{"id":5051,"date":"2025-10-27T16:40:27","date_gmt":"2025-10-27T08:40:27","guid":{"rendered":"https:\/\/magnusdigital.my\/skrine\/?post_type=alerts&p=5051"},"modified":"2025-10-27T16:40:27","modified_gmt":"2025-10-27T08:40:27","slug":"high-court-the-right-to-compete-is-not-a-licence-to-poach","status":"publish","type":"alerts","link":"https:\/\/magnusdigital.my\/skrine\/alerts\/high-court-the-right-to-compete-is-not-a-licence-to-poach\/","title":{"rendered":"High Court: The Right to Compete is not a Licence to Poach"},"content":{"rendered":"\n

Several interesting points were raised in the recent High Court decision in Europack Industries (M) Sdn Bhd & Anor v Kang Mei Sim and Anor<\/em><\/strong> [2025] 6 AMR 297.

Facts<\/strong>

The first defendant (“D1<\/strong>“) is a former director and employee of the first plaintiff (“P1<\/strong>“), whilst the second defendant (“D2<\/strong>“) is a company owned by D1.

The second plaintiff, Leow Yin Sze (\u201cP2<\/strong>\u201d) and Yeoh Chye Huat were the directors and shareholders of P1 at the material times. One Yu Fong Chin was also a director of P1 at the relevant times, but it is unclear whether he was also a shareholder of P11<\/a><\/sup>. D1 was also a director of P1 until she resigned from her employment with P1. D1 was also a shareholder of P1 at the material times.

The plaintiffs commenced legal proceedings against the defendants, alleging, inter alia<\/em> that: <\/p>\n\n\n\n

    \n
  1. D1 had breached the terms in her letter of employment with P1 (\u201cLOE<\/strong>\u201d) by establishing Propac Asia Enterprise (\u201cPropac<\/strong>\u201d) of which she was the sole proprietor, and also D2, both of which were engaged in businesses similar to P1’s;<\/li>\n\n\n\n
  2. D1 had breached her contractual and equitable duties of confidentiality by misappropriating P1’s confidential information;<\/li>\n\n\n\n
  3. D1 had breached her fiduciary duties and duty of fidelity; and<\/li>\n\n\n\n
  4. D1 and D2 had unlawfully interfered with P1’s business.\u00a0<\/li>\n<\/ol>\n\n\n\n

    The plaintiffs alleged that prior to her resignation in 2023, D1 had diverted P1’s customer, Megalive Biosciences Sdn Bhd (“Megalive<\/strong>“), to D2, resulting in P1 incurring business loss and D2’s income gain of RM12,116.00. The plaintiffs also alleged the D1 had unlawfully removed P1’s confidential files.2<\/a><\/sup>

    Central to the plaintiff\u2019s claim was the allegation that D1 had by her various actions breached the confidentiality and conflict-of-interest provisions in clauses 14 and 15 of the LOE, which provide as follows:

    Clause 14 \u2013 Confidentiality
    You are to maintain as confidential, any proprietary and confidential information obtained from Domain Asia Enterprise in the performance of your duties. You shall not disclose or divulge at any time during your service with the Company or thereafter, any secrets, transactions or information in or relating to the business of the Company which may come within your knowledge in the course of your employment with the Company and which should not be disclosed, divulged or made public save in the course of the performance of your duties.

    Clause 15 \u2013 Conflict of Interest
    You shall not at any time during your service with the Company either directly or indirectly (without prior written consent from the Company) engage or interest yourself, whether for reward or gratuitously, in a work or business other than that relating to your duties in the Company or undertake any office notwithstanding that such outside engagement or interest may not interfere with the performance of your duties in the Company.

    Decision of the High Court<\/strong>

    After a full trial, the High Court partly allowed the plaintiffs\u2019 claim. The following are among the findings of the learned Judge.

    Issue No. 1: Whether D1 breached the terms of the LOE<\/u><\/em><\/strong>

    It was agreed by the parties in the agreed facts that, among other companies and businesses, Propac and D2 were engaged in a similar business as P1. The plaintiffs alleged that D1 had breached clause 15 of the LOE by establishing Propac and D2 without the written consent of D1.

