High Court · Decided 16 December 2011

Smile Inc Dental Surgeons Pte Ltd v Lui Andrew Stewart

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[2011] SGHC 266Case no. Suit No 847 of 2009

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Woo Bih Li J:
Introduction
[1] This is an action by Smile Inc Dental Surgeons Pte Ltd (“Smile”) against its former employee, Dr Andrew Stewart Lui (“Dr Lui”), for breaches of express and implied terms of Dr Lui’s employment contract.
[2] As a result of an agreement between the parties on a reduced list of issues, only two persons gave evidence for Smile: Dr Ernest Rex Tan Sek Ho (“Dr Tan”) and his wife Chong Mo-Ai Grace (“Ms Chong”). Dr Lui elected to make a submission of no case to answer after the close of the case for Smile and not to adduce any evidence for his case.
[4] The facts or allegations I set out below come mainly from Dr Tan.
Background
[5] Smile was incorporated in Singapore in March 1997 by Dr Tan and Ms Chong. Since inception, Dr Tan and Ms Chong have been equal shareholders in, and the only directors of, Smile. Dr Tan is a practising dentist and is also a specialist prosthodontist certified by the Singapore Dental Council. Prosthodontics is a dental specialisation in reconstructive and cosmetic dentistry. Ms Chong is not a practising dentist. She is the Managing Director of Smile.
[6] Smile opened its first dental clinic in a shopping mall known as “Suntec City” (“the Suntec Clinic”) in October 1997. It was the first dental clinic in Singapore to provide a procedure known as “Britesmile Laser Teeth Whitening”. Dr Tan explained that this procedure was the first technology (back in 1997) which enabled patients to whiten their teeth in one sitting in one hour on the dentist’s chair. Dr Tan bought the rights of distributorship for this procedure for the whole of Asia and brought the first machine for this procedure in Asia back to Singapore in 1997.
[7] Smile opened its second dental clinic at “Forum the Shopping Mall” (“the Forum Clinic”) in September 1998 after securing a covenant from the landlord, Hermill Investments Pte Ltd (“Hermill”), that the Forum Clinic would be the only dental clinic in the shopping mall. The Forum Clinic was the “first and only full-fledged children and family-themed dental practice in Singapore” (see para 26 of Dr Tan’s Affidavit of Evidence-in-Chief (“AEIC”)). This was in line with Hermill’s positioning of the Forum shopping mall as a children-themed mall.
[8] The Suntec Clinic was located within the central business district while the Forum Clinic was located along Orchard Road, which is the main shopping belt in Singapore. Dr Tan stated (at para 41 of his AEIC) that Smile’s “Forum Clinic clientele comprises mainly locals/expatriates/tourists who are of the upper middle to high income families that reside around or frequent the Orchard and Tanglin vicinity”.
[9] Dr Lui is an Australian citizen. In 2003, he approached Smile to explore the possibility of employment with the latter. He informed Dr Tan and Ms Chong that he was dissatisfied with his then employment as an associate dentist at a dental practice in Great World City due to its lack of “profile and visibility”. His remuneration with that practice was contingent on the number of patients he treated. He complained that that practice did not attract sufficient patients to make it worth his while to remain employed there.
[10] Dr Tan and Ms Chong were impressed with Dr Lui. They felt that “he had the personality, skills and aptitude to relate to patients”, and he struck them as a dentist with “good chair-side manners” (see para 35 of Dr Tan’s AEIC).
[11] Dr Lui had several discussions with Smile about his employment prospects. During this time, Dr Lui held an Employment Pass and was living in a rented apartment. Dr Lui informed Dr Tan and Ms Chong that his mother was living in Melbourne, Australia, and that he eventually planned to return to Melbourne to look after her (see para 36 of Dr Tan’s AEIC). He claimed that he had no plans to apply for Permanent Resident status as he did not intend to settle down in Singapore for the long run.
[12] In one of the discussions, Dr Lui asked whether Smile was looking for a partner or an associate dentist. Dr Tan and Ms Chong replied that they were only looking for an associate dentist, and Dr Lui indicated his agreement to this.
[13] Initially, the draft employment contract stipulated that Dr Lui’s minimum term of employment was five years. Dr Lui managed to get this reduced to three years. According to Dr Tan and Ms Chong, Dr Lui gave them the impression that he would only stay and practise in Singapore for a short term. As such, it was “completely inconceivable” to them when the contract was entered into that Dr Lui “would seek to practice elsewhere in Singapore” after his employment with Smile ended (see para 39 of Dr Tan’s AEIC). They believed that he would return to Australia to practise.
[14] The employment contract was signed by the parties on 31 July 2003 (“the Contract”). Clause 7 of the Contract provided that Dr Lui’s remuneration as an “associate dental surgeon” was to be 40% of the net professional fees collected each month. Dr Lui commenced work with Smile on 1 September 2003. In his first two years of working for Smile, Dr Lui practiced both in the Suntec Clinic and the Forum Clinic. However, with effect from July 2005 Dr Lui was assigned by Smile to work full-time at the Forum Clinic.
[15] Smile set up a third clinic at One Raffles Quay (“the ORQ Clinic”) in 2005.
[16] Dr Tan stated (at para 47 of his AEIC) that, at the end of 2004, the Ministry of Health (“the MOH”) relaxed the advertising guidelines for the medical and dental professions. Smile subsequently embarked on a substantial advertising and marketing effort to increase the awareness and profile of its brand name as well as the profile of the Forum Clinic.
[17] A “large light box signage” was erected on the external facade of the Forum shopping mall facing Cuscaden Road from 9 February 2007 to 8 September 2010 in order to raise awareness of the Forum Clinic in the area.
[18] From October 2007 to August 2008, Smile ran a series of advertisements in “Motherhood Magazine” that specifically promoted the Forum Clinic and the dentists practicing there, including Dr Lui. Smile also ran a series of “Question and Answer” articles in “Motherhood Magazine” and “Ma Ma Bao Bei” (a Mandarin-language child and family magazine) to increase the profile of its individual dentists, including Dr Lui. For instance, Dr Lui was featured in the October 2007 and February 2008 issues of “Motherhood Magazine”, and the December 2008 issue of “Ma Ma Bao Bei”.
[19] On 7 January 2009, Dr Lui incorporated Dental Essence Pte Ltd (“Dental Essence”) and was the sole director and shareholder thereof while he was still employed by Smile. On or about 25 February 2009, Dr Lui entered into a one-year tenancy agreement for premises at 127 Tanglin Road, Tudor Court, Singapore 247922 (“Tudor Court”) on behalf of Dental Essence. This location was within five minutes’ walk from the Forum Clinic. On the same day (ie, 25 February 2009), Dr Lui also gave written notice of his resignation to Smile. Despite the three months’ notice period which Dr Lui was obliged to give to Smile pursuant to Clause 20 of the Contract, Smile agreed on 31 March 2009 that Dr Lui’s last day of work with Smile would be 18 April 2009. On 14 May 2009, Dental Essence obtained a licence from the MOH to operate a dental clinic, and it began operations the next day, ie, 15 May 2009.
[20] According to Dr Tan, sometime in March 2009 Dr Lui committed to renovation works of Dental Essence’s premises amounting to about $60,000. On 19 March 2009, Dr Gareth Pearson (“Dr Pearson”), a former employee of Smile, joined Dental Essence as a shareholder and a dentist. About one year earlier, in March 2008, Dr Pearson had given Smile six months’ notice that he intended to stop working in September 2008 for an indefinite period because he was leaving Singapore. Dr Pearson was a part-time dentist employed by Smile and was based primarily at the Forum Clinic. Dr Lui and Dr Pearson together accounted for 80% of the Forum Clinic’s patient pool.
[21] After Dr Lui’s departure from the Forum Clinic, the Forum Clinic experienced a decrease in monthly revenue. Although the clinic’s monthly revenue was about $116,000 in April 2009 (which was the month in which Dr Lui left Smile’s employment), this dropped to about $52,000 by September 2009. This was a drop of about 55%. On 8 October 2009, Smile commenced this action against Dr Lui. By this time, Smile had received requests from numerous patients for their dental records. It later found out that many of these patients became patients of Dental Essence.
[22] The monthly revenue of the Forum Clinic continued to dwindle, and Smile eventually closed the Forum Clinic on 15 September 2010, which was the same day when the Forum Clinic’s licence expired.
