South China Media Ltd and Another v. Men's Uno International Publishing Ltd and Another

HCA000769/2003

HCA 769/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 769 OF 2003

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Coram: Deputy High Court Judge A Cheung in Chambers

Date of Hearing: 14 March 2003

Date of Judgment: 14 March 2003

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J U D G M E N T

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1.I have an application for an interlocutory injunction against the 1st Defendant before me. If I may say so with respect, the case has been well argued on both sides. Very respectable and attractive arguments have been advanced at today's hearing, which has indeed been a long one. But at the end of the day, there can be only one winner. I hope the parties will forgive me if I do not outline or go into details here the material facts or the disputes between the parties given the constraint of time and the general urgency of the subject matter; they are only too familiar to the parties and their legal advisers. I shall concisely set out my views on the main issues argued by the parties before me today.

2.There can be no dispute that the guiding principles in this type of applications can be found in the leading case American Cyanamid Co. v Ethicon Ltd [1975] AC 396, although I do bear in mind Ms Wong's, counsel for the 1st Defendant, submissions that where an interlocutory injunction or the grant or refusal of such an injunction would likely determine the outcome of the dispute between the parties or that part of the dispute between the parties, the court should exercise vigilance in determining whether there is a serious question to be tried. Under American Cyanamid, the court should determine whether there is a serious question to be tried and if there is one, the court should determine the balance of convenience. Of course, an injunction being a discretionary remedy, the court must also take into account all other relevant matters in determining how its discretion should be exercised.

3.On the question of whether there is a serious question to be tried, I have carefully considered the factual disputes between the parties and the various deponents in question. I am of the view that on the question of whether as a matter of fact or at the evidential level, there has been poaching of the employees in question by the 2nd Defendant, there is a serious question to be tried.

4.The Court is simply unable and in fact should not make any determination on the disputes of fact on evidence or on affidavit evidence. That is not required. However, that is not the end of the inquiry in this regard. The Court must move on to consider, on the basis that there is an arguable case on poaching (on the factual level), if the Plaintiffs have an arguable cause of action against the 1st Defendant, against which the Plaintiffs are seeking an interlocutory injunction to prevent its intending publication of a new magazine, in anticipated competition with the Plaintiffs' publications, for a period of 6 months.

5.It cannot be seriously disputed that the cause of action relied on by the Plaintiffs in the papers filed with the Court is primarily one of procuring a breach of contract. To be more precise, it is alleged that the 1st Defendant has procured the 2nd Defendant to act in breach of her contract of employment with her former employers, namely the Plaintiffs, regarding the non-solicitation of employees of the Plaintiffs.

6.I must confess I have some difficulty with this cause of action insofar as the requisite knowledge is concerned. I have some reservation or difficulty regarding imputing the 2nd Defendant's knowledge of the non-solicitation provisions in her own contract of employment to the 1st Defendant, so that it can be said that the 1st Defendant, armed with such imputed knowledge, has procured the 2nd Defendant to act in breach of those provisions in her contract.

7.In any event, an important difficulty lying in the path of the Plaintiffs' case against the 1st Defendant relates to the situation of Mr So, one of the staff members involved and the person who is said to be one of the two leading lights behind the 1st Defendant, the other being the 2nd Defendant herself.

8.There can be no dispute that Mr So put in his notice of departure from the Plaintiffs back in August 2002, several months before the incorporation of the 1st Defendant. In those circumstances, under the cause of action of procurement, one simply cannot blame, as it were, the 1st Defendant which was not in existence at the time, for procuring the 2nd Defendant to poach Mr So from his employment with the Plaintiffs, which poaching must have happened prior to the giving of the notice of termination of employment.

