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[2020] ZAWCHC 69
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Technical Systems (Pty) Ltd and Another v RTS Industries and Others (16075/19) [2020] ZAWCHC 69 (9 March 2020)
Republic
of South Africa
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Case
No: 16075/19
Before:
The Hon. Ms Acting Justice Mangcu-Lockwood
Hearing:
11 December 2019, 21-23 January 2020
Judgment:
9 March 2020
In the matter between:
TECHNICAL
SYSTEMS (PTY) LTD
+ 1
Other
Applicant(s)
and
RTS
INDUSTRIES + 4
Others
Respondent(s)
JUDGMENT
MANGCU-LOCKWOOD AJ,
Introduction
1.
The applicants seek a rule
nisi
interdicting and restraining the respondents from manufacturing,
producing, marketing for sale and/or selling flat wire and auger,
pending the completion of a process stipulated in a Court Order
granted on 2 June 2015 (‘the Court Order’). They also
seek an interim interdict to this effect to operate pending the
return day. In addition, the applicants seek an order declaring
the
respondents to be in contempt of the Court Order and their committal
to prison, alternatively payment of a fine.
Summary
of facts
2.
The first applicant is a manufacturer and
supplier of auger and flat wire for the production of auger in the
agricultural industry.
The second applicant is the majority
shareholder of the first applicant. The third respondent is the owner
of the first respondent,
manager of the second respondent, and
director of the fifth respondent. The fourth respondent is a director
of the second respondent,
and the partner of the third respondent.
3.
It is common cause that in 2014 the
applicants brought proceedings (under WCHC case number 17470/14)
against the first to fourth
respondents based on misappropriation of
confidential information relating to the first applicant’s
auger manufacturing process
and machinery, and the unlawful use of
that information for the purpose of unlawfully competing with the
first applicant. The notice
of motion in that matter was later
amended to include a prayer for relief based on copyright
infringement of the first applicant’s
technical drawings
relating to its auger machinery and equipment. On 2 June 2015 the
parties settled the matter and agreed to the
terms of the Court
Order.
4.
In terms of paragraph 4 of the Court Order,
the respondents ‘
recognise that
the First Applicant has a confidential production process for the
production of augers’
. In terms
of paragraph 5, ‘
[f]or so long as
the applicants (sic) process remains confidential, the respondents
are interdicted and restrained from employing
any facet of the
applicant’s confidential process in the manufacture of flat
wire or auger’
.
5.
In terms of paragraph 7, for a period of
three years from the date of the granting of the Court Order, the
respondents were interdicted
and restrained from manufacturing and
producing flat wire, or auger, or auger coiling machinery and/or
parts or components thereof
or any business doing same; and marketing
and/or selling and/or soliciting of flat wire or auger or auger
coiling machines and/or
parts or components thereof.
6.
Paragraph 9 provides: ‘
For
so long as the applicant’s process remains confidential, the
respondents are interdicted and restrained from employing
any facet
of the applicant’s confidential process in the manufacture of
flat wire or auger. In the event of the Respondents
after the three
year period referred to above, deciding to manufacture flat wire for
the use in auger, the Respondents will adapt/alter
their production
process so as to avoid using First Applicant’s confidential
information as aforesaid from the expiry of
the said period as
follows: 9.1 First Respondent will include in/add to First
Respondent’s production line a descaling
process by means
of reverse bending the wire through at least 90% degrees; and
9.2 First Respondent will include in/add to
its production line a die
through which the wire is drawn to reduce the diameter and to improve
diameter tolerances’
.
7.
In terms of paragraph 10 of the Court
Order, the respondents were interdicted and restrained from
infringing the first applicant’s
‘
copyright
in its artistic works’
comprising
of some identified technical drawings ‘
by
making any reproductions or adaptations of the copyrighted works,
whether in two dimensional or three-dimensional form’
.
In terms of paragraph 12, the respondents were further interdicted
and restrained from utilising or directly or indirectly making
use of
the copyrighted works, or any copies, adaptations or reproductions
thereof.
8.
It is worth setting out paragraphs 23 and
24 in full. Paragraph 23 provides as follows: ‘
Upon
the expiry of the period referred to in paragraph 7 above and in the
event that the Respondent or any of them, directly or
indirectly,
manufacture flat wire or auger or equipment for the manufacture of
flat wire or auger, such manufacture shall not infringe
on the
confidential information or copyright of the applicants’
.
9.
Paragraph 24 provides as follows:
‘
The
determination of the Respondents’ compliance with paragraph 23
shall be as follows:
24.1
Suitably qualified experts, one appointed by the Applicants and one
appointed by the Respondents, are to be granted access
to the
proposed production facility in order to inspect the proposed
production facility and to compile a joint report in respect
of the
extent to which such production facility complies with paragraph 23
above;
24.2
The said experts are to state in the report the aspects on which they
agree and the aspects on which they disagree;
24.3
The said report is to be handed to the Applicants and Respondents
within 5 (five) court days of it being compiled and the Applicants
and Respondents are to submit their written comments and/or
disagreements on the said report within 5 (five) court days of so
receiving the report, to such experts.
24.4
The said experts are to file a final report within 5 (five) court
days of the expiration of the said 5(five) day period referred
to in
subparagraph 24.3 hereinabove;
24.5
In the event that the Applicants and/or the Respondents do not agree
with the final report of the experts they shall be entitled
to bring
a motivated application to Court within 5 (five) court days to have
the said final report varied and/or corrected. The
Court so hearing
the application will be entitled to determine what procedures are
necessary to determine the application. In the
event that such
application is not launched within the 5 (five) court days referred
to above, the report shall for all intents
and purposes be regarded
as final.’
10.
In terms of paragraph 25 of the Court
Order, notwithstanding the three-year restraint in paragraph 7.3,
‘
the Respondents shall be entitled
to construct an auger production facility, which is, as a whole or in
any of its constituent parts,
not be sold, leased or otherwise made
available to any third party, solely for the purposes of
commissioning same in terms of what
follows below. The Respondents
undertake not to commission the proposed auger production facility
until such time as the Applicants
and Respondents are in agreement as
set out in sub paragraphs 24.1 - 24.4 above or a Court has made such
determination in terms
of subparagraph 24.5 above’
.
