XCHRX ROBERT W.H. WANG & CO. (a firm) v. ROBIN MILES BRIDGE

HCA8086/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.8086 OF 2000

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J U D G M E N T

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1. The plaintiff is a firm of solicitors practising in Hong Kong. Its senior partner is Mr Robert W.H. Wang ("Mr Wang"). The defendant, Mr Bridge, is himself a solicitor of many years' standing who has practised particularly in the field of intellectual property law.

2. Following discussions between Mr Wang and the defendant, the latter wrote to Mr Wang on 30 July 1999 suggesting that he joined the firm as a salaried partner or consultant, but in any event in salaried employment. It appears that he had been offered, but did not want, an equity partnership. He set out the objectives of his employment.

3. On 9 August 1999 the defendant wrote to the plaintiff offering him employment as a salaried partner with effect from 16 August 1999. He had to sign a deed of accession to the partnership but his remuneration was by salary and he was given an indemnity against all loss or claims unless caused by dishonesty, disobedience or gross negligence on his part. The objectives of his employment was set out in the letter. These were :-

"(a) The retention of existing clients upon the departure of AW [a former partner, Anna Wu].

(b) The supervision and further training of both qualified and non-qualified staff in the IP Department.

(c) The increase in instructions from existing clients (especially those outside HK), the increase of clients generally and increased billings.

(d) The identification of cost savings from use of the new technologies.

(e) The identification of candidates for merger or acquisition both in HK and elsewhere."

Clause 10(B) of the letter reads as follows :-

"You will not for a period of one year after termination of your employment:

(i) either on your own account or for any other person or firm, act or accept any instructions to act for or directly or indirectly canvass or solicit business, nor accept any instructions to act, from any client who shall, during the period of one year immediately preceding such termination, have been a client of ours, or an officer of a client of ours or of any holding or subsidiary corporation of any such client giving instructions to us, unless such client or officer was originally introduced to us by or through yourself; or

(ii) employ or engage or endeavour to entice away from our firm any person who has at any time during the said period of one year immediately preceding such termination been employed or engaged by us."

This clause was amended by the defendant and he signed the letter to accept it on 26 August 1999. He commenced work for the plaintiff on 16 August 1999.

4. The defendant gave notice of his resignation from the plaintiff on 28 February 2000. This was effective on 30 April 2000. He subsequently became employed by another Hong Kong law firm, Messrs Eccles and Lee ("Eccles and Lee").

5. The plaintiff issued a writ against the defendant on 11 August 2000 claiming an injunction to restrain the defendant from the actions set out in clause 10 of the letter of employment. Damages or alternatively an account of profits and an order for payment are also sought. On 24 August 2000 the plaintiff issued a summons claiming an interim injunction against the defendant in the same terms.

Interlocutory injunctions

6. In American Cyanamid Co. v. Ethicon Ltd [1975] AC 396, the principle stated by Lord Diplock was that the court should see on the evidence available whether the plaintiff has any real prospect of succeeding in his claim at trial, in other words that there is a serious question to be tried, and then go on to consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief sought.

7. However, where, as here, the period of restrictions is relatively short, the plaintiff must go further than simply to show that there is a serious question to be tried.

8. In Lansing Linde Ltd v. Kerr [1991] 1 WLR 251, a case also in respect of the restrictive covenant in the contract of employment, Staughton LJ said at page 258:

"If it will not be possible to hold a trial before the period for which the plaintiff claims to be entitled to an injunction has expired, or substantially expired, it seems to me that justice requires some consideration as to whether the plaintiff would be likely to succeed at the trial. In those circumstances it is not enough to decide merely that there is a serious issue to be tried. The assertion of such an issue should not operate as a lettre de cachet by which the defendant is prevented from doing that which, as it later turns out, he has a perfect right to do, for the whole or substantially the whole of the period in question. On a wider view of the balance of convenience it may still be right to impose such a restraint, but not unless there has been some assessment of the plaintiff's prospects of success. I would emphasise 'some assessment' because the court constantly seek to discourage prolonged interlocutory battles on affidavit evidence..."

The court held that the judge at first instance was right to refuse an injunction where it was likely that a worldwide restraint would not be upheld at trial.

