Freshasia Foods Ltd v Jing Lu

On an application for an interim injunction enforcing post-termination restraints, the court must assess the practical effect of the order and calibrate scrutiny of the merits to its impact. An injunction which would effectively end employment, residence or the defendant’s ability to reach trial requires stronger justification than a limited restraint on dealing with identified former customers.

Restrictive covenants must protect a legitimate business interest and go no further than reasonably necessary. A non-solicitation restraint may protect customer goodwill, but restrictions extending to potential customers, unrelated work for customers, or persons with whom the employee had merely general dealings may be too wide. Severance remains governed by the principles in Beckett Investment Management Group Ltd v Hall, although the scope of Egon Zehnder Ltd v Tillman was unsuitable for final determination on an interim application.

Freshasia sought interim relief against its former marketing manager, Jing Lu, who had joined a competitor. It relied on non-solicitation and non-compete provisions incorporated in an Employee Handbook.

The application followed an earlier directions hearing before Snowden J, who declined relief because of short notice and the breadth of the proposed order. The present court reconsidered the matter on full evidence and argument, with trial fixed for March 2019. The central issues were the likely enforceability of the restraints, the proper approach where the restraint period might expire before trial, severability, and the balance of convenience.

1. Interim approach. The court applied the practical approach in NWL Ltd v Woods, Lansing Linde v Kerr and Films Rover International Ltd v Cannon Film Sales Ltd. Where interim relief may be final in effect, the merits must be taken into account more substantially. The intensity of scrutiny should be proportionate to the impact of the order. A serious issue to be tried was insufficient for the proposed non-compete injunction, but could suffice for limited non-solicitation relief.
2. Construction and enforceability. The saving-document principle cannot justify a construction which is merely plausible but inconsistent with the language and commercial meaning of the contract. Applying the three-stage approach summarised in Tradition Financial Services Ltd v Gamberoni, the court construed the covenants, identified legitimate interests, and assessed whether the restraints were reasonably necessary. Customer goodwill and confidential information were legitimate interests, but protection of mere potential customers was not established on the evidence.
3. Non-solicitation clause. Parts of the clause were likely too wide, including restrictions preventing work for a customer, restrictions concerning potential customers, and restrictions covering any business dealings or knowledge. Nevertheless, a limited restraint concerning customers with whom Mr Lu had developed goodwill was arguable and potentially severable. The uncertainty concerning whether he was a senior employee was also arguable, though not conclusive at this stage.
4. Severance. Beckett Investment Management Group Ltd v Hall provided a useful threefold test: excision without adding or modifying words, adequate consideration for the remainder, and no transformation into a fundamentally different contract. The court did not decide whether Egon Zehnder Ltd v Tillman made internal severance impossible. That issue required fuller argument and was then before the Supreme Court.
5. Non-compete clause and balance. The non-compete clause was unlikely to be enforceable. It prohibited work in a competing business in any capacity, had excessive geographic scope, and could not be reduced to a valid restraint by excision. The balance of convenience favoured limited non-solicitation protection because Freshasia faced difficult-to-quantify loss, while Mr Lu could continue working for Kung Fu. The wider injunction was refused because the likely prejudice to Mr Lu, including employment, visa and mortgage difficulties, outweighed Freshasia’s demonstrated risk.
6. Order. A limited non-solicitation injunction was granted until trial. The wider non-compete relief was refused. Costs were ordered in the case.

This was a first-instance interim application. Snowden J had earlier declined relief on 29 November 2018 because of short notice and the breadth of the proposed injunction. The present court reconsidered the application afresh and granted limited relief.