Midland Realty International Ltd v. Ip Yuk Wo, Warren and Others

HCA007680/1984

Injunctions on former employees - restraint of trade - lists of potential sellers of real estate - such persons not customers" - principles in Deacons v. Robin Bridge not applicable- only very limited injunctions granted.

BETWEEN: -

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Coram: The Honourable Mr. Justice Penlington in Court

Dates of hearing: 27th & 28th November 1984

Date of delivery of judgment: 28th November 1984

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J U D G M E N T

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1. The Plaintiff, who is a very substantial real estate agency company in Hong Kong, applies for interlocutory injunctions against each of the three Defendants, who are former employees. The restraints sought against each are different.

Application against the 1st Defendant

2. The 1st Defendant was employed by the Plaintiff in February 1983 as a property consultant. He had some experience in the real estate market and his contract of employment provided for a basic salary of $2,000 per month together with a commission which depended on the amount of business transacted by the 1st Defendant each month. From the 1st of February 1.984 he was promoted to senior property consultant and his salary was increased to $2,700 per month. His employment contract provided that he should act as broker and estate agent in respect of all classes of real estate transactions generally throughout Hong Kong. In the 1st Defendant's affidavit he said that in fact his business was confined exclusively to premises at Discovery Bay. He said that the only material he was provided with by the Plaintiff were control sheets on Discovery Bay premises. He had to prepare his own client cards and books.

3. The 1st Defendant resigned from the Plaintiff company in June 1984 and it is not in dispute that in May he had registered his own real estate business, known as Rhine Land Company, at Ming Fai Mansion, North Point. It is also not in dispute that he has employed the 2nd and 3rd Defendants to work for him at that company.

4. The 1st Defendant's contract of employment with the Plaintiff provided that on termination of that contract he would not for one year afterwards solicit any of the persons who were customers of the Plaintiff within one year immediately preceding the date of his leaving or be concerned in any business in the area of Hong Kong Island, Kowloon, New Kowloon, Tsuen Wan or Kwai Chung of a similar nature to the business carried on by the Plaintiff. It further provided that on termination of the contract the Defendant should not for a period of two years employ any former staff of the Plaintiff. It further provided that any information and in particular addresses, telephone numbers, lists of properties etc. belonging to the Plaintiff of which the 1st Defendant should have become aware would be treated by him as secret and confidential.

Application against 2nd Defendant

5. The 2nd Defendant was employed by the Plaintiff in March of 1984. At that time he had no experience in the real estate business, but during the course of his employment he did attend some lectures. He was employed as an assistant property consultant and was on a salary of $2,000 per month with no commission. It would seem that he was not actively involved himself in negotiations and his work was mainly clerical, but he did on occasion take customers to view properties. Again, he says in his affidavit that he was only employed in one of the departments of the Plaintiff and was dealing with Discovery Bay Premises. He had access to control sheets in respect of Discovery Bay premises only. He said that he returned such information to the Plaintiff when he left and that he did not make any copies. He remained in the capacity of assistant property consultant during the entire period of his employment with the Plaintiff. His contract provided for a period of six months after that he would not solicit or transact any real estate business with any person who had been a customer of the Plaintiff within the period of six months prior to the termination. He also undertook that during that period of six months after termination he would not be involved in any business similar to that carried on by the Plaintiff within Hong Kong, Kowloon and the New Territories. This restriction however was only in regard to the areas and types of property handled by the division or divisions in which he was employed. It is not in dispute that he was employed in the estate department of the Plaintiff which handles the sale and leasing of small domestic flats in such estates as Chi Fu Fa Yuen, Pokfulam Garden and Discovery Bay.

Application against the 3rd Defendant

6. The 3rd Defendant was employed by the plaintiff in August 1983. He also had no previous experience but was also given some training in the form of lectures. He had a similar position to the 2nd Defendant, assistant property consultant, and a salary of $2,000 per month. In January 1984, however, he was promoted to property consultant and in addition to his salary he became entitled to a percentage commission on transactions which he concluded. He said he would have always been assigned to the estate department dealing in premises in Chi Fu Fa Yuen and Pokfulam Garden only. Again, as assistant property consultant his duties were mainly clerical and it was only after he became a property consultant that he had direct contact with potential buyers and was doing the actual negotiations prior to the concluding of a transaction. His contract of employment provided that on termination he would not for a period of one year thereafter solicit any of the persons who were customers of the Plaintiff within one year preceding the date of such termination and for the same period would not be concerned in any business within the area of Hong Kong Island, Kowloon, New Kowloon, Tsuen Wan or Kwai Chung of a similar nature to that of the Plaintiff. It went on to provide that he would not for a period of two years after termination employed any of the Plaintiff's former staff and again provided that he would treat any information received by him during the course of his employment with the Plaintiff as confidential.

