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[2010] ZAECPEHC 73
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Hawkwind CC v Goddard (2270/2010) [2010] ZAECPEHC 73 (7 December 2010)
IN
THE HIGH COURT OF SOUTH AFRICA NOT REPORTABLE
EASTERN
CAPE, PORT ELIZABETH
Case
No.: 2270/2010
Date
Heard: 21 October 2010
Date
Delivered: 7 December 2010
In
the matter between:
HAWKWIND
CC
…........................................................................................
Applicant
and
SALOMIE
GODDARD
…..........................................................................
Respondent
JUDGMENT
EKSTEEN
J:
[1] This is an application in which
the applicant seeks to enforce a covenant in restraint of trade
against the respondent. The
applicant, Hawkwind CC, conducts a
panelbeating business in Port Elizabeth under the name and style of
“Auto Bodyworks”.
The respondent was employed by Auto
Bodyworks in 2004 and she entered into a written contract of
employment which included a covenant
in restraint of trade. On 19 May
2010 the respondent left the employ of Auto Bodyworks of her own
volition. The applicant accordingly
now seeks to enforce the
restraint of trade, albeit only partially.
[2] The application has a somewhat
unusual history. Initially, in response to the applicant’s
founding papers in the application,
which was launched as a matter of
urgency, the respondent did not address the merits of the application
but rather contented herself
with an affidavit raising only a number
of points
in limine
. When the matter was called before Dambuza
J the parties moved for an order by consent which was duly granted.
After the granting
of this order obtained by agreement between the
parties the respondent continued to ply her business which is more
fully set out
below. The applicant contended that its attorneys had
agreed to an order which was not in accordance with the instructions
it had
given and which was detrimental to it. The applicant’s
attorney of record recognised that it had erred in the understanding
of its instructions and an application was accordingly moved to
rescind the order given by Dambuza J. Chetty J rescinded the order
and reserved the costs occasioned by the application for rescission.
Subsequent to the rescission order the respondent filed further
affidavits in which she has addressed the merits of the application.
Replying papers have now also been filed.
[3] Thus the matter came before me.
Before me the respondent persisted in only one of the points
in
limine
which had been raised in her original affidavits. I shall
revert to this aspect below.
History of the covenant
[4] The respondent was employed by
Auto Bodyworks during or about 2004. She was employed as a “sales
representative”.
Respondent alleges that her instruction upon
employment was to do whatever was necessary to increase business for
Auto Bodyworks,
which included fostering sound relationships with
brokers in an attempt to ensure that Auto Bodyworks was recommended
to their
insured clients who required motor vehicle repairs.
[5] This function is to be viewed in
the context of the panelbeating business in Port Elizabeth. It is not
in dispute that the panelbeating
business in Port Elizabeth is an
extremely competitive trade and there are at least 120 panelbeaters
in the greater Port Elizabeth/Uitenhage
area. Of these, the applicant
says, and it is not disputed, probably 8 dominate the market. The
applicant is one of those. Mr Mandel
(“Mandel”), states
that the bulk of the work done by the applicant is referred to it by
insurance brokers. This is
due to the fact that the vast majority of
motor vehicles on the road are comprehensively insured. When a motor
vehicle becomes
damaged the owner submits an insurance claim. These
claims are usually dealt with by insurance brokers. The insurance
broker recommends
a panelbeater to his client.
[6] Mandel says that brokers are able
to “channel, for want of a better word, the instructions
concerned” to a panelbeater
with which he has a relationship.
This phrase forms the subject of much dispute in the papers, the
respondent denying that brokers
have the ability to “channel”
work to a particular panelbeater. The dispute is more apparent than
real. It is not in
dispute that brokers do guide their clients and do
recommend to their clients which repairer should be used. They
clearly do have
a very considerable influence in determining where
the work would be referred, which may impact significantly upon the
income of
a particular panelbeater. Indeed the respondent states that
the relationships between the applicant and the brokers which have
supported Auto Bodyworks have been established for the main part,
during her employment with Auto Bodyworks during which period
such
relationships have yielded substantial income.
[7] Upon taking up employment in 2004
as a “sales representative” with the mandate to foster
such close relationship
with the brokers the respondent signed a
contract of employment. The contract signed in 2004 does not form
part of the papers.
The applicant contends that the contract
contained a covenant in restraint of trade. The respondent does not
recall such a clause.
Whatever the position may have been in 2004 the
original contract has been overtaken by events in that a revised
contract was entered
into between the parties in October 2008. The
contract signed in 2008 does indeed contain a covenant in restraint
of trade.
[8] The applicant now seeks to enforce
the covenant. The essence of the applicant’s case is that the
applicant has acquired
considerable goodwill in the trade and in
particular cemented relationships with brokers, which relationships
are important for
the reasons which I have set out above, if not
essential, for the conduct of the applicant’s business. It is
essentially
this trade connection between the applicant and brokers
that it is sought to protect.
Respondent’s point
in
limine
[9] The respondent asserts
in
limine
that she was not employed by the applicant at all. She
avers that she was employed by Mandel in a business of which she was
advised
that Mandel was the sole owner. The business was known as
Auto Bodyworks and she has consistently been employed by Auto
Bodyworks.
