Mano Vikrant Singh v Cargill TSF Asia Pte Ltd

• Jurisdiction: Singapore
• Judgment Date: 08 November 2011
• Date: 08 November 2011
• Docket Number: Originating Summons No 103 of 2011
• Court: High Court (Singapore)

Mano Vikrant Singh

Plaintiff

and

Cargill TSF Asia Pte Ltd

Defendant

[2011] SGHC 241

Steven Chong J

Originating Summons No 103 of 2011

High Court

Contract—Illegality and public policy—Restraint of trade—Incentive plan deferring part of payment of bonus—Incentive plan containing provision forfeiting deferred portion of bonus if employee left and competed—Whether provision forfeiting deferred portion in event of competition was in restraint of trade

Contract—Illegality and public policy—Restraint of trade—Incentive plan deferring part of payment of bonus—Provision in incentive plan forfeiting deferred portion of bonus if employee left and competed—Whether incentive plan unenforceable for lack of consideration if provision in incentive plan forfeiting deferred portion of bonus if employee left and competed held to be in unreasonable restraint of trade

Contract—Illegality and public policy—Restraint of trade—Non-compete agreement providing for one-year non-competition—Non-compete agreement limiting non-competition to countries in which employer had actual place of business—Provision in incentive plan forfeiting deferred portion of bonus if employee left and competed within two years—Provision in incentive plan forfeiting deferred portion of bonus not having geographical restriction—Whether provision in incentive plan forfeiting deferred portion of bonus was reasonable

The plaintiff was previously employed by the defendant as a senior trader. The defendant was involved in the Trade and Structured Finance (‘TSF’) business. According to the defendant, the TSF business involved leveraging on trade flows between countries to customise cross-border financing solutions for trade related financing. The defendant referred to these customised solutions as ‘Structured Solutions’. The plaintiff's counsel accepted, for the purpose of the present proceedings, that the plaintiff's role in the defendant's TSF business was as an ‘initiator’ or ‘structurer’ of the defendant's Structured Solutions.

The main contract between the parties was an employment contract. The plaintiff also entered into an agreement not to compete with the defendant (‘the Non-Compete Agreement’). One of the clauses of the Non-Compete Agreement provided that the plaintiff agreed, inter alia, not to compete with the defendant for a period of one year immediately following his termination with the defendant.

The defendant also had an individual incentive award plan (‘the Incentive Award Plan’). The terms and conditions of the Incentive Award Plan (‘the Incentive Award Plan T&Cs’) provided that 50% of the individual incentive award would be paid out as a cash award and the remaining amount would be paid out as a deferred incentive (‘the Deferred Incentive Payments’). Deferred Incentive Payments were paid out over one to three fiscal years from the date when the individual incentive award was granted. The duration of the deferral depended on the amount of the individual incentive award.

Importantly, the Incentive Award Plan T&Cs contained a provision that purported to forfeit the Deferred Incentive Payments in certain circumstances (‘the Forfeiture Provision’). In summary, the Forfeiture Provision provided for the forfeiture of the Deferred Incentive Payments if the employee continued a career within the financial or commodity trading industry outside of the defendant within a period of two years from the termination of his employment unless his termination was by reason of death or disability.

The plaintiff eventually gave notice of his resignation. The defendant accepted the plaintiff's resignation. The defendant claimed that the plaintiff in setting up a competing business had breached the Forfeiture Provision and hence was not entitled to the balance of the Deferred Incentive Payments otherwise due to him. As of 9 February 2011, the amount of outstanding Deferred Incentive Payments remaining on the plaintiff's account was US$1,741,894 excluding accrued interest.

The plaintiff therefore brought this action to seek a declaration that the Forfeiture Provision was void and an order that the Forfeiture Provision be severed from the Incentive Award Plan T&Cs. The plaintiff also sought payment of the sum of US$1,741,894 plus contractual interest.

Held, dismissing the appeal:

(1) The Forfeiture Provision was not in restraint of trade: at [60] to [62].

