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[2020] ZAECPEHC 14
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Diedre Steyn Physiotherapy Inc v Stander (440/2020) [2020] ZAECPEHC 14 (9 June 2020)
IN
THE HIGH COURT OF SOUTH AFRICA
EASTERN CAPE LOCAL
DIVISION, PORT ELIZABETH
CASE
NO.: 440/2020
Heard
on: 7 May 2020
Delivered
on: 09 June 2020
In
the matter between:
DEIDRE
STEYN PHYSIOTHERAPY INC
APPLICANT
and
MARLENE
STANDER
RESPONDENT
JUDGMENT
GQAMANA,
J:
Introduction
[1]
To the applicant, this case is about protecting its business
interests and to the respondent, it’s about putting
bread on
the table and her ability to earn a leaving without restrictions.
With such competing interests at stake, one has to determine
a case
like this by striking a balance between the applicant’s right
to its unique business interests and the respondent’s
right to
work and to sell her skills in a competitive market. Undoubtedly,
these conflicting interests must be balanced in the
light of public
interest.
[2]
In this application, the applicant seeks an order to enforce a
restraint of trade
covenant against the respondent.
[1]
The applicant is a personal liability company, duly incorporated in
terms of the laws of the Republic of South Africa, which
carries on
business as a physiotherapy practice at various locations in Port
Elizabeth
inter
alia,
at St George’s Hospital (‘the hospital’).
Initially the applicant traded under the name and style of Leonora
Ferreira Physiotherapists Incorporated (‘LFPI’) until
that name was changed on 1 June 2019 to its current name.
The
business was purchased by the deponent in the founding affidavit on 1
March 2017.
[3]
The respondent was an employee of LFPI at the time that the business
was acquired
and remained an employee of the applicant until she
resigned with effect from the end of September 2019. The
employment relationship
between the applicant and the respondent was
governed by a written employment contract (‘the contract’)
which the respondent
concluded with LFPI dated 28 November 2010
[2]
.
The said contract contained a restraint clause, in terms of which the
respondent undertook not to conduct or to be employed
by any
physiotherapy practice or any business or practice which renders
physiotherapy services within a radius of 10 km from the
applicant’s
practice premises for a period of nine months after termination of
her employment with the applicant
[3]
.
[4]
The contract also recorded
inter
alia,
an
undertaking by the respondent not to approach any of the applicant’s
suppliers or associates with a view of persuading
them to cease doing
business with the applicant and to commence doing business with
anyone else.
[4]
[5]
As indicated in paragraph 3 above, the respondent resigned from her
employment with
the applicant with effect from the end of September
2019. Shortly thereafter, on or about 28 October 2019, the
applicant’s
attorneys penned a letter to the respondent
reminding her of the terms of the restraint agreement and in
particular sought an undertaking
from her to restrain from handing
out personal business cards to the medical professionals (‘the
referring doctors’)
at the hospital in an attempt to solicit
business
[5]
. That letter
was met with a response dated 29 October 2019 from the respondent’s
erstwhile attorneys refuting any breach
of the restraint agreement.
Thereafter there were numerous exchange of correspondence between the
applicant’s attorneys
and the respondent’s erstwhile
attorneys. However no undertaking was made by the respondent
that she will honour the
terms of the restraint agreement.
[6]
The applicant became aware in January 2020, that the respondent
accepted an appointment
and worked as a locum at the hospital over
the December holidays in breach of the restraint agreement.
That then necessitated
the applicant to launch the present
application with truncated time period for the service of the notice
of set down and the enrolment
of the matter. Due to Covid-19 lockdown
Regulations the matter could not be heard on the initial date of the
hearing.
Factual
matrix
[7]
An understanding of the nature of the applicant’s business and
how it operates
is fundamental for the determination of the issues
herein. As indicated in paragraph 2 above, the applicant
carries on business
as a physiotherapy practice at various
locations. Its human resources consist of 19 employees and 11
of them are qualified
physiotherapists. Much of the applicant’s
revenue is generated through services rendered by the
physiotherapists.
The majority of the physiotherapy services
rendered by the applicant are from the referring doctors practising
from their rooms
at the hospital. For some years, the applicant
developed a close working relationship with these doctors and without
their support,
its practice would not be sustainable at the hospital.