She denies that she ever concluded a contract of
employment with the applicant, being Hawkwind CC, and accordingly she
contends
that she has not entered into a covenant in restraint of
trade in favour of the applicant. The applicant, she argues, is a
distinct
and separate legal persona from Mandel and therefore the
applicant has no
locus standi
.
[10] It is not in dispute that the
applicant, Hawkwind CC, trades as “Auto Bodyworks” from
29 Kempston Road, Sidwell,
Port Elizabeth. Mandel is the controlling
member of the applicant, he holding 69% of the member’s
interest in the close corporation.
It is not argued that Mandel also
conducts another business in his personal capacity under the name and
style of “Auto Bodyworks”.
It is abundantly clear from
the papers that there is only one “Auto Bodyworks” and
that the applicant was employed
by this business. Indeed her contract
of employment describes her workplace as being “the employer’s
premises at 29
Kempston Road, Sidwell, Port Elizabeth”. It
appears rather to be the respondent’s case that she was always
led to believe
that Mandel was the sole owner of the business and
that she was not aware that she was employed by a corporate entity.
[11] It is, however, common cause, as
I have stated above, that the original contract of employment has
been superseded by a written
contract of employment which was
subsequently signed by both parties in October 2008. The contract of
employment refers to the
“employer” as “Auto
Bodyworks”. The respondent is the employee. Auto Bodyworks, as
I have said, is the
trading name of the applicant.
Ex facie
the contract of employment the applicant is employed as “company
sales representative”. In terms of clause 10 of the
agreement
she was afforded the use of a “company vehicle” and a
“company cell phone”. The restraint clause
to which I
shall revert in greater detail below, provides that the respondent
“shall not … for the benefit of any
… person be
employed, solicit, interfere with or endeavour to entice from
the
company
, … any person, client, … who at any time is
or was a client of, …
the company
or delivered services
for and on behalf of
the company
” (my emphasis). The
contract of employment therefore indicates, at face value that Auto
Bodyworks, which was the employer,
was a corporate entity.
[12] The respondent has further
annexed to her affidavit certain payment advices issued to her. Each
of these payment advices reflects
the “company” to be
“Auto Bodyworks”. Auto Bodyworks is the applicant. It is
not in dispute that the applicant
trades under the name and style of
Auto Bodyworks. In my view it is abundantly clear that the respondent
was perfectly aware in
concluding the contract with Auto Bodyworks
that she was contracting with the applicant. The fact that the
agreement refers to
her employer by its trading name does not detract
from this.
[13] Finally, in her endeavour to
establish that she did not contract with the applicant reliance is
placed on
section 29
of the
Basic Conditions of Employment Act, 75 of
1997
.
Section 29
of the
Basic Conditions of Employment Act provides
that an employer must supply an employee, when the employee commences
employment, with a number of details, including, the full
name and
address of the employer. This, it is contended, the applicant failed
to do.
Section 29
of the Basic Conditions of Employment Act places
certain obligations upon an employer. Failure to comply with those
prescripts
may result in the imposition of a fine upon the applicant
in terms of the provisions of section 69 of that Act. It does not
render
the agreement void. I do not consider that section 29 is of
any assistance in the enquiry as to whether the respondent in fact
contracted with the applicant. I have no doubt that she did. The
argument to the contrary is spurious.
The relief which the applicant
seeks
[14] The covenant in restraint of
trade which the applicant seeks to enforce partially is contained in
clause 22.4 of the Contract
of Employment concluded in October 2008.
It reads as follows:
“
22.4 The
employee shall not at any time, either for his/her own account or for
the benefit of any other person, business, firm or
company, be
employed by, solicit, interfere with or endeavour to entice from the
company or any of its affiliates, any person,
client, firm or company
or other associate who at any time is or was a client of, or dealt
with the company or delivered services
for and on behalf of the
company. This clause will remain effective for a period of (24)
twenty four months after termination of
this agreement for any reason
whatsoever.”
[15] It is immediately apparent that
this clause is extremely wide in its scope, it being,
inter alia
,
unlimited in area. The applicant recognises this and in its original
Notice of Motion it already sought to narrow it down so as
to find
application only in Port Elizabeth and Uitenhage.
[16] The order which was taken by
agreement between the parties limited the application of the
restraint even further. It read as
follows:
“
1. That the
respondent is restrained and interdicted from directly or indirectly
conducting any business dealings related to the
panelbeating industry
with the brokerages referred to by the applicant in paragraph 20 of
the affidavit of David Bernard Mandel
until 4
th
of May 2011 insofar as such business dealings are conducted within
the Magisterial District of Port Elizabeth.”
[17] In paragraph 20 of the founding
affidavit Mandel had listed by name a number of brokers with whom he
contended that the respondent
had formed a close relationship.
[18] In the application for
rescission, however, the applicant gave notice of its intention to
seek an order which is similar, in
many respects, to that issued by
Dambuza J, but seeking to set out a more extensive list of brokers.
