Not so secret “trade secrets” – court clarifies whether client contacts fall under the post termination duty of confidentiality

The Hong Kong District Court helpfully clarified in a judgment handed down on 19 September 2024¹ that an employer's client contacts will not be considered "confidential information" for the purposes of an ex-employee's post-termination duty of confidentiality.

Mr Luk (the defendant) worked as a tax manager at Conpak (the plaintiff) for less than a year, before resigning in July 2018 and joining a new company, APEC Tax. During his employment at Conpak and APEC Tax, Mr Luk also owned and controlled his own sole proprietor tax business, WILTAX.

Mr Luk's employment contract at Conpak contained several important terms, including an obligation to declare any direct or indirect interest in any other business (Declaration of Interest Clause) and a duty to avoid situations that would create a conflict of interest (Conflict of Interest Clause). The only clause which was drafted to survive the termination of his employment related to security and confidential information (Security Clause):

"During the continuance of this employment or after the termination thereof, you shall not disclose your salary details, any confidential information, computer data and documentation of the Company and its clients, including but not limiting to financial statements, technical and process information research data and trade secrets to any person, company or organization without the written authorization of the Company [...]"

During his employment at Conpak, Mr Luk forwarded 223 emails from his work email account to his personal email account. One of those emails attached a draft engagement letter, pursuant to which his own company WILTAX proposed to provide tax advice to Mr Tom Lee, one of Conpak's existing clients at the time.

After Mr Luk joined APEC Tax as a director, he used his APEC Tax email address to email one of Conpak's former clients, Mr Angenvoort. The email offered APEC Tax's discounted services to Mr Angenvoort.

Conpak sued Mr Luk, alleging that the forwarded emails and Mr Angenvoort's contact details were "confidential information" and that Mr Luk had breached both the Security Clause and his confidentiality duty under common law by using such details. Conpak further alleged that Mr Luk had breached the Declaration of Interest Clause and Conflict of Interest Clause by never declaring his ownership of WILTAX to Conpak and by "transferring custom" of Mr Lee to WILTAX. Conpak sought an injunction to restrain Mr Luk from using or disclosing the "confidential information" and for the delivery up of any documents in Mr Luk's possession which would offend such an injunction. Conpak further sought damages or an account of profits to reflect the profit earned by WILTAX and the "diversion" of Mr Lee's business opportunity.

The issues before the court were:

• what Mr Luk's duties were under common law as regards "confidential information" following termination;
• whether the 223 emails and Mr Angenvoort's contact details could be considered "confidential information" and
• whether Mr Luk acted in conflict of interest with Conpak by transferring custom to WILTAX.

On the first question, the court referenced the principles from PCCW-HKT Telephone Ltd v. Aitken ². During a period of employment, an employee has an implied duty of fidelity not to divulge any confidential information in relation to the employer's business. After an employee's employment has been terminated, the duty is limited to not misusing or disclosing trade secrets or "confidential information of an equivalent status". This employer will have the burden of identifying precisely what the "confidential information of an equivalent status"is.

On the second question, the court applied the test from Kuoni Travel (China) Ltd v. Kelly Frances Richards and others ³ (identical to the test established in Axa China Region Insurance Co Ltd v. Pacific Century Insurance Co Ltd ⁴ and most recently followed in the case of Moxie Communications Ltd v. Lai Cheuk Lok⁵ (see our article here)). For information to be considered "

"(1) the information must be used in a trade or business;
(2) the information is confidential, that is, not already in the public domain;
(3) the information can be easily isolated from other information which the employee is free to use;
(4) the disclosure of the information would be liable to cause real or significant harm to the owner; and
(5) the owner of the information must limit its dissemination or at least not encourage or permit its widespread publication or otherwise impress upon the employee the confidentiality of the information."

Unfortunately, despite asserting that the 223 emails were "confidential", Conpak refused to plead them into evidence. As a result, the court could not make any assessment as to whether those emails were confidential. Furthermore, there was no evidence before the court of any disclosure of 222 emails (except the email to Mr Angenvoort) to any third parties. In fact, the court observed that although Conpak knew from the 223 emails who the clients were, there was no evidence before the court that Conpak even checked with any of those clients whether Mr Luk had contacted them, like Mr Angenvoort. Therefore, the court was not satisfied there had been any disclosure to third parties in breach of the Security Clause.

In relation to Mr Angenvoort's details, Mr Luk's Counsel tried to rely on the judgment from Willwin Development (Asia) Company Ltd and another v. Wei Xing and others⁶ where "confidential information" post-termination was taken to mean "the identities and contact information of its suppliers for raw materials, parts and components for its Business operations", as well as "information relating to [the plaintiff's] own technical operations and test procedures which arose in the course of WW's Business".

However, the court distinguished Mr Angenvoort's contact details from the suppliers' contact details in Willwin. In Willwin, the names and contacts of suppliers were not publicly available. Furthermore, Willwin sold specialist parts for electronic equipment and relied on a network of suppliers, each associated with specific "uncommon materials and parts" and each having obtained an "approved status". Given the "nature and practices of the business and industry in question", it was hugely important for the employer in Willwin to maintain the confidentiality of its supplier list and hugely detrimental if it lost this list to a competitor. Therefore, the "names and contact of the clients [in Willwin] were not just names and contacts as such, but associated with their product features and specifications". On the other hand, Mr Angenvoort's contact details had none of those features and, moreover, even if his contact details were used in the course of business, there was no evidence that they were not already in the public domain.

The court therefore refused to grant the injunction. Absent any actual confidentiality limiting an ex-employee's use of former clients' contact details would have been the equivalent of the employer imposing "a restraint of trade clause with no limits"

The third question of conflict of interest was quickly dismissed. Whilst the court found that Mr Luk owed Conpak a fiduciary duty during his employment, a conflict never actually emerged in relation to the engagement of Mr Lee as there was no evidence the draft engagement letter was ever sent.

There is no mention in the judgment that Mr Luk's employment contract contained any appropriate post-termination restrictive covenants. Had Conpak put in place appropriate post-termination restrictive covenants such as non-solicitation and non-dealing clauses, the outcome of the case may have been different.

The judgment also brings up an interesting question about whether an employee's act of forwarding work emails to their personal email in and of itself could be a breach of the terms of employment or, more generally, a breach of the common law duty of confidentiality. In this case, Conpak failed to satisfy the court that emails were confidential in the first place but, had adequate evidence been adduced to satisfy the court that information forwarded had the characteristics in Wilwin, it could be argued that unauthorised forwarding of '"confidential information" outside an organisation, even to an employee's personal account (and not to any third party), is a breach of the common law duty of confidentiality

1. Conpak Management Consultants Limited v. Luk Wai Ting [2024] HKDC 1545. Judgment available here.
2. [2009] 2 HKLRD 274.
3. [2006] HKEC 2201.
4. [2003] 3 HKC 1.
5. Moxie Communications Ltd v. Lai Cheuk Lok [2024] HKDC 1323.
6. HCA 797/2012.

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