XCHRX BEACON COLLEGE LTD. v. YIU MAN HAU, ALFRED AND OTHERS

HCA2529/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.2529 OF 2001

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(Heard together)

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REASONS FOR DECISION

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1. On 11 June 2001 the plaintiff in both actions took out inter partes summonses for interlocutory injunctions against the defendants. The summonses were returned on 15 June 2001 when, apart from the 6th defendant in HCA2529/2001 ("Man Sheung"), all the defendants indicated that they required time to file evidence to contest the applications. The plaintiff then proceeded to apply ex parte on notice for interim injunctions pending the determination of the summonses. As for Man Sheung, it has offered to give certain undertakings which were accepted by the plaintiff. The interim applications therefore do not concern it. Since the matters involved in the applications in both actions overlap substantially, they were heard together. At the conclusion of the hearing, I granted the interim injunctions sought. My reasons appear below.

Background

2. The plaintiff in both actions is a private school which was first set up in 1989 in Yuen Long. Apart from the main school in Yuen Long, it now has five branch schools in Yuen Long, Sheung Shui, Tuen Mun and Mongkok. It operates both a day school ("the Day School") and evening and tutorial classes ("the Evening School"). For the current year, it has a student population of approximately 1,600 for the Day School and the enrolment for the Evening School is about 17,000. It employs about 60 full-time teachers.

3. The plaintiff's case is that it enjoys substantial reputation as a private school and is well-known to students and parents in areas where it operates. Its unaudited gross income for the year ending 31 July 2000 was in the region of $50 million. The reputation is partly built upon the past examination results of its students and partly upon the substantial and wide-ranging promotion and advertisements it has put up throughout the years, especially since 1999. The expenditure on advertisement for the period between June 2000 and April 2001 came up to $6 million.

4. According to the plaintiff, it has developed a policy of promoting a core group of select teachers known as "Star Alliance". Teachers who are regarded as the most outstanding teacher in a particular subject or field will be chosen to become members of the Star Alliance and will be singled out for continuous and extensive promotion and advertisement. In view of the very substantial promotion and advertisement costs, and to ensure that it will not be deprived of the fruit of its investment on these select teachers, the plaintiff had required some of these teachers to enter into 5-year contracts with it.

5. The plaintiff's teachers are paid a basic salary for teaching in the Day School and a fee for teaching in the Evening School which represents a certain percentage of the gross school fees received from the students who enroll with their classes. The plaintiff says that because of its large scale promotion and advertisements, its teachers, especially those of the Star Alliance, become very popular and their income is in general several times higher than what they would earn as teachers of government or government subsidized schools.

6. The 1st to 5th defendants in both actions are the teachers of the plaintiff. The 1st and 4th defendants joined in September 1997, the 2nd defendant in September 1999, the 3rd defendant in September 1998 and the 5th defendant in September 1992. Except the 2nd defendant, all of them belong to the Star Alliance.

7. Save the 3rd defendant, the 1st, 2nd, 4th and 5th defendants have signed written contracts with the plaintiff in respect of their teaching in the Day School ("the Day School Contract"). Further, all five defendants had entered into written contracts with the plaintiff for their teaching in the Evening School ("the Evening School Contract"). With the exceptions of the 2nd defendant's Day School Contract and the 3rd defendant's Evening School Contract, all the written contracts are for a term of five years. The duration of the defendants' contract with the plaintiff can be summarised as follows :

	Day School Contract	Evening School Contract
1st defendant	1/9/1999 - 31/8/2004	1/9/1999 - 31/8/2004
2nd defendant	1/8/2000 - 31/7/2001	1/9/2000 - 31/8/2005
3rd defendant	no written contract	16/7/2000 - 15/7/2004
4th defendant	1/9/1999 - 31/8/2004	1/9/1999 - 31/8/2004
5th defendant	1/9/1998 - 31/8/2003	31/8/1999 - 31/8/2004

8. All the Day School Contracts contain provisions for early termination by either party giving at least one month written notice or paying one month's salary in lieu thereof : clause 6(a). There is, however, in the Evening School Contract, no provision for early termination other than termination by the plaintiff for cause. The only exception is that of the 3rd defendant, of which clause 8(e) enables him to give 6-month notice for termination in the event he is going to work in fields other than education.

