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[2021] ZAGPJHC 633
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CGS Shopfitters CC v Steward (2021/36845) [2021] ZAGPJHC 633 (31 August 2021)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, JOHANNESBURG
CASE
NO: 2021/36845
REPORTABLE:
NO
OF
INTEREST TO OTHER JUDGES: NO
REVISED:
YES
[31
AUGUST 2021]
In
the matter between:
CGS
SHOPFITTERS
CC
APPLICANT
And
STEWARD,
RICARDO ALEXANDRE
RESPONDENT
J
U D G M E N T
MUDAU,
J:
[1]
This
urgent application, brought pursuant to Rule 6(12) of the Uniform
Rules, seeks to enforce a restraint of trade agreement concluded
between the applicant and the respondent. The applicant, CGS
Shopfitters CC, a close corporation duly incorporated and registered
in accordance with the company laws of South Africa, seeks an order
interdicting the respondent from breaching his confidentiality
and
restraint of trade undertakings given in his employment contract with
the applicant and from breaching his fiduciary duties.
As a
preliminary matter to the main relief, the applicant seeks an order
that the employment contract between the parties be rectified
to
reflect that the applicant is a close corporation and not a company.
Rectification
of the employment contract
[2]
It
is convenient to deal firstly with the rectification relief for the
simple reason that it is not seriously contested. The relevant
facts
are in brief, as follows. The applicant states that, although the
employment contract reflect the employer as a company styled
CGS
Shopfitters (Pty) Ltd, the employer was in fact the applicant, which
is a close corporation. The contract was drawn up in a
pro forma
document created by the applicant’s erstwhile labour
consultant, Mr de Oliveira, since deceased, whose name appears
on the
bottom right hand corner of each page. CGS Shopfitters (Pty) Ltd as a
company never existed. The applicant has always run
as a sole
proprietorship since 1994, until its registration in 2006. References
to “company” in the respondent’s
contract of
employment, should actually be reference to “close
corporation”. Similarly, references to “director”
should be a reference to “member”.
[3]
The
applicant attached as proof the respondent’s final salary
remittance, annexure FA 3 which reflect the employer as the
applicant, a close corporation. As indicated above, the relief sought
in this regard is uncontentious and without any real prejudice.
Nothing turns on this. Accordingly, it is appropriate to grant an
order rectifying the employment agreement to reflect the employer
as
a close corporation and not a company. In addition, that reference to
a “director” is intended to be a reference
to a “member”.
Urgency
[4]
I
am satisfied that the application is urgent. There was no serious
argument to the contrary. The period of the restraint of trade
provisions that the applicants seek to enforce, from the date of
judgment, is months away. By reason thereof and having regard
to the
time that it takes to enroll an opposed motion before this Court, the
applicants evidently cannot seek redress in the ordinary
course. If
the breach and reasonableness of the restraint of trade provisions
are proved, the harm occasioned by the breach is
on-going. It is
trite that a breach of a restraint of trade is invariably of an
urgent nature
[1]
.
The
merits
[5]
It
is common cause from a reading of the papers that the respondent was
employed by the applicant in terms of an oral agreement
during
February 2016. During March 2017, the applicant and the respondent
signed a written contract of the agreement, annexure
FA2. Clause 12.2
in the employment contract provides that the “
[E]mployee
shall not, except with the prior written consent of the company,
undertake any additional employment for remuneration
outside the
service of the company, nor be a director, member or office bearer of
any other company or corporation, nor carry on
or be directly or
indirectly associated with or interested in any other business,
whether competitive with the business of the
company or not
”.
In terms of clause 14.1.4 the respondent is restrained to “
approach,
communicate with or attempt to solicit any business of whatsoever
nature from any customer, supplier of potential customer
of the
company to whom the employee was introduced or who the employee met
or with whom the employee became acquainted during the
course of the
employee’s employment with the company
”.
[6]
Although
the written contract fails to disclose details relating to the
respondent’s remuneration, he was paid a salary since
commencement of his employment with the applicant. The respondent’s
position is described in his employment contract as that
of a
“designer”. During the course of his employment, the
respondent had contact with his employer’s clients,
which
included Klein Concept, a major client of the applicant. The
respondent was introduced to Klein Concepts during and within
the
course and scope of his employment with the applicant.
[7]
It
is common cause that the respondent resigned from his position with
the applicant on 30 April 2021. It is further common cause
that, the
respondent advertised himself as a technical designer with 3D
modelling, machining drawings as well as manufacturing
drawings
skills etc. It is not in dispute that, after his resignation
respondent carried out certain design work for one of Klein
Concepts’
clients.
