interrogatory is in my view a waste of unnecessary costs, and totally disproportionate to any benefit that may be gained by the defendants.

Item 4

17.  This seeks information as to WW’s reference in his witness statement as to the 3^rd defendant’s “resignation in 2011”, and it requires the plaintiff to state “how and when the 3^rd defendant resigned from the plaintiff”.

18.  The plaintiff claims in paragraph 19 of the Statement of Claim that the 3^rd defendant ceased to act as the plaintiff’s director “by the end of 2011”.  WW claims in paragraph 8 of his statement that he relieved the 3^rd defendant from her position as director of the plaintiff in June 2011.  The 3^rd defendant herself states in her witness statement that the plaintiff terminated her directorship “in around June 2011”.

19.  Whilst the parties have not raised any issue as to the distinction between the 3^rd defendant’s resignation, and her removal as a director of the plaintiff, and how any such distinction will affect the plaintiff’s claim, or the defence, there is a dispute as to when the 3^rd defendant ceased to be a director of the plaintiff: in June 2011, or by the end of 2011. I will allow the interrogatory as to “how and when the 3^rd defendant resigned from the plaintiff”. 

Item 5

20.  This seeks “full particulars of each and every contract made between the Plaintiff’s Clients and the plaintiff”, including the terms, the date and time when the contract was made, the place where the contract was made, and the identities of the persons by whom the contracts were made.

21.  The plaintiff has set out in Annexure A to the Statement of Claim the identities of its clients (“Plaintiff’s Clients”), and claims that they directly contracted with the plaintiff for products and services to be rendered by the plaintiff.

22.  The purpose of interrogatories is to give to the applicant party information as to the facts of which the opponent party proposes to give evidence at trial.  Interrogatories are not to enable a litigant to ask what his opponent’s evidence is going to be and how his opponent is going to prove his case (Knapp v Harvey [1911] 2 KB 725).  I agree with counsel for the plaintiff that the disputed interrogatory seeks evidence of the facts relied upon by the plaintiff.  The facts asserted and pleaded by the plaintiff and which the plaintiff has to establish at trial are that the entities listed in Annexure A are its clients, and that the plaintiff had directly contracted with these clients for products and services.  The plaintiff has already given adequate particulars of the identities of these clients.  To seek further particulars of the making of each and every contract, and the terms of each and every contract made, is simply to extract evidence of the facts relied upon and to be proved by the plaintiff. 

23.  I also consider that the interrogatory is oppressive, requiring the plaintiff to embark on a prolonged examination of its records to obtain details of each and every of its agreements with its clients, the expenditure of time and trouble for which is disproportionate to any benefit to be gained by the defendants, and unnecessary for the issues for determination at trial.

Item 8

24.  The plaintiff claims in WW’s witness statement that the 1^st defendant had told a representative of a client of the plaintiff, Doone, that the plaintiff had changed its name to that of the 2^nd defendant.  The interrogatory seeks the identity of the representative of Doone who had given such information to the plaintiff, and how and when such information was communicated to the plaintiff.  The defendants highlight that no witness statement from Doone has been filed so they will not be able to cross-examine Doone on this matter.

25.  In resisting the interrogatory, the plaintiff claims that it has already disclosed emails exchanged between the plaintiff’s representative, one Betty, and one HJ Kim of Doone, and further claims that the information sought by the defendants is already apparent from these emails.

26.  I agree with the plaintiff that this interrogatory raises questions which go only to the evidence the plaintiff intends to adduce of the facts in dispute, which form no part of the facts themselves.  As such, the interrogatory is not permissible (paragraph 26/4/13 Hong Kong Civil Procedure, Mariott v Chamberlain (1886) 17 QBD 154, Knapp v Harvey [1911] 2 KB 725, Lee Nui  Foon v Ocean Park Corp (No 2)[1995] 2 HKC 395).  Even without the answer to the interrogatory sought, in view of the discovery already made and the witness statements exchanged, the defendants would not be surprised at the trial.

Item 9

27.  The same objection applies to the interrogatory which seeks the identity of the person who forwarded an email from Apple Inc to WW of the plaintiff, and when such email was forwarded.

Item 12

28.  The interrogatory relates to WW’s witness statement, and his claim that by January 2012, the 2^nd defendant was already in the process of manufacturing, testing and delivering products to a client, as evidenced by an email dated 10 January 2012.  The interrogatory seeks information on how and from where the email was obtained, who had provided the email to WW, and when it was provided.

29.  The interrogatory goes to the evidence which the plaintiff intends to adduce of the facts in dispute, and is not allowed.

Item 13

30.  The interrogatory refers to WW’s witness statement, and his claim that the 1^st defendant had, since December 2011, played an active role in the setting up and the initial staff recruitment exercise for the 2^nd defendant. WW refers to a series of emails and attachments to support his said claim, and the defendants’ interrogatory seeks information as to how and where the emails were obtained, who had provided the emails, and when the emails were provided to the plaintiff.

31.  Again, the interrogatory goes to the evidence, and not to the facts in dispute.  They should be dealt with in cross-examination, and submissions on credibility and the probative value of the emails can be dealt with at trial.  I am not satisfied that the interrogatories are necessary for disposing fairly of the cause or matter, or for saving costs.

Items 15 and 25

32.  The plaintiff pleads (paragraph 51, Statement of Claim) that despite its repeated requests, the 1^st and 3^rd defendants have not accounted for or explained the purpose of their withdrawals of funds from the plaintiff’s bank accounts.  WW says in his witness statement that “since about early 2011”, he had repeatedly called upon the 1^st and 3^rd defendants to give him a full or proper account of the monies they had withdrawn from the plaintiff “as well as the books of account that they should have prepared and kept for the plaintiff and SWT”. 

33.  The defendants seek information as to how and when the 3^rd defendant was called upon to give the full or proper account of the monies withdrawn.  I will allow the interrogatories which relate to the fact of the plaintiff’s alleged repeated requests for the 3^rd defendant’s account for the withdrawals, in terms of item 15 (1) which should be adequate.

34.  As for the interrogatory that the plaintiff is to “state what is being alleged that the 3^rd defendant needs to prepare and keep for the plaintiff and SWT”, I consider that the facts and matters stated in paragraph 121 of WW’s witness statement are clear, and that the interrogatory is not necessary.

Item 16

35.  The plaintiff pleads in paragraph 9 of the Statement of Claim that “in the course of undertaking and carrying out each order, project or testing procedures for the Plaintiff’s Clients, the plaintiff often has to be furnished with market sensitive, highly confidential and non-public information by the relevant client which includes but are not limited to product plans … (collectively referred to as ‘Clients’ Confidential Information’)”.

36.  By interrogatories, the defendants seek “full particulars” of the Clients’ Confidential Information furnished by each and every one of the Plaintiff’s Clients, whether such information is contained in a written or printable document, and full particulars of the “undertaking” given to each and every one of the Plaintiff’s Clients.

37.  First, I agree that the reference in paragraph 9 of the Statement of Claim to “undertaking” is not to an undertaking in the sense of a promise or guarantee, but is used as a verb.  Item 16 (3) of the interrogatories, which seeks particulars of each and every “undertaking” given, is misconceived and should be withdrawn.

38.  I also agree that paragraphs 9 and 11 of the Statement of Claim set out adequate detailed particulars of the confidential and non-public information referred to by the plaintiff, which particulars have been categorized under the labels of “List of Clients”, “List of Suppliers”, and “Technical Confidential Information”, the last of which refers to the plaintiff’s own technical operations and test procedures.  The defendants should have no difficulty in preparing their defence as to whether such information has the quality of confidence as claimed, whether any such information is in the public domain, and whether the defendants have misused the plaintiff’s confidential information.  The further information sought by interrogatories is unnecessary.

Item 17

39.  This seeks particulars of the confidential agreements entered into between the plaintiff and its clients, whereby confidential information of the clients is prevented from being communicated to the public and competing companies, and from misuse.

40.  It is unnecessary for the preparation of the defence to seek the details of each and every one of the confidentiality agreements made between the plaintiff and its clients.  When and where the agreements were made are irrelevant to the plaintiff’s claims against the defendants.  The defendants have not put forward any case as to how the identities of the plaintiff’s representative who made the agreements would have impact on either the plaintiff’s case against the defendants, or the defence.  In view of the particulars already provided of the effect of the confidentiality agreements, I am not satisfied that the further information sought, including the precise terms of the agreements, are necessary for the fair disposal of the cause or the defendants’ preparation for trial, or for saving costs.  Even if any of the details sought are relevant, the interrogatories are oppressive and disproportionate to any benefit that may be obtained.

Item 18

41.  The interrogatory seeks full particulars of the plaintiff’s Technical Confidential Information, and the means of the keeping and maintenance of such information.

42.  I consider that adequate particulars of the Technical Confidential Information have been supplied in paragraph 11 (c) of the Statement of Claim.  The remarks made under paragraph 38 above are equally applicable to the interrogatory made under item 18.  The interrogatories as to the plaintiff’s means of the keeping and maintenance of the Technical Confidential Information go to the evidence to be adduced by the plaintiff, as opposed to the facts as pleaded.  I am not satisfied that they are necessary.

Item 21

43.  The interrogatory relates to paragraph 31 (i) of the Statement of Claim, in which the plaintiff pleads that its Clients’ Confidential Information is only provided by its clients upon the plaintiff going through “a lengthy credit check and vetting process” which takes up to 1 to 2 years.  The defendants seek full particulars of each and every one of the credit check and vetting process that the plaintiff went through.

44.  The defendants have denied that the plaintiff had undergone any credit check or vetting process.

45.  Even if the particulars required by the defendants are relevant to any fact directly or indirectly in issue, I agree that the interrogatory is oppressive, disproportionate to the benefit to be obtained, and unnecessary for disposing fairly of the cause or matter or for saving costs.

Item 22

46.  In paragraph 31 (j) of the Statement of Claim, the plaintiff claims that since its inception, it “has invented, developed and /or modified its internal plant, equipment and technology to specifically cater to each of the Plaintiff’s Clients’ needs and requirements”.  The defendants seek full particulars of the inventions created by the plaintiff since its inception, the alleged internal plant owned by the plaintiff since its inception, the equipment and technology developed or modified by the plaintiff since its inception, and the location where they are stored and maintained.

47.  Read in its context, the reference to the plaintiff’s “internal plant” may mean its machinery and equipment used in its industrial or manufacturing process.  However, in the light of the pleadings and the issues for trial, I consider that it is oppressive and unnecessary to require the plaintiff to give particulars of each and every invention created by it since its inception, without regard to the ambit of the claims made by the plaintiff against the defendants.  It is for the defendants to phrase their interrogatory in a precise manner to justify their necessity for saving costs or for the fair disposal of the course or matter.  I am not satisfied that it is necessary to have the facts of all the plaintiff’s inventions made, all the plants it owned, all the equipment and technology it developed or modified, and the location where all these are stored and maintained, from the date of the plaintiff’s inception.

Item 23

48.  The facts sought by the interrogatory are already self-contained in paragraph 31 (k) of the Statement of Claim, and the interrogatory is not necessary.  Further facts or clarification can be elicited by cross-examination at trial.

