CLUB DELUXE LIMITED v. CLUB METROPOLITAN LIMITED AND OTHERS

1990 No. A8339

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This action arises out of what are, to many Hong Kong people, the mysterious operations of night clubs. These operations which contribute very little, as far as I can see, to the prosperity and stability of Hong Kong, occupied this Court for almost four weeks. It is I suppose a tribute to Hong Kong's system of justice that no matter how important or otherwise litigants or a piece of litigation may be, they all receive the same standard of judicial devotion and resources.

2. The Plaintiff and 1st Defendant, each own and operate a hostess night club in Tsimshatsui. The 2nd Defendant (Mr. Yu) and the 3rd Defendant (Miss Chan), who are husband and wife, were employed by the Plaintiff as public relations manager and as manageress respectively. Manageress is a euphemism for a person more commonly known as a mamasan. Mr. Yu and Miss Chan are now employed by the 1st Defendant as manager and public relations manageress respectively. Their move from the Plaintiff's club to that of the 1st Defendant's was as a result of what has quaintly been termed "grabbing for prominent persons", but which I would more prosaically call poaching.

3. The Plaintiff's complaints are: first, that on or about 1st October 1990, Mr. Yu then

(a) In breach of his existing contract of employment with the Plaintiff commenced employment for the 1st Defendant.

(b) In breach of Clause 11 of that contract encouraged customers of the Plaintiff to patronize the 1st Defendant's club and

(c) In breach of Clause 12 of that contract caused or solicited Miss Chan and six named hostesses to leave the Plaintiff's service.

4. Second, that Miss Chan, who was engaged under a written contract for a period of two years, left the Plaintiff without giving three months' or reasonable notice.

5. Third, that the 1st Defendant and Mr. Yu unlawfully interfered with or induced Miss Chan and the six hostesses to break their contracts of employment with the Plaintiff by leaving without giving any or adequate notice.

6. The Plaintiff accordingly claims damages, damages for breach of contract, damages for tortious interference with contractual relations and "an injunction against the 1st Defendant from employing (Mr. Yu) and (Mr. Yu) allowing himself to be employed by the 1st Defendant". The latter claim leaves something to be desired in its drafting but the sense is clear enough. That claim is now however academic and is not pursued. Nor is there pursued against Miss Chan a claim totalling sum HK$159,000.00 for outstanding bills.

7. In essence, the 1st Defendant denies any knowledge of contracts between Mr. Yu and Miss Chan on the one hand and the Plaintiff on the other, and denies any inducement or unlawfully interference. Mr. Yu denies that working for the 1st Defendant was wrongful or in breach of contract; denies soliciting Miss Chan or the hostesses; and asserts that Clauses 11 and 12 in his contract with the Plaintiff being restrictive covenants are unreasonable and unenforceable. Miss Chan denies that there was any written agreement with the Plaintiff, in terms. her signature on what purports to be the contract was forged; asserts she gave notice; and counterclaims for various items of remuneration said to be due to her amounting to some HK$165,000.00 As to the counterclaim, the Plaintiff denies that any moneys were due to Miss Chan, essentially because payment was conditional upon an employee completing a lunar year's service.

8. It will help if I first examine how the Plaintiff's and similar night clubs operate. Put shortly, they sell hostesses time. On arrival at the club, a customer is greeted by a receptionist or possibly a public relations manager and taken to a table where his requirements are ascertained. In the unlikely event that the customer wanted nothing more than a drink, he would be served by a waitress. Customers, however, generally arrive in groups, the object being the entertainment, perhaps of visiting businessmen or perhaps of just friends. A mamasan will then be directed to the table, either because the customer is one of her regular clients or because she is readily available. She will talk to the customers and then send the appropriate number of hostesses to that table.

9. Each club employs a number of mamasans. The Plaintiff employs approximately thirteen, other clubs rather more. Each mamasan is responsible for a number of hostesses, who may conveniently be referred to as her team. It is primarily from her team that a mamasan will select a hostess or hostesses to go to a table. She can, however, send hostesses from the team of any other mamasan. This would occur if a customer asked for a particular hostess or the mamasan did not have any of her team immediately available. Plainly, a mamasan will use members of her team first. The evidence shows that hostesses move between clubs comparatively freely. If a mamasan does not look after the interests of her hostesses, who are paid by commission on points which they earn, she will lose the support of her team and part of her income.

10. At the table, a hostess will say "hello" to the customers. I understand from the evidence of Deborah Cheung (Miss Cheung), an ex- mamasan who gave evidence on behalf of the Plaintiff, that saying 'hello' means that the hostess talks to the customer and tries to sell herself as an engaging companion with whom to spend time in the club or indeed elsewhere. For every period of fifteen minutes which a hostess spends with customers at a table she earns a point called a table point. These points are put on the customers' bill and, in addition to any food and drink which he may order, he is charged the going rate of approximately $40 for each point. Should a customer wish to take a hostess out of the club, for example, as a dinner companion, an escort point is earned for each 10 minute period and is charged at a rate of some $30 per point. It appears that the mamasan who is responsible for allocating escort points has a degree of flexibility as to how many points she will charge depending upon the customer and time of evening but generally it appears to be 42 points, the equivalent of the seven hours opening time of the club.

11. For their remuneration, both mamasans and hostesses depend largely upon commission based upon the number of points earned each month. Points therefore are of the greatest importance both to these employees and to the club. Essential to the generation of such points are, I imagine, young, pretty and hardworking hostesses. Equally essential are the mamasans. Although they do not earn points themselves, they have responsibility for the discipline and well being of their teams and for selling the charms of their hostesses to the customers. A good mamasan is in this business much caressed by club management. Accordingly, there is much competition for their services.

The Plaintiff's case

12. For some years, there has existed the Federation of Hong Kong and Kowloon Ballroom and Night Club Merchants. The function of the Federation is, inter alia, to regulate the behaviour of its members and their employees and to try and solve their disputes. In 1987, a dispute erupted between Club Volvo and 14 other clubs including the Plaintiff. Poaching was at the heart of it. The Federation was apparently unable to settle the dispute. Volvo commenced an action against the other clubs which was stayed, coincidentally before me, on terms in June 1987.

13. In the meantime Volvo, behind whom was Law Cheuk (Mr.Law) who is also behind the 1st Defendant, had paid one of the Plaintiff's best mamasans $300,000.00 in March 1987. This mamasan told Eddie Chan (Mr. Chan), who was and is executive director of the Plaintiff, and showed him the cheque which she had received, a cheque signed by Mr.Law. Mr. Chan tried to persuade her not to leave and indicated that the Plaintiff might be able to match the payment. Shortly after, the mamasan informed Mr. Chan that she had received a further $700,000.00 from Volvo and left the Plaintiff. The Plaintiff's directors then resolved to pay their remaining mamasans what was recorded in the Plaintiff's accounts as a contract fee and which varied from $25,000.00 to $200,000.00. According to Mr. Chan, the Plaintiff considered introducing written contracts but rejected the idea in view of the long period of trust and cooperation between the Plaintiff and its mamasans which, it was thought, was sufficient to retain the services of the mamasans.

14. In 1989, Mr. Chan sensed that poaching had broken out again. He could not be specific. It was what he was told by others. In December 1989, it was decided to sign contracts with staff to protect the interests of both management and staff. The Plaintiff feared inducement of key personnel by other clubs. A standard form of contract was prepared for mamasans. One evening in December 1989, Mr. Chan called each mamasan in turn to his office and asked them to sign such a contract. All the mamasans including Miss Chan signed while Mr. Chan signed on behalf of the Plaintiff. Each contract was dated 1st January 1990 and was expressed to be for the period 1st January 1990 to 31st December 1991.

15. At this time, Mr Yu was subject to a written contract as public relations manager for a period of two years from 1st October 1988 to 30th September 1990. It was his second contract with the Plaintiff. It contained these controversial Clauses:

"11. For a period of one (1) year next after the determination of the Second Parties employment hereunder whether by effluxion of time or in any other way whatsoever the Second Party shall not on behalf of himself or of any other person firm or company canvass or solicit or endeavour to take away from the First Party the business of any customers or clients of the First Party who have been customers or clients of the First Party during the period of two years immediately preceding the termination of the employment and shall not directly or indirectly be concerned in any business within Tsimshatsui District (including Tsim Sha Tsui East) of a similar nature to the business carried on by the First Party at the time of such determination.