9. This was followed in the case of Midland Realty (Comm) Ltd v. Terrence Chiu & Others, HCA121 of 1994, unreported, where, when the period remaining for the restriction was a mere eight weeks, the court accepted the argument that it should approach the application more on the basis of an application for summary judgment, or at least take into account the prospects of the plaintiff's succeeding at trial, rather than assessing whether or not there is a serious question to be tried.

10. Further, in the Lamex Trading Co. Ltd v. Chiu Kwok Leung Terrence, HCA2504 of 1994, unreported, where the remaining period was three weeks, the court likewise followed Lansing Linde Ltd and took a similar view.

11. Both parties accept that in this case it is necessary to have some regard to the plaintiff's likelihood of succeeding at trial.

Restrictive covenants

12. It is necessary first to look at the covenants themselves. If they are likely to be found to be unenforceable at trial, then there is no likelihood that the plaintiff will succeed at the trial and the matter should end there. If however they may be held enforceable at trial, there is a serious issue to be tried. I do not think the authorities go so far as to say that the plaintiff must show a probability of success.

13. There are two restrictive covenants here. One relates to clients and the other to employees. I will deal with the client restriction first.

14. The effect of the client restriction is that the defendant cannot, for one year of his departure, act as solicitor or agent for patents and for trademarks, or canvass or solicit the plaintiff's clients who have been such within the previous year, on his own account or for anyone else. Nor can he act for or canvass or solicit an officer of a client or of any holding or subsidiary corporation of a client. It does not seem to me that, on a proper interpretation of the clause, he is restricted in respect of the holding or subsidiary corporation but only its officer. He can, however, take with him any clients that he introduced.

15. The relevant principles appear in Kao Lee & Yip v. Koo [1994] 2 HKC 233 and Kao Lee & Yip v. Edwards [1993] 1 HKC 314. In both cases, the restriction clause had been modelled on that in Bridge v. Deacons [1984] 1 AC 705, a case which involved the same Mr Bridge who is the defendant in this case. A five-year client restraint between partners, geographically limited to Hong Kong, was held enforceable. In both cases, Bridge was distinguished on the basis that the defendant was, unlike Mr Bridge in the firm of Deacons, not a full partner.

16. In Kao Lee & Yip v. Koo, an "equity partner" who had a subordinate position to the firm's founding partners, entered into a restrictive covenant restricting him, on his leaving the firm, from acting for clients of the firm or employing any employees of the firm, for a period of five years. There was a similar restriction against his employing employees of the firm. Godfrey JA said at page 234F:

"The first restraint (imposed by cl 16(b)(i) is aimed against any poaching of the clients of the firm (the client restraint). The second, imposed by cl 16(b)(ii), is aimed against any poaching of the employees (the employee restraint). It is common ground that these restraints are unenforceable unless shown (by the plaintiffs) to have gone no further than was reasonably necessary at the time for the protection of some legitimate interest of the plaintiffs. Even if the restraints went no further than that, they are unenforceable if shown (by the defendants) to be against the public interest."

17. The court went on to hold that the employee restraint was a naked restraint against legitimate competition. It limited unjustifiably the extent to which the person subject to the restraint could legitimately compete in the labour market against those seeking to enforce it against him. Accordingly, the employee restraint was unenforceable as being against the public interest.

18. The court held that in considering the client restraint, it was its duty first to ascertain what were the legitimate interests of the persons claiming the benefit of the restraint at the date when it was imposed and secondly, to consider whether the restraint sought to be enforced went no further than was reasonably necessary for the purpose of protecting those interests. In the case of a restraint imposed upon a partner, its validity would depend on the nature of the legitimate interests sought to be protected by the restraint and the position in the firm of the partner against whom the restraint is sought to be imposed. Having regard to the defendant's position in the firm, which was distinctly inferior to that of the founding partners and the worldwide restraint imposed on him, the restraint went far further than was necessary to protect any legitimate interests of the firm.

19. The court had earlier taken a similar view in Kao Lee & Yip v. Edwards where the defendant was a salaried partner and in effect an employee.

20. The legitimate interest to be protected by a client restriction clause is the firm's goodwill.

21. I note, of course, that the client restraint here is less onerous than those in the cases cited in that it is much shorter and allows the defendant to keep clients he has himself introduced.

