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[2021] ZAKZPHC 16
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Tron Lubricants Pty Ltd and Others v KNT Business Solutions t/a KNT Trading Solutions and Others (4243/2020P) [2021] ZAKZPHC 16; [2021] HIPR 164 (KZP) (11 March 2021)
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
Not
Reportable
Case
no: 4243/2020P
In
the matter between:
TRON
LUBRICANTS PTY
LTD FIRST
APPLICANT
HITECH
CHEMICALS PTY LTD SECOND
APPLICANT
BLENDTECH
PTY
LTD THIRD
APPLICANT
and
KNT
BUSINESS SOLUTIONS T/A KNT TRADING
SOLUTIONS
(K2015/299068/07) FIRST
RESPONDENT
THINESHEN
TERRANCE MOODLEY SECOND
RESPONDENT
KARLENDRAN
THAMBERON ALSO KNOWN AS
COLIN
THAMBERON AND KARL MANDRI THIRD
RESPONDENT
NERISHA
NAIDOO FOURTH
RESPONDENT
KAVILAN
NAIDOO ALSO KNOWN AS
KEVIN
NAIDOO FIFTH
RESPONDENT
YOUGESHREE
MANDRI SIXTH
RESPONDENT
MULLER
LUBRICATIONS PTY LTD SEVENTH
RESPONDENT
This
judgment will be handed down in open court and delivered
electronically by circulation to the parties’ legal
representatives
by email publication. The date and time for hand-down
is deemed to be 09h30 on 11 March 2021.
ORDER
[1] The
following order is granted:
1.
As
regards the first respondent
:
An
order is granted in terms of paragraph 1.4 of the notice of motion,
save that the restraint period shall be 14 months;
2.
As
regards the second respondent
:
An
order is granted in terms of paragraphs 1.1 and 1.5 of the notice of
motion, save that the period of restraint shall be for a
period of 14
months, commencing on 18 March 2020.
3.
As
regards the fifth respondent
:
An
order is granted in terms of paragraphs 1.3 and 1.5 of the notice of
motion, save that the period of restraint shall be for a
period of 14
months, commencing on 25 April 2020.
4. The
first, second and fifth respondents are directed to pay the
applicant’s costs on
the party and party scale, jointly and
severally, the one paying the others to be absolved. There shall be
no order of costs occasioned
by the appearance on 5 February 2021.
5.
As
regards the fourth respondent
:
The
claim against the fourth respondent is dismissed and there shall be
no order as to costs.
JUDGMENT
Delivered
on
11 March 2021
Mossop
AJ:
[1]
In
their notice of motion, the three applicants seek a rule nisi
interdicting and restraining the second, third, and fifth respondents
for a period of two years calculated from the date of their
respective resignations from contravening restraint of trade
agreements
that the second and third respondents signed in favour of
the first applicant and that the fifth respondent signed in favour of
all three applicants. In addition, the applicants seek an order that
the first and the seventh respondents be interdicted and restrained
from employing the second, third and fifth respondents for a period
of two years following upon their resignation. Finally, the
applicants seek an order that all the respondents be interdicted and
restrained from competing unlawfully with the applicants through
the
use of the applicants’ confidential information and trade
secrets. While no rule was previously granted in the matter,
it was
fully argued and I intend to grant a final order.
[2]
On
5 February 2021, when the matter first served before me, the
applicants were given leave to withdraw the application against
the
sixth respondent and were directed to pay her costs on the party and
party scale.
[3]
When
the matter came before me for final argument on 3 March 2021, there
was no appearance in respect of the first respondent and
all the
relief sought against the third and seventh respondents was, by
consent, adjourned for the hearing of oral evidence on
a date to be
arranged with the Registrar. The principal issue to be determined in
those proceedings is whether the third respondent’s
signature
appears on the restraint of trade that he is alleged to have signed,
the third respondent contending that the signature
purported to be
his on that document is a forgery. The order dealing with the third
and seventh respondents was handed down separately
from the order to
be granted in this matter. Accordingly, whilst reference may be made
in this judgment to the third respondent
from time to time as his
conduct forms an integral part of the overall narrative, no findings
will be made in respect of him. The
matter thus proceeds as against
the second, fourth, and fifth respondents only.
[4]
When
the matter was called, I had the pleasure of hearing argument from
Ms. Dheoduth, who appears for the applicants, and Ms. Jacobs
who
appears for the second, fourth and fifth respondents. They are
thanked for their helpful argument.
