COINOPEXPRESS.COM LTD AND ANOTHER v. CHEUK CHUN FAI

HCA1710/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1710 OF 2007

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J U D G M E N T

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1. This is an application for interlocutory injunction made by the plaintiffs against the defendant, Mr Cheuk.  The defendant was formerly employed by the plaintiff company starting from 24 July 2006.  By a letter dated 13 March 2007 the defendant tendered his resignation to take effect from 12 April 2007.  The written employment between the plaintiffs and the defendant has the following restrictive covenant which says :

“	The employee covenants with the company that he will not for the period of eighteen (18) months after ceasing to be employed under this agreement, without the prior written permission of the Company, carry on any business similar or in competition with the business of Fortune Wave Ltd and any of its associated Companies, on his/her own behalf or any person, firm or company directly or indirectly.
	Seek to procure orders from or do business with any person, firm or company who has at any time during the 18 months immediately preceding done business with the Company or any associated Company.
	Endeavour to entice away from the Company any person who has at any time during the 18 months immediately preceding such leaver been employed or engaged by the Company or any associated Companies.
	Provided that nothing in this clause shall prohibit the seeking or procuring of orders of the doing of business not relating [t]o this business described above.”

2. It is the allegation of the plaintiffs that the defendant is in breach of all these covenants as follows :

(1)	In early June 2007, the plaintiffs discovered that there was one Universal Progress International Company (“UPI”) established as early as early 2007 (and that is whilst Mr Cheuk was being employed by the plaintiff company).  This company carried on trading of various amusement products in the internet under the domain “www.uniprogress.com”and the products are similar to or in competition with the plaintiff company.
(2)	UPI allegedly traded at least with one of the plaintiffs’ customers, namely Matthew Bells Inc.  Eventually the plaintiffs discovered that the defendant was actually the registered owner of this domain which was created as early as 29 January 2007, and that was at the time Mr Cheuk, the defendant, was still employed by the plaintiffs.
(3)	Evidence adduced by the plaintiffs shown that the defendant was involved in the UPI business by using the trade secret of the plaintiffs company.  In particular, two to three months before the defendant resigned, the plaintiffs planned to develop the sales of an accessory called “Do Do Card” and the defendant was instructed by one Madam Wong of the plaintiffs company to establish business contact with the distribution agent of this “Do Do Card”.  However, only two months after the defendant resigned from the plaintiffs company, this “Do Do Card” was available for sale in UPI’s website.  In other words the allegation of the plaintiffs was that the defendant has made use of confidential information of the plaintiffs company for his own business in UPI.
(4)	There was also evidence showing that the defendant, before 18 July 2007, tried to entice the plaintiffs’ employee by the name of Barry Li to join UPI.

3. The application of the plaintiffs was made by summons dated 9 August 2007 and on 17 August 2007, Sakhrani J gave leave to the defendant to file affidavits in reply to all these allegations.  No affidavit was filed.  On 6 September 2007, another hearing was convened before Sakhrani J on the application of the plaintiffs for an unless order.  Sakhrani J again granted leave to the defendant to file and serve an affirmation in opposition to the plaintiffs’ summons on or before 19 September 2007. 

4. On 18 September, the defendant filed an affirmation which amounted to submissions to the effect that the covenant is in restraint of trade and therefore should be void and illegal.  There was no denial of any factual allegations of the plaintiffs. 

5. Mr Cheuk, the defendant, appears before me today and said he wanted a further adjournment since he has applied for legal aid and his application is now under consideration.  But of course under the Legal Aid Rules the application for interlocutory injunction would not have the effect of staying the proceedings at all.  Mr Cheuk then said some of the facts alleged by the plaintiffs had done by him but he did not do some of the other things.  I am afraid he is capable of giving his own version in his own words in an affidavit which he has not done so.  I therefore refused his application for a further adjournment.

6. For the purpose of this application, first of all, I am not deciding whether those things had been done by Mr Cheuk but then all the allegations has established the first criteria of the principles in American Cyanamid Co. v. Ethicon Ltd and that is there is a serious issue to be tried.  Then what is the balance of convenience : whether it is in favour of the plaintiffs or in favour of the defendant.  Obviously the balance of convenience should lie with the plaintiffs and Mr Cheuk should not be allowed to continue on with those infringing conduct.  The only question to be considered is whether this clause of restraint of trade is void for illegality. 