22. In this case, the defendant says that the client restraint in clause 10(B)(1) is void and unenforceable on several counts. It goes further than necessary to protect the legitimate interests of the firm. Mr Liao SC relies on four grounds for this:

1. An intellectual property solicitor in Hong Kong is commonly instructed, on behalf of the ultimate client, through an intermediary or agent, who may be a foreign solicitor, a patent agent or the like. The clause, insofar as it does not distinguish between the ultimate client and the intermediary or agent is therefore too wide.

2. The clause is too wide in that it restrains the defendant from acting for the plaintiff's clients not only on his own account but even when he is employed by another firm. Clients may use more than one firm. This applies particularly to the intermediaries but also to the ultimate clients. So whatever firm in Hong Kong the defendant joins, he will probably find that it is retained by clients of the plaintiff.

3. The clause is territorially too wide in that it is world-wide, so even if the defendant joins a firm, e.g. in London or Shanghai, he could be caught by the clause.

4. The plaintiff's intellectual property department was separate from its other departments and the defendant did not work in them. The legitimate interest to be protected is the goodwill generated by the intellectual property department. The clause is too wide in that it in effect prevents him from doing other work than intellectual property work for clients of the plaintiff.

23. Mr Liao SC places particular reliance on the fact that the defendant was an employee and not a partner though designed as "salaried partner". His position is similar to that of the defendant in Kao Lee & Yip v. Edwards where the defendant was a salaried partner. There was a lack of bargaining power between him and the partners.

24. Mr Tang SC, of course, says that the defendant, while he was no doubt an employee, was in no way in the position of a young assistant looking, cap in hand, for a career in a firm, or even a generalist looking to change firms. He was a very senior specialist. He was offered a partnership but did not want it. The plaintiff needed him as much as he needed the plaintiff if not more. He took part in drafting the clause and even amended it slightly. If it was in his contemplation that the clause was too onerous, he could have raised that but he did not. In Kao Lee & Yip v. Edwards, it was held that the court would consider the fact that the defendant was a professional person, and, in contracting the way he did, found nothing unreasonable in the covenant, though this was not to be decisive.

25. Clearly the defendant here was in much the same position as the defendant in Kao Lee and Yip v. Edwards in that if he was not a mere employee, he was very close to it. At the same time, he had a lot of bargaining power. There is no suggestion that he needed to use it. He did not seek to restrict the clause to any great degree.

26. It is at any rate arguable that a professional intermediary is not a client. After all, it is the ultimate client who is paying for the service. However, the firm gets work from the intermediaries. If a former employee poaches them, this must affect the firm's goodwill. Now the defendant says that he did not think the clause covered professional intermediaries but it seems to me that he is so experienced and senior in the field that he must have been in a position to take a view on this when he signed the contract. I do not think he can now complain if he did not seek to modify the clause at the time.

27. I do not see a problem with restraining a solicitor, not just from working on his own account but for working as an employed solicitor. It is often the case that a person will be taken on by a firm as an employee with a view to his becoming a partner if all works out well. It may be that, as in the case of the defendant, he simply does not want the extra problems of being a partner and having to take some part in the administration of the firm. This part seems reasonably necessary to protect the plaintiff's goodwill.

28. As to the international element, it is argued that intellectual property practice is by its nature international. It appears that intellectual property lawyers in Hong Kong get work extensively from foreign lawyers or other intermediaries, so obviously any poaching of them affects the plaintiff's goodwill. However, there is another problem in that the clause as it stands is in effect worldwide. It could prevent the defendant from taking instructions from a client of the plaintiff in, e.g. London or Shanghai. I think this can be met by applying the principle that in construing a restrictive covenant the court must put it in its factual matrix (See Kao Lee & Yip v. Edwards at 326F-G and Home Counties Dairies v. Skilton [1970] 1 WLR 526). Unlike the Kao Lee & Yip cases, this case relates to a short period of restriction. The defendant would be quite unlikely, after 30 years of practice in Hong Kong, to go to practice elsewhere; and if he did, it might well take him some time to organise it. That I think must be taken to have been in the contemplation of the parties when they signed the contract.

