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[2010] ZAGPJHC 115
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Xavier Hair Lab CC v Versace-Peters and Another (10/26773) [2010] ZAGPJHC 115 (19 November 2010)
REPORTABLE
SOUTH
GAUTENG HIGH COURT, JOHANNESBURG
CASE NO
:
10/26773
DATE:
19/11/2010
In the matter between:
XAVIER HAIR
LAB
CC
........................................................
Applicant
and
NOELENE
VERSACE-PETERS
.......................................
First
Respondent
ANGELA BATE
GASKELL
...............................................
Second
Respondent
J U D G M E N T
SALDULKER, J
:
INTRODUCTION
[1]
It
has become increasingly common in the commercial world for purchasers
of businesses to protect their investments by ensuring
that the sale
of business agreements they conclude, include restraints of trade
agreements which prohibit vendors setting up competitive
businesses.
[2
]
In this application, the applicant seeks an interdict prohibiting
the respondents from trading in contravention of a restraint
of trade
agreement included in a sale of business agreement concluded between
the applicant and the respondents.
BACKGROUND
[3
]
During April 2009 the applicant entered into a written sale of
business agreement (the sale agreement), whereby it purchased
the
business of a hair salon trading under the name and style of ‘Streaks
Ahead’ (the business), from the seller, an
entity, Vagabonds
CC, represented by the respondents who were its sole members. The
business is conducted from the premises situated
at 37 Voortrekker
Avenue, Edenvale.
[4] The
sale agreement included a restraint clause (the restraint) binding
the members of Vagabonds CC, the respondents herein.
The relevant
terms of the sale agreement were,
inter
alia
,
that:
4
.1 the
applicant
purchased the business
from the respondents as a going concern together with all the
goodwill pertaining thereto
for the purchase consideration of R300 000-00 (my emphasis);
4
.2 the
sale included the business, the equipment, fixtures and fittings and
stock- in- trade;
4
.3 the
respondents undertook to remain in the employ of the business for a
period of 12 months from the effective date, being 1
April 2009.
[5
] The
restraint clause in the sale agreement,
inter
alia,
read as follows:
‘19
RESTRAINT OF TRADE
Each of the
Seller’s members, being the persons described above (the
members)[the two respondents] hereby acknowledge
that
in consideration for the conclusion of this Agreement, they have
undertaken to the Purchaser that for a period of one year
from the
date of expiration of the employment period, i.e. twenty four months
after the Effective Date, they will not, anywhere
within a radius of
twenty kilometres from the Premises from which the business is
conducted (“the prescribed area”),
whether directly or
indirectly, in any manner whatsoever and whether alone or jointly or
together with or as agent for any other
person, partnership, company,
body corporate, association, business or undertaking of any nature
whatsoever
:-
(my emphasis)
19
.1 be
engaged, interested or concerned, whether financially or otherwise
and whether directly or indirectly, in or with any other
person,
partnership, company, body corporate, association, business or
undertaking, carrying on or which may carry on any business
or trade
similar to or competing with or endeavouring to compete with the
Business;
19
.2 be
a shareholder or member in any company or body corporate carrying on
or concerned, directly or indirectly, with any business
or activity
described in 19.1 above’.
[
6]
Subsequent to the conclusion of the sale agreement, the respondents
took up employment with the applicant in terms of the relevant
provisions. It is common cause that the respondents remained in the
employ of the business until 8 May 2010. The following month,
in
the month of June 2010, the applicant found that the monthly turnover
of the business had reduced by an amount of approximately
R 75
000-00. This was apparent from the comparative turnover figures of
the business between the months of May and the subsequent
months.
[7] On 15 June 2010, the
applicant ascertained that the respondents had opened another hair
salon, under the name and style of
“Looks Devine”,
trading from premises situated at 44 St. Anna Road, Hurlyvale,
Edenvale.
These
premises are less than 2km from the applicant’s business.
SUMMARY OF SUBMISSIONS
[
8]
The applicant contends that the respondents are in breach of the
restraint as the premises where they are operating the business
of a
hair salon, is less than 2km from the applicant’s business, and
thus falls within the restricted area of the restraint
provisions. In
addition, they assert that the business has as its protectable
interest, the goodwill of the business which includes
the salon’s
clientele. The respondents sold the goodwill of the business to the
applicant and the applicant is thus entitled
to the protection of its
legitimate rights against unlawful competition by the respondents.
