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[2014] ZAGPJHC 202
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Turbo Vent Africa (Pty) Limited v Toomey (10944/2014) [2014] ZAGPJHC 202 (13 June 2014)
REPUBLIC
OF
SOUTH AFRICA
IN THE
HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE NO:
10944/2014
DATE: 13
JUNE 2014
In the matter
between:
TURBO
VENT AFRICA (PTY)
LIMITED
.............................................................
Applicant
And
CHRISTOPHER
J
TOOMEY
....................................................................
First
Respondent
SEELEY
INTERNATIONAL AFRICA (PTY) LIMITED
........................
Second
Respondent
J U D G
M E N T
MOSHIDI,
J
:
INTRODUCTION
[1] This opposed application raises the question whether the
restraint of trade which the applicant seeks to enforce against the
respondents is reasonable and therefore enforceable.
[2] The applicant seeks a final interdict and a restraining order
against the first respondent from:
2.1
taking
up employment with and/or remaining in the employ of the second
respondent with immediate effect;
2.2
making
available any protectable interest of the applicant to any persons
outside the applicant, using the professional interest
or allowing it
to be used by any person for the advancement of his/her own personal
interest or the interest of any competitor
of the applicant for a
period of 12 (twelve) months from 2
April
2014, directly or indirectly;
2.3
carrying
on alone or jointly, or being interested in any way as director,
proprietor, partner, shareholder, financier, advisor,
consultant,
member of a close corporation or otherwise; or grant financial
assistance or loans of any money to; or to be employed
by a business,
or any part of the business of the applicant within the area or which
deals within the area in any services the
same as or substantially
similar to those dealt with as at 2 April 2014;
2.4
offering
employment to or employing or causing employment to be offered to or
causing to be employed or solicit or assist in the
employment of any
employees of the applicant who were in the employ of the applicant
for any length of time during the course of
the period of 24 months
preceding 2 April 2014 and/or during the period of 12 (twelve) months
from 2 April 2014; and/or
2.5
approaching
any of the applicant’s clients/customers/dealers, for the
purpose of soliciting business, whether for himself
or on behalf of
any other party (whether he has an interest in such other party or
not) for a period of 12 months from 2 April
2014. Soliciting in
this interest shall not only mean an active or passive attempt by the
applicant to procure custom (whether
for himself or for any other
person) but where the clients/customers/dealers contact the first
respondent, unsolicited or uninvited
by the first respondent;
2.6
doing
business, whether as principal or employee, with the applicant’s
clients/customers/dealers during the aforesaid 12 month
period;
2.7
entering
into any agreement, arrangement or associate with any employee of the
applicant who was employed by the applicant for any
length of time
during the period of 24 months preceding 2 April 2014 and/or during
the said period of 24 months from 2 April 2014;
2.8
the
applicant contends that the area referred to in the relief sought
mean the area in which it conducts business, which is Southern
Africa. The protectable interest sought to be protected
include, client/customer/dealerships; know-how and training on
evaporative
coolers and turbine ventilators in the HVAC heating,
ventilation and air-conditioning industry, specific project
information, including
that which was obtained from the process
involving the research from databases and analysis of such research;
and trade secrets,
confidential information, processes, techniques,
manuals, designs, business models, domestic information,
client/customer/dealership
connections, and the like.
[3] At the hearing of the matter the relief claimed in paragraph 2.1
above, was amended to a period of 12 months. The words “
professional
interests
” were also amended to read “
protectable
interest
”.
[4] In the founding papers, the essence of the nature of the
applicant’s business is set out in the following terms:
“
9. The applicant is a wholesale
distributor of premium products such as evaporative coolers,
air-conditioners and turbine ventilators
that improves the air
quality in buildings. The applicant also sells and distributes other
products such as heaters, accessories
and spares of all products it
sells and distributes.
10.
The
business carried on by the applicant consists of importing a range of
evaporative coolers, air-conditioners and turbine ventilators
for
industrial, commercial, agricultural and residential use, which is
then sold and distributed to dealers or re-sellers who in
turn sell
the products to end-users. Accessories and spares are both
imported and sourced locally.
11.
The
applicant carries on its business throughout Southern Africa and has
key operations and warehouses with administrative persons
and sale
representatives and distribution centres, in Johannesburg (Tulisa
Park), Durban North and Cape Town (Brackenfell) from
where products
are sold and distributed throughout Southern Africa.
12.
One
of the products so sold and distributed by the applicant is a range
of Breezair evaporative air-conditioners imported from Seeley
International (Pty) Ltd, a company registered as such in Australia.