Item 24

49.  The interrogatory which seeks full particulars of each and every one of the credit check, background checks and vetting processes undertaken by the Plaintiff’s Clients referred to in paragraph 41 of the Statement of Claim relates to evidence of the facts asserted by the plaintiff, and should not be allowed.  It is also oppressive, disproportionate to any benefit to be obtained, and unnecessary for saving costs.

Conclusion

50.  Of all the interrogatories served by the 2^nd and 3^rd defendants on the plaintiff, I have only allowed item 4, and item 15 (1), which covers item 25.  I order that all the other interrogatories are to be withdrawn, and make orders in terms of paragraphs 2 and 3 of the Summons issued on 28 October 2013.  Since the plaintiff has succeeded in substance on its application, I will make an order nisi that the plaintiff’s costs are to be paid by the 2^nd and 3^rd defendants forthwith, with certificate for counsel, on an indemnity basis since I consider that nearly all of the disputed interrogatories are totally unnecessary, and were unreasonably served.

HCA 797/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 797 OF 2012

____________

____________

_____________

D E C I S I O N

_____________

1. I had made it clear in my Decision of 30 September 2013 that the matters which I had taken into account when making the order included the fact that “no steps whatsoever had been taken by Wen as majority shareholder to procure the formal ratification” of these proceedings. That was the cause of the defendants’ application to strike out the action for lack of authority.

2. It is also clear in these proceedings that all material times, Wen was the 70% majority shareholder, director and decision maker of the plaintiff company.  Those constitute grounds for seeking and making a costs order against him in respect of the striking out Application, for which he was joined as a party for the purpose of costs.

3. I do not agree that there are reasonably arguable grounds for the appeal against my decision on costs.  I had exercised my discretion, and had made clear in my Decision the matters which I had taken into consideration (namely, the underlying objectives of the Civil Justice Reform and the conduct of the parties), when I ordered that no costs should be awarded to any party “in relation to the striking out Application”.  The defendants’ application for costs against Wen related to no other than the striking out Application, and the order for the costs proceedings is already included in the costs order which I made on 30 September 2013.

4. Nor do I see any other reason why the appeal should be heard in the interests of justice.

5. The application for leave to appeal is dismissed, with costs to the defendants, payable forthwith.

HCA 797/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 797 OF 2012

____________

____________

____________________

DECISION ON COSTS

____________________

1.  On 14 May 2012, the plaintiff (“Company”) commenced these proceedings against the defendants for relief in respect of (inter alia) the defendants’ alleged misappropriation of its funds, diversion of its business, breach of confidence and damages in respect of the alleged breach of fiduciary duties of the 1^st and 3^rd defendants as directors of the Company. On the same day, the Company applied ex parte for injunction and Anton Piller orders (“Ex-parte Orders”) against the defendants in respect of their wrongful acts. The Ex-parte Orders were granted and thereafter continued against the defendants.

2.  The defendants applied in July 2012 to discharge the Ex- parte Orders, but the application was unsuccessful.  Directions for a speedy trial on liability were made by the court.

3.  The 1^st defendant (“Xing”) is the 30% shareholder and a director of the Company.  His brother (“Wen”) is the 70% majority shareholder and also a director of the Company.  The 3^rd defendant (“Hu”) is Xing’s wife.  The 2^nd defendant is a company controlled by Xing and Hu.

4.  On 10 and 12 September 2012, the defendants issued their summonses to strike out the Company’s action (“striking out Application”), on the basis that these proceedings had been commenced against them without due authority of the directors.

5.  On 14 September 2012, the Company discovered that the defendants were seeking to sell a property at Harbor Place, whereupon it applied for and obtained on 21 September 2012 interim Mareva injunctions against the defendants (“Mareva Injunctions”). 

6.  On 26 September 2012, Wen by Originating Summons commenced HCMP 2076/2012, for leave of the court to convene an Extraordinary General Meeting of the Company (“EGM”) in order to ratify these proceedings.  At the hearing of the striking out Application on 15 October 2012, I adjourned the same pending disposal of the Originating Summons on 16 October 2012.  On the same day, I discharged the Mareva Injunctions on the ground of material non-disclosure.

7.  At the first hearing of the Originating Summons on 16 October 2012, directions were given pursuant to Xing’s application for leave to file evidence in opposition.  On 26 October 2012, the EGM of the Company was held, and these proceedings were ratified.  On 5 November 2012, the costs of the Originating Summons were ordered to be paid by Xing to the Company, since the court considered that had the substantive hearing of the Originating Summons proceeded, it was clear that the court would have granted the order and relief sought by Wen.

8.  On 29 November 2012, I issued directions, on the parties’ joint application, that they should fix a date for hearing or have the outstanding issue of the costs of the striking out Application to be determined on paper.

9.  On 5 February 2013, Wen was, by consent, joined as a party in these proceedings for the purpose of costs only.  Submissions were directed to be filed by Wen and the other parties on the issue of the costs of the striking out Application, which were sought by the defendants to be paid either by Wen, as the majority shareholder and director of the Company in control of these proceedings since their commencement, or by Leung & Associates (“Solicitors”) as the solicitors who had commenced these proceedings for the Company.  The defendants ask for these costs to be paid on an indemnity basis. 

10.  Wen claims that prior to the commencement of these proceedings, a meeting of the directors of the Company could not have been properly held without notice to Xing (to be named as a defendant) and without a proper quorum. Wen and the Company maintain however that the action so commenced by Wen in the name of the Company is not a nullity, as they are capable of being ratified.  Whilst that may be true, it remains the fact that the institution of these proceedings (and the application for the Ex-parte Orders) was not ratified until 26 October 2012, when the EGM was held. 

11.  Counsel for both the Company and Wen rely on authorities where the courts have held that, in a case of urgency or secrecy, when the company must take action in respect of a grievance, the court would not insist on compliance with formalities and wait for a meeting to be properly convened and held, before proceedings can be instituted in the name of the company (K Vision International Investment (HK) Limited v Lam Yin HCA 2710/2004, unreported, 8 December 2004; Pender v Lushington (1877) 6 Ch D 70).  It was also argued that the court would give effect to the wishes of the majority shareholders, when they desire that proceedings should be taken to protect the company’s rights (Gore-Browne on Companies, Vol 1 para 18; Kamy Town Ltd v Super Glory Corp Ltd HCA 3524/2003, unreported, 14 January 2005; Airways Ltd v Bowen [1985] BCLC 355).

12.  The arguments made on behalf of Wen and the Company, with regard to the urgency for the institution of proceedings and for interim relief prior to formal ratification of proceedings, would have been pertinent and more persuasive at the time when these proceedings were instituted and the Ex parte Orders were obtained, in May 2012.  However, they pale in significance 4 months down the road, when the striking out Application was made on 10 September 2012. In this interim, no steps whatsoever had been taken by Wen as majority shareholder to procure the formal ratification, either by convening the requisite EGM, or seeking the leave of the court so to do, until 26 September 2012 when the Originating Summons was issued by Wen, and the EGM consequently convened and held on 26 October 2012.  This was notwithstanding the direction made by the court on 17 July 2012 for a speedy trial.  Needless to say, as it has been emphasized by the court in numerous cases, it is for a plaintiff who has obtained urgent interim relief to proceed diligently with the action, and in the circumstances of this case, this involves the initial step of putting the commencement of proceedings in order.

13.  In these circumstances, it cannot be said that the defendants had no reason or basis to apply on 10 September 2012 to strike out the present action for lack of authority.

14.  On the other hand, I take note of the fact that the defendants did not complain of the irregularity affecting the commencement of these proceedings, from May 2012 until 10 September 2012 when they made the striking out Application. As the court made it clear in Kamy Town Ltd v Super Glory Corp Ltd, questions of lack of authority must be taken by a defendant at the earliest opportunity.  Xing and Hu were former directors of the Company.  I do not accept that they can feign ignorance of the constitution of the board of the Company, or as to the shareholding of the Company.  From the time of service of the Writ and the Ex-parte Orders on them in May 2012 and before the striking out Application was made in September 2012, the defendants did not raise any complaint as to Wen’s lack of authority or any defect in the commencement of these proceedings.  To the contrary, they took active steps in the action, in applying for the discharge of the Ex-parte Orders, in seeking leave to appeal against the order of 12 July 2012, and in seeking discovery and further and better particulars of the Statement of Claim.  The Company sought to emphasize that prior to the making of the striking out Application, the defendants had failed to give any prior notice to the Company of the fact that it sought to do so on the basis of Wen’s lack of authority.

15.  Even if the defendants had grounds to make the striking out Application on 21 September 2012 in the absence of any steps having been taken by Wen to ratify these proceedings, I consider that the defendants were unreasonable in pursuing the striking out Application after 26 September 2012, when the Originating Summons was issued by Wen.  As the court indicated in the Judgment in HCMP 2076/2012 handed down on 5 November 2012, it is not conceivable that the order sought by Wen in the Originating Summons would not be granted.  Not only did the defendants oppose HCMP 2076/2012 (for which they have been penalized in costs), but they continued with the striking out Application at the hearing on 15 October 2012 (when the matter was adjourned by the court).  It was only on 27 November 2012 that the defendants and the Company made joint application to the court, to seek the disposal of only the costs of the striking out Application.

16.  In short, the Company and Wen have unnecessarily delayed the ratification of the commencement of these proceedings, whereas the defendants have been unco-operative and unreasonable in delaying their complaint as to Wen’s lack of authority and in their conduct of the striking out Application after 26 September 2012.  The Company has further chosen, unnecessarily, to file submissions on costs, when the defendants’ application is for their costs to be paid by Wen and the Solicitors (as indicated in their summonses).

17.  The parties should not have to be reminded of the objectives of the Civil Justice Reform.  The manner in which these proceedings have been conducted by the parties cannot in any way be said to have given effect to the underlying objectives, of increasing the cost effectiveness of the practice and procedures before the court, in reasonable proportion, and with procedural economy.  There has been a proliferation of interlocutory applications since May 2012, fought out with a degree of vengeance not conducive to the saving of unnecessary costs and the facilitation of the settlement of disputes.  If the parties and their legal advisers had made some real and genuine efforts in identifying and resolving disputes at an early stage, and had focused on bringing the core issues which are the subject of these proceedings to an early trial, much of the time and costs spent between September 2012 and now would have been saved, and the parties might have been much closer to a trial. 

18.  To discourage the protraction of interlocutory skirmishes and unco-operation in the resolution of disputes, and further to ensure that parties and their legal advisers pay due heed to their duties under Order 1A r 3 RHC and focus on effective and speedy resolution of disputes, I refuse to order any costs to any party in relation to the striking out Application.  If a litigant chooses for its own reasons to prolong the action and to incur unnecessary legal costs unreasonably, it cannot expect the court to condone, or to order the other side to pay such costs.

HCA 797/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 797 OF 2012

________________________

BETWEEN

_______________________

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DECISION ON ASSESSMENT OF COSTS

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1.  On 25 February 2013, I granted a costs order nisi that the plaintiff be entitled to 80% of the costs of and occasioned by the 2^nd and 3^rd defendants’ summons dated 30 November 2012 (including all costs reserved, if any) to be summarily assessed and paid forthwith.  The summons was heard by me on 7 February 2013 (“Hearing”).

