Lek Gwee Noi v Humming Flowers & Gifts Pte Ltd

JurisdictionSingapore
Judgment Date08 April 2014
Date08 April 2014
Docket NumberOriginating Summons No 110 of 2012 (Registrar's Appeals (State Courts) Nos 2 and 5 of 2013)
CourtHigh Court (Singapore)
Lek Gwee Noi
Plaintiff
and
Humming Flowers & Gifts Pte Ltd
Defendant

Vinodh Coomaraswamy J

Originating Summons No 110 of 2012 (Registrar's Appeals (State Courts) Nos 2 and 5 of 2013)

High Court

Contract—Illegality and public policy—Restraint of trade—Employee working for business partly owned by siblings—Employment contract containing non-competition and non-solicitation covenants—Whether restrictive covenant ought to be approached as employee covenant or vendor covenant—Whether non-competition and non-solicitation covenants reasonable—Whether offending part of restrictive covenant could be severed to leave remaining covenant valid and enforceable

Contract—Illegality and public policy—Restraint of trade—Employment contract containing clause protecting trade secrets and confidential information—Whether employer having to show legitimate interest over and above protection of trade secrets and confidential information

The plaintiff was employed as a sales manager in a business. The plaintiff's brothers were shareholders in the business but she was not. In 2008, the business was acquired by its main competitor. The defendant was the vehicle for the acquisition. After the acquisition, the plaintiff continued as the sales manager of the business but with the defendant as her new employer. Her employment agreement contained express post-termination non-competition and non-solicitation covenants (together, ‘the restrictive covenants’). Both these covenants had (a) a geographical restriction, (b) an activity restriction and (c) a temporal scope.

In November 2011, the plaintiff resigned and informed the defendant that she intended to set up a business in the same trade. When the defendant threatened to sue on the restrictive covenants, the plaintiff sought a pre-emptive declaration that the restrictive covenants were void and unenforceable.

The District Judge construed the restrictive covenants as containing a ‘geographical restraint’ and a ‘non-solicitation restraint’. He held that the latter was reasonable but not the former and proceeded to sever the geographical restraint from the non-solicitation restraint. He therefore upheld the validity and enforceability of the non-solicitation restraint. Both parties appealed.

Held, allowing the appeal and dismissing the cross-appeal:

(1) The restrictive covenants ought to be interpreted as employee covenants because: (a) the plaintiff was not a shareholder in the business and had no say in its sale; (b) the defendant's purchase of the business was not dependent on the plaintiff accepting the restrictive covenants in her employment agreement; (c) there was clear asymmetry between the financial rewards which the owners of the business derived from its sale and those which the plaintiff did; and (d) there was insufficient evidence to show that the plaintiff derived an indirect benefit referable to the sale of the business:at [44] to [50] , [60] .

(2) The defendant had a legitimate interest in protecting its trade connection with its customers as against the plaintiff. Although the plaintiff had dealt with these customers for many years before the acquisition, the customers never ‘belonged’ to her in the loosest sense. Instead, the trade connection with these customers formed part of the goodwill which the defendant had bargained for and purchased as part of its acquisition of the business:at [75] to [81] .

(3) The restrictive covenants were unreasonable and therefore void and unenforceable. The non-competition covenant was unreasonable in light of its geographical restriction and the activity restriction. The non-solicitation covenant was unreasonable in light of its geographical restriction, the activity restriction and the temporal scope:at [93] to [117] .

(4) Neither restrictive covenant could be saved by severance. There were three prerequisites for severance (whether what was to be severed was a phrase within a clause or an entire clause in a contract): (a) the unenforceable provision had to be capable of being removed without adding to or modifying the wording of what remained with the remainder continuing to make grammatical sense; (b) the remaining contractual terms had to continue to be supported by adequate consideration; and (c) the severance must not change the fundamental character of the contract between the parties:at [156] .

(5) It would create unnecessary fragmentation to recognise two varieties of severance in Singapore law, that is, one applicable to employee covenants and one applicable to all other covenants. Instead, the court ought to always relate severance to the underlying policy considerations such that severance could not arrive at a result which was inconsistent with the principles of public policy which made the excised words void:at [172] .