The applicant and Seeley International (Pty) Ltd (hereinafter
referred to as ‘Seeley’ previously had a formal exclusive
distribution agreement which expired approximately a year
or two ago,
whereafter the applicant continued to be the sole agent for this
product range in Southern Africa on the same terms
and conditions as
those contained in the exclusive distribution agreement.
”
The applicant continues in paragraphs 16, 17 and 21 of the founding
papers, respectively, to allege as follows:
“
A large
part of the key to the success of applicant’s business is the
emphasis placed by the applicant on customer relationships.
The
applicant’s employees and in particular the first respondent,
service a number of customers with whom they build longstanding
relationships so that they are able to understand and anticipate the
individual needs of each of the applicant’s customers.
The
applicant operates its business within a very competitive environment
and therefore service delivery and customer relationships
are of
paramount importance. It is for this reason that the applicant’s
employees are restricted from taking up employment
with a direct
competitor for a 24 month period following the termination of their
employment with the applicant, in order to give
the applicant’s
replacement employees a fair opportunity to establish a similar
relationship with the applicant’s customers
that the first
respondent established during and by virtue of his employment with
the applicant. It is only once the playing field
has been levelled
that the applicant will have a fair opportunity to compete for
customers against the first respondent.
In addition to the
customer relations, the applicant also has a protectable interest in
confidential information which also warrants
protection for at least
24 months.
”
SOME
COMMON CAUSE FACTS
[5] It is not in dispute that the first respondent commenced
employment with the applicant in the course of 1992. However,
on 3 March 2014 the first respondent resigned with 30 days notice at
the time when he occupied the position of Technical and Project
Manager of the applicant. In the founding papers the applicant
contends that in the latter position the first respondent’s
duties covered several key positions. These included,
inter
alia
, establishing and maintaining customer/client/dealer
relations; providing training and know-how to dealers (both new and
existing
professional and employees of the applicant);
researching and analysing information and keeping a database of
potential projects
and engineers included in such projects; assisting
with finding tenders and preparing documents in tendering or
projects;
being responsible for the management of key projects
involving extremely large values; providing quotes to customers
and
selling the applicant’s products; discussing and
strategising with applicant’s management; serving and advising
applicant’s
network of dealers throughout South Africa; gaining
intimate knowledge of all aspects of the applicant’s business,
including
customers, dealers, suppliers, applicant’s financial
position, and new projects; and the applicant’s relationship
with
the second respondent. I shall later below deal in more
detail with the second respondent’s involvement in this
matter.
The first respondent, however, in the answering papers
somewhat downplays his key duties as described above.
[6] It is equally not in dispute that after having been in the
applicant’s employ for about 20 years, and on 24 April 2012,
the applicant and the respondent concluded the Restraint of Trade
Agreement (“
the restraint
”) forming the subject
matter of the present application. The applicant wishes to
enforce the restraint.
THE
SALIENT CLAUSES OF THE RESTRAINT
[7] The restraint is rather extensive. However, the salient clauses
thereof provide as follows:
“
7. The employee acknowledges that he
has entered into this agreement freely and voluntarily and after
giving the same careful and
prudent consideration and that the
restraint is enforceable by a Court of law. It is agreed that the
signed restraint will be deemed
prima facie enforceable in the event
of litigation on the enforceability of the restraint …
11.
In the course of his employment with the Employer, the Employee has,
alternatively will, acquire knowledge relating to the
Employer’s
protectable interests … The Employee acknowledges that the
knowledge and information that he has, alternatively
will acquire
relating to the Employer’s protectable interests, is of great
value to the Employer and will be of great value
to the Employer’s
competitors too and the Employee, and accordingly it is out of the
utmost of importance to the Employer
that such protectable interests
shall not be made available to any person outside the Employer, or
used by any person for the advancement
of his/her own personal
interests, or the interests of any competitor of the Employer …
The Employee undertakes in
favour of the Employer, that he will
not
whilst
employed by the Employer and for a period of 24 (twenty four) months
after the termination of his contract with the Employer
(irrespective
as to the manner and circumstances in which such termination came
about, and whether as a result of the Employer’s
motivation of
his own motivation or for any reason whatsoever), directly or
indirectly:
13. (1) carry on
alone or jointly; or be interested in any way as director,
proprietor, partner, shareholder, financier, advisor,
consultant
member of a close corporation or otherwise; or grant financial
assistance or loans of any money to or be employed by
any person or
concern which operates directly or indirectly with the business or
any part of the business of the Employer within
the area or which
deals with the area in any services the same as or substantially
similar to those dealt with in by the Employer
as at the termination
date;
13.(2)-(3) offer employment to or employ or
cause employment to be offered to or cause to be employed or solicit
or assist in employment
of any employees of the Employer who was in
the employ of the employer for any length of time during the cause of
the period of
24 (twenty four) months preceding the termination date
and/or during the period of 24 (twenty four) months from the
termination
date; and/or approach any of the Employer’s
clients/customers/dealers, for the purposes of soliciting business,
whether for
himself or on behalf of any other party (whether he has
an interest in such other party or not) for a period of 24 (twenty
four)
months from the date of termination of his contract with the
Employer. Solicit in this contextual not only mean an active
or
passive attempt by the Employee to procure custom (whether for
himself or for any other person) but where the
clients/customers/dealers
contacts the Employee, unsolicited or
uninvited by the employee;
13.