Although in form the applicant seeks
an interim interdict, it is
conceded by the applicant that the relief sought is final in nature,
and the applicant must show that:
it has a clear right;
an injury has
actually been committed or at the very least, is reasonably
apprehended; and
there is no remedy in the circumstances.
[9]
The
respondents contend that the restraint is unreasonable and not
enforceable for several reasons. During the tenure of the
respondents’
employment the applicant through mismanagement
and/or bad management, denuded the business of any protectable
interest which it
had at the time of conclusion of the sale
agreement, and in effect destroyed the business. As a result, the
respondents were compelled
to resign and seek alternative employment.
This resulted in the position that the applicant could not trade as a
hairdresser, as
it no longer complied with the terms of the
Hairdressing and Cosmetology Services Bargaining Council (HCSBC)
‘Collective
Agreement’ regulating the hairdressing
industry which states that ‘no legal owner of a business may
carry on such business
unless: in the case of a hairdressing
establishment where the legal owner is a non-working owner at least
one qualified certificate
holder is employed’. Additionally,
the respondents contend that having regard to the nature of a
hairdressing business,
the geographical radius of the restraint
provision of 20 km is unreasonably large and the two year time period
of the restraint,
unreasonably long. Furthermore, the respondents
dispute that they have removed the client lists pertaining to the
business.
THE LAW
[10
]
Covenants in restraint of trade are valid and enforceable.
1
The onus is on the party seeking to escape a restraint of trade
agreement to prove that the provisions of the restraint are
unreasonable
and unenforceable and contrary to public policy.
2
Restraint of trade clauses are also included in sale of business
agreements by purchasers in an attempt to protect the goodwill
of the
business, and/or to prevent the seller from starting up a competing
business immediately after the sale.
3
[11] Van Heerden JA made the
following important observation when elucidating the fundamental
rationale for the inclusion of a
restraint of trade in a sale of
business agreement in
Diner
v Carpet Manufacturing Co of SA Ltd:
4
“
Courts
are inclined to take a far stricter and less favourable view of
agreements entered into between master and servant than it
does of
similar agreements between seller and purchaser and accordingly a
restraint which would be unreasonable as between employer
and
employee could be reasonable as between the seller and the purchaser
of a business. Public policy requires that, when a person
has by his
skill or other means obtained something which he wishes to sell, he
should be at liberty to sell it advantageously in
the market and, in
order to enable him to sell it advantageously, it is necessary that
he should be able to preclude himself from
entering into competition
with the purchaser. The possibility of such competition would
necessarily depreciate the value of a goodwill
sold and it is thus in
the interest of the public that the sale of a goodwill should not be
interfered with for an agreement excluding
such competition would
enhance the value of the goodwill …The test is whether the
restraint affords no more than adequate
protection to the party in
whose favour it is imposed in respect of the enjoyment of the benefit
of the goodwill he has purchased.
The enquiry must, therefore, be
whether competition in the area to which a restraint extends would in
all probability injure the
purchaser of the goodwill and it becomes
necessary to consider in each particular case what it is for which
and what it is against
which protection is required, in order to
decide upon the adequacy of the protection”.
[12] It is important to bear in
mind that the agreement
in
casu
is a sale of
business agreement which incorporates a restraint and a short term
employment agreement. In
Chubb
Fire Security (Pty) Ltd v Greaves
5
,
where the restraint was enforced, Du Plessis J remarked as follows:
“…
it
must be taken into account that the employment agreement forms part
of a larger transaction in terms of which the applicant bought
the
business, including the goodwill, from the company.”
And at p 363 para H Du Plessis JA
stated that:
“…
it
must be taken into account that the employment agreement forms part
of a larger transaction in terms of which the applicant bought
the
business, including the goodwill, from the company…If it is
correct that the respondent had been unlawfully dismissed,
he has
adequate remedies at his disposal to recover such damages as he may
suffer.”
[13]
It is a commercial reality that a business’ goodwill
represents an immaterial property right deserving of protection.
6
Van Heerden &
Neethling point out that:
“
Goodwill
is naturally determined by divergent factors. For example, the
reputation or good name of the undertaking, the fact that
it is
well-known and its creditworthiness are factors which may
co-determine its goodwill. It is … in particular the locality
of the undertaking and the personality of the entrepreneur or another
person (
such as an
employee
)
who is connected with the business, that may exercise a great
influence.
