XCHRX ROMAN FINANCIAL PRESS LTD. v. LAM KIM WAN

HCA9058/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.9058 OF 2000

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J U D G M E N T

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The factual background

1. This is restraint of trade case which has taken a somewhat unusual course.

2. The plaintiff is in the business of financial printing, which I understand is a specialized branch within the printing industry, and operates within a market dominated by four to five major printing companies.

3. The defendant is a former employee of the plaintiff who joined the defendant in January 1999. Pursuant to a written employment agreement, the plaintiff employed the defendant as Senior Sales Co-ordinator, at a salary of $16,000 per month.

4. This agreement contained restrictive covenants, of which Clause 11 provides the main focus. Under this clause, the defendant agreed during the currency of his employment by the plaintiff and for a period of six months after termination :-

" (i) not to engage or to be engaged in Hong Kong and any other places where the Group operates whether directly or indirectly in the business of financial typesetting and financial printing;

(ii) not to take employment with any person, firm, company or organization engaged in Hong Kong whether directly or indirectly in the business of financial typesettting and financial printing, nor to assist any such person, firm, company or organization with technical, commercial or professional advice in relation to the business of financial typesetting and financial printing;

(iii) not directly or indirectly whether in his own account or for any person, firm, company or organization to solicit or entice away any director, manager or employee of the Plaintiff or any other company in the Group;

(iv) ... and

(v) not directly or indirectly whether on his own account for any person, firm, company or organization to solicit or entice away business from any person, firm, company or organization which at any time during the currency of his employment hereunder has been a customer of the Plaintiff or any other company in the Group in relation to the business of financial typesetting and financial printing."

5. The plaintiff says that by nature of the defendant's job he was granted access to sensitive and confidential information of a type set out in the evidence. I presently make no comment upon the nature and type of this information because it does not currently provide the focus of this particular application.

6. In any event, the evidence is that the relationship between the plaintiff and the defendant turned sour, and on 17 July 2000 the plaintiff issued a one-month termination notice and informed the defendant that his employment would be terminated on 16 August 2000. At this stage, the plaintiff specifically reminded the defendant of the restrictions contained in the agreement.

7. Subsequent to the defendant's departure from his position with the plaintiff, the plaintiff discovered that not only was the defendant working for a direct business competitor, a company by the name of Vite, but also that three of the plaintiff's staff had already been induced by the defendant to leave their positions with the plaintiff and join Vite, albeit one who was allegedly similarly so enticed remains with the plaintiff. The substantive allegation made by the plaintiff is that "the defendant keeps on leaking confidential and sensitive information, such as employment terms and conditions of the plaintiff's employees to unauthorized persons and organizations" and that "unless the defendant is restricted by the court from doing so, the defendant will continue soliciting or enticing the plaintiff's employees and customers".

8. On 4 September 2000, the plaintiff wrote to the defendant a letter before action. It reads thus :

"Dear Sir,

Re : Breach of Employment Contract

We act for Roman Financial Press Limited.

We are instructed that by a letter of appointment dated 6th January 1999 duly signed by you on 7th January 1999 ('the Letter of Appointment'), you had accepted the appointment as Senior Sales Coordinator by our client on the terms and conditions stated therein. The Letter of Appointment provided, inter alia, that you shall for a period of six month after termination of your employment with our client :-

1) not to engage or to be engaged in Hong Kong and any other places where our client and other companies within the same group operate, whether directly or indirectly in the business of financial typesetting and financial printing; and

2) not directly or indirectly whether on your own account or for any person, firm, company or organization to solicit or entice away any director, manager or employee of our client or any other company within the same group.

We are further instructed that wrongfully in breach of the Letter of Appointment, you are now engaged in the business of financial typesetting and financial printing in Hong Kong and have solicited or enticed away employees of our client within the six month period after the termination of your employment with our client. Our client has thereby suffered losses and damage.

We are therefore instructed to demand you, which we hereby do, to immediately refrain from engaging in the business of financial typesetting and financial printing and soliciting or enticing away employees of our client in accordance with the Letter of Appointment and to prevent from committing further breach of the Letter of Appointment, failing which legal proceedings will be commenced against you for all losses and damage suffered and/or may be suffered by our client together with interest and costs.

All our client's rights are hereby reserved.

