In Learning Ltd v. Leung Wai Hon Thomas

DCCJ 3768/2006 & DCCJ 3769/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3768 OF 2006

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BETWEEN

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CIVIL ACTION NO. 3769 OF 2006

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BETWEEN

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Coram: Deputy District Judge Levy in Chambers

Dates of Hearing:  14 August 2006 and 17 August 2006

Date of Judgment: 17 August 2006

Date of Handing Down of Reasons for Decision: 30 August 2006

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REASONS FOR DECISION

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BACKGROUND

1.The Plaintiffs in these actions, In Learning Limited (“In Learning”) in DCCJ 3768 of 2006 and Advanced Learning Limited (“ Advanced Learning”) in DCCJ 3769 of 2006 are limited companies incorporated in Hong Kong providing educational programmes.

2.The Defendant in both actions is a shareholder and director of a company called Wider Consultants Limited (“WCL”) which trades in the name of Time Education of providing services for the promotion of educational courses offered by learning institutions.

3.On 15 June 2005, the Defendant signed on behalf of WCL two Sub-Contract Agreements (“the Agreements”) with In Learning and Advanced Learning respectively.  Apart from the courses and the names of the course providers set out in Schedule 1 of each of the Agreements, the Agreements are in identical terms. By the Agreements, WCL, as sub-contractor, agreed to promote and recruit and enrol students on behalf of the Plaintiffs’ educational programmes set out in Schedule 1 of each of the Agreements in return for commissions calculated in accordance with Schedule 2 of the Agreements.  According to Schedule 1 of the Sub-Contract Agreement of In Learning, the programme providers are Utah State University and University of Canberra and that of Advanced Learning, it is Royal Brisbane International College.

4.On the same date of the Agreements on 15 June 2005, the Defendant also signed two Letters of Undertaking in identical terms (collectively referred to as “the Undertaking”) together with their “Code of Conflicts of Interest” (collectively referred to as “the Code”) in connection with the Agreements. Each of the Undertaking and the Code are separately addressed to In Learning and Advanced Learning.  Their relevant terms are as follows:

The Undertaking

“In consideration of as a Sub-contractor of Advanced Learning Limited (the Company), Director(s)/shareholder(s) of Times Education wholly owed by Wider Consultants Ltd. Hereby declare, represent, warrant and undertake to you that neither Director(s)/shareholder(s) of Times Education wholly owned by Wider Consultants Ltd nor any of our close relative (which mean my spouse de facto spouse, children, parents and siblings) or related trusts is an owner, partner, shareholder, consultant, agent, employee or otherwise has any direct or indirect interest in any business in competition with the Company.

Director(s)/shareholders(s) of Times Education wholly owned by Wider Consultants Ltd also undertake and agree to comply with Code of Conflicts of Interest of the Company from time to time, the current version of which is attached hereto.

In the event of a breach of this Letter of Undertaking and/or the Code of Conflicts of Interest, Director(s)/shareholders(s) of Times Education wholly owned by Wider Consultants will immediately upon demand pay to the Company the sum of US$100,000 as and for liquidated damages.  Director(s)/shareholder(s) of Times Education wholly owned by Wider Consultations Ltd acknowledge that such amount represents a genuine pre-estimate by the parties as the loss and damage on the part of the Company is such circumstances.  Nothing herein shall prejudice your right to obtain any injunctive relief against Director(s)/shareholder(s) of Times Education wholly owned by Wider Consultants Ltd or under other agreements between us.”

The Code

“1.1 The Director(s)/shareholder(s) of the Sub-contractor shall not place himself/themselves or allow himself/themselves to be placed in a Position of Conflict in relation to the Company.  Where it comes to the Director(s)/shareholder(s) of the Sub-contractor’s notice that he/they has placed or allowed himself/themselves to be placed in a Position of Conflict (whether knowingly or unknowingly), the Director(s)/shareholder(s) of the Sub-contractor undertakes to take all action and comply with all instructions given by the Company in relation to this Position of Conflict.

1.2 A Position of Conflict shall include the following:-

(i) where the Director(s)/shareholder(s) of the Sub-contractor has an interest in any business competing with or similar to the business carried on or proposed to be carried on by the Company;

(ii) where the Director(s)/shareholder(s) of the Sub-contractor has any interest in relation to any existing or potential program providers of the Company and any subsidiaries of the program providers;

(iii) where the Director(s)/shareholder(s) of the Sub-contractor has an interest in any contract or arrangement, whether proposed or subsisting, that the Company will enter or has entered into, whether or not such contract or arrangement is significant in relation to the business of the Company;

(iv) where any sum or benefit is paid or payable to the Director(s)/shareholder(s)  of the Sub-contractor in cash (by way of commission or otherwise) or in any other form eg shares in order to induce the Director(s)/shareholder(s) of the Sub-contractor to take or omit to take certain action in the course as the Sub-contractor of the Company.