2.  Since the above costs are to be assessed on party and party basis, only costs that are necessary or proper for the attainment of justice or for enforcing or defending the taxing party’s rights will be allowed (see Order 62 rule 28(2) of the Rules of the High Court).

3.  As the plaintiff is to obtain 80% of their total costs in respect of the 2^nd and 3^rd defendants’ summons, I shall assess such costs on a gross basis and then make the appropriate reduction at the end.

4.  General information  AL was admitted in 1988, but given the nature of the application there is no justification for an hourly rate of HK$4,500.00. I consider his appropriate hourly rate should be HK$4,000.00.  As for SN, her hourly rate should be HK$1,300.00.

5.  Item B1  The plaintiff asks for 2.5 hours of AN’s time and 1 hour of SN’s time for attendance on client. The 2^nd and 3^rd defendants say that no specific instructions from the client would be required to oppose their summons.  In my view, time had to be spent to inform the plaintiff of the summons and to confirm instructions to oppose the same after rendering legal advice.  However, I agree that detailed lay instructions would not be required.  In the circumstances, I allow 1 hour’s time on gross basis for AN at HK$4,000.00.

6.  Item B2  The plaintiff asks for 0.5 hour of AN’s time for attendance on the other side.  I agree that for the subject application, the majority of attendances would be routine in nature, so I allow on gross basis 10 minutes for AN and 20 minutes for SN at HK$1,100.00.

7.  Item B3  The plaintiff asks for 2 hours of AN’s time and 0.5 hour of SN’s time.  The 2nd and 3rd defendants claim it is excessive. But it must remembered that the 2nd and 3rd defendants have issued a whole host of requests for further and better particulars, and counsel needs to be properly instructed.  I do not agree that instructing counsel can be delegated merely to SN, but I agree that it is unnecessary for AN to spend 2 hours.  I consider that 1 hour for AN would be appropriate in this case on gross basis, ie HK$4,000.00.

8.  Item C1  This relates to the preparation of the plaintiff’s bundle of documents. The 2nd and 3rd defendants say the bundle is irrelevant and should be disallowed. First, they have not sought to vary the costs order nisi for such costs to be disallowed. Secondly, the information from the documents in the plaintiff’s bundle of documents has actually been deployed at the Hearing and in my Decision. But I agree it is unnecessary for AN to spend 1 hour and SN to spend 2 hours for this purpose. I consider that AN should be allowed 15 minutes and SN 0.5 hours to collate the bundle on gross basis at HK$1,650.00.

9.  Item C2  For perusal of documents, the plaintiff asks for 1 hour’s time for AN. The 2nd and 3rd defendants suggest that since SN attended the Hearing, it should at SN’s rate. I disagree for such argument ignores the need for the solicitor in charge to understand and consider the application and to give advice and liaise with counsel on the same.  I allow AN’s time of 0.5 hours under this item on gross basis at HK$2,000.00.

10.  Item C3  I allow 0.5 hour at HK$650.00 on gross basis for SN to prepare for the Hearing.

11.  Item C4  The time spent for the Hearing was from 10:03am to 11:28am, so I allow 1.5 hours’ time for SN at HK$1,950.00 on gross basis.

12.  Item D1  There is no dispute over counsel’s fee of HK$22,000.00 on gross basis.

13.  Item D2  The plaintiff seeks photocopy charges for the plaintiff’s hearing bundle. In view of my ruling on Item C1, this item should be allowed at HK$810.00 on gross basis.

14.  The total costs of the plaintiff on their revised statement of costs on gross basis are assessed at HK$38,160.00 (being HK$4,000.00 (B1) + HK$1,100.00 (B2) + HK$4,000.00 (B3) + HK$1,650.00 (C1) + HK$2,000.00 (C2) + HK$650.00 (C3) + HK$1,950.00 (C4) + HK$22,000.00 (D1) + HK$810.00 (D2)).

15.  After reduction by 80% in respect of the aforesaid costs, the 2^nd and 3^rd defendants shall forthwith pay net costs in the sum of HK$30,528.00 to the plaintiff.

Messrs Leung & Associates for the plaintiff

Messrs Johnny KK Leung & Co for the 2^nd and 3^rd defendants

HCA 797/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 797 OF 2012

_________________________

BETWEEN

________________________

_______________

DECISION

_______________

I.  INTRODUCTION

1.  This is an application by the 2^nd and 3^rd defendants (“D2 and D3”) requiring the plaintiff to give further and better particulars (“FBP”) of the Statement of Claim (“SOC”) as per the requests (“Requests”) annexed to their summons dated 30 November 2012 (“Summons”). Such Requests (which number 40 in total) were initially raised by letter dated 1 September 2012 from the solicitors for D2 and D3 to the solicitors for the plaintiff.

2.  At the hearing of the Summons on 7 February 2013 (“Hearing”), Mr Ho, counsel for D2 and D3, abandoned some of the Requests and conceded that the costs of and occasioned by such abandoned requests be to the plaintiff, so I granted leave for D2 and D3 to withdraw Requests Nos.1-5, 7, 13-16, 17(1) and (3), 21-23, 25-27, 31-34 and 36-40 under paragraph 1 of the Summons.  In the course of his oral submissions, Mr Ho also abandoned Request No.35 insofar as it relates to D1.

3.  At the Hearing, Mr Poon, counsel for the plaintiff, conceded that the plaintiff should furnish the FBP requested under Request No.17(4). In the circumstances, the outstanding requests for FBP are Requests Nos.6, 8-12, 17(2), 18-20, 24 and 28-30 and Request No.35 insofar as it relates to D3 (“Remaining Requests”).

4.  But before I discuss the Remaining Requests, it is necessary to briefly set out (a) the nature of the plaintiff’s claim against D2 and D3 and (b) the history of the proceedings in order to place the Remaining Requests in context.

II.  SOC

5.  The plaintiff’s case as pleaded in the SOC is summarised in paragraphs 6-17 below.

6.  The plaintiff, a Hong Kong company, was “engaged in the sale and/or provision of auto test system, test fixture, test equipment and test instruments for electronic and computer hardware products and the supply of related technical services to clients who are primarily outside of Mainland China” (“Plaintiff’s Business”).

7.  Shenzhen Willwin Technology Company Limited (“SWT”) was/is a PRC company that carried on a business in Shenzhen, PRC similar to the Plaintiff’s Business, but with a clientele that was largely PRC-based.

8.  The 1^st defendant (“D1”) and his younger brother Wei Wen were respectively 30% and 70% shareholders of the plaintiff. D1 was/is the deputy general manager of and a paid director employed by the plaintiff, and before 2 December 2011 he was SWT’s general manager.

9.  D2, a Hong Kong company, carried on a business identical to and in direct competition with that of the plaintiff. D3, the wife of D1, was a paid director employed by the plaintiff, and before 2 December 2011 an assistant to SWT’s general manager. She was/is the founder, 100% shareholder and director of D2.

10.  The role of the plaintiff (whose clients were mainly non-PRC based companies) was to have their clients’ consumer products adequately tested before the release of such products to the general public. The plaintiff would invariably sub-contract the testing and/or utilise SWT’s resources and manpower to carry out the relevant procedures at SWT’s factory in Shenzhen, PRC. In the course of carrying out such work, the plaintiff would often have to be furnished with market-sensitive, highly confidential and non-public information (“Clients’ Confidential Information”), so the plaintiff and/or SWT often had to enter into confidentiality agreements to prevent the Clients’ Confidential Information from being divulged to their competitors or the public.

11.  The plaintiff was also the owner or beneficially entitled to possess/deal with certain confidential information in the course of their business, ie the identities and contact information of their existing and prospective clients (“List of Clients”), the identities and contact information of their existing and prospective suppliers (“List of Suppliers”), and all information relating to their own technical operations and test procedures (“Technical Confidential Information”).

12.  The four classes of confidential information referred to in paragraphs 10-11 above are referred to as the “Plaintiff’s Confidential Information”.

13.  Since 2004, the plaintiff entrusted D1 as director and deputy general manager to manage and administer their business and operations, and D3 was similarly appointed as their director, so both D1 and D3 owed fiduciary duties to the plaintiff. Further or alternatively, as paid employees they also owed to the plaintiff equitable and/or contractual duty of fidelity to act faithfully in the best interest of the plaintiff. By the end of 2011, D3 ceased to be a director of the plaintiff, but she continues to owe inter alia a duty not to divert business opportunities from the plaintiff.

14.  Moreover, since D1 and D3 were all along privy to and/or apprised of the Plaintiff’s Confidential Information in the course of carrying out their respective powers, duties and responsibilities, they were under a duty of confidence towards the plaintiff in respect of the Plaintiff’s Confidential Information. In this connection, SWT required all its officers/staff (including D1 and D3) to enter into separate standard-form confidentiality agreements (“SWT’s Confidentiality Agreements”) to protect inter alia the Plaintiff’s Confidential Information. But some time after D1 and D3 executed their respective SWT’s Confidentiality Agreement, they removed the same or caused the same to be removed from SWT. Given the close business relationship between SWT and the plaintiff, the duty of confidence owed to the plaintiff by D1 and D3 was contained or reflected in the terms of their respective SWT’s Confidentiality Agreement.

15.  In/about September 2011, D1 and/or D3 acquired D2 as their corporate vehicle to carry on a business identical and in direct competition with the plaintiff. In/about December 2011, Shenzhen Evolution Solution Limited (“Shenzhen Evolution”) was incorporated in the PRC, and D1 was/is the general manager and D3 was/is an officer at the general manager’s office of Shenzhen Evolution. Thus, D1 and/or D3 replicated the business modus operendi established/adopted by the plaintiff and SWT. In advancing and/or carrying on D2’s business, D1 and/or D3 committed wrongful acts in breach of their fiduciary duty and their duty of fidelity owed to the plaintiff. The plaintiff claims they have suffered loss and damage, and is entitled to an account of profits reaped by D1 and/or D3 or an enquiry as to damages. The plaintiff also seeks to restrain D1 and/or D3 from committing any further wrongful acts.

16.  Further, due to the specialised, complex and highly technical nature of the Plaintiff’s Business, D2 could not have carried on their business unless D1 and/or D3 wrongfully disclosed to D2 and/or misused the Plaintiff’s Confidential Information. The plaintiff therefore invites an inference to be drawn to the effect that D1 and/or D3 have breached their respective duty of confidence owed to the plaintiff by divulging the Plaintiff’s Confidential Information to D2. Further, in receiving or coming into knowledge and possession of the Plaintiff’s Confidential Information as a result of the wrongful breaches by D1 and/or D3, a similar duty of confidence was imposed on D2, but D2 was in breach of such duty in the course of carrying on their business. The plaintiff claims they have suffered loss and damage as a result of the breach of confidence by the defendants. Further or alternatively, the plaintiff is entitled to an account of profits made by the defendants through the disclosure and/or misuse of the Plaintiff’s Confidential Information, or an enquiry as to damages. The plaintiff also seeks to restrain the defendants from committing any further wrongful acts.

17.  The plaintiff also pleads further causes of action based on dishonest assistance, passing off, and misappropriation of their funds and receivables. In respect of the latter cause of action, the plaintiff claims that between April 2008 and March 2011, D1 and D3 withdrew or caused to be withdrawn and received cash sums of HK$8,106,000.00 and US$349,960.00 from the plaintiff’s bank accounts. Despite the plaintiff’s repeated requests, D1 and D3 did not account for, repay to the plaintiff and/or explain the purpose(s) and/or the current whereabouts of such withdrawals. The plaintiff claims for repayment of such sums. Further or alternatively, the plaintiff claims that D1 and D3 have wrongfully deprived them of the use/possession of such sums and converted them to their own use, and they have thereby suffered loss and damage.

