IBM CHINA/ HONG KONG LTD v. NIGEL JOHN KNIGHT

HCA1806/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1806 OF 2008

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J U D G M E N T

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1. By this summons the plaintiff is seeking an interim injunction to restrain the defendant from associating with any Ernst & Young (“E&Y”) entity that engages in competition with the managing consulting business of the plaintiff or its affiliates.

2. In the summons relief is also sought against the defendant to prevent him from soliciting any clients from the plaintiff and from soliciting any of their employees.

3. However Mr Burns SC for the plaintiff informed me that the present hearing would be confined to the restraint in engaging in competition.

4. There is some urgency attaching to this application as the defendant has undertaken not to join E&Y until the outcome of this hearing.

5. The plaintiff is a subsidiary of International Business Machines Corporation (“IBM”).

6. In August 2002 IBM acquired the consultancy practices of Price Waterhouse Cooper (“PWC”).

7. PWC is an international accounting firm which also offered consultancy advice in many parts of the world.

8. IBM paid a purchase price of somewhere in the region of US$3.5 billion.

9. For this it was obtaining the goodwill of the various consulting businesses which largely consisted of the skill and expertise of the senior members of the businesses together with their reputation.

10. What this application is primarily concerned with is the nature of the restrictive covenants contained in the various documents evidencing the sale and purchase of the businesses and the employment agreements entered into between the various IBM entities and the PWC employees who opted to work for IBM.

11. For the purposes of this application there are three documents containing restrictions :

(1) the Redemption Agreement;

(2) the defendant’s Employment Agreement with the plaintiff; and

(3) what has been called the Special Payment Agreement.

12. The restrictions contained in these documents will be considered later in this judgment.

13. The defendant was a former employee of the plaintiff.

14. He was the head of IBM’s government industry section for the Asia Pacific Region which covered Japan, Korea, Greater China, Asian countries and Australia and New Zealand.

15. His last position with the plaintiff was managing partner of IBM Global Business Services Consultancy Practice (“IBM-GBS”), Greater China Group business division (“GCG”).  GCG covers the People’s Republic of China, Taiwan, Hong Kong and Macau.  He was the most senior IBM executive in the IBM-GBS business in the Greater China region.

16. From January 2006 the defendant became a member of IBM’s global Integration & Values Team (“IVT”) a select group of IBM employees who had access to strategic and confidential information.

17. The defendant informed his superiors in the plaintiff that he had received an offer of employment which he was considering accepting.

18. Initially he did not tell them that the company he was thinking of joining was E&Y but did say that he did not think that it was a competitor of the plaintiff.

19. Eventually he did inform them that it was E&Y and I have no doubt that E&Y is a competitor of the plaintiff as they appear to be actively engaged in building up an international consulting practice in addition to their traditional accountancy practice.

20. He accepted an offer from E&Y.  This was contained in a letter dated 27 May 2008.

21. He gave notice to terminate his employment with the plaintiff which expired on 10 September 2008.

22. Some attempts were made by the defendant to discuss how the concerns of the plaintiff would be met in respect of his wish to work for E&Y.

23. These attempts were unavailing.

24. Prior to joining the plaintiff the defendant worked with Price Waterhouse Cooper Consulting (“PWCC”) which was a separate arm of PWC.

25. PWCC operated through incorporated entities.

26. The defendant was head of the section known as Government & Services for the Asia Pacific Region which included Australia, the People’s Republic of China, Hong Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan and Thailand.

27. He was based in Hong Kong.

28. He was a director of PWC Consultants Hong Kong Limited (“PWCCHK”) and of PWC Consulting Holdings Pte Limited a Singapore Company which was the holding company for all the PWCC operating entities in East Asia as well as the operation in Taiwan.

29. One of the issues at large which I have to deal with is the status of the defendant in PWCC.

30. This is a contentious issue as it has a bearing upon the principles applicable to the restrictions which can be legitimately imposed by a covenantee, who is attempting to protect its interests when an undertaking is being acquired.

31. I am satisfied that what I must do in determining what the position is is to have regard to the substance of the matter rather than attaching weight to the labels which have been adopted.

