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Need advice on the current enforceability of a non compete

Customer Question

Need advice on the current enforceability of a non compete clause within a buy and sell agreement, what it covers, the likely repercussions of any default and how serious is the non compete within the 36 month period post exit?
Submitted: 1 year ago.
Category: Business Law
Expert:  RGMacEsq replied 1 year ago.

RGMacEsq :

Thank you for using JustAnswer. I am researching your issue and will respond shortly.

RGMacEsq :

Is this pertaining to US law? And if so, what state? Does this contract have a "choice of law" clause in it? If so, what is the content of that choice of law clause?

RGMacEsq :

Did you see my follow up questions to your issue?

RGMacEsq :

Are you there? Please note that I am still here, awaiting your response.

RGMacEsq :

My apologies, but I must assist the other customers that are waiting. Once you respond to my follow up question, I will respond as soon as I can. Please note that I may be assisting other customers or otherwise out of the office (depending when you respond). Thank you.

Customer :

Hello RGMacEsq

Customer :

it is getting late here and I did not expect such a quick answer!

Customer :

I will have to revert to you in the morning if you do not mind

RGMacEsq :

That would be fine. Just let me know...

Customer :

Thank you

RGMacEsq :

Certainly. I will look forward to your response. There's no need to respond until you're ready to do so (as it will lock the question and require me to answer you before I can assist someone else)

Customer :

very good - do I close this window?

Customer :

tab?

RGMacEsq :

yes

RGMacEsq :

That would be fine.

Customer :

will do thank you again for your patience

RGMacEsq :

Certainly.

Customer :

re. jurisdiction I am afraid it is not the USA but Singapore.

in the DSA
"This agreement is governed by and shall be construed in accordance with Singapore law."
[no mention of arbitration]

in the SA
"This agreement is governed by and shall be construed in accordance with English law.
Any and all disputes and claims arising out of or in connection with this agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in Singapore in accordance with the International Arbitration Rules of the Singapore International Arbitration Centre for the time being in force which rules are deemed to be incorporated by reference in this clause. The tribunal shall consist of three (3) arbitrators one appointed by the PMS, one by the Navis and the third who shall be jointly appointed by the PMS and Navis or failing agreement by them shall be appointed by the Chairman of the Singapore International Arbitration Centre. The language of the arbitration shall be English."

Customer :

I look forward to hearing from you further in this matter.

RGMacEsq :

Thank you. Since I have no expertise in Singapore law, I will need to opt out of this question. Thank you, XXXXX XXXXX luck to you.

Expert:  LawHelpNow replied 1 year ago.
Hello,
I'm a lawyer with international business law experience. I would be glad to try and help out, seeing another legal expert has opted out.
I would like to give this matter some studied consideration, so I'll be back in touch with you later today. It's 11:00 A.M in my time zone at the moment, so say later this afternoon or in a few hours regardless of time zones.
If that meets with your approval, I'll be back in touch with you soon.
If not, please just write back and let me know and I'll defer further action.
Thank you!
Ben, J.D.
Customer: replied 1 year ago.

Dear Ben more than happy to wait for your kind consideration. Kind regards, James

Expert:  LawHelpNow replied 1 year ago.

Hello James,


My name isXXXXX'm a licensed attorney. I very much appreciate your patronage and am glad to try and help out. Accordingly, I'm pleased to share the following information with you.

First, just speaking generally for a bit of context, Singapore law is based upon English common law. This certainly makes sense, of course, purely from a historical viewpoint. I mention that just to say that the principles are well known to me, and there are no huge anomalies or surprises lurking about.

Now, turning more specifically to your inquiry, I must commend you for having a good grasp of the salient issues. In other words, you're asking all the right and logical questions. So, without further ado, here we go...

This is a prima facie enforceable instrument based on my review of the material you supplied. I agree with your comments therein concerning the 36 month period and so forth. As touched upon, supra, this subject matter is governed by cases law rather than legislation. Here, in this context (more sophisticated transactions as opposed to lower level scenario such as a simple employment contract with a salesman) the Courts urge a more liberal application. In fact, in the recent case of CLAAS Medical Centre Pte Ltd v Ng Boon Ching [2010], the Singapore Court of Appeal opined (after engaging in a discussion of general legal principles): "These being the general principles applicable in this area of the law, we would, however, hasten to add that the courts take a more liberal approach when considering restrictive covenants in the context of a sale of business as compared to the situation where such a clause is contained in a contract of employment."

