MIDLAND BUSINESS MANAGEMENT LTD v.CHENG CHI MING STANLEY

DCCJ4137/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4137 OF 2005

D E C I S I O N

1.  I have before me four cases with a similar application.  These cases are DCCJ 4133/2005, DCCJ 4134/2005 & DCCJ 4135/2005 which actions have been consolidated, and DCCJ 4137 of 2005, which has been ordered to he heard together with the consolidated action.

2.  The applications are for an injunction to be granted to restrain the defendants until 29 December 2005 from directly or indirectly being engaged as director, partner, principal, agent, servant or consultant, or accepting employment or otherwise carrying on or being concerned or interested in any business concern of real estate agency within Mei Foo Sun Chuen district, and the district is set out in the schedule attached to the summonses.

3.  The undisputed facts in each of these cases are as follows:

(1)   the plaintiff is an established estate agency.  Each respective defendant was an estate agent under the employ of the plaintiff;

(2)   the employment agreement of each defendant contains a clause which, in short, provides that each defendant shall not, without the prior written consent of the plaintiff, for a period of six months after the termination of his employment agreement, inter alia, engage in any business concern of an estate agency in the area of Mei Foo Sun Chuen.  The relevant clause in each of the employment agreements is clearly pleaded in the statement of claim of each of these actions;

(3)   on 30 June 2005 the defendants in all these actions served notice of termination of employment to the plaintiff which was to take immediate effect;

(4)   shortly thereafter, and without the consent of the plaintiff, the defendants respectively began to be engaged by Kingswood Property Agency, which has its office situated near to Mei Foo Sun Chuen;

(5)   upon the commencement of their new employment, each of the defendants have breached the clause in their employment agreement with the plaintiff which has been referred to aforesaid.

4.  In opposition to the applications, the defendants’ counsel relies on the following grounds to oppose the application:

(1)   the restraint of trade clauses are plainly unreasonable, and hence unenforceable (“the unreasonable and unenforceable ground”);

(2)   the balance of convenience is against granting the injunction because no adequate damages can be compensated to the defendants and the defendants are in the financial position to pay the plaintiff should they fail at the end of the proceedings (“adequacy of damages ground”).

5.  The defendants’ counsel also submits, with reference to the authority Lansing Linde Limited v Kerr [1991] I AER 418, that in a case where a trial of an action to restrain a former employee from working for a competitor in contravention of a restraint of trade clause will not take place until the period of restraint would have expired or almost expired, the plaintiff not only needs to satisfy the court that there be a serious issue to be tried; the plaintiff needs to demonstrate to the court that more likely than not the employer would succeed at trial.

6.  In response, the plaintiff’s counsel submits that the evidence against the defendants in these proceedings are overwhelming.  The defendants themselves have admitted to have breached the covenants in question.  In the circumstances, in terms of merits, the only other consideration is whether the covenants in question are reasonable, and hence enforceable.

7.  The plaintiff’s counsel also refers to three recent Hong Kong authorities and these are: Fortune Reality Company Limited v Chan Hiu Yeung Dick (HCA 1582 of 2001, handed down on 21 May 2001), Midland Realty (Strategic) Limited  v Tang Man Tuen & Others (DCCJ 4474 of 2003, handed down on 10 September 2003)and Midland Realty (Strategic) Limited  v Ma Yin Kwan (DCCJ 1175 of 2005  handed down on 18 May 2005),and submits that interlocutory injunctions have been granted on a term similar to the ones in these cases.  Such covenants were held to be “no way a wide covenant” and are said to be “fairly limited in scope”.

8.  Plaintiff’s counsel, therefore, argues that the covenants in question are not “unreasonable”.  He further submits that although each case must be considered in the light of its own facts, it cannot be argued that the defendants cases are in any way stronger or different from the defendants in the authorities he referred to.  He submits that on evidence available, the court can safely conclude that the plaintiff will more likely than not succeed at the trial.  I accept the contention of plaintiff’s counsel in respect of the aforesaid.  I address the defendant’s grounds of opposition hereunder.

The unreasonable and unenforceable ground

9.  It is not in dispute that a restrictive covenant will be unenforceable if it is not required for the protection of the legitimate interests of the parties and the public.  The defendants’ counsel submits that in considering the kind of trade secret or information that deserve the court’s protection, the statement of Staughton LJ in Lansing Linde Limited v Kerr held that:

“It must be information used in a trade or business, and secondly that the owner must limit the dissemination of it or at least not encourage or permit widespread publication.”

10.  She also submits that if a proprietary right is proved to exist that needs the protection of the court it must be shown to the court’s satisfaction that the restraints, so far as area and time or length of operation on the trades against which it is directed, are not excessive.

