When two of your key employees set up a rival company while still on your payroll and spend months quietly diverting your business opportunities, can you recover your losses even if you cannot prove you would have secured those deals?
The answer is a qualified but reassuring “yes”, according to the Hong Kong Court of First Instance in Eventmaster Limited v Chen Hiu Kwan & Ors [2026] HKCFI 3380.
For employers who rely on salespeople to price deals and manage client relationships, the decision offers a useful illustration of the causes of action and remedies available where trust has been abused for personal gain.
What happened
The employer in this case (the “Company”) provided technology support for events and served a diverse clientele of leading brands. The 1st defendant (“D1”) joined the Company in 2016 as a business director leading the sales and marketing team. The 2nd and 4th defendants (respectively, “D2” and “D4”) both joined in 2017 as account managers with sales and marketing responsibilities.
Their employment contracts included a confidentiality clause and a clause prohibiting outside employment without the Company’s prior written consent. As part of their sales work, they had access to quotations, agreements, invoices and other client documents (“Client Information”).
In April 2019, while still employed by the Company, D1 and D2 incorporated the 3rd defendant (the “Competitor”) with the object of carrying on a similar business and became its directors and majority shareholders. D1 and D2 subsequently resigned in mid-July 2019 and continued to operate the Competitor. D4’s involvement began around March 2020, when she started working part-time for the Competitor, assisting D1 and D2. D4 remained employed with the Company until end of May 2020, when her employment was terminated.
The Company contended that D1, D2 and D4 not only owed express contractual duties to it, but also fiduciary duties and implied duties of fidelity and confidence in relation to Client Information. The Company also brought claims for dishonest assistance, inducement to breach of contract and conspiracy to injure by unlawful means.
The court found substantially in favour of the Company.
Key questions answered by the court
1. Did D1, D2 and D4 owe fiduciary duties to the Company?
Yes. The essence of a fiduciary relationship is one of trust and confidence between the fiduciary and the beneficiary. A critical feature of fiduciary relationships is that the fiduciary undertakes to act for, or on behalf of, or in the interests of, another person in the exercise of a power or discretion that will affect the interests of that other person.
In short, a fiduciary is placed in a position of trust and confidence in relation to the beneficiary, who is in a position of “vulnerability”.
The core obligations of a fiduciary are that of loyalty (or fidelity) and good faith.
They include (i) the duty not to place themself in a position where they or anyone else’s interests would or may conflict with the duties owed to the beneficiary, and (ii) the duty not to make a profit from his position.
Generally, a fiduciary is entitled to use their spare time for whatever activities they may choose to indulge in, so long as these are not inconsistent with the fiduciary duties owed to the beneficiary – or are in direct competition with the beneficiary’s interests.
On the facts, the court recognised that fiduciary duties are not confined to directors. It was found that because D1 attended weekly sales meetings with the Company’s director and consultant to discuss sales issues and was authorised to set prices and negotiate contracts, he was arguably a de facto director.
Building on this, the court also recognised that D1’s access to Client Information and oversight of the sales account managers left the Company with no practical means of verifying whether client requests were being relayed. That vulnerability, which is a defining feature of a fiduciary relationship, placed D1 in a position of trust and confidence.
The same reasoning extended to D2 and D4. Although neither was a senior employee, each owed fiduciary duties in respect of their sales work, given their position of trust and confidence over Client Information, which was further borne out by the confidentiality clause contained in their employment contracts.
2. What exactly does the implied duty of fidelity entail?
It is well established that an employee owes a duty of good faith and fidelity to the employer during the subsistence of the employment. The court accepted that the scope of this duty varies on the facts of each case, and would take into account an employee’s seniority. Legitimate preparatory steps taken towards alternative employment do not amount to a breach of the implied duty of fidelity.
The court nonetheless identified certain “concrete parameters” that sales employees must not overstep, including soliciting customers to move their business elsewhere; participating in a competing business, using confidential information to their employer’s detriment; and failing to disclose to their employer information acquired in the course of employment.
3. Does Client Information attract a duty of confidence?
Yes. Information obtained in employment can be categorised into 3 classes: (1) trivial information, (2) confidential information, and (3) specific trade secrets. So long as employment continues, an employee cannot use or disclose Class 2 (confidential information) without breach of contract.
Once the employment ends, the employee can use his full skill and knowledge for his own benefit in competition with his former employer unless there is an enforceable express contractual provision restraining the employee from doing so.
The court found that Client Information relating to the Company’s clients – namely emails, invoices, pricing quotations, contracts and agreements – fell within Class 2, given it would enable competitors to undercut the Company and was stored on a password-protected drive accessible only to the sales team. Arguments that pricing was not the sole or determinative factor in winning a deal, or that quoted prices were often discounted, did not defeat confidentiality.
On the facts, it was held that D1, D2 and D4 were all under a duty not to disclose or misuse Client Information during their employment to the detriment of the Company.
4. What was the breach and why was the Competitor liable?
The court found that D1, D2 and D4 had failed to pass on requests for quotations to the Company while still under its employment, in breach of their fiduciary duties and implied duty of fidelity. They also prepared or modified quotations for the Competitor by using the Client Information, in breach of their contractual and implied duties of confidence.
In appropriating mature business opportunities belonging to the Company, D1 and D2 committed further breaches of their fiduciary duties post-termination.
D1 was also found liable for inducing D4’s breach of her duties. This required the Company to establish: (i) a contract; (ii) a breach of that contract; (iii) conduct by D1 that procured or induced the breach; (iv) D1’s knowledge of the relevant contractual term; and (v) D1’s actual realisation that the induced conduct would result in a breach.
The Competitor did not escape liability. As the Competitor’s directors, majority shareholders and only staff members, D1 and D2 were described by the court as the “daily operating mind” of the Competitor. Their knowledge could therefore be imputed to the Competitor, who was similarly bound by a duty of confidence to the Company in respect of Client Information.
Together with the Competitor, D1 and D2 were held liable for (i) dishonestly assisting each other and D4 in breach of their duties; and (ii) conspiring to injure the Company by unlawful means.
Conspiracy to injure by unlawful means requires a combination of persons (including the defendant) to do something unlawful (whether tortious, criminal or breach of contract); common intent to injure (without needing a predominant purpose to injure); and resulting loss to the claimant. The court found these elements were made out against D1 and D2 (and, through imputation, the Competitor).
5. How should the Company be compensated?
By trial, the Competitor had ceased operations and D1’s whereabouts were unknown, making an account of profits unrealistic. The Company therefore reframed its claim as the “loss of chance” of winning the work.
The court accepted the approach, endorsing a straightforward formula:
Loss = Quotation price × Chance of winning × Profit margin
Noting that clients typically invite two to three vendors to quote, the court set the chance at 40% where the Company did not quote at all and halved it to 20% where it did quote but was undercut. Profit margin was 35%, on unchallenged evidence.
In the end, the Company was awarded HK$282,000 in compensation.
What this means for employers
- Fiduciary duties can extend to your sales team. Even without director status, a salesperson may owe fiduciary duties when it comes to client relationships and confidential pricing. Employers should reinforce this with clear confidentiality and no-outside-work clauses in employment contracts.
- Act quickly when an employee’s “preparatory steps” escalate. When there is a hint that there may be a breach – such as multiple resignations, missing quotes and clients going quiet – investigate quickly and take action promptly.
- Loss of chance is a viable head of damage. A structured loss-of-chance formula based on industry norms can be your way out of the maze of having to quantify your loss. Be prepared to adduce evidence of tendering practices, records of pitch win rates and profit margins to support your claim.
The judgment is available at the Judiciary’s website.
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