COLIN W. BUCKLEY AND ANOTHER v. FRANZ WEIHS AND ANOTHER

1992 No. A635

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. By their inter partes summons dated 3rd June 1992, both plaintiffs claim interlocutory injunctions against both defendants. If I were minded to grant the plaintiffs any relief, I would have to hear both counsel on the terms of the order. In essence, the injunctions sought are designed to restrain the defendants from soliciting orders from customers of the 2nd plaintiff and/or a company called Trexim International Ltd. (Trexim) to which reference will be made shortly. Further, both plaintiffs seek orders restraining the defendants from disclosing confidential information or from engaging in fish and/or seafood production, sourcing and/or export to Hong Kong from the Philippines and from fish and seafood importation from the Philippines and/or wholesale and/or retail distribution in Hong. Kong.

Background facts

2. Prior to the 9th August 1990, the 1st plaintiff (Mr. Buckley) and his son owned all the issued shares in the 2nd plaintiff (Seeflow). Both prior to August thereafter, Mr. Buckley was a director of Seeflow.

3. Seeflow carried on and still carries on a business under the name of "Sturgeon Aquatic Resources Co." in the sourcing, importation and wholesale and retail distribution of fish and seafood products.

4. Trexim carries on business in the same field under the name "Sea Star International Company (Hong Kong)". At all material times, Mr. Buckley owned 99.97% of the issued shares in Trexim.

5. At all material times, the 1st defendant (Mr. Weihs) was the executive chef at the Park Lane Radisson Hotel in Hong Kong. The 2nd defendant (Best Eastern) is a company corporated in Hong Kong. Mr. Weihs is a director of and shareholder in Best Eastern.

The Agreement

6. Mr. Buckley and Mr. Weihs met in or about the autumn of 1999. Trexim was selling fresh fish and seafood to the Park Lane Hotel. In early 1990, Mr. Buckley says that Mr. Weihs expressed an interest in Mr. Buckley's newly established business of importing aquarium fish from the Philippines to Hong Kong.

7. On or about the 14th July 1990, Mr. Buckley issued to Mr. Weihs a letter setting out his offer to sell to Mr. Weihs a 20% share in the aquarium fish business for $90,000.00.

8. Mr. Buckley deposes to the fact that at this time a fresh fish and seafood business was being carried on by Trexim under the name "Sea Star International Company (Hong Kong)". He says that the aquarium fish business was treated as a division of Sea Star and aquarium fish were imported to Hong Kong by Sea Star.

9. Mr. Buckley further deposes that the aquarium fish business and the fresh fish and seafood business were closely related as Sea Star was used to import both, and both were sourced from the Philippines by a Mr. Camero through a company called C-Star.

10. Mr. Buckley says he was concerned that in selling part of his aquarium fish business to Mr. Weihs he might jeopardize the existing fresh fish and seafood business on the basis that confidential information would inevitably be available to Mr. Weihs by reason of his involvement in the aquarium business.

11. It was because of these fears that Mr. Buckley says that his offer letter was expressed to be conditional upon acceptance of the terms of a document which he had already prepared entitled "Confidentiality and Non-Circumvention Agreement".

12. Mr. Buckley deposes that on the 18th July 1990, he met with Mr. Weihs in Hong Kong. He says that he gave to Mr. Weihs two copies of the Confidentiality and Non Circumvention Agreement. He says that he read it over and discussed its terms with Mr. Weihs. He says he made it clear to Mr. Weihs that this was the basis upon which he was prepared to let him buy into, and participate as a director of, the business. He contends Mr. Weihs orally agreed to these terms. He says that Mr. Weihs agreed to sign the documents after looking through them again.

13. Shortly before the transfer was to take place, Mr. Weihs asked for a 50% holding at the same price. As consideration for this larger shareholding, Mr. Buckley contends that Mr. Weihs promised that through his contacts as executive chef, he would introduce suppliers of meat and ice-cream in order for Seeflow to negotiate distributorship contracts. Mr. Buckley agreed to this.