[23] In January 2011, this action was bifurcated upon application by Dr Lui.
The case for Smile
[24] Smile relied on two broad categories of causes of action. First, Smile alleged that Dr Lui had breached various express provisions in the Contract which restricted Dr Lui from undertaking certain activities.
[25] Secondly, Smile also alleged that Dr Lui had breached implied terms of the Contract which provided that Dr Lui owed certain implied duties.
[26] As regards the express provisions, Smile’s first allegation (at paras 21 and 22 of its Statement of Claim (Amendment No 2) (“the SOC (No 2)”)) was that Dr Lui had breached Clause 24 of the Contract because the latter was practising as a dentist at Dental Essence’s clinic at Tudor Court, which was within three kilometres of Smile’s Forum Clinic. Clause 24 of the Contract was as follows:
For convenience, I will refer to Clause 24 as the “Radial Clause”. There was no time limit in this clause.
[27] Smile’s second allegation (at paras 23 to 26 of the SOC (No 2)) was that Dr Lui had breached Clause 23 and/or Clause 25 of the Contract by, inter alia, conducting consultations with, examining and/or treating Smile’s patients after he left Smile’s employment. After discovery, Smile found out that 716 patients of Dental Essence were treated by Dr Lui on at least one occasion while he was employed by Smile at the Forum Clinic. However, it was not clear when all the 716 patients eventually migrated to Dental Essence.
[28] Clauses 23 and 25 of the Contract were as follows:
For convenience, I will refer to Clauses 23 and 25 as “the Non-Solicitation Clause” and “the Non-Dealing Clause” respectively. Both clauses did not contain any time limit or geographical limit.
[29] As regards the implied terms and duties, Smile relied on the following implied terms:
(a) Dr Lui owed a duty of good faith and fidelity to Smile;
(b) Dr Lui owed a duty to act honestly and with reasonable diligence in the discharge of his duties;
(c) Dr Lui owed a duty to act in good faith and in the best interests of Smile;
(d) Dr Lui owed a duty not to act so as to place himself in a position in which his personal interests would or did conflict with those of Smile; and
(e) Dr Lui owed a duty to disclose his interest in any transactions involving Smile.
[30] Smile claimed that these implied duties were breached by Dr Lui by reason of the following acts or omissions while he was still employed by Smile:
(a) Dr Lui incorporated Dental Essence on 7 January 2009;
(b) Dr Lui, for and on behalf of Dental Essence, signed a tenancy agreement for the premises of Dental Essence in Tudor Court on 25 February 2009;
(c) Dr Lui fitted out the said premises of Dental Essence;
(d) Dr Lui had discussions/negotiations with Dr Pearson which resulted in Dr Pearson becoming a shareholder and director of Dental Essence, with a view to Dr Pearson working as a dentist at Dental Essence;
(e) Dr Lui applied for a licence from the MOH to practice dentistry with Dental Essence;
(f) Dr Lui failed to inform Smile of all or any of the foregoing matters; and
(g) Dr Lui failed to obtain Smile’s consent to the setting up of Dental Essence.
I noted that, in the SOC (No 2), Smile relied on the facts pleaded in support of the alleged breaches of the Radial Clause, Non-Solicitation Clause and Non-Dealing Clause (see [26]–[27] above) as also constituting breaches of the said implied terms (see para 27(1) of the SOC (No 2)). However, in its revised opening statement Smile did not mention these facts as a further basis for the alleged breach of Dr Lui’s implied duties (see para 10 of Schedule “B” to Smile’s Supplemental (Revised) Opening Statement filed on 20 September 2011).
[31] The substantive remedies which Smile claimed were as follows:
(a) damages, including damages pursuant to Clause 18 of the Contract; and alternatively
(b) an account of profits.
[32] For completeness, I would mention that Smile’s pleadings originally contained prayers for the following reliefs:
(a) An injunction restraining Dr Lui from practising at Tudor Court and elsewhere within three kilometres from the Suntec Clinic, the Forum Clinic and the ORQ Clinic; and
(b) An injunction restraining Dr Lui from dealing with Smile’s patients (whether by conducting consultations with, examining and/or treating Smile’s patients).
Smile was no longer seeking the said injunctions in the SOC (No 2).
[33] I should also mention that the SOC (No 2) contained a separate claim (at paras 17 and 18) for breaches of Clauses 14 and/or 16 of the Contract by reason of the fact that Dr Lui became a director and shareholder of Dental Essence on 7 January 2009, which was when he was still an employee of Smile. However, this claim was not pursued any further and it was not mentioned in Smile’s revised opening statement or its closing submissions. Accordingly, I need not say any more about Clauses 14 and 16 of the Contract.
Dr Lui’s submission of no case to answer
[34] As mentioned above, Dr Lui elected to make a submission of no case to answer and not to call any evidence at the close of the case for Smile. This was on 26 September 2011. The principles governing the effect of such a submission are well-established and can be summarised as follows:
(a) The result of an election by Dr Lui to make a submission of no case to answer is that the court is left with only Smile’s version of the story. If there is some prima facie evidence (ie, evidence which is not unsatisfactory and not unreliable) that supports the essential elements of Smile’s claim, the court should accept such evidence: see Bansal Hemant Govindprasad and another v Central Bank of India [2003] 2 SLR(R) 33 (“Govindprasad”) at [10], [11] and [16].
(b) Even if there is some prima facie evidence that supports the essential elements of Smile’s claim (ie, if limb (a) has been satisfied), the court must still consider whether that claim has been established in law: see Govindprasad at [11].
[35] I should elaborate that Dr Lui’s election did not mean that I was obliged to accept every allegation by Smile. For example, if Dr Tan gave evidence on a disputed conversation between Dr Lui and himself, then in the absence of evidence from Dr Lui, I should accept Dr Tan’s evidence unless his evidence was itself unsatisfactory or unreliable. The disputed conversation would be a matter within the personal knowledge of Dr Tan and Dr Lui. However, if Dr Tan gave evidence on an allegation pertaining to his own intention which was not disclosed to Dr Lui, then the absence of evidence from Dr Lui on this point was neutral since he would have had no personal knowledge of that intention. In a third example, if Dr Tan gave his personal opinion on what a provision in the Contract meant, the absence of any opinion by way of evidence from Dr Lui was again neutral. Dr Tan’s opinion would not be an expert opinion. Dr Lui would still be entitled to advance his case on the interpretation of that provision through submissions from his counsel.
[36] Counsel for Smile was Mr Aqbal Singh (“Mr Singh”). The lead counsel for Dr Lui was Mr Wong Siew Hong (“Mr Wong”).
The issues before the court
[37] As regards the express provisions, the main issues before me concerned the Radial Clause, the Non-Solicitation Clause and the Non-Dealing Clause (collectively, “the Restrictive Covenants”). They required the following questions to be considered:
(a) What was the correct interpretation of each of the Restrictive Covenants;
(b) Whether Dr Lui had breached any of the Restrictive Covenants; and
(c) If so, whether the Restrictive Covenant which was breached was void as being contrary to the public policy against covenants in restraint of trade.
[38] The issue concerning the alleged implied terms of the Contract required the following questions to be considered:
(a) Whether the terms which were pleaded by Smile should be implied into the Contract; and
(b) If the terms should be implied into the Contract, whether Dr Lui had breached any of those terms by reason of the pleaded acts.
Issue 1: The Restrictive Covenants
The principles governing the interpretation of the Restrictive Covenants
[39] In Clarke v Newland [1991] 1 All ER 397 at 402F–G, Neill LJ summarised the applicable principles of interpretation on this area of the law:
(a) The question of construction should be approached in the first instance without regard to the question of legality or illegality;
(b) The clause should be construed with reference to the object sought to be obtained; and
(c) The clause should be construed in its context and in the light of the factual matrix at the time when the agreement was made.
