Smile Inc. Dental Surgeons Pte Ltd v Lui Andrew Stewart

Judgment Date31 July 2012
Date31 July 2012
Docket NumberCivil Appeal No 145 of 2011
CourtCourt of Appeal (Singapore)
Smile Inc Dental Surgeons Pte Ltd
Plaintiff
and
Lui Andrew Stewart
Defendant

[2012] SGCA 39

Chan Sek Keong CJ

,

Andrew Phang Boon Leong JA

and

V K Rajah JA

Civil Appeal No 145 of 2011

Court of Appeal

Contract—Illegality and public policy—Restraint of trade—Restrictive covenants in employment context—Whether court could read down restrictive covenants via notional severance—Whether court could read down restrictive covenants via contextual approach to interpretation

Employment Law—Employees' duties—Distinction between duty of good faith and fidelity and fiduciary duty—Whether terms of implied duty of good faith and fidelity superseded by express term in employment contract—Whether preparatory activities to compete with employer breached implied duty of good faith and fidelity

Dr Andrew Stewart Lui (‘the Respondent’) was employed as an associate dental surgeon by Smile Inc Dental Surgeons Pte Ltd (‘the Appellant’) in July 2003 and assigned to work at the Appellant's clinic at Forum the Shopping Mall (‘the Forum Clinic’) in July 2005. The Appellant was under the impression that the Respondent would not be staying in Singapore permanently and would leave within six years.

In early 2009, the Respondent incorporated Dental Essence Pte Ltd (‘Dental Essence’), entered into a lease agreement for premises at Tudor Court, a five-minute walk away from the Forum Clinic, committed to renovation works of Dental Essence's premises and resigned from the Appellant's employ (his last day of work being 18 April 2009). Another employee of the Appellant, Dr Gareth Pearson, also joined Dental Essence as a shareholder and dentist on 19 March 2009.

The Appellant brought an action against the Respondent for breach of certain restrictive covenants in the employment contract (‘the restrictive covenants’) and the latter's implied duty of good faith and fidelity, as well as the latter's fiduciary duties. The trial judge (‘the Judge’) held that the restrictive covenants were in unreasonable restraint of trade because, inter alia, they were all unlimited in duration. The Judge further found that the Respondent had not breached his implied duty of good faith and fidelity and that the Respondent did not owe any fiduciary duties to the Appellant. The Appellant appealed against the Judge's decision.

Held, dismissing the appeal:

(1) The approach as laid out in Man Financial (S) Pte Ltd v Wong Bark Chuan David [2008] 1 SLR (R) 663 (‘Man Financial’) was for the court to determine if there was a legitimate proprietary interest to be protected, before applying the twin tests of reasonableness: whether the restrictive covenant was reasonable, first, in reference to the interests of the parties; and second, in reference to the interests of the public. The proposition that the court would enforce the covenant only if it went no further than necessary to protect the legitimate proprietary interest (s) concerned was not conterminous with, but, rather, as an application of the twin tests of reasonableness: at [19].

(2) The courts would adopt a stricter approach to restrictive covenants in the employment context as opposed to the sale of a business because of the differing nature of the legitimate proprietary interests concerned, and the greater inequality of bargaining power in the employment context: at [20] and [21].

(3) A legitimate proprietary interest existed in the context of medical practitioners due to their special and intimate knowledge of the patients of the business: at [22] to [24].

(4) The restrictive covenants in this case were in unreasonable restraint of trade because they, inter alia, operated for an indefinite period of time. The court also agreed with the other reasons given by the Judge as to why the restrictive covenants were unreasonable as between the parties: at [29] and [30].

