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[2015] ZAGPJHC 228
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Maby Corporate Clothing (Pty) Ltd and Another v Van Eegham and Others (26987/2015) [2015] ZAGPJHC 228 (9 October 2015)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NO: 26987/2015
DATE:
09 OCTOBER 2015
In the matter
between:
MABY CORPORATE
CLOTHING (PTY)
LTD
..........................................................
First
Applicant
J GROSS &
COMPANY (PTY)
LTD
.........................................................................
Second
Applicant
AND
VAN EEGHAM,
GEORGE
.........................................................................................
First
Respondent
VAN EEGHAM,
KIM
..............................................................................................
Second
Respondent
SAFRICS CREATIONS
CORPORATE INTERNATIONAL (PTY) LTD
...........
Third
Respondent
WK AGENCIES
CC
.................................................................................................
Fourth
Respondent
JUDGMENT
STRAUSS, AJ:
INTRODUCTION
1. The applicants
seek final relief to enforce a contractual restraint of trade in
favour of the applicants given by the second
respondent. The
applicants seek enforcement of the restraint from date of notice of
the urgent application on 11 August 2015,
for a period of 24 months
thereafter or until the finalisation of the matter, if an interim
order is granted, and seeks such restraint
throughout the Republic of
South Africa against the first to fourth respondents.
2. The first, second
and fourth respondent opposes the application, the third respondent
abiding by the Court’s decision.
3. The respondents
defences are as follows:
a. Neither the
first, third and fourth respondent signed any restraint and are not
parties thereto they can therefore not be bound
by an interdict since
the basis of the interdict is an alleged restraint of trade
undertaking given only by the second respondent.
b. No case has been
out against any of the respondents for alleged unlawful competition
and/or contravening any confidentiality
undertakings given and or
contravening the restraint of trade.
c. The applicants
failed to meet the requirements for a final interdict having a clear
right, an injury actually committed or reasonably
apprehended and/or
the absence of similar protection by another remedy.
d. The signed
restraint agreement included in the service contract, by the 2nd
respondent, is not binding on her as she on signature
thereof did not
have a meeting of the minds and consensus in regard to the terms
thereof.
e. It is denied that
there was any breach of the restraint agreement by the 1st and 2nd
respondents.
f. The applicants
did not show a protectable interest and in the event that the Court
find that there was such a protectable interest,
it is extremely
limited and cannot endure for more than a few months.
g. The applicants
have also not asked for reduction of the period of 24 months for the
restraint of trade to be more reasonable
and they can currently not
seek a lesser period.
h. Further, if an
interest is shown to be protectable, it is clear that such interest
does not weigh up qualitatively and/or quantitatively
against the
interest of the second respondent to be economically active and
productive.
FACTUAL
BACKGROUND
4. The third
respondent and first applicant entered into a sale of business
agreement concluded on 3 January 2015 in terms whereof
the third
respondent sold its business assets, right, title and interest in the
assets set out in annexure “A”, the
take-over contract as
set out in annexure “B”, and all of the third
respondent’s trademarks, trading names, logo’s,
devices,
product names and branding and get-up, as well as the customer list
also set out in annexure “B”, to the applicants.
5. The suspensive
condition of the sale of the business agreement was that the second
respondent had to sign a 24 month service
contract with the
applicants in accordance with mutually agreeable terms.
6. The purchase
price for the business assets of the third respondent was an amount
of R2 million excluding VAT and interest to
be charged by payment of
equal monthly instalments paid over a period of 24 months. The
purchase price would be paid from the proceeds
of the client’s
appearing in annexure “B”. Thus the sale was not costing
the applicants money in real terms.
7. Neither the
first, second or fourth respondent were parties to the business sale
agreement and did not sign for or on behalf
of the third respondent.
8. Second respondent
had at all times since 1980 developed and expanded the business of
Safrics, which was sold to a company known
as Cyndara 247 (Pty) Ltd
as part of a share transaction with a competing company known as
Kevro (Pty) Ltd during 2012 - 2013.
