About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Western Cape High Court, Cape Town
SAFLII
>>
Databases
>>
South Africa: Western Cape High Court, Cape Town
>>
2015
>>
[2015] ZAWCHC 153
|
|
Lonrho Logistics (Pty) Ltd v Toll Global Forwarding (SA) (Pty) Ltd and Others (9817/2015) [2015] ZAWCHC 153 (23 October 2015)
REPUBLIC OF SOUTH
AFRICA
IN THE HIGH COURT OF
SOUTH AFRICA
(WESTERN CAPE DIVISION,
CAPE TOWN)
Case No: 9817/2015
DATE: 23 OCTOBER 2015
In the matter between:
LONRHO LOGISTICS (PTY)
LTD
.......................................................................................
Applicant
v
TOLL GLOBAL FORWARDING (SA) (PTY)
LTD
.................................................
First
Respondent
GEOFFREY MILLS
PARTRIDGE
........................................................................
Second
Respondent
BRUCE JAMES
CHAPLIN
......................................................................................
Third
Respondent
IAN COLLIN
MCALLISTER
................................................................................
Fourth
Respondent
ANDREW
MCGRATH
................................................................................................
Fifth
Respondent
MARTIN PAUL
BROWN
...........................................................................................
Sixth
Respondent
Court: Justice J Cloete
Heard: 18 August 2015
Delivered: 23 October 2015
JUDGMENT
CLOETE J:
Introduction
[1] This is the opposed return date of
a rule nisi issued on 5 June 2015 interdicting the first respondent
(‘TGF’) for
a period of 12 months from providing freight
forwarding services in respect of perishable goods exported from Cape
Town to certain
customers of the applicant (‘Lonrho’),
and restraining the respondents for the same period from soliciting
those customers.
The respondents were also ordered to deliver up to
Lonrho its confidential information in their possession and
interdicted, again
for the same period, from accessing or using it.
Lonrho had also sought an interim order restraining the respondents
from poaching
its employees. This relief was however ordered to stand
over for determination on the return date.
[2] The respondents complied with the
delivery of the confidential information after having tendered
(without admission of liability)
to do so and have also agreed not to
access or use it. They oppose the remaining relief with which Lonrho
persists.
[3] In pursuing final relief Lonrho
contends that the disclosure of its confidential information by the
fifth and sixth respondents
(‘McGrath’ and ‘Brown’
respectively) to TGF’s representatives resulted in TGF
preparing for itself
a springboard for its own benefit and, inter
alia, enabling it to entice Lonrho’s customers away. Lonrho
also maintains that
TGF has unlawfully poached some of its staff and
that it will take until approximately June 2016 to replace them and
train new
staff properly.
[4] The respondents essentially dispute
that Lonrho has established a clear right to the relief sought,
contending that Lonrho has
failed to establish a causal link between
its confidential information (which has been returned or destroyed
and, so it is alleged,
is no longer of any benefit to TGF) and the
manner in which TGF could use it to target and entice Lonrho’s
customers away.
They submit that to the extent that TGF derived any
benefit from Lonrho’s confidential information, this has abated
over
time since Lonrho launched this application and there is no
longer any need for protection. The respondents deny that Lonrho’s
employees were poached. They maintain that none of the employees
concerned were subject to restraint of trade agreements and in
particular that there was therefore nothing unlawful about McGrath
and Brown joining TGF.
Background
[5] Lonrho is a logistics company which
specialises in freight forwarding by air, sea and road. It operates
throughout Southern
Africa and according to IATA (the International
Air Transport Association) was the fourth largest export agent for
airfreight in
South Africa in 2014, during which year it moved some
7.5 million kilograms of air freight for its customers. Lonrho is the
vehicle
used in 2011 to merge the perishables freight forwarding
businesses of the Lonrho and Grindrod Groups (the latter having
operated
since the 1950’s). It is Lonrho’s export arm of
its air freight division (of which perishables constitute a
significant
part) which is pertinent to this application.
[6] TGF is the South African arm of the
freight forwarding operation of the Toll Group, an Australian-based
logistics company. It
too provides freight forwarding services to
customers throughout Southern Africa. While it offers freight
forwarding services in
respect of perishable goods in jurisdictions
abroad, in contrast to Lonrho it has historically handled minimal
volumes of these
products within South Africa. In his answering
affidavit Brown himself stated that:
‘28.3 [TGF’s] business in
the perishables market may be small by Lonrho’s standards but
this does not justify
a conclusion that it was “insignificant”.
It was certainly significant enough for me to earmark [TGF] as a
prospective
employer with good scope for growth in its own business
and from my own personal career point of view.’
[7] The second respondent (‘Partridge’)
is TGF’s managing director. The third respondent (‘Chaplin’)
is its financial director and the fourth respondent (‘McAllister’)
is its national operations director.
[8] McGrath was appointed by Grindrod
on 1 March 2010 as the export manager of its Cape Town branch and,
following the 2011 merger,
he became employed by Lonrho in the same
capacity. During his employment some 25 staff members reported to
him, and he in turn
reported to Brown. McGrath’s main role as
Lonrho’s export manager was to oversee the export arm of its
air freight
division at the Cape Town branch. McGrath gave notice to
Lonrho of his intention to resign from his employment at the end of
March
2015 and left Lonrho on 30 April 2015. He joined TGF the
following day, i.e. 1 May 2015 as its operations manager in respect
of
perishable goods at its Cape Town branch.
[9] Although he attempted to downplay
this, it was not seriously disputed by McGrath that, during the
course of his employment with
Lonrho, he became intimately involved
with its Cape Town based export operations via air freight and, in
particular, the export
of perishable goods. He has detailed knowledge
of Lonrho’s procedures and processes in place at its Cape Town
branch, its
costs and profit margins, and its customers and
suppliers. He also has significant experience in and knowledge of the
protocols
that need to be followed in order to ensure the swift and
successful export of airfreight from South Africa.
