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[2010] ZAECPEHC 80
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Packaging & stapling CC v Fromm System Africa and Others (966/2010) [2010] ZAECPEHC 80 (23 November 2010)
IN
THE HIGH COURT OF SOUTH AFRICA
(EASTERN
CAPE, PORT ELIZABETH)
Case
No: 966/2010
Date
Heard: 9 September 2010
Date
Delivered: 23 November 2010
In
the matter between:-
PACKAGING
AND STAPLING CC
…..........................................................
Applicant
and
FROMM
SYSTEMS AFRICA (PTY)
…............................................
First
Respondent
GLEN
JACOBY
…...........................................................................
Second
Respondent
ANDREW
STONE
…..........................................................................
Third
Respondent
__________________________________________________________________
JUDGMENT
__________________________________________________________________
DUKADA, A. J
INTRODUCTION
[1] This is an application in which the applicant seeks
the following orders:-
1.1
That the First, Second and Third Respondents be interdicted and
restrained from communicating, marketing, offering for sale,
quoting
to, soliciting business from, or in any other manner contacting and/
or doing business with any of those clients of the
Applicant listed
in annexure "AJ6" annexed to the Applicant's affidavit.
1.2 That the First to Third Respondents are hereby
interdicted and restrained from communicating with the employees of
the Applicant
for the purposes of enticing them to take up employment
with the First Respondent.
1.3 That the First to Third Respondents are hereby
directed to deliver to the Applicant and/ or its attorneys of record
all hard
copies of client listings, quotations, price lists of
suppliers of the Applicant so as to retain no such copies in their
possession.
1.4 That the First to Third Respondents be directed to
delete all copies of client listings, quotations, price lists and
lists of
suppliers of the Applicant contained in electronic format
from whatever memory source such information may be retained.
1.5 That in the event of the First to Third Respondents
refusing to comply with the order set out hereinbefore the Sheriff of
the
above Honourable Court be directed to seize and take control of
the Third Respondent's computer and be authorized to take any steps
necessary to ensure compliance with the order contained in 1.4 above.
1.6
That the Respondents pay the costs of the application jointly and
severally.
[2] The Respondents are opposing the application.
FACTUAL
MATRIX
[3] The Applicant conducts business in marketing,
selling, acting as an agent in the distribution of packaging
materials, machines
and consumables and also supplies products,
including cargo protection, stretch wrap, shrink wrap, strapping
glues, tapes, twines,
stitching, nailing and stapling. The First
Respondent is a supplier to the Applicant of some products which the
latter distributes
on an agency basis.
[4] The Applicant is a family business Close Corporation
in which the membership interest is held as follows:-
(i) 60% is held by ANTHONY ALEXANDRIA JACOBY, father to
Second Respondent and also deponent to Applicant's founding affidavit
(
hereinafter for sake of convenience , called "the father")
(ii) 20% is held by the wife of the said ANTHONY
ALEXANDRA JACOBY
(iii) 20% is held by the Second Respondent
[5] The Second Respondent was employed by Applicant
since 1996 up to some time in January 2010. He was responsible for
the day to
day running of the business of the Applicant as he was the
managing member. On the 10
th
and 11
th
December
2009 Second Respondent visited First Respondent where he discussed
with one Mr Johnston, the Managing Director, which
discussion led to
the opening of a branch of First Respondent in Port Elizabeth by
Second Respondent. He was also employed as a
branch manager with
effect from 1
st
February 2010. This was confirmed in a
letter written by Mr Johnston to the Applicant, which is annexed to
Applicant's
papers as annexure "AJ5". From the 1
st
February 2010 Second Respondent has worked as such for the First
Respondent in its Port Elizabeth Branch. A contract of sale of
the
member's interest of Second Respondent was concluded between him and
his father on the 12
th
January 2010 but the purchase price
has not been paid yet. Second Respondent has instituted summons
proceedings out of this Court
against the father claiming payment of
the purchase price of his member's interest, tendering delivery of
the said member's interest
to the father against payment of the
purchase price. The said summons proceedings are being defended. The
father, being Defendant
in that matter admits the contract of sale of
Second Respondent's member's interest but denies liability to pay the
purchase price
pleading that he is excused from payment because of
Second Respondent's breach of the material terms of their alleged
agreement.
Third Respondent was employed by Applicant as a marketing
representative as from December 2008. He resigned on or about the 5
th
February 2010 and was thereafter employed by First Respondent in the
same capacity and doing the same job as he was in Applicant's
business. A contract in restraint of trade was signed between Third
Respondent and Applicant on or about the 15
th
January 2010
but ante-dated to 4
th
December 2008.
[6] During the course of his employment with Applicant,
Second Respondent had unrestricted access to all financial documents,
pricing
structures, lists of suppliers and intimate detail of the
salary structures of all employees. The Third Respondent while in the
employment of the Applicant had a private laptop which was used for
the Applicant's business and also had full access, via the
network,
to the customer information of the Applicant. Third Respondent
compiled a list of customers with information as to contact
persons,
physical address, contact numbers of customers and also notes
regarding the product requirements of the customers.
[7] At the outset of his argument, Mr Van der Linde SC,
counsel for the Applicant, stated that Applicant is no longer
pursuing the
orders mentioned in paragraphs 1.3, 1.4, 1.5, and 1.6
above. He also stated that with regard to the order mentioned in
paragraph
1.1 above Applicant asks for a restraint order effective
only within the Province of Eastern Cape. With regard to order
mentioned
in paragraph 1.3 Mr Van der Linde asked that it applies in
respect of products listed in Annexure "AJ6" attached to
Applicant's
founding affidavit and be effective for a period of 12
months from the date of the order. Mr Van der Linde further stated
that
the dispute between Applicant and First Respondent has been
resolved. Consequently Applicant is no longer pursuing the
application
against the First Respondent. Mr Scott, counsel for
Second Respondent, raised no objection to this application for
amendment of
Applicant's prayers.
[8]
APPLICANT'S CASE VIS-À-VIS SECOND RESPONDENT
Applicant's
case is as follows:-
(a) Second Respondent, whilst employed by the Applicant,
had access to all financial documentation, pricing structures, lists
of
suppliers and customers and intimate detail of the salary
structures of all employees of the Applicant.
(b) Second Respondent, who is now employed by the First
Respondent, is exploiting the inside knowledge gained while he was an
employee
and a managing member of the Applicant.
( c ) Customers of the Applicant have been contacted by
Second Respondent whilst in the employ of the First Respondent, and
quotations
and/or invoices for the products which Applicant
distributes in his business, have been given to them. These
quotations clearly
show a consistent cheaper price provided by the
First Respondent through the action of Second and Third Respondents.
A comparison
of the prices of goods quoted on by the Applicant and
the Respondents, clearly shows that the Respondents are under-cutting
the
Applicant's prices. Applicant further states that First and Third
Respondents are in possession of lists of Applicant's current
customers, list of Applicant's price structuring and knowledge of
what the Applicant's mark-ups and discount margins would be.
(d) As Applicant's business has been operating for a
period of 13 years, extensive knowledge had been gained in the ups
and downs
of the market, price structuring of customers, as well as
the volumes of goods required by customers. First Respondent, not
having
this experience, has gained a significant advantage by not
having to go through the learning curve. First Respondent knowing
exactly
under what constraints the Applicant operates is therefore
able to consistently market the products it sells at a significant
discount.
This discount cannot be calculated on any market related
factors and is purely premised on Applicant's price structuring.
(e) Applicant further states that he has a clear
interest in the afore- mentioned confidential information to be
protected in its
favour as it also contains trade secrets.
(f) It is further stated that First to Third Respondents
are utilizing the afore-mentioned information unlawfully. The First
Respondent
was fully aware of the relationship in existence between
the Applicant and the Second Respondent at the time he took up
employment
with First Respondent.
(g) In Applicant's replying affidavit it is further
stated that Second Respondent's conduct is in breach of his fiduciary
duties
as a member of Applicant.
[9]
SECOND RESPONDENT'S CASE
Second Respondent admits that the opening of a new
branch in Port Elizabeth by First Respondent would self- evidently be
competition.
He says this was referred to specifically by Mr A.P.
Johnston, the Managing Director of the First Respondent, in his
letter to
Applicant saying :-
"It will be inevitable that we will have a conflict of interests
however we would cross the bridges as they occur."
He denies that Applicant's customers are exclusive to it
simply because there is a business relationship between them. He says
that
would mean that no other business could approach those customers
or be approached by them, and such an approach presupposes that
competition of any nature or form is not permitted.
