XCHRX BALSAM LTD. v. CHAU CHI NUNG AND OTHERS

1994 No. A5626

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

____________

____________

_______________

J U D G M E N T

_______________

1. The 1st, 3rd and 4th Defendants seek an order that they be released from an undertaking given by them in a consent order made by Mayo J. (as he then was) on 9th February 1995. That consent order was a Tomlin order which stayed all further proceedings in the action on the terms recorded therein and in the schedule thereto.

2. Paragraph 1 of the order provided for the injunction order of Deputy Judge Ronny Wong Q.C. made on 8th October 1995 to be discharged and to be substituted by an undertaking in these terms:

"Neither the Defendants, nor any company, entity or individual which is a subsidiary or otherwise associated with them or for which they are employees or agent will trade or distribute in China, Macau or Hong Kong beverage products of F & N Coca Cola Pte Ltd."

3. According to the Statement of Claim against the Defendants, the Plaintiff's principal business was the sale and distribution of beverage products in Hong Kong, Macau and China known as "Seasons" and "Snappy C". The Plaintiff was the exclusive distributor of the "Seasons" beverage products being the registered trade name beverage products of F & N Coca Cola Pte Ltd. of Singapore ("F & N") in Hong Kong, Macau and in Hainan, Guangdong, Fujian, Jiangsu, and Hebel in China. The Plaintiff was also the non-exclusive distributor of the "Seasons" products of F & N in other parts of China, namely Zhejiang and Guanxi. The claim against the 1st and 2nd Defendants were as employees of the Plaintiff. It was alleged, inter alia, that they had made use of confidential information whilst still employed by the Plaintiff and after they had left the Plaintiff to join the 3rd Defendant, in breach of their duties to the Plaintiff.

4. There was also a claim in conspiracy. It was alleged, inter alia, that the 1st, 2nd and 4th Defendants together with a Mr. Zheng Qing Fu, the manager of the Plaintiff's largest customer, Shantou Shangping Drink Co. wrongfully and maliciously conspired and combined amongst themselves to injure the Plaintiff in its business. The 4th Defendant was the majority shareholder of the 3rd Defendant and alleged to be the directing mind behind the 3rd Defendant.

5. Acts in furtherance of the conspiracy were pleaded in the Statement of Claim. This included the allegation that the 1st and 2nd Defendants made use of confidential information as regards the Plaintiff's customers and together with the 4th Defendant made use of the 3rd Defendant as a vehicle to injure the Plaintiff's business by, inter alia, procuring F & N to supply the 3rd Defendant with "Seasons" beverage products which were in turn supplied to the Plaintiff's largest customer, Shantou Shangping Drink Co. to the detriment of the Plaintiff's business. There were further allegations in support of the conspiracy claim, the breach of contract claim against the 1st and 2nd Defendants and the misuse of confidential information claim. It was also alleged against the 3rd Defendant that it had wrongfully interfered with the Plaintiff's business by, inter alia, using the confidential information supplied to it by the 2nd and 3rd Defendants, namely, information regarding the Plaintiff's customers. Damages and injunctive relief were claimed.

6. There were a number of applications made against the Defendants in the course of the litigation including a Mareva injunction, an Anton Piller order, and for leave to issue committal proceedings for contempt. An injunction in a limited form was continued by Deputy Judge Ronny Wong Q.C. in his order dated 8th October 1995, the Plaintiff having abandoned a continuation of a previous order on the basis of misuse of confidential information. The consent order that was made by Mayo J. on 9th February 1995 was a compromise of the Action in the form of a Tomlin Order.

7. Mr. Dykes, S.C. for the 1st, 3rd and 4th Defendants submitted that the grounds for seeking the discharge of the undertaking contained in the order were that the Plaintiff no longer has any proprietary rights in the trade and distribution of the products of F & N and that it has no other legal interests that could be protected by a court order.

8. The distribution agreement that the Plaintiff had entered into with F & N showed that the agreement had a maximum life of five years from 1st January 1993 i.e. an initial term of 3 years with an extension for a further period of two more years on such terms and conditions as may be agreed by F & N. (Clause 9). Clause 10 of the agreement provided for termination and by Clause 11.2.1 thereof, it was provided that upon termination of the agreement for any reason whatsoever, the Plaintiff should forthwith cease to distribute and sell the products in the territory. The territory covered all the areas where the Plaintiff had exclusive distribution and non-exclusive distribution of F & N's products.

9. The evidence showed clearly that the Plaintiff had lost the F & N distributorship some time in 1996 and notices to that effect appeared in the local newspapers advising that the Plaintiff was no longer authorised to distribute F & N's products. The notices made it plain that the Plaintiff was no longer an authorised distributor of Seasons' brand beverages or any other products manufactured by F & N with effect from 30th August 1996. Thus, it is submitted that there are good grounds for releasing these Defendants from their undertaking as the Plaintiff is no longer the distributor of F & N products.