9. Clause 3 of the Day School Contract governs the duties and conducts of the teachers. For the present application, clause 3(d) is relevant and it reads :

"The Teacher shall devote the whole of his/her energies, time and best endeavours and abilities to the performance of his/her duties and in all matters act diligently, loyally, honestly and faithfully to the College and shall not directly or indirectly engage in or be concerned with any other activities or business (including in particular any private tuition)."

10. Similarly, clauses 3 and 4 of the Evening School Contract set out the scope of services and the duties of the teachers. In particular, clause 4(i) provides that a teacher shall at all times "devote the whole of his/her energies, time and endeavours and abilities to the performance of his/her duties and obligations herein throughout the duration" of the Contract. Clause 8(c) further provides that during the occurrence of the Contract, a teacher shall not :

"(i) be [engaged] in connection with the carrying on of any business or activity similar to or in competition with the business of the Company of providing tutorial course(s) to students whether on his/her own behalf or on behalf of any person, firm or company directly or indirectly.

(ii) solicit or entice away from or endeavor to solicit or entice away from the Company or the College any students of the Company or the College who have enrolled with the Company; and

(iii) either alone or jointly with or as manager, agent, consultant or employee of any person, firm or company directly or indirectly carry on or be engaged in any activity or business in competition with the business of the Company."

11. In addition, both the Day School and Evening School Contracts contain restrictive covenants. In the case of the Day School Contract, clause 7(b) provides that :

"... a teacher shall not, upon the expiry or otherwise termination of the Contract for Day School, be engaged in or in connection with, either directly or indirectly through his agent, employee, consultant and manager or on behalf of any person, firm or company, any business or activity similar to or in competition with that carried on by the Plaintiff within one year from such expiry or otherwise termination in Hong Kong."

The areas restricted vary from one contract to another and the position can be summarised as follows :

1st defendant	Yuen Long, Tuen Mun, north western New Territories
2nd defendant	Yuen Long, Tuen Mun, north western New Territories, Mongkok, Yaumatei
4th defendant	Yuen Long, Tuen Mun, north western New Territories
5th defendant	No geographical restriction

12. As for the Evening School Contract, clause 8(d) provides as follows :

"The Teacher hereby covenants that he shall not, upon the expiry or otherwise termination of this Agreement, be engaged in or in connection with, either directly or indirectly through his agent, employee, consultant and manager or on behalf of any person, firm or company, any business or activity similar to or in competition with that carried on by the College within one (1) year from such expiry or otherwise termination in Sheung Shui, Mongkok, Yaumatei, Yuen Long and Tuen Mun and generally within the north western part of the New Territories."

13. Clause 8(d) of the 1st defendant's Evening School Contract is, however, different from that of the others. It allows the 1st defendant, with the plaintiff's approval, to teach at the Hong Kong Island branch of the 6th defendant in HCA2532/2001 ("Excel") provided that the plaintiff does not establish any branch school in Hong Kong Island.

14. Similar exemption has been granted to the 3rd defendant in clause 8(f) of his Evening School Contract to enable him, with the plaintiff's approval, to teach at the Shatin and Causeway Bay branches of one "A in A Learning Centre" for one week day in each week.

15. Excel is also a private school with various branches. One of its branches is located opposite to the plaintiff's Mongkok branch school. The plaintiff's mega advertisement for its Mongkok branch school, featuring the 1st, 3rd to 5th defendants, is situated on this building.