[10] Second Respondent admits that during the course of
his employment by the Applicant, he would have access to all
financial documentation,
pricing structures, list of suppliers and
customers and intimate detail of salary structures of all the
employees of the Applicant.
He, however, denies that there is any
intellectual property or confidential information exclusive to the
Applicant capable of protection
by this Court or justifying such
protection. He further states that Applicant has not identified any
uniqueness or exclusivity
relating to the documentation which was at
all material times within the public domain.
[11] He further denies, after his departure from the
Applicant's employment, to have made use of Applicant's documents
except for
a financial statement or document on which he needed to
rely for the computation of the selling price of his member's
interest
to the Applicant. He denies to have been in possession of
the Applicant's afore-mentioned documents except the financial
statement
or document nor to have utilized them. He says there is
nothing untoward at the Third Respondent marketing First Respondent's
products
to Applicant's customers. The customers were not exclusively
"Applicants customers". They were part of a much wider
market
of potential buyers in the public domain. He denies a
suggestion that there was a mindset of undercutting competitor's
prices.
He says the calculations were based on commercial criteria
such as demand, volumes, etc and not on creating prejudice to
competitors.
He further denies that First Respondent has utilized
Applicant's prices as starting point and contends that First
Respondent's
prices are calculated on empirical commercial criteria
and nothing else. Prices are pre-determined and fixed and could
either be
less or more than the prices of competitors. Upon special
request by customers prices may be adjusted but this would be to
accommodate
clients on an
ad hoc
basis and when special
requests are made.
[12] Second Respondent further admits to have been in
contact with some customers of the Applicant. He says it is normal,
fair and
lawful business practice with clients in the public domain.
It is not a question of "under-cutting the Applicant's prices",
but selling in accordance with the First Respondent's business
practice, policies and strategies. Second Respondent contends that
none of the Respondents has any lists of the Applicant, and that
there is no uniqueness or secrecy attached to markups as they
constitute a commercial exercise dictated by projected and
anticipated profits and not by vindictive agendas. He admits that he
knows the Applicant's markups and he says he cannot help but have
remembered them, but that there is nothing secret about what
companies markups are. He denies that First Respondent could gain any
advantage at the Applicant's expense and no learning curves
were
learnt from it by the First Respondent.
[13] Second Respondent admits that as a result of the
deterioration of relationship between him and his father he resigned.
He say
one of the consequences of that was that he concluded with his
father a contract of sale of his 20% member's interest on the 12
th
January 2010 and his father has not paid the purchase price. He has
instituted action proceedings out of this Court in Case No.
396/2010
and has tendered transfer of his member's interest to his father and
the signature of the relevant CK2 transfer form,
against payment of
the purchase price of his members interest. In reply to this his
father states that he has refused to pay the
purchase price on legal
advice as Second Respondent is acting in breach of his fiduciary
relationship with the Applicant.
[14]
ISSUES : APPLICANT VIS-A VIS SECOND RESPONDENT
The Applicant complains of the conduct of the Second
Respondent in his capacities as an erstwhile employee and also as a
member
of the Applicant.
(i) The first issue is the lawfulness of the conduct of
the Second Respondent, being an erstwhile employee of the Applicant,
of
using the confidential information, which he obtained while in the
employ of the Applicant, in the course of his employment with
the
First Respondent. If so, whether it should be interdicted and
restrained.
(ii) The second issue is whether at the time of the
alleged conduct Second Respondent was and still is a member of the
Applicant,
and if so, whether he has committed a breach of the
fiduciary relationship between him, as a member and Applicant. If so,
whether
he should be interdicted and restrained from further
persisting in such conduct.
[15] In this application the Applicant seeks a final
relief. The affidavits reveal certain disputes of facts. In the
circumstances
the relief sought by the Applicant can only be granted
if such relief would be justified on the basis of the facts alleged
by the
Second Respondent and those facts alleged by the Applicant
which have not been genuinely or bona fide disputed by the
Respondent.
(
PLASCON-EVANS PAINTS LTD v VAN RIEBECK
PAINTS (PTY) LTD
[1984] ZASCA 51
;
1984 (3) SA 623
(A) at 634 E- 365 C)
[16]
CONFIDENTIAL INFORMATION
The question is whether the following information which
Second Respondent would have had access to while in the employ of
Applicant,
may qualify for protection as confidential information:-
(i) all financial documentation;
(ii) pricing structures;
(iii) list of suppliers and customers
(iv) intimate detail of the salary structures of all
employees;
[17] As to what constitutes confidential information
THRING, J, had occasion to remark as follows in
TELEFUND
RAISERS CC v ISAACS AND OTHERS
1998 (1) SA 521
( CPD ) at 528
E- G
"
Of course it is true that the mere fact a trader chooses to call
something secret or confidential does not per se make it
so. Various
factors must be considered in this regard".
The learned Judge also referred to
SALTMAN
ENGINEERING CO LTD AND OTHERS v CAMPBELL
ENGINEERING
CO LTD
[1948] 65 RPC 203
(ch) where Lord
Greene MR said at 215 that, to be confidential, the information
concerned must:
"
have
the necessary quality of confidence about it, namely it must not be
something which is public property or public knowledge".
He quoted further Lord Greene MR saying:
"
On
the other hand, it is perfectly possible to have a confidential
document, be it a formula, a plan, a sketch, or something of
that
kind, which is the result of the work done by the maker upon
materials which may be available for the use of anybody, but
what
makes it confidential is the fact that the maker of the document, has
used his brain and thus produced a result which can
only be produced
by somebody who goes through the same process".
The learned Judge also referred to
VAN
CASTRICUM v THEUNISSEN
AND ANOTHER
1993 (2) SA 726
(T), where ROOS, J, after referring to
the above passage from the judgment in
Saltmans
case, supra, went on to say at 731 F – H.
"What is clear from the
afore-said, is that someone who saves himself the trouble of going
through the process of compilation
of the document, even where it is
complied from information which is available to anybody, such a
person would be interdicted if
that information had been obtained in
confidence. The reason is simply that confidential information may
not be used as a springboard
even when all the features have been
published or can be ascertained by any member of the public".
[18] In
METER SYSTEMS HOLDINGS
LTD v VENTER AND
ANOTHER
1993(1)
SA 409 (W) STEGMANN , J, discussed and set out the principles
applicable to the question as to what categories of information
may
qualify for protection as "confidential" in our law and how
such information should be protected. The learned Judge
said at 426 E
- I
"
Our
law recognizes the fiduciary relationships which, as a matter of law,
give rise to an obligation to respect the confidentiality
of
information parted or received in confidence, and to refrain from
using or disclosing such information which give rise to such
legal
duties are in some instances based on contracts and in some instances
they are not . Examples of contracts which give rise
to such
fiduciary relationships and duties are the contract between a
principal and his agent, an employer and his employee(or
a master and
his servant), a banker and his customer, a doctor and his patient and
so on. Examples of relationships recognized
by the law as imposing
fiduciary duties, although not based on contracts, include those
between a tutor and his pupil, a curator
and the person under legal
liability placed in his care, a trustee and a beneficiary of the
trust, a company director and the company
on his board he sits, and
so on"
.
And at 428A – 430 H, the learned Judge went on to
say:-
" I
n principle, there can
be no limit to the number of potential categories of information
which may qualify for protection as 'confidential'
under our law,
either in delict (by way of legal duty arising from the application
of the principles of Aquilian liability to situations
in which a
fiduciary relationship not based on contract is recognized), or in
contract (by way of a contractual term implied by
law where the
contract is one that creates a fiduciary relationship). It is
nevertheless useful to group together such categories
of information
as have already been recognized as qualifying, or as failing to
qualify, for such protection. The purpose is to
determine whether the
information for which the applicants now seek protection falls within
any category already so recognized,
or within any category which, by
analogy, should be recognized. The following list, which is not
exhaustive, refers to some of
them in the appropriate chronological
order of their recognition in our case law:
1. Customer list drawn up by a
trader, and kept confidential for the purposes of his own business,
contain confidential information,
the property of the trader:
Pelunsky & Co v Theron
1913 WLD 34
;
Robb v Green
[1895] 2 QB 315
(CA). The legal protection afforded to this type of
confidential information is limited by the fact that the law whilst
prohibiting
an employee from taking his employer's customer list, or
deliberately committing its contents to memory, nevertheless
recognizes
that, on termination of an employee's employment, some
knowledge of his former employer's customers will inevitably remain
in the
employee's memory, and it leaves the employee free to use and
disclose such recollected knowledge, in his own interests, or in the
interest of anyone else, including a new employer who competes with
the old one:
Freight Bureau (Pty
)
Ltd v Kruger and Another
1979 (4) 337 (W) at 341E-F;
Roberts v Elwells
Engineers Ltd
[1972] 2 All ER 890
(CA) at 894f-h.
