HO WING CHEONG t/a HONG LEONG SECURITIES AND OTHERS v. GRAHAM MARGOT

[Where a plaintiff obtains an interlocutory injunction, giving the usual undertaking in damages, but fails at the trial, the damages awarded to the defendant (if any) must be assessed in accordance with the rules governing an award of damages for breach of contract]

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

------------------

BETWEEN

-----------------

JUDGMENT

-----------------

1. These proceedings arise out of the employment by the plaintiffs (carrying on business as stock-brokers under the name of "Hong Leong Securities Company") of the defendant Graham Margot ("Mr Margot") as their Executive Director; and his subsequent defection (together with Mr Norman Ng and 16 other employees of the plaintiffs) to another stock-broker, Sunshine Securities Company ("SSC") in December 1986.

2. A description of the circumstances in which the plaintiffs came to employ Mr Margot will be found in the judgment which I delivered in these proceedings on 15th April 1987, following the trial of the action, and I will not repeat it here.

3. It is sufficient for present purposes to note that the plaintiffs employed Mr Margot as from 1st October 1985 as their Executive Director at a salary of HK$45,000 per month with housing and other benefits. He was to work a six months probationary period. He accepted his appointment on terms which read as follows :-

"On successful completion of your probationary period you will be offered permanent employment with the company and should you accept, you will be required to sign a contract with the company undertaking that you may not seek employment with any other person engaged in the stock broking business in Hong Kong for at least three years after terminating your employment with the company. The notice period for termination once you have been confirmed is three months either side."

4. The plaintiffs in due course confirmed Mr Margot in his position with effect from 1st April 1986. When doing so, they asked him to undertake that he would not seek employment with other firms engaged in the stock broking business in Hong Kong for at least three years after terminating his employment with the company. On 26th April 1986, Mr Margot signified, in writing, his agreement to this.

5. But on 16th September 1986, a company called Sunshine Securities Limited made a written offer to Mr Margot of the position of Managing Director of its broking arm (SSC). He was to be paid a salary of HK$1,500,000 per annum payable on the last day of every month. He was to receive commission of 7½% of the net profit of SSC (before tax and extraordinary items) to be paid 60 days after the interim and Final results were finalised. An additional 7½% of net profits was to be made available to be divided among the' staff of SSC in proportions to be decided by the Board of SSC (of which he would be Managing Director). He says it was agreed that he was to be paid in any event not less than HK$3,000,000 per annum although the written offer does not in fact so provide. (However, it does appear that SSC, in preparing its budget, did allow for a total financial package of this amount for Mr Margot.) He was to have the use of a car and driver. He was not to be entitled to give notice if it would result in two or more broking staff leaving within any one month period (it was important to SSC that it should not lose its broking staff at a high rate). He was to join SSC by 18th September 1986. He expected the job to last for two, or maybe three, years, although the offer itself made no provision for any fixed term.

6. On 18th September 1986, Mr Margot left the plaintiffs without any notice, handing in a letter of resignation to take immediate effect. He went off, as I have said, with Mr Ng and 16 other employees of Hong Leong Securities Company to work for SSC.

7. On 1st October 1986, the plaintiffs commenced these proceedings against Mr Margot, claiming (among other things) an injunction to restrain Mr Margot from working for SSC. On 2nd October 1986, the plaintiffs applied for an interlocutory injunction to this end. The application came on for hearing on 7th October 1986, when, Mr Margot not opposing the application, this court granted an interlocutory injunction accordingly. The order contained the usual undertaking as to damages on the part of the plaintiffs, that is to say, an undertaking to abide by any order the court might make as to damages in case the court should thereafter be of the opinion that Mr Margot should have suffered any by reason of the order which the plaintiffs ought to pay.

8. In my judgment of 15th April 1987, mentioned above, I came to a number of findings critical of Mr Margot. But I held that although Mr Margot's conduct was clearly a breach of the restrictive covenant into which he had entered at the end of his probationary period, that covenant was not enforceable. I so held because the plaintiffs had failed to satisfy me that a period as long as three years, the agreed duration of the restrictive covenant, was needed for the protection of their legitimate interests. Accordingly, I declined to grant any relief to the plaintiffs in respect of Mr Margot's restrictive covenant. On the same day, 15th April 1987,  I discharged the order of 7th October 1986 and ordered that the question of damages suffered by Mr Margot by reason of that order should be reserved.

