Mano Vikrant Singh v Cargill TSF Asia Pte Ltd

• Jurisdiction: Singapore
• Judge: Steven Chong J
• Judgment Date: 08 November 2011
• Neutral Citation: [2011] SGHC 241
• Court: High Court (Singapore)
• Hearing Date: 23 May 2011,25 July 2011,02 August 2011
• Docket Number: Originating Summons No 103 of 2011
• Plaintiff Counsel: Philip Jeyaretnam SC, Mark Seah and Germaine Tan (Rodyk & Davidson LLP)
• Defendant Counsel: Blossom Hing, Kimberley Leng, Justin Kwek and Mohan Gopalan (Drew & Napier LLC)
• Subject Matter: Contract,Illegality and Public Policy,Restraint of Trade
• Published date: 11 November 2011

Steven Chong J: Introduction

Clauses in employment contracts which prohibit an employee from working for a competitor upon termination of employment must be shown to be reasonable to be enforceable. This principle of law was founded on public policy considerations to promote the free flow of expertise in the interests of the individual and society. Over the years, in certain trades, industries or professions, employees have come to wield considerable power in negotiating favourable terms of employment. Quite often, because of their skill and hence their mobility, they have a choice not to accept terms in their employment contracts. Employers have also evolved their remuneration packages to provide financial incentives for employees to remain with them and equally for financial disincentives not to leave them or to join a competitor. When such an employee leaves the employer, he again has the choice to join a competitor and if he chooses to compete, the only consequence is a financial disincentive, for example, the forfeiture of a deferred bonus. In such cases, is the public policy consideration in promoting the free flow of skill offended?

This case presents an interesting issue for determination which hitherto has not been judicially decided in Singapore though a number of previous decisions on restraint of trade clauses are relevant in arriving at my decision. The present case concerns the issue of whether a clause in an employee incentive award plan (as distinct from the employment contract) which forfeits deferred incentive payments in the event that the employee competes with his employer is in substance a restraint of trade. In a number of English and Australian cases, the courts have treated such clauses as amounting in substance to a restraint of trade. The treatment of such clauses in the United States is divided. However, there is also a body of case law upholding provisions in employment contracts that forfeit deferred bonuses when the employee leaves the employer regardless of whether the employee proceeds to compete with the employer. In those decisions, such clauses are not regarded as in restraint of trade. Is there a rational reason why in the former, the clauses are regarded as in restraint of trade but not in the latter especially when in the latter group of cases, the effect on the employee would appear to be more far reaching in that the deferred bonus is forfeited when the employee leaves his employment irrespective whether the employee joins a competitor or otherwise? This judgment will examine these two groups of cases with the view to rationalising the basis for the distinction, if any, and to provide more certainty to employees and employers when negotiating such deferred incentive plans.

Facts Parties to the dispute

Cargill TSF Asia Pte Ltd (“the defendant”) is part of the Cargill group of companies (“the Cargill Group”).¹ The Cargill Group provides food, agricultural, risk management, financial and industrial products and services around the world.² The defendant is part of the Cargill Group’s Trade and Structured Finance (“TSF”) business.³

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”.⁴ The defendant claimed that a Structured Solution involved considerable teamwork between the defendant’s employees and its tax and legal advisors.⁵ The work product of a Structured Solution is a document known as a “Product Approval Form” (“PAF”).⁶ The defendant claimed that a PAF is “a unique, confidential and proprietary ‘how-to-do’ manual setting out all the pertinent information on a Structured Solution”.⁷ It also identified the risks associated with the Structured Solution.⁸

According to the defendant, Mano Vikrant Singh (“the plaintiff”) first joined the Cargill Group in 1992 as a trader and analyst in its Emerging Markets Department.⁹ In 1998, he was assigned to work as an analyst and trader with Cargill Asia Pacific Ltd (“CAPL”).¹⁰ He resigned in 1999¹¹ and rejoined the Cargill Group in 2002¹² and was employed by Cargill Financial Services Corp (“Cargill FSC”) as its TSF business co-ordinator. In between, the plaintiff joined another company which was also involved in trade and structured financial products.¹³ In November 2003, he was assigned to work in Singapore as CAPL’s TSF Innovation Co-ordinator. In April 2007, the plaintiff moved over to the defendant as a senior trader, a position he held until he resigned on 27 November 2008. I should mention that the plaintiff had deposed that he was initially employed by Cargill FSC in 2001.¹⁴ Prior to that, he claimed that he was running his own business involving the buying and selling of trade receivables.¹⁵ This difference in the plaintiff’s employment history is, however, immaterial to the issues before me.