14. Pursuant to this arrangement, and this is common ground, Mr. Buckley transferred four shares and his son one share in Seeflow to Mr. Weihs on 9th August 1990 for the price of $90,000.00 and Mr. Weihs was appointed a director of Seeflow as from the 4th August 1990.

15. Mr. Buckley does not know whether Mr. Weihs ever, in fact, signed the offer letter or the Confidentiality and. Non Circumvention Agreement. At any rate, he says the documents were not returned to him although he requested them on several occasions and their return was promised. He says that at no time prior to the filing of the defence in this action did Mr. Weihs ever intimate any objection or unwillingness to-be bound by the terms. He goes further and says that if Mr. Weihs had done so, he would not have been prepared to sell any part of the business to him.

16. I do not propose to set out in full the relevant pages which are said to deal with the confidentiality issue. Suffice it to say, that page 6, is said to be the fifth page, of a letter dated the 14th July 1990 in which there is reference to the confidential information clause, and it goes on to state:-

"The attached offer to sell a shareholding in the companies named should be read in conjunction with this attachment, as the offer to sell is completely conditional upon acceptance of the terms of the Confidentiality-Non Circumvention Agreement described below"

17. A little further on in this page, one finds the following statement:-

"Purchase of these shares will constitute agreement to this condition."

18. The Confidentiality Agreement is dated July 1990 and is on the headed note paper of Sea Star International Company (Hong Kong)(Branch of Trexim International Limited). There are six pages to this agreement and it is common ground that Mr. Weihs never signed a copy.

19. The Confidentiality Agreement is lengthy and I do not propose to set it all out in full.

20. Section 1 provides:-

"This Agreement shall be considered to cover business in both Hong Kong and the Republic of the Philippines currently being carried on by Trexim International Limited T/A Sea Star International Company (Hong Kong) and by Seeflow Sound Limited T/A as Sturgeon Aquatic Company. The areas of business covered are as follows:

Fish and Seafood Production, Sourcing and Export to Hong Kong from the Republic of the Philippines during the periods covered elsewhere in this Agreement.

Fish or Seafood Import and Wholesale/Retail Distribution in Hong Kong where those products originate in the Philippines, during the periods covered elsewhere in this Agreement.

Ornamental Tropical Aquarium Fish Exports to Hong Kong during the periods covered elsewhere in this Agreement.

Fresh Cut or Dried Herbs Production, Sourcing and Export to Hong Kong from the Philippines during the periods covered elsewhere in this Agreement.

Fresh Cut or Dried Herbs Import and Wholesale/Retail Distribution in Hong Kong from the Philippines during the periods covered elsewhere in this. Agreement."

21. Section 3 applies the Agreement, inter alia, to shareholders and directors of Trexim and Seeflow.

22. Section 4 applies confidentiality to, inter alia, the names of buyers and sellers introduced by any party to the Agreement.'

23. Section 5 provides as follows:-

"Each party to this Agreement covenants that they will not utilise nor disclose nor allow to be used by any family or relatives, associates, associated companies or their employees, any of the special information, knowledge, contacts and systems related to the Businesses covered in Section 1 gained by or through their association with the "Companies" at any time during their relationship with the "Companies" nor for a period of two years after termination for any reason of their relationship with the "Companies" to the detriment of said "Companies" business in Hong Kong.

Each party to the Agreement hereby acknowledges that they are charged with the very highest degree of trust and confidence in connection with the confidential and special knowledge they will receive and obtain while involved with the "Companies". Each party agrees absolutely and expressly that during the course of their relationship with Trexim International Limited or Seeflow Sound Limited or their trading arms, they shall not engage in, nor cause, encourage or assist any other party including those covered by Section 3 of this Agreement to engage in any area of Business specifically named in Section 1 in either of those Countries named in Section 1, save with the foreknowledge and the express written agreement of the Board of Directors of Trexim . International Limited.