1.4 The said director(s)/shareholder(s) agree that he/they will not place himself/themselves in any position of conflicts for a minimum period of twelve months upon the termination.

1.6 The said director(s)/shareholder(s) may seek the Plaintiff’s consent prior to placing himself/themselves in a position of conflict and there shall be no breach of this Clause if such prior consent if obtained in writing.”

5.The Plaintiffs allege that the Defendant, as the director and shareholder of WCL, was in breach of the Undertaking and the Code by placing himself or allowing himself to be placed in a position of conflict by conducting education seminars on or about 10 July 2006 on behalf of the Hong Kong Institute of Continuing Education (“HKICE”), which activities, the Plaintiffs allege, were in competition with the business of the Plaintiffs.

6.In Learning and Advanced Learning on 17 July 2006 respectively sent a letter to the Defendant and demanded for cessation of the said competing activities and payment of US$100,000 as stipulated in the Undertaking as compensation.

7.When no response was received, each of the Plaintiffs on 2 August 2006 issued an writ in each actions claiming injunction to restrain the Defendant from acting in breach of the Undertaking and the Code and for liquidated damages of US$100,000 as well as an application for an ex parte injunction in each actions (collectively referred to as “the ex parte application”).

THE EX PARTE INJUNCTION

8.On 9 August 2006, with the Plaintiffs’ undertaking for damages, Deputy Judge A. Chow granted the following ex parte injunction order (collectively referred to as “the ex parte order”) against the Defendant in both actions:

“1. An injunction to restrain the Defendant from acting in breach of the Letter of Undertaking made in writing and the Code of Conflicts of Interest made in writing both dated 15 June 2005 by placing himself or allowing himself to be placed in a position of conflict in relation to the Plaintiff, where the said position of conflicts as mentioned in the said Code includes:

(i) An interest in any business competing with or similar to the business carried on or proposed to be carried on by the Plaintiff;

(ii) Any interest in relation to any existing or potential program providers of the Plaintiff and any subsidiaries of the program providers;

(iii) An interest in any contract or arrangement, whether proposed or  

subsisting, that the Plaintiff will enter or has entered into, whether or

not such contract or arrangement in significant in relation to the business of the Plaintiff; and

(iv) Where any sum or benefit is paid or payable to the Defendant in cash (by way of commission or otherwise) or in any other form in order to induce the Defendant to take or omit to take certain action in the course of the said Sub-Contract Agreement;

2. An injunction to restrain the Defendant whether in his personal capacity or through Messrs Times Education and/or Wider Consultants Limited from:-

(i) Engaging in the promotion of education programmes and the recruitment and enrolment of students to the said education programmes with the exception of the programmes set out in Schedule 1 of the Sub-Contract Agreement dated 15 June 2005;

(ii) Organizing, conduction or otherwise having an involvement in activities related or incidental to the recruitment and enrolment of students and the promotion of education programmes not being the programmes set out in Schedule 1 of the Sub-Contract Agreement dated 15 June 2005; and

(iii) Specifically, engaging in the aforesaid acts whether on behalf of or in connection with Messrs. Hong Kong Institute of Continuing Education.”

THE DEFENDANT’S SUMMONS AND THE INTER PARTES HEARING

9.Before the return date for the inter partes hearing on 14 August 2006, the Defendant applied by summons on 11 August 2006 for discharge of the ex-parte Order.  At the inter-partes hearing on 14 August 2006, by consent of the parties, I gave an order to amend the ex-parte Order by adding an additional paragraph of expressly excluding the staff of WCL from the ex-parte Order and gave directions for filing of evidence before adjourning the substantive arguments to 17 August 2006.

10.At the end of the hearing on 17 August 2006, I discharged the ex-parte Order and said that I would give the reasons later.  By consent of the parties, I was asked to give a costs order nisi after I gave the reasons which I now give.

THE DEFENDANT’S GROUND FOR DISCHARGE

11.In the Defendant’s affirmation (“the Defendant’s Affirmation”) in support of the summons to discharge the ex parte Order in these actions, the Defendant submitted the following five grounds:

(1)   material non-disclosure of essential facts by the Plaintiffs;

(2)   no serious questions to be tried;

(3)   that any irreparable damages found to be suffered by the Plaintiffs can be adequately compensated by an award of damages;

(4)   inadequacy of the Plaintiffs’ undertaking to damages;

(5)   balance of convenience against the granting of the injunction; and

(6)   the Plaintiffs’ delay in making the application.

