LEPI CHINA LTD v. WONG CHI HIN AND OTHERS

HCA629/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 629 OF 2007

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 R U L I N G

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1. This is the hearing of the plaintiff’s inter-partes summons dated 28 March 2007 for the interlocutory injunctive relief claimed therein against all defendants.

Background

2. The plaintiff is a company incorporated in Hong Kong and carries on business in the manufacture and sale of packaging products principally to the cosmetic, optical and jewellery industries.

3. Two major customers of the plaintiff are by the names of Gatto and Oakley.  Between them they take up some 60% of the plaintiff’s business.

4. In late 2006, there was a power struggle within the plaintiff between Saw Lip Boon, the Chairman and Managing Director of the plaintiff on the one hand and other senior staff of the plaintiff on the other hand, including the 1^st to 5^th defendants.

5. Attempts by those senior staff to oust Saw from his position as Chairman and Managing Director failed and as a result the 1^st to 5^th defendant left the plaintiff’s employ at various times between January and February 2007.

6. The 6^th defendant was incorporated in Hong Kong on 14 February 2007 and carries on similar manufacturing business to that of the plaintiff.

7. It is not disputed that the 1^st to 5^th defendants have joined the 6^th defendant after leaving the plaintiff.  There is some evidence to indicate that the 1^st to 4^th defendants may be partners together in the 6^th defendant.  The wife of the 1^st defendant is the sole director of the 6^th defendant.

Plaintiff’s allegations

8. It is the plaintiff’s case that when the 1^st to 5^th defendants left the plaintiff to join the 6^th defendant, they or some of them have taken from the plaintiff the following :-

(a)   Process Flow Charts for the manufacturing of spectacle cases for Gatto and Oakley, the copyright in which are owned by the plaintiff, and which constitute trade secrets since there exist agreements between the plaintiff with Gatto and Oakley that such information are not to be disclosed to third parties; and

(b)  a list of suppliers of the plaintiff which constitute confidential information of the plaintiff.

9. It is also alleged by the plaintiff that the defendants or some of them have attempted to recruit staff for the 6^th defendant from the employees of the plaintiff, and that some of the defendants have actually approached and contacted the plaintiff’s customers, notably Gatto and Oakley attempting to obtain business for the 6^th defendant from them which would otherwise have been given by them to the plaintiff.

10. The plaintiff relies upon the “Negative Covenants” contained in Clause 6 of the employment contract of the 1^st, 2^nd and 5^th defendants with the plaintiff.

Defendants’ case

11. The defendants do not dispute the fallout between them and Saw Lip Boon towards the end of 2006 resulting in the 1^st to 5^th defendants leaving the plaintiff’s employ at various times between January and February 2007.  Nor do they dispute their involvement with the 6^th defendant whose business is in competition with that of the plaintiff.

12. They deny that the Process Flow Charts constitute trade secrets or that the plaintiff is the owner of any copyright in the Charts.  All of the defendants also deny having taken away from the plaintiff any Process Flow Charts.

13. As for the plaintiff’s list of suppliers, the defendants deny that such list constitute confidential information of the plaintiff and also deny having taken any such list of suppliers away from the plaintiff for use by the 6^th defendant.

14. The defendants deny that they have attempted to recruit the staff of the plaintiff to join the 6^th defendant.

15. As for Gatto and Oakley, it is the defendants’ case that these are the two largest customer in that trade which is well known in the public domain and fair competition allows the 6^th defendant to contact them for business.  The plaintiff can have no monopoly over Gatto and Oakley.  Therefore the defendants are within their rights to contact Gatto and Oakley for business having left the plaintiff.

Present application and matters leading up to it

16. The plaintiff obtained an ex parte injunction order before Saw J on 27 March 2007, effectively for similar reliefs now sought by this inter-partes application, the return date was for 4 April 2007.

17. On the return date on 4 April, when the matter came before Deputy Judge Gill, the defendants gave undertakings summarized as follows :

(a)   not to do business with the plaintiff’s customers Gatto and Oakley for a period of five months from the date of that undertaking;

(b)   not to interfere with the plaintiff’s employees or entice any of them to leave the employment of the plaintiff or to join the 6^th defendant; and

(c)   not to use or disclose to any third party the Process Flow Charts (as particularized in the Order) which are products currently or hitherto manufactured by the plaintiff, until trial of this action or further order.

18. Upon the above undertakings being given by the defendants, the ex parte order of Saw J was discharged and the inter-partes summons adjourned for argument with directions given for the filing of affidavit evidence.

