Wpp Marketing Communications (Hong Kong) Ltd v. Christopher O’donnell

HCA 637/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 637 OF 2013

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JUDGMENT

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1.The defendant in this action began to be employed by the plaintiff in the year 2004. His most recent employment with the plaintiff is by reason of a service agreement dated 27 January 2010. His employment was terminated on 28 August 2012. At the time of termination his position was as Kinetic CEO Asia-Pacific.

2.The plaintiff is a member of a group of companies the ultimate parent of which is a company called WPP Plc.  There is another company in the group known as Kinetic Worldwide Group Limited (“Kinetic”) also with WPP Plc as its ultimate parent.  There is a corporate chart exhibited as SCR‑2 to the first affidavit of Steven Ridley who made all the affidavits on behalf of the plaintiff in these proceedings.

3.Kinetic is a planner and buyer of out-of-home media, meaning all advertising that allowed its clients to engage with customers while they are in environments other than their own homes.  In the words of Mr Ridley in his first affidavit at paragraph 6:

“At its simplest level this has historically meant advertising on billboards, bus shelters, metro systems, buses and taxis but it now embraces a range of communications including digital signage both interior and exterior, experiential or event marketing, all of which targets while they commute, work, shop or seek entertainment.”

The plaintiff is Kinetic’s regional headquarters in Asia.

4.As I said above, the defendant’s employment was terminated in August 2012.  Following that, the parties entered into a settlement agreement dated 5 October 2012.

5.The service agreement contained the following material provisions:

“21 CONFIDENTIAL INFORMATION

21.1 The appointee will not (except in the proper performance of his duties) at any time divulge to any person or otherwise make use of and will use his best endeavours to prevent the publication or disclosure of any trade secrets or confidential information of the company or any group company or any of the suppliers, customers or clients of the company or any group company.

21.2 The appointee will not make any notes or memoranda relating to the confidential information and/or any aspect of the business of the company or any group company other than those which are for the sole benefit of the company or the group company. All such notes and memoranda made by the appointee will belong to the company.

21.3 The appointee agrees to be bound by any contractual undertakings or obligation which the company imposes on its or their employees in respect of the confidential information belonging to any third parties, including those of its suppliers, partners or clients. The employee will enter into any confidentiality undertaking that the company may require him to enter into with any such third party.

21.4 The appointee shall not at any time (whether during or after the termination of his employ) erase, corrupt or otherwise interfere with any data, records or confidential information held in e form, including electronic equipment, provided, available or accessible to the appointee by the company.

21.5 The restrictions in this clause 21 will be in addition to and without prejudice to any other duty or obligations of the appointee as implied by law and is not exhaustive and does not apply to information which is in the public domain other than as a consequence of any breach of this clause 21. This clause 21 shall not restrict the appointee from making disclosures of confidential information if required by law.

22 RESTRICTIONS AFTER END OF EMPLOYMENT

22.1 In consideration for the payments and other benefits due to him under this agreement, the appointee agrees to enter into the restrictions in this clause 22 to protect the legitimate interests of the company and any other group company.

22.2 The appointee hereby agrees and undertakes with the company on behalf of itself and as agent for any group company that he will not, directly or indirectly, either on his own in competition with the company or any other group company, at any time during the restricted period:

(a) carry on or be engaged with, by or in any competing business in the restricted territory;

(b) acquire a substantial or controlling interest in any competing business in the restricted territory;

(c) approach or solicit or endeavour to entice any restricted employee to leave the employment of the company or any group company whether or not such person would commit any breach of his contract of employment by reason of so leaving the service of the company or any group company for the purposes of any competing business; or

(d) employ or offer to employ any restricted employee in any competing business; or

(e) solicit, interfere with, entice away from the company or any other group company the custom of any restricted client or prospective client, in relation to the provision of restricted services nor attempt to discourage any restricted client or prospective client from dealing with the company or any other group company; or

(f) provide any restricted services to any restricted client or prospective client.

22.3 Each of the parties agrees that the restrictions in this clause 22 are reasonable having regard to the legitimate protectable interests of the company and that each such restriction is intended to be separate and severable.

