WEALTHY REALTY LTD v. CHENG YUNG

DCCJ 5690/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5690 OF 2007

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Decision

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The background

1. The Defendant entered into a contract of employment (“Agreement”) with the Plaintiff.  It contained a 6-month restraint of trade clause upon the Defendant’s leaving the employment.  After working for 4 months as a senior sales manager, the Defendant resigned to work for another real estate agency in a certain district.  The Plaintiff took out a summons for injunction against the Defendant’s working in that district.  The Defendant resisted.  The issue for me today is whether to grant an injunction to last until 21 April 2008, the expiry date of the Clause.

The Plaintiff’s case

The circumstances of employment

2. The Plaintiff is a real estate agency company in Hong Kong.  It has 8 branch offices in different districts in Kowloon and the New Territories.  Its size and business coverage are necessarily modest when compared with prominent estate agencies such as Centaline Property Agency Limited.

3. On 11 June 2007, the Defendant signed the Agreement to join the Plaintiff as its senior sales manager [Hearing Bundle B pp. 1-7, hereafter “B/1-7”, mutatis mutandis].  Pursuant to the Contract, the Defendant was assigned to work at the Plaintiff’s branch office at Shop 2, G/F., No. 29 Austin Road, Tsimshatsui, Kowloon (“Austin Road Office”) throughout the period of his employment with the Plaintiff.

4. On 22 October 2007, the Defendant resigned from the employment with immediate effect. 

The restraint of trade clause

5. Clause 20.2 of the Agreement (“The Clause”) was in Chinese.  According to the Plaintiff’s translation as stated in the Statement of Claim [A/2 para. 2], it provided as follows:

20.2	To protect the commercial interest of the Plaintiff, customer relationship and workforce, within 6 months after the termination of this Agreement, the Defendant shall not directly or indirectly perform the following matters or either one of them:
	20.2.1.	accepting employment in respect of; participating in and/or being interested in any real estate agency work within the district which the Defendant had been assigned by the Plaintiff to carry out estate agency work within the period of 6 months immediately preceding the date of the termination of this Agreement.

The Defendant’s subsequent conduct

6. Shortly after leaving the employment of the Plaintiff, the Defendant entered into employment with another real estate agency, China Group Property Agency Co. (“China Group”).  China Group is the Plaintiff’s rival in the same business.  Its office at which the Defendant now works is also located in Austin Road. 

7. The Plaintiff says that the Defendant was and is therefore in breach of the Clause.  The Plaintiff took out a summons for an injunction to stop him from directly or indirectly accepting employment in respect of; participating in and/or being interested in the sale and purchase or leasing of those residential properties within Kowloon West district as set out in the Schedule annexed to the Summons until 21 April 2008, the expiry date of the Clause [A/23-26].  

The Defendant’s case

8. For the purpose of the present summons, the Defendant does not dispute the facts as stated by the Plaintiff except for one matter.  The Defendant denies that he was exclusively assigned to handle Kowloon West properties.  He says that he had actually been assigned to work in other districts as follows [A/42 paras. 15-19, A/43 para. 26]:

(1)    “Grand Waterfront” in To Kwa Wan;

(2)    “Colour by the River” in Sai Kung;

(3)    “Beverley Hill” in Tai Po;

(4)    “South Horizons Plaza” in Hong Kong Island South;

(5)    “No. 8 King Tung Street, Kingsford Terrace” in Ngau Chi Wan;

(6)    “60 Johnston Road”, Wanchai.

9. The Defendant is able to put up $100,000.00 in undertaking for damages. 

The legal position

10. Counsel for the Plaintiff, Mr. Lui, accepts that it is for the Plaintiff to prove that the Clause was enforceable.

11. Based on the case of Lansing Linde Ltd v Kerr [1991] 1 All ER 418, he submits that this Court should not embark on a trial of the action in assessing the relative strength of the parties’ case.  There should only be some assessment of the merit on the affidavit evidence.  He suggests that there are 2 main issues concerning merit:

(1)   whether the Plaintiff has any legitimate interest which requires protection; and

(2)   whether the Clause is no wider than is reasonably necessary for the protection of the Plaintiff’s legitimate business interest.