    In the course of the trial, the following statements were made by the parties or their respective witnesses: <\/p>\n\n\n\n

      \n
    1. D1 conceded that she did not apply for P1\u2019s written consent before setting up Propac and D2;<\/li>\n\n\n\n
    2. The plaintiffs\u2019 first witness agreed with the learned judge that there was an understanding between all three directors of P1 (including D1) could own and be directors of other companies;<\/li>\n\n\n\n
    3. The plaintiffs\u2019 second witness acknowledged that P1 had allowed P2, a director of P1,\u00a0 to set up a sole-proprietorship that carried on similar business to P1 without obtaining written consent from P1 or its directors.\u00a0<\/li>\n<\/ol>\n\n\n\n

      Based on the above evidence, the trial judge was satisfied that an agreement existed between the parties that they can set up other businesses of similar nature with P1 and as such, the same does not amount to a conflict of interest. As the other directors had an interest in similar businesses as P1, the Court was of the view that D1 was similarly allowed to do so.

      On the totality of the evidence adduced, the Court noted that while D1 may technically be considered to have acted in conflict of interest in breach of clause 15 of the LOE when she set up Propac and D2, the plaintiff\u2019s first witness, who was a director and shareholder of P1, had testified that there was an understanding among the directors that they could be involved and be directors of other companies. Accordingly, the learned Judge concluded that D2 did not breach clause 15 of the LOE by having an interest in Propac and D2.

      Issue No. 2: Whether D1 breached her obligation pertaining to P1\u2019s confidential information<\/u><\/em><\/strong>

      The plaintiffs alleged, inter alia<\/em>, that D1 had breached her obligation under clause 14 of the LOE to maintain confidential, P1\u2019s proprietary and confidential information and that D1 had unlawfully used such information to the detriment of P1. In their statement of claim, the plaintiffs listed seven categories of confidential information, such as its supplier listings, customers listings and targeted customers.

      The Court first referred to Dynacast (Melaka) Sdn Bhd &Ors v Vision Cast Sdn Bhd & Anor<\/em><\/strong> [2016] 3 MLJ 417 where the Federal Court held that the following three elements had to be established by a plaintiff to prove breach of confidence: <\/p>\n\n\n\n

        \n
      1. the information itself must have the necessary quality of confidence;<\/li>\n\n\n\n
      2. the information must have been imparted in circumstances importing an obligation of confidence; and<\/li>\n\n\n\n
      3. there must be an unauthorised use of that information, to the detriment of the party communicating it.\u00a0<\/li>\n<\/ol>\n\n\n\n

        Based on the testimony by the plaintiffs\u2019 second witness, the Court was satisfied that P1’s yearly purchase analysis for years 2019 and 2020, proof of payment to P1’s supplier, the certificate under the Sales Tax (Persons Exempted from Payment of Tax) Order 2018 dated 12 September 2018 and P1’s job sheet are P1’s confidential information. The Court also noted that D1 had access to P1\u2019s accounting system prior to her resignation. In light of this evidence, the learned Judge held that the plaintiffs have satisfied the 1st<\/sup> and 2nd<\/sup> elements laid down in Dynacast<\/em><\/strong>, namely that P1’s confidential information has the necessary quality of confidence and that the said information has been imparted to D1 in circumstances importing an obligation of confidence, had been established.

        The Judge then proceeded to consider the third element in Dynacast<\/em><\/strong>, i.e. whether there was disclosure or unauthorised use of P1’s confidential information to P1\u2019s detriment and in breach of clause 14 of the LOE.

        List of suppliers<\/u><\/em>

        According to the Court, D1 had in her WhatsApp conversations and email correspondence with a representative of Megalive, requested Megalive to send all future enquiries and purchase orders to D2. D1 had also admitted that she had brought in and introduced Megalive and Family Products to P1 during her tenure with P1.

        In the above premises, the Court concluded that Megalive is P1\u2019s customer and thus, the use of the information in relation to Megalive is an unauthorised use of P1’s confidential information by D1.

        Hard disk and other physical documents<\/u><\/em>

        As the plaintiffs did not adduce any evidence, such as CCTV recordings, to support their claim that D1 had extracted and\/or used P1\u2019s confidential information contained in a hard disk and physical documents, the Court held that these allegations remained as bare assertions, devoid of any corroborating evidence, and accordingly, ruled that the plaintiffs had failed to prove this aspect of their claim.

