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Prudential Assurance Company Singapore (“Prudential”) had in a landmark case recently concluded before the Singapore High Court sued its ex-agency leader Peter Tan (“Tan”) for orchestrating a mass exodus of up to 244 agents from Prudential to Aviva Financial Advisors Pte Ltd (“Aviva”), a direct competitor.
This case is significant because of the sheer extent of Tan’s solicitation of the agents which resulted in massive operational and legacy issues on Prudential’s end with up to 70,000 policies left with no agents to service them – such policies being aptly referred to by the High Court as “Orphan Policies” – as well as losses to Prudential allegedly totalling up to $2.5 billion.
Following a lengthy 49-day trial, the Singapore High Court has set out its decision in Prudential Assurance Company Singapore (Pte) Limited v Peter Tan Shou Yi and another [2021] SGHC 109 (the “Prudential case”).
In brief, Tan was a former senior agency leader of Prudential, having spent more than 20 years of his career with the insurer. Tan had during his time working with Prudential built up a sizeable group of agents and agency leaders under his leadership and his own Peter Tan Organization (“PTO”). PTO was the largest agency group in Prudential, contributing approximately 10% of their entire agency force sales.
Following discussions with rival insurer Aviva to head up Aviva’s financial agency subsidiary, Tan proceeded to hold several meetings with the agency leaders under him for the purpose of enticing and inducing them to ditch Prudential for Aviva with him. This was supported by a budget of $100m provided by Aviva to Tan. Consequently and over a 3 day period in June 2016, close to 200 agents under PTO terminated their agreements with Prudential en-masse and subsequently, close to 40 agents and agency leaders followed suit by February 2017.
After securing the mass resignation of the agents and agency leaders, Tan himself submitted a notice of termination of his own agreement with Prudential. Prudential responded by summarily terminating Tan’s agreement on the basis of Tan’s alleged breach of the same.
Prudential then commenced legal proceedings against Tan and Peter Tan Organization Management and Consultancy Pte Ltd (“PTOMC”), the company set up by Tan to carry out services for Aviva’s subsidiary, in respect of the following:
Breach of Tan’s express contractual obligations in his agency agreement;
Breach of non-solicitation obligations;
Breach of implied duty of mutual trust and confidence owed by Tan to Prudential;
Breach of Tan’s fiduciary duties to Prudential; and
Lastly, with respect to PTOMC, for dishonest assistance in relation to Tan’s breach of fiduciary duties.
In the High Court’s decision, it was found that Tan had organized meetings with key agents and agency leaders and used financial offerings such as loyalty bonuses to entice agents to jump ship. It was also found that Tan had taken active steps to conceal his acts of solicitation, such as ensuring that the attendees to these meetings signed non-disclosure agreements which stipulated that damages of $50 million would be payable to Tan if they leaked any information about the meetings and/or the plan to jump ship to Aviva. All in all, the Court found that that Tan had clearly carried out “Preparatory Steps and Acts of Solicitation” while he was still with Prudential.
With the Court’s finding above, it seemed clear that Tan had conducted himself wrongfully and unlawfully towards Prudential. However and due to how Tan’s agency agreement with Prudential was drafted, Prudential was eventually only able to succeed on proving a single head of claim, namely a breach of an express contractual obligation in Tan’s agency agreement, i.e., that he had failed to “conduct his insurance business with integrity and honesty” and had all the other heads of claim dismissed, including the claim for breach of non-solicitation obligations.
In light of the Court’s findings and particularly the dismissal of Prudential’s claim for non-solicitation, this case serves as a cautionary tale for employers and a reminder of the importance of having properly drafted agreements and employment contracts. To this end, this update will focus on the Court’s findings that:
Tan had breached an express contractual obligation in his agency agreement; and
Tan was not contractually bound by the non-solicitation clause; but also had the non-solicitation clause be validly incorporated, it would have been reasonable and enforceable as against Tan.
Through his Preparatory Steps and Acts of Solicitation, the Court had found that Tan had breached an express clause in his agency agreement which was to “conduct his insurance business with integrity and honesty”. In doing so, the Court held that the scope of this clause imposed onto Tan an obligation to serve Prudential with “good faith and undivided interest and that the duty meant that he should not do anything, during the currency of the agency, which may harm…” Prudential. The Court also added that this “included a duty not to solicit [Prudential’s] agents (during the currency of Peter’s Agency Agreement) to join a competitor”.
This has two important implications for employers:
First, employers would be well advised to include in their employment contracts and/or engagement documents/agreements with agents / independent contractors an express clause to prohibit a conflict of interest and to ensure that these persons are required to conduct themselves with probity or, for example, “integrity and honesty” as in the Prudential case. This would be in addition to the usual express clauses in employment contracts requiring the employee to devote full time and attention in the performance of one’s duties or use best efforts to promote the interests of the company; and
The second relates to the Court’s emphasis that this express obligation was limited to the “currency” of the agency agreement. This would mean that had Tan executed his plans and carried out his acts of solicitation after he had left Prudential, any remedy sought by Prudential would then have to be sought on the basis of a breach of a non-solicitation obligation (which we will talk about below). However and if like in this case there is no express non-solicitation obligation, an employer may find himself without recourse. In the Court’s judgment, Tan was not bound by any non-solicitation clause and had Prudential not pleaded a breach of the “integrity and honesty” clause, Prudential’s entire claim would have been dismissed.
In the Prudential case, the Court found that Tan was not bound by any non-solicitation obligation because the clause which Prudential argued Tan was bound by was found to have not been validly incorporated into Tan’s agency agreement.