Grounds for applications

7. The managing director of the Plaintiff company, Mr. William Fung, in his affidavit said that following the departure of the 1st Defendant that they noticed competing advertisements in local newspapers relating to the sale of flats at City Garden and Provident Centre, North Point. An investigation was made through a private investigating firm and it then emerged that the lst Defendant was operating his own real estate business and was employing the 2nd and 3rd Defendants.

8. The Plaintiff seeks the injunction sought on the grounds that the Defendants have all had access to confidential information comprising "control sheets" which are lists of potential property sellers and other documents relating to persons with whom the Plaintiff had done business in the past and was likely to do more in the future. That the covenants entered into by each of the Defendants were not unreasonable in that they were necessary to enable the Plaintiff to protect his business against such persons joining the company for a short period and then going off either on their own or working for other persons armed with the information which they had received. The plaintiff says that while there is no direct evidence that records have been taken they can easily be copied either by machine or manually and they point to a printed letter which the lst Defendant's company has apparently been sending out to potential customers. This letter, while not identical, bears a very striking similarity to the wording of a similar letter sent out by the Plaintiff. The Plaintiff says that if the 1st Defendant was prepared to copy and use such a letter then it is a real risk that he is also making use of other material obtained from the Plaintiff's records.

Grounds for resisting application

9. It is the Defendants case that the covenants in the contracts are in restraint of trade and are void.  They also say that the information they were supplied with was in any event very limited, and this is particularly so in the case of the 2nd and 3rd Defendants, that they have not taken any material away with them on leaving the employment of the Plaintiff and have not made copies of any such material. Furthermore the material is not confidential as consists merely of lists and other information of potential property sellers and could be obtained by anybody. The orders sought are not reasonable and are too wide.

Considerations

10. I am satisfied that to be a customer of the Plaintiff would require more than that a person should simply list his property with them for sale or lease. I have no doubt that the average person who is trying to sell a property will let many agents have details and I do not think there is any business relationship between an agent and a vendor under those circumstances which could make the vendor become a customer of the Plaintiff. If property is in fact bought or leased through the Plaintiff then of course that is no longer so and the vendor or purchaser would become a customer. The control sheets which have been exhibited to Mr. Fung's affidavit set out lists of flats in various areas and contain information such as the area, the existing rental, the consideration (presumably where the property is for sale) the owner and possibly some other information such as whether the flat is being sold together with furnishings, carpets etc. I have no doubt that in the highly volatile property market of Hong Kong such information would go out of date very rapidly indeed unless it is constantly up-dated. This is borne out by many of the control sheets exhibited showing substantial alterations and in one case there is virtually nothing left of the original sheet. I have no doubt that the compilation of the sheets does require time and effort and that the information therein would to that extent be confidential. I am however satisfied that it would be information of value only for a very short time to any employ, employee leaving the employment of the Plaintiff. The lst Defendant left the Plaintiff's company in June 1984, the 3rd Defendant in May 1984 and the 2nd Defendant in September 1984. I am satisfied that even now the information in the control sheets to which the 2nd Defendant has had access must be of limited value and so far as the lst and 3rd Defendants are concerned of very little value at all. The Plaintiff also has exhibited to Mr. Fung's second affidavit documents showing transactions and offers to sell made by various banks and other substantial financial or property concerns. These are organisations such as the Bank of Canton, H.S. Property Management Ltd., Ayala International Finance Ltd. and Chiap Luen Finance Ltd. These are lists of properties but it is to be noted that only in respect of H.S. Property Management Ltd. is the Plaintiff in any way made a sole agent. Even in that case it is only for a period of one month and at the expiration of that period H.S. Property Management Ltd. says in their accompanying letter they may instruct other agents. I would have thought that sole agency in Hong Kong would be unusual for more than a very short period of time.

