Pure International (HK) Ltd v. Lo Yan Chak Kenneth

HCA 975/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 975 OF 2013

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BETWEEN

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REASONS FOR JUDGMENT

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1.The Plaintiff is a Hong Kong company operating a number of fitness centres in Hong Kong under the title of “Pure Fitness”, the one in question in this action being that in the International Finance Centre, Central, Hong Kong.

2.The Defendant was one of over 100 personal trainers employed by the company.  He had been with them since 14 July 2004 and had a written Employment Agreement from that date which was amended in July 2005.  The amendment (clause 14) related firstly to a non-solicitation of customers clause operating for a period of one year from the termination of his employment; secondly a non-enticement provision relating to any other employees of the Plaintiff also operative for one year; thirdly a confidentiality clause, and, finally, a restrictive covenant operating for a period of six months restraining him from employment in the same activity within a radius of 1,000 metres of the principal location of the Plaintiff’s business.  It is this last restriction which is the subject of this application by the Plaintiff for an injunction.

3.At the time of commencing employment the Defendant’s salary was HKD$6,000 per month plus sales commission.  For some reason which is unclear that basic salary was reduced by 50% to HKD$3,000 in March 2007.  That radical reduction does not however appear to have any relevance to what has transpired.

4.On 15 February 2013 the Defendant gave written notice of his resignation from the Plaintiff company, expiring on the 14 March 2013.  That notice was in accordance with the terms of his employment.  No reasons were given but such were not required.  It was a short but entirely civil letter.

5.Prior to that expiry date the Plaintiff company through its senior employees had learned something significant about the Defendant’s intentions.  On 12 March 2013, two days before he left, he had an interview on the internet with a person by the name of Nick Mitchell, the founder of a business called “Ultimate Performance” which was to be established in Hong Kong in April of this year.  Ultimate Performance is in direct competition with Pure as a fitness business.

6.On the course of that interview he made it clear that he was joining Ultimate Performance and the general content promoted the business of Ultimate Performance to the disadvantage of the Plaintiff.  It was a clear act of disloyalty even though he may have had only a few days of his employment to run.  He was in breach of the implied term of trust and confidence in his contract of employment.  He was also in breach of an express term of his contract of employment.  They had good reason to believe that he had already enticed away from the Plaintiff fitness trainers to join him at Ultimate Performance.  I do not need to consider here any more of the detail discovered concerning his performance on media record before he actually left.  His employers would have been justified in dismissing him forthwith when they interviewed him on 13 March and in withholding any salary or other monies due to him.  However they did not do so.

7.The Defendant now works at Ultimate Performance’s premises at Asia Standard Tower and has done so since approximately mid-April of this year.  The six month restraint period expires on 13 September, approximately ten weeks hence.

8.Before I proceed to deal with the situation under this covenant I need to say a few words in passing in relation to the two other restrictive covenants which the Defendant has agreed to abide by pending trial.

9.The non-solicitation clause in relation to existing customers to whom he had provided his personal trainer expertise during a period of one year prior to his leaving the Plaintiff’s employment, was to last for one year after he left employment on 14 March of this year.

10.There is good reason to believe that he has breached this and the content of the interview and the Facebook video is substantial support for this belief.  The promotional material is clearly aimed at attracting customers from other fitness outlets to the company he was about to join.  In relation to the Plaintiff it constituted a clearly disloyal act and it would not be unreasonable to conclude that it was also aimed at existing clients of the Plaintiff (then his employers) for whom he was providing fitness training. There are other indications of the Plaintiff’s loss of clientele following his departure and joining Ultimate Performance.  I do not need to investigate that matter but there is very strong prima facie evidence of his breach.

11.The other clause or covenant, is the non-enticement clause restricting him for the same period of one year running from the 14 March 2013 from enticing away any employee of the Plaintiff who had been in such employment during the three months before the Defendant left on the 14 March, and during the three months after he left i.e. the period from approximately 20 December 2012 to 6 June 2013 (depending on how the month is calculated.). Although it may be difficult to prove that he has enticed away any particular former employee of the Plaintiff it is virtually unarguable that he did not attempt to entice Lona Shiu to join him.  Although I do not have to make a decision on this aspect either, his explanation for his text conversation is facile, unconvincing and simply not credible.