III.  PROCEEDINGS

18.  On 14 May 2012, the plaintiff commenced the present action against D1 and D2. On the same day, on the strength of the 1^st affirmation of Wei Wen filed 14 May 21012 (and supplemented by his 2^nd affirmation filed on 15 May 2012), the plaintiff obtained Anton Piller and injunction orders against D1 and D2. Such orders were continued on 18 May 2012. On 12 June 2012, D1 and D2 applied to discharge those orders, and D1’s 1^st affirmation was filed on 7 June 2012 in support of such application.  On 29 June 2012, the plaintiff filed the 3^rd affirmation of Wei Wen in opposition. On 9 July 2012, D1 and D2 filed D1’s 2^nd affirmation in reply. On 12 July 2012, the application for discharge of the Anton Piller and injunction orders was dismissed. Those orders were slightly varied, and an order for speedy trial was made.

19.  In the meantime on 13 June 2012, the plaintiff applied to join D3 as a further defendant in this action. D3 was so joined on 22 June 2012. On 6 July 2012, the plaintiff filed and served their Amended Writ of Summons and Statement of Claim.

20.  There was disagreement amongst the parties over (a) whether there had been compliance with the injunction orders (eg order requiring D1 and D2 to deliver up the usernames and passwords of the domain name “willwin.hk” as well as the email accounts thereunder) and (b) the appropriate directions for speedy trial.

21.  On 26 July 2012, D1 and D2 applied for leave to appeal against the dismissal of their application to discharge of the Anton Piller and injunction orders, but they have not followed up on such application to date. On the following day (ie 27 July 2012), D1 filed a Notice to Act in Person and applied for legal aid. Although such application was eventually rejected, the 42-day legal aid automatic stay was maintained. Consequently, the hearing for speedy trial directions on 30 July 2012 did not proceed. On 1 September 2012, D3 filed her acknowledgment of service. On the same day during the legal aid stay but before D2 and D3 filed their Defence, their solicitors wrote to the solicitors for the plaintiff to make the Requests.

22.  On 10 and 12 September 2012, the defendants applied to strike out the plaintiff’s claim for want of authority to sue. On 21 September 2012, interim Mareva relief was granted in favour of the plaintiff. On 3 October 2012, D1’s present solicitors filed Notice to Act on his behalf. On 15 October 2012, the interim Mareva injunction order was set aside, and the defendants’ striking out applications were adjourned. In late October 2012, the striking out applications became academic when the plaintiff ratified the present proceedings. On 27 November 2012, the parties jointly wrote to the court to seek speedy trial directions with the defendants indicating their intention to apply for security for costs and for costs of the striking out applications, but without any mention that the Requests would be pursued. The speedy trial directions made on 29 November 2012 therefore made no mention of the Requests.

23.  On the following day (ie 30 November 2012), D2 and D3 issued the Summons. On 20 December 2012, D1 as well as D2 and D3 filed his/their respective Defence. On 23 January 2013, the plaintiff filed their Replies thereto.

IV.  LEGAL PRINCIPLES

24.  Order 18 rule 12 of the Rules of the High Court (“RHC”) provides as follows:

“(1) Subject to paragraph (2), every pleading must contain the necessary particulars of any claim …… or other matter pleaded ……

(3) The Court may order a party to serve on any other party particulars of any claim, …… or other matter stated in his pleading …… or a statement of the nature of the case on which he relies, and the order may be made on such terms as the Court thinks just. ……

(3B) No order shall be made under paragraph (3) unless the Court is of the opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs. ……”

25.  There is no dispute that (a) pleadings must contain material facts and not evidence, (b) material facts are those facts which must be proved in order to establish a ground of claim or defence, (c) all necessary particulars of the material facts must be pleaded, and (d) the court will not order FBP of a pleading where the particulars sought constitute evidence.

26.  There is also no dispute that the function of particulars is as follows: (a) to inform the other side of the nature of the case that he has to meet as distinguished from the mode in which the case is to be proved, (b) to prevent the other side from being taken by surprise at the trial, (c) to enable the other side to know with what evidence he ought to be prepared and to prepare for trial, (d) to limit the generality of the pleadings, the claim and the evidence, (e) to limit and define the issues to be tried, and as to which discovery is required, and (f) to tie the hands of the party so that he cannot without leave go into any matters not included (see Hong Kong Civil Procedure 2013 Vol.1 para.18/12/1 at p.394 and Aktieselskabet Dansk Skibsfinansiering v Wheelock Marden & Co Ltd& ors [1994] 2 HKC 264, 269-270, per Bokhary JA (as he then was)).

27.  In a nutshell, the purpose of FBP is to permit the parties to understand the case they have to meet at trial so as to remove the element of surprise. But the particularity of what is required from the pleader depends on the facts of each case. The modern approach is stated in McPhilemy v Times Newspapers Ltd & ors [1999] 3 All ER 775 as follows: the current practice of requiring witness statements, expert reports and so forth to be exchanged should reduce the need for FBP to clarify pleadings, and as long as the pleadings do convey the nature of the party’s case and state the material facts, they should not attract applications for FBP even though some details that are likely to come forth in discovery or witness statements are not disclosed.

28.  In my view, Lord Woolf’s remarks at p.793, which were given in the context of the English Civil Procedure Rules, are equally applicable to the current practice here:

“As well as their expense, excessive particulars can achieve directly the opposite result from that which is intended. They can obscure the issues rather than providing clarification. In addition, after disclosure and the exchange of witness statements, pleadings frequently become only of historic interest. …… the case is overburdened with particulars and simpler and shorter statements of case would have been sufficient. Unless there is some obvious purpose to be served by fighting over the precise terms of a pleading, contests over their terms are to be discouraged. In this case the distinct impression was given by the parties that both sides were engaged in a battle of tactics. Each side was seeking to fight the action on, what from that party’s perspective appeared to be, the most favourable ground. The dispute over particulars was just being used as a vehicle for that purpose …… The judiciary had been exhorting proportionality whenever an appropriate opportunity to do so arose. ……”

29.  Such approach is also reflected in Midland Realty International Ltd v Wise Surplus Ltd [2002] 3 HKC 318. DHCJ Gill considered that the FBP sought by the defence were a matter of evidence to be proved at the trial. A representative of the plaintiff, with full knowledge of the history of the dispute, would give evidence and had filed a comprehensive witness statement which set out in some detail the evidence upon which the plaintiff intended to rely. The learned judge decided that it would be wrong to require this to be incorporated into the pleadings, even in gist.

30.  Further, as Mr Poon submits, the court will not order particulars of any immaterial allegation (see Hong KongCivil Procedure 2013 Vol.1 para.18/12/62 at p.405). It must also be remembered that Order 18 rule 12(3B) of the RHC, which was introduced by the Civil Justice Reform, provides that no order for FBP shall be made unless it is “necessary” either for disposing fairly of the cause or matter, or for saving costs. Hong KongCivil Procedure 2013 Vol.1 para.18/12/66 at p.406 provides as follows:

“ Where application is made by the parties themselves, it is for the party applying for the order to satisfy the Court that the order is necessary either for disposing fairly of the cause or matter, or for saving costs. Unless the Court makes the order of its own motion, the burden and onus of so proving rests upon the party bringing such application.

It is not enough for the applicant merely to show that the particulars requested are “relevant”; for “relevance” is not the test proscribed – it must be shown that granting an order for those particulars is “necessary” for one or more of the purposes stated and set out in para.(3B), which provides for an exhaustive and conclusive definition of what can be (and only those can be) considered by the Court to be “necessary” (namely, only for disposing fairly of the cause or matter, or for saving costs).”

31.  I now apply the above principles to the Remaining Requests.

V.  D2’S AND D3’S CASE

32.  D2 and D3 contend that the plaintiff has failed to furnish full and sufficient FBP in respect of their broad and general pleaded allegations which are therefore unsatisfactory and embarrassing, so the Remaining Requests are necessary for disposing fairly of the cause or matter.

VI.  PLAINTIFF’S CASE

33.  On a preliminary basis, the plaintiff disputes the Remaining Requests on the following broad grounds:

(a)        D2 and D3 have failed to discharge their burden in establishing that the Remaining Requests are necessary either for fairly disposing of the cause or matter, or for saving costs.

(b)        The Summons lacks bona fides and represents yet another satellite skirmish on the part of D2 and D3 to disrupt the present action and to delay the resolution of the real disputes between the parties.

34.  In respect of the issue in paragraph 33(a) above, Mr Poon submits that in view of the history of the proceedings in this action (see paragraphs 18-23 above) D2 and D3 must have been fully apprised of the nature and scope of the plaintiff’s case. Mr Poon argues that since the present action began with ex parte Anton Piller and injunction orders, which have been continued on 18 May 2012 and not discharged on 12 July 2012, the plaintiff must have complied with the duty to make full and frank disclosure of their case in their supporting affirmations. Mr Ho accepts that even though D3 only joined as a co-defendant at a later stage of the proceedings, she had access to the affirmations filed by the plaintiff in support of the Anton Piller and injunction orders. In the circumstances, Mr Poon submits that D2 and D3 are fully aware of the details of (a) the plaintiff’s causes of action against the defendants based on breach of fiduciary duty, breach of confidence and passing off as disclosed in the course of the application for and continuation of the Anton Piller and injunction orders, and (b) the plaintiff’s causes of action against D1 and D3 based on misappropriation of funds and/or failure to account for the whereabouts of such funds as disclosed in the course of the plaintiff’s application for Mareva relief against them. Mr Poon therefore says that D2 (and D3 who is D2’s sole shareholder and director) cannot be heard to say they have difficulty in understanding the plaintiff’s claims, especially when they were able to prepare detailed affirmations with supporting documents for the aforesaid interlocutory applications and to prepare a full-bodied Defence to the SOC.

35.  However, I am not prepared to deal with the question of “necessity” of the Remaining Requests on a broad-brush basis premised on Mr Poon’s general observation that the SOC was preceded by disclosure on affirmations made (a) for the purpose of seeking the Anton Pillar and injunction orders and the Mareva relief and (b) for resisting the discharge of such orders. The existence of such affirmations does not ipso facto dispense with any need for FBP of the plaintiff’s pleadings.  In my view, each Request must be considered in the context of the current progress of the proceedings and the present information as known to the parties to see whether it is necessary for the purpose of disposing fairly of the cause or matter or for saving costs.