32. As I have already stated PWCC was an incorporated entity and the defendant was a director of it.

33. However on account of the status enjoyed by partners in PWC it was the practice to confer upon senior members of the various consulting companies the title of partner even though legally they were not partners.

34. Mr Burns in his very helpful submission referred to eight factors in support with his contention that the non-compete restrictive covenant contained in the defendant’s Employment Agreement and in the Redemption Agreement I will be referring to should be considered at the “Business Sale”, end of the continuum of restrictive covenants cases.

35. The majority of these points would be equally applicable to a director of a company.

36. However the point which goes most way in support his contention is the fact that the defendant was called upon from time to time to make capital payments to PWCC.  That would certainly be indicative of the role assumed by a partner.  This is not however conclusive.

37. Mr Burns also referred me to affidavit evidence to the effect that the defendant had been kept informed of the developments during the negotiations which took place between PWC and IBM.

38. This fact seems to me to be equivocal.  Even if the defendant was not strictly speaking a partner it would have made imminent good sense to keep prospective employees appraised of the position as their good will would have been an essential element for the success of the acquisition.

39. While I appreciate that where a large partnership is involved in negotiations it is impracticable for all of the partners to participate therein nonetheless the important point for me to bear in mind is whether the defendant was simply being informed and invited to express opinions or whether in reality he had authorised anyone to represent his interests and was thus an active party to the negotiations.

40. In his affidavit in support of his defence to the proceedings the defendant said that what it all amounted to when proffered the available terms was, to adopt the crude vernacular, “take it or leave it”.

41. He had clearly been under some pressure to take it because unless he did he would become redundant.

42. Mr Bleach SC for the defendant submitted that what was important was to have regard to the reality of the position.

43. He referred me to the Purchase Agreement dated 28 August 2002 between IBM and PWCCHK, PWC Consulting Holdings Pte Limited.

44. In the annex to the agreement consideration is defined in these terms ：

“2. Consideration

Upon Closing, the Buyer shall pay to the Local Transferor (i) the amount of Territory Cash Consideration specified below by wire transfer in immediately available funds to the bank account notified by the Local Transferor to the Buyer at least three Business Days prior to the Subsequent Closing Date; and (ii) the amount of the Consulting Partner Consideration equivalent to the dollar amount specified below, such Consulting Partner Consideration to be paid at the direction of the Local Transferor directly by the Buyer to the Consulting Partners.

Territory Cash Consideration:   US$349,644.00

Consulting Partner Consideration:  US$1,950,052.00

In accordance with Section 2.03 of the Redemption and Non-Compete Agreement between the Buyer, the Local Transferor and each Consulting Partner, the Local Transferor shall transfer the Consulting Partner Consideration to the Consulting Partners in consideration for the voluntary termination of their employment with the Local Transferor.  The transfer of the Consulting Partner Consideration shall not represent remuneration for past or future services by such Consulting Partners.”

45. It is manifest from this that the consideration being referred to was the voluntary termination of the employment of the consulting partners.

46. There is also the factual position that at law the defendant was a director of the PWC companies and it appears to be accepted that the title “Partner” was accorded to him and others in a similar position as a courtesy title.

47. Over and above this the moneys the defendant received were stated to be a payment for the termination of his employment.

48. Mr Burns place heavy reliance on Dawnay Day & Co. Ltd v. de Braconier d’Alphen [1997] 1 RLR 285 and Systems Reliability Holdings plc v. Smith [1990] 1 RLR 377 in support of his argument that on the facts of this case I should proceed upon the basis that the defendant was an integral part of PWC which was selling a business to IBM.

49. More particularly he argued that the critical matter for me to bear in mind was that IBM did have a legitimate interest which should be protected by the law.

50. It is true that IBM had to be protected.

51. For the reasons I have given I believe that it was the equity partners of PWC who were selling the business to IBM.

52. There was insufficient nexus between IBM and the defendant to enable IBM to properly tie him to the sale and thus obtain the benefit of very onerous restrictive covenants.

