GFI (HK) SECURITIES LLC v. GYONG HEE KANG AND ANOTHER

HCA 1319/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1319 OF 2015

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REASONS FOR DECISION
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The factual background

1.  On Friday, 19 June 2015, I heard argument on this application for an interlocutory injunction.  I granted the interlocutory injunction, in amended terms.  These are my reasons for the grant.

2.  Once again, companies in the inter-dealer broking business are before the court arguing about the effectiveness of post-termination restrictions in the employment contract of an employee who has jumped ship, presumably for a better offer.

3.  The 1^st Defendant, (Ms Kang) is described by the managing director and head of Asia for GFI (HK) Securities LLC (GFI) as “a senior broker and head of Korea fixed income”.  She was on an annual basic salary of US$250,000 per annum and was eligible for a discretionary bonus, which in 2014 was US$85,750.  Ms Kang began her employment in September 2009, and later entered into a fixed term contract commencing on 1 July 2014, due to end on 30 July 2017.

4.  In the usual way the employment contract contained post termination restrictions which included, (in broad terms):

(i) Non-compete: for 6 months immediately after termination of the contract not to be involved in any relevant business, defined as any business carried on by GFI at the termination date (clause 15.4);

(ii) Non-deal: for 6 months immediately after the termination of the contract not to accept will facilitate the acceptance of orders or instructions from any person who in the previous 12 months had been a client (clause 15.5.1.2);

(iii) Non-solicit: for 6 months immediately after termination of the contact not to directly or indirectly canvas or solicit business from any person who was a client of GFI in the previous 12 months, nor to accept or facilitate the acceptance of orders or instructions from any such client (clause 15.5.1.1).

The relief sought mirrors these 3 provisions.

5.  On 17 February 2015, Ms Kang resigned from her employment with GFI and made a payment in lieu for the remainder of the term of her employment in the sum of US$591,781.07.  The plain inference now is that this very substantial sum was paid by the 2^nd Defendant, (ICAP).  On 17 February 2015, by letter, Ms Kang was reminded by GFI of the post termination restrictions in her contract and was told that her activities would be monitored and that GFI would take immediate steps to enforce her obligations in the event of any breach.

6.  On 18 May 2015, GFI discovered that Ms Kang’s Bloomberg account had been activated with ICAP. That was the first occasion on which GFI knew that Ms Kang had become employed by ICAP.  Subsequently GFI learned that Ms Kang was listed as an employee of ICAP on the Public Register of Licensed Persons and Registered Institutions on the SFC website, and that she had been licensed to deal in securities for ICAP from 29 May 2015. On that day an employee of GFI attempted to speak to Ms Kang by telephone at ICAP’s office but was told that she was not at the desk at that moment and would be in later. 

7.  On 19 May 2015, GFI’s lawyers wrote to Ms Kang and ICAP to remind them of Ms Kang’s post termination restrictions and to give them notice that it intended to take action to protect its interests, including seeking injunctive relief against both.

8.  On 26 May 2015, ICAP’s solicitors responded to that letter, pointing out that no evidence had been offered of any intention by Ms Kang to illegally interfere in her previous employment relationship with GFI.  The letter makes it clear that in the absence of any specific assertions of breach ICAP took the view that GFI was not entitled to an injunction or to take any other action against ICAP or Ms Kang. The letter said:

“Your client is not entitled to an injunction or to take any other action against (ICAP) or (Ms Kang) on the basis of only speculation and innuendo.”

9.  Transcripts of inter-broker messages through Yahoo Messenger and Bloomberg then located by GFI, demonstrated that during the week commencing 27 May 2015, Ms Kang had been in Korea and had been in contact with four of GFI’s clients in Korea with whom she had previously dealt.  A second telephone call made to ICAP’s office in Hong Kong on 28 May 2015, produced information that Ms Kang would be “back next Monday”.

10.  Believing that it now had sufficient evidence that Ms Kang was in breach of the post termination restrictions, GFI and filed an application for injunctive relief on 16 June 2015.

The relief sought

11.  The summons for the injunction sought the following relief:

“1. Until 17 August 2015, or such earlier time as the Court may order, (Ms Kang) be restrained from:

(i) being employed by or concerned in the business of (ICAP) or any other entity in the ICAP Group.

(ii) soliciting business from any person who was a Client.

(iii) accepting or facilitating the acceptance of orders or instructions or having any business dealings with a Client.”

The summons defines the expression “Client” by listing 23 entities under the heading Korean Clients, and 8 entities under the heading Taiwan Clients.

Ms Kang’s response

12.  On 18 June 2015, Ms Kang filed an affidavit responding to the summons.  In that affidavit she acknowledges that she commenced employment with ICAP on 18 May 2015, but complains that GFI had waited a month since she commenced employment with ICAP before seeking the injunction.  The principal position she appears to adopt in the affidant is that the post termination restraints are unreasonable and accordingly not enforceable.