The order sought in that Notice
of Motion reads as follows:
“
1. …
2. …
3. …
4. An order restraining an
interdicting the respondent, for a period of (24) twenty four months,
calculated from the 4
th
of June 2010, and within the
Magisterial District of Port Elizabeth, either for her own benefit or
for the benefit of any other
person, from soliciting panelbeating
work for any person from:
1. …
2. …
40. …”.
[19] When heads of argument were filed
prior to the hearing of the matter before me the applicant annexed to
its heads of argument
a draft order which it now seeks. The draft
order narrows down the restraint still further reducing the duration
thereof to 30
September 2011 and reducing the number of brokers on
the list. The order which is now sought reads as follows:
“
1. Until the
30
th
of September 2011 the respondent is restrained and interdicted from
being employed by, soliciting work from, interfering with the
applicant’s relationship with, or endeavouring to entice away
from the applicant the following brokerages:
1. ABEX Brokers
2. Absa Brokers
3. Alexander Forbes
4. Assest Insurance Brokers
5. AON
6.
Ballast
Insurance Brokers
7. Bonnie Slabbert Brokers
8. Bouwer Collins
9. Breakaway Brokers
10. Brian Kemsley Brokers
11. Broadrisk Services
12. Brolink
13. David Rensburg
14. DHL Supply Chain
15. Fanie du Preez Brokers
16. FCG
17. FNB Insurance Division
18. Glynis Baudin Brokers
19. Gorch & Associates
20. Hannes Scheepers Brokers
21. Indwe
22. Leonie Hunt Brokers
23. Linette Jacobs Brokers
24. Maxifinn
25. Meudene Steyn
26. Mutitt Insurance Brokers
27. Noel Harvey
28. PSG Consult
29. Robin van Rensburg
30. Scotrho Insurance Brokers
31. Skybound
32. Spectrum
33.
Spectrum Brokers
34. St Francis Brokers
35. STB
36. Susan Brophy
37. Telesure/Auto & General
38. Walmer Insurance Brokers
39. Werner Vosloo Brokers
insofar as the activities of the
abovementioned brokers relate to panelbeating work carried out or to
be carried out within the
Magisterial District of
Port Elizabeth.”
Legal enforcement of covenant in
restraint of trade
[20] Covenants in restraint of trade
have been held to be valid and enforceable unless they are
unreasonable and contrary to public
policy. (Cf
Magna Alloys
and Research (SA) (Pty) Limited v Ellis
[1984] ZASCA 116
;
1984 (4) SA 874
; and
Basson v Chilwan and Others
[1993] ZASCA 61
;
1993 (3) SA 742
(A) at
767B-E.) It has also repeatedly been held under the Constitution of
the Republic of South Africa, Act 108 of 1996 (the Constitution)
that
a restraint that is found to be reasonably required for the
protection of the party who seeks to enforce it is constitutionally
permitted. (Cf
CTP Limited and Others v Independent Newspapers
Holdings Limited
1999 (1) SA 452
(W) at 468G-H;
Fidelity
Guards Holdings (Pty) Ltd t/a Fidelity Guards v Pearmain
2001
(2) SA 853
(SE) at 861F-862G (SA); and
Reddy v Siemens
Telecommunications (Pty) Ltd
2007 (2) SA 486
(SCA) at 495D.)
[21] Customer goodwill is an asset of
an employer and becomes a trade connection of the employer which is
capable of protection
by way of a restraint of trade (see
Recycling
Industries (Pty) Limited v Mohammed and Another
1981 (3) SA
250
(SE) at 258;
Rawlins and Another v Caravantruck (Pty)
Limited
[1992] ZASCA 204
;
1993 (1) SA 537
(A);
Paragon Business Forms
(Pty) Limited v Du Preez
1994 (1) SA 434
(SE) at 444; and
Bridgestone Firestone Maxiprest Limited v Taylor
[2003]
1 All SA 299
(N) 303i-304a).
[22] The ratio for this protection was
set out Nestadt JA in
Rawlins and Another v Caravantruck
supra
at 541C-F as follows:
“
The need of
an employer to protect his trade connections arises where the
employee has access to customers and is in a position
to build up a
particular relationship with the customers so that when he leaves the
employer's service he could easily induce the
customers to follow him
to a new business (Joubert
General
Principles of the Law of Contract
at
149). Heydon
The
Restraint of Trade Doctrine
(1971)
at 108, quoting an American case, says that the 'customer contact'
doctrine depends on the notion that
'the
employee, by contact with the customer, gets the customer so strongly
attached to him that when the employee quits and joins
a rival he
automatically carries the customer with him in his pocket'.
In
Morris (Herbert) Ltd v
Saxelby
[1916] 1 AC 688
(HL) at 709 it was said that the
relationship must be such that the employee acquires
'such
personal knowledge of and influence over the customers of his
employer . . . as would enable him (the servant or apprentice),
if
competition were allowed, to take advantage of his employer's trade
connection . . .'. “
[23] Whether such a “customer
contact” exists which may be validly protected by a restraint
covenant is a question of
fact – each case is to be decided on
its own individual facts and circumstances (see
Paragon
Business Forms (Pty) Limited v Du Preez
supra
at 444H
and
Rawlins and Another v Caravantruck
supra
at
541G-H). It was sought in argument before me to distinguish between
brokers on the one hand and customers on the other. This
distinction,
in my view, is artificial. The brokers have, as I have set out
before, a considerable influence in respect of the
panelbeater to
which work will be referred. They represent groups of customers and
their goodwill is a valuable trade connection
for any panelbeater.
