Suit No.: FACV No. 27 of 2008

IpsofactoJ.com: International Cases [2009] Part 2 Case 8 [CFA]


COURT OF FINAL APPEAL, HKSAR

Coram

PCCW – HKT Telephone Ltd

- vs -

Aitken

JUSTICE KEMAL BOKHARY PJ

JUSTICE PATRICK CHAN PJ

JUSTICE R.A.V. RIBEIRO PJ

JUSTICE LITTON NPJ

LORD HOFFMANN NPJ

13 FEBRUARY 2009


Judgment

Justice Bokhary PJ

  1. For the reasons so clearly stated by Mr Justice Ribeiro PJ and Lord Hoffmann NPJ with whose judgments I entirely agree, I would dismiss this appeal, and I would deal with costs in the manner proposed by Mr Justice Ribeiro PJ. The evidence in this case does not establish a real risk, let alone a probability, that the employee cannot participate in the activity concerned on behalf of his new employer without misusing confidential information belonging to his former employer. I do not feel called upon to say what it may or may not be properly open to a court to do in any case in which the evidence, or indeed an admission, establishes such misuse as a real risk, probability or even certainty. All that I will say is a word on the position of any Hong Kong court asked to make an injunction excluding an employee from participation in any given activity. The court would have to consider not only the common law policy which operated in Rakusen v Ellis [1912] 1 Ch 831 but also the “freedom of choice of occupation” which everyone here has by virtue of arts 33 and 41 of our constitution the Basic Law.

    Justice Chan PJ

  2. I agree with the judgments of Mr Justice Ribeiro PJ and Lord Hoffmann NPJ, and with Mr Justice Bokhary PJ’s observations.

    Justice Ribeiro PJ

  3. The main question arising on this appeal may be stated as follows: Can an employer obtain an injunction against a former employee who acquired confidential and privileged information during his employment, to restrain him not merely from misusing or disclosing such information, but from being employed on matters to which such information may be relevant in his new job with an enterprise having interests adverse to those of the employer? The appellants seek such an injunction against the respondents.

    A. THE PARTIES

  4. The 1st appellant is a telecommunications company and the largest fixed network operator (“FNO”) in Hong Kong. The second appellant is a member of the same group of companies, to which it provides employment services. I shall refer to the appellants together as “PCCW”.

  5. The 2nd respondent (“CSL”) is the largest mobile network operator (“MNO”) in Hong Kong and presently employs the 1st respondent (“Mr Aitken”). Mr Aitken was admitted as a solicitor in New South Wales in 1997 and was in private practice for some five or six years before spending the following two years as an in-house lawyer for an Australian telecommunications company. He came to Hong Kong and joined CSL in 2005, occupying the post of Legal Advisor, Legal and Regulatory Affairs for some 18 months. He then joined PCCW as General Manager, Regulatory Compliance on 5 March 2007 and left on 20 March 2008 to re-join CSL as Head of Regulatory and Corporate Affairs. Mr Aitken is, however, not admitted as a solicitor in Hong Kong and did not act as in-house lawyer when employed by PCCW.

    B. THE CONTEXT OF THE DISPUTE

  6. The telecommunications industry in Hong Kong is subject to regulation by the Telecommunications Authority (“TA”) pursuant to the Telecommunications Ordinance Cap 106. The imminent deregulation of Fixed-Mobile Interconnection Charges (“FMIC”) lies behind the present dispute. The current regime for such interconnection charges laid down by the TA involves a policy known as Mobile Party Network Pays (“MPNP”). This means that MNOs are required to pay interconnection charges for all calls passing between MNO and FNO networks, regardless of where such calls originate.

  7. The TA issued a statement on 27 April 2007 (“the 2007 Statement”) announcing that the MPNP policy would cease with effect from April 2009, leaving FNOs and MNOs to negotiate among themselves the interconnection terms and charges applicable thereafter. At the same time, the 2007 Statement provided for continuation of the requirement known as “Any-to-Any connectivity” (or “A2A”) whereby each network operator is obliged to connect other networks’ calls to its own network.

  8. As the existing MPNP regime has been yielding to FNOs an annual revenue of some HK$600 million, of which PCCW receives two-thirds, the imminent deregulation poses the threat of a significant loss of income to PCCW. Moreover, given the continued A2A obligation, PCCW’s concern has been that MNOs would be in no hurry to negotiate acceptable replacement FMIC terms. In evidence filed in the middle of last year, it was common ground that the 2007 Statement raises the single most important issue facing MNOs and FNOs in Hong Kong “for at least the next 12 months and probably for some time thereafter”.

  9. PCCW’s reaction to the 2007 Statement was immediately to begin exploring legal avenues for protecting its interests, both vis-ŕ-vis the TA and other MNOs, including CSL. There was a flurry of activity during the three months or so following its issue. The solicitors’ firm, Herbert Smith, was instructed and London leading counsel experienced in administrative and competition law were brought in to advise. There were meetings and communications with these legal advisers involving consideration of possible legal options, including appeals to the Telecommunication (Competition Provisions) Appeal Board (“the Appeal Board”) and judicial review proceedings. PCCW says that pursuant to such advice, certain commercial and legal strategies were adopted and specific proceedings launched. The information and advice discussed in these meetings and communications have been found to be at least triably confidential and privileged (to the extent that they have not subsequently entered the public domain).