12.The six grounds relied on by the Defendant can be broadly categorised into four.  The third and the fourth grounds relate to the adequacy of damages and the last two grounds concern with the wide unfettered discretion this court has in deciding whether to refuse or grant an injunction after having had regard to all the circumstances of the case.

13.I will now deal with each of these four main grounds in turn.

MATERIAL NON-DISCLOSURE

14.In the Defendant’s Affirmation, the Defendant stated that in order to provide the contractual services under the Agreements, WCL had employed 20 staff.  However, in or about February or March 2006, WCL terminated the Agreements by the Defendant giving oral notice to the Plaintiffs and had since ceased to provide services under the Agreements.  The Defendant further said that consequent to the termination, the Plaintiffs had failed to pay WCL any commissions it was entitled to under the Agreements.  The Defendant submitted that when the Plaintiffs made the ex parte application, the Plaintiffs failed to make a full and frank disclosure of the number of staff employed by WCL and the outstanding commissions owed to WCL.

15.Another material non-disclosure being complained of by the Defendant was the alleged grudges between a David Yau, the owner of HKICE and its former partner, Wong Kin Wah(“Wong”), who is also the director and a majority shareholder of the Plaintiffs.  The Defendant alleged that the Plaintiffs had failed to disclose the number of litigations between these two parties in both the District Court as well as the High Court.

16.Counsel for the Defendant, Mr. Chu, submitted that if the court were satisfied that there was material non-disclosure at the ex parte stage, the ex-parte Order should be discharged without ado, citing the Court of Appeal decision of Cheung Kam Wah v Cheung Hon Wah & 8 Others, CACV 53 /2004(11 January 2005, unreported)

17.The Plaintiffs denied the allegations in the 2^nd Affirmaton of Wong Kin Wah dated 16 August 2006 (“Wong’s 2^nd Affirmation”).  Miss Cheung, counsel for the Plaintiffs, contended that even if the court were to find that there was any non-disclosure as alleged, it was not material and should not affect the Plaintiffs’ entitlement to injunction.

18.In respect of the allegation of material non-disclosure, I think it is necessary for me to determine if the alleged incidents of non-disclosure are only peripheral matters. Materiality in my view must be of a kind which would significantly if not substantially impact on a court’s decision in the grant or refusal of an injunction order.  Hence, the pertinent question to be asked is whether the alleged incidents of non-disclosure have that consequence?

19.From the facts leading to the ex parte Order as mentioned above, I am of the view that one of the most fundamental issues a court has to examine in the present actions is whether the Plaintiffs had made out a prima facie case. This would involve a court looking at the nature of the Defendant’s activity in the context of Undertaking and the Code. Bearing this issue in mind, I should therefore consider if the matters complained of relate to the said issue and constitute a relevant factor a court is required to take into account.

20.Regarding the allegation of the outstanding commissions of an alleged sum of $200,000, I fail to see any materiality in this matter, which is really neither here nor there.  The alleged outstanding commissions owed to the Defendant, if proved, would only relate to the issue of damages.  I am unable to identify any nexus either with the issue in question or with the underlying factual matrix.

21.Similarly, for the allegation of the non-disclosure of the alleged grudges between the two partners of Yau and Wong, I am equally unable to see any relevance to this application.  I fail to see how any civil disputes between a third party and a director and shareholder of the Plaintiffs would have any bearing on this application.  For these reasons, I find it neither necessary nor appropriate for me to determine if there have indeed been any failure to disclose these two matters and I therefore refrain from making a finding on these two matters.

22.As for the major complaint regarding the non-disclosure of the staff of WCL, there is no dispute that the Plaintiffs did not disclose such material.  They however submitted that they did not have any knowledge of this matter and that in any event, such matter was not material or relevant.   

23.In order to examine if the matter concerning the WCL’s staff is material, it is important to set out the interlocking relationships of the parties disclosed at the ex parte hearing:

(1)   The contracting parties of the Agreements are the Plaintiffs and WCL.

(2)   The Defendant has been the director and shareholder of WCL.

(3)   The Defendant signed the Agreements, the Undertaking and the Code.

(4)   The alleged offending activities were carried out by the Defendant.

24.The said intertwined relationship between the Defendant and WCL by and large forms the basis upon the ex parte application was presented.  This relationship matrix as shown above tends to lead to a confusion of identities between the Defendant and WCL. This confusion of identities is evidenced by the form of the Undertaking and the Code, that is, the Defendant was regarded as WCL and vice versa. Hence, the tenor and scope of the ex parte Order is characterised by this confusion. Paragraph 2 of the ex parte Order, in particular, carries all the hallmarks of the blurring of identities as the prohibition has the undesirable consequence of subjecting a non-party to the injunction.  Miss Cheung was quick to concede to this problem by agreeing in the first inter partes hearing to amend the Order of adding a provision of expressly excluding any staff of WCL from being caught by the ex parte Order. 