7
”
(My emphasis)
[14] In
Jacobs
v Minister of Agriculture
8
Colman J stated:
“…
goodwill
is an intangible asset pertaining to an established and profitable
business, for which a purchaser of the business may
be expected to
pay, because it is an asset which generates, or helps to generate,
turnover and, consequently, profits.”
[15] In
Botha
and Another v Carapax Shadeports (Pty) Ltd
9
it was said that:
“
Conversely,
an undertaking by the seller not to enter into competition will
enhance the value of the business. The same considerations
apply to
the case of an employee of the business. It follows logically,
therefore, that a restraint of trade against a seller or
an employee
should be regarded as a part of the goodwill of the business…The
benefit of an agreement in restraint of trade,
which exists for the
advantage of a business, passes to the purchaser of that business and
its goodwill, as part of the goodwill.
In my judgment, that view, as
a general proposition, has everything to commend itself, and we
should approve of it. It is, I consider,
in consonance with the
common understanding of what goodwill comprises, and with the
exigencies of modern commerce.”
[16] Restraints in sale of
business agreements have been increasingly recognised by the courts
worldwide, including those involving
hair salon businesses.
10
The facts in
Brenda
Hairstylers (Pty) Ltd and others v Marshall
11
are similar to the case at hand. The second and third applicants
bought the issued shares of a company, the first applicant, Brenda
Hairstylers from the respondent. The respondent was the principal
hairdresser with a substantial clientele and her mother Ms Marshall
the manageress. In the agreement concluded between the parties, two
clauses were inserted for the benefit of the applicants and
to
protect the goodwill. These two clauses were that Ms Marshall
undertook to work for the purchasers for a minimum period of
7 years
and undertook not to carry on the business of a ladies hairdresser,
nor work or be financially interested in a business
of a similar
nature for the same period. Some time after the applicants took over
the business, Ms Marshall absented herself from
the salon and
accepted employment elsewhere. The applicant sought to interdict her.
The respondent contended that the restraint
was invalid. The court
found in favour of the applicants and held that the purpose of the
restraint was to protect the goodwill
of the first applicant.
Erasmus J stated as follows:
“
In
such a case, as in the case of the sale of a business proper, the
covenantee is entitled to be protected against competition
by the
covenantor; since without such protection the covenantee would not
get what he is
C
contracting
to buy, nor would the covenantor give the covenantee what he is
intending to sell.”.
12
[17] In
Nachtsheim
v Overath
13
,
the respondent, a ladies hairdresser had entered into a written
agreement of employment with the applicant the proprietor of
a hair
salon known as ‘Dumar Ladies Hairstylist’. The agreement
contained ‘a bar clause’ that upon his
termination of
employment with the applicant, the respondent would not ‘within
a radius of five miles of the premises of
any hairdressing business ‘
engage in any business similar to that of the applicant’s.
After the termination of his
employment, the respondent entered the
employ of a hair salon known as ‘Lady London’, a similar
business to that of
the applicant, and situated within the restricted
radius. The applicant sought to interdict the respondent from being
employed
at Lady London on the basis that it was in breach of the bar
clause which was a valid restraint. The applicant averred that during
the respondent’s stay at his hair salon a considerable
clientele had been built up, who regularly requested the services
of
the respondent, and that a considerable number had been taken away
with the result that his business had suffered harm and he
had
sustained damage to his goodwill. The following prescient
observations of Corbett J are apt
14
:
“…
having
regard to all of these facts, the circumstances of the case
generally, more particularly the two year period of the employment
contract,
it seems
to me that the applicant was entitled, at the time when this contract
was entered into, to take steps for the protection
of his business,
more particularly for the retention of his customers, in the event of
the respondent terminating his contract
of employment and seeking
employment elsewhere. It seems to me that, under the circumstances,
the applicant had a real interest
in the retention of such customers
who might well be induced to patronise a rival business should the
respondent become employed
by such a business because of the personal
relationship which arises between an employee in the position of the
respondent and
the clientele of the business.” (my emphasis)
ASSESSMENT
[18] The intentions of the
parties must be construed from the contract itself. The restraint
provides
inter alia
that ‘the members, (the respondents) acknowledge that in
consideration for the conclusion of this agreement’, they
have
undertaken to the purchaser that for a period of one year from the
date of expiration of the employment period, i.e. twenty
four months
after the effective date (1 April 2009), they will not,
inter
alia
, anywhere within
a radius of twenty kilometres from the premises from which the
business is conducted (“the prescribed area”),
whether
directly or indirectly, in any manner whatsoever be engaged
in
any business or undertaking, similar to or competing with the
business, directly or indirectly.
