Fong's National Engineering Co Ltd and Others v. Wong Wai Yuk and Another

HCA000573/2003

HCA573/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.573 OF 2003

----------------------

-----------------------

Coram: Deputy High Court Judge Wong Yan Lung, SC in Chambers

Date of Hearing: 3 July 2003

Date of Judgment: 4 August 2003

Date of handing down Judgment: 4 August 2003

-----------------------

J U D G M E N T

-----------------------

The application

1.By summons dated 17 February 2003 as amended at the hearing before me, the plaintiffs sought the following orders :

(1) That the 1st and 2nd defendants, whether acting by themselves, their directors, officers, agents or servants, or any of them or otherwise howsoever, be restrained until after judgment or further order from causing, soliciting or negotiating any business or business order with the customers of the 1st, 2nd and 3rd plaintiffs;

(2) That the 1st and/or 2nd defendants, whether acting by themselves, their directors, officers, agents or servants, or any of them or otherwise howsoever, be restrained until after judgment or further order from dealing with or divulging confidential quoted pricing of the products of the 1st, 2nd and 3rd plaintiffs to their customers;

(3) That the 1st defendant, whether acting by himself, his agents or servants, or otherwise howsoever, be restrained until after judgment or further order or until 14 January 2004 whichever is the earlier from enticing away the employees of the 1st, 2nd and 3rd plaintiffs.

Background

2.The three plaintiffs are subsidiaries of Fong's Industries Company Limited (Incorporated in Bermuda), a company listed on the Stock Exchange of Hong Kong carrying on the business of, inter alia, producing precision machines for textile manufacturing, stainless steel and alloy casting products. This group of companies, including many more subsidiaries other than the three plaintiffs, will collectively be called "the Fong's Group".

3.The 1st plaintiff, Fong's National Engineering Co. Ltd, and the 2nd plaintiff, Tycon Alloy Industries (Hong Kong) Co. Ltd, are both companies incorporated in Hong Kong. The 3rd plaintiff, Tycon Alloy Industries (Shenzhen) Co. Ltd, is a foreign investment enterprise established in the People's Republic of China ("PRC"). Before changing its name in June 1996, the 3rd plaintiff was known as Fong's Special Metal (Shenzhen) Company Limited. The 2nd and 3rd plaintiffs specialise in alloy metal casting production. The 2nd plaintiff is responsible for signing contracts and the 3rd plaintiff for the manufacturing work.

4.By an Appointment Confirmation dated 2 June 1987, the 1st plaintiff employed the 1st defendant Wong Wai Yuk ("Wong") as an engineer of its production department. The Appointment Confirmation contained terms that Wong was prohibited from disclosing confidential information during and after employment.

5.The parties later entered into a more formal contract in the form of a letter of appointment dated 6 December 1989 ("the Letter of Appointment"). Under the Letter of Appointment, Wong was employed as an executive in the Production Planning Section.

6.The following are the material terms of the Letter of Appointment :

"8. You Shall Devote Full Time to the Company

a. The whole of your time attention and abilities shall be devoted to the business of the Company.

b. You shall not during your employment with the Company directly or indirectly enter into or be concerned or interested in any other business or service whether paid or unpaid (save and except with the consent of the Company).

9. Confidentiality

a. In order to protect the confidentiality of the affairs of the Company, you are required not to disclose any of the confidential information of the Company to any unauthorized person or organization or take along any confidential documents, whether the original or their copies outside the Company without prior approval during and after the employment with the Company.

.....................

11. Covenants after Termination

a. As you will have dealings with the customers of and the suppliers to the Company in the course of your employment and in order to protect the goodwill of the Company, you agrees (sic) without prejudice to any other duty implied by law and equity and whether or not the Company shall have been in breach of this Agreement to observe the obligation set out in this Clause.

b. You shall not for a period of one year from the termination of your employment directly or indirectly engage or be concerned in the business in direct or indirect competition with the sale of the products of the Company.

c. You shall not for a period of one year from the termination of your employment solicit orders or customers from any individual or firm or company who within a period of one year before the termination of your employment bought agreed to buy hired on hire purchase or otherwise acquired goods or services from the Company or otherwise dealt with the Company.

d. Each sub-clause of this Clause shall be separate distinct and severable from each other sub-clauses."

7.By the end of 1992, Wong had been promoted to the position of assistant manager of the Sales and Marketing Department.

8.Between January 1993 and late 1995, Wong and his family were in Australia for the purpose of acquiring citizenship. During this period, Wong received periodic payments from the 1st plaintiff paid through a relative. Whether Wong's employment with the 1st plaintiff continued during this period is a major issue in this case, which I shall deal with below.

9.Wong returned to Hong Kong at the end of 1995 and resumed employment with the Fong's Group.

10.In about January 1996, Wong was appointed a director of the 3rd plaintiff. In May 1997, Wong was further appointed a director of the 2nd plaintiff. Concurrently, Wong was also appointed the Assistant General Manager of both the 2nd and 3rd plaintiffs.

