Man Financial (S) Pte Ltd (formerly known as E D & F Man International (S) Pte Ltd) v Wong Bark Chuan David

• Jurisdiction: Singapore
• Judge: Belinda Ang Saw Ean J
• Judgment Date: 29 November 2007
• Neutral Citation: [2007] SGCA 53
• Docket Number: Civil Appeal No 17 of 2007
• Date: 29 November 2007
• Published date: 08 January 2008
• Year: 2007
• Plaintiff Counsel: Alvin Yeo Khirn Hai SC, Andre Francis Maniam, Neo Ling Chien Jaclyn, Ameera Ashraf and Goh Chun Kiat Colin (WongPartnership)
• Citation: [2007] SGCA 53
• Defendant Counsel: Chia Ho Choon, Spring Tan and Lin Shuling Joycelyn (KhattarWong)
• Court: Court of Appeal (Singapore)
• Subject Matter: Whether restrictive covenants reasonable in interests of parties and in interests of public,Whether employee could enforce claim for compensation under termination agreement,Breach,Conditions,Contractual terms,Whether there was prima facie breach of non-solicitation and non-competition clauses,Whether employer entitled to terminate contract,Circumstances in which doctrine of restraint of trade would not apply to settlement agreement,Whether doctrine of restraint of trade applying to settlement agreements,Termination agreement between company and former employee,Agreement containing restrictive covenants,Whether legitimate proprietary interest existing,Restraint of trade,Consequences of breach of non-solicitation clause,Whether non-solicitation clause intended by parties to be condition such that any breach would entitle employer to terminate contract,Contract,Whether termination agreement a fresh contract or settlement agreement,Illegality and public policy

29 November 2007 Judgment reserved.

Andrew Phang Boon Leong JA (delivering the judgment of the court):

Introduction

1 The was an appeal against part of the decision of the trial judge (“the Judge”) in Wong Bark Chuan David v Man Financial (S) Pte Ltd [2007] 2 SLR 22 (“GD”). Briefly, the Judge granted judgment in favour of Wong Bark Chuan, David (“the respondent”) against his former employer, Man Financial (S) Pte Ltd (“the appellant”), in respect of certain benefits under an agreement entered into by the parties (“the Termination Agreement”).

2 This judgment clarifies and restates the doctrine of restraint of trade in the context of employment relations. More specifically, it evaluates: (a) whether the doctrine of restraint of trade applies to settlement or compromise agreements; and (b) whether the need to maintain a stable, trained workforce, in a situation where no protectable confidences exist, is a legitimate proprietary interest which warrants the court’s protection by way of the doctrine of restraint of trade. We turn first to the facts of the present case.

The facts

3 The respondent was the managing director and chief executive officer (“CEO”) of the appellant, a brokerage company, since 2 August 1996.

4 In May 2005, the respondent suggested a change of role. He informed Kevin Davis of Man Financial Ltd, a company related to the appellant, that he wished to step down as the appellant’s CEO in order to focus on business development in the region.

5 On 13 June 2005, Kevin Davis informed the respondent that he had decided to have someone else replace the respondent as CEO. However, Kevin Davis stated that because it would be difficult for the new CEO to perform his role in the presence of a former CEO, the respondent was to resign with immediate effect. Accordingly, the respondent was placed on “garden leave” from 13 June 2005 (“the Termination Date”) to 13 September 2005 while he served out a three-month notice period. The respondent was also handed a proposed termination agreement dated 13 June 2005 (“the Proposed Agreement”). The Proposed Agreement contained, inter alia, restrictive covenants on non-solicitation and non-competition for a period of one year from the Termination Date. However, the respondent did not agree to the provisions suggested by the appellant and therefore did not sign the Proposed Agreement immediately.

6 Many rounds of negotiation between the parties as to the contents of the Proposed Agreement soon followed (see, generally, [26]–[38] below). The Termination Agreement was finally executed on 23 June 2005, albeit dated 13 June 2005 (viz, the Termination Date). The salient portions of the Termination Agreement were as follows:

C. Non-Solicitation and Non-Competition

C.1. In further consideration of the foregoing, you agree that for a period of seven (7) months from the Termination Date, that is, up to 13 January 2006 you shall not directly or indirectly employ or solicit the employment of (whether as an employee, officer, director, agent or consultant) any person who is or was at any time during the period 13 June 2004 to 13 June 2005 an officer, director, representative or employee of the Company [ie, the appellant]. For avoidance of doubt, you shall not be deemed to employ any person unless you are involved or have otherwise provided input into the decision to hire such individual.

….

C.3. In further consideration of the foregoing, you agree that you will not either directly or indirectly for a period of seven (7) months from the Termination Date, that is up to 13 January 2006, anywhere in the world, organize, own, manage, operate, participate in, render advice to, control, or have an investment or ownership interest in any business that engages in the marketing and/or sale of products, services and/or systems which are in competition with those provided by the Company.

