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[2019] ZAGPJHC 395
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Obsidian Health (Pty) Limited v Makhuvha and Another (33905/2019) [2019] ZAGPJHC 395 (25 October 2019)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NO: 33905/2019
In
the matter between:
OBSIDIAN
HEALTH (PTY)
LIMITED
APPLICANT
And
MAUREEN
MAKHUVHA
FIRST RESPONDENT
PRIME
SURGICAL (PTY) LIMITED
SECOND RESPONDENT
JUDGMENT
WINDELL
J:
INTRODUCTION
[1]
This is an urgent application to enforce a purported restraint of
trade agreement against the first and second respondents.
[2]
The first respondent is a qualified technician having obtained a N6
Electrical Engineering Diploma from the Pretoria Technical
college.
She has over 13 years' experience in medical devices in the private
and public healthcare industry. She was in the employ
of the
applicant until she resigned with effect 31 May 2019. The second
respondent is the first respondent's current employer.
[3]
The specific orders sought by the applicant are the following:
1. The first respondent
be interdicted from taking up or continuing her employment with the
second respondent anywhere in Gauteng.
2. The first respondent
be interdicted from contacting in any manner any of the applicant's
customers in schedule A. (Schedule A
is a list of twelve hospitals in
Gauteng).
3. The respondents be
interdicted from contacting any of the applicant's employees.
4. The respondents be
interdicted from utilising the applicant's confidential information
and trade secrets.
5. All of the above
relief to operate for period from 12 months from date of court order.
[4]
Although
the application purports to be one for interim relief, it is, in
substance, one for final relief due to the limited duration
of the
restraint. It is trite that, being motion proceedings, disputes of
fact are to be dealt with in accordance with the principles
laid down
in
Plascon
Evans Paints Ltd v Van Riebeeck Paints Ltd.
[1]
A final interdict may therefore only be granted if the facts stated
by the respondents' answering affidavits together with the
admitted
facts in the applicant's founding affidavit justify such an order.
This test applies even where the
onus
is on
the respondent to proof that a restraint is unreasonable and
accordingly
contra
bonis
mores.
[2]
[5]
The
applicant seeks enforcement of a lesser restraint. When a lesser
restraint is sought the applicant must lay a clear basis in
its
founding affidavit.
[3]
It is
submitted on behalf of the respondents that the applicant is bound by
the case made out in its founding affidavit and that
it failed to lay
a proper basis for enforcement of a lesser restraint. It is submitted
that the must, for this reason alone, fail.
[6]
In support of its application the applicant relies on a contract of
employment entered into between the applicant and the first
respondent on 15 February 2019. The first respondent disputes the
validity of the contract. It also disputes that the applicants
established a proprietary right, worth protecting. It is only when
the applicant has discharged its onus that the first respondent
bears
the onus of proving that the restraint is unreasonable and against
public policy.
[7]
The first respondent launched a substantive application requesting
leave to file a further affidavit. The purpose of the further
affidavit is to deal with new matter raised in the replying
affidavit. The application was not opposed and the fourth affidavit
was allowed. On the date off the hearing the applicant requested the
court to accept a further affidavit on behalf of the applicant.
The
affidavit was not accompanied by a condonation application and the
first respondent opposed the handing up of the affidavit.
In the
absence of a condonation application setting out the reasons why the
further affidavit should be allowed, and exercising
my discretion,
the further affidavit on behalf of the applicant was refused.
BACKGROUND
[8]
The applicant is a company that provides medical devices,
equipment and consumables in the healthcare market. The applicant
held
an agreement with Japanese Company, Terumo, for the distribution
of cardiovascular and medical products portfolios. The Terumo
cardiovascular portfolio includes tubing packs, blood gas and
potassium monitoring equipment, oxygenators and heart lung machines,
all of which are used during open heart surgery. The open heart
surgery is carried out by a cardiothoracic surgeon and a
cardiovascular
perfusionist who is responsible for running the heart
lung machine during cardiac surgery. The Terumo devices are used for
open
heart surgery and every six months these machines require
service, maintenance and repair in terms of Terumo protocols.
