BUS201 Contract & Agency Law Group Marked Assignment | SUSS

Contents Page

Question 1 Part A
Question 1 Part B          
Question 2           
References         
Appendices           

Question 1 Part A

In Singapore, non-compete clauses are part of a larger category of clauses known as restraint of trade clauses, which limit the employee's ability to practise their profession or skill or engage in business in specified markets and locations for a set period (Appendix 1). 

As evidently seen in this scenario, Avant Health has a non-compete clause in an attempt to stop its employee and business partner, Cayla, from setting up or owning any dental business or practising dentistry in any form for five years after the date of the Agreement.

A restraint of trade is simply used to control an employee’s conduct while or after they’re employed with their business. It restricts a person from taking up a particular type of business or employment. In this case, based on the legal rules relating to restraint of trade, Cayla is being controlled or limited in her profession. With this clause, the law is not stopping Cayla from living her livelihood, and the law is not stopping her from being able to make an income.

Avant Health is unable to enforce the “non-compete” clause against Cayla if she were to work with Alba Dental, as it is considered a restraint of trade. A restraint of trade is a contract that seeks to prevent or minimise competition. Restraint of trade is considered one of the illegal contracts and is not enforceable by the court. As a prima facie void,  restraint of trade clauses or contracts are generally void (Asiawerks Global Investment Group Pte Ltd v Ismail bin SyedAhmad (2004)). This follows the approach of a market-based economy on fair competition.

The Singapore the Competition Act (2004)  also prohibits restraint of trade, generally prohibitsthree main types of anti-competitive behaviour: anti-competitive agreements which appreciablyprevent, restrict or distort competition in Singapore; abuse of a dominant position in the market; and mergers and acquisitions of business entities which substantially lessen competition in Singapore (Singapore Business Law 9th Edition 2021).

There are two types of restraint of trade contracts: employment contracts and sale of business contracts. For a restraint of trade to be valid under common law, three factors must be fulfilled: it
must protect a legitimate interest of the covenantee (the person benefiting from the restraint); there must be a reasonable scope, and it must not be contrary to the public interest (Singapore Business Law  9th Edition 2021).

Legitimate Interest The restraint must protect the proprietary or legitimate interest of the covenantee and not be for the sake of preventing fair competition. For the sale of a business,   the main proprietary and legitimate interest is business goodwill. For employment contracts, it is a form of restraint of a former employee's trade secrets or trade connections made or obtained from their employment. 

Trade secrets (Lek Gwee Noi v Humming Flowers & Gifts Pte Ltd  (2014)) and trade contacts(Tan Kok Yong Steve v Itochu Singapore Pte Ltd (2018)) may constitute legitimate interests that can be protected by a restraint of trade clause. 

Maintenance of a stable, trained workforce could constitute a legitimate proprietary interest that merits protection by a non-solicitation clause, which may otherwise be seen as an unreasonable restraint of trade (Man Financial (S) Pte Ltd v Wong Bark Chuan David (2008)). 

If the restraint is to protect the employer against competition from its ex-employee or to prevent an employee from using the personal skills or knowledge acquired during his previous employment, then it is likely to be void (Herbert Morris Ltd v Saxelby  (1916) and  Buckman Laboratories (Asia) Pte Ltd v Lee Wei Hoong (1999)). Stratech Systems Ltd v Nyam Chiu Shin &Others (2005) showed that the law will not hold a restraint if the covenantee is merely seeking protection from competition from ex-employees.

In the case of Avant Health and Cayla, the clause clearly shows to minimise competition from Cayla and prevent her from earning a living in Singapore and other parts of Southeast Asia with the dentistry skills she has gained from studying and working previously at her uncle’s dental clinic before opening her practice. 

Avant Health purchased Toothkind for the practices of sustainability practices. These are not valid enough reasons to restrain Cayla, as practices, measures, management, and implementations are not considered trade secrets. Practices, measures, management, and implementations are acts that a business adopts to operate one’s business. 

The choices of material to be used also cannot be trade secrets, as Cayla did not invent or have proprietary rights to the materials used; Cayla merely chose to use such materials to be in line with the approach Cayla wanted Toothkind to take.

There are also no trade contacts or connections valid for Avant Health to enforce the trade restraint, as  Cayla’s   Toothkind is a dental clinic where all walks of life can come for dental treatment. 

The difference between Avant Health and Cayla and Tan Kok Yong Steve v Itochu Singapore PteLtd  (2018) case was that Cayla also just started her practice over 3 years ago, she would not have a strong and huge customer base, even though she worked at her uncle’s dental clinic. 

Cayla did not have a strong base of customers over whom Cayla had knowledge and influence. Cayla did not practice any specific special dental procedures that only Toothkind administered; this too is invalid as medical procedures are prohibited from being patent.

The trained workforce, which can be considered a proprietary interest, is not valid for Avant Health. Cayla is the main certified dentist of  Toothkind, supporting certified dental assistants for Toothkind's daily operations. 

Cayla is an important figure of operations in Toothkind. She is the one who does the dental procedures. Even though Alba Dental decides to poach Cayla ex-staff, Avant Health still does not have a valid reason to enforce a non-compete clause (Man Financial (S) Pte Ltd v Wong Bark Chuan David (2008)).

Reasonable Scope

Restraint must be reasonable in terms of duration, geographical coverage, and subject matter. The law will only allow the restriction to the extent that is necessary to protect the legitimate interest of the party seeking to enforce the restrictive covenant (BUS201, SU4-9).

