Employer’s attempt for a springboard injunction falls flat

Background

The 1^st Defendant, Lam Yim Chi Julia, was a former employee of the Plaintiff, DCL Communications. She left the Plaintiff in September 2019 and more than 18 months later joined the 2^nd Defendant, Reach Technology Solutions Limited in April 2021.

Both the Plaintiff and the 2^nd Defendant were in the business of providing services relating to IT infrastructure. Whilst the 1^st Defendant’s employment contract with the Plaintiff contained a confidentiality clause, there was no restraint of trade to prevent her from working for a competitor following the end of her employment.

In December 2021, a long-standing client of the Plaintiff decided not to renew its contract with the Plaintiff, which was originally handled by the 1^st Defendant. Thereafter, another important client told the Plaintiff that they have been approached by the 1^st Defendant, offering the 2^nd Defendant’s products and services. The Plaintiff also heard from another client that it had received quotations with significantly lower prices from other companies, but it is unknown whether the 2^nd Defendant was among those companies.

The Plaintiff grew suspicious and carried out its own investigations and concluded the 1^st Defendant was likely helping the 2^nd Defendant entice clients away from the Plaintiff “at the right time”, i.e. around the time when those clients’ maintenance contracts were due for renewal, with the right price by using the Plaintiff’s confidential information.

The Plaintiff issued court proceedings and applied for a springboard injunction against the Defendants to prevent them from using or disclosing the following information of the Plaintiff:

• Client lists;
• The expiry dates of the clients’ contracts;
• The profit margin for each contract; and
• Time when negotiation with clients for renewal of contracts commence,

collectively the Plaintiff’s “Confidential Information”.

The Court first applied the American Cyanamid test and considered:

• whether there was a serious issue to be tried;
• whether damages would be an adequate remedy for either side;
• where the balance of convenience lies.

The Decision

The CFI dismissed the Plaintiff’s application on the basis that its case was only built upon suspicion and speculation without any concrete evidence of any wrongdoing by the Defendants.

In reaching its decision, the Court considered the following questions:

• Whether there has been any unlawful behaviour on the part of the Defendants;
• If so, whether an unfair competitive advantage over the Plaintiff as a result of the unlawful behaviour has been obtained;
• If so, whether the nature and period of the competitive advantage is more than “ephemeral” and “short term”, and whether the Defendants were still enjoying and will continue to enjoy any unlawful advantage unless the injunction sought is granted;
• Whether monetary award would have provided an adequate remedy to the Plaintiff.

The Court was of the view that:

• No unlawful behaviour: There was no evidence that the 1st Defendant had misused any Confidential Information – in the absence of any restraint of trade covenants, the 1^st Defendant was entitled to solicit business from the Plaintiff’s customers and use for her own purposes any information she carried in her head provided that the information was acquired honestly in the ordinary course of her employment and she had not stolen, copied or deliberately memorised such information.
• No unfair competitive advantage: On the contrary, there was evidence that the Plaintiff’s clients usually ask for multiple quotations before renewing a contract. In some cases, the Plaintiff’s clients approached the 1^st Defendant and not the other way round. There was also evidence that competitors other than the 2^nd Defendant managed to provide quotations with a significantly lower price than the Plaintiff.
• Competitive advantage no more than “ephemeral” and “short term”: There was no evidence that the Confidential Information would still be useful after some 19 months when the 1^st Defendant started working for the 2^nd Defendant, let alone 3 years and 4 months at the time of the Plaintiff’s application. The contracts had already been renewed once, if not twice, during that time. Any information about profit margin must have become outdated and any competitive advantage, if it existed at all, must have vanished.
• Monetary award would be adequate: There was no unfair competitive advantage; and even if there was, monetary damages would be adequate. There was also no concern of the 2^nd Defendant spreading the Confidential Information around without the injunction as it was “beyond imagination” that the 2^nd Defendant would do so if such information is as valuable as the Plaintiff claimed. The balance of convenience would have been against the granting of relief.

Comment

The case provides a helpful summary of the law in relation to confidential information and springboard injunctions. It also serves as a reminder that any such applications should be supported by concrete evidence of wrongdoing and not mere suspicions and speculations.

The case also illustrates the importance of restraint of trade clauses where an employer seeks to protect its legitimate business interests. A confidentiality clause is unlikely to be effective. An employee is free to use any information they honestly obtained and carried away in their head.

Another key takeaway is to take note of any lifespan of confidential information and timing of bringing a springboard injunction. Employers who are concerned about the misuse or disclosure of their confidential information should act quickly while such information is still in date and capable of providing any competitive advantage.