[9]
It is common cause that as at January 2019 the only agency
contract the applicant held in the cardiovascular sector was the
Terumo
distribution rights. In December 2016 Terumo initiated steps
to reduce its dealings with the applicant in respect of its four
divisions
being Cardiovascular, Endovascular, Cardiology and Medical
Products. On 31 March 2017 the distribution agreement between Terumo
and the applicant expired. On 22 August 2017 Terumo concluded a
distribution agreement with a third party in respect of its
endovascular
products. On 20 November 2017 Terumo and the applicant
concluded a one year distribution agreement for its
cardiovascular/medical
products business. This agreement was extended
again for a limited period of one year expiring on 31 March 2019. In
May 2018 Terumo
concluded a new distribution agreement for all its
cardiology business with a third party from August 2018. On 16
January 2019
Terumo accidentally copied the applicant to an email
regarding its intentions to terminate its agreements with the
applicant to
distribute Terumo's cardiovascular/medical products. The
applicant's CEO contacted Terumo who confirmed that Terumo would not
continue
its business with the applicant. On 4 March 2019 Terumo and
the second respondent concluded a distribution agreement for the
distribution
of Terumo's cardiovascular/medical products from 1 April
2019. On 31 March 2019 the distribution agreement between Terumo and
the
applicant expired. The applicant may therefore not sell, repair,
maintain or service any of Terumo's products.
[10]
After the applicant became aware of Terumo's intention to terminate
the distribution agreement it began a process to source
alternative
products in late January 2019. It is common cause that only one of
its competing cardiovascular products has been registered
with the
medical aids and all the rest of its cardiovascular products are "in
the process of registration".
[11]
The first respondent was employed by the applicant as a Cardio
Product Specialist and service Technician. The Terumo devices
can
only be serviced and maintained by the authorized distributor in
South Africa, being the second respondent, and Terumo certified
technicians employed by the second respondent. The first respondent
states that she is the only technician in South Africa who
is
certified by Terumo to service and maintain its equipment.
[12]
Before the expiration of its distribution agreement with Terumo, the
applicant issued upliftment notices sent to all the hospitals
in
South Africa and the applicant's personnel was instructed to uplift
and collect its Terumo machinery and equipment (i.e cardiovascular
CDI monitors and calibrators) from the hospitals. The first
respondent submits that the upliftment notice was sent under false
pretense of stock outages of Terumo sensor supply but the true
intention was to disrupt the cardiovascular sector by removing all
of
Terumo's devices shortly before the commencement of the second
respondent's distribution agreement with Terumo. Following the
upliftment of the Terumo devices, the hospitals were left without any
machinery and equipment for purposes of blood monitoring
of
cardiovascular procedure. The second respondent then attempted to
purchase the Terumo devices from the applicant but negotiations
between the parties failed. The second respondent ultimately procured
new devices from Terumo and supplied it to the hospitals.
CONTRACT
OF EMPLOYMENT
[13]
The first respondent attacks the validity of the contract of
employment on two grounds. First: The contract of employment was
signed on 15 February 2019 under circumstances of duress and
coercion; and Second: The contract of employment lapsed on 10 January
2019 by virtue of clause 14 thereof, and the restraint covenants are
unenforceable, null and void.
[14]
In its
founding affidavit the applicant alleges that the first respondent
has been in the employ of The Scientific Group ("SG")
since
1 May 2006. When the applicant was created and started trading on 1
March 2015, all the SG medical division business and
assets were
transferred into the applicant. This included the transfer of all
medical staff. The applicant employed the first respondent
as a
Cardio Product Specialist and Service Technician. The applicant took
over the existing employment contracts from SG and as
the contracts
were not uniform, it was decided in late 2018 that a revised letter
of employment would be distributed to all employees
following the
completion of the integration process. This standard employment
contract for all employees of the applicant included
a restraint of
trade and confidentiality clause. The applicant states that the
previous employment contract with SG was taken into
consideration
when drafting the new contract with the applicant in compliance with
Section 197 of the Labour Relations Act.
[4]
[15]
In her answering affidavit the first respondent contends that she was
forced to sign the 2019 contract of employment under
circumstances of
duress and coercion. She did not want to sign· the contract
for three reasons: (i) It struck her as odd
that the applicant was
suddenly seeking to revise her terms of employment after 4 years of
taking over the medical division of
SG and her employment as
technician; (ii} She had heard rumours that Terumo was going to
terminate its business relationship with
the applicant and (iii) The
applicant's employees were unhappy with the onerous restraint of
trade provisions inserted into their
generic contracts of employment.