11.
The three-year period referred to in
paragraph 7 of the Court Order ended on 1 June 2018. It is common
cause that, by that date,
the respondents had indicated an intention
to commence with the manufacture and production of flat wire and
auger. Correspondence
ensued between the parties from 15 May 2018
until these proceedings were launched, covering a range of issues,
the relevant highlights
of which are summarised in the paragraph
below.
12.
The respondents disputed the suitability of
the expert appointed by the applicants, Mr Nicolaas Theodorus
Broekhuizen (‘Broekhuizen’)
on the basis that he designed
the first applicant’s initial production facility, of which 95%
remains in use. Until December
2018, the parties were
ad
idem
that the respondents could not
commission their production facility until an inspection had been
undertaken in terms of paragraph
24 of the Court Order, and were
making arrangements for an inspection to be held. As from 13 December
2018, the respondents expressed
a view, after taking advice from
counsel, that the Court Order was incapable of implementation for a
range of interpretative reasons,
most of which are the basis for the
respondents’ opposition to applicants’ application and of
the respondents’
counter-application. From 12 April 2019, the
respondents stated that the concession made in the Court Order, that
the applicants’
process was confidential, was wrongly made.
There were disagreements in the correspondence about the exact
process to be followed
in complying with paragraph 24 of the Court
Order. On 11 June 2019, after the applicants had delayed in
responding to the
respondents’ correspondence, the respondents
gave notice that they intended commissioning their production line
and to commence
with production without further notice. On 30 July
2019 the respondents confirmed that they had commissioned their plant
and were
proceeding to manufacture their product for sale. In
response to both the letters of 11 June 2019 and 30 July 2019, the
applicants
demanded an undertaking that the respondents would refrain
from commissioning their production facility and manufacturing or
selling
flat wire or auger. No such undertaking was forthcoming until
the launch of these proceedings.
13.
Nevertheless, the parties agreed that an
inspection as contemplated in paragraph 24 of the Court Order would
commence on 20 August
2019, led by Broekhuizen and the respondents’
appointed expert Mr Hellmut Bowles (‘Bowles’).
Inspections were
indeed held on 20, 22, 23, and 29 August 2019.
However, after Broekhuizen requested more drawings from the
respondents, the latter
saw this as a delaying tactic, refused to
cooperate any further by granting any more access to Broekhuizen or
supplying any further
drawings, and insisted that rather a report
should be furnished by Broekhuizen. According to the applicants and
Broekhuizen, the
drawings requested by Broekhuizen contained notes
made at the inspections already held, could only be accessed at the
respondents’
premises, and were requested for purposes of
enabling Broekhuizen to draft a preliminary report. At the time that
these proceedings
were launched, these drawings had not been
furnished, but were, however furnished as an attachment to the
respondents’ answering
affidavit.
The
court proceedings
14.
It came to the attention of the applicants
that on 22 August 2019, the fifth respondent issued an invoice for,
and subsequently
sold auger to an Egyptian company called Techno Max,
which is an existing client of the first applicant. The shipment was
to depart
on 30 September 2019. The copy of the invoice, which is
attached as an annexure to the applicants’ founding affidavit,
bears
the signature of the third respondent, and states that the
auger was produced and manufactured in South Africa. On the basis of
this information the applicants state that the inescapable conclusion
is that the auger must have been manufactured for sale by,
or on
behalf of the respondents. In addition to this, the applicants
discovered that the respondents purchased substantial enough
steel
rod for the manufacturing of flat wire for the production of auger to
fulfil the order contained in the Techno Max invoice.
The respondents
admit to issuing a quote to Techno Max, but deny issuing a stamped
and countersigned invoice, or that a sale was
made, and claim that
the invoice attached to the applicants’ founding affidavit is a
‘
fake generated solely for the
purpose of this litigation’
. On
the basis of the alleged Techno Max invoice and sale, the applicants
launched these proceedings, claiming that the conduct
of the
respondents amounts to contempt of the 2015 Court Order in that the
process in terms of paragraph 24 thereof has not been
concluded. The
notice of motion and founding affidavit were served upon the
respondents’ attorneys on 10 September 2019,
and the
respondents were informed therein that the matter was set down for 19
September 2019.
15.
After launching the proceedings above, and
before the hearing on 19 September 2019, the applicants delivered a
supplementary affidavit
dated 17 September 2019 setting out events
which transpired on that day. In summary, the director of the first
and second applicants
and Broekhuizen attended at the premises of the
respondents and, from across the premises they witnessed the
respondents loading
pallets of auger into a shipping container which
was a truck. They followed the truck and stopped the driver who
confirmed that
he was transporting auger. He also showed them the
shipping documents which revealed that the second respondent was the
exporter
of the shipment to Bangkok (‘the Bangkok shipment’).
As a result of this incident, the applicants sought an interim
order
interdicting and restraining the respondents from delivering the
container and/or its contents to the Cape Town Port or any
other port
in South Africa, or from removing the container and or its contents
from South Africa (‘the supplementary interdict
application’).
The respondents delivered an answering affidavit in response to the
supplementary interdict application. It
was admitted that there had
been a contract of sale between the purchaser, who had prepaid the
cargo, and the fifth respondent;
that the goods had been delivered to
the carrier; and that, at the time of deposing to the affidavit, the
container containing
the cargo was sitting in the loading stack and
was due to be loaded onto a shipping vessel on the following day. The
applicants
delivered a replying affidavit attaching proof that the
vessel onto which the container was to be loaded had not yet arrived
in
Cape Town, and therefore the container had not been loaded aboard
it. Furthermore, the applicants discovered that the container
was
delivered to the stacking area by the respondents while the court
proceedings were taking place on 17 September 2019, and not
before,
as suggested in the respondents’ answering affidavit. The
matter was heard on 17 and 18 September 2019, and on 18
September
2019, Myburgh AJ granted the supplementary interdict. The interim
interdict was to operate pending the hearing of this
matter. On 25
September 2019, Sievers AJ struck the matter from the roll for lack
of urgency. By directive of the Judge President
the matter was
allocated a hearing date before me.
16.