12. For a period of one (1) year next after the determination of the Second Parties' employment hereunder whether by effluxion of time of in any other way whatsoever the Second Party shall not on behalf of himself or any other person firm or company solicit or endeavour to cause any staff of the First Party to work for any other person firm or company engaging in a business of a similar nature to the business carried on by the First Party at the time of such determination."

16. In March or April 1990, because Mr. Yu's performance was good, Mr. Chan asked him to go and work in the Diana Discotheque in Macau. As far as Mr. Chan was concerned, Diana was under the same ownership as the Plaintiff. He regarded Mr. Yu's posting as a temporary transfer, Mr. Yu's position as public relations manager being kept open at the Plaintiff's club. Depending how Mr. Yu got on at Diana, he could return to the Plaintiff if he wished. Indeed, it was Mr. Chan's evidence that he discussed a third contract with Mr. Yu at an increased salary.

17. On 7th September 1990, Mr. Chan returned from an overseas trip. On his desk, he found letters of resignation dated 3rd September 1990, to take effect from 4th September, from both Mr. Yu and Miss Chan, Mr. Chan immediately went to see Miss Chan in the club. He told her she could not leave, asked her to consider carefully and said that they would discuss it later. Miss Chan apparently said nothing. Mr. Chan saw Miss Chan again on 14th, 15th or 16th September. Miss Chan said she must leave because she had received $1,000,000.00 to work for the 1st Defendant for two years, then she would be emigrating to San Franciso, and asked for a chance. Mr. Chan said the Plaintiff could make a similar offer and that, in view of their long relationship, Miss Chan was being unreasonable. He reminded her of her contract with the Plaintiff. He was angry. Next day, Miss Chan did not come to work.

18. About 17th September, Mr. Chan went to Macau and saw Mr. Yu. He asked Mr. Yu to re-consider and said they would get together three days later before making a decision. Mr. Chan returned to Macau on about 20th September. Mr. Yu said he had made up his mind not to work anymore. Mr. Chan said that as he had made up his mind, Mr. Yu should settle matters in Diana. Mr. Yu did so and was. Mr. Chan agreed, very cooperative.

19. Later that month, Jeffrey Fok (Mr. Fok), one of the Plaintiff's customers and a client of Miss Chan, received from the 1st Defendant a circular containing the name cards of Mr. Yu and Miss Chan and informing him that they had joined the 1st Defendant with effect from 1st October 1990. This was brought to the attention of Mr. Chan and led to the instigation of this action on 4th December 1990.

Mr. Yu's case

20. Mr. Yu said that he was under a second two year contract with the Plaintiff as public relations manager, expiring on 30th September 1990. He earned HK$8,000.00 and commission. He said his duties were entirely within the club premises, being to meet customers and introduce them to the facilities and services of the Plaintiff. In March 1990, Mr. Chan asked him to go and work at Diana in Macau as executive manager with effect from 1st April. Mr. Yu said he was to receive an initial fixed salary of $26,000.00 with accommodation, and from 1st June $36,000.00 in Macau currency. The arrangement was oral and open-ended. The position was an improvement upon his position with the Plaintiff, but had the drawback that he was separated from his wife and child. Mr. Yu asked Mr. Chan about his job at the Plaintiff. Mr. Chan told him not to worry about it. Mr. Yu understood to mean that his contact was terminated and discharged.

21. On about 15th August 1990, Mr. Yu met Mr. Law whom he had known for about two years. Mr. Yu told Mr. Law that he was working at Diana in Macau but was not happy as he could not be with his family and wanted a change. They arranged to meet next day when Mr. Law enquired about Mr. Yu's status. Mr. Yu told him that he would have to give one month's notice to Diana and that he had finished his contract with Plaintiff before going to Diana. Mr. Law then offered him a contract for three years at $40,000.00 per month with a signing on fee of $150,000.00. Mr. Yu was paid $150,000.00 on 24th August for which he signed a receipt and signed a contract at a solicitor's office on 28th August. His employment was to commence on 1st October to coincide with notice to be given to Diana.

22. At the end of August, Mr. Yu phoned Mr. Chan and said he was leaving Diana. He followed this with the confirmatory letter dated 3rd September, in which he said he resigned his position from 4th September. He explained that he gave notice to Mr. Chan because the "boss" in Macau asked Mr. Chan to be in charge of the management of Diana. He also told the boss that he was leaving.

23. The boss was identified as Chow Fai. There was, however, no satisfactory evidence of the relationship between the Plaintiff and Diana. According to Mr. Chan it was the same ownership. Mr. Yu's evidence was that Diana was run by the Luk Hop group. I would not have thought it would be difficult to lead evidence as to the ownership of Diana. In view of Mr. Chan's involvement both in arranging for Mr. Yu to move to Diana and in the management of Diana, it is a fair inference that the respective owners were at least associated companies as pleaded by the Plaintiff.

24. On 8th September, Mr. Chan visited Mr. Yu at Diana. The extent of their conversation was that Mr. Yu told Mr. Chan that he was leaving and asked if he had received the letter. Mr. Chan confirmed he had received it. Mr. Chan saw Mr. Yu again at Diana on 20th September. Mr. Yu told Mr. Chan that he was leaving. Mr. Chan told Mr. Yu to hand things over which Mr. Yu did, returning to Hong Kong the following day.

25. In late September, Mr. Yu went to the 1st Defendant's club and gave a floppy disk to a staff member. This disk contained details of customers whose name cards Mr. Yu and Miss chan had retained. The disk was prepared by someone at Mr. Yu's request. On behalf of Mr. Yu and Miss Chan, the 1st Defendant then prepared a circular, a copy of which eventually found its way to Mr. Fok.

26. According to Mr. Yu, the circular was simply to notify others that he had gone to work at the 1st Defendant. He sent it out to persons he had met during his working life. He said this kind of circular is available in abundance and, whenever a mamasan arrived at the club, a circular would issue. As Miss Chan and he joined the 1st Defendant together, a circular for both was sent out. The wording on the circular read:

"Kindly note that as from 1st October 1990 I'll be joining METROPOLITAN NIGHT CLUB. Together with several-ten charming hostesses. Looking forward to your continual support and thank you for Same during the past."

27. Mr. Yu denied either soliciting customers from the Plaintiff by way of the circular or inducing any of the six hostesses to leave.

28. There is no evidence to suggest directly or inferentially that Mr. Yu did try to attract any hostess to the 1st Defendant. for him to say, however, that the circular was simply for information is preposterous. It was quite plainly a document by which the 1st Defendant hoped to attract erstwhile customers of the Plaintiff, customers whose particulars the 1st Defendant had obtained from Mr. Yu and Miss Chan. The standard wording could mean nothing else. To suggest that the 1st Defendant would distribute a circular for Mr. Yu's more private purpose of simply informing old friends and customers is nonsense.

29. I reject, however, the Plaintiff's allegation that Mr. Yu or Miss Chan took with them either a disk obtained from the Plaintiff's own computer, or copies of a printout by the Plaintiff of its customer lists. The lists produced by the 1st Defendant are of a different format from those produced by the Plaintiff. Quite plainly the 1st Defendant's list of customers was derived from name card information supplied to the 1st Defendant by Mr. Yu and Miss Chan on their own floppy disk.

Miss Chan's case

30. Miss Chan began working for the Plaintiff in 1980. In 1982, upon a change of management, she signed a form of application for employment. She did not, however, sign any formal contract. She then worked as a mamasan without interruption until September 1990 when she left the Plaintiff to join the 1st Defendant. Throughout she was paid by way of commission and annual bonus. She considered that she could leave at any time upon giving to the Plaintiff one month's notice.

