RECRUITMENT EXPRESS (HONG KONG) LTD v. LI SHUAJUAN AND OTHERS

DCCJ 2257/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2257 OF 2010

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D E C I S I O N

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1.  The plaintiff (“the Company”) is a company carrying on the business of providing staffing solutions for corporate clients and recruitment services for individuals. The 1^st defendant (“Li”) was an employee of the Company during the period between 23 July 2008 and 11 October 2009.

2.  The Company claims that Li was in breach of the terms as to non-competition and confidentiality under their employment contract both during and after the cessation of her employment.  The 2^nd Defendant (“Selective”) was a company set up by the 3^rd Defendant (“Liu”) who is also its director.  Liu is Li’s husband.

3.  The Company commenced the present action in 2010.  This is the application by the Company for an interlocutory injunction restraining the defendants from using its confidential information.

BACKGROUND

4.  By a contract of employment embodied in an employment letter, a profit sharing scheme and an agreement of confidentiality dated 26 February 2008 (collectively “the Employment Contract”), the Company agreed to employ and Li agreed to be employed as a consultant with effect from 23 July 2008.

5.  Besides Hong Kong, the Company has offices in the Mainland and Singapore.  During her employment, Li had been assigned to the “SearchAsia China Hospitality” team of the Company, which specialises in recruitment for hotel clients in the Mainland.

6.  Selective was incorporated in July 2009 carrying on business of providing executive recruitment service similar in nature to that of the Company.  It represented that its key markets are Hong Kong, the Mainland and Asia Pacific regions.  The 2 companies are therefore competitors in the same business.

7.  By email dated 11 October 2009, Li tendered her resignation from the Company with immediate effect.

8.  Subsequently the Company commenced proceedings in the Labour Tribunal against Li for payment in lieu of notice of the termination of the employment (Case No. LBTC 7206/2009).  Li counterclaimed.  The proceedings were eventually settled.

9.  The Company commenced the present action originally against Li only.  The writ, then generally endorsed with the claim, was issued in June 2010.

10.  In default of notice of intention to defend, interlocutory judgment was entered against Li on 3 August 2010; but it was set aside on 26 November 2010 upon Li’s application.

11.  The Company then filed its statement of claim on 10 December 2010 whereby it claims against Li for breach of the non-competition and confidentiality provisions of the Employment Contract.  The Company claims damages and inquiry as to and account of profits that Li has made out of the alleged breach.

12.  In August 2011, with leave of the court, the Company joined Selective and Liu as the 2^nd and the 3^rd Defendants respectively.  The statement of claim was amended accordingly.  Essentially it is alleged that the additional defendants took part in inducing or procuring Li’s breach of the Employment Contract mentioned above.  By the amendments, the Company introduced the prayer for an injunction in the following terms:

“an injunction to restrain the 1^st, 2^nd and 3^rd Defendants, whether by herself, her servants, or agents, or otherwise howsoever, from making use of, disclosing to any person or otherwise further misusing the Plaintiff’s confidential information concerning the business or affairs of the Plaintiff which may have come to the knowledge of the 1^st, 2^nd and 3^rd Defendants during the 1^st Defendant’s employment with the Plaintiff including, but not limited to, the items referred to in paragraphs 15 and 20”

13.  The present summons was taken out on 2 December 2011 for an injunction in the same terms as mentioned above, only that “the items referred to in paragraphs 15 and 20” of the amended statement of claim are specifically spelt out as:

“the details of prospective employers and details of their employing requirements, names and details of prospective candidates and their profiles, Proprietary Information as detailed in the Employment Contract, in particular, lists of prospective employments and candidates, marketing and sales information, employee information, e-mail addresses, mobile and phone contacts of employers and/or candidates, which were obtained by the 1^st Defendant during her employment with the Plaintiff.”

THE PRINCIPLES

14.  The principles are trite.  The court is not to resolve the dispute or to make any findings; but has to be satisfied at this stage that there is serious question to be tried; and the balance of convenience lies in favour of the granting of the injunction: see American Cyanamid Co v Ethicon [1975] AC 396 (HL) (at 406-409).

