STEP PERFECT LTD AND ANOTHER v. GREGORY GOLDSTEIN AND ANOTHER

HCA 846/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 846 OF 2017

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D E C I S I O N

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1. These are my short reasons for decision.

2. D1 used to be the sales representative of the plaintiffs for the USA market by virtue of an alleged agreement.  There can be no dispute that there are serious issues to be tried in this case as to, amongst others, the true nature of D1’s role as representative, what fiduciary duties that carried, and whether those duties had been breached.

3. In dispute are also the date of termination of the agreement, whether D1 had diverted business from the plaintiffs during subsistence of the agreement and after, whether the alleged confidential information was really confidential, and whether he had used confidential information belonging to the plaintiffs.

4. On the other hand, the defendants also have raised serious defences which should be tried, amongst others, the defences that the agreement did not contain a restraint of trade clause, and that the information was not confidential.

5. Moreover, even on the plaintiffs’ own case, D1 was an independent contractor, and there are issues as to whether or not he owed fiduciary duties to the plaintiffs.

6. There are clearly serious issues to be tried in this case, both as to the claim and the defence.  Whichever party is to win, the loss in terms of goodwill can hardly be compensated for by damages, and loss of business will be difficult to quantify.

7. I note, of course, that the defendants’ business is relatively new compared to that of the plaintiffs’.  The core issue today at this call-over of the summons for an injunction is really a balance of convenience.  The court should endeavour to come up with some interim measures between now and the substantive hearing of the summons, which will hopefully minimise the loss to each party. There is a dispute as to the date of termination of the agreement, ie 27 February 2017, according to the plaintiffs, or December 2016 according to the defendants. 

8. I adopt the scenario most in favour of the plaintiffs for the purpose of today.  In February, there was an incident akin to D1 admitting diversion of the plaintiffs’ business, and he voluntarily surrendered all diversion of the plaintiffs’ business, and he voluntarily surrendered orders from Steve Madden to the plaintiffs.  The plaintiffs already had information that the defendants were starting their own business, and yet the writ was only filed on 7 April, and the present summons for injunction, on 24 April, two months after the February incident. 

9. There was no explanation from the plaintiffs about this delay.  The defendants were only given about six working days after service of the summons to prepare for this hearing.  As far as D1 is concerned, this is ex parte on notice.  In that shortness of time, the defendants have come up with two affidavits with grounds in opposition, and in support of an application for stay for forum non conveniens.

10. Given the delay on the part of the plaintiffs, I am not minded to grant this interim injunction without full arguments, at least not in the full terms as sought by the plaintiffs.  I find the suggestion of Mr Kwong, who does not admit that the injunction is rightly applied for, and who does not surrender to the Hong Kong jurisdiction, to be, in my view, the better course for protection of the parties. 

11. The defendants shall file and serve an affidavit within 14 days, stating a list of contracts entered into between 28 February and 5 May 2017, both dates inclusive, made between the defendants or any of them, with the customers and manufacturers set out in Schedule 1 to their statement of claim, paragraphs 1 and 2. 

12. An updated affidavit shall be filed and served by the defendants 14 days before the substantive hearing of the summons for injunction. 

13. Coupled with these, the defendants shall give the undertaking along the lines of paragraph 1 of the summons, but the confidential information shall be limited to items 3 and 4 of Schedule 1 to the statement of claim, with addition of the words: “When the customers are dealing with the plaintiffs” after paragraphs 3A and B. 

14. With this measure, in the event the plaintiffs succeed in obtaining the injunction at the substantive hearing and/or succeed in a claim, the damage to the plaintiffs will hopefully be reduced with the information stated in the defendants’ affidavits.

15. I therefore adjourn paragraphs 1 to 5 of the summons for argument.  No order needs to be made in respect of paragraphs 6 to 8, given that a notice to act has been filed by the defendants’ solicitors.

16. I reserve the question of fortification of damages to the substantive hearing.  Given that the plaintiffs are not Hong Kong companies and do not appear to have a presence in Hong Kong, the court may well consider a cash deposit by payment into court.  I give directions for hearing of the summons for injunction and summons for stay as follows:

(a)  The defendants are to file and serve a further affidavit in opposition to the injunction and to support the stay application if so advised, within 14 days from today;

(b)  The plaintiffs may file and serve an affirmation in reply and in opposition within 21 days thereafter;

(c)  The defendants may file and serve an affirmation in reply to the stay summons only within 14 days thereafter;

(d)  Both summonses are to be set down for a speedy hearing by the same judge with one day reserved in consultation with the diaries of Mr Anthony Chan and Mr Kwong.

17. Costs are reserved.

(Discussions with counsel)

18. Filing of the defence is stayed pending resolution of the stay summons.