[8]
In
his answering affidavit, and in summary, the respondent alleges that
he signed the restraint of trade and confidentiality undertakings
under duress. He asserts that he is not bound by them. He alleges
that, in as much as the written contract signed on 16 March 2017
does
not reflect the terms of remuneration, the contract is inchoate. He
states that he was from the onset employed as a draughtsman,
which
entails the compilation of technical drawings for purposes of
manufacturing. By his own version however, machine drawings
were used
by the applicant to manufacture the drawings required by clients. The
respondent’s affidavit is replete with examples
where he
referred to himself previously as “a member of the design team”
of the applicant
[2]
, but not as
a draughtsman. This is also consistent with his letter of resignation
in which he expressed a desire to pursue other
avenues of designing,
consistent with his work with applicant. After receiving the contract
document, he sought and obtained advice
from his uncle, an admitted
attorney.
[9]
The
respondent subsequently met with the applicant’s
representatives including De Oliveira, and raised certain concerns
which
included the restraint of trade and confidentiality, which on
his version was being introduced a year after he started his duties.
He was consequently given 15 days to consider and deliver the signed
employment agreement failing which he faced dismissal. During
the
beginning of 2019, with the full knowledge and consent of Mr Virgilio
of the applicant, he set up his own design consultancy
to augment his
income and gave assurance that his side work will not interfere with
his duties with the applicant. He confirmed
that he consulted on a
freelance basis with Mr Stephen Klein of Klein Concepts, an interior
architecture practice with a focus
on luxury retail design, one of
the applicant’s two major clients, which entailed the creation
of client drawings. He maintained
that he never breached any
confidential information in respect of the applicant’s clients.
He maintained that the work he
engaged in does not in any way overlap
with the work he performed for CGS.
[10]
The
material terms of the contract, the subject matter of the main
application are not in dispute. In a replying affidavit, the
applicant pointed out that the respondent has been responsible on
numerous occasions was in the employ of the applicant to design
work
commissioned by Klein Concept. The respondent does not deny that he
was privy to the applicant’s confidential information
set out
in the founding affidavit but merely denies having breached his
confidentiality undertakings. In a confirmatory affidavit,
Mr Klein
confirmed that the work which the respondent had solicited from Klein
Concept was the same kind of work which the applicant
carried out on
behalf of Klein Concept.
The
Law
[11]
It
trite and entrenched that every citizen has the constitutional right
to choose their trade, occupation or profession freely
[3]
.
However, the practice of a trade, occupation or profession may be
regulated by law. None of the entrenched rights are absolute
but are
subject to limitations
[4]
. It is
however settled law that the right to trade or practice and
occupation may be limited by agreement. Additionally, it is
trite
that a restraint of trade agreement is regulated by the law of
contract.
The
party seeking to enforce a restraint need only invoke the restraint
agreement and prove a breach of the agreement, nothing more.
The
party seeking to avoid the restraint bears the onus to establish, on
a balance of probabilities, that the restraint agreement
is
unenforceable because it is
unreasonable
[5]
‘
A
restrain
t
of trade can be enforced and
it
is sufficient for the applicant to show that the customer contact
exists and that they can be exploited by the former employee
.
The
principles applicable to restraint agreements are well-established.
[12]
In
general terms, a restraint will be unreasonable if it does not
protect some proprietary interest of the party seeking to enforce
a
restraint. In other words, a restraint cannot operate only to
eliminate competition.
The
effect of the landmark judgment in
Magna
Alloys
is
summarised in
J
Louw and Co (Pty) Ltd v Richter and Others
[6]
thus:
‘
Covenants
in restraint of trade are valid. Like all other contractual
stipulations, however, they are unenforceable when, and to
the extent
that, their enforcement would be contrary to public policy. It is
against public policy to enforce a covenant which
is unreasonable,
one which unreasonably restricts the covenantor’s freedom to
trade or to work. In so far as it has that
effect, the covenant will
not therefore be enforced. Whether it is indeed unreasonable must be
determined with reference to the
circumstances of the case. Such
circumstances are not limited to those that existed when the parties
entered into the covenant.
Account must also be taken of what has
happened since then and, in particular, of the situation prevailing
at the time enforcement
is sought.’
[13]
In
Reddy
v Siemens Telecommunications (Pty) Ltd
[7]
the
Supreme Court of Appeal (SCA) upheld a 12-month restraint against an
employee who had joined a competitor (Ericsson).
