Contract and Business Law

As there are different parts to “Clause 8” in the employment contract which Julia as an employee has signed with Calypso Private Limited, we shall examine four separate legal issues. The first legal issue is whether Calypso is able to enforce part (a) of Clause 8 which states that Julia shall not be directly or indirectly be engaged in any capacity (whether as an employee, consultant, or director) with any business that is selling all types of sports medication, anywhere in the world.

The second legal issue is whether Calypso is able to enforce part (b) of Clause 8 which states that Julia shall not solicit the business of any person who is or has been a customer of the Company, for the purpose of competing with the businesses of the Company. The third legal issue is whether Calypso is able to enforce part (c) of Clause 8 which states that Julia shall not entice away any employee of the Company to work for a business that sells sports medication anywhere in the world.

The fourth legal issue is whether Calypso is able to enforce all three sections of Clause 8 (part a, b, and c) for the entire duration of 10 years after the cessation or termination of the employee’s employment with the company. Legal Principles: Under law, there are 4 main vitiating factors which may prevent a contract from being enforceable; mainly being Incapacity, Illegality, Misrepresentation and Mistake. 1. 1 Incapacity refers to the lack of capacity to enter into a contract as the party involved may not have sufficient understanding of the consequences of making the agreement.

People who are minors (under 21 years of age in Singapore), of unsound mind or intoxicated are considered to lack capacity to enter into a contract. 1. 2 Illegality can also make a contract void and unenforceable. There are mainly 4 types of contracts which are deemed illegal, namely: 1) Gaming & wagering contracts – Under section 5 of the “Civil Law Act”, all contracts by way of gaming or wagering is null and void, whether by parol or in writing. 1. 3.

(2) Contracts which are contrary to public policy – Contract which contravene some aspect of public policy, such as promoting sexual immorality or inimical to the administration of justice such as a contract to give false evidence in court, are held to be illegal. (3) Contracts which are contrary to statute – Contract which are illegal in performance, such as a contract to smuggle cigarettes into Singapore, will be considered void and illegal. (4) Contracts in restraint of trade – Contracts which seeks to minimize or prevent competition are considered a restraint of trade agreement.

Generally, clauses or contracts in restraint of trade agreements are considered void to enable a market economy in which there is fair competition. 1. 4 However, there are certain situations in which a restraint of trade clause may be enforceable if, given the interests of the parties involved and the general public, the restraint is considered reasonable. 1. 5 In Singapore, the Competition Act enacted in 2004 generally prohibits three main types of anti-competition behavior, namely: i. Agreements which prevent, restrict or distort competition in Singapore; ii. Abuse of a dominant position in the market; and iii.

Mergers and Acquisitions which lessen competition substantially in Singapore. 1. 6 However, there are some situations in which restraint of trade clauses may be valid and enforceable. If they fulfill three criteria being (i) legitimate interest (ii) reasonable scope and (iii) public interest, as further elaborated below, a restraint of trade clause can be valid under the common law. 1. 7 i. Legitimate interest The Singapore Court of Appeal has stated that a restraint of trade clause such as a non-solicitation clause is reasonable as the maintenance of a stable and trained workforce constitute a legitimate proprietary interest.

1. 8 However, if the restraint is mainly intended to prevent an employee to use his personal skills or knowledge acquired during his previous employment and to minimize competition, then this restraint is likely to be void. ii. Reasonable scope A restraint of trade may be valid when it is reasonable in duration, scope and subject matter and vice versa, may be invalid when duration, scope and subject are unreasonable. 1. 9 iii. Public Interest A restraint of trade may be held invalid when it is contrary to public interest.

For example, the restraint of trade which impacts the trading arrangements significantly and generally reduces competition, the court may deem the clause to be invalid. 1. 10 Besides incapacity and illegality, the third factor which can vitiate a contract is misrepresentation. Misrepresentation arises in situation whereby a person makes a false statement of fact with the intention to induce the other party to enter into a contract. A misrepresentation can be classified into fraudulent, negligent, and innocent misrepresentation. 1. 11.