Each party to the Agreement agrees absolutely and expressly that during the course of their relationship with Trexim International Limited or Seeflow Sound Limited or their trading arms, and for a further period of not less than two years after termination of the relationship with the "Companies" for any reason whatsoever, they shall neither cause nor allow nor encourage or assist any family, relatives, associates, employees nor any-other party, including those covered by Section 3 of this Agreement to engage in any of the areas of Business specifically named in Section 1 in either of those Countries named in Section 1, save with the foreknowledge and express written agreement of Board of Directors of Trexim International Limited.

Each party covenants that during the course of their relationship with the "Companies", nor for a further period of not less than two years after termination of the relationship, they shall not engage in any area of Business specifically named in Section 1 in either of those Countries named in Section 1, save with the foreknowledge and the express written agreement of the Board of Directors of Trexim International Limited."

24. Section 6 provides as follows:-

"Each party expressly agrees that during. their relationship with the "Companies" they shall not approach, nor cause or assist any other persons or organisations whatsoever to approach, any past or existing Customer of the "Companies" in Hong Kong without the foreknowledge and express written consent of the Board of Directors of Trexim International Limited.

Each party expressly agrees that in the event of termination of their relationship with the "Companies" they shall not approach any past or existing Customer of the "Companies" in Hong Kong for a period of not less than two years after termination without the foreknowledge and express written consent of the Board of Directors of Trexim International Limited."

The alleged breach

25. Shortly before the agreement was entered into, Mr. Buckley had taken Mr. Weihs with him to the Philippines to introduce him to the aquarium fish business. They visited Sea Star Aquarium in Angeles City. After receiving his shares, Mr. Weihs again accompanied Mr. Buckley to the Philippines at the end of August 1990 when Mr. Buckley introduced him to Mr. Camero and other associates. The three gentlemen visited various suppliers of both aquarium fish and fresh fish and seafood.

26. Mr. Buckley deposes that in the first week of September 1990, Mr. Weihs told him that he wished to become more involved in all aspects of the business. In or about November 1990, Seeflow began to import from the Philippines fresh fish and seafood for distribution in Hong Kong.

27. In or about October 1990, Mr. Buckley offered Mr. Weihs a full time job with Seeflow at HK$30,000.00 a month which was declined and after that, it is said by Mr. Buckley that contact between the two reduced.

28. Mr. Buckley deposes that in or about December 1990, he started to notice a deterioration in the quality and supply of goods from C-Star in the Philippines to Trexim and Seeflow. Prices quoted by Mr. Camero also appeared to rise sharply. After enquiries had been made, Mr. Buckley found that the prices quoted by Mr. Camero were high for the market.

29. Mr. Buckley deposes that he conducted considerable investigations and discovered that Mr. Weihs had within three months of acquiring his shares in Seeflow set up a competing business in the importation from the Philippines to Hong Kong of fresh fish and seafood through the medium of Best Eastern. Mr. Weihs is a shareholder and director of Best Eastern. Mr. Buckley believes that Mr. Camero was and is involved in this competing business because he contends he has discovered that C-Star has been exporting fresh fish and seafood to Best Eastern and he produces a number-of airway bills to support this fact.

30. Mr. Buckley contends Seeflow and Trexim have suffered as a result of the activities of Mr. Weihs, Best Eastern and Mr. Camero. He says a number of establishments, such as the Ramada Renaissance Hotel and the Grand Hyatt Hotel who gave business to Seeflow and/or Trexim no longer do so. C-Star,' being run by Mr. Camero no longer supplies to Seeflow or Trexim and has not supplied to either since August 1991, despite the fact that Sea Star was set up by Mr. Buckley solely to supply his company.

31. Mr. Buckley says he cannot at the moment quantify the damage suffered by Seeflow and Trexim, but he believes it to be very substantial. He says that in order to protect his business he has had to lower his prices by 10%, and in some cases he is still maintaining 1990 prices, but he dare not increase prices because of what he says is unfair competition.

32. Although Mr. Weihs no longer attends the office of Seeflow and Trexim, he previously did so regularly according to Mr. Buckley. Mr. Buckley contends that Mr. Weihs had full access to the books and records of these companies which contained information as to the suppliers, clients, prices, shipping administration, etc.