31. Miss Chan agreed that in 1987 she was paid $150,000.00 at the time of the Volvo dispute. She said that this was a gesture from the Plaintiff to thank mamasans for their support and loyalty, and she agreed that the Plaintiff would have hoped that the payment would encourage them to stay. She accepted the payment as it had no strings attached. She rejected, however, there being any mention of signing contracts at the time or indeed at any time thereafter. She denied ever being asked to sign or signing a contract in December 1989, or talking to Miss Cheung or any other mamasan about it. She had no knowledge of other mamasans signing contracts.

32. On about 16th August 1990, Mr. Yu informed her about the 1st Defendant's offer of employment. Miss Chan asked if they could work together as husband and wife. Miss Yu arranged to meet Mr. Law next day At the meeting Mr. Law, after being assured by Miss Chan that she had no written contract with the Plaintiff, offered her the post of public relations manageress for a period of 3 years from 1st October 1990 to 30th September 1993 at a hiring fee of $750,000.00, that is, $250,000.00 for each year. Miss Chan received and signed a receipt for this sum and like Mr. Yu signed a contract on 28th August. On about 30th August, she informed Mr. Chan by telephone that she would be leaving in a month's time. She confirmed this by her letter dated 3rd August in which, like Mr. Yu, she said she was resigning her position on 4th August. She did not see Mr. Chan until 21st September when they had an angry exchange after which Miss Chan did not return to work at the Plaintiff's club again. She did not say anything to Mr. Chan about getting $1,000,000.00 from the Plaintiff, or about emigrating to San Francisco.

33. After she had moved to the 1st Defendant, Miss Chan agreed that five of the six hostesses followed her. She said, however, that the hostesses followed her of their own volition. She explained that she had been a mamasan for seventeen years and that hostesses would look for her.

Miss Chan's contract

34. Crucial to all the Plaintiff's claims is whether or not Miss Chan signed a written contract in December 1989.

35. Mr. Chan said that Miss Chan signed in his presence at the end of December 1989, when a decision had been taken to get all mamasans, who did not then have written contracts, to sign a contract. This was at a time when poaching was again prevalent. The contract was to protect both management and mamasan. In any event, Mr. Chan said that Miss Chan had already received a signing on fee $150,000.00, that is, the sum paid to her in 1987.

36. Miss Cheung confirmed signing a contract at the end of 1989, She said all mamasans signed. She said that she met Miss Chan the same evening and exchanged queries with her as to whether each had signed.

37. Contracts signed by two other mamasans were identified by Mr. Chan. Given the importance of the contracts signed on this occasion, Mr. Ronny Wong, Q.C., who appeared on behalf of Mr. Yu and Miss Chan, was critical that the remaining contracts were not produced by the Plaintiff. It was Mr. Chan's evidence that they still exist in the Plaintiff's safe. Mr. Pirie, who appeared for the Plaintiff, said that the Plaintiff would have been happy to produce these contracts had the matter been pursued in cross-examination of Mr. Cheung or discovery sought. In the circumstance, I attach no special significance to the missing contracts.

38. Miss Chan of course denied signing any contract. She said, with some justification, that she did not need protection. I say with 'justification' because a mamasan is an important employee whose service would not lightly be dispensed with. Hence, the need for poaching, the objects of poaching being hostesses and mamasans. In any event, Miss Chan said she had no intention of leaving. She acknowledged, however, that the signature on the contract is similar to hers.

39. To help resolve the issue, three expert reports were made available. The reports were put in evidence by way of hearsay notice so that none of the experts was subject to cross-examination. For Miss Chan, initially Dr. Nutten, an expert well-known in these courts, was instructed. Unhappily, after furnishing his report, Dr. Nutten died before the trial. A further report was commissioned from a Mr. John Wilcox. For the Plaintiff, Mr. Leung Sze Chung, head of the Questioned Document Section of the Government Laboratory, provided a report.

40. Miss Chan's signature is deceptively simple, bearing no obvious connection to "Mona Chan" which it is supposed to represent. Dr. Nutten was firmly of the opinion that the signature is a poorly executed forgery, principally because of poor line quality, the ink line wavering in two areas; and because the whole signature is stilted in appearance and deliberately drawn, being devoid of free natural writing movement and the rhythm associated with genuineness.

41. Mr. Wilcox, however, felt that the signature generally was written quickly with spontaneous flair, although in one of the areas identified by Doctor Nutten the coordination and flow was not of the same standard as the rest. There was such a variety in the control signatures that Mr. Wilcox concluded it was as easy to make out a case for forgery in relation to any one of them as to prove that all were written by the same person.

42. Mr. Leung also drew attention to the range of variations in the specimen signatures. He said that typical characteristics of forgery could not be found which suggested that the signature is genuine. He accepted that forgery of the signature would not be difficult. Nonetheless on the balance of probability, he concluded that the signature may have been written by Miss Chan.

43. Only Doctor Nutten therefore was brave enough to make a really positive finding. Mr. Wilcox effectively sat on the fence, while Mr. Leung just came down against forgery. The possibilities, however, suggest that Doctor Nutten was wrong.

44. If Miss Chan is correct in her denial, the inference is appalling. It is that Mr. Chan, Miss Cheung and presumably the other mamasans who lent their signatures to similar documents have conspired against Miss Chan. Such an allegation arose during the cross-examination of Mr. Chan. Mr. Wong put to him that the signatures of Miss Cheung and the other two mamasans were not made in the circumstances asserted by Mr. Chan. Those circumstances were that the contracts were all signed one evening by the mamasans in succession, when Mr. Chan said he explained to each why it was being done, analyzed the contract and the contract was signed. No such direct accusation having been put to Miss Cheung, I queried what case precisely Mr. Wong was advancing. Upon being pressed, Mr. Wong agreed that he would ask me to infer that the contracts were signed much later and that Mr. Chan and the mamasans conspired in doing this to give spurious authenticity to the contract with Miss Chan's forged signature. Some of the difficulties and pitfalls having been pointed out to Mr. Wong, he did not pursue the allegation. He confined himself to saying that the other contracts were circumstantial support of the Plaintiff's positive case and that cross- examination was to discredit such evidence so that I could be invited to find that Miss Chan's signature is a forgery.

45. Nonetheless, if Miss Chan's signature is a forgery it seems to me that the only reasonable interpretation I can put on such a finding is that Mr. Chan, to punish Miss Chan for deserting the Plaintiff, manufactured the contract and persuaded the other mamasans to sign similar documents to give colour to what was a spurious exercise.

I am unpersuaded that that is the case. It would mean evil and cunning of the highest order. Given the volatile nature of night club employees, some hint would surely by now have leaked out. Further, the plan would have been conceived and executed with almost breathtaking speed. Miss Chan left the Plaintiff on 21st September. On 1st October, the Plaintiff's solicitors wrote a letter before action to Miss Chan referring to the contract. The only flaw in that letter was reference to the period of employment continuing until 31st December 1992 rather than 1991. I am satisfied. however, that this is nothing more sinister than a genuine mistake.

46. Both Miss Cheung and Mr. Chan were cross-examined with care and persistence. They were not, in my view, so discredited that I should reject their evidence on this issue. None of the witnesses (except perhaps Mr. Fok) did themselves any great credit. All tried to deflect or evade even the most simple questions. Certainly there was no straightforward testimony of the kind I would require before giving countenance to a conspiracy of the nature which I have outlined.

47. Miss Chan explained that she and Miss Cheung were not on speaking terms and would not have discussed anything. She agreed that Miss Cheung might bear her a grudge, which might in turn be a motive for Miss Cheung lying to the Court. I note that this was not a matter put in cross-examination to Miss Cheung, or mentioned in chief by Miss Chan. Yet it seems to me to be a matter of some materiality.

48. In assessing Mr. Chan's evidence, I take into account two matters. First, his insistence that $150,000.00 paid to Miss Chan in April 1987 was a signing on fee for the contract allegedly signed in December 1989. Mr. Chan agreed, however, that the payment was unconditional. I remarked during trial that I could see no connection. I do not even now. The effect of that payment was plainly spent long before December 1989. To try and connect the two was, in my view, an exercise in futility.

