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Singapore – Employer Successfully Sues For Breach Of The Implied Term Of Good Faith And Fidelity And Breach Of Confidence.

12 May, 2015

 

Legal News & Analysis – Asia Pacific – Singapore – Labour & Employment

 

In a recent Singapore High Court action, 1 Tempcool Engineering (S) Pte Ltd (“Tempcool“) successfully brought a claim against a current employee and a former one for breaching the terms of their employment agreements, which included the implied term of good faith and fidelity, and the duty of confidence. The Defendants were also found to be liable for an unlawful conspiracy. An appeal has been filed.

 

Facts

 

Tempcool is a company engaged in the business of engineering, supplying and designing refrigeration and air-conditioning systems. Vincent Chong (“Vincent“) was, at the material time, employed by Tempcool as an assistant engineer in its commercial refrigeration division. Woon Wee Seng (“Woon“) was formerly employed by Tempcool as the manager of its commercial refrigeration division. Woon resigned from Tempcool in 2013 and joined UB Zanotti System Pte Ltd (“UBZ“), a competitor of Tempcool.

 

The crux of Tempcool’s case was that the Defendants had copied drawings plotted for Tempcool by its draughtsperson (the “Disputed Drawings“). Other materials that the Defendants were also alleged to have unlawfully taken include Tempcool’s pricing information, which revealed Tempcool’s price mark-ups for the components of a showcase and cold-room system (the “Pricing Information“); and a document comprising filing labels for projectrelated files (the “Filing Labels“). To Tempcool, the Disputed Drawings, Pricing Information and Filing Labels were confidential information and/or trade secrets.

 

Decision

 

Misuse Of Confidential Information

 

The central issue of the case was whether Vincent misused Tempcool’s confidential information by sending Woon the Disputed Drawings. The Court found for Tempcool. The elements for an action in breach of confidence are as follows:

 

(a) the information must possess the necessary quality of confidentiality;

 

(b) the information must have been imparted (or received) in circumstances such as to import an obligation of confidentiality; and

 

(c) there must be unauthorised use of the information and detriment.

 

On the issue of whether the Disputed Drawings possessed the necessary quality of confidence, the Court held that confidential information need not be patentable or inventive to have the quality of confidentiality. The question of whether the information retains a necessary quality of confidentiality is ultimately a question of fact and degree. In this case, Tempcool’s drawings (which included the Disputed Drawings) served as templates and assisted Tempcool’s engineers in coming up with solutions for new projects quickly. The value of the Disputed Drawings was that they gave Tempcool’s engineers a head start. As these drawings were products of Tempcool’s professional efforts and labour, they were sufficiently valuable to be confidential. Moreover, the fact that some of the Disputed Drawings were in the public domain did not mean that the quality of confidence would automatically be lost.

 

On the issue of whether the Defendants owed obligations of confidence, the Court again decided affirmatively. Although Vincent did not have a formal employment contract, the Court held that an obligation against the use or disclosure of confidential information could and would be implied on the facts.

 

In respect of Woon, Tempcool sought to rely on the confidentiality obligations as contained in his previous employment contract, which had since been terminated. The Court disagreed and held that post-employment, such clauses could relate only to the use and disclosure of confidential information that were either trade secrets or else so highly confidential as to amount to a trade secret. As a matter of policy, the courts are reluctant to prevent former employees from using merely confidential information which was part of the total job experience.

 

However, in the present case, Woon was clearly a third-party recipient who had obtained Tempcool’s confidential information with the knowledge that such information had been obtained in breach of confidence. An equitable duty of confidence was therefore imposed on him based on good faith and conscience (the test for the equitable obligation of confidence being an objective one). As such, neither Vincent nor Woon could deny their knowledge of the confidential nature of the Disputed Drawings.

 

As there was no dispute on the use of the Disputed Drawings by the Defendants, the Court turned to the question of detriment and held that it was sufficient that the Disputed Drawings helped Woon and UBZ foster goodwill, which was beneficial to them and detrimental to Tempcool. The Pricing Information, which showed price mark-ups, also allowed UBZ to craft better bids in present or future project tenders.

 

Breach Of The Implied Term Of Good Faith And Fidelity

 

It is trite law that there is an implied term that the employee will serve his employer with good faith and fidelity. As Vincent was, at the material time, a Tempcool employee, he had breached his duty of good faith and fidelity in sending the Dispute Drawings and other materials to Woon. The duty requires an employee to act in the interests of the employer, and in serving two masters, Vincent had already breached the duty. Woon, on the other hand, did not owe Tempcool a duty of fidelity as he was only a former employee, despite being privy to Vincent’s breaches of confidence. However, Woon would have been liable for the tort of inducing breach of contract.

 

Unlawful Means Conspiracy

 

The entirety of the circumstances showed that Vincent had agreed to take Tempcool’s information and send them to Woon for his and/or UBZ’s uses.Vincent would then resign and join UBZ after his S-Pass had been approved. The requisite intention was also present – the injury to Tempcool was intended, and not incidental. UBZ and Tempcool were direct competitors. Any agreement for Vincent to extract Tempcool’s information for Woon’s uses was inextricably bound up with an intention to hurt Tempcool’s business interests. There was accordingly an unlawful means conspiracy by the Defendants to cause injury to Tempcool.

 

Comments

 

This case provides a useful reminder that even without an employment contract or an express contractual term in an employment contract, an obligation against the use or disclosure of confidential information may still be implied nonetheless. The same cannot be implied for a former employee. However, if he is a third-party recipient who had obtained the company’s confidential information from a serving employee, he could be imputed with the knowledge that the information is confidential and that the employee had obtained the information in breach of confidence. On that basis, an equitable duty of confidence based on good faith and conscience would be imposed on him.

 

In addition, the threshold for breach of an employee’s duty of good faith and fidelity appears to be low. The employee would be in breach so long as he does not act in the interests of the employer, even in relation to information without the necessary quality of confidence. Former employees, however, do not stand in the same position and are unlikely to owe a duty of fidelity.

 

The Defendants have appealed the decision of the Court, and it remains to be seen what position the Court of Appeal will take on these issues.

 

End Notes:

 

1 Tempcool Engineering (S) Pte Ltd v. Chong Vincent and others [2015] SGHC 100

 

Baker McKenzie

 

For further information, please contact:

 

Andy Leck, Principal, Baker & McKenzie.Wong & Leow

andy.leck@bakermckenzie.com

 

Leng Sun Chan, Principal, Baker & McKenzie.Wong & Leow

LengSun.Chan@bakermckenzie.com

 

Nandakumar Ponniya, Principal, Baker & McKenzie.Wong & Leow

nandakumar.ponniya@bakermckenzie.com

 

Celeste Ang, Baker & McKenzie.Wong & Leow 

celeste.ang@bakermckenzie.com

 

Clarence Ding, Baker & McKenzie.Wong & Leow  

clarence.ding@bakermckenzie.com

 

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