9.Given the importance of Mr So's position and responsibilities both in his job with the Plaintiffs and in his job with the 1st Defendant, I think this is an important point to bear in mind when I come to the question of whether some form of interlocutory relief should be granted against the 1st Defendant. But returning to the question of a serious question to be tried in terms of the cause of action against the 1st Defendant, Mr Mok appearing for the Plaintiffs has also elegantly mounted an argument which can be conveniently referred to as the alter ego argument. In short, it is said that the 1st Defendant was only used as a corporate vehicle by the 2nd Defendant and/or Mr So in poaching the employees of the Plaintiffs in breach of the 2nd Defendant's contractual provisions relating to non-solicitation and in breach of Mr So's duty of fidelity whilst he was still in the employment of the Plaintiffs.

10.Here a similar difficulty faces the Plaintiffs in relation to Mr So's departure from the Plaintiffs ― the corporate vehicle (i.e. the 1st Defendant) was simply not in existence at the time when Mr So gave his notice of termination. That is quite fatal to a case based on the alter ego argument relating to the departure of Mr So.

11.Whilst I am on this alter ego argument, I should point out another difficulty in the path of the Plaintiffs, namely that this alter ego argument, on any fair reading of the general endorsement in the writ of summons, has not been pleaded.

12.The point here is not whether the Plaintiffs can remedy this deficiency by a simple amendment to the endorsement or by skilfully drafting the statement of claim which is yet to be filed. Nor is it a question of whether the Court should look at the real substance or the merits of the case instead of technical pleading in order to determine what, if any, equitable relief should be granted to the parties in order to do justice between them.

13.The important point is this, that the 1st Defendant, at the receiving end of this application for an interlocutory injunction, is entitled to know precisely what case it has to meet and to put in evidence and mount arguments (if it can) in opposition to the case in question. The alter ego argument, with respect, was only raised by counsel at the beginning of this hearing today when I enquired with counsel the true nature of the Plaintiffs' case and expressed to counsel my difficulty relating to the cause of action based on procurement.

14.On the question of a serious question to be tried, there is also this question of restraint of trade. The relevant provisions in question concerned two subject matters: (1) the poaching of employees; (2) the soliciting of business from customers of the Plaintiffs. Taking the last subject matter first, I have no doubt that this is totally irrelevant and cannot be used in support of the Plaintiffs' application for the present injunction. The subject matter of prohibition simply does not logically lead to the present injunction either in form or in substance. Non-solicitation of business from existing customers cannot justify an injunction prohibiting the 1st Defendant from publishing its magazine for any period of time. This is simply a non sequitur.

15.Furthermore, I have genuine doubts regarding the reasonableness of this part of the covenant, the burden of proving which lies certainly with the Plaintiffs. It relates to all the customers of the Plaintiffs. Given the size of business of the Plaintiffs and the nature of their business, and given the number of years in the field that the Plaintiffs have been carrying on their operation, I have genuine doubts regarding whether the reference to "customers" without any restriction is not too wide.

16.Relating to the poaching of employees, Mr Mok relies on SBJ Stephenson Limited v Mandy [2000] IRLR 233 in support of the reasonableness of this part of the covenant in question. There is no doubt that on the evidence before the court in that case, the court found that the covenant in question which bore some similarities to the covenant in our present case was reasonable. But it is trite that each case depends on its own facts. There was specific evidence in that case (concerning an insurance brokerage business which was quite different from the business in the present case) regarding the importance of not only those staff and employees dealing directly with clients, but also the importance of the supporting staff, so much so that the staff as a whole were considered the "prime asset" of the plaintiff.

17.In the present case, whilst I have fairly general evidence regarding the importance of "people" in the business or profession of publication of magazines, there is simply no comparable evidence relating to the importance of the Plaintiff's staff, particularly when the Plaintiffs belong to a large group of publishing companies employing hundreds of staff, and they range from highly skilful, experienced or professional people to office cleaners, messengers and clerks. A prohibition relating to all "employees" without any restriction is, to my mind, perhaps too wide in scope.