[10] Brown was previously appointed by
Grindrod on 4 June 1998 and similarly became employed by Lonrho
following the merger. He
was at all material times the operations
manager, air freight division of Lonrho’s Cape Town branch, as
well as the de facto
manager of the branch as a whole. In early April
2015 Mr David Swart (Lonrho’s chief executive officer and the
deponent to
its main affidavits) and Mr Craig Campbell (Lonrho’s
chief operating officer) met with Brown to discuss McGrath’s
resignation
and the impact it would have on Lonrho’s
operations. During that meeting Brown informed them that he also
intended to resign.
He said that this was due to certain grievances
which he had with Lonrho and that he had in fact already signed an
employment contract
with TGF. Campbell asked Brown to send him a copy
of that agreement. Swart asked Brown to give Lonrho three months in
order to
address his grievances which, according to Swart, Brown
agreed to do. Brown however maintains that Lonrho had been aware of
the
‘general unhappiness’ of himself and McGrath for a
long time and in fact became aware at the beginning of March 2015
that both intended to leave and join TGF. According to Brown, it was
only when several other employees resigned at the beginning
of May
2015 to join TGF that ‘Lonrho suddenly realised that the loss
of several employees at once would have a direct impact
on its
business’.
[11] On 30 April 2015 Brown gave
Campbell notice of his intention to resign with effect from 31 May
2015. He left Lonrho on 21 May
2015. According to his written
contract of employment with TGF, Brown was appointed as perishables
manager reporting directly to
McAllister (TGF’s national
operations director) with effect from 1 April 2015. This contract had
already been concluded on
28 January 2015 and thus, on Brown’s
own version, at least one month before Lonrho became aware of his
intention to resign
and join TGF.
[12] Brown does not seriously dispute
that during his employment with Lonrho he was exposed to significant
confidential information
both in respect of its Cape Town operations
and elsewhere. According to Swart, this information included details
of Lonrho’s
customers and their decision makers; freight
forwarding rates; profit margins; types of products and volumes as
well as delivery
destinations; credit terms afforded to customers;
payment terms negotiated by Lonrho with certain airlines; Lonrho’s
budgets,
costs, expenses, profitability and protocols. Brown himself
stated in his answering affidavit that:
‘30.1 During the course of my
employment with Grindrod and subsequently with Lonrho over a period
of some seventeen years,
I have established a sound working knowledge
of the day to day workings of the perishables freight forwarding
business. Over this
period of time, I have also developed sound
working relationships with many of the customers. There is absolutely
nothing confidential
about any of this.
30.2 … It is important to note
that, whilst I agree that knowing the decision makers at a particular
client and earning their
trust is important, it is also something
that is directly affected by individual personalities. This is not
proprietary to Lonrho
but is a direct function of my efforts to
ingratiate myself with a particular person, going beyond what is
strictly speaking required
of me and making every effort to assist
the client in every way possible in the most helpful and professional
manner I can.’
[13] Neither McGrath nor Brown were
subject to restraint of trade agreements with Lonrho but both are
bound by secrecy or confidentiality
clauses contained in their
respective contracts of employment, which prohibit them from
disclosing any of Lonrho’s confidential
information (including
its business information) to any third party either during or after
termination of their employment. In
particular, Brown is precluded
from disclosing information concerning Lonrho’s clients (or
customers), as is evident from
clause 2.3 of the annexure to his
employment contract.
[14] Both McGrath and Brown have bound
themselves to even more stringent confidentiality clauses in their
respective contracts of
employment with TGF. They are prohibited from
divulging to any person (whether during the currency or after the
termination of
their employment) any information relating to the
trade secrets or trade connections of the company; any confidential
information
concerning the company’s business or affairs and in
particular any information pertaining to the salaries, wages and
personnel
records of any employees; as well as from soliciting any
client (or customer) of TGF. In addition, both have bound themselves
to
separate restraint of trade agreements for a period of 12 months
from date of termination of their employment with TGF.
[15] Notwithstanding the
confidentiality clauses contained in their employment contracts with
Lonrho, it was Brown’s contention
in the answering affidavit
filed on behalf of himself and McGrath that:
‘31.5 The subsequent search and
fuss about confidential documents is nothing more than a red herring.
Lonrho was quite willing
to let me depart with all of that knowledge
in my head and this is definitive of the question as to whether it is
really information
and knowledge of customer relationships that is
protectable under law. I submit that it is not.’
[16] Given that McGrath aligned himself
completely with Brown’s contentions as a whole, it is fair to
accept that he shares
the same view. TGF did not respond to Lonrho’s
allegations concerning these confidentiality clauses.
[17] On the same date that Brown gave
notice to Lonrho seven other members of its staff at the Cape Town
branch did so as well.
All but one of these individuals were employed
in Lonrho’s exports arm of its air freight division at that
branch. Three
were export clerks, two were general workers and the
other was a driver. All gave notice of their intention to leave
Lonrho at
the end of May 2015, i.e. the same date as Brown.
[18] Campbell viewed this simultaneous
mass resignation as suspicious, given that all of the staff members
involved were employed
in the same department. Lonrho obtained legal
advice and a preliminary informal investigation commenced the same
day. The investigation
produced an email in which Brown had disclosed
reams of confidential information about Lonrho’s operations to
TGF’s
national operations director, McAllister, during November
2014 (i.e. some five months earlier). This caused Lonrho to task Mr
Charles
Weber, a certified fraud examiner and internal auditor, to
undertake a formal comprehensive investigation which commenced on 13
May 2015 and ultimately resulted in Lonrho launching these
proceedings on an urgent basis on 26 May 2015.
