AB CLUB LTD AND OTHERS v. CHAN YIN KI CUBIE AND OTHERS

HCA 1644/2020

[2020] HKCFI 2769

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1644 OF 2020

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REASONS FOR DECISION

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1.  By a summons dated 25 September 2020 (“Plaintiffs’ Summons”), the Plaintiffs applied for the following interim injunctive relief against the Defendants:-

(1)  An injunction to restrain the 1st, 2nd, 3rd and 4th Defendants, by themselves, their servants or agents or otherwise (including by or through the 10th and/or 11th Defendants), from carrying on the business of marketing and selling overseas property to buyers in Hong Kong until 1 year (pursuant to contractual obligation), otherwise 6 months, from the date of cessation of directorship or resignation or termination of employment of each such Defendant, and from soliciting clients (namely, overseas property developers as well as property buyers) and  employees of the Plaintiffs, in any manner directly or indirectly, who used to deal with the 1st, 2nd, 3rd and 4th Defendants when they are or were directors and/or employees of any of the Plaintiffs;

(2)  An injunction to restrain all the Defendants and each of them by themselves, their servants or agents or otherwise howsoever from using “Confidential Information” (as defined in the Schedule to the draft Order) or any part thereof for any purpose and/or otherwise exploiting the said information or any part thereof;

(3)  Delivery up or destruction by all the Defendants of any and all the Confidential Information in their possession, power, custody or control, with confirmation of such delivery up or destruction to be verified by affidavit or affirmation by each Defendant within [14] days of this Order;

2.  The matter came before me on 30 September 2020.  Counsel for the Plaintiffs and counsel for the Defendants were able to agree on certain directions on the further conduct of the Plaintiffs’ Summons.  I was only required to determine on what interim measures the Court should impose pending the final resolution of the Plaintiffs’ Summons.

3.  In relation to paragraph 2 of the Plaintiffs’ Summons, counsel were able to reach consent.  The Plaintiffs were prepared to accept an undertaking from the 1^st to 9^th Defendants that they will not use certain confidential information as defined in the Court’s Order.  Upon that undertaking, no order was thus made under paragraph 2 of the Plaintiffs’ Summons.

4.  One matter that originally devided counsel was whether the Court should immediately order “delivery up or destruction” as sought under paragraph 3 of the Plaintiffs’ Summons.  In the course of exchanges with the bench, counsel for the Plaintiffs and counsel for the Defendants agreed on a “middle way” approach suggested by me.  Consequently, upon the Defendants undertaking that they will deliver all originals and copies of the defined confidential information (whether contained in documents or in digital formats) to their solicitors for safe custody pending further Order from the Court, it was agreed that I shall not make any order under paragraph 3 of the Plaintiffs’ Summons.

5.  The only remaining matter for me to decide was thus whether the Court should impose interim interim injunction as prayed in paragraph 1 of the Plaintiffs’ Summons pending its resolution at the adjourned hearing of substantial arguments.

6.  It can be seen from paragraph 1 of the Plaintiffs’ Summons that there are two limbs to the injunctive order prayed:

(1)  to enjoin the 1^st to 4^th Defendants (including by or through the 10^th and/or 11^th Defendants) from carrying on certain business for 6 months (“Non-compete”); and

(2)  to enjoin them from soliciting clients and employees of the Plaintiffs (“Non-solicitation”).

7.  After hearing counsel’s submissions, I refused to grant interim interim injunction of Non-compete but granted interim interim injunction on Non-solicitation.  I now give my reasons.

Background

8.  The Plaintiffs form part of the “AH Group” and are engaged in the business of marketing and selling overseas properties to buyers in Hong Kong.

9.  The 1^st Plaintiff was the employer of the 1^st Defendant.  This employment relationship come to an end when she was promoted as a director of the 2^nd Defendant in Jan 2017.  The 1^st Defendant is also currently a shareholder and director of the 2^nd Plaintiff.

