WHITNEY GROUP LLC AND ANOTHER v. CHARLES LINNAEUS PEAT AND ANOTHER

bjbj 0 kU| HCA 1641/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE ACTION NO. 1641 OF 2007 ____

BETWEEN WHITNEY GROUP LLC 1st Plaintiff THE WHITNEY GROUP (ASIA) LIMITED 2nd Plaintiff and CHARLES LINNAEUS PEAT 1st Defendant ALEXANDRA GOODFELLOW 2nd Defendant ____ Before: Deputy High Court Judge Gill in Chambers Date of Hearing: 3 August 2007 Date of Delivery of Ruling: 7 August 2007 __

R U L I N G __ This matter began life as an ex parte application for an interlocutory injunction and for leave to serve it and the yet to be filed writ outside the jurisdiction. The intended 1st defendant Charles Peat had been an employee and member of the 1st plaintiff, which I shall call Whitney, by virtue of documents called the Operating Agreement and the Employment Agreement. Whitney is based in New York. Its principal business is to recruit and place senior executives in the banking and financial services industries. It is the parent company of subsidiaries based worldwide including Hong Kong. Mr Peat was based in Hong Kong and was appointed a director of the local company. That is the 2nd plaintiff, which I shall call Whitney Hong Kong. But on 29 June last Mr Peat gave notice and resigned from Whitney and let it be known that he was to join a company called Heidrick & Struggles International Inc. Heidrick as I shall call it is also American with offices elsewhere including Hong Kong, and is in competition with Whitney. It is said of Mr Peat that shortly before his resignation and departure and in breach of his contractual obligations with Whitney, he leaked confidential information to the 2nd defendant Alexandra Goodfellow. Ms Goodfellow is an employee of Heidrick based in Sydney. It is said of this information, contained in a document called the Overview, that

it came from Whitney s database and comprised particulars of people described as real estate professionals employed in selected investment banks in Asia. Jeffrey Sussman, the Chief Operating Officer and Chief Financial Officer of Whitney, stated in an affidavit in support of the application for an injunction that in effect this database is part of the lifeblood of Whitney, because it provides a pool of prospective candidates for positions within the financial services and related industries that Whitney are retained to fill. Whitney would not have permitted this material to be published outside its walls and most assuredly would not under any circumstances have condoned its release to a competitor such as Heidrick. Mr Peat s conduct gave rise to this action. In the Endorsement of Claim annexed to the writ Whitney claims damages against him for breaches of trust and confidence arising under the Operation Agreement and Employment Agreement and by virtue of his directorship in Whitney Hong Kong. Ms Goodfellow is sued for having requested the information and thus to have aided and abetted the breaches. Interestingly no injunction is claimed. The plaintiffs it seems will be content to recover damages to be assessed. The ex parte application for an interlocutory injunction came before the Duty Judge of the day on 30 July 2007. Service out of the jurisdiction was asked for because Mr

Peat, having left Whitney, was then on holiday in France and Ms Goodfellow is based in Sydney. The Judge gave leave for service but declined to consider the application for the injunction ex parte and dismissed it. He gave leave instead for an application to issue inter partes, returnable on 3 August 2007. By this date both defendants had engaged local solicitors, who accepted service, and counsel. On that date the matter came before me as the designated Summons Judge. The injunctions asked for seek to restrain both defendants, pending trial or further order, from divulging information confidential to Whitney to any person and, in particular, to Heidrick. Further, they call for both defendants to file affidavits disclosing any other information confidential to Whitney they have had and the names of any to whom that has already been disclosed with full and detailed particulars. The applications were opposed, and this having been a callover, in the normal way the parties through counsel would have invited of me directions for the filing and service of evidence and for setting down for hearing as a defended cause. But at the outset counsel for both defendants (separately represented but adopting a united front) made two preliminary points for the purpose of stalling or extinguishing the applications. The first is that this court has no jurisdiction to deal with the action and that

the interlocutory application should be stayed pending the outcome of an application to strike out that they have undertaken to proceed with in timely fashion. The second was put up in the event that I am satisfied that this court has jurisdiction. It is that on the plaintiffs case following a successful trial, damages will be an adequate remedy. Whilst this is not a bar to an application and grant of an interlocutory injunction, in the particular circumstances of this case there would be no justification or logic for one. First then, the jurisdictional point. It derives from the contracts Whitney and Peat were parties to. The Operation Agreement contains at 3.3 under the subheading confidentiality the following, wherein Mr Peat is described as a shareholder: the shareholders acknowledge and agree that all information heretofore or hereafter provided to them by or on behalf of the Company concerning the business of the Company shall be deemed strictly confidential, shall belong to the Company and its Affiliates (and no other Person), and shall not, except as required by law, he disclosed to any Person without the prior consent of the Board. The Employment Agreement at 4(a) contained again under the heading confidentiality the following, wherein Mr Peat is described as Executive: a. Executive recognizes and acknowledges that: (i) in the course of Executive s employment pursuant