  10. It is PCCW’s case that Mr Aitken was intimately involved in this activity and therefore privy to the confidential and privileged discussions which took place. Mr Aitken disputes the extent of his involvement and says that he has little recollection of what then transpired. However, the Judge found that there is at least a triable issue as to his involvement in the manner alleged.

    C. PCCW’S COMPLAINT

  11. When the position of Head of Regulatory and Corporate Affairs became vacant at CSL, Mr Aitken applied for and was offered the job. On 23 January 2008, he gave three months’ notice to terminate his PCCW employment, as required under his contract of employment.

  12. His contract also contained two relevant covenants. First, there was an undertaking not to “make use of, divulge or communicate to any person .... any of the trade secrets or other confidential information of or relating to [PCCW]”, a restriction which would continue to apply after termination without a time limit. This confidentiality undertaking applied to matters including “all information not publicly available relating to [PCCW]” including information relating to “business strategies”, “PCCW’s Fixed Telecommunications Network Services Licence .... and [PCCW’s] dealings with OFTA” and its “dealings with any government or quasi-government department ....”

  13. Secondly, there was a restrictive covenant whereby Mr Aitken undertook that, except with PCCW’s permission, he would refrain from taking employment in Hong Kong with any of PCCW’s competitors for a period of three months after termination of his employment.

  14. When giving notice of termination, Mr Aitken asked PCCW to waive the restrictive covenant so that he could take up his job with CSL without waiting for three months. PCCW agreed to do so. Mr Stuart Z Chiron, to whom Mr Aitken then reported, states that the waiver was granted since he had understood from Mr Aitken that FMIC issues would fall outside the ambit of the latter’s new role at CSL. Mr Aitken denies giving that impression. In the event, his employment with PCCW ceased on 20 March 2008 and began with CSL on 25 March 2008.

  15. In mid-April 2008, about a year before the MPNP policy was to end, PCCW applied to the TA for permission to increase its FMIC tariff by 25%. As Mr Chiron later explained, this was to provide PCCW with a bargaining chip to encourage the start of serious negotiations with MNOs on deregulated FMIC terms and rates. The TA gave its approval and the 25% increase was announced on 23 May 2008. Two days later, CSL held a press conference attended by Mr Aitken, amongst others. It criticized PCCW’s unilateral increase of the connection tariff and the TA’s approval given without consultation. It promised legal action in response and stated that Mr Aitken should be contacted for further information.

  16. Mr Chiron states that Mr Aitken’s participation in the press conference came as a surprise since he had believed that the latter would not be involved in FMIC issues. Solicitors’ letters were sent to Mr Aitken and CSL demanding an undertaking that Mr Aitken would not involve himself in such work. When such undertakings were not forthcoming, PCCW launched the present action and sought interim injunctive relief restraining Mr Aitken from FMIC involvement.

  17. PCCW asserts that Mr Aitken has been privy not merely to the confidential and privileged strategic discussions mentioned above, but also to discussions relating specifically to (i) Appeal 24 before the Appeal Board and the related judicial review proceedings in HCAL 6/2007 involving PCCW’s challenge to the TA’s directions on terms of interconnection between PCCW and Wharf T & T Ltd, another FNO; and (ii) Appeal 25 in which PCCW sought to challenge the TA’s power to issue the 2007 Statement. The confidential and privileged information he had acquired at PCCW is said also to be relevant to Appeal 26, lodged by CSL challenging the TA’s approval of PCCW’s 25% tariff increase.

  18. As Mr Chiron puts it, PCCW believes that it is :

    .... impossible for Mr Aitken properly to be involved in FMIC matters for CSL arising out of or in connection with the 2007 Statement given the nature of his prior involvement for PCCW on the other side of the same issues and the confidential information of PCCW to which he is privy as a result. His knowledge of these matters will inevitably influence his actions and his advice to CSL.

  19. The position adopted by CSL and Mr Aitken has throughout been that Mr Aitken will not use or disclose to CSL any confidential or privileged information, offering an undertaking and submitting to the Judge’s order to that effect. However, they dispute PCCW’s entitlement to restrain him from being involved for CSL in FMIC issues in the course of his employment. The evidence is that some 70% of Mr Aitken’s time at CSL is spent on such issues. The principal question in this appeal therefore relates to the availability of relief imposing a restriction on the areas of activity in which Mr Aitken may be employed.

  20. In a commendably meticulous and comprehensive judgment (HCA 1089/2008, 10 July 2008), Deputy High Court Judge Au refused the wider relief but granted (without opposition from the respondents) an injunction against misuse and disclosure in terms re-fashioned by him for greater particularity. By a majority (Le Pichon JA dissenting), the Court of Appeal ([2008] 5 HKLRD 673, Tang VP, Le Pichon JA and Stone J) upheld the Judge’s decision.

    D. THE LEGAL PRINCIPLES

    D.1 Former employees and confidential information

  21. The law adopts a policy in favour of freedom of employment and against restraint of trade. As Lord Atkinson stated in Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 700 and 702, “no person has an abstract right to be protected against competition per se in his trade or business” and an employer must therefore be prepared to encounter competition “even at the hands of a former employee”.

