Stratech Systems Ltd v Nyam Chiu Shin (alias Yan Qiuxin) and Others

• Jurisdiction: Singapore
• Judgment Date: 28 March 2005
• Date: 28 March 2005
• Docket Number: Civil Appeals No 78 and 98 of 2004
• Court: Court of Appeal (Singapore)

Stratech Systems Ltd

Plaintiff

and

Nyam Chiu Shin (alias Yan Qiuxin) and others

Defendant

[2005] SGCA 17

Yong Pung How CJ

,

Chao Hick Tin JA

and

Woo Bih Li J

Civil Appeals No 78 and 98 of 2004

Court of Appeal

Employment Law–Contract of service–Breach–Company employees cloning hard disks of company's computers without company's knowledge or permission–Whether information taken constituting confidential information or trade secrets–Whether actions of employees amounting to breach of confidentiality undertaking in employment contract–Employment Law–Contract of service–Restrictive covenants–Whether restraint of trade clause in company's employment contract protecting any legitimate interest of company–Whether clause binding on and applicable to company employees–Whether company employees breaching clause–Tort–Inducement of breach of contract–Whether company inducing another company's employees to breach confidentiality and restraint of trade clauses in employment contracts

Stratech (the appellant in Civil Appeal No 78 of 2004) collaborated with Guthrie (the appellant in Civil Appeal No 98 of 2004) to obtain a contract for the design, supply, installation and commissioning of a vehicle entry permit system (“VEPS”) from the Land Transport Authority (“LTA”). LTA awarded the VEPS contract to Guthrie in March 1999.

In April 1999, Guthrie awarded Stratech a sub-contract to supply part of the hardware and the entire software for VEPS. VEPS was commissioned on 9 May 2000. Over the years, Stratech developed various versions of the VEPS software, but it was not disputed that LTA owned the title and intellectual property rights to VEPS up to version 115 (“V115”).

In February 2003, LTA asked Guthrie to integrate VEPS with Singapore's Electronic Road Pricing System. Guthrie instructed Stratech to do this. Stratech's work link was saved in a file named version 116 (“V116”).

After a dispute over payment with Guthrie on 25 March 2003, Stratech terminated its work on V116 and ceased all post-warranty maintenance work on VEPS that same month.

When Stratech pulled out, Guthrie contacted some of its employees to ask if they would like to work for Guthrie. Nyam and Wong agreed and terminated their employment with Stratech in April 2003.

Pursuant to an Anton Piller order obtained in May 2003, Stratech seized five computers from Guthrie's premises. The computers contained numerous files belonging to Stratech. Guthrie admitted that it had cloned the contents of four hard disks from Stratech's computers in LTA's office in order to facilitate post-warranty maintenance works on VEPS.

Stratech filed an action against Nyam, Wong and Guthrie, claiming,inter alia, that: (a) by cloning four hard disks from Stratech's computers at LTA's office, Nyam and Wong had breached the confidentiality clause (cl 8.1) in their employment contracts with Stratech which Guthrie had induced by knowingly receiving confidential information and trade secrets; and (b) Nyam and Wong were in breach of cl 9.4 of their employment contracts with Stratech which restrained them from joining a company in the habit of dealing with Stratech within nine months after terminating their employment with Stratech, and that Guthrie had induced this breach.

The trial judge dismissed Stratech's claim under cl 8.1. He also dismissed Stratech's claim against Nyam and Wong under cl 9.4 but found Guthrie liable for inducing Nyam and Wong to breach cl 9.4. He awarded Stratech nominal damages of $1,000.

Stratech appealed in CA 78/2004 and Guthrie cross-appealed in CA 98/2004.

Held, dismissing the appeal in CA 78/2004 and allowing the appeal in CA 98/2004:

(1) There was no specificity in Stratech's pleadings or evidence which showed that Nyam, Wong and Guthrie had taken confidential information from its computers. It was too sweeping to say that password-protected information had to be confidential information. The fact that the data in the computers was needed to carry out maintenance work did not establish its confidential nature. Furthermore, Stratech had only removed V116 from its computers once it stopped providing post-warranty maintenance for VEPS. This went against its contention that the information remaining in the computers was confidential: at [35] to [38].

