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[2010] ZAWCHC 562
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Kuyanda Commodieties 19 CC t/a Synergies Interiors and Another v Abels and Another (19555 / 2010) [2010] ZAWCHC 562 (16 November 2010)
IN
THE HIGH COURT OF SOUTH AFRICA
WESTERN
CAPE HIGH COURT, CAPE TOWN
CASE
NO: 19555 / 2010
In
the matter between:
KUYANDA
COMMODITIES 19 CC
t/a
SYNERGY INTERIORS
….............................................................................
1
st
Applicant
SELECT
SOLID SURFACE CC
….......................................................................
2
nd
Applicant
and
JEROME
LYNDON ABELS
….....................................................................
1
st
Respondent
ABSOLUTE
SOLID SURFACING
…...........................................................
2
nd
Respondent
JUDGMENT
: 16 NOVEMBER 2010
BOZALEK
J
:
[1]
The applicants sought, in urgent application proceedings, final
interdicts against the respondents on two distinct although
related
grounds. In the first place the applicants sought to restrain the
respondents from unlawfully competing with them, by
way of the
appropriation and abuse of certain confidential information. In this
regard applicants initially sought an interdict
with unlimited
duration and related ancillary relief. Secondly, the applicants
sought to enforce a restraint of trade agreement.
[2]
The respondents opposed the relief sought. The matter was first
called on the 20 September 2010 and, after effect was given
to a
timetable, argued fully before me on the 27 October 2010.
BACKGROUND
[3]
Many of the basic facts in this matter are undisputed. First
applicant conducts the business of designing and installing
interiors, commonly known as "shopping". It employed the
first respondent in about January 2007 as a contract manager/trainee
and he remained in its employment until the 6 July 2010. His duties
were in part described as "supervision of staff"
and
"c/ienf service". By the time the first respondent's
employment ended, he had assumed control of the day to day
operation
of the second applicant in selling and installing certain imported
solid surfacing products manufactured by Messrs.
Dupont, Corian and
Montelli. First applicant had been accredited to sell and install
these products in February 2009 by Max on
Top, the sole South
African importer and distributor thereof.
[4]
Clause 26.lot the first respondent contract of employment provided
as follows:
"26.1
The employee undertakes not to be engaged in any business be it
direct or indirect in competition or as a shareholder,
partner, and
member of a Close Corporation, director of a company or in any other
capacity within one year of termination of
this agreement in the
area known as Western Cape.
26.2 The
employee acknowledges and agrees that the aforesaid restraint is
fair, reasonable and necessary for the protection of
his employer,
his employer's trade name and the goodwill attached thereto."
[5]
Within a few days of the termination of his employment, the first
respondent, in his capacity as the sole member of the second
respondent, was conducting the business of installing solid surfaces
although not dealing in Dupont, Corian and Montelli products.
[6]
The respondents raised three principal grounds for opposing the
relief sought against them. Firstly, they denied unlawfully
competing with either first or second applicants in that they were
neither engaged in shopfitting nor dealing in the specialised
products mentioned. The respondents denied furthermore appropriating
any confidential information or goodwill in the form of
"client
connections"
from
the applicants. In relation to the restraint of trade the
respondents contended that the interest sought to be protected
by
the applicants in tact vested in the second applicant but that there
was no restraint ot trade between that party and the
first
respondent. Finally, the respondents contended that as a result of
the manner in which the applicants had conducted their
business ie.
by concealing the close relationship between these entities from
their customers, they had come to court with "unc/ean
hands"
and should thus be denied any relief.
[7]
The precise circumstances of the termination of the first
respondent's employment, those in which he commenced trading for
his
own account and how he came to furnish certain quotations to a
customer of the applicants', was the subject of disputing
versions.
These being application proceeding in which final relief was sought,
such disputes must, in the ordinary course, be
resolved on the basis
of the facts as put up by the respondents together with those put
forward by the applicants which respondents
do not dispute. This is
in accordance of course with the test articulated in
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984
(3) SA 623
(AD) at 634 E.