29. There is, I think, more force to the fourth objection. In Bridge, it was argued that because the firm was departmentalised and Mr Bridge had no dealings with the great majority of the firm's clients, the firm was only entitled to protect such part of its goodwill as he might have threatened if he had set up on his own, and that part consisted only of the business he was advantageously placed to attract because it came from clients for whom he had acted and to whom he was known. The court did not accept that argument because Mr Bridge was a partner and had mutuality of contract with the other partners. That was not so in the Kao Lee & Yip cases and it is not the case here. It may be that by adding the words "as solicitor or agent for patents and for trademarks", the defendant was seeking to restrict it to covering his acting in his specialised field; but as the clause stands, it does not do that. At the same time, the "factual matrix" argument applies. Realistically, the defendant is probably going to stay in his specialised field where the protection is required.

30. Overall, it seems to me that the restriction against acting for or poaching clients for one year cannot be said to go further than is reasonably required to protect the plaintiff's legitimate interests. I take the plaintiff's point on this that one must have some regard to the agreed objectives of employment which included retention of existing clients and the extension of the client base.

31. The plaintiff seems to accept that there is at least an argument that the clause is too wide in that it strikes at the defendant's acting for an officer of a client or of a holding or subsidiary company of a client. Mr Tang says that this part of the clause could be "blue-pencilled". If two restraints are, as a matter of construction, intended to be separate and severable, and the severance can be done without other addition or modification, then this can be done even in master and servant cases. See T. Lucas & Co. Ltd v. Mitchell [1972] 1 Ch 129. Mr Liao argues that the restraints cannot be regarded as severable as a matter of construction. He further relies on dicta of Litton JA in Kao Lee & Yip v. Edwards that:

"..... if wide covenants were to be construed in this way so that they could always be cut down to the extent necessary to protect the employer's legitimate interests as found by the court, what incentive would there be for employers to draft their covenants restrictively?" (page 325G-H)

32. I take the view that the restrictions against acting for an officer are probably too wide. This seems to go further than protecting the plaintiff's legitimate interests in its intellectual property practice. However, it seems to me that this part is severable. I accept that this can be done without, in effect, re-writing the clause.

33. I cannot say that, if the client restriction were blue-pencilled in this way, it would not be upheld at trial.

34. As to the employee restraint sub-clause, Mr Tang accepts that insofar as it covers employment rather than simply "poaching", it goes too far. He says that again the offending part may be blue-pencilled out. For the reasons given above, I accept this.

35. It follows that subject to the "blue-pencilling" of the aforementioned parts of the clause, I cannot say that the clause goes further than necessary to protect the legitimate interests of the plaintiff, or that it would certainly or probably be so regarded at trial. It is therefore necessary to go on to consider the evidence to see if there is a substantial issue to be tried.

The plaintiff's case

36. The plaintiff relies on evidence of client enticement and employee enticement. So far as client enticement is concerned, the plaintiff's evidence is that on about 25 July 2000, the new head of the intellectual property department, Miss Grace Ang ("Miss Ang"), told Mr Wang that a Mr Zuck of a client called Formosa Transnational had told her that the defendant had indirectly approached his firm to obtain their instructions for his new firm Eccles and Lee. Then on 7 August 2000, Miss Ang told Mr Wang that she had been informed by another Taiwan client, Lee and Li, that the defendant had paid them a personal visit and had tried to canvass or solicit business from them.

37. There is an affirmation by Miss Ang, but in it she makes no mention of these matters. She did, however, on 9 August 2000 write an e-mail message to another partner in the plaintiff, Mr Dalton, to the effect that Mr Zuck had disclosed that one Selene Ng from Eccles and Lee had paid a courtesy call to his firm and said some bad things about the defendant. In the same e-mail there is also a mention of having been told that the defendant had paid a visit to Lee and Li, but there is no mention of any attempt by him to canvass business.

38. So far as employee enticement goes, there is an affirmation by a Mr Ronnie Wong, an assistant solicitor of the plaintiff, that another assistant, Mr Daniel Ho, told him that the defendant had enticed him to join Eccles and Lee. Daniel Ho had turned down the offer. Mr Wang says that Daniel Ho also told him over drinks that the defendant had approached him and another assistant, Miss Vera Sung, to join Eccles and Lee. Miss Sung threatened to resign from the plaintiff, without giving reasons, but was persuaded to stay at a higher salary. Mr Ho remained with the plaintiff but later told Mr Wang that he did not like working under Miss Ang. He tendered his notice of resignation on 17 July 2000. It is not in dispute that he subsequently joined Eccles and Lee.