2.
Information received by an employee ( or anyone else bound by a
fiduciary duty) about business opportunities available to an
employer(or to anyone else to whom a fiduciary duty is owed) even if
such information could be obtained from a source other than
the
employer or employee (or from the parties to the fiduciary
relationship) :
Jones
v East Rand Extension Gold Mining
Co
Ltd
1903 TH 325.
Among such business opportunities may be included those which arise
through knowledge of the identity of the supplier of a particular
commodity wanted by a potential buyer, even if such knowledge may be
available from other sources too:
Coolair
Ventilator Co (SA) (Pty) Ltd v
Liebenberg
and Another
1967 (1) SA 686
(W). Marais J said, at 691B:
"
What would constitute information of a
confidential nature would depend on the circumstances of each case,
and in this regard the
potential or actual usefulness of the
information to a rival would be an important consideration in
determining whether it was
confidential or not."
3.
The information received in confidence by an employee whilst in
employment with a particular employer remains protected by a
legal
duty, implied by the contract of employment, which continues to
prohibit disclosure of such information after the termination
of the
relationship of employer and employee :
Beeton v Peninsula
Transport Co (Pty ) Ltd
1934 CPD 53
at 57-8. This proposition
must be qualified in the light of para 10 below.
4. Information contained in
stolen documents :
Goodman v Van Moltke
1938 CPD 153
at 156.
5. Information which, although
in the public domain (i.e. freely accessible to all members of the
public) is nevertheless protected
as confidential when skill and
labour have been expended in gathering and compiling it in a useful
form, and when the compiler
has kept his useful compilation
confidential, or has distributed it upon a confidential basis.
Protection is afforded on principles
deriving from the
lex
Aquilia
:
Dun & Bradstreet (Pty) Ltd v SA Merchants
Combined Credit Bureau (Cape) (Pty) Ltd (supra
).
6…………………………………
7…………………………………
8………………………………
9………………………………
10. The type of information
alone does not necessarily establish its confidentiality. All the
relevant circumstances must be considered.
Where information is
protected as confidential by law, the confidentiality is not always
absolute, nor is the protection always
permanently available. Amongst
the limitations are:-
10.1 the limit to the protection
of the information in a customer list, which I have already mentioned
in 1 above;
10.2
the knowledge gained by an employee of a trader relating to the
method of conducting the business, and relating to the identity
of
the suppliers to such business, need not necessarily be confidential
at all: such information may become the employee's own
knowledge and
skill which he is afterwards entitled to use in competition which his
former employer:
Marks v Luntz and Another
1915 CPD 712
;
Atlas
Organic Fertilizers
(
supra
at192G- 194B)
10.3
the information in question may be useful and relevant, and therefore
confidential, for no more than a limited time ( ie the
time which any
independent enquirer would take to gather it for himself). It is then
only protectable for a limited period, if
at all. This is the basis
of the 'springboard' doctrine. Compare
Atlas Organic Fertilizers
(supra
at 192G-194B);
[19] As to drawing the line between information which is
general knowledge, on the one hand, and information which is
confidential
or constitutes a trade secret, on the other, THRING, J,
in
TELEFUND RAISERS CC
case
supra, quoted with approval
VAN CASTRICUM's
case supra reading as follows at 731-732 C:-
"It seems that the four
principles ennunciated in the following English authority are of
great assistance in discerning whether
information constitutes
confidential information or a trade secret worthy of protection:-
"if one turns from the
authorities and look at the matter as a question of principle, I
think………….that
four elements may be
discerned which may be of some assistance in
identifying confidential
information or trade secrets which the Court will protect. I speak of
such information or secretes only
in an industrial or trade setting.
Firstly, I think that the information must be information the release
of which the owner believes
would be injurious to him or of an
advantage to his rivals or others.
Second, I think that the owner
must believe that the information is confidential or secret, i.e that
it is not already in the public
domain. It may be that some or all of
his rivals already have the information, but as long as the owner
believes it to be confidential
I think he is entitled to try and
protect it. Third, I think that the owner's belief under the two
previous heads must be reasonable.
Fourth, I think that the
information must be judged in the light of the usage and practices of
the particular industry or trade
concerned. It may be that
information which does not satisfy all these requirements may be
entitled to protection as confidential
information or trade secrets,
but I think that any information which does satisfy them must be of a
type which is entitled to protection"
The learned Judge went further quoting the
conclusion at 736 A- B in
VAN CASTRICUM'S
case as follows:-
"
It
is in my view clearly established in our law that it is unlawful for
an employee
to take his employer's
confidential information or documents and use them to
compete with his employer.
See:
AERCRETE SOUTH AFRICA (PTY)
Ltd AND ANOTHER
v
SKEMA
ENGINEERING CO. (PTY) Ltd AND OTHERS
1984 (4)
SA 814
D at 822 E- G. This also applies to former employees. See:
PELUNSKY
& CO v
TERON
1913 WLD 34
"
In the light of the above summary of the legal position,
I turn now to apply these principles to the facts of this case.
[20] It is clear to me that Applicant has at all
material times regarded what is recorded in her lists of customers or
customer
information as confidential and has believed it to be so.
The information in the customer lists or customer information is such
that its release to the First Respondent, Applicant's rival,
Applicant believes would be injurious to it or of advantage to First
Respondent, her rival. Second Respondent admits to have contacted
some customers of the Applicant. In my view, the belief is
reasonable.
Applicant attached to its founding affidavit Annexure
"AJ7" which contains a list of Applicant's customers, names
of
contact person, physical addresses, telephone numbers and notes on
products in respect of each customer. Applicant states that this
list
was compiled by the Third Respondent while in its employ and having
full access, via the network, to the customer information
of the
Applicant. Second Respondent in response states that he was not aware
of the existence of customer list "AJ7".
He also states
that he did not have the customers' list "AJ6 " . He
further states that none of the Respondents has had
these lists prior
to the initiation by the Applicant of these proceedings.
Unfortunately, as Applicant states that customer lists
"AJ6 "
and "AJ7" were prepared by Third Respondent the latter has
not filed any answering affidavit on which
he would have admitted or
denied these allegations. Although he appeared in Court on the day on
which this matter was argued, he
merely stated that he would abide
this Court's decision.
[21] Second Respondent in paragraph 60 of his answering
affidavit, says:-
"
The
list of customers marked "AJ6" was a list of customers
extracted from the Applicant's pastel program. It is a list
of all
customers which the Third Respondent had from time to time done
business whilst he was attached to the Applicant."
Further in paragraph 63 of Second Respondent's answering
affidavit, he says:-
"The Third Respondent and I
have drafted a schedule which I annex hereto as Annexure "EJ1".
It consists of four columns.
The first column deals with those
accounts of the Applicant which remained active at the time of my
departure. Only 58 of the total
of 259 names on Annexure "AJ6"
constitute currently active accounts of the Applicant."
[22] In my view it is clear from the above statements
that Second Respondent does admit the existence of some of the
customers of
the Applicant contained in customer list "AJ6".
Second Respondent describes 58 customers in Annexure "AJ6"
as currently active customers of the Applicant and in my view it is
not unlikely that many of them, in the future will place orders
with
the Applicant for products distributed and sold by the latter.
Annexure "AJ6" comprises 4 pages while Annexure "AJ7"
comprises 9 pages, which to me, indicates that some considerable time
was taken in compiling them. At the time Third Respondent
compiled
Annexure "AJ6" and "AJ7" he was, as stated in
paragraph 7.30 of Applicant's founding affidavit, employed
by the
Applicant. In response to this Second Respondent in paragraph 70 of
his answering affidavit, merely says:-
"the Third Respondent's
list is noted…………."
[23] In paragraph 62 of Second Respondent's answering
affidavit, he says in respect of customers listed in Annexure "AJ6":-
"
The
list in any event could be made up from a brief look at the Yellow
pages published in the telephone directory or by conducting
a simple
search on the internet".
[24] Mr Scott also argued along these lines as was
argued in
VAN CASTRICUM'S
case
supra,
"
That
the telephone numbers of the Applicant's customers can easily be
ascertained from a telephone directory"
Roos, J , said that , of course, is correct provided
however you know who the clients are. Quoting with approval the
afore-quoted
statement by ROOS, J, in
TELEFUND
RAISERS C
C supra, THRING, J, at 532 A –
C , took the point further and said:-
" The identity of the
applicant's existing actual customers and likely future customers is
something known only to the applicant
and its employees; that
information is commercially valuable to the applicant and would be
equally commercially valuable to a competitor.