22.4 In the event that any of the restrictions in this clause 22 will be held void but would be valid if part of the wording were deleted such restriction will apply with such deletion as may be necessary to make it valid and effective.

22.5 It is hereby understood and agreed by the company and the appointee that damages will be an inadequate remedy in the event of a breach by him of any of the restrictions contained in this clause 22 and that any such breach by him or on his behalf will cause the company great and irreparable injury and damage. Accordingly, the appointee agrees that the company will be entitled, without waiving any additional rights or remedies otherwise available to it at law or in equity or by statute, to injunctive and other equitable relief in the event of a breach or intended or threatened breach by him of any of the restrictions contained in this clause 22.

22.6  The appointee agrees that if he receives any offer of employment or any other work during his employment or during the restricted period, he will give to the person offering him the employment or engagement a copy of this agreement and draw their attention to this clause 22.”

6.As far as definitions are concerned, the service agreement provided materially as follows:

“‘Competing business’ means any business howsoever constituted which at any time during the restricted period:

(a) carried on restricted business; or

(b) is carrying on restricted business; or

(c) takes any steps preparatory to carrying on a restricted business; or

(d) directly or indirectly controls any business which conducts or does any of (a), (b), or (c) above

in direct competition with the company or any group company.

‘Confidential information’ means any confidential information relating to the company or any group company, their respective customers, employees, officers or shareholders, any document marked ‘confidential’ or ‘secret’, or any information which the appointee has been told is confidential or which he might reasonably expect the company or any group company to regard as confidential.

‘Effective date’ means the date of termination of this agreement being:

(a) in relation to any period of notice, the date of expiry of such notice; or

(b) if the appointee has been placed on garden leave, the last date on which he carried out his normal duties; or

(c) in the case of termination pursuant to clause 16.1, the date of termination.

...

‘Group company’ means and includes the company and any subsidiary companies from time to time, or any other member of the WPP Group in respect of which the appointee accepts appointment as a director.

...

‘Relevant period’ means the 12 month period ending on the effective date.

‘Restricted business’ means:

(a) the business of media; or

(b) any other business of the same or similar kind to that conducted by the company at any time during the relevant period; or

(c) the business of holding or acquiring or entering into joint ventures with businesses conducting any business of a like or similar kind to that set out in sub-clauses above

being in any such case businesses of the same or similar kind to that with which the appointee was engaged or concerned and in respect of which he acquired confidential information during the relevant period in the course of performing his duties under this agreement.

...

‘Restricted period’ means the 12 month period commencing on the effective date.

‘Restricted services’ means services which are competitive with any services provided or supplied by the company or any other group company during the relevant period in its ordinary course of business, and with which the appointee will have been engaged or involved or which he had personal knowledge during that time or in respect of the acquired confidential information as at the effective date.

‘Restricted territory’ means Hong Kong and any other countries in which the company or any other group company provided any restricted services at any time during the relevant period.”

7.In the settlement agreement it provided materially by clause 10D and E:

“D. The executive accepts and agrees that his express and implied duties relating to intellectual property rights and restrictive covenants of the company and/or the group continue after the termination date. The executive shall comply with clause 15 and clause 22 of the employment contract.

E. The executive shall continue to keep confidential, and shall not make use of, any confidential or secret information relating to the company and/or the group, and for the purpose of this clause, confidential information includes, but is not limited to, any technical or non‑technical data, formula, pattern, compilation, program, device, technique, drawing, process, product plan, list of actual or potential customers or suppliers, computer data, work and organisation methods, contracts, financial information and any other information relating to the business and affairs of the company and/or the group, which is not commonly known or available to the public and which (i) derives economic value, actual or potential, from not being generally known and enter being readily ascertainable by proper means by other persons who can derive economic value from its disclosure or use, and (ii) is the subject of reasonable efforts to be kept secret.  The executive shall comply with clause 21 of the employment contract.”

8.Following termination of his contract, the defendant first worked for five months with a non-competing business called Haymarket.  Then, in February 2013, he joined a competitor of the plaintiff named Posterscope.  This attracted some publicity in industry literature.  Communications then ensued between the parties from 18 February 2013 (when the plaintiff came to know about it) onwards and the writ herein was issued on 18 April 2013 together with a summons for an interlocutory injunction in terms that matched clause 22.2(a) to (f) of the service agreement.