13.  Ms Kang says that she was pressured to enter into her employment contract.  She says that she was not a senior broker, but a junior broker, and does not accept that she was at all unique in her skills. She says that she has already been replaced by GFI.  She points out that there were 6 Korean clients on the Client list with whom she had no relationship, and 2 which had no Korean desk.  She says that she has not heard of one of the Taiwan Clients, and she said she had no dealings with that client.

14.  Ms Kang complains that if the post termination restrictions are upheld it will have the effect of entirely preventing her from working.  That issue was removed from the consideration at the beginning of the argument when Mr Maurellet abandoned the non-compete claim, (Item 1 (i) of the summons), and restricted the injunction sought to the non-dealing and non-solicitation provisions.  Mr Maurellet also accepted that it was appropriate to delete from the client list the 8 Korean clients and the 1 Taiwan client identified by Ms Kang in her affidavit.

Applicable principles

15.  The usual principles, well known as the American Cyanamid[1] principles, governing the grant of interlocutory injunctions are the principles to be applied in this case.

16.  There is no suggestion that GFI’s claim is frivolous or vexatious and or that there is not a serious question to be tried.  The question whether, if GFI succeeds at trial, it would be adequately compensated by damages for any loss caused by a refusal to grant an interlocutory injunction arises.  If damages for GFI are appropriate remedy, then there can be no injunction.  If damages for GFI would not be an adequate remedy then the court must ask whether damages would be an adequate remedy for Ms Kang if the injunction was wrongly granted.

17.  Where there is doubt as to the adequacy of the respective remedies in damage the question of the balance of convenience arises.  Where factors relevant to the general balance are evenly balanced the court will generally take measures to preserve the status quo ante, which in this case would be to uphold the post termination restrictions.

Delay

18.  It is well established that an interlocutory injunction must be sought without delay.  The classic statement is contained in the judgment of Rogers VP in King Fung Vacuum Ltd v Toto Toys Ltd [2006] 2 HKLRD 785 at 792, §20:

“There has traditionally been a strong requirement when interlocutory injunctions have been sought, that the plaintiff must show that it has acted promptly and without delay. Promptly in the circumstances of interlocutory injunctions has been commonly understood to be a period of 6 weeks or so of unexplained delay and 3 months with an explanation for the delay in making application for an injunction. …. It stands to reason that if (a plaintiff) is prepared to allow matters to proceed and takes no action with respect to matters which have been extant for lengthy periods, it lies ill in (the plaintiff’s) mouth to say that there is likely to be in repairable damage.”

19.  The period to be considered in the present case must start on 18 May 2015, the day on which GFI learned that Ms Kang’s Bloomberg account had been activated with ICAP.   That was the first indication that GFI had that Ms Kang may be in breach of the post termination restraints.  On the very next day GFI’s solicitors wrote to Ms Kang and ICAP threatening the application.  ICAP replied by its solicitors on 21 May 2015, denying liability and asserting that there was no evidence to substantiate a breach of the posted and restrictions.

20.  I accepted Mr Maurellet’s submission that GFI was entitled to assume that until it was able to produce specific evidence of a breach of the post termination restrictions it could expect Ms Kang and ICAP to resist any injunction.  I found it reasonable in the circumstances that GFI should then set about, as it did, obtaining evidence to substantiate the allegation of a breach of the post termination restrictions.  Until that evidence was available it would have been reasonable for Ms Kang and ICAP to say that whilst she was employed by ICAP there had still been no breach of the post termination restrictions.

21.  The final Bloomberg transcript and Yahoo messenger transcript came to GFI on 3 June 2015.  That was 17 days after GIF first became aware of Ms Kang’s employment by ICAP, an employment which ICAP insisted was not in breach of the post termination restrictions.  By that 3 June 2015, GFI was able to say that it was in possession of sufficient evidence to say that there was a strong arguable case that it would succeed at trial.  The summons was filed 13 days later on 16 June 2015.

22.  Those advising GFI well knew that there were only some 12 weeks, from 21 May 2015, (the date of the solicitors response), remaining in the restraint, and that it was likely that an application for an interlocutory injunction would resolve the matter as there could plainly be no trial within 12 weeks.  In those circumstances I was satisfied that GIF was entitled to wait the 17 days they did in order to assemble their evidence.  Having the evidence in hand, the summons was filed 13 days later.

23.  The period of 6 weeks unexplained delay referred to by Rogers VP must necessarily be a flexible figure and may be, in appropriate circumstances, be less than 6 weeks. 

24.  In the circumstances of this case I did not find either the 17 day delay during which evidence was assembled, or the 13 day delay from the time GFI was in possession of its evidence to the issue of the summons, all well within the six-week period, and well within any reduced flexible period that might be appropriate in this case, to be such a delay as to justify the outright rejection of the application for the interlocutory injunction.