[8]
It is trite, however, that a court must examine alleged disputes of
facts to see whether these are real and genuine or whether
one
party's allegations are so far-fetched or so clearly untenable or
palpably implausible as to warrant their rejection on the
papers. In
this regard see
Wightman
t/a J W Construction v Headfour (Pty) Ltd and Another
[2008] ZASCA 6
;
2008
(3) SA 371
at page 375 D - 376 C.
[9]
According to Van Rensburg, the majority member of both applicants,
the first respondent informed him on the 28 June 2010 that
he would
be starting his own business selling and installing solid surfacing
products. In the circumstances it was agreed that
the first
respondent's employment would terminate on the 2 July 2010.
Thereafter, Van Rensburg discovered that the first respondent
had
approached employees of the first applicant to resign and take up
employment with his proposed new business. He discovered,
furthermore, that the first respondent had approached existing
clients of the second applicant in an attempt to deflect them
as
customers to his own proposed new business. The clients in question
were Nova Kitchens, Shelco Shelving and GPS Interiors.
Van
Rensburg's response was to suspend the first respondent and arrange
for a disciplinary hearing to be held on the 6 July.
At that hearing
the first respondent pleaded guilty to the following disciplinary
infractions:
"1.
Starting a business which is in direct competition with (first
applicant);
Using
(first applicant's) Clients and Suppliers for personal gain;
Pouching
(sic) staff from (first applicant) for (his) own business;
Changing
company password and using e-mail for personal gain."
Pursuant
to the enquiry the first respondent was summarily dismissed and
immediately started trading from business premises in
Parow
Industria. On the day of his dismissal, 6 July 2010, the three
co-employees approached by first respondent all resigned
from the
first applicant and immediately took up employment with the second
respondent. When, at the disciplinary hearing, the
first respondent
furnished Van Rensburg with the password to his computer, which he
had changed thus temporarily disabling the
first applicant from
gaining access to the e-mail address used by him whilst he was
employed, it was discovered that on 2 July
the first applicant had
sent out quotations to an existing client of the applicants, Nova
Kitchens. These quotations purported
to be made on behalf of the
first applicant but contained the first respondent's banking
details. They related to solid surfacing
products, and amounted to
more than R100 000.00 worth of work. It was common course that the
customer accepted the quotations
but that the work was done and the
monies received by the first respondent and second respondent.
[10]
The first respondent denied, however, stealing any client or work
from the applicants stating that in furnishing the quotations
he had
erroneously used the second applicant's logo. He also claimed that
he had made no prior plan to start his own business
and had merely
mentioned, on 28 June, in a casual conversation with Van Rensburg,
that he would "one day" like to start
his own business. It
was only following his dismissal that he "had no other
option
but to seriously consider storting my own
business".
He denied having approached workers employed by the first applicant
to resign their employment or to take up employment
with him.
According to the first respondent after he had been dismissed by
first applicant he informed these workers thereof
and their response
was to enquire from him about his future plans and then to ask him
to employ them. In regard to dealings with
the applicant's clients
he stated:
"Similarly
I informed various clients with whom I had built a relationship that
I will be leaving. I do believe that informing
the clients was the
professional ethical act that they may know to not contact me.
Certain clients told me that they would like
to use my services
should I start a business of [the] same kind. I respectfully submit
that I have not approached any client
with the intention to lure
them to follow me. I do believe that any client will follow quality,
professional results-orientated
business."
The
first respondent stated that it was only on the 30 June when Van
Rensburg told him to leave that he immediately began to search
for
premises, machinery and clients and that he had prior to that date
made no plans to set up any business. He admitted that
he was able
to set up the business in a remarkably short period of time but
credited this to his "personal
skills,
knowledge
of the industry that gave
(him)
the confidence to act expeditiously."