9. It is that matter which now falls to be considered. Mr Margot claims to have suffered damage by reason of the order of 7th October 1986 which the plaintiffs ought to pay. I shall come to the details later; but I hold now that this claim is in principle justified. It follows from my judgment of 15th April 1987 that the plaintiffs were not entitled, as it has turned out, to the injunction Huy obtained on 7th October 1986. Although I take an unfavourable view of Mr Margot's conduct, and am entitled to decide that the undertaking which they gave ought not to be enforced against the plaintiffs, I have in fact concluded that it would be unjust to Mr Margot to deprive him of the benefit of the undertaking, offered by the plaintiffs to the Court for his protection if it should ultimately be held (as it was) that the plaintiffs were not entitled to their injunction.

10. An undertaking in damages is the price a plaintiff has to pay for an injunction pending the trial of his action, and if he gets it he must pay the price: see Tucker v. New Brunswick Trading Company of London (1896) 14 Ch.D. 249, per Lindley L.J. at p.253.

11. A plaintiff who gives such an undertaking puts himself absolutely under the power of the court; the undertaking is an absolute undertaking that he will be liable for any damages which the defendant may have sustained, in case the court shall ultimately be of the opinion that the order ought not to have been made: see Newby v. Harrison (1861) 3 De Gex, Fisher and Jones 287, per Turner L.J. at p.290.

12. In this area, as in claims for damages for breach of contract or in tort, the claimant cannot recover in respect of damage considered by the court to be too remote : compare Smith v. Day (1882)21 Ch.D. 421, per Jessel M.R. at p.420. Indeed, the court in this sort of case acts by analogy to the ordinary case of breach of contract; so that the damages to be allowed (following the rule in Hadley v. Baxendale (1854)9 Ex 94) are to be the proximate and natural damage caused to the claimant by reason of the injunction, and no more : see Smith v. Day (above) per Brett L.J. at p.428; and per Cotton L.J. at p.430 ("the damages must be confined to loss which is the natural consequence of the injunction").

13. This obiter dictum of Lord Diplock appears to have been followed without question at first instance in England in Financiera Avenida SA v. Shiblaq, 21st October 1988, an unreported decision of Saville J. In that case the judge also accepted (at pp.5, 6 of the transcript) a number of relevant propositions advanced by Mason J. (now C.J.) in Air Express v. Ansett Transport Industries Pty Limited (1981) 146 C.L.R. 149 (in the High Court of Australia). Saville J. quoted the following passage from Mason J.'s judgment : -

"English law has not adopted a uniform approach to causation. Instead, it has tended to take refuge in the notion that causation is very largely a question of fact. But the many statements to this effect which are to be found in the decided cases do not attempt to deny the fact that the common law has applied a variety of theories and standards of causation, in each instance applying that which is in point of policy the most apt or appropriate to the question which arises for decision. For this reason little is to be gained in the present case from an examination of the. myriad authorities which deal with causation of damage in contract, tort and other situations, many of which were pressed upon us in argument. We are better advised to look to the purpose which the undertaking as to damages is designed to serve and to identify that causal connection or standard of causal connection which is most appropriate to that purpose. The object of the undertaking is to protect the party, normally the defendant, in respect of such damage as he may sustain by reason of the grant of the interim injunction in the event that it emerges the plaintiff is not entitled to relief. It is no part of the purpose of the undertaking to protect the defendant against loss or damage which he would have sustained otherwise, as for example, detriment which flows from the commencement of the litigation itself. That is loss or damage which the defendant must bear himself, as he does when no interim injunction is sought or granted. Consequently it is for the party seeking to enforce the undertaking to show that the damage he has sustained would not have been sustained but for the injunction."

Saville J. said that he found this reasoning convincing. He added :-

"However, in my view this approach does not mean that a party seeking to enforce an undertaking must deal with every conceivable or theoretical cause of the damage claimed, however unlikely this may be. Once a party has established a prima facie case that the damage was exclusively caused by the relevant order, then in the absence of other material to displace that prima facie case, the court can, and generally would, draw the inference that the damage would not have been sustained but for that order. In other words, the court seeks to approach and deal with this question of causation in a common sense way."

