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

DCCJ 836 & 1380/2018 & 289/2021 (Consolidated)

[2025] HKDC 366

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NOS 836 & 1380 OF 2018 & 289 OF 2021

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(Actions consolidated by Order of

Mr Registrar Ho dated 2nd May 2018 and

Order of Master B. Mak dated 7th July 2021)

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DECISION

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A.  Introduction

1.  This is the defendant’s application (the “Application”) to vary the costs order nisi made by the court in the judgment dated 28 November 2024 (the “Judgment”).

2.  The trial of this action took place in October 2024. In the Judgment, the court:

(a)  allowed the plaintiff’s claim for breach of the Employment Contract[1] by the defendant, but held that the plaintiff had failed to establish that it had suffered any loss or damage, and in consequence awarded the plaintiff nominal damages of HK$1;

(b)  dismissed all the other claims of the plaintiff;

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

(d)  allowed the defendant’s counterclaim for outstanding wages and annual leave pay, and

(e)  made a costs order nisi that the defendant do pay 50% of the plaintiff’s costs of this action (including all costs reserved), with certificate for one counsel, to be taxed if not agreed (the “CostsOrdernisi”).

3.  In making the Costs Order nisi, the court considered in paragraph 145 of the Judgment that:

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

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

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

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

4.  By a summons dated 11 December 2024 (the “Summons”), the defendant made the Application to vary the Costs Order nisi to an order that:

(a)  The plaintiff do pay 50% of the defendant’s costs of this action (including all costs reserved), with certificate for one counsel, to be taxed if not agreed;

(b)  Alternatively, there be no order as to costs.

5.  The Application is opposed by the plaintiff, who invites the court to dismiss the Application; alternatively, to vary the Costs Order nisi to one which gives the plaintiff a lower percentage of its costs of the action.

6.  On 8 January 2025, the Court ordered (by consent) (the “Order”), inter alia, that the Application be dealt with by way of paper disposal.

B.  The Application

7.  In the Application, the defendant relies inter alia on the ground that it had made previous Calderbank offers to the plaintiff to settle the matter, all of which were not accepted by the plaintiff.

8.  On 27 June 2024, the defendant’s solicitors, Messrs Ma Tang & Co (“MT”), wrote to the plaintiff’s solicitors, Messrs Li, Kwok & Law (“LKL”), setting out the purported weaknesses of the plaintiff’s claims and offering to:

(a)  pay a sum of HK$307,500 (the “Settlement Sum”) to the plaintiff;

(b)  relinquish all of the defendant’s counterclaims against the plaintiff;

(c)  undertake inter alia to return certain intellectual properties and all confidential information in the defendant’s possession; and

(d)  bear his own costs of the consolidated action

(the “1^st Offer”).

9.  The plaintiff did not accept the 1^st Offer.

10.  On 16 October 2024, MT wrote to LKL, inviting the plaintiff to seek no order on its claim and offering to:

(a)  pay the Settlement Sum to the plaintiff;

(b)  seek a dismissal of his counterclaim against the plaintiff; and

(c)  seek no order as to costs of the consolidated action

(the “2^nd Offer”).

11.  The plaintiff did not accept the 2^nd Offer.

12.  According to the affirmation filed by the plaintiff, there were verbal negotiations between the parties, which did not result in any settlement. The plaintiff also pointed out that the 1^st and 2^nd Offers came rather late.

13.  In the Application, the defendant also relies on inter alia the following matters:

(a)  the plaintiff was only awarded nominal damages in relation to its claim for breach of the Employment Contract;

(b)  all other claims made by the plaintiff were dismissed and all other reliefs sought were rejected;

(c)  the defendant has succeeded in his counterclaim for outstanding wages and annual leave pay;

(d)  the unproven or abandoned allegations made by the plaintiff were extensive and disparate from the successful claims; and

(e)  the need to engage expert evidence (and the considerable time and costs incurred as a result thereof) arose because of the plaintiff’s allegations of failure to deliver work products and intellectual properties, which were rejected by the court.

C.  Relevant Legal Principles

14.  It is trite that the court has a wide discretion on matters concerning costs, but such discretion must be exercised judicially.

15.  Order 62 rule 5(1) of the Rules of District Court (Cap 336H) sets out a list of factors that the court shall, as may be appropriate in the circumstances, take into account in exercising its discretion as to costs. These factors include the underlying objectives set out in Order 1A rule 1, conduct of the parties, whether a party has succeeded on part of his case, even if he has not been wholly successful, and any admissible offer to settle made by a party. Order 62 rule 5(2) then sets out the conduct of the parties for the purpose of rule 5(1)(e).