  22. It is recognized, however, that an employer has a legitimate interest in protecting his trade secrets and confidential information of an equivalent status when an employee leaves. To quote Lord Atkinson again – [1916] 1 AC 688 at 702:

    [An employer] is undoubtedly entitled to have his interest in his trade secrets protected, such as secret processes of manufacture which may be of vast value. And that protection may be secured by restraining the employee from divulging these secrets or putting them to his own use. He is also entitled not to have his old customers by solicitation or such other means enticed away from him. But freedom from all competition per se apart from both these things, however lucrative it might be to him, he is not entitled to be protected against.

  23. The injunctive relief obtainable against such former employees is therefore subject to certain limits. An employee, while employed, is subject to an implied duty of fidelity which requires him not to divulge or use, save for his employer’s benefit, any confidential information appertaining to the employer’s business. However, post-termination relief against an employee is confined to restraining misuse or disclosure only of trade secrets and confidential information of an equivalent status. Confidential information of lesser significance is not subject to such protection – Faccenda Chicken v Fowler [1987] 1 Ch 117 at 136.

  24. The law acknowledges that an employee often brings to a job his own stock of skill, knowledge and experience. Indeed, his possession of such assets will often be the reason for hiring him. And frequently, employees will add to such knowledge and experience in the course of the employment. Where restraint is sought, it is important to distinguish between the employer’s trade secrets and the employee’s own skill and knowledge which he necessarily carries away with him when changing jobs. While an employer may properly claim protection for his trade secrets, he is not entitled to restrain the former employee from deploying his own skill and knowledge for the benefit of himself and his new employer – G D Searle & Co Ltd v Celltech Ltd [1982] FSR 92 at 99 and 107.

  25. Thus, where an employer seeks to restrain an employee against misuse or disclosure of his trade secrets, he has the burden of identifying with precision what trade secrets (or confidential information of equivalent status) he seeks to protect. As Hoffmann J (as Lord Hoffmann then was) explained in Lock v Beswick [1989] 1 WLR 1268 at 1273-1274:

    The employee may not, after leaving his employment, make use of, in the words of Neil LJ [in Faccenda Chicken Ltd v Fowler [1987] 1 Ch 117 at 136]: secret processes of manufacture such as chemical formulae .... or designs or special methods of construction .... and other information which is of a sufficiently high degree of confidentiality as to amount to a trade secret.’ On the other hand, there will be a good deal of other information which an employee could not without breach of duty disclose while he was employed but which he is free to use as part of his own skill and knowledge after his employment has ceased. It is therefore of the essence of a claim against an employee for misuse of confidential information that the employer should be able to identify with particularity the trade secret or similar confidential information to which he lays claim. The terms of any injunction must also be capable of being framed in sufficient detail to enable the defendant to know exactly what information he is not free to use on behalf of his new employer.

  26. A further limitation on post-termination relief reflects the policy of securing the freedom of individuals to seek employment on the labour market. The law is astute to prevent claims for protection of trade secrets or confidential information from undermining that policy. It will generally refuse an injunction to restrict an employee’s field of activity (as opposed to restraining misuse or disclosure) except insofar as such restriction flows from an enforceable restrictive covenant. This was summarised by Scott J (as he then was) in Balston Ltd v Headline Filters Ltd [1987] FSR 330 at 351, as follows:

    The use of confidential information restrictions in order to fetter the ability of these employees to use their skills and experience after determination of their employment to compete with their ex-employer is, in my view, potentially harmful. It would be capable of imposing a new form of servitude or serfdom, to use Cumming-Bruce LJ's words [in G D Searle & Co Ltd v Celltech Ltd [1982] FSR 92], on technologically qualified employees. It would render them unable in practice to leave their employment for want of an ability to use their skills and experience after leaving. Employers who want to impose fetters of this sort on their employees ought in my view to be expected to do so by express covenant. The reasonableness of the covenant can then be subjected to the rigorous attention to which all employee covenants in restraint of trade are subject.

  27. Similarly, in Printers & Finishers Ltd v Holloway [1965] 1 WLR 1 at 6, Cross J stated:

    If the managing director is right in thinking that there are features in the plaintiffs' process which can fairly be regarded as trade secrets and which their employees will inevitably carry away with them in their heads, then the proper way for the plaintiffs to protect themselves would be by exacting covenants from their employees restricting their field of activity after they have left their employment, not by asking the court to extend the general equitable doctrine to prevent breaking confidence beyond all reasonable bounds.

    D.2 Solicitors and the confidential information of former clients

  28. The considerations bearing on the relationship of solicitor and client are quite different. It is a fiduciary relationship in which all the confidences are those of the client. The confidential information received by the solicitor and the advice tendered by him are received and given solely for the client’s purposes. Only the client, and not the solicitor, can waive such confidentiality (and, where the communications are privileged, waive such privilege). The solicitor has no claim to use for his own purposes any of the confidential information imparted within the fiduciary relationship. Thus, the policies of protecting an employee’s freedom to deploy his personal skill and knowledge for his own benefit and of securing the free availability of employees in the labour market do not extend to a solicitor who wishes to accept instructions from a new client whose interests are adverse to those of the former client, on a matter to which his former client’s confidences are relevant.