11.One of the overseas customers of the 2nd plaintiff was Edelstahl Technik Ulm GmbH ("ETU") from Germany. In about November 2002, in the course of the 2nd plaintiff's negotiation with ETU on the pricing of certain goods undertaken by another director in Germany, Wong came into possession of certain price information of the 2nd plaintiff in the ETU deal. In short, ETU was not satisfied with the 2nd plaintiff's initial offer prices and sought reduction. By virtue of his familiarity with the 2nd plaintiff's pricing structure and production costs, Wong was consulted by telephone as to what reduction should be offered. By a quotation headed "New Offering Price" sent by the 2nd plaintiff to ETU by fax dated 20 November 2002, the 2nd plaintiff offered ETU new unit prices (with a reduction of about 7%) for the range of goods sought by ETU.

12.In the course of December 2002 and January 2003, the following matters came to the plaintiffs' knowledge :

(1) In mid November 2001, Wong incorporated a company in Hong Kong called Keen Tech Enterprises Limited ("Keen Tech"), i.e. the 2nd defendant herein. The only shareholders and directors of Keen Tech were Wong and his wife Yip Siu Yin, who was herself an ex-employee of the 1st plaintiff.

(2) In about July 2002, a factory was set up in Hui Yang City PRC whose business was also in the manufacture of precision castings in metals. The factory, by the name of Chun Tak Precision Factory or Hui Yang City Keen Tech Precision Metal Factory ("the Hui Yang Factory"), was a joint venture enterprise with Keen Tech as the foreign signing party.

(3) In about September 2002, there was a discussion between Wong and one Colin Wong, the Sales Manager of the 2nd plaintiff, on the possibility of Colin Wong joining Wong's business of Keen Tech or the Hui Yang Factory. The plaintiffs' case is that Wong was attempting to entice Colin Wong to work for him. Wong's case is that the approach came from Colin Wong himself.

(4) On or about 3 January 2003, in the course of pressing ETU for a response to its quotation of 20 November 2002, the 2nd plaintiff received a fax document from ETU which was a quotation sent some time in November 2002 (the exact date cannot be seen from the fax copy) to one Kurt Bydlowski, the sales agent of the plaintiffs in Germany, by a Hong Kong company called Grace Force Holdings Limited ("Grace Force"). The following matters about the Grace Force quotation are significant.

(a) It was headed "Product List for ETU". ETU of course was the 2nd plaintiff's German customer, with whom negotiation on the sale of the same goods had been on going for some time.

(b) It set out in a separate column the "old" unit prices offered by the 2nd plaintiff to ETU. With the exception of two items, the remaining seven out of nine items accurately recorded the 2nd plaintiff's old unit prices as recorded in the 2nd plaintiff's quotation dated 20 November 2002.

(c) It offered as its own prices under the column of "KTE Unit Price" which, with the exception of two items, were all lower than not just the "old" but also the "new" unit prices set out in the 2nd plaintiff's quotation dated 20 November 2002. There can be no doubt that "KTE" stood for Keen Tech Enterprise Limited, i.e. the 2nd defendant.

13.I should pause to say that, in my view, based on the level of the prices pitched by Grace Force, the author of the Grace Force quotation must have known the "new" unit prices offered or to be offered by the 2nd plaintiff to ETU. The intention plainly was to "undercut" the 2nd plaintiff and to divert the business with ETU from the 2nd plaintiff to Grace Force.

14.The two directors of Grace Force were respectively Wong's mother-in-law and sister-in-law, both of whom used Wong's home address as their respective address in the annual returns. Furthermore, the PRC telephone number appearing on the Grace Force quotation was that of the Hui Yang Factory. I have no hesitation in rejecting Wong's assertion that he was not connected with Grace Force in whatever manner.

15.Upon discovery of the above matters, a meeting was held on 3 January 2003 during which Wong allegedly admitted having solicited one group of customers of the 2nd and 3rd plaintiffs who were connected with their sales agent in Germany. On 17 January 2003 Wong was summarily dismissed.

16.On 20 January 2003, the plaintiffs received a letter from Wong dated 10 January 2003 addressed to the Chairman of the Fong's Group purporting to resign from his position as director and assistant general manager of "Tycon Alloy Industries Company Limited" without specifying whether it was the 2nd plaintiff or the 3rd plaintiff or both.

17.Wong was removed as director of the 2nd and 3rd plaintiffs on 29 January 2003.

18.The plaintiffs commenced the present action against Wong and Keen Tech on 13 February 2003 and applied for interlocutory injunctive relief on 17 February 2003.

The issues

19.In my view, the following questions fall to be determined in this action :

(1) Whether the plaintiffs are entitled to the injunctive relief and/or damages by reason of breach of the express terms of the Letter of Appointment : In this connection, the Court has to consider two sub-issues :

(a) whether Wong's contract of employment with the 1st, 2nd and 3rd plaintiffs (or any of them) was a continuous one and governed by the express terms of the Letter of Appointment;

(b) whether the relevant terms in the Letter of Appointment are restraints of trade unenforceable for being contrary to public interests.

(2) If the express terms of the Letter of Appointment cannot be relied on, whether the plaintiffs are entitled to the injunctive relief and/or damages by reason of breach of the implied terms of the contract of employment. On this issue, the Court has to consider :

(a) the scope of the implied duty of fidelity; and

(b) whether trade secret or confidential information equivalent to trade secret was being mis-used so that protection by injunctive relief is warranted notwithstanding the termination of the employment;

(3) Whether the plaintiffs are entitled to the injunctive relief and/or damages by reason of breach of fiduciary duties on the part of Wong as director of the 2nd and 3rd plaintiffs.