She was eventually confronted by De Bruyn, the applicant's business
manager, who demanded that
she signs the document. De Bruyn informed
her that it was merely an ISO compliance requirement, but did not
explain the contents
of the document. She was fearful of losing her
employment and eventually gave in under the pressure and signed the
document on
15 February 2019. She contends that the applicant
withheld material facts from her in particular that it had, at the
time, lost
the right to distribute Terumo products. Had she known
this fact she would not have signed the contract. It is submitted
that the
"sudden rush" of the applicant to have its staff
sign new contracts of employment was done to stifle competition by
locking
all its staff into onerous restraint covenants shortly before
the loss of the Terumo contract. It is further submitted that this
"mischief' forms part of the applicant's intention to disrupt
the cardiovascular market at the end of its agency agreement
with
Terumo when it uplifted all Terumo's cardiovascular products from the
hospitals shortly before its distribution contract came
to an end in
March 2019. It is submitted that this was done to frustrate the
second respondent as it took over the distribution
of Terumo's
products in South Africa.
[16]
The first respondent also contends that the contract of employment is
null and void because of what is stated in Clause 14
of the contract.
Clause 14 reads as follows:
"ACCEPTANCE OF OFFER
This offer is limited
for a period of three (3) days from the date of issue. Failure to
respond within this period will render the
offer null and void."
[17]
The applicant filed a replying affidavit wherein it admits that it
did not explain or discuss or consult the first respondent
on the
contents of the contract of employment and that first respondent was
instructed to sign the contract without delay. The
applicant also
admits that there was mass unhappiness amongst its staff when it
introduced the new restraint covenants in 2019.
It concedes that it
did not alert the first respondent to the fact that the offer has
lapsed on 10 January 2019 nor to the inclusion
of the new restraint
of trade covenants contained therein. The applicant acknowledges that
the contract had lapsed, but submits
that it was ratified by De Bruyn
and the applicant's HR Department after the first respondent signed
it on 15 February 2019. The
applicant also contends that it in any
event concluded a contract of employment with the first respondent in
2017 which is exactly
the same as the 2019 contract.
[18]
An
applicant is bound by the case made out in its founding affidavit. It
must stand or fall by the allegations contained in its
founding
affidavit and it is not allowed to make out its case in the replying
affidavit. A court will not allow the introduction
of new matter in
reply when no case at all was made out in the original application or
if the reply reveals a new cause of action.
In
Poseidon
Ships Agencies (Pty) Ltd v African Coaling and Exporting
Co
(Durban)
Pty and Another
[5]
Broome J held as follows;
"The correct
approach to the problem was enunciated clearly by CANEY J in
Bayat
and Others v Hansa and Another
1955 (3) SA 547
(N) at 553D:
'... the principle which
I think can be summarised as follows... that an applicant for relief
must (save in exceptional circumstances)
make his case and produce
all the evidence he desires to use in support of it, in his
affidavits filed with the notice of motion,
whether he is moving
ex
parte
or on notice to the respondent, and is not permitted to
supplement it in his replying affidavits (the purpose of which is to
reply
to averments made by the respondent in his answering
affidavits), still less make a new case in his replying affidavits.'
It is true that in
certain circumstances it would be unjust to confine an applicant to
the contents of his launching affidavit.
An example of further highly
relevant facts coming to light later, and being introduced despite
objection, is to be found in
Registrar of Insurance v Johannesburg
Insurance
Co
Ltd (1)
1962 {4) SA 546
(:IV)
where,
in an application made by the Registrar of Insurance for the
liquidation of the respondent insurance company, a report prepared
by
a firm of accountants was admitted. Another example of the Court
authorising an applicant to introduce new material in reply
is to be
found in
Kleynhans v Van der Westhuizen NO
1970 (1) SA 565
(0)
at 568E where the Court considered that, as the ramifications of the
respondent's affairs were extensive and complex, it was
impossible
for the applicant to have had all the facts at his disposal before he
launched sequestration proceedings. See also
Titty's Bar and
Bottle Store (Pty) Ltd v ABC Garage (Pty) Ltd and Others
1974 (4)
SA 362
(T) at 369A - B.
But none of these cases
go the length of permitting an applicant to make a case in reply when
no case at all was made out in the
original application. None is
authority for the proposition that a totally defective application
can be rectified in reply. In
my view it is essential for applicant
to make out a
prima facie
case in its founding affidavit."
