24 July, 2015
The High Court has recently found, in Tempcool Engineering (S) Pte Ltd v Vincent Chong and others [2015] SGHC 100, that confidential information obtained and disclosed by one employee to a former employee who used it to further his new commercial venture was misused by both employees and the new company. Although an appeal has been filed against the decision by the defendant employees and their company, the decision remains an important – and interesting – one in the context of the use of confidential information by current and former employees.
Background
The plaintiff, Tempcool Engineering (S) Pte Ltd, was a company involved in the engineering, supply and design of refrigeration and air conditioning systems. The plaintiff had brought an action against Mr Vincent Chong ("Chong"), one of its employees, Mr Woon Wee Seng ("Woon"), a former employee, and U.B. Zanotti System Pte Ltd ("UBZ"), of which Woon was a director and a 50% shareholder. It was also discovered during the trial of the action that Chong had in fact accepted Woon's offer of employment with UBZ, while remaining employed by the plaintiff. The plaintiff argued that the defendants had, amongst other things, breached their duties of confidence and their duties of fidelity and good faith, in relation to various technical drawings (the "Disputed Drawings"), pricing information (the "Pricing Information") and filing labels (the "Filing Labels"), which belonged to the Plaintiff.
The principal allegations made by the plaintiff were, firstly, that Chong misused confidential information belonging to it by sending the Disputed Drawings to Woon; secondly, that the defendants had misused the Pricing Information and the Filing Labels, and thirdly, that Chong and Woon breached their duties of good faith and fidelity owed to the plaintiff.
Misuse of confidential information
The primary issue in the case was whether there had been a misuse of confidential information in breach of confidence. The High Court held that the applicable test was whether: (i) the information possessed the necessary quality of confidentiality; (ii) the information was imparted or received in circumstances such as to import an obligation of confidentiality; and (iii) there was unauthorised use of information and detriment to the company.
The High Court also considered whether the defendants were subject to a duty of confidentiality in respect of the information. Whilst Chong did not have a formal employment contract, he was contracted as an employee by the plaintiff with the essential terms agreed upon. Thus, he was subject to an implied duty of confidentiality. Woon was found to have been subject to an equitable duty of confidence as a reasonable man in the circumstances would have known that the information was given to him in breach of confidence; this allowed the court to avoid any consideration of the applicability and validity of the broadly drafted confidentiality provisions in Woon's employment contract. For UBZ, although Chong had not formally commenced work at the company, Woon had made Chong an offer of employment which had been accepted. As Woon intended to use the information received through UBZ, UBZ was deemed to have the same level of knowledge as Woon. It was therefore also subject to an equitable duty of confidence.
Disputed Drawings, Pricing Information and Filing Labels
The High Court found that the Disputed Drawings remained inaccessible and were kept in a contained environment and password protected on computers, all of which was evidence that they were confidential. Additionally, the Disputed Drawings had value in allowing the plaintiff's engineers to adapt precedents for new projects, which also suggested that they were confidential. The High Court also considered that it was irrelevant that the arrangements which they detailed (i.e. the setup of commercial refrigeration equipment) were in the public domain in the form of publicly accessible spaces; the Disputed Drawings themselves remained confidential.
The High Court further stated that the plaintiff's Pricing Information (which included tender quotations), was confidential. Misuse was easily evidenced as Woon was able to structure UBZ's bids on present and future project tenders, so as to better any offer made by the plaintiff in relation to the same work. However, the issue of the Filing Labels was dealt with differently: these were deemed not to have had the necessary quality of confidence and therefore the plaintiff's claim was unsuccessful in this respect.
Duties of good faith and fidelity
Having found that there had been a breach of confidence in relation to the Disputed Drawings and the Pricing Information, the High Court went on to consider whether Chong and Woon had breached the duty of good faith and fidelity owed to the plaintiff. The court outlined that it is trite law that there is an implied term that an employee will serve his employer with good faith and fidelity. As Chong was an employee at the time of passing the Disputed Drawings and other materials to Woon, he had breached that duty, notwithstanding the fact that the Filing Labels were not confidential. However, as Woon was not an employee of the plaintiff at the time of the disclosure, he did not owe his former employer a duty of fidelity. The court, however, did comment that Woon would have been liable for the tort of inducing breach of contract if such a claim had been brought.
The quality of confidentiality
This is an important and interesting decision in the context of use of confidential information by employees and, in particular, former employees. The decision highlights the common sense approach that the Singapore courts will take when assessing whether or not there has been misuse of confidential information. Whilst it would be preferable to have robust confidentiality provisions in a formal contract of employment between an employer and an employee, the employee or former employee (as the case may be) can still be subject to implied or equitable duties of confidentiality.
Consequently, should the employee or former employee then use that confidential information to the detriment of the employer, the court can find that the elements for a breach of confidence claim have been established. The decision also highlights the importance of employers taking such steps as are reasonable in the circumstances to protect their information, including the use of passwords, information barriers and internal sign-off procedures – quite apart from protecting the information itself, such steps also allow employers to better demonstrate that the information possessed the necessary quality of confidentiality in a subsequent breach of confidence claim.
For further information, please contact:
Fatim Jumabhoy, Herbert Smith Freehills
fatim.jumsbhoy@hsf.com