16.  Both parties acknowledged that the starting point is costs should follow the event. However, the defendant contends that where only nominal damages have been awarded, the starting point is that the plaintiffs:

“… are not to be regarded as successful plaintiffs, and the court will normally treat the defendants as having succeeded and award the defendants the costs of the action, whether or not the defendants have at any stage made a payment into court of nominal damages...”

See: Hong Kong Civil Procedure 2025, §62/2/6, applied in eg Perfect Best Asset Management Inc v ADL Express Ltd & anor[2021] HKCFI 3021, §§3-4.

17.  I agree with the defendant that the two cases cited by the plaintiff are distinguishable. First, in Tang Kam Wah v Fung Kam Shu [2002] HKDC 487, which was an adverse possession case, although the defendant was only awarded nominal damages for his counterclaim, the court granted the injunction sought by the defendant. This justified the costs order of 95% of costs of the proceedings be paid by the plaintiff to the defendant.

18.  Secondly, as to Cosme De Net Co Ltd v Lam Kin Ming[2021] HKDC 445, the plaintiff succeeded in obtaining the injunctions sought. The court therefore awarded costs in favour of the plaintiff even though the claims for damages failed.

19.  However, as mentioned above, other than nominal damages, the plaintiff failed to obtain any of the reliefs sought in this action.

D.  Analysis

20.  First, on one hand, I agree with the defendant’s counsel that given the plaintiff was only awarded nominal damages for the only successful claim for breach of the Employment Contract, following Perfect Best Asset Management (supra), it cannot be regarded as the successful party in respect of its claims.

21.  Secondly, although the plaintiff’s success in defending against the existence of the alleged Oral Agreement led to the dismissal of the defendant’s counterclaim for unlawful termination of his employment and payment in lieu of notice, all other claims made by the plaintiff were dismissed.

22.  Finally, although the 1^st and 2^nd Offers were not sanctioned offers, they can still be taken into account in considering the issue of costs pursuant to Order 62, rule 5(1)(d) of the Rules of the District Court: see Choi Tak Man v Chan Yuk Lan, Didi & anor [2017] 5 HKLRD 619, at §23.

23.  That said, the 2^nd Offer was made very late – only a week before trial. By then, most costs have been incurred. Little weight, if any, should be given to it in deciding the Application.

24.  However, in MT’s letter dated 27 June 2024 mentioned above, when making the 1^st Offer, MT on behalf of the defendant specifically highlighted the plaintiff’s difficulty in proving its alleged damages. The plaintiff nevertheless chose to proceed and was awarded only nominal damages.

25.  By reason of all the above reasons, I agree with the defendant that the plaintiff should not be awarded costs of the action.

26.  That said, as explained in the Judgment, first, the court’s finding against the major issue of the existence of the alleged Oral Agreement has led, not only to the defendant’s failure in defending against the plaintiff’s claim for breach of the Employment Contract, but also to the dismissal of the defendant’s counterclaim for unlawful termination of his employment and payment in lieu of notice.

27.  Secondly, no or minimal time was spent at trial on the defendant’s successful counterclaim for arrears of wages and annual pay leave.

28.  Thirdly, although the plaintiff’s allegations of failure to deliver work products and intellectual properties were rejected by the court, they were part and parcel of the plaintiff’s claim for breach of the Employment Contract and could not be said to be disparate or improperly or unnecessarily made. In the premises, the plaintiff’s lack of success in such issues should not attract a costs sanction.

29.  In the premises, despite making the Calderbank offers, I do not agree that the defendant should be awarded any costs.

E.  Conclusion

30.  By reason of the above, I agree with the defendant that the Costs Order nisi should be varied to an order that there be no order as to the costs of the action.

31.  Accordingly, I make an order in terms of paragraph 2 of the Summons.

32.  As to the costs of the Application, I make a costs order nisi that the costs of and occasioned by the Application be paid by the plaintiff to the defendant, with certificate for one counsel, to be taxed if not agreed. Any application to vary such costs order nisi should be made within 14 days from the date of this decision.