The Court restated
the following principles at para [15]:
‘
A
Court must make a value judgment with two principal policy
considerations in mind in determining the reasonableness of a
restraint.
The first is that the public interest requires that
parties should comply with their contractual obligations, a notion
expressed
by the maxim pacta servanda sunt. The second is that
all persons should in the interests of society be productive and be
permitted
to engage in trade and commerce or professions. Both
considerations reflect not only common-law but also constitutional
values.
Contractual autonomy is part of freedom in forming the
constitutional value of dignity, and it is by entering into contracts
that
an individual takes part in economic life.’
[14]
Against
the background facts and the applicable law, it is to the
respondent’s defences’ that I turn to deal
with.
Duress is raised as a defence. The respondent contends that he was
compelled to sign the restraint of trade agreement under
circumstances of duress in that he feared losing his job. In this
regard, reliance was made to the matter of Pinnacle Technology
Shared
Management Services (Pty) Limited and Another v Venter and
Another
[8]
. In that matter, the
first respondent, Venter alleged in her answering papers that she
signed the contract under duress. She was
on her version, informed
her that if she did not sign the new contract of employment
incorporating the restraint of trade she would
not be paid her salary
and was in fear that her failure to do so would result in her being
unable to meet her monthly financial
commitments.
[15]
In
Arend
v Astra Furnishers (Pty) Ltd
[9]
Corbett J (as he then was) reminds us that
duress
may take the form of inflicting physical
violence
upon the person of a contracting party or of inducing in him a fear
by means of threats. Where a person seeks to set aside
a contract, or
resist the enforcement of a contract, on the ground of duress based
upon fear, the following elements must be established:
(i)
The
fear must be a reasonable one.
(ii)
It
must be caused by the threat of some considerable evil to the
person concerned or his family.
(iii)
It
must be the threat of an imminent or inevitable evil.
(iv)
The
threat or intimidation must be unlawful or
contra
bonos mores
.
(v)
The
moral pressure used must have caused damage.
[16]
As
pointed out by the Supreme Court of Appeal in
Medscheme
Holdings (Pty) Ltd and Another v Bhamjee
[10]
with reference to
Van
den Berg & Kie Rekenkundige Beamptes v Boomprops
1028
BK
[11]
,
“
hard
bargaining is not the equivalent of duress, and that is so even where
the bargain is the product of an imbalance in bargaining
power.
Something more - which is absent in this case - would need to exist
for economic bargaining to be illegitimate or unconscionable
and thus
to constitute duress."
[17]
It
remains to determine whether the alleged duress constitutes a basis
for the respondent to avoid the consequences of the agreement.
The
fact that the respondent signed the employment agreement and thus the
undertakings with reservations does not necessarily mean
that he
acted under duress. In this instance, and by his own version, he
signed the undertakings after having obtained legal advice
from an
uncle, an admitted attorney. His reliance on the doctrine of duress
is not sustainable. He had the choice to refuse to
make the requested
undertakings but did so after obtaining legal advice. The respondent
has thus failed adequately to set out a
defence of duress or for that
matter, the requisite elements of duress as contemplated in
Arend
v Astra Furnishers
[12]
.
[18]
The allegation
by the respondent that the written agreement is inchoate for lack of
remuneration terms is also without basis. It
is common cause that the
respondent had received a salary from the applicant since his
employment in 2016. Now, the fact that some
of the written terms were
contained in a separate document does not detract from the fact that
there was an employment agreement
between the parties. Accordingly,
his defence in this regard is devoid of any merit.
[19]
The respondent
also alleges that the applicant waived its right to enforce the
confidentiality and restraint of trade undertakings.
In this regard
he alleges that members of the applicant were aware that he was
running a side business as they followed him on
an Instagram account
and did so with their permission. Not only was this disputed by the
applicant as they communicated on a different
platform, but the law
in this regard is also settled.
[20]
In
our law it is an established principle that there is a strong
presumption against waiver. Having gone to all the trouble to acquire
contractual rights people are, in general unlikely to give them
up
[13]
. In this regard the
onus lies with the respondent asserting waiver to show that the
applicant with full knowledge of the applicable
rights decided to
abandon it whether expressly or by conduct. Accordingly, an intention
to waive must be inferred reasonably; no
one can be presumed to have
waived rights without clear proof
[14]
.