[24] Once a covenant in restraint of
trade is found to exist the onus rests upon the party seeking to
avoid the consequences of
its contract to show, judged upon the
circumstances which exist at the time when the application is made,
that the restraint was
an unreasonable one and therefore against
public policy. (See
Magna Alloys Research SA (Pty) Limited v
Ellis
supra
;
Rawlins and Another v Caravantruck
supra
;
Reeves and Another v Marfield Insurance Brokers
CC and Another
[1996] ZASCA 39
;
1996 (3) SA 766
(A) at 775H-776F; and
Townsend
Productions (Pty) v Leech and Others
2001 (4) SA 33
(C) at
48B.)
An interest worthy of protection
[25] It may be accepted that where a
covenant in restraint of trade serves exclusively to eliminate
competition and does not have
as its aim the protection of a legally
recognisable interest worthy of protection the restraint would be
considered unreasonable
and thus contrary to public policy and
therefore unenforceable. (Compare
Automotive Tooling Systems
(Pty) Limited v Wilkens and Others
2007 (2) SA 271
(SCA) at
277G-278B.)
[26] It is the applicant’s case
that the covenant in the restraint of trade is aimed at the
protection of its trade connections
which arise from the fact that
the respondent, as an employee, has had access to brokers and that
she has built up a particular
relationship with these brokers which
now enables her to take advantage of the applicant’s trade
connections in her new employment.
In
Rawlins and Another v
Caravantruck
supra
at 541 Nestadt JA held that whether
this has been established is essentially a question of fact in each
case, and in many, one
of degree. He held at 541G-I:
“
Much will
depend on the duties of the employee; his personality; the frequency
and duration of contact between him and the customers;
where such
contact takes place; what knowledge he gains of their requirements
and business; the general nature of their relationship
(including
whether an attachment is formed between them, the extent to which
customers rely on the employee and how personal their
association
is); how competitive the rival businesses are; in the case of a
salesman, the type of product being sold; and whether
there is
evidence that customers were lost after the employee left.”
[27] It is not in dispute that the
bulk of the work done by the applicant in its business is referred to
it through the intercession
of insurance brokers. This is so because
the vast majority of motor vehicles on the road are comprehensively
insured. On each occasioned
that such a vehicle is damaged it is, as
I have previously stated, inevitably referred to an insurance broker.
For this reason
the applicant contends that it is essential to
maintain a close and friendly relationship with the brokers which
support it and
these relationships must be built up carefully and
over many years by means of the usual sort of canvassing involving
dinners,
gifts and the like and the establishment of close personal
relationships. These relationships are of the utmost importance to
the
applicant. Applicant states that there are seven or eight top
panelbeaters in the Port Elizabeth/Uitenhage area, all of which have
the ability to produce excellent work and there is no doubt that they
are able to compete with one another on an equal footing.
In these
circumstances there has to be some other element which would cause a
broker to recommend one panelbeater rather than another
and this is
the personal relationships upon which the applicant relies.
[28] Whilst a great deal is made in
the papers of the terminology employed by the applicant it is not in
dispute that insurance
brokers, by virtue of the position which they
occupy vis-à-vis the insured and by virtue of their regular
contact with the
panelbeating industry are able to make
recommendations to their clients and to guide their clients in
respect of which panelbeater
to utilise. This will be particularly so
where the choice lies between seven or eight panelbeaters of equal
competence as exists
in the Port Elizabeth/Uitenhage area. Indeed the
respondent herself states that the relationship between the applicant
and brokers
which have supported Auto Bodyworks have been
established, for the main part, during the period that she was
employed by Auto Bodyworks
and that such relationships “have
yielded substantial income”.
[29] The respondent was employed by
the applicant for a period of some six years. Throughout the duration
of her employment she
was a “sales representative and/or
marketer”. She acknowledges, as recorded earlier, that the sum
total of her instructions
from Mandel at the time that she took up
her employment was “to do whatever was necessary to increase
business for Auto Bodyworks,
which included fostering sound
relationships with brokers in an attempt to ensure that Auto
Bodyworks was recommended to their
insured clients who required motor
vehicle repairs”. She confirms that she proceeded to form such
relationships with as many
brokers as she could in order to create an
awareness of Auto Bodyworks with brokers in Port Elizabeth. On her
own version of events,
as I have stated above, she acknowledges that
the relationships which she established yielded substantial income.
[30] Respondent acknowledges too that
she was encouraged to engage with brokers on as many levels as
possible with the ultimate
goal that Auto Bodyworks was the first
name which entered the broker’s mind when confronted with a
claim. It is not contested
that the applicant encouraged the
respondent to take brokers out for lunches to become familiar with
their personal circumstances,
the details of their birthdays and the
like, to send them cards and gifts on their birthdays, to participate
in sporting events
with them and the like. Applicant contends that no
effort was spared in attempting to bind the brokers concerned to the
applicant.
