Malaysian court has held that Disclosure Agreements must not be used to enforce non-compete clause against ex-employee - Interesting read

The Federal Court of Malaysia has held that a Confidentiality agreement signed by the employee should not be used to enforce non-compete clause against their employees and the employer is required to prove the confidential information that has been breached and the irreparable damage caused to the company due to such breach including the infringement of its IP rights. 

Courts weigh in on requirements for breach of confidentiality claims

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October 18 2016 | Contributed by Gan Partnership

Malaysia

Facts
The appellants in Dynacast (Melaka) Sdn Bhd v Vision Cast Sdn Bhd(1) were part of Dynacast's group of companies (hereafter, 'Dynacast Group') which were in the business of die casting components.
In 1980 the second respondent, Mr Cheok, was employed by Dynacast Group and eventually appointed as regional director until he resigned in 2002. Thereafter, Cheok set up Vision Cast – the first respondent in the case at hand.
Subsequently, Dynacast Group commenced legal action against Vision Cast and Cheok in the high court on two counts. The first count was against both Vision Cast and Cheok for copyright infringement. It was alleged that Vison Case and Cheok had illegally reproduced Dynacast Group's promotional booklet/leaflet, over which Dynacast Group claimed to have copyright. The second count was against Cheok for breach of his employment contract, employee confidentiality agreement and deed of restrictive covenants. It was alleged that Cheok had misappropriated confidential information belonging to Dynacast Group.

Decisions
High court decision
The high court dismissed Dynacast Group's first claim, as the group failed to prove that it had ownership over the images and photographs used in the promotional booklet. However, the court found Cheok liable for breaching his confidentiality obligations under his agreements with Dynacast Group by encroaching on its projects and poaching its customers.
Dissatisfied with the high court's decision, Vison Cast and Cheok appealed to the Court of Appeal. Dynacast Group in turn appealed against the dismissal of its first claim.
Court of Appeal decision
The Court of Appeal upheld the high court's decision in dismissing Dynacast Group's first claim but disagreed with the high court's finding on the second claim. The Court of Appeal held that, with regard to the second claim, Dynacast Group failed to identify with sufficient particularity in its pleadings what confidential information Cheok had misused and whether the information formed part of Dynacast Group's intellectual property. As the pleadings were vague and cast a broad net, the Court of Appeal overturned the high court's decision, dismissing Dynacast Group's claim for breach of confidentiality.
Dynacast Group appealed to the Federal Court.


Federal Court decision
The Federal Court agreed with the Court of Appeal and held that it was insufficient for Dynacast Group merely to state in its pleadings that Cheok had "misappropriated the private and confidential information of Dynacast Group" without providing further particulars on the allegedly misappropriated confidential information. The doctrine of confidential information should not be abused by companies or employers to prevent their employees from engaging in the bureau de change business under the guise of vaguely pleaded cases.
For that reason, the Federal Court dismissed Dynacast Group's appeal and declined to answer the leave question posed to before it, as the answer would not alter the fact that Dynacast Group's claim had failed because of its vague and insufficient pleadings. However, the Federal Court held obiter dicta that should it have been necessary to answer the leave question of whether the principle of law laid out in Svenson Hair Centre Sdn Bhd v Irene Chin Zee Ling – that is, that the protection of confidential information has no time limit – was correct, the answer would have been in the affirmative.

Comment
It is common for companies and employers to protect their confidential information by requiring employees to sign confidentiality agreements. Despite the existence of confidentiality agreements, it is nonetheless incumbent on companies and employers to prove what confidential information has been misused by the employee and whether this information formed part of its intellectual property in order to succeed in a claim for breach of confidentiality, as confidentiality agreements are not meant to be used to place fetters on former employees' ability to compete.

For further information on this topic please contact Gan Khong Aik or Lesley Ling Lyn at Gan Partnership by telephone (+603 2201 1130) or email (khongaik@ganlaw.my or lesley@ganlaw.my). The Gan Partnership website can be accessed at www.ganlaw.my.

Endnotes

(1) [2016] 3 MLJ 417.

Reference: http://www.internationallawoffice.com