A reasonably good prospect of success at trial

25.  Mr Maurellet accepts, and faces head-on, the proposition that where the interlocutory injunction will effectively resolve the proceedings because the trial cannot be heard before the expiry of the restraint period, there must be reasonably good prospects of success at trial: see HSBC Bank plc v Wallace [2008] 1 HKLRD 613 at 625 and Lansing Linde Ltd v Kerr [1991] 1 WLR 251.  That is plainly the case here.

26.  I note also the warning given by Chu J, (as she then was) in Fortune Realty Co Ltd v Chan Hui Yeung (unreported, HCA 1582/2001, [2001] HKEC 609), at §9:

“But it is to be noted that the court is not to embark upon a mini-trial on the affidavits. All that is required is some assessment of the plaintiff’s prospects of success and it is for the judge to control the extent of such assessment.”

And further at §21:

“At this interlocutory stage, I need only form a tentative view on the evidence and the legal arguments. Indeed I ought to be extremely slow to come to any firm conclusion on the merits of the case. It is therefore sufficient for me to sum up by saying that not only has the plaintiff shown that there is a serious question to be tried, but it has also demonstrated that there is a reasonably good prospect of its succeeding at the trial. In the circumstances, the injunction should sought should be granted….” (My emphasis)

27.  There plainly cannot be a trial within the remaining 8 weeks of the restraint, and accordingly it is necessary for the court to make an assessment of GFI’s prospects of success at trial.  In assessing those prospects it is appropriate that the starting point should be that a restraint of trade is void unless reasonable and in particular that an employer is not entitled to protect itself against competition per se: see PCCW-HKT Telephone Ltd v Aitken (2009) 12 HKCFAR 114, at §21, per Ribeiro PJ.

28.  The assessment of GFI’s prospects of success at trial involves an examination first of the enforceability of the post termination restraints, and second the evidence substantiating the breaches on the part of Ms Kang.

29.  The enforceability of the post termination restraints requires a three stage test: see HSBC at §62.  First, the court will decide what the restrictions mean when properly construed; second, the court will then look at the legitimate interests of the employer that the restrictions seek to protect; and third, the reasonableness of the restraints will be assessed.

The proper construction of the restraints:

30.  I was satisfied that the terms of the post termination restraints were plain and unambiguous, just as similar terms to the same effect were found to be in Fimat Hong Kong Ltd v Tubiana & Ors (unreported, 22 February 2006, HCA 268 of 2006).  Mr Alder did not suggest otherwise.

GFI’s legitimate interests requiring protection

31.  Mr Alder accepted that GFI had a legitimate business interest that required protection by a post termination restriction.  There are numerous authorities involving post termination restrictions placed upon brokers or persons employed by banks or money brokers.  It is well accepted that customer connections and confidential information in this sphere of business are valid and legitimate commercial interests justifying the restraints.  They are commercial interests that go beyond mere restraint of competition.  I have no doubt at all that there will be similar contractual provisions in Ms Kang’s contract with ICAP.

32.  In the GFI employment contract itself, Ms Kang acknowledges that her position gave her access to trade secrets and information as well as influence over and connection with the employer’s customers.

33.  Mr Alder says that brokerage rates are not a matter of confidence as they are well known in the industry.  He says that it is not the brokerage rates that are the primary source of income, but the spread.  Consequently, he suggests that the affidavit in support is insufficient to establish that this is a confidential information case.

34.  I disagreed. Paragraphs 25-32 of Mr Tatham’s affidavit set out sufficiently the role of the broker and the general nature of the confidential information that a broker will possess as a result of the employment for me to be able to say that GFI has a strong prospect of success at trial on this issue.  The affidavit does not purport to be a comprehensive statement of the evidence that would be put up in a trial, but appropriately sets out the position in broad terms, sufficient to inform an ex parte judge on an interlocutory application for an injunction.

35.  It is inevitable that Ms Kang will have developed a knowledge of the spreads that GFI was prepared to offer. That is confidential information that GFI is entitled to protect.

36.  I was satisfied that GFI had a reasonable prospect of success in its contention that it had legitimate interests to protect by the restraints.

The reasonableness of the restraint

37.  I accepted Mr Maurellet’s submission that the question that must be asked at this point is whether it is plain and obvious that the restraints will fail after an examination at a trial.  If it is not plain and obvious, the clauses must at this stage be regarded as having a reasonable prospect of being upheld: see Arbuthnot Fund Managers Ltd v Rawlings [2003] EWCA Civ 518, at §30, per Chadwick J.