[19]
I agree with respondents' counsel,
Mr Pocock,
that the
introduction of a new contract contradicts the applicant's
explanations and motivations for concluding the 2019 contract
of
employment. It is also an attempt to change its cause of action to a
contract of employment in 2017. No reasonable explanation
was
provided by the applicant why it omitted the 2017 contract. The
attempt to introduce a new cause of action based on a contract
of
employment entered into in 2017 amounts to an ambush and cannot be
allowed.
[20]
The first
respondent contends that, by virtue of clause 14, that the contract
of employment lapsed and the restraint covenants are
unenforceable,
null and void. The applicant profess that it lapsed but pleads
ratification in its replying affidavit. Ratification
was never
pleaded or dealt with in the founding affidavit and applicant's
answer in reply is wholly inadequate. It fails to advance
any facts
in support of the ratification, including the dates when it was
supposedly ratified. In any event the defence of ratification
is bad
in law and does not revive the contract because clause 14 was a
suspensive condition that cannot be revived through ratification.
According to Amlers Precedents of Pleadings
[6]
,
a party wishing to rely on a suspensive condition has to allege and
prove the fulfilment of the suspensive condition. It is trite
that
pending the fulfilment of a suspensive condition there is no contract
between the parties. In the matter of
Melamed
v BP Southern Africa (Pty) Ltd
[7]
the agreement under consideration was subject to a suspensive
condition. The court held that this entails that the agreement would
be discharged
ipso
iure
on
non-fulfilment of the condition. A suspensive condition can also only
be waived by someone in whose favour the suspensive condition
exist,
and only before the agreed cut-off date. Once the agreement has
lapsed, a unilateral waiver cannot reinstate it.
[8]
None of these issues are alleged by the applicant and it is precluded
from making out its case in reply. The applicant's case is
in any
event contradicted by the fact that the applicant's CEO already
signed the contract of employment on 7 January 2019 when
it was
issued. The applicant's CEO did not sign or countersign the contract
on 15 February 2019.
[21]
For purposes of deciding this application it is therefore not
necessary to decide whether the contract was signed under duress
and
misrepresentation, as the contract of employment had lapsed. The
restraint covenants are therefore unenforceable, null and
void.
THE
PROPRIETARY RIGHT
[22]
In any event, even if I am wrong, and the 2019 contract was valid and
enforceable, the applicants failed to establish a proprietary
right.
[23]
The applicant submits that the applicant and the second respondent
are competitors in the cardiothoracic/cardiovascular medical
field.
The cardiovascular/cardiothoracic sector is a unique and very
specialized industry. In its founding papers the applicant
however
failed to disclose or explain the unique characteristics, nuances,
requirements, procedures and regulations applicable
to distributors
supplying medical products to the private and public sector. It is
only in its replying affidavit, and after the
respondents provided
the court with an exhaustive account of all the restrictions and
regulations in the private and public sector,
that the applicant
conceded that there are many restrictions and regulations that need
to be complied with, and that the restrictions
and regulations vary
depending on whether one is dealing with the private or the public
sector. But, this is not the only material
and relevant information
the applicant failed to disclose in its founding affidavit. The
applicants also failed to disclose the
fact that all distributors are
required to register their products with the private medical aids and
hospital groups in order to
supply the private sector and that all
prices in the private sector are regulated and controlled by the
private medical aids and
hospital groups on the basis of benchmark
pricing practises. In addition the applicant also failed to explain
that all distribution
to the public sector is done by either tender
(based on various criteria such as BEE, tax clearance certificates,
quality, availability),
or by invitation only and on the basis of
request for quotation whereby only three suppliers are invited to
quote. Importantly,
it failed to disclose or prove its registration
status in the public sector and has not advanced a single document in
support of
its status.
[24]
The applicant admitted that as at January 2019 the only agency
contract it held in the cardiovascular industry was the Terumo
distribution rights and that Terumo terminated its distribution
contract with applicant on 31 March 2019. In reply the applicant
agrees that all it products must be registered with the hospitals and
medical aids in the private sector. It follows that the applicant
cannot compete in the private sector without or until such time as
its new cardiovascular products are registered with the medical
aids
and hospitals. Applicant accedes that only one of its competing
cardiovascular products has been registered with the medical
aids and
that all the rest of its cardiovascular products are in the process
of registration.