[19] In Lonrho’s founding
affidavit Swart stated that Weber’s investigations had
necessarily been limited to data in
Lonrho’s possession.
Although it appeared that several of the respondents had been
communicating with each other via their
personal email addresses,
Weber was able to read some of those emails because Brown had also
forwarded them to his own work email
address. These limited
communications revealed the following.
[20] On 2 October 2014 McAllister
invited Brown to a meeting with Partridge, TGF’s managing
director. He requested Brown to
provide the following information ‘in
preparation for our discussion’, namely: (1) the resources
required in terms
of staff, location and infrastructure, including
‘restraints of trade?’; (2) diversity across operating
branches with
reference to sea and air freight, seasonality of
perishable goods and product percentage splits; (3) probability of
client loyalty,
i.e. ‘certainty of client relationship and
migration’ as well as a list of potential clients –
McAllister stated
that TGF would be ‘happy’ to sign a
non-disclosure agreement ‘to protect interests’; (4)
anticipated revenue
both per month and per annum; and (5) anticipated
costs relative to revenue (McAllister proposed that Brown should
‘maybe
do a 12 month run on revenue and cost’).
[21] It would appear that the scheduled
meeting went ahead because on 11 November 2014 McAllister wrote a
further email to Brown
with the subject line ‘Opportunity’.
In this email McAllister made it clear that he also intended
approaching Campbell
to come on board:
‘Thanks for the time this
afternoon to take the call. As discussed, we will make contact with
Craig to have a social beer
and chat. Please can you provide me with
a contact number. I have to say I am somewhat apprehensive to meet
with Craig, as a result
of our discussions and his mixed feelings in
terms of stay or go. You know him well and have already highlighted
our discussions
so I am trusting that this may not be a stumbling
block should he decide to wait and see? Either way, I am confident
that we can
do something with Cape Town and may possibly be a win/win
in terms of making a success of CPT and then Craig moving across
later?’
[22] McAllister continued as follows:
‘As mentioned, we will be meeting
with the Global CEO in the next couple of weeks and may even be down
in Cape Town as part
of the trip. [Partridge] and I would like to be
in a position to table this as a development opportunity that we
would like to
pursue. Please can you provide a high-level overview of
the following…’
[23] McAllister went on to request
detailed and highly confidential information concerning Lonrho’s
operations:
‘Base the reports on a 12 month
period, this will show seasonality, as mentioned let us be as
conservative as possible, so
rather show what you believe will move,
and then we can agree on a % reduction for discussion/presentation
purposes.
• Volumes by:
o Month
o Commodity
Fruit
Veg
Fish
General cargo
o Destination
• Team Size – maybe put a
Structure Chart together in respect of people required. (remember we
will have back office
support on things like Finance, HR, IT etc)
• Sales – what do you
invoice to the clients each month, just by way of example (don’t
need to disclose client’s
name)
Client 1 Invoice Total
RXXX,XXX
Client 2 Invoice Total
RXXX,XXX etc
• Cost of Sales – what do
you disperse on behalf of the clients each month
Freight charges
Cartage etc
• Monthly General &
Administrative Costs
o Salaries – Based on Start date
1 March (our increases are October each year).
Basic
Car Allowance
Medical Aid
Pension
Tax
o Communication Costs –
Telephone, Cellphone
o Travel – Local, Airfares,
Petrol etc
o Insurances – Debtor Insurance –
relative to % of credit limit
o Stationery – Printing
o Rental – if we rent a facility
/ sub lease
• Capital Expenditure –
which will make up the Depreciation or Amortisation
o Refrigeration Facilities - +/- R300K
o Vehicles?
o Other
o Computers – Once I know how
many people from point above, I will factor a cost for PC’s and
Furniture etc.
• Sales less Cost of Sales will
then give us the bottom line Profit on the business.
Give me a shout if anything is unclear
and will review prior to our meeting with our Global CEO.’
[24] Brown responded on or before 21
November 2014 by supplying McAllister with three documents. In the
founding affidavit Swart
explained their contents which, inter alia,
included the following:
24.1 The total of the monthly revenue
generated by each of Lonrho’s Johannesburg, Cape Town, George,
Port Elizabeth, Durban
and “Trucking” branches for the
2013 calendar year and January to October 2014;
24.2 The total of Lonrho’s
monthly budgeted revenue for each of the aforementioned branches for
the 2013 and 2014 calendar
years;
24.3 A breakdown of the monthly revenue
generated by each of the branches by type of freight forwarding
service rendered, both for
the 2013 calendar year and January to
October 2014;
24.4 A breakdown of the “commodity”
split of products exported by Lonrho’s Cape Town branch for the
same periods;
24.5 Lonrho’s budgeted revenues,
gross profit and volumes for each month of the 2014 calendar year up
to that date for each
type of freight forwarding service rendered at
each of its branches;
24.6 A list of each invoice Lonrho
issued for the month of October 2014, including the identity of the
customer invoiced, the amount
and date of each invoice, and the type
of product handled in respect of each invoice; and
24.7 Details of Lonrho’s income
in respect of its operations for the month of October 2014 and
“year-to-date”,
revealing a breakdown of Lonrho’s
expenditure as well as its net income.
[25] Brown’s covering email to
McAllister stated that:
‘Hi Ian
Attached are some of the financials
that I was able to do without drawing too much attention.
The staff requirements including myself
will be
9 office staff
7 warehouse workers
Refrigeration we’ll need two, one
for fruit and one for flowers,
+/- R 600k
Two 8 ton trucks to get the shipments
to the airlines
two light vehicles
I hope everything I give you is enough
cheers’
[26] However, this was not the end of
Brown’s assistance to McAllister and other representatives of
TGF. On 17 February 2015
Brown wrote to Chaplin (TGF’s
financial director) requesting Chaplin to send him a copy of the
‘…business plan
for Cape Town’. Chaplin duly
complied and asked Brown to provide him with ‘…the list
of supplies [sic] and vendors
to check on our current facilities and
guarantees’.