7. I accept the submissions of Mr Johnny Ma, who has argued so well for the plaintiffs.  Even when he was just given short notice that, for the convenience of Mr Cheuk (since Mr Cheuk requested the proceedings to be conducted in Cantonese), Mr Ma immediately shifted to the other language and has fluently made his submissions.  He pointed out clearly to the court that whether a covenant should be upheld depended on two points :

(1)	whether the covenants are designed to protect the legitimate interests of the ex-employer; and
(2)	whether the covenant extend no further than is reasonably necessary to protect those interests of the ex-employer, see Employment Convenants and Confidential Information : Law, Practice and Technique, 2nd edition, 1999, paragraph 9.4.

8. Two types of business interests which the employers are now seeking to protect and they are : (i) trade connection, for example, customers and suppliers of goodwills; and (ii) business secrets or confidential information (see again in the same text book, paragraphs 9.11 and 9.13). 

9. I accept that the restrictive covenant is reasonably necessary here for the protection of the plaintiffs’ legitimate trade interests and therefore it is reasonable for the restriction of 18 months after the employment in order to restrict the defendant from carrying on the same trade in competition with the ex-employer.  Further the prohibition of enticing employee away from the ex-employer’s company is a reasonable restriction to protect the plaintiffs’ legitimate interests.  Similarly it also applies to trading with customers of the ex-employer.

10. Mr Ma also cited the case of Spafax Ltd v. Harrison [1980] IRLR 442 in the Court of Appeal in England.  The restrictive covenants upheld there was two years after the cessation of the employment with employer.  

11. Mr Cheuk has tried to distinguish the case and says that in those days it was not the era of internet.  Now we are in the internet age, whereas in those days there were only fax and telephone.  He then submitted that it would be different for the plaintiffs to restrict him to conduct sales on the internet. 

12. In fact the distinction would actually compel this court to impose an injunction rather than refusing the injunction because the internet would be much faster once the defendant established a relationship with the ex-customer.  That is another reason why I do not think there should be any further adjournment.  Mr Cheuk has already been given long periods of time of more than a month to make his affidavits.  

13. For the aforesaid reason I think I will order in terms of the summons in terms of the four injunctions sought from the court.  

14. Mr Cheuk, please look at the summons.  It is very important to you and that is you are now restrained :

(1)	whether acting by yourself, servants or agents or any of them or otherwise howsoever, and whether on behalf of (when I say himself means the defendant, that is you) himself or any person, firm or company, be restrained until final judgment or further order or 12 October 2008 (that is 18 months’ period) whichever is the earlier from carrying on any business similar to or in competition with the business of the 1st and/or 2nd plaintiffs.
	(I agree with the counsel for the plaintiffs that you have lots of other business to do but you cannot carry on a business similar or in competition to the business of the plaintiffs.)
(2)	The defendant whether acting by himself or his servants or agents or any of them or otherwise howsoever, and whether on behalf of himself or any person, firm or company, be restrained until final judgment or further order or 12 October 2008 whichever is the earlier from procuring orders from or doing business with any person, firm or company who has done business with the 1st and/or 2nd plaintiffs during the 18 months immediately preceding 12 April 2007.
(3)	The defendant whether acting by himself or his servants or agents or any of them or otherwise howsoever, and whether on behalf of himself or any person, firm or company, be restrained until final judgment or further order from using or disclosing any information of a confidential or secret nature that relates to the business of the 1st and/or 2nd plaintiffs, and/or their customers and/or suppliers.
(4)	The defendant whether acting by himself or his servants or agents or any of them or otherwise howsoever, and whether on behalf of himself or any person, firm or company, be restrained until final judgment or further order or 12 October 2008 whichever is the earlier from enticing away the employees of the 1st and/or 2nd plaintiffs.

15. It is my duty to warn you here that, Mr Cheuk, if you are in breach of any one of these four orders, the other side can apply to commit you for contempt of court and the punishment will be a fine and imprisonment.

Costs

16. In respect of costs, I make the order of the plaintiffs’ costs in the cause.