19. At the start of this hearing before me, counsel for the respective parties confirmed that certain agreements have been reached between them relating to undertakings that the defendants were prepared to give relating to the non-disclosure of the Process Flow Charts, the list of suppliers of the plaintiff, as well as in relation to the non-interference of the existing employees of the plaintiff by the defendants.

20. The one outstanding matter in issue which could not be agreed between the parties relate to the plaintiff’s customers Gatto and Oakley, then, only as to the length of time for which the defendants should be injuncted from having any business dealings with them.

21. The plaintiff suggested that the defendants should be injuncted from having any business dealings with Gatto and Oakley up to the end of December 2007 to give sufficient protection to the plaintiff.

22. On the other hand, the defendants say that the plaintiff would be sufficiently protected if the defendants were restrained from dealing with Gatto and Oakley up to the end of August 2007.  In so stating, I believe counsel for the defendant lost sight momentarily of the fact that the undertaking given to Deputy Judge Gill on the return date relating to Gatto and Oakley, being for a period of five months, was up to 3 September 2007.

23. Therefore for the purpose of this ruling, I shall take counsel for the defendants to mean that the defendants are not prepared to give any undertaking relating to dealing with Gatto and Oakley beyond that which has already been given to Deputy Judge Gill on the return date.

24. This ruling therefore will deal only with that one outstanding issue.

Decision on the outstanding issue

25. The basis upon which the plaintiff can seek injunctive relief preventing the defendants (or any of them) from having post-termination business dealings with the plaintiff’s customers, Gatto and Oakley must be the restrictive covenants which is under the heading of “Negative Covenants” contained in the employment letters of the 1^st, 2^nd and 5^th defendants with the plaintiff.

26. The wording of the restrictive covenants in all three cases of the 1^st, 2^nd and 5^th defendants are identical and are as follows :

“6)   Negative Covenants

You shall not be at any time hereafter without the consent in writing of the [Plaintiff], divulge or making known any one or more of trade secrets, accounts or dealings of or relating to the business and policies of the [Plaintiff] and shall not at any time during or after the continuance hereof either on your own account or for any other person, firm or Company solicit, interfere with or endeavor to interfere with or entice away from the [Plaintiff] any person, firm or company during the period or at the end of your employment thereunder who was a customer of or in the habit of dealing with the [Plaintiff] or was an employee of the [Plaintiff].”

27. It will at once be seen from the wording above, that the restrictive covenant is not limited by any period of time in so far as it relates to post termination interference or enticing away customers of the plaintiff.

28. That was readily recognized by Mr Remedios, counsel appearing for the plaintiff in this matter.  With that realization, Mr Remedios suggested that it would be reasonable for the court to limit the injunctive relief sought in that respect to say, a period of no more than 12 months after termination by the 1^st, 2^nd and 5^th defendants.  Therefore to injunct the plaintiff up to the end of December 2007 would, considering that they left the plaintiff in January or February 2007, in effect be less than 12 months from termination.

29. My own view of the matter is that on the wording of the restrictive covenants, there being no prescribed time limit, such restrictive covenant will not be enforceable against the 1^st, 2^nd and 5^th defendants as being far too wide and therefore unreasonable in so far as enticing away the plaintiff’s customer is concerned.

30. Once that premise is reached, to accede to the suggestion of Mr Remedios for the court to impose a time limit of not more than 12 months, would effectively be for the court to re-write what would otherwise be an unenforceable term of the contract between the parties.  That is something the court cannot do and will not do.

31. Therefore, the plaintiff is really left with no good basis to seek the injunctive relief it seeks relating to Gatto and Oakley, being the plaintiff’s customers.

32. For this reason alone, the suggestion of Mr Remedios must be refused and the undertaking already given by the defendants to Deputy Judge Gill on the return date relating to their not doing business with Gatto and Oakley for a period of five months from the return date will stand.

33. In coming to this decision, I have not lost sight of the fact that the defendants have by the consent order of the parties renewed their undertaking not to use or disclose to any third parties the Process Flow Charts (particularized therein) until trial of this matter or further order.  That will have to be the extent of protection for the plaintiff as regards their concern of the defendants doing business with Gatto and Oakley.

34. Accordingly, paragraph 3 of the summons is dismissed.

35. Paragraph 4 of the summons, not having been pursued at the hearing, no order is made thereon.

Costs

36. Unless the parties can come to some agreement on costs in the light of my ruling given above, else I shall need to hear them on costs.