Yours faithfully,"

9. Nothing was heard from the defendant and on 19 September 2000 the plaintiff made an application to Sakhrani J for an ex parte injunction. On the same day also, 19 September (but, it is accepted, unbeknownst to the plaintiff when it made the application), the defendant replied to the plaintiff's letter of 4 September in the following terms :

"Re : Employment Contract - Mr. Lam Kim Wan

We act for Mr. Lam Kim Wan and we are instructed to reply to your letter of 4th September 2000 on behalf of our client.

Save that a Letter of Appointment was entered between our respective clients in January 1999, our client denies the various allegations made against him. We wish to emphasise the following:-

1. The restraint of trade clause in the Letter of Appointment is wider than necessary to protect the legitimate interest of your client. It is likely to be void for want of legitimate interest.

2. Our client specifically denies that any staff employee of your client has been enticed away by him.

Our client also denies that he has in any way caused loss or damages to your client.

Our client shall strenuously defend the legal proceedings against him should your client sees fit to institute proceedings.

Meanwhile, all our client's rights are expressly reserved.

Yours faithfully,

BOASE COHEN & COLLINS"

The injunction

10. After hearing counsel for the plaintiff at the ex parte application for injunction, Sakhrani J made the following Order :

"1. The Defendant be restrained and an injunction is hereby granted restraining him whether -

i. by himself or his servants or agents or otherwise howsoever until 29th September 2000 from engaging or to be engaged in Hong Kong whether directly or indirectly in the business of financial typesetting and financial printing;

ii. by himself or his servants or agents or otherwise howsoever until 29th September 2000 from taking employment with any person, firm, company or organization engaged in Hong Kong whether directly or indirectly in the business of financial typesetting and financial printing or to assist any such person, firm, company or organization with technical, commercial or professional advice in relation to the business of financial typesetting and financial printing;

iii. by himself or his servants or agents or otherwise howsoever until 29th September 2000 from directly or indirectly whether on his own account or for any person, firm, company or organization from soliciting or enticing away any director, manager or employee of the Plaintiff.

2. That the costs of and incident to this application be reserved."

11. Undertaking (3) of that Order further recited that :

"3) As soon as practicable the Plaintiff will serve on the Defendant a summons to be heard on the Return Date at 10:00am at 29th September 2000 before the Summons Judge together with a copy of the affidavits and copiable exhibits containing the evidence relied on by the Plaintiff and a copy of the skeleton argument used at the application for this Order."

The present application

12. By inter partes summons dated 26 September, the defendant applied for an order that the injunction granted by Sakhrani J on 19 September be set aside. This summons was short served, albeit no point is taken as to that, and came before myself as Duty Judge at 3:45 p.m. on the same day. At that hearing, Mr Mok represented the defendant and Mr Sussex SC (whom hitherto had had no contact with this case) was summoned on very short notice to represent the plaintiff. During a short hearing on the afternoon of 26 September, Mr Sussex made it plain to the court that he had only the barest knowledge of the case, and asked for time to look at the papers. In turn Mr Mok was anxious to proceed with the application on behalf of his client but recognized his colleague's dilemma. In the event, the substantive hearing of the defendant's application was fixed for 2:30 p.m. on the following day, i.e. 27 September, argument thereon not concluding until after 5 p.m. on that afternoon, at which point the application was adjourned for overnight reflection.

13. Mr Mok asked for the ex parte order of Sakhrani J to be immediately set aside, invoking the jurisdiction of the court under Order 32, rule 6, RHC. The thrust of his submission was that it was manifest that no basis had been demonstrated for the plaintiff to have proceeded ex parte, as indeed it had wrongly and improperly done, that in these circumstances the plaintiff had been guilty of an abuse of process and that, accordingly, that the defendant was entitled ex debito justitiae to the discharge order now sought. In the circumstances of this case, said Mr Mok, this was not a situation where an ex parte application was acceptable or could be sustained.

14. Mr Mok's submission was buttressed by citation of English and Hong Kong cases wherein the nature of ex parte applications is considered, and the circumstances appropriate for their use delimited. As Rogers J (as he then was) succinctly stated in Seapower Resources International Limited v. Lau Pak Shing (unreported), Lexis Transcript dated 15/12/93 :

"Ex parte applications should only be made where either the delay would cause to the Applicant injustice or the Defendant would take action which would nullify the effect of the injunction. ..."