Its disclosure to such
a competitor could normally be expected to be deleterious of the
applicant's interest and beneficial to
those of the competitor. The
competitor would be saved by such a disclosure from having to spend
time money and effort searching
for and finding potential customers;
it would be furnished with what has been called a 'springboard' from
which to launch and market
its products. It would have a list of
identified potential customers. It could canvass the applicant's
customers and attempt to
persuade them to deal with it rather than
with the applicant. If it succeeded, it would benefit thereby and the
applicant would
suffer".
[25] I fully agree with the above reasoning by the
learned Judge.
[26] Coming to this case, the customer list in Annexure
"AJ7" contains more than just the names and telephone
numbers.
It contains the names of the contact persons, physical
addresses of the customers and the products in which the customers
have
interests. This further information surely cannot be found in a
telephone directory and would indeed constitute a valuable
'springboard'
to the First Respondent from which to launch and market
its products.
[27] The test of confidentiality is an objective one as
stated by ROOS, J in
VAN CASTRICUM'S
case, supra at 732 C- D,
quoting with approval the following extract from MARAIS, J in
COOLAIR
VENTILATOR CO. (SA)
(
PTY) LTD v LIEBENBERG AND ANOTHER
1967 (1) SA 686
W at 698 F- H :-
"
The
difficult question in each case would be to decide what information
gleaned by an employee is to be
regarded as disclosable as being harmless or general knowledge and
what items are confidential or
general knowledge and what items are
confidential or secret. The dividing line may move from case to case,
according to what is
general practice or convention in the category
of trade or manufacture in which the plaintiff falls, with the
particular reference
to existing or potential competitors of his. If,
however, it is objectively established that a particular item of
information could
reasonably be useful to a competitor as such, i.e
to gain an advantage is prima facie confidential as between an
employee and third
parties and that disclosure would be a breach of
the service contract. If use has in fact been made of it, in an
effort to harm
the business interest of the Plaintiff the presumption
would be even stronger that the employee, who would in the course of
his
employment obtain knowledge of it., intended to be treated as
confidential information not to be divulged to third parties."
[28]
In the present application the
Second and Third Respondents have contacted some of the customers of
the Applicant and made quotation
for them. The First Respondent had
decided to open a branch in Port Elizabeth, the area in which
Applicant carries on her business.
Mr A.P. Johnston, the Managing
Director of First Respondent, said in his letter to Applicant,
annexed to the Applicant's papers
as Annexure "AJ5" :-
"Our primary objective will
be to actively grow the fromm product market share in the region and
as such it will be inevitable
that we will have a conflict of
business interests, however we would cross the bridges as they
occur."
Further, Second Respondent, in paragraph 52 of his
answering affidavit, says:-
"The Respondent was opening
a new branch in Port Elizabeth. Self- evidently there would be
competition. This was referred to
specifically by Mr Johnston in
annexure "AJ 5" where he stated that " it will be
inevitable that we will have a
conflict of business interests however
we would cross the bridges as they occur."
[29] In my view the relevant information could
reasonably be useful to the First Respondent to enable it to gain an
advantage over
the Applicant.
[30] In his answering affidavit, the Second Respondent
denies that Third Respondent and himself took any customer lists of
the Applicant
when they left the employment of the Applicant. In this
regard one may refer to the remark made by CROSS, J in
PRINTERS
AND FINISHERS LTD v HOLLOWAY
[1965]RPC 239
(CL) at 255-6, quoted with approval in the matter of
HARVEY
TILING CO (PTY) Ltd
v
RODOMAC
(PTY) LTD AND ANOTHER
1977 (1) SA, 316
(T)
which reads as follows:-
"
The mere fact that the
confidential information is not embodied in a document but is carried
away by the employee in his head is
not, of course, of itself a
reason against granting of an injunction to prevent its use or
disclosure by him. If the information
in question can fairly be
regarded as a separate part of the employee's stock of knowledge
which a man of ordinary and honest intelligence
would recognize to be
the property of his own to do so as he likes with, then, the Court,
if it thinks that there is a danger of
the information being used or
disclosed by the ex-employee to the detriment of the old employer,
will do what it can to prevent
that result by granting an injunction.
Thus an ex- employee will be restrained from using or disclosing a
chemical formula or a
list of customers which he has committed to
memory."
[31
]
These considerations lead me to
conclude that the information contained in the customer lists of the
Applicant is of confidential
nature
[32] The next question is whether such information is
worthy of legal protection.
[33] Mr Scott, in his argument, conceded that customer
lists drawn by a trader, and kept confidential for the purposes of
his own
business, contain confidential information which is the
property of the trader. He, however, submitted that the legal
protection
afforded to this type of confidential information is
limited by the fact that the law, whilst prohibiting an employee from
taking
his employer's customer list, or deliberately committing its
contents to memory, nevertheless recognizes that, on termination of
employee's employment, some knowledge of his former employer's
customers will inevitably remain in the employee's memory, and it
leaves the employee free to use and disclose such recollected
knowledge, in his own interests, or in the interest of anyone else
including a new employer who competes with the old one.
[34] I agree fully with this submission. (See:
METER
SYSTEMS HOLDING
LTD
case supra at 428 D- G; and
TELEFUND
RAISERS CC
case, supra at 529). A similar approach was adopted in
FREIGHT BUREAU (PTY)Ltd
v
KRUGER AND ONOTHER
(4)SA
337(W) at 341 E- G where KING, J quoted with approval the following
remark by LORD DENNING M R in
ROBERTS v ETTWELL'S ENGINEERS LTD
(1992) 2 ACC ER 890 at 894:-
"It
is settled law that a servant, having left his master's servant, may,
without fear of legal consequences, canvass for the
custom of his
late master's customers, whose names and addresses he has learned
during the period of his services, so long as he
does not take a list
of them away with him: see
ROB
v GREEN
(1895)2
QB315. All the more so, an agent may do so, especially when customers
have been introduced by the agent himself. In the
absence of express
restriction (which must be reasonable) he cannot be restrained from
canvassing the customers for a new principal."
See also:
CAMBRIDGE PLAN A.G. AND
ANOTHER v MOORE AND OTHER
S
1987 (4) SA 821
(D) at 846 E – H.
[35]
In paragraph 119 of Second
Respondent's answering affidavit, he says:-
"
I admit that I have been in contact with the customers referred to in
supplying and maintaining their equipment and servicing
same, as I
personally did in the past. All this is normal, fair and lawful
business practice with clients in the public domain."
In paragraph 120 of his answering affidavit Second
Respondent says:-
"
All
this is lawful competition"
[36] This then brings to the fore whether the conduct of
the Second Respondent was unlawful or not?
[37] In regard to unfair competition, NICHOLAS, AJA in
SCHULTZ v
BUTT
1986(3) 667 AD at 678 F- H said:-
"
As a general rule, every
person is entitled freely to carry on his trade or business in
competition with his rivals. But the competition
must remain within
lawful bounds. If it is carried on unlawfully , in the sense that it
involves a wrongful interference with another's
rights, as a trader
that constitutes an injuria for which the Aqulian action lies if it
has directly resulted in loss. In order
to succeed in action based on
unfair competition, the plaintiff must establish all the requisites
of Aquilian liability, including
proof that the defendant has
committed a wrongful act. In such a case, the unlawfulness which is a
requisite of Aquilian liability
may fall into category of clearly
recognized liability…….. But it is not limited to
unlawfulness of that kind. In
the DUN AND BRADSTREET case supra at
218 CORBETT, J referred to the fact that in the cases of GEARY &
SON (PTY) LTD v GOVE
(supra) and COMBRINCK v DE KOCK
(1887) 5 SC 405
emphasis was placed on criteria such as fairness and honesty in
competition."
The learned Acting Judge of Appeal, went on to say:-
" In judging of fairness
and honesty, regard is had to
boni
mores
and to the
general sense of the justice of the community."
[38] Applying these principles to this matter I am of
the view that there is no evidence showing unlawfulness on the part
of the
Second Respondent as an ordinary ex-employee of the Applicant.
[39] I now turn to the question whether the Second
Respondent at the time of the alleged conduct and also now was or is
a member
of the Applicant and if so whether he should be interdicted
and restrained from further committing such conduct.
[40] The Applicant raises the question a breach of
fiduciary duty on the part of the Second Respondent for the first
time in his
replying affidavit. However no objection was raised on
behalf of the Second Respondent in respect of that aspect and
consequently
it will not be taken any further.