The fourth vitiating factor is mistake. There are four types of mistakes which can be classified into common mistake, mutual mistake, unilateral mistake and non est factum (it is not my deed). Since it can be very difficult to prove a mistake at law, very few contracts are actually invalidated due to mistake. Applications: Calypso Private Limited manufactures sports medication for knee injury and is one of three companies in Singapore which manufactures similar products. Calpyso owns a patent to this medication and holds a market share of 45% in Singapore.

From this, we can deduce that they are considered a dominant player in the market since they own almost half of the market share in Singapore for sports medication. An employment contract is a commercial agreement which is generally valid under the law. In this case, the offeror of the employment contract is Calpyso Private Limited and the offeree who accepts the employment offer is Julia. Julia has worked for Calpyso Private Limited for a period of six months as a Sales Manager and has since resigned and applied to work for another company which sells sports medication.

Calpyso Private Limited is considering suing Julia using a clause in the employment contract (Clause 8) against Julia and we need to examine if there are any vitiating factors in this clause to determine if it is enforceable. Hence, we have to examine each part of Clause 8 in detail to note if there are any anti-competitive behavior which may display an abuse of Calpyso’s dominant position in the market. The parties involved in this case are Calpyso’s HR Manager, Calpyso’s Sales Director, Calpyso’s CEO and Julia as an ex-employee of Calpyso, being previously employed as a Sales Manager.

Given the designation of the parties involved, they are deemed to have the capacity to enter into a contract. Hence, the vitiating factor by incapacity does not apply here and thus the employment contract made can be said to be generally valid. A possible vitiating factor that we need to examine here is illegality. Each part of Clause 8 needs to be examined to determine if they are a restraint of trade clause, or whether they breach the anti-competition act.

As mentioned earlier, for a restraint of trade clause to be valid, it must fulfill all three criteria stated earlier, which are (i) legitimate interest (ii) reasonable scope and (iii) public interest. Legal Issue 1 Pertaining to Clause 8 Part (a) First, we shall examine part (a) of Clause 8 which states that: “The Employee shall not, at any time during the term of his employment with the Company and for a period of ten (10) years after the cessation or termination of his employment with the Company, do any of the following:

(a) directly or indirectly be engaged in any capacity (whether as an employee, consultant, or director) with any business that is selling all types of sports medication anywhere in the world;” In this part of the clause, Calpyso have the intention to prevent their employee from contributing to other businesses which sells “all types of sports medication”, “anywhere in the world”. (As for the duration for a period of 10 years, we shall examine this separately in the fourth legal issue as this applies to part a, b and c of Clause 8. ) Calpyso is in the business of manufacturing medication that caters only to knee injury.

By stating that the employee cannot be “engaged in any capacity (whether as an employee, consultant, or director) with any business that is selling all types of sports medication” means that they cannot be employed in, or contribute to, any business that sells medication for shoulders, elbows, neck and many other parts of the body. Calpyso’s intention is very clear that they wish to protect their own business interest by restraining the employee from being employed and contributing to another business which sells sports medication which can affect their market share.

This may be considered an anti-competitive behavior and may not be deemed as reasonable under the law. Although Calpyso is deemed as a major player in Singapore, it has not been successful in expanding into the South East Asia market for the past 2 years. Thus, we can presume that their current business operations is only limited to Singapore. As Singapore is a very small country with only 693 square kilometers1. 18 and a population of 5. 18 million people1. 20, by stating that the ex-employee cannot be engaged in similar businesses “anywhere in the world”, the area of restraint may be too wide.

As a comparison, Malaysia has an area of 329,750 sq km1. 19 and is already 475 times bigger than Singapore. The world may be several tens of thousands or even millions of times larger than Singapore. The world’s population stands at about 7. 02 billion1. 21. In comparison, the world’s population is 1355 times the population of Singapore! In the precedent case of Mason v Provident Clothing & Supply Co Ltd (1913), the clause in Mason’s employment contract prohibited him from entering into a similar business 25 miles from London.

