Johnson Electric Industrial Manufactory Ltd v. Lo Ping Sun and Others

HCA000910/1975

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 910 OF 1975

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CORAM : Li, J.

Date of Judgment : 13th May, 1975 at 9.48 a. m.

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JUDGMENT

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1. This is an application by the plaintiff to continue, pending trial of the Action, Original Jurisdiction No. 910 of 1975, an order granted on Ex Parte Summons that "the 1st defendant Lo Ping Sun by himself, his agents or servants or howsoever otherwise be restrained until after the hearing of a " 'trial' " from entering or remaining in the employment of the 3rd defendant or any subsidiary or associated company thereof or performing any act or service for or on behalf of the 3rd defendant or any subsidiary or associated company thereof in the course of such employment" and "(b) procuring inducing or suborning any servant workmen or agent employed by or on behalf of the plaintiff to terminate such employment whether by breach of contract or otherwise. (2) the 2nd defendant Chan Kam by himself, his agents or servants, or howsoever otherwise be restrained until after the hearing of " the trial "from entering or remaining in the employment of the 3rd defendant or any subsidiary or associated company thereof or performing any act or service for on behalf of the 3rd defendant or any subsidiary or associated company thereof in the course of " the "employment" and that "the 3rd defendant" the "Oceanic Minimotors Limited by their agents or servants, or any of them or otherwise howsoever be restrained " from "(a) employing or continuing to employ the 1st defendant and the 2nd defendant or either of them in breach of their respective agreements with the plaintiff; (b) procuring inducing or suborning any servant workman or agent employed by or on behalf of the plaintiff to terminate such employment whether by breach of contract or otherwise and (c) conspiring with any other person or persons to do anything to the inquiry damage or detriment of the plaintiff."

2. The plaintiff's case is that it is a manufacturer of miniature electric motors for toys and small gadgets and that the 3rd defendant is engaged in similar industry. The 1st defendant is a toolmaker for mini - motors and had been employed by the plaintiff as from the 9th November, 1965 until the 15th March, 1975. In the course of the employment the 1st defendant was instructed and this acquired knowledge and skill in the design and construction of high precision metal dies for the manufacture of mini - motors. As such the 1st defendant acquired confidential information in that he had access to the designs, plans, specifications and other confidential information resulting from product development research carried out by the plaintiff's research and development department. The "designs" and "specifications" and other confidential information together constituted and constitute scientific technological and intellectual resources of substantial value to the plaintiff's business and are of equivalent or a greater potential value to any commercial competitor of the plaintiff.

3. On the 13th April, 1974 the 1st defendant entered into a covenant the relevant clause of which reads as this:

"For a period of two years after I(meaning the 1st defendant) have received the final payment of my salary, I will not be engaged or concerned or interested directly or indirectly in any business of the same nature as the business carried on by the Company.

4. On the 27th February 1975 the 1st defendant resigned as from the 15th March 1975, giving the reason that he intended to join the Schick Ltd. which is a manufacturer of electric razors. He ceased work on the 3rd March, 1975. Later the 1st defendant joined the 3rd defendant. It is alleged that the 1st defendant also enticed two of the plaintiff's workers, YEUNG Chi-ho of the research department and LEUNG Sui-tong, a maker of tools, to work for the 3rd defendant.

5. The 2nd defendant is a tooling engineer and engaged in the designing of tools and machines for mass production of mini-motors. On the 4th April, 1974 the 2nd defendant entered a covenant similar to that given by the 1st defendant. I shall not repeat that covenant because the substance of the two covenants is more or less the same. The 2nd defendant resigned on the 21st February, 1975, left at the beginning of March and went to work for the 3rd defendant.

6. The 3rd defendant employed them well knowing at that time they were obliged not to serve another company in the similar trade and of their obligations to the plaintiff. The plaintiff is engaged in a world-wide trade and the techniques are special.

7. The 1st defendant's case is that he is a toolmaker of some experience in motor dies when he joined the plaintiff. He worked in a unit and under a unit head. As such he had virtually no training of any special skill nor had he any access to secret information or trade secrets. He merely designed metal dies and proto-type parts. He merely did his work as he was told and he had no access to any commercial secrets either. He was employed by the 3rd defendant for making dies and tools for making electronic digital clocks. As such he was not making mini-motors for the 3rd defendant. He never induced YEUNG or LEUNG to work for the 3rd defendant.

8. The 2nd defendant's case is that he was a designer of metal dies. He had some knowledge of electricity and magnetism before he worked for the plaintiff. Whatever knowledge he had was not obtained from his work with the plaintiff. He had no access to technical secrets or commercial secrets. He handed his resignation on the 20th February1975 and he joined the 3rd defendant in designing dies for making electronic digital clocks.