(4) Whether the plaintiffs are entitled to the injunctive relief on the basis of the "Springboard" doctrine.

20.The principles in American Cyanamid Co. v. Ethicon Ltd [1975] AC 396 governing the grant of interlocutory prohibitory injunctions are well known. Under these principles, the Court first has to be satisfied there are serious questions to be tried and then move on to consider the balance of convenience between the parties.

21.However, Mr Victor C.F. Cheung, counsel for the defendants, submitted that since the injunctions sought are of limited duration and the action is unlikely to be tried before the expiry of that duration, the grant of interlocutory injunctions at this stage would in effect dispose of the action finally in favour of plaintiffs. Accordingly, he urged upon me that the American Cyanamid principles are not applicable and the Court has to assess the relative merits as opposed to just being satisfied there are serious questions to be tried and balancing the convenience between the parties (N.W.L. Ltd v. Woods [1979] 1 WLR 1294, at 1306B-E; Lansing Linde Ltd v. Kerr [1991] 1 WLR 251, at 258A-D; Line Analytics Life Sciences Ltd v. Line Analytics Limited and Another, HCA 3046/2002, unreported, 3 March 2003, paras.19-23).

22.In Lansing Linde Ltd v. Kerr, supra, at p.258A-D, Staughton LJ said this on the proper approach of the Court :

"If it will not be possible to hold a trial before the period for which the plaintiff claims to be entitled to an injunction has expired, or substantially expired, it seems to me that justice requires some consideration as to whether the plaintiff would be likely to succeed at a trial. In those circumstances it is not enough to decide merely that there is a serious question to be tried. .... On a wider view of the balance of convenience it may still be right to impose such a restraint, but not unless there has been some assessment of the plaintiff's prospects of success. I would emphasise 'some assessment' because the courts constantly seek to discourage prolonged interlocutory battles on affidavit evidence. I do not doubt that Lord Diplock, in enunciating the American Cyanamid doctrine, had in mind what its effect would be in that respect. Where an assessment of the prospects of success is required, it is for the judge to control its extent."

23.I accept that, even with an order for speedy trial, this action is unlikely to be tried before 17 January 2004. Thus, in respect of paragraph 3 of the plaintiffs' summons, i.e. the "non-enticement" injunction, which the plaintiffs specifically restricted its duration to expire on 17 January 2004, it is necessary for this court to make some assessment of the plaintiffs' prospects of success.

24.However, the defendants cannot insist on the Court applying this exceptional approach to paragraphs 1 and 2 of the Summons, i.e. the "non-solicitation" and "non-disclosure" injunctions. Mr George Chu, counsel for the plaintiffs, specifically confirmed with the Court that so far as these two injunctions are concerned, the plaintiffs' case is that they should not be limited by the one-year period or at all since the grounds for applying for such injunctions are not limited to breach of the express terms of the Letter of Appointment. Accordingly, there is no question of these injunctions expiring before the action is tried. In these circumstances, I see no reason why the ordinary American Cyanamid principles should not apply to this part of the plaintiffs' application.

25.Furthermore, even if the Court does consider the plaintiffs' prospects of success, the Court's view will still be a tentative one and the need to balance the convenience or justice between the parties as required under the American Cyanamid principles will still be fully applicable. In Thomas Marshall (Exports) Ltd v. Guinle [1979] 1 Ch 227, a case similar to the present one on facts and involving interlocutory injunctive relief against a managing director carrying on business in competition with his employer, Megarry VC allowed full arguments to be ventilated and explained his approach at p.236C-G :

"Before I turn to consider the rival contentions, I should say that on all hands it was accepted and asserted that what mattered most to the parties was the outcome of this motion. This was not a case in which either side would be content with some stop-gap order pending the trial of the action. That trial must of necessity be some way off, and in the mean time both the company and the defendant were closely and immediately affected by whether or not the injunctions sought by the company should be granted. ... Accordingly, although the decision of the House of Lords in American Cyanamid Co. v. Ethicon Ltd. [1975] AC 396 had as one of its objects the shortening of applications for interlocutory injunctions, it seemed to me that this was a case of a type which justified full argument that has been put before me, and so I did not attempt to curtail it. Without departing from either the letter or the spirit of the Cyanamid case, it seemed to me that there still remain some cases, such as this, in which both justice and the needs of the parties justify the type of interlocutory hearing that was more common before that decision. At the same time, although both the hearing and what I say in this judgment may be more ample than is strictly necessary under that decision, the actual result must still be governed by the principles which it laid down." (emphasis added)

The express terms of the employment contract

26.The plaintiffs contended that the employment of Wong was a continuous one from 1987 to 2003 and was governed by the express terms of the Letter of Appointment. Wong was granted paid leave during the three years when he was in Australia for the purpose of acquiring citizenship, but the employment was not thereby terminated.

27.Wong, however, argued that the employment contract with the 1st plaintiff (admittedly governed by the Letter of Appointment) had already terminated on 31 December 1992, when he and his family emigrated to Australia. Upon his return from Australia at the end of 1995, he was employed by the 3rd plaintiff as Assistant General Manager responsible for the daily operation of the 3rd plaintiff in the PRC (which employment lasted from 11 December 1995 to 9 January 2003). No employment letter or contract was signed. It was merely an oral contract with no express provisions on restraint of trade of the type stipulated in the Letter of Appointment.