10. It was further submitted by Mr. Dykes that the whole question was one of construction of the undertaking. As such, it was important to consider what legal interest the Plaintiff had that was capable of being protected by a court order. The legal interest the Plaintiff had was in its distribution agreement with F & N. The order did not contain a clause which recognised that the undertaking was a perpetual one which would stand for all time notwithstanding the fact that the Plaintiff no longer distributed F & N's products.

11. Mr. Dykes also submitted that, in the alternative, I should vary the undertaking. On the evidence, it was shown that the Plaintiff's commercial energies were directed solely towards the China market whereas the undertaking covered China, Hong Kong and Macau. There were, therefore, good grounds to vary the undertaking insofar as Hong Kong and Macau were concerned.

12. Mr. Side for the Plaintiff submitted that the terms of the consent order were freely negotiated by the parties who were represented by solicitors. He submitted that they knew of the terms of the distribution agreement and the likely duration thereof when the order was made. There was eminent commercial reason for the Plaintiff to require the undertaking in the form as drafted which was not limited in time to the Plaintiff's distribution agreement with F & N but was a perpetual restriction nor was it limited to distribution in the Plaintiff's territory in China but to the whole of China, Macau and Hong Kong. He relied on the 4th affidavit of Mr. Chan Toh Pew the managing director of the Plaintiff, filed on 24th January 1998 as to, inter alia, what Mr. Chan intended to achieve by the settlement and as to investments that were made in the Plaintiff's distribution network after the consent order was made. It was also submitted that the proper way of proceeding was by way of a fresh action rather than by seeking to set aside the order in these proceedings.

13. I accept Mr. Dykes' submission that the whole question is one of construction of the order and the undertaking contained therein. These defendants do not seek to set aside the rest of the consent order but only seek to be released from their undertaking. This is not a case where a party to a consent order seeks to set aside the same for mistake or misrepresentation. If that were the case, then a fresh action would be the proper course to set aside the consent order (see de Lasala v. de Lasala [1979] 2 All E.R. 1146)

14. Although it was made in an interlocutory stage of the proceedings, the consent order effectively compromised the action on the terms set out therein and in the schedule. As was pointed out to me, there does not appear to be a fundamental distinction between a consent order made in interlocutory proceedings and a consent order made on a final judgment although there was a larger discretion as to orders made on interlocutory applications than as to those which were final judgments. (See Re Tse Lee Yuen Jewellery Ltd. [1984] HKC 352 and Purcell v. F C Trigell Ltd. and another [1970] 3 All E.R. 671)

15. It is clear that the court in construing the order has to determine the common intention of the parties by reference to the order itself. Extrinsic evidence of what may or may not have been in the minds of the parties is not admissible for this purpose. (See para. 5-02 Foskett's 'The Law and Practice of Compromise' and Arrale v. Costain Civil Engineering Ltd. [1976] 1 Lloyd's Rep. 98.)

16. Likewise, the parties' subsequent conduct is also inadmissible for the purpose of construction. Lord Reid succinctly dealt with this in James Miller & Partners Ltd. v. Whitworth Street Estates (Manchester) Ltd. [1970] A.C. 583 when he said at 603E:

"I must say that I had thought that it is now well settled that it is not legitimate to use as an aid in the construction of the contract anything which the parties said or did after it was made. Otherwise one might have the result that a contract meant one thing the day it was signed, but by reason of subsequent events meant something different a month or a year later."

17. In my judgment, the evidence of Mr. Chan Toh Pew as to what he intended to achieve by the settlement and as to the investments made in the Plaintiff's distribution network after the consent order was made is inadmissible for the purpose of construction.

18. I also accept Mr. Dykes' submission that in construing the order I have to consider what legal interest the Plaintiff had that was capable of being protected by a court order. I was also reminded of what Lord Macnaghten said in Nordenfelt v. The Maxim Nordenfelt Guns and Ammunition Co. Ltd. [1894] A.C. 535 when dealing with covenants in restraint of trade. He said this at page 565:

"It is a sufficient justification, and indeed it is the only justification, if the restriction is reasonable - reasonable that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is no way injurious to the public"

19. I would observe that the products which were the subject matter of the undertaking were not beverage products per se but specifically beverage products of F & N. At the time the undertaking was given, the Plaintiff's interest was as a distributor of F & N's products. As long as the Plaintiff, remained a distributor of F & N's products, the undertaking would be effective. The undertaking is not expressed to be a perpetual one. I fail to see how it can be said that the undertaking would stand for all time notwithstanding the fact that the Plaintiff had no legal interest to protect. After 30th August 1996 the Plaintiff was no longer an authorised distributor of F & N's products and no longer had any legitimate interest to protect.

20. In my judgment, good grounds have been shown by these Defendants as to why they should be released from their undertaking and I make an order in terms of para. 1 of the summons dated 9th January 1998. There will be an order nisi that the costs of the application be taxed if not agreed and to be paid by the Plaintiff to the 1st, 3rd and 4th Defendants.