In a further answering affidavit styled
‘preliminary answering affidavit’ and deposed on 19
September 2019, more detail
was provided regarding the Bangkok
shipment by the respondents. The fifth respondent pleaded that the
respondents stood to suffer
enormous commercial and financial harm if
they were prevented from shipping the container. It was stated that
the respondent stood
to suffer not only immediate financial loss
because of its breach of contractual arrangements with its customer
worth approximately
R450,000.00, but also immeasurable loss in
relation to business relationship with its customer in Thailand and
potentially the
entire Thai market. At the hearing of this matter in
December 2019 I was informed from the bar by the respondents’
counsel
that the Bangkok shipment had left the Republic.
Interlocutory
applications
The
striking-out application
17.
The respondents brought an application to
strike out certain portions of the applicants’ affidavit, some
on the basis that
they would prejudice the respondents if allowed,
and others on the basis that they were scandalous, vexatious and
irrelevant. The
order made was that the Court would make an order at
a later stage in light of all the evidence presented by the parties.
The portions
objected to relate to the background leading up to the
agreement of the terms of the Court Order. According to the
applicants,
during the course of pre-trial preparation in case
17470/14, the respondents were caught red-handed in having
misappropriated the
first applicant’s confidential information
and technical drawings, and in the blatant infringement of the first
respondent’s
copyright in its technical drawings. Documentation
recovered from third parties under subpoenas
duces
tecum
revealed that the respondents had
concealed highly prejudicial evidence during the discovery process in
the matter, and the third
respondent had also perjured himself in
what he stated in his discovery affidavit in relation thereto. This
documentation also
revealed the involvement of the fifth respondent
in the respondents’ unlawful activities. It was as a result of
these revelations
that the parties agreed to the terms of the Court
Order. In light of the approach I have taken in the matter, I
do not consider
the applicants’ averments in this regard
necessary or relevant to the case. The striking out application is
accordingly granted,
with no order as to costs.
Further
affidavits
18.
Two weeks before the hearing of this
matter, the applicants delivered an application for leave to file a
further affidavit for the
purpose of placing correspondence exchanged
between the parties for the period May 2018 to 16 September 2019. Two
days before the
hearing of the matter, the respondents delivered a
practice note to the effect that if the further affidavit was to be
received
by the Court, they should be granted an opportunity to
respond through the filing of a further affidavit or affidavits. For
expediency’s
sake, I refused to allow the filing of the
applicants’ further affidavit.
19.
At the continuation of the proceedings on
21 January 2020, the respondents applied for leave to file a further
affidavit which attached
the same correspondence that the applicants
had sought to attach in their further affidavit, plus two additional
letters. The respondents’
affidavit also made certain
allegations regarding the correspondence. The applicants opposed the
admission of this further affidavit,
alternatively requested an
opportunity to respond thereto, and further alternatively suggested
that only the correspondence be
admitted without admitting the
contents of affidavit. The application to admit the affidavit was
dismissed. However, the correspondence
was admitted.
The
Competition Act challenge
20.
Two
weeks after the hearing of this matter, the respondents delivered a
further note challenging the jurisdiction of this Court
to grant the
order sought by the applicants on the basis of the
Competition Act 89
of 1998
. It is contended that this Court has no jurisdiction to grant
the order sought by the applicants, and that only the Competition
Tribunal has such jurisdiction by virtue of the fact that one of the
issues arising in this matter constitutes a prohibited act
within the
meaning of
section 65(2)
of the
Competition Act. The
respondents rely
on a complaint that is currently pending before the Competition
Tribunal to the effect that the parties’
agreement underlying
the Court Order is unlawful because it constitutes a prohibited act
within the meaning of
section 4(1)(b)(ii)
of the
Competition Act.
Furthermore
, the respondents rely on the decision of
Seagram
Africa (Pty) Ltd v Stellenbosch Farmer’s Winery Group Ltd and
Others
[1]
where
the court held that ordinary civil courts do not have the power to
grant interlocutory introductory relief in competition
matters.
21.
It is worth pointing out that this issue
was not ventilated in Court or in the papers. And although the
pleadings of the Competition
Tribunal complaint are attached to the
respondents’ answering affidavit, they are not specifically
dealt with in the answering
affidavit. They are merely ‘
incorporated
by reference’
. It is trite
that this is impermissible.
22.
In
any event, the Competition Tribunal does not have the power or
jurisdiction to enquire into the validity of the Court Order.
In
Bezuidenhout
v Patensie Sitrus Beherend Bpk
[2]
, Froneman J (as he then was) held that ‘
the
Competition Tribunal does not have the competence under the
Competition Act to
issue orders in conflict with pre-existing orders
of the High Court which have not been set aside, nor does the
tribunal have the
competence under the Act to set aside such
orders’
[3]
.
Dealing with similar arguments as those made by the respondents in
this matter, the court emphasised that ‘
[a]n
order of a court of law stands until set aside by a court of
competent jurisdiction. Until that is done the court order must
be
obeyed even if it may be wrong’
.
23.
Furthermore,
in
Moraitis
Investments (Pty) Ltd and others v Montic Dairy Pty Ltd
[4]
,
the Supreme Court of Appeal (‘SCA’) left no room for
avoiding a court order by challenging the settlement agreement
it
embodies, and stated as follows: ‘
its
defect lies in approaching the question from the direction of the
agreement instead of from the direction of the judgment. The
latter
is the correct approach, because the judgment operates as res
judicata and precludes a claim based on the agreement. Unless
and
until the judgement has been set aside, there can be no question of
attacking the compromise agreement’
.
24.
The fact is that there is an existing order
granted by this Court, and this Court retains the right to control
its processes and
especially to have oversight regarding compliance
with its orders.
25.
Furthermore, upon a consideration of
section 65(2)(b)
of the
Competition Act, I
am not satisfied that its
requirements are met.
Section 65(2)(b)
provides as follows:
‘
If,
in any action in a civil court, a party raises an issue concerning
conduct that is prohibited in terms of this Act, that court
must not
consider that issue on its merits, and –
…
(b)
otherwise, the court must refer that issue to the Tribunal to be
considered on its merits, if the court is satisfied that –
(i)
the issue has not been raised in a
frivolous or vexatious manner; and
(ii)
the resolution of that issue is required
to determine the final outcome of the action.’