28.In my view, the plaintiffs have shown good prospects of success in proving that the employment of Wong was a continuous one and that it was still governed by the express terms of the Letter of Appointment insofar as they had not been varied by conduct.

(1) Wong did not and could not deny that during the time when he was in Australia, he continued to receive a monthly sum of HK$16,666.00 as well as two year-end bonuses each of HK$16,666.00. The manner in which these sums were paid renders Wong's description of such payments as "ex gratia compensation or payment" in appreciation of his past devotion and contribution wholly unconvincing.

(2) Furthermore, these payments as salary to Wong were recorded in the tax returns filed by the 1st plaintiff during the three years when Wong was in Australia. The 1st plaintiff had also written to the Commissioner of Inland Revenue explaining Wong was on study leave and would resume his duty in Hong Kong afterwards.

(3) Wong did not apply to have his pension entitlement paid to him at the end of 1992. Instead, the 1st plaintiff continued to make contribution under the retirement scheme for Wong.

(4) The only matter which Wong could point to evidencing the termination of the employment in 1992 is a so-called "Leaving Reference Letter" dated 2 November 1992 issued by the 1st plaintiff confirming the termination of Wong's employment. As explained by the plaintiffs, this letter was issued by the 1st plaintiff at Wong's request for his own education or other purposes. In view of the conduct of the parties in respect of payment of salary and the overwhelming documentary evidence to the contrary, I do not believe that this one letter would suffice to negate the continuing relationship of employment between the parties.

(5) The fact that there was no separate contract of employment signed by the parties in 1995 when Wong resumed work is a strong indicator that the employment relationship was in fact continuing at that time.

29.In coming to this view, I have not overlooked the fact that technically speaking, all three plaintiffs are separate legal entities. The 1st plaintiff was not named as an intended plaintiff in the first affirmation of Wan Wai Yung in support of the application for injunctions. I have also considered the defendants' contention that the line of business undertaken by the 1st plaintiff was different from that undertaken by the 2nd and 3rd plaintiffs. However, the Court cannot ignore the commercial reality of the operation of such group enterprises and the conduct of the parties reflecting their understanding of the employment situation.

(1) According to the plaintiffs, after his initial employment by the 1st plaintiff, Wong was assigned to work for other companies within the Fong's Group. The share capital of all three plaintiffs was provided by the Fong's Group and all profits and losses of the three plaintiffs were consolidated and reported in the accounts of the Fong's Group. All three plaintiffs operated from the headquarters in Tsing Yi Island and most senior employees of the Fong's Group were required to work for more than one company within the group. Since 1996, the salary of Wong was paid from the accounts of various companies within the Fong's Group at different periods in portions.

(2) In 2000, when Wong applied to transfer his entitlement in the Occupational Retirement Scheme to the Mandatory Provident Fund Scheme, he specified that the commencement date of his employment was 8 June 1987.

(3) In the purported resignation letter dated 10 January 2003 signed by Wong, he tendered his resignation to the Chairman of the Fong's Group.

(4) Furthermore, it is a matter of significance that Wong has not been frank regarding his involvement in the business of the Fong's Group. In his affirmation, Wong asserted that after 1995, he only worked for the 3rd plaintiff on the strength of an oral contract of employment with the 3rd plaintiff. He maintained that at no time did he hold any position in the 2nd plaintiff. This is plainly untrue. Wong was in fact appointed a director of the 2nd plaintiff in May 1997 and had signed the relevant acceptance of appointment as director which was duly filed with the Companies Registry. In his name card, he was described as the Assistant General Manager of both the 2nd and the 3rd defendants. Further, in his resignation letter dated 10 January 2003, he purported to resign as director and Assistant General Manager of Tycon Alloy Industries Company Limited, without stating whether it was the 2nd or the 3rd plaintiffs. Finally, in the Defence and Counterclaim, Wong changed his stance and admitted his directorship and position as Assistant General Manager with both the 2nd and 3rd plaintiffs.

30.In this connection, Mr Chu referred me to the Privy Council's decision in Stenhouse Ltd v. Philips [1974] AC 391 and argued that in a case involving a group of companies like the Fong's Group, the interests of the group as a whole should be protected. In Stenhouse, the Court was concerned with the validity of a restraint of trade provision in a contract signed between the employee and the employer company who together with its subsidiaries formed the "Stenhouse Group". At page 404D-F, Lord Wilberforce said :

"The evidence is clear that the business of the Stenhouse Group was controlled and co-ordinated by the appellant company, and all funds generated by each of the companies were received by the appellant. The subsidiary companies were merely agencies or instrumentalities through which the appellant company directed its integrated business. Not only did the appellant company have a real interest in protecting the businesses of the subsidiaries, but the real interest of so doing was that of the appellant company. It is not necessary to resort to the conception of 'group enterprise' to support these proceedings. The case is, more simply, that of the appellant's business being to some extent handled by for it by subsidiary companies. Their Lordships therefore agree with the judge in rejecting this argument."