10.  The 3^rd Plaintiff was the employer of:-

(1)  the 2^nd Defendant pursuant to a written employment agreement dated 22 August 2016;

(2)  the 3^rd Defendant pursuant to a written employment agreement dated 13 September 2016;

(3)  the 4^th Defendant pursuant to a written employment agreement dated 13 September 2016;

(4)  the 5^th Defendant pursuant to a written employment agreement dated 10 July 2019; and

(5)  the 6^th Defendant pursuant to written employment agreements dated 18 September 2019 and 29 June 2020.

11.  At all material times, the 2^nd Defendant was and is a shareholder and director of the 3^rd Plaintiff.

12.  The 4^th Plaintiff was the employer of the 7^th Defendant pursuant to a written employment agreement dated 20 January 2017.

13.  The 5^th Plaintiff was the employer of the 8^th Defendant pursuant to a written employment agreement dated 8 May 2017.

14.  The 2^nd Plaintiff was the employer of the 9^th Defendant pursuant to a written employment agreement dated 5 August 2019.

15.  It is the Plaintiffs’ case that the 2^nd to 9^th Defendants owe them contractual duties and their employment agreements contained the following similar clause:-

“13. Competition Prohibited

For a period of one year from the date of termination of this agreement for whatsoever reason, you shall not directly or indirectly for yourself or any other person, firm or corporation by whom you may be employed or in which you may be interested or associated solicit the business of any persons who were employees or clients of Ashton Hawks Limited or any company within the Ashton Hawks Group at any time during the period of your employment.”

16.  It is also the Plaintiffs’ case that the 1^st and 2^nd Defendants owe fiduciary duties as directors of the 2^nd and 3^rd Plaintiffs respectively.

17.  According to the Plaintiffs, on 22 April 2020, the 1^st and 2^nd Defendants caused the incorporation of the 10^th Defendant with the 2^nd Defendant as its sole director.  Then on 20 May 2020, the 3^rd and/or 4^th Defendants caused the incorporation of the 11^th Defendant with them as directors.  The 10^th and 11^th Defendants are engaged in the business of marketing and selling overseas properties to buyers in Hong Kong, in direct competition with the Plaintiffs (“Swan Knight”).

18.  On divers dates between 18 May 2020 and 17 July 2020, all Defendants (except the 6^th Defendant) resigned and commenced employment with the 10^th or 11^th Defendants.  The employment of the 6^th Defendant was terminated on 25 August 2020 and she also joined the exodus.

19.  It is the Plaintiffs’ case that the 1^st to 9^th Defendants, acting in breach of their contractual duties and/or fiduciary duties, committed the following wrongful acts:-

(1)  misappropriated, copied and/or otherwise made unlawful use of “confidential information” belonging to the Plaintiffs; and

(2)  solicited clients (namely overseas property developers as well as property buyers) and employees of the Plaintiffs.

20.  The Plaintiffs’ Summons thus consists of (i) an application for a “springboard” injunction; and (ii) an application for a non-solicitation injunction pursuant to contract.

21.  The Defendants of course deny the Plaintiffs’ assertions. They were however only served with the Plaintiffs’ Summons (including the supporting affirmations) in the late afternoon of 25 September 2020 which was a Friday. The call-over hearing before me took place on 30 September 2020 which was the following Wednesday.  The Defendants thus only had two working days to respond to the 700 odd pages of evidence adduced by the Plaintiffs.  The Defendants needed time and opportunity to fully respond to the Plaintiffs’ allegations and evidence.

22.  Counsel for the Defendants Mr Tang opposed the grant of an interim interim injunction on the following basis:-

(1)  The factual circumstances leading to the present application demonstrate that there is no urgency.  According to the Plaintiffs’ own evidence, they engaged a private investigator to investigate Swan Knight’s business on around 23 July 2020.  The investigator met the 1^st Defendant on 8 August 2020.  They knew about the advertising or promotional activities of Swan Knight at the latest by 15 August 2020 which was the date of a Swan Knight seminar.  The Plaintiffs thus delayed for nearly 2 months in taking out the Plaintiffs’ Summons.  It is trite that an interim interim injunction should only serve as an “urgent temporary stopgap measure” (per Lam VP in China Shanshui Cement Group Ltd. & oths. v Zhang Caikui & oths. [2018] HKCA 409).