[41]
SALE OF SECOND RESPONDENT'S MEMBERS INTERESTS
It is common cause that a contract of sale of Second
Respondent's members interests in Applicant was concluded between the
deponent
to the Applicant's founding affidavit and Second Respondent
on the 12
th
January 2010. It is common cause that the
purchase price has not been paid yet to the Second Respondent. Second
Respondent has,
on the 15
th
February 2010, issued summons
out of this Court per Case No. 396/2010 against the deponent to
Applicant's founding affidavit for,
among other things, payment of
the purchase price. That action is being defended on the basis that
Defendant is excused from payment
of the purchase price as a result
of the Plaintiff's breach of the material terms of the agreement of
sale.
[42]
Mr VAN DER LINDE, argued that Second Respondent has breached his
fiduciary position as a member in terms of Section 42(2) (
b) (iii)
of the
Close Corporations Act 69 of 1984
in that, amongst others, he
competes with the Close Corporation in its business activities.
Further the Second Respondent did not
obtain the consent of any of
his fellow members as envisaged in
Section 42(2)(b)(iv)
of the Act.
He referred me to
VOLVO (SA)(PTY) LTD v
YSSEL
2009 (6)
SA 531(SCA)
,
VAN DER WALT & ANOTHER v PUBLIC
RELATIONS
PROMOTIONS
&
COMMUNICATIONS CC;
PUBLIC RELATIONS &
PROMOTIONS CC v VAN DER WALT &
ANOTHER
(2004) JOL
13261
(SCA); CLOSE CORPORATIONS SERVICE: INTERNAL RELATIONS BETWEEN
MEMBERS AND CLOSE CORPORATION (LEXISNEXIS, DURBAN) paragraphs 4.02-
4.03.
[ 43] Mr Scott contended that Second Respondent is still
a member of the Applicant only on paper. He resigned as an employee
of
Applicant on 4
th
January 2010. On 12
th
January 2010 he sold his member's interest to his father but the
purchase price has not been paid yet. He submitted that
Section 42
of
the
Close Corporations Act, relates
to active members of the
Applicant and Second Respondent is not active.
[44] Section 42 of the Close Corporation Act deals with
fiduciary position of members. I will return to this aspect later in
my
judgment. For now the question is whether Second Respondent is
still a member of the Applicant.
[45]
TRANSFER OF MEMBERS
INTEREST
In the Close Corporations Service by LexisNexis at
paragraph 3.21 the writers comment as follows on this aspect:-
"
The Act does not in terms
stipulate the method of transfer of a member's interest. There is no
requirement comparable with section
133 of the Companies Act which
provides that a company may not register a transfer of shares unless
a transfer form (' a proper
instrument of transfer") has been
delivered to it.
The transfer of an individual
member's interest does, however, necessitate the registration of an
amended founding statement . Accordingly
the transfer of a member's
interest is in practice very often effected by lodging CK2 (Amended
Founding Statement ) showing inter
alia in part B details of the
member or members who resign and the reconstituted list of members
after the transfer of the particular
member's interest has been
effected……….
The transferee only becomes a
member and acquires the member's interest on registration of form
CK2"
(
These writers refer to Section 15(1) of the Close
Corporation Act No. 69 of 1984 in support of their comment. )
[46]
Section 15(1)
of the
Close Corporations Act reads
as follows:-
"15.REGISTRATION OF AMENDED
FOUNDING STATEMENT- (1)
If
any change is made or occurs in respect of any matter particulars of
which are stated in a founding statement of a corporation
in
accordance with paragraph
(b),(d),(e) or(f) of
Section 12
, the corporation shall, subject to
the provisions of
section 29(3)
(c) and (d) within 28 days
after
such change lodge with the Registrar for registration in his or her
registers an amended founding statement,
in
the prescribed form together with the prescribed fee, signed by or on
behalf of every member of the corporation and by or on
behalf of any
person
who will become
a member on such registration,
and
which contains particulars and the date of change" . (my
underlining)
The particulars referred to in 12(b), (d), (e) and (f)
are:-
(b) The principal business to be carried on by the
corporation;
(d) the full name of each member , his identity number
or, if he has no such number the date of his birth and his
residential address;
(e) the size, expressed as a percentage, of each
member's interest in the corporation;
(f) particulars of the contribution to the
corporation…………………….
[47] Of relevance here is the question as to when does a
person commence to be a member of a Close Corporation. In this regard
Section 29
(3) (a) provides as follows :-
"
The
membership of a person qualified therefore in terms of subsection (2)
shall commence on the date of the registration of a founding
statement of the corporation containing the particulars required by
section 12
in regard to such person and his members interest."
[48]
Section 29
(3)(b) goes further to say:-
"
where
any person is to become a member of a registered corporation the
existing members of the corporation shall ensure that the
requirements of
section 15(1)
regarding the lodging of an amended
founding statement with the Registrar are complied with"
[49] Prof H.J. Delport in 1992 DE JURE at page 126,
under the heading "TRANSFER OF A MEMBER'S INTEREST IN A CLOSE
CORPORATION"
remarks as follows on the question of a transfer of
a member's interest by a member to another member :-
"There
is no requirement in the
Close Corporations Act that
the transfer by
a member of his member's interest to another member of the
corporation must be registered to be effective. When
a member's
interest (or a portion thereof) is transferred to another member, the
member's interest is cancelled or reduced (as
the case may be) and
the percentage concerned is added to the interest of the other member
………….………
These
changes in respect of the member's interest necessitate the lodging
of an amended founding statement under section 15 of
the Act .
However, it is clear from a reading of section 15(1) and (2) that any
change in percentage of a member's interest takes
effect when the
change is made and not when the founding statement is registered.
In
terms of section 15(2) changes in respect of certain particulars
recorded in a founding statement take effect only when the amended
founding affidavit ie registered. A change in the size of a member's
interest is not covered by section 15(2) even if the percentage
is
reduced to NIL. It follows that a member can transfer his member's
interest to the corporation, the transferee of a member's
interest
does not become a member of the corporation on transfer of the
member's interest but only on registration of the amended
founding
statement.
Consequently
the transferee assumes the rights and duties connected with the
membership only on registration of the amended founding
statement.
This view is
strengthened by the
definition
of "member" in section 1; in terms of this definition
"member" means a person qualified for membership
of a
corporation and designated as a member in a founding statement of the
corporation. Registration of an amended founding statement
is
therefore not merely a formality but a substantive requirement for
the acquisition of membership in an existing corporation."
[50]
Prof Delport under the heading "TERMINATION OF MEMBERSHIP
FOLLOWING THE TRANSFER OF A MEMBER'S INTERST" at page 129
paragraph 4.1, 1992 DE JURE, s
upra
,
further remarks as follows:-
"The transfer by a member
of the whole of his member's interest therefore terminates his
membership of the corporation. This
change in membership must be
reflected in an amended founding statement. However termination of
the transferor's membership of
the corporation is not dependant on
the registration of the amended founding statement "
[51] It will be noted that Prof Delport in his analysis
distinguishes between the acquisition of member's interest, on the
one hand,
and the assumption of rights and duties of the member of
the Close Corporation. To put it in other words, he draws a
distinction
between membership of a close corporation on the one hand
and the holding of a member's interest on the other. He, however,
concedes
that these two events can in some circumstances occur
simultaneously e.g. when in the agreement disposing the member's
interest
it is stipulated that the member's interest will be acquired
on registration of the amended founding statement.
[52] The question now that arises is what does transfer
of a member's interest constitute or mean? Prof H.P. Delport at 123
paragraph
3(a) says:-
"
A member's interest
can be described as incorporeal movable property conferring certain
rights (
iura in
personan
) on the
holder of the interest. Since a member's interest in essence embodies
a personal right against the corporation, it can
be transferred by
cession, namely an agreement between the transferor and the
transferee whereby the rights vesting in the former
are transferred
to the latter."
[53] I fully agree with the analysis and conclusions
made by Prof Delport afore-quoted.
[54] Turning to the situation before us. The disposal of
the member's interest is between members of the corporation and the
whole
member's interest is being disposed of. Only the contract of
sale or disposal of the member's interest has been concluded and no
payment of the purchase price has been made nor any agreement to
transfer the said interest e.g cession has been concluded. In
paragraph 77 of his answering affidavit Second Respondent says:-
"
The deponent has not paid
my 20% member's interest which I sold to him on 12
th
January 2010. I annex hereto
"EJ2", a copy of the summons which I have instituted out of
this Honourable Court in Case
396/10. The Applicant has not delivered
a Plea as yet. I have tendered the transfer of my member's interest
to the deponent and
the signature of the relevant CK2 transfer form,
against payment of the purchase price of my 20% member's interest."