Here's the botXXXXX XXXXXne, as I see it. This agreement bears all the hallmarks of having been drafted by competent legal counsel. It strikes me as a bona fide "non-compete" covenant as opposed to an impermissible "restraint of trade" covenant. That's the line in the sand, so to speak, under Singapore law. That very issue has been tested in the Courts going back to at least the 1960s, with reviewing Courts rather consistently finding in favor of the legitimacy and thus enforceability of the document in question. Beyond the letter of the law, however, lies the practical considerations of a factual contingency taking place. Here, once Paul departs and gets paid, I think you put it perfectly...the instrument does indeed lose its teeth.

I hope that makes sense and is helpful to you. If you have a follow-up question or need clarification, please just say the word by using "reply" to reach me.


I truly hope all works out for you.


Take care,


Ben, J.D.

Customer: replied 1 year ago.

Dear Ben,


 


Thank you very much for your reply and my apologies for not returning to you sooner. For some reason I cannot seam to post my reply here it may be found here:


 


https://dl.dropboxusercontent.com/u/5624744/PMS%20non-compete%20-%20Ben%20REPLY.txt



Kind regards,


James

Customer: replied 1 year ago.

Dear Ben,


Thank you very much for your reply and my apologies for not returning to you sooner but your reply caught me away on business. I have a few follow up questions for you.


AA. When the sale was agree Navis (the buyer) verbally told PMS that the company would be sold within 5 years or at worst 6 years. We are already in the 6th year and they are now saying that it may take another few years. This is as you can imagine very frustrating for PMS who wants to get on with his life. Is there a time limit that can be relied upon?


BB. Can PMS design and make furniture for his own use? i.e. not sell it so that he could work on a new collection and display it but that non of the pieces are available for sale? In other words is 'compete' essential?


BB.A At what point would you expect the line to be drawn, can PMS paint and or sculpt? or design and retail product that is not made by T&A?


BB.B. Q. What can PMS not do?


CC. Do Navis have to prove loss or just prove that PMS in breaking the agreement? What does be in competition with mean. Does PMS have to effect their sales?


DD. Once the company is sold and PMS gets paid (he had already departed from the company and is only kept informed indirectly) you agree the instrument looses its teeth. However would it be possible for Navis to sell the company reinforcing this clause in anyway or for the new owner to be able to claim damages from PMS.


Ben, thank you very much for your time in this matter; much appreciated this end!


Kind regards,
James

Expert:  LawHelpNow replied 1 year ago.

Hello James,
Thanks for writing back...good to hear from you again!
I am glad to answer your additional questions in the order presented. After you rate my answers, please feel free to post any further questions directly to my attention, if desired, by simply typing in the text box "Ask Your Question" here: LawHelpNow
"AA. When the sale was agree Navis (the buyer) verbally told PMS that the company would be sold within 5 years or at worst 6 years. We are already in the 6th year and they are now saying that it may take another few years. This is as you can imagine very frustrating for PMS who wants to get on with his life. Is there a time limit that can be relied upon?" No, unfortunately the law doesn't provide a strict time table in this regard. Meaning, the law doesn't say "X" amount of time is alright, while "Y" amount of time is impermissible. Without a written agreement stipulating such, a reviewing Court would apply a "reasonable under the circumstances" standard. It's rather much a guessing game, frankly, which was the Judge would like rule. Only through formal litigation could the issue be pushed.
"BB. Can PMS design and make furniture for his own use? i.e. not sell it so that he could work on a new collection and display it but that non of the pieces are available for sale? In other words is 'compete' essential?" This is, again, a bit of a gray area, to be honest. A reviewing Court would apply what might be called (my words) a "substance over form" analysis. In other words, were the modifications made to the furniture "substantial" or merely a "sham". If they were truly different items, that is one thing. But, if it's an attempt to circumvent the non-compete agreement by tinkering with a few superficial things, it won't pass muster. And again, each case is decided on its own merits, so it's very difficult (actually impossible) to speak much in terms of absolutes.
"BB.A At what point would you expect the line to be drawn, can PMS paint and or sculpt? or design and retail product that is not made by T&A?" That's an excellent question, and it provides some further detail to the discussion supra. The key word is "similar", as found in 8.1(a) under "Restrictive Covenants. This language covers "design, manufacture, supply or sale", and it's quite well and broadly drafted to be cover just as much territory as possible. Perhaps the best illustration I can give would be to imagine two items being placed before a Judge. He or she will look at each item, most likely guided by expert testimony, and determine whether item "A" (let's say from PMS) is or is not "similar" to item "B" (from T&A). Again, it all comes down to the facts and the arguments made. One could say that a Ford is "similar" to a Chevrolet. Then again, each one is readily identifiable upon a quick glance (to those who know cars), and car owners loyal to each camp would certainly argue against my statement concerning similarity.
"BB.B. Q. What can PMS not do?" In all candor, the contractual language is strongly drafted in favor of PMS. There is perhaps a hint of restriction down in 8.2, but as far as enumerating certain acts from which PMS must refrain, the agreement is silent in that regard. It focuses on "Protective Covenants", further up a bit in 8 and onward, which serves to protect PMS and restrain its competitors, whether present or potential (future).
"CC. Do Navis have to prove loss or just prove that PMS in breaking the agreement? What does be in competition with mean. Does PMS have to effect their sales?" On this point the law is more precise, thankfully. Technically, Navis simply has to prove a breach. However, that can amount to a rather hollow "moral victory". Here's a common example. Say I own a house and you trespass across my front lawn. No visible damage, just walked a few steps across my grass, but I didn't like it, so I sue you. I have videotape evidence, and you have no viable affirmative defense. So, I win. Yes, you are liable for wrongfully stepping on my lawn. However, my likely damages? Perhaps one dollar, what we call "nominal damages". So, I "win", but I'm out thousands in litigation costs, not to mention my time and hassle. In the real world, and especially in the business context, there's really no case, practically speaking, without substantial monetary damages to justify pursuing litigation.
"DD. Once the company is sold and PMS gets paid (he had already departed from the company and is only kept informed indirectly) you agree the instrument looses its teeth. However would it be possible for Navis to sell the company reinforcing this clause in anyway or for the new owner to be able to claim damages from PMS." Yes, provided the succession takes place after the date of termination of the agreement, this is a possible outcome. It would come down to a matter of the successor company in interest making its determination of the risks versus rewards of filing suit. I will say, however, that while theoretically possible, whether it's feasible can be another matter altogether. It's difficult to properly prove up a case as the original party in interest, and it only gets more difficult further down the line in time.
Thank you for allowing for to serve you. It's truly been a pleasure!
Take care,
Ben, J.D.