25.I do not think that the amendment is relevant to the present consideration as to whether this matter is material or not.  Rather I am of the view that one should ask the question as to whether the learnt Deputy Judge would have granted the ex parte Order if disclosure of this fact had been made?  After having looked at the original form of the ex parte Order, I find that that the learned Deputy Judge, if he had been informed of the existence of 20 employees of WCL, would most probably refuse to grant an order which may bring harm to a third party who is not a party to the present actions.  This non- disclosure is therefore material.

26.Having found the incident regarding the employment of the staff by WCL being material for the ex parte application, I should next decide if the Plaintiffs were indeed ignorant of this fact when making the application.  The Plaintiffs in Wong’s 2^nd Affirmation denied having such knowledge.  However, I find it quite odd that Wong did not deal with an allegation in paragraph 14 of the Defendant’s Affirmation regarding the departure of WCL’s staff around February/March 2006 after the Defendant had given oral termination of the Agreements on behalf of WCL.  While it is not necessary for the present purpose for me to resolve any dispute concerning the issue of the termination of the Agreements, I am, on the materials before me, inclined to believe that Wong must have known that WCL had ceased providing services under the Agreements and that its staff had left the Plaintiffs at the time of making the ex parte application. In paragraph 15 of Wong’s 2^nd Affirmation, Wong states:

“… I never say in my first affirmation that Messrs. Wider Consultation Limited is still actually presently providing services to the Plaintiff.  I say that since no written notice of termination, the Sub-Contract Agreement together with the Letter of Undertaking and the Code of Conflicts of Interest are all still in existence and binding in force against the parties.”

27.What Wong clearly said in this paragraph is that he admitted that WCL had stopped providing services to the Plaintiffs and he only took issue with the fact that the Agreements were not validly terminated and therefore were still subsisting at the time of the ex parte application. The Plaintiffs might have succeeded in dogging the issue of whether the Agreements were terminated at the time of the application. However this playing with words also has the inevitable consequence of undermining their own credibility. Upon reflection and a careful analysis of the evidence, I infer and conclude that the Plaintiffs had failed to make disclosure regarding the number of staff employed by WCL.

28.As observed by the Court of Appeal in Cheung Kam Wah (op. cit.), the court should discharge the ex parte injunction if there was material non-disclosure.  I am inclined to believe that had the learned Deputy Judge been informed of the existence of WCL staff, it is unlikely he would have granted any injunction order at all and in particular, paragraph 2 of the ex parte Order. Hence, according to the principles confirmed by Cheung Kam Wah (op. cit.), the ex parte Order must be set aside.

29.In coming to this view, I have also considered the overall effect of the said material non-disclosure on the ex parte Order.  I have in the above paragraph only highlighted the problem of paragraph 2 of the ex parte Order.  Therefore, it is arguable that this finding of material non-disclosure should not affect the remaining part of the ex parte Order and it should therefore be allowed to stand.  I accept that a court does have power to delete from an order a part which it considers unsustainable and allow the other part of the order to stand if the circumstances warrant such a discretion.  In the present actions, I am not inclined to exercise such power as I find the Plaintiffs have failed to observe an important duty of making a full and frank disclosure required by this sort of application.  A requirement of full and frank disclosure is the cornerstone of all interlocutory injunction applications and the court takes a very serious view if a plaintiff is found to have failed to observe this duty.  Hence, even if the material non-disclosure were found not to materially affect the remaining part of the ex parte Order, I am entitled to discharge the entire ex parte Order as a result of the Plaintiffs’ failure.

30.I further note that it is not uncommon for a court to grant a fresh injunction after discharging an ex parte order if the circumstances of the case justifies a discretion to be exercised in favour of a grant.  The Court of Appeal in Cheung Kam Wah (op. cit.), confirms the existence of such a residual discretion of a court to grant a fresh injunction after the ex parte order was set aside after it had considered a number of dicta in a number of the English authorities including Lloyds Bowmaker Ltd v Britannia Arrow Holdings Plc [1988] 1 WLR 1337 as well as the Hong Kong authorities in particular that of Yau Chiu Wah v Gold Chief Investment Ltd, HCA807/2001 (15 May 2001, unreported).