31.The facts of the present case differ from those of Stenhouse. The 1st plaintiff is a fellow subsidiary, as opposed to the holding company of the 2nd and 3rd plaintiffs. Although Lord Wilberforce suggested that the "group enterprise" concept might provide another situation whereby a restraint of trade provision could be relied upon to protect the interests of the group, he did not elaborate on his reasoning. However, it is unnecessary for me to go that far here because what the plaintiffs are seeking to protect by way of the injunctions sought are confined to the interests of the 1st, 2nd and 3rd plaintiffs, and not the interests of the Fong's Group as a whole. Insofar as the 1st, 2nd and 3rd plaintiffs are concerned, I am satisfied on the evidence adduced that the plaintiffs have shown good prospects of success on the applicability of the terms of the Letter of Appointment.

Express terms are restraints of trade unenforceable as against public interests

32.Even if the terms of the Letter of Appointment were applicable, Mr Cheung contended that Clauses 9 and 11 thereof are too wide and are unenforceable as being contrary to public interests. He argued that a covenantee seeking to uphold the validity and enforceability of a covenant in restraint of trade must show that the covenant is both reasonable in the interest of the contracting parties and reasonable in the interests of the public (see Line Analytics Life Sciences Ltd v. Line Analytics Ltd and anor, HCA 3046 of 2002, unreported, 3 March 2003, at para.24).

33.The reasonableness or otherwise of provisions of restraint of trade is sensitive to facts. As such all the facts and circumstances must be considered so that the court must come to a "broad and common sense view" of its reasonableness. Such exercise could only be made appropriately at trial (BSC Building Materials Supply Co. Ltd v. Cheung Chi Hung Michael [1998] 2 HKC 425, at 436H-437G). At this stage, the best that this Court can do is to reach a provisional view in order to meet the immediate justice of the case.

34.Furthermore, it is important to point out that the injunction orders sought are not a literal or full enforcement of Clauses 9 and 11 of the Letter of Appointment, and it is the reasonableness of the former that the Court is concerned with here.

35.First, Mr Cheung contended that the injunction sought under Paragraph 1 of the Summons (i.e. the "non-solicitation" injunction) is wider than Clause 11b of the Letter of Appointment (which restrained Wong from competing with the 1st plaintiff within one year after termination). In my view, leaving aside the duration of the prohibition, the "non-solicitation" injunction is in fact narrower and less stringent insofar as it seeks to prohibit "solicitation" and "dealing", as opposed to general "competition" (see BSC Building Materials Supply Co. Ltd v. Cheung Chi Hung Michael [1998] 2 HKC 425, at 437G-H).

36.Second, Mr Cheung said that Clause 9a, which dealt with non disclosure of confidential information, was prima facie void and unenforceable as its duration is indeterminate. The injunction sought under paragraph 2 of the Summons (i.e. the "non-disclosure" injunction) is confined to the "quoted prices" and not confidential information at large. In my view, insofar as it can be proved that "quoted prices" are indeed confidential information, there can be no objection to a clause which prohibits their disclosure for an unlimited period.

37.Third, Mr Cheung said the worldwide restraint was unreasonable and thus void and unenforceable (relying Candia Shipping (HK) Ltd v. Wong Chiu Wai, HCA 629 of 1986, unreported, 25 February 1986, Deputy High Court Judge Downey). However, each case has to be decided on its own facts. Candia Shipping is a case where the judge lamented the paucity of evidence adduced by the plaintiff in respect of its scope of business. In the present case, as can be seen from the consolidated financial statements of the Fong's Group, the customers of their products came from Hong Kong, the PRC, Asia Pacific region, Europe, North and South America and others. Further, what is sought now is the lesser "non-solicitation" as opposed to "non-competition". Prima facie, it seems to me the worldwide restraint is reasonably needed.

The "non-enticement" injunction

38.I should deal more specifically with the "non-enticement" injunction (against Wong only) in paragraph 3 of the Summons, as to which Mr Cheung has raised further arguments.

39.Mr Cheung argued that there is no express provision in the Letter of Appointment prohibiting enticement of staff to join the plaintiffs' competitor. In my view, trained and stable workforce is a legitimate interest for the plaintiffs to protect. And solicitation and enticement of staff to work for competitors come within the description of "directly or indirectly engage or be concerned in the business in direct or indirect competition with the sale of the products of the Company" under Clause 11b of the Letter of Appointment.

40.Although the Court of Appeal in Kao Lee & Yip (a firm) v. Koo Hoi Yan Donald & Ors [1994] 2 HKC 228 has left open the question whether it is a legitimate interest to protect the employer against improper solicitation or enticement of his workforce (p.234F-235F), I am of the view that with the kind of business undertaken by the plaintiffs, "staff connection" in is a legitimate interest to protect (see BSC Building Materials Supply Co. Ltd v. Cheung Chi Hung Michael, supra, at 434I-4435B). The business of the plaintiffs could only be transacted by a staff who have sufficient technical knowledge in the products manufactured and sold (i.e. precision machines, stainless steel casting, made to the requirements of the customers). To do so, such staff need years of training and nurturing. Further, relationship between such staff and the customers could be crucial to the latter's continuous patronage. Trained and stable workforce are important "assets" of the company and the need for protection against improper solicitation cannot be emphasized more.

41.Further, Mr Cheung argued that such an injunction order or such a clause would be contrary to public interests, in that it limited unjustifiably the extent to which the person subject to the restraint could legitimately compete in the labour market against those seeking to enforce it against him. In support Mr Cheung relied on the Court of Appeal's judgment in Kao Lee & Yip (a firm) v. Koo Hoi Yan Donald & Ors [1994] 2 HKC 228. However, in Kao Lee & Yip, the so-called "employees restraint" clause found to be unenforceable was "a restraint against employment of former employees of the firm under any circumstances". Godfrey JA specifically contrasted that clause with cases where the restraint was against "solicitation or enticement of employees" only, the enforceability of which the learned judge had expressed no opinion (see p.234F-235D).

