KIM LUNG TRANSPORTATION CO (a firm) AND OTHERS v. IP MAN FAI AND ANOTHER

HCA 271/2012 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 271 OF 2012 _____________ BETWEEN KIM LUNG TRANSPORTATION CO. (a firm) 1st Plaintiff KIM LUNG TRANSPORTATION SERVICES LTD. 2nd Plaintiff KIM LUNG (HOLDINGS) LTD. 3rd Plaintiff KIM LUNG LOGISTICS LTD. 4th Plaintiff KIM LUNG MANAGEMENT LTD. 5th Plaintiff TSANG SIU CHONG 6th Plaintiff and IP MAN FAI 1st Defendant AIR GLOBAL LTD. 2nd Defendant ____________ Before: Deputy High Court Judge Lok in Chambers Date of Hearing: 9 March 2012 Date of Decision: 9 March 2012 Date of Reasons for Decision: 2 April 2012 __________________________ REASONS FOR DECISION __________________________ This is an application by the defendants to discharge the ex parte Anton Piller order granted by me on 21 February 2012 (“the Order”). I allowed the application in the hearing on 9 March 2012 and I now give my reasons. Background The plaintiffs’ claim is one based on breach of fiduciary duty and duty of fidelity. The 6th plaintiff, Mr Tsang Siu Chong (“Tsang”), and the 1st defendant, Mr Ip Man Fai (“Ip”) set up their local transportation business as early as in 1995. The business first took the form of a partnership business trading as the 1st plaintiff. As the business developed, various limited companies, the 2nd to 5th plaintiffs, were incorporated at different times between 2002 and 2010. These business entitles all bear the trade name of “Kim Lung” (“Kim Lung”). Tsang and Ip are and were the only partners, shareholders and directors of these entities. The business originally traded under the 1st plaintiff was succeeded by the 4th plaintiff which was then in turn taken over by the 2nd plaintiff as it now stands. Ip is the only shareholder and director of the 2nd defendant herein Air Global Limited (“Air Global”). In the affirmations filed by Tsang in support of the Anton Piller application, Tsang deposed the following: in or about January 2010, Tsang was told by Ip that the latter would set up Air Global for his friends but not for the purpose of trading at the moment; Tsang later learnt that Air Global was engaged in air freight business; Air Global has taken up part of the office of Kim Lung for its daily operation; since January 2011, Tsang was forced by Ip to enter into negotiation of terminating the partnership relationship between the parties; in late 2011, Tsang found out that Air Global had also been providing local transportation services to Kim Lung’s existing customers; on several occasions in January 2012, Tsang had found “limited amount of records lying on” the desk of Ip’s assistant which was located in the common area of Kim Lung’s office; these materials showed that since November 2011, Ip had misappropriated trade secrets of Kim Lung and copied essential documents and other confidential information from the computer hard disk of the 2nd plaintiff; Tsang recently learnt from a staff of a long-term customer of Kim Lung that Ip had employed the customers data base of the 2nd plaintiff and the resources of Kim Lung in conducting the business of Air Global; and Tsang had tried to come to “a settlement of all issues” with Ip without any success. Based on the aforesaid, the plaintiffs claim that Ip had acted in breach of fiduciary duty or duty of fidelity he owed to Kim Lung. In support of the Anton Piller application, Tsang claimed that Ip had stored trade secrets, essential documents and other confidential information belonging to Kim Lung in the hard disk of the computer of Air Global which was locked inside Ip’s room in Kim Lung’s office. Further, it was alleged that Ip had been very careful in keeping such materials away from Tsang, and Tsang has also recently learnt that Air Global would move out from Kim Lung’s office soon. Hence, Tsang believed that Ip and Air Global would swiftly destroy the relevant documents, invoices and trading records stored in Air Global’s computer hard disk once Ip knew about the commencement of the present proceedings. Based on the aforesaid evidence presented by the plaintiffs, I granted the Order on 21 February 2012 enabling the plaintiffs’ representatives to enter into Ip’s room in Kim Lung’s office and to seize all relevant documents specified in the Order. The plaintiffs executed the Order on 22 and 23 February 2012. The defendants’ solicitors objected the plaintiffs to inspect the seized documents and so the documents were sealed in boxes and kept in the office of the plaintiffs’ solicitors. Merits of the setting aside application The defendants apply to set aside the Order on the following grounds: there has been serious non-disclosure of material information by the plaintiffs when they made the ex parte application; Tsang has failed to demonstrate a real risk of destruction or removal of evidence by the defendants; and the ex parte application has been taken out in bad faith with an attempt to exert pressure on Ip to accept an unfavourable “buy-out” agreement. In support of the allegation of material non-disclosure, the defendants claim that the plaintiffs have failed to disclose the following material information in making the ex parte application before myself: Tsang was involved in a company known as Skytrans Express Limited (“Skytrans Express”) which was incorporated in March 2005 and carried on the business of provision of air freight services; and Tsang is the only shareholder and director of a company known as East Express (Hong Kong) Limited (“East Express”) which is also involved in the air freight business. I agree with Mr Lee, counsel for the defendants, that, having read the 2 affirmations filed by Tsang in support of the ex parte application, one can easily come to the following views: prior to the establishment of Air Global, Tsang, Ip and Kim Lung were only involved in local transportation business; in January 2010, Ip lied to Tsang about the true purpose of setting up Air Global; Ip is the only person who set foot on the air freight business through the operation of Air Global; Air Global has hardly had any connection with Kim Lung; Tsang has very limited knowledge