The applicant declares, and it is borne out by the
respondent’s papers, that the respondent proved to be adept at
her job.
[31] The evidence clearly establishes
that the respondent had access to brokers and was placed in a
position to build up particular
relationships with those brokers and
to acquire personal knowledge of and influence over such brokers. She
was good at this. She
interacted with them as frequently as possible
over an extended period at the expense of the applicant. Her contact
with the brokers
extended to every level of her professional and
social life.
[32] In these circumstances I have no
doubt that she has indeed formed an attachment with these brokers.
The respondent acknowledges
that she has formed “personal
associations” with the brokers. This appears to be borne out by
her acknowledgement that
many of the brokers listed in the Notice of
Motion have indeed contacted her to enquire as to what was
transpiring and where she
was currently working. This statement, in
itself, in my view, goes a long way towards establishing that the
respondent, by her
contact with the brokers, has succeeded in forming
a strong attachment to these brokers.
[33] I have referred above to the
competitiveness of the panelbeating industry in Port
Elizabeth/Uitenhage and in particular amongst
the top seven or eight
businesses. It is not in dispute that the other competitors also call
upon brokers and endeavour to form
an attachment in order to
influence the recommendations made by such brokers. Indeed, the
respondent is currently doing exactly
that on behalf of certain
panelbeaters. This necessarily places the applicant’s trade
connections at greater risk. The respondent
states that she has
attempted since leaving the employ of the applicant to interact with
as many brokers as possible in an attempt
to ply her trade. She
states that she has advised most of the brokers in Port Elizabeth
that she has commenced business as an independent
representative. The
applicant has annexed to its founding papers a pamphlet which, by the
admission of the respondent, is being
handed out by the respondent to
brokers. The front page of the brochure reads as follows:
“
APPROVED
REPAIRERS & SAMBRA CERTIFIED.
DENYS EDWARDES
AUTO
TRUST
AUTOSMART
DUNET
TECHNIBAKE
(REPAIRERS ALSO AVAILABLE IN THE KOUGA
REGION)”
[34] On the second page of the
brochure the applicant’s name and particulars are reflected.
Below that the following appears:
“
AUTOMOTIVE
APPROVALS ON WARRANTEE VEHICLES: MAJOR STRUCTURAL REPAIRERS AND
SAMBRA CERTIFIED
GM
Opel
Delta
BMW
Mercedes-Benz
Honda
Hyundai
Chevrolet
Toyota
Ford
Mazda
SAAB
Peugeot
Landrover
Audi
Citroën
Seat
Cadillac
Volkswagen
Smart
Chrysler
Mitsubishi
Hummer”
[35] The applicant states that the
wording in the heading of the document ”Automotive Approvals
and Warranty (SIC) vehicles”
advertises to whomsoever might
read the pamphlet concerned that the applicant is able to obtain
approval for the repairers of the
makes of vehicles listed if the
work is channelled to panelbeaters referred to in the pamphlet,
namely, Denys Edwards, Auto Trust,
Auto Smart, Dunet and Techni
Brake, which are large panelbeaters which trade in direct competition
with the applicant.
[36] The interpretation and objective
which the applicant attributes to the pamphlet is admitted by the
respondent. I think correctly.
She further admits that she has formed
relationships with the panelbeaters referred to in the pamphlet. It
is also not in dispute
that the respondent has been visiting
insurance brokers with whom the applicant had a relationship through
the respondent and with
whom the respondent had dealt on behalf of
the applicant while she was employed by it.
[37] In all the circumstances I am
persuaded that the applicant has indeed established that these trade
connections constitute a
proprietary interest worthy of protection
and that the present activity of the respondent threatens this
interest.
[38] The matter does not however end
there.
Reasonableness of enforcement of
restraint
[39] Niehaber JA in
Basson v
Chilwan
supra
considered the reasonableness of the
enforcement of a covenant in restraint of trade. He identified four
questions which require
consideration being as follows:
(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 interests 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 requires that the restraint
may be maintained or rejected?
Where the interests of the party
sought to be restrained weighs more heavily than the interests to be
protected, the restraint is
unreasonable and consequently
unenforceable.
[40] In
Reddy v Siemens
Telecommunications
supra
at 497-498 Malan AJA,
considering the constitutionality of restraints with reference to
these questions posed by Nienaber JA held
as follows:
“
The
common-law approach in balancing or reconciling the concurring
interests in this manner gives effect to the precepts of s 36(1)
of
the Constitution:
'The
rights in the Bill of Rights may be limited only in terms of law of
general application to the extent that the limitation is
reasonable
and justifiable in an open and democratic society based on human
dignity, equality and freedom, taking into account
all relevant
factors, including –
(a)
the nature of the right;
(b)
the importance of the purpose of the limitation;
(c)
the nature and extent of the limitation;
(d)
the relationship between the limitation and its purpose; and
(e)
less restrictive means to achieve the purpose.'
An agreement in restraint of trade
is concluded pursuant to 'law of general application' referred to in
s 36(1). What is meant by
this expression includes the law in the
general sense of the legal system applicable to all which, in this
case, consists of the
corpus of law generally known as 'the law of
contract' and which allows for contractual freedom and the conclusion
of agreements
pursuant thereto.