The plaintiff’s position in the defendant was described as “Senior Trader (Corporate Band – Senior Advisor)”.¹⁶ The precise role of the plaintiff in the defendant was initially contested by the parties: According to the plaintiff, he was primarily involved in trading financial instruments which arose from the commodity trading activities of the defendant. His role was to deal with the defendant’s structured trade and non-trade financial products.¹⁷ He also carried on a “third-party business” (“the Third Party Business”).¹⁸ The plaintiff claims that the Third Party Business was his “existing business” which he brought over to Cargill FSC when he first joined it in 2001.¹⁹ According to the defendant, the plaintiff served as an “originator” and a “structurer” of the defendant’s Structured Solutions.²⁰ As an originator, the plaintiff would identify and meet potential and/or existing trading partners and financial institutions to participate in the defendant’s Structured Solutions.²¹ As a structurer, the plaintiff would strategise and create Structured Solutions to maximise profits from a trade flow.²² In the course of the oral arguments, the plaintiff’s counsel, Mr Philip Jeyaretnam SC (“Mr Jeyaretnam SC”) accepted, for the purpose of the present proceedings, that the plaintiff’s role in the defendant’s TSF business was as an “initiator” (sic) or “structurer”.²³

The contractual framework

The main contract between the parties was an employment contract set out in a letter from the defendant to the plaintiff dated 28 March 2007, which was accepted by the plaintiff on 30 March 2007 (“the Employment Contract”).²⁴ It is only necessary to highlight one clause in the Employment Contract. Clause 12 of the Employment Contract provides as follows:²⁵ 12. OTHER OCCUPATION

You shall not at any time during your employment hold any other job without the Company’s written consent.

The plaintiff also entered into an agreement not to compete with the defendant on 30 March 2007 (“the Non-Compete Agreement”). It is a requirement for all employees to execute the Non-Compete Agreement. Under clause 3 of the Non-Compete Agreement, the plaintiff agreed, inter alia, not to compete with the defendant for a period of one year immediately following his termination with the defendant:²⁶ 3. Competition and Solicitation Restrictions. Employee [ie, the plaintiff] agrees that during Employee’s employment with CTSF [ie, the defendant] or any other company within Cargill’s TSF Business Unit, and for a period of one year immediately following the termination of Employee’s employment with CTSF or any other company within Cargill’s TSF Business Unit, regardless of the reason for termination, Employee will not:

(a) as a partner, officer, employee, director, stockholder, proprietor, other equity owner, contractor, consultant, representative or agent engage in the business of creating, marketing or delivering, directly or indirectly, structured trade and non-trade financial products that are similar to TSF Products and Services in countries where Cargill’s TSF Business Unit creates or markets structured trade or non-trade financial products.

(b) as a partner, officer, employee, director, stockholder, proprietor, other equity owner, contractor, consultant, representative, or agent employ or attempt to employ, directly or indirectly, any of Cargill’s TSF Business Unit employees on behalf of any other entity engaged in the business of creating, marketing or delivering structured trade or non-trade financial products that are similar to TSF Products and Services in countries where Cargill’s TSF Business Unit creates or markets structured trade or non-trade financial products.

[emphasis added]

The Non-Compete Agreement (which was entered into contemporaneously with the Employment Contract) is a classic restraint of trade clause that prohibits the plaintiff from directly or indirectly competing with the Cargill Group’s TSF business for a period of one year following his termination of employment. It is pertinent to note that the Non-Compete Agreement is not the subject matter of the present dispute.

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 individual incentive awards were “discretionary based on individual, team and business unit results”.²⁷ The Incentive Award Plan T&Cs provided that 50% of the individual incentive award would be paid out as a cash award (“the Cash Payments”) and the remaining amount would be paid out as a deferred incentive (“the Deferred Incentive Payments”). Unlike the Non-Compete Agreement, it was not obligatory for the plaintiff to accept the Incentive Award Plan T&Cs but the Deferred Incentive Payments would not be processed unless it is signed by the plaintiff.²⁸ Deferred Incentive Payments were paid out over one to three fiscal years from the...