…

D. Release and Discharge

D.1. In further consideration of the foregoing, you hereby unconditionally and irrevocably discharge and release the Company, its parent, officers and directors, and their successors and assigns from any and all claims, demands, causes of action, suits, charges, violation and/or liability whatsoever, known or unknown involving any matter arising out of or in any way related, directly or indirectly, to your employment with the Company or the termination thereof other than your entitlements and benefits under this Termination Agreement.

…

7 Accordingly, under the Termination Agreement, the respondent was prohibited from, inter alia, soliciting the employment of certain employees of the appellant (under clause C.1 of the Termination Agreement (“Clause C.1”)) and participating in or rendering advice to a competitor for a period of seven months from the Termination Date (under clause C.3 of the Termination Agreement (“Clause C.3”)). The respondent was also to receive shares in Man Group plc (the appellant’s parent company) and a goodwill payment (“the Compensation”) from the appellant provided he did not breach the terms of the Termination Agreement.

8 Sometime in September 2005, before the respondent was due to be paid the Compensation, the appellant was informed that the respondent had solicited the employment of its employees or former employees, namely, one Tricia Ng Geok Tin (“Tricia”) and one Tan Siang Hwee (“Siang Hwee”), for a competing company, Refco (S) Pte Ltd (“Refco”). This was contrary to Clause C.1. The appellant was also informed that the respondent had participated in or rendered advice to Refco in breach of Clause C.3. As a consequence, the appellant declined to provide the Compensation. The respondent then sued the appellant for the Compensation. Not surprisingly, the respondent denied having acted in the manner alleged.

The Judge’s findings and decision

9 On the facts, the Judge essentially found in favour of the appellant, and held that the respondent had solicited the employment of at least two of the appellant’s employees (ie, Tricia and Siang Hwee) during the period from 13 June 2005 to 13 January 2006 (“the Prohibited Period”) and had rendered advice to Refco (see GD at [14]–[141]). However, notwithstanding his finding of fact against the respondent, the Judge found that the respondent was entitled to receive the Compensation.

10 In relation to Clause C.1, the Judge accepted the respondent’s interpretation of the provision and held that Clause C.1 applied only if the respondent had solicited the employment of others as an employee, officer, director, agent or consultant of Refco; since the respondent had not done so in any such capacity, he was not prima facie in breach of Clause C.1 (see GD at [142]–[143]). In any event, the Judge held that Clause C.1 was invalid and, hence, unenforceable for being an unreasonable restraint of trade (see [12] below).

11 The Judge held that the burden was on the appellant to show the existence of an interest which merited the protection of the court and to demonstrate the reasonableness of the covenants concerned in terms of their not being wider than what was reasonably necessary to protect that interest. Counsel for the appellant at first instance, Mr Andre Maniam (“Mr Maniam”), submitted that the interest which Clause C.1 sought to protect was the maintenance of a stable workforce. In reply, counsel for the respondent, Mr Chia Ho Choon (“Mr Chia”), argued that in Singapore, the maintenance of a stable workforce was not a legitimate interest that could be protected by a restrictive covenant as Singapore was a very small country with limited resources. The Judge did not rule on whether the maintenance of a stable workforce was a legitimate interest meriting protection. However, he stated that even assuming that there was such a legitimate interest, the Termination Agreement did not actually spell out the appellant’s interests which required protection (see GD at [165]–[166]). For reasons that will be apparent below, we will have to deal with this particular holding.

12 As to the reasonableness of Clause C.1, the Judge held (see GD at [176]–[183]) that, even if the appellant had established that it had a legitimate interest to maintain a stable workforce, Clause C.1 was wider than what was reasonably necessary for the following reasons:

(a) Clause C.1 applied to any and every employee of the appellant without reference to his or her experience or importance.

(b) Clause C.1 applied even to those who had already left the appellant within one year before the Termination Date.

(c) Clause C.1, as it stood, extended even to employees whom the appellant did not want to continue employing.

13 In relation to Clause C.3, the Judge found that the respondent was prima facie in breach of the provision (see GD at [127]–[133]). The Judge then considered whether Clause C.3 was invalid as an unreasonable restraint of trade. To that end, Mr Maniam contended that the respondent’s access to confidential information was the interest which the appellant was protecting thereunder. However, as in the case of Clause C.1, the Judge found (see GD at [172]) that there was no evidence to prove the respondent’s access to confidential information as well as the nature of the alleged confidential information. Accordingly, the Judge found that the appellant had failed to establish any legitimate interest meriting protection under Clause C.3 (see GD at [175]).

14 The Judge was further of the view (see GD at [184]–[191]) that the purpose and scope of Clause C.3 was anti-competition, and listed the following factors which militated against the reasonableness of that provision:

(a) There was no mention in Clause C.3 about the use of confidential information.

(b) Clause C.3 was wide enough even to prohibit the respondent from buying shares in a competitor which was listed on a stock exchange, even though such conduct would not necessarily involve misuse of the appellant’s confidential information.

15 Whilst we agree with the Judge’s ultimate...