Lek Gwee Noi v Humming Flowers & Gifts Pte Ltd

• Jurisdiction: Singapore
• Judge: Vinodh Coomaraswamy JC (as he then was)
• Judgment Date: 08 April 2014
• Neutral Citation: [2014] SGHC 64
• Citation: [2014] SGHC 64
• Court: High Court (Singapore)
• Published date: 30 April 2014
• Docket Number: Originating Summons No. 110 of 2012 (Registrar’s Appeal (State Courts) No. 2 of 2013 and 5 of 2013)
• Plaintiff Counsel: Mr Tan Tee Jim SC, Mr Freddy Lim and Mr Dharma Sadasivan (Lee & Lee)
• Defendant Counsel: Mr Lok Vi Ming SC, Mr Tan Yee Siong and Mr Alvin Liong (Rodyk & Davidson LLP)
• Subject Matter: Contract,Illegality and Public Policy,Restraint of Trade
• Hearing Date: 12 August 2013,18 March 2013,18 September 2013,28 May 2013,30 May 2013

Vinodh Coomaraswamy J: Introduction

For virtually all of her working life, the plaintiff has worked in the flowers, gifts, hampers and wreaths business. In 2008, the defendant acquired the business in which she was employed. After the acquisition, the plaintiff continued to serve as the sales manager of this business without interruption, but now with the defendant as her employer. Her employment agreement¹ contains express post-termination non-competition and non-solicitation covenants.

In November 2011, the plaintiff resigned from the defendant’s employment. In December 2011, the plaintiff’s notice period ended and her employment with the defendant came to an end. Shortly afterwards, she informed it that she intended to set up her own business selling flowers and gifts.² The defendant reminded the plaintiff of her non-competition covenant and threatened to sue her if she breached it.³ In the end, it was the plaintiff who sued the defendant in the Subordinate Courts (as the State Courts were then known), seeking a pre-emptive declaration that the restrictive covenant in her employment agreement is void and unenforceable.⁴

The District Judge held that the restrictive covenant was void in part and enforceable in part. Both parties appealed to the High Court. The appeals came before me. After considering the parties’ submissions and the evidence, I allowed the plaintiff’s appeal and dismissed the defendant’s appeal, thereby holding that the restrictive covenant was entirely void and unenforceable. The defendant has now appealed to the Court of Appeal. I thereoore set out my reasons for arriving at my decision.

Background

The plaintiff started working in the business in 1991 when Humming House Tradition (“HHT”) employed her as a clerk. The plaintiff was never a partner of HHT: she was merely an employee. HHT was a partnership owned by Mr Lek Sek Kwee (“LSK”), Mr Lek Kwee Chueng (“LKC”) and Mdm Yuen Wei Wun (“Mdm Yuen”). LSK and LKC are the plaintiff’s older brothers.

By 1998, the plaintiff had risen to the position of sales manager in HHT. In 2000, HHT’s owners transferred its business to a corporate entity which they also owned: Humming House Flowers and Gifts Pte Ltd (“Humming House”). After the transfer, the plaintiff continued her employment as sales manager of the same business, but as an employee of Humming House rather than of HHT. The plaintiff has never been a shareholder of Humming House. Although it has a similar name, Humming House is not the defendant.

Noel Gifts International Limited

Noel Gifts International Limited (“Noel Gifts”) is a company in the same business as HHT and Humming House. Noel Gifts was founded in 1976. It started as a sole proprietorship, later becoming a corporate entity and yet later becoming a public listed company. By 2005, Noel Gifts and Humming House were number one and number two respectively in their common business.⁵ Although they were competitors, their strengths lay in different segments of the market. Noel Gifts was (and still is) a market leader amongst Singapore’s English-speaking community whereas Humming House was a market leader amongst Singapore’s Chinese-speaking community.⁶ Humming House was also successful in targeting specific markets (such as the small-to-medium enterprise market) and in the Chinese New Year hamper business.⁷

Noel Gifts’ acquisition of Humming House’s business

Sometime in 2005, the managing director of Noel Gifts, Mr Alfred Wong (“Wong”), approached LSK to discuss a potential acquisition of Humming House. For Noel Gifts, the commercial rationale was twofold. First, the acquisition would complement Noel Gifts’ business and give it a presence in new segments of the market.⁸ Second, and most importantly to Noel Gifts, the acquisition would allow it to buy out a competitor.⁹ Humming House declined to be acquired.

