ICAP (HONG KONG) LTD v. BGC SECURITIES (HONG KONG) LLC AND OTHERS

HCA 603/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.603 OF 2005

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

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

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

J U D G M E N T

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

Introduction

1. This is a dispute between corporate brokers, in which a large number of employees also have become embroiled.

2. The plaintiff, ‘ICAP’, is a money broking business.  It acts as intermediary between financial institutions to facilitate trading in financial products in the wholesale financial markets.  It is part of a group of some size : the ICAP group of companies, based in a number of countries, constitutes the world’s largest inter-dealer brokerage business.

3. The 1^st and 2^nd defendants, respectively ‘Securities’ and ‘Capital’, to which collectively I shall refer as ‘BGC’, are part of the BGC group, which has been ‘spun off’ from the Cantor Fitzgerald organization, which also conducts inter-dealer broking, albeit on a smaller scale than ICAP.

4. At bottom this case is about BGC wishing to expand this new brokerage arm, and pursuant thereto to carve out for itself a significant slice of the Hong Kong/Asian market by means of that which ICAP refers to as the “aggressive poaching” of its existing staff.

5. On 22 March 2005 a total of 33 of ICAP’s Hong Kong employees resigned en masse: a local firm of solicitors, Messrs Johnson, Stokes & Master, was used to deliver to ICAP 33 resignation letters, and there was at the same time tendered, pursuant to section 7(1) of the Employment Ordinance, a sum in excess of HK$17 million to ‘buy out’ the notice periods of these employees.  Of the 32 brokers who had resigned, one thought better of his position and subsequently returned to work for ICAP.  This gentleman, a Mr Louis Hiu Shing Chui, has filed evidence outlining the modus operandi adopted by BGC in terms of this mass defection.

The proceedings to-date

6. On 6 April 2005 the plaintiff, which has been both aggrieved and inconvenienced by what it regards as the calculated emasculation of its business by its fledgling rival, issued its writ.

7. Among the wide-ranging relief that is sought is injunctive relief against the 1^st and 2^nd defendants, wherein BGC is sought to be restrained from inducing remaining employees of the plaintiff from breaching their contracts of employment, from inducing former employees of the plaintiff from breaching their post-termination obligations owed to the plaintiff, and from making use of information provided by former employees of the plaintiff in breach of obligations owed to the plaintiff.  I assume that this latter head refers to allegedly confidential information.

8. On the same date as the issuance of proceedings, ICAP issued an inter partes summons returnable in chambers on the next ‘summons day’, which was Friday 8 April at 10:00 a.m.

9. This summons sought abridgment of time.  The application, the terms of which speak for themselves, sought wide-ranging restraint upon the activities of BGC, inter alia from using the services of the 3^rd to 39^th defendants (consisting of 32 brokers and 5 back-office/settlement staff) to “effect or facilitate” any inter-dealer broking in Hong Kong by the BGC group, or in employing or offering to employ in any BGC group business any “prohibited employee” (defined to mean any person in the employ of the plaintiff who had not entered into a contract of employment with BGC, or who had not yet resigned from ICAP, or who had been approached by the 3^rd and 4^th defendants for the purpose of inducing such employees to join BGC).

10. The 3^rd and 4^th defendants, Kitty Mak and Dominica Li, were, prior to their defection to BGC, two senior managers of ICAP, and are perceived to have been active movers — “recruiting sergeants” is the evocative phrase — used by BGC in the recruiting process that it had set in train.

11. A good deal of other relief was also included within the summons in terms, for example, of disclosure via affidavit evidence identifying who had done what to whom, when and where, although for immediate purposes there is no necessity to go into detail.

12. In broad terms, therefore, the interim relief claimed by the plaintiff was aimed at preventing BGC from reaping the fruits of its alleged wrongdoing and establishing illicit and unfair advantage over ICAP Hong Kong on the basis of what colloquially have become known as ‘springboard’ principles.  The plaintiff’s further aim was the prevention of any further stripping out of ICAP employees by that which it characterized as the illicit means adopted by BGC.

13. On Friday 8 April the application was listed before the Hon Suffiad J, the presiding Summons Judge for that Notice had been given of the application to the defendants, but on any basis the application was short-served.

14. It appears that the learned judge in fact never heard the application, even upon an ex parte on notice basis, as he was not satisfied of the urgency of the matter.  He thus stood it over for directions to the following summons day, that is, 15 April, although it is common ground that he had not shut out the plaintiff from making its application for interim relief on that day notwithstanding that all the evidence germane to the application would not, by then, have been filed.

The application on 15 February 2005

15. This, then, was the state of play when the matter finally came before this court at 11:30 a.m. one week later on the next summons day.

