Smile Inc v Lui: Restraint of Trade, Employee Duty of Fidelity, Preparatory Competition

The Court of Appeal dismissed Smile Inc Dental Surgeons Pte Ltd's appeal against the High Court's decision in favor of Dr. Andrew Stewart Lui. Smile Inc had sued Dr. Lui, a former employee, for breaching restrictive covenants in his employment contract and his duty of good faith and fidelity. The court found that while Dr. Lui had breached the radial and non-dealing clauses, the restrictive covenants were an unreasonable restraint of trade and therefore unenforceable. The court also agreed with the High Court's finding that Dr. Lui had not breached his duty of fidelity and did not owe fiduciary duties to Smile Inc.

1. Case Overview

1.1 Court

Court of Appeal

1.2 Outcome

Appeal Dismissed

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

Appeal regarding restrictive covenants and employee duty of fidelity. Court held covenants were unreasonable restraint of trade and no breach of duty.

1.7 Decision Date

30 July 2012

2. Parties and Outcomes

Party Name	Role	Type	Outcome	Outcome Type	Counsels
Smile Inc Dental Surgeons Pte Ltd	Appellant	Corporation	Appeal Dismissed	Lost	Aqbal Singh of Pinnacle Law LLC
Lui Andrew Stewart	Respondent	Individual	Appeal Dismissed	Won	Wong Siew Hong of Infinitus Law Corporation Teh Ee-Von of Infinitus Law Corporation

3. Judges

Judge Name	Title	Delivered Judgment
Chan Sek Keong	Chief Justice	No
Andrew Phang Boon Leong	Justice of the Court of Appeal	Yes
V K Rajah	Justice of the Court of Appeal	No

4. Counsels

Counsel Name	Organization
Aqbal Singh	Pinnacle Law LLC
Wong Siew Hong	Infinitus Law Corporation
Teh Ee-Von	Infinitus Law Corporation

4. Facts

The Respondent was employed as an associate dental surgeon by the Appellant.
The Employment Contract contained restrictive covenants, including a Non-Solicitation Clause, a Radial Clause, and a Non-Dealing Clause.
The Respondent incorporated Dental Essence Pte Ltd while still employed by the Appellant.
The Respondent entered into a tenancy agreement for premises near the Appellant's clinic.
The Respondent resigned from the Appellant's employment.
Dr Pearson joined Dental Essence as a shareholder and dentist.
The Appellant experienced a significant decrease in monthly revenue after the Respondent's departure.

5. Formal Citations

Smile Inc Dental Surgeons Pte Ltd v Lui Andrew Stewart, Civil Appeal No 145 of 2011, [2012] SGCA 39
Smile Inc Dental Surgeons Pte Ltd v Lui Andrew Stewart, , [2012] 1 SLR 847

6. Timeline

Date	Event
2003-07-01	Respondent was employed as an associate dental surgeon by the Appellant.
2005-07-01	Respondent was assigned to work full-time at the Appellant’s clinic at Forum the Shopping Mall.
2008-03-01	Dr Pearson gave notice to the Appellant that he intended to stop working for it in September 2008.
2009-01-07	Respondent incorporated Dental Essence Pte Ltd.
2009-02-25	Respondent entered into a one-year tenancy agreement on behalf of Dental Essence.
2009-02-25	Respondent gave written notice of his resignation to the Appellant.
2009-03-01	Respondent committed to renovation works of Dental Essence’s premises.
2009-03-19	Dr Pearson joined Dental Essence as a shareholder and a dentist.
2009-04-18	Respondent’s last day of work with the Appellant.
2009-10-08	Appellant commenced an action against the Respondent.
2010-09-01	Appellant closed the Forum Clinic.
2012-07-31	Judgment reserved.

7. Legal Issues

Restraint of Trade
- Outcome: The court held that the restrictive covenants were in unreasonable restraint of trade and therefore void and unenforceable.
- Category: Substantive
- Sub-Issues:
  - Reasonableness of restrictive covenants
  - Duration of restraint
  - Scope of restraint
- Related Cases:
  - [2008] 1 SLR(R) 663
  - [1894] AC 535
Breach of Duty of Good Faith and Fidelity
- Outcome: The court held that the Respondent's actions did not constitute a breach of the duty of good faith and fidelity.
- Category: Substantive
- Sub-Issues:
  - Preparatory steps to compete
  - Solicitation of clients
  - Use of confidential information
- Related Cases:
  - [1895] 2 QB 315
  - [1935] 2 KB 80
Fiduciary Duty
- Outcome: The court held that the Respondent did not owe any fiduciary duties to the Appellant.
- Category: Substantive
- Sub-Issues:
  - Existence of fiduciary duty
  - Scope of fiduciary duty
- Related Cases:
  - (1973) 40 DLR (3rd) 371
Contractual Interpretation
- Outcome: The court rejected the Appellant's argument to vary the Restrictive Covenants based on extrinsic evidence.
- Category: Procedural
- Sub-Issues:
  - Admissibility of extrinsic evidence
  - Objective intention of parties
- Related Cases:
  - [2008] 3 SLR(R) 1029