(6) The district judge's severance did not satisfy the third prerequisite for severance since the removal of the severed words changed the fundamental nature of the parties' contract; it turned the non-solicitation covenant into something different in kind and not only in extent:at [191] .

(7) The non-solicitation covenant contained cascading covenants which appeared to be calculated to accommodate ‘blue pencil’ severance. This left a vulnerable employee uncertain as to which cascading restriction bound him in law until the issue was actually determined by a court. To that extent, the non-solicitation covenant did have an in terrorem effect on a reasonable employee in the plaintiff's position. Severing the offending limb in those circumstances to save the preceding limb would not be consistent with the public policy underlying the avoidance of the offending part:at [197] .

[Observation:The Court of Appeal had held that that where trade secrets or confidential information were protected by other express provisions in an employment agreement, the employer had to be able to point to a legitimate interest ‘over and above’ the protection of trade secrets or confidential information in order to justify a restrictive covenant. The High Court had observed previously that this principle was not without difficulty:at [66] and [70] .

A doctrine of notional severance, which permitted a thorough and explicit rewriting of the parties' contract, would fundamentally defeat the parties' freedom of contract. While the equitable doctrine of rectification also permitted a rewriting of the parties' contract, that would take place to bring the parties' written instrument into alignment with the parties' actual intention, proved to a very high standard. Notional severance was quite different. Although it made reference to the parties' intention, it would take place based on an intention which the court imputed to both parties at the urging of one party after a dispute had arisen. To that extent, notional severance amounted to a unilateral variation of the parties' obligations imposed by the court with the benefit of hindsight. Although the dividing line between the remedy of rectification and other devices such as construction for giving effect to the parties' intentions had been blurred, it was a valuable distinction and there were now indications of an attempt in the English Supreme Court to appreciate and reinstate it. It was only with great difficulty that the doctrine of notional severance as it was recognised in Canada could be accommodated within Singapore's law of contract:at [179] .]

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Attwood v Lamont [1920] 3 KB 571 (refd)

Beckett Investment Management Group Ltd v Glynn Hall [2007] EWCACiv 613 (refd)

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Centre for Creative Leadership (CCL) Pte Ltd v Byrne Roger Peter [2013] 2 SLR 193 (refd)

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CIR, The v Muller & Co's Margarine, Ltd [1901] AC 217 (refd)

CLAAS Medical Centre Pte Ltd v Ng Boon Ching [2010] 2 SLR 386 (folld)

Force India Formula 1 Team Ltd v 1 Malaysia Racing Team Sdn Bhd [2012] EWHC 616 (Ch) (refd)

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Transport North American Express Inc v New Solutions Financial...

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1 firm's commentaries
3 books & journal articles
  • CLARIFYING RECTIFICATION IN SINGAPORE
    • Singapore
    • Singapore Academy of Law Journal No. 2015, December 2015
    • 1 Diciembre 2015
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  • Contract Law
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    • Singapore Academy of Law Annual Review No. 2014, December 2014
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    ...the main consideration, could be severed from the agreement. Restraint of trade 12.97 In Lek Gwee Noi v Humming Flowers & Gifts Pte Ltd[2014] 3 SLR 27 (Lek Gwee Noi), the High Court considered a number of important issues concerning the restraint of trade doctrine. The plaintiff in this cas......
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    • Singapore
    • Singapore Academy of Law Annual Review No. 2019, December 2019
    • 1 Diciembre 2019
    ...[2019] 5 SLR 172 at [116]. 137 [2005] 2 SLR(R) 579 at [48]–[49]. 138 [2008] 1 SLR(R) 663 at [92]. 139 [2013] 2 SLR 193 at [87]–[92]. 140 [2014] 3 SLR 27 at [71]. 141 [2019] 5 SLR 245. 142 HT SRL v Wee Shuo Woon [2019] 5 SLR 245 at [74]–[77]. 143 HT SRL v Wee Shuo Woon [2019] 5 SLR 245 at [8......

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