In BFAM Partners (Hong Kong) Ltd v Mills & Anor,(1) the Court of First Instance of the High Court granted an interlocutory injunction against the first defendant to enforce a six-month non-compete clause in his contract of employment with the plaintiff (his former employee). While the judgment turned on its facts, it is a detailed analysis of the relevant legal principles involved in the grant of such an injunction.
The plaintiff company is a Hong Kong company that provides fund management services to institutional investors. The first defendant is an experienced and highly skilled technology professional in the financial industry. He was employed by the plaintiff as a technology officer from 11 February 2019 for a fixed term of one year. In August 2019 the plaintiff and first defendant agreed that he would be put on permanent terms with the position of head of platform technology. His base salary was purportedly US$300,000 per annum.
The contract of employment contained various usual restrictive covenants, including non-poaching, non-solicitation and non-compete. The non-compete clause was for a period of six months and restricted to Hong Kong – in short, the first defendant agreed not to compete (by himself or with others) with respect to products or services of the same or a similar type to those provided by the plaintiff for six months from the effective date of his resignation. In February 2021 the defendant resigned and commenced garden leave on 1 May 2021. He was entitled to full pay for the restrictive period of six months.
During his approximately two years of employment with the plaintiff, the first defendant appears to have come into possession of a not-insignificant amount of information, which the plaintiff claimed was confidential, regarding the company's working practices and strategies. The degree to which these practices and strategies were confidential or known or remembered by the first defendant was disputed.
On or about 24 May 2021 the first defendant went to work as a chief technology officer for the second defendant in Hong Kong – a company that also operated in the funds industry. The plaintiff was willing to pay the first defendant during his restrictive period, but payment initially appears to have been rejected by the first defendant.
On 27 July 2021 the plaintiff commenced proceedings against the first and second defendants, seeking (among other things) to enforce the non-compete clause by means of an injunction against the first defendant.
Given that the notional trial date would be after the restrictive period of the non-compete clause (1 May 2021 to 31 October 2021) it was not disputed that the grant or refusal of an injunction would effectively dispose of the proceedings.
The issue for the Court to decide (at an interlocutory stage) was whether it should grant an injunction against the first defendant (to enforce the non-compete clause) and this required a determination of what course of action would notionally do less harm – namely:
- granting an injunction to the plaintiff (the employer) and their failing at trial on the merits; or
- refusing to grant an injunction and the plaintiff going on to succeed at trial on the merits.
In short, at an interlocutory stage, the Court should take whichever course of action is likely to cause less prejudice.(2)
In a detailed written decision, the Court granted the interlocutory injunction against the first defendant and made the following findings (among others) based on the evidence.
While the correct time for determining the reasonableness of a non-compete clause was the making of the employment contract, the Court could allow evidence of relevant matters after the contract had commenced where to do so was reasonable and envisaged by the parties. In this case, in assessing the reasonableness of the non-compete clause, it was permissible to take into account the fact that the first defendant had taken on extra senior responsibilities as part of his permanent position.
The first defendant had acquired information, which the plaintiff argued was confidential, during the course of his employment, in respect of which the plaintiff could claim legitimate protection – including, for example, relating to the plaintiff's business operations and trading strategies. The information had not lost its confidential status through decay or the passage of time, such that it remained confidential. Moreover, the Court recognised the principle in Faccenda Chicken Ltd v Fowler(3) – namely, that employees are entitled to make use of such confidential information as they are able to carry away with them in their heads for the purpose of any business of their own or that of a new employer, as part of their accumulated skill and knowledge. The judge stated:
On the evidence available before the court, it seemed to me that the plaintiff has shown that the confidential information in question can fairly be regarded as a separate part of the 1st defendant's stock of knowledge which a man of ordinary honesty and intelligence would recognise to be the property of the plaintiff.(4)
The non-compete clause appeared to go no further than was reasonably necessary to protect the plaintiff's legitimate interests during the restrictive period (six months). For example:
- The plaintiff's unchallenged evidence suggested that the life cycle of their trading strategies would be approximately six months, after which relevant confidential information would lose its commercial value.
- The non-compete clause was restricted to the plaintiff's products and services provided in Hong Kong.
- The delivery up and confidentiality clauses all had their uses, but they did not (of themselves) prevent the disclosure of the plaintiff's legitimate confidential information. The judge stated: "As a general proposition, a non-competition clause may be necessary to protect an employer's confidential information even if there is a confidentiality clause in the employment contract. This is because it is often difficult to prove whether the information is or is not confidential."(5)
- It had been in the contemplation of the plaintiff and the first defendant at the time of entering into the employment contract that the first defendant would have access to some confidential information.
Prejudice to parties
Balancing the parties' competing interests, granting the interlocutory injunction would carry the lowest risk of injustice between the parties. For example:
- If the injunction was refused and the plaintiff later won on the merits at a trial, it would (on the facts) be difficult and costly for the plaintiff to quantify their financial loss as a result of a proven breach of the non-compete clause.
- There was no evidence to suggest that the plaintiff would not honour their undertaking (to the Court as part of the grant of injunctive relief) to compensate the first defendant in the event that the plaintiff was later ordered to pay compensation to the first defendant should the interlocutory injunction be found to have been incorrectly granted.
- The plaintiff had offered and was willing to pay the first defendant his basic salary during the period of the non-compete clause.
Subject to remaining arguments as to the amount of the legal costs between the parties, it appears that the case will be brought to a resolution. The period of the non-compete clause ended on 31 October 2021; after this date, the first defendant is free to take up his position with the second defendant.
By the time that the Court had heard the plaintiff's application for an injunction, there remained less than two months for the period of the non-compete clause to expire. It is interesting that the plaintiff still chose to pursue legal remedies – this might suggest something about the commercial and competitive nature of the business in which the plaintiff and the second defendant are engaged. The first defendant appears to be a highly skilled information technology strategist who learnt a lot during his approximately two years with the plaintiff and the plaintiff may have been keen to send a message to their senior staff and/or the market that (as best they can) they will protect their business operations.
It also appears to be the case that the plaintiff's representatives presented a wealth of consistent evidence (on oath or affirmed) to support the plaintiff's position – as a result of which they probably presented a better story, which gives an interesting insight into the internal operations of a fund manager.
For further information on this topic please contact Andrea Randall or Antony Sassi at RPC by telephone (+852 2216 7000) or email ([email protected] or [email protected]). The RPC website can be accessed at www.rpc.co.uk.
(2) Supra note 1, at paras 21 and 22.