26.
I am not satisfied that a finding by the
Competition Tribunal is required in order to determine the final
outcome of this matter.
As stated in
Bezuidenhout
,
the Competition Tribunal does not have the competence to set aside
the terms of the Court Order. I also point out that the late
stage
and manner in which the respondents have raised this issue, which
should properly have been raised as a point
in
limine,
illustrates the frivolous
nature of application,
.
27.
Lastly the case of
Seagram
Africa (Pty) Ltd v Stellenbosch Farmer’s Winery Group Ltd and
Others
, on which the respondents rely,
is distinguishable from the facts of this case. Firstly, that case
concerned an interdict pending
a decision in terms of the
Competition
Act, whereas
this case concerns and interdict pending the completion
of a process ordered by this Court. Secondly, the
ratio
in
Seagram Africa
concerned
section 65
(3)
Competition Act, which
has since been repealed.
28.
For all the above reasons, the respondents’
challenge based on the
Competition Act is
dismissed with costs.
The
Interim interdict
29.
The
test for the grant of an interim interdict is trite. The applicant
must establish (a) a
prima
facie
right even if it is open to some doubt; (b) a reasonable apprehension
of irreparable and imminent harm to the right if the interdict
is not
granted; (c) the balance of convenience must favour the grant of the
interdict; and (d) the applicant must have no other
available remedy.
If a clear right is established, there is no need to establish
element of the apprehension of irreparable harm.
[5]
30.
The first question is whether the
applicants have established a
prima
facie
right although open to some
doubt. In this regard, reference must be made to the Court Order, and
specifically paragraphs 4, 7,
23, 24 and 25 thereof. The Court Order
was taken by agreement between the parties. It expressly interdicts
and restrains the respondents
from commencing with manufacturing,
producing, marketing for sale and/or selling flat wire and auger,
until such time as there
has been compliance with the procedure set
out in paragraph 24. It is common cause that the process in
terms of paragraph
24 of the Court Order has not been concluded. It
is also common cause that the respondents concluded the sale
resulting in the
Bangkok shipment, and according to the respondents
the contract price was worth approximately R450 000,00. Although the
initial
set of heads of argument on behalf of the respondents state
that the respondents were seeking to set aside the order of Myburgh
AJ, I was informed from the bar that this is no longer the case.
31.
As
regards the Techno Max invoice, the respondents deny issuing it,
stating that they only issued a quote which was not accepted
by the
customer. The first problem with this version is that the issuing of
a quote was itself a breach of the Court Order since,
in terms
thereof, the respondents are interdicted from marketing, selling,
soliciting or being involved in any of those activities
in any
capacity. In my view, issuing a quote falls within this list of
prohibited activities, and amounts to making an offer to
sell. The
additional problem is that the respondents did not provide any
evidence to support their denial of the evidence set forth
by the
applicants, which includes, not only a copy of the invoice but also
proof that the respondents had purchased substantial
enough steel rod
for the manufacturing of flat wire for the production of auger to
fulfil the order contained in the invoice. The
applicable test in
this regard is that which is
set
out in
Webster
v Mitchell
[6]
, as qualified by
Gool
v Minister of Justice and Another
[7]
,
in terms of which the applicants must show that on their version,
together with the allegations of the respondents that they cannot
dispute, they should obtain relief at the trial. If, having regard to
the respondents’ contrary version and the inherent
probabilities serious doubt is then cast on the applicants’
case, the applicants cannot succeed.
On
application of this test,
the
respondents’ denial is unsatisfactory and amounts to a bare
denial which is rejected.
32.
I have already referred to the
correspondence in which the respondents notified the applicants that
they were commissioning their
production line, commencing with
production, and manufacturing product for sale. I was informed from
the bar that the respondents
did manufacture at some point, but that
this is no longer the case. This version is contrary to the attitude
taken in the respondents’
answering affidavit which is
expressed as follows: ‘
If an
interdict is granted in the terms sought the respondents will suffer
serious financial harm running to tens of millions of
rand as a
result of lost sales opportunities. The respondents employ
approximately 12 people in their manufacturing facility. If
the
facility is not permitted to operate or if the respondents are forced
to suspend their trading activities all of these people
stand to lose
their jobs-with obvious dire consequences for them and their
families. The sales of product by the respondents also
generate
foreign revenue given that all of the products are exported. The
shutting down of the respondents’ operations would
accordingly
be injurious to the economy of the Republic’.
There
are also complaints in the answering affidavit that, if the order is
granted, its effect will be to stifle competition. Even
further, the
respondents complain in the papers that there is no concurrent tender
by the applicants for damages if the order of
restraint were to be
granted. This attitude continued in the heads of argument. I am
therefore persuaded that the respondents have
not only breached the
terms of the Court Order, but continue to do so, and in fact harbour
an intention to continue to do so.
33.
The respondents justify their attitude
towards the Court Order on many grounds, which are dealt with below
under the following headings:
(a) meaning of the Court Order as
regards confidentiality and copyright; (b) status of the Order; and
(c) equity considerations.
Meaning
of the Court Order
34.
The respondents’ counsel argued
firstly, that the Court Order does not identify the information which
is confidential, and
is therefore void. To this argument the
applicants have correctly pointed out that there is no requirement
that the Court Order
should do so. In any event, the evidence is
that, the Court Order was agreed by the parties at an advanced stage
of proceedings,
after exchange of pleadings by the parties. It is
common cause that the application in case number 17470/14 was based
on the misappropriation
of the applicants’ confidential
information by the respondents. Thereafter, the parties agreed to the
terms of the Court
Order in which the respondents ‘recognised’
that the first applicant had a confidential production process. It is
highly
unlikely that the respondents were not aware of what the
confidential information that they were found to have
misappropriated,
and which they recognised in the Court Order,
entailed. In any event, if there was any doubt as to the meaning of
the Court Order,
the respondents should have approached the Court for
interpretation, and should not have taken the law into their own
hands. The
same considerations as those discussed in this paragraph
apply to the complaint that the applicants have failed to place
evidence
before the Court regarding what information is confidential.
Notably, there is no application to amend, set aside or be excused
from the application of paragraph 4 of the Court Order in which the
respondents acknowledged the applicants’ confidential
production process.