(4) to do business whether as principal or Employee with the
Employee’s clients/customers/dealers during the aforesaid
24
(twenty four) month period;
13. (5) enter into any agreement,
arrangement or associates with any employee of the Employer who was
employed by the Employer
for any length of time during the period 24
(twenty four) months preceding the termination date and/or during the
said period of
24 (twenty four) months from the termination date
pursuant to which the Employee and/or such employee shall:
13.3.1 carry on jointly or alone; or be
interested in any way as directors, proprietors, partners,
shareholders, members of a close
corporation, advisors, consultants
or otherwise; or grant financial assistance of loans of money to or
being employed by any other
person or concern which competes directly
or indirectly with the business (whether directly or indirectly) with
the Employer within
the area, or which deals within the area, in
services the same as or substantially similar to those dealt within
by the Employer
as at the termination of such Employee’s
contract by the Employer …
14.
the provisions of the clauses under this heading shall be applicable
and of full force and effect regardless of the reason
and for any
reason whatsoever for the termination of the Employee’s
contract by the Employer or for any other reason whatsoever,
why such
contract was terminated ...
”
THE SECOND
RESPONDENT
[8] I deal with the involvement of the second respondent. It is
Seeley International Africa (Pty) Ltd (“
now the second
respondent
”) registered both in Australia and now in South
Africa. The second respondent’s main place of business in
South
Africa is at Founder’s View South, Modderfontein.
[9] It is also so that one of the products sold and distributed by
the applicant is a range of Breezair evaporative air-conditioners
imported from the second respondent – until about February
2014. Prior to that, and towards the end of 2009, the applicant
and the second respondent entered into a Distributor Agreement.
In the latter agreement, the second respondent appointed
the
applicant as sole distributor in South Africa, Botswana, Lesotho,
Namibia, Swaziland, and Zimbabwe, for the promotion and selling
of
the Breezair and cool air range of direct evaporative
air-conditioning appliances. The Distributor Agreement was for a
period
of three years from about October/November 2009. Several
other clauses of the Distributor Agreement were significant.
For example, clause 10.6 provided that:
“
Seeley
shall visit TVA approximately quarterly to review progress, deal with
outstanding issues, negotiate new arrangements, discuss
new sales
targets, develop business plans, address weaknesses, etc.
”
Clause 13 provided as follows:
“
TVA
shall have the right to use Seeley’s trademark ‘Breezair’
in connection with the advertising and promotion
of the products but
shall not acquire any proprietary rights in the trademark as a result
of such use. TVA acknowledges Seeley
as the sole owner of the
‘Breezair’ trademark. TVA agrees that it shall
discontinue all use of the marks after
termination of the agreement
…
”
“
TVA
”
refers to the applicant, of course.
[10] There was yet another significant development in the
relationship between the applicant and the second respondent between
end of 2013 and March 2014. These were that, during or about
October 2013, Seeley (now the second respondent) expressed its
interest in purchasing the applicant’s business. Pursuant
to negotiations between the parties, the second respondent
made an
offer to purchase. Heads of Agreement were entered into.
Several of the provisions of the Heads of Agreement
were
significant. These included that the second respondent was
entitled to carry out a due diligence into the applicant’s
business. The due diligence included, “
financial
statements; working capital; aged debtor and creditor profile;
trading term; details of all storage, freight, leases,
rental and
other agreements; details of all employees and workers compensation
history; stock profile; all claims and all customer
complaints;
intellectual property; information system; tooling and plant and
equipment, including, but not limited to all books
and records of
history of performance and maintenance; agreements with
customers and suppliers; the premises from which the
business is
conducted; any charges, debentures, mortgages, guarantees or other
securities granted or given by the Company over
or in connection with
the business, including loans made to the Company, and including all
finance facilities of the Company; and
other environmental,
licensing, commercial or financial information reasonably required by
the Acquirer and its advisers
”. The applicant later
rejected the offer to purchase. The reasons for rejectment are
partly in dispute, but of
limited relevance for present purposes.