12.The Plaintiff had trained up the Defendant as probably one of its leading fitness trainers over a number of years.  He had attended courses and lessons and been well-remunerated in terms of commission at least, for the clients attracted to the Plaintiff’s services and the packages of sessions sold to them.

13.Although the Defendant appears to regard the clients for whom he provided services whilst in the Plaintiff’s employment as his clients, they were the clients of the Plaintiff company, which provided the environment, facilities and fitness programmes under the tutelage of trainers whom the Plaintiff had itself brought to a level of efficiency and expertise over a period of time.  This fundamental error of thinking may be at the root of his breaches of his contract with the Plaintiff, although I consider that he can have been under no misapprehension when he disloyally indulged in promoting Ultimate Performance to the disadvantage of the Plaintiff, his then employers.

14.It is relevant to re-interate that clause of his contract, which he signed and acknowledged relating to confidentiality which forms the preamble to the specific covenants:

“14.2. The employee acknowledges that in the course of his employment with the employer, the employee will or may have dealings with fellow employees over whom the employee, may develop a degree of influence. The Employee also acknowledges that the Employer invests a considerable amount of time, energy and money in training its managers and employees and that those employees and the general stability of the workforce form an important part of the goodwill of the Employer. The Employee also acknowledges that in the course of his employment he may have access to and be entrusted with Confidential Information. In order to safeguard the Employer’s customer base, goodwill and name and to protect the Employer’s legitimate proprietary interests the Employee covenants that he/she will not without the prior written consent of the Employer (such consent to be withheld only in so far as may be reasonably necessary to protect the legitimate interests of the Employer) after the termination of his/her employment under this Agreement for whatever reason (other than wrongful termination by the Employer ….”

There then follow the specific covenants to which I have referred earlier.  At a meeting with the Plaintiff’s management on 13 March 2013, the day before he left, the Defendant was reminded of his contractual obligations.  He can have been under no illusions or misapprehension.  He had acknowledged those limitations imposed upon him.  It was precisely in order to safeguard its professional and commercial interests as expressed in that preamble that the six-month restrictive covenant was imposed by the Plaintiff and the Defendant.  I have no doubt that it was a reasonable restrictive covenant and reasonably imposed upon an employee who had accepted the rationale of it and the clear, precise terms of it.  He must have known from his years of experience with the Plaintiff and the benefits he had derived therefrom, that they would require that degree of protection following the loss of an employee in whom they had invested much over the years.

15.In the circumstances a six-month period was eminently reasonable.  It could hardly have been less.  The area covered by the radius of 1,000 metres left the Defendant a wide range of other fitness centres to work out his form of “gardening leave” either as an employed or free-lance trainer.  Given his level of expertise and experience as a trainer he is likely to have been given a warm welcome at negligible loss of income.

16.I have been helpfully referred to a number of cases and authorities some of which reviewed identical periods of restriction but which, of course, vary in the distance and range of employment as one would expect.  Reasonableness of time and substance vary according to the facts and circumstances of each case.  The principles involved are common to them all.  Although I am satisfied that the Plaintiff has clearly satisfied me that it had commercial interests and goodwill which needed a reasonable degree of protection, that the Defendant well knew that and had expressly acknowledged and accepted it in writing and orally, and that the covenant met that degree of proper protection, I will review one or two aspects.

17.Lord Parker in Herbert Morris Ltd v Saxelby 1916 A.C. 688 (at p. 706) said:

“It is not that such restraints on trade of themselves, if there is nothing more, are contrary to public policy, and therefore void. It is not that such restraints must of themselves necessarily operate to the public injury, but that it is against the policy of the common law to enforce them except in cases where there are special circumstances to justify them. The onus of proving such special circumstances must, of course, rest on the party alleging them. When once they are proved, it is a question of law for the decision of the judge whether they do or do not justify the restraint. There is no question of onus one way or another.”

