WORLD GROUP HOLDINGS LTD AND OTHERS v. LAUCHLAN WILLIAM LEISHMAN AND OTHERS

HCA 1779/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1779 OF 2011

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REASONS FOR DECISION

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Introduction

1.  The plaintiffs are entities in the same group engaged in the business of buying and selling overseas real properties to investors.  The 1^st plaintiff provides general consultancy and administrative services.  The 2^nd plaintiff focuses on the sale of USA properties and the 3^rd plaintiff, sale of the UK properties.

2.  The defendants are former contractors engaged by the plaintiffs as agents in respect of their property portfolio.  The 1^st defendant is the sole director of the two corporate defendants.

3.  In October 2011, the plaintiffs commenced the present action, claiming against the defendants for breach of contract, breach of confidence, breach of undertaking, copyright infringement and defamation.

4.  On 30 January 2012, the 2^nd plaintiff obtained, ex parte, from Fung J, a preservation order in respect of the confidential materials (as defined) and ancillary orders (“the Ex Parte Order”).

5.  The plaintiffs’ inter parte summons dated 30 January 2012 was returned before Deputy Judge Au - yeung on 3 February 2012. After hearing counsel, she made the following orders :

(1) The Ex Parte Order, as amended, was to be continued;

(2) An interim disclosure order concerning the plaintiffs’ confidential information (as defined) (“the Disclosure Order”);

(3) Four interim injunction orders whereby the defendants shall until 12 February 2012 and 12 August 2012 or the substantive hearing of the plaintiffs’ summons or further order, whichever is the earlier, be restrained from breaching the restrictive covenants under the non - disclosure/non - compete agreements signed by the defendants.

6.  She then gave directions and adjourned the plaintiffs’ summons for substantive argument, which came before me on 23 May 2012.

7.  The plaintiffs now sought continuation of the Ex Parte Order, the Disclosure Order and two of the four injunction orders made by Deputy Judge Au - yeung, which are to expire in August 2012 (“the Injunction Orders”).

8.  The defendants sought to discharge the Ex Parte Order and the Disclosure Order on the ground that the 2^nd plaintiff had failed to disclose material facts tantamount to misleading Fung J at the ex parte stage; and that in any event the two Orders have been complied with and it is not necessary to continue the same.  The defendants did not otherwise argue that the Ex Parte Order or the Disclosure Order was not properly granted.

9.  The defendants also applied to discharge the Injunction Orders, contending that the plaintiffs had not discharged the burden of showing the merits of their case concerning whether the covenants in question are enforceable; that the plaintiffs had failed to demonstrate that damages would not be sufficient or adequate or the balance of convenience would otherwise lie in the favour of granting the Injunction Orders; and that the plaintiffs had not provided meaningful undertaking of damages.

10.  After hearing counsel, I ordered the continuation of the Ex Parte Order, the Disclosure Order and the Injunction Orders and deferred the defendants’ application to discharge the Ex Parte Order and the Disclosure Order to trial.  I had indicated that I would reduce the reasons for my decision into writing, which I now do.

Discussion

11.  I first consider the Ex Parte Order and the Disclosure Order.  As I understand their argument, although the material non - disclosure took place at the ex parte stage, the Disclosure Order, being ancillary to the Ex Parte Order, was also tainted by it.

12.  Two points of material non - disclosure were raised.

13.  First, before Fung J, the plaintiffs alleged that the 1^st defendant misrepresented that he had no criminal history when in fact he was involved in some Australian criminal proceedings concerning Mr David Morgan of Benchmark Developments, a property development company, who was prosecuted for frauds involving illegal payments made by the 1^st defendant to him.  The plaintiffs obtained the relevant information from a Detective Sergeant Sheridan Heaton who had some email exchanges with Mr Cameron Donald - Oates and referred to some newspaper clippings in support.

14.  Mr Maurellet, for the defendants, submitted that the plaintiffs had failed to disclose to Fung J that the emails written by Detective Sergeant Heaton did not specifically mention that the 1^st defendant was involved in the criminal activity and that the newspaper clippings did not mention the 1^st defendant’s name at all.

15.  I disagreed.  I have reviewed all the evidence then presented before Fung J in the round.  When the email exchanges were understood in context, Detective Sergeant Heaton and Mr Donald - Oates were plainly referring to the 1^st defendant’s involvement in the criminal case concerning Mr Morgan.  While it is true that the newspaper clippings did not mention the 1^st defendant’s name, it is of little moment because the primary source of information was the Detective Sergeant.

16.  The second point of material non disclosure/misrepresentation taken by the defendants is this.  Before Fung J, the plaintiffs relied on conversations between Mr Donald - Oates and a Mr Jack Maple since the defendants ceased working for the plaintiffs in August 2011.  On the plaintiffs’ case, Mr Maple was one of the plaintiffs’ suppliers that the defendants had been soliciting.  Mr Maple told Mr Donald - Oates that the 1^st defendant had admitted to him, among other things, that he had continual access to the 2^nd plaintiff’s emails and documents.  Mr Maple has now filed an affidavit for the 1^st defendant, disputing that he had ever had such conversations with Mr Donald - Oates, who in turn insisted that the conversations did take place.

17.  As rightly conceded by Mr Maurellet, the court is in no position to resolve the dispute of facts on affidavits, which can only be done at trial.  He submitted that the discharge application based on this particular point should be deferred to trial.  I agreed.

18.  I next turn to the defendants’ contention that they had already complied with the Ex Parte Order and the Disclosure Order, which rendered their continuation otiose, which can be disposed of shortly.

19.  When the plaintiffs obtained the Ex Parte Order, the evidence presented to Fung J was rather alarming.  The 1^st defendant had continued unauthorized access to the 2^nd plaintiff’s management email system, which contained highly confidential business information including the entire blueprint of the 2^nd plaintiff’s business, since his departure on 13 August 2011 up to 18 October 2011 when the password to the system was changed.

