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Hong Kong – Interim Injunctions To Enforce Express Terms.

29 September, 2014 

 

Legal News & Analysis – Asia Pacific – Hong Kong – Labour & Employment

 

In this Practice Note written by Jezamine Fewins of Stephenson Harwood, we discuss interim injunctions in cases involving an employer’s attempts to enforce restrictive covenants against a former employee.

 

For an employer seeking to enforce restrictive covenants through the courts, the delay before a final remedy is available will likely be too long to provide the required level of protection for the business. Where confidential information or a customer base is involved, a delay of even weeks would largely defeat the purpose of the covenants.
An injunction from the court can help alleviate this risk. Injunctions may be:

 

  • prohibitory, eg to prevent the employee from soliciting customers or from working in competition
  • mandatory, eg to force the employee to return copies of confidential information wrongly taken from the employer

In urgent cases, an application for an interim injunction may be made without notice to the defendant and even before proceedings have been issued. In extremely urgent cases, the application may be made by appearing before a duty judge outside of normal court hours.


The court will require evidence to support any suggestion that the case in question is urgent. Notice should generally be given to the defendant unless there is a good reason not to do so.


Types Of Interim Injunction


Various types of injunction may be obtained at an interim stage of proceedings relating to restrictive covenants. These include:

 

  • prohibitory injunctions to prevent breach of a specific restrictive covenant, eg non-compete, non-dealing, non-solicitation and/or non-poaching covenants
  • prohibitory injunctions to prevent an unfair competitive advantage following unlawful activity during employment 
  • mandatory injunctions for the delivery of documents or other items wrongfully taken from the employer 
  • injunctions to enforce garden leave 
  • injunctions freezing a defendant’s assets 
  • injunctions permitting the search of a defendant’s premises

Principles In Granting Interim Injunctions


The principles applicable to interim injunctions are (Rules of the High Court (Cap 4A), Order 29; American Cyanamid v Ethicon [1975] AC 396; Fong’s National Engineering v Wong Wai Yuk [2003] HKCU 1071):

 

  • they are a discretionary remedy and not granted as of right
  • applicants must establish a good arguable case that does not require the court to make a determination on the merits of the claim, but rather to assess whether there is an issue to be tried, ie that the claim is not frivolous or vexatious
  • the court will consider the enforceability of the covenant and whether there is sufficient evidence of breach 
  • live evidence is not called; evidence is presented in the form of affidavits 
  • if there is a good arguable case, the court will consider the balance of convenience; the first stage is to consider whether damages would be an adequate remedy – if so, an injunction is not normally granted (where non-compete, non-dealing or non-solicitation clauses or the prevention of misuse of confidential information are involved, it is rare for damages to be adequate, or for damage to the business to be quantifiable)
  • applicants are required to give a cross-undertaking in damages; if the applicant is unlikely to be able to satisfy that cross-undertaking, then an injunction will not normally be granted
  • the court will then consider under a balance of convenience whether an injunction would do more harm than good
  • if the balance of convenience is unclear, the courts will usually order that the status quo be maintained

 

Generally, the court will not be interested in the likelihood of success at trial once an applicant has shown that there is at least a serious issue to be tried. That hurdle is relatively low. However, the courts will examine the strength of the parties’ respective cases where the granting of an interim injunction would effectively dispose of the entire case, in which case the employer will need to show that it is likely to succeed at trial (Lansing Linde v Kerr [1991] 1 All ER 418; Robert WH Wang v Robin Miles Bridge[2002] 4 HKC 435).
For example, the outcome of an interim application to enforce a restrictive covenant would largely dispose of a case where the covenant seeks to prevent competition for a six-month period and it is not possible for there to be a final trial until after that period has expired.


Parties


The claimant in a case involving the enforcement of a restrictive covenant will invariably be the employer or former employer.


The defendant will generally be the employee or former employee who entered into the restrictive covenant with the employer. The cause of action is usually breach of an employment contract where the employee or former employee is alleged to have failed to abide by the express covenants (and/or the implied duties arising as a result of employment).


In some cases it may be appropriate to join a third party as defendant, eg where an employee has started to work for a competing employer or is about to do so. The cause of action against such a competing employer would usually be the tort of inducing the employee to breach his or her contract with the former employer. 


There may be a tactical or practical advantage in joining the new employer, who may for example have deeper pockets to satisfy any damages awarded. However, its deeper pockets may also be available to finance a more robust defence to the proceedings. Careful consideration should be given before joining the new employer.

 

This article was supplied by Lexis Practical Guidance.

 

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For more information on Lexis Practical Guidance, please click here.

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