18.Lord Atkinson said at page 701:

“In all cases such as this, one has to ask oneself what are the interests of the employer that are to be protected, and against what is he entitled to have them protected.”

19.In the case before me these interests are self-evident as well as being evidenced in the affirmations on behalf of the Plaintiff, and in the terms of the Defendant’s employment contract.  The Defendant’s own disloyal advertising and self-publicity is also clear testimony.

20.A six month period and 1,000 metre radius are justified to allow the Plaintiff to make necessary adjustments to compensate for the loss of a key fitness trainer, whom other trainers might inevitably want to follow, and to whom existing customers might want to transfer training sessions in due course.  Without such restraint considerable harm, even if only in the short-term, was likely to result.  It represented a sensible means of reducing the loss of investment and goodwill, without involving a restraint on competition or unreasonable limitation of employment opportunities for the person who was taking with him, for his own future benefit or that of another employer, skills and reputation acquired from a previous employer.  That honing of skills and development of experience had involved significant, perhaps extremely close contact, with customers of his employers who would be tempted to follow him elsewhere. (see Marion White Ltd v Francis 1972.I.W.L.R. p.1423; Steiner v Spray, Court of Appeal (England) 1 December 1993 (unreported); Dawney, Day & Co. Ltd. v D’Alphen 1988.I.C.R. 1068. Robert Walker, J.)  In the last case mentioned, the trial judge cited the words of Hoffmann L.J. (as he then was) in Steiner v Spray which though no more than an expression of good judicial insight is often overlooked in cases of this nature, especially in this one:

“It is the employer who has provided the employee with the opportunity to improve his or her skills and to establish and develop a personal relationship with the customer; and it is the employer who has borne the cost of providing attractive premises and facilities which may help to cement the personal relationship.”

An argument advanced on behalf of the Defendant in this case has been that his skill and expertise are essentially self-generated and that the goodwill created is essentially his goodwill.  The extension of this being that there was nothing belonging to the Plaintiff that needed protecting.  Nothing could be further from reality.

21.Of course I must apply the principles in American Cyanamid Co v Ethicon 1975 A.C. 396, being:

1) that there is a serious question to be tried in respect of the claim.  Of that I have no doubt.  The evidence is overwhelmingly in favour of the Plaintiff.

2) The Plaintiff will suffer irreparable damage if the injunction is not granted; there is clear evidence that that has already begun to materialise and the position needs to be held as firmly as possible.

3) The Defendant will not suffer irreparable damage if it is granted; he has other employment available if he chooses to explore them during the relatively short period left of the period in the covenant.  I do not consider that he is likely to suffer any damage.

4) Despite the conclusive nature of the foregoing, both the balance of convenience and balance of justice are well tilted in favour of the Plaintiff.

22.Nonetheless, having paid due regard to the principles of the American Cyanamid case, I do not consider that there is an arguable defence to the Plaintiff’s claim.  I shall not repeat my earlier assessment of the merits.

23.At one stage I thought that the Plaintiff might be in some difficulty because of the delay between seeing the Defendant on the 12 March and the issue of proceedings on the 3 June 2013.  However it was not until the 23 April that the Plaintiff obtained information to indicate that the Defendant had in fact commenced employment with Ultimate Performance (which entity is perhaps fortunate not to be embroiled in this litigation).  Less than six weeks had passed and I accept that the Plaintiff was concerned to try and elucidate the areas and extent of the damage caused or to be caused.  There was no real delay.

24.If I had any doubts concerning the need to protect the Plaintiff’s reasonable interests, or the reasonableness of the restrictive covenant to that end, and I have none, then the promotional performance of the Defendant to the Plaintiff’s clear disadvantage before he had even left the Plaintiff’s employment, would have banished them entirely.

25.The Plaintiff is entitled to the injunction sought, with an order for costs against the Defendant, to be taxed if not agreed.

Mr John Yan SC, leading Ms Shannon Leung, instructed by Dundons, for the plaintiff

Mr Jose Maurellet, instructed by Pinsent Masons, for the defendant