53. Robert Walker J dealt with the conflicting approaches which have to be considered in such a situation at paras. 66 to 68 on 295 of Dawnay Day & Co. Ltd v. de Braconier d’Alphen :

“66    In this case DD and the managers decided to proceed through the medium of a company incorporated with the privilege of limited liability (although subject to the general regulatory regime of the Companies Acts and the specific regulatory regime of the SFA).  The sums paid to take up DDS’s ordinary share capital were nominal.  The effective contribution that the managers made was their skill and experience, and Euro Suisse’s French desk.  The managers were not bound to act together as a single unit, but there was a probability that they would (and the venture’s success probably depended on their acting in unison).  The effective contribution that the DDI group made was start-up capital (in the form of preference shares and subordinated loans) and premises, facilities and administrative back-up.  Mr Elias says that those made DD (and, I suppose he would say, his clients) investors, and so in one sense they were.  But they were not mere investors.  They were joining together to participate in a new and risky but potentially very profitable trading venture, to be carried out through the medium of a limited company.  Following the guidance given by Harman J in Systems Reliability Holdings v. Smith, I conclude that DD did have a sufficient legitimate interest of a proprietary nature to entitle it to seek protection in the form of restrictive covenants by the managers.  The consideration for the covenants was, as clause 9.1 of the shareholders’ agreement states, DD’s investment of start-up capital.  The fact that DDS was not the covenantee was not therefore the oversight of a technicality; in any case, the court would have been concerned to identify the consideration for the covenants.  DDS was covenantee under the service agreements because it was the employer remunerating the managers in their capacity as employees.  Both DD and DDS had legitimate interests to protect, subject to the need for reasonableness, to which I now turn.

67  Reasonableness

  For reasons which I have already stated, and need not repeat, I am of the clear view that the covenant on the part of the managers in clause 9 of the shareholders’ agreement should be treated as part of a commercial bargain between business people of broadly equal bargaining power.  The general principle that the parties are, in such a situation, the best judges of what is reasonable does therefore apply.

68  As to the covenants on the part of the managers in clause 12 of the service agreements, I accept Mr Elias’s submission that they should be treated separately, and approached simply as a transaction between employer and employee.  The general observations of the Privy Council in the Connors case [1940] 4 AER 179, 186 are not directly in point.  The shareholders’ agreement of 30 January 1992 was an agreement between the joint venturers as such, but the service agreements of 18 June 1992 were agreements between the joint venture company, DDS, as employer and the respective managers as employees (DD joined in as a temporary expedient.)  The joint venture provides the background to the service agreements, but they were separately negotiated (as appears from a comparison of their terms with clause 7 of the shareholders’ agreement) and they must be separately assessed for the purposes of the restraint of trade doctrine.”

54. The Court of Appeal upheld this judgment in its entirety.

55. I am satisfied on all of this that the substance of the defendant’s relationship with PWCC was as an employee and that it is in the line of cases governing the relationship of employer and employee which should govern the approach to be adopted in this case.

56. Notwithstanding this analysis of the position it is undoubtedly the case that when the Employment Agreement and the Redemption Agreement were entered into on 27 August 2002, IBM had a legitimate interest in seeking to protect the client relationship and the confidential information which had been available to the defendant.

57. IBM sought to protect itself by what amounted to restrictive covenants in these agreements.

58. The drafting of these clauses was couched in a similar manner although there were some differences.

59. Be that as it may both counsel found it to be convenient to adopt a similar approach to both clauses.

60. So far as the Redemption Agreement was concerned the model agreement which was adopted for all of the different branches of PWCC had to be modified to accommodate the laws of the different jurisdictions where they would be applied.

