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[2016] ZAECPEHC 43
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Hafa Security CC t/a Special Eye Holdings v Gibbon and Another (2533/2016) [2016] ZAECPEHC 43 (25 August 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
EASTERN
CAPE LOCAL DIVISION, PORT ELIZABETH
Case
No.: 2533/2016
Date
Heard: 18 August 2016
Date
Delivered: 25 August 2016
In
the matter between:
HAFA
SECURITY CC t/a SPECIAL EYE
HOLDINGS
Applicant
and
TERENCE
ERNST GIBBON
First
Respondent
SMHART
FAMILY TRUST t/a SMHART SECURITY
Second
Respondent
JUDGMENT
EKSTEEN
J:
[1]
The
first respondent was previously employed by the applicant and has
recently taken up employment with the second respondent.
The
applicant seeks an urgent final interdict restraining the first
respondent from being employed by the second respondent together
with
certain further interdictory relief. The applicant’s
cause of action is founded on an alleged covenant restraint
in of
trade, alternatively, on unlawful competition in that it is contended
that, irrespective of the alleged covenant, the first
respondent has
in his possession and is abusing confidential information of the
applicant to benefit the business of the second
respondent.
[2]
At
the hearing of the application, Mr
Pretorius
,
who appeared on behalf of the applicant, modified the relief sought
by the applicant to some extent. The interdict which
Mr
Pretorius
sought was:
“
1.
That the First Respondent be interdicted from disclosing to any
person and/or business
entity (company) including the Second
Respondent any confidential information concerning the business of
the Applicant;
2.
That the First Respondent be interdicted from approaching any of the
clients
of the Applicant and from attempting to persuade them to
terminate their agreements with the Applicant and enter into
agreements
with the Second Respondent;
3.
That the First Respondent be interdicted for a period of twelve
months from persuading
and/or canvassing any of the clients of the
Applicant within a radius of 75km of Jeffreys Bay to enter into
agreements with the
Second Respondent;
4.
That the First Respondent be ordered to terminate his employment with
the Second
Respondent with immediate effect; and
5.
That the First Respondent pay the costs of this application and that
the Second
Respondent only pay costs of this application in the event
that the Second Respondent opposes the application.”
Factual
background
[3]
The
relief which the applicant seeks is final. Where in proceedings
on notice of motion disputes of fact arise on the affidavits
a final
order may be granted if those facts averred by the applicant’s
affidavits which have been admitted by the respondent,
together with
the facts alleged by the respondent, justify such an order.
(See
Plascon-Evans
Paints (Pty) Ltd v Van Riebeeck Paints
(Pty)
Ltd
1984 (3) 623 (A) at 634H-I.) Most of the material facts
relevant to the determination of the issue in this matter are not
in
dispute, however, where disputes of fact do arise neither party
contends that such disputes of fact do not raise a real, genuine
or
bona
fide
dispute so as to justify a different approach to the evidence.
On an application of the said approach set out in
Plascon-Evans
(supra)
the material facts which emerge from the papers are set out below.
[4]
The
applicant conducts a business delivering security services to homes
and businesses in Jeffreys Bay and Humansdorp. Prior
to July
2015 the first respondent was employed at the gymnasium in Jeffreys
Bay. On 20 July 2015 first respondent took up
employment with
the applicant in Jeffreys Bay as a “sales officer”.
A written contract of employment (the employment
contract) was
concluded between them. The employment contract contained an
express term prohibiting the first respondent
from disclosing to any
person, firm or company any information concerning the business of
the applicant, whether during the tenure
of his employment or
thereafter, without the written consent of the applicant. The
employment contract also contained an
express covenant in
restraint of trade (the restraint of trade) restraining the first
respondent for a period of twelve months
after the termination of his
contract of employment with the applicant from participating directly
or indirectly as shareholder,
employee, director, agent, officer,
consultant, advisor or otherwise in any concern rendering risk
management and security services
within a radius of 75km from each
and every project area where the first respondent worked during his
employment with the applicant.
[5]
The
first respondent’s employment with the applicant, however, did
not endure for any extended period and, on 26 May 2016,
just 11
months after taking up his employment, the employment contract was
cancelled by mutual consent. The first respondent at
the time
expressed to the applicant a desire to relocate to East London on a
permanent basis.