35.
The respondents also contend that
paragraphs 23 and 24 of the Order must be read in light of paragraphs
5 and 9. The latter paragraphs
interdicted the respondents from
employing any facet of the applicants’ confidential process in
their manufacture of flat
wire or auger ‘
for
so long as the applicants’ process remains confidential’
.
If the applicants’ process is no longer confidential, so the
argument goes, paragraphs 23 and 24 do not find application.
In this
regard, the respondents rely, firstly, on an expert report by
Professor R.J Mostert (‘Mostert’) dated 30 June
2015,
who, after watching a video depicting the applicants’
manufacturing process, opined that the information pertaining
to that
process is public knowledge and property, and cannot be regarded as
confidential. The respondents’ counsel could
not give an exact
date regarding when the respondents considered the information to no
longer be confidential. However, it is contended
that by 30 June
2015, the date on which the expert wrote his opinion, the information
was no longer confidential. This was within
less than a month after
the Court Order was agreed. Mostert’s opinion also does not
state when he saw the video on which
his opinion is based –
whether this was before or after the Court Order was agreed by the
parties. Given these views, it
is strange that, at least from 30 June
2015 onwards, the respondents did not attempt to amend the Court
Order if they were of the
view that it was defective as they now
contend. It is also relevant in this regard that the respondents’
answering affidavit
avers that the acknowledgement of confidentiality
regarding the first applicant’s process in paragraph 4 was a
concession
wrongly made. During the Court proceedings the
respondents’ counsel disavowed any reliance on this averment.
Nevertheless,
the swift answer to these averments is that, upon
realising these alleged defects, the respondents should have
approached this
Court for an amendment of the Court Order, and
specifically paragraph 4 thereof, before commencing with their
operations, thereby
transgressing the terms of the Court Order.
36.
It is also contended by the respondents
that, in any event, their production process did not offend the
confidentiality requirements
of the Court Order because they employed
the two production processes mentioned in paragraphs 9.1 and 9.2
namely a descaling process
by means of reverse bending the wire
through at least 90% degrees, and a die through which the wire is
drawn to reduce the diameter
and to improve diameter tolerances (‘
the
two production processes’
). The
argument is that, if the respondents’ process incorporates the
two production processes, the process no longer contains
confidential
information, and the purpose of the inspection contemplated in
paragraph 24 was to confirm whether or not the two
production
processes have been complied with. The purpose of the process in
terms of paragraph 24 is expressly stated as ‘
the
determination of the respondents’ compliance with paragraph
23’
, which includes a
determination of whether or not the respondents’ processes
infringe the applicants’ confidential
information. Neither
paragraph 23 nor 24 limits the determination of an infringement of
confidentiality by reference to the instances
described in paragraph
9.1 and 9.2. In any event, paragraph 9 itself is drafted in wide
terms. According to that paragraph, the
respondents are interdicted
and restrained from ‘
employing
any
facet
of the applicant’s
confidential process’
; and they
are to adapt/alter their production process ‘
so
as to avoid using the First Applicant’s confidential process’
.
This language is echoed in paragraph 5 of the Court Order. The two
production processes listed in paragraph 9.1 and 9.2 are, in
my view,
the minimum that the respondents are required to do in order to avoid
infringing the applicants’ confidentiality.
If the intention
was that the process in paragraph 24 should only confirm compliance
with paragraphs 9.1 and 9.2, this would have
surely been stated in
paragraph 23 and or 24. It would be anomalous for the process
contemplated in paragraph 24 to permit the
respondents to breach the
applicants’ confidentiality in other ways but which are not
identified in paragraphs 9.1 and 9.2.
In any event, it is common
cause that the process set out in paragraph 24 has not been
concluded. Even if the respondents held
the views espoused in this
paragraph, that did not entitle them to transgress the terms of the
Court Order by resuming manufacture,
production, marketing and
selling before the conclusion of the process set out in
paragraph 24.
37.
Elementary
as it may sound, it is worth summarising the legal position
applicable to the attitude adopted by the respondents in
this matter,
and which is the answer to most of their interpretative arguments. A
court order is binding, irrespective of whether
or not it is valid,
until set aside.
[8]
A party is
not entitled to ignore a court order enforcing a contract that is
subsequently found to be unlawful.
[9]
A court order must be obeyed even if it is wrong. Parties are not
allowed to take the law into their own hands.
[10]
38.
Regarding
copyright, the respondents’ counsel referred to paragraph 10 of
the Court Order, which states as follows: ‘
The
Respondents are interdicted and restrained from infringing the First
Applicant’s copyright in its artistic works comprising
of its
technical drawings
as described [in] the definition of the Works in annexure “SA15”
to Applicants’ Founding Affidavit in the Application
for
Amendment and as discovered under the heading Part 1 B: Confidential
Discovery Document Items 1 to 1179 (“the copyrighted
works”)
by
making any reproductions or adaptations of the copyrighted works,
whether in two dimensional or three dimensional form
.’
(
own
emphasis) The main argument in Court relied on
section 15(3A)
of the
Copyright Act 98 of 1978
which provides as follows: ‘
[t]he
copyright in an artistic work of which three-dimensional
reproductions were made available, whether inside or outside the
Republic, to the public by or with the consent of the copyright owner
(hereinafter referred to as authorised reproductions), shall
not be
infringed if any person without the consent of the owner makes or
makes available to the public three-dimensional reproductions
or
adaptations of the authorised reproductions, provided the authorised
reproductions primarily have a utilitarian purpose and
are made by an
industrial process’
.
This provision, according to the respondents means copyright of
designs cannot be infringed by making machine parts, as they have
done. The law of copyright accordingly finds no application to the
facts of this case. As a result, paragraph 24 of the Court Order
is
defective because it contemplates conduct which is not unlawful. The
respondents rely on the case of
Bress
Designs (Pty) Ltd v G Y Lounge Suite Manufacturers (Pty) Ltd and
Another
[11]
for this argument.
39.
Firstly,
it must be pointed out that the respondents’ reliance on
section 15A
of the
Copyright Act is
not foreshadowed in the papers.