61. Article 3 reads:

“ ARTICLE 3

NON-COMPETITION AGREEMENT

  Section 3.01.  Non-Competition Covenants.  (a) Each Covered Person acknowledges and agrees that it is essential to the success of the Transaction and the enterprise in the future, that the Consulting Business being transferred to Buyer in connection with the Transaction be protected by non-competition and related protective or restrictive agreements.  Each Covered Person further acknowledges and agrees that in connection with the Transaction, and in the course of such Covered Person’s subsequent direct or indirect engagement with, membership of or employment with his Member Firm(s) or Buyer or its Affiliates, the Covered Person has been and will be provided with access to sensitive and proprietary information about the clients, prospective clients, knowledge capital and business practices of buyer or its Affiliates, and has been and will be provided with the opportunity to develop relationships with clients, prospective clients, consultants, employees, representatives and other agents of Buyer or its Affiliates, and each Covered Person further acknowledges that such proprietary information and relationships are extremely valuable assets in which Buyer or its Affiliates or any of their predecessors (including, without limitation, his Member Firm(s) and their Affiliates) have invested and will continue to invest substantial time, effort and expense and which represent a significant component of the value of the Transaction to Buyer and of the goodwill and other intangible assets of the Consulting Business.  Each Covered Person also acknowledges and agrees that Buyer and its shareholder(s) would suffer significant and irreparable harm from such Covered Person engaging in a Competitive Enterprise for a period of time after the Transaction or after the termination of the Covered Person’s engagement with, membership of or employment with Buyer and its Affiliates.

  (b)   In order to maximize and protect the value of the goodwill, proprietary information and relationships and other intangible assets of the business being transferred by the Member Firm(s) or by the Covered Person to Buyer (or, in the case of Exchanges under Section 2.04, in order to maximize the value of such assets of the Member Firm being transferred) and in connection with the issuance of Acquisition Consideration by Buyer or its Affiliates in the Transaction, which are to be received by Covered Persons pursuant to Redemptions, Re-Employments or Exchanges, as the case may be, each Covered Person agrees that he shall not, directly or indirectly, except in furtherance of each Covered Person’s services for buyer, for the Restricted Period (as defined below):

(i)    associate (including, without limitation, association as a sole proprietor, owner, employer, director, partner, principal, investor, joint venturer, shareholder, associate, employee, member, consultant, contractor or otherwise) with any Competitive Enterprise or any of the Affiliates, related entities, successors or assigns of any Competitive Enterprise or otherwise engage in competition with the Consulting Business; provided, however, that it shall not be a violation of this Section 3.01(b)(i) for a Covered Person to purchase and own securities in accordance with IBM’s policies relating to securities trading, as in effect from time to time; ”

62. It is modified in the annex in this way :

“2.02 Non-competition Covenants:

  (a)   Article 3.01(b)(i) of the Redemption Agreement shall be replaced and read as follows:

‘associate (including, without limitation, association as a sole proprietor, owner, employer, director, partner, principal, investor, joint venturer, shareholder, associate, employee, member, consultant, contractor or otherwise) with any Competitive Enterprise or any of the affiliates, related entities, successors or assigns of any Competitive Enterprise or otherwise engage in competition with the Consulting Business in the same capacity in which he provided services to the Member Firm(s) and in those territories where the Buyer does business and in which he provided services or for which he was responsible; provided, however, that it shall not be a violation of this Section 3.01(b)(i) for a Covered Person to purchase and own securities in accordance with IBM’s policies relating to securities trading and personal investing, as in effect from time to time;’ ”

63. On account of the fact that reference is made to “Competitive Enterprise” it is necessary also to consider the definition of this in the Redemption Agreement :

“    (k)   ‘Competitive Enterprise’ shall mean (i) any business enterprise that engages in, or owns or controls a significant interest in any entity that engages in, competition with the Consulting Business, (ii) any significant or major competitor of Buyer, (iii) any significant or major competitor of IBM Global Services, or (iv) any significant or major competitor of Buyer engaged in any consulting services. ”

64. The parties were unable to agree the construction of these clauses.

65. On the authority of Abuthnot Fund Managers v. Rawlings [2003] E WCA Civ. 518 at paras. 20 and 30 a court hearing an application for interim relief should when faced with an issue relating to the construction of a restrictive covenant deal with the issue itself and not simply put the matter off for determination by the trial judge.

66. The judge should decide whether or not it is plain and obvious that the restraint will fail.

67. I accept that this is what I should do.

68. I have derived considerable assistance from the very helpful summary of the effect of these restrictions prepared by Mr Bleach.  He summarized the position in this way.

69. There are two general restrictions subject to three cumulative qualifications.

70. The first general restriction is not to associate with a Competitive Enterprise and the second is not to engage in competition with the consulting business which is essentially directed towards IBM entities.