The
four questions identified in
Basson
comprehend
the considerations referred to in s 36(1). A fifth question, implied
by question
(c)
,
which may be expressly added, viz whether the restraint goes further
than necessary to protect the interest, corresponds with
s 36(1)
(e)
requiring
a consideration of less restrictive measures to achieve the purpose
of the limitation.”
[41] The first two questions posed in
Basson v Chilwan
supra
have been dealt with
above.
[42] The third question postulated by
Nienaber JA in
Basson v Chilwan
supra
encapsulates the fifth question which was set out by Malan AJA in
Reddy v Siemens Telecommunications
supra
. I
shall consider these two enquiries together.
[43] It is common cause between the
parties that the covenant in restraint of trade couched as it is has
been too widely drawn and
is unreasonable. The applicant has from the
outset recognised that the covenant, which does not stipulate any
particular area,
requires limitation. The respondent, for her part,
has in addition protested that the duration of the covenant is
unreasonable
in the circumstances of the case. This too the applicant
now recognises. In the order which is currently sought by the
applicant
it does not seek to prevent the respondent from plying her
trade generally, even in the Magisterial District of Port Elizabeth,
but limits the relief which he seeks to a number of specified
brokers.
[44] On behalf of the respondent it is
argued that thus narrowing down the scope of the covenant exceeds the
powers of the court
to sever unacceptable portions from the covenant.
Reliant upon
Sasfin (Pty) Limited v Beukes
1989 (1) SA
1
(A) at 16H-17H it is submitted that the general principle of
severability is that it is not open to the parties to a contract to
say to a court “take our agreement, such as it is, excise from
it all that is bad, and retain all that is good, and provide
us with
a contract which is legal and enforceable, even though it might not
be what we had in mind”. The rule set out in
Sasfin
supra
is a salutary one. It is unthinkable that the courts
should not only tell the parties what they ought to have done but
then make
them do it by enforcing the court’s idea of what the
contract ought to have been. (Cf
Christie
: The Law
of Contract in South Africa
5
th
ed p. 366.) In the
case of covenants in restraint of trade, however, the court is
required to assess the reasonableness of the
restraint at the time
the application is made when circumstances may be significantly
different from what they were at the time
of contracting. This may
require a slightly different approach.
[45] Historically the courts have
utilised the doctrine of severance in cases where a covenant in
restraint of trade has been drawn
unduly widely. (See for example
Empire Theatres Co Ltd v Lamor
1910 WLD 289
;
Mohr
v Le Roux
1915 EDL 383
; and
African Theatres Ltd v
d’Oliviera
1927 WLD 122.)
In
New United Yeast
Distributors (Pty) Ltd v Brooks
1935 WLD 75
at 80-81
Greenberg J stated:
“
In deciding
whether different stipulations are or are not severable, the court
will not carve out from an area which is too wide
a portion which it
holds would have been reasonable had the parties so agreed; it will
not make a new contract for the parties
as the act of severance must
be the act of the parties and not of the court, but as was held in
Attwood
v Lamont
[1920] 3 KB 571
at p. 593
it will sever where the covenant is not really a single covenant but
is in effect a combination of several distinct covenants.”
[46] This approach was criticised by
Didcott J in
Roffey v Catterall, Edwards & Goudré
(Pty) Limited
1977 (4) SA 494
(N) 507 where it is stated:
“
Thus tested,
a covenant is severable when, for instance, it provides for a
restraint in Durban and also throughout the rest of Natal,
but not
when it more simply imposes one throughout Natal; and the reason for
this odd distinction is that, while in the former
case the reference
to the rest of Natal can be deleted by the notional blue pencil and
the remainder of the parties' agreement
left intact, that cannot be
done in the latter case and, because the Court is powerless to
redraft the contract, nor can anything
else.”
[47] In 1979 Botha J in the Full Bench
decision of
National Chemsearch (SA) (Pty) Limited v Borrowman
and Another
1979 (3) SA 1092
(T) abandoned the classical
rules on severability in favour of a new more practical approach
which he justified as follows at p.
1116D:
“
The
ratio
of
this approach I shall attempt to formulate as follows: when a
restraint according to its terms as agreed upon is found to be
unreasonably wide in its scope of operation, the Court can, in a
proper case, enforce the restraint partially, by issuing an order
incorporating the addition of such limiting words to the restraint as
agreed upon as are appropriate to restrict its scope of operation
to
what is found to be reasonable.”
[48] The approach of Botha J found
favour in
Magna Alloys
supra
and in
Sunshine
Records (Pty) Limited v Frohling
and Others
1990 (4) SA 782
(A) at 794G-796D. It seems to me that the effect of
this approach as formulated by Botha J is such as to eliminate the
distinction
between severance (without adding words) and carving out
(by adding words). The latter is no longer condemned as making a
contract
for the parties.
Sunshine Records v Frohling
,
supra
, post dates the decision in
Sasfin v Beukes,
supra
and I accordingly consider this approach to retain its validity in
matters relating to covenants in restraint of trade.