33. In the course of a telephone conversation held on or about 28th August 1991, Mr. Buckley confronted Mr. Weihs with the competition by Best Eastern, and Mr. Buckley recorded this conversation. Mr. Weihs denied this fact and denied he had broken the agreement. I will have to return to this telephone conversation in due course.

The Claim

34. Mr. Buckley's claim is based fairly and squarely on the terms of the Confidentiality Agreement. Unless I am satisfied that there is a case to be tried as to whether this Confidentiality Agreement was agreed to by Mr. Weihs, Mr. Buckley's claim for relief must fail.

35. Seeflow's claim is based on the fact that Mr. Weihs has at all material times been, and still is, a director of Seeflow and as such owes that company fiduciary duties which it is said have been broken.

36. The defendants' case is that the Confidentiality Agreement was never entered into. Even if it was entered into, it is contended that there has been no breach and this applies likewise to Seeflow's claim.

Was the Confidentiality Agreement ever concluded?

37. Mr. Weihs contends that he never received nor ever discussed with Mr. Buckley any confidentiality agreement. Mr. Weihs' case amounts to a most serious allegation against Mr. Buckley because if he is correct, it follows that Mr. Buckley has falsely put before this court various pages of a document which either were provided solely for the purposes of this litigation or, if in existence at the time, for some reason was not shown to or discussed with Mr. Weihs.

38. This being an interlocutory application for injunctive relief, I cannot and should not attempt to resolve this stark dispute of fact. What I have to do is to look at the evidence to see whether there is anything which supports one version over the other for the purposes of seeing whether I am satisfied that there is an issue to be tried.

39. Mr. Jat, for the defendants, contends that it is apparent from the face of two versions of the same document that they were prepared at different times. Mr. Buckley had dealt with this point and has explained how he tidied up the document and subsequently sent his solicitor a print out of the tidied up version. I have been addressed briefly on the workings of computers and I have considered all of the evidence on this point which comes from sources other than just Mr. Buckley.

40. Mr. J.J. Swaine for the plaintiffs relies very heavily upon the terms of the telephone conversation to which I adverted earlier. I think it is fair to characterize this conversation as a cross-examination by Mr. Buckley of Mr. Weihs on the basis that there had been a breach of the Confidentiality Agreement. Mr. Buckley was cross-examining Mr. Weihs about the terms of an airway bill which Mr. Buckley was contending was evidence of a breach of the agreement on the part of the defendants. This airway bill was only produced at the hearing. Having looked at it and having considered the cross-examination about its content, it is strongly arguable that when Mr. Buckley was cross-examinating Mr. Weihs, he did in fact have in his possession the airway bill produced to me. It is perfectly true that he referred to it as being dated the 5th January 1991 when in fact it is dated the 3rd January 1991. It is also perfectly true that at some stage during the conversation, Mr. Buckley referred to a figure of 180 kgs which is not a figure one will find on the document itself. However, he referred to so many other accurate details on this document, that I am prepared to accept that it was likely that Mr. Buckley made two innocent mistakes during the course of a heated telephone conversation. It is, of course, interesting to note that this airway bill was originally made out to Sturgeon Aquatic Resources Co. at the address at Lockhart Road, Wanchai, Hong Kong, but this is crossed out and in its place one finds Best Eastern Limited at the address in Kowloon.

41. The transcript of the telephone conversation which took place on the 28th August 1991 appears at pages 36 to 39 in the bundle. Having referred to this particular airway bill, Mr. Buckley said the following:-

"Now. The consignee is Best Eastern. Now, I have got a number of other airway bills here which have been sent by Mr. Camero to Hong Kong and Mr. Camero paid for that shipment. So you tell me that you haven't been involved in shipping seafood with him in contravention of our agreemet?"

Mr. Weihs replied "No."

Mr. Buckley said "You haven't?"

Mr. Weihs said "No."