14. I agree with and adopt these views expressed by Lord Diplock, Mason J. and Saville J. and I propose to apply them in the present case. In the present case, I consider that the obligation assumed by the plaintiffs to Mr Margot under the terms of their undertaking as to damages might be stated as follows :-

"Although we are, or claim to be, entitled to prevent you from working for SSC, we promise not to prevent you from doing so; and, if and for so long as we act in breach of this agreement, we will pay you such a sum as will compensate you for our breach. For the purpose of assessing this compensation, the rules for the assessment of damages for breach of contract, that is to say, the rules relating to remoteness of damages, and measure of damages shall apply as in any other case of breach of contract."

15. On that basis I return to consider the material facts of the present case; I reject the submission, made to me on behalf of Mr Margot but unsupported by authority, that the plaintiffs should be treated as having wrongfully interfered with his contractual relations with SSC and should pay him damages on this, tortious, basis.

16. Mr Margot was employed by SSC with effect from 18th September 1986. He was prevented from continuing in that employment on 7th October 1986. But for the injunction, I am satisfied that SSC would have continued to employ him. In fact, it wrote to him on 22nd November 1986 stating that it treated the order as having frustrated his contract of employment, and so (and prima facie for that reason) Mr Margot lost his job. The injunction remained in place until 15th April 1987. What he has lost by reason of the injunction is, in my judgment, the value of his remuneration package from 22nd November 1986 (he does not plead any loss earlier than that date) to 15th April 1967. This is what he is entitled to by way of compensation for the damage done to him by reason of the injunction, and I will so award. But I am not prepared to award him any more. Any damage Mr Margot suffered after the date of my judgment on 15th April 1987 would, in my opinion, have been suffered not as a result of the injunction but as a result of the litigation itself (and, I may add, the unfavourable publicity which seems to have attended it). I cannot believe that SSC, even if it had continued to employ Mr Margot until then, which I will assume in his favour, would have been content to do so after 15th April 1987. Any damage suffered by Mr Margot after that date is, in my judgment, too remote from the injunction to be recoverable. How, then, is the value of the loss to Mr Margot of his remuneration package from 22nd November 1986 to 15th April 1987 (which I shall call "the relevant period") to be calculated?

17. I cannot, it seems to me, go behind or further than the terms of the written offer made by SSC to Mr Margot on 16th September 1986 and accepted by him.

18. I reject the claims he has advanced in respect of what he alleges is his loss of travel allowances and medical benefits. The written offer made no provision for travel allowances. In fact, SSC did pay for one set of travel allowances for Mr Margot anyway during the relevant period, so that in any event he has lost nothing under this head. The written offer did contain a provision which read "medical : to be arranged". But, apart from the uncertainty of this provision, Mr Margot, although I was told that he had incurred some medical expenses during the relevant period, never proved them. His claim for medical insurance premiums is irrelevant; even if the written offer is treated as having provided for payment of such premiums, Mr Margot has proved no loss arising to him from the want of payment of such premiums.

19. His claim for the loss of use of a car and driver faces similar difficulties. He was deprived of these benefits during the relevant period. But he led no evidence as to his loss; no evidence, for example, that he had hired a suitable car and driver for the relevant period.  He did prove what it would have cost him to effect such a hiring, but in the absence of any evidence that he in fact did so, I do not think I can or should make any award in his favour on this ground.

20. He has made further claims in connection with his accommodation, which he was buying with the aid of a loan which, after he lost his job, he could not afford to repay. But any loss he may have suffered on this score was, in my judgment, suffered by reason of his lack of means, not by reason of the injunction.  If he had been wealthy, or had found some other way of refinancing his borrowing, he would not have suffered any such loss. In a few words, the loss is too remote from the injunction. I must on this ground reject these claims also.

21. I turn to Mr Margot's claims for the loss of the cash elements of his remuneration package during the relevant period.

