ESL Fuels v Fletcher [2013]

ESL Fuels Ltd v Fletcher [2013] EWHC 3726 (Ch) delved into the criteria for granting an interim injunction against a former employee to prevent the use of their former employer's trade secrets. This case, ESL Fuels Ltd v Fletcher, holds particular relevance to Hong Kong employers, considering the similarity between Hong Kong law on confidential information and trade secrets and the English common law. The implications of this decision could be substantial for employers in both jurisdictions.

In terms of the facts, ESL Fuels Limited (ESL) specialised in blending and supplying innovative fuel products, including the successful Ultra 35 heating fuel. The former General Manager of ESL, Mr Fletcher, resigned and subsequently set up a competing business, Prema Energy Limited (Prema), offering a similar product, Prema 35. ESL sought an injunction, asserting that the process for manufacturing Ultra 35 was a trade secret and that Mr Fletcher was in breach of confidentiality.

The Court, in its deliberation, applied the American Cyanamid test, which involves evaluating whether ESL had a strong or arguable case, whether damages could suffice as a remedy, the balance of convenience, and the need to maintain the status quo.

In analysing the merits of the application, the Court focused on establishing a serious issue to be tried. Given that Mr Fletcher did not have a written contract with post-termination restraints, ESL needed to demonstrate that the information in question had a high degree of confidentiality, akin to a trade secret. The Court refrained from delving into an in-depth merits assessment at the interim stage, aligning its approach with the precedent set in Faccenda Chicken Ltd v Fowler [1987].

Regarding the relevant status quo, the Court determined it as the state of affairs before Mr Fletcher initiated the competing business. It rejected the suggestion to consider the status quo at the date of serving the claim form.

Despite ESL having the status quo in its favour, the Court ruled in favour of Mr Fletcher and Prema. Notably, it recognised Prema as a fledgling company, and the potential harm of stifling its growth was deemed a weighty factor in favour of Mr Fletcher.

In its decision, the Court refused the pleaded interim injunction but did grant a limited one preventing the disclosure of the confidentiality of the manufacturing process. Additionally, Mr. Fletcher and Prema were required to undertake preserving profits pending trial.

The key take-away points from this case include the flexibility of the American Cyanamid test in allowing the court to consider the merits to some extent during interim relief applications. Furthermore, the determination of the relevant status quo is crucial and pertains to the state before the most significant recent change, not necessarily when the claim form is served. Lastly, the balance of convenience may favour a defendant, especially a new company facing potential severe consequences if an injunction is granted.

Considering the potential implications for Hong Kong employers, particularly when dealing with former employees exploiting trade secrets through newly formed companies, the decision raises concerns about the adequate protection of confidential information. It is worth noting that ESL Fuels remains a first-instance decision, and any potential appeal to the Court of Appeal awaits observation.