Mr. Buckley said "So why did he send you 380 kilos of fish consigned to Best Eastern?"

Mr. Weihs said "I don't know."

42. I have to warn myself that I have heard neither party give oral evidence about this telephone conversation. Mr. Weihs has deposed that this conversation came late at night, but he couldn't remember the details of the conversation. He is not in a position to deny or admit that this conversation took place.

43. However, it seems to me arguable that if there was no Confidentiality Agreement between the parties Mr. Weihs could have been expected to deny not that there had been no contravention of the agreement but that in fact there was no agreement whatsoever. There is no doubt in my mind that this piece of evidence, unexplained as yet by oral evidence, is sufficient to add some support to Mr. Buckley's version that the Confidentiality Agreement was indeed entered into.

44. Therefore, for present purposes, having considered all the arguments deployed by both sides, I am satisfied that there is an arguable issue as to the incorporation of the terms of the Confidentiality Agreement. Put another way, the defendants have not satisfied me that such a contention is unarguable.

Have there been a breach of the Confidentiality Agreement or fiduciary duties owed to Seeflow?

45. Before looking at the evidence, Mr. Swaine invites me to consider the following matters.

46. Firstly, he relies upon the terms of the transcript itself. He submits that I can get from the transcript a denial that there has ever been a breach of the Confidentiality Agreement and that this does not sit comfortably with the defence that there never was a Confidentiality Agreement. I have already adverted to this point.

47. In relation to the defendants' denial of any breach of the Confidentiality Agreement or breach of fiduciary duties, Mr. Swaine relies upon page 41 which is a fax from Mr. Weihs to his brother quoting the prices of shrimp and fish, etc. Mr. Swaine then suggested Mr. Weihs had not been candid when he said he had never heard of Trexim and he referred me to a number of documents which bear Trexim's name which he says that Mr. Weihs would have seen.

48. Mr. Swaine then relies heavily upon the deterioration in the quality and supply of goods that Mr. Buckley noticed from December 1990 onward.

49. There is a big dispute between the parties as to whether or not Mr. Weihs ever had any access to confidential information. Mr. Jat has correctly pointed out that certain deponents on behalf of the plaintiffs have said that Mr. Weihs' visits were always while they were present. Having considered this aspect of the matter, I think the evidence falls short of that required to establish that Mr. Weihs has in fact made use of the sort of confidential information which this summons seeks to restrain. That, of course, is not the same as saying-that the defendants have not solicited orders from customers of Seeflow or Trexim, nor does it mean they have not engaged in the sort of business which the Confidentiality Agreement sought to prevent.

50. Mr. Buckley has deposed that two established hotels in Hong Kong who did give business to Seeflow and/or Trexim no longer do so, and that C-Star Company run by Mr. Camero no longer supplies Seeflow or Trexim and has not done so since August 1991.

51. Taking into account all the evidence in the case and all the submissions made by counsel, it seems to me that the plaintiffs have established that there is an issue to be tried on the question of breach of the Confidentiality Agreement and breach of fiduciary duties. In coming to the conclusion that there is an issue to be tried I have taken into account all that Mr. Weihs has said in his evidence and the points raised by Mr. Jat. I make no concluded findings on any of the issues raised. However, I am satisfied that there is an issue to go for trial.

Are Damages an adequate remedy?

52. Mr. Swaine submits that damages would not be an adequate remedy. He submits that it would be very difficult to quantify the harm caused to the plaintiffs' business. He asks me to bear in mind that on Mr. Buckley's version of events, there has been concealment by the defendants, and that this does not give confidence in relation to an assessment of damages in the future. He reminds me that in Thomas Marshall v. Guinle [1978] 3 WLR 116, the learned Vice-Chancellor found that damages was not an adequate remedy in a similar case, but of course Mr. Swaine accepts that each case has to be considered on its own facts.

53. Mr. Jat submits that it would not be that difficult to assess any damage that the plaintiff might have suffered but, on the other hand, it would be most difficult to assess the damage suffered by the defendants in the event that it turned out that the plaintiffs were not entitled to the injunction.