The defendant's case

39. The defendant's case on client enticement is that he never visited Formosa Transnational on behalf of Eccles and Lee. That was done by his colleague Selene Ng. He did visit Lee & Li and he did seek instructions from them on behalf of Eccles and Lee, as agents for their ultimate clients.

40. The defendant says that solicitor's firms in the intellectual property field in Hong Kong are commonly instructed by other foreign law firms, patent agents and the like, on behalf of the ultimate clients. These intermediaries are commonly known as agents. The plaintiff would correspond with and take instructions from the agent, but the ultimate client is the one who paid the bills. Any such agent may, at any given time, instruct more than one firm of solicitors in Hong Kong which specialises in intellectual property work, on behalf of one or more ultimate clients.

41. As to employee enticement, the defendant denies the allegations.

42. There is an affidavit by another intellectual property specialist solicitor, Mr Wheare. The effect of what he and the defendant say is that there is a relatively small number of such specialist firms in Hong Kong. They get their business from the same intermediaries or agents, whoever the ultimate clients may be. So in effect if a solicitor goes from one such firm to another, he will probably find himself taking instructions from an intermediary or agent who has, in the past year, instructed the firm which he has left.

Evaluation

43. Obviously while avoiding a trial on the affidavit evidence, I have to have regard to the evidence as it appears there. It is clear that, with regard to the question of client enticement, the plaintiff's case is very sketchy indeed. The only witness is Miss Ang; she can only speak to hearsay, which, though admissible, has to be looked at as to its weight. She has been inconsistent as between her affirmation and what she wrote in her e-mail to Mr Dalton.

44. The defendant, on the other hand, seems to have an answer to the allegations against him. In the first place, he did not go to Formosa Transnational. In the second, he did not seek to entice a client because Lee and Li, being an intermediary or agent, should not be regarded as a client.

45. The plaintiff argues that what matters is not what has happened, but what may happen in future if the defendant is not restrained. He says that the restriction applies equally to the intermediaries as to the ultimate clients and the defendant has shown, by his actions and the view he takes of what he is entitled to do, that he is likely in future to seek to entice at least intermediaries if not ultimate clients.

46. It seems to me that this must be regarded as a distinct possibility. So on this evidence, there is a serious question to be tried.

47. As to the employee restriction, the evidence is somewhat stronger that the defendant enticed away at least Mr Daniel Ho who now works for Eccles and Lee. There is, on the evidence, a serious question to be tried on this part of the restriction also.

Balance of convenience

48. I turn to the balance of convenience. I think it must be accepted that so long as the restriction is in force, the defendant is going to find some difficulty in practising, though the dire predictions of professional ruin put forward on his behalf are obviously exaggerated. This is not a long restriction. It has four and a half months to run. The defendant is not at present attached to any firm; he has resigned from Eccles and Lee because of this matter. No doubt he could re-attach himself quickly enough, or go to another firm, or even set up on his own account, but these all take at least some little time. So in reality, even if it be true that the defendant, as he contends, cannot work in his chosen field because of the client restriction, which seems to me an exaggeration, this state of affairs will not last long.

49. It is said that the defendant's professional reputation will suffer if there is an injunction. This may be so, but he has survived in the past.

Result

50. The plaintiff is entitled to the injunction sought, as "blue-pencilled" in the manner referred to above.

51. There will be an injunction against the defendant as sought in paragraph 1 of the Summons, but modified as follows by the amendment of sub-paragraphs (a) and (b) to read as follows:

"(a) acting or accepting any instructions to act as a solicitor or agent for patents and/or trade marks for or directly or indirectly canvassing or soliciting business and accepting instructions to act from any client who during the period of one year immediately preceding the termination of the defendant's employment shall have been a client of the plaintiff; and

(b) endeavouring to entice away from the plaintiff any person who during the period of one year immediately preceding the termination of the defendant's employment has been employed or engaged by the plaintiff."

There will also be an order in terms of the remaining paragraphs of the Summons.