LawHelpNow, Attorney/Lawyer
Category: Business Law
Satisfied Customers: 7592
Experience: Relax. Let's work together. Practical solutions.
LawHelpNow and 11 other Business Law Specialists are ready to help you
Customer: replied 1 year ago.

Hello Ben,


 


Thank you for your detailed reply, much appreciated but i am confused by this section.


"BB.B. Q. What can PMS not do?"

In all candor, the contractual language is strongly drafted in favor of PMS. There is perhaps a hint of restriction down in 8.2, but as far as enumerating certain acts from which PMS must refrain, the agreement is silent in that regard. It focuses on "Protective Covenants", further up a bit in 8 and onward, which serves to protect PMS and restrain its competitors, whether present or potential (future).


a. i wonder if you have muddled up the company with PMS the person (eg ...
which serves to protect PMS and restrain its competitors, ..) as otherwise this does not make sense to me?



b. what does this answer mean in practical terms?

Ben, I may well be reading this para incorrectly so i apologise in advance if i am being dozy!


 


Last question for you. Before Navis sells T&A can they take PMS shares/money in compensation for a breach without going to court? In other words it would be up to PMS to prove non breach in courts to recover or is the shoe on the other foot?


 


Many many thanks for your kind assistance and valuable advice here Ben, Kind regards, James

Customer: replied 1 year ago.

Hello Ben, any chance of a reply to mine dated 12 June. Many thanks, James

Customer: replied 1 year ago.

Hi Ben,


 


I am still waiting for a reply to my message dated 12 June. I will be more than happy to add a bonus if need be but please return to me ASAP. You said that I could ask you questions after I had accepted your answer but I did not expect not to receive a reply. Thank you for your time in this matter. James

Expert:  LawHelpNow replied 1 year ago.
Hello James,
I am so very sorry about the delay! For some reason I didn't receive my usual notice that you were awaiting my reply. One of our Moderators very kindly sent me a private note, but then I was unable to access this thread. In any event, it's nothing whatsoever to do with not wanting to continue interacting with you. To the contrary, I've enjoyed our time together and will happily engage further with you. I just got home and was able to post this note, so I'll need to give this some further consideration. You have my word I shall post back to you just as promptly as I possibly can. And please, I offer my sincere apology for any inconvenience occasioned by the delay.
Best regards,
Ben, J.D.
Customer: replied 1 year ago.

Hello Ben,


 


I feel as though I have been more than patient here especially given your email / message dated 26 June; over two weeks ago.


 


If I do not hear from you within the next 72 hours I will be forced to take this matter further... again.


 


Yours sincerely,


 


James Maitland-Smith


 


 

Customer: replied 1 year ago.