  29. The legal burden borne by a client who seeks protection of his confidential information in the hands of his former solicitor is accordingly much lighter. Whereas the employer has the onus of establishing that the employee is possessed of precisely identifiable trade secrets sought to be protected, the court readily infers that the solicitor is in possession of information confidential to the former client and will commonly consider its relevance to the mutually adverse interests of the two sets of clients to be obvious – Prince Jefri Bolkiah v KPMG [1999] 2 AC 222 at 235.

  30. Where the court is satisfied that the solicitor has confidential information of that nature, his duty to the former client is unqualified. As Lord Millett stated in Prince Jefri Bolkiah v KPMG at 235-236:

    It is a duty to keep the information confidential, not merely to take all reasonable steps to do so. Moreover, it is not merely a duty not to communicate the information to a third party. It is a duty not to misuse it, that is to say, without the consent of the former client to make any use of it or to cause any use to be made of it by others otherwise than for his benefit. The former client cannot be protected completely from accidental or inadvertent disclosure. But he is entitled to prevent his former solicitor from exposing him to any avoidable risk; and this includes the increased risk of the use of the information to his prejudice arising from the acceptance of instructions to act for another client with an adverse interest in a matter to which the information is or may be relevant.

  31. While there is no substantive rule of law that a firm of solicitors can never act for a new client with interests adverse to those of its former client (Rakusen v Ellis, Munday & Clarke [1912] 1 Ch 831), the court will readily enjoin the firm from so acting unless it is satisfied (the firm having an evidential burden in this respect) that no risk of misuse or disclosure of the former client’s confidential information, whether conscious or inadvertent, attaches to the firm taking up the new client’s instructions (Prince Jefri Bolkiah v KPMG [1999] 2 AC 222 at 236-237). This is in marked contrast to the court’s unwillingness to restrict an ex-employee’s field of activity in the absence of an enforceable restrictive covenant.

    E. PCCW’S CLAIM

  32. 32. The orders presently sought by PCCW against Mr Aitken are two-fold.

    1. First, it seeks an injunction restraining him “from having any involvement, whether direct or indirect, in fixed-mobile interconnection issues related to or arising out of” the 2007 Statement “including but not limited to” negotiation of FMIC terms; in actual or contemplated proceedings before the Appeal Board and in court; in applications for determinations from the TA; and in issues concerning FMIC tariffs (“the restrictive order”).

    2. Secondly, it seeks to substitute for the injunction against misuse or disclosure granted by the Judge dated 10 July 2008, an order which

      1. covers legal advice received in relation to HCAL 6/2007 and Appeals 24 and 25; and

      2. replaces the Judge’s orders linked to specific meetings and communications identified in the evidence with orders in broad terms, such as an order covering communications “concerning the strategic issues arising in respect of FMIC Issues” (“the non-disclosure order”).

    E.1 The restrictive order

  33. It is immediately evident that the proposed restrictive order seeks to limit the permissible area of Mr Aitken’s employment and is akin to orders granted against solicitors restraining them from acting for new clients. It is of a kind which the court generally refuses to make against an employee unless justified as a means of enforcing a valid restrictive covenant.

  34. The restrictive order sought cannot be justified as a means of enforcing the restrictive covenant in Mr Aitken’s contract of employment. That covenant prevented him from taking up employment for a competitor for a three-month post-termination period, but it was waived, enabling him to start work with CSL shortly after termination. In any event, the three-month period has long since expired.

  35. Mr Charles Sussex SC, appearing for PCCW, sought to argue that legal professional privilege provides a further basis for making such a restrictive order. Mr Aitken received on PCCW’s behalf not merely confidential but privileged advice on FMIC issues from Herbert Smith and counsel, where PCCW’s interests are diametrically opposed to those of CSL. Legal professional privilege being indisputably of fundamental importance to the administration of justice, enjoying constitutional protection under Article 35 of the Basic Law and recognized as a “predominant public interest” (per Lord Lloyd of Berwick in Regina v Derby Magistrates’ Court, Ex parte B [1996] AC 487 at 509), it was argued that the Court ought to protect against conscious or inadvertent misuse or disclosure by granting Bolkiah-type relief, even against an employee. Legal professional privilege was of such importance, he submitted, that it trumps all other policies, including those against restraint of trade and in favour of freedom of employment.

  36. Mr Sussex was unable to cite any authority directly in support of his suggested approach. He argued, however, that on proper analysis, the cases showing the courts’ readiness to enjoin solicitors from acting for a new client with adverse interests can be seen to rest on the need to protect a former client’s privileged communications. He accepted that Bolkiah was not an authority supporting his argument, it having there been conceded that the litigation support role played by KPMG justified treating them as solicitors. But he sought to rely on what he called a dictum of Lord Millett in that case where his Lordship stated at 236:

    It is in any case difficult to discern any justification in principle for a rule which exposes a former client without his consent to any avoidable risk, however slight, that information which he has imparted in confidence in the course of a fiduciary relationship may come into the possession of a third party and be used to his disadvantage. Where in addition the information in question is not only confidential but also privileged, the case for a strict approach is unanswerable. Anything less fails to give effect to the policy on which legal professional privilege is based. It is of overriding importance for the proper administration of justice that a client should be able to have complete confidence that what he tells his lawyer will remain secret. This is a matter of perception as well as substance. It is of the highest importance to the administration of justice that a solicitor or other person in possession of confidential and privileged information should not act in any way that might appear to put that information at risk of coming into the hands of someone with an adverse interest.