[27] The business plan, although
incomplete, clearly relates to an anticipated air freight forwarding
business in respect of perishable
goods for TGF. Mr Philip De Witt, a
business development analyst employed by Lonrho’s parent
company, analysed the plan which
Chaplin sent to Brown. His analysis
revealed similarity of not less than 99% between the revenue figures
in the business plan and
those contained in the information Brown
sent McAllister. It also revealed that the gross profit and revenue
margins contained
in the business plan are very similar to those of
Lonrho’s, and that there was a high probability that some of
Lonrho’s
margins were used to determine those in the business
plan.
[28] The business plan also included a
list of anticipated customers and the types of commodities that would
be handled for them.
Save for the last one on the list, the
identified customers were all Lonrho’s main customers together
with the type of commodities
handled by Lonrho for them. As Swart
pointed out, this information would of course have been known to
Brown. The request for ‘…the
list of suppliers and
vendors’ showed that Chaplin also wanted Brown to provide him
with details of Lonrho’s suppliers
so that he could incorporate
that information into the business plan as well.
[29] In their answering affidavits some
of the respondents (Chaplin in particular) made feeble attempts to
assert that the information
disseminated by Brown was not
confidential. However during argument, and without admitting the
extent of the confidentiality, this
concession was properly made on
their behalf, as was the fact that TGF should not have used it. Also
conceded was that TGF’s
business plan, in its infancy, came
about as a direct result of collusion between Brown and (at least)
McAllister.
[30] According to Chaplin, Brown did
not provide a ‘customer listing’ although he admitted
that Brown disclosed the
identity of some of Lonrho’s customers
to TGF. Chaplin also stated that the business plan annexed to the
founding affidavit
was prepared for purposes of presentation to TGF’s
Australian-based parent company and was not a ‘blue print’
of how TGF intended operating its air freight perishables business in
South Africa. According to Chaplin:
‘10.5.2 …Such business
plan was prepared in line with the requirements, systems and
benchmarks applicable to all business
divisions of [TGF] and its aim
was to seek the approval of [the parent company] to expand, not
launch, its perishables division
in South Africa. The information
that was provided by [Brown] that was included in the business plan
related to the end result
of a business process and did not include
any workings relating to factors affecting pricing, which are set out
below;
10.5.3 [Brown] provided me with the
names of nine customers who he thought might be prepared to conduct
business with [TGF] in the
future and such names were included in the
business plan, together with estimates of possible profit margins
(which were not based
on [Lonrho’s] information, but
discussions about the industry in general between me and [Brown],
which were part of the information
that would be considered by [the
parent company] in considering the business plan.’
[31] Chaplin’s denial about the
use of Lonrho’s pricing figures and profit margins must, in
light De Witt’s substantially
uncontested findings and the
subsequent concessions made, be rejected.
[32] Chaplin also stated that it was
his responsibility to develop the business plan and to include
therein certain variables unique
to TGF. He stated that TGF had
already undertaken ‘significant market research and preparation
prior to its expanding its
Cape Town perishables freight division’.
No details were provided on what this market research and preparation
had entailed;
for how long it had been in progress; and the extent to
which it had been incorporated in the business plan and/or its
subsequent
revisions prior to presentation to TGF’s parent
company. These bald allegations are thus of no assistance. Chaplin
maintained
that Lonrho’s information is ‘no longer’
of any value to TGF and will not assist it to compete with Lonrho in
any way, although he refrained from explaining the exact nature and
volume of Lonrho’s information utilised in the preparation
and
finalisation of the plan. Lonrho’s version on this aspect thus
stands uncontested.
[33] Chaplin confirmed that by 19
January 2015 TGF’s parent company approved its plan as well as
a total investment of R12.2
million for its implementation ‘…at
which point the proposed expansion of the South African perishables
division was
to proceed’. Thus on critical assessment of TGF’s
own version the confidential information provided by Brown not only
enabled TGF to prepare and develop a business plan such as to merit
approval and substantial investment by TGF’s parent company
within only two months of its “infancy”, but immediate
expansion was able to be proceeded with. Furthermore Brown concluded
an employment contract with TGF just nine days after the parent
company granted approval for the expansion of its air freight
perishables division in South Africa based on that plan.
[34] Chaplin also stated that:
‘11.7.3 Inevitably, senior
employees in organisations develop relationships with customers and
suppliers in the industry in
which they are employed. Such
relationships often remain strong when such employees change
employment and it is not uncommon for
such customers to take their
business to their new employer and commence trading with the new
employer because of such relationship.
It is both naïve and
irrational to adopt a view that the potential of future business is
not a factor that is taken into consideration
when negotiations take
place between potential senior employees and future employers.’
[35] And further:
‘16.2 I point out that [Lonrho]
seems to regard itself as entitled to some sort of exclusive right to
its customers when in
law this is not the case – all
competitors in the perishable freight industry are free to approach
such customers to seek
business.’
[36] Chaplin went on to state that a
number of Lonrho’s customers might be inclined to conduct
business with TGF as their
representatives have strong relationships
with Brown. According to Chaplin, there was nothing unlawful in this.
[37] Apart from Brown’s
disclosure of confidential information and assistance in the
preparation of the business plan, Weber’s
investigation also
revealed that Brown had taken active steps to assist TGF in its
implementation. In addition to instigating the
migration of Lonrho’s
staff, which I deal with below, Brown assisted TGF in fitting out a
new cold room during February 2015;
installing equipment in April
2015, and just prior to his departure from Lonrho, taking one of
Lonrho’s major clients to
view TGF’s new facilities.