(2)  The substantive hearing of the Plaintiffs’ Summons would likely take place in two-month time given the timetable agreed.  It is the Plaintiffs’ own case that the Defendants have already commenced business operation at least since late July 2020.  The Plaintiff’s delay in taking action means that any injustice that may be caused by the refusal to grant an interim interim injunction is unlikely to be substantial.

(3)  The Plaintiffs have failed to demonstrate why damages would not be an adequate remedy.  The Plaintiff’s Indorsement on Writ asked, apart from the same injunctive relief sought in the Plaintiffs’ Summons, for an inquiry as to damages and an account of profits.  The Plaintiffs would be adequately compensated by damages or by way of account of profits.  It is also Plaintiffs’ own evidence that the Defendants are financially resourceful and hence good for any order of damages against them. Balance of convenience does not even arise.

(4)  Even on a cursory basis, one can see that the scope of the injunction sought is substantially wider than the contractual bases of the same.

23.  In particular, Mr Tang stressed on the importance of the following chronology of events:-

“9.1. The resignations of Ds took place between 18th May 2020 and 17th July 2020, by which time Ps had already suspected that they were setting up a competing business: §45 of Lai’s 1st Affirmation;

9.2. Ps demanded that D1 and D2 to sign a non-disclosure agreement on 7th July 2020 (to which D1 and D2 refused to comply): LYF-13;

9.3. Thereafter, Ps “soon found out that” D1 and D2 had earlier incorporated D10:§48 of Lai’s 1st Affirmation;

9.4. In late July 2020, Lai purportedly saw an email from Ms. Hosanna Ho (a UK lawyer representing the buyers of Ps investors) copied to SKL. This prompted Lai to suspect that SKL had asked Ms. Ho to copy them into the email as they wanted to continue to service Ps investors: §59 of Lai’s 1st Affirmation;

9.5. On 8 August 2020, a private investigator hired by Ps posed as a senior staff of a property investment company and secretly recorded his conversation with D1:§67 of Lai’s 1st Affirmation;

9.6. Ps’ solicitors, Messrs. Haldanes Solicitors and Notaries (“Haldanes”), have already been corresponding with Ds as early as 24th August 2020: §75 of Lai’s 1st Affirmation & LYF-26;

9.7. Ds’ solicitors, Messrs Henry Yu & Associates (“HYA”), corresponded with Haldanes between 28th August 2020 to 10th September 2020, which Ps understood as Ds “not heeding” the serious allegations made against them: §76 of Lai’s 1st Affirmation; and

9.8. The generally-indorsed Writ and the Summons were issued on 25th September 2020 (which was a Friday), and served on HYA late that afternoon. The call-over was fixed on the following Wednesday (30th September 2020) by reason of the following two days being public holidays, leaving Ds with two working days to react to the Summons, and in particular, the application for an interim interim injunction. It is worth noting that Ps gave no advance warming or indication to Ds (or HYA) that they will be seeking injunctions in the terms set out in the Summons despite the fact that Ps clearly have been preparing the application for some time; this is clear from the sheer volume of evidence adduced by Ps, amounting to over 700 pages.”