71. The first qualification is that the competition must be in the same capacity that the services were provided to PWCC.

72. The second is where IBM did business and where you provided services or for which you were responsible.

73. The third related to the restricted period.

74. What was at issue between the parties was whether the qualifications related to only the second restriction as contended for by Mr Burns or whether they related to both restrictions as contended for by Mr Bleach.

75. Mr Burns argued that the first general restriction which he characterized as the first limb prohibited relationships rather than activities whereas the second limb prohibited activities.

76. I do not think that this makes much sense.  Associating with a prohibited business enterprise is an activity in the same way as activities encompassed by the second limb.

77. It may be the case that when Mr Burns was considering Article 2.02 of the Annex he failed to take into consideration the definition of “Competitive Enterprise”.

78. Mr Burns also submitted that the geographical qualification could not sensibly qualify the 1^st limb.  A similar response to this can be made namely that the 1^st limb is indeed directed against activities.

79. Perhaps the most important matter to bear in mind in following the cannons of construction is what must have been in the minds of the parties when the relevant provisions were being negotiated.

80. If the said qualifications do not apply to both the 1^st and 2^nd restrictions the 1^st restriction would be so wide that it would obviously be unenforceable.

81. Having regard to the matters I should weigh and consider when attempting to determine what was in the minds of the negotiating parties I have come to the conclusion that Mr Bleach’s construction of the restrictive clause is the correct one and that the qualifications apply to both restrictions.

82. I would go further and state that adopting the criteria laid down in Abuthnot Fund Managers v. Rawlings this is a plain and obvious construction.

83. Earlier in this judgment I referred to correspondence which had been exchanged between the parties in an endeavour to obtain the plaintiff’s agreement to the defendant commencing work with E&Y in a more limited role than was initially envisaged.

84. I believe that when the proper construction is applied to the restrictions in the Employment Agreement and the Redemption Agreement it should be possible for the defendant to be employed in the manner suggested in the open correspondence.

85. This is also based upon the evidence to the effect that the defendants input in the work undertaken in Korea was limited to being a member of an interview board.

86. All that then remains is the question of the Special Purchase Agreement dated 1 January 2008.

87. The terms of this agreement are as follows :

“   AGREEMENT

As consideration for the Award granted to you on January 1, 2008, and for other good and valuable consideration, you, (‘Employee’ or ‘you’) hereby agree to the terms and conditions of this Agreement (this ‘Agreement’) as follows:

1.   Restrictive Covenants

You acknowledge and agree that during your employment with IBM China/Hong Kong Limited (‘IBM’ or the ‘Company’) and for one (1) year following the termination of your employment either by you for any reason, by IBM for ‘Cause,’ you will not directly or indirectly within the ‘Restricted Area’ (i) ‘Engage in or Associate with’ (a) any ‘Business Enterprise’ or (b) any significant competitor or major competitor of the Company or its Affiliates; or (ii) solicit, for competitive business purposes, any customer of the Company or its Affiliates with which you were involved as part of your job responsibilities during the last twelve (12) months of your employment with the Company.  You further agree that, for the two (2) year period following the termination of your employment by either you or by IBM for any reason, you will not directly or indirectly within the ‘Restricted Area,’ hire, solicit or make an offer to any employee of the Company or its Affiliates to be employed or perform services outside of the Company.

2.   Definitions

a. For purposes of this Agreement, the term ‘Business Enterprise’ shall mean any entity that engages in, or owns or controls a significant interest in any entity that engages in, competition with the business units or divisions of the Company and its Affiliates in which you worked at any time during the two (2) year period prior to the termination of your employment.