[38] In early May 2015 McGrath, in
collusion with one of Lonrho’s staff, Ms Toni Campbell,
provided TGF with a spreadsheet
setting out a list of office
requirements for its expanded operation. Weber analysed the
electronic version of this document and
established that it had
already been created on 19 January 2015. On the day of his departure
from Lonrho (i.e. 30 April 2015) McGrath
took with him confidential
data relating to Lonrho’s operations, including waybills issued
in respect of a significant client,
reflecting volumes and type of
product moved. Weber also established that McGrath attempted to
divert a customer away from Lonrho
to TGF whilst still in Lonrho’s
employ.
[39] Aside from Lonrho’s
confidential information used by TGF to prepare its business plan and
to solicit Lonrho’s main
customers, the implementation of the
plan contemplated the recruitment of Lonrho’s staff employed in
the export arm of its
air freight division. This is evident from the
fact that the plan contains a list of the staff TGF would need to
employ to run
its expanded division. Nine of Lonrho’s staff
(including McGrath and Brown) are named in the plan together with
details of
salaries to be offered to them.
[40] Swart stated that five of these
staff members constitute Lonrho’s entire complement of export
clerks who reported to
McGrath. Another is one of two warehouse
supervisors who similarly reported to McGrath. Ms Toni Campbell is an
administrative supervisor
employed in the air freight division of the
Cape Town branch who reported to Brown. According to Swart the mass
migration of these
staff members to TGF would all but eradicate the
air freight arm of Lonrho’s export division in Cape Town. This
of course
excludes the severe blow dealt to Lonrho by the departure
of McGrath and Brown and McAllister’s stated intention to
solicit
Campbell as well.
[41] Apart from those of McGrath and
Brown, the salaries indicated in the business plan represent an
approximate 15% increase on
those paid to the various staff members
by Lonrho. Brown was aware of these salaries and would have thus been
able to provide TGF
with this information to enable it to offer the
individuals concerned an incentive to leave Lonrho and join TGF.
[42] Swart maintains that it is
extremely difficult to replace individuals with the particular skills
and experience of McGrath
and Brown, which would be compounded by the
loss of support staff who have gained a detailed working knowledge of
the particular
niche in the industry. According to Swart:
‘93.2 …This includes
having a working knowledge of the various procedures and
bureaucracies one must go through to
export the various types of
perishable goods. For [Lonrho] to be competitive its staff need to
know those procedures well, as well
as the various government
officials, etc. they need to deal with on a day to day basis. There
are very few prospective employees
with those skills and knowledge,
and any employees [Lonrho] recruits to replace those poached by [TGF]
will need to be trained
up before they can do their work properly and
be productive.’
[43] And further:
‘95. While [Lonrho] will still be
able to service its clients notwithstanding a number of its staff
having resigned (I point
out that not all of the employees targeted
by the business plan have left [Lonrho’s] employ), [Lonrho]
will be placed under
some pressure to meet its clients’
expectations while new staff are trained up, a process that will,
optimistically speaking,
take approximately a year to complete. This
pressure on [Lonrho’s] resources will represent an excellent
opportunity for
[TGF] to acquire [Lonrho’s] clients and their
business. This, I submit, is by design and is unlawful.’
[44] According to Swart at least two of
the targeted staff members (other than McGrath and Brown) have
confirmed that it was at
Brown’s instigation that they
resigned. He went on to explain the very limited pool of experienced
export clerks available
in the market, given the nature of the skills
and knowledge required in the clearing and forwarding industry. He
stated that the
normal recruitment process will take a minimum of
three months: a month to advertise and receive applications; a month
to review
and compile a shortlist of candidates; and a month to
conduct interviews. In addition the successful candidates may have to
work
out a notice period with an existing employer (assume a month).
A further standard three month probationary period would follow.
At
least a further six months should reasonably be allowed for the
individuals concerned to gain sufficient skills and experience
in
order to properly replace their predecessors. This is a total of 13
months. It is for these reasons that Lonrho contends that
it requires
an interdict until June 2016.
[45] Chaplin dismissed Swart’s
allegations, maintaining that there is nothing untoward or unlawful
about individuals changing
jobs and earning more money with a new
employer. He stated further that:
‘37.8 Also, any perceived
difficulties in replacing senior or specialised staff are part of the
risk that a business assumes
and must manage. This is not a good
reason to approach a court for an order preventing competition.
37.9 Similar considerations apply to
the time taken to advertise, interview and recruit replacement staff.
This is simply a business
risk that all employers need to make
provision for.’
[46] According to Chaplin, TGF
advertised for staff for its expanded air freight perishables
division during April 2015. He disputed
Swart’s allegations
about the time it would take to replace staff lost by Lonrho to TGF,
maintaining that this was ‘unrealistic,
overstated and
opportunistic’.
[47] Mr Brendon Cannel, TGF’s
human resources director, stated (by way of a confirmatory affidavit)
that he is inundated with
applications within a few days of
advertisements being placed; is able to arrange interviews with
suitable candidates within a
week of advertisement; and that an offer
of employment is usually made within two weeks (although not clear,
it is assumed in favour
of TGF that the offer of employment is made
within two weeks of interview). In the rare instances where a
suitable candidate is
not found in a short period, recruitment
agencies are utilised to expedite the process.
[48] According to Cannel he has been
involved in staff recruitment in the freight industry for 12 years,
and has not once taken
longer than two months to fill a vacant
position, no matter how specialised the post, during the period of
his employment with
TGF. Neither Chaplin nor Cannel disclosed how
long the latter had been employed by TGF. Cannel also maintained that
if training
is required it is usually “on the job”
training and at most takes two weeks.
[49] Neither Chaplin nor Cannel made
mention of any probationary period which would need to be served.