In Lloyds Bowmaker Ltd (op.cit.) at 1343H-1344A, Glidewell LJ said:

“Even though a first injunction is discharged because of material non-disclosure, the court has a discretion whether to grant a second Mareva injunction at a stage when the whole of the fact, including that of the original non-disclosure, are before it, any may well grant such a second injunction if the original non-disclosure was innocent and if an injunction could properly be granted even had the facts been disclosed.”

In Yau Chiu Wah (op.cit.), Recorder Ma Sc (now Ma, CJHC) said:

“43. Material non-disclosure is rightly regarded as a serious matter and in certain cases would not only justify the setting side of an existing order but may also constitute the determining factor in the refusal of a fresh grant.  However, it is important for a court, when considering whether or not to set aside an existing order or to grant a new injunction, to consider all the circumstances of the case to arrive at what is the justice of the situation.  There is of course no doubt that the court does have the residual discretion not to set aside or to grant a fresh court order even in circumstances where material non-disclosure has been shown.

44. Of the relevant factors that a court would consider in the exercise of its discretion, they would include the following:

1. Whether the non-disclosure was innocent or deliberate.

2. The excuse or reason for such material non-disclosure.

3. Whether the non-disclosure would in fact have resulted in the original order not having been made in the first place or whether, conversely, even if the material fact or facts have been disclosed, this would have made no difference.

Here, the court is required to look at the merits and justice of the grant of a Mareva injunction.

4. Whether the party guilty of the non-disclosure is deserving of locus poenitentiae.”

31.The various authorities cited in Cheung Kam Wah (op.cit.) confirm the residual discretion of the court in the grant or refusal of a fresh order if justice of a case justifies the exercise of such a discretion.

32.Bearing the dicta as observed by the Court of Appeal in mind, I should therefore not immediately come to the conclusion that the ex part Order should be set aside on this ground alone without considering the other grounds in support of the discharge as well as all the circumstances of the case.  I now turn to consider the remaining grounds. 

WHETHER THERE IS SERIOUS QUESTION TO BE TRIED

33.This is the area where the parties have directed most of their energies to during the hearing.  The main thrust of the Defendant’s argument is that the provisions in the Undertaking and the Code are restraint of trade clauses and are prima facie unenforceable unless they are shown to be reasonable.  Mr. Chu further contended that the provisions were vague and the order was too wide to be upheld.  In Mr. Chu’s written submissions, he had included a further argument on the Plaintiffs’ acquiesce to the breach by the Defendant by virtue of the co-existence of the Agreements involving two competing programme providers - In Leaning and Advanced Learning. I am unable to see much merit in this argument.  In any event, Mr. Chu had sensibly not pursued this argument at the hearing and I should therefore say no more about this.

34.Miss Cheung’s primary submission was that the doctrine of restraint of trade is only applicable to an employer-employee relationship.  She contended that since the relationship in the present cases between the Plaintiffs and WCL is one of employer and sub-contractor, the doctrine has no application.  She further submitted that the Agreements, the Undertaking and the Code were only ordinary commercial contracts made at arm’s length between parties of equal bargaining power.

35.Miss Cheung’s primary contention on the ground of the non-applicability of the doctrine in my view can be disposed very quickly.  The English and Hong Kong authorities submitted by Mr. Chu have clearly established that the doctrine of restraint of trade is not narrowly confined to only an employer and employee relationship.  It has a much wider application.  In the English case of Marshall v NM Financial Management Ltd. [1995] 4 All ER 785, Johnathan Sumption QC sitting as a Deputy Judge of the High Court held that a provision in an exclusive agent agreement which constituted a financial incentive to the agent not to carry on business in a specified field was in restraint of trade.  That agreement was entered between a financial services company as the principal and a sales agent as in independent contractor who was remunerated by commission on business introduced.

36.Further, in the Hong Kong decision of Kao, Lee & Yip v Koo Hoi Yan Donald [1994] 2 HKC228, the Hong Kong Court of Appeal held that the provisions in a partnership deed of a solicitors’ firm restraining the partners against employment of former employees of the firm was a restraint of trade.

37.The relationship between the Plaintiffs and WCL is one of principal and sub-contractor.  The Defendant in the present cases however does not fall into any of the identifiable categories of relationships as he is not the contracting party to the Agreements.   On the authorities submitted however, I am of the view that the application of the doctrine is not confined to any specified relationship but should also include a wide spectrum of relationships.  Rather than attaching a particular label to a particular relationship, the correct test in my view is to examine the underlying relationship giving rise to the provisions governing the parties. In the present cases, the restraint provisions are contained in the Undertaking and the Code which two documents came into existence upon the creation of the principal and sub-contractor relationship.  Those provisions in the Undertaking and the Code in turn seek to restrain the shareholders and directors of the sub-contractor, including the Defendant.  Thus the Defendant for the purpose of identifying his proper relationship with the Plaintiffs can be deemed as having assumed the role of the sub-contractor. By this analysis, I conclude that by the wide application of the doctrine, I am satisfied that it applies to the relationship in the present actions.