16. Counsel on behalf of BGC, and counsel on behalf of the 3^rd to 39^th defendants, Mr Coleman and Mr Strachan respectively, formally opposed any further interim application by Mr Huggins SC, on behalf of the plaintiff, maintaining that for all practical purposes the plaintiff, as Mr Coleman expressed it, already had had “one bite of the cherry” before Mr Justice Suffiad, and that the hearing on this day should be no more than a formal call-over and directions for the filing of evidence.

17. I disagreed with this submission.  I make no comment about the form of procedure adopted before Suffiad J save to say that, with great respect, I do not share his view that the plaintiff had demonstrated a lack of urgency in light of the events which had occurred, nor was I sympathetic to Mr Coleman’s consequent submission to the effect that, if (which was denied) it had been urgent a week ago, it was no longer thus.

18. Accordingly I proceeded to entertain the application by Mr Huggins for at least part of the relief that was envisaged on the face of the inter partes summons, which by this stage was no longer short served but in terms of which the evidence of all parties had not yet been fully constituted; indeed, this application was mounted solely on the basis of the two affidavits filed by Mr Clark, the plaintiff’s solicitor, and that of the aforesaid Mr Louis Hui Shing Chui, the broker who had returned to the ICAP fold.

19. This application for interim relief also was made against the backdrop of a decision by this court to conduct the substantive hearing of the summons in the near future, commencing on Wednesday 27 April for two days; in fact, at the same time as hearing this application for immediate relief pending the full hearing of the summons, directions also were made for the filing of evidence necessary for this forthcoming hearing.

The argument

20. Mr Huggins SC sought interim injunctive relief against the first four defendants only, that is, Securities, Capital, Mak and Li.

21. He noted that it was the plaintiff’s case that Mak and Li had conducted the “poaching expedition” whilst still senior employees of ICAP, and that this had resulted in 37 members of the plaintiff’s staff leaving in two tranches, namely 33 employees on 22 March 2005, and a further 4 back office staff on 1 April; he said that it was believed that the staff thus lost had commenced employment with the 1^st and 2^nd defendants on 4 April, or were about to do so imminently.

22. Absent evidence, of course, it is not yet clear precisely when the departed staff began to work, or will begin to work for Securities and Capital, though Mr Strachan from the bar table indicated that, on instructions, 28 of the 32 brokers had not yet begun to work for BGC, although the 5 ‘back office’ staff who had departed indeed had started with their new employer.

23. In any event, with the assistance of a detailed skeleton argument Mr Huggins outlined the varying causes of action, in both tort and contract, open to the plaintiff against the 1^st – 4^th defendants, and noted that the present application was mounted upon a ‘springboard’ relief basis, the purpose of which was to deny a wrongdoer the fruits of his defalcations and thereby to wipe out any illicit and unfair competitive advantage he may have gained : see the summary of the doctrine enunciated by Roxburgh J in Terrapin v. Builders Supply Co. (Hayes) Ltd, [1967] RPC 375, at 391.

24. He stated that pending the hearing which was shortly to follow this court should not shrink from taking immediate decisive action to protect the interests of the plaintiff, which so clearly had suffered at the hands of the predatory 1^st and 2^nd defendants, aided and abetted by the erstwhile senior employees of the plaintiff, Miss Mak and Miss Li.

25. Mr Huggins further asserted that although he recognized that  ‘springboard’ principles originally had been devised for dealing with breaches of confidence, it now was accepted that the like principles could and should be applied in other kinds of case, of which the present was a prime example.  He said that almost overnight Securities and Capital had been able to become a major competitor to ICAP Hong Kong in areas in which hitherto they had not been competitors at all, whereas at the same time, and consequent upon these events, in those areas in which it had lost staff ICAP Hong Kong had ceased to be an effective competitor — a “gross reversal” of the previous respective market positions of ICAP Hong Kong and the 1^st and 2^nd defendants.

26. On the other side of the table Mr Coleman and Mr Strachan vigorously objected to any imposition of interim relief pending the hearing of the substantive summons.

27. As might be expected, their arguments broadly were similar in nature.  It was not accepted that the ‘springboard’ principles could be adapted for use in cases other than those involving confidential information, and it was maintained that the balance of modern authority was set firmly against such expansion of the doctrine.

28. It was further asserted that in the particular circumstances of this case that damages were an adequate remedy.  Whilst the plaintiff was in a position to calculate the scope of its own damages, said Mr Coleman, if and in so far as injunctive relief now was to issue, his clients, the 1^st and 2^nd defendants, could never be in a position to know what profits could have been earned had the incoming employees been permitted to continue to work for their new employers.

29. In addition, considerable reliance was placed by both counsel upon significant factual developments which had arisen in terms of the now-departed employees.

30. First, the decision had been taken by the plaintiff to accept the payment of a sum in excess of HK$17 million, as tendered on behalf of the 32 departed brokers, in a ‘buy out’ of these employees’ respective notice periods pursuant to section 7(1) of the Employment Ordinance, whilst in terms of the 5 departed back-office/settlement staff although the relevant sums had not been accepted, nevertheless there had been tender, which in law, it was asserted on behalf of the defendants, had the like effect.