The non-compete clause included countries outside Singapore where Cayla had no establishment, making the clause's geographical inclusion too wide. As Singapore is a small country, the geographical scope is not enforceable as dentistry is the source of living for Cayla, where she would need to work in the dentistry industry in the country of residence. This also prevented Cayla from venturing into other countries for expansion and reducing competition in favour ofAvant Health (Mason v Provident Clothing & Supply Co Ltd (1913)). 

Even if there is legitimate interest valid, the duration of the restraint will not exceed to protectthe concerned interest. Thus, the duration stated in the clause is too long, five (5) years (ManFinancial (S) Pte Ltd v Wong Bark Chuan David (2008)). 

With the subject matter, there must be a close connection between the restriction and the workdone by the employee before leaving (HT SRL v Wee Shuo Woon (2019)). The scope covered inthe clause “dentistry” is too wide than necessary   to  protect   the legitimate interest of AvantHealth thus making the non-compete clause void (CLAAS Medical Centre Pte Ltd v Ng BoonChing (2010)).

Public Interest

The restraint must be against the public interest.  If the restraint has a significant impact on availability or monopoly due to reduced competition, given protecting the public interest, the law deems the clause to be void (Asia Polyurethane Mfg Pte Ltd v Woon Sow Liong (1990)). Inthe  Esso   Petroleum  Co  Ltd v  Harper’s   Garage  (Stourport) Ltd  (1968),   there was a test of reasonableness that required a consideration of the public interest, which was fuel prices, which must be protected in such exclusive dealing agreements. 

This was to prevent monopolisation where the covenantee can set a price to its advantage, as there is little to no competition. For the case of Avant Health and Cayla, preventing Cayla from practising dentistry would allow Avant Health to be more advantageous in the market in setting the prices, plus planning to expand operations in Southeast Asia would allow Avant   Health to monopolise the local market; therefore, the non-compete clause is deemed void and not enforceable.

Question 1 Part B

Since the non-compete clause's reach is too broad, the Singapore court may strike it down and may apply the blue pencil test to cancel out, as if written using a blue pen, the sections of the non-compete clause that are unfair and hence unenforceable. This is also known as the discretionary severance doctrine.

The court can only conduct this cancellation if the remaining words in the clause still make grammatical sense and have their original meaning. However, the blue pencil test cannot be used to remedy an unreasonable non-compete clause if there is nothing that can be cancelled out to make the clause acceptable (Appendix 2).

In addition, the blue pencil test could be applied when the restraint of trade clause does not satisfy three conditions and can be rescued if the offensive parts of the clause can be deleted without altering the essential meaning of the restraint: Man Financial (S) Pte Ltd v Wong BarkChuan David (2008). So, in order to make it enforceable, Avant Health has to prove the three aforementioned conditions.

Question 2

Conditions are terms that the parties believe are so vital that they must be followed. If one party fails to perform a condition, the other party has the right to terminate the contract (Appendix 3).

Warranties, on the other hand, are used in legal terminology to refer to a minor contractual term, also recognised as additional terms that are not a priority term when it comes to the contractthus,   less important terms that constitute secondary obligations  (Appendix   4).  

As mentioned in the contract, clause 4.1, Sally has to record a video of her tour of Alba Dental and upload it onto Facebook. This constitutes a condition of the contract. It is the main intention of engaging Sally in the first place. The intention is to promote Alba Dental through Facebook.In addition, the video has to be 8 minutes long. This condition has been met by Sally as she has completed the video and uploaded it onto Facebook. 

The second clause, 4.2, is a warranty, which states that she has to post 10 original posts within 7days of her first dental treatment. Each post will have to be 2 days apart from the others. This clause is an additional term of the contract, as it is not the root of the contract. Sally has posted 4original posts on Facebook within 7 days, and she went silent. This does not constitute a breach of contract.  (Appendix 5)

To terminate the contract, Vincent must prove that Sally has failed to perform her obligation under the contract. An actual breach occurred when the time of performance for an obligation has arrived, and Sally fails to perform it. As stated in   Appendix 5,  Vincent has the right to terminate the contract based on Situation 3(a), where there is a breach in warranty. As mentioned earlier,  Sally has fulfilled the conditions but only partially fulfilled the warranty.

Not every breach amounts to the contract being discharged. To constitute a discharge, the breach must amount to a repudiation of the contract; if not, Vincent can only sue for damages (Appendix 6). 

There is no breach in conditions as Sally did fulfil the conditions where she is required to record and post a video of the clinic tour during her first visit of at least 8 minutes long   (Behn v Burness  (1863)).   However, there is a fundamental breach, where she is required to post 10original posts on Facebook within  7 calendar days from the date of her first visit, and each subsequent post must not be made 2 days after the last. 

The schedule given in the contract is to ensure Alba Dental has a continuous marketing presence after the launch. As time is the essence of the contract, continuous market presence after the launch could determine how fast Alba Dental can make a presence in the market. 

Performance of obligations outside the time limits specified in the contract may,  in certain situations, amount to a fundamental breach (Teo Teo Lee v Ong Swee Lan & Others  (2002)). This is further explained in (Tate & Another v Sihan Sadikan  (1992)) and (CAA Technologies Pte Ltd v Newcon Builders Pte Ltd (2017)), where failure to meet the time limits specified in the contract was fundamental and went to the root of the contract.

Breach of a warranty is one where it entails serious consequences as shown in (RDC ConcretePte Ltd v Sato Kogyo (S) Pte Ltd & Another Appeal (2007)), the law states if the consequencesof the breach deprive the innocent party of substantially the whole benefit of the contract, then the innocent party is “entitled to terminate the contract notwithstanding that it only constitutes [a]warranty”.

 In this, Sally did not fully fulfil her warranty to the contact where she had to post 10 original Facebook. The 10 posts are part of the marketing strategy for Alba Dental to quickly build a strong customer base.