XCHRX TRADING CONSULTANTS LTD. v. JOHN STEWART SLOAN

HCA 17150/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 17150 OF 1999

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REASONS FOR DECISION

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1. This is an application by the Plaintiff against the Defendant for an interlocutory injunction order restraining the Defendant from carrying on the business of an investigator (enquiry agent) in competition with the Plaintiff.

2. There is no dispute that the Defendant was originally employed by the Plaintiff for a period of about 17 months and that he left the employment on or about 15th March 1999.

3. It is also agree that under the contract of employment between the Plaintiff and the Defendant, there is a restrictive covenant to the effect that upon the Defendant leaving the employment of the Plaintiff, he should not engage in similar business in competition with the Plaintiff for a period of 12 months in Hong Kong.

4. In this application, the important issue to be solved is whether the restrictive covenant in question is legally enforceable. Mr. Clarke on behalf of the Plaintiff seeks to argue that there is no serious question to be tried in this case because the restrictive covenant is clearly enforceable and hence the Plaintiff must be entitled to prevent the Defendant from carrying on the business in competition with the Plaintiff for a period of 12 months upon his leaving the Plaintiff's employment.

5. To decide if a particular restrictive covenant is reasonable or otherwise the court must look at all the background of the case including the nature of the party's business and the duty of a particular employee.

6. In the contract of employment in question, the Defendant's duty had not been clearly spelt out although one can perhaps draw the necessary influence that his duty must be connected to the main business of the Plaintiff.

7. But, as I have observed in a course of counsel's argument, the employment contract did not spell out the period of the Defendant's employment. I have not commented in the course of counsel's argument that it can give rise to a situation whereby the Defendant would only work for the Plaintiff for a very short period of time yet he was subject to this 12 months period of restriction.

8. It is not for me at this stage to make a final finding as to the enforceability or otherwise of the restrictive covenant in question. The matter can only be properly resolved at the trial by the trial judge when all the relevant information is made available upon discovery.

9. At this stage and for purposes the present proceeding I do conclude that there is indeed a serious question to be tried as to the enforceability of the restrictive covenant in question. I then have to consider the other issue relevant to an application on this nature, namely where does the balance of convenience lie.

10. Mr. Sloan, the Defendant in his affirmation spelt out the difficulty he faced and that the business was not making any profit. Mr. Clarke seeks to rely on that point to strengthen his argument that the balance of convenience lies in favour of the Plaintiff.

11. Again, as I observed in the course of counsel submission that, not making any profit at the initial stage of a business is quite different from completely stiffling it and preventing it from getting started.

12. The background of this matter seems to suggest that if the order were to be granted in favour of the Plaintiff, that would, in my view, be an end of the Defendant's business.

13. I have considered every aspect of the case. I am not persuaded that the balance of convenience lies in favour of the Plaintiff in granting an order sought by the Plaintiff. But the Defendant has admitted in his affirmation that he had in fact the solicited and obtained business from the Plaintiff's former clients.

14. In my view, despite the observation by Miss Hui on behalf of the Defendant, an ex-employee is not entitled to solicit or obtain business from the previous customers of the ex-employer soon after his leaving the employment. In my view, that is a breach of the fiduciary duty that the Defendant owns towards his ex-employer, namely the Plaintiff.

15. Although Miss Hui is perhaps right in observing that in the summons before this court, the Plaintiff had not asked for any order restraining the Defendant from soliciting or entering previous clients of the Plaintiff, I am satisfied that in the light of the undisputed evidence and indeed the admission by the Defendant himself, an order restraining him from doing what he did, namely soliciting or obtaining instruction from clients of the Plaintiff ought to be granted.

16. Having reached that conclusion, the order I proposed to make is that the Defendant, until the trial of this action, or until 15th March 2000 be restrained from acting at or carrying on business as an enquiry agent, investigator, process server or debt collector in Hong Kong on behalf of former customers of the Plaintiff, whether by himself or through Asian International Investigation Ltd. or through his wife or otherwise.

17. Subject to the amendment that I have just indicated, I make an order in terms of the summons.