Court orders continuation of interim injunction in amended terms

In Bray International Inc v Cheng (Case HKCU 1377, August 10 2007), the Court of First Instance has ordered the continuation of an interim injunction in amended terms.

Bray International Inc is a US company which makes fluid and gas flow products, such as valves and actuators. The products are promoted and sold around the world under the mark BRAY. In 1995 Bray set up a sales office in Hong Kong. The ninth defendant, Louis Hui, was employed to orchestrate the founding of the Hong Kong office. Cheng Yuk Chor and Jeff Lee, the first and second defendants, were employed to manage sales and marketing at the Hong Kong sales office.

Calmart Limited (fifth defendant) was incorporated in Hong Kong in 1994. It is wholly owned and controlled by the first and second defendants. American Valve & Controls Limited (sixth defendant) is another Hong Kong company wholly owned and controlled by the first and second defendants. AVA Controls Inc (seventh defendant), incorporated in California, is owned and controlled by the first defendant. Chan Kai Cheung, the eighth defendant, is the sole proprietor of Key Control, a firm that sells, maintains and repairs actuators.

In February 2007 Bray found out that senior employees in the Hong Kong office covertly operated businesses in competition with Bray. In particular, businesses were diverted to the fifth, sixth and seventh defendants. The eighth defendant was complicit as a vehicle through which Bray's funds were misappropriated. The preliminary investigation indicated losses of no less than HK$31.3 million.

Bray brought this action against the senior employees involved, the incorporated companies and the eighth defendant. Bray also applied for three injunctions, which were granted ex parte. In the present hearing, the eighth defendant applied to have the inter partes applications set down for hearing ahead of the other injuncted defendants.

An Anton Piller injunction was granted and various documents supporting Bray's claims were seized. A Mareva injunction was granted to preserve the funds said to have been unlawfully taken. Lastly, an interim injunction was sought to restrain unauthorized dealings with Bray's customers and products by the defendants.

According to the interim injunction order, the eighth defendant could not engage in the sale of Bray's products or similar products without Bray's express written consent. Further, the eighth defendant was restrained from holding himself out to have Bray's authority or from dealing in any way with Bray's products or similar products. The interim injunction had affected the business of the eighth defendant greatly and virtually caused him to shut down his business. Hence, the eighth defendant opposed the continuation of the interim injunction.

In deciding whether to continue the interim injunction against the eighth defendant, the court considered two questions.

First, was there a serious question to be tried? The court held that there were serious questions to be tried in respect of the eighth defendant's:

• complicity in breaches by the first, second and ninth defendants;
  
  
• involvement in a scheme to defraud Bray; and
  
  
• misappropriation of Bray's money.

Second, should Bray succeed after trial, would it be adequately compensated in damages if the injunction were to be discharged? The court held that the present interim injunction was difficult to justify under this head in its present form because Bray had agreed to an alternative substantive relief in place of the original interim injunction. In effect, Bray would be seeking an injunction to prevent the passing off of its products by the eighth defendant. In other words, the terms of the substantive injunction claimed would be much narrower than those of the interim injunction previously granted.

The court held that the interim injunction in its present form was no longer tenable. However, it agreed to grant an amended interim injunction in the terms proposed by Bray. The court pointed out that Bray should have amended its inter partes application.

The Anton Piller order was discharged, but the Mareva injunction remained in force pending trial or further order. Because of Bray's failure to amend its inter partes application, it was ordered to bear two-thirds of the costs of the present hearing.

It seems that the court is willing to grant an interim injunction in amended terms provided that there is a serious question to be tried and that damages would not amount to adequate remedy for the applicant should the latter succeed in the main trial. However, an applicant seeking to amend the terms of a substantive injunction should amend its application promptly. Otherwise, it will be penalized in terms of costs.

Kenny Wong and Jessica Tse, Johnson Stokes & Master, Hong Kong