The change of shareholding
occurred in the Kevro business with another Ethos Private Equity
company becoming the 70% shareholder
and the view was formed that the
Safrics business had to be disposed of. As a result Kevro wanted to
offload the business of Cyndara
in which it held 50.1% interest of
the shares.
9. Kevro, however,
appreciated that such a transaction could not be possible without the
concurrence of the second respondent.
It was thus essential that the
second respondent would be employed by the purchaser company for her
to continue with the business
of corporate clothing.
10. Kevro started
negotiations with the applicants to purchase the business of Safrics
in 2013. The negotiations to sell the business
were protracted and
endured initially from July to December 2013, they were revived in
January 2014. Eventually on or about 17
February 2014 an agreement
had been reached setting out a basis upon which the second respondent
would be employed by the applicants
in a broader business unit, which
would include the third respondent’s business that it was to
buy from Cyndara.
11. The agreement
consisted of an offer letter dated 6 February 2014 from the
applicants to the second respondent and a further
addendum to the
offer of employment letter, dated 17 February 2014. She was employed
by both the applicants as Divisional Director:
Sales Operations.
12. Based on the
appointment letter the second respondent was employed by the
applicants from 1 March 2014. On 11 June 2014 the
second respondent
concluded a written employment contract, termed the service and
restraint of trade agreement with both of the
applicants. The
restraint is embodied in this agreement in paragraph 12 therein.
13. The restraint of
trade agreements signed together with the employment contract by the
second respondent made provision therefor
in paragraph 12 that she
would not be directly or indirectly interested as trustee,
proprietor, shareholder, member, managing director,
adviser, employee
or financier or agent in or for any person or entity which is
directly or indirectly engaged, interested or concerning
any
competitive activity anywhere in the territory.
14. Further, she
would not encourage, entice, insight, persuade, induce, solicit or
canvass any of the prescribed customers away
from the applicants, or
to terminate their relations with the applicants, or to change their
contractual arrangements with the
company, or prescribe suppliers
away from the company, or to terminate its relations with the
company, or to cease supplying the
company, or to change its
contractual or supply arrangements with the company, or be engaged in
any capacity whatsoever for any
personal entity which is directly or
indirectly engaged, interested or concerned in providing any of the
prescribed services to
any of the prescribed customers anywhere in
the territory, or to encourage, entice, persuade or canvass any
employee of the company
to terminate his employment with the company.
15. It is not in
dispute that the entire transaction between the applicants and third
respondent or Kevro would be dependent on
the second respondent being
able to negotiate a new employment agreement with the applicants on
terms and conditions as set out
in the business sale agreement in
accordance with mutually agreeable terms.
16. The service
agreement and restraint was signed to accord with the conclusion of
sale of business agreement between the first
applicant and third
respondent and the business sale agreement so concluded was
conditional upon the second respondent signing
a 24 month service
contract with the first applicant in accordance with mutually
agreeable terms.
17. It was therefore
an integral part of the business sale agreement that the second
respondent concludes a contract of employment
with the first
applicant and the business sale agreement incorporated the sale of
asset takeover, contracts, trademarks and intellectual
property
rights including the name of Safrics.
18. The restraint
period as set out in the definition of the period is for a period of
24 months from termination date of the executive’s
service, and
the area of such restraint would be the Republic of South Africa.
19. On 23 June 2015,
the applicants gave the second respondent a notification of
suspension and notice to attend a disciplinary
enquiry and the second
respondent was immediately suspended from employment with full pay.
20. The disciplinary
hearing related to allegations of gross misconduct or dishonesty
involving a material intention by the second
respondent regarding the
calculation of her commission structure and bonus in respect of the
third respondent’s business
which was purchased by the first
applicant.
21. A further count
was added later in that a payment was wrongly made to the third
respondent by a client and the second respondent
made a payment
fraudulently withholding an amount of R3, 999.48.
22. After a
disciplinary enquiry that continued up until July 2015 the second
respondent was found guilty on three charges relating
to elements of
trust and loyalty and the second respondent was dismissed on 24 July
2015 by the first applicant.