[49] I pause to mention, however, that
Botha J in
National Chemsearch
supra
did add at
p. 1117A as follows:
“
I imagine
that when an unreasonable restraint is so formulated that it would
require major plastic surgery, in the form of a drastic
re-casting of
its provisions, to make it reasonable, the Court will decline to
perform the operation.”
[50] The applicant herein seeks the
partial enforcement of the covenant. In respect of the limitation of
the area which the applicant
seeks and the limitation of the duration
of the period of the restraint very limited re-casting is required. I
do not consider
that a variation of the duration of the operation of
the restraint and the limitation of the area thereof constitutes
“major
plastic surgery”.
[51] In determining the reasonableness
of the area and the duration of the restraint in this matter account
should be had of the
duration of the respondent’s employment,
the nature of the business of the applicant and the nature of the
respondent’s
employment. These matters are fully discussed
above. Having regard to the extent of her interaction with brokers,
the duration
of this interaction and the attachment which I have
found to have been formed I consider that the duration of the
restraint, as
formulated, is indeed excessive. This the applicant
recognises. The applicant seeks to enforce the restraint until 30
September
2011. I consider such a restriction in the scope of the
operation of the restraint to be reasonable and I do not consider
that
it offends the intention of the parties or that it makes a new
contract for the parties.
[52] The relief which the applicant
now seeks is more limited than that set out in the restraint. The
applicant seeks to restrain
the respondent from soliciting work from
certain specified brokers. In the founding affidavit on behalf of the
applicant the applicant
set out a list of brokers with whom it was
alleged that the respondent had built a close relationship of the
nature which I have
discussed earlier herein and who had referred
much of their work to the applicant. This referral it was alleged is
vital to the
applicant’s business.
[53] In the application for rescission
of the order made by Dambuza J Mandel alleged that as a result of an
oversight on the part
of his attorney a number of additional brokers,
which he listed in his affidavit, had been omitted from the list
contained in the
founding papers. It is accordingly the applicant’s
case that the attachment which I have set out above has been formed
with
these particular brokers.
[54] It has been held that where
partial enforcement of the restraint is sought an applicant must lay
a proper basis for the enforcement
of a lesser restraint (see
MacPhail (Pty) Limited v Janse van Rensburg and Others
1996 (1) SA 594
(T); and
Sunshine Records v Frohling
supra
at 795I). This the applicant has done. On behalf of the
respondent it is argued that, aside listing names of brokers and
alleging
a close relationship with those brokers, the applicant has
not, on the founding papers, taken the court into its confidence by
explaining in regards each alleged customer connection, the nature
and extent of each relationship, its duration, the of cost fostering
each relationship, time spent with each broker, the value of business
referred to by that broker, whether or not the respondent
has a
strong personal influence over any of the listed brokers so as to be
said to have them “in her pocket”, what
special broker
requirements are known to the respondent, the extent of each customer
connection and the like.
[55] The applicant, has in my view
made a strong case in respect of the attachment which the respondent
has formed with the brokers
with which she had contact. I have
discussed this aspect above. I consider that the applicant could
legitimately have held the
respondent to her restraint in respect of
all brokers with which she had dealt. For this it has made a valid
case. The onus being
on the respondent to establish the
unreasonableness of the restraint which the applicant seeks to
enforce it was for her to show
that she never acquired any
significant influence over these specific brokers. This, save to the
extent which I set out hereafter
she did not do.
[56] Before I turn to the respondent’s
specific response to specific brokers it is appropriate to deal with
one broker which
the applicant now lists in the order which it seeks.
It seeks to interdict the respondent from being employed by or
soliciting
work from or interfering with the applicant’s
relationship with,
inter alia
, Absa Brokers. Absa Brokers does
not appear on the list of brokers which the applicant specified in
its founding affidavit nor
does it appear in the list of brokers
which it later contended were erroneously omitted. No case whatsoever
is made out to interdict
the respondent from dealings with Absa
Brokers.
[57] The respondent, addressing the
specific brokers set out in the extended list annexed in the
rescission application states that
three of the entities listed there
are not brokers at all. She specifies AIG, Brolink and Zurich. These
entities she contends are
insurers. The applicant in its replying
affidavit offers no response, however, AIG and Zurich have now been
excluded from the list
of brokers set out in the draft order which
the applicant now seeks. In my view, accepting the respondent’s
averments, as
I must do respondent has shown that the enforcement of
the restraint in respect of Brolink is unreasonable.
[58] The respondent contends that
David Rensburg and Susan Brophy have been listed merely because
Mandel “has discovered that
(she) has recently canvassed doing
business” with them. It is, however, significant that the
respondent fails to deny that
she had formed an association with
these two persons in the sense which I have set out above. I do not
accordingly consider that
the respondent has shown that the
enforcement of the restraint in respect of these two brokers is
unreasonable.
[59] The respondent avers that she
cannot recall ever having dealt with DHL Supply Chain and that they
were unknown to her. This
assertion by the respondent stood
unanswered by the applicant. In respect of DHL Supply Chain the
respondent has accordingly shown
convincingly that the enforcement of
the restraint in respect of this broker could only be aimed at
eliminating competition and
would therefore be unreasonable and
unenforceable.