What is, however, of relevance, is that subsequent to the failed sale
agreement negotiations,
the second respondent announced that it would
open a branch in South Africa. This occurred on or about 1
March 2014.
[11] It is not in dispute that the second respondent, already in
February 2014, announced to the industry and market-place that
the
applicant would no longer be distributing the second respondent’s
products. It is also not in dispute that at the
same time, the
first respondent was in discussions with the second respondent about
the first respondent being employed as a Technical
Manager by the
second respondent in South Africa. The second respondent made an
offer to the first respondent, which offer he subsequently
accepted.
In his letter addressed to the applicant on 3 March 2014, the first
respondent said:
“
As
discussed telephonically on Saturday, I have received an offer of
employment from Seeley International. I am accepting that offer
and
therefore will be resigning from Turbo Vent, from today with 30 days
notice. I have attached my resignation letter.
I
acknowledge that this may be a surprise to you but as mentioned to
you before, I need to do what is best for myself and my family
…
”
[12]
The above developments culminated in numerous correspondence being
exchanged between the parties and their respective legal
representatives regarding the enforcement of the restraint. It
also led to the urgent application launched by the applicant
against
the respondents. In the urgent proceedings, the applicant
contended,
inter
alia
,
that it has protectable proprietary interests, confidential
information, and a client connection database, all of which could
be
used by the first respondent if employed by the second respondent.
Further, that the second respondent is also in the business
of
importing products from its Australia business, and distributing
evaporative air-conditioning units for industrial, commercial
and
residential use. These products are then sold and distributed
to dealers or re-sellers who in turn sell the products
to end-users.
The applicant also contended in the urgent application that the
second respondent is a direct competitor of the applicant
in
business, and that by employing the first respondent, the second
respondent will derive a competitive advantage over the applicant.
[1]
[13]
Although the second respondent does not
oppose the present application, and abide the outcome, it
has filed
an affidavit in order, “
to
have all the material facts placed before this Court
”.
The affidavit is intended to explain the historic relationship
between Seeley International and the second respondent;
the nature of
the relationship between the applicant and Seeley International
whilst it lasted when the applicant distributed Seeley
International’s products exclusively; to explain why the
relationship between the applicant and Seeley International ended;
and to explain why Seeley International wanted to purchase the
applicant’s business and its decision to set up operations
in
South Africa through the vehicle of the second respondent, and to
employ the first respondent.
[2]
I shall revert later below to the contents of this affidavit.
THE
RESPONDENTS’ CONTENTIONS
[14] As stated above, the first respondent opposed strenuously the
urgent application. This was mainly on the basis that
the
matter did not merit urgent adjudication. Prior to the hearing
of the urgent application, the first respondent made attempts
to
resolve the matter amicably with the applicant. He also gave an
undertaking not to take up employment with the second respondent
until final judgment was granted in the matter.
[15] The first respondent’s defence to the merits of the
application, as later mirrored and articulated in the heads of
argument, first appeared fully in a letter, annexure “JS16”,
addressed by his attorneys to the applicant’s attorneys
on 20
March 2014. In the letter, the first respondent, although admitting
to entering into the restraint, went on to state further
as follows:
“…
4.2 Insofar as it is alleged that Mr Toomey’s
intention to take up employment with Seeley may constitute a breach
of the
restraint of trade (which is denied), we submit that the
restraint of trade against Mr Toomey is not enforceable for, inter
alia,
the following reasons:
1.
Mr
Toomey was actively encouraged by Mr Jonathan Snow of your client to
take up employment with Seeley both at a time when our respective
clients were engaging each other with the aim of Seeley acquiring
your client, or the business thereof, and after such discussions
had
terminated. Mr Toomey, in taking up employment, acted in
accordance with Mr Snow’s representations, which are wholly
inconsistent with an intention to enforce the restraint. Such
representations were made with your client’s knowledge
and
permission. In this regard we are instructed that numerous
options were placed on the table in respect of Mr Toomey’s
future, including working for Seeley; continuing to work for
your client on a half-day/half pay basis; Mr Toomey becoming
a
dealer; and/or your client retrenching Mr Toomey. In
taking up employment with Seeley, Mr Toomey has acted on the
strength
of the representations that the restraint would not be enforced
against him at Seeley and has done so to his detriment.
In the
circumstances, your client is estopped from enforcing the restraint
against Mr Toomey so as to preclude his working for
Seeley.
2.
Mr
Toomey is in any event currently employed by your client as a
Technical Manager. In such role, Mr Toomey’s tasks
involve the assembly of products and field and technical help
queries, approximately 70% of which queries relate to Seeley.
He will not therefore be infringing any protectable proprietary
interests which your client may have.
3.