18.In this regard, the standard to be applied by the court is also pertinent. I bear in mind the relevant passages in Hong Kong Civil Procedure 2002, Vol. 1 para. 29/1/18, relating to the court's cautious or relatively more cautious approach when one is dealing with an injunction, the grant or refusal of which may well determine finally the position of the parties. In my judgment, that is no more than common sense. I wish to say expressly that I have borne all this in mind. At the end of the day, I need to take into account all relevant considerations, including the degree of likelihood of the Plaintiffs succeeding at trial with their cause(s) of action, before I can decide how I should exercise my discretion. With that in mind, I move on to consider the other relevant matters including those matters that are usually placed under the umbrella of balance of convenience, and all other relevant matters.

19.Before I deal with the question of balance of convenience, there is an important hurdle facing the Plaintiffs i.e. the delay in question. On their own evidence, the Plaintiffs were aware of the intending launching of this new magazine by the 1st Defendant involving not only the 2nd Defendant, but also Mr So, back on 7 January 2003. According to the Plaintiffs' own evidence, the chairman of the Plaintiffs' group immediately realized that what was intended to be done and in fact what had just been done the day before during the presentation made by the 2nd Defendant amounted and would amount to breach of the non-solicitation clause in question, regarding both the enticement of employees as well as soliciting of business from existing customers. If there was any doubt, that doubt must have been removed on the following day when the 2nd Defendant on her own initiative gave a telephone call to Miss Christina Cheung who held and still holds a high position in the Plaintiffs regarding the intended launching of her new magazine. I need not and cannot resolve the dispute relating to what actually was said during the telephone conservation; that does not really matter in the present context.

20.What is important is that on the material available to the Plaintiffs, the Plaintiffs certainly got sufficient facts to reasonably suspect a serious breach of the provisions in question. Yet and it cannot be denied that there was no letter before action ever written by the Plaintiffs to the 2nd Defendant nor the 1st Defendant. The Plaintiffs only went ex parte for no particularly good reason before Chung J on 28 February 2003 for a similar injunction which was refused by the learned Judge.

21.The main reason for the refusal, apart from the fact that there really was no reason for going ex parte, was the delay involved and the lack of any explanation for it. His Lordship suggested that if the Plaintiffs wanted to proceed with their application, they could and should go inter partes. That was how the present inter partes summons was taken out on 1 March 2003. Yet, despite all this and despite the fact that the Defendants in their affirmation evidence in opposition to the present application lost no time in pointing out the delay in question, the Plaintiffs have not put in any explanation for the delay ― despite the volume of evidence put in by the Plaintiffs both at first instance in support of the application and in reply to the Defendants' evidence.

22.As to why there was such a period of delay amounting to almost two months, Mr Mok, doing his best, tries to explain it (from the bar table) by reference to the lead time, as it were, that would inevitably be required for anybody to launch an application of the present sort. Yet I do not understand him to have suggested that this alone, in the absence of specific evidence from the Plaintiffs, would be enough to explain the whole period of delay in question.

23.Certainly, time would have to be expended on doing some further investigations. But that cannot, put at the lowest, explain, for instance, the total failure to even write a letter before action to the two Defendants in question. For, as I have observed, there was simply no question of secrecy in the present case. On this question of secrecy, I would note, incidentally, that in fact the Defendants have been publicizing their intention to publish this new magazine quite openly since the beginning of this year.

24.The delay in question, I should observe, is a serious one, when one bears in mind the time frame or the sort of time period one is talking about in the present case. According to the Plaintiffs' own evidence, the preparation time for launching a new magazine is approximately six months, thus a delay of two months amounts to 1/3 of the time required to launch a new magazine, the launching of which in the present case by the Defendants is said to be highly harmful to the business of the Plaintiffs. I need not mention the competing evidence from the Defendants' side regarding the time required to launch a new magazine which is much shorter than the estimate given by the Plaintiffs' witnesses or deponents.