[60] In respect of the brokers FCG and
PSG Consult the respondent alleges that these entities have not
referred any work to the
respondent for some period. In response, in
the rescission application, Mandel states:
“
It is
correct that the brokers referred to herein have not, of late,
referred work to the applicant. Nonetheless, I respectively
submit
that the restraint applies to them in any event bearing in mind the
presence of the phrase ‘at any time is or was
a client of, or
dealt with the company ….’ therein”.
[61] This admission is indeed
indicative of the fact that these two brokers are not trade
connections and in this respect the applicant
has no proprietary
interest worthy of protection.
[62] Broadrisk, the respondent alleges
are assessors, not brokers. This is not in dispute. This distinction
does not assist the
respondent. Respondent herself in seeking to deny
the extent of the influence of the brokers states that “brokers
do guide
their clients and do recommend to their clients but it is
the insured client/insurance assessors who make the decision of which
repairer to utilise”. In the result, far from discharging the
onus to show that it would be unreasonable to enforce the restraint
in respect of Broadrisk she rather confirms the significance of
assessors. She does not deny an attachment to Broadrisk.
[63] Respondent alleges that Meudene
Steyn has been her personal friend and broker since 1999 and
therefore applicant has no interest
worthy of protection in respect
of this broker. This does not seem to me to be sufficient to
discharge the onus resting on respondent
to show that it would be
unreasonable to enforce the restraint in respect of Meudene Steyn.
Even though Meudene Steyn may have
been known to the respondent as a
broker prior to her employment she may nevertheless during her
employment, and because of it,
form an attachment to her and acquire
an influence over her which she did not have before. (Compare
Rawlins
and Another v Caravantruck
supra at p. 542G-H.)
[64] Finally, the respondent avers
that the applicant has not made out any case whereupon I could find
that there is a worthy and
protectable interest in regard any of the
persons or entities listed in the rescission application as having
been omitted from
the original list in error. I do not agree. The
applicant states in the rescission application:
“
As a result
of an oversight on the part of, or mistake made by the applicant’s
attorney … the following brokers …
were not referred to
in paragraph 20 of my abovenamed affidavit.”
[65] The reference to the abovenamed
affidavit is reference to the founding affidavit. The same case is
accordingly made in respect
of those brokers as is made in the
founding affidavit.
[66] I do not think that there is any
other aspect of public policy having nothing to do with the
relationship between the parties
which justifies the rejection of the
restraint.
[67] In all the circumstances I am of
the view that, save in respect of Absa Brokers, Brolink, DHL Supply
Chain, FCG and PSG Consult
the applicant is entitled to the relief
which it seeks.
Costs
[68] In view of the conclusion to
which I have come above the applicant is clearly entitled to its
costs of the application. The
costs of the application for rescission
were reserved.
[69] The application for rescission
came about in consequence of an error on the part of the applicant,
alternatively, the applicant’s
attorney. The necessity for
bringing an application for rescission was accordingly occasioned by
the conduct of the applicant itself
or its attorney. In those
circumstances I do not consider that there is any basis upon which
the respondent should be ordered to
pay the costs occasioned by the
application itself. In view, however, of the conclusion to which I
have come above it seems to
me that the opposition to the application
for rescission was not justified. It would accordingly be appropriate
that the respondent
be ordered to pay the costs occasioned by the
opposition to the application for rescission.
[70] In the result the following order
is made:
1. The respondent is interdicted and
restrained, within the Magisterial District of Port Elizabeth, until
30 September 2011 from
being employed by, soliciting work from,
interfering with the applicant’s relationship with, or
endeavouring to entice away
from the applicant the following
brokerages:
1. ABEX Brokers
2. Alexander Forbes
3. Asset Insurance Brokers
4. AON
5. Ballast Insurance Brokers
6. Bonnie Slabbert Brokers
7. Bouwer Collins
8. Breakaway Brokers
9. Brian Kemsley Brokers
10. Broadrisk Services
11. David Rensburg
12. Fanie du Preez Brokers
13. FNB Insurance Division
14. Glynis Baudin Brokers
15. Gorch & Associates
16. Hannes Scheepers Brokers
17. Indwe
18. Leonie Hunt Brokers
19. Linette Jacobs Brokers
20. Maxifinn
21. Meudene Steyn
22. Mutitt Insurance Brokers
23. Noel Harvey
24. Robin van Rensburg
25. Scotrho Insurance Brokers
26. Skybound
27. Spectrum
28.
Spectrum Brokers
29. St Francis Brokers
30. STB
31. Susan Brophy
32. Telesure/Auto & General
33. Walmer Insurance Brokers
34. Werner Vosloo Brokers”.
2. The respondent is ordered to pay
the applicant’s costs in the application.
3. The respondent is ordered to pay
the costs occasioned by the opposition to the application for
rescission brought under case
no. 2589/2010.
___________________________
J W EKSTEEN
JUDGE OF THE HIGH COURT
Appearances:
For Applicant:
Adv A Beyleveld
SC instructed by Boqwana Loon & Connellan, Port Elizabeth
For Respondent:
Adv Ronassen
instructed by Richard Lawrence Attorneys, Port Elizabeth
.