Consequently that would have a devastating impact upon the
applicant’s
business. Such relationships were
maintained by the physiotherapists in the manner in which they
carried out their
duties. The respondent, while still in the
employment of the applicant, was amongst those physiotherapists who
had to maintain
such relationships with the referring doctors.
[8]
It follows that the physiotherapists who worked for the applicant
were introduced
to the referring doctors. Because of their
association with the applicant the doctors also got to know and trust
them. Those relationships
were also nurtured by the quality of
service rendered by the physiotherapists and other forms of business
networking
[6]
. The
applicant has established special relationship of trust with the
referring doctors and those doctors constitute
a significant part of
its goodwill and trade connections. The respondent was also
well known amongst the doctors in the hospital
through her employment
with the applicant and at times she was required to work with these
doctors without supervision.
Issues
to be decided
[9]
The applicant seeks to interdict the respondent and enforce its
restraint agreement.
It is the applicant’s case that the
respondent has acted in breach of clause 19.3 by soliciting business
from the doctors
by handing the business cards to them or leaving
same in their practices and also in breach of clause 19.4 by
conducting a business
which renders physiotherapy services at the
hospital. Its case is that, it has a protectable interests in
the form of a goodwill
of practice which is worthy of protection.
[10]
The respondent contends that the applicant has no protectable
interests and as such the restraint
agreement entered into between
her and the applicant is unenforceable for the following reasons:
10.1
The applicant has not set out sufficient facts to show that it has
interests deserving of protection.
To the contrary, its pleaded
case shows only that, the applicant has built up and solidified
considerable goodwill and market share.
10.2 The
applicant’s case falls short of showing that the relationship
between the respondent and its main customers
was one in course of
which the respondent acquired personal knowledge or influence over
any of the customers, such as to enable
her to take advantage of any
trade connections of the applicant, or that any such customer can be
classified as ‘in the pocket
of the respondent’.
10.3 Even if
it is found that the applicant has a proprietary interest in the form
of goodwill, there is no evidence
of threat that the respondent will
take advantage of and is able to induce the doctors to walk away with
her.
10.4
The restraint agreement is unreasonable and against public policy.
[11]
The respondent further argued that the expertise and the relationship
that she has developed
with some of the doctors are her own
attributes based on her experience that she has accumulated over the
years as a physiotherapists.
Legal
principles applicable to agreements in restraint of trade
[12]
Individuals are free to sign and conclude legally binding
contracts, such as a restraint of trade and once one
has done so, she
is expected to keep her promises. In
Magna
Alloys and Research (SA) (Pty) Ltd v Ellis
[7]
,
the
court said that
:
“
In
South African Law, an agreement in restraint of trade is, on the face
of it, valid-and hence enforceable –and will only
be invalid
and unenforceable if it is contrary to public policy on account of it
unreasonably restricting a person’s right
to trade or to work.”
[13]
Also in
Reddy
v Siemens Telecommunications (Pty) Ltd
[8]
,
it was held that, the substantive law as laid down in
Magna
Alloys
is that a restraint is enforceable unless it is shown to be
unreasonable, which necessarily casts an onus on the person who seeks
to escape it. All that an applicant has to proof is that it has
a proprietary interests to protect in the restraint agreement
and
such interests may be in a form of trade connections.
[14]
It suffices for the applicant to show an existence of trade
connections and that there is a potential
risk of such customer
contacts to be exploited or used by the erstwhile employee in
competition against it
[9]
.
[15]
In determining the reasonableness or otherwise of the restraint of
trade provision, the test
is as set out in
Basson
v Chilwan & Others
[10]
which
is the following:
1.
Is there an interest of the one
party, which is deserving of protection at the termination of the
agreement?
2.
Is such interest being prejudiced by the
other party?
3.
If so, does such interest so weigh up
qualitatively and quantitatively against the interest of the latter
party that the latter
should not be economically inactive and
unproductive?
4.
Is there another facet of public policy
having nothing to do with the relationship between the parties but
which requires that the
restraint should either be maintained or
rejected?
[16]
A further consideration which was added in
Kwik
Kopy (SA) (Pty) Ltd v Van Haarlem and Another
[11]
,
was whether the restraint goes further than is necessary to protect
the interests.
Application
of the legal principles to the facts hereto
[17]
The applicant has the onus to show that it has an interest worthy of
protection.
[18]
In
Rawlins & Another (
supra)
,
Nestadt
JA at 541C-H said the following:
“
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 Saxell [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 connections ….