38.According to the established principles concerning doctrine of restraint of trade, a provision if found to be a restraint of trade, is void and unenforceable unless it can be demonstrated that it is reasonably required for the protection of some legitimate interest (See Marshall (op. cit.) at 791j).  Therefore if a court concludes that a covenant is in restraint of trade, then freedom of contract must give way (per Litton JA (as he then was) in Kao, Lee & Yip v Edwards [1993] 1HKC314 at 316C-D).

39.Miss Cheung’s contentions that the provisions in the Undertaking and the Code are not restraint of trade clauses are of two folds. First she submits the provisions contained in the Undertaking and the Codes are not in restraint of trade.  Secondly, if they are found to be, they are justifiable as they are common provisions in many commercial contracts.

40.After a careful reading of the provisions of the Undertaking together with the Code, I find their wordings are vague at best and convoluted at worst.  In the present actions, the Plaintiffs seek to rely on the Undertaking together and its Code to prohibit the Defendant qua a director and shareholder of WCL from coming into a situation harmful to the Plaintiffs’ business interest. By paragraph 1.4 of the Code, the Plaintiffs further seek to impose a post-termination restriction for a period of twelve months. 

41.Further, the Code restricts the directors and shareholder of WCL from placing themselves in a number of positions, which are in conflict with the Plaintiffs’ business.  The provisions are therefore fundamentally restrictive in nature.  They by and large prohibit the shareholders and directors of WCL including the Defendant, from competing with the Plaintiffs’ business during the Agreements and within the twelve months’ period after termination of the Agreements.  The person who signed and accepted the Undertaking and its Code is the Defendant upon whom a personal liability is imposed.  However, the underlying contract of the Undertaking and the Code is the Agreements to which the Defendant is not a party.  The Undertaking and the Code therefore lack mutuality and by virtue of the restriction they seek to impose on the number of persons connected with WCL including the Defendant, I come to the conclusion that they are in the nature of restraint of trade.

42.The fact that the provisions are in the nature of restraint of trade clauses will not themselves be automatically unenforceable.  The test is to see  “whether the restraint sought to be enforced went further than was necessary for the purpose of protecting those interests.” (Kao, Lee & Yip v Koo Hoi Yan Donald, op. cit. at 229D).

43.In the present actions, the Undertaking was given by the Defendant in connection with the Agreements.  The Plaintiffs would naturally wish that the Sub-contractor, WCL, would not be allowed to do any business in direct and indirect competition with the one carried out by the Plaintiffs.  How did the Plaintiffs go about to protect the said business interest?  They succeeded in procuring the Defendant to provide the Undertaking by agreeing to observe the followings:

1. the directors and the shareholders, their close relatives and related trust as an owner, partner, shareholder, consultant, agent, employee of WCL to be refrained from competing with the Plaintiffs’ business;

2. the directors and the shareholders of WCL to comply with the Code.

44.A brief summary of provisions outlined above clearly reflects the wide-ranging nature of the Undertaking and the Code.  After having considered the submissions by counsel and the wordings of the provisions, I make the following observations regarding the tenor and wordings of the Undertaking and the Code:

(1)  Were the Undertaking and the Code signed by the Defendant personally or on behalf of others?

(i)  It is common ground that the Defendant signed both the Undertaking and the Code.  Regarding the Undertaking, the Defendant’s signature appears at the bottom of the letter. Above his signature are these words “signed & accepted”.  Immediately below the signature are the full name of the Defendant, the description of his capacity as a director and the name of WCL.  These words together with the provisions appearing at the body of the Undertaking which make references to “directors and shareholders of WCL” instead of to the Defendant personally suggest that this Undertaking is intended to bind all the directors and shareholder rather than the Defendant as an individual.

(ii) Similarly for the Code, immediately above the signature of the Defendant, are these words: “ the Director(s)/shareholder(s) of the Sub-contractor confirm that have read the above Code and fully understand the contents contained in the Code.”  Likewise, no references are made to the Defendant personally in the body of the Code but to “directors and shareholders of Sub-contractor”. 

(2) The wordings are wide-ranging and vague

(i) The wordings of the Undertaking are so vague that it makes it difficult for anyone subject to the Undertaking and the Code to be able to truly appreciate the ambit and extent of the prohibition.  What is worse is that in the Undertaking it does not even specify the consideration given by the Plaintiffs when the first paragraph of the letter begins with the word, “In consideration…”  .  After having read this paragraph many times, I cannot help by wondering what kind of consideration the Plaintiffs have given.