to this Agreement, Executive shall become aware of valuable trade secrets and other proprietary and confidential information relating to the Company and its subsidiaries (collectively referred to herein as the Confidential Information ); (ii) the Confidential Information is the property of the Company and its subsidiaries; (iii) the use, misappropriation or disclosure of the Confidential Information would constitute a breach of trust and is reasonably likely to cause irreparable injury to the Company and its subsidiaries; (iv) it is essential to the protection of the Company s and each of its subsidiaries goodwill and to the maintenance of the Company s and each of its subsidiaries competitive position that the Confidential Information be kept secret and that Executive not disclose the Confidential Information to others or use the Confidential Information to Executive s own advantage or the advantage of others, and (v) the Executive s agreement to be bound by the provisions of this Paragraph 4 is a material inducement for the Company to enter into this Agreement. As the endorsement to the writ reveals, Whitney brings its claim for damages for breach of these contractual terms. But both contracts contain clauses going to governing law and exclusive jurisdiction. The jurisdiction point raised on behalf of both defendants comes from these clauses. The Operation Agreement states at

12.7 and 12.8(a): 12.7 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to agreements made and to be performed solely within such State. Exclusive Venue; (a) Each of the parties hereby consents to the exclusive jurisdiction of any state or federal court located within the County of New York, State of New York and irrevocably agrees that all actions or proceedings arising out of or relating to this Agreement shall be litigated in such courts. Each of the parties accepts unconditionally, the exclusive jurisdiction of the aforesaid courts and waives any defence of forum non-conveniens, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement. The Employment Agreement includes the following at 11: 11. Governing Law; Jurisdiction (a) This Agreement shall in all respects be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and fully to be performed in such state, without giving effect to conflicts of law principles. (b) Each of the parties hereto hereby consents to the exclusive jurisdiction of any state or federal court located within the County of New York, State of New York and irrevocably agree that all actions or proceedings arising out of or relating to this Agreement shall be

litigated in such courts. Each of the parties hereto accepts for each of itself and in connection with its properties, generally and unconditionally, the exclusive jurisdiction of the aforesaid courts and waives any defence of forum non-conveniens, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement. It is worthy of note to mention that these forms of contract are those of the employer Whitney, no doubt devised so as to commit all employees worldwide to common terms for uniformity. Mr Hon for Whitney submitted that these clauses do not in our circumstances restrict jurisdiction to the courts of New York because there are not the words any dispute whatsoever or the like; by the ordinary meaning of the words arising out of or related to this Agreement , the exclusive jurisdiction is limited to contractual disputes. He submitted this case is based on a breach of confidence which he describes is a claim not in contract but tort and so falls outside the exclusive jurisdiction clauses. Further, if I were to find against him on this point of construction, I should nevertheless exercise my discretion to override these clauses adopting the principle stated in The El Amria [1981] 2 Lloyds Rep.119, at pp.123 and 124 by Brandon LJ, and applied in the local case Hwoo Huang Linda v Fu Being San & Ors, unreported, HCA 4888/2001. Brandon LJ set

it out as follows: (1) Where plaintiffs sue in England in breach of an agreement to refer disputes to a foreign court, and the defendants apply for a stay, the English court, assuming the claim to be otherwise within its jurisdiction, is not bound to grant a stay but has a discretion whether to do so or not. (2) The discretion should be exercised by granting a stay unless strong cause for not doing so is shown. (3) The burden of proving such strong cause is on the plaintiffs. (4) In exercising its discretion the court should taken into account all the circumstances of the particular case. (5) In particular, but without prejudice to (4), the following matters, where they arise, may properly be regarded: (a) In what country the evidence on the issues of fact is situated, or more readily available, and the effect of that on the relative convenience and expense of trial as between English and foreign courts. (b) Whether the law of the foreign court applies and, if so, whether it differs from English law in any material respects. (c) With what country either party is connected, and how closely. (d) Whether the defendants genuinely desire trial in the foreign country, or are only seeking procedural advantages. (e) Whether the plaintiff would be prejudiced by having to sue in the foreign court because they would: (i) be deprived of security for their claim; (ii) be unable to enforce