9.When the matter went before Anthony Chan J on 25 April, the matter was dealt with by consent in terms of an undertaking in terms of paragraph 22.2(b) to (f) but the injunction in terms of the service agreement, clause 22.2(a) remained controversial and was therefore adjourned for argument.  This is the return date of that application.

10.The 12-month restricted period imposed by clause 22.2 would expire in August 2013.  It has not been seriously suggested by Mr William Wong, SC, for the plaintiff, appearing with Miss Ebony Ling, that the trial can realistically take place before that. Therefore, the effect of granting an interlocutory injunction, as prayed by the plaintiff, would have the effect of granting final relief.  In such a case the correct test is that set out by Staughton LJ in the decision of Lansing Lindi Ltd v Kerr [1991] 1 WLR 251 at 258A to D:

“For my part I readily accept the last of Mr Brodie’s contentions; but I reject the others. If it will not be possible to hold a trial before the period for which the plaintiff claims to be entitled to an injunction has expired, or substantially expired, it seems to me that justice requires some consideration as to whether the plaintiff would be likely to succeed at a trial. In those circumstances it is not enough to decide merely that there is a serious issue to be tried. The assertion of such an issue should not operate as a lettre de cachet, by which the defendant is prevented from doing that which, as it later turns out, he has a perfect right to do, for the whole or substantially the whole of the period in question. On a wider view of the balance of convenience it may still be right to impose such a restraint, but not unless there has been some assessment of the plaintiff’s prospects of success. I would emphasise ‘some assessment’, because the courts constantly seek to discourage prolonged interlocutory battles on affidavit evidence. I do not doubt that Lord Diplock, in enunciating the American Cyanamid doctrine, had in mind what its effect would be in that respect. Where an assessment of the prospects of success is required, it is for the judge to control its extent.”

11.The court is not here to conduct a trial on affidavit and cannot resolve conflicts of testimony on paper.  That said, the court should do its best to engage in some attempt to assess the relative merits on paper and it must be able to conclude that the plaintiff had good prospects, or better prospects of success than the defendant, before it would regard the merits’ threshold to have been surmounted.  Certainly, the test cannot be merely showing a serious issue to be tried, which is the conventional American Cyanamid threshold, although the chances of success to be demonstrated by a plaintiff need not be overwhelming. 

12.With these in mind, I now proceed to deal with the arguments.

13.It is trite law that covenants in employment contracts which seek to restrict an ex-employee’s ability to work for a competitor are unenforceable unless they can be shown to be reasonable in the interests of the parties and in the interests of justice.  The restriction must be no greater than is necessary for the protection of the covenantee.

14.The relevant test and principles are too well-known to require elaborate citation in a judgment orally delivered after an interlocutory injunction hearing, and I would only refer to my own judgment in the case of Degreeasia Limited v Paules Lee Siu Yuk & Ors High Court Action 1686/2006, judgment 25 June 2010, at paragraph 32 to 40 for a summary of the principles. 

15.These principles are supplemented, where relevant, by some authorities cited before me by Mr William Wong, specifically that the interests that are capable of being protected by a restricted covenant would include not only customer loyalty but also trade secrets and confidential information.  However, while such interests are capable in law of being recognised as protectable by a restrictive covenant, it must still be a matter turning on the facts of each individual case as to whether or not such interest has been shown to exist and whether the clause goes no more than reasonably necessary to protect the requisite interest.

16.Mr Adrian Huggins, SC, attacked the clause as being too wide in terms of width as well as too long in terms of duration. He submitted by reference to the detailed wording of clause 22.2, read in conjunction with the related definitions, that the covenant was capable of capturing scenarios which were far, far removed from situations warranting protection for the plaintiff.  He submitted also that there is no evidence to justify imposing a ban of 12 months; certainly no cogent evidence.  Further, he submitted that the plaintiff was already amply protected by clause 22.2(b) to (f) which was incorporated by way of undertakings into Anthony Chan J’s order.