54. This is always a difficult area. I believe that it would be very difficult for the plaintiffs to quantify their loss if left to rely solely on the remedy of damages. On the other hand, the defendants would have a ready yardstick by which to measure their loss if entitled to enforce their undertaking in damages. They would start off with their turnover and profit since August 1990 and would be able to compare that with the turnover and profit immediately following the imposition of the injunction. I do not wish to under-estimate the difficulty of either course of action, but on balance I believe that the plaintiffs will have the most difficulty, and for that reason I am not satisfied that damages are an adequate remedy. to compensate the plaintiffs for the loss which they contend they have suffered.

The Status Quo

55. Both counsel invited me to preserve the status quo. Lord Diplock in Cyanimid had referred to the status quo as the prudent course where other factors were evenly balanced (p. 408F/G). By this submission Mr. Jat was contending that the defendants had been carrying on their present business for 2 years and that I should not interrupt it.

56. Mr. Swaine submitted that the status quo referred to the state of affairs existing immediately before the defendants began the conduct complained of.

57. To support this proposition, Mr. Swaine relied on certain observations of Megarry VC in the Thomas Marshall case where at page 133 he said;

"I think that the balance of convenience and not least the status quo existing before the defendant began the conduct of which the company complained so promptly on discovering it, point to granting a suitable injunction to enforce this duty."

58. This case did not go on appeal but it has been cited without criticism in various subsequent cases including Faccenda Chicken v. Fowler [1986] 3 WLR 288.

59. I propose to follow the approach of the learned Vide Chancellor. Not only do I think that it is correct as a matter of law but it seems to me to accord with good sense and justice. Were it otherwise a defendant who had been able to conceal his wrongdoing for some time would be able to rely on that very wrongdoing to oppose the grant of injunctive relief-under the guise of the status quo. Clearly if a plaintiff delayed in seeking relief after discovery of the wrongdoing different considerations would come into play.

60. In this case I should add that delay has not been relied upon. Mr. Swaine pointed out that it took the plaintiffs some time to put together their case, and, when ready, they issued proceedings in January 1992. By June 1992, the plaintiffs were in a position to launch this application. Given that enquiries had to be made from the Philippines, I am not satisfied that there has been any undue delay. The summons was in fact returnable on the 6th August 1992, but was adjourned for reasons about which neither side had sought to make any capital.

61. In my judgment, in considering the status quo, I should have regard the position that existed immediately prior to the conduct complained of.

The respective financial position of the parties

62. The plaintiffs do not contend that the defendants will be unable to pay any damages awarded against them. There is hardly any evidence as to the defendants' financial position save that Mr. Weihs deposes that the 2nd defendant averages a monthly turnover of between $500,000.00 and $600,000.00.

63. A vague suggestion has been made that the plaintiffs may not be worth powder and shot because of the effect of the Mr. Pinatabu eruption on their operation in the Philippines and the fact that Mr. Camero says that he is owed some money.

64. I do not attach much significance to these two allegations, but I am concerned that if an injunction is to be granted, the court and the defendants should be able to feel comfortable with the plaintiffs' undertaking in damages. Mr. Swaine gave some evidence from the Bar, at my request, as to the plaintiffs' financial position. Bearing in mind the length of time this trial will take to come on, even with an order for a speedy trial, the damages for which the plaintiffs may become liable in the event of their losing this action will be considerable indeed.

Conclusion

65. Weighing up all these factors and all the points ably raised by both counsel and bearing in mind the observation of Lord Diplock in American Cyanamid v. Ethicon (1975) AC 396, as well as Megary VC's observations in the Thomas Marshall case, I have concluded that in the exercise of my discretion it would be right and proper and just to grant the plaintiffs injunctive relief, but only on condition that their undertaking in damages is fortified by a payment into court, a bank guarantee or a combination of both.

66. I will now hear counsel on the precise terms of the order as well as on the question of fortification of the plaintiffs' undertaking in damages, costs and any other matters arising.