38.  Mr Maurellet said, and I accept, that there are two aspects to the temporal limitation of 6 months. First, it is necessary to replace departed employee, second, the employer needs time to enable the new employee to build up trade connections and for a suitable passage of time to pass so that any confidential information becomes outdated, especially in respect of any spreads.

39.  It is right that Ms Kang has now been replaced.  However I accept that some time will be required for the replacement to build on the trade connections that Ms Kang had, which are an asset in GFI, and for time to pass so that any confidential information becomes outdated.

40.  In Fimat, a restraint period of 6 months was upheld.  In HSBC, a restraint period of 6 months was upheld.  In BGC Capital Markets (Hong Kong) Ltd v Priest & Anor (unreported, 3 November 2006, HCA 2214 of 2006) restraints of 6 months were upheld.  In Arbuthnot Fund Managers a restraint period 12 months was upheld, albeit the scope of the restraint was reduced.  In BGC Brokers LP v Tullett Prebon Group Ltd [2010] EWHC 484, Jack J upheld covenants providing for a total restraint of 12 months, taken with time on garden leave.  All of those cases involved people working in the finance industry. 

41.  Ms Kang said in her affirmation that she felt under some considerable pressure to sign the new employment contract in September 2014.  The reality of the situation is that she had the contract in hand for 2 months before signing it, and accordingly had ample opportunity to take legal advice.  However she elected not to take advice and to sign the contract. This is not a case where there is any real prospect that a defence of duress or undue influence on Ms Kang entering into the employment contract would have any chance of success.

42.  The precise level at which Ms Kang sat in the hierarchy is not a matter that can be resolved on the affidavits.  However it is sufficient to say that ICAP, (in all probability), having been willing to pay the best part of US$600,000 to enable Ms Kang come to work for ICAP viewed her as sufficiently senior and worthwhile to accept her wish to depart from GFI.  (I deliberately put this circumstance in a neutral manner, and do not suggest any encouragement from ICAP on Ms Kang to make the move).  I was satisfied that GFI had a reasonable prospect of success in establishing that Ms Kang was sufficiently senior to justify the restraints imposed.

43.  Having regard to all these matters I was satisfied that GFI had a reasonable prospect of success at trial in establishing that the restraints are reasonable and no more than necessary.

The adequacy of damages

44.  Ms Kang had plainly established valuable connections with GFI clients.   If she is free to trade upon those connections, as is apparent from her recent trip to Korea, she intends to do, GFI is at risk of losing those connections.  If Ms Kang uses confidential information, such as information relating to GFI’s trading activities with particular customers, be it commission rates or spreads, GFI has no prospect of recovering that information.  Mr Maurellet reminded me that in BGC Brokers, Jack J observed that a non-solicit or non-deal clause is notoriously difficult to enforce.  The assessment of damages is likely to be complex, time-consuming, and expensive.  In those circumstances it is difficult to see how damages for GFI might be assessed. 

45.  The view taken by Stone J of this sort of situation in Holyrood Ltd v Bank of China (Hong Kong) Ltd & Ors, (unreported, 19 September 2003, HCCL 35 of 2003) is well expressed:

“It strikes me that assessment of damages, if this is an exercise which ultimately is necessary to be undertaken, by no means would be as straightforward as often is the case in commercial disputes, and may well be fraught with imponderables, and in the present circumstances I see no reason to submit the plaintiff to such imponderables if it is practically possible (as I believe is the case) to avoid the possibility of such difficulties arising.”

46.  On the other hand, if the injunction is granted Ms Kang will have suffered only monetary loss which is able to be compensated and easily assessed.  The restrictions in question, (now that the non-compete restraint is not sought), do not entirely take her out of the interdealer broker business.  GFI is in a position to give an undertaking as to damages and was willing to fortify that undertaking by paying into court a sum equivalent to 2 months of Ms Kang’s wages.  If the injunction is wrongly imposed Ms Kang can be adequately compensated by damages.

47.  Weighing these matters I was clearly of the view that the balance of convenience clearly lay in the favour of GFI.

Disposal

48.  For these reasons, I indicated to counsel that I would grant the injunction sought, in terms of paragraphs 1 (ii) and (iii).  There then followed a brief discussion between counsel as to the precise terms of the order.  Counsel indicated to me that they would be able to agree those terms.  The agreed terms of order are to be submitted to me for approval.  In the event that agreement cannot be reached, leave is reserved to apply.

49.  GFI is a substantial firm and well able to meet damages.  In the circumstances an undertaking as to damages is sufficient.  The amount of the likely damages is not great.  Consequently fortification is not required.

Costs

50.  Mr Alder sensibly recognised that he could not resist an order that costs should follow the event.  GFI is to have its costs, to be taxed on a party and party basis if not agreed. 

51.  I am grateful to both counsel for their commendably clear skeleton arguments, and the concise manner in which submissions were put, enabling me to make a decision immediately.