Moreover,
insofar as Mr Toomey taking up employment with Seeley, he would not
be infringing any proprietary information of your
client that may be
worthy of protection nor would he be providing Seeley with any
competitive advantage that would be proportionate,
in all the
circumstances, to the enforcement of the restraint.
4.3
Insofar
as any of your client’s customers transfer to Seeley, this will
purely be by virtue of the fact that such customers
would be
following the Seeley product which will happen whether or not Mr
Toomey is employed there. In those circumstances,
enforcement
of the restraint undertakings would secure no advantage to Seeley and
would merely operate to sterilise Mr Toomey’s
economic
activity. That is contrary to public policy.
4.4
In
the interests of addressing your client’s concerns as to
prejudice, so as to avoid unnecessary and expensive litigation,
to
the extent that your client is of the view that Mr Toomey knows your
client’s products, customers and prices, we advise
the
following:
(1)
Mr Toomey’s knowledge of the Seeley products is by virtue of
the training provided to him by Seeley over the years of
his
employment with your client. Such knowledge is either in the
public domain, and consequently not protectable in your
clients’
hands, or else already within the knowledge of Seeley, with the
result that the enforcement of the restraint secures
no interests on
the part of your client whilst sterilising Mr Toomey’s economic
activity;
(2)
Insofar as you may allege that Mr Toomey has had dealings with your
client’s customers, we again reiterate that such
customers
would be linked to Seeley’s products and if you are no longer
selling Seeley products then there is no protectable
interest to be
secured by enforcing the restraint against Mr Toomey.
(3)
Insofar as you may allege that Mr Toomey has knowledge of your
client’s prices, we advise that the pricing regime has
changed
by virtue of the termination of the previous distribution agreement
between Seeley and your client, with the result that
Mr Toomey’s
knowledge of the historical prices will not place Seeley at a
relatively advantage in competing in the post-termination
regime.
5. It is specifically disputed that Mr Toomey
has divulged any confidential/sensitive information to Seeley. Mr
Toomey has been
employed for his skills and experience in the public
domain, which are not protectable by enforcement of any restraint
undertakings.
In
the circumstances, we dispute that your client has a protectable
interest worthy of being protected and any legal action taken
by
your client to allegedly enforce the restraint of trade provisions
would be misguided and, in consequence, defended by our
clients.
”
[16]
The allegations were repeated in the
answering affidavit, supplemented, and dealt with in the first
respondent’s heads of argument. As matters currently stand,
although the first respondent left the employ of the applicant
on 3
March 2014, he has not yet joined the second respondent. The
undertaking he gave at the urgent proceedings is extant.
THE ISSUE
FOR DETERMINATION AND SOME APPLICABLE LEGAL PRINCIPLES
[17]
The essential issues for determination are
whether the applicant has protectable interests, confidential
information or clients’ database, which are adequately
deserving of any protection to make the enforcement of a restraint
reasonable based on the facts of this matter. See
Den
Braven SA (Pty) Limited v Pillay and Another
[3]
.
The first respondent contends that the enforcement of the restraint
will be entirely unreasonable. In this regard
it is trite that
the first respondent, in order to succeed, is expected to “
discharge
the onus of proving that, at the time the enforcement is sought, the
restraint is directed solely at the restriction of
fair competition
with the covenantee and that the restraint is not, at the time,
reasonably necessary for the legitimate protection
of the
covenantee’s protectable proprietary interests (goodwill or
trade secrets)
”
[4]
.
In
Magna
Alloys and Research (SA) (Pty) Ltd v Ellis
[5]
,
the
substantive law was laid down to the effect that a restraint is
enforceable unless it is demonstrated to be unreasonable, which
necessarily puts an
onus
on the person who seeks to avoid it.
[18]
In
Basson
v Chilwan and Others
[6]
,
in upholding an appeal against the enforcement of an unreasonable
restraint, which was in conflict with public policy, the Court
raised
four questions to be considered, which were as follows:
“
(a) Is there an interest of the one
party which is deserving of protection at the termination of the
agreement?
(b)
Is such interest being prejudiced by the other party?
(c) If so, does such interest so weigh up
qualitatively and quantitatively against the interest of the other
party that the latter
should not be economically inactive and
unproductive?
(d) Is there another facet of public policy
having nothing to do with the relationship between the parties but
which requires that
the restraint should either be maintained or
rejected?
Insofar
as the interest in (c) surpasses the interest in (d), the restraint
would as a rule be unreasonable and accordingly unenforceable
.”
[19]
With the above legal principles and others mentioned below in mind,
the facts of the present matter require close assessment.