of the operation of Air Global; Ip, through Air Global, has been diverting the business of Kim Lung behind the back of Tsang; and Ip has been trying to force Tsang to leave Kim Lung on unfair terms. However, after the filing of further affirmations by the parties after the ex parte application, the true picture is quite different. According to Ip, Tsang told him in early 2005 that Tsang would set up another business to provide air freight services, and as a result Skytrans Express was incorporated by Tsang and one Mr Raymond Chan (“Chan”) to carry on such business. In the end of 2006, Ip started to help Skytrans Express to develop its business. As the local transportation business of Kim Lung started to fall in 2008, Ip suggested to Tsang and Chan to expand the air freight business. However, Tsang and Chan were not interested and so Ip set up Air Global to operate the air freight business himself. Although there is a dispute between the parties as to whether Ip had any interest in Skytrans Express, a sum of money was paid to Ip when he left such company. As a result, Ip claimed that Tsang knew full well about the background of the setting up of Air Global. Furthermore, Air Global was operating quite openly and Tsang also knew that part of Air Global’s business involved the customers of Kim Lung as well. Further, there have been numerous business dealings between Air Global and certain companies of Kim Lung. Prior to the making of the ex parte application, there have also been considerable discussions between the parties about the terms of the potential “buy-out” agreement. In his 3rd affirmation filed after the ex parte application, Tsang admitted his involvement in Skytrans Express. Further, according to the agreement exhibited as “TSC-8” to Tsang’s 3rd affirmation, there were some business dealings between Skytrans Express and Air Global at some stage. In my judgment, the withholding of such information relating to Skytrans Express amounts to material non-disclosure. From the information supplied to the court after the ex parte application, it is clear that Ip has been involved in air freight business for quite some time. In fact, prior to the incorporation of Air Global, he had been helping the air freight business of Skytrans Express which was partly owned by Tsang. Further, contrary to the picture portrayed in the previous affirmations, Ip was not operating the business of Air Global behind the back of Tsang, and Ip had not lied to him about the true purpose of setting up Air Global. Obviously, one of the main considerations in deciding whether to grant an ex parte Anton Piller order is whether there is likelihood of destruction of evidence once the defendant knows about the proceedings. As I see it, the information withheld by Tsang about his involvement in Skytrans Express and the history of the development of its business and the establishment of Air Global would be very material for the court in determining such issue. What is more important is that Tsang has failed to disclose his interest in East Express. East Express and Air Global are direct competitors in the air freight business. One of the preconditions for the granting of an Anton Piller order is that the harm likely to be caused by the execution of the order to the defendant and his business affairs must not be excessive or out of proportion to the legitimate object of the order. This precondition is particularly relevant where the perusal by the plaintiff of confidential commercial documents will be the effect of the execution of the order (see Hong Kong Civil Procedure 2012, vol 1, §29/8/23). If the plaintiff and the defendant are not competing in the same business, like the picture portrayed by Tsang in his supporting affirmations, the potential harm would be much smaller. However if they are in the same business, just like East Express and Air Global in the present case, the potential harm of the execution of the order on the defendant cannot be ignored. It has been repeatedly emphasised by the courts that Anton Piller order is a draconian order, as serious harm can be caused to the defendant and the effect of the execution of such kind of order cannot be unwound. Hence, the court was certainly entitled to know such material facts in deciding whether to grant the Order. The court would have to balance the harm likely to be caused by the execution of the Order to the defendants and their business affairs against the legitimate object of the Order. In the present case, I am confident to say that if I had known that Tsang had a company which was also involved in the air freight business, I would not have granted the Order in the first place. At the very least, I would have included more safeguards in the Order to prevent the plaintiffs’ representatives to have any direct access to the documents seized by them during the execution of the Order. Even at this stage, Tsang has not provided the court with any further detailed information about the operation of East Express and its relationship with Kim Lung. I do not want to speculate the reason why Tsang has not disclosed such material information in the ex parte application. However, no matter what was the reason, the non-disclosure is unjustifiable which warrants the discharge of the Order. I therefore did so in the hearing. Based on the aforesaid reasoning, it is quite unnecessary for me to deal with the other grounds of discharge put forward by the defendants. Further, based on the new evidence adduced by the parties after the ex parte application, I see no reason why the court should re-grant an Anton Piller order. I therefore refused such application by the plaintiffs. Upon the request of Mr Lee, the question of costs was reserved in the hearing pending the result of the defendants’ application to strike out the claim by the 1st to 5th plaintiffs for want of authority. These are the reasons for the decision I made in the hearing on 9 March 2012. (David Lok) Deputy High Court Judge Mr George Chu and Mr P C Au, instructed by Michael Pang & Co, for the plaintiffs Mr Lee Shu Wun, instructed by Chan & Chan, for the defendants