        Yearly purchase analysis<\/u><\/em>

        D1 testified that after her resignation, she had even up to the hearing of the case, retained P1\u2019s yearly purchase analysis for 2019 and 2020 and a payment voucher as evidence to prove to the Court. The Judge was satisfied that D1\u2019s admission established that she had committed a breach of confidential information due to the unauthorised retention and use of the information relating to Megalive and P1\u2019s 2019 and 2020 purchase analysis to the detriment of P1.

        Overall findings on Issue No. 2<\/u><\/em>

        Based on the evidence produced to the Court, the learned Judge was satisfied that D1 had access to P1’s confidential information \u2013 a fact which was not denied by D1 \u2013 there was an irresistible inference that D1 was guilty of retaining P1’s confidential information when she set up Propac and D2.

        The learned Judge was also of the view that the plaintiffs have satisfied the 3rd<\/sup> third element in Dynacast<\/em><\/strong>, i.e. that there was unauthorised retention by D1 of P1’s confidential information to the detriment of P1 and in breach of clause 14 of the LOE.

        However, His Lordship held that the plaintiffs had failed to establish on a balance of probabilities that the information on certain entities, the payment vouchers and the other alleged confidential information belonging to P1 had been used without authorisation to the detriment of P1.

        Issue No. 3: Whether D1 breached her fiduciary duties<\/u><\/em><\/strong>

        Referring to section 213 of the Companies Act 2016 (\u201cCA 2016<\/strong>\u201d), the Judge held that D1 was in a fiduciary relationship with P1 during the tenure when she was a director of P1. Duties arising from such a relationship include: <\/p>\n\n\n\n

          \n
        1. a prohibition from acting in a manner which gives rise to a conflict between her personal interest and that of P1;<\/li>\n\n\n\n
        2. a duty to act in good faith, i.e. not make a profit out of her trust; and<\/li>\n\n\n\n
        3. a duty to not act for her own benefit or the benefit of a third person without the informed consent of P1.\u00a0<\/li>\n<\/ol>\n\n\n\n

          Citing the Court of Appeal decision of Zaharen Hj Zakaria v Redmax Sdn Bhd (and Other Appeals)<\/em><\/strong> [2016] 5 MLJ 91, the Court added that as a sales manager, D1 owed a duty of fidelity to P1.

          Based on his earlier findings, His Lordship was of the view that D1 had breached her fiduciary duties as a director and as a sales manager during her tenure at P1 when she used confidential information without the authorisation of P1, such as the information relating to Megalive to the detriment of P1 as well as the unlawful interference and the act of poaching P1’s customer i.e. Megalive.

          The Court then held that D1 did not act in good faith and acted for her own benefit and was in breach of her fiduciary duties to P1.

          Issue No. 4: Whether there was unlawful interference with P1’s business by D1 and D2<\/u><\/em><\/strong>

          The learned Judge held that D1 and D2 had committed the tort of unlawful interference with the business of P1 for the following reasons: <\/p>\n\n\n\n

            \n
          1. D1 had in a WhatsApp message, misrepresented to Megalive that D2 shared the same address as P1 and did not disclose to the latter that she no longer worked in P1 or that D2 is a different entity from P1;<\/li>\n\n\n\n
          2. the WhatsApp message between D1 and Megalive\u2019s representative gave rise to an irresistible inference that D1 had poached and committed an unlawful interference in P1\u2019s trade; and<\/li>\n\n\n\n
          3. the testimony of P2 showed there were continuing dealings with P1\u2019s customers, including Megalive, and that P1 had suffered some loss of income, as evidenced by two invoices issued in 2023 which disclosed that a sum of RM12,116 had been paid by Megalive to D2.\u00a0<\/li>\n<\/ol>\n\n\n\n

            As such, the Court held that the plaintiffs had successfully established that the defendants have committed the tort of unlawful interference with P1’s business with the intention to injure P1 which led to Megalive diverting their order to D2.