In so
doing, the clear observation is that the applicant seeks final relief
with extreme consequences for the first respondent
and his family –
and also to an extent – the second respondent – as
demonstrated below. Also, to the extent that
there are factual
disputes between the versions of the applicant, on the one hand, and
those of the first respondent and the second
respondent, on the other
hand, the matter necessitates adjudication on the approach in
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
[7]
.
[20]
In my view, upon a proper assessment of the credible evidence, there
are indeed several factors which militate rather strongly
against the
enforcement of the restraint against the respondents. This is
so even without the consideration of the relevant
provisions of the
Constitution
[8]
.
These factors are articulated meritoriously in the respondents’
heads of argument, and need no complete recitation.
These
factors include the close trade relationship between the applicant
and Seeley (now second respondent) of some years, during
which the
applicant sold the second respondent’s products. This
lasted until 2013. The applicant was the sole
distributor of
the second respondent’s oversees products as evinced in the
Distributor Agreement
[9]
;
the impact of the aborted sale agreement negotiations between the
applicant and Seeley; the now changed nature of the applicant’s
business since the first respondent’s resignation in March
2014, coupled with the overlapping businesses of the applicant
and
the second respondent; the negative impact on the interest of the
first respondent’s entitlement to use his know-how
and skills
elsewhere after he resigned; and finally, to a limited extent, the
lateness of the signing of the restraint after the
first respondent
commenced employment with the applicant, as well as the applicant’s
possible motives for wanting to enforce
the restraint.
[21]
The first respondent’s contentions of the long and intimate
association between the applicant and Seeley (now second
respondent)
are well corroborated by the affidavit of Mr Jonathan Philip Seeley
of the second respondent
[10]
.
In the affidavit, Mr Seeley confirms that during the subsistence of
the relationship Seeley worked hand in glove with the
applicant.
As a result, the second respondent became intimately aware of, and
involved in, the applicant’s business.
Seeley was,
and is
au
fait
with the terms on which it sold its products to the applicant, as
well as the terms on which the applicant sold these products
to its
customers. Seeley also became aware of the buying trends of its
products in South Africa as well as the strengths
and/or weaknesses
of its products as perceived by the market-place. Seeley, also
on occasions trained the applicant’s
staff and built a close
relationship with the applicant’s customers. In those
circumstances, it can safely be accepted that,
based on the long and
intimate business relationship, especially the sole Distributor
Agreement and the failed sale agreement negotiations,
Seeley must
have gained significant information of the applicant’s
proprietary interests and business trade information.
It also
came to know the applicant’s customers. In this regard,
the affidavit alleges that the applicant’s major
customers also
met and came to know Seeley’s founder and chairman, Mr Frank
Seeley, its managing director, Mr Paul Proctor,
and its sales manager
for Europe and Africa, Mr Sam Peli, who, as recently as October 2013,
attended a conference at which most
of the applicant’s
customers were present. The confirmatory affidavits of the
last-mentioned persons are attached to
Seeley’s affidavit.
These allegations are not specifically denied in the replying papers.
Seeley had also concluded
a due diligence search on the applicant
during the sale agreement negotiations, and to which the first
respondent was not privy.
The applicant’s allegations
that no due diligence search was conducted by Seeley are therefore
without merit at all.
[22] The applicant, however, denies that Seeley conducted a due
diligence, and that Seeley has intimate and current knowledge
of the
applicant’s business. I have already found that the
applicant’s contentions in this regard are without
any merit.
The applicant however, admits that its business was intended to be
sold at Net Tangible Asset Value, which the
applicant significantly
overstated. On this dispute the probabilities favour the
respondents. This on the basis of the
Plascon-Evans Paints
,
supra
, approach the respondents’ version is to be
accepted since the applicant seeks final relief.
[23] The other important factor militating against the enforcement
of the restraint, is the fact that the applicant’s business
has
changed significantly since the resignation of the first respondent.
In para 57.1 of the replying affidavit, it is stated
that:
“
Save to
admit that the applicant’s business has transformed recently,
the contents of this paragraph are denied.
”
This admission is again made in para 67.1 of the replying affidavit.
In this regard, it is argued, correctly so in my view,
by the first
respondent that the admission by the applicant fully undermines its
assertion of a legitimate protectable interest
in its confidential
information, but rather reveals that the true motivation for seeking
to enforce the terms of the restraint,
is not that it has proprietary
interests recognisable in law, but the perception that the first
respondent will solicit its customers.
[24]
As matters stand, it appears that the applicant and the second
respondent share common knowledge and information about customers’
connection. It begs the question, what trade secrets and connection
is the applicant seeking to protect. In
Townsend
Productions (Pty) Ltd v Leech and Others
[11]
,
it is stated that:
“
In
order to qualify as confidential information, the information
concerned must comply with three requirements:
‘
First
of all, and this is really self-evident, the information must not
only relate to, but also be capable of application in, trade
or
industry. Secondly, the information must be secret or confidential.
