Case Update: Tan Kok Yong Steve v Itochu Singapore Pte Ltd [2018] SGHC 85 – High Court upholds 2-year non-compete clause, grants injunction

Significance: the Singapore High Court (Coram: Tan Siong Thye J) upheld a two-year restraint of trade, non-competition, clause and ordered an injunction against an ex-employee. The Court also held there was a valid agreement for a severance package which was not predicated on the employee’s compliance with the non-competition undertaking.

The Plaintiff employee claimed for severance package; the Defendant counterclaimed that Plaintiff had breached his non-compete clause.

The Defendant is a Singapore subsidiary of a commodity trading firm with HQ in Japan. The Plaintiff was employed by the Defendant from 2012 to 2016 to handle cement trade in Vietnam, The Philippines and Bangladesh.

Part of the Plaintiff’s employment contract stated that he was to abide by a non-compete clause, which for 2 years forbade him from being involved with any competitor of the employer and its affiliates in dealing with Restricted Goods or Restricted Services within the Restricted Area.

Restricted area – the area (geographical or otherwise) constituting the market of the Employer and that of any Affiliate for the Restricted Goods and Restricted Services. Employer argued that it covered Bangladesh, Vietnam, The Philippines.

Restricted goods/services – any product/services competitive with any product/service sold or supplied by the Employer and/or any Affiliate with which the Employee was concerned during the period of 12 months immediately preceding the date of termination of the Employment

On 23rd June 2016, the Plaintiff was offered a severance package by Defendant’s HR if he resigned rather than being terminated. On 30th June, Plaintiff resigned. On 1st July, the Plaintiff was appointed exclusive agent of another company, DIC, for export of cement from Vietnam to the Philippines.

On the Plaintiff’s claim for severance package, the Court examined the whole course of negotiations to find whether a contract was formed (see Gay Choon Ing v Loh Sze Ti Terence Peter and another appeal [2009] 2 SLR(R) 332 (CA)). The Court found that at a meeting, the Defendant’s HR told Plaintiff that if he resigned, he would then be awarded a severance package. Significantly, the Defendant’s counsel did not cross-examine the Plaintiff’s evidence on the meeting and so applying the rule in Browne v Dunn, the Defendant was taken to accept the Plaintiff’s evidence on the meeting (Deepak Fertilizers & Petrochemicals Ltd v Davy McKee (UK) London Ltd [2002] EWCA Civ 1396; Wama Binte Buang v Martin Lee and Another [1993] SGHC 231). The offer was made by the HR manager, and the Plaintiff was entitled to believe that Defendant had intention to create legal relations when making the offer. The letter of resignation and confirmation letter (unequivocal acceptance of Plaintiff’s resignation) were valid acceptance.

One issue is whether compliance with the non-competition undertaking was an express or implied condition precedent before the Plaintiff was entitled to the severance package.  The Court held the non-compete clause was not incorporated as an express term of the contract for severance package, only the requirement for resignation was. There was no need to imply a non-compete clause for severance package. The employer had an interest in obtaining the employee’s resignation, which was independent of the non-compete term.

On the non-compete clause, the Court found that the Defendant had a legitimate proprietary interest of trade connections to protect. This is also clear from the Plaintiff’s role, which allowed him to build up trade connections in Vietnam; the strength of connections was shown by his hiring just 1 day after his resignation.

On the issue of whether the scope of the non-competition undertaking was reasonable, with reference to the activity, geographical and temporal scopes, the Court held that it was.

Activity scope: ‘Restricted goods’ and ‘restricted services’ would cover cement products, not totally forbid commodities trading.

Geographical scope: restricted area means prohibition of Plaintiff in dealing in the same countries he was involved with 12 months before his last day of employment. Court accepted both the Philippines and Vietnam, rejected Bangladesh (last dealing by the Plaintiff was in May 2015). The Court observed dicta that for big countries like PRC, it may not be reasonable to include a whole country in restricted scope.

Temporal scope: Industry highly specialised, much time needed to build up contacts. Not enforcing temporal restriction would make it difficult for newcomers to enter the industry.

Inclusion of Defendant’s affliates in clause: allowed in this case, also previously (PH Hydraulics & Engineering Pte Ltd v Intrepid Offshore Construction Pte Ltd and another [2012] 4 SLR 36).

On the appropriate remedy for breach of non-competition undertaking, an injunction awarded to restrain the Plaintiff from dealing in cement products in Vietnam and the Philippines for two years.

On damages, the Defendant’s claim failed for lack of proof. The Defendants could not prove on balance of probabilities that it was primarily the Plaintiff’s breach that had caused loss to the Defendant. The claim for Wrotham Park loss-of-bargain damages was rejected for lack of proof.

This case update was written with the helpful assistance of Joseph Poon.

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