8. Remedies Sought

Damages
Injunction

9. Cause of Actions

Breach of Contract
Breach of Duty of Good Faith and Fidelity

10. Practice Areas

Commercial Litigation
Employment Law

11. Industries

Dental
Healthcare

12. Cited Cases

Case Name	Court	Affirmed	Citation	Jurisdiction	Significance
Smile Inc Dental Surgeons Pte Ltd v Lui Andrew Stewart	High Court	Yes	[2012] 1 SLR 847	Singapore	The present appeal is against the decision of the High Court judge in this case.
Man Financial (S) Pte Ltd v Wong Bark Chuan David	Court of Appeal	Yes	[2008] 1 SLR(R) 663	Singapore	Cited for the legal test as to whether a restrictive covenant is in unreasonable restraint of trade.
CLAAS Medical Centre Pte Ltd v Ng Boon Ching	Court of Appeal	Yes	[2010] 2 SLR 386	Singapore	Cited for the legal test as to whether a restrictive covenant is in unreasonable restraint of trade.
Thorsten Nordenfelt (Pauper) v The Maxim Nordenfelt Guns and Ammunition Company, Limited	House of Lords	Yes	[1894] AC 535	England	Cited for the twin tests of reasonableness in reference to the interests of the parties and the public.
Herbert Morris, Ltd v Saxelby	House of Lords	Yes	[1916] 1 AC 688	England	Cited for public policy reasons in construing restrictive covenants more strictly in the employment context.
Routh v Jones	English High Court	Yes	[1947] 1 All ER 179	England	Cited for the existence of a legitimate proprietary interest in the context of medical practitioners.
Routh v Jones	Court of Appeal	Yes	[1947] 1 All ER 758	England	Cited for the existence of a legitimate proprietary interest in the context of medical practitioners.
Koops Martin v Dean Reeves	New South Wales Supreme Court	Yes	[2006] NSWSC 449	Australia	Cited for the legitimate proprietary interest in the goodwill generated by the practice of medical practitioners, solicitors and accountants.
Zheng Yu Shan v Lian Beng Construction (1988) Pte Ltd	High Court	Yes	[2009] 2 SLR(R) 587	Singapore	Cited for the explanation of judicial notice.
Asia Hotel Investments Ltd v Starwood Asia Pacific Management Pte Ltd	Singapore High Court	Yes	[2007] SGHC 50	Singapore	Cited as an example of a publicly notorious fact.
Sir W C Leng & Co, Limited v Andrews	English Court of Appeal	Yes	[1909] 1 Ch 763	England	Cited for the principle that a restraint of trade that operates for an indefinite period of time is necessarily void and unenforceable.
Hanna v OAMPS Insurance Brokers Ltd	New South Wales Court of Appeal	Yes	[2010] NSWCA 267	Australia	Cited for the validity of cascading clauses in restrictive covenants.
OAMPS Insurance Brokers Ltd v Peter Hanna	New South Wales Supreme Court	Yes	[2010] NSWSC 781	Australia	Cited for the validity of cascading clauses in restrictive covenants.
Transport North American Express Inc v New Solutions Financial Corp	Ontario Superior Court of Justice	Yes	(2001) 214 DLR (4th) 44	Canada	Cited for the doctrine of discretionary severance or notional severance.
Transport North American Express Inc v New Solutions Financial Corp	Supreme Court of Canada	Yes	[2004] 1 SCR 249	Canada	Cited for the doctrine of discretionary severance or notional severance.
Transport North American Express Inc v New Solutions Financial Corp	Ontario Court of Appeal	Yes	(2001) 214 DLR (4th) 44	Canada	Cited for the doctrine of discretionary severance or notional severance.
Shafron v KRG Insurance Brokers (Western) Inc.	Supreme Court of Canada	Yes	(2009) 301 DLR (4th) 522	Canada	Cited for the rejection of the application of notional severance for restrictive covenants in the employment context.
Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd	Court of Appeal	Yes	[2008] 3 SLR(R) 1029	Singapore	Cited for the contextual approach to contractual interpretation.
Sandar Aung v Parkway Hospitals Singapore Pte Ltd	Court of Appeal	Yes	[2007] 2 SLR(R) 891	Singapore	Cited for the principle that the construction placed on contractual language should not be inconsistent with the context in which the contract was entered into.
Singapore Telecommunications Ltd v Starhub Cable Vision Ltd	Court of Appeal	Yes	[2006] 2 SLR(R) 195	Singapore	Cited for the principle of reading down a clause based on the parties' contemplation at the time of entering into the contract.
Ng Giap Hon v Westcomb Securities Pte Ltd	Court of Appeal	Yes	[2009] 3 SLR(R) 518	Singapore	Cited for the principle that the court will not rewrite the contract for the parties based on its own sense of the justice of the case.
Nottingham University v Fishel	English High Court	Yes	[2000] IRLR 471	England	Cited for the distinction between the duty of good faith and fidelity and fiduciary duty.
Nagase Singapore Pte Ltd v Ching Kai Huat	Singapore High Court	Yes	[2007] 3 SLR(R) 265	Singapore	Cited for the principle that not all employees owe a special duty of single minded or exclusive loyalty to their employers.