23. Prior to this on
1 July 2015, the applicants obtained an Anton Pillar order against
the first and second respondent to be executed
at their residential
address at which address the applicants assumed the respondents had
intellectual property and confidential
information of the first and
second applicants.
24. The Anton Pillar
order was served and the items found at the residence of the first
and second respondent were annexed to the
papers described in an
inventory. Factually, most of the documents found in possession of
the first and second respondents are
documents relating to
presentations and/or documents prior to the date the second
respondent became employed by the first applicant.
25. In regard to the
first respondent. On 21 April 2015 the first applicant concluded a
written consultancy agreement with the
first respondent in terms
whereof the first respondent would provide services to the applicants
as a marketing manager on a month
to month basis at a fee of R30,
000.00 per month. In such consulting agreement the first respondent
gives an undertaking not to
disclose any trade or professional
secrets or confidential methods of the operation of clientele of the
applicants, nor use such
secrets or information for his advantage, or
for the advantage of any third person or business enterprise.
26. On 22 June 2015,
the applicants also gave the first respondent written notice of
termination of the consultancy contract with
one month’s pay.
27. The Anton Pillar
order was mainly obtained due to an incident of which the applicants
became shortly before such application.
The applicants were told that
the 1st respondent had on 15 June 2015, asked a co-designer, Mrs C
Meyer, to assist him in copying
certain presentation files containing
the design of corporate clothing for a customer’s specific
needs. The applicants state
that this information may be used in the
marketing and sale of the applicants’ products. This was a
so-called “Sisanda
PC Folder”.
28. It became clear
on 15 June 2015 to the 1st respondent and Mrs Meyer that it was
impossible to copy the folder onto an 8 megabyte
memory stick. The
1st respondent advised Ms Meyer that he and the 2nd respondent would
be coming into the office on 16 June 2015
and the 1st respondent
would then advise him of which specific folders she required.
29. When this
incident was relayed to the applicant they drew an inference from it
that the 1st and 2nd respondents attended to
the applicants’
premises on 16 June 2015, and procured such information. They state
that such information is confidential
to the applicants including,
but not limited to, the information contained in the Sisanda PC
Folder described in the papers.
30. It is clear that
the Anton Pillar order did not deliver the said Sisanda information
set out in the papers, but other information
as previously indicated.
31. To prove the
breach of the confidentiality undertakings and/or restraint of trade
obligations by the respondents the applicant
set out in their papers
two incidents.
32. The first being
that the applicants found out in beginning of July 2015, that the 1st
and 2nd respondent had met with Mr Gary
Bisset, a divisional director
of operations for the City Lodge Group, during June 2015 with a view
to conduct business with them.
The applicant’s state that on
this occasion Mr Bisset was informed by the first respondent that
they would have a new company
trading as Safrics and the parting of
their ways with applicants. Mr Bisset apparently confirmed that the
respondents would be
supported in their new venture.
33. No confirmatory
affidavit was attached to the papers confirming this hearsay and it
seems that the deponent in the founding
papers setting out what was
discussed also does so on hearsay as he was not at the meeting held
with Mr Bisset in July 2015.
34. The applicant
advance that Mr Bisset when he spoke to the respondents did not know
that the second respondent was bound by a
restraint and the first
respondent by a confidentiality undertaking, nor that the second
respondent had been suspended from employment
and that a disciplinary
hearing had been in progress at the time.
35. The second
breach is set out in regards to the client Comair, Slow Lounge
Division in that Cindy van den Heuvel, the General
Manager, sent an
e-mail to the applicants’ Commercial Manager, stating that she
would like to request that the production
for the re-issue of the
Slow uniforms is placed on hold until the issue between Maby (first
applicant) and Kim (second respondent)
is finalised.
36. The applicants
on the strength of the restraint of trade and the breach committed by
the first and second respondent, launched
an urgent application on 24
July 2015, which was to be heard on the urgent roll of 11 August
2015. I was not to privy to why,
but on 14 August 2015 the
application was struck off the roll with costs.