[40] The second and third principles are trite law, and it is really only the first principle which is material for present purposes: that the same principles are to be applied to the construction of a clause which is impugned on the ground of being an unlawful restraint of trade as in the construction of any other written term (see also Beckett Investment Management Group Ltd v Hall [2007] EWCA Civ 613 at [11]). This is the more accurate interpretation of the following statement of Salmon LJ in Home Counties Dairies Ltd and another v Skilton and another [1970] 1 WLR 526 (“Home Counties”) at 536C:
This statement was quoted with approval by GP Selvam J in Heller Factoring (Singapore) Ltd v Ng Tong Yang [1993] 1 SLR(R) 495 (“Heller Factoring”) at [15(a)]. Salmon LJ’s remarks should not be read literally, because it is clear from the other sections of his judgment that he was merely reiterating that if some circumstances “must have been entirely outside the contemplation of the parties”, then they would not constitute part of the legal meaning of the clause and would, therefore, be legally irrelevant: see, for instance, Home Counties at 535D–H. This understanding of Home Counties is in fact implicit in National Aerated Water Co Pte Ltd v Monarch Co, Inc [2000] 1 SLR(R) 74 at [37]–[38], and in Man Financial (S) Pte Ltd (formerly known as E D & F Man International (S) Pte Ltd) v Wong Bark Chuan David [2008] 1 SLR(R) 663 (“Man Financial”) at [141].
Whether Dr Lui was in breach of the Restrictive Covenants
The Radial Clause
[41] The first part of the Radial Clause (see [26] above) plainly prohibited Dr Lui from practising within three kilometres from the Suntec Clinic and the Forum Clinic. The only conduct of Dr Lui complained of in respect of this clause was the fact that he was practising as a dentist at Tudor Court, which was well within three kilometres from the Forum Clinic. This was admitted in Dr Lui’s pleadings (see para 16 of the Defence (Amendment No 2)). I therefore find that Dr Lui was in breach of the Radial Clause.
[42] The part of the Radial Clause which referred to “any other new ... practices that have been set up before and during his cessation of work” was ambiguous. However, it was unnecessary to consider this phrase because this part of the Radial Clause was not in issue: the Forum Clinic existed at the time the Contract was entered into. Even if this second part of the clause was unreasonable in reference to the interests of the parties and/or the interests of the public, it could be severed without affecting the first part of the clause.
The Non-Solicitation Clause
[43] As noted earlier (see [27] above), Smile claimed that Dr Lui had breached the Non-Solicitation Clause because he had, inter alia, conducted consultations with, examined and/or treated 716 patients at Dental Essence who had previously been patients of Smile. For convenience, I will refer to the activities of conducting consultations, examinations and/or the treatment of patients simply as the treatment of patients. This was the only act pleaded in support of this claim. While the use of the words “inter alia” might have allowed Smile to refer to some other act of Dr Lui done within the treatment room of Dental Essence, it did not allow Smile to refer to other acts done outside.
[44] However, in his AEIC, Dr Tan stated (at para 121) that when Smile conducted a “Google search” in January 2010 with the keywords “smileinc.com.sg” and “smileinc”, Dental Essence and Dr Lui appeared at the top of the list of search results. Dr Tan also stated (at para 123) that Dr Lui had disclosed during discovery that the latter had placed advertisements on “Google Ad Words” and “Yahoo”, which included purchases of the following keywords: “forum dentist”, “forum the shopping mall”, “forum galleria dentist”, “forum shopping centre dentist”, “dentist at forum shopping centre”, “dentist at forum galleria” and “forum mall dentist”. This was presumably why the search in January 2010 produced the results it did. Dr Tan believed that Dr Lui was trying to capitalise on the reputation of Smile’s brand and in particular that of the Forum Clinic. He was apparently relying on this conduct of Dr Lui as evidence of solicitation.
[45] Apart from the purchase of keywords on “Google Ad Words” and “Yahoo”, Dr Tan also relied on a testimonial by one Carolyn Strover in the August 2009 issue of the magazine “Expat Living” as another example of solicitation by Dr Lui.
[46] As these two instances were not pleaded, I was of the view that Smile was precluded from relying on them in addition to the sole reason it had pleaded.
[47] As regards the sole reason for the allegation about the breach of the Non-Solicitation Clause, I was of the view that the mere fact that Dr Lui was treating patients at Dental Essence who had previously been patients of Smile was insufficient to establish that he had sought to canvass, solicit or procure them to be his patients at Dental Essence. There is a distinction between solicitation and mere dealing.
[48] In Austin Knight (UK) Ltd v Hinds [1994] FSR 52 (“Austin Knight”), Vinelott J observed (at 58–59):
[49] True, it might have been logical to infer that not all the 716 patients had simply come across the premises of Dental Essence by chance while walking in the vicinity of Tudor Court. Some might have learned about Dental Essence from other patients of Dental Essence or from advertisements of Dental Essence. A third possibility might have been that Dr Lui had indeed directly approached some of these patients to persuade them to use the services of Dental Essence.
[50] If some of the patients had learned about Dental Essence from other patients of Dental Essence, there was no breach of the Non-Solicitation Clause.
[51] If they had learned about Dental Essence from advertisements of Dental Essence, it was incumbent on Smile to plead the advertisements in question and how such advertisements breached the Non-Solicitation Clause. As mentioned above, the two instances which Dr Tan sought to rely on in his AEIC were not pleaded.
[52] As for the last possibility, there was no allegation that Dr Lui had directly approached some of these patients to persuade them to use the services of Dental Essence.
[53] I found that Dr Lui did not breach the Non-Solicitation Clause.
The Non-Dealing Clause
[54] The alleged breach of the Non-Dealing Clause flowed from the same fact which Smile relied upon in relation to the Non-Solicitation Clause (see [43] above), ie, that 716 patients of Dental Essence were previously patients of Dr Lui at the Forum Clinic.
[55] Dr Tan was of the view that this clause meant that if patients whom Dr Lui had previously treated while working for Smile came to Dental Essence’s clinic, Dr Lui was under an obligation to turn them away, ie, to refuse to accept and treat them as patients and to refer them back to Smile. He also seemed to be of the view that the scope of this clause covered both persons who were patients at the time of the termination of Dr Lui’s employment with Smile, and persons who subsequently became patients of Smile. During cross-examination, Dr Tan stated as follows:
[56] However, Mr Singh suggested that all that Smile had to establish on the facts of this action was that Dr Lui was prohibited from treating any person who was a patient of Smile at the time when he left its employment.
[57] In the closing submissions for Smile, Mr Singh appeared to assume that the meaning of the Non-Dealing Clause was clear in that it did preclude Dr Lui from treating any person who was a patient of Smile (at the time when Dr Lui left Smile).
[58] On the other hand, Mr Wong submitted that the Non-Dealing Clause precluded Dr Lui from dealing with the records of the patients and not the patients themselves.
[59] Mr Singh was relying on the phrase “as well as existing and new patients” in the first sentence of the Non-Dealing Clause for his contention. Yet the phrase before that referred to “existing and new corporate and non-corporate contracts” [emphasis added]. The sentence after the first sentence also referred to “Patient data and records, office data and records ...” which was to remain the property of Smile.
[60] The Non-Dealing Clause must be considered in totality. I have set it out at [28] above.
[61] I was inclined to the view that Mr Wong’s submission was persuasive. The reference to “existing and new patients”, when considered in context, seemed to have been a reference to the records of the patients, whether non-existing or existing at the time when Dr Lui left Smile. The purpose of the first sentence of the Non-Dealing Clause would then be to state that all patient records were to remain physically with Smile. This was then emphasized in a different manner in the second sentence by the statement that such data remained the property of Smile and was not to be copied or removed from Smile.
[62] Furthermore, Dr Tan’s opinion on the meaning of the clause was self-serving. If there was any ambiguity in the interpretation of the clause, then the contra proferentem rule might have meant that it should be construed against the person who drafted the Contract. As that person would be someone from Smile, that rule might then have meant that Mr Wong’s submission should prevail.