[21]
In
Road
Accident Fund v Mothupi
[15]
,
Nienaber JA explained the basis for considering any waiver of a right
in the following terms:
‘
Waiver
is first and foremost a matter of intention. Whether it is the waiver
of a right or a remedy, a privilege or power, an interest
or benefit,
and whether in unilateral or bilateral form, the starting point
invariably is the will of the party said to have waived
it. …
The test to determine intention to waive has been said to be
objective …. That means, first, that intention
to waive, like
intention generally, is adjudged by its outward manifestations …;
secondly, that mental reservations, not
communicated, are of no legal
consequence …; and, thirdly, that the outward manifestations
of intention are adjudged from
the perspective of the other party
concerned, that is to say, from the perspective of the latter's
notional alter ego, the reasonable
person standing in his shoes.’
(Citations omitted)
In
my view, the respondent fails to establish that CGS waived its rights
and concomitant obligation by the respondent to the written
contract.
[22]
In
considering an undertaking made by an employee in relation to the
enforcement of the restraint of trade agreement Malan AJA also
stated
in Reddy v Siemens Telecommunications (Pty) Ltd
[16]
that: ‘
Public
policy requires contracts to be enforced. This is consistent with the
constitutional values of dignity and autonomy. The
restraint
agreement in this matter is not against public policy and should be
enforced. Its terms are reasonable. What Reddy is
required to do is
to honour the agreement he entered into voluntarily and in the
exercise of his own freedom of contract. While
it is correct that his
employment with Ericsson will be restricted, it remains a breach of
his contractual undertaking’.
[23]
The enquiry
into the reasonableness of the restraint, as indicated, is
essentially a value judgment that encompasses a consideration
of two
policies, namely the duty on parties to comply with their contractual
obligations and the right to freely choose and practice
a trade,
occupation or profession. A restraint is only reasonable and
enforceable if it serves to protect an interest, which, in
terms of
the law, requires and deserves protection. The list of such interests
is not closed, but confidential information (or
trade secrets) and
customer (or trade) connections are recognised as being such
interests.
[24]
According
to the Appellate Division in
Basson
v Chilwan and Others
[17]
,the
following questions require investigation; namely, whether the party
who seeks to restrain has a protectable interest, and
whether it is
being prejudiced by the party sought to be restrained. Further, if
there is such an interest – to determine
how that interest
weighs up, qualitatively and quantitatively, against the interest of
the other party to be economically active
and productive. Fourthly,
to ascertain whether there are any other public policy considerations
which require that the restraint
be enforced. If the interest of the
party to be restrained outweighs the interest of the restrainer –
the restraint is unreasonable
and unenforceable. The onus is on the
respondent seeking to avoid the restraint to establish, on a balance
of probabilities, that
the restraint agreement is unenforceable
because it is unreasonable.
[25]
In this
instance however, applicant and the respondent as indicated, entered
into a contractual agreement. In the instant case however,
the
respondent was aware of the limitations through the restraint
clauses. Not only was he aware of the terms of the agreement
and
understood the terms, but held certain reservations before he signed,
which had been addressed above. But there is more. The
respondent
stood in a position of trust in relation to the applicant as an
employee.
[26]
The basic
principle being that a person in position of confidence
involving duty to protect interests of other, is not
entitled to make
secret profit at other's expense nor place himself in position where
his interests conflicting with such duty
[18]
.The
narrow issue to be decided is whether the interest that is sought to
be protected is an interest that needs protection; whether
the
restraint is reasonable in the context of whether the enforcement of
the restraint would be against public policy if regard
is had to the
developing jurisprudence and constitutional imperatives. Parties
ought to be bound by agreements into which they
freely enter. In the
instant matter I hold that it is reasonable to restrain the
respondent from pouching the applicant’s
client base, which he
did when he consulted with Klein, CGS’s client. It is
reasonable also to restrain the respondent from
the use of knowledge
and skills he obtained through his employment with the applicant
limited to the contract period. For all of
the above reasons, the
applicant has made out a case for the enforcement of the restraint
and confidentiality undertakings.
[27]
I am satisfied
that the restraint will not leave the respondent unproductive or
destitute as he would still be able to operate in
other spheres as a
draughtsman which market remains available to him to exploit and in
which he has previous experience. Accordingly,
this court should
encapsulate an order which allows the respondent to remain
economically active, whilst protecting the interests
of the
applicant. On the totality of the evidence, I am of the view that the
interest that is sought to be protected is an interest
that needs
protection; that the restraint is reasonable and not contrary to
public policy.