[55] In my view the Second Respondent would cease to be
a member of the Applicant not on transfer of his member's interest
and signature
of the CK2 i.e. the amended founding statement form,
but on registration of the amended founding statement as required by
Section
15(1). That is the stage at which Second Respondent's rights
and duties as a member of the Applicant would cease.
[56] I, consequently find that Second Respondent is
still a member of the Applicant.
[57] I now deal with the conduct of the Second
Respondent as complained of in this matter and his duties as a member
of the Applicant.
[58]
THE LAW
Mr Van Der Linde, and Mr Scott correctly referred me to
Section 42
of the
Close Corporations Act, more
particularly
Section
42(1)
and
42
(2)(b)(iii).
[59]
Section 42
(1) reads as follows:-
"
Each member of a
corporation shall stand in a fiduciary relationship to the
corporation".
Section 42(2)(b)(iii)
reads as follows:-
"
Without prejudice
to the generality of the expression "fiduciary relationship"
the previsions of subsection (i) imply
that a member-
(b) (iii) shall not compete in
any way with the corporation in its business activities".
[60] In Close Corporation Service, LexisNexis at
paragraph 4.02 the writers comment as follows on
Section 42:
-
"
These provisions are largely,
based on the principles enunciated by the Courts in relation to the
fiduciary duties of directors.
It is therefore submitted that in the
interpretation of
section 42
and
43
and in considering other possible
breaches of duty the Courts will have regard to the principles as
developed in company law but
at the same time keeping in mind that
the close corporation is not characterized by separation of ownership
of control."
(
See the judgment by NUGENT, JA in
VOLVO
(SOUTHERN AFRICA
(PTY) Ltd v YSSEL
2009
6 SA (SCA) at 535-538)
FACTS
[61] The deponent to Applicant's founding affidavit
deals with Second Respondent's competitive conduct in paragraphs 7.20
and 7.21
which read as follows:-
"
7.20.
At the time when the Second Respondent and I had a discussion as to
what his future plans were during about the beginning
of January
2010, he informed me that he was going to open a branch office for
the First Respondent in Port Elizabeth.
7.21.
He further more informed me that he would be marketing the First
Respondent's products for the area from Mosselbay to East
London to
new customers. This meant he would not compete. This meant he would
not compete with the Applicant for existing customers'
[62] In answer to these paragraphs, Second Respondent
responds as follows in paragraphs 51,52 and 53 of his answering
affidavit:-
"51. I acknowledge what the
deponent states but his extrapolation to the fact that this meant
that he would not compete with
the Applicant for existing customers
is wrong. I certainly deny that I had indicated that there would be
no competition between
the Applicant and the First Respondent. There
would most certainly have been competition, firstly because there was
a level of
competition which pre-existed my tenure and secondly
because the proposed venture was consistent with customary business
practices.
It would have been nonsensical for me to have suggested
that there would be no competition.
52. The reference to "new
customers" is presumably a reference to new customers of the
First Respondent and not to customers
other than the applicant's
alleged customers. The First Respondent was opening a new branch in
Port Elizabeth. Self-evidently these
would be competition. This was
referred to specifically by Mr Johnston in annexure "AJ5"
where he stated that '……….
It will be inevitable
that we will have a conflict of business interest however we would
cross the bridges as they occur.'
53. The deponent appears to be
under misconception that the Applicant's customers are somehow
exclusive to it simply because there
is a business relationship. This
means that no other business could approach those customers or be
approached by them. Such an
approach presupposes that competition of
any nature or form is not permitted, I reject this extrapolation
.
[63] It is clear from the above answers of the Second
Respondent that he is conducting business in First Respondent employ
in competition
with the Applicant.
[64] Consequently, I am convinced that Second Respondent
is in breach of his fiduciary relationship with the Applicant.
[65]
IS AN INTERDICT AN APPROPRIATE REMEDY ?
Mr Scott raised in his argument a question whether an
interdict is an appropriate remedy in this matter. After referring me
to a
number of decided cases he submitted that if the Second
Respondent is guilty of any breach of a
fiduciary duty or unlawful use of a confidential
information, the Applicant has a claim for damages against the Second
Respondent.
[66] The only requisite for a final interdict that has
been put in issue by Mr Scott is the availability of a claim for
damages
as the alternative remedy.
[67] It is trite law that one of the requisites for both
a final interdict and an interim interdict is the absence of similar
protection
by any other ordinary remedy. See:
SETLOGELO v
SETLOGELO
1914 AD 221
at 227;
MASUKU v
MINISTER VAN
JUSTISIE
1990 (1) SA 832
AT 840 - 841.
However such alternative remedy must be adequate in the
circumstances, ordinary and reasonable, a legal remedy and grant
similar
protection. See :
FREE STATE GOLD AREAS LTD v MERRIESPRUIT
(OFS) GOLD
MINING CO. LTD
1961 (2) SA 505
(W) at 518 G;
CAPE TOWN
MUNICIPALITY v ABDULLA
1974 (4) 428 (C ) at
440 H;
SCOTT v
THERON
1976 (1) SA 612
(O) at 622. In
FOURIE v UYS
1957 (2) SA 125
(C) at 128 , HERBSTEIN, J said:-
"
The Court will not, in
general, grant an interdict when applicant can obtain adequate
redress by an award of damages:-
At 125 A, the learned Judge went further and said :-
" but where damages may not
be an adequate remedy because of the difficulty of proving them
because respondent is a man of
straw ; or where by refusing the
interdict the applicant will, in fact, be compelled to part with his
rights, the Court will be
disposed to grant the interdict."
See also :-
CANDID ELECTRONICS v
MERCHANDISE BUYING
SYNDICATE
1992 (2) SA 459
(C )at 465C
[68] On the facts of this case I have already found that
the Second Respondent has breached, and is also presently in breach
of
his fiduciary relationship with the Applicant. The Applicant has
established a clear right which was, and still is, being infringed
by
the Second Respondent.
[69] In my view to refuse Applicant an interdict against
the Second Respondent in respect of his customers listed in Annexure
"AJ6"
would be to put Applicant in a situation compelling
him to part with his rights.
[70] Furthermore, the Applicant, for a claim for damages
against the Second Respondent, would have to quantify the financial
loss
she would suffer as a result of the competition caused by the
Second Respondent while in the employ of the First Respondent. In
my
view Applicant would face some difficulties in quantifying such
damages. It is thus only cold comfort to the Applicant's case,
as Mr
Scott sought to persuade me, that the Applicant has an alternative
remedy in the form of a claim for damages against the
Second
Respondent. The difficulty of establishing the quantum of damages has
been recognized in our law as a factor relevant to
the determination
of the question whether or not damages would be an adequate remedy.
See
ROBERTS CONSTRUCTION CO LTD v VERHOES
1952(2) SA 300 (W) at 307 C- D ;
NATIONAL
CHEMSEARCH (SA) v
BORROWMAN AND ANOTHER
1979 (3) SA 1092
(T) at 123 F – H ;
NAMPESSA
(SA) PRODUCTS (PTY) LTD v ZADERER AND OTHERS
1994(1)
SA 886 (C) at 901H.
[71] I am quite aware, as stated by COOPER, J in
CANDID
ELECTRONICS
(
supra)
at 464 F- G, that the
" grant or refusal of an
interdict is a matter within the discretion of the Court hearing the
application and depends on the
facts peculiar to each individual case
and the right the applicant is seeking to enforce"
[72] In my view a claim for damages against the Second
Respondents would not be an adequate alternative remedy in the
instant case.
[73] Consequently Applicant is entitled to a relief
against the Second Respondent.
[74] I now turn to the case of Applicant
vis-a
vis
Third Respondent.
[75] Applicant seeks the interdict relief against the
Third Respondent by virtue of, an agreement in restraint of trade.
[76] Applicant states that Third Respondent was employed
by Applicant as a marketing representative during or about December
2008.
At the time of entering into employment with Applicant, Third
Respondent was required to sign a restraint of trade agreement. At
some time before Second Respondent left the employ of Applicant it
was discovered that Third Respondent's signed restraint of trade
agreement had disappeared from his file. Second Respondent's father
then instructed Second Respondent to obtain a replacement of
the
restraint of trade agreement which was signed on or about the 15
th
January 2010. A new agreement of restraint of trade was
concluded but back -dated to the date of Third Respondent's
commencement
of employment i.e. 4
th
December 2008. Third Respondent tendered his resignation
from the employ of the Applicant on the 5
th
February 2010 and his final working day was 26 February
2010. Third Respondent informed Applicant that he was going to work
for
a company situated in Walmer, Port Elizabeth and that he would be
a marketing alarm systems on behalf of that company. Third Respondent
after leaving the employ of Applicant became employed by the First
Respondent, he thereafter visited Applicant's customers, marketing
those product supplied by Applicant to those particular customers.