This clause was held to be void as geographically, the area of restraint was 1,000 times larger than the area where he was employed. 1. 12 In addition, Calypso’s medication has been developed specially for Asian’s physiology. By trying to restrict past employees to not engaged in business “anywhere in the world” means that they are not allowed to participate in any business that sells medication to non-Asians such as Westerners. (In this case, Julia is joining a company that sells sports medication to Asians as well as Westerners. )

In the precedent case of Man Financial (S) Pte Ltd v Wong Bark Chuan David (2008), the employee was restraint from giving advice to a competitor “anywhere in the world”. Even if a legitimate proprietary interest is shown, the court considered the restraint of trade clause void as it went far too wide with respect to the area covered. 1. 13 Hence, the scope of restraint stated in Clause 8 part (a) regarding engagement “with any business that is selling all types of sports medication anywhere in the world” can be said to be too wide to be reasonable.

Legal Issue 2 Pertaining to Clause 8 Part (b) Pertaining to part (b) of Clause 8 as stated below, we shall examine if the clause is a valid restraint of trade clause. “The Employee shall not, at any time during the term of his employment with the Company and for a period of ten (10) years after the cessation or termination of his employment with the Company, do any of the following: (b) solicit the business of any person who is or has been a customer of the Company, for the purpose of competing with the businesses of the Company;

This part of the clause prevent the employee from obtaining business from current and past customers of Calpyso so that the employee will not take business away from Calpyso. It may be legitimate to restraint a former employee from exploiting trade secrets and contacts made during his employment as seen in the case of “Asia Business Forum Pte Ltd v Long Ai Sin & Another (2003)”. In some cases, a non-solicitation clause can be valid under the law, but if it minimizes competition it can be deemed to be void. 1. 14 In this case, part (b) of Clause 8 states “for the purpose of competing with the businesses of the Company”.

It is clear that the purpose of this section of the clause is to minimize competition to the company. In the precedent case of Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd (1968), the House of Lords held that the 21-year solus agreement between Esso and Harper was unreasonable after considering the public interest which must be protected. 1. 15 In this case, we are unclear if the company that Julia is intending to join is or has been a customer of Calpyso. Thus, this clause may not be applicable to this senario. In either case, minimizing competition is

generally deemed contrary to public interest and hence this section of Clause 8 may not be enforceable under the law. Legal Issue 3 Pertaining to Clause 8 Part (c) Pertaining to part (c) of Clause 8 as stated below, we shall examine if the part of the clause is a valid restraint of trade clause. “The Employee shall not, at any time during the term of his employment with the Company and for a period of ten (10) years after the cessation or termination of his employment with the Company, do any of the following: (c) entice away any employee of the Company to work for a business that sells sports medication anywhere in the world.

” This purpose of this section of Clause 8 is presumed to be in the interest of Calpyso to prevent current employees of Calpyso from being poached by ex-employees in order to maintain their stable workforce who has been trained in the area of business related to medication for knee injury. As seen in the precedent case of Asia Business Forum Pte Ltd v Long Ai Sin & Another (2003) 1. 16, an employer may restraint a former employee from exploiting trade secrets or trade contacts which were accessible to the employee during his employment.

As Calpyso owns a patent for its medication for knee injury, this non-solicitation clause can be deemed to be valid as it is a reasonable clause to protect its interests for a stable and trained workforce in whom the company has invested in. However, the non-solicitation clause may apply but again, the scope mentioned which is “sports medication anywhere in the world” may be too wide. Legal Issue 4 Pertaining to the Duration of Clause 8 which applies to part (a), (b) and (c): In its entirety, the duration of prohibition to carry out the acts mentioned in all three sections of Clause 8 is for a period of ten (10) years.

This prohibits the past employee from engaging in a similar business and work, in similar industries, in all parts of the world, for a decade! This restriction period is unreasonably long and other than potentially limiting career choices for ex-employees, it also significantly inhibits competition in the market. In the precedent case of Stratech Systems Ltd v Nyam Chiu Shin & Others (2005), former employees were sued for breach of contract which prohibited them from joining a company in the habit of dealing with Stratech for nine months after leaving Stratech.

