XCHRX JAEGER OIL & CHEMICAL CO. LTD. v. LI TING KIN AND ANOTHER

1998, No. A19437

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

___________________________

REASONS FOR JUDGMENT

___________________________

1. The plaintiff sought interim injunctions against the defendants, who are former employees, restraining them from carrying on a business in competition with the plaintiff and soliciting or enticing away customers or suppliers. The basis for the relief sought was restraint clauses in contracts of employment. In the case of the first defendant, that restraint was for a period of 12 months from 24 June 1998, so the period expires on 23 June 1999. In the case of the second defendant, the restraint was for 6 months commencing on 14 July 1998, so this period expires in about two weeks time. After hearing Mr Cheung for the plaintiff, I dismissed the summons and said that I would hand down my reasons later. These are the reasons.

2. The background to this matter is that the plaintiff was the exclusive supplier of the products of a company called Nichibei Company Limited (Nichibei). There is no complaint on the evidence that the defendants breached the covenants other than in relation to these products.

3. An important part of the plaintiff's case is that, according to Mr Augustine Szeto, the group managing director of the plaintiff, Nichibei and the plaintiff had a harmonious relationship until September 1998 when Nichibei terminated the agreement with the plaintiff. Mr Szeto said in his first affirmation that "One of the alleged grounds of termination relied upon by Nichibei was that they were told by the first defendant in early 1998 that the plaintiff was then planning to the contact the original manufacturer of Nichibei products in violation of the Distributorship Agreement.". This is not an accurate statement. In its letter to the plaintiff dated 10 September 1998, Nichibei explained in some detail its grounds for terminating the relationship. These were, generally, that Nichibei was not happy with the plaintiff. Nichibei made no mention at all of the ground mentioned by Mr Szeto, as one of the grounds for termination or otherwise. It was only when the plaintiff threatened to take action against Nichibei that this company replied saying that it had made a final decision to end the contract and Nichibei would "counter sue", mentioning that the first defendant had told it of the plaintiff's intention of buying "our traded products directly from the original manufacturer". So there is no basis on the evidence for supposing that Nichibei ended the relationship because of anything the first defendant told it.

4. When Nichibei terminated the relationship, it said to the plaintiff that it "may continue to sell your remaining Nichibei inventory for the six months following September 15"; that is until 15 March 1999.

5. The situation was, then, that, from 15 September 1998, the plaintiff was no longer the sole distributor of Nichibei products, although it was entitled to sell its stock until 15 March 1999. The plaintiff was not content with this and negotiations have been in progress between it and Nichibei. The present position is that no agreement has been concluded between them.

6. There is no evidence that, since 15 September 1998, the plaintiff has attempted to sell any Nichibei products. Mr Cheung accepts this, but argues that the plaintiff has a "fair chance" of eventually concluding a deal with Nichibei so that it may continue to sell Nichibei products. He also argues that the plaintiff has an accrued right to sell its inventory of Nichibei products until 15 March 1999, although he agrees that there is no evidence that the plaintiff has sought to exercise this right. It follows that the plaintiff has failed to show that it is suffering any actual continuing damage that would justify the injunctions against the defendants. Mr Cheung accepts this, but says, as I understand him, that there is some basis from which I may infer that the plaintiff will suffer damages at some time in the future if injunctions are not granted.

7. Against this uncertainty, there is what I regard as a virtual certainty that the defendants will suffer severe loss if I grant the injunctions sought. It is, of course, quite impossible for there to be trial of this action before the injunction against the second defendant would expire in two weeks time, and most unlikely that there could be a trial before 23 June 1999, when the injunction against the first defendant would run out.

8. Following Lawrence David v Ashton [1991] All ER 385 and Lansing Linde Ltd v Kerr [1991] 1 WLR 251, it seems to me that the strength of the plaintiff's case is an important consideration to take into account along with the balance of convenience in deciding if this is a proper case for the grant of an interlocutory injunction.

9. Firstly, the first restraint is wide and seems to be no more than an attempt by the plaintiff to protect itself against simple competition. There must be considerable doubt as to whether this covenant is enforceable. The second restraint has more chance of being upheld, but even here the plaintiff's ability to establish its main complaint that the first defendant had some hand in causing Nichibei to desert it must very doubtful on the evidence before me.

10. Secondly, if it so that the plaintiff is going to have difficulties in showing that the first defendant in some way solicited or enticed Nichibei to terminate the agreement, the plaintiff will also have difficulties in showing that the defendants were acting with a body corporate in competition with the plaintiff. This is because, if the plaintiff no longer had an agreement with Nichibei, it might well be said that they were not associated with a body corporate selling Nichibei's products in competition with the plaintiff. This may not be so to the extent of the plaintiff's right to sell its existing stock, but the plaintiff has made no attempt to show what stock it now possess, if any, and how it may be affected by the sale of Nichibei's products by others.

11. Thirdly, on the evidence, the loss suffered by the plaintiff is attributable, at least in the main, to the termination of the agreement by Nichibei. Nichibei made it plain that it terminated because it was unhappy with the plaintiff, and, if the plaintiff did not handle Nichibei's products, someone else would have done so, regardless of the defendants' activities.

12. When I took these factors into account, together with the uncertainty of the plaintiff suffering any further continuing damage because of the defendants' acts against the assurance that the defendants would suffer by the imposition of the injunctions, it seemed to me that this was not the right case for interlocutory injunctions. Accordingly, I dismissed the summons.

13. On the matter of costs, Mr Cheung submits that these should be the defendants' costs in the cause. He submits that this is the usual order, and this may be so in many cases. Where, however, as I believe is the situation here, the plaintiff should not have brought the application, as opposed simply to losing the argument on balance, it seems to me that the defendant should have the costs in any event. It does not seem right to me that, if the plaintiff were to win the action, the defendants would not be able to recover their costs of an unmeritorious application brought by the plaintiff. Accordingly, I order that the defendants are to have their costs of the plaintiff's application in any event.