Secondly, as appears from its wording, in order for
section 15(3A)
to
apply, three-dimensional reproductions of the artistic work must have
been made available to the public. There is no evidence
that the
machinery in this matter was made available to the public. Thirdly,
the
Copyright Act was
subsequently amended for the specific purpose
of rectifying the interpretation given in
Bress
Designs.
This
was confirmed in the later decision of
Dexion
Europe Ltd v Universal Storage Systems (Pty) Ltd
[12]
.
In
Dexion, the Supreme Court of Appeal stated as follows: ‘
The
effect of this, in general terms, is that copyright in a technical
drawing is not infringed by a three-dimensional version of
the
drawing, which has no causal connection with the drawing. It is also
not infringed if the version is reproduced from an authorised
reproduction (reverse engineering). Even if the owner of the
copyright made three-dimensional 6 versions (as defined in the
proviso)
available to the public, third parties are not entitled to
make three-dimensional copies by reference to the drawings.
In
other words, the drawings may not be used, directly or indirectly, to
produce copyright-free three-dimensional ‘reproductions’.
An example of such indirect copying would be the instance where the
third party uses tools that were made from the drawings to
make its
version
.
The same would apply if the third party were to produce its own set
of tools by copying tools produced from the copyright owner’s
drawings. In this event the tools can be likened to negatives of
photographs: making a photo from a negative infringes the copyright
in the photo’
.
(own emphasis). Thus, the general proposition that making a machine
based on the drawing is not a breach of copyright in South
African
law is not correct, according to
Dexion
.
40.
Another argument from the respondents
regarding copyright is that, in order to determine whether there has
been copyright infringement,
one needs to conduct a forensic enquiry
by comparing different drawings. The process provided for in
paragraph 24 of the Court
Order is not the appropriate way to make
this determination as it does not provide for the comparison of
drawings. And the experts
are, in any event, not qualified to make a
determination regarding copyright. In this regard, it is argued that
paragraph 24 is
therefore defective. The obvious answer to this
argument is that the respondents should have approached the Court to
amend or set
aside paragraph 24 before transgressing the terms of the
Order, and they did not do so.
Status
and enforceability of the Order
41.
Because the Court Order was taken by
agreement between the parties, the respondents contend that it does
not have the force of a
judicial outcome, but is contractual in
nature. In this regard the main complaint is that the applicants have
themselves failed
to perform in terms of the Court Order by, amongst
other things, producing a report from their independent expert. In
those circumstances,
it was argued that it would be grossly
inequitable to grant an interdict because there is no incentive for
the applicants to produce
the report.
42.
The
argument that a settlement agreement does not have the force or
status or enforceability or appealability of a judgment is contrary
to the Constitutional Court decision in
Eke
v Parsons
[13]
,
where
it was held that ‘
the
original underlying dispute is settled and becomes res judicata.
Second, what litigation that may be after the settlement order
will
relate to non-compliance of this order, and not the original
underlying dispute’.
In
Moraitis
Investments (Pty) Ltd and others v Montic Dairy Pty Ltd
[14]
,
the
Supreme Court of Appeal held that such an order has exactly the same
standing and qualities as any other court order.
43.
Regarding the demand for the applicants’
expert to produce a report, there is no such requirement in the Court
Order. What
is required in terms of paragraph 24 is that the experts
should produce a joint report, and state the extent to which they
agree
or disagree.
Equity
considerations
44.
It
was argued that the Court should exercise its discretion and refuse
to enforce the Court Order on the basis that the applicants
are
perpetuating fraud or abusing the court process.
Regarding
fraud, the respondents rely on the Techno Max invoice, which they
aver is ‘
a
fake document generated for the purpose of initiating these
proceedings’
.
I have already dealt with the unsatisfactory manner in which the
allegation of a fake document is dealt with by the respondents.
A
party wishing to rely on fraud must not only plead it, but must also
prove it clearly and distinctly. The onus is the ordinary
civil onus,
bearing in mind that fraud is not easily inferred. The essential
elements for a claim or defence based on fraud are
the following: (a)
there must be a representation by the other party or by that party's
agent. (b) It must be alleged that fraud
or misrepresentation was
false and or intentional or negligent.
[15]
(c) It must be alleged and proved that the representation induced the
representative or innocent party to act.
[16]
In this matter,
the respondents, not only failed to properly plead fraud, but also
failed to
prove
it clearly and distinctly.
45.
The
respondents
claim that the applicants are frustrating the finalisation of the
inspection process. In support of this argument, the
respondents rely
on the correspondence summarised earlier, and the fact that
Broekhuizen has not delivered a report which is an
indication of the
applicants’ delaying tactics. I have already dealt with the
demand for Broekhuizen to issue a report. The
argument lacks
merit, as there is no such requirement in the Court Order. What is
more is that Broekhuizen deposed to an affidavit
setting out the
reasons for requesting the technical drawings. Those reasons are not
challenged. In fact, the respondents appear
to agree that the
drawings were required, and attached them to their answering papers.
The respondents persist with their complaint
regarding the
suitability of Broekhuizen as an expert, because of his previous
involvement with the applicants’ business,
and lately, because
of an averment in his affidavit that he is in the ‘
process
of setting up the correct templates and designing the report in
consultation with the applicants’ attorney’
.
It was argued that the experts contemplated in paragraph 24 have the
status of an adjudicative authority. This argument
is not supported
by the terms of the Court Order. The experts are appointed to conduct
an inspection and compile a report, whereafter
the applicants and
respondents are to agree, disagree or refer the experts’ final
report court for variation or correction.
Regarding the
chronology of events, I am not persuaded that the correspondence
shows an abuse of process by the applicants. Rather,
what is clear
from the correspondence is that the parties were initially
ad
idem
regarding compliance with the Court Order, and specifically that,
before the respondents could resume operations, paragraph 24
had to
be complied with. It was from 13 December 2018 that the
respondents expressed the view that the Court Order was incapable
of
implementation. Thereafter, the parties continued to disagree. In my
view, the respondents should not have resumed operations
without
first resolving the interpretive issues, including by approaching
this Court. The fact that they resumed operations, apparently
out of
exasperation by the applicants’ alleged frustration of the
process, is an indication that they took the law into their
own
hands.
46.