The
applicants
[5]
The
three applicants in this application, all of which are incorporated
entities, form part of a group of companies known collectively
as the
Chemgroup group of companies (Chemgroup). The applicants claim that
they carry on business throughout the Republic of South
Africa and
that Chemgroup has an international footprint elsewhere in Africa and
in the United Arab Emirates through its international
arm, KLT
International Pty Ltd. The first applicant manufactures and markets
lubricants and other specialist chemicals, including
petroleum, the
second applicant blends and packages solvents, adhesives, detergents
and other specialist chemicals, including petroleum
and the third
applicant is, generally, the manufacturing arm of both the first and
second applicants. Apparently the three applicants
are dependent on
each other and work together in order to advance the interests of
Chemgroup.
The
basis of the applicants’ claims
[6]
The
applicants allege that the fourth respondent, together with the
second, third and fifth respondents, adapted the first respondent,
an
incorporated entity, to unlawfully compete with them whilst the
second, third and fifth respondents were still employed by the
applicants. They created a company profile for the first respondent
(the first respondent’s profile) to facilitate the marketing
of
its services utilising company profiles already prepared for the
applicants and approached customers of the first and second
applicants with a view to securing their business. In addition, they
allege that the third respondent set up the seventh respondent
for a
similar purpose. All of this was done, according to the applicants,
in defiance of restraint of trade agreements that the
second, third
and fifth respondents had concluded in favour of the applicants.
Common
cause
[7]
The
papers are voluminous, extending over 1 000 pages, and
everything appears at first blush to be in dispute. However, a
careful reading of the papers establishes that much of what is
disputed is irrelevant to the issues to be determined and much is,
in
fact, common cause. The conclusion of the respective restraint of
trade agreements by the second and fifth respondents is not
in
dispute nor is the fact that the fourth respondent is not a signatory
to a restraint of trade agreement. The same holds true
of the
confidentiality agreements signed by the second and fifth
respondents. It is also not in dispute that the first respondent
was
initially incorporated by the fourth respondent nor is it in dispute
that the second respondent became a director of the first
respondent
at a time when he was still employed by the first applicant thereby
being in breach of the restraint agreement that
he admits signing.
The
employment of the respondents
[8]
The
second respondent commenced his employment with the first applicant
as a sales representative on 1 December 2017. The fourth
respondent
previously worked for the second applicant in its finance department
and she incorporated the first respondent in 2015
after terminating
her employment with the second applicant in 2014. The fifth
respondent commenced working for the first applicant
during 1999 as a
general worker.
The
relationship between the parties
[9]
Chemgroup
is proudly and unashamedly a family business. So much so is conceded
by its founder, Gopaul Naidoo (the founder), who
deposed to the
applicants’ founding affidavit. The fifth respondent is his
nephew. The fourth respondent is married to the
fifth respondent.
Other family members are employed throughout Chemgroup. The second,
third, and erstwhile sixth respondents are
not family members of the
founder but the third and erstwhile sixth respondents are, however,
linked as they are engaged to be
married to each other.
[10]
The
second and third respondents reported to the fifth respondent.
Notwithstanding such formality, they were personal friends, were
inseparable and socialized with each other after working hours.
The
restraints of trade
[11]
The
restraints of trade signed by the second and fifth respondents are
identical in content, as is the restraint of trade disputed
by the
third respondent. The notice of motion follows the wording of the
restraints of trade which read as follows:
‘
1.1 Employee,
or his agent, shall not at any time during his employment with “The
Company” and within
two years after he shall cease to be
employed by “The Company”:
1.1.1
directly
or indirectly use know-how, products, which belong to “The
Company”, its associates or its clients, or have
been developed
by “The Company”, its associates or its clients for any
purpose whatsoever other than normal company
business.
1.2
Employee
shall not, without the express written consent of the directors of
“The Company”, at any time during his employment
with the
company, nor within three years after he shall cease to be employed
by the company:
1.2.1
member
of a syndicate or otherwise howsoever, and whether directly or
indirectly in any business, firm or undertaking which conducts
the
similar or same business of the company within the Republic of South
Africa; and
1.2.2
be
employed by a firm or Company who was a customer of “The
Company” during the terms of his employment and with whom
he
was directly involved, whether in the course and scope of his
employment with “The Company” or otherwise; and
1.2.3
solicit
or seek to obtain orders in respect of products or services similar
to those marketed by “The Company” from
any person, firm
or company who was a customer of “The Company” during the
terms of his employment; and
1.2.4
employ,
offer to employ or offer employment to any person employed by “The
Company” during the currency of the Agreement;
and
1.2.5
induce
or attempt to induce any person employed by “The Company”
during the currency of this Agreement to leave the
service of “The
Company”; and
1.2.6
cause
or assist any other person to employ or offer to employ or offer
employment to any person employed by “The Company”
during
the currency of this Agreement; and
1.2.7
cause
or assist any other person to induce or attempt to induce any person
employed by “The Company” during the currency
of this
agreement to leave the services of “The Company”;
1.2.8
Employee
acknowledges and agrees that the terms of the Restraint of Trade are
reasonable in all respects and in particular as to
extent, duration
and area.’
