TOUCH UP PRODUCTION LTD v. CHOI WAI FAN

HCA 1028/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1028 OF 2004

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REASONS  FOR  DECISION

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I. Introduction

1.  There were two summonses before me at the hearing on 8 October 2004:

(a)	the plaintiff’s summons dated 30 April 2004 seeking in short an interim injunction order to enjoin the defendant from contacting or inducing the plaintiff’s clients listed in the schedule attached to the summons (“the interim injunction application”);
(b)	the plaintiff’s summons dated 7 October 2004 seeking leave to amend the interim injunction application (“the leave application”).

Further to the leave application, in the course of the hearing, the plaintiff sought further amendments to the interim injunction application.  Moreover, para. 1 of the interim injunction application was abandoned.

2.  At the end of the hearing, the interim injunction application was in effect for the following order only: the defendant be restrained from attempting to negotiate media (make-up and hair stylist) business from any person(s), firm(s) or compan(ies) referred to in schedule 2 attached to the summons.  The order sought was to last until 21 April 2005 or after trial of this action or further order (whichever is the earliest).  The period between the hearing and 21 April 2005 was about 6-1/2 months.

3.  I granted leave to the plaintiff in relation to the leave application (as well as the further amendments sought during the hearing) but dismissed the interim injunction application (as amended), indicating that reasons for the dismissal would be handed down later.  They are as follows.

II. The Action herein

4.  The plaintiff commenced this action on 30 April 2004 alleging in short that the defendant, a make-up and hair stylist who worked at the plaintiff’s premises, wrongfully contacted the plaintiff’s clients and attempted to induce them to deal with her directly.  Those acts allegedly were in breach of the written agreement dated 1 February 2003 entered into between the parties herein (“the Agreement”).

5.  In the Defence filed on 8 July 2004, the plaintiff’s claim was denied.  It was denied that the defendant has ever entered into the Agreement or that she has breached the Agreement whether as alleged or at all.  Further, it was averred that the terms of the Agreement relied upon were in the nature of restraint of trade clauses and were unenforceable by being unreasonable and oppressive.

III. Background Facts

6.  In order to better understand the issues raised by the interim injunction application (as amended), it is necessary to state briefly the relevant background facts.  It must be noted, though, that some of the background facts were disputed by the parties.

7.  A Madam Wong Siu Ying (“Mdm Wong”) became acquainted with the defendant for more than 10 years before 2004.  The defendant was then a trainee and assistant of Mdm Wong, who was herself a make-up and hair stylist.  The defendant denied this and claimed she was already an established stylist before she joined the plaintiff in late 1999.

8.  In October 2002, Mdm Wong and others incorporated the plaintiff to provide make-up and hair-dressing services to clients in the advertising, media, film production fields or on occasions of wedding.

9.  According to the plaintiff, the Agreement was entered into on 1 February 2003.  The document evidencing the Agreement (consisting of 6 pages in total) described itself as a self-employment agreement (自僱人仕合約).  The terms of the Agreement relied upon in the statement of claim are clauses 5A, 5B, 5D and 8 which respectively provide:

(1)	“	[被告人]在合約期內不能私自接洽任何化妝、髮型、形象、美容、教學及銷售等的相關工作”;
(2)	“	[被告人]在合約期內不能私自接洽任何與[原告人]相關的工作，[被告人]必須把這些工作交回[原告人]處理”;
(3)	“	[被告人]在合約期內及終止合約後 ，如有任何屬於[原告人]的客戶與[被告人]接洽，[被告人]有需要及責任交回[原告人]處理”;
(4)	“	… [被告人]在合約期內及終止合約時 ，如有任何屬於[原告人]的客戶與[被告人]接洽，[被告人]有需要及責任交回[原告人]處理…
(5)	“	… 凡經原告人介紹的客戶，永久都是屬於原告人，被告人不可以私自接洽任何同類型的工作” (emphasis supplied).

10.  The Agreement was to last from 1 February 2003 to 31 January 2005.  Clause 6 thereof, however, provided that the defendant must notify the plaintiff in writing at least 6 months before terminating the Agreement (or pay to the plaintiff an equivalent amount instead as compensation).

11.  It was the plaintiff’s case that the Agreement was still subsisting as at the date of the affirmation dated 30 April 2004.  The plaintiff did not persist in this stance at the hearing (see further paras. 17 and 18 below).

12.  On the other hand, the defendant deposed in her affirmation dated 6 September 2004:

(1)	she never entered into the Agreement.  Instead, she has entered into a written agreement in November 2002 whereby she was employed as a senior make-up and hair stylist and assistant shop manageress (“the employment agreement”);
(2)	she was induced to sign the employment agreement by Mdm Wong’s verbal promise that the restrictive covenants in the employment agreement would not be enforced against her;
(3)	a false document (consisting of 1 page only) purporting to be a self-employment agreement was used by the plaintiff to avoid payment of the mandatory provident fund;
(4)	the Agreement was a forged document;
(5)	on 9 March 2004, alternatively, on 24 March 2004, the employment agreement was terminated by mutual consent.

The plaintiff accepted the employment agreement was entered into but claimed it was superseded by the Agreement.  In addition, the plaintiff denied the defendant no longer worked for it, but accepted that the defendant ceased to turn up for work since about mid-March 2004.