[63] However, I was precluded from accepting Mr Wong’s submission because of para 11 of the Defence (Amendment No 2). In that paragraph, Dr Lui averred that Clauses 24 and 25 (the latter being the Non-Dealing Clause) “are in form and in substance restraint of trade clauses or restrictive covenants. The Plaintiffs’ [sic] attempt to claim for protection from competition through the inclusion of Clauses 24 and 25 ... are [sic] unjust and illegitimate. Clauses 24 and 25 ... are onerous, oppressive, unreasonable and are void as against public policy.”
[64] This demonstrated that Dr Lui had, at the time of the relevant pleading, accepted that the Non-Dealing Clause extended to the patients themselves and was not confined merely to their records. Hence, the averment about restraint of trade and public policy. Given that this averment had been made, it was incumbent on Dr Lui to state clearly at some other point in his pleading that this was merely an alternative argument and that he also took the position that the scope of the Non-Dealing Clause did not extend to the patients themselves. This was not done.
[65] In the circumstances, I was obliged to adopt the interpretation advanced for Smile and to conclude that Dr Lui did breach the Non-Dealing Clause.
Whether the Restrictive Covenants were void as being contrary to the public policy against the restraint of trade
The applicable legal principles
[66] In the leading Singapore case of Man Financial (at [40] above), the Court of Appeal stated the relevant legal principles in the following terms:
(a) The legal foundation and starting point is Lord Macnaghten’s statement in Thorsten Nordenfelt (Pauper) v The Maxim Nordenfelt Guns and Ammunition Company, Limited [1894] AC 535 (“Nordenfelt”) at 565. The only justification for a restraint of trade is if the restriction is reasonable, ie, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public. See Man Financial at [70].
(b) There cannot be a bare and blatant restriction of the freedom to trade. There must always be a legitimate proprietary interest, over and above the mere protection of the employer from competition. The restrictive covenant must not go further than what is necessary to protect the interest concerned. See Man Financial at [79].
[67] Man Financial also clarified the relationship between, on the one hand, the twin tests of reasonableness enunciated by Lord Macnaghten in Nordenfelt, and, on the other hand, the legal requirement that there must be a legitimate proprietary interest of the employer which was protected by the restrictive covenant. When considering whether the maintenance of a stable and trained workforce could, in principle, constitute a legitimate proprietary interest, the court remarked (at [106], and further at [121] and [124]) that a positive answer to that question would not ipso facto render the restrictive covenant valid (ie, not void for being contrary to public policy), because the relevant clause would still be subject to the twin tests of reasonableness. In other words, the test is three-fold and all three limbs have to be satisfied:
(a) Is there a legitimate proprietary interest to be protected?
(b) Is the restrictive covenant reasonable in reference to the interests of the parties?
(c) Is the restrictive covenant reasonable in reference to the interests of the public?
[68] However, it is not entirely clear from Man Financial whether there is a distinction between, on the one hand, the test of whether the restrictive covenant went “further than what is necessary to protect the interest concerned” [emphasis added] (see [66(b)] above), and, on the other hand, the twin tests of reasonableness as laid down in Nordenfelt (see [66(a)] above). It appears from the case-law that the courts have not treated both as being distinct (and cumulative) tests. In Vancouver Malt and Sake Brewing Company, Limited v Vancouver Breweries, Limited [1934] AC 181, Lord MacMillan stated (at 190):
[69] Similarly, in Herbert Morris, Limited v Saxelby [1916] AC 688 (“Herbert Morris”) Lord Parker stated (at 710):
[70] I was of the view that there is no substantive distinction between the two formulations.
[71] Finally, the crucial time for ascertaining whether or not the restrictive covenant in question is in fact reasonable is the time at which the contract is made: see Man Financial at [72]. This means that the reasonableness of the restriction must be judged in the light of facts and circumstances as they were at that time, although the parties’ reasonable expectations as to what might happen thereafter are also relevant: see also TSC Europe (UK) Ltd v Massey [1999] IRLR 22.
[72] In the present case, it was not disputed that the Restrictive Covenants were in fact covenants in restraint of trade. Yet, for reasons unknown to me, para 11 of the Defence (Amendment No 2) challenged the validity only of the Radial Clause and the Non-Dealing Clause but not that of the Non-Solicitation Clause. This was apparently not an oversight as I recollected Mr Wong informing me (perhaps while counsel were in chambers) that Dr Lui was challenging only the scope of the Non-Solicitation Clause and was not challenging its validity even if I were to agree with Smile on the scope of that clause. Yet, surprisingly, Mr Wong’s closing submissions raised the issue about the validity of the Non-Solicitation Clause together with the rest of the Restrictive Covenants. It was too late for Mr Wong to do that. Nevertheless, some of the views I express below on some aspects of the issue of validity would in effect apply to all the Restrictive Covenants.
[73] The doctrine of restraint of trade applies to render any provision in restraint of trade prima facie void. Accordingly, the questions which I had to consider were as follows:
(a) whether Smile had a legitimate proprietary interest which was sought to be protected by the Radial Clause and the Non-Dealing Clause;
(b) whether these Restrictive Covenants were reasonable in reference to the interests of the parties; and
(c) whether these Restrictive Covenants were reasonable in reference to the interests of the public.
Legitimate proprietary interest
[74] As the court in Man Financial affirmed (at [81]), there are two main types of interests which have been categorised as legitimate proprietary interests in the employment context: (a) trade secrets; and (b) trade connections. Only (b) was in issue. In this regard, it is well-established that there must be personal knowledge of (and influence over) the customers of the employer: see Man Financial at [93] and Herbert Morris at 702, 709.
[75] However, the mere existence of such personal knowledge and influence will not always be sufficient to establish a legitimate proprietary interest on the part of the employer. In Herbert Morris, Lord Parker of Waddington explained (at 709):
In other words, the extent of the knowledge of, and influence over, the customers is also a relevant factor. This is also established in the case-law: see Heller Factoring at [15(c)], Buckman Laboratories (Asia) Pte Ltd v Lee Wei Hoong [1999] 1 SLR(R) 205 at [24]. However, I would add that this factor is relevant only insofar as it indicates the influence (or likely influence) of the employee over the customers. In itself, knowledge is immaterial unless it can and is likely to be leveraged in some way by the employee to gain some degree of influence. This customer-centred approach was clearly explained by Stamp J in S W Strange Ltd v Mann [1965] 1 WLR 629 at 641F:
[76] Apart from knowledge of the employer’s customers, there are several other factors which are relevant to the issue of influence. In Arthur Murray Dance Studios of Cleveland, Inc v Witter (1952) 105 NE 2d 685, Hooper J identified two such factors: (a) “employer’s hold” (or “institutional hold”); and (b) customer inconvenience. He explained these two factors as follows:
[77] J D Heydon, The Restraint of Trade Doctrine (Butterworths, 1999, 2nd Ed) at 93 also identified several additional factors which are relevant to the question of influence: (a) the frequency of contact; (b) the place where contacts are made; (c) the seniority of the employee; and (d) the nature of the employee’s relationship with the customers.
[78] I turn now to the facts of this case. Smile’s position was that all the Restrictive Covenants were intended to protect its patient pool. Dr Tan stated (at para 22 of his AEIC) that he had spent considerable time, money and effort into positioning Smile “as a well known premium dental service provider offering cutting-edge dental treatments”. Dr Tan had trademarked the names of Smile’s procedures, established its clinics in prime locations, and designed those clinics with lifestyle-based themes and concepts in mind. This approach enabled Smile “to build up a strong customer base”. Dr Tan elaborated during cross-examination:
[79] Mr Wong argued that Dr Tan’s evidence demonstrated that no legitimate proprietary interest was being protected by the Restrictive Covenants. What Dr Tan was seeking to protect was Smile’s patient pool and that meant that the sole purpose of the Restrictive Covenants was to exclude competition from Dr Lui rather than to protect any legitimate proprietary interest. I did not think that that was the correct approach. The purpose of most, if not all, restraint of trade provisions in the employment context is precisely to protect the employer from competition by an employee should the employee leave his employer. The nature and extent of the protection depends on the terms of each individual provision. Therefore, the fact that a provision seeks to exclude competition to some extent does not necessarily mean that an employer has no legitimate proprietary interest to protect. It is because of such exclusion that the court then has to apply the three-fold test mentioned above at [67], one aspect of which is whether there is a legitimate proprietary interest to be protected. In other words, does the employer have a legitimate proprietary interest to protect by excluding competition or is he excluding competition per se? It may be that a restraint of trade provision has a dual purpose as I shall elaborate below when considering the Radial Clause.
[80] In Routh v Jones [1947] 1 All ER 179, Evershed J stated (at 181E–H) as follows:
[81] In Campbell, Imrie and Shankland v Park [1954] 2 DLR 170, a decision of the British Columbia Supreme Court, Wilson J remarked (at [10]):
[82] In Robin M Bridge v Deacons (A Firm) [1984] 1 AC 705, the Privy Council said (at 719H–720A):
[83] The above three cases suggest that, generally speaking, an employer of a general medical practitioner, a chartered accountant or a solicitor would have a legitimate proprietary interest to be protected by a restrictive covenant.
[84] In Koops Martin v Dean Reeves [2006] NSWSC 449 (“Koops Martin”), the New South Wales Supreme Court said (at [35]) that “a particular solicitor, accountant or doctor with whom a client deals may well, from the perspective of the client, be for all practical purposes the person whose advice they seek and thus the persona of the firm”. This suggested that a restrictive covenant imposed on such an employee would not be inappropriate although whether the covenant is reasonable would depend on the facts.
[85] What then of a professional like Dr Lui who is a general dental practitioner (“GDP”)? No direct evidence was given as to how he obtained his patients while practising with Smile, and the frequency, nature and extent of the interaction between him and the patients. Nevertheless, I was of the view that I was entitled to take judicial notice of or infer the following:
(a) As Dr Lui started off as an employee of Smile, most of his patients would be that of the clinic where he practised rather than his own. In other words, his own relatives or friends would form a small portion of the patients he treated. Indeed, the reason why he left the other clinic at Great World City was because of insufficient patients.
(b) Most of the patients who came to the Forum Clinic would have done so mainly because of the recommendation of other patients and/or the location of the clinic. While the advertisements taken out by Smile might have caught the attention of some patients, the location of the clinic would usually be a greater influence than advertisements for persons seeking general dental services as opposed to specialist services. It is true that some patients who sought specialist services from, say, Dr Tan himself might subsequently have sought general dental services from the Forum Clinic. However, again, in the absence of more evidence, this would be less of a reason than recommendations and/or the location of the clinic.
(c) Dr Lui’s contact time with the patients would usually be short. Once he began the dental treatment, he would be doing the talking and not the patient.
(d) Most patients would have seen Dr Lui twice a year for the usual dental check-up and treatment. A patient might have made one or two more visits in a year for treatment for more difficult conditions.
(e) A patient of a GDP would be likely to make an appointment with that particular GDP for the next session if the patient was satisfied with the services of the GDP. The patient would be likely to have some attachment to that GDP over time.
[86] The employer’s or institutional hold of Smile on the patients who sought general dental services at the Forum Clinic would usually not be strong. A patient who was happy with Dr Lui’s services would quite easily switch to a competing clinic which Dr Lui practised at if that clinic was almost equally convenient to the patient and if the charges for both clinics were comparable.
[87] All things considered, it seemed to me that it would be too far-reaching to conclude that, generally speaking, an employer of a GDP would not have a legitimate proprietary interest to be protected. In the absence of evidence that might have persuaded me otherwise, I therefore concluded that Smile did have such an interest to be protected.
Reasonableness in reference to the interests of the parties
(1) The Radial Clause
[88] In the abstract, the mere fact that a particular restriction is unlimited in terms of its duration or geographical area will not necessarily lead to the conclusion that it is unreasonable by reference to the interests of the parties: see, eg, Fitch v Dewes [1921] 2 AC 158 and Nordenfelt, respectively. Although the Radial Clause is unlimited as to time, its geographical area is limited because it extends to three kilometres from the Suntec Clinic and the Forum Clinic and from any new clinic set up by Smile before Dr Lui left.
[89] In Office Angels Ltd v Rainer-Thomas and O’Connor [1991] IRLR 214 (“Office Angels”), Sir Christopher Slade (delivering the judgment of the English Court of Appeal) stated:
[90] During cross-examination, Dr Tan testified that he thought that the Radial Clause was reasonable:
[91] Dr Tan’s evidence assumed that the Radial Clause precluded Dr Lui from practising within a three-kilometre radius from the Forum Clinic only. However, the terms of the Radial Clause were wider than that. They precluded Dr Lui from practising within a three-kilometre radius from the Suntec Clinic and from the Forum Clinic and from any other new Smile clinic that might have been set up before Dr Lui left. That would include the ORQ Clinic. So, if a Smile clinic had been set up around Holland Village before Dr Lui left, then Dr Lui would also not have been able to practise in the vicinity of Holland Village even if he had never practised at Smile’s Holland Village clinic.
[92] Why should Smile be entitled to prevent Dr Lui from practising within a three-kilometre radius from every Smile clinic if he never practised at the other Smile clinics or had stopped practising there more than, say, two years before he left? The application of the three-kilometre radius to every Smile clinic was too wide and was unreasonable as between Smile and Dr Lui.
[93] Nevertheless, I assumed that I could sever parts of the Radial Clause so that it was confined to a three-kilometre radius from the Forum Clinic only.
[94] Even then, the evidence of Dr Tan undermined his credibility somewhat. If Dr Lui’s former patients (ie, patients whom he had treated while working for Smile) could easily find him even if he set up outside the three-kilometre exclusion zone, and they were likely to do so given the strong rapport he had formed with them, then why have the Radial Clause in the first place? If Dr Tan was right, the Radial Clause would serve no useful purpose for Smile while imposing an onerous obligation on Dr Lui. Dr Tan must have known that location was an important factor. The further away Dr Lui’s new clinic was, the more inconvenient it would be for patients of the Forum Clinic to switch to Dr Lui.
[95] It seemed to me that the three-kilometre exclusion zone had a dual purpose. The first was to make it less convenient for Dr Lui’s former patients from using his services at his new clinic which would be outside the three-kilometre radius. The second was to make it impossible for Dr Lui to compete for new patients in the same vicinity as the Forum Clinic, ie, (a) persons who were treated by others at the Forum Clinic and (b) persons who had never been treated at the Forum Clinic.
[96] I was of the view that the second purpose could not form part of the protection of the “patient pool” qua legitimate proprietary interest. In order to be recognised as a legitimate proprietary interest, the scope of the patient pool which was sought to be protected must be limited to Dr Lui’s former patients. To the extent that Smile was attempting to prevent Dr Lui from competing for other patients in the same vicinity, such an attempt was to prevent competition per se. It was unreasonable.