Two years later, it was LSK’s turn to approach Wong. He wanted to know if Noel Gifts was still interested in acquiring Humming House. Humming House was then suffering from serious financial and cash flow difficulties as a result of overexpansion. The shareholders of Humming House had given personal guarantees for its debts and were afraid of being held personally liable if Humming House defaulted.¹⁰

The defendant takes over Humming House’s business

Noel Gifts and the shareholders of Humming House eventually agreed on the terms of the acquisition. It was to be structured as an acquisition of Humming House’s business rather than an acquisition of shares in Humming House. Thus, on 28 December 2007, Noel Gifts incorporated the defendant as a wholly-owned subsidiary of Noel Gifts for the sole purpose of acquiring Humming House’s business and then carrying it on.

On 7 January 2008, (1) the defendant, (2) Humming House and (3) the shareholders of Humming House entered into a sale and purchase agreement (“the SPA”). Pursuant to the SPA, Humming House sold its business to the defendant for $1,823,000.¹¹ The SPA contains non-solicitation and non-competition covenants binding the shareholders of Humming House. The plaintiff, not being a shareholder of Humming House, is not a party to the SPA and is therefore not bound by these covenants.

Because Noel Gifts was not acquiring Humming House itself, it required the shareholders of Humming House to move with Humming House’s business to become employees of the defendant as part of the acquisition. It was therefore a condition precedent under the SPA that Humming House’s shareholders sign employment contracts with the defendant.¹² Again, because the plaintiff was not a shareholder of Humming House, the transfer of her employment to the defendant was not a condition precedent under the SPA.

The plaintiff is offered employment

Despite this, the defendant clearly did want the plaintiff to move with the business and become its employee. To this end, on the same day the SPA was signed, the defendant handed the plaintiff a draft employment agreement for her to sign. The agreement contained the non-competition and non-solicitation covenants which are the subject-matter of these proceedings. The plaintiff was unwilling to be bound by these restrictive covenants and resisted signing it. Despite this, the plaintiff continued to work without interruption as the sales manager of the acquired business, save that she now rendered her services to the defendant rather than to Humming House. The defendant accepted the plaintiff’s services even though she had not signed the agreement. She eventually signed the agreement over six months later, on 25 July 2008. LSK persuaded her to do so. Although her signed employment contract was not a legal requirement of the acquisition, LSK needed her to sign it because of the commercial deal he had struck with Noel Gifts.

It is this employment agreement which lies at the heart of this matter.

Terms of the employment agreement

Clause 13 of the plaintiff’s employment agreement is the restrictive covenant on which this entire case turns and which the plaintiff asks me to declare void and unenforceable.

Clause 13 provides as follows:¹³ 13) Upon the termination of the Employee’s employment for any cause or by any means whatsoever the employee shall not for a period of 2 years next thereafter undertake or carry on either alone or in partnership nor be employed or interested directly or indirectly in any capacity whatever in the same or similar business as the relevant Company (as hereunder defined), or in any other business carried on by the relevant Company, in Singapore, and Malaysia and any other countries the relevant Company has offices at the date of such termination within the aforesaid areas and shall not during the like period and within the same areas either personally or by Employee’s agent or by letters, circulars or advertisements whether on Employee’s behalf or on behalf of any other person, firm or company canvass or solicit orders from or in any way interfere with any person, or company who shall at any time during the continuance of the Employee’s employment hereunder have been a customer or customers of the relevant Company & for any cause whatever the Employee shall not canvass, solicit or endeavour to take away from the relevant Company the business or any customers or clients who have been customers or clients of the relevant company.

The relevant company shall refer to and include the Company and any or all of such subsidiary, associate or other related companies which the Employee shall have performed duties or carried out work in relation to and for the benefit of any or all of such above companies at any time during the period of nine (9) months prior to the date of termination of employment stated herein.

The plaintiff resigns from the defendant

On 1 November 2011, the plaintiff tendered her resignation from the defendant. The plaintiff’s last day in the defendant’s employment was 31 December 2011. LSK and LKC resigned from the defendant on the same day.

On 3 January 2012, the plaintiff informed the defendant in writing that she intended to set up a business selling flowers and gifts.¹⁴ She invited the defendant to let her know if it had any objections to her doing so by 13 January 2012. It did. On 13 January 2012, the defendant reminded the plaintiff of her obligations under her employment agreement, objected to her plan and threatened to sue her if she breached her restrictive covenant.¹⁵

The plaintiff commences these proceedings Procedural history

The plaintiff did not wait to be sued. On 22 March 2012, she commenced these proceedings seeking as the principal relief a declaration that clause 13 of her employment agreement is “void and unenforceable”.¹⁶ On 17 May 2012, the defendant applied to convert these proceedings into an action commenced by writ on the basis that there were likely to be substantial disputes of fact between the parties. On 8 June 2012, the District...