It was also argued on behalf of the
respondents that the circumstances of this case are such that
competition should not be punished
and a restraint of trade should,
in any event, apply. The argument is based on the fact that the main
respondent left the employment
of the main applicant some 10 years
ago, and should not be punished from being a competitor in the
market. The answer to this argument
is that the Court Order stands
until set aside. The respondents in those circumstances should have
approached the court for an
amendment before breaching the terms of
the Court Order.
47.
In
my view, the applicants have established a
prima
facie
right, if not a clear right, emanating from the terms of the Court
Order, the existence of which is not in dispute. In light of
the fact
that the applicants have established a clear right, there is no need
to establish element of the apprehension of irreparable
harm.
[17]
In any event, the transgression of the applicants’ rights
afforded by the Court Order constitutes irreparable harm. Regarding
the balance of convenience, the respondents state that if the interim
relief is granted, they will suffer clear, identifiable and
measurable losses. It is also argued that the applicants should have
tendered damages as indemnity for the respondents’ losses.
In
addition, it is averred that the respondents employ approximately 12
people in their manufacturing facility. If the facility
is not
permitted to operate or if the respondents are forced to suspend
their trading activities all of these people stand to lose
their jobs
with obvious dire consequences. Furthermore, the respondents argue
that granting the order would entrench the first
applicants’
monopoly in the market. In my view, these arguments illustrate the
problem. The respondents’ attitude is
that they are entitled to
continue manufacturing and operating without regard to the terms of
the Court Order. The prejudice to
the applicants, if the interim
interdict is refused now but they succeed in due course, outweighs
any prejudice to the respondents
if an interim interdict is granted
but the application ultimately fails. The balance of convenience
clearly favours the granting
of the interim interdict since the
alternative is continued unlawful activity by the respondents. There
is no other legal remedy
available to the applicants to prevent the
respondents’ illegal conduct and to protect their rights in
terms of the Court
Order.
Respondents’
counter-application
48.
The
respondents have brought a counter-application which is conditional
upon the Court entertaining the applicants’ application.
The
counter-application relies on the answering papers already filed in
the matter, and seeks the setting aside of paragraphs 24
and 25 of
the Court Order. The issues discussed above apply with regards to the
counter-application, the main one of which is that
a party in default
of a court order must first purge the default before bringing
proceedings in court.
[18]
There is otherwise no case made out in the papers for the
counter-application. Another consideration regarding the
counter-application
is its timing. Some of arguments raised by the
respondents should, on their version, have been raised, either at the
time of agreeing
to the Court Order, or very soon thereafter. In this
regard, the challenges relating to confidentiality are relevant.
There is
no explanation for why the application was not brought at
that time. Then, the challenges relating to copyright were raised in
correspondence from December 2018. If the respondents genuinely
believed in this argument it is strange that they waited until the
applicants approached this Court on an urgent basis before the
counter-application was brought. It is not only strange, but is
unfair and prejudicial towards the applicants, and evinces a lack of
bona
fides
on the part of the respondents.
Contempt
of the Court Order
49.
The
legal consequence that flows from non-compliance with a court order
is contempt.
[19]
The
requirements for contempt of a court order are that there must be an
existing order; of which the offending party has knowledge;
there
must be non-compliance with the order; and wilfulness or
mala
fides
.
Once the first three of these elements are established beyond a
reasonable doubt, the evidential onus shifts to the respondent
to
show that the non-compliance was not wilful or
mala
fide
.
[20]
50.
It
is trite that compliance with court orders is an issue of fundamental
concern for a society that seeks to base itself on the
rule of law.
What is required in civil contempt matters is that sufficient care
should be taken in the proceedings to ensure a
fair procedure as far
as possible with the provisions of section 35(3) of the
Constitution.
[21]
In
Fakie
NO v CCII Systems
[22]
the
Supreme Court of Appeal describes the application for committal for
contempt by a private party as a
'peculiar
amalgam'
because
'it
is a civil proceeding that invokes a criminal sanction or its
threat.'
[23]
The
SCA continued
[24]
that Court
stated in paragraph '
this
development of the common law does not require the applicant to lead
evidence as to the respondent's state of mind or motive:
Once the
applicant proves the three requisites..., unless the respondent
provides evidence raising
a
reasonable
doubt
as
to
whether non-compliance was wilful and
mala
fide
the
requisites of contempt would have been established The sole change is
that the respondent no longer bears a legal burden to
disprove
wilfulness and
mala
fides
on
a balance of probabilities, but, but only need evidence that
establishes a reasonable doubt.'
Should
the respondent fail to advance evidence that establishes a reasonable
doubt as to whether non-compliance was wilful and mala
fide, contempt
will have been established beyond reasonable doubt.
A
deliberate (wilful) disregard is not enough,
'since
the non-complier may genuinely, albeit mistakenly, believe him of
herself entitled to act in a way claimed to constitute
contempt. In
such a
case
good
faith avoids the infraction. Even
a
refusal
to comply that is objectively unreasonable may be
bona
fide
(though
unreasonableness could evidence lack of good faith).'
[25]
51.
Where
a court finds a recalcitrant litigant to be possessed of malice on
balance, civil contempt remedies other than committal may
still be
employed. These include any remedy that would ensure compliance such
as declaratory relief a mandamus demanding the contemnor
to behave in
a particular manner, a fine and any further order that would have the
effect of coercing compliance.
[26]
Importantly, the case law is clear that
contempt
of court is not an issue
inter
parties;
it
is an issue between the court and the party who has not complied with
a mandatory order of court.
[27]
52.
There is no doubt that the first three
elements are met in this case. It is common cause that the Court
Order continues to exist;
that the respondents were at all times
aware of it; and that its terms have been breached on more than one
occasion, as discussed
above. This means the evidentiary burden
shifts to the respondents to create reasonable doubt as to the
existence of wilfulness
and
mala fides.
In my view, the respondents have failed
to discharge the evidentiary burden. To the contrary, the facts
surrounding the Bangkok
shipment show, not only wilfulness to breach
the Court Order, but also
mala fides
on the part of the respondents. The evidence shows that the
respondents sought to mislead the court by concealing the factual
circumstances surrounding the transporting and loading of the
shipment. The respondents were found to have been acting unlawfully
with full knowledge of, and while the court proceedings were taking
place on 17 September 2019. Likewise, the issuing of the Techno
Max
invoice has the same effect. I have already rejected the respondents’
version that they merely issued a quote. However,
even this version
shows
mala fides
on their part.