This
statement has been applied in our Courts (for example, by Eksteen J
in
Recycling
Industries (Pty) Ltd v Mohammed & Another
1981 (3) SA 250
(E
)
at 256C-F.
Whether the criteria referred to are satisfied is essential a
question of fact in each case, and in many, one of degree.
Much
will depend on the duties of the employees; his personality; the
frequency and the duration of the 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 into 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 employees
left ……”
[19]
From the onset, let me state that insofar as there are factual
disputes, those would be resolved
by applying the Plascon-Evans
rule
[12]
. This being motion
proceedings, the applicant would only succeed in obtaining the relief
sought if the facts as stated by the respondent
together with the
admitted facts in the applicant’s affidavits justifies such an
order.
[20]
It was ardently argued by Mr Le Roux that, the case pleaded by the
applicant shows only that, it has built up and
solidified
considerable goodwill and market share. However, the
applicant’s case as pleaded does not show that the
respondent
has established relationships with the doctors that enable her ‘to
carry off a doctor in her pocket’.
Much reliance was
placed on the judgments in
Laser
Junction (Pty) Ltd v Karl Leeson Fick
[13]
and
Smart
Office Connexion EC (Pty) Ltd v Van der Merwe and Another
[14]
.
[21]
In
Laser
Junction
(
supra)
Pillay J said the following:
“
[37]……an
employer would have protectable proprietary interests in its
confidential information, trade secrets, customer
and trade
connections if it proves having such interests. Whether
proprietary interests worthy of protection under a restraint
agreement exist, depends on whether confidential matter exists,
whether the employee has access to it, whether it would be useful
to
the employer for carrying on business, whether it is private or known
to a few people and not in the public domain and whether
if
disclosed, it would give a competitor an advantage. Whether
information is confidential or amounts to a trade secret is
a factual
enquiry.
[38]
An employer would also have a proprietary interest in its
relationship with customers, potential customers, suppliers
and
others, that is, its trade connection or goodwill. To establish
a trade connection an employee would have to have had
access to her
employer’s customers, be able to build relationships with them
and induce them to follow her to her new employment.
She would
have to acquire such personal knowledge and influence over the
customers that if she were allowed to compete she would
be able to
take advantage of the employer’s trade connection.”
[22]
In developing the submissions, Mr Le Roux argued that not only the
employer must show trade connections
or customer connections but, it
must also show that such trade connections are vital to the employer
to carry on business and that
the respondent is in a position to
carry the customers in her pocket.
[23]
Mr Belyleveld SC for the applicant, argued that the applicant’s
goodwill and its relationship
with its customers is a proprietary
interests worth a protection. In
Rawlins
[15]
(
supra
),
it was held that, customer goodwill that was created or enhanced by
performance by an employee of his duties in terms of his
contract of
employment was at least in part an asset of the employer
[16]
and as such it becomes a trade connections of the employer which is
capable of protection by means of a restraint of trade clause.
[24]
Also in
Hawkwind
CC v Salome Goddard
[17]
,
Eksteen J held that, customer goodwill is an asset of an employer and
becomes a trade connection of the employer which his capable
of
protection by of the restraint of trade.
[25]
To establish a trade connection an erstwhile employee would have to
have had access to her employer’s
customers and was able to
build with them and is in a position to induce them to follow her to
her new employment.
[26]
In the instant matter it is not disputed that the relationship which
the respondent had with
the doctors was critical in maintaining a
relationship between the applicant and its customers. More so,
in maintaining that
relationship the respondent was responsible for
promoting the applicant’s image to its customers and
maintaining and fostering
its goodwill.
[27]
The respondent argued that the relationship with the doctors was on
account of her own skills
and attributes, which could suitably place
her in a position to receive referrals from them and, not as a result
of any advantage
gained as a consequences of her past association
with the applicant. And because she has developed a
relationship based on
her skills and attributes, she should not be
precluded for making use of them. I agree that, her skills and
attributes are
part of herself
[18]
.
But the evidence presented herein was that the respondent
during her employment with the applicant developed relationships
with
applicant’s customers, and that relationship was critical in
maintaining a relationship between the applicant and its
customer and
in fostering its goodwill. Further the respondent was
introduced to the doctors through her employment with
the applicant.