The
suspicions of the founder
[12]
During
the course of 2018 and 2019, the founder discerned that the
applicants were experiencing a significant decrease in turnover
and
profitability. He initially suspected that products were being stolen
alternatively that the sales department, which was headed
by the
fifth respondent, and which had some latitude in determining sales
prices, had decreased product margins by too great a
margin. In order
to be certain, the founder brought in an external person to conduct
certain investigations on his behalf. The
outcome of this
investigation was never revealed in the papers, nor was the identity
of the person that carried it out.
The
resignations
[13]
The
third respondent resigned his employment with the first applicant on
28 February 2020 and the second respondent resigned on
17 March 2020.
On 24 April 2020, the fifth respondent also resigned from all the
entities with which he was associated in Chemgroup.
The
investigations by the founder
[14]
On
14 March 2020, shortly before the resignation of the second
respondent, a search of the Companies and Intellectual Property
Commission (CIPC) database by the founder revealed the existence to
him of the first respondent. It also revealed that the second
respondent and a person named ‘Karl Mandri’ were both
appointed as directors of the first respondent on 8 October 2019.
That search also revealed that on 13 February 2020, the first
respondent registered itself for Value Added Tax purposes.
[15]
After
his resignation, an investigation of the fifth respondent’s
computer by the applicants’ information technology
department
revealed the existence thereon of the first respondent’s
company profile. This document confirmed the link between
the first
respondent and the second respondent, whose name and cellular
telephone number appeared on its cover. The document also
revealed
that a person by the name of ‘Karl Mandri’ was employed
by the first respondent. This is the same name that
was discovered
during the CIPC search. The third respondent’s full names are
‘Karlendran Thamberon’. As noted
previously, he is
engaged to the erstwhile sixth respondent, whose surname is ‘Mandri’.
The suspicion of the founder
was that the name ‘Karl Mandri’
was a fabricated composite name, used in an attempt to escape the
reach of the restraint
of trade now disputed by the third respondent.
Further information in the first respondent’s company profile
hardened the
founder’s suspicion as to the true identity of
‘Karl Mandri’: also included was a cellular telephone
number for
‘Karl Mandri’, which it is now common cause,
is the third respondent’s cellular telephone number. The second
and fifth respondents admit that the name ‘Karl Mandri’
is, indeed, a reference to the third respondent but that the
fabricated name was used in the document as a ‘joke’ as
the third respondent was allegedly controlled by the erstwhile
sixth
respondent and ought to, in the view of the second and fifth
respondents, take her name when he married her.
The
applicable law
[16]
It
is settled law that restraints of trade are valid and binding and, as
a matter of principle, enforceable unless, and to the extent
that,
they are contrary to public policy because they impose an
unreasonable restriction on the former employee’s freedom
to
trade or to work.
[1]
It is also
settled that the onus of establishing that the restraint of trade is
unreasonable falls on the former employee.
[2]
[17]
In
considering the reasonableness of a restraint of trade, the
well-known factors enumerated by Nienaber JA in
Basson
v Chilwan and Others
,
[3]
are relevant and must be considered.
[4]
One of those factors identified by the Learned Judge in that judgment
is the issue of a proprietary or protectable interest. In
this
regard, in
Experian
South Africa (Pty\) Ltd v Haynes & Another
[5]
the Court held that:
‘
It
is well-established that the proprietary interests that can be
protected by a restraint agreement are essentially of two kinds,
namely:
1. The
first kind consists of the relationships with customers, potential
customers, suppliers
and others that go to make up what is
compendiously referred to as the trade connection of the business
being an important aspect
of its incorporeal property known as
goodwill.
2. The
second kind consists of all confidential matter which is useful for
the carrying on of
the business and which could, therefore, be used
by a competitor if disclosed to him to gain a relative competitive
advantage.
Such confidential material is sometimes compendiously
referred to as trade secrets.’
[18]
In
Rawlins
and another v Caravantruck (Pty) Limited,
[6]
the court stated that 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 his new,
competitive place of business.
[7]
This is a factual issue, with much depending 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...”