The commercial reality of the sale of business agreement between the
parties and the respondents’ role within the applicant’s
business, including their interaction with the client base, must be
considered.
[19] It is clear from the words
of the contract that in consideration for the conclusion of the sale
agreement, the respondents
undertook not to participate in any
competing activity or undertaking for a period of twenty four months
after the effective date
and that the parties would not have
contracted otherwise than on the basis that the respondents could not
be employed within 20km
of the business in a hairdressing salon. From
a commercial perspective, the inclusion of the restraint made
commercial and business
sense. It was a specific provision giving
efficacy to the restraint covenant, its object being to protect the
goodwill of the business,
and retaining its value.
[20] The respondents contend
that the applicant has failed to show that it has a protectable
interest within the 20km radius.
In my view, this contention is
without merit and implausible, as the respondents themselves have
stated that ‘especially
in the light of the nature of the
hairdressing profession and the nature of its clientele, the
applicant’s clientele will
generally only come from a
relatively short distance from the salon…’
[21] The respondents deny that
they have opened another hair salon trading under the name and style
of “Looks Devine”.
However, this contention is in my view
without substance if one examines the following vague and
contradictory statements deposed
to by the respondents in their
answering affidavit:
‘On the applicant’s
own version, the applicant’s representative, Mark Barnes,
knew that the second respondent
and I were working at Looks Devine
situated at 44 St Anna Road, Hurleyvale, Edenvale, on or about 15
June 2010’.
‘It is denied that the
second respondent or I have opened another hair salon trading under
the name and style of “Looks
Devine” trading from
premises situated at 44 St Anna Road, Hurleyvale, Edenvale…It
is admitted that these premises
fall within the restricted area
envisaged within the restraint provisions of the agreement,
however, for the reasons set out
above, it is by respectful
contention that the taking up of employment at the said premises is
not a contravention of the restraint
provisions’.
‘I deny that either the
second respondent or I am operating a competing business within the
restricted area. The second
respondent and I are currently earning
an income on a “rent-a-chair” basis at the said
premises, and are not in
any way operating a competing business.
In order to clarify for this Honourable Court, a “rent-a-chair”
arrangement
is one commonly found in the hairdressing industry
whereby a qualified hairstylist will pay an agreed monthly rental
amount
to the owner of a hairdressing business in order to make use
of the facilities owned by that business. The hairstylist is not
considered to be an employee of the hairdressing business, and the
relationship is similar to that of a landlord and tenant’.
‘I deny that either the
second respondent or I have in any way attempted to ‘make
off’ with the applicant’s
clientele, and further deny
that we have in any way been operating in direct competition with
the applicant. While it is admitted
that I am now conducting my
chosen trade within the restraint area, I reiterate that the second
respondent and I had no choice
but to do so, if we wished to
continue earning a living conducting our chosen trade’.
[22] From the aforegoing, it
appears that the respondents admit either that they are working at
Looks Devine, and/or are running
a business there; and/or they are
currently earning an income on a ‘rent-a-chair’ basis
within the restraint area and
have agreed to pay a monthly rental to
the owner. They also assert that they are not considered to be
employees of the hairdressing
business but have a relationship akin
to landlord and tenant. It is
ergo
not in dispute that the respondents are engaged with another person
or entity in the hairdressing business or trade, similar to
or
competing with the business of the applicant, less than 2km of the
business they sold to the applicant. On their own version
the
respondents are operating a business, a competing one, at premises
falling within the restricted area envisaged within the
restraint
provision of the agreement.
[23] The respondents, the vendors
of the goodwill of the business, agreed that in future they will not
carry on a similar business
in competition with the purchaser. They
are thus in breach of the restraint, being some 2km away from the
business that they sold
to the applicant. As a result of the
respondents’ unlawful conduct, the financial prejudice to the
applicant’s business
continues unabated.
