Lek Gwee Noi v Humming Flowers & Gifts Pte Ltd

CourtHigh Court (Singapore)
Judgment Date08 April 2014
Docket NumberOriginating Summons No 110 of 2012 (Registrar's Appeals (State Courts) Nos 2 and 5 of 2013)
Date08 April 2014

High Court

Vinodh Coomaraswamy J

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

Lek Gwee Noi
Humming Flowers & Gifts Pte Ltd

Tan Tee Jim SC, Freddy Lim and Dharma Sadasivan (Lee & Lee) for the appellant in RAS 5/2013 and the respondent in RAS 2/2013

Lok Vi Ming SC, Tan Yee Siong and Alvin Liong (Rodyk & Davidson LLP) for the respondent in RAS 5/2013 and the appellant in RAS 2/2013.

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Companies Act (Cap 50, 2006 Rev Ed) s 6

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...

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6 cases
  • Lim Li Meng Dominic v Ching Pui Sim Sally
    • Singapore
    • Court of Three Judges (Singapore)
    • 2 October 2015
    ...Chua Choon Cheng v Allgreen Properties Ltd [2009] 3 SLR (R) 724; [2009] 3 SLR 724 (refd) Lek Gwee Noi v Humming Flowers&Gifts Pte Ltd [2014] 3 SLR 27 (refd) Man Financial (S) Pte Ltd v Wong Bark Chuan David [2008] 1 SLR (R) 663; [2008] 1 SLR 663 (refd) NKRajarh v Tan Eng Chuan [2014] 1 SLR ......
  • Powerdrive Pte Ltd v Loh Kin Yong Philip and others
    • Singapore
    • High Court (Singapore)
    • 10 October 2018
    ...there is already a confidentiality clause elsewhere in the contract of employment. In Lek Gwee Noi v Humming Flowers & Gifts Pte Ltd [2014] 3 SLR 27, Vinodh Coomaraswamy J was apparently of a similar view, at [71]. I was of the view that it was not necessary to decide whether to rule agains......
  • HT SRL v Wee Shuo Woon
    • Singapore
    • High Court (Singapore)
    • 18 April 2019
    ...covenant is at the time it is entered into: Man Financial at [72]. As pointed out in Lek Gwee Noi v Humming Flowers & Gifts Pte Ltd [2014] 3 SLR 27 at [87], the restrictive covenant is construed bearing in mind the circumstances which the parties reasonably contemplated at the time they ent......
  • Lim Li Meng Dominic and others v Ching Pui Sim Sally and another and another matter
    • Singapore
    • Court of Three Judges (Singapore)
    • 2 October 2015
    ...reference may also be made to the relatively recent Singapore High Court decision of Lek Gwee Noi v Humming Flowers & Gifts Pte Ltd [2014] 3 SLR 27, especially at [174]−[186]). However, it is clear, in our view, that the doctrine of notional severance is, in any event, clearly inapplicable ......
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