Mr Richard Leung, leading Mr Tommy Cheung, instructed by Li, Kwok & Law, for the Plaintiff

Mr Danny K K Chan, leading Mr Benjamin Chong and Mr Johnson Cheung, instructed by Ma Tang & Co, for the Defendant

DCCJ 836 & 1380/2018 & 289/2021

(Consolidated)

[2024] HKDC 1982

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

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

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BETWEEN

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

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JUDGMENT

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A. INTRODUCTION

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

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

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

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

B. THE PLAINTIFF’S CASE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

C. THE DEFENDANT’S CASE

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

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

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

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

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

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

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

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

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

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

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

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

(the alleged “Oral Agreement”).

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

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

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

D. FACTUAL WITNESSES

The plaintiff’s witness

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

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

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

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

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

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

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

The defendant’s witnesses

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(a) the defendant’s working hours;

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

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

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

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

E. EXPERT WITNESSES

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

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

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

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

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

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

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

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

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

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

F. ISSUES IN DISPUTE

68.  The issues in dispute are as follows:

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

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

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

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

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

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

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

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

ISSUE 1: WHETHER THE ALLEGED ORAL AGREEMENT EXISTED?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(1) Failure to report to duties

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

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

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

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

(c) his wife was sick;

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

(e) he had to do housework;

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

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

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

(2) Working for NICADA

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

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

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

(3) Working for Nelson’s benefit

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

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

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

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

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

(4) Divulging or disclosing confidential information

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(5) Failure to deliver work products

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

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

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

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

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

119.  The plaintiff relies on:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ISSUE 6: WHAT RELIEF IS THE PLAINTIFF ENTITLED TO?

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

ISSUE 7: WHETHER THE DEFENDANT WAS UNLAWFULLY TERMINATED?

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

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

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

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

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

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

G. CONCLUSION

143.  For the reasons above, I find that:

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

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

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

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

144.  I therefore order that:

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

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

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

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

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

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

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

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

Mr Richard Leung, leading Mr Tommy Cheung, instructed by Li, Kwok & Law, for the Plaintiff

Mr Danny K K Chan, leading Mr Benjamin Chong and Mr Johnson Cheung, instructed by Ma Tang & Co, for the Defendant

DCCJ 836/2018
DCCJ 1380/2018
DCCJ 289/2021
(Consolidated)

[2022] HKDC 903

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NOS 836 & 1380 OF 2018 and 289 OF 2021

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BETWEEN

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DECISION

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Introduction

1.  By my decision dated 15 July 2022, I granted leave to adduce expert evidence and made a costs order nisi that the defendant shall pay the plaintiff costs of the plaintiff’s summons with certificate for counsel.

2.  By the defendant’s letter dated 29 July 2022 together with the skeleton submission of counsel, the defendant applied for variation of the said costs order nisi.

3.  The plaintiff lodged a skeleton submission of counsel in opposition on 5 August 2022.

4.  The defendant lodged a submission in reply on 12 August 2022.

5.  Both parties agreed the application to be disposed of on papers.

Defendant’s submission

6.  Mr Joseph Wong, counsel for the defendant, submitted that the issues identified and directions given by the court are very different from those sought by the plaintiff by the summons. This demonstrated that plaintiff’s summons was at least problematic. Therefore, the identification of the modified expert issues of the court is analogous to a case management decision on its own motion for expert evidence. It would be fairer and more reasonable that the costs of the plaintiff’s summons be costs in the cause.

7.  Mr Wong further submitted that in opposing the plaintiff’s summons, the defendant had not acted unreasonably. The plaintiff has never proposed a set of expert directions that are workable or useful. As adversarial parties, the defendant is under no duty to propose substantial changes to the plaintiff’s proposed expert directions in order to make good the plaintiff’s application.

The plaintiff’s submission

8.  Among the various submission in opposition, Mr Tommy Cheung, counsel for the plaintiff pointed out that the defendant’s core objection throughout was that expert evidence is not necessary because the trial judge can look at the work report himself or herself to adjudicate on the issues in dispute. The defendant had not advanced any alternative argument of proposing the directions to be given in case expert evidence is found to be necessary.

Discussion

9.  Whilst the defendant is entitled to oppose the plaintiff’s application, such right should be exercised rationally.

10.  A close examination of the pleadings would readily reveal that the work report is the bone of contention. And a glance of the work report would readily reveal that it contains large amount of computer-aided engineering analysis data and prototype testing data. Without the assistance of expert, the work report is not readily understood by people without engineering background.