The court ruled in favor of the former employees as the clause was found to inhibit competition in business and was therefore invalid. 1. 17 In this case, it seems clear that the intention of Calpyso is to restrict natural market competition for its own benefit and thus can be deemed to be unreasonable. Conclusion: We have now examined all four legal issues pertaining to Clause 8 of the employment contract between Calpyso Private Limited and Julia as an employee.

In part (a) of the clause which restricts Julia’s engagement “with any business that is selling all types of sports medication anywhere in the world”, the scope is deemed too be far too wide. Calpyso is dealing only with medication pertaining to knee injury and restriction to medication for the other parts of the body is not considered reasonable. Moreover, Calpyso’s medication is developed specially for Asian’s physiology and may not benefit Westerners as well as other types of medication. Thus, restricting engagement in an area which the company is not specialized in is undoubtedly unreasonable.

In terms of geographic and market size, Singapore is considered far too tiny when compared to the world. Hence it is not reasonable to restrict employees from being engaged “with any business that is selling all types of sports medication anywhere in the world”. In part (b) of the clause which restricts Julia to “solicit the business of any person who is or has been a customer of the Company, for the purpose of competing with the businesses of the Company”, this part of the clause cannot be valid as its main intention is to inhibit competition which is contrary to public interest.

In part (c) of Clause 8 concerning non-solicitation of Calpyso’s current employees, this clause may be valid. However, Julia has not attempt to solicit any employees from Calpyco and hence this clause cannot be used to sue Julia. Overall, the header of Clause 8 states that the duration of ten (10) years applies to all three sections mentioned in part (a), (b) and (c). The number of years is unreasonably long. Even though Calpyso intends to protect its legitimate interest, Clause 8 would not be deemed valid in the eyes of law.

In conclusion, Clause 8 in its entirety clearly states and possesses core intentions to restrict past employees engagement in a free business market. The results of this clause, if considered valid, would inhibit competition and would thus be contrary to public interest. The enforceability of Clause 8 against Julia is unlikely to succeed and hence I would advise Calpyso not to proceed with legal action against Julia. In addition, Calpyso may wish to revise Clause 8 of their employment contract to make them legally enforceable for future usage. – End of Question 1 – Question 2:

Legal issues: There are three noticeable legal issues in this case. The first legal issue is to assess Timothy’s legal rights against QuiknEasi Contractors to see if Timothy has the right not to pay the bill of $150,000 to QuiknEasi Contractors as they did not fulfill all of their obligations in the contract. The second legal issue is to determine Timothy’s liabilities against QuiknEasi Contractors to determine if Timothy is liable to make any payment to QuiknEasi Contractors for the amount of work done, even though they did not fulfill all of their obligations in the contract.

The third legal issue is to assess Timothy’s options and remedy actions that he can demand from QuiknEasi Contractors after the assessment of his rights and liabilities against QuiknEasi Contractors. Legal Principles: There are four ways in which a contract can be discharged; by performance, breach, agreement or frustration. 2. 1 The first way a contract can be discharged is by performance. This happens when the obligations of the parties involved in the contract are performed and the contract comes to an end. This is the most desirable way of discharging a contract. 2. 2.

The general rule at law is that a contract discharged by performance happens when all parties perform their duties precisely. However, there are five exceptions to this rule which may otherwise be seen as overly strict. The five exceptions are: 1. De Minimis Rule If the deviation in performance are microscopic and trivial, the court may deem that the contract have already been performed fully and precisely. This depends on the evaluation of each individual case and the judgment of the court. 2. 3 2. Divisible Contracts A contract may be made up of several independent obligations which may be discharged separately.

2. 4 3. Substantial Performance In a situation whereby a promisor has performed his obligations substantially (even though not the entirely contract), he may claim the agreed payment, less the amount required to make good the defect. 2. 5 Usually, there is a practical problem of determining what exactly amounts to “substantial performance”. Different people may have a different idea of what is considered substantial, depending on the degree of importance of the desired performance. The degree of completion required to constitute substantial performance is dependent on the facts of each individual case.

2. 6 4. Prevented Performance When a promisor has performed part of his obligations but is prevented by the promisee to perform the rest of his obligations, the promisor is entitled to claim payment which commensurate with his obligations performed. 2. 7 5. Acceptance of Partial Performance When a promisor has performed part of his obligations and the promise voluntarily accepts the partial performance done, the promisor is entitled to reasonable remuneration on a quantum merit basis under the law of restitution. 2. 8 The second way a contract can be discharged is by breach.

