In a significant ruling, the English High Court examined the criteria for granting an interim injunction against a former employee for using a former employer's trade secrets. This decision, particularly relevant to Hong Kong businesses due to the shared legal foundation, was showcased in ESL Fuels Ltd v Fletcher.
ESL Fuels Ltd, specialising in innovative fuel products, sought an injunction against its former General Manager, Mr Fletcher, and his new company, Prema Energy Limited. Fletcher had set up Prema and approached Certas Ltd, a key ESL business partner, offering a product similar to ESL’s ‘Ultra 35’. ESL contended that the manufacturing process of Ultra 35 was a trade secret and sought to prevent Fletcher and Prema from using this confidential information.
The Court applied the American Cyanamid test, which examines the strength of the case, the adequacy of damages as a remedy, the balance of convenience, and whether the status quo should be maintained. A critical issue was whether ESL's manufacturing process constituted a trade secret, given Fletcher's claim that the process was widely known.
The Court determined that the status quo favoured ESL, as it existed before Fletcher set up his competing business. However, in considering the balance of convenience, the Court sided with Fletcher and Prema, recognising the potential harm to Prema's nascent business if an injunction were granted.
Although ESL was denied a broad injunction, the Court did grant a limited injunction preventing disclosure of the confidential manufacturing process. It required Fletcher and Prema to preserve profits from sales of Prema 35 until the trial's conclusion.
This decision is noteworthy for employers, especially in Hong Kong. It highlights the importance of evaluating the balance of convenience in cases involving new companies formed by former employees. It suggests a nuanced approach to protecting trade secrets and confidential information in such scenarios. Businesses must remain vigilant in safeguarding their confidential information, particularly when dealing with former employees who may pose competitive risks.