(2) Although Stratech's case on the issue of confidential information was hampered by the fact that some of Stratech's employees had crossed over to Guthrie, this was not a valid reason to excuse Stratech from its burden of proof. Stratech should have been able to establish its case with specificity with the assistance of its expert and its remaining staff: at [39].

(3) The court would never uphold a restrictive covenant which served only to protect an employer from competition from a former employee. There had to be some subject matter which an employer could legitimately protect by a restrictive covenant. Bearing in mind that Stratech already had the benefit of cl 8.1, and as Stratech was unable to demonstrate any other legitimate interest that required protection, the main function of cl 9.4 was indeed to inhibit competition in business. As such, cl 9.4 was not binding on Nyam and Wong, and Guthrie could not be guilty of inducing them to breach their contracts with Stratech: at [44], [48] to [50].

Buckman Laboratories (Asia) Pte Ltd v Lee Wei Hoong [1999] 1 SLR (R) 205; [1999] 3 SLR 333 (folld)

De Francesco v Barnum (1890) LR 45 Ch D 430 (folld)

Diamond Stylus Co Ltd v Bauden Precision Diamonds Ltd [1973] RPC 675 (folld)

Faccenda Chicken Ltd v Fowler [1987] Ch 117 (refd)

FSS Travel and Leisure Systems Ltd v Johnson [1999] FSR 505 (folld)

John Zink Company Limited v Lloyds Bank Limited [1975] RPC 675 (folld)

Northern Messenger (Calgary) Limited v Frost (1966) 57 DLR (2d) 456 (folld)

Tang Siew Choy v Certact Pte Ltd [1993] 1 SLR (R) 835; [1993] 3 SLR 44 (folld)

N Sreenivasan and Collin Choo (Straits Law Practice LLC) for the appellant in CA 78/2004 and the respondent in CA 98/2004

S Suressh and Merissa Quek (Harry Elias Partnership) for the first and second respondents in CA 78/2004

Goh Phai Cheng SC and Melvin Lum (Ang & Partners) for the third respondent in CA 78/2004 and the appellant in CA 98/2004.

Woo Bih Li J

(delivering the judgment of the court):

Background

1 In late 1997, the Land Transport Authority (“LTA”) invited tenders for the award of a contract for the design, supply, installation and commissioning of a Vehicle Entry Permit/Toll System (“VEPS”). VEPS is an automated electronic system which allows drivers at the Woodlands, Tuas and Changi Ferry Terminal checkpoints to pay the toll fee by way of their cash cards. Guthrie Engineering (S) Pte Ltd (“Guthrie”) and Stratech Systems Limited (“Stratech”) collaborated to obtain this contract from LTA. LTA eventually awarded the contract to Guthrie in March 1999. LTA also awarded Guthrie a contract for the post-warranty maintenance of VEPS.

2 In April 1999, Guthrie awarded a sub-contract to Stratech to supply part of the hardware and the entire software for VEPS (“the VEPS sub-contract”).

3 VEPS was commissioned by LTA on 9 May 2000. Over the years, Stratech developed many versions of the VEPS software, each of which was a slightly modified and improved version of the previous one. It was not disputed that LTA owns the title and intellectual property rights to VEPS up to version 115 (“V115”).

4 Stratech and Guthrie did not sign a sub-contract for the post-warranty maintenance due to disagreement over a payment term. Despite the lack of a formal agreement, Stratech carried out post-warranty maintenance works and occasional enhancement works on VEPS after the warranty period for the system expired on 9 May 2001.

5 In February 2003, LTA asked Guthrie to integrate VEPS with Singapore's Electronic Road Pricing System (“ERP” system). Under this system, foreign motorists would be able to pay a fixed ERP charge at the same time that they paid their toll charges, and so be able to enter ERP zones in Singapore without having to install an in-vehicle unit. Guthrie instructed Stratech to modify the VEPS software for compatibility with the ERP system (the “VEPS-ERP link”).

6 Stratech began work on the VEPS-ERP link and saved its work in a file named version 116 (“V116”). The V116 file was stored in one of five computers which Stratech kept in LTA's office. Stratech's principal engineer working on V116 was a person by the name of Armin Budiman (“Armin”). Two other persons, Nyam Chiu Shin (“Nyam”) and Wong Leh Hung (“Wong), also featured.

7 Stratech alleged that Nyam was the...