The actions

16. The plaintiff's case is that since a few months ago, the 1st to 5th defendants have exhibited a change in their attitude towards the plaintiff and in the discharge of their duties. Since early May, there were rumours among the students that they would leave the plaintiff's employment. On 11 May 2001, the 4th defendant, on behalf of the defendant teachers, informed Mr Wister Chan, the Chief Principal of the plaintiff, that they wished to resign and asked to be released from their contracts and employment. Mr Chan indicated that he had to consult the management authority of the plaintiff. The defendant teachers agreed not to disclose their intention to resign to the students or other teachers or any outsiders before their resignations were accepted. Then on 14 May 2001, the 1st to 5th defendants each submitted a letter dated 11 May 2001 giving notice of resignation from all posts effective from 1 June 2001 ("the Resignation Letter"). The plaintiff did not accept the resignations and returned all the Resignation Letters to the defendant teachers. The Resignation Letters were later re-sent to the plaintiff by registered mail. Subsequently, the defendant teachers orally informed the plaintiff that they would continue teaching the Day School until the end of the school term.

17. In the meantime, the 1st to 5th defendants had made known their resignations, both to their students and colleagues. This had given rise to concerns among the students. On about 21 May 2001, it was posted on the website owned by the defendant teachers that the 1st to 5th defendants would cease teaching tutorial classes at the plaintiff's schools. Subsequently, the defendant teachers also indicated publicly that they would be joining other schools, including Man Sheung and Excel. From the material disclosed by Man Sheung, it can be seen that they had contracted with Man Sheung to commence part-time teaching on 1 June 2001. The contracts were dated 21 May 2001. Excel has also stated in their promotion pamphlets that the defendant teachers would be teaching in its schools after 18 July 2001.

18. On 24 May 2001, the plaintiff's solicitors wrote to the 1st to 5th defendants pointing out that their resignations were not accepted by the plaintiff and demanded them to cease their wrongful activities. The defendant teachers' solicitors replied by letter dated 26 May 2001 denying any breach of duties and stated that their employment or contracts with the plaintiff had been "terminated by sufficient notice".

19. The plaintiff's solicitors had also issued to a number of private schools, including Excel and Man Sheung, letters dated 24 May 2001 informing them that there were subsisting employment and contracts between the 1st to 5th defendants and the plaintiff. It also pointed out that the defendant teachers' attempt to canvass employment with other schools constitute breaches on their part and that any procurement or participation in their breaches may attract civil liabilities.

20. Excel did not respond to this letter. The plaintiff's solicitors issued a second letter dated 2 June 2001 to Excel requesting it to confirm whether any of the defendant teachers had joined or would be teaching at its schools. There was also no reply from Excel.

21. On 5 June 2001, the plaintiff issued the Writ in both actions. The reliefs sought in the Indorsements of Claim in both actions are similar. Apart from damages, a number of injunctive relief is sought. In particular, the plaintiff seeks injunctions to restrain the 1st to 5th defendants from acting in breach of their employment contracts and their duties to the plaintiff. The plaintiff also seeks injunction to restrain Excel and Man Sheung from procuring the defendant teachers to act in breach of their contracts with the plaintiff and from unlawfully interfering with the business of the plaintiff. In addition, the plaintiff seeks injunction to restrain all defendants from conspiring to injure the plaintiff's business. Then on 11 June 2001, the plaintiff took out the inter partes summonses for interlocutory injunctions.

The application

22. The scope of the interim injunction sought by the plaintiff is fairly restricted. As against the 1st to 5th defendants, it seeks to restrain them from undertaking business and activity that compete with the business of the plaintiff and from soliciting or enticing the plaintiff's students away from the plaintiff. In the case of Excel, the injunction sought is to restrain it from procuring the 1st to 5th defendants to act in breach of their contracts with the plaintiff.

23. The plaintiff's case is that the contracts and employment of the 1st to 5th defendants have not been terminated so that they are bound by the obligations and duties provided thereunder. As a fall back position, the plaintiff argues that the defendant teachers are bound by the restrictive covenants in their contracts with the plaintiff so that, even if their contracts have been terminated, they are not at liberty to teach in other schools.

24. It is also the plaintiff's position that the activities and breaches of the defendants will cause irreparable damages to it in that the plaintiff will suffer setback in its business and loss in terms of its goodwill, both of which cannot be adequately compensated in monetary terms. In this regard, the plaintiff relies, among other things, on the fact that Excel's Mongkok school is located opposite to its Mongkok branch school and the plaintiff's mega advertisement featuring four of the defendant teachers is placed on the building housing Excel's Mongkok school. The plaintiff also says that the defendants' financial ability to pay any damages eventually ordered is in doubt.