37. On 21 August
2015 the applicants and first, second and fourth respondents agreed
by order of court that the third respondent
would abide by an order
that the application would be postponed to the opposed motion roll
for hearing on 5 October 2015 and it
also made provision for the
filing of affidavits and heads of argument and that urgency remained
in dispute between the parties.
Costs were reserved. This matter
therefore came before me on the opposed motion roll for the week of 5
October 2015.
LEGAL PRINCIPLES
APPLICABLE TO AGREEMENTS IN RESTRAINT OF TRADE
38. The locus
classicus on the subject is Magna Alloys & Research SA (Pty) Ltd
v Ellis
[1984] ZASCA 116
;
1984 (4) SA 874
(A) at 897F – 898E where Rabie, CJ
summarised the legal position, inter alia, as follows:
“There is
nothing in our common law which states that a restraint of trade
agreement is invalid or unenforceable.
It is a principle of
our law that agreements which are contrary to the public interest are
unenforceable. Accordingly an agreement
in restraint of trade is
unenforceable if the circumstances of the particular case are such,
in the Court’s view, as to render
enforcement of the restraint
prejudicial to the public interest:
It is in the public
interest that agreements entered into freely should be honoured and
that everyone should, as far as possible,
be able to operate freely
in a commercial and professional world: In our law the
enforceability of a restraint should be determined
by asking whether
enforcement will prejudice the public interest: When someone alleges
that he is not bound by a restraint to
which he had accented in a
contract he bears the onus of proving that the enforcement of the
restraint is contrary to the public
interest.
These principles
have been reaffirmed in other decisions of our Courts in Basson v
Chilwan & Others
[1993] ZASCA 61
;
1993 (3) SA 742
(A) at 776H – J to 777A –
B. Botha, JA stated in a separate judgment that: ‘The
incidence of the onus in a
case concerning the enforceability of a
contractual provision in restraint of trade does not appear to me in
principle to entail
any greater or more significant consequences than
any other civil case in general. The effect of it in practical terms
is this:
The convenantee seeking to enforce the restraint need to do
no more than to invoke the provisions of the contract and prove the
breach. The convenantor seeking to avert enforcement is required to
prove on a preponderance of probability that in all the circumstances
of the particular case it will be unreasonable to enforce the
restraint; if the court is unable to make up its mind on the point
the restraint will be enforced.
The convenantor is
burdened with the onus because public policy requires that people
should be bound by their contractual undertakings.
The convenantor
is not so bound, however if the restraint is unreasonable because
public policy discountenances unreasonable restriction
on people’s
freedom of trade. In regard to these two opposing considerations of
public policy, it seems to me that the operation
of the former is
exhausted by the placing of the onus on the convenantor; it has no
further role to play thereafter when the reasonableness
or otherwise
of the restraint is being enquired into. The position in our law is
therefore that a party seeking to enforce a contract
in restraint of
trade is required only to invoke the restraint agreement and prove a
breach thereof. Thereupon a party who seeks
to avoid the restraint
bears the onus to demonstrate on a balance of probabilities that the
restraint agreement is unenforceable
because it is unreasonable.
39. I was also
referred by the applicants to the matter of Ready v Siemens
Telecommunications (Pty) Ltd
2007 (2) SA 486
(SCA) at 493. Malan,
AJA dealt extensively with the law on restraint of trade, which is a
seminal judgment consolidating the law
of restraint and deals with
and confirmed various prior judgments on restraint of trade.
40. It is also so
that the applicants seek final relief of an interdict and the three
requirements are a clear right, an injury
actually committed or
reasonably apprehended and the absence of similar protection by any
other remedy.
41. When final
relief is sought the principle in Plascon-Evans Paints Ltd v Van
Riebeeck Paints (Pty) Ltd
1984 (3) SA 623A
at 634E – F apply.
The court must deal with the matter on the basis of the respondents’
version coupled with the facts
in the applicants’ papers
admitted by the respondents. The test applies no matter where the
onus lies.
42. In motion
proceedings such as this for final relief, it is inappropriate for a
court drawing inference and trying to decide
matters on probability.