The implied terms of the employment contract

42.It is necessary for me to proceed beyond the express terms of the employment because the injunctive relief under paragraphs 1 and 2 of the Summons are not limited to a one-year duration expiring in January 2004. As such, they must be buttressed on duties imposed on Wong other than the express terms of the Letter of Appointment.

43.In the context of implication of terms into employment contracts of this kind, the following dicta of Leggatt LJ in Wallace Bogan v. Cove [1997] IRLR 453, at para.14, is instructive :

"The term that is to be implied not to canvass the employer's customers during employment is part of the duty of good faith and fidelity. But when the employment ceases so does that duty. The implied duty not to misuse confidential information endures after the employment has ended, but only if it amounts to a trade secret. Otherwise to govern what is to happen after termination of a contract an employer is dependent on express terms. In default, terms could only be implied in the traditional way, that is, by applying the test of the officious bystander or of business efficacy; and neither test, nor any other such as is contemplated by Liverpool City Council case, would bind any employee when the employment was over. It is axiomatic that the general law affords no protection to an employer against an ex-employee soliciting the employer's customers."

44.The incident regarding the alleged "undercutting" of the 2nd plaintiff in the BTU deal occurred before Wong was dismissed on 17 January 2003. This is relevant to the Court's discretion in deciding whether to grant injunctive relief on other basis. However, as regards an employee's duty of fidelity implied by law, it is trite that it applies during the period of employment only. Here, it is common ground that the contract of employment was terminated in January 2003.

45.As regards post-employment acts, in the absence of express terms of contract, the plaintiffs can only succeed to make Wong liable on the implied term route if they can show improper use of trade secret or confidential information equivalent to trade secret.

Whether information was trade secret or confidential equivalent to trade secret

46.At the hearing before me, the plaintiffs by an amendment to the Summons sought to narrow down the description of the alleged confidential information which they seek to protect. It is "confidential quoted pricing of the products of the 1st, 2nd and 3rd Plaintiffs to their customers".

47.The plaintiffs contended that such "pricing information" is clearly confidential as amounting to trade secret or equivalent, which need be protected both during and after the employment, with or without express covenants. By reference to the 2nd plaintiff's quotation to ETU dated 20 November 2002, Mr Chu described the information as "final bidding price" with the plaintiffs' customers.

48.The defendants denied the pricing information was trade secret. Wong alleged that during the course of his employment with the 3rd plaintiff, he had access to information of the 3rd plaintiff including its mode of operation, schedule of production, marketing technique, list of suppliers, list of customers, and pricing structure. All these were acquired by him as his personal knowledge, skill and experience which he was entitled to use for his own benefit.

49.Secondly, Wong alleged that the "pricing structure" was not confidential information as it could be easily obtained elsewhere. Pricing for stainless steel castings were controlled by market price which would fluctuate from time to time. Every customers or people involved knew the unit price per weight for stainless steel castings.

50.What amounts to trade secret or confidential information equivalent to trade secret is not always easy to determine. In the leading case of Faccenda Chicken Ltd v. Fowler [1987] Ch 117, the Court of Appeal listed a number of matters which should be considered in determining whether particular information should be protected on this ground notwithstanding the termination of the employee's employment. These included (a) the nature of the employment, (b) the nature of the information, (c) whether the employer impressed on the employee the confidentiality of the information, and (d) whether the relevant information can be easily isolated from other information which the employee is free to use or disclose (per Neill LJ at p.137).

51.In Lansing Linde Limited v. Kerr [1991] 1 WLR 251, at 260B-C, Staughton LJ stated his preferred view of the meaning of trade secret as follows :

"Mr. Poulton suggested that a trade secret is information which, if disclosed to a competitor, would be liable to cause real (or significant) harm to the owner of the secret. I would add first, that it must be information used in a trade or business, and secondly that the owner must limit the dissemination of it or at least not encourage or permit widespread publication."

52.Sir Robert Megarry VC in Thomas Marshall (Exports) Limited v. Guinle [1979] Ch 227 identified four elements in identifying trade secret at p.248 :

"If one turns from the authorities and looks at the matter as question of principle, I think (and I say this very tentatively, because the principle has not been argued out) that four elements may be discerned which may be of some assistance in identifying confidential information or secrets which the court will protect. I speak of such information or secrets only in an industrial or trade setting. First, I think that the information must be information the release of which the owner believes would be injurious to him or of advantage to his rivals or others. Second, I think the owner must believe that the information is confidential or secret, i.e. that it is not already in the public domain. It may be that some or all of his rivals already have the information; but as long as the owner believes it to be confidential I think he is entitled to try and protect it. Third, I think that the owner's belief under the two previous heads must be reasonable. Fourth, I think that the information must be judged in the light of the usage and practices of the particular industry or trade concerned. It may be that information which does not satisfy all these requirements may be entitled to protection as confidential information or trade secrets; but I think that any information which does satisfy them must be a type which is entitled to protection."