Mitchell v Paxton Forest Products Inc	Court of Appeal of British Columbia	Yes	[2002] BCCA 532	Canada	Cited for the principle that not all employees owe a special duty of single minded or exclusive loyalty to their employers.
Canadian Aero Service Ltd v O’Malley	Supreme Court of Canada	Yes	(1973) 40 DLR (3rd) 371	Canada	Cited for the principle that top management owes a larger, more exacting duty to their corporate employer.
Loh Siok Wah v American International Assurance Co Ltd	Singapore High Court	Yes	[1998] 2 SLR(R) 245	Singapore	Cited for the principle that an implied term cannot contradict an express term of the contract.
Robb v Green	Court of Appeal	Yes	[1895] 2 QB 315	England	Cited for the principle that an employee owes a duty to act towards his employer with good faith.
Wessex Diaries Limited v Smith	English Court of Appeal	Yes	[1935] 2 KB 80	England	Cited for the principle that an employee cannot solicit the employer’s customers to transfer their custom to himself after his employment with the employer was terminated.
Hivac Limited v Park Royal Scientific Instruments Limited	English Court of Appeal	Yes	[1946] Ch 169	England	Cited for the principle that employees cannot do similar work for a company in direct competition with their employer.
Sanders v Parry	English High Court	Yes	[1967] 1 WLR 753	England	Cited for the principle that an employee cannot enter into an agreement with one of the plaintiff’s important clients, with the result that the defendant would leave the plaintiff’s employ and set up his own practice.
Laughton & Hawley v BAPP Industrial Supplies Ltd	English Employment Appeal Tribunal	Yes	[1986] ICR 634	England	Cited for the principle that employees writing to some of their employer’s suppliers to inform them that they intended to start business on their own and to ask for details of those suppliers’ products is permissible.
Helmet Integrated Systems Ltd v Tunnard	English Patents County Court	Yes	[2007] FSR 16	England	Cited for the principle that the mere taking of preparatory steps to compete with a former employer will not constitute a breach of the implied duty of good faith and fidelity on the part of the employee concerned.
Cobbetts LLP and Lee Crowder v Mark Reginald Stuart Hodge	English High Court	Yes	[2009] EWHC 786 (Ch)	England	Cited in the context of an alleged breach of fiduciary duty by the Respondent.
British Midland Tool v Midland International Tooling Ltd	Unknown	Yes	[2003] 2 BCLC 523	England	Cited for the principle that a director who wishes to engage in a competing business and not to disclose his intentions to the company ought to resign his office as soon as his intention has been irrevocably formed and he has launched himself in the actual taking of preparatory steps.
Shepherds Investments Ltd v Walters	Unknown	Yes	[2007] FSR 15	England	Cited for the principle that the precise point at which preparations for the establishment of a competing business by a director become unlawful will turn on the actual facts of any particular case.
Samsung Semiconductor Europe Ltd v Docherty	Unknown	Yes	[2011] SLT 806	Scotland	Cited in the context of an alleged breach of fiduciary duty by the Respondent.
Pacific Autocom Enterprise Pte Ltd v Chia Wah Siang	Singapore High Court	Yes	[2004] 3 SLR(R) 73	Singapore	Cited for the principle that an employee actively procuring the breakdown of the relationship between the employer and the employer’s principal is a breach of duty.
Balston Limited v Headline Filters Limited	English High Court	Yes	[1990] FSR 385	England	Cited for the principle that an employee acquiring a company engaging in a competing business is a breach of duty.
Lancashire Fires Limited v S A Lyons & Company Limited	English Court of Appeal	Yes	[1996] FSR 629	England	Cited for the principle that an employee incorporating a company and obtaining a loan from the plaintiff company’s potential customer to develop his own business is a breach of duty.
G E Searle & Co Ltd v Celltech Ltd	English Court of Appeal	Yes	[1982] FSR 92	England	Cited for the principle that the law has always looked with favour upon the efforts of employees to advance themselves, provided they do not use or steal the secrets of their former employer.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute Name	Jurisdiction
Evidence Act (Cap 97, 1997 Rev Ed) s 94	Singapore

15. Key Terms and Keywords

15.1 Key Terms

Restrictive Covenants
Restraint of Trade
Duty of Good Faith and Fidelity
Fiduciary Duty
Non-Solicitation Clause
Radial Clause
Non-Dealing Clause
Preparatory Steps
Legitimate Proprietary Interest

15.2 Keywords

Restrictive covenant
employment contract
duty of fidelity
restraint of trade
dental practice
Singapore
appeal
employee
good faith

17. Areas of Law

Area Name	Relevance Score
Restraint of Trade	95
Employment Law	90
Contract Law	75
Fiduciary Duties	60
Agency Law	20

16. Subjects

Employment
Contracts
Restraint of Trade
Fiduciary Duty