This was set out in National Director of Public Prosecutions v Zuma
[2009] ZASCA 1
;
2009 (2) SA 277
(SCA) at paragraph 25 to 27.
43. It is also so to
make out a case on affidavit that mere conclusions are insufficient,
the facts need to be asserted as set out
in Swissborough Diamond
Mines (Pty) Ltd v Government of the RSA
1999 (2) SA 279
(T) at 324D –
F and also at 323G – 324A.
“The parties
must know the case that must be met and in respect of which they must
adduce evidence in the affidavits.”
44. In Heart v
Pinetown Drive-In Cinema (Pty) Ltd
1972 (1) SA 464D
it was stated at
469C – E that:
“Where
proceedings are brought by way of application, the petition is not
the equivalent of the declaration in proceedings
by way of action.
What might be sufficient in a declaration to foil an exception, would
not necessarily, in a petition be sufficient
to resist an objection
that a case has not been adequately made out. The petition takes the
place not only of the declaration,
but also of the essential evidence
which would be led at trial and if there are absent from the petition
such facts as would be
necessary for determination of the issue in
the petitioner’s favour, an objection that he does not relief
the support claimed
is sound. An application must accordingly raise
the issue upon which it would seek to rely in the founding affidavit.
It must
do so by defining the relevant issues and by setting out the
evidence upon which it relies to discharge the onus of proof resting
on it in respect thereof.’
45. I do not intend
to deal with all the defences by the respondents tendered therein nor
all the case law. On the defence that
no restraint of trade
agreement existed due to a lack of consensus between the parties, the
2nd respondent states that appointment
letters dated in February 2014
ruled the relationship between her and the applicants and not the
employment contract. She says
so because she was told that by the
applicant’s Mr Le Roux she could affect amendments to the
contract after signing such
contract, and that she in fact directed
an e-mail in regard to the contract to effect the necessary
amendments. This is also confirmed
by an email from Le Roux, that
amendments could be made. However none of the parties ever effected
any amendments in a period of
12 months.
46. The 2nd
respondent argues that the business sale agreement was conditional
upon her signing a 24 month service contract with
the applicant in
accordance with mutually agreed terms. She essentially argues that
there were never mutually agreeable terms
mainly due to her
commission structure that differed in the letters of appointment and
in the contract.
47. On the facts of
this case and having regard to certain hand-written amendments made
on the employment contract and restraint
of trade, I cannot find that
the amendments were of such a nature that the 2nd respondent can
claim that she was not aware of the
specific restraint of trade
agreement she was signing with the applicants.
48. She, knew at all
times that the purpose and cause for her to sign the employment
contract and restraint of trade was in fact
to support the sale of
the business agreement, which was only finalised in January 2015.
49. The restraint
agreement in the contract would have been applicable from date of
termination of the services of the 2nd applicant,
the parties
envisaged a 24 month contract which would expire on February 2016.
But the 2nd respondent services were terminated
prior to this period
running out. The respondents therefore argue that if any restraint is
applicable it should only be in effect
for a 24 month period from
employment of the 2nd respondent, thus until February 2016.
50. The relief
sought by the applicants in the notice of motion is clearly that the
respondents are interdicted for a period of
24 months from date of
bringing the application, dated 11 August 2015, from being employed
or contracting directly or indirectly
with any company or persons or
entity which carries on the business of the design, manufacture and
distribution of Bespoke Corporate
Garments, being the first
applicant’s business.
51. Clearly the
restraint of trade sets out the period of 24 months from termination
date, which termination date is set out in
the employment contract as
the date upon which the executives employment by the company ceases
or is terminated for any reason.
The executive, being the 2nd
respondent’s employment was terminated by the applicants during
July 2015.
52. I thus find that
the applicants’ relief is not based on the restraint of trade,
but on some other period not set out in
the founding papers. The
second respondent argued that any envisaged restraint would only be
applicable up until February 2016.
Coupled with this the 2nd
respondent has throughout given an undertaking that during the period
of this application and also up
until February 2016 she would not
engage any of the clients sold by the third respondent to the first
applicant appearing in annexure
“B” of the sale of
business agreement.
