Pacific Autocom Enterprise Pte Ltd v Chia Wah Siang

• Jurisdiction: Singapore
• Judgment Date: 05 May 2004
• Date: 05 May 2004
• Docket Number: Suit No 1209 of 2002
• Court: High Court (Singapore)

Pacific Autocom Enterprise Pte Ltd

Plaintiff

and

Chia Wah Siang

Defendant

[2004] SGHC 89

Judith Prakash J

Suit No 1209 of 2002

High Court

Contract–Contractual terms–Express terms–Interpretation of extension clause in indemnity agreement–Employment Law–Contract of service–Termination without notice–Clause in employment contract requiring notice of resignation–Whether employee in breach of clause–Employment Law–Employee's duties–Express and implied obligations under contract of employment–Whether employee in breach of duty of good faith and fidelity towards employer

In 1998 the plaintiff, Pacific Autocom Enterprise Pte Ltd (“PAE”), following discussions with the defendant Chia Wah Siang (“Chia”), signed an agreement with a Swiss company, Blaser Swisslube AG (“Blaser”), in December 1998, to become the distributor of Blaser's products in Singapore and Malaysia. The distribution agreement contained a non-competition clause preventing PAE from selling “competing products which are identical or similar to” the Blaser products. It also provided that if PAE wished to distribute other products it would have to first inform Blaser of this fact.

Concurrently, PAE employed Chia as manager of its Industrial Materials & Products Division (the “Division”). Chia's responsibility was to provide sales, marketing and product support functions to the Division. He was responsible for the Division's “profit and loss functions and long term growth objectives”.

In July 2000, PAE held discussions with Conoco International Inc (“Conoco”), which manufactured industrial lubricants. PAE was subsequently appointed as distributor of Conoco lubricant products. PAE did not inform Blaser of this.

In March 2002, Blaser's executive sales manager, Hans Niederhäuser (“Niederhäuser”) discovered PAE's relationship with Conoco. Niederhäuser considered Conoco to be Blaser's competitor. Blaser and PAE then corresponded on this issue, but Blaser decided to terminate the distributorship agreement. It issued a letter to this effect on 14 June 2002 which was presented to PAE on 26 June 2002.

In the meantime, Blaser incorporated Blaser Swisslube (S) Pte Ltd (the “new company”) in order to distribute its products in Singapore and Malaysia. Blaser also asked Chia to run the Singapore operation and become a director of Blaser Singapore. PAE only became aware of these new developments on 26 June 2002, when the letter terminating the PAE-Blaser distributorship was presented to it, and when Chia handed his resignation letter to PAE.

PAE commenced this action against Chia. The first cause of action arose under an indemnity agreement signed by Chia. PAE averred that Chia was responsible to indemnify PAE in the sum of $23,224.44, the net loss incurred by the Division from January to December 2001. PAE argued that under the indemnity agreement, Chia agreed to indemnify PAE for all losses and expenses incurred by the Division for a period of 18 months from 1 December 1998 in the event that: (a) Chia resigned or had his employment terminated during the 18 months; (b) Blaser terminated the distributorship agreement; or (c) the Division suffered “a loss after operation for a period of 18 months from setting up”. PAE maintained that this meant that the indemnity was automatically extended for a further 18 months upon expiry of the first 18 months from the establishment of the Division.

PAE's second cause of action arose from an alleged breach by Chia of his express and implied obligations under his contract of employment. PAE submitted that Chia was under: (a) an obligation to grow the business and increase revenue; (b) an obligation to work diligently, adhere to working hours and serve PAE exclusively; and (c) a fiduciary duty and a duty to serve PAE faithfully. PAE claimed that Chia had failed to meet his obligations. PAE also discovered after Chia's resignation, that Chia, in breach of his contract of employment, had been a shareholder and a director of a company known as Quantum Canary Pte Ltd whilst employed by PAE. PAE also claimed that Chia had been the one who persuaded Blaser to leave PAE and set up the new company to handle the distribution of its products in the region. PAE alleged that Chia had plotted with Blaser to keep PAE in the dark and therefore, Chia was in breach of his duty of fidelity, as he had concocted and participated in such plans and schemes while still working for PAE. PAE claimed that it suffered loss and damage and/or loss of opportunity, quantifying the damages at $585,388.70 or alternatively $151,200 or damages as assessed arising out of the alleged breach.

The last cause of action was for the breach of a clause in Chia's employment contract, which required him to give four weeks' notice of his resignation or pay four weeks' salary in lieu of notice. The claim was for the sum of $6,496.

Chia denied all of PAE's claims and counterclaimed one month's salary on the basis that PAE had wrongfully failed to pay him his salary for June 2002.