When a party renounces his obligations under the contract; when there is a breach of a condition; or a breach of an innominate term with serious consequences, the contract can be discharged by breach. 2. 9 Note that not every breach of contract results in a contract being discharged. For a breach to be considered repudiatory, it must either be a fundamental breach (in which the breach goes to the root of the contract”, or a breach of a condition. 2. 10 The breach of a condition amounts to a repudiation of a contract, while the breach of a warranty does not.

A fundamental breach occurs when an innominate term brings about serious consequences, which deprives the other party of substantial benefit in which the contract was originally intended for. 2. 11 When a contract is discharged by breach, the injured party is eligible to seek remedy actions from the defaulting party. The types of remedies are: common law remedies, damages, equitable remedies, specific performance, injunction, and quantum merit. At common law, even when the injured party is not entitled (or choose not) to terminate the contract, he will always have a right to claim damages which resulted from a breach of contract.

2. 12 In order to succeed in claiming for damages, the law will consider the following four aspects: 2. 13 1. Causation – the breach of the contract caused the loss suffered by the plaintiff 2. Remoteness – the damages to be recovered by the defendant must be proximate and not remote 3. Mitigation – the plaintiff must prove that he has taken all reasonable steps to mitigate his loss 4. Assessment – the position that the injured party would be in if the contract has been performed properly Damages is the monetary sum ordered by a court to be compensated to the injured party. 2. 14 The five common types of damages include: 2.

15 1. Unliquidated damages are unascertained damages which the court will determine after considering the circumstances and consequence of the breach. 2. Liquidated damages are pre-estimated damages which the parties have agreed upon. The court will rule if the defendant is liable to pay the damages. 3. Nominal damages are usually a token sum (eg. $2) which acknowledge that the court ruled in favour of the plaintiff but in which the plaintiff suffer no loss. 4. General damages are damages that the defendant has to pay for the wrong done. This need not be pleaded by the plaintiff. 5.

Special damages are damages which are not presumed by the law and the plaintiff has to specifically plead and prove to the court. In summary, damages are not meant to “punish” but to place the injured party at his state as if the contract has been performed fully. The third way a contract can be discharged is by agreement when a contract includes a term which specifies circumstances in which a contract may be discharged. Alternatively, a subsequent agreement can also render the first contract void and a subsequent agreement may be in the form of mutual release, unilateral release, accord and satisfaction, variation and waiver.

2. 16 The fourth way a contract can be discharged is by frustration. When a supervening event changes the circumstances of the contract that is not the result of the fault of the parties involved, it could render a contract frustrated. 2. 17 Contracts can only be discharged one of the above 4 ways. In reality, most contracts are discharged by performance and a significant number may be discharged by breach in which they would be disputes and many may end up in law suits. Few contracts are actually discharged by agreement of frustration. 2. 18 Applications:

In this case, Timothy needed renovation for his house and has engaged QuiknEasi Contractors as his renovation contractor. QuiknEasi is the offeror who offered their services and Timothy is the offeree who engaged them for their renovation works. The consideration in this contract is a fee of $150,000 in exchange for the building materials and renovation service. After the renovation has completed on 20th September which is the agreed deadline, Timothy found some defects and mistakes in the renovations work.

He is dissatisfied with QuiknEasi contractors’ work and refused to pay the bill of $150,000. Substantial Performance First, we would need to determine which terms of the contract are deemed as conditions and which are warranties to determine if there are any breaches to this contract. Conditions are essential and important terms of the contract and any breach of a condition allows the injured party to treat the contract as discharged and claim damages. 2. 19 Hence it is important that we classify the items correctly in this case in order to determine if there has been a breach. Conditions: 1. New floor tiles for entire flat.