[11]
In my view, the disputes of fact outlined above are instances where
the one party's allegations are so far-fetched or so
clearly
untenable or so probably implausible as to warrant their rejection
merely on the papers. It is utterly improbable that
the applicants
would terminate the services of a valued employee performing
important work simply on the basis of a casual conversation
in which
the first respondent indicated that he would "one day"
like to start his own business. Similarly, the first
respondent's
explanation for furnishing quotations under the name and logo of the
applicant/s but substituting his banking details,
thereby procuring
the work for his account, as merely an innocent error is also quite
implausible; so too is his bland explanation
as to how he was able
to set himself up in business with proper premises, literally within
a few days of the termination of his
employment, at the same time
taking three of the applicant's employees with him. Adopting "a
robust common sense approach"
to these disputes, it is in my
view, quite apparent that the applicant carefully planned to set up
his own business so that,
when he finally revealed his intention to
do so to Van Rensburg, following which it was agreed that his
services would terminate
with effect from early July, he was able to
hit the ground running. In the process he appropriated three of the
applicants' staff
members and walked away with work procured from
one of the applicants' existing clients during the course of his
employment.
[12]
On the basis infer a/fa of these facts I turn to consider the relief
sought by the applicants. Unlawful competition may exist
in the form
of a competitor gaining an advantage by misappropriating the efforts
of another or filching confidential information
belonging a rival.
Whatever form the competition takes, the question whether it amounts
to unlawful competition is a policy decision.
The relevant policy
factors are summed up by Van der Walt and Midgley, Delict (at 97) as
follows:
"The
fairness of conduct and honesty of the defendant are important
criteria, as are the interest of the competing parties,
the business
ethics of the section of the community (the morals of the market
place), the value placed upon a free market economy,
and the public
interest generally. Other factors, inappropriate circumstances, are:
whether protection is already afforded by
statute or other common
law remedies; whether the dispute relates to a work of craftsmanship
or one of a technical nature; issues
of confidentiality; the
defendant's motive; whether the defendant is profiting from his or
her own endeavours, as opposed to
those of the plaintiff; whether
the parties are engaged in the same field of activity, and the
likelihood of confusion; and conventions
with other countries."
•
[13]
The applicants have been able to show that its former employee, the
first respondent, conceived the idea of starting a rival
business
for the installation of solid surfacing products. Whilst still so
employed he set up his business so that he was able
to commence
trading immediately after his services terminated with the first
applicant, in the process taking three of the first
applicant's
employees with him. More significantly, using his position with
first applicant and whilst still employed by it,
he clandestinely
and dishonestly solicited and obtained orders for his own business
from an existing client of second applicant.
[14]
It is so that the respondents do not trade in the solid surfacing
products in which the second applicant now specialises
i.e. Dupont,
Corian and Montelli. However, this difference alone does not mean
the respondents are not competitors of the applicants.
It was common
cause that, either as a shopfitter or as a specialised solid surface
installer, the latter activity is an important
component of the
applicants' business/es, and the very market in which the
respondents are trading and competing. As the quotations
which the
first respondent furnished to Nova Kitchens illustrate, he was able
to persuade that customer not to take the specialised
products but a
different solid surfacing product. Nor, in my view, does the fact
that the first applicant was engaged in the
broader field of
shopfitting whilst the respondents specialised only in solid surface
installation, render it any less of a competitor
to the applicants.
It is clear that solid surface fitting forms an important component
of the shopfitting business as a whole.
That disposes of the first
ground of opposition raised by the respondents.
[15]
In seeking to establish that the respondents were unlawfully
competing, the applicants pinned their colours to the mast of
his
acquisition and use of their trade secrets or confidential
information, more particularly the detail of the second applicant's
client base and its costing structure i.e. the basis upon which it
priced products in order to remain competitive in the solid
surfacing market. Although limited detail was given of these
interests, the first respondent in effect admitted their existence
as appears from the following passages from his affidavit:
"I
admit that I was intimately acquainted with the details of the
second applicant as I was given the responsibility of the
day to
day
operation of the business. I acquired the client-base through by
personal skills of negotiating and knowledge of the products...
It
was my responsibility to deal with clients; since neither
(applicants) supervised or trained me I was responsible to handle
client and costing structure. Since the owners of the first and
second applicants were not involved with the day to day operation
of
the business, the client base only knew me thus contacting me."