53. If I were to
accept that the applicants invoked the restraint of trade I can only
accept that the restraint of trade would be
applicable from date of
termination of the second respondent’s employment for a period
of 24 months thereafter.
54. On the facts I
find that even though the second respondent might have had certain
amendments effected to the employment contract
the restraint of trade
in regard to the 24 months currently in dispute between the parties
was sufficiently accepted by her due
to the fact that she knew that
she was guaranteed employment with the applicants for a period of 24
months coupled with the restraint
of trade, in that all the clients
taken over by the applicants were clients that she had a relationship
with for several years
and she would be the only person who would be
able to provide the same service to them as she had previously done,
before the third
respondent’s business was sold to the
applicants.
55. I thus find that
there was an enforceable restraint of trade against the 2nd
respondent and the applicants could invoke it.
I also find that the
interest of the third respondent contained in annexure “B”
sold to the first applicant was a protectable
interest which they
could prevent the 2nd respondent from exercising on within the period
of the restraint.
56. After finding
that a restraint was invoked the applicants had to prove breach of
such a restraint. I find, after having regard
to the facts and the
two incidents described by the applicants of the breach taking place,
which the applicants seek in this application
for the court to make
inferences from the facts and have not proven these facts.
57. The 2nd
respondent has set out in detail what occurred at the meeting with Mr
Bisset, her explanation is in direct conflict
with the hearsay
evidence tendered by the applicants. Also further when taken up with
counsel it became clear that at the time
they had a meeting with
Bisset they were still both employed with the applicants and there
was nothing untoward in them meeting
with Bisset.
58. The email of Van
Der Heuvel is explained under oath by her personally and she places
the matter and the conversation with the
1st respondent in context
and the court cannot and will not make an inference against the
respondents, as from the horse mouth
so to say, no such breach by the
respondents is confirmed by the client herself.
59. I therefore find
that there are such disputes of fact and having regard to the
inherent probabilities the applicants cannot
on these facts obtain
relief. They have not shown an injury actually committed or
reasonably apprehended. They have further not
shown that a breach of
the restraint of trade was actually committed by the second and/or
first and/or fourth respondent.
60. During argument,
it was conceded by counsel for the applicant that the fourth
respondent is not a party to this dispute and
that no restraint
and/or relief can be claimed from it.
61. The first
respondent was also simply never a party and/or signatory to the
restraint of trade agreement and it can therefore
not be invoked
against him despite arguments to the contrary by counsel for the
applicants of the first respondent’s fiduciary
duties owed to
the applicants. Those fiduciary duties ended when his consultancy
agreement was terminated.
62. Having found
that no breach has occurred I will not endeavour to make findings on
the further requisite questions as set out
in the case law, besides
to find that the interest of the applicants do not weigh up
qualitatively and quantitatively against
the interest of the second
respondent to be economically inactive and unproductive.
63. The second
respondent’s business has always been the manufacturing in an
interest for 25 years and that she unlikely to
obtain employment in
any other field earning a remote income to which her and her family
have become accustomed.
I therefore make the
following order:
a. The Applicant’s
application against the first to fourth respondents are dismissed
with costs, such costs to include the
costs of the urgent application
on 11 August 2015.
b. The second
respondent undertaking not to solicit any clients appearing in
annexure “B”, the client list of the third
respondent, is
made an order of court up until 31 December 2015.
c. In regards to the
Anton Pillar application no order as to costs is made.
STRAUSS AJ
ACTING JUDGE OF
THE HIGH COURT OFSOUTH AFRICA
GAUTENG LOCAL
DIVISION, JOHANNESBURG
COUNSEL FOR THE
APPLICANTS: ADV L FRIEDMAN
INSTRUCTED BY:
MARK HARRIS ATTORNEYS INC
COUNSEL FOR THE
RESPONDENTS: ADV AC BOTHA
INSTRUCTED BY:
VAN WYK VAN DEVENTER INC
MATTER HEARD ON:
5 OCTOBER 2015
DATE OF JUDGMENT:
9 OCTOBER 2015