[97] A further factor which was in favour of Dr Lui was the fact that the duration of the restriction was unlimited. Smile alleged that Dr Lui was a foreigner on an Employment Pass who represented at the outset that he intended to return to Australia after a few years. The question of Dr Lui practising in Singapore did not arise at any point in Dr Tan’s or Ms Chong’s minds. Furthermore, Dr Lui himself negotiated the term of his employment downwards from five years to three years as he was supposedly intending to return to Australia. According to Dr Tan, it would not have been Smile’s intention to subject Dr Lui to an indefinite restriction had it known that Dr Lui was going to practise in Singapore after his employment with it ended:
[98] Dr Lui did not give any evidence to rebut Dr Tan’s allegation that Dr Lui had said, at the time the Contract was signed, that he would go back to Australia to practise after he completed his stint with Smile in Singapore. While there was some evidence that Smile had sponsored Dr Lui’s application for permanent residence later, it was not clear when this was done. Apparently, it was done some time after the Contract had been entered into. I accepted Dr Tan’s evidence as to what Dr Lui had said to him. However, that did not mean that I should necessarily accept Dr Tan’s suggestion that he was not thinking of restricting Dr Lui from competing in Singapore because the question of Dr Lui practising in Singapore did not arise in Dr Tan’s mind at all.
[99] As can be seen from the evidence of Dr Tan quoted above at [90], Dr Tan himself stated that it made sense to have the Radial Clause because there was no provision in the Contract precluding Dr Lui from practising elsewhere in Singapore (outside the three-kilometre radius) after he left Smile. Indeed, the very terms of the Radial Clause as well as those of the other Restrictive Covenants took into account the possibility of Dr Lui practising elsewhere in Singapore.
[100] Therefore, at the time the Contract was entered into, Smile did provide for the possibility of Dr Lui practising elsewhere in Singapore. Whether Dr Lui practised in Singapore immediately or sometime after he left Smile, he would be caught by the Radial Clause.
[101] I was of the view that the absence of any time limit for the Radial Clause was unreasonable. According to Dr Tan’s own evidence during cross-examination, the rapport that a GDP has with his patient will wear out, although he said it takes at least two to three years before it wears out.
[102] I was of the view that the absence of a time limit was not an oversight. Smile wanted as much protection from competition as it thought it could get its employee to agree with. It probably did not realise, at the time the Contract was signed, that the wider the scope of a covenant in restraint of trade the more likely it would be struck down as being an unreasonable restraint of trade.
[103] Dr Tan sought to rely on contracts which Smile has with three local GDPs, ie, Dr Yeo Boon Keng Alvin, Dr Lee Kong Fei Frank and Dr Tsao Sun Paul to demonstrate that the absence of a time limit for Dr Lui’s restrictive covenants was reasonable. These three contracts were entered into between 18 December 2009 and 9 March 2011. In these contracts, the exclusion zone was two kilometres from a Smile clinic and there was a time limit of two years. He referred to these contracts to suggest that had he known that Dr Lui wanted to practise in Singapore, he would have incorporated a time limit in the Radial Clause too. I did not buy his suggestion.
[104] As I have mentioned, the very purpose of the Radial Clause was to restrict Dr Lui from competing with Smile should he ever practise in Singapore. In my view, the absence of a time limit was an attempt to get as much protection from competition as Dr Lui might agree with.
[105] It seemed to me that the incorporation of a time limit in the radial clauses of the contracts for the local GDPs stemmed from Smile’s realisation, after the dispute with Dr Lui had arisen, that a radial clause might not withstand the court’s scrutiny if it did not have a time limt.
[106] Likewise, Smile probably realised that if the geographical scope of a radial clause was too wide, the clause might not be upheld. I noted that the radius of the radial clause for the local GDPs was two kilometres and not three kilometres like it was for Dr Lui. I was of the view that the reduction of the radius was Smile’s attempt to have a better chance of success should such a clause be challenged.
[107] I add the following observation. Other GDPs employed by Smile before 2009 had different geographical exclusion zones or different time limits for the radial or other restrictive covenants. Notwithstanding Dr Tan’s attempts to try and explain the differences to show that Smile was trying to be reasonable with its professional employees, I was of the view that the discrepancies illustrated again that Smile was trying to get maximum protection for itself against competition and only reduced the scope of the protection it had sought when a particular employee requested for it and not before.
[108] I need mention only two of the pre-2009 contracts by way of illustration.
[109] The first was an employment contract between Dr Tim Riesz (“Dr Riesz”) and Smile dated 22 May 2008, which was about five years after the date of the Contract with Dr Lui. Dr Riesz’s contract also had restrictive covenants. Clause 22 thereof was the equivalent of the Radial Clause. Interestingly, the engrossed copy of Dr Riesz’s contract provided for a five-kilometre radius from any of the Smile clinics. If Smile genuinely believed that the three kilometre radius (as found in the Contract) was reasonable in 2003, why did it seek to extend the radius in 2008 for Dr Riesz’s contract? No explanation was given by Dr Tan. Indeed, he did not say that the reference to a wider radius was a mistake. On the contrary, he said that he himself would have preferred the larger radius of five kilometres but as Dr Riesz preferred a smaller radius, Smile accommodated Dr Reisz and changed the distance accordingly.
[110] Likewise, there was initially no time limit in Clause 22 of the engrossed copy of Dr Riesz’s contract but, at his request, a time limit of three years was inserted.
[111] The second illustration was an employment contract between Dr Paul Wong Shaun Yang (“Dr Wong”) and Smile dated 5 June 2008, about two weeks after the date of the contract with Dr Riesz. Clause 22 thereof was the equivalent of the Radial Clause. However, in the case of Dr Wong’s contract, the engrossed copy provided for an eight-kilometre radius, not three or five kilometres. This suggested that Smile was hoping to get as wide a protection as it could get. According to Dr Tan’s evidence, the radius was amended to three kilometres at Dr Wong’s request.
[112] However, Mr Singh made another argument in order to save the Radial Clause. He submitted that I should read down the clause “in order to do justice between the parties” (see para 52 of his closing submissions). He referred to the judgment of Cullity J in the Ontario case of Transport North American Express Inc v New Solutions Financial Corp (2001) 200 DLR (4) 560 (“TNAE”) whose reasoning was endorsed by the minority judgment of Sharpe JA in the Ontario Court of Appeal (see Transport North American Express Inc v New Solutions Financial Corp (2002) 214 DLR (4) 44 (“TNAE (CA)”).
[113] He also relied on: (a) the decision of Lai Siu Chiu J in Vandashima (Singapore) Pte Ltd and another v Tiong Sing Lean and another [2006] SGHC 132 (“Vandashima”); (b) GW Plowman & Son, Ltd v Ash [1964] 2 All ER 10 (“Plowman”); and (c) Home Counties (see [40] above) (see his Opening Statement at para 129 and closing submissions at para 52).
[114] I will deal with the four cases in chronological order.
[115] Plowman and Home Counties did not assist Smile. In those two cases, the courts interpreted the relevant provision in a narrower manner than the literal interpretation thereof bearing in mind the context of the trade of the employer in question. They were not cases in which the interpretation was clear but the court read down the provision in order to save it.
[116] Vandashima also did not assist Smile. It was not a case in which the scope of a restrictive covenant was in issue. Lai J granted, inter alia, an injunction against a defendant and confined it to Indonesia as that was where the relevant plaintiff had developed its business.
[117] In TNAE, Cullity J expressed the view that the blue-pencil type of severance was a relic of a bygone area. Using discretionary severance, he struck out a contractual provision which would have led to payment of interest at a rate higher than that stipulated by statute. Instead, he enforced a promise to pay interest at a lower rate. His approach was endorsed by the minority judgment of Sharpe JA in TNAE (CA). Sharpe JA described his approach as a reading down of the contractual provision. However, the majority of the Court of Appeal rejected his approach.