17.Also, the defendant was prepared to provide an undertaking in relation to confidential information in terms set out in the defendant’s skeleton arguments, annex 1, which has already been offered by the defendant’s solicitors for some time.  Posterscope, by their solicitors, DLA Piper, was also offering undertakings in terms set out in annex 2 to the defendant’s skeleton arguments. That being so, the plaintiff was already sufficiently protected and there was no longer any need for injunction.

18.Mr William Wong, SC, argued that the defendant was not someone to be trusted and that the plaintiff required the injunction because otherwise the plaintiff had no way of policing the defendant’s compliance with the other covenants which he had undertaken to comply with.

19.The defendant’s lack of credibility is to be inferred, according to Mr Wong, from the provable instances of inconsistency between the defendant’s denial and some documentary evidence that the plaintiff was able to produce and which Mr Wong spent a good deal of time in the opening part of his submissions taking me to, which also showed that the defendant had some access to information which can be said to be unavailable to what one may call the ordinary run-of-the-mill employees.  Mr Wong also relied on the fact that the defendant had seen fit to disown the settlement agreement having regard to its terms, especially the acceptance of the continued operation of clause 22 of the service agreement.  As to duration, Mr Wong maintained that 12 months is reasonable.

20.Mr Huggins also relied on delay as a ground for refusing the injunction.  Mr Wong, understandably, said that the delay is not excessive and in any event he sought to explain away the delay.

21.The restrictive covenant is very widely drawn and Mr Huggins was able to demonstrate some scenarios which would potentially be caught by the restricted covenant but which would be plainly unreasonable.  Mr William Wong’s response, among other things, is that it is permissible to apply a blue pencil to excise those parts which are objectionable.  For understandable forensic reasons, Mr Wong had not proffered any blue pencil version of the clause, lest it undermine his primary contention.  But during the hearing various possibilities blue pencilling were raised by myself and mooted and discussed with counsel.

22.It is arguable either way whether the width of the clause can be narrowed down to acceptable bounds by applying a blue pencil.  But in my judgment, the greatest difficulty confronting Mr Wong is the duration.  The 12-month duration had to be justified by the plaintiff with cogent evidence.  One test that had been mentioned in the cases is the time that would be no longer than necessary for the plaintiff to put a new man on the job and for the new employee to demonstrate his effectiveness to customers and to prevent an employee who has quit the territory from returning to acquire the employer’s business.  (See the decision of Godfrey J in Ho Wing Cheong & Ors v Graham Margot [1991] 1 HKLR 245 at 249G to I, which I cited in the Degreeasia case at paragraph 37).  The reasonableness of the clause is to be tested as of the time when the covenant was entered into.  But this ground of justification does not assist Mr Wong here because the evidence shows that it had taken the plaintiff just over four months to recruit a replacement for the defendant.

23.There is a faint hint in the evidence that the duration of 12 months might be justified on “confidential information” grounds.  In Mr Ridley’s first affirmation in paragraph 32 he said:

“I have already emphasised that up until his employment ended in August 2012, other than sensitive salary information Mr O’Donnell had unfettered access to every piece of information within our business on a local, regional and global basis. The range and depth of information to which Mr O’Donnell was privy during his employment meant that he has a deep knowledge of our intended operations and strategy in the out‑of‑home sector for at least the 12‑month period following his dismissal.”

24.First of all, the degree of knowledge possessed by Mr O’Donnell is a matter in dispute and I am in no position to come to a view at this interlocutory stage that the plaintiff had a better chance of success in establishing the assertion as to Mr O’Donnell’s knowledge contained in Mr Ridley’s affidavit.  But more importantly, paragraph 33 of the affidavit contained very little by way of detail.  It is a very faint attempt to justify the 12-month period.  There is, for example, no cogent on concrete evidence explaining the suggestion that he would have a deep knowledge of the plaintiff’s intended operations and strategy for “at least the 12‑month period”.  It appears to be the plaintiff’s own say so.

25.It is not for me to suggest what type of evidence would be needed but there is, for example, no evidence of what sort of confidential information as to operations and strategy which would be habitually entrusted to the defendant and, more importantly, why it is said that for each of these categories of information the likely shelf life would be 12 months or more.  We all know there is ‘confidential information’ and there is ‘confidential information’.  In the business world of today very often information would cease to be confidential within a very short period of time.