53.Bearing these principles in mind, I believe there is a serious question to be tried as to whether the "quoted pricing" was confidential information akin to trade secret, which could be protected by an injunction even after the termination of Wong's employment. On this issue, it is not necessary for me to assess the relative merits as it is not relevant to the "non-enticement" injunction. However, if I had to express a view, I would say a prima facie case has been established.

(1) What the plaintiffs are seeking to protect is not the general pricing of stainless steel casings in the form of "market price" of such products or even the "published or catalogue price" of the plaintiffs' products. What is in issue is the specific "quoted" or "tender" or in some cases the "bottom-line" prices offered to individual customers in the course of more advanced business negotiations. As can be seen from the quotations, each of the nine items of goods, comprising metal frames and other parts, commanded a different price. The goods were not generic goods that could be treated indiscriminately as "castings" attracting a fixed price. Instead, each item was specific and referable to a particular drawing. Further, the quoted prices were subject to revisions. Such quoted prices and revisions would be sensitive to the plaintiffs' production costs, the importance of individual customers to the plaintiffs, and the lowest "profit margin" which the plaintiffs were prepared to accept.

(2) In Faccenda Chicken, although the Court of Appeal did not think the information about prices in that case amounted to trade secret, it accepted that there might well be circumstances where pricing information would be regarded as a trade secret or its equivalent. Neill LJ at p.140A-C said this :

"We can well appreciate that in certain circumstances information about prices can be invested with a sufficient degree of confidentiality to render that information a trade secret or its equivalent. The price put forward in a tender document is an obvious example. But there may be many other cases where the circumstances show that a price or prices are matters of great importance and highly confidential.

Information about the price to be charged for a new model of a car or some other product or about the prices negotiated, for example, for various grades of oil in a highly competitive market in which it is known that prices are to be kept secret from competitors occur to us as providing possible further instances of information which is entitled to protection as having the requisite degree of confidentiality."

(3) Plainly, such information is not already in the public domain, and if such information is disclosed to a competitor, the plaintiffs would be liable to suffer real and significant harm.

(4) The fact that the plaintiffs consistently stipulated "non-disclosure" covenants in the various written employment contracts shows that they were keen to impress upon employees like Wong the confidentiality of the information.

(5) I believe Wong should not have any difficulty in isolating such pricing information from other information which he is free to use. It seems to me that such information is "customer" or "case" specific, and does not fall within the general skill or knowledge of Wong as an employee.

Breach of fiduciary duties

54.Wong was the director of the 2nd and 3rd plaintiffs. This brings in a further dimension of fiduciary duties imposed on him which may not necessarily overlap with his duties as an employee under contract, and may not depend on the subsistence of the employment contract or a breach of confidence.

55.The alleged incidents of leakage of confidential information (i.e. the offer prices to ETU), solicitation of customer (i.e. ETU), and the enticement of staff (i.e. Colin Wong) all took place when Wong was still a director and in the employment of at least the 2nd and 3rd plaintiffs.

56.It is plain that the ETU deal was then a business opportunity actively pursued by the 2nd plaintiff. Instead of assisting the 2nd plaintiff to clinch this deal, Wong allegedly through his nominees and Keen Tech attempted to divert the very business to himself.

57.If a director had been in breach of fiduciary duty by diverting a "maturing business opportunity" belonging to the company, he would remain liable notwithstanding his resignation as director (see Industrial Development Consultants Ltd v. Cooley [1972] 2 All ER 162, at 174-175; Canadian Aero Service Ltd v. O'Malley [1974] SCR 592, at 606-607, 620).

58.It is however important to emhasize that before the outgoing director can be found liable, the opportunity must be a "maturing business opportunity". For in general a director is not prohibited from using the stock in trade of the knowledge he has acquired while a director, such as business contacts made as a result of his directorship (see Island Export Finance Ltd v. Umunna [1986] BCLC 460, at 482; Balston Ltd v. Headline Filters Ltd [1990] FSR 385, at 411).

59.The business carried on by the plaintiffs is a specialized one. The products they manufactured and traded were precision machinery and stainless steel/alloy castings. These products would most probably have to be tailor-made to meet individual customers' needs. As can be seen the 2nd plaintiff's quotation of 20 November 2002, each item of goods carried a specific drawing number, some with specific prefixes like "ETU" indicating references to particular customers. Plainly, the customers patronizing the plaintiffs are not the general public but are specialist customers in particular trades.

60.In my view, insofar as any of these customers are having a continuous relationship with the plaintiffs, it is very arguable that such existing business relationships are either matured or maturing business opportunities, and the defendants should not be allowed to undercut the plaintiffs by approaching these customers by offering prices calculatedly lower than those offered by the plaintiffs. That would also seem to me to be grossly unfair competition.

Springboard injunction

61.This brings me to the submission of Mr Chu that the injunctions sought are further justified on the "springboard" doctrine. This submission was raised by Mr Chu without any elaboration. Mr Cheung did not see fit to make any response.