49. The significance of the signing-on fee or contract fee was that the Plaintiff opened its case on the basis "that it was common practice at the time to have a signing fee to engage such key staff on fixed term contracts rather than on a month-to-month basis". A signing-on fee is plainly a crucial factor in persuading a mamasan to sign a fixed term contract. Such is evident from the evidence of Miss Cheung herself and from the undisputed fact that Miss Chan was paid $750,000.00 by the 1st Defendant. Without such a fee, a mamasan would be unlikely to sign a fixed term contract. Therefore, the argument ran, Miss Chan and the other mamasans are unlikely to have signed contracts with the Plaintiff as alleged. I recognize the force of this point.

50. Mr. Chan's evidence on this matter was in conflict with that of Leo Wong (Mr. Wong), the Plaintiff's accounting supervisor. Mr. Chan said that the mamasans' contracts came into existence at the end of 1989, Mr. Wong, however, said that he saw Miss Chan's alleged contract containing her name and identity card number at the time when he wrote out her cheque for $150,000.00 in April 1987. The other mamasans' contracts were also before him and it was by reference to these that he wrote out cheques for what are described on the cheque stubs as "contract fee".

51. I do not accept, as counsel urged upon me, that Mr. Wong was lying in an attempt to bolster the Plaintiff's case. I am satisfied that he was genuinely mistaken about precisely what occurred some six years ago. I find, as Mr. Chan said, that thought was given to introducing contracts at that time. The entry on the cheque stubs is consistent with that. On the first such stub, the word "entertainment" has been obliterated by a white substance known as Tipp-Ex and "contract fee" superimposed. Mr. Wong was quite candid about this obliteration. He said he had made a mistake. Certainly, it is not impossible that he started to prepare the cheque for another matter but was diverted. I see nothing sinister in it. The subsequent cheque stubs all say "contract fee" without any obliteration. So plainly there has been no attempt to manufacture evidence. It seems likely to me that Mr. Wong was simply furnished with particulars of the mamasans who were to be paid lump sums and, having heard that consideration was being given to the introduction of written contracts, has become confused after all this time.

52. The second matter is the Plaintiff's failure to use the mechanism set up by the rules of the Federation whereby on a daily basis member clubs notify the Federation of what might loosely be termed "defaulting staff". The Federation, in turn, circulates its members. A club contemplating employing new staff can then be made aware of any breach of contract and debts remaining due to the former employer. The new club can reject staff or pay off the old club.

53. Whilst that may be the intention of the rules, the rules themselves leave a great deal to be desired. Chapter Two of the rules is entitled "employment of practitioners by invitation". Rule 1 reads:

"Practitioners employed by member company each day: member company of the federation must notify the federation, all practitioners it employs each day to facilitate the issue of the daily evening circulars by the federation..."

54. Chapter 3 is entitled "payment of debts on behalf of members employee". This lengthy chapter containing 16 rules is principally dedicated to an employee's old club recovering any debts owing to it by the employee who has left it. Payment of those debts may be by the employee or by the new club on behalf of the employee. Failing payment, it is prescribed by rule 5 that the employee "should not be allowed to serve in any other member institution". Rule 16 finally provides that any practitioner, a term which includes mamasan, who has incurred debts "and is deliberately absent from his or her job without permission in contravention of his or her contract of employment, the member of the federation must report the starter to the federation monthly".

55. In my judgment, on a true interpretation of the rules, daily reporting to the Federation is only required on the part of a club who is taking on a new employee, so that under chapter 3 any debts owing to the old club can be recovered in an orderly manner. A club who has a defaulting employee, however, is only required to report monthly to the Federation. I apprehend that there would be nothing to stop the employer reporting defaulting employees on a more frequent basis should the occasion arise.

56. Complaint was made that the Plaintiff made no report to the Federation about the loss of Mr. Yu or Miss Chan. Mr. Chan explained that a decision had been taken and upon his instructions the Plaintiff's staff only sent a monthly return to the Federation. He did not know if even that instruction was routinely complied with. Upon my interpretation of the rules, however, the Plaintiff was under no "duty" under those rules to report defaulting staff, other than on a monthly basis.

57. In any event, Mr. Chan said that Miss Chan did not owe the Plaintiff anything when she left because the credit period on customers' bills which she had guaranteed had not expired. Finally, he said he had no faith in the Federation because it had failed to solve the Volvo dispute in 1987. I find it difficult to accept Mr. Chan's explanation about the bills which Miss Chan had guaranteed. I would have thought that once the Plaintiff realized Miss Chan really had left and that there were customers' bills outstanding, a report to the Federation would have been a matter of routine and common sense. Certainly, there is no evidence that any such report was made. I can, however, understand Mr. Chan's apparent disillusionment with the Federation. I do not, in the circumstances, attach any particular significance to the Plaintiff's omission to use the Federation's mechanism to deal with this matter.

58. Another problem which I must face is that in Further and Better Particulars given on 3rd May 1991, the Plaintiff said"(Miss Chan) has on previous years signed contracts of employment in similar terms as the one dated 1st January 1990". That, as the Plaintiff accepts, is wrong. Miss Chan, if she signed anything at all, signed only an application form and one contract i.e. the one alleged to have been signed in December 1989. This, said Mr. Ronny Wong, was the sort of reckless assertion that demonstrates how far the Plaintiff is prepared to go in maintaining an empty cause of action.

59. The Plaintiff has, however, never sought to justify or maintain this assertion. The assertion is, I fear, simply carelessness in the giving of instructions for and the preparation of the case, carelessness which has evidenced itself in several aspects of the Plaintiff's case.

60. I am, therefore, satisfied on the balance of probabilities that Miss Cheung and Mr. Chan are right about Miss Chan and the other mamasans signing contracts at the end of December 1989. It is tolerably clear to me that Miss Chan who quite understandably wanted to work again with her husband should, when offered $750,000.00 into the bargain, decide to take the risk of breaking her contract. The risk on the face of it was very little because, unlike the contracts which Mr. Yu and Miss Chan signed with the 1st Defendant, there was no provision in the contract with the Plaintiff for the payment of twice the signing on fee in case of leaving without reason or other breach of contract. That, perhaps, lends some support to there having been no signing on fee paid to Miss Chan and the other mamasans when they signed contracts in December 1989. Had it been thought that the money paid in April 1987 represented signing on or contract fees, the Plaintiff would no doubt have been astute to include a clause for the recovery thereof.

61. The only risk which Miss Chan ran under her contract with the Plaintiff was in relation to Clause 5, which reads:

"During this contract period, (Miss Chan) may not work for any other organization which is of the same or similar nature."

62. No point has been taken in relation to this clause. I would, however, have found it unenforceable for two reasons. First, it is plainly too wide as it prevents Miss Chan working as a mamasan or in any capacity in any hostess night club anywhere in Hong Kong. Second, it is wrong in principle. Any restriction on employment in a similar business is premised on there being a what I might call a sanitation period, the length of which will be prescribed to suit the nature of the business and the employee's erstwhile position. Here no period is prescribed. Depending upon when the contract was terminated, the period could be from one day to almost two years.

Was Miss Chan in breach of her contract with the Plaintiff

63. For a contract of this nature. I am satisfied that one month's notice would be reasonable. These hostess night clubs retain a number of mamasans. Within one month, it would be possible for a club to redistribute the hostesses among the remaining mamasans or introduce a replacement. I accept that it is not easy to recruit a new mamasan, but it is not impossible as the Plaintiff's own experience shows.

64. Miss Chan said that she gave a month's notice orally to Mr. Chan on 30th August. Mr. Chan, of course, denied that, saying that the first intimation he had was Miss Chan's letter of 3rd September which he received on 7th September. That letter is curious because it makes no reference to the earlier phone call when it could quite easily have recited that it was confirming the oral notice already given. Further, it purports to be effective from 4th September. Miss Chan pointed out correctly that she continued to work at the Plaintiff's club after 4th September, and only stopped working after an unpleasant encounter with Mr. Chan on 21st September.