[6]
In
his answering affidavit the first respondent explains that he had
terminated his services with the applicant as the applicant
appeared
to be falling into financial difficulties. He contends that the
applicant’s sales had dropped significantly,
that the applicant
had fallen in arrears with the payment of its Value Added Taxes (VAT)
and that it did not have sufficient funds
to make all of its response
vehicles serviceable. In view of these circumstances he noted a
negative feeling amongst the
company’s employees towards the
company.
[7]
The
first respondent did indeed set off for East London with the
intention to relocate to East London. Very soon, it appears,
he
realised that the grass was no greener in East London than it had
been in Jeffreys Bay. A mere three weeks later, on 14
June
2016, the first respondent was back on the applicant’s doorstep
in Jeffreys Bay, cap in hand, seeking employment.
The applicant
did not re-employ the first respondent, however, it engaged the
services of the first respondent as an independent
contractor and the
parties concluded a written agreement (the second agreement).
[8]
In
terms of the second agreement the first respondent was engaged to
perform essentially the same services which he had previously
performed as an employee. The second agreement contained no
covenant in restraint of trade. It did however contain
a
similar clause to that in the employment contract providing that the
first respondent may not disclose private and confidential
information concerning the business of the applicant to other
entities conducting business in competition with the applicant.
Confidential information was circumscribed in the second agreement as
follows:
“
12.1
The Contractor acknowledges that it may, in the course of the
performance of the Services, gain access to
and become acquainted
with the techniques, methods and processes, trade secrets, data,
information technology, software, business
associates, clients, and
other private, sensitive and confidential information (“Confidential
Information”) of HAFA
SECURITY.
12.2
The Contractor accordingly undertakes, for the duration of this
agreement as well as after the termination
thereof, not to directly
or indirectly, utilize, disclose or make public to any third party
any Confidential information of HAFA
SECURITY and to keep any
Confidential Information secret and confidential at all times …”
[9]
The
clause proceeds to enumerate a number of exclusions which would not
be regarded as confidential information. There was
some debate
at the Bar relating to these exclusions, however, by virtue of the
decision to which I have come it is not necessary
to consider these
further.
[10]
What
is of greater significance is that the second agreement contained a
further clause as follows:
“
13.5
This agreement supersedes all prior agreements, representations,
communications, negotiations and understandings
between the parties
concerning the subject matter of this agreement.”
[11]
The
second agreement too did not endure for any appreciable time and the
first respondent secured employment with the second respondent
approximately a week after the conclusion of the second agreement.
He declares that the reasons for him not pursuing the
second
agreement were essentially the same as the reasons for his original
resignation, same being the financial deterioration
of the
applicant.
[12]
On
21June 2016 the first respondent approached the second respondent
seeking an employment opportunity. First respondent advised
the
second respondent that he had been engaged on behalf of the applicant
on contract selling their products and services.
He expressed
concern about the future of the applicant as its sales were down and
it was experiencing internal problems.
He disclosed all the
applicant’s financial woes which had led him to resign, as set
out earlier, to second respondent.
On specific enquiry from Mr
Trahms of the second respondent in respect of the existence of a
covenant in restraint of trade the
first respondent advised that he
had initially been bound by the restraint of trade, however, that he
had entered into a subsequent
contract which had superseded the
employment contract and that he was accordingly no longer bound.
In these circumstances
the first respondent was engaged by the second
respondent, again on contract, to do sales for the second
respondent. This
contract was concluded on 23 June 2016.
[13]
At
approximately the same time, Mr Heystek, who deposed to the founding
affidavit on behalf of the applicant, met with Trahms and
advised
Trahms that the applicant was struggling financially and that he
personally intended to leave the security industry.
The purpose
of the meeting according to Heystek was to investigate whether
applicant and second respondent could join forces.
Trahms
proposed that the second respondent and the applicant enter into a
partnership. In the course of these discussions
Heystek
revealed the applicant’s monthly turnover, the approximate
number of clients of the applicant and the average monitoring
fee per
client, the number of employees engaged by the applicant and the fact
that the applicant had a substantial number of client
cancellations
during June 2016 to Trahms. Heystek also advised Trahms that
the applicant had fallen in arrears with its taxes
and was in dispute
with the statutory regulating body for the security industry (PSIRA)
with regard to its contributions.