Detailed reference was also made during the application to the judgment of Godfrey J (as he then was) in Jademan (Holdings) Limited v. Francis Leung Pak-to & Others [1989] 2 HKLR 151, and to the powerful speeches of Lord Justices Hoffman and Steyn and Sir Thomas Bingham MR (as they then were) in the 1993 unreported English Court of Appeal case of TRP Limited v. Thorley, CA Transcript dated 13 July 1993, in which in particular Sir Thomas Bingham MR stated :-

"... Applications for injunctions are governed by Ord 29 of the Rules of the Supreme Court and in Ord.29 r.1(2) one finds the following:

'(2) Where the applicant is the plaintiff and the case is one of urgency such application may be made ex parte on affidavit but, except as aforesaid, such application must be made by a motion or summons.'

That rule is the subject of comment in para 29/1/8 on page 514 in volume 1 of the current White Book where one finds among other statements the following:

'Though this rule authorises ex parte applications by the plaintiff, such an application for an injunction will not be granted unless it is made promptly, and it must be shown that there are strong grounds to justify its being made ex parte.'

Again, ex parte injunctions are for cases of real urgency where there has been a true impossibility of giving notice of motion.

These statements are unsurprising since it is on the face of it plainly contrary to the principles of natural justice that any judicial order adversely affecting a party's interests should be made against him without his being given a reasonable opportunity of being heard. That is the simple overriding rule on which our system of justice depends. The rule is not, however, absolute and unqualified. Derogations are permitted in certain very limited and exceptional circumstances, the most obvious of these so far as the granting of injunctions is concerned being where the situation is one of such extreme urgency that there is literally no time to warn the defendant of what is proposed or where the purpose of the injunction will or may well be frustrated if the defendant is informed of what is proposed or whether the defendant simply cannot be found. The exceptional nature of the circumstances must, however, be stressed. They are the exception and not the norm. Even when time does not permit application on full notice it is highly desirable to inform the other party that the application is to be made ex parte so that he can if he wishes attend and make such representations as he wishes.

It is, I fear, the prevalence of Mareva and Anton Pillar injunctions (which plainly fall within the second of the exceptional classes I have mentioned when they are properly applied for and granted) that has had the unhappy result of obscuring how exceptional the grant of an injunction ex parte should be. This is an impression that should be corrected."

15. After referring to the particular facts, Sir Thomas Bingham MR noted the existence of a two month four day delay prior to the application in that case (which, similarly, was a restrictive covenant case), and observed :

"... These timings are of themselves enough to show that there was not in this case the degree of urgency which would justify the making of an application ex parte let alone the granting of such relief, although it is only fair to add that the learned judge himself would not have foreseen the delay in serving the order.

I understand that in some quarters the making of application in cases of this kind has become almost the regular practice. I hope that this case will serve to bring to the attention of those who may understand this to be so that it is a practice which should be discontinued extremely promptly."

16. On behalf of the plaintiff, Mr Sussex SC resisted the application. He did not, of course, demur from the well established principles relating to ex parte applications, albeit he did not accept that the application in the present instance was improperly made, and he contended that notwithstanding the two week period which had elapsed between the plaintiff's letter before action and the date of the application for the injunction that the plaintiff had continued to believe that the matter was sufficiently serious and urgent to warrant ex parte application.

17. The main thrust of his submission, however, was to take strong issue with Mr Mok's bald contention that to proceed ex parte in circumstances where it was subsequently adjudged incorrect or inappropriate so to have done necessarily had the effect of giving an unmeritorious defendant (which this defendant, he maintained, plainly was) the power to set aside the injunction ex debito justitiae on the basis that the course adopted had been an abuse of process. To the contrary, he submitted there was no such right and the fact, standing alone, of an allegedly inappropriate ex parte application should not, without more, be characterized as an abuse of process, and was but one of the factors to be placed into the discretionary 'mix' on the injunction return date - which, as matters stood in this case, was two days hence. In this connection, Mr Sussex drew an analogy with the law on material non-disclosure, and pointed out that in the well known case of Brink's Mat Ltd v. Elcombe & Others (CA) [1988] 1 WLR 135, the English Court of Appeal had held that notwithstanding proof of a material non-disclosure which justified or required the immediate discharge of an ex parte order, the court nevertheless had a discretion to continue the order or to make a new order. Similarly, he suggested, in cases of allegedly incorrect ex parte applications, submitting that it would be curious if different rules prevailed in these two situations.

18. The point is an interesting one and affords pause for thought. In no sense does this court derogate or differ from the cardinal principles laid out in the cases in relation to the circumstances in which ex parte applications should be made (as, perhaps, practitioners in the Commercial Court, which draws its fair share of contested injunctions, may be inclined to attest).