[16]
The relationship between the parties turned sour when the applicants
became aware that the tirst respondent had approached
existing
clients of the second applicant even whilst still employed in what
applicants perceived was an attempt to deflect their
custom to his
own proposed new business. In
response
to these allegations, the first respondent at least partly
admitted
the conduct, although not the intention, when he
stated
as follows:
"... I
informed various clients (of the second applicant) with whom I have
built a relationship that I will be leaving. I
do believe that
informing the clients was the professional and ethical act that they
may know to not contact me. Certain clients
told me that they would
like to use my services should I start a business of (the) same
kind. I respectfully submit that I have
not approached any client
with the intention to lure them to follow me. I do believe that any
client will follow qualify, professional
result-oriented business."
[17]
Having regard to the manner in which the first respondent solicited
a substantial business order from Nova Kitchens whilst
still in
first applicant's employment, the first respondent's statements are
disingenuous. In my view, it can reasonably and
safely be inferred
that when he advised the second applicant's clients "fo not
contact
him"
at
its business premises, he was in fact intending and attempting to
induce them to transfer their custom to his newly established
business. When the first respondent joined first applicant he had no
prior experience in the shopfitting or solid surfacing business.
All
the skills that he acquired were a result of the exposure which he
gained to the business and to the applicants' clients
whilst
employed by first applicant. The manner in which the first
respondent set about establishing his new business whilst in
the
employ of the first applicant strongly indicate that he used the
knowledge which he had acquired of the client customer base,
(their
trade connections) and its costing structure as a springboard to
establish his own competing business. The first respondent
did not
suggest that this information was not confidential.
[18]
In my view, taking all the relevant facts and policy factors into
account, the applicants have succeed in establishing that
the first
respondent is unlawfully competing with them by deliberately
misappropriating and filching the products of the applicants'
skill
and labour. An interdict does not require the establishment of fault
or damage, the unlawfulness of the conduct being sufficient.
See
Townsend
Production (Pty) Ltd v Leech and Others
2001
(4) SA 33
(C).
[19]
This is an instance, however, where the value of the advantage
sought to be utilised by the respondents will diminish with
time and
ultimately vanish entirely. Sooner or later anyone competing in the
shopfitting or solid surface installation markets
will become aware
of the main customers and be able to establish contacts with them.
Similarly, within a relatively short period
of time the applicants'
costing structure will change and the value of the first
respondent's knowledge thereof will diminish
as the months pass. In
the circumstances any interdict granted cannot be indefinite and to
the Court must determine its reasonable
duration. The applicant
sought a period commensurate with that of the restraint of trade,
namely, one year but, in my view, a
period of six months would be
appropriate, such to commence from the date on which the relief is
granted.
[20]
Of the remaining grounds of opposition raised by the respondents
only one potentially applies to the unlawful competition
relief.
That is the claim that the applicants were precluded from any relief
by reason of having to come to court with unclean
hands. This claim
arose in the context of the first respondent's averment that the
first applicant's members
required
him to refrain from disclosing to customers or potential customers
that the second applicant, the vehicle through which
the specialised
solid surfacing products were marketed and installed, had any formal
relationship with the first applicant. I
am quite prepared to accept
that these were indeed the instructions which were given to the
first respondent by the applicants'
members, the reason being that
they did not want their shopfitting customers or rival shopfitters
to know that when the second
applicant quoted for solid surfacing
sub-contracts its interests were wholly aligned with those of the
first applicant and that
it was not an independent firm. To have
done otherwise would have been to render it much less likely that
any other shopfitting
business would accept such quotes knowing
that, in doing so, it was indirectly assisting a rival shopfitter
namely, first respondent.
[21]
The only supporting cases cited by Mr. Hack on behalf of the
respondents were those where a plaintiff in a passing off case
was
refused protection where he himself had made a fraudulent
misrepresentation in relation to the get-up of the goods in
question.
It is unclear to me exactly how this doctrine is said to
apply to the delict of unlawful competition save perhaps the
contention
that if the first applicant was itself unlawfully
competing with its rivals, it could not restrain any other party
from unlawfully
competing with it.