[8]
[19]
As
was stated by Wallis AJ in
Den
Braven (Pty) Ltd v Pillay and Another
,
[9]
in considering the facts of a particular case it must always be borne
in mind that a protectable interest in the form of customer
connections does not come into being simply because the former
employee had contact with the employer’s customers in the
course of their work. The connection between the former employee and
the customer must be such that it will probably enable the
former
employee to induce the customer to follow him or her to a new
business.
[10]
[20]
In
Automotive
Tooling Systems (Pty) Ltd v Wilkens and Others,
[11]
the court noted that skills acquired by an employee belong to
himself, even if he was trained up in this regard by the
employer.
[12]
The fact that
such an employee may commence work for a competitor does not in
itself entitle the employer to restrain the ex-employee
if all the
ex-employee will be doing is applying his skills and knowledge
acquired whilst in the employ of the employer. It is
only if the
restriction on the employee’s activities serves to protect a
proprietary interest relied on by the employer that
the ex-employee
would be in breach of his contractual obligations.
[21]
Finally,
in
Reddy
v Siemens Telecommunications (Pty) Ltd
[13]
the
Court held that in deciding whether or not to enforce a restraint of
trade, the competing public interests of members
of society being
held to the agreements that they conclude (
pacta
servanda sunt
)
and the right to freely engage in trade and commerce must be weighed
up. A restraint would be unenforceable if it prevents a party
after
termination of his or her employment from being involved in trade or
commerce without a corresponding interest of the other
party
deserving of protection. Such a restraint would not be in the public
interest.
The
issues
[22]
The
issues arising out of the papers can fairly be summarised as being:
(a) whether
the applicants have a proprietary interest worthy of protection; and
(b) whether
the restraint of trade agreements that the second and fifth
respondents have admitted signing
are unreasonable and contrary to
public policy in regard to the area that they cover and their
duration.
The
first issue
[23]
The
applicants state that the duties of the second and fifth respondents:
‘
.
. . [i]ncluded, inter alia, communication with representatives and
customers surrounding pricing, quoting, invoicing and costing,
direct
communication with customers regarding ongoing orders and obtaining
further orders, directly handling customers with their
complaints
and/or requests.’
[24]
The
applicants contend that as a consequence, the second and fifth
respondents allegedly formed substantial relationships with the
directors of the applicants’ customers, particularly with
regard to the applicants’ top ten customers. The second and
fifth respondents respond to this allegation in a tight lipped
fashion and simply deny this to be the case. There is evidence,
however, that relationships between the second and fifth respondents
and their customers reached such a state of familiarity that
the
customers no longer communicated with the applicants but instead
preferred to communicate directly with the second and fifth
respondents on their cellular telephones.
[25]
The
applicants state that they have a genuine fear that because of the
strong relationships that the second and fifth respondents
built up
with their customers that they would easily be able to persuade those
customers to follow them to their new business enterprise.
In
advancing this submission, they indicate that their fears have
already been recognised as they have lost the business of customers
such as Blackbox Investments, the applicants’ biggest customer,
and Gans Auto Spares. It is alleged that the first respondent
has
taken over these customers by undercutting the applicants’
prices. In investigating the loss of these customers, the
founder
discovered that Blackbox Investments had been advised by the fifth
respondent that the first applicant would not be operating
its
business in the future due to a lack of product and due to
mismanagement. It was also discovered that the fifth respondent
had
advised the proprietor of Gans Auto Spares that the first applicant
was closing down and would be unable to supply it with
products in
the future. In answer, the fifth respondent put up an email authored
by the owner of Blackbox Investments that extolls
the fifth
respondent for his efforts in creating and maintaining the business
relationship with it. The email is not confirmed
by way of an
affidavit from the author. Whilst the letter does complain of the
manner in which the applicants conducted their business
with Blackbox
Investments, it also reveals the extent of the personal relationship
that existed between the owner and the fifth
respondent and that such
relationship continued to exist after the fifth respondent had
resigned, the email being dated 16 July
2020. The relationship
between Blackbox Investments and the applicants was intact at the
date of the fifth respondent’s resignation
but ended after the
fifth respondent left Chemgroup.
[26]
The
applicants contend further that the second and fifth respondents had
access to their confidential information, which included:
‘
(i) Pricing
information;
(ii) Profit
margin information;
(iii) Contact
sheet [sic] of customers and clients;
(iv) Discounting
information;
(v) Contact
details of directors of customers and clients;
(vi) Delivery
costs and associated information; and
(vii) Projected
income information based on future sales and profit margins.’
[27]
The
second respondent simply denies this to be the case, as does the
fifth respondent. In my view, that information would appear
to be
information that a salesman would be expected to have. A salesman
would need to know who the customers were that he was to
call upon
and which person he should contact at those customers. He would need
to know the price structure of the products that
he was required to
sell especially where he was, as in this case, granted a discretion
as to the price to be agreed to by him.