[24] It is furthermore clear
from the wording of the restraint that the object of the restraint
was to prevent the respondents,
the sellers of the hair salon from
engaging in a business, a hair salon, in competition with the
business with resultant damage
being caused to the goodwill of the
applicant’s business. The insertion of the restraint clause was
to guard against this
particular apprehension that the applicant had
insofar as the respondents were concerned.
[25] This apprehension is
reasonable given that the respondents have had an opportunity to
develop a personal relationship with
the clientele, and the ability
to influence them, to solicit their custom and divert them away from
the applicant’s business
cannot be ruled out. In
Marion
White Ltd v Francis
15
it was stated that:
“
It
is accepted by the plaintiff company that the burden rests on them to
establish that this covenant is one which is reasonable
in the
interests of the parties and reasonable in the public interest, and
that it is for the protection of some interest of the
plaintiff
company’s in respect of which the plaintiff company is entitled
to protection.
It
is obvious that in an establishment such as a ladies’
hairdresser’s establishment the assistants who actually deal
with the customers, who dress their hair, wash their hair, and do
whatever else they do for the customers, provide a very important
part of the personal contact between those engaged in the business
and the customers of the business. That constitutes an important
element of the goodwill of the business: and that is an interest
which the employer is entitled to have protected
”.
(my emphasis)
[26] The respondents contend
that they had every intention of continuing in the employ of the
applicant for at least the remainder
of the restraint period but
because of the applicant’s and its representatives’
unprofessional conduct and mismanagement,
continued employment with
the applicant became untenable. This mismanagement they contend had
the effect of eroding the goodwill,
the clientele of the salon and
the applicant thus had no protectable interest.
In my view, there
is absolutely no reason for the applicant to prejudice its own client
base. The applicant asserts that there was
a reduction in the
turnover after the respondents left its employ. That this is
attributable to the respondents’ competitive
trade less than
2km from its business cannot be ruled out.
[27] In my view, the respondents
bore the onus of showing that the manner of their termination of
employment compromised the applicant’s
right to enforce the
restraint. This was not done. Furthermore, the dispute with regard to
the termination of the respondent’s
employment is not for this
court to decide. If the complaint is one of unfair dismissal, the
respondents have the CCMA
16
avenue available to them in regard to this dismissal dispute.
17
Additionally, the respondents have completely misconstrued the
nature of the agreement. It is clearly and unambiguously a sale
of a
business as a going concern, which also provided for the brief
employment of the respondents, post-sale of the business and
which is
ancillary to the sale of the business.
[28] The respondents also
contend that the applicants are trading without a qualified
hairdresser in contravention of the provisions
of the HCSBC
‘Collective Agreement’ governing the hairdressing
industry. In my view, these provisions do not have any
relevance to
the present dispute, which is the protection of the applicant’s
goodwill and the enforcement of the restraint.
The applicant has a
right to trade irrespective of the terms of the HCSBC ‘Collective
Agreement’ and the right to
take necessary measures to comply
with the provisions of that agreement. The applicant is a close
corporation and the rights to
its clientele are vested in the
applicant and exist independently from its right to trade.
[29] The respondents’
contention that the applicant ceased to have a protectable interest
in the clientele who frequented
the salon is unconvincing and without
merit. It is common cause that the applicant purchased the business
with the goodwill attached
thereto. The goodwill belongs to the
applicant. The respondents have admitted that ‘the sale of the
business was primarily
a sale of same as a going concern with the
goodwill attached thereto’. They have further admitted that the
applicant’s
business ‘would normally have as its
protectable interest the goodwill, clientele and it would in the
normal course be entitled
to protection against unlawful
competition’. At the time Vagabonds CC sold the business to
the applicant, the client base
was substantial, and formed the
greater portion of the goodwill of the business to be sold. The
business sold by the respondents
had established customers and
goodwill.
[30] The respondents contend
that the applicant’s business is that of a typical suburban
hairdressing salon with no confidential
or proprietary information
that they have become privy to as a result of working for the
applicant. Further that at the date of
the respondents’
resignation, it ceased to have a protectable interest, or any
interest whatsoever, in the clientele who
frequented the applicant’s
business premises. In my view, all of these averments are
contradictory and unconvincing, as the
respondents have asserted that
the applicant’s only protectable interest is its client base
that it purchased as part of
the goodwill of the business in terms of
the said sale agreement. Therefore, it does not appear to be in
dispute that the applicant
has a clear right to its customer base and
clientele as part of its goodwill within the restraint distance.