However Brown’s employment
contract with TGF stipulates a six
month probationary period, the purpose of which is described in
clause 3.1 thereof as follows:
‘…The purpose of this
period is to allow a familiarization (sic) and assessment period to
assess your suitability and
ability to fulfil the job requirements
and to provide you with the information and necessary guidance to
perform your job responsibilities.’
[50] Chaplin and Cannel agree that
usually one month’s notice of termination of employment is
required. Therefore, according
to them, the recruitment process
should take no longer than about two and a half months and, if the
sixth month probationary period
stipulated in Brown’s contract
is added, it would take roughly eight months including two weeks of
in-house training.
[51] However in the particular
circumstances of this matter, on TGF’s own version, this is not
what happened.
[52] TGF placed its advertisements on
17 April 2015. According to Chaplin a number of employment seekers
with experience in the
perishables freight forwarding industry
applied for positions ‘shortly thereafter’. Chaplin
listed four ‘examples’
of these individuals who, he
stated, applied on 28 April 2015 (11 days after the advertisement), 1
May 2015 (two weeks later),
6 May 2015 (just under three weeks later)
and 29 May 2015 (six weeks later) respectively.
[53] In his earlier affidavit of 2 June
2015 Chaplin advised that, of the 17 potential employees who were
listed in the business
plan, TGF had ‘only at present 5
individuals although it is in negotiations with 4 others to join the
workforce in future’.
This affidavit was signed more than six
weeks after TGF placed its advertisements.
[54] No attempt was made in Chaplin’s
supplementary affidavit of 8 June 2015 (i.e. three days after the
interim interdict
was granted) to disclose whether or not these
negotiations had been successful. It is accordingly fair to accept
that the allegations
made by Chaplin and Cannel concerning
recruitment periods were not simply inaccurate. They were untruthful
and must be rejected.
What is more, Brown, who was in an ideal
position to place facts before the court, did not respond to Swart’s
allegations,
nor for that matter did McGrath, save to contend that a
‘few’ additional members of Lonrho’s staff resigned
to
join TGF ‘as a result of [its] properly advertised
recruitment drive’.
[55] Therefore more accurately TGF’s
version is that the initial response period is realistically one and
a half months to
which must be added at least three weeks to
interview and make an offer of employment, followed by a one month
notice period to
the existing employer and a probationary period of
six months to train up the staff member and to properly assess his or
her suitability
and capabilities for the position. This is about 9
months. It is however acknowledged that less skilled employees such
as drivers
and general workers would probably be subject to shorter
probationary periods.
Discussion
[56] I have deliberately set out the
facts in some detail given that the Plascon-Evans rule applies. It is
against these facts that
Lonrho seeks to interdict TGF from carrying
out its expansion plans for a limited period until June 2016 for what
it contends is
the advantage which TGF’s alleged unlawful
competition has created to dissipate. Put differently, Lonrho seeks a
levelling
of the playing field for a limited period to enable it to
recover from the ongoing harm which, it argues, TGF’s actions
have
caused it.
[57] On the other hand the respondents
deny a campaign to bring this particular division of Lonrho to its
knees, that the use of
Lonrho’s confidential information has or
will in the future afford TGF any advantage, and that a period of one
year to replace
key staff is unnecessary and thus unwarranted.
McGrath and Brown are also concerned about the temporary halting of
their own career
paths and the entrenchment of their future
employment with TGF.
[58] The respondents also maintain that
Lonrho changed its approach during the course of this litigation.
They submit that the unlawful
competition upon which Lonrho initially
relied is different to that advanced in the heads of argument filed
on its behalf. The
difference, it is submitted, is that Lonrho
initially sought an interdict to prevent future misappropriation by
TGF of its confidential
information for the purpose of identifying
and entrenching itself with Lonrho’s customers; and to prevent
the harm it would
incur as a result of staff poaching, thereby
rendering it unable to service its customers properly and in turn
affording TGF the
opportunity to take those customers for itself.
[59] It is submitted that in the heads
of argument Lonrho instead seeks to advance a case to interdict TGF
from using its confidential
information in the development of the
business plan and from adopting a strategy of poaching key staff with
a view to rendering
it unable to compete with TGF in that market. TGF
submits that the reason for this “change in approach” is
that Lonrho
cannot demonstrate that the confidential information
provided to it enabled TGF to obtain any competitive advantage in
relation
to Lonrho’s major customers.
[60] In my view the so-called “change
in approach” is more apparent than real. The argument on which
it rests is rather
a strategy adopted by the respondents to avoid the
relief sought by Lonrho. This strategy is to take individual
evidentiary components
of Lonrho’s case and break them down in
the hope of demonstrating that each one taken in isolation is
insufficient to warrant
a final interdict.
[61] I am not persuaded that this is
the correct way to assess the evidence. It should be viewed as a
whole on TGF’s version
taken together with the undisputed
facts.
[62] It has throughout been Lonrho’s
case that TGF took its confidential information (including that
relating to its major
customers and key staff) for its own direct
benefit and to Lonrho’s direct prejudice through the conduit of
a willing and
complicit Brown (and to a lesser extent McGrath). That
Brown initially approached TGF is irrelevant. On a proper
consideration
of the evidence as a whole there can be little doubt
that McAllister, and later Chaplin, seized the golden opportunity
which came
their way in the form of McGrath and Brown and embarked
upon a concerted and well-orchestrated strategy to use that
information
to TGF’s advantage. Similarly, there is little
doubt that McAllister and Chaplin deliberately set out to poach
Lonrho’s
major customers and its key employees as an integral
part of the envisaged implementation of TGF’s expansion plan.
[63] I have already sought to
demonstrate the improbabilities and plain falsehoods in the
respondents’ version and they will
therefore not be repeated.