The information must accordingly – objectively determined
–
only be available, and thus known, to a restricted number of people
or to a closed circle; or, as it is usually expressed
by the Courts,
the information “must be something which is not public property
or public knowledge”. Thirdly,
the information must,
likewise objectively viewed, be of economic (business) value to the
plaintiff.’
”
In the present matter, the trade connections, trade secrets and
confidential information contended for by the applicant do not
meet
these requirements as well as the guidelines set out in
Basson v
Chilwan
,
supra
. These are clearly either
non-existent or are in the public domain.
[25] The motives of the applicant to seek to enforce the restraint
at this stage, whatever it may be, is highly or are highly
questionable. However, the probability is that due to the
downturn in business, the applicant, having lost both the sole
Distributor Agreement and the abortive sale agreement negotiations to
Seeley (now second respondent), and unable to continue selling
the
second respondent’s products, now want to blame and punish the
first respondent. The applicant is clearly unable
to continue
to service its clients. The restraint agreement was signed on
24 April 2012 only, after the first respondent
had been employed by
the applicant for some 20 years. This is also questionable.
Viewed objectively, I conclude that
the applicant has not succeeded
in proving that it has protectable proprietary interests,
confidential information and client connection
sufficiently deserving
of protection to render the enforcement of the restraint reasonable.
The only relevant information
that the second respondent was not
privy to was the applicant’s potential new business and product
portfolios, as well as
the weaknesses and selling points of the
applicant’s new products, as correctly pointed out by the
respondents.
[26] Finally, I deal with the question whether the enforcement of
the restraint against the first respondent will be wholly
unreasonable
in the circumstances of this matter. This raises
the question whether the first respondent should be interdicted from
making
use of his own stock of knowledge and know-how.
[27] The obvious starting-point is the provisions of sec 22 in the
Bill of Rights in our Constitution which provide that:
“
Every
citizen has the right to choose their trade, occupation or profession
freely. The parties of a trade, occupation or profession
may be
regulated by law.
”
It
is also trite that the public interest requires that parties should
comply with their contractual obligations. In
Reddy
v Siemen’s Telecommunications (Pty) Ltd
[12]
,
at para [15], the Court said:
“
A court
must make a value judgment with two principle policy considerations
in mind in determining the reasonableness of a restraint.
The first
is that the public interest requires that parties should comply with
their contractual obligations, a notion expressed
by the maxim pacta
servanda sunt. The second is that all persons should in the
interest of society be productive and be permitted
to engage in trade
and commerce or the professions. Both considerations reflect
not only common-law but also constitutional
values. Contractual
autonomy is part of freedom in forming the constitutional value of
dignity, and it is by entering into
contracts that an individual
takes part in an economic life. In this sense, freedom to
contract is an integral part of the
fundamental right referred to in
sec 22.
” (footnotes omitted)
See
also
John
Louw and Co (Pty) Ltd v Richter and Others
[13]
.
[28] In the instant matter, it is more than plain that there is no
information known by the first respondent which is not already
known
by the second respondent, and which would be useful to the second
respondent. Simply put, there will be no legitimate
purpose to
be served by preventing the first respondent from taking up
employment with the second respondent. The applicant
has
made heavy weather about the first respondent’s conduct in
secretly negotiating with the second respondent about an employment
offer and his intention to join the second respondent. Whilst
this conduct may have been seen as suspicious, it is perfectly
understandable in the light of the background. This includes that
during the period when the applicant’s business was under
financial stress, there were discussions between the parties of the
possibility of retrenching staff at the applicant, and the
possibility of putting some staff on half-day, half pay. The first
respondent was not excluded from this process. In the
answering
papers, the first respondent, in referring to the relevant
discussions with Mr Jonathan Snow of the applicant during
December
2013, puts the matter thus:
“…
The
impression which he created was that I was facing imminent
retrenchment and that I should consider any offer made by the second
respondent.
”
The applicant also did not take appropriate action against one Mr
Hennie Verster, who was previously employed by the applicant
in a
sales/dealer/relationship manager position, who later left the
applicant and joined another company. The first respondent
argues
that the applicant’s insistence in enforcing the restraint now
is inconsistent with its previous conduct in this regard.
In any
event, the first respondent later played open cards with the
applicant by making clear his intention to join the second
respondent. He has currently undertaken not to do so until this
matter is finalised. Surely, his conduct cannot be
criticised
in these circumstances.
[29]
The first respondent had been employed by the applicant for over 20
years. He says he invested almost half of his life
in the
Seeley (now second respondent) brand of products. He did a huge
amount of research and self-learning in respect of
Seeley’s
products. He does not know anything else. He received
extensive technical training from Seeley.