31. Second, and perhaps more significant, there had been, as Mr Strachan put it, a most substantial and unexplained ‘flip-flop’ in terms of the plaintiff’s attitude toward the departed employees.  This was because a decision had been taken by the plaintiff not only to accept the monies tendered in lieu of notice on behalf of the departing brokers but also to release these ex-employees from the post termination non-competition restraints contained in all the contracts save for one, which was that of Miss Mak, the 3^rd defendant.  In the circumstances, Mr Strachan submitted, it was not easy to see why the plaintiff should on the one hand act in this fashion, so that no remedy lay or could lie against the brokers personally, whilst on the other it should take the decision now to pursue the present application upon the ‘springboard’ basis.

Decision

32. In making an urgent decision upon the plaintiff’s application for immediate interim relief pending the hearing, in but 8 days, of the substantive application, I remind myself that I have not yet had the advantage of complete argument (or evidence) relating to the various issues thrown up by this case.  I am further disinclined presently to say a great deal about the legal merits of the arguments, in particular the extension of the ambit of the ‘springboard’ doctrine and the effect of a tender (as opposed to acceptance) of monies pursuant to section 7 of the Employment Ordinance.

33. It is probably fair to say that until being apprised during the hearing of the express release from the non-competition PTR of the ex-employees (with the exception of Miss Mak, and of the 5 back office staff, whose contracts with the plaintiff contained no non-competition clause), in principle I was sympathetically inclined towards a modified form of such injunctive relief as was requested, it having been made clear to Mr Huggins during argument that any relief which might be granted would only be pending determination of the substantive hearing, and further that, on any basis, at this preliminary stage the court would not afford his client relief in terms of the disclosure sought on the face of the plaintiff’s application.

34. In this connection I record that on behalf of his client Mr Coleman was prepared to offer undertakings, which have been accepted by this court, in terms of paragraph 4(a) of the Writ, which deals with inducing remaining employees of the plaintiff from breaching their contracts of employment, and in terms of paragraph 1.4 of the draft Minute of Order, which deals with the destruction/alteration of documents in any form relevant to or generated in the context of the recruitment by BGC of the 3^rd to 39^th defendants.

35. However my preliminary view of this case — and, as matters currently stand, I emphasise that it must be no more than a preliminary view — undoubtedly has been affected by the revelation (not dealt with as such within the narrative of the affidavit evidence presently filed on the plaintiff’s behalf, albeit the relevant letter of release is apparently to be located within the voluminous exhibits) to the effect that, in addition to the acceptance of the sum tendered in terms of the notice periods of the broker employees, these employees also have been released from their contractual post-termination non-competition restraints.

36. In this regard, I bear in mind Mr Huggins’ explanation of the practical problems posed by the limited temporal and spatial elements of those specific clauses, in terms particularly of potentially facile avoidance by the defendants, but the fact remains that, as matters now stand, a ‘springboard’ injunction, which presently is being advanced very much upon the cusp of the existing jurisprudence, is being pressed against the particular factual backdrop of an exodus of employees who have had paid off their notice obligations, and who, qua employees, have been released from their non-competition PTR and now unequivocally are free to work for whomsoever they wish, including a competitor of the plaintiff such as BGC.

37. I do not wish to elaborate further pending additional evidence and argument and, no doubt, a closer look at the authorities than was able to be achieved in the limited time available for the application for interim relief.  Nevertheless, that which now is the unequivocal status quo is a matter which in my view must be factored into the discretionary ‘mix’ in terms of any decision to grant the truncated interim relief as now sought.  I would add that, as matters now stand, I am far from convinced that, at bottom, damages would not be an adequate remedy, although I stress that this does not represent a final concluded view.

38. I have taken the opportunity to reflect upon this case, and it may well be that I shall have more to say at the conclusion of the substantive hearing.  Nor does it need to be stressed, I hope, that my conclusion upon this application for urgent interim relief is not to be taken as determinative of such judgment as I shall render at the conclusion of that hearing.

39. In the circumstances now revealed, however, and in the exercise of my discretion, I have decided to decline to grant the plaintiff’s application for interim relief.  I so order.

40. I note that it would have been open to the plaintiff, if my current appreciation of the facts is correct, to have made discrete application for injunctive relief against the 3^rd defendant, Miss Mak, whose non-compete PTR apparently has not been released.  Nevertheless, demonstrably this was not the basis of the application, which was mounted solely upon the ‘springboard’ basis, and in the circumstances I do not consider that it would be fair or appropriate to order any form of interim relief outwith the ambit of the application as made and met.

41. As to costs of this interim application, it is difficult to see why they should not follow the event, but I will hear counsel on the issue, and in so far as may be necessary I will reserve those costs for decision upon determination of the substantive hearing which is to take place in a matter of days.

42. I should be grateful if consequent upon this judgment counsel would agree the appropriate form of order for engrossment.