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18 December 2018
In the recent case of Greater China Appraisal Ltd v Tsang,(1) the High Court considered the general legal principles for the grant of injunctive relief to protect an employer's confidential information alleged to have been taken by one or more former employees for the benefit of their new company. As the court noted, these scenarios are not uncommon in Hong Kong. The outcome in the case (to date) illustrates the balance that the courts must often strike between recognising the legitimate interests of an employer and a former employee's entitlement to use their own skills and knowledge without obtaining an unfair advantage.
Three senior employees left the plaintiff company, which engaged in (among other things) business valuation. It was alleged that the employees, with the possible help of one or more of their spouses, set up a company that planned to provide similar (but not identical) services. The new company was apparently incorporated close to the time of their departure but was dormant until after they left.
The plaintiff commenced the legal proceedings against the background of another employment dispute with one of the former employees. The defendants were the three former employees, two spouses and the new company. The plaintiff sought to enforce the usual contractual and fiduciary duties. In particular, the three former employees were apparently bound by a comprehensive confidentiality agreement, in addition to having restrictive covenants in their employment contracts.
After giving directions, the plaintiff's application for interlocutory orders came before the court for hearing. These disputes are often about the interlocutory reliefs but the hearing was not a final determination of the merits of the parties' respective arguments – that is a matter for trial, in the event that the case does not settle.
In addition to seeking temporary orders to protect confidential information (including billing records and a company manual), it appears that the plaintiff, in effect, sought to prevent the new company from being used by the former employees to gain a head start based on alleged conduct during their notice periods – an example of a so-called 'springboard relief'.
The court granted some of the orders sought by the plaintiff in recognition that the three former employees were bound by the confidentiality agreement as an integral part of their former employment (together with other restraints) and such relief was, for the time being, reasonable and proportionate.
However, wider orders with respect to the alleged activities of the former employees' new company and the springboard relief were not granted. The grant of such reliefs is particularly fact specific. On the evidence before the court, it appears that some of the plaintiff's former clients may have themselves approached the former employees' new company. Further, the precise ambit of the confidential information in the hands of one or more of the former employees was uncertain based on the evidence before the court.(2)
Therefore, the court granted the restraining injunction (as modified by the court) but not the springboard relief.
This case is an interesting illustration of the balance to be struck between the interests of an employer and an employee in these situations. It is also a nice example of the court's consideration of the general balance of convenience in deciding whether the grant of an injunction (before trial) is justified in all the circumstances.
There are also other aspects to the judgment that will be of interest to parties which find themselves involved in similar disputes. Not least, these include:
For legal representatives interested in this area of the law, the judgment contains a useful summary of the parties' respective legal submissions – in what is a developing area of jurisprudence in an increasingly data-driven economy.
For further information on this topic please contact David Smyth or Warren Ganesh at RPC by telephone (+852 2216 7000) or email (email@example.com or firstname.lastname@example.org). The RPC website can be accessed at www.rpc.co.uk.
(1)  HKCFI 2552, available here.
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