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Singapore – The Court Considers The Duty Of Fidelity.

25 June, 2014

 

Legal News & Analysis – Asia Pacific – Singapore – Dispute Resolution

 

The High Court of Singapore recently handed down its judgment in the case of  Trident Pharm Pte Ltd v Yong Pei Pei Tracey and another [2014] SGHC 59, dismissing the Plaintiff’s claim for breach of duty of fidelity.

 

The First Defendant was employed as the Plaintiff’s pharmacist and managed its pharmacy at the National Dental Centre of Singapore (“NDC”) from April 2004 to February 2007. The plaintiff’s lease with NDC was due to expire in 2007 and so in September 2006, the NDC invited tenders for a fresh lease.

 

The Three Tenders

 

The Second Defendant, the First Defendant’s husband and also a registered pharmacist, registered a sole proprietorship in October 2006 (“The Dental Pharm”) and tendered for the new lease with NDC. Tenders were also received from a company called Pharmaforte Singapore Ltf (“Pharmaforte”) and the Plaintiff.

 

The important terms NDC’s tender exercise were that (i) it must satisfy the minimum rent of $1,000 a month and (ii) it must incorporate a schedule of fixed prices for all the pharmaceutical products that were to be dispensed at the pharmacy.

 

Pharmaforte submitted a tender of SGD 1,300; the Second Defendant submitted a tender of SGD 1,800; and the Plaintiff submitted a tender of only SGD 800. In November 2006, the NDC awarded the new lease to the Second Defendant, to commence in March 2007. The First Defendant resigned from the Plaintiff’s employ in December 2006 with the intention of working at her husband’s newly acquired pharmacy.

 

The Plaintiff’s Claims

 

The Plaintiff sued the First Defendant for breach of her duty of fidelity on the basis that she was still an employee of the Plaintiff when her husband had registered The Dental Pharm and tendered for the lease. The Plaintiff alleged that the First Defendant used confidential information belonging to the Plaintiff to assist the Second Defendant in his tender. Such information was alleged to include the prices the Plaintiff had agreed to charge the NDC patients, the costs and sale price of the drugs sold by the Plaintiff and the manner in which the Plaintiff submitted its tenders. The Plaintiff also brought a claim against the Second Defendant on the basis that he had induced his wife to breach her contract of employment with the Plaintiff.

 

In determining the issues, Choo Han Teck J ruled that the Second Defendant was awarded the lease on merit and that even if the Second Defendant had not tendered, the lease would have been awarded to Pharmaforte and not the Plaintiff. The Judge concluded that the Plaintiff’s tender was deficient as it did not meet the SGD 1000 minimum, and that was the reason it was not awarded the new lease.

 

The Duty Of Fidelity

 

Although the Plaintiff was unsuccessful in proving his loss was caused by the First Defendant, and therefore the issue of fidelity became moot, the judge nonetheless took the opportunity to consider broadly an employee’s duty of fidelity, noting that:

 

  • an employee’s duty of fidelity to his employer is distinct from a director’s fiduciary duty to his company and at a lower threshold
  • the duty of fidelity does not generally preclude an employee from taking preparatory steps to compete with a former employer; and
  • the duty of fidelity to an employee does not require the employee to subjugate his own interests to those of his employer

 

Further, the Judge concluded that “if the only evidence of infidelity was her joining a rival bit and failing to disclose that act to the plaintiff, I would find that that was not sufficient to constitute a breach of her duty of fidelity as an employee.” In this case, assisting with her husband’s tender was merely a preparatory step by the First Defendant towards competing with the Plaintiff, and did not breach her duty of fidelity.

 

Non Competition Clauses

 

The judge also noted that the First Defendant’s contract of employment did not include a non competition clause; she was therefore free to compete so long as she was not employed by the Plaintiff. The duty of fidelity will not step into the shoes of an absent non competition clause: employers cannot create restraints where none have been provided for in the contract of employment.

 

If employers want to restrain their employees from competing post the termination of their employment, a non competition clause should be carefully and expressly drafted; as this case illustrates, the duty of fidelity is a poor substitute.

 

herbert smith Freehills

 

For further information, please contact:

 

Peter Godwin, Partner, Herbert Smith Freehills

peter.godwin@hsf.com

 

Gareth Thomas, Partner, Herbert Smith Freehills

gareth.thomas@hsf.com

 

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