Case Background
Our firm represented the Chinese subsidiary of an Italian hydraulic equipment company (Plaintiff) in a lawsuit against a foreign executive (Defendant) for breaching non-compete obligations. The Defendant served as Plaintiff’s General Manager from 2004. In April 2012, he concurrently became a director of competitor HF Company (where his wife was the legal representative). During this period, Plaintiff’s revenue plummeted from RMB 40 million to RMB 12 million.
Case Challenges
1. Difficulties Proving Causation
- Temporal coincidence of revenue decline and executive’s concurrent position ≠ legal causation.
- Lack of direct evidence (e.g., customer loss, trade secret infringement).
2. Obstacles in Quantifying Loss
- Failed to prove specific customer transfers or order losses.
- Failed to exclude variables like industry cyclical fluctuations.
3. Cross-border Elements
- Separation between place of infringement (China) and executive’s nationality (Italy).
- Competing enterprise was a foreign-invested company.
Our Service Highlights
1. Precise Anchoring of Applicable Law
- Invoked Article 44 of the Law on the Application of Law in Foreign-related Civil Relations: Lex loci delicti (Chinese law) takes precedence.
- Rejected application of Italian law argument (no mutual habitual residence).
2. Argument on Boundaries of Judicial Discretion
- Cited Article 2 of the Provisions on Evidence in Civil Procedures: Plaintiff must provide preliminary proof of existence of loss and causation.
- Demonstrated prerequisites for discretionary damages (loss certain but amount difficult to quantify) not met in this case.
Case Outcome
1. Plaintiff's Claims Dismissed
- Court Ruling: Non-compete breach established, but causation not proven.
2. Procedural Cost Allocation
- Case acceptance fee (RMB 18,300) + preservation fee (RMB 5,000) borne by Plaintiff.
3. Landmark Rule Reaffirmation
- Established principle: “Burden of proving causation in non-compete disputes rests entirely on the Plaintiff”.
- Clarified that revenue decline claims require exclusion of external factors like market fluctuations.
4. Corporate Risk Control Implications
- Executive employment contracts must stipulate non-compete compensation and penalty clauses.
- Establish mechanisms to track customer transfers.
Table of Contents