b.    For purposes of this Agreement, ‘Cause’ shall mean, as reasonably determined by IBM, the occurrence of any of the following: (i) embezzlement, misappropriation of corporate funds or other material acts of dishonesty; (ii) commission or conviction of any felony, or of any misdemeanor involving moral turpitude, or entry of a plea of guilty or nolo contendere to any felony or misdemeanor (other than a minor traffic violation or other minor infraction); (iii) engagement in any activity that you know or should know could harm the business or reputation of the Company; (iv) material failure to adhere to the Company’s corporate codes, policies or procedures; (v) a breach of any covenant in your employment agreement or any intellectual property agreement, or a material breach of any other provision of your employment agreement, in either case if the breach is not cured to the Company’s satisfaction within a reasonable period after you are provided with notice of the breach (no notice and cure period is required if the breach cannot be cured), provided, however, that the mere failure to achieve performance objectives shall not constitute Cause; (vi) failure by you to substantially perform your duties or follow management direction, which failure is not cured to the Company’s satisfaction within a reasonable period of time after a written demand for substantial performance is delivered to you (no notice or cure period is required if the failure to perform cannot be cured); or (vii) violation of any statutory, contractual or common law duty or obligation to the Company, including without limitation the duty of loyalty.

c. For purposes of this Agreement, the phrase ‘Engage in or Associate with’ shall include without limitation engagement or association as a sole proprietor, owner, employer, director, partner, principal, investor, joint venturer, shareholder, associate, employee, member, consultant, contractor or otherwise.

d.    For purposes of this Agreement, the term ‘Restricted Area’ shall mean any geographic area in the world for which you had job responsibilities during the last twelve (12) months of your employment with the Company.

e. For purposes of this Agreement, the term ‘Affiliates’ shall mean any entity which directly or indirectly controls or is controlled by, or is under the common control with IBM.  ‘Control’ means direct or indirect beneficial ownership of more than fifty percent of the voting stock, or decision-making authority in the event that there is no voting stock, in an entity.

3.   You acknowledge that the Company would suffer irreparable harm if you fail to comply with the foregoing, and that the Company would be entitled to any appropriate relief, including money damages, equitable relief and attorneys’ fees.  You further acknowledge that enforcement of the restrictive covenants in Paragraph 1 is necessary to ensure the protection and continuity of the business and goodwill of the Company and that, due to the proprietary nature of the business of Company, the restrictions set forth in Paragraph 1 are reasonable as to geography, duration and scope.

4.   In the event any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.  Moreover, if any one or more of the provisions contained in this Agreement shall be held to be excessively broad as to duration, activity or subject, such provisions shall be construed by limiting and reducing them so as to be enforceable to the maximum extent allowed by applicable law.  Furthermore, a determination in any jurisdiction that this Agreement, in whole or in part, is invalid, illegal or unenforceable shall not in any way affect or impair the validity, legality or enforceability of this Agreement in any other jurisdiction.

5.   The failure of the Company to enforce any terms, provisions or covenants of this Agreement shall not be construed as a waiver of the same or of the right of the Company to enforce the same.  Waiver by the Company of any breach or default by you (or by any other employee or former employee of the Company) of any term or provision of this Agreement (or any similar agreement between the Company and you or any other employee or former employee of the Company) shall not operate as a waiver of any other breach or default.

6.   This Agreement shall inure to the benefit of and be binding upon the Company, any successor organization which shall succeed to the Company by acquisition, merger, consolidation or operation of law, or by acquisition of assets of the Company and any assigns.  You may not assign your obligations under this Agreement.

7.   Although this Agreement sets forth the entire understanding between the Employee and the Company concerning its subject matter, this Agreement does not impair, diminish, restrict or waive any other restrictive covenant, nondisclosure obligation or confidentiality obligation of the Employee to the Company under any other agreement, policy, plan or program of the Company.  The Employee and IBM represent that, in executing this Agreement, the Employee and IBM have not relied upon any representations or statements made, other than those set forth herein, with regard to the subject matter, basis or effect of this Agreement.

8.   This Agreement and any disputes between the Employee and the Company shall be governed by, and construed in accordance with, the laws of Hong Kong.

  If you take unpaid leave of absence with IBM, prior to December 31, 2009, the retention period will be extended accordingly for the relevant period of leave.

9.   This Special Bonus will be taxed as ordinary income under applicable law.

10. For the entire period during which the Award is based (ie from January 1, 2008 to December 31, 2009) you must maintain satisfactory performance and continue to actively contribute to the business (both of which shall be determined in the reasonable discretion of your manger).  In addition, you must continue to adhere to and comply with IBM’s Business Conduct Guidelines.