  37. I am unable to accept this argument. The cases which characterise legal professional privilege as absolute and as a predominant public interest are concerned with maintaining the inviolability of privileged communications against competing policies in favour of compulsory disclosure of the relevant information. Such issues are not engaged in the present case. No one is suggesting that Mr Aitken is entitled or can be compelled to divulge or use for CSL’s benefit PCCW’s privileged information to which he is privy. The respondents accept that they must abide by the Judge’s orders against any disclosure or misuse. This appeal is concerned with the nature and scope of the relief available to PCCW to maintain the confidentiality of information acquired by Mr Aitken as a former employee, an area where the policy against restraint of trade is of central importance. Since issues concerning compelled disclosure of privileged information do not arise, there is no conflict with that policy and no question of it being “trumped” by policies sustaining the high importance of legal professional privilege.

  38. I do not agree with the suggestion that the cases where solicitors have been enjoined against acting for new clients are essentially based on protecting privilege. As indicated in Section D of this judgment, such relief is, in my view, founded on protection of confidentiality in the context of the fiduciary relationship between solicitor and client which differs significantly from the employer-employee relationship.

  39. The passage from the speech of Lord Millett relied upon does not assist PCCW’s argument. As Bolkiah is a case concerned with relief against a firm which, by concession (at 234), was to be treated for all purposes as a firm of solicitors, the availability in principle of injunctive relief restricting KPMG’s field of activities was uncontroversial. It was on the premise of such availability that Lord Millett went on to address the level of risk of misuse or disclosure required to warrant restraining the firm from acting for the new client. It had been argued that “an appreciable risk” or more than an “acceptable risk” should be shown but his Lordship decided on a stricter standard: an injunction would issue unless there was no risk of such disclosure or misuse. The passage relied upon therefore throws no light on the issues in the present case.

  40. Mr Sussex also sought to argue, if somewhat faintly, that an alternative basis for granting the relief sought is that Mr Aitken should be treated as coming within Bolkiah in that, while not a solicitor, he occupied an analogous position while at PCCW. That argument is unsustainable. There is no analogy and Mr Aitken falls to be treated simply as an ex-employee for present purposes.

  41. It is therefore my view that the Judge and the majority in the Court of Appeal were right to refuse relief in the nature of the restrictive order sought.

    E.2 The non-disclosure order

  42. The Judge’s order is set out in paragraph 125(4) of his Lordship’s judgment and in paragraph 60 of the judgment of Stone J in the Court of Appeal. It restrains Mr Aitken from disclosing or using for the benefit of CSL or anyone else, information imparted to him in a series of specified oral and written discussions and communications with the legal advisers on FMIC issues. In granting an order in such terms (and rejecting the much less specific orders sought by PCCW), the Judge was endeavouring to ensure that the confidential information protected was properly delineated from Mr Aitken’s own store of knowledge and experience of regulatory matters in the telecommunications field. The Judge was also properly concerned to ensure that the parties enjoined knew precisely what they were prohibited from doing.

  43. A strong element of discretion is generally involved in deciding how best to formulate the order to be made. I can see no reason to interfere with the Judge’s discretion and no such reasons have been advanced by Mr Sussex. The Judge was entitled to formulate his orders in the terms granted and to refuse orders of the type now sought. Furthermore, the attempt to extend injunctive relief to information touching upon Appeal 24 and HCAL 6/2007 is in any event untenable. The relevant legal issues have been publicly debated before the Appeal Board and the court in the judicial review proceedings. Moreover, that entire dispute was settled and the pending appeal withdrawn in June 2008. In common with every judge in the courts below, I find it impossible to see what there is left to protect regarding any advice or information communicated to Mr Aitken in the first half of 2007 concerning those proceedings.

    F. CONCLUSION

  44. For the foregoing reasons, I would dismiss the appeal and make an order nisi that PCCW pay the respondents’ costs. I would direct that the parties be at liberty to file and serve any representations as to costs in writing within 14 days of the handing down of this judgment, with any written representations in reply to be filed and served within 14 days thereafter, the order nisi to become absolute without further order in the absence of any written representations as aforesaid.

  45. As a postscript, what this judgment does not decide should be mentioned. Questions concerning possible relief against an in-house lawyer who changes jobs to take up a position on the other side of a contentious issue; or against a person who moves from employment as an in-house lawyer to private practice as a solicitor (or vice versa) to act on the other side of a contentious matter, do not arise on the present appeal. I wish expressly to leave such questions open.

    Justice Litton NPJ

  46. 46. I agree with the judgments of Mr Justice Ribeiro PJ and Lord Hoffmann NPJ, and with Mr Justice Bokhary PJ’s observations.