Held, allowing the plaintiff's claim and awarding damages in the sum of $102,636, and dismissing the defendant's counterclaim:

(1) The meaning of the extension clause in the indemnity agreement was clear. The indemnity was for a period of 36 months, from 1 December 1998 to 30 November 2001. The automatic renewal provision in the extension clause had the effect of extending the initial duration without the need for any further agreement or action by either party. However, PAE could not recover the full amount claimed because part of the amount related to losses incurred in December 2001. The losses for which PAE claimed were also not covered by Chia's indemnity: at [31] to [35].

(2) PAE asserted that Chia was in breach of his obligation to grow the business and increase revenue. Chia had indeed committed a significant breach of his duty as an employee. Chia had an obligation to do his best to develop a relationship with potential companies that Blaser wanted him to target, but did hardly anything to discharge that obligation: at [52].

(3) As regards Chia's alleged involvement in other businesses, the only hard evidence of that was the search report showing that he was an officer or shareholder of Quantum Canary. There was no evidence that he was actively involved in the business of Quantum Canary. It was a breach of his contract to be an officer of Quantum Canary, but that was a technical breach unless it could be shown that his involvement had an adverse impact on his work for PAE: at [52].

(4) There was no doubt that technically PAE was in breach of the distributorship agreement when, in November 2001, it signed an agreement with Conoco to distribute Conoco products. However, under the articles of the distributorship agreement, such breach did not entitle Blaser to put an immediate end to the distributorship agreement: at [57] and [65].

(5) PAE asserted that Chia was in breach of his employee's duty of fidelity. Chia had breached this duty. First, he played an active part in the breakdown of the relationship between PAE and Blaser. Second, he was aware of Niederhäuser's dissatisfaction with PAE over Conoco. His duty was to draw this to PAE's attention so that PAE could try and rectify the sitaution. Third, Chia accepted Blaser's offer of employment instead of making an effort to retain Blaser as PAE's principal. He did this knowing that it would assist Blaser's business: at [66] and [70].

(6) As to whether Chia had breached the notice provision, this was a question of fact. Chia had no intention of working for PAE after 26 June 2002. The evidence showed that prior to that date, Chia had taken all steps necessary to effect a transfer of all business and stock from PAE to the new company upon termination of PAE's appointment as distributor. Chia was an essential component of the new company and it would have been very difficult for the new company to conduct its business without Chia's assistance: at [72] and [74].

Balston Ltd v Headline Filters Ltd [1987] FSR 330 (refd)

Laughton v Bapp Industrial Supplies Ltd [1986] ICR 634 (refd)

Metal Salvage Association Inc v Michael Siegel503 NYS 2d 26 (1986) (refd)

Parfums Rochas SA v Davidson Singapore Pte Ltd [2000] 1 SLR (R) 397; [2000] 2 SLR 148 (refd)

Sanders v Parry [1967] 1 WLR 753; [1967] 2 All ER 803 (folld)

Sure-Grip Fasteners Ltd v Allgrade Bolt & Chain Inc (1993) 46 CPR (3d) 443 (refd)

Universal Westech (S) Pte Ltd v Ng Thiam Kiat [1996] 3 SLR (R) 429; [1997] 2 SLR 139 (refd)

Thio Ying Ying and Alan Loh (Kelvin Chia Partnership) for the plaintiff

Tan Yew Fai (Y F Tan & Co) for the defendant.

Judgment reserved.

Judith Prakash J

Introduction

1 The plaintiff, whom I shall refer to as PAE, is a Singapore company that has, since 1976, been in the business of trading and distributing automotive spare parts, industrial chemicals and brake fluids. In 1998, PAE wanted to diversify its business and maximise the use of its infrastructure and resources. In the last quarter of that year, PAE held discussions with one Richard Lim and the defendant, Chia Wah Siang (also known as Johnny Chia). As a result, in December 1998, PAE signed an agreement with a Swiss company, Blaser Swisslube AG (“Blaser”), to become the distributor of Blaser's products in Singapore and Malaysia. At the same time, PAE employed Mr Chia as manager of its newly created Industrial Materials & Products Division. His main responsibility was to manage the distribution and sale of Blaser products.

2 On 26 June 2002, Blaser terminated the distributorship agreement with immediate effect. On the same day, Mr Chia tendered his letter of resignation to PAE. Subsequently, Mr Chia went to work for a company called Blaser Swisslube (S) Pte Ltd (“Blaser Singapore”) that had been incorporated by Blaser to distribute its products in Singapore and Malaysia.

3 This action was commenced in October 2002. Various claims against Mr Chia have...