To give some background to this issue, Tan’s agency agreement did not contain a non-solicitation clause. However, Prudential tried to argue that a non-solicitation clause was later incorporated into the agency agreement through one of its issued “Agency Instructions”, a circular used by Prudential to communicate certain matters to its agents such as rules, guidelines and policies, as well as regulatory, compliance and compensation issues.
The Court disagreed on the basis that Tan’s agency agreement expressly specified that variations or modification of any of the terms had to be in writing and signed by both Prudential and Tan. In that circumstances, Prudential could not unilaterally amend the agency agreement to include the non-solicitation clause. Prudential had also attempted to argue that it was an implied term in Tan’s agreement that Tan would not conduct himself in a manner calculated to destroy or seriously damage the relationship of confidence and trust between him and Prudential by not enticing or attempting to entice the agents and agency leaders in PTO to leave Prudential for a competitor. However, the Court found that there was no basis to imply such a term encompassing a non-solicitation obligation and that “clearly, the Field Manager Agreement could operate without a non-solicitation obligation”.
The simple but essential takeaway is that for a person (especially employee) to be bound by a non-solicitation obligation, an express and properly worded non-solicitation clause needs to be included in employment/engagement contracts. Otherwise, it will be difficult for an employer to seek recourse for the wrongful conduct of a former employee in soliciting former employees or clients.
Even though the Court found that Tan was not bound by the non-solicitation clause, it still went on to opine that had it been in the agency agreement, it would have been reasonable and enforceable as against Tan.
A non-solicitation clause is a restraint of trade provision which under Singapore is unenforceable unless it can be shown that it:
Protects a legitimate proprietary interest; and
Is reasonable by reference to the interests of the public and to the interests of the parties – this is also known as the twin tests of reasonableness. In examining the reasonableness of the non-solicitation clause, such as looking at the scope and duration, the Court would require that the clause go no further than is necessary to protect a legitimate proprietary interest.
In the Prudential case, the non-solicitation clause in question sought to restrict the agent from soliciting or enticing away any “employee, officer agent, Financial Consultant or manager” during the period of the agency agreement and for a period of 24 months after the termination of the agency agreement.
In respect of the legitimate proprietary interest, the Court found that the “maintenance of a stable trained workforce is a legitimate proprietary interest that the employer is entitled to protect via a non-solicitation clause”. The Court went further to state that it would not matter “whether the workforce comprises employees or independent contractor such as agents”. Instead, what “matters is the reliance on the workforce and the disruption an unstable workforce would cause to the business”.
In respect of the reasonableness of the non-solicitation clause, the Court stated it was reasonable in the interest of the public so that such solicitation “does not undermine the professionalism of the industry or adversely affect the interests of consumers”. The Court ultimately also found that it was reasonable in the interests of the parties, albeit with reservations that serve as important markers for future cases.
Firstly, while the question of the reasonableness of the 24-month duration of the non-solicitation clause did not arise (because Tan’s acts were all during his time at Prudential and not after), it should be noted that there was an acknowledgement by Prudential that the 24-month period was too long and should be shortened to a year. This means that it is likely that the duration of 24 months would have been deemed unreasonable.
Secondly, the Court noted that the scope of the non-solicitation clause was too wide as it had applied to “any” employee or officer since the workforce Prudential was trying to maintain (being the legitimate proprietary interest) was primarily an agency workforce. It is noteworthy that the Court took the view that through the doctrine of severance, the non-solicitation clause could be “saved” by deleting the words “employee” and “officer”. The doctrine of severance, or blue pencil test, allows a clause containing objectionable portions to be saved by deleting the objectionable parts if:
The unenforceable part must be capable of being removed without adding to or modifying the wording of the remainder text, with the remainder text continuing to make grammatical sense;
The remaining contractual terms must continue to be supported by adequate consideration; and
The severance must not change the fundamental character of the contract.
In this case, the non-solicitation clause stated that Tan could not “employ or endeavour to entice away from [Prudential] any person who is an employee, officer, Financial Consultant or manager” during the currency of his agreement with Prudential and for a period of 24 months after the termination of the agreement. In this case, the Court took the view that the words “employee” and “officer” could be struck out to save the clause.
We would say that enforcing a poorly drafted non-solicitation clause can be tricky and employers should not leave things to chance. In such cases where stakes are high, employers who fail to successfully argue for a non-solicitation clause to be upheld may find the perpetrator getting away scot free. Employers therefore need to be very careful in drafting such non-solicitation clauses and should obtain legal advice in doing so as such clauses are not boiler plate by any means, but should be tailored to the specific employee or category of employees in order to meet the twin requirements of reasonableness.
We understand that even with the guidelines published by the MOM, clients may be unsure of how certain parts of the guidelines may be applicable to them and what may need to be done in order to adhere with the prevailing requirements. Our experienced team at TLC is able to assist – for enquiries, you may contact:
In the end, while Prudential was able to succeed against Tan for breach of contract, the case would have been significantly more straightforward had Tan been bound by an express non-solicitation clause. This case should serve as an important reminder for employers and clear opportunity to review their employment/ engagement contracts/documents to ensure that they are up to date and afford them the protection required.
If you have any queries on how this case may apply to your organization, our experienced team at TLC is able to assist – you may contact:
Disclaimer: This update is intended to provide general information only, and is not and shall not be regarded as legal advice (and consequently relied or acted on) or create any relationship between the reader and Titanium Law Chambers LLC. Should you require any legal advice regarding your specific circumstances, kindly consult a qualified legal practitioner. Copyright in this publication is owned by Titanium Law Chambers LLC and may not be reproduced or transmitted in any form or in any way, in whole or in part, without the prior written approval of our firm.
© 2022 Titanium Law Chambers. All Rights Reserved.