    Lord Hoffmann NPJ

  47. 47. In Rakusen v Ellis, Munday and Clarke [1912] 1 Ch 831, 839 Fletcher Moulton LJ said:

    In almost all businesses there must be persons in such a confidential relation to the employers .... that the knowledge which they acquire .... consists substantially of the secrets of their employer. Such employments come to an end sometimes at the choice of the master, sometimes at the choice of the servant, and thereupon difficulties necessarily arise, because the person who is no longer in employment still has in his breast secrets which are the property of his past employer. The view that the law takes of the rights of the parties in that position is too clear to be disputed. The employee is quite free to go into the service of people who may be the rivals or the opponents of his former master. The law does not say that the possession of those secrets shall cripple his work, or sterilize it. He may go into employment quite inconsistent with the employment which he had in the past. All that the law says is: You shall not disclose or put at the service of your new employer the secrets that belong to your old employer.

  48. Fletcher Moulton LJ went on to say that the employment of a solicitor by a client was a “special case” in which the court would not merely order a solicitor not to use or disclose a former client’s confidential information but actually restrain him from acting against the client if there was a substantial risk that he would, consciously or subconsciously, intentionally or accidentally, use or divulge such information. In Prince Jefri Bolkiah v KPMG [1999] 2 AC 222 the House of Lords examined this special case and held that the court in Rakusen’s case had formulated the test too narrowly. A solicitor ought to be restrained from acting against a former client if there was any risk, not merely fanciful, that his confidential information might be used or disclosed. Prince Jefri’s case was not concerned with a solicitor but with a firm which had been engaged to provide “litigation support services” as forensic accountants. It was however conceded by the accountants that the principle in Rakusen’s case also applied to them. The House of Lords did not therefore discuss how far it might extend.

  49. The question in this appeal is whether the distinction which Fletcher Moulton LJ drew between the position of employees and that of solicitors (or others engaged to provide litigation services) is still sound. The judge and the Court of Appeal said that it remains the law that a court will not, in the words of Fletcher Moulton LJ, cripple or sterilize the work of a former employee, even if he has taken up a new employment inconsistent with his previous employment. It will only enjoin him from using or divulging the secrets of his former employer. The appellants say that an employee who has acquired confidential information which would be the subject of legal professional privilege should be treated in the same way as a solicitor engaged by the employer. The Rakusen and Prince Jefri principle should apply.

  50. The relevant facts may be shortly stated. The telecommunication industry in Hong Kong is regulated by the Telecommunications Authority (TA) which licenses the operators. One licensing condition upon which the TA has insisted in the public interest is that any operator should be entitled, upon suitable terms, to connect with the networks of other operators so that his customers are able to communicate with the subscribers to other networks. The TA provides guidance as to what the terms of interconnection should be, and until recently its policy was that mobile network operators (MNOs) should pay fixed network (or landline) operators (FNOs) for all traffic carried over their networks between mobile and fixed telephones, whichever customer had made the call. Such payments are called fixed mobile interconnection charges (FMICs). The policy was advantageous and profitable for FNOs but resented by MNOs, who claimed that it was unfair and held back technological advance.

  51. Mr Aitken is an Australian lawyer who entered the telecommunications industry in Australia. In 2005 he came to Hong Kong to work for Hong Kong CSL Ltd (“CSL”), a large MNO. His title was Legal Adviser, Legal and Regulatory Affairs. In March 2007 he took up employment with the PCCW group, working for PCCW-HKT Telephone Ltd (“PCCW”), which is by far the largest FNO. It has about two-thirds of the market. There he was styled General Manager, Regulatory Compliance.

  52. In April 2007, soon after Mr Aitken had joined PCCW, the TA issued a statement saying that it proposed after two years to abandon the policy of requiring MNOs to pay FMICs. It was still to be a condition of a licence that an operator should allow other operators to interconnect, but the terms upon which they did so were to be left to negotiation rather than prescribed by the TA.

  53. The statement caused consternation at PCCW, which was faced with the potential loss of a large amount of revenue. It was particularly concerned at being required to negotiate the terms without being allowed to refuse interconnection if an MNO refused to pay what PCCW thought reasonable. So it went to solicitors and counsel to obtain advice on how best it could defend its position. Documents and e-mails were circulated and meetings held. London counsel expert in administrative and competition law came to Hong Kong and held consultations. Various forms of litigation, by way of appeal to the Telecommunications Appeal Board or application for judicial review, were initiated or discussed. For the first six months of Mr Aitken’s employment with PCCW there was a flurry of such activity. He was on the e-mail circulation list, saw some of the documents and attended some of the meetings and consultations. Then, in October 2007, the activity subsided. At the end of the year he was offered a more senior post by his former employer, CSL. He resigned from PCCW and began work with CSL again in March 2008, with the title of Head of Regulatory and Corporate Affairs.

  54. PCCW seem to have been fairly relaxed about the fact that Mr Aitken was going to work for CSL, despite the fact that, as they now say, he was privy to their most intimate secrets about their proposed strategy, strengths and weaknesses on the issue which his immediate superior Mr Chiron described as “highly contentious” and “the single most important issue facing MNOs and FNOs in Hong Kong for at least 12 months”. In fact PCCW courteously agreed to smooth his path by waiving part of a three months non-competition clause in his contract of employment. They say (although it is disputed) that this was because they had no idea that Mr Aitken, despite his regulatory background, would be personally involved in matters concerning FMICs. Presumably they thought that as long as a colleague in the CSL office was actually handling the FMIC question, Mr Aitken could be trusted to keep his valuable knowledge to himself. His contract of employment had included a broad confidentiality clause. At any rate, PCCW sought no reassurance on the point.