24.  Mr Tang referred me to MBM Metal Works Hong Kong Limited v Jonathan Derek Nichols & anor. [2019] HKCFI 52 which is a case in which DHCJ Lee refused to grant an interim interim injunction in very similar factual matrix involving non-competition, non-disclosure and non-solicitation.  In that case, it was the plaintiff’s case that the defendant acted in breach of a restrictive covenant and joined a business rival in direct competition with the plaintiff. After referring to the China Shanshui case, DHCJ Lee said about the issue of “delay” as follows:-

“25. According to the letter of the applicant’s solicitors dated 22 October 2018 which I have quoted above, by which date the applicant had already “found” that the respondent was in breach of Cl 10.01(a) and (b) of the Shareholders’ Agreement. If Mr Wong is right (and I express no definite view on this point for the present purpose) that a mere risk of breaches of the restrictive covenants as contained in Cl 10 is in itself sufficient to support an application for interlocutory “Springboard Injunctions” which the present application is about and if there is any real urgency in the matter, then the applicant could and should have taken action once they knew that the respondent was working for a competitor. However, there was a gap of two months before the Summons was taken out and the delay remains unexplained. Moreover, there is no reason why the Summons could not have been taken out before or at least the same time as the Writ of Summons, bearing in mind that it was filed with a detailed Statement of Claim.”

25.  Mr Li for the Plaintiffs submitted as follows:-

(1)  The injunction order affects only the 1^st to 4^th Defendants, and indirectly the 10^th and 11^th Defendants. The Plaintiffs appreciate that on 3 October 2020, Swan Knight will be hosting an event to promote a certain project.  It is a promotional and sales event in competition.  Since time and money had already been spent by Swan Knight, the Plaintiff is proposing that the injunction order granted shall only take effect as from 5 October 2020 until final determination of the summons in order to be fair to the Defendants.

(2)  The demand letter to the 1^st Defendant (which the Plaintiffs consider as the ringleader of the Defendants) was issued 24 August 2020.  On 28 August 2020, the 1^st Defendant’s solicitors replied and asked the Plaintiffs to withhold taking action for 14 days pending the 1^st Defendant’s formal reply.  The 1^st Defendant gave her formal reply on 11 September 2020 denying allegations of breaches and refused to desist. The Plaintiff took out the application on 25 September 2020. Therefore, it is unfair to criticize the Plaintiffs of delaying for 2 months.

(3)  The case of MBM is distinguishable as it did not involve use of confidential information and solicitation.

(4)  Although the Court can impose the springboard injunction after the substantive hearing thus putting a stop to the business of Swan Knight for a certain period to erase the unfair advantage gained through the Defendants’ wrongful acts, the effect of a springboard injunction is the highest at the early stage of a business.

(5)  Damage is cumbersome to assess and it is better to prevent it from occurring.

(6)  On the Non-solicitation portion in paragraph 1 of the Plaintiffs’ Summons, the Plaintiffs appreciate that it is slightly in different terms as compared to the actual contractual clauses.  The Plaintiffs are willing to adjust the terminology of paragraph 1 of the Plaintiffs’ Summons so as to come in line with the terminology of the contractual clauses for the purpose of the interim position, reserving their position to pursue their summons in its terms.

Discussion

26.  Counsel are not in disagreement that the Court should adopt an approach that create the least risk of injustice to both parties.  I am of the view that the decision of MBM is highly relevant and very helpful to my consideration as to how the discretion should be exercised in this interim period.  I am not persuaded by Mr Li that MBM is materially distinguishable.  It is not right to say that the Court was not faced with allegations of “confidential information” and “solicitation” (see §§19 and 20 of the Judgment).

27.  In the circumstances of this case, although suspicion arose in July 2020, it was reasonable to expect that the Plaintiffs would take some time to investigate before deciding on whether the situation merited the taking of legal action.  I accept Mr Tang’s submission that by 15 August 2020, the Plaintiffs would have been in a position to seek injunctive relief if they had considered that there was genuine urgency.  Yet, the Plaintiffs delayed for more than a week before issuing a demand letter to the 1^st Defendant.  On the other hand, since the 1^st Defendant asked the Plaintiffs to withhold taking action for 14 days, it is unfair to criticize the Plaintiffs as “delaying” for 14 days when they afforded the 1^st Defendant opportunity to respond.  Be that as it may, the delay since 11 September 2020 for another 2 weeks is another relevant period of delay that I shall take into account.  The fact that other Defendants replied later than 11 September 2020 is in my view less pertinent.  It is the Plaintiffs’ case that the 1^st Defendant was the ringleader.  The refusal of the 1^st Defendant to desist should have set the Plaintiffs in motion if they had genuinely felt the urgency.