It is enough to say that the evidence, considered in light of the
Plascon-Evans rule, shows on a balance
of probabilities that: (1)
Lonrho has an interest in the information stolen by TGF, Brown and
McGrath; (2) the information stolen
was Lonrho’s confidential
information; (3) Brown and McGrath had a contractual relationship
with Lonrho which imposed a duty
on them to preserve the confidence
of information imparted to them during the course of their employment
with Lonrho; and (4) Brown
and McGrath knowingly misappropriated that
information by disclosing it to TGF: see Waste Products Utilisation
(Pty) Ltd v Wilkes
and Another
2003 (2) SA 515
(WLD), esp at
573I-581I.
[64] To my mind, whether or not it was
TGF’s sole intention to bring Lonrho’s perishables air
freight division to a
halt or whether this was consequential fallout
to Lonrho does not really matter. In the particular circumstances of
this case it
is rather whether the improper possession and use of
Lonrho’s information by TGF gave it a springboard to launch its
expansion
in the air freight perishable goods market. In other words,
has Lonrho established the causal link between its confidential
information
and the manner in which TGF used, or could use it to
target and entice Lonrho’s customers and key employees away.
[65] Van Heerden & Neethling:
Unfair Competition (2nd Edition) at 222-223 deal with the springboard
doctrine as follows:
‘In connection with the interdict
and the assessment of damages for unlawful competition, the
springboard doctrine of English
law, which has been adopted in our
law, must also be taken into account. The basic philosophy of this
doctrine is that the competitor
who acquires the plaintiff’s
trade secret and uses it in his performance, has an “unfair and
improper head start”
or springboard enabling him to gain an
advantage over the plaintiff. It is important that the springboard
may be of limited duration
because its effectiveness may diminish
with the passage of time and ultimately vanishes entirely. This may
happen where a product
containing the trade secret is marketed, and
the information then gradually becomes more and more known (for
example, by reverse
engineering) until its confidentiality disappears
completely and it no longer qualifies as a protectable trade secret.
As Knobel
correctly points out, the limited duration of the
springboard must be taken into account in the assessment of damages,
as well
as in determining the period for which an interdict should be
granted.’
[66] In Van Castricum v Theunnissen and
Another
1993 (2) SA 726
(TPD) at 731F-H the court, having reviewed
the authorities, held that:
‘What is clear from the
aforesaid, is that someone who saves himself the trouble of going
through the process of compilation
of the document, even where it is
compiled from information which is available to anybody, such a
person would be interdicted if
that information had been obtained in
confidence. The reason is simply that confidential information may
not be used as a springboard
for activities detrimental to the person
who made the confidential information available. It would remain a
springboard even when
all the features have been published or can be
ascertained by actual inspection by any member of the public.’
[67] Of course, in the present matter,
Lonrho did not make its confidential information available to TGF. It
was obtained by McAllister
and Chaplin, predominantly from Brown, at
a time when the latter was still employed by Lonrho. The point
however is that, if Lonrho’s
confidential information is
protectable even in circumstances when it is made available by Lonrho
itself to a third party who then
uses it as a springboard, there can
be no question that where it is obtained illicitly for the purpose of
springboarding Lonrho
must enjoy a right to protection.
[68] Although TGF maintained that
Lonrho’s major customers whose details were provided by Brown
and incorporated in the business
plan are up for grabs by any
competitor, and this is true, TGF cannot escape the fact that the
information concerning these customers
was confidential to Lonrho,
and in particular the information pertaining to Lonrho’s
confidential dealings with them came
directly from Brown.
[69] TGF similarly cannot avoid the
overwhelming probability that the business plan presented to its
parent company was developed
by the direct use of Lonrho’s
confidential information. Its origins lay in the initial business
plan incorporating virtually
identical information to that of
Lonrho’s margins, pricing and the like. The final plan was
presented to TGF’s parent
company within just two months of the
conception of the initial plan. McAllister and Chaplin were not mere
passive bystanders.
They actively encouraged Brown to steal
confidential information from Lonrho so that TGF could use it to
target Lonrho’s
main customers and key staff, whilst armed with
unlawfully obtained knowledge such as to give them the edge over
Lonrho, and thereby
rendering what TGF could offer Lonrho’s
main customers and key staff more attractive than what Lonrho had in
the past.
[70] In Waste Products, the court,
dealing with the fifth requirement to establish misuse of
confidential information (namely improper
possession or use of that
information, whether as a springboard or otherwise), held as follows
at 582E-H:
‘It has already been established
that the defendants used the confidential information obtained about
the plaintiff’s
plant and processes. It is useful, nonetheless,
to consider also the concept of springboarding, since the same
conduct may constitute
both unlawful use of confidential information
and the use of that information to gain a springboard in order to
compete.
“Springboarding” entails
not starting at the beginning in developing a technique, process,
piece of equipment or product,
but using as the starting point the
fruits of someone else’s labour. Although the springboard
concept applies in regard to
confidential information, the misuse of
the fruits of someone else’s labour may be regarded in a
suitable case as unlawful
even where the information copied is not
confidential. This was the case in Schultz v Butt
1986 (3) SA 667
(A), where the boat hull designed by the plaintiff and copied by the
defendant was found not to be confidential because it was
in the
public domain. But the copying of it, as a springboard, was regarded
as unlawful.’
[71] The court continued at 583F-G:
‘In terms of the springboard
doctrine, an interdict against the use of confidential information
may be limited by the duration
of the advantage obtained, or the time
saved, by reason of having had access to the confidential
information.’
[72] In order to obtain the final
relief sought, Lonrho has to establish a clear right; an injury
actually committed or reasonably
apprehended; and that there is no
satisfactory alternative remedy.
[73] I have found that the conduct of
McGrath and Brown was in breach of Lonrho’s rights arising from
their respective employment
contracts. It constitutes the delict of
unlawful competition, as do the actions of TGF, in that TGF has
unlawfully made use of
confidential information belonging to Lonrho
as a springboard in order to compete with it.