(ii) Further, according to the wordings of the Code, the restraint does not only seek to prohibit the directors and shareholders of WCL (assuming the Sub-contractor referred to in the Code is WCL) from having an interest in any existing programme provider of the Plaintiffs, it also restricts an interest in all potential providers and future contracts to be entered by the Plaintiffs. 

(3) Lack of clear definition of the Plaintiffs’ business

(i) The Undertaking prohibits activities in competition with the Plaintiffs’ business without sufficiently and clearly defining the business of the Plaintiffs or the scope of their business.  In the first part of the Undertaking, a reference is made to the Sub-Contractor, the document however does not identify who the Sub-Contractor is.  Assuming the Undertaking is found to form part of the Agreements, the Agreements also do not state the business of the Plaintiffs.

(ii) Paragraph 1 of the Agreements only specifies the services to be provided by WCL.  They are:

“ (a) promote the program, details of which are set out in Schedule 1 (“the Program”)

(b) recruit and enrol students for the Program.”

(iii) Schedule 1 of the Agreements only set out the names of the service providers as mentioned above and the name of the courses offered by them.

(iv) From the above analysis, it is clear that both the Agreements and the Undertaking have not identified the scope of the Plaintiffs’ business. A mere description of the services is not sufficient to enable a person or persons subject to the Undertaking to know precisely what is and what is not the business of the Plaintiffs.

(v) Similar problems can also be said of the provisions contained in the Code.  Apart from a lack of any provision in defining the scope of the Plaintiffs’ business, the Code is unreasonably and necessarily wide. 

(4) The restraint is not limited to any defined territory

(i) The wordings of the provisions in both the Undertaking and the Code seem to suggest that they do not have any geographical limitation. Hence, a director of WCL can be deemed to be in breach by virtue of his or her spouse or children residing abroad having a competing interest or himself or herself having such an interest overseas.

(5) Lack of precise post-termination clause

(i) Paragraph 1.4 of the Code seeks to restrict the directors and shareholder for 12 months “upon the termination of the employment contract with the Company (i.e. the Plaintiffs)”(the emphasis as well as the words in bracket are added).  The Agreements have expressly excluded a relationship of employer and employee between the Plaintiffs and WCL. By fixing the period of restraint with reference to the termination of the employment contract, one cannot help but start to wonder if the Code is referring to other contract.  Restraint of trade terms are in their very nature provisions restricting one’s freedom to contract and thus they are required to be precise.  If the court were to strike down this post-termination restriction provision and further find that the Agreements were terminated at the time of the ex parte application, it is clear that the Plaintiffs would have no legal basis at all to seek an injunction order.

45.Upon a closer analysis of the provisions of the Undertaking together with its Code and upon the evidence that is placed before me, I cannot be satisfied that such a wide restraint imposed upon the Defendant is reasonably required for the protection of the Plaintiffs’ interest in particular when their interest requires to be protected is so badly defined and loose. 

46.When the order is also couched in such a wide and imprecise term, I am unable to say with confidence that the Plaintiffs have a serious question to be tried.   I am inclined to discharge the injunction order and not to grant a fresh one.

47.If however if I am wrong of the above, I need to further consider if the issue of adequacy of damages in particular in the present actions, an injunction has the effect of substantially if not entirely disposing the Plaintiffs’ claims.

ADEQUACY OF DAMAGES

48.It is an established principle that injunction should rarely be entertained if any loss and injury suffered by a plaintiff applicant can be adequately compensated by an award of damages.  In the present actions, the damages suffered by the Plaintiffs arose from the Defendant’s work which is alleged to be in competition with the Plaintiffs’ business (whatever it is).  The damages if they are to be assessed are capable of quantification.  It is even more significant to note that the quantum of damages, according to the writs, are liquidated in the sum of US$100,000.  Hence, different to cases where a complaint is made by an applicant of the leak of a trade secret, which measure of loss would take on a much more complex scale, the Plaintiffs’ claims on the contrary are quantifiable if they are established at trial. The Plaintiffs will be, in the circumstances, adequately compensated by damages.

49.On the other hand, in this balancing exercise, I should also consider any irreparable damage a grant of order may bring to a defendant.  According to the Defendant’s Affirmation, the Defendant has been working at HKICE as a promoter of courses since March 2006, the alleged date of termination of the Agreements.  It is not in dispute that the peak season for the Defendant’s work is in the months of July and August.  A continuation of the injunction would not just prevent him from working during the most lucrative months of the year; it would further deter him and likely his staff from doing any work in connection with student-recruitment in any part of the world for an undetermined period.  The damage is not just personal to the Defendant, it may carry a much wider repercussion as already discussed above on the business and livelihood of people working with or for the Defendant.