any judgment obtained; (iii) be faced with a time bar not applicable in England; or (iv) for political, racial, religious or other reasons be unlikely to get a fair trial. These are, in effect, the sort of considerations for a court asked to determine the appropriate venue in a forum conveniens contest. It seems to me that a fundamental flaw in Mr Hon s primary proposition is that he categorizes Mr Peat s alleged breach of confidentiality as a tort and not contractual. Of course there are many circumstances in which a breach of confidence action is founded in tort. As Mr Hon said, the editors of Clerk & Lindsell on Torts devote a whole chapter to the subject. But equally it can arise in contract. As is stated in Clerk & Lindsell, 19th edition at para.28-03: There has been long-standing uncertainty as to how this action should be categorized. Where the obligation of confidentiality arises (either expressly or impliedly) in a contractual relationship, the breach of confidence may be categorized as a breach of contract. However, the obligation can arise in a non-contractual setting And further at para.28-13: An obligation to treat certain information as being confidential is frequently expressly imposed by contract. Examples include terms in agreements, licensing industrial know-how and contracts of employment Finally at 28-16: Implied in a contract of employment is an undertaking

by the employee to serve the employer with good faith and fidelity . A director may have a fiduciary relationship with his company or a partner with his co-partners which will give rise to a duty of confidence. An express duty of confidence may be imposed by a contract of employment. In other cases, the courts have found a term to be implied or have proceeded on the basis of an implied trust, though it is not generally necessary to approach the matter through equitable doctrines. The duty is highest while the employment is continuing. The right of an employer to restrain an employee or ex-employee from divulging confidential information to others or from making use of it for his own benefit or that of a subsequent employer is well-established. The result can occasionally be to put an employee in a worse position than the rest of the world, which may acquire and be at liberty to use the information in legitimate ways. I have to say that I can think of no clearer example of a breach of confidentiality founded in contract than in this case; thus it follows that the parties are committed to the exclusive jurisdiction clause of their contracts and this includes Whitney, which was after all the author and instigator of such provisions. The alternative proposition, that I exercise my discretion by considering the forum conveniens arguments, has a certain logic, given that Mr Peat

lives and works in Hong Kong and the breach was committed in Hong Kong, that Whitney Hong Kong is in Hong Kong and so on. But this course has been expressly provided for and excluded as well; the words and waives any defence of forum non-conveniens are plain enough. It would be the wrongful exercise of my discretion to ignore the express wishes of both parties. In the circumstances, it appears to me that the prospects of the defendants succeeding in the application they are to bring under O.12 r.8, Rules of High Court to have the action dismissed, are sufficiently high that the appropriate course to adopt is to stay this application pending the outcome of that. Before I do so a brief word on whether, applying the usual considerations laid down in the American Cyanamid case, the application would fail because damages would be an adequate remedy, following a successful trial. Strongly supporting this proposition is that the plaintiffs claim only damages to be assessed. There is but one breach at least only one that has been uncovered. Heidrick through its attorneys in New York has given an assurance that the Overview which came to its employee as an attachment to an email has been permanently and irretrievably deleted. It has not been disclosed within or outside Heidrick except in connection with these proceedings. Only a single digital copy has been retained for evidentiary

purposes and that has been segregated. It cannot be accessed except by consent of Heidrick s counsel. Mr Sussman, in his affidavit, stated at paras.45 and 46 that he is not in a position to quantify the damage to Whitney resulting from the disclosure, but that the Overview has value as a commercial document at least equal to the time-cost of compiling the same. Presumably this is why Whitney is content to sue in damages only. I hold that the granting of an injunction at this stage would not have served the purpose of protecting Whitney s interests pending trial. This would not, as I find, have been an appropriate case for an interlocutory injunction. The application is adjourned sine die not to be restored before determination of the intended application by the defendants to strike out this action, with liberty to apply. (As to Costs) There has not been final determination. In the circumstances costs including these reserved are in the cause of the application for an interlocutory injunction. (D M B Gill) Deputy High Court Judge Mr W Hon, instructed by Messrs Kennedys, for the Plaintiff Mr A Bell, instructed by Messrs Laracy Gall, for the 1st Defendant Mr R McLeish, instructed by Messrs Paul, Hastings, Janofsky & Walker, for the 2nd Defendant

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