No contraditory evidence that she knew any of the doctors before her
employment with the applicant. Much energy
was devoted on the extent
of such relationship. The respondent saying that with
most doctors she merely greeted them
in passing and as such she has
not gained personal knowledge to be in a position to induce them to
walk away with her. I
disagree. On her own version, the
respondent received some referrals from some of the doctors
subsequent to her resignation
from the applicant’s employment.
Further the respondent was central to maintaining the relationship
between the applicant
and the doctors through her services to the
patients of the doctors. Effectively, the respondent was
strategically deployed
to promote the good image of the applicant to
the doctors. She developed trust relationships with the doctors
and she is
in a position to take advantage of such relationship and
to induce the doctors to do business with her. The respondent
has
worked for the applicant for a period of approximately nine
years.
[28]
On the facts on this particular case, I am satisfied that the
applicant has proprietary interests worthy of protection.
[29]
The further argument raised by the respondent is that, there is no
harm caused to the applicant’s
business. The argument was
that, if it is accepted that the goodwill of practice is a
protectable interest, the applicant
has not shown that such interest
is vital to its business and that the latter is vulnerable should
such interest not protected
by way of the restraint. I am
unable to share Mr Le Roux’s argument on this point for various
reasons. Any trade
connection is capable of protection if it is
threatened by the possibility of an erstwhile employee taking an
advantage of it and
using it for the competition. In
Rawlins
(
supra)
it
was said the need for an employer to protect its trade connections
arises where an employee had access to the customers and is
in a
position to build up a particular relationship with the customers so
that when she leaves the employer’s services she
could induce
the customers to follow her
[19]
.
It is not part of our law that the protectable interest should be
vital to the applicant’s business.
[30]
In my view, the risk to the applicant’s customer connection is
sufficient enough to justify
the enforcement of the restraint
agreement against the respondent. I am alive to Mr Le Roux’s
argument that the respondent
is a ‘sole practitioner’ and
it is inconceivable that she would be able to compete with the
applicant which has employed
no less than nine physiotherapists’
practitioners. This argument lost focus. In matters of this
nature context is everything.
By context, I mean, one has to
understand the underlying trust relationship between the respondent
and the applicant’s customers
and how the respondent is
strategically deployed for purposes of maintaining and fostering such
relationship. Size matters
not. The fact that the
applicant is on a larger scale able to service more doctors is
immaterial.
[31]
In the instant matter, it is not a matter of a threat to the
applicant’s customer connections,
but it is common cause that
the respondent has already received referrals from some of the
doctors. Therefore, having regard
to all the evidence of this
particular case, I am satisfied that the risk to the applicant is
enough to justify enforcement of
the restraint agreement.
[32]
That takes me to the issue as to whether the restraint is reasonable
or otherwise. The onus is on the respondent
to prove the
unreasonableness of the restraint agreement
[20]
.
[33]
Not much argument was advanced on behalf of the respondent on this
point. Mr Le Roux’s argument was
that, if the court comes
to the conclusion that the applicant has shown proprietary interest
worthy of protection and that there
is a risk that the respondent is
in a position to induce the customers to move away with her, it
follows that, I am likely to find
that the restraint is reasonable.
That is not so. Despite my findings that the applicant has a
protectable interests, I still
need to apply a value judgment and
consider those factors enunciated in
Basson’s
judgment.
[34]
A person’s right to choose her own profession without
restrictions as enshrined in the constitution has to
be guarded
jealously, but not at all costs. The first two factors set out
in
Basson
have
already been dealt with above. The third leg of the enquiry is
whether such interests so weighed up qualitatively and quantitatively
against the interests of respondent, the latter should not be
economically inactive and unproductive. The relief now sought
by the applicant is restricted despite the wording of the restraint.
The applicant has no qualms with the respondent taking up
employment
elsewhere or in any of the other hospitals in Port Elizabeth except
for St George’s Hospital. Therefore the relief
sought is much
narrower, but that is not a concession that the restraint agreement
was unreasonable.
[35]
Mr Le Roux on this point, argued that the much of the business
arises from St George’s
Hospital and if the respondent is
restrained from rendering physiotherapists services at the said
hospital, she would virtually
be economically inactive and
unproductive. No evidence presented to support the contention that
much business opportunities for
physiotherapists are at St George’s
hospital. It can be accepted that there are number of other
hospitals in Port Elizabeth
and nothing prevents the respondent from
practising her profession in such hospitals.
[36]
As I have indicated above, the fact that the applicant is in a larger
scale as compared to the respondent
is of no assistance to her.