11.  Viewed in that light, the application of the plaintiff was reasonably taken out.

12.  However, it was the position of the defendant that expert evidence is irrelevant and the proposed expert evidence is unnecessary and of no probative value. The defendant did not seek to argue the appropriateness of the expert directions sought by the plaintiff. No counter proposal was put forward by Mr Wong on behalf of the defendant as to the issues on which expert evidence are required.

13.  Hence, although there are shortcomings in the plaintiff’s proposed issues and directions and they have to be modified, such modification was not made due to the counter argument of the defendant.

14.  By reasons of the aforesaid, I am of the view that the defendant had not acted reasonably in contesting the plaintiff’s application. The defendant should bear the consequence of being the unsuccessful party.

Conclusion and order

15.  Accordingly, I make an order absolute that the defendant shall pay the plaintiff’s costs of the plaintiff’s summons with certificate for counsel, to be taxed if not agreed.

16.  I also order the defendant to pay the plaintiff’s costs of the variation of the costs order nisi application with certificate for counsel, to be taxed if not agreed.

Summary assessment of costs

17.  In the absence of agreement as to the amount of costs, the costs under paragraphs 15 and 16 shall be assessed summarily.

18.  In that regard, the plaintiff shall lodge and serve the statements of costs within 28 days from the date of this decision, followed by the defendant’s list of objections to be lodged and served within 14 days thereafter.

Mr Tommy Cheung, instructed by Li, Kwok & Law, for the plaintiff

Mr Joseph Wong, instructed by Tang & So, for the defendant

DCCJ 836 & 1380/2018 & 289/2021 (Consolidated)

[2022] HKDC 722

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 836 OF 2018

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IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1380 OF 2018

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IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 289 OF 2021

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DECISION

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Introduction

1.  This is a summons taken out by the plaintiff for leave to adduce expert evidence on a work report produced by the defendant referred to in paragraph 14 of the amended statement of claim (“the work report”).

The plaintiff’s case

2.  The plaintiff commenced a project which aimed at the development of smart personal care products including the smart pillow in around the middle of June 2017 (“the pillow project”).

3.  The defendant was employed by the plaintiff to work on the pillow project from 15 July 2017.

4.  The plaintiff says that:-

(a)  the defendant had failed to adequately update the plaintiff on the progress of the work on the development of the smart pillow prototype;

(b)  the defendant repeatedly failed to attend work at the workplace designated by the plaintiff; and

(c)  the defendant falsely represented to the plaintiff that he was not directly or indirectly interested in any business which was in competition with or could potentially compete with the plaintiff. However, the plaintiff discovered that the defendant was the founder owner and the person managing a competitor of the plaintiff by the name of NICADA Research & Development Company Limited (“NICADA”).

5.  The defendant was terminated by the plaintiff on 23 January 2018 for breach of the employment contract.

6.  Before the termination, on 17 January 2018, the plaintiff started to demand the defendant to return all property and information belonging to the plaintiff including “all work-related material and document, detail workings and records as to the development” of the smart pillow prototype.

7.  On 20 January 2018, the defendant provided the plaintiff with the work report.

8.  It is the plaintiff’s case that the work report is defective and could not be used to discharge the defendant’s duties to the plaintiff. Hence, the work report could not be regarded as a due return of confidential information and intellectual property to the plaintiff.

The defendant’s case

9.  The defendant says that the employment contract was subject to a verbal contract between the plaintiff and the defendant that the defendant was given considerable flexibility in the performance of duties for the plaintiff.

10.  NICADA was not involved in the pillow project.

11.  The defendant was retained by Mr Chiu Kung Wan Nelson to work for Nettle Print Limited (“NPL”) in or about 2016 to do the invention and testing works for smart pillow. NPL was the owner of the smart pillow project and owned the rights of intellectual property thereof. The defendant would be subject to the duty of confidentiality owed to NPL and would be required to report to Mr Chiu.

12.  The defendant further says that the arrangement of having the defendant to be employed by the plaintiff was the result of the business collaboration between Mr Chiu and Mr Tam Paul Clement of the plaintiff on the pillow project.

The plaintiff’s argument

13.  Mr Tommy Cheung, counsel for the plaintiff, submitted that the following issues have arisen out of the pleaded case:

(a)  whether the defendant had failed to comply with the reasonable instructions of the plaintiff, such as proper recording of the product specification, design approach and technical architecture of the smart pillow;

(b)  whether the defendant had failed to protect and return the confidential information and intellectual property, and thereby breached the employment contract, equitable duty of confidence and/or fiduciary duties; and

(c)  whether the defendant had been working for the benefits of third parties or failed to undertake the work assigned by the plaintiff concerning the smart pillow/the pillow project in the plaintiff’s best interest during his employment with the plaintiff.