            Although the plaintiffs contended that there was a significant drop in its profits from RM214,627 in 2023 to RM152,993 in 2023, the Court did not find any direct causal link between the unlawful interference in the business and the alleged loss suffered by the plaintiffs, especially in light of P2\u2019s testimony that there were still ongoing business dealings with P1\u2019s customers. Further, the Court noted that the plaintiffs had been unable to produce any other evidence to substantiate any other unlawful interference with its customers apart from Megalive. The Judge also mindful that the profit of businesses fluctuates due to many variables and was unable to conclude that D1 was responsible for the drop in P1’s profit.

            Conclusion<\/strong>

            Based on the totality of the evidence before the Court, the learned Judge held that the plaintiffs had successfully proven their claim for breach of duty of confidentiality (contractual and equitable) by D1 for the misappropriation and misuse of P1’s confidential information (in relation to Megalive and yearly purchase analysis for the years 2019 and 2020), breach of fiduciary duties and fidelity by D1 and for unlawful interference with P1’s business where D1 instructed P1’s customer to revise their purchase orders and to resend them to D2, thus misrepresenting that D2 is the successor of P1.

            Accordingly the Court issued the following orders: <\/p>\n\n\n\n

              \n
            1. an injunction to restrain the defendants, whether acting by themselves or through persons associated with them, from using, disclosing or otherwise exploiting P1’s confidential information and from contacting and\/or soliciting business from Megalive and Family Products; and\u00a0<\/li>\n\n\n\n
            2. the defendants to pay RM25,000 to the plaintiffs as nominal damages.\u00a0<\/li>\n<\/ol>\n\n\n\n

              Comments<\/strong>

              A point that does not appear to be argued in the case is this \u2013 section 218(1)(e) of the CA 2016 prohibits a director from engaging in business which is in competition with the company unless consent or ratification by the company is obtained in a general meeting. This duty to not compete with the company is owed to the company and not to the directors. Thus, it is debatable whether the consent or non-objection by P1\u2019s directors for D1 to set up Propac and D2 satisfies the requirements in section 218(1)(e) of the CA 2016.

              If the directors are the only shareholders of P1, an argument can be put forward that their consent or absence of objection can be construed as consent in their capacity as shareholders of P1, notwithstanding that the black letter of the law has not been strictly complied with.3<\/a><\/sup>

              In any event, and in the circumstances of this case, the Learned Judge has acknowledged the right of the director to compete with the company. However His Lordship has drawn a red line against the poaching of the company\u2019s customers and diversion of its business. In the words of the learned Judge:

              \u201cWhilst there may have been an understanding between the directors that D1 could be involved with other companies, this <\/em>\u2026<\/em> was not a licence for her to poach P1’s customers and to divert P1’s business to her company, D2<\/em>\u201d.


              Case Note by               Kok Chee Kheong<\/u><\/a> (Consultant) and Faith Chan<\/u><\/a> (Senior Associate) of the Corporate Practice of Skrine.<\/em><\/p>\n\n\n\n

              \n\n\n\n

              1<\/a><\/sup> See paragraph [8] of the Grounds of Judgment.<\/p>\n\n\n\n

              2<\/a><\/sup> This case also involved a claim for the return of shares acquired by D1 under a share incentive scheme and a counterclaim by D1 that the plaintiffs\u2019 claim was to dispossess her of the shares and to eliminate competition. However, these issues fall outside the scope of this note.<\/p>\n\n\n\n

              3<\/a><\/sup> The strength of this argument may depend on whether Yu Fong Chin is a shareholder of P1, and possibly, whether he held sufficient voting shares in P1 to be able to determine the outcome of a vote taken at a general meeting of P1.
              This article\/alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.<\/em><\/p>\n","protected":false},"template":"","class_list":["post-5051","alerts","type-alerts","status-publish","hentry"],"_links":{"self":[{"href":"https:\/\/magnusdigital.my\/skrine\/wp-json\/wp\/v2\/alerts\/5051","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/magnusdigital.my\/skrine\/wp-json\/wp\/v2\/alerts"}],"about":[{"href":"https:\/\/magnusdigital.my\/skrine\/wp-json\/wp\/v2\/types\/alerts"}],"wp:attachment":[{"href":"https:\/\/magnusdigital.my\/skrine\/wp-json\/wp\/v2\/media?parent=5051"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}