  55. What appears to have stung PCCW into action was CSL’s hostile reaction to a strategy they adopted in May 2007 of making a substantial increase in the FMICs for the remainder of the two year interim period during which the old system was to continue. On 25 May 2008 CSL issued a press release in which they described this tariff increase as an exercise of “significant market power by a dominant player that distorts competition”. The press release named Mr Aitken as the contact point for CSL. PCCW responded by writing to Mr Aitken asking for an undertaking that he would not be involved in anything to do with FMICs. The objective, as we were told by counsel for PCCW, was to “take him out” of the negotiations and disputes on this topic. Mr Aitken said that he would observe his obligations of confidentiality but refused to restrict his area of work.

  56. PCCW applied for interlocutory injunctions against Mr Aitken and CSL. The principal relief which they claimed was an order restraining Mr Aitken from –

    having any involvement, whether direct or indirect, in fixed-mobile interconnection issues related to or arising out of the Statement of the Telecommunication Authority dated 27 April 2007 ....

  57. In addition, they asked for an order restraining him from disclosing or using “any confidential information of the plaintiffs, whether in relation to the FMIC issues or otherwise.” Deputy Judge Au refused as a matter of principle to grant the order restraining Mr Aitken’s participation in FMIC issues. He did however grant relief against use or disclosure of certain specified forms of confidential information. It appears that counsel for PCCW produced a draft order in somewhat more specific terms than that sought in the summons, but the order made by the judge was still narrower. PCCW appealed against the refusal of the orders it had sought but the judge’s decision was upheld by the Court of Appeal (Tang VP and Stone J, Le Pichon JA dissenting). PCCW appeals to this Court.

  58. Mr Sussex SC, who appeared for PCCW, accepted that the general rule remains as stated by Fletcher Moulton LJ in Rakusen’s case, namely, that a court will restrain a former employee from using or divulging his employer’s secrets but will not interfere with his activities in his new employment. This rule is based upon the public interest in allowing people to change jobs and make full use of their knowledge and skills. But he submitted that there is an exception in cases in which the employer’s confidential information is also the subject of legal professional privilege (“LPP”). The policy which underlies LPP, namely to encourage free communication with legal advisers in the interests of justice, is so important that it trumps the public interest in freedom of movement for employees. Mr Sussex referred to cases such as R v Derby Magistrates' Court, Ex p B [1996] AC 487, which emphasise the constitutional importance of LPP. It cannot be overridden in the interest of some other aspect of public policy – not even, as the Derby case shows, the public interest in not convicting an innocent person. Furthermore, both LPP and the principle in Rakusen’s case, which safeguards the confidentiality of communications between solicitor and client, are based upon the same public policy: see Lord Millett in Prince Jefri Bolkiah v KPMG [1999] 2 AC 222, 236G. Therefore, said Mr Sussex, it is logical to give all information subject to LPP the same protection which the Rakusen principle gives to communications with solicitors and to prevent anyone in possession of such information from acting in a capacity adverse to the client unless there is no risk that he might use or divulge such information.

  59. The argument was skilfully presented but in my opinion it comes apart under examination and there is no authority to support it. The Court of Appeal was right to reject it. First, it is necessary to distinguish between LPP and rights arising from confidentiality. LPP is a privilege, that is to say, a legal right, by way of exception to some general obligation to answer questions or provide documents, to withhold information falling within a particular category, such as information tending to incriminate or communications for the purpose of obtaining legal advice. The question of privilege arises only when information is sought under compulsory powers. Confidentiality, on the other hand, gives rise to a right to prevent someone else from using or divulging information. The right is not confined, like privilege, to particular categories of information but applies to all information in which confidentiality can subsist (i.e. which is not in the public domain) and usually depends upon the information having been communicated in confidence: see Coco v A N Clark (Engineers) Ltd [1969] RPC 41. Information may be both privileged and subject to rights of confidentiality, but the rights are not the same.

  60. Cases like R v Derby Magistrates' Court, Ex p B [1996] AC 487 are concerned with privilege, the right to withhold information which would ordinarily be liable to production in court by compulsory process. It is this right which cannot be overridden by other considerations of public interest. The question of whether one can prevent the disclosure of such information by someone else is a different one and depends upon the law of confidentiality. A document may, for example, be subject to LPP and exempt from having to be disclosed in litigation because it was brought into existence for the purpose of obtaining legal advice, even though it contains no confidential information.

  61. The principle applied in the Rakusen and Prince Jefri cases is a branch of the law of confidence, not the law of privilege. It is a special remedy against solicitors and the like which the courts have devised to protect the confidentiality of communications between solicitor and client, or between either of them and third parties, for the purpose of enabling the solicitor to advise or otherwise act for the client. As Lord Millett said at p.234, the basis of the court’s jurisdiction is the protection of confidential information. It is true that one of the reasons why the law of confidence provides this special remedy against solicitors is the reason which justifies LPP, namely, the policy of encouraging free communication between client and solicitor in the interests of justice. But that does not enable one to transfer features of the law of privilege into the law of confidence.