25. As to urgency, the plaintiff points to the fact that this is the time when private schools are actively promoting and advertising themselves to attract enrolment and that the students, once enrolled, are expected to remain with the same school for the school year. There is also the fact that tutorial classes of the plaintiff and of Excel will commence after mid-July.

26. The 1st to 5th defendants' case, as related by leading counsel, is that on 9 May 2001, the 4th defendant on behalf of the defendant teachers had reached an oral agreement with Mr Wister Chan that the 1st to 5th defendants would be released from their contracts and employment on the understanding that the defendant teachers would oversee the completion of the current term of the Day School, which will expire on 31 July 2001 and that of the Evening School, which expired on 31 May 2001.

27. Alternatively, the 1st to 5th defendants say that the plaintiff had committed repudiatory breach of the contracts and employment, which the defendants are entitled to accept and thereby terminate the contracts and employment.

28. As to the restrictive covenants, the defendants argue that they are unenforceable for being unreasonable.

29. The 1st to 5th defendants also argue that the balance of convenience lies in their favour in that any loss to the plaintiff can be quantified whereas they will be deprived of their livelihood if the interim injunction is granted.

30. For Excel, it is argued that the Indorsement of Claim is defective and that the evidence does not disclose any cause of action against it. Alternatively, it is said that the evidence does not reveal any activity of Excel which is unlawful and justifies or requires the imposition of an injunction.

The Indorsement of Claim

31. It is convenient to begin with Excel's argument on the validity of the Indorsement of Claim in HCA2532/2001. I accept that paragraph (2) thereof, in seeking an injunction to restrain, not only the 1st to 5th defendants, but also Excel from acting in breach of duties owed to the plaintiff, possibly contains an error. The error is however capable of being amended and cured. Other than this, I am unable to agree with the argument that the Indorsement is defective. Order 6, rule 2(1)(a) of the Rules of the High Court provides that an Indorsement of Claim shall give "a concise statement of the nature of the claim or the relief or remedy required in the action". The Indorsement in HCA2532/2001 has pleaded the causes of action and reliefs sought against the defendants. It has complied with the Rules and is not irregular.

32. There is also no merit in the complaint that the Indorsement lacks particulars so that the defendants, in particular Excel, is not informed of the basis of the claim against them. The Indorsement is to be followed by a Statement of Claim in which full particulars of the claim are to be set out. For the interlocutory injunction application, the plaintiff's affidavits have supplied the basis of the claim and the facts relied upon. There is no question of Excel not knowing what case to meet.

33. In any event, the alleged shortcomings of the Indorsement is capable of being cured by the Statement of Claim to be served : Hong Kong Civil Procedure 2001, para.6/2/2 at p.54. The submission that the plaintiff must start again, meaning to commence a fresh set of proceedings, must fail.

Serious question to be tried

34. I deal firstly with the claim against the 1st to 5th defendants. Under the Day School Contract, one month's written notice or one month salary in lieu of notice is required to terminate the contracts. On the plaintiff's evidence, the Resignation Letters, being served less than one month from the proposed effective date of 1 June 2001, do not constitute sufficient notice. In the case of the 3rd defendant who had not signed the Day School Contract, section 5 of the Employment Ordinance, Cap.57 deems his contract with the plaintiff to be a contract renewable from month to month. Section 6(2)(a) provides that the length of notice required to terminate the contract to be not less than one month. His Resignation Letter therefore does not constitute sufficient notice. A similar conclusion will be reached under the common law where reasonable notice is required to terminate a contract of employment and for a monthly contract, one month is arguably a reasonable period.