WHETHER SERIOUS QUESTION TO BE TRIED

15.  The Company relies on the following provisions of the Employment Contract (referred to as “you” in the contractual documents):

Under the employment letter:

Confidentiality

“……

You shall not at all times (whether during employment with the Company or after termination of your employment with the Company) use, divulge or communicate to any person (other than those whose province it is to know the same or with proper authority to do so) any of the trade secrets or other confidential information of the Company, including in particular your salary, incentive, lists or details of customers and clients of the Company or pricing structure, operation procedures or formulas of the Company, which you may (whether before or after the date of the Employment Contract) have received or obtained while in the service of the Company.”

Restrictive Covenants

“In this clause the following expressions have the following meanings:-

……

“the Prohibited Territories” means those cities in which the Company carries on business during the term of the Employment Contract and in which you have involved during the continuance of your employment hereunder.

Since you have obtained and/or is likely to obtain in the course of her employment with the Company, trade secrets and/or other confidential information and since you have and/or is likely to obtain during the course of her employment with the Company personal knowledge and influence over customers and clients of the Company you hereby agree with the Company that you will be bound by the following restrictions: -

(a) that you will not during a period of 12 months from the Termination Date be employed in a capacity substantially similar to the capacity in which you provided service to the company, in any business which is or is about to be engaged in the provision of services which are or may be in competition with the Company in a Prohibited Territory;

(b) that you will not during the said period carry on for her own account either alone or in partnership (or be concerned as a director of any company engaged in) any such business, or any such activity within a Prohibited Territory as is referred to in sub-clause (a);

(c) that you will not during the said period solicit in competition with the Company the custom of any person firm or company who at any time during your service with the Plaintiff was a customer of the Company;

(d) that you will not during the said period employ, hire or engage, directly or indirectly, and person who was employed by the Company or its group company within the 12 months preceding the Termination Date or is employed by the Company or its group company during the said period or solicit, recruit or induce any such person to leave the service of the Company;

(e) while the restrictions aforesaid are considered by the parties to be reasonable in all the circumstances it is agreed that if any one or more of such restriction shall either taken by itself or themselves together be adjudged to go beyond what is reasonable in all the circumstance for the protection of the Company’s legitimate interest but would be adjudged reasonable if any particular restriction or restrictions were deleted or if any part or parts of the working thereof were deleted restricted or limited in particular manner then the said restrictions shall apply with such deletions, restrictions or limitations as the case may be;

(f) you agree that having regard to the facts and matters set out above the restrictive covenants herein contained are reasonable and necessary for the protection of the trade secrets and/or other confidential information and the Company and you further agree that having regard to those circumstances the covenants do not work harshly upon you; and

(g) it is a condition precedent of granting the annual variable bonus and/or incentive payment under the Company’s profit sharing plan that you comply with the Restrictive Covenants clause of the Employment Contract. You acknowledge that any proceeds from the granting of the annual variable bonus and/or incentive payments will be held on trust on behalf of the Company until the Company confirms that the condition precedent of granting of the same has been fulfilled.

In the event that any of the Restrictive Covenants clause of the Employment Contract is breached, you shall immediately pay to the Company the gross sums received by you as a result of the granting of the annual variable bonus and/or incentive payments.”

Under the agreement of confidentiality:

“In connection with your employment with the SearchAsia Division of Recruit Express (Hong Kong) Ltd. and/or  its affiliates or subsidiaries (together, “Recruit Express”) you will have access to and may develop proprietary information, client lists and files, job and technical specifications, candidate resumes, references and employment information, marketing and sales plans and other confidential operational information. Therefore you agree as follows:

1. Definition of Proprietary Information.

“Proprietary Information” includes, but is not limited to, all and any information, whether recorded or not, belonging to or relating to the business of Recruit Express or in respect of which Recruit Express is bound by an obligation of confidence to a third party, including, without limitation, know-how, client information, candidate information, marketing and sales information, employee information, potential customer lists, email addresses, mobile and phone contact numbers, job and technical specifications, written materials, compositions, drawings, diagrams, photographs, works in progress, visual demonstrations, and other data, whether oral, written, graphic or in electronic form.

2. ……

3. Non-Disclosure and Confidentiality of Proprietary Information.

Save as is necessary for the proper performance of your duties under you Employment Contract with Recruit Express, you shall not during or after the termination of your employment, directly or indirectly, use, disclose or cause to be disclosed to any person, firm, corporation or other entity any (or any part of) Proprietary Information unless such disclosure is (a) approved in writing by a Director of Recruit Express or (b) otherwise legally required to be disclosed pursuant to a Court Order.

This Agreement shall be without prejudice to your common law and equitable duties of confidence to Recruit Express.