Applicants states that Third Respondent's employment with First
Respondent is in breach of the agreement in restraint of trade. A
letter was written by Applicant's attorneys to Third Respondent
which,
inter alia
,
notified Third Respondent that he was in breach of the agreement in
restraint of trade and called upon him to desist from calling
on
Applicant's customers or providing Applicant's confidential
information to First Respondent. Third Respondent replied to that
letter denying to have concluded any agreement in restraint prior to
the one that was concluded on 15
th
January 2010. He questions the legality of the contract
in restraint of trade which he signed on the 15
th
January 2010 on the basis that he was forced to sign it
and that it was back-dated to December 2008. On the 26
th
February 2010 he says he gave a letter to the Applicant
saying he did not regard the later agreement of restraint to be
binding
on him.
[77] As stated above Third Respondent did not file any
answering affidavits in this matter, it is Second Respondent who
answers
some allegations in Applicant's founding affidavit which
relate to Third Respondent.
[78] In his answering affidavit Second Respondent admits
that a new agreement of restraint of trade with Applicant was signed
by
the Third Respondent and dated the 4
th
December 2008. He says Third Respondent disputed the
legality thereof alleging that he was caused by Second Respondent's
father
to sign it under duress. Regarding the conduct of the Third
Respondent while working for First Respondent, Second Respondent
answers
as follows in paragraph 88 of his answering affidavit:
"There is nothing untoward
about the Third Respondent marketing the First Respondent products.
That is what he is employed
to do. There is also nothing unlawful
about it. The customers were certainly not ' Applicant's customers.'
They were part of a
much wider market of potential buyers in the
public domain. There is nothing exclusive about those customers. The
Third Respondent
I know has been approached by a number of old
Applicant's clients to supply them. I deny that he could now be
expected to refuse
to do business with them."
[79] It is clear from the above extract and also from
some other paragraphs in Second Respondent's answering affidavit that
he admits
that Third Respondents while in the employ of First
Respondent has been communicating with Applicant's customers with
intention
to do business in competition.
[80]
LEGALITY OF AGREEMENT OF
RESTRAINT OF TRADE
The next question to deal with is the legality of the
agreement in restraint of trade dated the 4
th
December 2008 signed by the father of the Second
Respondent and the Third Respondent which is annexed to Applicant's
founding affidavit
as Annexure "AJ3". Third
Respondent in his e-mail dated 12 March 2010
responding to a letter from Applicant's attorney, notifying him to be
in breach of
the agreement says:-
" A restraint of trade was
entered into between myself and your client on the 15 January 2010.
Your client instructed the managing
member of the firm, Mr Glenn
Jacoby to compile the said restraint, which I had to sign with Mr
Jacoby and your client present.
I questioned the signing of the
restraint as I had no previous restraint in place and is common
knowledge in industry, that should
a firm wish to enter into a
restraint between themselves and an employee, it should be done by
law, on the first day of employment
of said employee, NOT after 2
(two) years of employment. I requested to read the restraint and have
it returned to your client
the following day, as it was suspect and I
questioned the legality thereof. My request was denied by your client
and I was forced
to sign the restraint under duress. The restraint
was signed and back dated to December 2008 when I started my
employment with
your client, which is legal.
On 26
th
February 2010 a letter was given
to your client by myself, stating that I see the restraint not
binding which your client is yet
to acknowledge receipt of. Keeping
the above facts in mind, your client's claim are unjustified, the
restraint as illegal ………………."
[81] In paragraph 35 of the Applicant's founding
affidavit, Second Respondent's father says the following about the
allegations
of duress:-
"
It is significant that
the Second Respondent, whilst still employed by the Applicant, caused
the Third Respondent to sign a restraint
of trade agreement. The only
person that could have exercised the duress was the Second
Respondent. I deny that any duress was
applied."
In response to this Second Respondent in his answering
affidavit answered as follows:
-
"
I
deny the contents of this paragraph and repeat that the deponent told
me to print and date a restraint form and give it to him,
which I
did. As I have already, recorded, the Third Respondent was inveigled
into signing the restraint but immediately thereafter
countermanded
his signature upon the basis that he had been forced to sign it."
In an earlier paragraph 45, Respondent says:-
"The Third Respondent
approached me thereafter. He was highly upset and angry and said that
your father forced me to sign the
restraint. He went on to say to me
that when the deponent had forced him to sign the restraint, and had
threatened him by saying
'you are not leaving my office until you
sign it.'
[82] The Third Respondent deposed to a confirmatory
affidavit confirming the truth and contents of the affidavit of
Second Respondent
in so far as reference therein has been made to
him. In paragraph 45 of his replying affidavit, Second Respondent's
father replies
as follows:-
" I deny that I forced the
Third Respondent to sign the Restraint of Trade. I explained to the
Third Respondent why I was requesting
him to sign the Restraint of
Trade. I explained to him that the Applicant would take steps against
him should he act in conflict
with the Restraint of Trade which I
required him to sign. Despite this the Third Respondent signed the
Restraint of Trade.
[83] It is clear from the above that there is a dispute
whether Third Respondent signed the contract in restraint of trade
under
duress or not. The question that now arises is whether that
dispute of fact is a real or genuine one.
[84] As to how duress was applied is not clear from the
aforementioned
e-mail of the Third Respondent. In fact he does not
describe or explain it at all. One finds a some tentative explanation
in paragraph
45 of Second Respondent's answering affidavit where he
says:-
"
The
Third Respondent approached me thereafter. He was highly upset and
angry and said that 'your father forced me to sign the restraint'.
He
went on to say to me that when the deponent had forced him to sign
the restraint and had threatened him by saying 'you are not
leaving
my office until you sign it'.
[85] The question now that arises is what requirements
for "duress" are?
In
AREND AND ANOTHER V ASTRA
FURNISHERS (PTY) Ltd
1974 (1) SA 298
(C ) at
305 in fine -306B, CORBETT J, (as he then was) dealt with the
requirements of duress as follows:-
"Reverting to the defence
raised by first respondent, it is clear that a contract may be
vitiated by duress (m
etus
),
the
raison diêtre
of the rule apparently being
that intimidation or improper pressure renders the consent of the
parties subject to duress no true
consent…….. Duress
may take the form of inflicting physical violence upon the person of
a contracting party or of
inducing in him a fear by means of threats.
Where a person seeks to set aside a contract, or resist the
enforcement of a contract,
on the ground duress based upon fear, the
following elements must be established:-
(i) the fear must be reasonable
evil one
(ii) it must be caused by threat
of some considerable evil to the person concerned or his family
(iii) it must be the threat of
an imminent or inevitable evil
(iv) the moral pressure used
must have caused damage
(iv)
the threat of
intimidation must be unlawful or
contra bonus mores
[86] The aforegoing dictum was quoted with approval by
Leach J, as he then was, in
PARAGON BUSINESS
FORMS (PTY) Ltd v DU PREEZ
1994
(1) SA 434
(SECLD) at 439 A- D). In paragraph D – F, LEACH , J
, went further and remarked as follows:-
"
As has been pointed
out by, amongst others, CHRISTIE in his work THE LAW OF CONTRACT 2
nd
ed. at 368, it is
impossible to produce a precise and exact formula to be applied to
determine when a contract will be set aside
or not enforced on
grounds of duress( compare for example, the requirements of duress
set out in JOUBERT (ed.)
LAW
OF SOUTH
AFRICA
Vol. 5 para 138 with
those as laid down in AREND'S case supra and quoted above)
[87] R.H. CHRISTIE in the 4
th
edition of his work, dealing with the above
requirements, as summarized by WESSELS THE LAW OF CONTRACT para 1167,
comments as follows:-
"Although adopted in some
of the leading cases, this summary is inaccurate in subparagraph (2)
but will serve as a basis for
examining the requirements."
The Learned Judge in
PARAGON
BUSINESS (PTY) Ltd
case, quoted supra, goes
on to say at 439 E- F :-
"What is clear from the
authorities however, is that the party relying on duress bears the
onus of showing that he was induced
thereby to conclude the
agreement- see for example, SAVVIDES v SAVVIDES AND OTHERS
1986 (2)
SA 325
(T) at 329-30. Put another way, the party bearing the onus
must show that he would not have concluded the agreement had it not
been for the duress."