35. On the Evening School Contracts, they are for a fixed term of five years in the case of the 1st, 2nd, 4th and 5th defendants and of four years in the case of the 3rd defendant. Considering the plaintiff's evidence and, in particular, the fact that they, unlike the Day School Contract, contain no provision for early termination, I accept that it is probable that the parties had intended that the Evening School Contract could not be unilaterally terminated before their expiry dates by the giving of reasonable notice: see Gillian v. AHK Air Hong Kong Ltd [1989] HKC 189 at 198E-H.

36. I turn now to look at the defendants' case. While I appreciate that the 1st to 5th defendants have yet to file their evidence, I feel obliged to point out that their assertion of an oral agreement of release does not sit comfortably with their solicitors' letter dated 26 May 2001, which makes no reference to such an agreement. It is also strange that after the alleged release agreement, they would issue the Resignation Letters, which again make no reference to the alleged agreement.

37. Even accepting the case of the 1st to 5th defendants as put forward by their leading counsel, it is plain that their Day School Contracts and the 3rd defendant's employment for the Day School would only come to an end on 31 July 2001. Until then, their employments and the Day School Contracts remain valid and binding on them. Pursuant to clause 3(d) of their Day School Contracts, the 1st, 2nd, 4th and 5th defendants are obliged to devote their full time and energies to the discharge of their duties to the plaintiff. They are also required to act loyally and faithfully to the plaintiff and not to engage in any other activities or business. As for the 3rd defendant, it is trite that under the common law, being an employee, he is under an implied duty of fidelity and good faith to the plaintiff. The law further implies into his employment a duty not to engage in activities and business that compete with the plaintiff. The 3rd defendant's contractual obligations in this regard therefore do not differ materially from those of the other defendant teachers despite that he had not signed the Day School Contract.

38. By entering into contracts of employment/service with Man Sheung in May 2001 at a time when, on their own case, both their Day and Evening School Contracts and employments were subsisting, the 1st to 5th defendants had acted in breach of their obligations under their contracts and employments with the plaintiff. On the basis of the affirmation of David Lee filed on behalf of Excel and having regard to Excel's promotional leaflets, the inference is that the defendant teachers had agreed to teach at Excel's schools before their Day School Contracts and employment expire, to say the least. This can hardly be compatible with their duties under clause 3(d) or the common law.

39. The 1st to 5th defendants seek to justify this on the basis that they were released from the Evening School Contracts after 31 May 2001 and that Excel and Man Sheung only offer tutorial classes. Their argument is that despite the Day School Contracts and employment, they are free to teach tutorial classes once the Evening School Contracts come to an end. I do not accept this. Clause 3(d) of the Day School Contract, on its plain and natural meaning, does not provide for any exemption, let alone tutorial classes. To be involved or engaged in the activities and business of schools other than the plaintiff, be it day school or tutorial schools, is prima facie contrary to the duties of an employee under an employment agreement.

40. As to the 1st to 5th defendants' alternative argument that the plaintiff was in repudiatory breach of the contracts and employment, I find their case less than clear or convincing. They rely on three matters as constituting repudiation. Firstly, there was an unilateral reduction in their salaries for the Day School commencing September last year with the notice for the reduction being given in June or July. Secondly, there was repeated delay in the payment of their earnings for the Evening School. Thirdly, in the case of the 4th defendant, the plaintiff had violated his power to veto the decision to accept a competitor teacher to the Star Alliance. Again, while noting that the defendants have not yet filed their affidavits, it seems that these events did not occur recently or immediately before 9 May 2001. For instance, the unilateral reduction of salary had happened almost a year ago. It must be open to doubt whether the defendants can exercise their right to accept the alleged repudiation months after its occurrence and to rely on it as a ground for terminating the contracts and employment. At any rate, it is not altogether clear when the defendants say they accepted the repudiation and whether or how the acceptance had been communicated to the plaintiff.

41. In my view, the plaintiff has shown that there is a serious question to be tried with regard to the 1st to 5th defendants' breach of their contracts and employment and of their duties to the plaintiff. I also accept that on the evidence, especially the affirmation of Li Pun Lun, there is evidence for inferring that the defendants had attempted to entice students away from the plaintiff. It will not therefore be necessary to embark upon the issue of the enforceability of the restrictive covenant.