(2) Had it been determined that the Forfeiture Provision was, in substance, in restraint of trade, it would have been found to be unreasonable and hence unenforceable. As the plaintiff's counsel had accepted that the defendant's TSF business was non-generic, ie, proprietary and involved financial institutions and trading partners all over the world, it could not be disputed that the defendant had a legitimate proprietary interest to protect. The extent of the restraint was, however, unreasonable for the following reasons. First, the Forfeiture Provision was wider than necessary in terms of duration. The Non-Compete Agreement restrained competition for only one year while the Forfeiture Provision covered a period of two years. There was no compelling reason why the defendant's legitimate proprietary interest required protection beyond the period for which it already received protection under the Non-Compete Agreement. Secondly, the Forfeiture Provision had no geographical limit whereas the restriction under the Non-Compete Agreement was limited to countries in which the defendant had an actual place of business. Finally, the Forfeiture Provision covered employment by and consulting with any organisation which competed for employees, customers, clients, market share or financial/commodity resources and deals. It was therefore not limited to the TSF business and hence was wider than necessary to safeguard the defendant's legitimate proprietary interest: at [76].

(3) Had it been found to the contrary that the Forfeiture Provision was in restraint of trade, the court would have severed it from the Incentive Award Plan without the need to invoke the ‘blue-pencil test’ as it was a standalone clause which did not affect the other provisions: at [78].

(4) If the court had severed the Forfeiture Provision, it would have been necessary to consider if the severance would have rendered the Incentive Award Plan unenforceable for lack of consideration. In order to determine this issue, the court had to consider whether the Forfeiture Provision formed substantially the whole or the main consideration for the Deferred Incentive Payments. In the court's view, the Forfeiture Provision was not the whole or the main consideration for the Deferred Incentive Payments. As the plaintiff argued, the Incentive Award Plan T&Cs stated that the incentive payments were ‘based on individual, team and business unit results’. Given that this was the express basis for the whole Incentive Award Plan, it might be deduced that a substantial part of the consideration for incentive payments was the performance of the individual employee, his team and his business unit. The Forfeiture Provision might have formed a part of the consideration for the Deferred Incentive Payments but it certainly could not be said to be substantially the whole or the main consideration given the basis of the Incentive Award Plan: at [78], [83] and [84].

Almers v South Carolina National Bank of Charleston 265 SC 51 (refd)

Amory H Bradford v The New York Times Co 501 F 2d 51 (2 nd Cir, 1974) (refd)

Bull v Pitney-Bowes Ltd [1967] 1 WLR 273 (refd)

Diane P Deming v Nationwide Mutual Insurance Co 279 Conn 745 (2006) (refd)

Finnegan v J & E Davy [2007] IEHC 18 (refd)

Food Fair Stores, Inc v Greeley 264 Md 105 (1972) (refd)

Gene W Sheppard v Blackstock Lumber Co Inc 85 Wn 2d 929 (1975) (refd)

Hairman v File NET Corp Pty Ltd [2001] NSWIRComm 318 (refd)

Herbert Morris Ltd v Saxelby [1916] 1 AC 688 (refd)

Jeffrey A Z Hilligoss v Cargill Inc 2001 Minn App LEXIS 1017 (refd)

Jeffrey A Z Hilligoss v Cargill, Inc 649 NW 2d 142 (refd)

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Tullett Prebon plc v BGC Brokers LP [2010] EWHC 484 (QB) (refd)

Wyatt v Kreglinger and Fernau [1933] 1 KB 793 (refd)

Industrial Relations Act 1996 (NSW) s 106

Philip Jeyaretnam SC, Mark Seah and Germaine Tan (Rodyk & Davidson LLP) for the plaintiff

Blossom Hing, Kimberley Leng, Justin Kwek and Mohan Gopalan (Drew & Napier LLC) for the defendant.

Judgment reserved.

Steven Chong J

Introduction

1 Clauses in...