[31] Additionally, the
respondents contend that 20km is unreasonably large and the period of
twenty four months, unreasonably lengthy.
In my view, the restraint
covers an area of 20km, which is reasonable and necessary to protect
the goodwill in the business purchased
by the applicant. Given the
nature of the hairdressing profession, if the applicant’s
clientele (the respondents’
erstwhile clientele) come from a
relatively short distance from the salon, as soon as the respondents
began trading within 2km
of the salon, the aforementioned clientele
would have either moved with the respondents or it can reasonably be
apprehended that
some of the clientele will do so in the future, if
they have not done so already. In such circumstances, there appears
to be no
other relief available to the applicant. From the
comparative figures regarding the turnover, it is clear that the
applicant’s
business has suffered severe financial loss. This
must in all probability be as a result of the loss of custom, which
could continue
if the restraint is not enforced, causing the
applicant severe and inescapable harm. The applicant has shown that
it has a clear
right to the protection of its goodwill business
interests and that such right is being infringed unlawfully by the
respondents.
Should the respondents be permitted to continue
operating their business within the restricted area and in
competition with the
applicant’s business, the applicant’s
business will not survive and will suffer irreparable harm and
financial prejudice.
The applicant has no alternative remedy.
[32] In my view, the sale
agreement between the parties is clearly and unambiguously a sale of
a business as a going concern. At
the time of the conclusion of the
sale, the applicant would have had regard to the turnover of the
business and the fact that the
respondents had operated the salon for
some time prior to the conclusion of the sale agreement. The
restraint must have been specifically
negotiated in order to protect
the interests of the applicant subsequent to the payment of the
purchase consideration. The restraint
of trade was clearly not a
quid
pro quo
for the
employment but for the goodwill.
[33]
The
applicant’s business has, as its protectable interest, the
goodwill of the business which includes the salon’s clientele.
According to the
applicant the clientele of the business is specifically unique, in
that each customer’s visit is recorded
and the customer’s
details are stored inclusive of telephone numbers, address,
preferences and history of treatments and
or services received by
that customer. The clientele of the business thus constitutes a
specific protectable interest proprietary
to that business, and the
applicant has equitable rights preventing the respondents from
conducting a hair salon on a ‘rent-a-chair’
basis close
to the business they sold.
It
is clear that even on
the respondents’ own version, the applicant has a clear right
to its customer base and clientele as part of its goodwill
within the
restraint distance.
The applicant is entitled to the protection of its legitimate rights
against unlawful competition by the respondents.
[34] According to the applicant,
when the respondents left the employ of the applicant, they removed
client listings and information
with the specific intention of
utilizing this information to unlawfully compete with the business of
the applicant. This is disputed
by the respondents. However, in my
view, this is not a dispute that must be resolved by referral to oral
evidence. The fact remains
that the respondents have had the
opportunity of developing a close relationship with their clients and
as a result the ability
to influence them. The respondents sold the
business with a protectable interest, and a strong client base. The
respondents are
aware of the names of their clientele, their old
customers. Even if they are in possession of the clientele list, they
cannot avail
themselves of this special knowledge to regain that
which they have parted with for value.
[35] It is clear that the
respondents sold their business advantageously by including the
restraint in the agreement. It is equally
clear that they now seek
to extricate themselves from the restraint whilst having profited by
it, and continue to do the same business
on a ‘rent-a-chair
basis’, at premises within the restricted area of the restraint
provision, and to profit from this
business a short distance away.
[36] The restraint was to protect
the applicant’s business from competition, the potential
competition emanating from the
respondents who were well placed to
compete effectively. As previous owners of the business, they have
acquired the knowledge,
the skill, the contacts with the clientele,
goodwill and reputation, which they would be able to exploit for
their own account.
[37] According to the
respondents, the provisions of the restraint are excessive and
unreasonable in an open democratic society.
No person should be
unreasonably prevented from earning a lawful living. The fact that
the parties expressly excluded the area
from the ambit of the
restraint does not mean that the respondents are excluded from the
hairdressing trade. They may trade, but
not competitively. The
prohibition is only in respect of a competitive trade within a radius
of 20km from the premises of the
business that they sold. The
restraint of trade clause imposed on the respondents is reasonable
having regard to the applicant’s
legitimate business interests.