(5) Man Financial confirmed the two established forms of severance of contractual terms: severance of entire clauses in a contract, and the ‘blue-pencil’ test. In Canada, the doctrine of notional severance was adopted by the Supreme Court in Transport North American Express Inc v New Solutions Financial Corp [2004] 1 SCR 249 to regularise a contract that provided for interest rates beyond the statutory limit. However, the Supreme Court in Shafron v KRG Insurance Brokers (Western) Inc, (2009) 301 DLR (4th) 522 (‘Shafron’) held that notional severance was inappropriate in the employment context because there was no objective bright-line test for reasonableness and increased the risk of the employer imposing an unreasonable restrictive covenant because the court would read it down. While the court was not required to express a concluded view on the applicability of the doctrine of notional severance in this appeal, the reasons given by the court in Shafron were persuasive not only because they were cogent but also because Shafron itself was a case that related directly to a covenant in restraint of trade : at [31] to [35].

(6) The contextual approach to contractual interpretation, laid down in Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] 3 SLR (R) 1029, only operated to give effect to the shared intention of the parties at the time the contract was entered into, not to one party's subjective intention in a hypothetical situation. The court would not assist the Appellant just because the Appellant would have provided a two- to three-year time limit had it known that the Respondent would stay in Singapore permanently: at [36] to [48].

(7) The duty of good faith and fidelity was distinct from a fiduciary duty. Only in certain employment relationships would the two overlap. In this case, the Respondent was merely an associate dental surgeon with no authority to make management decisions, nor was he permitted to make corporate decisions binding the Appellant, unlike other cases where members of ‘senior management’ were found to owe fiduciary duties to the employer: at [49] to [55].

(8) The implied duty of good faith and fidelity could be superseded by an express term providing for prohibited activities during the course of employment. In this case, the employment contract prohibited the Respondent from carrying on or engaging in any form of medical or dental practice apart from his work with the Appellant. None of the Respondent's acts were in breach of this express provision: at [56] to [61].

(9) In any event, even if the Respondent owed an implied duty of good faith and fidelity, he had not breached that duty. Incorporation of a competing business, leasing and fitting out of business premises, and discussions with another former employee to join the competing business were preparatory steps which were not in breach of that duty. The requirement to reveal one's irrevocable intention to start a competing business was part of a director's fiduciary duties: at [62] to [82].

Asia Hotel Investments Ltd v Starwood Asia Pacific Management Pte Ltd [2007] SGHC 50 (refd)

Balston Ltd v Headline Filters Ltd [1990] FSR 385 (refd)

British Midland Tool Ltd v Midland International Tooling Ltd [2003] 2 BCLC 523 (distd)

Canadian Aero Service Ltd v O'Malley (1973) 40 DLR (3d) 371 (refd)

CLAAS Medical Centre Pte Ltd v Ng Boon Ching [2010] 2 SLR 386 (refd)

Cobbetts LLP v Mark Reginald Stuart Hodge [2009] EWHC 786 (Ch) (refd)

G D Searle&Co Ltd v Celltech Ltd [1982] FSR 92 (refd)

Hanna v OAMPS Insurance Brokers Ltd [2010] NSWCA 267 (refd)

Helmet Integrated Systems Ltd v Tunnard [2007] FSR 16 (refd)

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

Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] Ch 169 (refd)

Koops Martin v Dean Reeves [2006] NSWSC 449 (refd)

Lancashire Fires Ltd v SALyons&Co Ltd [1996] FSR 629 (refd)

Laughton&Hawley v BAPP Industrial Supplies Ltd [1986] ICR 634 (refd)

Loh Siok Wah v American International Assurance Co Ltd [1998] 2 SLR (R) 245; [1999] 1 SLR 281 (folld)

Man Financial (S) Pte Ltd v Wong Bark Chuan David [2008] 1 SLR (R) 663; [2008] 1 SLR 663 (folld)

Mitchell v Paxton Forest Products Inc [2002] BCCA 532 (refd)

Nagase Singapore Pte Ltd v Ching Kai Huat [2007] 3 SLR (R) 265; [2007] 3 SLR 265 (refd)