14.  Therefore, it is necessary to look into the work report because its nature, quality and degree of completeness are highly relevant. If the work report did not record all intellectual property rights necessary for the commercial production that were within the defendant’s power, custody and control, this would strengthen the plaintiff’s case that the defendant was in breach of the employment contract and vice versa.

15.  As the work report contains technical information and materials which are beyond the expertise of the legal representatives and the court, expert evidence is required to simplify the technical matters and to assist the court.

16.  Mr Cheung, relying on Ready Set Goal Ltd v Kay-El (Hong Kong) Ltd, HCA 223/2013, 18/11/2014, unreported, submitted that as the defendant has raised an issue on the ownership of the intellectual property rights in the smart pillow project, the court should proceed on the basis that there is a reasonable chance that this issue would be resolved in favour of the plaintiff at the trial.

17.  Relying on Wong Hoi Fung v American International Assurance Co (Bermuda) Ltd [2002] 3 HKLRD 507, Mr Cheung submitted that if the court cannot form a clear view of the relevance of the expert evidence, leave should be granted.

The defendant’s argument

18.  Mr Joseph Wong, counsel for the defendant, argued that the proposed expert evidence is completely irrelevant because nowhere in the amended statement of claim has pleaded that it is a term of the employment contract (express or implied) that the defendant is required to develop and come up with a prototype capable of being used for commercial production of the smart pillow.

19.  Further, the proposed expert evidence is also unnecessary and of no probative value because the executive summary of the work report has already acknowledged that the existing prototype “still has some defects and the testing result shows that the prototype is not robust enough for real-life customer trials and further studies are needed. In addition, injection moulds and special tooling for manufacturing some critical parts for further functional testing are also needed.”

20.  Mr Wong stressed that the defendant had started the research and development work on the smart pillow project with NPL under the consultant contract dated 20 December 2016, ie before the defendant was employed by the plaintiff on 15 July 2017. It was the agreement and understanding of Mr Tam of the plaintiff and the defendant that NPL continued to be the owner of the product and would own the rights of all intellectual property thereof and that the defendant would be subject to the duty of confidentiality owed to NPL with respect of all trade secrets and technical information of the product.

21.  Therefore, the work report would not have a full and complete record of all intellectual property rights relating to the smart pillow project. The work report would only record the research and development works on the project during the period from 15 July 2017 and 23 January 2018 when the defendant was employed by the plaintiff. The work report would not contain integral components of the smart pillow project such as software and electronic development which were strictly developed by NPL.

Discussion

22.  It is necessary to examine the pleadings.

23.  Paragraph 5A of the amended statement of claim states that:-

“The Defendant owed the following implied duties under the Contract arising as recognized incidents of the employment relationship, and/or to give the same business efficacy, and/or to give effect to the presumed intent of the parties at the time of entering therein and/or in light of the specific duties and responsibilities of his role as Senior Mechanical Engineer:

…

(d) as incidents of duty of good faith and fidelity and the duty of trust and confidence, that he would:

…

(vi) disclose to the Plaintiff all matters relevant to the tasks entrusted to him and/or for which he was responsible or involved in the course of his employment, including but not limited to his knowledge any intellectual property, design or other information relating to the Pillow Project and in particular the prototype smart pillow;

(vii) disclose to the Plaintiff all inventions, designs and discoveries, or improvements to existing inventions or processes, which he made in the course of his employment, including but not limited to those concerned with the smart pillow prototype”

24.  Paragraph 5D of the amended statement of claim states that:-

“The Defendant owed the Plaintiff the following fiduciary duties in respect of his development and/or research into the smart pillow prototype pursuant to common law:

…

(g) a duty to disclose to the Plaintiff all inventions, designs and discoveries, or improvements to existing inventions or processes, which he made in the course of his employment, including but not limited to those concerned with the smart pillow prototype”

25.  At the request of the plaintiff, the defendant delivered the work report to the plaintiff on 20 February 2018.

26.  It is the plaintiff’s case at paragraph 15 of the amended statement of claim that “the product specification, design approach, and technical architecture of the smart pillow were found missing from the Report, which means that even with the Report, it is not possible for the Plaintiff to build another hardware prototype of the smart pillow” and therefore the defendant had failed to return all confidential information and intellectual property to the plaintiff.