62.The best summary of the doctrine of "springboard injunction" is in the judgment of Roxburgh J in Terrapin Ltd v. Builders' Supply Co. (Hayes) Ltd, Taylor Woodrow Ltd and Swiftplan [1960] RPC 128 at 130 :

"..... the essence of this branch of the law, whatever the origin of it may be, is that a person who has obtained information in confidence is not allowed to use it as a springboard for activities detrimental to the person who made the confidential communication, and springboard it remains even when all the features have been published or can be ascertained by actual inspection by any member of the public .... The possessor of the confidential information still has a long start over any member of the public. ... It is, in my view, inherent in the principle on which Saltman Engineering Co. Ltd. v. Campbell Engineering Co. Ltd. (1963) 65 RPC 203 (noted at [1963] 3 All ER 413) rests that the possessor of such information must be placed under a special disability in the field of competition to ensure that he does not get an unfair start."

63.For the Springboard doctrine to apply, the plaintiffs have to satisfy me : (1) that there was a breach of confidence (which need not involve trade secret) in the course of employment, although the information might have ceased to be confidential for whatever reason; and (2) that by reason of this breach of confidence, the defendants had obtained an unfair advantage or "head start" by the use of the confidential information and would exploit it. The purpose of the springboard injunction is primarily to eliminate the effect of that "head start" which was obtained unfairly.

64.I am satisfied that whether the circumstances of this case warrant the grant of a springboard injunction is a serious question to be tried. There is a prima facie case of breach of confidence in the course of employment. Whether the use of confidential pricing information to undercut the plaintiffs would give rise to a "head start" for this purpose is in my view arguable and ought to be explored further at trial when all the facts are available especially after discovery.

Liability of the 2nd defendant

65.Although the plaintiffs' case against the 2nd defendant Keen Tech is not clearly spelt out in the Statement of Claim, Mr Cheung did not contend that the case of Keen Tech should be separately considered. Keen Tech was one of the corporate vehicles used by Wong to pursue the matters complained of. Since Wong was in control of Keen Tech, insofar as Wong's liability can be established, Keen Tech is unlikely to escape liability on the ground of unlawful interference, inducing breaches of contract or knowingly assisting in Wong's breach of fiduciary duties.

Balance of convenience

66.Although I have gone into the merits of the case to a certain extent for reasons given, it does not in any way detract the applicability of the principles of American Cyanamid from the exercise of my discretion.

67.The plaintiffs argue that without the injunctions the plaintiffs are likely to suffer grave loss and injustice which cannot be compensated by damages. There is no estimation of loss put forward. However, the 2nd plaintiff has failed to close the deal with ETU. And ETU was only one of the customers the 2nd plaintiff dealt through its German sales agent. Wong allegedly had admitted to the plaintiffs at the 3 January 2003 meeting that he had solicited one group of customers of the 2nd and 3rd plaintiffs who were connected with their sales agent in Germany.

68.In his affirmation, Wong alleged that due to bad business and lack of investment money raised by him, the Hui Yang Factory was closed down and its machinery sold to settle indebtedness. The relevant joint venture agreement was terminated in November 2002. He also alleged that Keen Tech had been "inactivated" since November 2002. However, the dispatch of the Grace Force quotation in November 2002 does raise concern as to whether the defendants had in fact ceased all their business in competition with the plaintiffs.

69.In these circumstances, I am prepared to accept that the loss to the plaintiffs could be substantial. I thus need to consider the ability of the defendants to pay damages should they be so ordered.

70.Keen Tech, according to Wong, is not carrying on any business. In any event, it is only a two-dollar company with no known assets. As to Wong himself, not much is known about his financial resources. However, he had already said that his inability to raise funds was one of the reasons for the closure of the Hui Yang Factory. Furthermore, he had considered himself eligible to and did apply for legal aid, although the application was unsuccessful. In these circumstances, I am satisfied that if the plaintiffs are successful at trial, an award of damages against the defendants might be inadequate or illusory.

71.On the part of the defendants, nothing was said in Wong's affirmation as to what adverse effect they would suffer if the interlocutory injunctions were granted. There is no evidence adduced before me to show that the imposition of injunctions would cause them significant damages which could not be compensated by damages. As to Keen Tech, I can see no impact on it if in fact it has ceased business. As to Wong, Mr Cheung urged upon me that the imposition of the injunctions would result in his inability to pursue a career in this field. I think this is an exaggerated statement. It is his own case that with the closure of the Hui Yang Factory he was not in fact pursuing a line of business in competition with the plaintiffs. The injunctions sought are not such as to prevent him from making any livelihood. Wong did not need to solicit the plaintiffs' customers to make a living. Even if Wong might suffer any damage in the longer run, the plaintiffs being subsidiaries of a listed company in Hong Kong are in my view good for the undertaking as to damages.

72.Furthermore, insofar as I have to consider status quo, it will be preserved by granting the injunctions.

73.In these circumstances, the balance of convenience is clearly in favour of the granting the injunctions.

Conclusion

74.For the reasons given above, subject to the plaintiffs entering into the usual undertaking as to damages, I will grant the injunction orders sought in terms of Summons as amended.

75.As to costs, following the general rule where a plaintiff succeeds in obtaining interlocutory injunctions (see Hong Kong Civil Procedure 2002, para.29/1/44), I make an order nisi that costs be in the cause.

76.Further, I agree with Counsel for both parties that this is a case where an order for speedy trial will be appropriate and I so order. Parties should seek to agree on a list of directions including estimate of trial length and submit to the listing master or judge for consideration.

Representation:

Mr George Chu, instructed by Messrs K.Y. Woo & Co., for the Plaintiffs

Mr Victor C.F. Cheung, instructed by Messrs Li, Wong & Lam, for the Defendants