In view of these revelations
the partnership proposed by Trahms did not come to fruition. The
inescapable conclusion to be drawn
from these averments is that
Heystek approached Trahms in his capacity as a member of applicant,
on behalf of the applicant, in
order to negotiate for a possible
partnership, merger or other form of consolidation between applicant
and second respondent.
Applicant’s
case
[14]
In
its founding papers the case made on behalf of the applicant was
twofold. First, it was contended that the relationship
which
now exists between the first and second respondents was in breach of
the restraint of trade. Second, it was contended
that during
his employment with the applicant the first respondent had obtained
confidential information relating to the identity
of the clients of
the applicant and the applicant’s tariffs. It contended
that the first respondent was utilising this
confidential information
in enticing the applicant’s clients away to the second
respondent.
[15]
Much
of the answering papers were devoted to the manner in which the
security services industry operates. With particular
reference
to the two categories of confidential information relied upon in the
founding papers the respondents contend that service
providers in the
security services industry publicly disclose who their clients are by
attaching to all premises which they monitor
a sign indicating the
identity of the security services firm monitoring the premises.
The identity of the client base, so
it is contended, is accordingly
public knowledge.
[16]
It
is common cause that all contracts in the industry are concluded on a
month to month basis so that any client can leave any service
provider on one month’s notice. It is not uncommon for a
security services provider to appoint a sales officer to canvas
clients of the opposition. The applicant’s tariffs, so
the respondents allege, are similarly public knowledge
in that
the applicant itself publishes its tariffs in the local newspaper.
[17]
None
of the aforegoing is seriously disputed. The applicant
contends, however, that there are some customers, without any
further
explanation thereof, who prefer not to have the identity of the
security service provider advertised on the building and
in certain
instances it may happen that a special tariff might be negotiated
with any particular customer. Again no further
information is
divulged as to the frequency of this phenomenon.
[18]
In
its replying papers the thrust of the applicant’s case was
considerably changed. Heystek states that at the time
when he
deposed to his founding affidavit he was not aware of the financial
and operational information which the first respondent
had, on his
own admission, conveyed to the second respondent. He states
that the financial position of the applicant, the
decline in its
sales figures, the fact that it had fallen into arrears with its VAT
payments and the alleged negative feelings
amongst the company’s
employees towards the applicant clearly constitutes private and
confidential information which the
first respondent was contractually
bound not to convey. Heystek says that this clearly illustrates
that the first respondent
became privy to confidential private
information of the applicant which was not in the public domain and
most certainly not within
the knowledge of the opposition, including
the second respondent. He concludes that “
it
is obvious
”
that having regard to the averments set out by the first respondent
and the second respondent in their answering affidavits
they abused
this private and confidential information in order to persuade
applicant’s customers to terminate their contracts
with the
applicant. Whilst this conclusion might represent a substantial
leap in logic the first and second respondents chose
to file an
additional set of affidavits in order to respond to new matter raised
in the replying papers and neither of them denied
that they have used
this information.
Covenant
in restraint of trade
[19]
It
is not in dispute that the employment contract contained the
restraint of trade. The respondents, however, contend that
the
restraint of trade was cancelled by the conclusion of the second
agreement which superseded the original agreement and did
not contain
a similar restraint. The argument turns on the interpretation
of clause 13.5 of the second agreement.
[20]
It
is well recognised that over the last century there have been
numerous developments in the law relating to the interpretation
of
documents. In
Natal
Joint Municipal Pension Fund v Endumeni Municipality
2012
(4) SA 593
(SCA) at 603F-604B Wallis JA set out the current state of
the law thus:
“
The
present state of the law can be expressed as follows: Interpretation
is the process of attributing meaning to the words used
in a
document, be it legislation, some other statutory instrument, or
contract, having regard to the context provided by reading
the
particular provision or provisions in the light of the document as a
whole and the circumstances attendant upon its coming
into existence.
Whatever the nature of the document, consideration must be given
to the language used in the light of the
ordinary rules of grammar
and syntax; the context in which the provision appears; the apparent
purpose to which it is directed
and the material known to those
responsible for its production. Where more than one meaning is
possible each possibility must be
weighed in the light of all these
factors. The process is objective, not subjective. A
sensible meaning is to be preferred
to one that leads to
insensible or unbusinesslike results or undermines the apparent
purpose of the document. Judges must be alert
to, and guard against,
the temptation to substitute what they regard as reasonable, sensible
or businesslike for the words actually
used. “
[21]
Clause
13.5 provides that the second agreement “
supersedes
all prior agreements, … concerning the subject matter of this
agreement
”.