9. The 3rd defendant's case is that it was incorporated in July 1973 for the manufacture of mini-motors for toys and household applicances. The mini-motor is a common project and a common machine. The only difference of various mini-motors in this trade is that of the difference in size and shape. In August 1974 they started a department for making electronic digital clocks which required no mini-motor. In January and February they recruited the 1st and 2nd defendants. It was only early in March that a letter was received from Johnson Stokes & Master, the solicitors acting for the plaintiff. That was the first time they knew of the 1st defendant having entered into a covenant with the plaintiff. They never induced either the 1st or the 2nd defendant to work for them. In fact they engaged them some time in February. The 3rd defendant further deny that they had ever asked anyone to entice LEUNG or YEUNG, the other two workers of the plaintiff company, to work for them. Nor did the 3rd defendant entice these two persons to work for them.

10. Thus the issue is, first of all, whether any technical knowledge or skill of a confidential nature was obtained by the 1st or 2nd defendant, or indeed, the workmen, during the course of their employment with the plaintiff. Secondly, whether there is an urgency in this matter. Thirdly, while the plaintiff is relying on the covenant, whether the covenant is a reasonable covenant for the protection of the plaintiff, or whether it is so unreasonable and so wide that it goes on against public policy as in restraint of trade and competition and, as such, null and void as against public policy.

11. A large number of authorities have been referred to me and I have given them my careful consideration. It does not do any harm to refer to a few of them. As to the first issue, there is a conflict of evidence on affidavit. On the one hand, the plaintiff is adamant that the 1st and 2nd defendants, while they were employed by the plaintiff, had learned technical skills and secrets. It is argued before me that however simple a process in the manufacture of mini-motors, it can be regarded as confidential if it is unknown to others but to the plaintiff company. There is, in addition, the covenant which entitled the plaintiff to protection.

12. I am not going to decide on the question whether the plaintiff has established a case that secret information or secret process had been acquired by the 1st or 2nd defendant. The more I say at this stage may well prejudice, at a later stage, the issue to be tried by the trial judge. On the affidavits before me I have my doubt whether there is sufficient evidence to establish that the plaintiff had imparted any secret information or technical knowledge to the 1st or 2nd defendant. That is not a matter for me at this stage. I rather reserve this question until the full evidence has been heard. However, for the purposes of this judgment, I will be prepared to accept the proposition that a simple process may well be regarded as confidential knowledge or technical secret and, as such, the plaintiff may well be entitled to protection.

13. Now I come to the question of the covenant. It is contended that as the plaintiff's trade is worldwide and there are few competitors in this field. The plaintiff is entitled to protection, even though the restraint is world-wide. In the case of the Commercial plastics Ltd. v. Vincent in 1965 1 Q.B. 623, the defendant had access to technical knowledge in the manufacture of P.V.C. calendered sheeting for adhesive tape. The plaintiff company would be entitled to a protection. However, the covenant was that the defendant "would not seek employment with any of the plaintiffs' competitors in the P.V.C. calendering field for one year after leaving the plaintiff's employment. The defendant was not restrained from doing work in the work of just P.V.C. calendered sheeting factories. At 640 Pearson J. said:-

We have quoted from the oft-quoted passage in the speech of Lord Macnaghten in Nordenfelt v. The Maxim Nordenfelt Guns and Ammunition Co. Ltd. The restriction must be no more than is reasonable in the interests of the party in whose favour it is imposed: if it is too wide it is oppressive to the party who will be subject to the restraint, and it is contrary to the public interest: Herbert Morris Ltd. v. Saxelby. The party in whose favour the restriction is imposed has the burden of showing that it is reasonable as between the parties."

14. In the case of Cranleigh Precision Engineering Ltd. v. Bryant in 1965 1 W.L.R. 1293, there was evidence that Bryant had diverted orders from the plaintiff company to the defendant company and made use of confident knowledge for the benefit of the defendant company. Although this case establishes that a simple process can be confidential, yet the facts of the case are very different. It is a sale of patterns and a registered design to the plaintiff company by Bryant. Having negotiated and completed the sale, the defendant promptly went to work for the defendant company and diverted the plaintiff's orders. In Cranleigh's case there was evidence of Bryant diverting the orders thereby injuring the plaintiff's interests. In this case before me there is no sufficient evidence to show that the 1st or the 2nd defendant had in any way conveyed any of the plaintiff's secret information to the 3rd defendant. I need refer to yet another case, the case of the Kleber Emile Marceau Caudron trading as K. Caudron & Co. v. Lorenz Kao in 1964 H.K.L.R. 594, in which Blair-Kerr J. as he then was, said at 604:

With great respect, I would follow this dictum. At this stage everything is "in the air" I have to consider the urgency of the matter, the balance of convenience and above all the reasonableness of the covenant.