If a salesman was not aware
of the applicable discounting structure to be applied to a particular
customer he could potentially
occasion his employer financial harm by
agreeing to an unwarranted discount. The denial by the fifth
respondent, who was in overall
charge of the applicants’ sales
force, of such knowledge is meritless: he would need to have that
information to properly
instruct his salesforce.
[28]
In
addition, the applicants state that:
‘
.
. . the Second, Third and Fifth Respondents worked closely on sales,
margins, new customers, emerging brands and other such products
on
behalf of the First Applicant and the Fifth Respondent worked closely
with the sales team and I in respect of the Second Applicant.’
[29]
The
fifth respondent admits this whereas the second respondent denies
this, save for admitting that he worked closely with the fifth
respondent.
[30]
Further,
the applicants state that the second, third and fifth respondents
during the course of their employment:
‘
.
. . attained specialised skills and were privy to highly sensitive
information and material information which dictated the essential
elements of the Applicant’s day to day running. This entailed
the gross profit associated with the manufacture of the solvents
etc.
produced by the Applicants, versus the cost price and the
profitability achieved from each customer based on order and
delivery.
They also, as a result of knowing the cost price to
manufacture, are well aware of the ingredients and measurements that
make up
the product in terms of the manufacturing.’
[31]
The
second and fifth respondents, again, address these very specific
allegations by both simply denying them to be true. Indeed,
the use
of a blanket denial is their standard approach when dealing with many
of the specific and detailed allegations made by
the applicants. The
second and fifth respondents instead consistently raise irrelevancies
insofar as the issues are concerned relating,
for example, to alleged
difficulties in receiving payment of their salaries whilst employed
by the first applicant.
[32]
I
am satisfied that the applicants have established that they have
trade connections and that they have confidential information.
I
accordingly find that the applicants have proprietary interests
worthy of protection.
[33]
Reference
was previously made to the first respondent’s company profile.
Portions of that document appear to have been taken
directly from the
applicants’ pre-existing company profiles. As stated
previously,
the second respondent is directly linked to this
document: with his name and cellular telephone number appearing on
the cover of
the document. The second and other respondents contend
that the first respondent’s company profile put up by the
applicants
was simply a draft document. It was not stated what the
purpose of that draft was. It is a professionally designed document
that
is clearly intended to impress. In my view it is simply too
detailed to be viewed solely as a draft: it appears to be a serious
attempt to market the business of the first respondent.
[34]
A
further document was located by the founder in the course of his
investigations. This document appears also to have been
professionally
designed in the style of the first respondent’s
company profile. It is its contents, however, and not its style that
is significant.
This document could not have been intended for
distribution amongst the first respondent’s customers, but
instead appears
to have been designed for internal use (the internal
document). The internal document disclosed that the first
respondent’s
sales representatives were ‘Kevin, Collin
and Terence’. This is contrary to the what the fifth applicant
has stated,
who has consistently denied any association with the
first respondent. The founder contends that the reference to the
names constitutes
a reference to the fifth, third and second
respondents respectively. The fifth respondent is also known as
‘Kevin’
and has been so cited in this application, the
third respondent is also known as ‘Colin Thamberon’ and
has also been
so cited and the second respondent’s middle name
is ‘Terrance’. None of them has denied this and I
accordingly
accept that names ‘Terence’ and ‘Kevin’
refer to the second and fifth respondents respectively.
[35]
The
internal document contained
a page dealing with the first
respondent’s monthly sales forecast. This document identified,
inter alia:
(a) the
customers of the first respondent: the customers whose names appear
within the internal document
are, according to the founder, the top
ten customers of the applicants. Included therein is Blackbox
Investments and Gan’s
Motor Spares;
(b) the
sales agent allocated to each customer: the fifth respondent has four
customers allocated to himself,
one of which is Blackbox Investments,
the third respondent has five allocated to himself and the second
respondent has one allocated
to himself;
(c)
the
sales region in which the customer is located. This reveals that the
areas and places covered are Zimbabwe, East London, KwaZulu-Natal,
Bloemfontein, and Gauteng;
(d)
the
sales category: all the prospective sales were to be in the field of
lubricants;
(e) the
forecast of sales to each customer over the period January 2021 to
November 202. It appears, as will
become evident shortly, that the
figures are not annual figures, but monthly figures. The total
projected monthly sales figure
was forecast to be R3 714 047,33,
with sales to Blackbox Investments alone predicted to be R942 321,78;
(f) the
mark up: this comprised a uniform across the board mark-up of 15 per
cent; and
(g) the
monthly profit forecast for that period: the profit totalled
R557 107,10 which is, indeed, 15
per cent of the total of the
monthly forecast.
