Brief Summary

Restraint of Trade — Enforceability of restraint agreement — Applicant sought interdict to prevent First Respondent from working for Second Respondent, a competitor, based on a restraint of trade agreement signed in 2011 — First Respondent contended that the agreement was no longer operative following his employment with Spartan Truck Hire in 2013 — Court held that the restraint agreement ceased to operate when the First Respondent entered into a new employment contract, thus dismissing the Applicant's application for an interdict.

Comprehensive Summary

Summary of Judgment

1. Introduction

This was an urgent motion application in the Gauteng Local Division, Johannesburg, in which the applicant sought final interdictory relief to enforce an alleged restraint of trade against a former executive/director.

The applicant was Power Truck Hire (Pty) Limited, a business operating in the rental of vehicles and drivers to corporate and industrial clients. The first respondent was Duane Fourie, a former executive director/managing director associated with the applicant’s business. The second respondent was Value Truck Rental, which was accepted on the papers as a competitor of the applicant conducting the same type of business.

The matter was heard in the urgent court on 30 September 2015, with judgment reserved due to time constraints, and delivered on 21 October 2015.

The general subject-matter of the dispute concerned whether the first respondent remained bound by a restraint of trade and confidentiality agreement signed in 2011, such that he could be interdicted from taking up employment with the applicant’s competitor until 30 June 2017, and whether the second respondent could be interdicted from employing him.

2. Material Facts

It was common cause that the applicant conducted business in vehicle and driver rentals to corporate industrial customers, and that the second respondent was a competitor in the same market.

It was also common cause that on 31 August 2011 the first respondent signed a Service, Confidentiality and Restraint Agreement with the applicant and took up employment as an executive director with effect from 1 September 2011. The agreement recorded, among other things, that during employment the first respondent would acquire knowledge of the applicant’s techniques, have access to client details and confidential information, and that client connections and business secrets could be protected by a restraint. The restraint undertaking included a covenant that, during employment and for 24 months after termination, the first respondent would not solicit or procure the applicant’s employees to become employed by or interested in any competing business. The agreement also included provisions dealing with termination and an “entire agreement” clause.

A further set of facts was not materially disputed: on 1 September 2013 the first respondent entered into a contract of employment with Spartan Truck Hire (Pty) Ltd as sales and marketing director. The papers recorded that Spartan Truck Hire had, during September 2011, purchased and become the 100% owner of all shares in the applicant. The employment contract with Spartan Truck Hire contained a confidentiality provision but no restraint of trade clause.

It was common cause that the first respondent resigned as managing director of the applicant by letter dated 1 June 2015, and that his last working day was 30 June 2015. It was further common cause that on 2 September 2015 he commenced employment with the second respondent.

After learning of that employment, the applicant’s attorneys wrote to both respondents on 4 September 2015 demanding that the first respondent stop working for the second respondent and that the second respondent terminate his employment. The respondents’ attorneys replied on 7 September 2015, asserting, among other things, that the first respondent had left the employ of Power Truck Hire in August 2013 to join Spartan Truck Hire and that there was “no restraint of trade”.

The court identified a material dispute on the papers concerning whether the first respondent’s employment with the applicant continued under the 2011 agreement until 30 June 2015 (as the applicant contended), or whether that contractual relationship had terminated when he entered into the Spartan Truck Hire contract in September 2013 (as the first respondent contended). The court treated this dispute as central to whether the restraint could still operate against the first respondent in 2015.

3. Legal Issues

The central legal question was whether the restraint of trade agreement signed on 31 August 2011 was still operative as at 1 June 2015 or 2 September 2015, such that the applicant could obtain interdictory relief preventing the first respondent from working for the second respondent until June 2017.

This question turned on an antecedent issue of contractual operation and termination: whether, upon the first respondent entering into a new employment agreement with Spartan Truck Hire (Pty) Ltd on 1 September 2013, the 2011 agreement with the applicant had been terminated (and, if so, whether it was subsequently revived when the first respondent returned to the applicant’s business).

The court also characterised the matter as involving a factual dispute not capable of resolution on motion papers, engaging the principles governing final relief in motion proceedings. In substance, the dispute required the application of legal principles to contested facts, and the court treated the inability to resolve the factual conflict on the papers as an independent reason why the application could not succeed.

4. Court’s Reasoning

The court approached the matter on the basis that the dispositive enquiry was whether the restraint agreement was still operative in 2015. It reasoned that if the restraint agreement had ceased operating against the first respondent by September 2013, that finding would dispose of the application.