Weighing up the parties’ interests, the respondent would not be
economically inactive and
unproductive if the restraint agreement is
enforced. Further there is no other facet of public policy,
having nothing to
do with the relationship between the parties that
requires the restraint to be rejected.
[37]
Not much argument was advanced on the fifth consideration, that is,
whether the restraint provision
goes further than is necessary to
protect the particular interest. In any event, I am well pleased on
evidence before me that the
restraint provision does not go further
than is necessary to protect the applicant’s interests.
[38]
With regard to the alleged breach of clause 19.3 of the contract, the
applicant’s case hinges on the
fact that the respondent
dispersed business cards to some of the doctors’ practices.
There is no evidence that the respondent
approached any of the
doctors with the view of persuading them to cease doing business with
the applicant and to commence doing
business with anyone else.
Therefore the applicant in my view, has not proved breach of clause
19.3 and is accordingly not
entitled to the relief sought in prayer 2
of the notice of motion.
[39]
Lastly, this being an interdict application for a final relief, I am
satisfied that the applicant has proved all
the requirements
necessary for a final interdict
[21]
for the relief sought in prayer 3 of the notice of motion.
[40]
Insofar as the issue of costs are concerned, both parties were in
agreement that this is a matter
wherein costs should follow the
results. I also find no reason why I should depart from that
general rule and the applicant
is substantially successful.
Order
[41]
In the circumstances, I make the following order:
1. The respondent
is hereby interdicted and restrained for a period of 9 months from 01
October 2019 to 30 June 2020, from
conducting or being employed by
any physiotherapy practice or any business or practice which renders
physiotherapy services within
St George’s Hospital in Port
Elizabeth.
2.
The respondent is ordered to pay the costs of this application, such
costs to include the costs of two counsel.
_______________________
N. GQAMANA
JUDGE
OF THE HIGH COURT
APPEARANCES
For the Applicant:
ADV A. BEYLEVELD SC (assisted by Adv
D. BANDS
Instructed by
: RUSHMERE NOACH
INCORPORATED
PORT
ELIZABETH
For the Respondent
: ADV F. E. LE ROUX
Instructed by
: BOYENS ATTORNEYS INC
PORT
ELIZABETH
[1]
Index
pp 1-3; prayers 2 and 3 of the Notice of Motion.
[2]
Index
pp 27-32.
[3]
Index
p30; clause 19.4, the exception thereto are the Technikons,
Universities or local provincial or central government institutions
or hospitals.
[4]
Index
p30; clause 19.3.
[5]
Index
pp37-38.
[6]
For
example, spending time interacting with doctors on their rounds and
at their practices, regular meet and greet sessions
with the
doctors and contacts with the doctors on their birthdays and buying
of birthday gifts for them.
[7]
1984
(4) SA 874 (A).
[8]
2007
(2) SA 486 (SCA).
[9]
Rawlins
& Another v Caravantruck (Pty) Ltd
[1992] ZASCA 204
;
1993 (1) SA 537
(A) at 541G-I
and also Dev Braven v Pillay & Another 20
08 (6) SA 229
(D), para
[6].
10
1993 (3) SA 472
(A) pg 743G-I
[11]
1999
(1) SA 472
(W) at 484E
[12]
Plascon-Evan
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623(A)
at
634-5.
[13]
unreported
judgment, Kwazulu Natal Local division, Case Number 6970/2017 and
[14]
unreported
judgment, Eastern Cape Local Division, Case No.: 847/2019
[15]
At
p 542H.
[16]
See
also Omni Technologies v Nathan Phillips & Others (unreported
judgment of Kroon J, Case No.: 142/11 at para 33).
[17]
[2010]
ZAECPEHC 73 (7 December 2010).
[18]
Automotive
Tooling Systems (Pty) Ltd v Wilkens and Others
[2007] 4 ALL SA 1073
(SCA) and also Aranda Textile Mills (Pty) Ltd v Hurn
[2000] 4 ALL SA
183
at para [33].
[19]
Rawlins
supra
541 C-D.
[20]
BHT
Water Treatment (Pty) Ltd v Leslie and Another 1993 (1) SA 47 (W).
[21]
Setlogelo
v Setlogelo
1914 AD 221
, Masuku v Minister van Justisie
1990 (1) SA
832
(A) at pp 840-841 and also John Saner Agreements in Restraint of
Trade in South Africa at 15-82.