53.
There is at least a
prima
facie
case for contempt in the form of
wrongful interference with the applicants’ rights in terms of
the Court Order. In
considering the alternative means through
which the Court can ensure compliance with the Court Order, I have
reached the view that,
in addition to an interdict, a fine would have
the desired result to coerce the respondents to comply. The sum of
R450 000, being
the amount which the respondents aver was the
contractual price in relation to the Bangkok shipment, is the minimum
amount I consider
appropriate in this regard. I am satisfied that the
balance of convenience favours the applicants and that a failure to
grant the
interdict would result in irreparable harm being done to
the applicants to which there is no alternate remedy.
54.
The applicants have made out a case for an
interim interdict pending the completion of the process envisaged by
paragraphs 23 to
25 of the 2015 Court Order. The respondents have
delivered answering papers. I was informed from the bar by the
respondents’
counsel that, even though the respondents’
last answering affidavit is entitled ‘preliminary affidavit’,
they
have no desire to deliver further answering papers, and that the
issues have been adequately ventilated in the existing papers before
the court. It is therefore not necessary to issue a
rule
nisi
in the circumstances of this case.
55.
I see no reason why the costs should not
follow the result. The respondents have brazenly acted against the
terms of the Court Order
and taken the law into their own hands.
Order
56.
In the result, the following order is made:
1)
An interim interdict is granted in the
following:
1.1
Pending the finalisation of the process
provided for in paragraphs 23 to 25 of the order granted by this
Court under case number
17470/14 on 2 June 2015 (the Court Order),
the respondents are interdicted and restrained from-
1.1.1
manufacturing and/or producing flat wire
for purposes of manufacturing auger;
1.1.2
manufacturing and/or producing auger;
1.1.3
marketing for sale and/or selling any flat
wire and/or auger produced by any of the respondents;
1.2
The respondents are restrained and
interdicted from removing, causing or permitting the removal of any
of the unlawfully produced
products from the premises situated at 6
Distillery Way, BAT Building, Paarl, Western Cape, or from any other
premises where same
may be located.
1.3
Within 5 court days of the issue of this
Order, the respondents are directed to furnish the applicants with
the addresses of all
premises where the respondents are storing the
unlawfully produced products;
2)
It is declared that the respondents are in
contempt of the Court Order of 2 June 2015;
3)
The respondents are directed to pay to the
applicants a fine of R450 000.00, jointly and severally, the one
paying the other to
be absolved, by no later than 30 April 2020;
4)
The respondents are to pay the costs of all
the proceedings to date, including costs of two counsel, save for
costs related to the
respondents’ application to strike out
portions of the applicants’ founding affidavit.
________________________
N.
MANGCU-LOCKWOOD
Acting
Judge of the High Court
Legal representatives:
Applicants’
Counsel: W. Duminy SC, B Vaughan.
Instructed by: Riaan
Nabal of Nabal Attorneys.
Respondents’
counsel: G. Myburgh SC, R. Gordon.
Instructed by: Conrad
Coetzee of Faure & Faure
[1]
Seagram
Africa (Pty) Ltd v Stellenbosch Farmer’s Winery Group Ltd and
Others
2001 (2) SA 1129 (C).
[2]
Bezuidenhout
v Patensie Sitrus Beherend Bpk
2001
(2) SA 224
(E)
.
[3]
At
231. See also at 229J-230B.
[4]
Moraitis
Investments (Pty) Ltd and others v Montic Dairy Pty Ltd
2017
(5) SA 508
(SCA) at [16].
[5]
Erasmus,
Superior
Court Practice
at D6-20.
[6]
Webster
v Mitchell
1948
(1) SA 1186
(W) at 11189.
[7]
Gool
v Minister of Justice and Another
,
1955 (2) SA 682
(C) at 688E.
[8]
Department
of Transport & Others v Tasima (Pty) Ltd
2017 (2) SA 622
at paras [177] and [180].
[9]
Department
of Transport & Others v Tasima
op
cit
at para [177].
[10]
Clipsal
Australia (Pty) Ltd and others v Gap Distributor and Others
2010 (2) SA 289
(SCA) para [21].
[11]
Bress
Designs (Pty) Ltd v G Y Lounge Suite Manufacturers (Pty) Ltd and
Another
1991 (2) SA 455 (W).
[12]
Dexion
Europe Ltd. v Universal Storage Systems (Pty) Ltd
2003
(1) SA 31
(SCA) at para 5.
[13]
Eke
v Parsons
2016 (3) SA 37
(CC)
at
[29] and [36].
[14]
Moraitis
Investments (Pty) Ltd and others v Montic Dairy Pty Ltd
2017
(5) SA 508
(SCA) at [10] and [16].
[15]
Rato
Flour Mills (Pty) Ltd v Moriates
1
957
(3) ALL SA 28
(T).
[16]
Bill
Harvey's Investment Trust (Pty) Ltd v Oranjegezicht Citrus Estate
(Pty) Ltd
(A)
1958 (1) SA 479
(A).
[17]
Erasmus,
Superior
Court Practice
at D6-20.
[18]
Readam
v BSB International
2017 (5) SA 183.
[19]
Department
of Transport & Others v Tasima
para [186].
[20]
Fakie
NO v CCII Systems (Pty) Ltd
[2006] ZASCA 52
;
2006 (4) SA 326
(SCA) para 42.
[21]
JSO
v HWO (24384/2009)
(2014)
ZAGPPHC 133 (19 February 2014).
[22]
(Pty)
Ltd
[2006] ZASCA 52
;
2006
(4) SA 326
(SCA). See also
Pheko
and Others v Ekurhuleni Metropolitan Municipality (No 2)
[2015]
ZACC 10
[23]
At
para [8].
[24]
At
para [41].
[25]
Supra
at
paragraph
[9].
[26]
At
paragraph [37].
[27]
Federation
of Governing Bodies of South Africa African Schools (Gauteng) v MEC
for Education, Gauteng
2002
(1) SA 660
(T) at 6730-E.