In dealing with the motion procedure, the court stated that it is trite that the principles applicable to final relief on motion are well established, and that motion proceedings are principally directed at resolving legal issues and are not suited to determining factual disputes. In this connection, the court referred to Cadac (Pty) Ltd v Weber-Stephen Products Co and Others as authority for the proposition that motion proceedings are not geared to resolve factual disputes. The court identified a core dispute of fact: the applicant alleged the first respondent’s employment relationship continued under the service agreement until 30 June 2015, while the first respondent disputed this. The court held that the dispute was not capable of being resolved on the papers and stated that, on that basis alone, the application should be dismissed.

Notwithstanding that observation, the court proceeded to consider the contractual documents and clauses relevant to whether the 2011 agreement had terminated when the first respondent joined Spartan Truck Hire. The court focused on two clauses in the 2011 agreement. First, clause 11 (Termination) permitted summary termination by the company in circumstances justifying termination at common law. Secondly, clause 17 (General) recorded that the agreement constituted the sole record of the agreement between the parties and superseded prior agreements, and that neither party would be bound by terms not recorded in the agreement.

The court then assessed the applicant’s version that, in September 2013, the first respondent became employed as a director of both Spartan Truck Hire and the applicant. The court found that this alleged “dual capacity” employment was not supported in writing as required by the “sole record” clause, and was in conflict with the stance in the founding affidavit suggesting dual employment without a written record.

The court gave weight to the letter of appointment/employment agreement of 1 September 2013 with Spartan Truck Hire, which set out the first respondent’s duties and terms in his new position. The court noted that the Spartan Truck Hire documentation did not state that the first respondent was appointed in dual capacities for both entities. In the court’s view, in the absence of such appointment being recorded in writing, it could not be sustained.

The court further reasoned that the Spartan Truck Hire appointment letter provided that it superseded any other verbal or written agreement, which the court considered could only refer to the earlier agreement signed in August 2011. Additional contextual facts were noted, including that the first respondent’s remuneration at Spartan Truck Hire was higher than what he earned while employed by the applicant, and that an annexure indicated he became engaged by Spartan Truck Hire on 1 September 2013.

When considering the first respondent’s later return to the applicant’s business, the court found that this recall was done verbally, and there was no evidence that, upon returning, the parties specifically agreed to revive the terms of the 2011 agreement. On that basis, the court concluded that the 2011 agreement lapsed when the first respondent signed the new agreement with Spartan Truck Hire in August/September 2013, and was not shown to have been revived thereafter.

Having reached that conclusion, the court considered it unnecessary to address the remaining issues canvassed in the affidavits, as the finding on the lapse of the 2011 agreement was treated as dispositive.

5. Outcome and Relief

The court dismissed the application for an interdict restraining the first respondent from being employed by the second respondent and restraining the second respondent from employing him.

The applicant was ordered to pay the costs of the application, including the costs consequent upon the employment of senior counsel.

Cases Cited

Cadac (Pty) Ltd v Weber-Stephen Products Co and Others 2011 (3) SA 570 (Supreme Court of Appeal); [2011] ZASCA 53; 2011 (5) All SA 343 (Supreme Court of Appeal)

Legislation Cited

No legislation was cited in the judgment.

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that the decisive issue was whether the 2011 Service, Confidentiality and Restraint Agreement remained operative against the first respondent in 2015. It concluded that when the first respondent accepted employment with Spartan Truck Hire (Pty) Ltd from 1 September 2013 under a written contract that superseded prior agreements, the 2011 agreement with the applicant lapsed/was terminated, and there was no evidence that it was later revived when he returned to the applicant’s business.

The court also held that the matter involved a material factual dispute incapable of resolution on the papers in motion proceedings, which constituted a basis upon which the application should fail.

Accordingly, the application to enforce the restraint and prohibit the first respondent’s employment with the second respondent was dismissed with costs, including the costs of senior counsel.

LEGAL PRINCIPLES

The judgment applied the principle that final relief in motion proceedings is generally suited to the determination of legal issues and is not designed to resolve material disputes of fact on affidavit, with reference to Cadac (Pty) Ltd v Weber-Stephen Products Co and Others.

The judgment further applied contractual principles concerning the effect of an entire agreement/supersession clause, treating a later written employment agreement stating that it superseded prior verbal or written agreements as inconsistent with the continued operation of an earlier employment/restraint agreement, absent a clear written basis for dual employment or revival of the earlier agreement.

The judgment also applied the principle that, where a party relies on an alleged contractual arrangement inconsistent with an “entire agreement” clause and not reduced to writing as contemplated by the agreement’s terms, that allegation does not support enforceability of the earlier agreement on the asserted basis.

Power Truck Hire (Pty) Limited v Fourie and Another (32581/15) [2015] ZAGPJHC 241 (21 October 2015)