11.  She further submits that in considering what amounts to proprietary interest the statement of Judge Prosser, QC, in Cantor Fitzgerald (UK) Limited v Wallace & Others is relevant.  Judge Prosser, QC, held that such proprietary interest must be:

 “personal to the employer and that if the skills of a job lie in the personality of the employee employing it, the employer will have no proprietary interest and, hence,  no legitimate interest to protect”.

12.  The plaintiff’s evidence related to the plaintiff’s legitimate proprietary interest in the affirmation of Ng Chi-fai adduced in support of the application in each of these cases at paragraphs 16 and 17 thereof states that:

“the estate agency business in Hong Kong depends heavily on information relating to properties available for sale or lease.  The success of an agency such as the plaintiff depends on having a sophisticated database of information, such as client details and prices of recent transactions in each of the areas in Hong Kong.  The plaintiff has invested substantial sums in acquiring and maintaining a computerised information management system in order to collect, analyse and share valuable information between the plaintiff’s staff..  Although not every piece of information in the database may be secret, the collection, pooling and co-relation of such information into usable form requires a significant amount of time and expense, and the finished product is extremely valuable and highly confidential and is a trade secret.”

He further states that:

 “the information relating to properties which are available for sale is one of the most important assets of the plaintiff and, indeed, of all estate agents in Hong Kong.”

13.  From the aforesaid, it is clear that the database does not only consist of information,  but also contains an analysis of the information, as well as the pooling and co-relation of the information, to increase its usefulness to the staff of the plaintiff  for servicing and advising the plaintiff’s customers in their sale and purchase of properties.  Such information, in view of the aforesaid, is peculiar to the plaintiff and not to any other estate agency.  Preparation of such database must have been done through the input of expertise, opinion and experience peculiar to the plaintiff’s staff, as expertise, opinion and experience must be required to analyse, pool and co-relate information.  This information, according to the plaintiff, is private and not made public.  The plaintiff’s staff can only access it through a password given to each of them.  The plaintiff further states that such information is updated from time to time, and therefore its usefulness is current and up-to-date.

14.  In my view, the information contained in the database is a kind of trade secret and information that deserves the court’s protection.  The plaintiff’s  counsel refers me to the following passage in the judgment of Chu J in Fortune Realty:

“I also have no difficulty agreeing with the submission that the plaintiff has a legitimate business interest to protect.  Information relating to identities of customers, properties available for sale and letting, and the asking prices of such properties are vital assets of any real estate agency.  Similarly, the preservation of a stable workforce is also of paramount importance to a business like that of the plaintiff which relies heavily on personal contacts between the agents and the customers, as well as the cultivation and maintenance of good customer relationship.”

15.  In my view, the plaintiff has established that they have a legitimate proprietary interest to protect.  The period of the restraint for six months and the limitation of the restraint to the zone of Mei Foo Sun Chuen, in my view, is reasonable.  Similar terms of restraint were held to be reasonable in the authorities cited by the plaintiff’s counsel aforesaid, including the Fortune Realty case, the Midland Realty (Strategic) Limited v Tan Man Tuen & Others case and Midland Realty (Strategic) Limited  v Ma Yin Kwan case.

Adequacy of damages ground

16.  The defendants’ counsel submits that the defendants could not be adequately compensated by damages, because their livelihood will be deprived for three months and they may risk losing their employment.

17.  In my view, there is insufficient basis for me to come to the conclusion that the defendants would not be able to work in neighbouring zones and build up an expertise and understanding of the property market in the neighbouring zone within a reasonable time, if not with their new employer then with another employer.

18.  I also agree with the plaintiff’s counsel that the defendants have voluntarily entered into contracts with the plaintiff and agreed to be bound by the covenants in question.  They well knew that taking up employment with a competitor in the same zone was in breach of the covenant in question.  They could have sought employment with such a competitor after the period of six months, or sought work as estate agents in another zone immediately after the termination of their contract of employment with the plaintiff.  Hence, the defendants have not established that their livelihood would be deprived for three months following the date of the decision to be made herein.

19.  The defendants’ counsel submits that the plaintiff could be adequately compensated by damages.  In my view, there is no evidence of the defendants’ financial circumstances or that they would be able to pay damages were that awarded against them.  All they submitted in evidence is that their present employer is helping them with the cost of this present litigation.  That is not evidence of their financial standing.  Further, the use of the plaintiff’s information in the plaintiff’s database whilst in the employ of the plaintiff’s competitor has a potential to harm the plaintiff that is not easily quantifiable or ascertainable.

20.  Having weighed the balance of convenience, I am of the view that the injunction sought in each of these cases should be granted to the plaintiff.  I therefore grant the injunctions as applied for in paragraph 1 of each of these summonses.

21.  As respective counsel have submitted earlier that costs should follow the event, I grant an order for costs in each of these applications in the consolidated actions and in DCCJ 4137 of 2005 to the plaintiff to be paid by the respective defendants to be taxed if not agreed, with certificate for counsel.