(1)   Whether the Plaintiff has any legitimate interest which requires protection

12. It can hardly be argued that the Plaintiff has a legitimate interest in confidential information such as the personal data of clients and customers.

(2)   Whether the Clause is no wider than is reasonably necessary for the protection of the Plaintiff’s legitimate business interest

13. After reviewing the cases of Haynes v Doman [1899] 2 Ch 13 (CA), Home Counties Dairies Ltd v Skilton [1970] 1 WLR 526 (CA), J A Mont (UK) Ltd v Mills [1993] IRLR 172 (CA), and Arbuthnot Fund Managers Ltd v Rawlings [2003] EWCA Civ 518, all culminating in the case of Turner & Others v Commonwealth & British Minerals Ltd [2000] IRLR 114 (CA), Mr. Lui eventually refers to the well-established principle that this Court should have regard to such factors as the circumstances under which the Clause was agreed to, the object sought to be attained by it and the position of both parties.  If this Court forms the view that its meaning is ambiguous and there are two possible constructions of the Clause, one of which would lead to a conclusion that it is unreasonable restraint of trade and thus unlawful, but the other would lead to the opposite result, then the latter construction should be adopted (“Fall-back Construction”).

14. I have clarified from Mr. Lui that the circumstances relevant for construction of the Clause are those which pertained to the parties at the time when they signed the Agreement, not subsequent circumstances. 

15. Applying the said legal principle, Mr. Lui accepts that the word “district” may have different meanings to different people for obvious reasons.  I think the parties would be at a loss as to what “district” meant at that time.  There is no evidence that the Plaintiff had demarcated “district” for the purpose of the Agreement at that time.  On this footing alone, the Plaintiff must fail because this Clause is too wide to be reasonable.  There is no Fall-back Construction to save it.  

16. Mr. Lui argues, further or in the alternative, that the word “district”, when read with the subsequent words:

the district which the Defendant had been assigned by the Plaintiff to carry out estate agency work (emphasis added)

has become abundantly clear and definite. 

17. I assume for a moment that this argument is correct, so that the Clause permitted of a future state of events in ascertaining what “district” might mean by virtue of the actual assigned work of the Defendant.  However, there is uncontroverted evidence from the Defendant that he had been assigned work in:

(1)    “Grand Waterfront” in To Kwa Wan;

(2)    “Colour by the River” in Sai Kung;

(3)    “Beverley Hill” in Tai Po;

(4)    “South Horizontal Plaza” in Hong Kong Island South;

(5)    “No. 8 King Tung Street, Kingsford Terrace” in Ngau Chi Wan;

(6)    “60 Johnston Road”, Wanchai.

18. The Plaintiff’s argument necessarily means that the Clause could stop the Defendant from working in all those districts as well.  There is only one construction, namely that all such districts are no doubt included in the restraint of trade.  The fact that the Plaintiff is now asking for an injunction only for Kowloon West has no bearing on the construction of the Clause.  The Clause is likewise too wide to be reasonable.  There is no Fall-back Construction to save it.   On this footing, the Plaintiff must also fail.

The balance of convenience

19. Despite the aforesaid, if it ever comes to the issue of the balance of convenience, I will still rule against the Plaintiff.  The Defendant says he may lose his current job if an interim injunction is granted.  The Defendant can afford to pay $100,000.00 in case he should have to pay any damages.  The Plaintiff says it will suffer some damage to its business.  It can offer a handsome sum as undertaking for damages in case an injunction is granted.  I think the Defendant will suffer an immediate and practical inconvenience.     

The conclusion

20. I refuse to grant an interim injunction to the Plaintiff.  The parties have agreed that costs should follow event.  I make an order for the Defendant to have costs of the summons (including the costs reserved), with certificate for counsel, to be taxed if not agreed.