[22]
Mr. Hack sought to buttress his argument by reference to the
strictures of the Competition Act No 89 of 1998 on prohibited
practices and in particular Section 4 thereof which prohibits
restrictive horizontal practices including "collusive
tendering".
However, no evidence was put forward by the first
respondent suggesting that the applicants engaged in tendering, let
alone collusive
tendering, which I take to refer to a secret
agreement with an apparently rival tenderer in order to undermine
the process of
competitive tendering. At worst for the applicants
they failed to disclose to customers or potential customers that
there was
a relationship between the first and second applicants. It
does not follow that the quotations or prices furnished by the
second
applicant were not competitive. This ground of opposition
does not therefore assist the respondents at all.
[23]
I turn now to the relief sought by the applicant arising out of the
restraint agreement. The applicants initially sought
a rectification
of this agreement on the grounds that its terms were unclear and did
not reflect the agreement between the parties.
On reconsideration
the applicants did not persist with such prayer with, in my view,
good reason. The terms of restraint,
although not elegantly
expressed, are quite clear.
[24]
The question for determination is whether, all other things being
equal, the enforcement of the restraint would be adverse
to public
policy as being contrary to the public interest. In most instances
this boils down to the question of whether the restraint
was
unreasonable and, in determining this, the interests of the
contracting parties must weigh within the broader context of
the
often contradictory public policies of contractual sanctity and
person liberty. In
Reddy
v Siemens Telecommunication (Pty) Ltd
2007
(2) SA 486
(SCA) para 16, applying the principles first outlined in
Basson
v Chilwan and Others,
the
following four questions were identified as requiring an answer when
considering the reasonableness of a restraint:
"a)
Does the one party have an interest that deserves protection after
termination of the agreement?
b) If so, is
that interest threatened by the other party?
c) In that
case does such interest weigh qualitatively and quantitatively
against the interest of the other party not to be economically
inactive and unproductive?
d) Is there
an aspect of public policy having nothing to do with the
relationship between the parties that require the restraint
he
maintained or rejected?
Where the
interest of the parties sought to be restrained weighs more than the
interest to be protected, the restraint is unreasonable
and
consequently unenforceable. The enquiry which is undertaken at the
time of the enforcement covers a wide field and includes
the nature,
extent and duration of the restraint and factors peculiar to the
parties and their respective bargaining powers and
interests."
[25]
However, the first question to be addressed is the third substantive
defence raised by the respondents, namely, that the
interest sought
to be protected by the applicants belongs solely to the second
applicant, with whom the first respondent had
no contractual
relation and, by definition, no restraint agreement. The undisputed
evidence of the applicants was that the second
applicant was
acquired by the first applicant as a corporate vehicle for the
business of selling and installing Dupont, Corian
and Montelli solid
surfacing products after first applicant was accredited to sell them
in South Africa. The membership of the
applicants was the same in
each case. The evidence was, furthermore, that the members regarded
the second applicant as a specialised
division within the broader
shopfitting business of the first applicant. It is similarly
undisputed that the first respondent,
although employed throughout
by the first applicant, was appointed by it to take charge of the
day to day operations of the second
applicant in selling and
installing the specialised solid surfacing products. In support of a
case that the second applicant's
business was, to all intents and
purposes, a division of the first applicant, the applicants'
majority member points out that
during the first year of its
existence the second applicant was heavily subsidised by the first
applicant. To my mind, Mr Tyler,
who appeared on behalf of the
applicants, was correct in arguing that the real issue was not
whether a restraint agreement existed
between the first respondent
and the second applicant but rather whether the first applicant's
legitimate or protectable interests
extended to or incorporated the
business of the second applicant. In my view, given the identical
member interest in, and thus
control of the second applicant, the
fact that it was effectively set up and operated as a division of
the first applicant, and,
most importantly, that the first
respondent remained employed throughout by the first applicant,
although running the day to
day business of the second applicant,
the latter's business clearly forms part of the first applicant's
protectable interest.