65. I am unable to accept that Miss Chan, or indeed, Mr. Yu telephoned Mr. Chan to give notice as alleged. I find it curious that each telephoned separately simply to inform Mr. Chan of their individual intentions. It would surely have been more natural for one of them to have telephoned and explained to Mr. Cheung that, because of their husband and wife relationship, they were intending to take up employment together elsewhere and accordingly were giving notice to the Plaintiff. It seems to me that they wrote the curious resignation letters to avoid as little direct contact with Mr. Chan as possible, anticipating correctly that he would not be pleased. Whilst Miss Chan continued to work until 21st September, the written notice she gave was in any event insufficient since it was plainly her intention to leave the Plaintiff at the end of the month. Accordingly, she was in breach of her contract.

Was Mr. Yu in breach of restrictive covenant

66. Crucial to this issue is whether, at the time when Mr. Yu left Diana and commenced employment with the 1st Defendant, his previous two year contract with the Plaintiff still subsisted or whether the contract, and in particular Clauses 11 and 12, had been discharged. It was not in dispute that these Clauses, which were ancillary to or secondary obligations of the contract of employment, could survive the determination of the contract. If, however, parties to a contract have by their conduct evinced an intention no longer to be bound by that contract, the whole contract is abrogated. Mr. Ronny Wong relied upon S W Strange Ltd. v. Mann (1965) 1 W L R 629 in which the defendant was employed under a written service agreement containing a covenant restricting him carrying on business after cessation of his employment. That agreement was superseded by an oral agreement not containing any restriction. At p.636, Stamp J. said:

"The only way in which the service of the defendant under the service agreement could cease was by effluxion of time or by the happening of one of the events specified in Clause 8 or Clause 9, or by the effect of a variation of its terms or its discharge. And if one asks the question why on April 1. 1964, were the parties no longer bound by the provisions of Clauses 1 to 12 inclusive of the service agreement the answer must in my judgment be not because the defendant's service under the agreement had ceased but because the terms of that agreement had been varied or discharged .......

It was only by the effect of the new oral agreement which was inconsistent with the continued existence of the service agreement that the terms of the latter agreement ceased to apply. By entering into the new agreement the parties did not, in my opinion, vary the terms of the service agreement but replaced it. And in my judgment the respective rights and obligations of the parties were thenceforth governed by a new contract which superseded the old. The contention that the two contracts could continue to exist separately and not as a single varied contract seems to be contrary to principle, and I am fortified in that conclusion by a consideration of the reasoning in Colburn v. Patmore, (1843) 1 Cro. M. & R. 65 where, parties having entered into a second agreement which was inconsistent with an earlier agreement, it was held that the whole of the earlier agreement and not merely the inconsistent terms was abrogated.

I derive more support from General Billposting Co. Ltd. v. Atkinson [1909] A.C. 118; 25 T.L.R. 178. There the employer had wrongfully dismissed the employee without notice and the question was whether a restriction against the employee carrying on business remained enforceable. It was argued on behalf of the employer that the covenant not to carry on business in the specified area after the employment came to an end was independent of the other covenants in the service agreement, and, on behalf of the employee, that the covenants in the contract were mutual and interdependent. Lord Robertson expressed the opinion that the covenant not to set up business was ancillary to the contract of service and that once the contract of service was rescinded the other fell with it. Lord Collins, with whom Lord Halsbury agreed, put the matter somewhat differently by saying that the true question was whether the acts and conduct of the party evinced an intention no longer to be bound by the contract. Now whichever way one looks at it, it seems to me that the ratio decidendi of that case governs the position here. The covenant which the plaintiff seeks to enforce was in my judgment ancillary to the contract of service in the service agreement and the parties when they mutually agreed upon a new contract of service evinced an intention not any longer to be bound by the service agreement."

67. I have no hesitation in finding that the contract between the Plaintiff and Mr. Yu together with all its terms was abrogated. The Plaintiff's case through Mr. Chan is that Mr. Yu was simply transferred to Diana, Mr. Yu's position being reserved for him at the Plaintiff's club in case he should find Diana unsuitable. Mr. Chan agreed however, that Mr. Yu's duties at Diana were very different from those at the Plaintiff's club, Diana not being a hostess night club. Mr. Yu was to all intents and purposes employed in a position of full managerial responsibility charged with setting up the new undertaking. Such duty is in sharp contrast with the limited scope of his activities in the Plaintiff's club.

68. Mr. Chan emphasized that Mr. Yu was being promoted and that he was regarded as an overseas employee. Mr. Yu was paid in local currency after the first two months that he worked in Macau. It was being overseas, of course, that was a source of unhappiness for Mr. Yu and it is suggestive of an entirely new relationship. In my view, these factors, coupled with the wholly unsatisfactory evidence as to the identiry of Mr. Yu's employer, are wholly inconsistent with the continuation of a contract between the Plaintiff and Mr. Yu for employment as a public relations manager during prescribed working hours. I am satisfied that the contract and all its terms were abrogated. No question of breach of restrictive covenant therefore arises.

69. In case I am found to be wrong about abrogation, I should deal briefly with the enforceability of Clauses 11 and 12. It is plain that Mr. Yu was in breach of Clause 11 because, first, he assisted in the production and circulation of the notice sent to the Plaintiff's customers at the end of September 1990, and second, went to work for the 1st Defendant which is a hostess night club and situated near the Plaintiff's club in Tsimshatsui.

70. A covenant in restraint of trade will not be enforced unless the erstwhile employer can show that, at the time the contract containing the covenant was made, the restrictions imposed on the employee were reasonably required for protection of the legitimate interest of the parties and not injurious to the public interest. Restraint of or restriction upon competition per se is not reasonable; what is legitimate is the protection of confidential information provided that any restriction goes no further than reasonably necessary to protect it. What is confidential information and how it should be protected was put thus by Godfrey, J. in HO Wing-cheong (trading as Hong Leong Securities) & Others v. Graham Margot & Another (1991) 1 HKLR 245 at p.248:

"The confidential information capable of protection by such restrictions includes not only information in the nature of trade secrets but also the information which can be acquired by the employee from contact with customers. The point is well put by Salter, J. in Putsman v. Tavlor [1927] 1 KB 637, at page 641, where he says this:

"The relation between master and servant is always confidential, though in differing degrees. The relation between a master and the servant who manages his business for him is highly confidential. During the service he is in constant contact with the master's customers, and cannot fail to learn their names and addresses, their likes and dislikes, and something of their financial credit, Such knowledge can be used with effect, after the determination of the service, to induce such customers to transfer their custom to a new employer. Certain conduct of this kind will be restrained, as being in breach of implied terms of the contract of service [and he cites some authority] .... Other conduct of this kind, though injurious to the late employer, will not be restrained in the absence of express agreement. Such agreement need not take the form of a covenant against solicitation. Such a covenant is difficult to enforce; it is difficult to show breach and difficult to frame an injunction. The master is entitled to protect himself by a covenant against competition, provided that it is not wider than is reasonably necessary to safeguard his proprietary interests against unfair use by the former servant of information gained during the service."

The reason for this attitude on the part of the law is that the employer's customer connection belongs to the employer, not the employee, although it may be the employee who has built it up or maintained it. If the law were to permit the employee, who has built up or maintained the employer's customer connection, to walk off with it, after the termination of the employment, in the face of restrictions entered into by the employee to protect the employer against just such a risk and going no further than reasonably necessary for that purpose, the employer would have just cause for complaint. The risk is that the employee "might obtain such personal knowledge of and influence over the customers of his employer ... as would enable him, if competition were allowed, to take advantage of his employer's trade connection" - see Herbert Morris Ltd v. Saxelby [1916] AC 688 per Lord Parker of Waddington at page 709. Such restrictions, then, will be enforced if "the protection sought is reasonably necessary to ... prevent some personal influence over customers being abused in order to entice them away" - see Faccenda Chicken Limited v. Fowler [1986] ICR 297, per Neill, L.J. at 310F.

Accordingly, where an employee is placed in a position in which he has that type and degree of contact with the employer's customers which means that, after the employee leaves, the customers may leave with the employee, the law will uphold against the employee any restrictions which go no further than is reasonably necessary to prevent that happening.

In the present case, the Court will enforce the covenant in question against Mr. Margot only if the plaintiffs have demonstrated:

First, that the contact that Mr. Margot had with the plaintiffs' clients and the degree of that contact as known or envisaged in 1985 was such as to warrant a reasonable concern on the part of the plaintiffs that, when he left, clients might want to deal with him in future rather than with the plaintiffs.