He is married, aged
52, with family responsibilities. He needs to earn a living,
and will find it difficult to change industries
at this stage.
These are all compelling considerations in evaluating the balance
between the competing interests, and constitutional
values. The first
respondent cannot be restrained from utilising his skills that he has
acquired as a result of years of experience.
See for example,
Automotive
Tooling Systems (Pty) Ltd v Wilkens and Others
2007 (2) SA 271
(SCA). See also
Esquire
System Technology (Pty) Ltd t/a Esquire Technologies v Cronje and
Another
[14]
.
In
Aranda
Textiles Mills (Pty) Ltd v Hurn and Another
[15]
,
Kroon J said:
“…
A
man’s skills and abilities are a part of himself and he cannot
ordinarily be precluded from making use of them by a contract
in
restraint of trade. An employer who has been to the trouble and
expense of training a workman in an established field
of work, and
who has thereby provided the workman with knowledge and skills in the
public domain, which the workman might not otherwise
have gained, has
an obvious interest in retaining the services of the workman.
In the eye of the law, however, such interest
is not in the nature of
property in the hands of the employer. It affords the employer
no proprietary interest in the workman,
his know-how or skills.
Such know-how and skills in the public domain become attributes of
the workman himself, do not belong
in any way to the employer and use
thereof cannot be subjected to restriction by way of restraint of
trade provisions. Such
a restriction, impinging as it would on
the workman’s ability to complete freely and fairly in the
market-place, is unreasonable
and contrary to public policy
(Recycling Industries (Pty) Ltd v Mohammed and Another
1981 (3) SA
250
(SE) at 259D-F; Magna-Alloys (supra) at 904I; Sibex
Engineering Services (supra) at 507D-H; Basson (supra) at
771C-F, 778D; Paragon Business Forms (Pty) Ltd v Du Preez
1994 (1) SA
434
(SECL) at 442F-G.)
”
These
principles are of particular application and relevance in the present
matter.
CONCLUSION
[30]
The first respondent has, correctly in my view, shown and argued that
the enforcement of the restraint will confer no proportionate
benefit
upon the applicant, whilst seriously affecting his ability to be
economically productive. For all the aforegoing reasons,
I conclude
that the enforcement of the restraint will be unreasonable in the
circumstances of this matter. The applicant
has simply failed
to establish the requisites for final interdictory relief. The
application must fail.
COSTS
[31] I deal briefly with the issue of costs. There is no
reason why the costs should not follow the result, which
determination
is a discretionary matter. The matter is
sufficiently voluminous and complex to warrant the employment of two
counsel.
In addition, when the matter served before the urgent
court, the first respondent gave an undertaking as indicated earlier
in this
judgment. The application was postponed to this Court.
In the circumstances, the costs associated with the postponement
ought
to follow the result as well. The undertaking given by
the first respondent should fall away in following the result herein
below.
ORDER
[32] In the result the following order is made:
1. The application is dismissed with costs,
including the costs occasioned by the postponement on 8 April 2014.
2.
The
costs in order 1 above, shall include the costs consequent upon the
employment of two counsel.
D
S S MOSHIDI
JUDGE
OF THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
COUNSEL
FOR THE APPLICANTL ERASMUS
INSTRUCTED
BY DURANDT DU TOIT ATTORNEYS
COUNSEL
FOR THE RESPONDENTS C WHITCUTT SC
ASSISTED
BYC DE WITT
INSTRUCTED
BY NORTON ROSE FULBRIGHT INC
DATE
OF HEARING 14 MAY 2014
DATE
OF JUDGMENT 13 JUNE 2014
[1]
See
paras 9 to 12 of the founding affidavit.
[2]
See
para 5 of the affidavit – paginated papers 155.
[3]
[2008]
3 All SA 518
(D).
[4]
See
Amler’s
Precedence of Pleadings
7ed
at 344.
[5]
[1984] ZASCA 116
;
1984
(4) SA 874
(A) at 893-894.
[6]
[1993] ZASCA 61
;
1993
(3) SA 742
(A).
[7]
[1984] ZASCA 51
;
1984
(3) SA 623
(A) at 634E-I.
[8]
Act
108 of 1996.
[9]
See pp
169-175 of the founding affidavit.
[10]
See pp
154-168 of the answering affidavit.
[11]
2001
(4) SA 33
(CPD) at 53I-J.
[12]
[13]
1987
(2) SA 237
(N) at 243B-C.
[14]
[2011]
32 ILJ 601 (LC) at paras [17] to [26].
[15]
[2004]
4 All SA 183
(E) at para [33].