11. If it comes to IBM’s attention after payment to you of any part of the Award that you have violated any condition herein, you agree to repay IBM any and all the Award previously granted to you.

12. The terms and conditions of this Agreement may not be modified or amended unless such modification or amendment is set forth in writing and signed by both you and an authorized representative of IBM.  This Agreement constitutes the entire agreement between you and IBM in relation to the subject matter of this Agreement, amends and supersedes all contemporaneous and prior communications and oral or written agreements relating to this program, and shall not be construed as creating an employment contract or altering your status as an at-will employee.

13. Since the Award is not being offered to all employees, you are encouraged to treat your granting of the Award with appropriate sensitivity and confidentiality.

Agreed and Accepted by:

(signed)	15/1/08
Employee’s Name	Date

Agreed and Accepted by

(signed & chopped)

Gabriel Lo, IBM China/Hong Kong Limited

Signed by Executive, Human Resources

Date: December 20, 2007”

88. These moneys were payable as a consequence of various fringe benefits which were payable to him on account of his living in Shanghai being phased out on account of the amount of time he had served in China.

89. I accept that the plaintiff is entitled to some protection in the event of the defendant leaving his employment with them.

90. However it is also necessary to bear in mind that the restrictions imposed must not be too wide and certainly must not effectively prevent the defendant from undertaking any consultancy work in almost any part of the world.

91. The covenant can conveniently be divided into two separate parts.

92. The first is not to associate with any Business Enterprise (which is defined as any entity that has had business relations with IBM and its affiliates) which the defendant work with at any time during the two years prior to the termination of his employment.

93. Having regard to the international nature of IBM’s interests the scope of this restriction is very extensive.

94. The second part of the covenant prohibits the defendant directly or indirectly engaging in or associating within any significant competitor or affiliate of IBM.

95. Likewise this restriction is very wide.

96. It will be noted that the “Restricted Area” defined in para. 2(d) is extremely wide as it refers to “job responsibilities”.  When this is read in conjunction with the two parts of the restrictive covenant I have just referred to it is manifest that the restrictions are excessive.

97. This is particularly the case when it is virtually unarguable in the present situation that the relationship between the plaintiff and the defendant is one of employer and employee.

98. In my view the extent of the protection it is reasonable to extend to the plaintiff is :

(1) not to be involved in any way with any company undertaking consultancy business with the plaintiff or IBM-GBS for a period of one year; and

(2) this restriction should be limited to the Greater China region.

99. It may be desirable to summarise the findings in this judgment :

(1) As a matter of construction, the three qualifications referred to in the Employment Agreement and the Redemption Agreement in relation to the restrictions on the defendant’s employment do qualify both of the restrictions in the relevant clauses as described earlier in this judgment.

(2) The restrictions imposed in the Special Payment Agreement are to be modified in this way :

(a)  not to be involved in any way with any company undertaking consultancy business with the plaintiff or IBM-GBS for a period of one year.  This would not include E&Y if the defendant was working with them; and

(b) this restriction should be limited to the Greater China region.

If either of the parties are of the view that the Special Payment Agreement needs further refinement there will be liberty to apply.

In that event Mr Burns should prepare a draft of the relevant clause or clauses embodying my findings in this judgment and submit it to Mr Bleach for his approval.

If the parties are unable to agree the draft this matter should be restored before me for determination.

In the event the extent of the restrictions imposed by the different agreements is not dissimilar so far as its practical application is concerned.

So long as the defendant confines his activities to areas not within the Greater China region as has been defined it should be possible for him to work with E&Y.

(3) The injunction in its present form must be discharged as its restrictions are too wide.

(4) It would also seem to me to be unnecessary to replace the injunction with one of narrower scope which contains restrictions which I have held to be legitimate.

(5) I say this because it is definitely my impression that the defendant has been attempting to co-operate with the plaintiff and seek to arrive at an acceptable accommodation.

(6) However this is a provisional view of the position and there will be liberty to apply if the plaintiff considers that it needs more protection.

(7) I make an order nisi that costs will be in the course.