III. Relevant Legal Principles

13.  Relying on American Cyanamid Co. v. Ethicon Ltd. [1975] AC 396, the plaintiff submitted that the court’s discretion in relation to the interim injunction application should be exercised by considering whether:

(a)	there is a serious question to be tried: Hong Kong Civil Procedure 2004, para. 29/1/9;
(b)	the balance of convenience is in favour of granting the application or refusing it.  Here, the court has to consider (among other things) matters such as the adequacy of damages as a remedy and the relative risk of injustice to the respective party: Hong Kong Civil Procedure 2004, para. 29/1/12 to 29/1/17.

The plaintiff submitted both of the above should be answered in its favour in the interim injunction application.

14.  It has to be noted the interim injunction order sought was to last for about 6-1/2 months.  Hence, it is highly likely the order (if granted) would lapse well before the trial herein.  Consequently, this may be a case where the likelihood of the plaintiff’s success at trial is relevant because the order sought may well dispose of this action: Hong Kong Civil Procedure 2004, para. 29/1/18.  In fact, the plaintiff fairly accepted at the hearing the last-mentioned matter was relevant to the interim injunction application.

15.  It is trite law that:

(1)	restraint of trade clauses are prima facie unenforceable: Chitty on Contracts (1999) 28th Ed., para. 17-075;
(2)	these clauses are, however, enforceable if they are reasonable: Chitty, para. 17-090;
(3)	reasonableness is to be judged by reference to the interests of the contracting parties and those of the public: Chitty, para. 17-090;
(4)	absence of a limit, such as limit in time and space, is a remarkable feature prima facie requiring justification: Chitty, para. 17-090, text to n. 72 and 17-111;
(5)	a party seeking to enforce such clauses bears the burden of proving its enforceability: Chitty, para. 17-093.

III. The Interim Injunction Application

16.  Of the terms of the Agreement pleaded in the statement of claim, only clause 5D and the part of clause 8 set out in para. 9(5) above provides for restrictions after the Agreement has been terminated.  Clause 5A, 5B and the part of clause 8 set out in para. 9(4) above use the phases “合約期內” (within the contractual period) and “合約期內及終止合約時” (within the contractual period and at the time of the terminating).  When read in context, these clauses must have been intended to refer to events which took place before the agreement was terminated.

17.  Whether the defendant entered into the Agreement or the employment agreement, it is clear that they were contracts for personal services and, as such, cannot generally be specifically performed (whether directly or indirectly by way of an injunction): Chitty, para. 28-059 to 28-061.  A unilateral termination of such an agreement (even if wrongful) by the party obliged to provide such services usually results only in a claim for damages.

18.  It is undisputed the defendant ceased to turn up for work after mid-March 2004.  In such circumstances, the Agreement (or the employment agreement) has quite clearly been terminated, whether the plaintiff consented or not is immaterial.  Again, the plaintiff did not dispute this during the hearing.

19.  The plaintiff argued that none of the terms of the Agreement pleaded in the statement of claim (or indeed any of them relied upon at the hearing) are restraint of trade clauses.  I disagree.  Chitty has given the following definition to such clauses:

“	… In the leading House of Lords case Esso Petroleum Co. Ltd v. Harper’s Garage (Stourport) Ltd Lord Reid stated that he ‘would not attempt to define the dividing line between contracts which are and contracts which are not in restraint of trade’; and Lord Wilberforce said that ‘… The doctrine of restraint of trade is one to be applied to factual situations with a broad and flexible rule of reason’.
	In the same case Lord Hodson adopted the test shortly before advanced by Diplock L.J. in … Petrofina (Great Britain) Ltd v. Martin who stated, ‘A contract in restraint of trade is one in which a party (the covenantor) agrees with any other party (the covenantee) to restrict his liberty in the future to carry on trade with other persons not parties to the contract in such manner as he chooses … ” (para. 17-077).  See also Chitty, para. 17-078 to 17-086.

Taking all the circumstances into account, those terms are restraint of trade clauses.

20.  Clause 5D and the part of clause 8 set out in para. 9(5) above are unlimited in time or space.  The plaintiff has not put forth any justification for such unlimited restraint.  In such circumstances, it is unlikely the plaintiff will succeed in its claim for a permanent injunction in this action.

21.  The plaintiff also referred to clauses 5E, 5G and 5H of the Agreement during the hearing.  Those clauses provide:

(a)	“	[被告人]在終止合約後一年內將不能私自接洽任何因原告人轉介的媒體工作”;
(b)	“	[被告人]在終止合約後一年內將不能以終止合約的原因企圖教唆[原告人] … 的任何客戶或第三者”;
(c)	“	[被告人]在終止合約後一年內將不能以終止合約的原因企圖教唆所有與[原告人]有慣性業務往來之人士” (emphasis supplied).

22.  However, as the defendant correctly pointed out, those clauses were not pleaded in the statement of claim (nor indeed in the plaintiff’s skeleton submissions).  It would be inappropriate to permit the plaintiff to rely on them in support of the interim injunction application.

Costs of the Interim Injunction Application

23.  I agreed to the defendant’s proposal that the costs of the interim injunction application should be dealt with after the reasons for decision (set out above) have been handed down.