[26]
Mr. Hack sought to rely on
Townsend
Productions
for
the proposition that no contractual nexus had been established by
the applicants. In
Townsend,
however,
the restraint relied upon was in favour of legal entity other than
the applicant. In casu the applicant relies on a restraint
in its
favour and therefore the correct party is before court, the question
being only whether the restraint covers the interest
sought to be
protected. Even if one were to disregard the existence and business
of the second applicant, I consider that the
installation of solid
surfaces, being an important component of the business of
shopfitting as a whole, falls within the terms
of the restraint at
the instance of the first applicant alone.
[27]
It must be borne in mind that the onus rests upon the convenantor,
the first respondent, to prove that the restraint sought
to be
enforced against him is unreasonable. The interest which the
applicants seek to protect in the present matter is confidential
information in the form of its pricing structure and its trade
connections. There can, in my view, be no serious argument that
these do not constitute a protectable interest at the instance of
the applicants. That interest is, furthermore, clearly threatened
by
the first respondent through his continuing to trade within the Cape
Town area in the field of the installation of solid surfaces.
I have
already found that it does not avail the first respondent that this
field is a component of the larger shopfitting trade
- he is clearly
in indirect if not direct competition with the first applicant.
[28]
First respondent occupied a position of some influence and authority
within the first applicant and acquired all his training
and
expertise whilst in its employ. He left it at short notice with the
express intention of setting up a rival business. He
does not seek
to
make the case that, economically speaking, he will not survive if he
is held to the terms of the restraint. There is no aspect
of public
policy having anything to do with the relationship between the
parties that requires the restraint to be rejected.
[29]
Having regard to all the relevant factors I consider that the first
applicant's interest in protecting itself against the
first
respondent using the information and expertise which he acquired
during the course of his employment weighs more than the
interest of
first applicant, for a limited period of time, to have complete
freedom to compete with applicants in the field of
solid surfacing
installation.
[30]
The geographical extent of the restraint was narrowed by the
applicants in argument from the Western Cape to the Cape metropole,
an area which is quite justifiable. As regards the restraint's
duration, I take into account the applicants' stance that they
do
not seek to indefinitely preclude the first respondent from
profiting from the skills which he acquired during the course
of his
employment and, furthermore, that the interest which they seek
primarily to protect are their trade connections and pricing
structure. As mentioned earlier, these interests have a diminishing
value and in these circumstances I consider that it would
appropriate and reasonable to limit the operation of the restraint
to a period of six months from the date of this order.
[31
] For these reasons the following order is made:
1.
For a period of six months from date of this order the first and
second respondents are interdicted and restrained:
1.1.
from utilising the client information of the applicants' in the
conduct of any business which competes with the applicants
in
selling and installing solid surfaces;
1.2.
from utilising the first respondent's knowledge of the costing
structure of the applicants' business in the conduct of any
business
which competes with the applicants in selling and installing solid
surfaces;
1.3.
from utilising the first respondent's connection with the
applicants' clients in the conduct of any business which competes
with the applicants in selling and installing solid surfaces;
1.4.
from selling solid surfacing components to or installing solid
surfaces for or on behalf or at the instance of, or from otherwise
engaging in the business of selling and installing solid surfaces
with any person or entity which was on, or had within one year
prior
to 6 July 2010, been a client of the applicants; and
2.
The first and second respondents are directed to forthwith deliver
to the applicants' attorney any and all documents and copies
of
documents in their possession which embody the costing structure and
client information of the applicants, including names,
contact
persons, telephone numbers, e-mail addresses, and the like.
3.
Clause 26.1 of the contract of employment attached to the
applicants' founding affidavit, marked "A", is enforced
against the first respondent, wherefore the first respondent is
interdicted and restrained, for a period of 6 months reckoned
from
date hereof, and within the Western Cape metropole, from being
engaged in the business of the second respondent in any capacity,
or
from being engaged in any capacity in any business which directly or
indirectly competes with the applicants' business.
4.
The respondents, jointly and severally shall pay the cost of this
application.
L. J.
BOZALEK, J
JUDGE
OF THE HIGH COURT