25.It is certainly true that delay per se need not be a bar to relief, as has been clearly explained in the passages in Spry's Equitable Remedies (5th ed), that have been helpfully referred to me by Ms Wong (i.e. pp. 431-438, 488-493). One needs to see whether the delay in question causes any real prejudice to the Defendants.

26.In order not to lengthen this judgment and detain the parties any further (given the late hour), I would simply say that it is quite clear from the evidence that the Defendants have done much between 7 or 8 January and 28 February 2003 in terms of the preparation for the launching of the new magazine. In fact, the staff in question only formally joined the 1st Defendant in early January. By the time the Plaintiffs went ex parte, according to the evidence from the Defendants against which there is no effective challenge, the new magazine was ready for printing. It takes little imagination to conclude that much must have been done during this period of delay in question. According to Spry (at pp. 434-435), even on the assumption that the Defendants are wrongdoers, the fact that they have incurred costs or suffered loss during the period of delay is a relevant consideration to be taken into account in determining whether the delay plus such loss should bar a plaintiff who has dragged his feet from obtaining interlocutory or discretionary relief.

27.Delay is also relevant here because it is often said that interlocutory injunctions are granted to preserve the status quo. But certainly the status quo has changed and it has become something rather different from the status quo back in early January 2003.

28.Further relevance of the delay is this, as counsel lost no time in pointing it out to me during submission, the delay in fact is some evidence from the parties themselves regarding the seriousness (or the lack thereof) of the alleged breach in question and the necessity for interlocutory relief to prevent the breach or the further commission of the breach: Spry at p. 490.

29.Moving onto other points, I certainly take into account Mr Mok's point which he made with great emphasis regarding the inability of the 1st Defendant or even the 2nd Defendant to meet any award as to damages in case no injunction is granted. I have fully taken on board his point, but that is only one of the many relevant matters that I need take into account; that is by no means a conclusive matter.

30.On the other hand, I also take into account the potential harm to the 1st Defendant as well as the 2nd Defendant and other employees of the 1st Defendant who are not parties to the present action, if I were to grant an injunction effectively prohibiting the 1st Defendant from publishing any magazines which is its only intended business according to the evidence, for half a year. It is really a matter of common sense that that may well have great effect on the former employees of the Plaintiffs who, apart from Mr So, are not said to have committed any breach when they left the Plaintiffs' employment. And of course apart from these employees, there are other employees of the 1st Defendant as well. If the 1st Defendant cannot do business for half a year, their employment with the 1st Defendant will probably be at risk and in fact the very survival of the 1st Defendant will be put at risk. All this I am entitled, in my judgment, to take into account.

31.There is also the further question of the reputation of the people involved. The Court is not naïve to the reality that if an injunction of the present type is granted against the 1st Defendant, on the facts of the present case, the reputation of the 2nd Defendant, who according to the evidence is well-known in the profession or publication field, will, to some extent, be affected. Likewise, the reputation of some of the other employees or more senior employees in question may be affected. That is a legitimate consideration to be taken into account.

32.Moving onto the potential loss to the Plaintiffs, I must say, without going into details, that some the items of loss pointed out in evidence and in submission are really loss or expected loss flowing from the anticipated competition (by the Defendants) which is not the subject of protection under the non-solicitation clause in question. Sooner or later, the 2nd Defendant will be entitled to lawfully poach the employees of the Plaintiffs. Sooner or later, the 2nd Defendant will be entitled to compete with the Plaintiffs for the Plaintiffs' existing customers. Sooner or later, all these employees in question and indeed all the existing employees of the Plaintiffs will be entitled, with or without poaching, to leave the employment of the Plaintiffs and join the employment of the 1st Defendant. The potential loss, in my judgment, is much more restricted than what is sought to be suggested. In relation to quantification, the grant of injunction will not entirely eliminate the need to quantify the loss. Moreover, the loss can be measured to a large extent ― I will not say entirely ― by measuring the drop in volume of sales and/or the drop in advertisement revenues and the like during whatever period that the Plaintiffs say the 1st Defendant should be prohibited from publishing its magazine.