36.  In respect of the issue in paragraph 33(b) above, Mr Poon submits that the Summons is the latest of a series of delaying tactics on the part of the defendants that disrupt speedy progress of the proceedings.  But I am not persuaded that the history of the present proceedings necessarily indicates the Summons lack bona fides.  Whilst parties may disagree over whether there has been compliance with the order for the delivery up of usernames and passwords, such disagreement has no bearing on whether the plaintiff ought to give FBP to clarify their pleadings.  Likewise, the failure by D1 and D2 to pursue their application for leave to appeal against the dismissal of their application to discharge the Anton Piller and injunction orders has not caused any delay to the progress of this action. It will be noted that although D2 and D3 had not filed their Defence when they first raised the Requests, such Defence had been filed by the time of the Hearing, and there is no suggestion that D2 and D3 have attempted to defer service of their Defence pending the provision of the FBP sought. I also cannot see how D2 and D3 can be blamed for any hiatus in the proceedings caused by D1’s application for legal aid. Further, without the benefit of full argument, it is questionable whether D2 and D3 should be faulted for their striking out application when ultimately it was the plaintiff who overcame such application by ratifying the proceedings.

37.  I am not prepared to throw out the Remaining Requests on a broad-brush basis that there been delay in the proceedings. Whilst it is of course more desirable if this action had progressed more quickly in view of the order for speedy trial, I am not persuaded on the material before me that D2 and D3 are largely to blame.

38.  In his written submissions, Mr Poon also argues that because the present action involves the plaintiff company claiming against D1 (a director), D3 (an ex-director) and D2 (a company which is effectively the alter ego of D1 and D3) primarily for their diversion of business opportunities and their parallel business in direct competition with the plaintiff, the plaintiff will not know the true nature and extent of their wrongful acts until proper discovery is given by the defendants. So if the court should find that all or some of the plaintiff’s pleaded allegations being the subject of the Remaining Requests are so “broad and general” that FBP ought to be furnished, Mr Poon says the court should take into account the fact that D2 and D3 have not made full discovery of documents as yet and should only require the plaintiff to furnish any necessary FBP “at a reasonable period of time after the discovery stage”.

39.  In my view, if it is considered that the plaintiff should give FBP of their pleas in the SOC (which the plaintiff denies), then the provision of such FBP should not be deferred in the manner as suggested by Mr Poon. As explained in Hong Kong Civil Procedure 2013 Vol.1 para.18/12/63 at p.405,

“…… The party from whom particulars are sought often declares that he cannot give any further information, or that he cannot do so without laborious research or exhaustive inquiry. Such objections, if genuine, are often met by an order that he shall deliver forthwith the best particulars which he can at present give, with liberty to supplement them within a specified period after discovery and inspection has been completed.”

In the course of his oral submissions at the Hearing, Mr Poon conceded that the plaintiff would not rely on this argument.

40.  I now turn to the individual Remaining Requests to see if FBP ought to be ordered.

VII.  REQUESTS NOS.6 AND 17(2)

41.  It is pleaded in paragraph 5(b) of the SOC that D3 was a paid director under the employment of the plaintiff. Request No.6 seeks FBP as to whether there was a contract of employment between the plaintiff and D3, and if so, whether it was made orally or in writing with full particulars of the oral contract or with provision of a copy of the written contract. D2 and D3 also seek full particulars of “the material facts upon which the [plaintiff] seeks to establish that [D3] is a paid director of the [plaintiff], including but not limited to the wages and/or benefit allegedly paid or made to [D3] from the incorporation of the [plaintiff] to December 2011”, and as to when and how D3’s directorship was terminated.

42.  Paragraph 18 of the SOC pleads that further or alternatively, D1 and D3 as paid employees of the plaintiff also owed the plaintiff an equitable and/or contractual duty of fidelity to act faithfully in the best interests of the plaintiff. Request No.17(2) seeks full particulars of the alleged equitable duty of fidelity owed by D3 to the plaintiff.

43.  Mr Ho submits that Request No.6 is relevant and necessary in that (a) the scope and terms of the contract of employment between the plaintiff and D3 are material for ascertaining the scope of her alleged contractual duty of fidelity, and (b) D3 is entitled to know when her directorship with the plaintiff was terminated.

44.  However, in paragraph 6(1) of the Defence by D2 and D3 (“Defence”), they admit that D3 was a director of the plaintiff and paid since 2008. There is therefore no issue or dispute that D3 was a director of the plaintiff and that she was under the plaintiff’s employment. Since there is no live issue or dispute arising from the matters pleaded in paragraph 5(b) of the SOC, it is plainly unnecessary for the plaintiff to give the FBP sought under Request No.6. Such request certainly will not save costs, and they are not necessary for disposing fairly of the cause or matter.

45.  As for Request No.17, Mr Poon conceded that the plaintiff ought to provide the FBP sought under Request No.17(4) in relation to the alleged contractual duty of fidelity owed by D3 to the plaintiff. But in respect of Request No.17(2), I cannot see what FBP the plaintiff can give in respect of the alleged equitable duty of fidelity that (as Mr Poon submits) arises as a matter of equity (which plainly is a matter of law rather than fact) from the admitted employment relationship between the plaintiff and D3. Pursuant to Order 18 rule 18(11) of the RHC, points of law may (not must) be pleaded. In any event, paragraph 18 of the SOC has spelled out the nature of such alleged equitable duty of fidelity, which is a duty to act faithfully in the best interests of the plaintiff. In this respect, D2 and D3 should be aware of the plaintiff’s case that they have to meet.

46.  Requests Nos.6 and 17(2) are therefore dismissed.

VIII.  REQUEST NO.8

47.  Request No.8 is aimed at paragraph 7 of the SOC which pleads that a list of the “Plaintiff’s Clients” is appended therein and marked as “Annexure A”. In the SOC, “Plaintiff’s Clients” is defined in paragraph 6 which avers inter alia that the plaintiff’s clients consist primarily of overseas and/or multi-national corporations engaging in the sale and provision of electronic consumer products. Annexure A of the SOC lists 54 companies said to the “Plaintiff’s Clients”.

48.  Request No.8 seeks FBP as to whether there is any contract for the alleged provision of service by the plaintiff and/or any contract of sale made between the plaintiff and each of the alleged “Plaintiff’s Clients”, and if so, whether such contracts were made orally or in writing with full particulars of the oral contracts or with provision of copies of the written contracts.

49.  D2 and D3 deny the allegations in paragraph 7 of the SOC by paragraph 7 of the Defence, and insofar as may be necessary they aver that the alleged Plaintiff’s Clients (and the list of alleged Plaintiff’s Clients in Annexure A of the SOC) are in fact SWT’s clients.

50.  Mr Ho submits that the listing of 54 companies in Annexure A of the SOC as the “Plaintiff’s Clients” “is a most general plea, and is not supported by any particulars”, hence the plaintiff must provide FBP to “establish that those entities are in fact their clients as alleged” “in order to limit the generality of the pleadings and the evidence”. Mr Ho says that the companies specified in items 8 and 9 of Annexure A of the SOC were in fact suppliers and not clients, which illustrates why it is necessary to seek FBP of the plaintiff’s plea that the companies listed in Annexure A of the SOC are their clients. Mr Ho claims that without such FBP, D2 and D3 can only plead a bare denial and will not be able to raise any positive defence case.

51.  In my view, Request No.8 is misconceived. Paragraph 7 of the SOC lists 54 companies which the plaintiff avers are their clients. This is the only material fact pleaded in paragraph 7 of the SOC, which does not go further to assert how and why these companies became the plaintiff’s clients. Rather, it is in paragraph 6 of the SOC that the plaintiff describes the domicile (ie overseas and/or multi-national corporations) and business (ie engaging in the sale and provision of electronic consumer products) of their primary clients. The averment in paragraph 7 of the SOC and Annexure A of the SOC are in fact the “particulars” provided in respect of the plea in paragraph 6 of the SOC.

52.  In my view, FBP under Order 18 rule 12 of the RHC must be particulars of averments pleaded in the subject pleading which is quite different from general information about the pleader’s case which the applicant may wish to know. In appropriate cases, the latter may come within the ambit of interrogatories that can be administered under Order 26 of the RHC, but it cannot be made the subject of requests for FBP which are confined to particulars of the pleaded averments. For Request No.8, nowhere can I find any plea in paragraphs 6-7 of the SOC about any contract for the provision of services by the plaintiff and/or any contract of sale made between the plaintiff and each of the 54 companies listed in Annexure A to the SOC. They cannot be made the subject of a request for FBP of paragraph 7 of the SOC.

53.  The above-stated fallacy on the part of D2 and D3 is highlighted by Mr Ho’s submissions that they require the contract details between the plaintiff and each of the 54 companies listed in Annexure A of the SOC because (a) the plaintiff regards such contract details as confidential information and (b) it is evident from the Amended Indorsement of Claim (“AIOC”) that the plaintiff rests their claim on such confidential information. In my view, this at best reflects what D2 and D3 would like to know about the plaintiff’s case rather than a need for proper clarification of what has been pleaded in paragraph 7 of the SOC.

54.  But in any event, I do not agree with Mr Ho’s submissions. By paragraph 3 of the AIOC, the plaintiff seeks injunctive relief to restrain the defendants from soliciting, entering into, performing or continuing to perform any contract with the plaintiff’s clients for the sale and/or provision of auto test system, text fixture, test equipment, test instruments for electronic and computer hardware products and the supply of related technical services. “Contract” in this pleaded prayer of relief in the AIOC necessarily means a contract between the defendants and a client of the plaintiff, and not a contract between the plaintiff and their client. I do not see how business contracts between the Plaintiff’s Clients and the defendants can be (a) confidential information pleaded in paragraph 5 of the AIOC or (b) the Clients’ Confidential Information and/or the Plaintiff’s Confidential Information as pleaded in paragraphs 9 and 11 of the SOC.

55.  Further, Request No.8 is not circumscribed at all, which means that the plaintiff is required to disclose the particulars sought for every single business contract made by the plaintiff with each of the 54 companies listed in Annexure A of the SOC for the period from 2004 (ie when the plaintiff was incorporated) to date. The scale and volume of information envisaged by such request can hardly be said to facilitate the saving of costs. Even if such request reasonably arises from the plea in paragraph 7 of the SOC (which I disagree), the FBP sought are at best evidence and not particulars. On any count, Request No.8 should be dismissed, and I so dismiss such request.

IX.  REQUEST NO.9

56.  Paragraph 8 of the SOC pleads that “[upon] contracting to sell and/or to provide products and services to the Plaintiff’s Clients, the Plaintiff would invariably sub-contract out and/or utilise the resources and manpower of SWT to carry out such production and/or testing procedures in SWT’s factory in Shenzhen, PRC”.

57.  By Request No.9, D2 and D3 seek full particulars of the plea that the plaintiff would invariably sub-contract out and/or utilise the resources and manpower of SWT to carry out such production and/or testing procedures in SWT’s factory in Shenzhen, PRC, including whether there is any contract for each and every alleged sub-contracting and/or utilisation of the resources and manpower of SWT, and if so, whether such contracts were made orally or in writing with full particulars of the oral contracts or with provision of copies of the written contracts.

58.  By paragraph 8 of the Defence, D2 and D3 deny the averments in paragraph 8 of the SOC (including any subcontracting relationship between the plaintiff and SWT as alleged), and go on to plead that the plaintiff is a mere shell with no staff, plant, facilities, equipment and/or place of business. D2 and D3 aver that the plaintiff was merely set up to issue invoices to SWT’s overseas customers who wish to avoid paying VAT.

59.  Mr Ho submits that the allegation in paragraph 8 of the SOC contradicts the plea in paragraph 2 of the SOC that SWT carries on a business in Shenzhen, PRC “similar to” the plaintiff’s business but with a clientele that is largely PRC-based, so the FBP sought are required to enable D2 and D3 to understand the plaintiff’s case.