[36]
In
my view, the internal document clearly establishes the links of the
second, third and fifth respondents to that document and
to the first
respondent. It is also important to note that the period covered by
the document is a period subsequent to the resignation
of the second,
third and fifth respondents and it is in keeping with a further
discovery of the founder, namely that the first
respondent had been
registered for the purposes of Value Added Tax on 13 February 2020.
It is mandatory for any business to register
for Value Added Tax if
income earned in any consecutive twelve month period exceeds, or is
likely to, exceed R1 million, as stated
by the founder. The
registration of the first respondent for Value Added Tax purposes
appears to be denied by the fourth respondent,
but such denial is
contained in a paragraph that contains a blanket denial that covers
three paragraphs of the founding affidavit.
Such registration
dovetails with the projected sales figures of the first respondent as
revealed in the internal document.
[37]
Any
doubts regarding the conduct of the second, third and fifth
respondents, their links to the first respondent and their conduct
prior to their respective resignations are dissolved by an email of
one Candice Myerson Shear (Shear). She is the person that was
requested to prepare the first respondent’s company profile.
She appears to have gone beyond the remit of her mandate and
appears
to have harboured designs of being involved in the business of the
first respondent. On 13 November 2019, whilst the second,
third and
fifth respondents were still employed by the applicants, she directed
an email to a person called Madi Ramsamy. The contents
of the email
makes for interesting reading and I intend to quote extensively
therefrom. In the email, Shear states:
‘
As
per our recent discussion there is a very lucrative opportunity
available for us on the Lubricants front.
Confidential
information is that the owners of a company called Tron Lubricants
have been living on the profits of the business
and have basically
run their company into the ground. They are currently not able to
deliver to clients and are retrenching staff.
3
of the guys have been with tron for between 6 – 10 year on the
sales side and they have fantastic relationships with the
clients
most of whom are aware things are not right at Tron and are happy to
move with sales guys (Tron is not aware of this yet
as obviously
there are concerns they will try interfere but clients are currently
cancelling orders with them due to non delivery).
I have worked with
these guys for years and I know their customer service, product
knowledge and integrity is all top class. They
are really driven to
succeed and build this business. They have secured the agency for
LAAPSA lubricants and greases but those
are very specific focused
products that will be bought in asap but not for their current client
base.
At
this stage they have spoken to 5 of the top 10 customers are all
happy to move over, they are more concerned with consistency
of
supply than anything else. All these clients have excellent track
records for repeat ordering and paying on time.’
[38]
Shear
goes on further to state:
‘
In
a nut shell we could start immediately with the customers below
(mainly KZN based):
Customer
average sales (12 months) Gp% 13 to 18%
**potential
Engineparts
– R350k monthly (**1 million) @15%
Black
box – R1.5 million monthly (**5 million)@13%
Gans
– R400k monthly #13%
Super
auto – R350k monthly @15%
Shiptech
– R2 million (**4 million) @15%
Other
– R500k @ 18%’
[39]
Everything
stated in Shear’s email could only have originated from the
second, third and fifth respondents. The email reveals
that plans
were afoot well before the second, third and fifth respondents
resigned to poach the business of the first respondent.
The customers
named in the email constituted five of the applicants’ top ten
list of clients and Shear confirmed that all
of them had been
approached to transfer their business allegiances to the first
respondent. This email is devastating to the defences
of the second
and fifth respondents.
[40]
The
second respondent concedes that the applicants are involved in a
competitive industry. This is an important concession. It is
precisely the existence of such competition that heightens the
applicants’ fears regarding the dissemination of their
proprietary
information. If such information was made available to a
competitor, it is the applicants’ belief that it would afford
such
competitor an unfair advantage. I cannot find that this belief
is exaggerated or misplaced given the orchestrated conduct of the
second, fourth and fifth respondents and the general level of
deception that they have employed.
[41]
That
the first respondent was a direct competitor of the applicants brooks
of no dispute. On the fourth respondent’s own version,
it
involved itself in the sale of ‘oils’ and, inter alia,
secured for itself a distribution contract from LAAPSA, a
lubricant
manufacturer, a fact confirmed by Shear in her email. The first
applicant is a distributor of that manufacturer’s
products as
well. The fourth respondent concedes, further, that the first
respondent actually involved itself in sales and that
three
transactions were concluded in 2019 and a further three in 2020. The
identity of the customers with whom the first respondent
did business
was never revealed by her. Ms.