20.  The 1^st defendant now admitted that he had continued unauthorized access to the 2^nd plaintiff’s email system since departure and had deceived the plaintiffs into believing that he had already deleted all such accesses when he left the plaintiffs.  He put up the lame excuse that he was concerned as to how the plaintiffs had dealt with departing employees/contractors and wanted to protect the defendants by so conducting himself.  His commercial morale is very low indeed.  In my view, it is too risky to discharge either of the Ex Parte Order or the Disclosure Order simply because he had asserted that there was full compliance, which is not accepted by the plaintiffs insofar as the Disclosure Order is concerned.  Without the Ex Parte Order, there is indeed a real risk that the defendants might just continue the acts complained of.

21.  For the above reasons, I refused to discharge the Ex Parte Order and the Disclosure Order and ordered the application to be deferred to trial.

22.  I now come to the Injunction Orders.  They read :

“3. The Defendants shall : -

…

(c) Until 12 August 2012 or the substantive hearing of the Plaintiffs’ summons filed on 30 January 2012 or further order of the Court, whichever is the earlier, be restrained from (whether by themselves, their servants, agents or otherwise) directly or indirectly soliciting, inducing, enticing, procuring or causing any person, firm or company which is, at the time of such solicitation or enticement, a customer or contact of any the Plaintiffs who has proceeded with or is in the process of proceeding with the purchase of one or more of the Plaintiffs’ overseas properties (‘Purchasing Customer’), or otherwise facilitating the taking away of business of the Purchasing Customer from the Plaintiffs;

(d) Until 12 August 2012, or the substantive hearing of the Plaintiffs’ summons filed on 30 January 2012, or further order of the Court, whichever is the earlier, be restrained from (whether by themselves, their servants, agents or otherwise) dealing with or otherwise having any business dealings with any person who is a Purchasing Customer.”

23.  They are based on two restrictive covenants made between the parties :

“6. NON – SOLICITATION OF CLIENTS

A. ...

B. The Contractor hereby covenants and undertakes that it shall not during its appointment nor for a period of twelve (12) months immediately following the termination of its appointment with the Company for whatever reason whether on the Contractor’s own behalf or in conjunction with or on behalf of any other person or business entity or organization whether as an employee, director, principal, agent, consultant or in any other capacity whatsoever directly or indirectly solicit, induce, entice, procure or cause any person, firm or company which is, at the time of such solicitation or enticement, a Purchasing Customer of the Company, or otherwise facilitate the taking away of business of the Purchasing Customer from the Company.

C. For the purpose of this Agreement, a ‘Purchasing Customer’ is a customer or contact of the Company who has proceeded with or is in the process of proceeding with the purchase of one or more of the Company’s overseas properties that is makes available to its customers, potential customers and contacts of the Company, and who is therefore of greater importance and value to the business of the Company.

7. …

8. NON – DEALING

A. ...

B. The Contractor agrees that it will not during its appointment nor for a period of twelve (12) months immediately following the termination of the Contractor’s appointment for whatever reason whether on its own behalf or in conjunction with or on behalf of any other person or business entity or organization whether as an employee, director, principal, agent, consultant, or contractor deal with or otherwise have any business dealings with any person who is a Purchasing Customer.”

24.  Mr Maurellet submitted that the plaintiffs had failed to show that the restrictive covenants in question are enforceable.  As I understand his submissions, he did not seek to argue that the evidence now before the court points strongly to breach of the covenants.

25.  Mr Maurellet submitted that Clauses 6B and 8B have no geographical limitation.  The plaintiffs pleaded that they engaged in the business of buying and selling overseas properties.  But the 60 Purchasing Customers identified by them had only purchased their properties situated in the USA and the UK, which are areas targeted by the 2^nd and 3^rd plaintiffs. The Clauses are evidently wider than sufficient in seeking to protect the plaintiffs’ legitimate interest.

26.  In my view, the plaintiffs’ businesses are partly client - based and partly property - based.  So while the properties covered by their businesses are mostly situated in the USA and the UK, it does not necessarily follow that their clients are also situated in these two countries only.  In fact, given the nature of their businesses, their customers may well come from different parts of the world.  It is therefore reasonable not to impose any geographical limitation.

27.  Mr Maurellet next submitted that there is no precise definition of “business dealings” in Clause 8B.  It means that the defendants simply could not engage in any sort of business dealings even in business which does not concern the buying and selling of properties or businesses engaged by the plaintiffs.  The scope is accordingly wider than necessary in seeking to protect legitimate business interest of the plaintiffs.

28.  I disagreed.  The advantage of a clause like Clause 8B is that in order to establish a breach of a non - dealing covenant, the ex - employer does not have to establish that it was the ex - employee who solicited the customer.  For it is all too easy for the ex - employee to assert that the customer approached the ex - employee (without solicitation by him). This is difficult for the ex - employer to disprove, particularly when the ex - employee and the customer are friendly.  See Brearley & Bloch, Employment Covenants and Confidential Information : Law, Practice and Technique. I rejected Mr Maurellet’s submission.

29.  Mr Maurellet then submitted that the balance of convenience lied in favour of the defendants.  However, I accepted Mr Lo’s submission that the balance clearly lied in favour of the plaintiffs.  Damages are plainly not an adequate remedy.  When a customer is lost, he is lost.  It would be difficult to quantify the loss and damage suffered.

30.  Finally, I rejected Mr Maurellet’s submission that the undertakings as to damages are not sufficient.  The evidence presented before me shows that the plaintiffs are financially capable of giving a meaningful undertakings as to damages.

Conclusion

31.  For the above reasons, I made the order as I did.