Businesses invest heavily in people, systems, and proprietary information to remain competitive. When that information is taken and used by a competitor, especially with the involvement of employees, the consequences can be significant. The law recognises that such conduct goes beyond ordinary competition and may give rise to serious civil liability.
In IEM SA v Flowbird Malaysia Sdn Bhd (Civil Appeal No W-02(NCvC)(W)-740-05/2024), the Court of Appeal examined the legal fallout when sensitive data is leaked to a rival and used to secure international contracts.
Brief Facts
Flowbird Malaysia, a company providing car parking solutions, discovered that two of its key personnel, Alain and Rafizuddin, had been secretly communicating with a Swiss competitor, IEM SA.
While still employed by Flowbird, the duo met with IEM representatives in Amsterdam and Geneva. During this period, they sent several emails to the competitor containing Flowbird’s highly sensitive business information, including pricing strategies, machine specifications, and expansion plans in Asia.
Shortly after resigning from Flowbird, Alain and Rafizuddin then helped establish IEM’s presence in Malaysia and Singapore. Flowbird lost a significant contract in New Zealand and a project in Indonesia to IEM.
Flowbird sued the former employees and IEM for breach of confidence, breach of fiduciary duty, and conspiracy to injure.
At the High Court
The High Court found in favour of Flowbird and granted wide-ranging relief:
- The Defendants were injuncted from further using Flowbird’s confidential information and ordered to return all such information in whatever form it existed.
- The Defendants were also held jointly and severally liable to pay Flowbird damages of USD251,321.30 arising from the termination of one of Flowbird’s customer contract.
- The Defendants were also ordered to account for another project and pay general damages.
- The Court also declared that Alain and Rafizuddin had breached their duties as directors of Flowbird.
The Defendants appealed to the Court of Appeal.
Court of Appeal’s Findings
The Court of Appeal approached the appeals on the basis that its role was one of review, not a re-trial of the facts. It reaffirmed that appellate intervention is only justified where the trial court’s findings are plainly wrong, unsupported by evidence, or tainted by a material error of law. Applying this standard, the Court found that the High Court’s factual findings were rational, grounded in the evidence, and did not warrant interference
On breach of confidence and conspiracy, the Court of Appeal was satisfied that confidential information belonging to Flowbird had been disclosed to IEM while Alain and Rafizuddin were still employed by Flowbird. This included pricing details, quotations, budgets, and performance data relating to Flowbird’s contract with its customer. The Court of Appeal rejected the argument that this information was publicly available and accepted that IEM gained access to it through the former employees. On the totality of the evidence, including the timing of events and the absence of testimony from Flowbird’s customer, the Court of Appeal held that it was more probable than not that IEM used this information to secure the contract. Circumstantial evidence was sufficient, as direct proof of conspiracy is rarely available.
The Court of Appeal further affirmed that Flowbird had discharged its burden of proof on a balance of probabilities in establishing a conspiracy to injure, premised on the misuse of confidential information by IEM and the former employees. The termination of Flowbird’s contract by the customer was found to have caused actual loss and damage, and the essential elements of the tort were made out. The Court emphasised that it was unnecessary for Flowbird to reconstruct every step of the conspiracy with precision, so long as the inferences drawn from the evidence were reasonable and coherent.
While the Court of Appeal affirmed that the Defendants were liable for their actions, it made an adjustment to the award of damages. It ruled that the High Court erred by awarding damages based on total sales turnover. The correct measure was Flowbird’s actual loss of profit, calculated as sales revenue less costs. On this basis, the damages award was reduced from over USD250,000 to approximately USD51,610. The Court reiterated that damages are compensatory, not punitive, and must reflect the real loss suffered
Key Takeaways
Longstanding employment principles remain clear: employees and senior personnel owe a continuing duty of fidelity and good faith to their employer. This duty does not end simply because an employee is planning to resign or is serving out a notice period. Acting against the employer’s interests by sharing confidential information, even in anticipation of future opportunities, can expose both the individual and the recipient to liability.
Confidential information need not be labelled “secret” or be unknown to the public to attract legal protection. Courts will look at whether the specific combination, compilation, or application of information gives it a confidential character. Businesses should therefore ensure that employment contracts or non-disclosure agreements properly define confidential information, but courts will still protect genuinely sensitive commercial data even absent perfect drafting.
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This article was written by Donovan Cheah (Partner) from Donovan & Ho’s employment law practice.
Donovan & Ho is a law firm in Malaysia, and our employment practice group has built a reputation for providing strategic employment advice to local and global organisations. Our team of employment lawyers provide advice on employment law and industrial relations including review of employment contracts, policies and handbooks, advising on workforce reductions, and managing dismissals of employees for poor performance or misconduct. We also represent clients in unfair dismissal claims and employment-related litigation.
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