The restraint does not prevent the respondents from continuing to
earn a living outside of the restricted
area, using their own skills
and know-how of the hairdressing salon business.
[38] In my view, it is legitimate
to limit a vendor’s future commercial activities in respect of
the business he has sold,
by contractually obliging him not to
compete with the purchaser. To do otherwise, would be to allow the
vendors, to open a business
in opposition to that which they have
sold, and thus ‘steal back’ the customers they have sold
to the purchaser as
part of the goodwill. Post sale business
restrictions on the activities of the seller are necessary to protect
the goodwill of
any business.
[39] The respondents after
selling their business to the applicant, remained in its employment
until May 2010 and thereafter in
blatant disregard of the restraint
terms became engaged in a business similar to that of the applicant,
in flagrant competition
to the very business it sold to the applicant
and less than 2km away. Setting up the business in the manner that
the respondents
have done, less than 2km from the business they have
sold, must be construed as taking advantage of the connections that
they
previously formed with the customers which contributed to the
goodwill they sold. They are competing for their old customers.
CONCLUSION
[40] Consequently, I find that
the true object of the parties in imposing the restraint was clearly
to protect the goodwill of the
business. In the sale of any
business, the covenantee is entitled to be protected against the
competition by the covenanter,
since without such a protection the
covenantee would not get what he is contracting to buy, i.e. a going
concern, a lucrative business,
nor would the covenanter give the
covenantee what he is intending to sell.
18
Goodwill is an intangible asset which on the sale of a business is
permanently disposed of by the seller.
19
Consequently the seller may not again utilise and enjoy this
intangible asset. If a seller disposes of the goodwill of a business
he is not allowed thereafter to act contrary to the sale. When the
respondents sold the salon, it became the sole and absolute
property
of the applicant, and any infringement of the applicant’s
proprietary rights was consequently actionable.
[41] The respondents have failed
to discharge their
onus
,
that the restraint is unenforceable, unreasonable and against public
policy. Consequently, the respondents should not be allowed
to
escape their contractual obligations. To hold otherwise would lead to
injustice. The restraint imposed on the respondents,
its extent and
duration, and the geographical area within which the competitive
activity is restricted, are all reasonable and
enforceable having
regard to the applicant’s need to protect its legitimate
business interests. If the respondents are not
interdicted, the harm
to the applicant’s business and the financial prejudice will
continue. There is no other remedy available
to the applicant. The
applicant has discharged its
onus
in respect of the requirements of a final interdict.
THE URGENT APPLICATION
[42] The applicant, having
ascertained the unlawful behaviour of the respondents at the end of
June 2010, immediately thereafter
consulted with its attorneys. A
demand was expeditiously sent out, informing the respondents of their
breach of the agreement
and demanding the rectification thereof
within 10 days. This was done with the express intention of seeking
to avoid launching
this application and involving the parties in
unnecessary and costly litigation.
[43]
The respondents
persisted in their unlawful conduct and the applicant was left with
no choice but to institute proceedings against
the respondents on
an urgent basis, to enforce a restraint of trade to which the parties
had contractually agreed.
When
the matter came before Coppin J in the urgent court on the 20
th
of July 2010, the parties agreed that the matter be postponed to the
opposed motion roll, and the costs reserved
.
The applicant has urged this court to award costs on an attorney and
client scale. However, I am not convinced by the applicant’s
argument that this court should do so. The applicant is entitled to
the wasted costs of the postponement on 20 July 2010.
ORDER
[44] In the result, I grant the
following order:
44.1 that pending an action to be
instituted by the applicant within 30 days of the date of this order,
seeking relief that the
interim interdict granted in terms hereof be
confirmed, and the payment of damages by the respondents to the
applicant:
.
44.1. 1 the respondents, and
anyone acting through them or on their behalf, are forthwith
interdicted and restrained from operating
the business of a hair
salon within a radius of 20km from 37 Voortrekker Avenue, Edenvale
(“the restricted area”) for
a period of 12 months from
the 1
st
of April 2010;
44.1.2 the respondents, or
anyone acting through them or on their behalf are ordered to
forthwith cease and desist from continuing
with the hair salon
business trading under the name and style of Looks Devine or any
other business of a similar nature within
the restricted area;
44.2 Failing the institution of
the action in terms of paragraph 44.1, the interim order shall ipso
facto lapse
44.3 The respondents are ordered
to pay the costs of this application, including the wasted costs of
the postponement on 20
th
July 2010, in respect of the urgent application.