[28]
It
is trite that the issue of costs lies in the unfettered discretion of
the court. In the matter of
Ball
v Bambelela Bolts (Pty) Ltd & Another
[19]
the Labour Appeal Court held that: ‘…
the
enforcement of a restraint, technically, involves a constitutional
issue. Restraints of the kind being considered, constitute
a
limitation on a citizen’s right, in terms of s 22 of the
Constitution, which, arguably, requires justification…In
constitutional matters, the general rule that costs follow the result
does not apply. In such matters costs orders are generally
eschewed
out of concern that they may produce a “chilling effect”,
in that litigants may be deterred from approaching
a court to
litigate concerning an alleged violation of their constitutional
rights for fear of being penalised with costs if they
are
unsuccessful.
’
I agree.
[29]
For
all the reasons as set out above, I make the following order:
Order
1.
The rules relating to forms and service are dispensed with and this
application is heard
as one of urgency in terms of rule 6(12);
2.
The contract of employment ("the contract") annexed to the
founding affidavit herein
as annexure "FA2" is rectified
by: 2.1 substituting the word "company" wherever it appears
in the contract
with the words "close corporation"; 2.2
substituting the word "director" wherever it appears in the
contract
with the word "member";
3.
The respondent is forthwith:
3.1
interdicted and restrained from using or disclosing to any third
party any information of whatsoever
nature and in whatsoever form,
whether oral or written or tangible or intangible which was disclosed
to the respondent, whether
disclosed to the respondent by the
applicant or any nominated party or acquired by the respondent
elsewhere and whether in the
past or in the future, which in any way
relates to the applicant's business, or the commercial exploitation
thereof, including
but not limited to Methods, Processes, Computer
Software, Documentation, Lists of clients, Programs, Trade Secrets,
Technical Information,
Chemical Formulas, sketches, Financial
Information, Marketing and business systems, Marketing items or
products, strategies, programs,
methods, Concepts, Techniques,
findings, results or other information which could be damaging to the
applicant's business or which
could benefit other parties to the
detriment of the company.
3.2
interdicted and restrained for a period of twelve (12) months from 30
April 2021 from:
3.2.1
directly or indirectly or through a third party approaching,
communicating with or attempting to solicit any business
of
whatsoever nature from any customer, supplier or potential
customer
of the applicant to whom the respondent was introduced or who the
respondent met or with whom the respondent became acquainted
during
the course of the respondent's employment with the applicant.
3.2.2
engaging in or being involved with, within the area of the Republic
of South Africa, either as an employee, principal,
agent,
representative, proprietor, partner, shareholder, director,
consultant, adviser, financier or member of any closed corporation
or
enterprise that, as a principal or significant part of its business,
trades in products manufactured or designed by the applicant
4.
There is no order as to costs.
T
P MUDAU
[Judge
of the High Court,
Date
of Hearing:
12 August 2021
Date
of Judgment:
31 August 2021
APPEARANCES
For
the Applicant:
Adv. B Hitchings
Instructed
by:
Martins Weir Smith Attorneys
For
the Respondent:
In person
[1]
Advtech
Resourcing (Pty) Ltd t/a Communicate Personnel Group v Kuhn
2008 (2) SA 375
(C) para [4] at 378; See also
Mozart
Ice Cream Franchises (Pty) Ltd v Davidoff
2009 (3) SA 78 (C).
[2]
Paragraphs
49,
52, 55, 60, 70 and 75 of the answering affidavit.
[3]
Section
22 of the Constitution of South Africa,1996.
[4]
Section
36 of the Constitution of South Africa,1996.
[5]
Magna
Alloys & Research (S.A.) (Pty) Ltd. v Ellis
[1984] ZASCA 116
;
[1984]
2 All SA 583
(A);
1984 (4) SA 874
(A);
Den
Braven SA (Pty) Ltd v Pillay and another
2008
(6) SA 229 (D).
[6]
1987 (2) SA 237
(N) 243B-C.
[7]
2007
(2) SA 486 (SCA)
[8]
(J1095/15)
[2015] ZALCJHB 199 (14 July 2015).
[9]
1974
(1) SA 298
(C) at 305-306B) .
[10]
2005
(5) SA 339 (SCA).
[11]
1999 (1) SA 780 (T).
[12]
Footnote 7 above.
[13]
Christie’s
Law of Contract, Seventh Vol, page 511.
[14]
2000
(4) SA 38
SCA paras 15, 16,18 and 19
[15]
Supra.
[16]
Supra
at
500E-G and 501C.
[17]
1993
(3) SA 742 (AD)
[18]
See
Phillips V Fieldstone Africa (Pty) Ltd and Another
2004 (3) SA 465
(SCA)
[19]
(2013)
34 ILJ 2821 (LAC).