In argument before me there was no dispute between the parties that
the subject matter of the second agreement related
to the engagement
of the first respondent in the performance of his sales duty to sign
up new clients and sell alarm systems.
It concerns essentially
the same subject matter as the first agreement. It is trite
that notwithstanding the termination
of the employment contract by
consent the term prohibiting the disclosure of confidential
information and the restraint of trade,
by their very nature, remain
operative and binding on the parties.
[22]
When
regard is had to the wording of these two clauses in the contract of
employment it is abundantly clear that at the time of
the conclusion
of the second agreement both parties would have been acutely aware of
the continued force of these two provisions.
The parties would
also have been aware of the functions which the first respondent did
perform during his very brief tenure as
an employee of the applicant
and the extent of the knowledge which he may have gained of
confidential information and the interaction
which he may have had
with the applicant’s clientele.
[23]
Against
this factual background the second agreement was drawn and concluded
and, as recorded earlier, it did not contain a restraint
of trade
clause. Rather, it stipulated that the second agreement would
supersede all prior agreements relating to the performance
of the
first respondent’s duties as a sales officer. The only
agreements in place at the time related to the confidential
information, which was again incorporated in the second agreement,
and the restraint of trade.
[24]
The
term “
supersedes
”,
in the context used, appears to me to carry one of the following
meanings: (a) “
render
superfluous or unnecessary
”,
(b) “
make
ineffective or void; annul; override
”,
(c) “
take
the place of; succeed and supplant in some respect
;”
or (d) “be replaced by something regarded as superior”.
(See
New
Shorter Oxford English Dictionary 1993 ed
.)
Attributing any one of these meanings to the term “
supersedes
”
I consider that it was clearly the intention of the parties upon
concluding the second agreement that the applicant abandon
any
reliance on the terms of the first respondent’s contract of
employment, in particular the covenant in restraint of trade.
During argument Mr
Pretorius
was unable to suggest any other “
prior
agreements
”
which the parties may have contemplated. In these circumstances
the covenant no longer finds application and it is
not open to the
applicant to rely on the restraint of trade.
Unlawful
competition
[25]
In
the absence of a covenant in restraint of trade the applicant bears
the onus to establish the requirements for a final interdict
founded
on unlawful competition. In order to do so the applicant will
be required to establish a clear right to the relief
which it seeks.
It relies on the alleged misuse of confidential information by the
respondents in order to advance the second
respondent’s
business interests and activities at the expense of the applicant.
(Compare
Schultz
v Butt
[1986] ZASCA 47
;
[1986]
2 All SA 403
(A),
1986 (3) SA 667
(A); and
IIR
South Africa BV (Incorporated in the Netherlands) t/a Institute for
International Research v Hall (aka Baghas) and Another
2004
(4) SA 174
(W).)
[26]
As
recorded earlier it was the applicant’s case in the founding
papers that the confidential information which had been abused
related to the identity of the applicant’s customers and its
tariffs. The respondents have convincingly shown that
the
identity of the clients of a security services company is a matter of
public knowledge as the security company itself advertises
this fact
on the buildings which it monitors. It has shown too that the
applicant itself advertises publicly what its tariffs
are. It
is true that the applicant contends that there are certain instances
where a client does not wish the security services
company to place
its identification board on the building and that there are instances
where special tariffs are negotiated.
It is, however, not
contended that any of the clients approached by the first respondent
to cancel their contracts with the applicant
fell into either of
these categories. In these circumstances Mr
Pretorius,
correctly
in my view, did not attempt to rely on the misuse of this
information. He concentrated his argument on the misuse
of
financial information.
[27]
It
is common cause that the first respondent conveyed such information
to the second respondent in seeking to obtain a contract
with the
second respondent as is set out earlier. Essentially all that
information was also conveyed to the second respondent
by Heystek
himself at a meeting two days after the contract between the first
respondent and second respondent was concluded.
This
notwithstanding it is argued that the first respondent, who had
already breached the terms of his contract in respect of the
revelation of confidential information, remained bound by his
contract and accordingly that the persistent use of such information
to canvas clients of the applicant remained unlawful and therefore
entitles applicant to an interdict.