[74] In addition, I am satisfied that
Lonrho has established an injury already committed and that the
ongoing harm is reasonably
apprehended for the future. Were it not
for the interim interdict granted on 5 June 2015 TGF would have
proceeded with its expansion
plan, targeting Lonrho’s major
customers and making use of its key staff, thereby rending Lonrho
unable to service its customers
properly. I agree with Lonrho’s
contention that this would have presented an excellent opportunity
for TGF to acquire Lonrho’s
customers and their business. I
also agree that this was by design and would have been unlawful. Were
the interim order to be discharged,
there is every indication that
TGF would simply pick up where it left off and unashamedly continue
to target Lonrho’s major
customers and poach its key employees.
[75] Lonrho has no other satisfactory
remedy. Although TGF appears to be able to afford to pay a
substantial award of damages, the
difficulty faced by Lonrho is how
its damages claim could ever be properly quantified, let alone
proven.
[76] The interdictory relief sought by
Lonrho is for the limited period until June 2016. As argued on
Lonrho’s behalf, in
this case the parties supply services.
Theoretically, TGF should be precluded from supplying services
resulting from its unlawful
conduct, i.e. from implementing its
expansion. However practically speaking, an interdict precluding TGF
from implementing its
expansion plan will be too vague to be of any
meaningful benefit. This is particularly so given that TGF has
historically provided
air freight forwarding services in respect of
perishable goods albeit on a limited scale.
[77] The way to overcome this practical
difficulty is to interdict TGF, McGrath and Brown from doing business
with Lonrho’s
main customers or soliciting more of its
employees while the benefit TGF secured from its unlawful conduct
dissipates. Not only
will this create certainty, but it is less
onerous on the respondents than would be the case if TGF was
precluded completely from
implementing its expansion: it may do so,
provided it does not deal with Lonrho’s major customers or
poach any more of Lonrho’s
key staff for a limited period.
[78] The determination of the period of
an interdict in cases such as these almost always entails some form
of approximation, and
a relatively robust approach is required. This
is because it is a somewhat artificial exercise to ascertain the time
benefit a
wrongdoer has achieved by misusing confidential information
or springboarding. Such a robust approach was adopted in Telefund
Raisers
CC v Isaac & Others
1998 (1) SA 521
(C) at 536G where the
court determined the duration of the interdict by applying fair and
equitable considerations.
[79] Lonrho maintains that it will take
approximately 13 months (from May 2015) to recover in terms of staff
replacement and harm
caused in relation to its major customers. A
period of 13 months (i.e. until June 2016) is not unreasonable, given
the mass exodus
of Lonrho’s key staff as well as the fact that
the information stolen by TGF contained a detailed account of
Lonrho’s
trade and profitability over a period of just under
two years, and which thus took that same period of time to
accumulate.
[80] On critical analysis of TGF’s
version, staff replacement would take somewhere between six and nine
months. Given TGF’s
stance that Lonrho failed to establish any
causal link between its conduct and Lonrho’s customers, TGF did
not address what
would be a fair and equitable period for an
interdict.
[81] I must also take into account
Swart’s evidence that Lonrho has taken steps to address its
staff crisis and that:
‘27 … in a best case
scenario (i.e. assuming the individuals mentioned above are appointed
after their probationary
periods expire and any new staff required
can be appointed within a reasonable time), the effect of [TGF’s]
unlawful poaching
of the applicant’s staff will have been
normalised early next year.’
[82] Taking all of these factors into
consideration and adopting a robust approach, it seems to me to be
fair and equitable to interdict
TGF from approaching Lonrho’s
main customers and soliciting any further employees until 30 April
2016.
[83] Although TGF returned and/or
destroyed the stolen confidential information when the interim
interdict was granted, Lonrho nonetheless
seeks confirmation of that
part of the interim order. There is no reason why it should not be
confirmed, given that there can be
no prejudice to TGF.
Conclusion
[84] In the result the following order
is made:
1. The first respondent is interdicted
and restrained, until 30 April 2016, from providing air freight
forwarding services in respect
of perishable products being exported
from Cape Town to the applicant’s customers identified on the
list headed “Customer
Listing” and which forms part of
Annexure DS10 to the founding affidavit of Mr Swart (hereinafter
referred to as ‘the
applicant’s customers’);
2. The respondents are interdicted and
restrained, until 30 April 2016, from approaching, directly or
indirectly, or assisting any
other person in approaching directly or
indirectly, the applicant’s customers and/or the
representatives and/or employees
of those customers, with a view to
soliciting or canvassing air freight forwarding business from them in
respect of perishable
products being exported from Cape Town;
3. The respondents are interdicted and
restrained until 30 April 2016 from communicating with any of the
applicant’s employees,
directly or indirectly for the ultimate
purpose of soliciting them to terminate their employment with the
applicant;
4. Paragraph 1.2.2 (inclusive of
paragraphs 1.2.2.1 – 1.2.2.3) of the rule nisi issued on 5 June
2015, which pertains to the
use of the applicant’s confidential
information, is made final;
5. The respondents are interdicted and
restrained, until 30 April 2016, from utilising, communicating or
publicising any of the
applicant’s confidential information to
any third parties, including the information referred to in paragraph
1.2.2 (inclusive
of paragraphs 1.2.2.1 – 1.2.2.3) of the rule
nisi issued on 5 June 2015, as well as the computer file (and any
printed copies
thereof) named ‘Cape Town Business Plan ver
5.xlsm’ and referred to in paragraph 81 of the founding
affidavit of Mr
Swart and any previous iterations of such plan; and
6. The respondents shall pay the costs
of this application, such costs to be paid jointly and severally, the
one party paying, the
other to be absolved, including all reserved
costs orders as well as the costs of two counsel where employed.
J I CLOETE