  62. There is a very considerable difference between the position of a solicitor and an employee, even though the confidential information which they have obtained may be the same. The solicitor will normally have many clients and will not be dependent upon one for his livelihood. Even if the new client is important to him, he does not have to act for him in a matter in which he previously acted for the other side. The employee can have only one employer at a time and, in the nature of things, his new employer is likely to be in the same line of business and therefore in competition with the previous one. I therefore see no reason of logic or policy which requires the special remedy against solicitors to be extended to employees who have information which would be protected by LPP.

  63. As for authority, there appears to be none to support Mr Sussex’s submission. The statement of principle by Fletcher Moulton LJ in Rakusen’s case is perfectly clear. In the absence of an enforceable covenant, the courts do not interfere with the new activities of former employees. There is no case in which they have done so. Former solicitors (or forensic accountants) are different. Mr Sussex referred us to a passage in Lord Millett’s speech in Prince Jefri’s case [1999] 2 AC 222, 236:

    It is of the highest importance to the administration of justice that a solicitor or other person in possession of confidential and privileged information should not act in any way that might appear to put that information at risk of coming into the hands of someone with an adverse interest.

  64. Mr Sussex pointed to the words “or other person” as justifying a rule that anyone who had information which was both confidential and the subject of LPP was subject to the special remedy available against solicitors. In my opinion, however, Lord Millett could not have intended so wide an extension of the Rakusen principle or to cast any doubt upon what Fletcher Moulton LJ had said about the position of employees. The type of relationships to which the Rakusen principle applied was not an issue in Prince Jefri’s case because KPMG admitted that they were in a situation analogous to solicitors (see p.234D) and Lord Hope of Craighead said (at p.226H) that in his opinion they were right to do so. It would be astonishing if Lord Millett, in a section of his speech dealing with the degree of risk required to trigger the jurisdiction, had intended to say that no analogy with solicitors was required.

  65. Mr Sussex submitted in the alternative that Mr Aitken was in a position analogous to that of a solicitor. He was an in-house lawyer with the same responsibilities as an outside lawyer. He referred to Canadian Pacific Railway Co v Aikins, MacAulay & Thorvaldson (1998) 157 DLR (4th) 473, in which the Manitoba Court of Appeal held that the Canadian equivalent of the Rakusen principle could apply to disqualify a former in-house lawyer of the Canadian Pacific Railway Company, now in private practice, from acting against his former employer. In my opinion, this submission fails on the facts. The court in the Canadian Pacific Railway case distinguished (at p.481) between information which the lawyer had obtained in his capacity as counsel and information which he obtained as an administrator. If Mr Aitken acted as an “in-house lawyer” at all, which I rather doubt, he certainly did not do so in relation to FMIC. He offered PCCW no legal advice whatever. As General Manager, Regulatory Compliance, he did no more than attend meetings and receive documents.

  66. Finally there is a separate issue about the scope of the injunction to restrain the use or disclosure of specific information, against which there is no appeal by Mr Aitken or CSL. PCCW say that it is not wide enough and leaves out categories of information which ought to have been included. The terms of an interlocutory injunction are very much a matter for the judge’s discretion: see, for example, Attorney General v Punch Ltd [2003] 1 AC 1046. The judge was faced with the task of devising an injunction in sufficiently precise terms to enable Mr Aitken to be clear about what he was not allowed to do and which gave PCCW adequate protection without being oppressive. I do not think he was assisted by the fact that PCCW was not particularly forthcoming about the secrets they were trying to protect. Their evidence was couched entirely in terms of generalities – legal and commercial strategy, negotiating position and so forth. No doubt they would not want to have to reveal their secrets in order to protect them, but it would have been possible to be somewhat more specific and they could if necessary have asked for a protective order. In my view there is nothing to show that the judge, at the end of an admirable and detailed judgment, exercised his discretion on wrong principles. I would therefore dismiss the appeal.

    Justice Bokhary PJ

  67. The Court unanimously dismisses the appeal and makes the orders as to costs referred to in the penultimate paragraph of the judgment of Mr Justice Ribeiro PJ. Naturally the injunctive relief granted pending appeal is discharged.


Cases

Herbert Morris Ltd v Saxelby [1916] 1 AC 688

Faccenda Chicken v Fowler [1987] 1 Ch 117

G D Searle & Co Ltd v Celltech Ltd [1982] FSR 92

Lock v Beswick [1989] 1 WLR 1268

Balston Ltd v Headline Filters Ltd [1987] FSR 330

Printers & Finishers Ltd v Holloway [1965] 1 WLR 1

Prince Jefri Bolkiah v KPMG [1999] 2 AC 222

Rakusen v Ellis, Munday & Clarke [1912] 1 Ch 831

Regina v Derby Magistrates’ Court, Ex parte B [1996] AC 487

R v Derby Magistrates' Court, Ex p B [1996] AC 487

Coco v A N Clark (Engineers) Ltd [1969] RPC 41

Canadian Pacific Railway Co v Aikins, MacAulay & Thorvaldson (1998) 157 DLR (4th) 473

Attorney General v Punch Ltd [2003] 1 AC 1046

Legislations

Basic Law: Art.33, Art.41

Representations

Charles Sussex SC (instructed by Messrs Herbert Smith) for the appellants.

Ashley Burns SC (instructed by Messrs JSM) for the 1st respondent.

Mark Strachan (instructed by Messrs Freshfields Bruckhaus Deringer) for the 2nd respondent.


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