At 440 D- E , the learned Judge goes on to say :-
" A court is of course not
bound to accept a respondent's allegations in opposed motion
proceedings and is entitled to reject
allegations made by a
respondent if they are too far fetched or clearly untenable
".
I agree with this reasoning and this is the approach I
intend adopting in considering this issue.
[88] Second Respondent says Third Respondent told him
that his father forced him to sign the restraint order and had
threatened
him by saying :-
" you are not leaving my
office until you sign it"
There is no mention as to what would have happened to
Third Respondent had he refused to sign the contract except that he
would
not have been allowed to leave the office. And if he would be
caused not to leave the office and then what? There is no evidence
of
any threat of adverse consequence if he did not sign except that he
would not be allowed to leave the office. The question now
is whether
the threat that the Third Respondent is not leaving the office of the
father of the Second Respondent until he signs
the contract induced a
reasonable fear on the Third Respondent.
There are judgments of our Courts which applied a strict
objective test in determining whether the requirement of reasonable
fear
has been met. See:
BROODRYK v SMUTS
N.O.
1942 TPD 47
at 51-2;
AREND v
ASTRA FUNISHERS
(supra) and
WESSELS (supra). That has, however, met some criticism from, for
example, CHRISTIE (op cit at 351) and Law of South
Africa Vol. 5 para
138 at 69. This problem seems to be an old one and entertained old
writers such as VOET and VAN DER LINDEN.
VOET at 42.11 states (GANE' s translation)
" …………the
fear ought to be justifiable in the sense of being grievous enough.
It should be such
fear as properly descends even upon a steadfast
person. For idle alarm there is no excuse; and it is not enough for
one to have
been alarmed through the influence of any sort of fright.
Nevertheless in assessing what fear must be said to be serious enough
regard must be taken of the age, sex and standing of persons, hence
the question, namely what fear is sufficient is one for the
investigation and discretion of the Judge."
Also VAN DER LINDEN Institutes 1.14.22 provides as
follows:-
"That fear which cannot be deemed sufficient to distort the mind
of a person of mature age or a soldier may be quite sufficient
in the
case of a woman or old man"
[89] In
PARAGON BUSINESS FORM
(PTY) Ltd
case, supra, the learned Judge
therein remarked as follows at 441-D:-
" It would be somewhat
startling to allow a person to escape from a contract on the ground
of duress induced by a fear which
is completely unreasonable and has
no valid basis. The solution seems to me to be to adopt an approach
similar to that taken by
MYBURGH, A.J, (as he was then) in SAVVIDES'
case supra in which he assessed the subjective effect of a husband's
threat not to
return home upon a loving wife who was concerned about
the future of the children and who was financially vulnerable. To
prevent
the remedy getting out of hand we must, in my view, have
regard to the person complaining of the duress and the circumstances
in
which he found himself at the time, and then gauge, in the light
of all those relevant factors, whether it was reasonable for him
to
have suffered fear and to have succumbed thereto"
CHRISTIE , supra at 351 also comments as follows on this
:-
"
The
point is that every person who complains of duress is entitled to be
seen as the sort of person he or she is, but to prevent
the remedy
getting out of hand he is not entitled to repudiate the contract if
he claims to have succumbed to a fear that would
be unreasonable even
for the sort of a person he is."
This is the approach that was adopted by LEACH, J, as he
then was, in
PARAGON BUSINESS
FORM
(PTY) Ltd
case supra. I too, with respect,
align myself with this approach.
[90] Applying this test to the present case, the Third
Respondent was employed by Applicant as marketing representative
until such
time he resigned and thereafter took up employment with
the First Respondent doing similar duties. First Respondent is a
local
subsidiary of a new large international Corporation. In my
view, Third Respondent is not a person of such an age, standing and
experience in business that he could be influenced by the sort of
fright as alleged above. Third Respondent did not file any answering
affidavit as afore-said. But even he would have said he would not
have signed the restraint agreement but for his submission to
the
alleged threat by the father of the Second Respondent, such averment,
in my view, is far-fetched and untenable and I reject
it. The threat
alleged by the Third Respondent is not, in my view, the sort of
threat that would induce fear in a reasonable person
in the position
of Third Respondent.
As stated above, the party relying on duress bears the
onus of showing that he was induced by the alleged duress to sign the
restraint
agreement, which the Third Respondent has woefully failed
to do in the circumstances of this case.
It is also clear to me that the afore-mentioned dispute
raised is not a real or genuine one, thus entitling this Court to
reject
it as clearly untenable.
[91] I turn now to the second basis upon which the Third
Respondent, through the Second Respondent seeks to avoid the
consequences
of the restraint, namely that it should not be enforced
as it was signed on the 15
th
January 2010 but predated to
4
th
December 2008. Third Respondent seems to base his
attack on the restraint agreement on the fact that it was predated to
the 4
th
December 2008 and not on the contents thereof. To
me the relevant period for the purposes of this application is the
period sought
to be covered by the Applicant's request for the
operation of the interdict. In my view this objection has no merit at
all and
falls to be rejected.
[92] There are no grounds on which the restraint
agreement is being attacked other than the two mentioned above. In
MGANA ALLOYS AND
RESERCH (SA) (PTY) Ltd v GUS
[1984] ZASCA 116
;
1984 (4)
SA 874
(A), which has been described by R.H. CHRISTIE as landmark
decision, the Court held that agreements in restraint of trade were
valid and enforceable unless they are unreasonable and thus contrary
to public policy. This principle has been restated by MALAN,
AJA, as
he then was, in
REDDY v SIEMENS TELECOMMUNICATIONS (PTY) Ltd
2007
(2) SA 486
SCA at 493 E-
F and also by CACHALIA , AJA
,
as
he then was, in
AUTOMOTIVE TOOLING SYSTEMS (PTY) Ltd v WILKERS AND
OTHERS
2007 (2) SA 271
SCA at 271 G. In this application no
objection based on unreasonableness or being contrary to public
policy has been raised and
as such there is no reason for me not to
conclude that the restraint agreement between Applicant and Third
Respondent dated 4
th
December 2008 is enforceable as from
the 15
th
January 2010.
[93]
COSTS
That
Applicant has employed two counsel whereas the Second Respondent has
employed one counsel. Mr Scott has argued that this is
not a matter
warranting the employment of two counsel and has applied that if
Applicant succeeds costs should not be awarded for
two counsel. In
response Mr Van der Linde strongly argued that this matter involved
complex issues of law which justified the employment
of two counsel.
I am inclined to agree with Mr Van der Linde. This matter involves
complex legal aspects and as such warranted
the employment of two
counsel.
[94] Having said that in awarding costs I find no reason
justifying a departure from the general rule that the party who
succeeds
should be awarded costs. As far as Third Respondent is
concerned he indicated, as stated afore, that he will abide the
decision
of this Court. Although his position, as articulated by
Second Respondent in his answering affidavit, has engaged me to a
certain
extent, I am of the view that, nonetheless, it would be fair
in the circumstances of this case not to make an order of costs
against
him.
[95] In the result, the following order shall issue:-
1. Second Respondent is hereby interdicted and
restrained from communicating, marketing , offering for sale, quoting
to, soliciting
business from, or in any manner contacting and/ or
doing business with any of the clients of the Applicant listed in
Annexure "
AJ6" annexed to the Applicant's founding
affidavit until the registration of transfer of the member's
interests of Second
Respondent into the name of ANTHONY ALEXANDRIA
JACOBY, in the event of him failing to purchase the said member's
interest, into
the name of any other
PURCHASER, by registration of an amended founding
statement ( in CK2 form) in terms of
Section 15(1)
of the
Close
Corporations Act, 1984
;
2. Third Respondent is hereby interdicted and restrained
from being employed by the First Respondent within the Province of
the
Eastern Cape, Republic of South Africa for a period of twelve
(12) months calculated as from 1
st
March 2010;
3. Third Respondent is hereby interdicted and restrained
from communicating, marketing, offering for sale, quoting to,
soliciting
business from, or in any other manner contacting and/ or
doing business with any of the clients of the Applicants listed in
Annexure
" AJ6" annexed to Applicant's founding affidavit
during the period of the operation of the order in paragraph 2 above.
4. That Second Respondent pay costs of this application
including costs consequent upon employment of two Counsel.
_______________________________
D. Z DUKADA
ACTING JUDGE OF THE HIGH COURT
Appearances
:
For
Applicant :
Adv H.J. VAN DER LINDE, SC and Adv P.E JOOSTE
instructed by NELSON ATTORNEYS
For
2
ND
Respondent :
Adv P.W.A. SCOTT
instructed by MICHAEL RANDELL ATTORNEYS
First
& Third Respondents :
No appearances