42. As for the case against Excel, the cause of action which the plaintiff relies on for the present application is the tort of procuring a breach of contract. Counsel for Excel argues that there is no evidence of procurement on the part of Excel and of Excel having knowledge of the 1st to 5th defendants' breach. On the second point, the two letters dated 24 May and 2 June 2001 from the plaintiff's solicitors would have put Excel on notice of the contracts and breach of the 1st to 5th defendants. To put it at the lowest, they would have alerted Excel to the distinct possibility that the 1st to 5th defendants were under contracts of employment with the plaintiff and that they would be in breach of their employment contracts with the plaintiff by canvassing and accepting alternative offers of employment. It is a case where knowledge can be inferred on the basis that a defendant has been reckless or has shut his eyes to the facts.

43. As to procurement, it has been held that in D.C. Thomson & Co. Ltd v. Deakin [1952] Ch 646 that it can take the form of direct procurement, indirect procurement or other direct intervention. The case further establishes that a defendant who, with knowledge of a contract, has dealings with the contract breaker which he knows to be inconsistent with the contract, is liable in unlawful interference. Jenkins LJ further observed at p.694 that where inconsistent dealing, which was commenced without knowledge of the contract broken, is continued after a defendant has notice of the contract, the defendant has committed an actionable interference.

44. The publication of the promotional leaflets on the classes to be taught by the 1st to 5th defendants at Excel after mid-July 2001 is prima facie evidence of dealings by Excel which are inconsistent with the defendant teachers' contracts with the plaintiff. The continued promotion of these classes after the letters of the plaintiff's solicitors dated 24 May and 2 June 2001 provides the basis for a claim in procuring the breach of contract against Excel. There is thus a serious question to be tried on this part of the plaintiff's claim against Excel.

Damages and Balance of Convenience

45. I accept that on the evidence now before the Court, it is open to the plaintiff to argue that the continuation of the 1st to 5th defendants' activities will cause not only loss in income, but also a loss of the plaintiff's goodwill which may not be quantifiable and compensatable. Even the loss in income may not be readily quantified.

46. I am also of the view that the ability of the defendants to pay any damage suffered by the plaintiff is a valid and relevant concern in deciding whether to grant interim or interlocutory relief. The plaintiff had filed evidence suggesting that some of the defendants lack the financial means while the others' means is unknown. Leading counsel for the 1st to 5th defendants and counsel for Excel did not, in the course of their submissions, seek to challenge such suggestions. It is however argued that interlocutory injunctive relief would become a rich man's charter if the financial ability of the defendants should come into consideration. This apparently attractive proposition overlooks, however, the fact that the plaintiff in the first place is required to give undertaking as to damages and may also be called upon to fortify the undertaking. Secondly, it will be futile to suggest that a plaintiff's loss and damages can be compensated in monetary terms so that interim injunction is not required when the reality is that the plaintiff will not be able to recover his damages by reason of the defendants' impecuniosity.

47. The 1st to 5th defendants also submit that they will be deprived of their livelihood if they were not allowed to teach for other schools. I acknowledge the force of leading counsel's submission that under the Evening School Contract, the defendants were paid according to the number of their students, yet there is no provision obliging the plaintiff to arrange classes for them. On the other hand, I cannot ignore the fact that the 1st to 5th defendants' Day School Contracts and employment remain subsisting so that they are not at liberty to teach in other schools. There is in addition arguably an implied term that the plaintiff is obliged to provide the defendants with work or a certain remunerative opportunity since the defendants are to be remunerated on the basis of the work to be performed and its output.

48. Considering these factors, the balance comes down in favour of the grant of an interim injunction to run until after the determination of the plaintiff's inter partes summons.

Conclusion

49. For the reasons aforesaid, I grant the interim injunctions sought against the 1st to 5th defendants and Excel upon the undertaking as to damages given by the plaintiff through its leading counsel. The costs of this application will be reserved. The inter partes summons will be adjourned to 20 July 2001 10 a.m. before the Summons Judge.