Secondly, that the covenant goes no further than is reasonably necessary for the protection of the plaintiffs against this risk."

71. In Faccenda Chicken Ltd. v. Fowler & Others (1986) ICR 297, the Court of Appeal was dealing with implied terms of employment. The judgment of Neill, L. J. however, where he sets out guidelines for assessing whether particular information can be said to be confidential is equally applicable to cases involving an express restrictive covenant. At p.310, he said:

"(5) In order to determine whether any particular item of information falls within the implied term so as to prevent its use of disclosure by an employee after his employment has ceased, it is necessary to consider all the circumstances of the case. We are satisfied that the following matters are among those to which attention must be paid:

(a) The nature of the employment. Thus employment in a capacity where "confidential" material is habitually handled may impose a high obligation of confidentiality because the employee can be expected to realize its sensitive nature to a greater extent than if he were employed in a capacity where such material reaches him only occasionally or incidentally.

(b) The nature of the information itself. In our judgment the information will only be protected if it can properly be classed as a trade secret or as material which, while not properly to be described as a trade secret, is in all the circumstances of such a highly confidential nature as to require the same protection as a trade secret eo nomine.

..........

It is clearly impossible to provide a list of matters which will qualify as trade secrets or their equivalent. Secret processes of manufacture provide obvious examples, but innumerable other pieces of information are capable of being trade secrets, though the secrecy of some information may be only short-lived. In addition, the fact that the circulation of certain information is restricted to a limited number of individuals may throw light on the status of the information and its degree of confidentiality.

(c) Whether the employer impressed on the employee the confidentiality of the information. Thus, though an employer cannot prevent the use or disclosure merely by telling the employee that certain information is confidential, the attitude of the employer towards the information provides evidence which may assist in determining whether or not the information can properly be regarded as a trade secret. It is to be observed that in E. Worslev & Co. Ltd. v. Cooper [1939] 1 All E.R. 290, 307D, Morton J. attached significance to the fact that no warning had been given to the defendant that "the source from which the paper came was to be treated as confidential."

(d) Whether the relevant information can be easily isolated from other information which the employee is free to use or disclose."

72. There was no satisfactory evidence that staff of the Plaintiff were warned as to the confidentiality of the customer lists. The evidence before me in fact leads inexorably to a contrary view as to the status of these lists. In the course of their work, public relations managers and mamasans obtain name cards from customers. From time to time, they give these cards to the Plaintiff who enters details of the customers from these cards in its computer. The cards are then returned to and retained by the managers and manasans. The cards, therefore, are the source of the Plaintiff's information. The cards were, however, the property of the staff. In my view, the information contained in those cards could scarcely be claimed as confidential. Further, even Miss Cheung agreed that mamasans take their cards from club to club and continue to use them.

73. It is also pertinent that Mr. Yu was a public relations manager. A public relations manager does not, on the evidence, have the same close relationship with customers as has a mamasan. It is a mamasan and her team in whom customers are primarily interested. I am unpersuaded that a public relations manager has any such influence over customers that he could take advantage of the Plaintiff's trade connection with them. Indeed, the evidence of Mr. Fok shows that Mr. Yu did not.

74. In the circumstances, I would have found Clause 11 unreasonable and unenforceable.

75. As to Clause 12, Mr. Ronny Wong put forward the argument, which he also used in relation to Clause 11, that it is void because the words 'determination ... in any other way whatsoever' contemplate operation of the Clause when employment is determined by fundamental breach on the part of the Plaintiff. He said that if the Plaintiff failed to pay Mr. Yu, Mr. Yu would still be bound by Clause 11. I disagree. In such circumstances, it seems plain to me that the Plaintiff would have evinced an intention no longer to be bound and therefore the whole contract and its terms would be abrogated. I would find Clause 12 reasonable and enforceable. I would not, however, have found Mr. Yu to be in breach for reasons which will appear.

Tortious interference with contractual relations

76. The only cause of action against the 1st Defendant and one of the causes against Mr. Yu is contained in para. 10 of the Amended Statement of Claim.

"10. Further or alternatively, the 1st Defendant by its servants or agents (persons presently unknown to the Plaintiff) and the 2nd Defendant unlawfully interfered with and/or induced:-

(a) The 3rd Defendant to beach her contract of employment with the Plaintiff and/or to leave without giving any or adequate notice of termination of such employment, and the 3rd Defendant informed one Eddie Chan of the Plaintiff that the 1st Defendant had offered, the 3rd Defendant the sum of HK$1,000,000.00 to break her contract with the Plaintiff.

(b) The Other Employees to breach their contracts of employment with the Plaintiff and/or to leave without giving any or any adequate notice of termination thereof."

77. It is important, as Miss Eu for the 1st Defendant said, to note that it has not been pleaded or asserted that the 1st Defendant and Mr. Yu acted in combination or in agreement or conspired together. The case against each must therefore be considered separately.

78. In relation to the 1st Defendant, the Plaintiff's case contains the seeds of its own destruction because it does not assert that the 1st Defendant had actual knowledge of Miss Chan's contract or the terms thereof. Nor does it assert breach of any other contract or agreement that might have existed between the Plaintiff and Miss Chan. Its case is, as I understand it, that the 1st Defendant ought to have known about the contract, was reckless as to whether Miss Chan had lawfully terminated it and that Miss Chan was in breach of her contract because she did not lawfully terminate it.

79. Knowledge of a relevant contract is, however, the first ingredient of this tort. Only if that is established does any question arise of recklessness as to whether the contract may be broken. The law in relation to this tort is tolerably clear. In Rookes v. Barnard (1964) A.C. 1129 Lord Devlin said at p.1212:

"What are the requisites for a cause of action for inducing a breach of contract? There must be, besides the act of inducement, knowledge by the defendant of the contract in question and of the fact that the act induced will be a breach of it, there must also be malice in the legal sense, that is, an intention to cause the breach and to injure the plaintiff thereby and an absence of justification; and there must be special damage, i.e., more than nominal damage, caused to the plaintiff by the breach. These three elements or requisites are the grounds on which an action for inducing a breach of contract must be based. If any one of them is missing, there is no cause of action."

80. That was no more than a distillation from the authorities. The Court of Appeal had put it no less succinctly in D C. Thomson & Co. Ltd. v. Deakin & Others (1952) 1 Chancery 646. At p.696, Jenkins, L.J. said:

"But, while admitting this form of actionable interference in principle, I would hold it strictly confined to cases where it is clearly shown, first, that the person charged with actionable interference knew of the existence of the contract and intended to procure its breach; secondly, that the person so charged did definitely and unequivocally persuade, induce or procure the employees concerned to break their contracts of employment with the intent I have mentioned; thirdly, that the employees so persuaded, induced or procured did in fact break their contracts of employment; and, fourthly, that breach of the contract forming the alleged subject of interference ensued as a necessary consequence of the breaches by the employees concerned of their contracts of employment."

81. The first matter that a plaintiff has to prove, therefore, is knowledge of the contract and intention to interfere with its performance. Generally, a plaintiff would need to prove actual knowledge on the part of a defendant. There is, however, an exception to this principle. In Merkur Island Shipping Corporation v. Laughton & Others (1983) 2 A. C. 570, the question of knowledge was canvassed. The International Transport Workers Federation tried to black a ship about to leave Liverpool with the result that tugmen and others refused to move it. At p.582, O'Connor, L.J. said:

"It was submitted that on the evidence it was not shown that I.T.F. had knowledge of the time charter when they asked the T.G.W.U. to call out the tugmen. In my judgment there are two answers to that submission. In the first place, I.T.F. are sufficiently familiar with the shipping industry to know that a ship such as this which has loaded cargo will have obligations under contract to leave port and head for her destination. In my judgment that is sufficient to satisfy the requirement. Secondly, I.T.F. had express knowledge of the time charter and the relevant term by 6 p.m. on July 16 from the telex sent to them by the owners' solicitors. They did not lift the blacking as they could have done, and they continued to prevent the charterers performing the contract by unlawful means and that is sufficient to give the cause of action, the other requirements being the same."