11. Also exhibited are copies of agreements entered into in which the Plaintiff has acted as agent and these are only a few examples of such transactions. I accept that the Plaintiff should have protection against soliciting of those persons within the covenant period.

12. It is quite clear that contracts or parts of contract which are in restraint of trade are illegal and void unless is shown to be reasonable. This is particularly so when the Court is considering an employer/employee relationship. It has been alleged that the Defendants that when they entered into the employment contract with the Plaintiff it was a take it or leave it situation and that they were in no position to negotiate regarding these clauses. Be that as it may, I am satisfied that when considering such a relationship the Court must be satisfied and the onus is on the Plaintiff to show that the restraints are reasonable and necessary to protect its legitmate interests. The legal position has been clear for many years and is I think set out well in the judgment of Stamp J. in S. W. Strange Ltd. v. Mann. At page 638, he said: -

"A covenant imposed in order to preclude a servant competing with his master after he has left his master's employment is void as an unlawful restraint of trade. An employer cannot lawfully prevent a former servant employing the skill and knowledge of business which he must necessarily acquire while in his employer's service by setting up a rival business, or putting that skill and knowledge at the disposal of his employer's property and it is contrary to public policy to restrain its use in any degree. To this there is the exception that the employer may exact a covenant to protect his trade connection and confidential information acquired by his employee, provided that the covenant is no more than adequate to protect that connection. The law is laid down and summarised by Lord Parker of Waddington in Herbert Morris Ltd. v. Saxelby, where he says: "I cannot find any case in which a covenant against competition by a servant or apprentice has, as such, ever been upheld it has been on the ground, not that the servant or apprentice would, by reason of his employment or training, obtain the skill and knowledge necessary to equip him as a possible competitor in the trade, but that he might obtain such personal knowledge of and influence over the customers of his employer, or such an acquaintance with his employer's trade secrets as would enable him, if competition were allowed, to take advantage of his employer's trade connection or utilise information confidentially obtained. . .

13. Here there is no evidence that any of the Defendants have actually made use of the confidential information acquired by them during the course of their employment. There is no evidence of any approach being made to any of the Plaintiff's customers. I do not consider that the persons who have merely listed property with the Plaintiff are the Plaintiff's customers. Even if they were I very much doubt indeed whether the information in the control sheets is now of any real use to any of the Defendants.

14. I have been referred to dicta of the Hong Kong Court of Appeal in Deacons v. Robin Bridge C.A. 28 (1983). There a solicitor was held to his contract in that after he left the partnership he was not allowed to act for any of the partnership's clients for a period of five years. I do not consider that the principles annunicated in that case have got any application here. Mr. Bridge was a partner in a very substantial solicitors firm and he was in charge of the section of their partnership dealing with industrial and intellectual property. He had a very intimate knowledge indeed of the partnerships business and very close relations with their clients. There could be no doubt that he had obtained a very great deal of what was undoubtedly confidential information concerning their affaris. There is no evidence whatever of that in this case in relation to any of the Defendants and certainly not in respect of the 2nd and 3rd Defendants.

15. The Plaintiff also seeks to restrain the 1st Defendant from employing the 2nd and 3rd Defendants and vice versa. I do not consider that such a prohibition is reasonable. The three Defendants have no doubt got to know each other while working for the Plaintiff and I think it is not unreasonable that having decided to leave they should also work together in one company. What is understandable is anxiety on the part of the Plaintiff that they would pool the collective knowledge which they have obtained regarding matters which were confidential to the Plaintiff.

16. I am therefore prepared to grant injunctions but only to a very limited extent.

Decision

17. There will be an injunction restraining the 1st Defendant up to the 15th of June 1985 from soliciting or acting as agent for any person with whom the Plaintiff has transacted any real estate business after the 15th of June 1983.

18. There will be an injunction restraining the 2nd Defendant up to the 22nd of March 1985 from soliciting or acting as agent for any person with whom the Plaintiff has transacted any real estate business after the 22nd of March 1984.

19. There will be an injunction restraining the 3rd Defendant up to the 24th of May 1985 from soliciting or acting as agent for any person with whom the Plaintiff has transacted any real estate business after the 24th of May 1983.

20. The costs of this application will be costs in the cause.

Representation:

Edward Chan instructed by Joseph C. T. Lee & Co. for the Plaintiff.

K.B. Ng instructed by Cheng, Yeung & Co. for the Defendants.