60.  I do not agree with Mr Ho’s submissions. The fact that the plaintiff and SWT are two different companies each with their own business which are similar in nature but serving different clientele (ie PRC based and non-PRC based clients) does not ipso facto preclude any business arrangement whereby SWT’s factory in Shenzhen, PRC also handles sub-contract work from the plaintiff or provides resources and manpower for the plaintiff to perform their contracts with the Plaintiff’s Clients. I am unable to appreciate the inherent contradiction in the SOC as suggested by Mr Ho.

61.  Mr Ho next says that the business of the plaintiff cannot be similar to that of SWT if the plaintiff invariably sub-contracts their work to SWT. I do not agree. On the plaintiff’s pleaded case, their sub-contracting relates to work required to be performed by them under their own business contracts with the Plaintiff’s Clients. Such sub-contracting does not alter the contractual or business relationship between the plaintiff and the Plaintiff’s Clients whereby the plaintiff sells and/or provides “auto test system, test fixture, test equipment and test instruments for electronic and computer hardware products and the supply of related technical services” to the Plaintiff’s Clients, which business is therefore “similar to” SWT’s business with their clients save and except that the Plaintiff’s Clients “are primarily outside of Mainland China” and SWT’s clients are mainly PRC-based.

62.  Mr Ho further submits that in any event D2 and D3 are entitled to FBP in relation to the sub-contracting arrangements and the arrangements for utilising the resources and manpower of SWT since these matters go to the heart of the dispute between the parties, ie the nature of the relationship between the plaintiff and SWT.

63.  In my view, the plaintiff has pleaded the material facts of the business relationship between the plaintiff and SWT in paragraph 8 of the SOC, ie that once the plaintiff makes a contract to sell and/or to provide products and services to their client they would sub-contract out and/or utilise the resources and manpower of SWT to carry out production and/or testing procedures in SWT’s factory in Shenzhen, PRC. To go further to ask for particulars of each and every contract between the plaintiff and SWT for any and all sub-contracting by the plaintiff to SWT and for any and all utilisation of SWT’s resources and manpower from 2004 to date is plainly objectionable not only because they are matters of evidence and not material facts, but also because of the scale and volume of information envisaged to be sought. In my view, Request No.9 does not facilitate the saving of costs, and it is not necessary for disposing fairly of the cause or matter.

64.  Although I agree that affirmation evidence is not necessarily or always a substitute for FBP, the above analysis, the more detailed description of the business relationship between the plaintiff and SWT in paragraphs 4(9)-(11) of the 1^st affirmation of Wei Wen, and the sample dealings disclosed in paragraph 24 and exhibit “WW-8” to such affirmation go a long way to show that Request No.9 is not necessary at this stage of the proceedings before discovery and witness statements.

65.  Request No.9 is therefore dismissed.

X.  REQUEST NOS.10 AND 12

66.  Paragraph 9 of the SOC pleads as follows:

“In the course of undertaking and carrying out each order, project or testing procedures for the Plaintiff’s Clients, the Plaintiff often have to be furnished with market-sensitive, highly confidential and non-public information by the relevant client which includes but are not limited to product plans, designs, requirements, specifications, costs, prices, names, finances, marketing plans, business opportunities, forecasts, orders, trade arrangements, personnel, customer information, research, development, know-how, third party confidential information and all other information conveyed by the relevant client which is incidental and/or necessary for the Plaintiff to perform each order, project or testing procedures (collectively referred to as “Clients’ Confidential Information”).”

67.  By Request No.10, D2 and D3 seek full particulars of the alleged “Clients’ Confidential Information” allegedly furnished by each and every one of the alleged Plaintiff’s Clients and as to whether the alleged “Clients’ Confidential Information” is contained in written or printable documents (and if so) with provision of copies of such documents.

68.  Request No.10 also seeks full particulars of the “undertaking” (as referred to in the plea of “[in] the course of undertaking and carrying out each order, project or testing procedures for the Plaintiff’s Clients”), including but not limited to the date(s) and term(s) of each and every alleged “undertaking” given to each and every alleged Plaintiff’s Client, and whether each alleged “undertaking” is contained in written or printable document (and if so) with provision of copy of such document.

69.  In paragraph 9 of the Defence, D2 and D3 claim that the plea in paragraph 9 of the SOC is hopelessly lacking in particulars, but insofar as necessary, they deny that the plaintiff is the owner of the alleged Clients’ Confidential Information, which in any event does not have the necessary quality of confidence to found any action for breach of confidence.

70.  Paragraph 11(c) of the SOC pleads as follows:

“Aside from dealing with Clients’ Confidential Information, the Plaintiff was and is at all material times the owner or otherwise beneficially entitled to possess and deal with, to the exclusion of all others, the following additional confidential and non-public information in the course of its business operations:

……

(c) All information relating to the Plaintiff’s own technical operations and test procedures, including but not limited to procedural and technical know-how and expertise, test designs, internal sequence of testing and operations which are created, devised, invented, modified, customized and which arose in the course of the Plaintiff’s Business (“Technical Confidential Information”).

……”

71.  By Request No.12, D2 and D3 seek full particulars of the alleged “Technical Confidential Information” and whether the alleged “Technical Confidential Information” is contained in written or printable documents (and if so) with provision of copies of such documents.

72.  By paragraph 11 of the Defence, D2 and D3 deny paragraph 11 of the SOC, and insofar as necessary they also deny that the plaintiff is the owner of the alleged Plaintiff’s Confidential Information, which in any event does not have the necessary quality of confidence to found any action for breach of confidence. It is also averred in paragraphs 10(6)-(7) of the Defence that the confidentiality obligations relate to the core technology and intellectual property rights and not the testing methods themselves, and it was SWT (and not the plaintiff) that was required to enter into confidentiality agreements relating to the core technology and intellectual property rights.

73.  Mr Ho submits that the pleas as to “Clients’ Confidential Information” and “Technical Confidential Information” are most general and not supported by particulars which are necessary to draw the distinction between confidential information of the employer and general skill and knowledge of the employee. He says it will be impossible for the plaintiff to establish misuse of confidential information unless and until those alleged confidential information is actually defined. He refers to Ocular Sciences Ltd v Aspect Vision Care Ltd [1997] RPC 289, 359 in which Laddie LJ observed as follows:

“The rules relating to the particularity of pleadings apply to breach of confidence actions as they apply to all other proceedings. But it is well recognised that breach of confidence actions can be used to oppress and harass competitors and ex-employees. The courts are therefore careful to ensure that the plaintiff gives full and proper particulars of all the confidential information on which he intends to rely in the proceedings. If the plaintiff fails to do this the court may infer that the purpose of the litigation is harassment rather than the protection of the plaintiff’s rights and may strike out the action as an abuse of process.”

74.  Mr Ho says D2 and D3 must know what case they have to meet and the absence of proper particulars (a) may affect their ability to identify which items relied on by the plaintiff were matters of public knowledge, and (b) may compromise their ability to defend themselves if the plaintiff can rely on matters without giving proper warning. Mr Ho argues it is therefore necessary for the plaintiff to properly identify the confidential information so that D2 and D3 can properly prepare for the trial.

75.  In my view, Requests Nos.10 and 12 fail to recognise that the Clients’ Confidential Information and the Technical Confidential Information have been particularised in paragraphs 9 and 11(c) of the SOC. In respect of the former, the plaintiff has averred that they are market-sensitive, highly confidential and non-public information furnished by the relevant Plaintiff’s Client in the course of the plaintiff undertaking and carrying out each order, project or testing procedures for such client, and the plaintiff has gone even further to list out the particular types of information that come within such description (see paragraph 66 above). In respect of the latter, the plaintiff has averred that they are information owned by the plaintiff or to which the plaintiff is beneficially entitled to exclusively possess and deal with relating to the plaintiff’s own technical operations and test procedures, and the plaintiff has gone further to list out the particular types of information that come within such description (see paragraph 70 above).

76.  To go beyond such particulars to ask for details of each and every piece of confidential information furnished by each and every Plaintiff’s Client from 2004 to date is to look for evidence rather than particulars of material facts. In my view, the relevant material facts have been pleaded and sufficiently particularised. Whether the plaintiff is able to establish at the trial any misuse of the confidential information as already particularised is neither here nor there. What has been pleaded should sufficiently tell D2 and D3 the basis for and the nature of the alleged confidential information that the plaintiff relies, and it is for them to determine whether those pleaded categories of information are within the public domain or not.

77.  In my view, Request No.10(4)-(6) in relation to the plea as to “the course of [the plaintiff] undertaking …… each order, project or test procedures for the Plaintiff’s Clients” (my emphasis) is misconceived. The requests under Request No.10(4)-(6) (see paragraph 68 above) for particulars of each and every “undertaking” given to each and every Plaintiff’s Client, which envisaged the possibility of such “undertaking” to be in the form of a document, proceed under the misconception that the word “undertaking” is a noun, ie a guarantee or promise, whereas plain reading of paragraph 9 of the SOC suggests that the word “undertaking” is a verb that means “to take upon oneself” or “to put oneself under obligation to perform” (see Merriam-Webster dictionary). This has nothing to do with any promise given to the Plaintiff’s Clients, but rather it concerns the plaintiff’s performance of services for the Plaintiff’s Clients. There is no merit to Request No.10(4)-(6).

78.  In the circumstances, Requests Nos.10 and 12 must be dismissed.

XI.  REQUEST NO.11

79.  Paragraph 10 of the SOC pleads that:

“Therefore, as a condition prior to engaging the Plaintiff, it is often the case for the Plaintiff’s Clients to require the Plaintiff (and/or SWT) to enter into confidentiality agreements, whether in writing or howsoever otherwise, with them to prevent all Clients’ Confidential Information from being communicated and divulged to the public and competing companies alike and from being mis-used by the Plaintiff and/or its officers, agents, servants and/or employees.”

80.  By Request No.11, D2 and D3 seek full particulars of the alleged “confidentiality agreements” allegedly furnished by each and every one of the alleged Plaintiff’s Clients, and if so, whether such agreements were made orally or in writing with full particulars of the oral agreements or with provision of copies of the written agreements.

81.  In paragraph 10 of the Defence, D2 and D3 aver inter alia that in the electronic manufacturing industry:

(a)  different components require different testing requirements and each test is designed exclusively for a particular project catering to the specific specifications demanded and/or categorised by the customers (test methods and specific requirements);

(b)  the standards and specifications of their products and the parameters required for the testing methods would be provided by the customers or factories;

(c)  the testing methods, specifications and requirements would be different every time, and the life span for each testing method is short;

(d)  the confidentiality obligations relate to the core technology and intellectual property rights, and not the testing methods themselves;

(e)  SWT was required to enter into confidentiality agreements relating to the core technology and intellectual property rights.

82.  Mr Ho says that since the plaintiff appears to rely on certain confidentiality agreements, it must be obvious and trite that D2 and D3 are entitled to the particulars of those agreements, which will shed light on what the confidential information is.

83.  In my view, the plaintiff has sufficiently set out in paragraph 10 of the SOC the material gist and effect of the confidentiality agreements furnished to the Plaintiff’s Clients, which is to prevent leakage of the Clients’ Confidential Information to their competitors or the public and misuse by the plaintiff and its staff. The relevant material facts are the purpose and effect of the confidentiality agreements and not how many there are and when/where they were made. Those details are at best evidence which need not be pleaded.