82. Sir John Donaldson, M.R. also took the view that, depending on the circumstances, proof of actual knowledge is not necessary. At p.591, he said:

"1. Knowledge of and intention to breach the time Charterparty

Whatever the precise degree of knowledge of the defendants at any particular time, faced with a laden ship which, as they well knew, was about to leave port, the defendants must in my judgment be deemed to have known of the almost certain existence of contracts of carriage to which the ship owners were parties. The wholly exceptional case would be that of a ship carrying the owner's own goods. Whether that contract or those contracts consisted of a time charter, a voyage charter or one or more bill of lading contracts or some or all of such contracts would have been immaterial to the defendants. Prima facie their intention was to immobilise the ship and in so doing to interfere with the performance by the owners of their contract or contracts of carriage - immobilising a laden ship which had no contractual obligation to move would have been a pointless exercise, since it would have brought no pressure to bear on the owners."

83. On appeal Lord Diplock, after referring to the judgment of Jenkins, L.J. which I have already cited, said at p.608:

"The first requirement is actually two-fold, (1) knowledge of the existence of the contract concerned and (2) intention to interfere with its performance.

As respects knowledge, I.T.F. had been given an actual copy of the charter on July 19, 1980, three days after the "blacking" started but two days before the application to Parker J. was made. Quite apart from this, however, there can hardly be any one better informed than I.T.F. as to the terms of the sort of contracts under which ships are employed, particularly those flying flags of convenience."

84. Lord Diplock went to agree with Sir John Donaldson.

85. Miss Eu submitted that, if the circumstances and background allow, a defendant may be deemed to have known of the existence of a contract. The test she suggested on the authority of the passages I have just cited is one of "almost certainty". She contended, however, that deemed knowledge is different from the concept of constructive knowledge on which the Plaintiff appears to have based its case. Constructive knowledge, she said, carries with it elements of duty. But there is, as yet, no authority to suggest that a person who is alleged to have interfered with contractual relations owes any duty to the existing employer at least in relation to knowledge. To import such a duty, she argued, would imply negligence and the tests associated with it. Therefore, no question arises of whether the 1st Defendant ought to have known of the contract.

86. I accept Miss Eu's argument. It may be that in particular circumstances a case might be made out for contending that a person in the position of the 1st Defendant ought to make further enquiry, i.e. had a duty to the existing employer to ensure that no contract existed with the employer or to clarify the terms of a subsisting contract. In the present case, no such circumstances exist.

87. The only evidence against the 1st Defendant is that provided by Miss Chan. She said Mr. Law asked if she had a contract and she told him she had not signed any contract, had only an oral agreement and could leave at any time. In cross-examination, she said she told him she could leave if she gave notice. I do not regard that as being discrepant with saying she could leave at any time. Therefore, as pleaded, there is no question of actual notice.

88. Can it then be fairly argued that, through Mr. Law, the 1st Defendant be deemed to have known of the almost certain existence of Miss Chan's written contract with the Plaintiff? I emphasis 'written contract' because there is no plea in relation to any other agreement between the Plaintiff and Miss Chan. The answer is no. The Plaintiff itself did not sign written contracts with its mamasans until December 1989. Mr. Chan said that such contracts depend upon the policy of each club and agreed that the Federation's routine reports frequently show mamasans moving from club to club. There was no evidence that all mamasans are subject to written contracts for fixed terms, and only evidence to such effect would come close to putting the 1st Defendant in the same situation as the defendant in Merkur. There was no reason for Mr. Law to have disbelieved Miss Chan's assertion that she had no written contract with the Plaintiff and, therefore, no reason and certainly no duty to make further enquity.

89. I am satisfied that the Plaintiff has failed to show any knowledge on the part of the 1st Defendant. No question of tortious interference on the part of the 1st Defendant therefore arises.

90. In relation to Mr. Yu, no particulars were given or sought of the precise case against him. Plainly, however, he had or must be deemed to have had knowledge of his wife's contract. At its highest, however, the only case is that, in response to his wife's enquiry whether they could work together at the 1st Defendant's Club, he took her to meet Mr. Law.

A useful exposition of this tort was given by Morris, L.J. in Thomson v. Deakin at p.702:

"The tort is committed if a person without justification knowingly and intentionally interferes with a contract between two other persons. There must, therefore, be knowledge of the existence of contractual relations between others and the intentional commission, without justification, of some act which interferes with those contractual relations so as to bring about or procure or induce a breach resulting in damage. If A has a contract with B, the tort will be committed by X if there is a violation of the right B has under his contract by the intentional interference of X. If the contract between A and B is lawfully terminated, then there is no violation. In this context the notion of interference involves something wrongful. The breach of contract must be brought about or procured or induced by some act which a man is not entitled to do, which may take the form of direct persuasion to break a contract or the intentional bringing about of a breach by indirect methods involving wrongdoing."

91. To that must be added that a person may be reckless as to whether the act he procures will cause breach of the contract. Thus, in Emerald Construction Co Ltd v. Lowthian & Others (1966) 1 All E.R. 1013, Lord Denning M.R. said at p.1017:

"If the officers of the trade union knowing of the contract deliberately sought to procure a breach of it, they would do wrong; see Lumley v. Gve [1843-60] All E.R. Rep. 208; (1853), 2E. & B.216. Even if they did not know of the actual terms of the contract, but had the means of knowledge - which they deliberately disregarded - that would be enough. Like the man who turns a blind eye. So here, if the officers deliberately sought to get this contract terminated, heedless of its terms, regardless whether it was terminated by breach or not, they would do wrong. For it is unlawful for a third person to procure a breach of contract knowingly, or recklessly, indifferent whether it is a breach or not."

92. At p.1019, Diplock, L.J. said:

"The element of intent needed to constitute the tort of unlawful procurement of a breach of contract is in my view sufficiently established if it be proved that the defendants intended the party procured to bring the contract to an end by breach of it if there were no way of bringing it to an end lawfully. A defendant who acts with such intent runs the risk that, if the contract is broken as a result of the party acting in the manner in which he is procured to act by the defendant, the defendant will be liable in damages to the other party to the contract."

93. In my judgment, the evidence comes nowhere near establishing that Mr. Yu intended any invasion of the Plaintiff's contractual rights. Indeed, I am satisfied that his only intention was to see whether he and his wife could work together again and had no thought of breach of contract by Miss Chan.

94. The 1st Defendant and Mr. Yu are then alleged to have induced the six hostesses to have broken their contracts by leaving the Plaintiff without proper notice. By particulars, the Plaintiff asserts that the 1st Defendant acted through Mr. Yu and Miss Chan.

95. Hostesses are the life blood of this type of night club. Without them neither the club nor the mamasans can exist. They appear to be, however, very much a law unto themselves. The Plaintiff's records show that they work on an erratic basis and come and go as they please. Apart from the personality and authority of their mamasan, only two matters control them. If they do not turn up for work, they are credited with forty-two points for which they have to pay, there being no customers whom they have entertained and who would pay the bill. Then if they leave owing the club money, they are black-listed through the Federation. Either their debts must be settled or they must return to the old club if they wish to continue working. Other than that, there was no evidence to show on what terms apart from commission hostesses are employed.

96. Without a team of hostesses, a mamasan's potential income is much reduced. Therefore, Miss Chan had, as Mr. Pirie argued, considerable incentive to take with her to the 1st Defendant her best hostesses from the Plaintiff to ensure her own adequate commission. And Mr. Law would have had equal incentive to ask her and Mr. Yu, having just parted with $900,000.00, to ensure they brought with them good hostesses to augment those already available at the 1st Defendant's club. It is tempting to say that that is the appropriate inference.

97. Two matters militate against this. First, an analysis of the Plaintiff's own documents shows that the 6 hostesses left the Plaintiff at dates between 30th June and 30th September 1990, two of them later returning to the Plaintiff's club. 4, in fact, left the Plaintiff between 30th June and 30th August. It is difficult to see how Mr. Yu and Miss Chan can be said to have influenced them.