Dheoduth
rather acerbically submitted in argument that the respondents are
unable to identify with whom business was conducted as that would
reveal that it was done with the applicants’ customers. There
may well be some force in that argument. That those sales benefitted
the second and fifth respondents is also undeniable. During December
2019, the second, third and fifth respondents each received
a payment
in the amount of R18 000 from the first respondent. The payment
to the fifth respondent came from the second respondent
but the
source of the payment to the second respondent was the first
respondent. To explain these payments, the fourth respondent
stated
that she had given each of the second, third and fifth respondents
the money as a personal loan and that the loans had been
repaid. The
applicants, on the other hand, claimed this was the fruits of the
first respondents unlawful competitive behaviour.
I can safely reject
the fourth respondent’s version: the money came from the first
respondent’s bank account and not
her personal bank account and
she would surely not expect her husband to accept a loan from her or
to repay it – she would
surely simply have given him the money
if he needed it. If it was indeed a loan from her to her husband, it
is most curious that
it was not paid directly to him by her but was
paid to him using the second respondent as the conduit. No proof of
the repayment
of the alleged loans was put up. That the loans have
been repaid can also be rejected: the loans were apparently required
due to
financial hardship and shortly after they were granted, the
COVID-19 pandemic struck, bringing with it further financial hardship
and reducing the likelihood of repayment. The fact of the matter is
that the fourth respondent was not the source of the money,
the first
respondent was and the explanation advanced by the respondents is
strained and contrived and is not accepted.
[42]
There
was an allegation in the papers that the first respondent no longer
exists. There was no appearance for it when the matter
was called.
The suggestion of its non-existence was advanced by the fourth
respondent who stated that she had taken the decision
to deregister
it. She made reference in this regard to a document attached to her
answering affidavit. This, so it was stated by
her, constituted proof
of its deregistration. This document, written on the letterhead of
‘CN Business Consultants’,
is addressed to ‘To whom
It May Concern’ and states:
‘
We
herby [sic] confirm the above company will be de-registered from SARS
and CIPC. SARS have been notified; the Fairbury 2021 ITR
12 is
submitted.
The
company cannot trade, if they do so SARS will issue an audit findings
letter.’
[43]
In
my view, this document is not proof of the de-registration of the
first respondent. In fact, there is no evidence that the first
respondent no longer exists as a legal entity other than what the
fourth respondent states. All that is expressed in the document
referred to is an intention to de-register it. Had it actually been
finally deregistered it would have been a matter of some simplicity
to put up documentary proof of its formal deregistration, but this
was not done. I am accordingly not able to find that the first
respondent no longer exists as a legal entity.
[44]
There
was a further allegation that following a dispute with the fourth
respondent, the second and third respondents resigned as
directors of
the first respondent. The fourth respondent states that she:
‘
.
. . had a disagreement pertaining to how business should operate and
I then advised them that I was no longer willing to do business
with
them and requested that both the Second and the Third Respondent be
removed as directors of the First Respondent.’
[45]
Whether
this actually happened, again, is open to doubt. What the differing
points of view were that led to the alleged disagreement
was never
disclosed. No proof of the resignations of the second and third
respondents were put up by either the second or fourth
respondents.
The search of the CIPC database by the founder records them as still
being directors. There has been ample time for
documentation
recording the resignation to be put up, yet this has not been done.
[46]
Both
the second and fifth respondents were presented as persons who could
pose no threat to the applicants. The second respondent
was portrayed
in argument by Ms. Jacobs as being nothing more than a humble
salesman. As was stated by Wallis AJ in
Den
Braven
,
in any business dependent for its profits on the sale of its
products, the sales function is of fundamental importance and the
salesperson’s ability to damage the business of the employer
may be very considerable or even fatal, notwithstanding the
fact that
he may seem to stand fairly low in the staff hierarchy.
[14]
An attempt was made to present the fifth respondent in the same
light. That attempt, perhaps, went a bit further. It was argued
by
Ms. Jacobs that the fifth respondent, like the second respondent,
possessed no particular skills but that he was also an incompetent
businessman who clearly displayed no insight into the running of a
business. He could, so the argument went, not compete with the
applicants and would never pose a threat to the wellbeing of the
applicants. I remain unpersuaded that either of these two portrayals
are accurate representations of either gentleman’s abilities or
value.
[47]
Such
competition has, in fact, occurred and the first respondent has
earned income from those competitive business activities. In
my view,
the applicants have established that the first respondent is an
entity that has been adapted to compete with it and that
it is
designed to trade in a range of similar products to those that they
trade in. I am fortified in that view by the following
admission
contained in the second respondent’s answering affidavit where
he states:
‘
I
admit that in preparation of my resignation from the First Applicant,
that the Third Respondent and myself engaged the Fourth
Respondent to
possibly enter the lubricant field, which would be carried out
through the First Respondent.’