You agree that money damages would not be a sufficient remedy for any breach of this Agreement and that Recruit Express would be irreparably harmed by any such breach.  Accordingly Recruit Express shall be entitled to specific performance or injunctive or equitable relief as a remedy for any such breach.  Such remedy shall not be deemed to be the exclusive remedy for the breach of this Agreement and shall be without prejudice to any other cause of action that Recruit Express may have against you.”

16.  It is alleged that Li was in breach of the above provisions by taking part in the business of Selective in competition with the Company’s business during and after the termination of her employment.  The covenant against non-competition was subject to the time limit of 12 months from the termination of Li’s employment.

17.  It is also alleged that Selective and Liu knowingly and dishonestly used or permitted Li as the representative of Selective to use the confidential information relating to the business of the Company in breach of the Employment Contract. The covenant in respect of confidential information is not subject to any time limit; and subsists after the termination of the Employment Contract.  Liu and Selective are allegedly liable for procuring the breach on the part of Li.

18.  There is dispute as to whether Li participated in the business of Liu’s or Selective in competition with the Company either during or after her resignation.  There is also dispute as to whether Selective has been carrying on any business activity in Hong Kong as opposed to the Mainland, though it reportedly has offices in both locations.  The affidavit evidence raises seriously arguable matters of fact.

19.  However, the time limit of the covenant against competition has elapsed long before the present application was taken out.  In other words, that Li (and Liu and Selective, if they act in concert as alleged) might now be competing against the Company is nothing but legitimate.  Li, and in fact Liu and Selective, may approach the same potential employers and candidates for recruitment.  What she (and Liu or Selective, if they act in concert as alleged) should not do would be to use the confidential information in breach of the Employment Contract in the course of such competition; and hence the current scope of the injunction sought.

20.  Reliance was placed on Huthart Mugar & Co Limited v Guy Robert Henry Miller, HCA 1659/2002 (10 September 2002), which also involved an executive recruitment consultancy company’s application for an interlocutory injunction restraining its former employee from using the company’s database of clients and candidates or disclosing the same to third party.  The court found that it was at least seriously arguable that the information relating to the company’s business accumulated into a database over the years constituted confidential information: see §20 (referring to Faccenda Chicken, Robb v Green [1895] 2 QB 1 and Yeko Trading Limited v Chow Sai Cheong Tony & Ors [2000] 2 HKC 612).

21.  Any hotels in the hospitality industry may be potential customers of recruitment services, which neither party owns.  Their contact details may well be available in the public domain.  However the Company claims to have spent vast time and resources to cultivate relationship with its clients in order to develop the Proprietary Information as defined in the Employment Contract (above), which comprises far more than mere contact details.  I also find it to be unlikely that the particulars of the potential candidates for employment are generally available in the public domain.  At this stage and for the purpose of the present application, it suffices for me to say that whether the information in question was confidential in nature is at least seriously arguable.

22.  It is alleged that Li has deleted massive volume of files, email correspondence, client information files, etc from her computer at the Company around the time when Selective was set up.  It is suspected that she has removed from her computer the information for the wrongful use by Liu and Selective in their competing business.  For that, report to the police has been made.  The factual allegation against Li is strenuously denied.

23.  Considering the documentary evidence so far disclosed, I am of the view at this stage, and for the purpose of the present application, that whether Li was or is in breach of the confidentiality provisions in the Employment Contract with the Company and whether Liu or Selective has procured such breach as alleged are serious questions to be tried.

BALANCE OF CONVENIENCE

24.  The Company deposed to the effect that Li’s breach would result in irreparable damage to it; and the damage is not easy to quantify.  Specifically it fears the long term loss of clients, potential employers and employees, in the hospitality industry.

25.  As mentioned, by the terms of the Employment Contract, the Company made known its awareness of the possibility that monetary compensation might be inadequate and hence the justifiability of injunctive relief in the event of breach on the part of Li.  From the outset, the Company has always been aware of its legal rights and concern, and even prior to the engagement of legal representatives in the present matter.

26.  It was submitted on behalf of the defendants that the Company suggested breach of confidentiality on the part of Li soon after Li left the Company in October 2009.  The contemporaneous correspondence among the parties and that between the Company and third parties lend support to that observation.  As mentioned, the Company filed a report to the police for stolen and missing files from its computer database in the same month.