Ben,


 


Any luck here.... still waiting for your answer. Thank you. James

Customer: replied 1 year ago.
Relist: Incomplete answer.
Please ask another expert to read though the question to date and reply.
Expert:  Dimitry K., Esq. replied 1 year ago.
Thank you for your post. A different professional here.

I do see that you had a very significant and detailed conversation with a multitude of professionals. Do you mind if I first review and understand the situation, and then respond to it directly? I only ask based on the volume of correspondence, so I can best assist you if I can. Please advise.
Customer: replied 1 year ago.

Absolutely Dimitry. The first change was voluntary as RGMacEsq felt he did not have the competence to answer the question so he passed it on to Ben who as you can see unfortunately failed to reply. I brought this issue to JustAnswers support and they suggested I ask a new professional.


Kind regards, James

Expert:  Dimitry K., Esq. replied 1 year ago.
James,

Not a problem. Then I would ask that before I research and review this situation for you, please review my qualifications to see if I meet with your approval. Then, if I do not, I can likewise opt out and open your question to someone else.
Customer: replied 1 year ago.

Dimitry,


 


Your profile on JustAnswer suggests that you are more than qualified to answer my question, so yes it does meet with my approval.


 


Thank you and kind regards,


James

Expert:  Dimitry K., Esq. replied 1 year ago.
Excellent, and I appreciate the opportunity. Please allow me a few hours to respond (it is very late here and I was just about to log off to get some rest), and to ensure the highest quality response to you I wanted to review your question first thing when I log in, and then provide you with my thoughts. If that is acceptable, I will post an answer once I log back in. Thank you!
Customer: replied 1 year ago.

Of cause it is Dimitry. There is no immediate hurry, would appreciate an answer by the end of the week if possible. Thank you.

Expert:  Dimitry K., Esq. replied 1 year ago.
James,

Thank you for your follow-up. Just to be clear I am on the same page with you, proverbially speaking, this is what you want me to clarify, correct:

"

 


Thank you for your detailed reply, much appreciated but i am confused by this section.


"BB.B. Q. What can PMS not do?"

In all candor, the contractual language is strongly drafted in favor of PMS. There is perhaps a hint of restriction down in 8.2, but as far as enumerating certain acts from which PMS must refrain, the agreement is silent in that regard. It focuses on "Protective Covenants", further up a bit in 8 and onward, which serves to protect PMS and restrain its competitors, whether present or potential (future).


a. i wonder if you have muddled up the company with PMS the person (eg ...
which serves to protect PMS and restrain its competitors, ..) as otherwise this does not make sense to me?



b. what does this answer mean in practical terms?

Ben, I may well be reading this para incorrectly so i apologise in advance if i am being dozy!


 


Last question for you. Before Navis sells T&A can they take PMS shares/money in compensation for a breach without going to court? In other words it would be up to PMS to prove non breach in courts to recover or is the shoe on the other foot?


 


Many many thanks for your kind assistance and valuable advice here Ben, Kind regards, James

"

Customer: replied 1 year ago.

Dear Dimitry,


 


My apologies for the delay in reply as I have been travelling. I would like you to please confirm you are in agreement with the advice given to date and yes return to me on the above questions.


 


Many thanks, James

Expert:  Dimitry K., Esq. replied 1 year ago.

James,

Not a problem. I was likewise traveling and could not immediately respond. To answer directly:

Thank you for your detailed reply, much appreciated but i am confused by this section.

 

"BB.B. Q. What can PMS not do?"

In all candor, the contractual language is strongly drafted in favor of PMS. There is perhaps a hint of restriction down in 8.2, but as far as enumerating certain acts from which PMS must refrain, the agreement is silent in that regard. It focuses on "Protective Covenants", further up a bit in 8 and onward, which serves to protect PMS and restrain its competitors, whether present or potential (future).

 


a. i wonder if you have muddled up the company with PMS the person (eg ...
which serves to protect PMS and restrain its competitors, ..)as otherwise this does not make sense to me?

It appears that in this instance, unless I am not reading properly myself, the condition binds both parties, that is, PMS and the company.

 

b. what does this answer mean in practical terms?
Practically it means that the agreement is far more narrowly tailored against PMS and provides express language on what the agreement bars rather than on what it permits. Practically anything not expressly listed, or not directly inferred is not within the scope of the limitations.

 

Last question for you. Before Navis sells T&A can they take PMS shares/money in compensation for a breach without going to court? In other words it would be up to PMS to prove non breach in courts to recover or is the shoe on the other foot?

It does not grant the parties the right to take the funds for compensation. The language does not permit the taking of the shares without cause and judicial order. In other words if there is some sort of a breach, that breach must be PROVEN first by the injured party, the injured party cannot seek preliminary redress in this instance.

 

Hope that helps.

 

 

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