27.  By paragraph 6A of the amended defence and counterclaim, the defendant states the following:-

“As to Paragraphs 5A to 5D:-

(1) The Agreement was expressly conditional upon and subject to the terms of the Verbal Contract as pleaded under Paragraph 5(e) above and the latter would prevail in the event of any inconsistency between the two.

(2) In any event, it is denied that the alleged terms therein could be imposed or implied into the Agreement as a matter of law.

(3) In the premises, Paragraphs 5A to 5D are denied.”

28.  The defendant also denied the allegation as contained in paragraph 15 of the amended statement of claim.

29.  In my view, expert evidence is obviously relevant and is required of to assist the court in determining the following issues:-

(1)  whether the work report had disclosed all the intellectual property, design or other information relating to the pillow project and the smart pillow prototype;

(2)  whether the work report had disclosed all inventions, designs and discoveries or improvements to the existing inventions or processes which the defendant made in the course of his employment concerning the smart pillow prototype; and

(3)  whether the product specification, design approach, and technical architecture of the smart pillow were missing from the work report.

30.  With respect to Mr Wong, in identifying the issues, the premise that it was not pleaded that the defendant was required to develop and come up with a prototype capable of being used for commercial production of the smart pillow is counter-productive. This would lead to bias and prevent the reader from forming a balanced view of the pleadings.

31.  For obvious reasons, the acknowledgment in the executive summary of the work report is no answer to the issues that I have identified above.

32.  The alleged verbal contract between the defendant and Mr Tam on 25 August 2017 and the allegation that the ownership of the intellectual property rights belonged to NPL are other issues that have to be resolved by the trial. They do not, however, exonerate the trial judge, as the tribunal of fact, from making findings on the issues relating to the work report.

33.  A glance at the work report will find that it contains large amount of computer-aided engineering analysis data and prototype testing data. Those data are not readily assimilable or understood by people without engineering background. In order to give sense to those data, expert evidence is required to assist the trial judge on the interpretation of them.

Conclusion and order

34.  By reasons to the aforesaid, I hold that leave should be granted to the parties to adduce expert evidence on the work report.

35.  In the light of the issues I have identified, the issues of which expert opinion is required have to be modified.

36.  I therefore give the following order and directions:-

(1)  Leave to the parties to adduce expert evidence on the work report referred to paragraph 14 of the amended statement of claim (“the work report”), limited to one for each party, on the following issues:-

(a)  whether the work report contains any the intellectual property, design or other information relating to the pillow project and the smart pillow prototype;

(b)  what other intellectual property and design, if any, are required for:-

(i)  the building of a smart pillow prototype; and

(ii)  the commercial production of the smart pillow;

(c)  whether the work report contains any inventions, designs and discoveries or improvements to the existing inventions or processes concerning the smart pillow prototype, and if so, what they are;

(d)  what product specification, design approach, and technical architecture of the smart pillow are contained in the work report;

(e)  what product specification, design approach, and technical architecture of the smart pillow are required for:-

(i)  the building of a smart pillow prototype; and

(ii)  the commercial production of the smart pillow; and

(f)  whether the work report shows that the defendant had carried out any work in relation to the research and development of the pillow project, and if so, what they are;

(2)  The parties do nominate by letter to court the identity of their respective experts within 28 days from the date of this decision. Failing which, the defaulting party shall be deemed to have elected not to adduce expert evidence at the trial of this action;

(3)  The parties do exchange their respective preliminary expert reports within 42 days thereafter;

(4)  There be a without prejudice meeting of the experts within 28 days thereafter for the purpose of discussing a joint statement of experts indicating those parts of their opinion of which they are, and those on which they are not, in agreement;

(5)  The parties’ experts do prepare a joint statement of experts within 28 days thereafter identifying:-

(a)  the issue or issues on which the experts have reached a common opinion and in respect of each such issue what the common opinion is; and

(b)  the issue or issues on which the experts have failed to reach a common opinion and their competing views on each such issue. Each expert shall also state the reasons for their disagreement;

(6)  The plaintiff doth lodge with court the joint statement of experts within 7 days thereafter.

Costs

37.  I make a costs order nisi that the defendant shall pay the plaintiff the costs of this application with certificate for counsel, to be taxed if not agreed.

38.  In the absence of any application to vary the same by letter within 14 days from the date of this decision, the costs order nisi shall become absolute.

Mr Tommy Cheung, instructed by Li, Kwok & Law, for the plaintiff

Mr Joseph Wong , instructed by Tang & So, for the defendant