28.  There was thus in my view a delay of 3 weeks which the Plaintiffs have failed to adequately explain.  Although this period of delay is less than that observed in the MBM case, it should be noted that a period of two weeks was consider sufficient to refuse interim relief in Harbour Front Limited v Leung Yuet Keung & Ano. (unreported CACV 260/2008) in which Roger VP said:-

“Harbour Front’s conduct in waiting for two weeks before commencing the proceedings and then making applications on very short notice on the basis of urgency was likely to result not only in grave inconvenience to the other parties, as well as the court, but would have made it difficult for the other parties to present their case properly. In my view, Harbour Front’s manner of conducting this litigation was, in itself, tantamount to an abuse and would have justified this court in refusing to hear the application on the basis of delay alone.”

29.  I also agree with Mr Tang that damages are not necessarily difficult to assess in the factual context of this case.  The business of Swan Knight which is said to be in wrongful competition relates to marketing and sale of properties, information of which would be readily obtainable.  It will also involve developers which are established organizations and the engagement of marketing agents would likely be project based.  I am not prepared to take Mr Li’s submission at face value.  In any event, the Plaintiffs has prayed for accounting of profits as an alternative.  Mr Tang had referred me to McLarens Hong Kong Limited v Poon Chi Fai, Corey & oths. [2019] 3 HKLRD 403 which is also a case on springboard injunction arising out of similar circumstances. In that case, DHCJ William Wong SC said (at §51) that it might well be in the interest of the plaintiff to allow the defendants to continue with the business because if the plaintiff’s case is proven right at the trial, it could subject the defendants to account for the profits from their wrongdoings including the profits that they made in the 6-month period that its asked for at the interim hearing.  It is also pertinent to note that similar to the situation in the MBM case, there is no suggestion that the Defendants would not be good for damages.

30.  Given the tight timetable that I am going to impose on the further conduct of the Plaintiffs’ Summons, substantive hearing is likely to take place in matter of months.  The Plaintiffs had in my view delayed in seeking injunctive relief during which Swan Knight was allowed to carry on business.  Although I should commend the Plaintiffs for their attempt to act fairly towards the Defendants by suggesting that any injunctive order shall only take effect from 5 October 2020, it also indicates that there is really no such urgency of putting an immediate stop to the business of Swan Knight pending the resolution of the Plaintiffs’ Summons which shall take place in several months’ time. 

31.  In all the circumstances of this case, I am of the view that the risk of injustice is higher if I order “Non-compete” injunction during this interim.  The Court should only impose a springboard injunction, if it so considers appropriate, after the matter is fully ventilated at the substantive hearing of the Plaintiffs Summons.

32.  On the other hand, I am of a different view in respect of the “Non-solicitation” injunction.  The 2^nd, 3^rd and 4^th Defendants are under their respective contractual obligation not to carry out acts of solicitation within one year of their termination of employment.  In their solicitors’ letters in reply to the Plaintiffs’ demand letters, they all denied having breached the clause preventing solicitation anyway.  The Plaintiffs’ evidence has established, at least on a provisional basis, of a good arguable case of alleged breaches of the contractual clauses.  Mr Tang has not argued otherwise at this stage because the Defendants are yet to adduce evidence in opposition.  I see very little prejudice, if any at all, to hold the 2^nd, 3^rd and 4^th Defendants to their respective contractual obligations in the interim pending the determination of the Plaintiffs’ Summons.  I will therefore grant an order confining to enjoining the 2^nd, 3^rd and 4^th Defendants from solicitation (including by or though the 1^st, 10^th and 11^th Defendants).

33.  Subsequent to the announcement of my decision, Counsel were engaged in the formulation of the exact terms of the Order and the directions for further conduct of the Plaintiffs’ Summons which I shall not repeat in this Reasons for Decision.