Hong Kong: Unlawful Team Lifts: The English Court Of Appeal Backs The High Court's Decision To Spring Into Action

Last Updated: 16 April 2019
Article by Byron Phillips, Mark H. Lin, Chris Dobby and Antonia Croke

The Court of Appeal has upheld a "springboard" injunction (albeit reduced in scope) in the latest case to deal with the issue of unlawful "team lifts". The case provides useful appellate authority (including wise words from the Master of the Rolls) regarding the increasingly wide application of the principle in England and other common law jurisdictions.

In an ever competitive Hong Kong market, those contemplating team lifts will be well advised to heed the lessons learnt, including the importance of having properly drafted post-termination provisions in individual contracts and ensuring these apply to key personnel.

As an aside, the case is also indicative of the growing prominence of, and competition within, the cybersecurity consultancy market. A growing global trend.

The facts

The Court of Appeal was asked to consider the validity of a springboard injunction granted amongst the cybersecurity consulting community. The appellants were among a larger group of defendants alleged to be liable to the respondents for the tort of conspiracy to injure by unlawful means.

The alleged conspiracy was said to be an agreement or concerted action by the defendants at a time when some of them were still employed by, and were directors of, the first and second respondents ("Secarma"), to procure key employees of Secarma, including its entire senior management team, to resign and join the appellants' company "Xcina" to build up a competing cybersecurity business.

Secarma's business involved the well-known practice of "pen testing" and "red teaming" - testing and exposing weaknesses in client's IT systems by deliberately trying to hack into them. The claimants said that the former directors tried to entice employees to work with them and heard evidence of a whatsapp instant messaging group in which the parties exchanged messages on the progress of the enterprise.

The Master of the Rolls, Sir Terence Etherton MR, giving judgment, said "In the case of a director, the duty at common law and now the duty under statute is to act in the way he or she considers, in good faith, would be most likely to promote the success of the company for the benefit of its shareholders as a whole, and not to place himself or herself in a position of conflict with the interests of the company" and that the evidence before the Judge at first instance "...strongly supported the claim of unlawful means conspiracy".

The springboard injunction is a powerful tool often sought where an employee has copied their former employer's confidential information and used it to gain an unfair commercial advantage. It is designed to cancel out the "head start" that the employee has gained through misuse of the confidential information. It has been given wider application in recent years. In this case, the injunction as granted prohibited the defendants from doing things damaging to the business of Secarma. Sir Terence Etherton MR reiterated that: "On the assumption that damages would not be an adequate remedy, the interim injunction is necessary to hold the position between the parties so that further unfair competitive advantage cannot be obtained by the defendant between the application for the interim injunction and the trial".

Damages? Inadequate

In considering whether the balance of convenience lay in favour of granting the interim injunction, Sir Terence Etherton MR said that he agreed with the Judge at first instance that it would be extremely difficult to calculate with any accuracy the loss sustained by Secarma as a result of the unlawful activity.

On the assumption that damages would not be an adequate remedy, the interim injunction would be necessary to hold the position between the parties so that no further unfair competitive advantage could be obtained between the application for the injunction and the trial. The task before the Judge in these sorts of applications, was to "undertake a fair and reasonable evaluation of the evidence bearing in mind that there will have been no disclosure, and the witness evidence will be incomplete and untested by cross-examination".

Scope of the Injunction: too long? No

As for the injunction itself, this had to be no greater in scope and for no greater period than was reasonable to remove the unfair competitive advantage secured by the defendant. The Court of Appeal recognised that the injunction, as granted, spanning the months before trial would be a substantial interference with Xcina's business.

Evidence before the court, however, was that the plans for the recruitment of Secarma's employees and the execution of the plan took place over a number of months. "Pen testers" were in short supply and the recruitment of suitable replacements was made even harder given the emergence of a new competitor in the market seeking to establish itself. The Court of Appeal was satisfied with the length of injunction granted by the Judge. 

Scope of the Injunction: too broad? A little

The Court of Appeal rejected the appellants' arguments that it would have been sufficient to require undertakings from the defendants not to solicit further employees from Secarma who were in post on 13 November 2018 (the day before the application for the interim injunction) and not to solicit or deal with current clients of Secarma or those who were clients during the previous twelve months. Such undertakings, in the view of the Court of Appeal, would not have protected Secarma from Xcina continuing to take the benefit of its unlawful springboard advantage by planning and building up a business of pen testing and red teaming, using the former Secarma employees who had already been wrongly recruited.

The Court of Appeal did find fault with the breadth of the injunction, insofar as it prevented the corporate appellants from carrying on pen testing and red teaming by outsourcing, as that was its existing business. The injunction was also too wide in that it prevented Mr Forse from carrying on any particular activity with Secarma as he was not subject to any covenants with Secarma restricting his post-employment activities.

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