84.  I am of the view that it is unnecessary at this stage of the proceedings before discovery and/or witness statements for the plaintiff to provide the FBP sought under Request No.11. To ask for particulars of every single confidentiality agreement made by the plaintiff to all of their clients from its incorporation in 2004 to date is not only onerous but unnecessary for the purpose of saving costs, especially when, as Mr Poon points out, they are matters of evidence and the plaintiff has elaborated on the confidentiality agreements in paragraphs 13-15 of the 1^st affirmation of Wei Wen and paragraphs 15(a)-(d) of the 3^rd affirmation of Wei Wen and produced samples of such confidentiality agreements in exhibits “WW-27” and “WW-28” of the 3^rd affirmation of Wei Wen.

85.  Mr Ho complains that the plaintiff merely disclosed 2 confidentiality agreements in the 3^rd affirmation of Wei Wen, and it is unsatisfactory to extrapolate and apply the terms of those 2 confidentiality agreements to all of the 54 clients of the plaintiff set out in Annexure A of the SOC. In my view, this illuminates the fact that D2 and D3 are well aware of the material facts relied on by the plaintiff as explained in paragraph 83 above, but they merely want sight of the evidence, ie detail and/or copy of each and every confidentiality agreement.

86.  Request No.11 is therefore dismissed.

XII.  REQUEST NO.18

87.  Paragraph 19 of the SOC pleads that by the end of 2011 D3 ceased to act as a director of the plaintiff, but notwithstanding this D3 continued to owe inter alia a duty not to divert business opportunities from the plaintiff.

88.  D2 and D3 seek full particulars as to (a) when and how D3’s directorship was terminated and (b) the material facts upon which the plaintiff seeks to establish that D3 continues to owe to the plaintiff a duty not to divert business opportunities from the plaintiff after she ceased to be a director of the plaintiff.

89.  In paragraph 17 of the Defence, D2 and D3 deny paragraph 19 of the SOC and aver that D3 ceased to be a director of the plaintiff since in/around June 2011.

90.  Mr Ho submits that (a) the pleaded time of “end of 2011” is anything but certain so D3 is entitled to know precisely when her directorship was terminated, and (b) D3 is entitled to know when the aforesaid alleged duty arose and what has given rise to such duty even after the termination of her directorship with the plaintiff.

91.  As Mr Poon rightly points out, the plaintiff has already pleaded the time when D3 ceased to be a director of the plaintiff. It is not a matter for FBP but whether there is evidence to support the pleaded period of “end of 2011”. The fact that the Defence pleaded a different time as to when D3 ceased to be a director of the plaintiff does not justify the FBP sought. Further, since there is no dispute that D3 has ceased to be a director of the plaintiff, I cannot see how the manner of termination of D3’s directorship can be relevant or deserving of the provision of FBP. Request No.18(1) is dismissed.

92.  However, I consider it appropriate to allow Request No.18(2) which requires the plaintiff to give full particulars of the material facts upon which the plaintiff seeks to establish that D3 continues to owe a duty not to divert business opportunities from the plaintiff after she has ceased to be a director of the plaintiff. I am not persuaded by Mr Poon’s suggestion that this is a matter of law and not fact. There is a possibility (and I put it no higher) that such duty that extends beyond the termination of D3’s directorship may arise from contract. I agree that D3 needs to know the basis for the assertion that she continues to owe the duty as alleged.

XIII. REQUEST NO.19

93.  Paragraph 22 of the SOC pleads inter alia that SWT had required all its officers and staff members (including D1 and D3) to enter into separate standard-form confidentiality agreements with SWT (ie SWT’s Confidentiality Agreements) to protect inter alia the Plaintiff’s Confidential Information.

94.  Request No.19 seeks FBP as to the terms of the SWT’s Confidentiality Agreements, when and where each of D1 and D3 entered into the SWT’s Confidentiality Agreements, and the identity of the plaintiff’s representative(s) to whom D1 and D3 made the SWT’s Confidentiality Agreements.

95.  In paragraph 19 of the Defence, D2 and D3 deny that D3 entered into the SWT’s Confidentiality Agreement as alleged or that D3 removed her SWT’s Confidentiality Agreement or caused the same to be removed as alleged.

96.  Mr Ho submits that since (a) the plaintiff appears to rely on the terms of SWT’s Confidentiality Agreements made by D1 and D3 and (b) D3 denies she has entered into any such agreement, it is obvious and trite that D2 and D3 are entitled to FBP of those agreements. He accepts that a sample SWT’s Confidentiality Agreement has been exhibited as “WW-4” in the 1^st affirmation of Wei Wen, but says that paragraph 4(16) of such affirmation (which was made before D3 joined as a co-defendant in the present action) only says that D1 entered into a similar standard-form agreement with SWT, so the sample agreement concerns D1 and not D3.

97.  I am not persuaded that Request No.19(1)(i) that asks for the terms of the SWT’s Confidentiality Agreement is necessary because it is quite plain from paragraphs 22-23 of the SOC that the SWT’s Confidentiality Agreements executed by D1 and D3 were “standard-form” and that the plaintiff will produce a standard-form copy of the same and rely on the terms therein for their full effect. There is no suggestion in the SOC that D1 and D2 used different standard-form SWT’s Confidentiality Agreements.  In fact, the reference to a standard-form copy indicates otherwise. Since the sample SWT’s Confidentiality Agreement has been exhibited to the 1^st affirmation of Wei Wen and known to D2 and D3, Request No.19(1)(i) is therefore unnecessary either for disposing fairly of the cause or matter or for saving costs.

98.  However, I am persuaded that the plaintiff should give the FBP sought under Request No.19(1)(ii)-(iv) since the existence of the SWT’s Confidentiality Agreements by D1 and D3 (which D3 disputes) is material to the plaintiff’s claim for breach of confidence (see paragraph 99 below). Hence, particulars as to how they come into existence are not only relevant but necessary. I therefore allow Request No.19(1)(ii)-(iv).

XIV.  REQUEST NO.20

99.  Paragraph 23 of the SOC pleads that further or alternatively given the close business relationship between SWT and the plaintiff, the duty of confidence D1 and D3 owed to the plaintiff is contained and/or reflected in the terms of their respective SWT’s Confidentiality Agreement. It is further averred that the plaintiff will seek to produce a sample standard-form copy of the same and rely on the terms therein for their full effect.

100.  By Request No.20, D2 and D3 ask the plaintiff to explain the meaning of “close business relationship between SWT and the plaintiff” and to state whether there is any written/oral contract/agreement arising between the plaintiff and SWT out of the alleged “close business relationship”, and if so, whether it was made orally or in writing with full particulars of the oral contract/agreement or with provision of a copy of the written contract/agreement.

101.  In paragraph 20 of the Defence, D2 and D3 deny that D3 entered into the alleged SWT’s Confidentiality Agreement as alleged or that D3 had removed her agreement as alleged or caused the same to be removed. Insofar as necessary, D2 and D3 aver that SWT is not a party to the present action and the alleged duty of confidence contained and/or reflected in the alleged SWT’s Confidentiality Agreement (which is denied) is immaterial and/or irrelevant.

102.  Mr Ho points out that the plaintiff in paragraph 2 of the SOC avers that they carry on a business similar to SWT even though they are completely separate entities, which contradicts the assertion in paragraph 23 of the SOC that they have a close business relationship, so D2 and D3 are entitled to the particulars sought, especially when the actual relationship between the plaintiff and SWT is the heart of the dispute in this action.

103.  I have rejected such argument in my discussion in respect of Request No.9 in paragraphs 60-64 above and the close business relationship between the plaintiff and SWT has been particularised in paragraph 8 of the SOC (see discussion in paragraphs 63-64 above). Request No.20 is dismissed.

XV.  REQUEST NO.24

104.  Paragraphs 31(e) of the SOC pleads that by reason of the specialised, complex, and highly technical nature of the Plaintiff’s Business, D2 could not have carried out their business without the wrongful disclosure to D2 and/or misuse by D1 and/or D3 of the Plaintiff’s Confidential Information, including:

“(e) Similarly, owing to the very nature of the Plaintiff’s Business as described in the above, the Plaintiff is required to source for very specific raw materials and component parts in undertaking orders, projects and/or testing procedures for clients.”

In paragraph 25 of the Defence, D2 and D3 deny the pleaded allegation.

105.  Request No.24 seeks full particulars of the alleged “very specific raw materials and component parts”. Mr Ho says that the plea in paragraph 31(e) of the SOC is most general and not supported by particulars of the “very specific raw materials” and “component parts”, so FBP are required to limit the generality of the pleadings and evidence. Further, although paragraph 10 of the 2^nd affirmation of Wei Wen and exhibit “WW-20” thereto gave sample purchases of raw materials, they do not identify what are the items of the “very specific” raw materials.

106.  In my view, the crux of the pleaded averment is that D2 could not have carried out their business if D1 and/or D3 had not misused and/or disclosed to D2 the Plaintiff’s Confidential Information. The basis for inferring such pleaded averment is the specialised, complex and highly technical nature of the Plaintiff’s Business. As “particulars” of the pleaded allegation that the Plaintiff’s Business is specialised, complex and highly technical in nature, the plaintiff pleads that they have to source for very specific raw materials and component parts in carrying out its work for their clients. Thus, the plea in paragraph 31(e) of the SOC is itself FBP of the pleaded material facts, and what D2 and D3 are now asking for under Request No.24 is evidence in support of the particulars given. It is inappropriate and unnecessary to grant such request, so Request No.24 is dismissed.

XVI.  REQUESTS NO.28, 29 AND 30

107.  Paragraphs 31(i), (j) and (k) of the SOC plead that by reason of the specialised, complex, and highly technical nature of the Plaintiff’s Business, D2 could not have carried out their business without wrongful disclosure to D2 and/or misuse by D1 and/or D3 of the Plaintiff’s Confidential Information, including:

“(i) Clients’ Confidential Information is only provided to the Plaintiff by the Plaintiff’s Clients upon the Plaintiff going through a lengthy credit check and vetting process, which can easily take up to 1-2 years.

(j) Since its inception, the Plaintiff has invented, developed and/or modified its internal plant, equipment and technology to specifically cater to each of the Plaintiff’s Clients needs and requirements. This has in turn enabled the Plaintiff to maintain a competitive edge in the industry and continue attracting new orders and/or projects.

(k) Such creations, inventions and/or modifications are fully owned by the plaintiff (and/or SWT) and are not available to the public.”

In paragraph 25 of the Defence, D2 and D3 deny the pleaded allegations.

108.  Request No.28 requires the plaintiff to provide full particulars of “each and everyone of the alleged lengthy credit check and vetting process that the Plaintiff has allegedly gone through”.

109.  By Request No.29, D2 and D3 seek full particulars of (a) the alleged inventions created by the plaintiff, the alleged internal plant owned by the plaintiff, and the alleged equipment and technology developed or modified by the plaintiff all since the plaintiff’s inception, and (b) the location at which the aforesaid alleged inventions, internal plant and equipment/technology are stored and maintained.