19. Having said that, however, I have considerable difficulty in accepting Mr Mok's ex debito justitiae argument. I do not believe that the court is thus constrained and that, in effect, it possesses no residual discretion. Assume for present purposes that the present defendant is as manifestly devoid of merit as Mr Sussex suggested (I have of course in no way made up my mind), given that he is yet to say very much of substance on affidavit save to make what on any view is an unsuccessful stab at a non-disclosure argument. And further assume, as Mr Sussex did in argument, that if notice of some form had indeed been given of the plaintiff's application in this case, that not a great deal would have been proffered by way of defence, and that the judge seized with the application would have been minded to grant the injunction sought in order to protect the position pro tem. It would be odd, therefore, submitted Mr Sussex, if the defendant was now to be able to discharge the injunction as of right against a plaintiff with a strong case by reason solely of an ex parte application which allegedly should properly have been made inter partes. To this, of course, Mr Mok responded that by reason of an incorrect ex parte application, a wrongful advantage may well have accrued and, he asked rhetorically, why should that window of advantage be permitted to continue?

20. The short answer, in my view, is that these matters cannot be so rigidly pigeon-holed so as to produce the result that any order representing the fruits of what is subsequently considered to be a wrongful ex parte application must fail as of right. However much our judicial system deprecates the incorrect use of ex parte applications, in my judgment that fact in itself does not require that the consequential order is to be set aside ex debito justitiae whatever the merits or surrounding circumstances. I think it is fair to say that none of the cases cited by Mr Mok justify in plain terms his ex debito submission, although perhaps he obtained inferential support from the judgment of Rogers J (as he then was) in Seapower, op.cit., which judgment was delivered on what clearly was the return date in that case, wherein the learned judge observed, in his view of the case then before him, that the injunction application should never have been made ex parte, and that he would discharge it for that reason alone without even going on to consider the other grounds prayed in aid for discharge. However, if and in so far as Rogers J was there deciding (and looking at the case in the round I am far from sure that he was) that incorrectly obtained ex parte injunctions must fall ex debito justitiae as Mr Mok now suggests, I would, with respect, decline to follow that approach.

21. At the end of the day, the issue of the allegedly unjustified utilization of the ex parte procedure (if such in fact this be) is one of the issues which falls to be debated, together with the other relevant issues, such as the existence of a serious question to be tried and the balance of convenience, on the return date, and in the context of a debate which takes place when the evidence is in, and the court seized with the task of evaluating the case has all before it. In the meantime, if the injunction be ultimately determined to have been wrongly granted, for whatever reason, the defendant has the benefit of the plaintiff's undertaking in damages, the validity of which appears in this instance to be eminently secure. Mr Mok, on behalf of the defendant, will have the opportunity to make his argument based inter alia upon the allegedly wrongful ex parte procedure - together with his announced intention consequently to argue that in circumstances such as these, the court should not only set aside the order but should on principle also refuse all further relief - on the stipulated return date (which is tomorrow), or on such date as may subsequently be appointed. This injunction may hold, or it may not, but I decline the current attempt to 'hive off' but one segment of a discharge argument and thereby, in effect, to interrupt this particular exercise at half time. Whilst the defendant is indeed entitled to return to court at any time to attack an ex parte injunction to which he has been made subject, in my judgment the defendant is not entitled to have the injunction discharged ex debito justitiae on the basis which is now asserted.

22. It follows from the foregoing that the defendant's application to discharge by summons dated 26 September 2000 is dismissed. I have decided that in all the circumstances, and particularly given the absence of counsel today, that the costs of and occasioned by this application can more usefully be reserved to the court hearing the plaintiff's application to continue this injunction. I so order.

[Submissions from the Bar]

23. Consequent upon this judgment, the delivery of which was not attended by counsel, the parties being represented today by their respective solicitors, Mr Wong for the plaintiff and Mr Cohen for the defendant, it was agreed that the most useful course would be now to make directions for the further conduct of this matter. This I now do, and accordingly I make the following consequential order and directions :-

(1) The injunction granted by Sakhrani J on 19 September be continued until trial or further order;

(2) The hearing scheduled for 29 September at 9:30 a.m. before the summons judge (the original return date) be vacated;

(3) The defendant is to have 7 days from today in which to file and serve additional evidence;

(4) The plaintiff is to have 7 days after service of such evidence to file and serve any further evidence in response;

(5) No further evidence is to be filed by either party without leave of the court;

(6) The application to be listed before Stone J at the earliest available date in consultation with counsel's diaries (estimated time one day);

(7) There be liberty to apply; and

(8) Costs of today be reserved.