33.Moreover, there is authority to the effect that difficulty in quantifying the loss is not decisive in matters of this nature, which must be correct (Newseek Inc v British Broadcasting Corporation [1979] RPC 441, 446 (per Walton J); decision affirmed on appeal: at pp. 447-449). One must also take into account, amongst other things, the likely quantum of loss ― no matter how easy or how difficult it is to quantify the loss. Doing the best I can, on the evidence before me, I do not believe that one is really talking about a huge loss or a loss that is highly substantial. Put the other way round, the Plaintiffs have not put in evidence to give the Court some idea regarding the likely region of loss that one is talking about here.

34.I have already dealt with the question of the Defendants' ability to pay. I shall not repeat myself here.

35.I should also mention the form of relief in question. Whilst I am not against innovative relief, the form of injunction prayed for, bearing in mind the cause or causes of action in question, gives me some doubt regarding whether an injunction is the appropriate relief at all. It may well be that given the nature of the causes of action, once the poaching has been done and completed, there is simply no appropriate relief in terms of injunction. That fact does not mean that the court must do its best to invent or create some sort of injunction. Like damages, sometimes an injunction may simply not be the appropriate relief.

36.Mr Mok draws some support for the form of injunction from the Australian case Hartleys Limited v Yukich [2002] WASC 184. I tend to agree with Ms Wong that this case involved very different facts and in particular involved a breach relating to confidential information. I note that in relation to the enticement of employees in that case, the court only granted an injunction preventing the employees from joining the defendant's business prior to the working out of their notice periods. The facts are quite different from the present case.

37.Apart from all this, I must say I have great reservations relating to the period of six months asked for by the Plaintiffs. On the evidence, I cannot accept that six months is the most likely estimate to be correct. Moreover, discounts of all sorts will have to be made, such as the fact that in any event without breaching any provisions, the 2nd Defendant would be entitled to make preparation of all sorts relating to the launch of the present publication prior to the expiry of the non-solicitation period. Furthermore, as I said one needs to take into account the period of delay of almost two months involved in the present case. So finally, if one does all these subtractions and discounts, the period left would be relatively short. Without saying what that period should be, the relatively short period must lead one to doubt the utility of granting the present injunction in the first place. I think I am entitled to take that into account as well. In fact, the difficulty in fixing the period in question that would be just and fair to both sides at this interlocutory stage is another reason why the present injunction lacks attraction.

38.I have borne all this in mind. I am not sure if I have left out any other important matters that have been argued between the parties, but I should emphasise that any omission here does not imply that I have not taken it into account. In fact I have spent some time reading the papers and the parties' respective written submissions, and I have listened attentively to counsel's most attractive arguments. I have borne in mind all that has been argued. To cater for any omission, I should say that in general I am in agreement with Ms Wong's arguments, although as I said, Mr Mok has put forward very respectful and attractive arguments on behalf of his clients. But as I said at the beginning, there can only be one winner in this type of applications.

39.For all these reasons, in the exercise of my discretion, I refuse the application.

[Submission on costs]

40.Having heard the parties further on costs, given the nature of the injunction applied for, the present hearing is in fact a hearing which will decide once and for all this part of the parties' dispute and there is no question of any permanent injunction to be granted or refused at trial. Bearing this as well as what I have already said in my judgment above regarding the merits of the application in mind, in the exercise of my discretion, I order that costs should follow the event, namely the dismissal of the Plaintiffs' application. Therefore I order that the costs of the present application be paid by the Plaintiffs to the 1st Defendant, such costs to be taxed if not agreed and paid forthwith.

Representation:

Mr Johnny Mok, instructed by Messrs Lily Fenn & Partners, for the 1st and 2nd Plaintiffs

Ms Priscilla Wong, instructed by Messrs Holman, Fenwick & Willan, for the 1st Defendant