22. One possible approach is to award Mr Margot compensation for the loss of his remuneration for the relevant period calculated at the rate of HK$3 million per year. This, it will be recalled, is the rate which Mr Margot says it was agreed would be the minimum rate at which he would be remunerated; and it was proved that it was remuneration for him at that rate for which SSC had budgeted. I accept that Mr Margot was given to expect that he would be remunerated at this minimum rate. Nevertheless, I cannot proceed on this basis. The written offer made to and accepted by Mr Margot did not so stipulate. As Diplock L.J. pointed out in Lavarack v. Woods of Colchester Ltd. [1967] 2 QB 278 at p.292 (also an employment case) :-

"The law is concerned with legal obligations only, and the law of contract only with legal obligations created by mutual agreement between contractors - not with the expectations, however reasonable, of one contractor that the other will do something that he has assumed no legal obligation to do."

23. On familiar principles, I cannot receive evidence to add to, contradict or vary the terms of the written offer made to and accepted by Mr Margot and I cannot find that he contracted with SSC for remuneration at a minimum rate of HK$3 million per year. In any case, I would be disinclined to accept Mr Margot's evidence that he did reach such an agreement with SSC. Mr Margot's abilities are, in my opinion, many; but, as he has repeatedly demonstrated in these proceedings, they do not include the ability to distinguish fact from fiction. To take just one example. Mr Margot sees nothing wrong in a prospective employee telling a prospective employer a pack of lies about his background in order to secure the employment. Thus Mr Margot told me, in an attempt to justify his having informed the plaintiffs that he had a degree from the University of Hull notwithstanding that he had never been a member of that university, still less obtained a degree there, that this was merely a matter of "presentation". It was up to the prospective employer, said Mr Margot, to check the lies and half-truths presented to him by the prospective employee if he wished to do so. If the prospective employer chose to rely on what the prospective employee told him without checking up references and so on, then, as I understood Mr Margot, that was the prospective employer's misfortune; it was not something for which the prospective employee could reasonably be blamed.

24. I am afraid I find this breath-taking shamelessness on the part of Mr Margot an element in his character which compels me to place no reliance on any of his evidence save when it is corroborated by the evidence of others with at least some modicum of moral scruples.

25. For all these reasons, I reject the claim of Mr Margot to be entitled to compensation for loss of remuneration at the rate of HK$3 million per year.

26. The next possiblity is to award Mr Margot compensation at the rate of HK$1.5 million per year salary plus commission of 7½% of net profit as defined in the written offer made to him. This is the course I propose to adopt. Mr Margot should receive compensation for the loss of his remuneration during the relevant period of a sum representing these two elements of remuneration, salary and commission, less tax at the rate (which I understand counsel to agree) of 17%. At the conclusion of the argument it appeared that counsel were in agreement as to the figure for net profit on which the calculation of 7½% should be made. I will therefore invite them to agree a sum for salary. and commission calculated as I have indicated and I will certify that that sum represents what is due to Mr Margot under this inquiry. If counsel for some reason cannot agree on the sum the case will have to be mentioned to me again so that I can determine what it should be.

27. Mr Margot has made two further claims which I must mention only to reject them.

28. The first is a claim to a share in the further 7½% of net profit to be distributed, according to the terms of the written offer made by SSC to Mr Margot, among the staff of SSC. No evidence was tendered as to how much, if anything, might have been coming to Mr Margot out of this and without such evidence I am not prepared to make any award in his favour on this account.

29. Secondly, Mr Margot claims compensation for the loss of benefits under the staff warrant scheme mentioned in his written offer. Here there was evidence, from Mr Norman Ng; but his evidence was that the staff warrant scheme never got off the ground. Mr Ng did add that some other scheme for preferential treatment of the staff of SSC in relation to share issues was established instead. But I am satisfied here too that I cannot make any award to Mr Margot for loss of benefits under a staff warrant scheme which was never in fact established.

30. After the sum to be certified as due to Mr Margot as a result of this inquiry has been agreed, I will hear counsel on the form of the certificate and on any question of costs which might arise.

31. On the matter of costs, I desire to add this. Mr Margot's advisers placed before the court four bundles of documents, photocopied for use in the inquiry and running to a total of thousands of pages. Reference was made at the hearing to perhaps 10 or 12 of these documents. Quite rightly, none of the rest of this useless mass of photocopies was referred to at all.

32. I express the hope that the Master will consider, on taxation, whether to allow the costs of preparing these bundles. It is a shocking waste of money mindlessly to photocopy every document in sight when preparing such bundles. When some thought is given to what should and what should not be included in an agreed bundle (for it always should be agreed) for the use of the court, the costs of litigation are considerably reduced.