26.Of course, there is also information which would be confidential for a longer period.  But I do not feel comfortable or able to accept an assertion, a blanket and bland assertion in paragraph 32 of Mr Ridley that Mr O’Donnell was privy to information which gave him deep knowledge of intended operations and strategy for at least the 12‑month period following his dismissal.  Furthermore, there is evidence from Mr O’Donnell that prior to his departure he was already kept away from the plaintiff’s business for a period of time and therefore the assertion of 12 months in paragraph 32 appears to be questionable.

27.I am therefore left with no evidence, or no cogent evidence with which to gauge the reasonableness of the 12 month period for the purpose of protecting confidential information.  Mr William Wong’s citation to me of numerous cases in his supplemental list does not really assist because they simply show that as a matter of principle there is no objection for there to be prohibitions lasting 12 months or even more.  That of course is right as a matter of abstract principle.  But that has no bearing on whether or not, on the facts of the present case, a 12‑month limitation is valid.

28.I am also not convinced that with the amount of protection already in place (and to be in place as a result of undertakings by the defendant and Posterscope) there was any genuine need for the injunction. Mr Wong submitted that the defendant was someone not to be trusted because of what he said to be demonstrable untruths in his affidavit evidence and also in the defendant’s attitude in disowning the service agreement and the settlement agreement.

29.I have considered the arguments about the untruths in his affidavit with some care but I cannot conduct a trial on affidavit.  The many complaints made by Mr Wong about the defendant’s affidavit sometimes do not turn on the truth or falsity of objective facts but turn on matters of perception or the characterisation such as, for example, how senior he was within the hierarchy or the characterisation of the nature of his involvement with various matters in the course of his duty within the plaintiff’s organisation.  I do not think that the production of documents which support one particular nuance of describing the defendant’s position with the plaintiff necessarily shows that the defendant was lying when he deposed to a different nuance from his perspective.

30.As to the attempt to disown the service agreement and the settlement agreement, in a way one could make the very same point every time somebody takes a point that a restrictive covenant is invalid because by taking the point he is disowning a clause that he had entered into. But the point remains that if a clause is invalid, a litigant is entitled to take the point.  I would emphasise that it does not mean that the defendant would be prone to or would be entitled to take the point that his undertakings to this court would be invalid because, quite plainly, there should be no doubt as to the validity of an undertaking given to the court.

31.It is no doubt a good forensic point to take for Mr Wong that the defendant had entered into the service agreement and later the settlement agreement without alerting the plaintiff to the fact that he was later going to take the point about invalidity.  But for a start, I do not know at what stage the defendant became aware of the possibility that a point about validity or enforceability can be taken.  But more importantly, the counter argument is that the plaintiff is not some ‘babe in the woods’ who is unversed in business affairs.  The plaintiff is perfectly capable of looking after its interests and this is not a case where the plaintiff can complain that it had somehow been deluded into signing an agreement thinking that no point is going to be taken.

32.For this purpose I have not overlooked the fact that in the service agreement itself, clause 22.3:

“The defendant had acknowledged that the restrictions in clause 22 are reasonable having regard to the legitimate protectable interests of the company and that each such restriction is intended to be separate and severable.”

33.But the whole point about a restrictive covenant is that it is controlled by the court’s perception of public policy and a declaration by the parties as to the reasonableness of a restrictive covenant, while it is something which I can have regard to and which I do have regard to, cannot bind me.  Of course, it is a well-known fact that very often employers do decide to take their chances, having been fully conversant of the risks of inserting a particular restrictive covenant.  I am not saying that this is what happened here.  In fact, I have no idea what advice the plaintiff or the defendant might or might not have received at the time of entering into the agreement.  I am simply saying that the forensic points like those taken by Mr Wong, while understandably taken, would not take him very far.

34.As to the possibility that sometimes confidential information might be difficult to separate out and they could well be inadvertently slipped through in the course of the defendant’s new duties with his new employer (which is a phenomenon referred to in some of the cases in justifying a restrictive covenant to protect confidential information), it is incumbent upon the plaintiff to identify with precision and clarity the items of protectable confidential information which it fears to be incapable of proper separation from one’s stock in trade and which would require a restrictive covenant to assist.