110.  Request No.30 requires the plaintiff to state whether the alleged creations, inventions and/or modifications are owned jointly by the plaintiff and SWT, and if not, to give full particulars as to how two parties can own the same set of creations, inventions and/or modifications at the same time.

111.  Mr Ho says the pleas in paragraphs 31(i)-(k) of the SOC are general pleas not supported by any particulars, so the plaintiff must provide the particulars sought in order to limit the generality of the pleadings and the evidence. For paragraph 31(i) of the SOC, the case of D2 and D3 is that only SWT went through the vetting process because all clients belonged to SWT. For paragraph 31(j) of the SOC, Mr Ho says it will not be possible for the plaintiff to establish misuse unless and until the alleged inventions, internal plant and equipment/technology are actually defined. For paragraph 31(k) of the SOC, D2 and D3 say that the particulars sought are FBP and not a matter of proof of the pleaded averments, especially when SWT is not a party to the present action.

112.  Applying the analysis in paragraph 106 above mutatis mutandis, I agree with Mr Poon that Requests Nos.28, 29 and 30 are requests for evidence and not particulars. I am persuaded that D2 and D3 are not left in doubt as to the nature of the plaintiff’s case even though they have yet to fully appreciate the evidence that the plaintiff may adduce in support of the pleaded allegations. This is especially so in respect of Request No. 28 when their stance is that it was SWT and not the plaintiff that went through any vetting process, and in respect of Request No. 29 when their concern is whether the plaintiff will be able to prove their case on the alleged “misuse”. It is also onerous and unnecessary for the plaintiff to give particulars of “each and every one” of the credit check and vetting process with every single client, and of every invention, internal plant and equipment/technology throughout the whole period from 2004 to date. It is unnecessary for disposing fairly of the cause or matter, and most definitely unnecessary for the saving of costs.

113.  In particular in relation to Request No.30, I see no logical or legal difficulty of any joint ownership of creations, inventions and/or modifications by 2 entities whether as a result of collaboration or agreement or otherwise. Anyway, the basis for any such joint ownership is a matter of evidence and not FBP. In fact, it may be more interesting to find out why creations, inventions and/or modifications that are solely owned by SWT under the plea of “fully owned by the [plaintiff] (and/or SWT)” (my emphasis) can be supported, but this is not any part of the request under consideration. Requests Nos.28, 29 and 30 are therefore dismissed.

XVII.  REQUEST NO.35

114.  Paragraph 51 of the SOC pleads that “[despite] repeated requests on the part of the Plaintiff”, D1 and D3 have not accounted for, repaid to the plaintiff and/or explained the purposes of the withdrawals of certain funds from the plaintiff’s bank accounts and/or the current whereabouts of the same”. In paragraph 26 of the Defence, D2 and D3 deny such pleaded allegation.

115.  By Request No.35, D2 and D3 seek full particulars of “each and everyone of the alleged request” and whether they were made orally or in writing with full particulars of the oral requests or with provision of copies of the written requests.

116.  Mr Ho says this is a most general plea and is not supported by any particulars, so the plaintiff must provide the particulars sought in order to limit the generality of the pleadings and the evidence and to enable D2 and D3 to know what evidence they ought to prepare for the trial.

117.  In my view, Request No. 35 is unnecessary for D2 and D3 to understand the plaintiff’s case for it does not relate to the material issues in dispute. This is especially so when the plaintiff’s claim is hotly disputed by D2 and D3 by way of their Defence and when they have vigorously resisted various interlocutory applications by the plaintiff in the course of the present proceedings.  Requests for FBP on matters that are marginally material or not material should be discouraged after the Civil Justice Reform (see paragraphs 27-30 above).  Request No.35 is dismissed.

XVIII.  CONCLUSION

118.  In the circumstances, I grant an order that the plaintiff do give FBP of the SOC as per Requests No.17(4), 18(2) and 19(1)(ii)-(iv) set out in the annexure to the Summons by filing and serving the Answer to such requests within 14 days after today. I further dismiss paragraph 1 of the Summons in respect of Requests Nos.6, 8-12, 17(2), 18(1), 19(1)(i), 20, 24, 28-30 and 35 set out in the annexure to the Summons.

119.  The plaintiff is successful in resisting most of the Remaining Requests, and Mr Poon has conceded Request No.17(4) at the Hearing.  In the circumstances, I grant a costs order nisi that the plaintiff be entitled to 80% of the costs of and occasioned by the Summons (including all costs reserved, if any) to be summarily assessed and paid forthwith.

120.  Although the plaintiff has submitted their statement of costs, it will have to be adjusted in light of the costs order nisi. For the purpose of the summary assessment of costs, I grant the following directions:

(a)   if no application is made to vary the costs order nisi within 14 days from the date hereof, the plaintiff do within 21 days from the date hereof lodge and serve revised statement of costs not exceeding one page pursuant to Practice Direction 14.3, and D2 and D3 do within 7 days thereafter lodge and serve succinct summary of objections in bullet-point format of not more than one page in respect of the plaintiff’s statement of costs (“Objection Summary”), and unless otherwise directed the summary assessment of costs will be by paper disposal;

(b) if application is made to vary the costs order nisi within 14 days from the date hereof, the plaintiff and D2 and D3 do within 7 days thereafter lodge and serve their respective Objection Summary to the other party(ies)’ statement of costs already lodged and served, and the party(ies) seeking variation of the costs order nisi do within 14 days from the date hereof fix a date with the Listing Clerk for the hearing of the application for variation of the costs order nisi and summary assessment of costs before me in chambers (open to the public) on a date not before 35 days from the date hereof with half hour reserved.

Mr Poon Siu Bun instructed by Messrs Leung & Associates for the plaintiff.

Mr Raymond Ho instructed by Messrs Johnny KK Leung & Co for the 2^nd and 3^rd defendants.

HCA 797/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 797 OF 2012

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BETWEEN

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D E C I S I O N

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1.  The plaintiff’s summons for a Mareva Injunction was issued on 20 September 2012, returnable on 21 September. At the hearing, the defendants had not had time to file any evidence in opposition, and I adjourned the hearing to 15 October but granted an interim injunction until the substantive hearing. I agree with Chu J (as she then was) in Chu Shu Ho Davidand Mission Hills Golf Club Ltd v Lam Hon Lit Harry HCA 3525/2002 and HCA 3618/2002, handed down on 30 October 2002, that the test to be applied in determining whether a hearing is inter partes or ex parte is whether the party opposing the application for injunction had been given due notice of the application and been afforded a reasonable opportunity to argue against the application. Given the short notice given to the defendants in this case of the application for the Mareva Injunction, and the fact that the court only had the evidence adduced by the plaintiff when the application was heard on 21 September, I consider that the interim injunction on 21 September was granted on an ex parte basis, and that plaintiff in seeking such an interim injunction was subject to the duty to make full and frank disclosure.

2.  When the Mareva Injunction was sought, it was on the basis that the plaintiff had discovered that defendants had misappropriated the plaintiff’s funds, to the order of HK$10 million.  The plaintiff relied on bank withdrawal slips, and the claim against the defendants was that they had withdrawn money belonging to the plaintiff from the plaintiff’s bank account, and that the money had been unaccounted for, such that it was a claim of money had and received.

3.  However, the evidence filed by the defendants now show that in relation to the 1^st defendant, of the sum of HK$1,816,000 said to have been thus misappropriated, save for HK$116,000, the rest had been withdrawn from the plaintiff’s bank not by the 1^st defendant, but by Wei Wen of the plaintiff who had made the affirmation in support of all the plaintiff’s ex parte applications, including the application for Mareva Injunction. 

4.  In relation to the 3^rd defendant, of the sums of HK$6,290,000 and US$347,460, HK$4,660,000 and US$265,600 were withdrawn on the written instructions of Wei Wen.  These were acknowledged by Wei Wen in the draft summaries of withdrawals sent to the 1^st and 3^rd defendants in April and May 2011.  In relation to the withdrawal instructions, some were even stated for the specific purposes of or uses by the plaintiff.

5.  The plaintiff now says that its complaint is not that the money was withdrawn without Wei Wen’s authority or knowledge or instructions, but that the money was not properly accounted for after withdrawal, or that the money was misused.

6.  The authorities are clear on the test for materiality for the purposes of the duty of full and frank disclosure on an ex parte application.  A fact is material if it should be put on the weighing scales by the ex parte judge.  The material facts to be disclosed are all matters which are material for the judge to know and which are necessary to enable the judge to exercise its discretion properly.  I do not agree that a fact does not have to be disclosed just because the defendants knew what the plaintiff’s case is, or that the fact has been covered in the Statement of Claim.

7.  In this case, it is obviously relevant to the weighing exercise, and hence material, that the withdrawals of money complained of by the plaintiff and claimed by it to be misappropriation of its funds were actually made by Wei Wen, or authorized by Wei Wen.  If the withdrawals were instructed and authorized by Wei Wen and effectively by all the directors and shareholders, then the case of alleged misappropriation diminishes.  If it is alleged by the plaintiff that the withdrawals were made and authorized under pretexts and misrepresentations made by the 1^st defendant and/or the 3^rd defendant, then the plaintiff should have explained and clarified to the court what the pretexts or alleged uses or purposes of the funds were.  Wei Wen for the plaintiff was completely silent on this when the Mareva Injunction was applied for.  On the contrary, heavy reliance was placed on the mere existence of the bank withdrawal slips as evidence of the misappropriation by the defendants.  This was totally misleading, to put it at the lowest. 

8.  At the hearing before me on 21 September, the plaintiff was justifying the Mareva Injunction on alleged misappropriation and money had and received by defendants, but Wei Wen’s emails of 2011 attaching the summaries of withdrawals show a case of shareholders’ disputing how moneys invested in the company had been spent.

9.  I consider that the summaries are material in that they should have been put in the weighing scales, for the court to decide whether the plaintiff’s claim was indeed a case of “misappropriation of funds” as alleged, or a shareholders’ dispute on their investment, and whether the money had been well spent.

10.  Wei Wen’s emails to the 1^st defendant attaching the summaries of withdrawals, which were not disclosed by the plaintiff, are also relevant in showing that since 21 April and 15 May 2011, Wei Wen had been aware of the withdrawals of funds now complained of, but that the plaintiff has chosen not to take any action until the filing of the Statement of Claim in July 2012.  This is relevant to the alleged urgency of the application for the Mareva Injunction and generally for relief against the defendants.

11.  For the above reasons, the injunction granted on 21 September 2012 should be discharged for material non-disclosure, with costs. 

12.  Even today, the plaintiff has not in any way particularized or substantiated the assertion now made, let alone adduced evidence in support, that the moneys were withdrawn from the plaintiff’s account, with Wei Wen’s approval, on the basis of pretexts made by the 1^st defendant and the 3^rd defendant, but were not in fact put to the uses claimed by them.  As the defendants rightly pointed out, Wei Wen had the plaintiff’s bank statements all along, and had approved the audited financial accounts of the plaintiff, without any query until (on the defendants’ evidence at least) April or May 2011.

13.  Having considered all the evidence, I am not satisfied that the non-disclosure of material facts had been innocent.  Nor am I satisfied that Wei Wen’s assertions are reliable on the issue of misappropriation, and I will not exercise my discretion to issue an injunction to restrain the defendants’ disposal of property.