____________________
HK SALDULKER
JUDGE OF THE SOUTH GAUTENG HIGH COURT
JOHANNESBURG
DATE OF
HEARING
…...........
29
JULY 2010
DATE OF
JUDGMENT 19 NOVEMBER 2010
COUNSEL FOR
APPLICANT ADV DE OLIVEIRA
INSTRUCTED BY JOHN WALKER ATTORNEYS
COUNSEL FOR RESPONDENT ADV GRADIDGE
INSTRUCTED BY RAYMOND KOSVINER ATTORNEYS
1
Reddy
v Siemens Telecommunications (Pty) Ltd
2007 (2) SA 486
(SCA).
2
Magna Alloys &
Research (SA) (Pty) Ltd v Ellis
[1984] ZASCA 116
;
1984 (4) SA 874
(A);
J
Louw & Co (Pty) Ltd v Richter and others
1987(2)
SA 237 (N) at 243 B;
Kleyenstrüber
v Barr and Another
2001 (3) SA 672
(W).
3
Diner
v Carpet Manufacturing Co of SA Ltd
1969(2) SA 101 (D);
Brenda
Hairstylers v Marshall
1968 (2) 277 (OFS);
Nachtsheim
v Overath
1968 (2) SA 270
(C);
Nampesca
(SA) Products (PTY) Ltd and another v Zaderer and others
1999
(1) SA 886
(C) at 898 I-J, 899 B-C.
4
1969 (2) SA 101
(D), at 105 B-C.
5
1993 (4) SA 358
(W) at 363 G-H.
6
See, for example,
Unlawful
Competition
, Van
Heerden & Neethling at p 94, 95 and 96.
7
Van
Heeden & Neethling,
Unlawful
Competition
,p96
8
1972 (4) SA 608
(W) at 621 A.
9
[1991] ZASCA 134
;
1992 (1) SA 202
(A) at 212 D-H.
10
In
Iraf
Pty Ltd and others v Graham
(1982) 1 NSWLR 419
, and at 429 the court stated: “To my mind
the most important consideration on the question of the period of
the restraint
is the time required for severing the relationship
between the defendant and those clients who would patronize the
business after
its sale. There is necessarily a large element of
conjecture involved here. Additional evidence might reduce that
element,
but in the main the matter involved is the exercise of
business judgment. For this reason considerable weight should
attach
to the period the parties themselves have selected.
Notwithstanding this, I am satisfied that the period of three years
is unreasonably
long. Assuming the defendant going into business
outside the kilometer radius, some of his clients might follow him,
and the
plaintiffs can claim no protection in respect of such
clients…The only goodwill to be protected from injury by the
defendant
relates to those clients of his who would rather remain
clients of the business than follow him outside the perimeter or go
to
another establishment. It might reasonably be expected that some
proportion of these clients would leave the first plaintiff’s
business and patronize that of the defendant if he were to pass
inside the perimeter of the protected area. The question then
arises as to how long a period might be considered reasonable for
securing a firm connection between these clients and the first
plaintiff’s business…In the ordinary course I should
think that a period of nine to twelve months would be sufficient
firmly to establish the relationship between the client and the new
hairdresser”.
11
1968
(2) 277 (OFS).
12
Brenda
Hairstylers
at p 281 B-C.
13
1968
(2) 270 (C).
14
Nachtsheim
at p 272 G-H.
15
[1972] 3 All ER 857
at 862.
16
Centre
for the Conciliation, Mediation and Arbitration.
17
See
Chubb Fire
Security (Pty) Ltd v Greaves
at
para
ibid
p 5 of 5.
18
Protea Holdings Ltd
and Another v Herzberg and Another
1982 (4) SA 773
(C);
Coetzee
v Eloff
1923 EDL 113
;
Botha and Another v
Carapax Shadeports (Pty) Ltd
[1991] ZASCA 134
;
1992
(1) SA 202
(A).
19
A Becker & Co
(Pty) Ltd v Becker and Others
1981 (3) SA 406
(A) at 407 A.