[118] As mentioned above, that case did not involve a covenant in restraint of trade but a provision on the interest rate payable by a borrower which effectively provided for a rate that turned out to be higher than that allowed by statute. The considerations there were entirely different.
[119] In Man Financial, the Court of Appeal declined to express any conclusion on the discretionary severance approach since the doctrine of severance was not before it (see Man Financial at [126] to [131]).
[120] However, it was useful to bear in mind that in Man Financial at [48], the Court of Appeal reiterated that the courts scrutinise covenants in restraint of trade in the employment context far more strictly. One of the reasons for this approach is that employers are likely to have more bargaining power than employees. I would add that employers are more likely to be the ones who draft or cause the employment agreement to be drafted and, unfortunately, in some cases employees do not even read the terms carefully. Even if they do, their bargaining power is usually weaker, as was recognised by the Court of Appeal.
[121] It is one thing to construe a restraint of trade provision more narrowly because of the context and background facts and in so doing to save it from being struck down as being unreasonable. It is another thing to have reached a conclusion on the correct construction but then to try and read it down so as to save it.
[122] Generally speaking, I do not favour the discretionary severance approach for employment contracts. If employers want to protect their trade connections or pool of clients, customers or patients then they would do well to draft a reasonable restraint of trade provision rather than to try and get the maximum protection which their employees will agree to. The discretionary severance approach will only encourage employers to try their luck by initially imposing the maximum protection they can get an employee to agree to and then to rely on a reading down of the provision when confronted with the likelihood of an unfavourable result in court. Moreover, not every employee will have the courage or resources to resist the threats of an employer to comply with a restraint of trade provision.
[123] Furthermore, Smile did not plead nor did Mr Singh submit as to just how far the Radial Clause should be read down. For example, should the Radial Clause be read to impose a two-year or three-year time limit when none was expressly imposed? Should the Radial Clause also be read so as not to apply to patients whom Dr Lui had never treated while in Smile’s employment?
[124] In all the circumstances, I was of the view that there was no reason to try and read down the Radial Clause to save it. It was void for being an unreasonable restraint of trade.
(2) The Non-Solicitation Clause
[125] I found that there was no breach (as pleaded) of the Non-Solicitation Clause (see [53] above. I have also mentioned (see [72] above) that the validity of the Non-Solicitation Clause was not challenged. For completeness, I mention briefly my views on its validity if Dr Lui had breached the Non-Solicitation Clause and had challenged its validity.
[126] The Non-Solicitation Clause precluded Dr Lui from soliciting any of Smile’s patients from any of the clinics of Smile. Why should Dr Lui be precluded from soliciting patients from the Forum Clinic or any other clinic of Smile whom he had never treated before, just because they were patients of one of the other practitioners of Smile? This point was not addressed by Dr Tan. Also, there was no time limit in this provision as well. Why should the prohibition against solicitation of patients last forever given that Dr Lui’s influence would diminish over time (see [101] above)? In my view, the Non-Solicitation Clause was unreasonable.
[127] I also saw no reason to read down the Non-Solicitation Clause. I would have concluded that it was void if its validity was in issue.
(3) The Non-Dealing Clause
[128] Assuming that the Non-Dealing Clause applied to Smile’s patients and not just to Smile’s patient records, I was of the view that the reference to “new patients” referred not to those who became Smile’s patients after Dr Lui left Smile but to those who became Smile’s patients from the time when Dr Lui started work until Dr Lui’s last day with Smile. The “existing” patients would be those who were already patients of Smile before he joined Smile.
[129] The Non-Dealing Clause would be even more onerous than the Non-Solicitation Clause because Dr Lui would be precluded under the former from treating patients of Smile even if he did not solicit their patronage.
[130] The reasons for rejecting the Non-Solicitation Clause also applied to the Non-Dealing Clause.
[131] There were other difficulties with the Non-Dealing Clause as well as the Non-Solicitation Clause. In Jenkins v Reid [1948] 1 All ER 471 at 481F–H, Romer J stated:
[132] Mr Singh cited Koops Martin (at [84] above) for the proposition (at [83]–[84]) that a restriction on “dealing” simpliciter could be justified because (a) it removed the difficulty of proof of actual solicitation, and (b) where the former employee’s connections with the employer’s customers were especially powerful such that the customers would follow the employee unsolicited, an anti-solicitation restriction would be insufficient to protect the employer’s customer connections. Insofar as a restriction on “dealing” removed the difficulty of proof of solicitation, this was undoubtedly true. However, it was important to note that the non-dealing restriction in Koops Martin lasted for 12 months, whereas the Non-Dealing Clause was unlimited in duration.
[133] In the circumstances, I was of the view that the Non-Dealing Clause was also unreasonable as between the parties. I saw no reason to read it down. It was void.
Reasonableness in reference to the interests of the public
[134] As I found that Smile’s claim of breach of all three Restrictive Covenants could be dismissed for lack of reasonableness in reference to the interests of the parties, it was unnecessary to consider whether they were reasonable in reference to the interests of the public.
Issue 2: The implied terms
[135] As I noted earlier (see [29] above), Smile’s main case also included a claim that various terms were to be implied into the Contract, and that these terms were breached by Dr Lui. Interestingly, Mr Singh put the implied terms, not the express Restrictive Covenants, in the forefront of his closing submissions. The implied terms could essentially be divided into two categories of obligations:
(a) A duty of good faith and fidelity; and
(b) Fiduciary duties.
[136] Briefly, the facts which Smile relied upon as giving rise to breaches of such implied terms were as follows (see also [30] above):
(a) The incorporation of Dental Essence on 7 January 2009;
(b) The signing of a tenancy agreement of premises in Tudor Court on 25 February 2009;
(c) The fitting out of the said premises;
(d) The discussions and negotiations between Dr Lui and Dr Pearson which resulted in Dr Pearson becoming a shareholder, director and dentist of Dental Essence;
(e) Dr Lui’s application for a licence from the MOH to practice dentistry with Dental Essence;
(f) Dr Lui’s failure to inform Smile of these matters; and
(g) Dr Lui’s failure to obtain Smile’s consent to the setting up of Dental Essence.
Smile also seemed to plead that these duties were also breached by reason of the fact that 716 patients whom Dr Lui had previously treated at the Forum Clinic were now patients of Dental Essence.
Duty of good faith and fidelity
[137] It is trite law that there is an implied term in the employer’s favour that the employee will serve the employer with good faith and fidelity: see Man Financial at [193]. However, this alone did not assist Smile because it still had to establish that the conduct of Dr Lui breached the term.
[138] Dr Lui did not dispute that he took the steps alleged and that he took these steps while he was still employed by Smile. As regards his discussions and negotiations with Dr Pearson, this allegedly took place when Dr Pearson was no longer an employee of Smile although Dr Lui himself was still an employee (see [169] below).
[139] Dr Lui’s defence was that, aside from the Restrictive Covenants, he was entitled to compete with Smile after he ceased to be its employee. The steps he had taken were preparatory steps for this competition and as such did not constitute a breach or breaches of the implied term of good faith and fidelity.
[140] Smile’s position was that even if such steps could be described as preparatory, Dr Lui had breached the said implied term.
[141] Mr Singh and Mr Wong cited various English and Singapore authorities to support their respective clients’ positions. I will refer to the main ones cited in chronological order.