15. I need only mention that I have also considered the case of Saltman in LXV, Reports of Patent Cases, 203; Attwood v. Lamont in (1920) 3 King's Bench, 571, in which the learned trial judge differentiated between what was confidential skill and the worker's own skill. I have also considered Robb v. Green in (1895) 2 Queen's Bench, 315 and the Hivac's case in 1946 and Ackroyds' case in 1962.

16. I find that, first of all, the 1st and 2nd defendants were engaged in, at the moment, a different trade, namely the manufacture of electronic digital clocks. There is no sufficient evidence to suggest that either the 1st or 2nd defendant had passed on any technical or trade secrets to the 3rd defendant, apart from their usual skill as a worker in applying their knowledge for the manufacture of digital clocks. I take into consideration that in all probability I would order a speedy trial within a couple of months. There is no urgency in this matter. Whatever the interest of the plaintiff and however world-wide it is, the covenant restricting the 1st or 2nd defendant is so wide that it is virtually preventing either defendant to work for anybody in the motor business. That is expressly provided in Clause 3. The whole covenant is not designed for the protection of the plaintiff. On the face of it, a complete restraint of trade is attempted. The 1st and 2nd defendants if they want to be engaged in motor business, will have to work for the plaintiff all their life or face a stoppage of work for two years anywhere. There is no shadow of a doubt in my mind that this covenant is so wide that it will not be enforceable. It is argued before me that, irrespective of the existence of this covenant, in law the plaintiff is entitled to protection against the 1st and 2nd defendants conveying confidential process to third parties. However, as I have said the evidence before me is not sufficient to decide on this point. There is no urgency. The whole issue can be resolved at a trial.

17. That disposes of the injunction against the 1st and the 2nd defendants. As to the 3rd defendant, there is an additional allegation that they conspired with the 1st defendant or other persons to entice other servants to leave the plaintiff company. There is no evidence on the affidavits disclosing any conspiracy which requires an agreement whether expressed or implied by two or more persons. There is no evidence that there was any breach of contract on the part of the two workers YEUNG and LEUNG. There is also no evidence of any breach of contract by the 1st or 2nd defendant either because they both successfully obtained the plaintiff's consent to their resignation. There is no allegation that the 3rd defendant knew of the 1st defendant's false reason for resignation. There is no evidence that the 3rd defendant taught the 1st defendant to lie to the plaintiff about his intention to work for Schick Ltd. Indeed YEUNG and LEUNG were dismissed by the plaintiff. It cannot be said that the workers YEUNG and LEUNG were in breach of any contract. In Clerk & Lindsell on Torts, at page 383. the learned author wrote in this passage at page 382:-

"The tort consists in the intentional inducement of the breach of an existing and valid contractual obligation. The court, however, is prepared to grant a remedy if that is proved, even if the evidence of the terms of the contract is 'meagre' or 'somewhat tenuous'. The mere fact that the party induced had an option to terminate the contract under its terms is of no avail to a defendant who has procured a breach; nor will it be any answer for him to say that he was attempting to induce the contracting party to 'suspend' the contract when that party had no right to do so and the inducement in fact brought about a breach. But on principle, if no breach eventuates, there should be no tort. Thus, if the contract is void, for example, on grounds of incapacity, or because it is a gaming contract, no tort is committed. Nor is it tortious to induce a breach of a contract unlawful as being in unreasonable restraint of trade, although if the contract is severable, liability may arise for procuring breach of the remaining lawful terms of it. Where the contract is determinable, the defendant incurs no liability merely by inducing the contracting party to determine the contract lawfully, for there is then no breach."

There is no liability if there is no breach of contract. When it was the plaintiff who determined the contract by dismissing the two workers there was no breach.

18. Having considered the case generally, I find that the covenant is too wide as to be in restraint of trade. There is no immediate danger of the plaintiff suffering any injury which will be so irreparable that the question cannot be resolved at the trial in terms of damages, In other words, there is no urgency in this matter. As far as the conspiracy is concerned, I find that there is not sufficient evidence to prove conspiracy and there is no evidence to show that the 3rd defendant, or even the 1st defendant is liable for enticing or for procuring any breach of contract by the two workers. In the circumstances the application must be refused.

Representation:

Mr. A. R. Dicks ( Johnson Stokes & Masster ) for plaintiff

Mr. Martin Lee ( Lau, Chan & Ko ) for defendants