2. Merger of two bedrooms into one large master bedroom 3. Floor-to-ceiling windows 4. Peranakan door as main entrance 5. Repaint flat in desired colours 6. Timber flooring for balcony 7. Koi pond for balcony Warranties: 1. Water features underneath stairwell and side of kitchen wall 2. Rewire of cables 3. Conceal wires Since this is a renovation for the two-storey maisonette flat, the conditions which goes into the root of the contract are concerned with the major items such as floor tiles, painting and other items listed above.

The Peranakan door, although a smaller item, is also listed as a condition in this case as Timothy placed great emphasis on this as he discussed this with the contractor and engaged QuiknEasi right after the request for the door’s specifications was conveyed. The other items concerned with decoration and not a major part of the flat are listed under warranties as they do not go into the root of the contract. Below I listed the same items again with respective remarks after “-” to indicate if they have been carried out by QuiknEasi contractors. Conditions: 1. New floor tiles for entire flat – Done correctly.

2. Merger of two bedrooms into one large master bedroom – Done incorrectly 3. Floor-to-ceiling windows – Done but with possible defect 4. Peranakan door as main entrance – Done correctly 5. Repaint flat in desired colours – Done correctly 6. Timber flooring for balcony – Done correctly 7. Koi pond for balcony – Done correctly Warranties: 1. Water features underneath stairwell and side of kitchen wall – Done with defect 2. Rewire of cables – Done 3. Conceal wires – Done As we can see from the above, five out of seven conditions has been done correctly and this translates to a completion of 71.

4%. This constitutes that substantial performance has been performed by QuiknEasi contractors. In the precedent case of Hoenig v Isaacs (1952), the court held that even though the contract was not fulfilled in its entirety, there was substantial performance done by Hoenig, even though there were some defects or omissions. Thus, interior designer Hoenig was able to obtain a payment less the cost of defect rectifications, from Isaacs. Denning LJ said that “a lump sun contract does not mean that entire performance was a condition precedent to payment. ” 2. 20.

In this case which is similar to Hoenig v Isaacs (1952), substantial performance has been done by QuiknEasi contractors and hence they should be entitled to obtain a payment from Timothy, less the cost of defect rectifications. However, the facts remains that there are some work that QuiknEasi did not carry out correctly. We shall examine each of these three items separately. Damages and remedies for: 1. Merger of the two bedrooms Firstly, the merger of the two bedrooms into one large master bedroom has been done incorrectly and now the master bedroom faces the rubbish dump.

In monetary terms, there is no real “loss” to Timothy, except that he may not be happy with not being able to wake up “with a view of the world”. Under the law, the court is not concerned with trivial and so under the De Minimis Rule 2. 21, this part of the contract may be deemed to have been performed. The court is generally reluctant to award damages for non-pecuniary losses such as disappointment, hurt feelings, anxiety etc. 2. 23 As per the precedent case of Farley v Skinner, Farley sued Skinner when the property he purchased was affected by aircraft noise, which Skinner has previously advised that it wouldn’t.

The court held that it was not necessary that the defendant had to guarantee that the property had to give “pleasure, relaxation and peace of mind” to Farley as he would like to achieve, but held that there had been a breach of Skinny’s contractual duty of care. 2. 22 As per the precedent case mentioned, the court may hold that there had been a breach of contractual duty of care by QuiknEasi as they did not take reasonable care to ensure that they reconfigured the correct rooms. Timothy may or may not be able to claim non-pecuniary loss for this. Alternatively, Timothy could request QuiknEasi to redo the configuration of the bedrooms.

2. Floor-to-ceiling windows Secondly, the installation of the floor-to-ceiling windows seems defective. As per Timothy, he could hear the wind whistling through the windows and some of the panes even shook every time the nearby MRT train passed by. These are indications that the floor-to-ceiling windows have not been installed correctly. Before Timothy engaged QuiknEasi Contractors, they claimed that they have “done many of such installation works and there were never any issues with safety”. This is a misrepresentation as this concerns the conditions of the contract and Timothy has the right not to pay for this installation.

Similar to the precedent case of Hoenig v Isaacs (1952),, Timothy may be able to deduct the amount required for the rectification works from the total amount due to QuiknEasi, so that he could engage another contractor who is competent to install the floor-to-ceiling windows. 3. Water features It could be arguable that the