[25]
The applicant further admitted that the public hospitals have
extremely limited budgets and do not frequently buy new machines
and
devices. I agree with respondents' contention that it therefore
follows that there can be no competition or conflict in respect
of
these customers as there is no interest or demand of financial budget
to buy new cardiovascular products.
[26]
In its founding affidavit the applicant alleged that the first
respondent has knowledge of its pricing structures by virtue
of the
fact that she personally prepared the applicant's price quotations
for its customers and therefore knows the composition
of its pricing
methods. In reply the applicant however professed that this
allegation is false and admitted that all the quotations
were
prepared by the applicant's two dedicated in house quotation
coordinators; one for the private sector and one for the public
sector. The applicant further admitted in reply that the first
respondent was not involved in any of the price negotiation with
the
medical aids and hospital groups as this was done at a senior level
only. The first respondent was not exposed to the pricing
of the
cardiovascular products or how the applicant's pricing is made up.
The applicant further admitted that medical aids in any
event use
benchmark pricing of registered products. I agree with the
respondents that any knowledge of the applicant's pricing
is
therefore sterilised by the fact that the medical aids determine the
pricing based on benchmarking its prices to other distributor
prices.
In addition the applicant admitted that the cardiothoracic surgeons
and cardiovascular perfusionists are loyal to the product
brand and
product quality. The customers therefore follow the Terumo brand and
not the distributor or its employees. The customer
relationships are
held by numerous other role players in particular the Terumo's
product manager based in Johannesburg, who calls
on the hospitals
cardiothoracic surgeons and cardiovascular perfusionists.
[27]
The applicant acknowledged that the first respondent paid the
applicant for all the training that she obtained while employed
with
it and that all her knowledge and skills and expertise in these
products belong to her. Accordingly all knowledge that the
first
respondent supplied to the second respondent belongs to her and not
the applicant.
[28]
As stated before, the applicant seeks enforcement of a lesser
restraint. The applicant clearly failed to lay a basis for it
in its
founding affidavit. In fact, the applicant's whole founding affidavit
is based on generic legalise without personalising
its case to the
unique nature and character of the cardiovascular sector and the
industry as a whole. The founding affidavit is
also riddled with
numerous anomalies and flaws. I agree with
Mr Pocock
that
these disputes and defects were foreseeable when launching the
application yet the applicant failed to deal with it in its
founding
affidavit. Instead it introduced new matter in its replying
affidavit.
[29]
The contract of employment relied upon define the applicant's
protectable interest as information which "is not readily
available in the ordinary course of such business to the company's
competition". On its own version the medical aids and hospitals
regulate the prices through benchmarking practises, its pricing
information is either in the public domain, alternatively, is of
no
use or benefit to anyone. Applying the principles enunciated in
Plascon Evans,
I am satisfied that the applicant failed to
prove that it has a protectable interest.
[30]
The respondents submits that a punitive costs order be made against
the applicant. I am of the view that such an order is not
warranted.
[31]
In the result the following order is made:
1. The application is
dismissed with costs.
______________________
L.
WINDELL
JUDGE
OF THE HIGH COURT
GAUTENG
LOCAL DIVISION, JOHANNESBURG
APPEARANCES
Counsel
for appellant:
Adv. Strydom
Instructed
by:
Petro Cloete Attorneys
Counsel
for respondents: Adv W.H
Pocock
Instructed
by:
Cliffe Dekker Hofmeyer
Date
matter heard:
8
October 2019
Judgment
date:
25 October 2019
[1]
[1984] ZASCA 51
;
1984 (3) SA 623
(A) at 634 E-1.
[2]
See Associated South African Bakers Pty Ltd v Oryx & Verenigte
Backereien (Ply) Ltd & Andere
1982 (3) SA 893
at 923 G-924 B.
[3]
Macpail (Ply) Ltd v Janse van Ransburg; Macpail (Ply) Ltd v Janse
van Rensburg and Others
1996 (1) SA 594
(T) at 59.
[4]
Act 66 of 1995
[5]
1980 (1) SA 313
(D & CLD) at 315 E-H and 316 A.
[6]
Amlers 9th Edition at page 309
[7]
2000(2) SA 614 (W) at 625 D-E. See also Dirk Fourie Trust v Gerber
1986 (1) SA 763 (A).
[8]
Van Jaarsveld v Coetzee
1973 (3) SA 241
(A).