BEAUTY FOREVER HUMAN RESOURCES LTD v. CHEUNG LAI NGOR AND OTHERS

HCA 199/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 199 OF 2015

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D E C I S I O N
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Introduction

1. The plaintiff commenced this action, and seeks an interlocutory injunction, against 5 defendants (all former employees of the plaintiff).  Its claim is based on two main grounds:

(a) breach of confidential information provisions;
(b) breach of restraint of trade clause,

in the employment contracts.

2. The injunction application against the 1^st and 3^rd defendants has already been dealt with.  This decision therefore only concerns the 2^nd, 4^th and 5^th defendants (collectively “the defendants”).

Background

3. The plaintiff operates a beauty service business with branches in densely populated areas (Central, Taikoo, Fortress Hill, Tsim Sha Tsui, Shatin, and Tsuen Wan).  The 2^nd defendant (“D2”) was its manger at the Fortress Hill branch, and the 4^th and 5^th defendants (respectively “D4” and “D5”) its beautician and senior beautician.  All the defendants resigned between July and early September 2014.

4. The employment contracts contained (among others) clauses concerning (and to the effect that):

(1) information regarding the plaintiff and its clients is to be regarded as confidential and valuable, and cannot be disclosed or used by the employees;

(2) the employees must not approach or disturb the plaintiff’s customers (or approach them after employment termination), or entice them away from the plaintiff;

(3) the employees should not participate in or set up business which competes with the plaintiff’s within one year and within one kilometer of the plaintiff’s branches.

The plaintiff also relies on the common law duty of fidelity and good faith on the part of the employees.

5. The plaintiff complains in this action (and this application) that the defendants breached the above contractual provisions and/or common law duty:

(a) during her employment with the plaintiff, D2 approached the plaintiff’s Fortress Hill employees and enticed them to terminate employment with the plaintiff;

(b) the defendants misappropriated the plaintiff’s client data during their employment with the plaintiff;

(c) the defendants misused those data by contacting the plaintiff’s customers by telephone and/or SMS messages;

(d) they enticed the plaintiff’s customers by telling them unused package of the plaintiff could be used at the centre where the defendants were working for free;

(e) the defendants work at a beauty service centre within one kilometer of the plaintiff’s Taikoo branch and within one year of their resignation.

Relevant legal principles

6. The legal principles relating to:

(1) the grant of interlocutory injunction orders;
(2) restraint of trade clauses in employment contracts,

are trite and can be summarized as follows.

7. In relation to the grant of interlocutory injunction, the applicant must show a serious question to be tried in relation to his claim, and, having done so, also show that the balance of convenience is in favour of granting an injunction.

8. In relation to contractual restraint of trade terms, they are prima facie unenforceable, and are enforceable only if they are reasonable (with reference to the interests of the parties concerned and of the public): Chitty on Contracts (2012) 31^st Ed, [para 16-076 and 16-093 to 16-097].

9. The authors of Chitty mentioned the following as classic instances of the concerned parties’ interests:

“… the proprietary or quasi-proprietary interest of an employer in his trade secrets and trade connections and of a purchaser of a business in the goodwill of the enterprise he has acquired … ”;

“… agreements to restrict the production or supply of goods or to fix prices can be justified … [if they] are not injuring or are even benefiting the public”.

(Chitty, para 16-094)

10. As regards public interest, Chitty observes:

“… where the restraint relates to the traditional categories of employer-employee or vendor-purchaser restraints, this onus [of establishing that a covenant is no more than is reasonable in the interests of the parties] will not be a light one” (para 16-096 thereof).

But Chitty also cautions against over-emphasizing this aspect in relation to cases falling outside the traditional categories, mainly on the ground that the common law court is not an appropriate forum for assessing economic issues (which involves balancing the interest of conflicting groups in society): Chitty, para 16-098.

Confidential information

11. The main plank of the case of D4 and D5 is that they never have had the opportunity of accessing the confidential information concerned (the confidential nature of the same is undisputed, at least for the purpose of this application).

12. Further, the defendants contend that there is no “independent” evidence (whether by way of “independent” deponents, or by undisputed documents) that they have “poached” the plaintiff’s employees and/or customers.

13. There is also strength in the defendants’ argument that the only evidence purporting to show their contacts with the customers by SMS messages or by telephone is “self-serving”; the table showing such contacts was compiled by the plaintiff, and verified by its own general manager.

14. Having said so, it must be remembered that the threshold for an applicant to cross in an application of this kind is relatively low.  With that in mind, I am satisfied that the plaintiff has established a serious question to be tried as regards the defendants’ possession and use of the confidential information, and that they have approached and attempted to entice the plaintiff’s customers.

15. There is no basis for thinking that the grant an injunction enjoining the defendants from the conduct referred to in para 5(b) to (d) above will likely cause them irreparable damage.  On the other hand, to refuse such an injunction would risk the plaintiff suffering the same (it is difficult to quantify the loss which may result from such conduct).  All in all, the balance of convenience is also in favour of granting such an injunction.

16. There is however no evidence relating to the plaintiff’s complaint summarized in para 5(a) above.  This part of the application is accordingly refused.

Restraint of trade

17. As the defendants correctly point out, the plaintiff has not adduced evidence concerning the matters mentioned in para 8 to 10 above against them.

18. I am thus not satisfied that the plaintiff has established that the restraint is reasonable whether from the point of view of the parties concerned, or from the public interest viewpoint.  In so concluding, I have taken into account (among other things) the defendants’ main area of work is in the nature of front-line semi-skilled workers (beauticians).  Even if they may also be responsible for some customer relationship work (for example, to promote their new employer’s business), the plaintiff’s legitimate business interests should be adequately protected by the injunction regarding the plaintiff’s confidential information (see above).

19. The related injunction sought is therefore refused.

Conclusion

20. This application should be determined in the manner stated in para 15, 16 and 19 above.

21. I leave to the parties to try to agree on the precise terms of the injunction order (within 7 days from today).  Failing agreement, each party is at liberty to submit its version of the proposed terms of the order (with appropriate highlights to indicate any difference(s) from the other party’s proposed terms) within 7 days thereafter.

Other matters

22. The plaintiff also seeks to file and serve its statement of claim effectively within 14 days from today.  I do not understand the defendants to oppose to this application per se.  An order in terms will be made accordingly.

23. The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the decision and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

Costs order nisi

24. There will be a costs order nisi pursuant to Ord 42 r 5B(6) that each party is to bear its own costs of this application.