[142] Robb v Green [1895] 2 QB 1 (“Robb”) is significant for the oft-cited passage from the judgment of Hawkins J (at 15):
[143] That was a case where the employee was intending to compete with his employer after he left the employment. As can be seen in context, Hawkins J was of the view that an employee may take preparatory steps not just to enter into business but to compete with his employer. An employee may, for example, prepare a place for his business and employ others in such preparation, although each case depends on its own facts.
[144] In Sanders v Parry [1967] 1 WLR 753 (“Sanders”) the defendant was employed by the plaintiff as an assistant solicitor. In the course of his work, he got to know one Tully, an important client of the plaintiff. While he was still employed by the plaintiff, he and Tully agreed that he would leave the plaintiff’s employment and set up his own practice, whereupon Tully would transfer his legal work to him. The plaintiff learned about this when the defendant handed him a letter from Tully setting out what had been agreed. Havers J concluded that even if the agreement had not been initiated by the defendant he was in breach of the implied term to serve with good faith and fidelity. He said (at 765B–H):
[145] Mr Singh pointed out that in Pacific Autocom Enterprise Pte Ltd v Chia Wah Siang [2004] 3 SLR(R) 73 at [70], Prakash J had cited the second paragraph quoted above from Sanders with approval. Even so, I had my reservations on the validity of such observations in Sanders.
[146] First, I would mention that the reference by Havers J in Sanders to a conflict of interest per se between an employee and his employer may cause confusion if it is not properly understood. An employer may be tempted to argue that if an employee formulates an intention to leave his employment, that in itself is a conflict of interest as it is not in the interest of the employer for the employee to leave. A fortiori if the employee intends to leave and join a competitor or to set up his own business to compete. This is all the more so if the employee acts on that intention by taking preparatory steps to advance his intention, for example, by taking a tenancy of premises to start his own business.
[147] However, Robb and other cases which I shall come to show that an employee may form an intention to leave or set up in competition with his employer and take preparatory steps towards that goal. In the latter case (ie, where the employee takes preparatory steps), such steps may be permissible in law. They do not necessarily constitute a conflict of interest in law which requires an employee to tell his employer of his plans to leave or to refrain from taking those preparatory steps.
[148] Secondly, one may distinguish Sanders on the basis that the assistant solicitor there had reached the agreement with a client whom he was supposed to service on the plaintiff’s behalf. Nevertheless, it seemed to me that to require the assistant to disclose any discussions with Tully would be to betray Tully’s confidence especially if it was Tully who made an unsolicited proposal to the assistant. Yet, Havers J rejected that very point which was taken on behalf of the assistant. It seemed to me that too much emphasis was placed on an employee’s duty to his employer and too little on his duty to the client whom he served. I am certain that a client would be shocked to learn that if he suggested to an employee (of the firm or company servicing him) to start his own business or to move to a competitor with support from the client, that employee would be obliged to disclose the suggestion to his employer.
[149] However, I need say no more for the time being because, in any event, those are not the facts before me. There is no evidence that Dr Lui received any suggestion or support from any patient to set up Dental Essence before he left Smile.
[150] I also did not accept that Sanders is authority for the wider proposition that, generally speaking, an employee must disclose his intention to compete with his employer once that intention is formed or to disclose preparatory steps whatever those steps may be. If it was such an authority then I would respectfully disagree with it.
[151] In Laughton and Hawley v Bapp Industrial Supplies Ltd [1986] ICR 634 (“Laughton”), certain employees wrote to some of the suppliers of their employer to inform them that they intended to start business on their own and to ask for details of the suppliers’ products. An industrial tribunal found that the employees had breached their implied duty of loyalty. The employees’ appeal to the Employment Appeal Tribunal (“the EAT”) was successful. The EAT was of the view that the letters were no more than an inquiry as to prices and that an intention to compete expressed in the letters was no breach of such a duty.
[152] The next case involved a claim by Balston Limited (“Balston”) against one Mr Head and his company Headline Filters Limited (“Headline”) which was named as the first defendant with Mr Head as the second defendant.
[153] Balston was in the business of manufacturing glass microfiber filter tubes. Mr Head was employed by Balston in 1969. He was successful there and after some promotions, he became its deputy managing director in 1985. However, on 17 March 1986, he tendered a notice of his resignation as employee. Mr Head agreed with Balston that his notice would expire on 11 July 1986. On 16 April 1986, Mr Head also resigned as a director of Balston. It was agreed that he no longer needed to attend at work during the remainder of his notice period, ie, up to 11 July 1986, although Balston alleged that Mr Head was still supposed to be available till then if his services were required.
[154] On 25 April 1986, Mr Head acquired a company. He changed its name to the name of the first defendant. From 25 April to 11 July 1986, Mr Head prepared Headline for commencement of business after 11 July 1986 in the manufacture of microfiber filter tubes. He took a lease for such a business and ordered materials for the manufacturing process. He also arranged for persons to be employed by Headline.
[155] More importantly, Mr Head had dealings with a customer of Balston. The customer was Clifford Edwards Limited (“CEL”) whose initiative had led to Balston commencing the manufacture of filter tubes.
[156] In April 1986, Balston had apparently informed CEL’s Mr Baker that it would raise its price for a certain type of microfiber filter tubes from £29 a box to £126 a box. After 1 May 1986, Mr Baker telephoned Mr Head to express his horror at the increase in price. Apparently, Mr Baker was not aware that Mr Head had given notice of his resignation as an employee. Mr Head informed Mr Baker of this in the telephone conversation and made it known that he was prepared to supply microfiber filter tubes to CEL at the price of £29 a box. CEL was prepared to wait till 11 July to place an order.
[157] Soon after 11 July 1986, Balston learned about the business which Mr Head was undertaking through Headline and commenced an action against both. One of Balston’s contentions was that between 16 April and 11 July 1986, Mr Head had prepared Headline to compete on 11 July and that his activities during that period were breaches of duties he had owed to Balston. It was submitted for Balston that Mr Head should not be allowed to reap the benefit of the three-month old illegitimate preparation for competition and that he should be deprived of the benefit of that springboard. In particular, Balston complained about the telephone conversation when Mr Head told Mr Baker that he was prepared to supply CEL with microfiber filter tubes at the lower price.

The judgment continues past this page. Read the rest at eLitigation.

Smile Inc Dental Surgeons Pte Ltd v Lui Andrew Stewart

Grounds of decision

Introduction

Background

The case for Smile

Dr Lui’s submission of no case to answer

The issues before the court

Issue 1: The Restrictive Covenants

The principles governing the interpretation of the Restrictive Covenants

Whether Dr Lui was in breach of the Restrictive Covenants

The Radial Clause

The Non-Solicitation Clause

The Non-Dealing Clause

Whether the Restrictive Covenants were void as being contrary to the public policy against the restraint of trade

The applicable legal principles

(a) Is there a legitimate proprietary interest to be protected?

(b) Is the restrictive covenant reasonable in reference to the interests of the parties?

(c) Is the restrictive covenant reasonable in reference to the interests of the public?

Legitimate proprietary interest

Reasonableness in reference to the interests of the parties

(1) The Radial Clause

(2) The Non-Solicitation Clause

(3) The Non-Dealing Clause

Reasonableness in reference to the interests of the public

Issue 2: The implied terms

Duty of good faith and fidelity