Ng Giap Hon v Westcomb Securities Pte Ltd [2009] 3 SLR (R) 518; [2009] 3 SLR 518 (refd)

Nottingham University v Fishel [2000] IRLR 471 (refd)

OAMPS Insurance Brokers Ltd v Peter Hanna [2010] NSWSC 781 (refd)

Pacific Autocom Enterprise Pte Ltd v Chia Wah Siang [2004] 3 SLR (R) 73; [2004] 3 SLR 73 (refd)

R v Find [2001] 1 SCR 863 (refd)

Robb v Green [1895] 2 QB 1, QBD (Eng) (refd)

Robb v Green [1895] 2 QB 315, CA (Eng) (refd)

Routh v Jones [1947] 1 All ER 179, Ch D (Eng) (refd)

Routh v Jones [1947] 1 All ER 758, CA (Eng) (refd)

Samsung Semiconductor Europe Ltd v Docherty 2011 SLT 806 (refd)

Sandar Aung v Parkway Hospitals Singapore Pte Ltd [2007] 2 SLR (R) 891; [2007] 2 SLR 891 (distd)

Sanders v Parry [1967] 1 WLR 753 (refd)

Shafron v KRG Insurance Brokers (Western) Inc (2009) 301 DLR (4th) 522 (refd)

Shepherds Investments Ltd v Walters [2007] FSR 15 (distd)

Singapore Telecommunications Ltd v Starhub Cable Vision Ltd [2006] 2 SLR (R) 195; [2006] 2 SLR 195 (distd)

Sir W C Leng & Co Ltd v Andrews [1909] 1 Ch 763 (folld)

Thorsten Nordenfelt (Pauper) v The Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 (folld)

Transport North American Express Inc v New Solutions Financial Corp (2001) 200 DLR (4th) 560 (refd)

Transport North American Express Inc v New Solutions Financial Corp (2002) 214 DLR (4th) 44 (refd)

Transport North American Express Inc v New Solutions Financial Corp [2004] 1 SCR 249 (refd)

Wessex Dairies Ltd v Smith [1935] 2 KB 80 (refd)

Zheng Yu Shan v Lian Beng Construction (1988) Pte Ltd [2009] 2 SLR (R) 587; [2009] 2 SLR 587 (folld)

Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] 3 SLR (R) 1029; [2008] 3 SLR 1029...

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26 cases
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    • Singapore
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    ...Inc Dental Surgeons Pte Ltd v Lui Andrew Stewart [2012] 1 SLR 847, HC (refd) Smile Inc Dental Surgeons Pte Ltd v Lui Andrew Stewart [2012] 4 SLR 308, CA (folld) Staywell Hospitality Group Pty Ltd v Starwood Hotels & Resorts Worldwide, Inc [2014] 1 SLR 911 (refd) Stenhouse Australia Ltd v Ph......
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  • Request a trial to view additional results
1 firm's commentaries
  • Implied duties of good faith, fidelity and fiduciary duties in employment contracts
    • Singapore
    • Mondaq Singapore
    • 19 September 2012
    ...SGHC 241 This decision has since been upheld by the Singapore Court of Appeal in Smile Inc Dental Surgeons Pte Ltd v Lui Andrew Stewart [2012] SGCA 39 ("Smile Inc"). In the recently issued judgment, the Court of Appeal has prescribed clearer principles of law on the implied duties of good f......
1 books & journal articles
  • Contract Law
    • Singapore
    • Singapore Academy of Law Annual Review No. 2012, December 2012
    • 1 December 2012
    ...and relevant orders were made to restrain ATL from enforcing the same. 12.99 In Smile Inc Dental Surgeons Pte Ltd v Lui Andrew Stewart[2012] 4 SLR 308, the Court of Appeal affirmed the High Court's decision in Smile Inc Dental Surgeons Pte Ltd v Lui Andrew Stewart[2012] 1 SLR 847 (discussed......

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