35.I have considered Mr Ridley’s three affidavits but I am unable to identify a succinct and precise itemisation of confidential information which could not be properly monitored simply by an undertaking not to use them.  I know in this day and age protectable information is no longer confined to a chemical formula such as the well-known Coca-Cola recipe, or a list of contact numbers of clients.  But I still need help by way of precise formulation and evidence.

36.Mr Ridley’s affidavit, with respect, is liberally scattered with big business jargon and catchwords such as “strategy” and words to that effect, but that is of little assistance to the court to visualise what it was that the defendant could inadvertently slip out whilst working for the new employer.  Of course, very often the line between business practice that one gathers through one’s experience during his working life, and confidential information about business practice of a particular employer, is very thin. 

37.This is borne out by a point taken by Mr Ridley in his third affidavit at paragraph 62.  There he takes issue with the defendant’s referring to “best practices of other offices”.  Mr Ridley said:

“I should clarify here that by ‘best practice’ Mr O’Donnell cannot mean merely generic industry standards of effective management. If he did, he would be operating blindly. ‘Best practice’ in that context is a specific set of practices and procedures painstakingly developed by Kinetic for its own business, in essence, our confidential information and not just the question of his skills and experience. I simply do not believe that Mr O’Donnell could close his mind to those practices and procedures in carrying out the equivalent he describes for Posterscope.”

38.So the whole case is turned simply on Mr Ridley’s disbelief of what the defendant had said.  I confess, on my part, I would need a good deal of assistance and persuasion and particularisation to tell me what kind of “best practice” Mr Ridley has in mind which is so peculiar to his organisation that other people would not be able to develop or utilise outside of using information peculiar to Kinetic.

39.Lastly, I would also refuse the injunction on the ground of delay.  The plaintiff first knew of the defendant’s employment with Posterscope in February.  Posterscope, according to the plaintiff, was agreed to be a no-go area right at the time of the settlement agreement, yet they took two months before issuing a writ and a summons.  Mr Wong explained to me from the Bar table that upon learning of the employment the plaintiff took time in engaging in correspondence with the defendant in order to seek to narrow down the issues.  I have looked at that correspondence, whether emanating from the plaintiff or emanating from the plaintiff’s solicitors, but whilst the correspondence certainly did take place I do not think that the fact of the correspondence is a good explanation for the lapse of time.  There is no reason why the plaintiff should prefer to engage in such lengthy correspondence rather than to go to court when it became readily apparent that the defendant was not going to succumb to the plaintiff’s demands (which would be as early as the 1 March letter). 

40.Rogers J in the case of King Fung Vacuum Limited & Ors v Toto Toys Limited & Ors suggested a period of six weeks as a rule of thumb for unexplained delay.  Even applying that period to the facts of this case there had indeed been delay exceeding six weeks (any time taken up in engaging in correspondence would, in my view, count within those six weeks on the facts of this case because I would regard this case as being an unexplained delay case because the fact remains that no one had sworn on oath to explain the delay and Mr Wong’s explanation is only from the Bar table).

41.In any event, Rogers J’s suggestion could only be a rule of thumb.  Depending on the facts of a particular case the period could be longer or it could be shorter. In the present case where confidential information is concerned, the period could very well be much shorter because confidential information could be disclosed or divulged just overnight.  Once divulged or disclosed, there is no return.

42.For all the above reasons and in the exercise of my discretion, I refuse the relief sought in respect of paragraph 1(a) of the summons dated 18 April 2013 but I would expressly refuse it on the basis of the undertakings given by the court, by Posterscope and by the defendant.  In the order to be drawn up I will require those undertakings to be expressly incorporated.  Posterscope is not a party but I would require as a condition for exercising my discretion to refuse the relief sought, a signed copy of the undertaking in the form attached to annex 2 of the defendant’s skeleton.

Mr William Wong, SC, and Admits Ebony Ling, instructed by Squire Sanders, for the plaintiff

Mr Adrian Huggins, SC, instructed by Tanner De Witt, for the defendant