27.  The present action was first commenced on 29 June 2010 against Li only.  But it was not that the Company was not aware of the existence of Selective, though under a different name, and the suspected use of the Company’s intellectual property (such as that in the design of testimonials of candidates for employment) for such other business.

28.  Nevertheless the then generally endorsed writ referred to “Restrictive Covenants Sub-Clauses (a) to (d)”, which, as recited above, are the covenants against competition during the period of 12 months after the termination of employment.  An injunction was claimed on such basis, which was subsequently dropped to enable the default judgment to be entered.

29.  Then came Li’s application to set aside the judgment, which the court granted in late November 2010.

30.  In the formal statement of claim filed in December 2010, the Company pleaded breach of the non-competition provisions of the employment contract on the part of Li. This time the alleged breach of the confidentiality provisions was also pleaded. Whilst damages and account of profits were claimed, the Company claimed no injunctive relief to restraining further breach.  The pleadings then closed in January 2011.

31.  There was no further development in the legal proceedings in the following 7 months. Then came the Company’s application to join Selective and Liu as the 2^nd and the 3^rd Defendants.  As mentioned, the application was granted.

32.  It can be seen that the amendments to the statement of claim were introduced as a consequence of the joinder of defendants.  The alleged breach of the confidentiality provisions of the employment contract on the part of Li already pleaded remains.  The claim for an injunction to restrain such alleged breach was introduced for the first time.

33.  Therefore, even without regard to the state of affairs prior to the commencement of action, and merely counting from the time when the Company first pleaded the claim for breach of the confidentiality provisions in December 2010, the Company has still let a whole year elapse before taking out the present application.

34.  By way of affirmations, the Company explained that it acted soon after it became aware of the alleged breach.  As summarised by its counsel, the gist is that the Company had been investigating before it felt it could substantiate the application when the same was taken out.  Judging from the affidavit evidence, I do not doubt that investigation had been conducted.

35.  However the pleading of the alleged breach in December 2010 could only be based on facts known by then.  If the Company was in a position to verify its pleaded facts by the statement of truth, it should likewise be in the position to apply for an interlocutory injunction, if desired, on the basis that the claim raised serious questions to be tried.  It should be noted that by then, the Company’s protection from competition from Li pursuant to the Employment Contract had also expired.  That should have added to any concern about the damage.

36.  The Company illustrated the nature of the damage.  It was said to be very common for a recruitment service company to enter into long term contracts with employers to provide staffing solutions.  Therefore it would be extremely difficult to regain potential customers once the employers have entered into contracts with the competitors including Selective.  In that case, damage would have been done over the past 2 years and more which cannot be undone by way of an injunction now.  The Company would have to be content with compensation by way of damages, whether or not it will be difficult to assess or adequate remedy.

37.  Nevertheless it was argued on behalf of the Company that the defendants may still use the confidential information to the Company’s detriment.  Therefore protection by an injunction from now until the determination of this action would still be necessary.  Against the background mentioned above, should the injunction be granted in the interim?

38.  The longer the delay in applying, the less likely it would be for the applying party to be able to convince the court that there is a genuine concern for irreparable damage if the defendant is not restrained in the interim.  In King Fung Vacuum Ltd v Toto Toys Ltd [2006] 2 HKLRD 785, Roger VP said (at §20):

“…… Since the American Cyanamid decision the importance of irreparable damage in an application for an interlocutory injunction is paramount. If there is no irreparable damage demonstrated then the need for an interlocutory injunction has not been shown……It stands to reason that if a party is prepared to allow matters to proceed and takes no action with respect to matters which have been extant for lengthy periods, it lies ill in their mouth to say that there is likely to be irreparable damage ……”

39.  Whilst the Company suggests that further damage to the Company would be irreparable if the injunction is not granted now, it has not sought to demonstrate how and to what extent the concern becomes pressing for the interim from now until the trial.  Assumption should not be made in favour of the Company insofar as whether it needs the protection of the injunction from now on, notwithstanding the lack of it in the past.

CONCLUSION AND ORDER

40.  I refuse to grant an interlocutory injunction in the circumstances.

41.  The application is dismissed with costs to the defendants in any event.  Costs shall be taxed*, if not agreed, with certificate for counsel.

REMARK

42.  By consent, I gave during the hearing an order in terms of the case management summons dated 5 January 2012 for directions for the further conduct of this case.

*Some documents included in the hearing bundles are extraneous (e.g., pages 243-252) and the costs of the same must be disallowed during taxation in any event.