50.In considering the adequacy of damages, I have not overlooked the arguments in favour of the Plaintiffs that if damages suffered by the Plaintiffs can be compensated by damages, the same can be said for the Defendant.  In this respect, I would have to take into account of the relative financial strengths of the parties in satisfying an award of damages.  So far as the Defendant’s financial strength is concerned, on the materials before me, I find that there is not any evidence showing that the Defendant will not be able to satisfy an award of damages.  It has been shown that WCL has a stable and steady income.  The Defendant, being one of the equal shareholders of WCL, is expected to get a reasonable share of earnings.  The Plaintiffs’ financial capability to meet an award of damages, on the contrary does not appear to be as positive as that of the Defendant’s.    Both the Plaintiffs are small capital companies each with a paid up capital of HK$10,000.  Apart from a bare assertion in Wong’s 2^nd Affirmation that the previous annual profit for the year of 2004/2005 was over HK$2 million, there is not the slightest shred of evidence showing the financial strength of the Plaintiffs. Without any supporting evidence to buttress the undertaking for damages, the Plaintiffs are unable to tip the balance in their favour in the weighing exercise on the adequacy of damages. 

LACK OF URGENCY AND BALANCE OF CONVENIENCE

51.Having concluded that any irreparable harm done to the Plaintiffs can be adequately compensated by damages, I should be able to, without considering the issue of balance of convenience, dispose of the application.  For the sake of completeness in the event that I may be found to be wrong on any of the above, I would briefly deal with the matters raised by the Defendant under this head.

52.The Defendant complains that the Plaintiffs had failed to make the ex parte application promptly.  It is common ground that the issue of whether the Defendant had given oral termination of the Agreements or that the Agreements had been validly terminated remains an issue in dispute.  However, the Defendant submits that there is ample evidence before the court to draw a strong inference that the Plaintiffs at the time of making an ex parte application, already knew that the Defendant (or more correctly WCL) stopped working for the Plaintiffs and started working for someone else in the promotion of educational institutions.  In this respect, the Defendant refers to paragraph 4 of Wong’s 2^nd Affirmation.  In it, Wong stated that back in January 2006, he already heard several rumours that the Defendant had started working for HKICE.  In spite of the rumours of such a serious nature, Wong looked rather unconcerned and only causally verified the rumours with the Defendant.  This according to Mr. Chu is a strong inference that the Plaintiffs already knew of the Defendant’s competing activity which forms the subject complaint.

53.I consider there is validity in the Defendant’s complaint.  As I have earlier mentioned above on the matter concerning material non-disclosure, I find the Plaintiffs have failed to disclose the number of staff employed by WCL with the motive of avoiding the issue regarding the date of termination of the Agreements. This leads me to draw an inference that the Plaintiffs must have known that the Defendant started working for HKICE before July 2006.  Any breach of the Undertaking, no matter how slight it is, will be, without doubt, regarded by the Plaintiffs as a very serious matter requiring immediate action to remedy the breach.  However, contrary to common sense, Wong simply did not take any active steps to verify the rumours. This gives one an impression that the Plaintiffs were quite indifferent to the so-called “rumours” or breach by the Defendant.  In light of this, I am entitled to infer that it is likely the Plaintiffs knew about the Defendant’s alleged act in the first quarter of 2006.

54.Having so concluded, I find the Plaintiffs did not make the application promptly and failed to satisfy the “urgency” criterion usually required for the making of an ex parte injunction order. (See Seapower Resources & Others v Lau Pak Shing & Others, HCA10715/1993 (15 December 1993, unreported).

55.In light of the matters above and having had regard to all the circumstances of the case, I find that, if I were required to exercise a discretion, the balance of convenience tips heavily against the grant or continuation of the injunction.

COSTS

56.After having given my reasons for discharge of the ex parte Order and refusal of granting a fresh injunction, I do not see any basis from departing from the usual costs order of granting the Defendant costs of the application. I do not however feel this is an appropriate case of ordering costs on any basis other than the normal party and party costs.  I therefore make a costs order nisi that the Plaintiffs do pay the Defendant’s costs of the Defendant’s summons for discharging the ex parte Order`, including the costs reserved for the ex parte application with certificate for counsel, which costs are to be taxed if not agreed. 

Representation:

Miss Janine Cheung, instructed by Messrs Huen & Partners, for the Plaintiffs

Mr George Chu, instructed by Messrs Au Yeung, Lo & Chung for the Defendant