[28]
I
have set out the confidentiality clause earlier herein. It has,
however, been held that irrespective of whether the applicant
seeks
to enforce an implied term or an express term of agreement the
applicant must first establish that there is in fact confidential
information to be protected. (See for example
Alum-Phos
(Proprietary) Limited v Spatz and Another
1997
(1) All SA 616
(W) at 623f.) In order to qualify for protection
in law as confidential information the information concerned must
comply
with certain prescribed requirements. General
information about a business, or for that matter of the financial
standing
of a business, does not become confidential because the
proprietor chooses to call it confidential. (See
Alum-Phos
supra
at 623i-j and
SA
Historical Mint (Pty) Ltd v Sutcliffe and Another
1983 (2) SA 85
(C) at 89H-90D;
Meter
Systems Holdings Ltd v Venter and Another
1993 (1) SA 409
(W) at 428A-430H.)
[29]
The
requirements to which the information concerned must conform in order
to qualify for protection are three-fold. First,
it must
involve and be capable of application in trade or industry:
i.e. it must be useful, in this sense. Second,
it must
not be public knowledge and public property: i.e. objectively
determined it must be known to only a restrictive number
of people or
to a closed circle. Thirdly, the information objectively
determined must be of economic value to the person
seeking to protect
it. (See
Alum-Phos
supra
at 623f-j;
Townsend
Productions (Pty) Ltd v Leech and Others
2001 (4) SA 33
(C);
Mossgas
(Pty) Ltd v Sasol Technology (Pty) Ltd
[1999]
3 All SA 321
(W) at 333f and
Experian
SA v Haynes
2013 (1) SA 135
(GSJ) at 141I.) Whether or not information
constitutes confidential information is a question of fact.
[30]
I
will accept for purposes of this judgment, in the applicant’s
favour, but without making any finding in that regard, that
the
information in issue complies with the second and third requirements
as set out above. To qualify, however, as a trade
secret or as
confidential information the information involved must first of all
not only relate to, but also be capable of application
in trade and
industry. Provided that it can be applied in trade and industry
to advance the business of a competitor the
nature of the information
is irrelevant. It may involve trade secrets, for example the
knowhow of business, an unpublished
trademark, customer lists,
customer or trade connections, credit records, pricelists, tender
prices, business discussions, technical
process and computer
software. (See for example
Law
of South Africa
2
nd
ed vol 2 part 2 paragraph 266 page 267.) All the specific
categories of information listed in clause 12.1 of the second
agreement would meet this requirement. It seems to me therefore
that it is private and sensitive information of this nature
which was
contemplated in the second agreement. I do not consider,
however, that private information about the financial
prosperity of a
competitor in the market can be said to be useful in the sense that
it relates to and is capable of application
in trade and industry.
The information used by respondents, although private, is
therefore not confidential information
protected in law.
[31]
Even
if I err in the conclusion to which I have come in respect of the
nature of the information I still do not consider that the
applicant
has established a clear right to the interdictory relief which is
sought. I have recorded earlier that a mere two
days after the
first respondent had concluded his contract with the second
respondent Heystek approached Trahms in order
to negotiate for
an agreement between applicant and second respondent and he
voluntarily conveyed all the information which the
first respondent
had earlier conveyed to the second respondent. There is no
evidence of any express or tacit contractual
obligation on the second
respondent to refrain from using or disclosing such information as
Heystek had conveyed to Trahms in the
course of the negotiation.
The second respondent is therefore at liberty to utilise such
information to advance its
business. It seems to me that the
disclosure and use of this information by the second respondent, its
employees and agents
(including first respondent) to advance the
business of the second respondent does not constitute unlawful
competition. (Compare
MV
Lina Union Shipping and Managing Co SA v Lima Maritime Ltd
1998 (4) SA 633
(N) at 637H; and
Gordon
Lloyd Page & Associates v Rivera
and
Another
2001 (1) SA 88
(SCA) at 95-97.)
[32]
In
these circumstances I do not consider that the applicant has shown a
clear right to the interdictory relief which he seeks.
[33]
In
the result, the application is dismissed with costs.
J
W EKSTEEN
JUDGE
OF THE HIGH COURT
Appearances:
For
Applicant:
Adv B Pretorius instructed by Jacques du Preez
Attorneys, Port
Elizabeth
For
Respondent: Adv H van der Linde
SC instructed by Wikus van Rensburg Attorneys, Port Elizabeth