98. Second, Miss Chan said, and I accept, that she had no need to look for hostesses because, after being a mamasan for 17 years, hostesses came to look for her. Miss Cheung's evidence tended to confirm this. Further, Miss Chan said that one of the 6 hostesses in fact never worked for the 1st Defendant.

99. I am satisfied, in the circumstances, that neither Miss Yu nor Miss Chan actively contributed to these hostesses leaving the Plaintiff and subsequently joining the 1st Defendant. Accordingly, the Plaintiff's claims against the 1st Defendant and Mr. Yu must be dismissed.

Damages

100. The Plaintiff succeeds in its claim against Miss Chan. It remains to assess the Plaintiff's loss. The Plaintiff faces two difficulties. First, until this trial was due to begin in September last, the Plaintiff asserted that its business did not suffer and its loss was confined to legal expenses. At the previous hearing, however, it was given leave on terms to amend its particulars to claim $1.71 million representing loss of turnover. This loss was based on the difference between the points earned by Miss Chan's replacement and the points which would have been earned by Miss Chan had she remained with the Plaintiff. Second, the claim for loss is based on the balance of the fixed period of Miss Chan's contract namely, 15 months.

Mr. Ronny Wong contended that the Plaintiff's loss must be confined to the period of reasonable notice, a period I have found to be one month. Miss Eu made a similar submission, albeit extended to the period of three months contended for by the Plaintiff as being reasonable. Mr. Wong's submission I find to be correct.

101. The contract signed by Miss Chan contained no provision for its determination by notice. The Plaintiff's case, however, is based upon failure by Miss Chan to give adequate notice. The Plaintiff, therefore, accepts that the contract was subject to an implied term that prior determination may be effected by notice. Such acceptance was inevitable because in its Statement of Claim the Plaintiff pleaded that the contract was the continuation of similar arrangements made between the parties which had continued since 1982. By way of explanation, in Further and Better Particulars dated 2nd July 1992 the Plaintiff stated that Miss Chan signed an application for employment form which contained terms and conditions on the reverse side. Those terms included provision for the Plaintiff to terminate on payment of one month's basic salary. The terms and conditions also emphasized the Plaintiff's rights under the Employment Ordinance Cap. 57. The scheme of the Employment Ordinance includes provision for the termination of a contract of employment by the prescribed period of notice or payment of equivalent wages in lieu.

102. It being accepted therefore that the contract was determinable by notice, I am satisfied that the Plaintiff's loss must be restricted to a period of one month and not 15 months as sought by the Plaintiff.

103. I have to consider whether this loss can be ascertained by adopting the Plaintiff's approach, i.e. the difference between the points which Miss Chan would have earned in a month and those actually earned by her replacement. Miss Chan's replacement was a Judy Pong, who had been a mamasan at the Plaintiff's Club employed on a fixed salary rather than on a commission basis and who had been an assistant to Miss Chan.

104. If Miss Chan had been the only mamasan and she had simply been replaced by Judy Pong such an approach might be appropriate. In the circumstances of this case, it is not. First, it is the hostesses who actually earn the points. The equation is simple: no hostesses, no customers, no points. Second, the Plaintiff employed up to 13 mamasans, each of whom could introduce a hostess from any team to customers. Therefore, although Judy Pong may have been nominally responsible for Miss Chan's team, the hostesses of that team did not have to rely exclusively on Judy Pong for their introduction to customers and to earn points for the Plaintiff's Club. Loss of productivity on the part of the hostesses was not therefore a necessary or inevitable consequence of Miss Chan's departure.

105. Consequently, as Miss Eu submitted, it is overall points earned by the hostesses which would constitute a better indicator of any decline in business after Miss Chan's departure. Miss Eu carried a detailed examination of points earned in 1990/91. She calculated the average points earned on a monthly basis and divided that figure by the average number of hostesses employed or working in each month. The Plaintiff's own documents indicated that the number of hostesses attending to their duties varied from month to month. The result of the analysis was that each hostess earned an average of 710 points per month in the 9 months before Miss Chan left, and 734 points per month in the 15 months following. The picture, therefore, is one of increased productivity after Miss Chan left.

106. The Plaintiff's own turnover figures equally do not indicate any obvious loss resulting from Miss Chan's departure. The monthly figures for 1990 were consistently down compared with 1989. In 1991, after a slow start, the turnover picked up and showed an overall increase of about $600,000.00 compared with 1990. The important feature, however, is the figures for September and October 1990. According to the Plaintiff, the 3 months from October tend to be the best for business each year because of promotions leading up to the Christmas period. The percentage increase in turnover from September to October in 1990 was higher than in 1989 or 1991. It is perhaps hardly surprising that Mr. Chan was unable to pinpoint any loss and could say no more than that there would be loss.

107. The Plaintiff has not been able to demonstrate any other loss. In Further and Better Particulars dated 2nd July 1992, it did assert that one customer had left the Club upon being told Miss Chan no longer worked there. That has not been substantiated by any evidence and indeed the evidence of Mr. Fok suggests that customers would not necessarily abandon the Plaintiff simply because a mamasan had moved. If the Plaintiff was seriously concerned about the effect of Miss Chan leaving, I am surprised that it has not run a customer check. It would not have been difficult to have taken its customer data base, particularly that attributable to Miss Chan, and ascertained which customers had ceased to be active after September 1990. The inference which I draw is that despite the amount of time devoted during the trial to this topic, there has been no erosion of the Plaintiff's customers or business and the Plaintiff knew this.

108. Prima facie, therefore, the Plaintiff is entitled to no more than nominal damages. The Employment Ordinance, however, appears to have sanctioned payment of a month's salary (or whatever period is appropriate) by an employee in lieu of notice. This payment constitutes, I suppose, a form of liquidated damages. Such practice is, I understand, widely recognised and followed in Hong Kong. In the circumstances, I consider it appropriate for the Plaintiff to be awarded a month's salary in lieu of adequate notice. A month's salary for a mamasan is of course a moveable feast. It would be possible to average out Miss Chan's monthly commission for the first 9 months of 1990. I believe, however, that there is a more appropriate solution.

109. A mamasan's commission is made up of 6 components. Miss Chan has a claim for these in relation to her work in September 1990. Four of these components, totalling $28,354.40, are admitted by the Plaintiff. The other two components are, first, special bonus or jackpot based on the total Club points for the year multiplied by 50 cents. Second, year end bonus or "basic salary", a sum based on length of service and which increases year by year. In 1990, Miss Chan was entitled to $12,000 per month. These two components were paid by the Plaintiff at Chinese New Year. According to the Plaintiff, they were payable only if a mamasan completed a whole year's service. Miss Chan asserts that they should be paid pro rata because the entitlement accrues monthly.

110. Mr. Leo Wong was none too clear in his evidence as to whether the Plaintiff had a discretion in relation to payment of these two components. The Plaintiff's documents, however, showed that they were calculated each month by the Accounts Department. They also showed that one mamasan, Fanny Wong, who left before the end of 1990 was paid these components. Miss Cheung was also paid, although she did not complete a full year. Her explanation for this was that she was on maternity leave. The maternity leave was, however, prolonged and upon her return she reluctantly agreed to take a more responsible position. There seems to have been a special relationship between the Plaintiff and Miss Cheung.

111. It is perhaps pertinent to note that the second component is entitled "basic salary". Hardly a suitable title for a bonus payable only upon completion of a year's service.

112. On balance, I find that these two bonus components were not discretionary and that in principle they should be paid pro rata. I am not, however, prepared to countenance such a payment to a person who has broken her contract and who has unsuccessfully sought to maintain that her previous employer has forged her signature on a contract of employment.

113. In my judgment, the amount claimed by Miss Chan and admitted by the Plaintiff is as an appropriate amount as any by which to assess damages. Accordingly, I give the Plaintiff judgment against Miss Chan for $28,354.40. I give Miss Chan judgment against the Plaintiff for a like sum, the one being set off against the other. I dismiss the balance of Miss Chan's claim.

114. I dismiss the Plaintiff's claim against the 1st Defendant and Mr. Yu and I give them judgment for their costs against the Plaintiff.

115. Between the Plaintiff and Miss Chan, I make an order nisi that Miss Chan pay the Plaintiff's costs.