[48]
I
conclude therefore that there is a risk of harm to the applicants if
the second and fifth respondents are able to continue to
compete with
them through the first respondent.
[49]
As
regards the fourth respondent, the only relief sought against her was
that she be interdicted from unlawfully competing with
the applicants
by utilising information proprietary to the applicants. No evidence
was adduced of her having such information and
in my view no relief
can be granted against her. She is not restrained in any
manner. That being said, it is undeniable that
she aided and abetted
the other respondents in the furtherance of their plans. This will be
reflected in the costs order that I
intend making.
The
second issue
[50]
In
my view, as was stated in
Den Braven
, the period of the
restraint should not be any longer than is necessary to enable the
applicants to place new people in the positions
previously occupied
by the second and fifth respondents to enable them to become
acquainted with its products and its customers
and to make it plain
to the latter that they are now the persons with whom to deal on
behalf of the applicants.
[51]
That
having been said, I am aware that our society is living in strange
times. The COVID-19 pandemic has played havoc with, inter
alia, our
economy. Businesses have been prevented from operating and the
ability of the applicants to appoint and train new sales
persons will
undoubtedly have been blunted by the state of the economy. This is of
some relevance when considering the length of
the period of
restraint. In
Den Braven
, Wallis AJ noted that a period of
restraint of two years was the ‘outer limit’ in respect
of the case that he was dealing
with. He, too, was faced with a
salesperson who was sought to be restrained. I am of the view that
the period of two years is excessively
long in the circumstances of
this case.
[52]
I
acknowledge that
the second and third respondents
terminated their working relationship with the first applicant on 17
March 2020 and 24 April 2020
respectively. Whilst I am of the view
that a restraint period of two years is too long, I take into account
that during the period
within which the respective restraints
commenced running, the country was in lockdown and thereafter various
other restrictions
existed and continue to exist for a number of
months. During this period movement and the conducting of business
was severely hampered.
The application was launched on 2 July 2020,
approximately two months after the last resignation took effect. The
application was
ultimately argued on 3 March 2021, almost a year
after the termination of the second respondent’s working
relationship with
the first applicant. That the matter has taken this
long to be argued is through no fault of the applicants but is a
further manifestation
of the consequences of the COVID-19 pandemic as
the courts’ capacity to hear cases has also been restricted.
[53]
In
my view, the period of the restraint could profitably be reduced by a
period of ten months and that accordingly a restraint period
of 14
months will meet the need. I have arrived at this figure by using as
a base a period of 12 months, which I consider to constitute
a
reasonable restraint period in the circumstances of this matter, and
by adding two months thereto to compensate for the lockdown
period.
The period of each restraint is to be regarded as having commenced
running on the day following the resignation date of
the second and
fifth respondents respectively. It follows that the time period
mentioned in paragraph 1.4 of the notice motion
must be reduced to a
period of 14 months as well.
[54]
The
content of the internal document adds support to the applicants’
contention that they operate throughout South Africa
and service
customers throughout the Republic. Whilst I am disposed to reduce the
period of the restraints, I am not disposed to
reduce the area of the
restraint.
The
order
[55]
I
accordingly grant the following order:
1.
As
regards the first respondent
:
An
order is granted in terms of paragraph 1.4 of the notice of motion,
save that the restraint period shall be 14 months;
2.
As
regards the second respondent
:
An
order is granted in terms of paragraphs 1.1 and 1.5 of the notice of
motion, save that the period of restraint shall be for a
period of 14
months, commencing on 18 March 2020.
3.
As
regards the fifth respondent
:
An
order is granted in terms of paragraphs 1.3 and 1.5 of the notice of
motion, save that the period of restraint shall be for a
period of 14
months, commencing on 25 April 2020.
4. The
first, second and fifth respondents are directed to pay the
applicant’s costs
on the party and party scale, jointly and
severally, the one paying the others to be absolved. There shall be
no order of costs
occasioned by the appearance on 5 February 2021.
5.
As
regards the fourth respondent
:
The
claim against the fourth respondent is dismissed and there shall be
no order as to costs.
MOSSOP
AJ
APPEARANCES
Date
of Hearing: 03
March 2021
Date
of Judgment: 11
March 2021
Counsel
for applicants: Advocate
D. Dheoduth
Instructed
by: T.
Giyapersad Inc.
c/o
Schoerie and Sewgoolam
Counsel
for 1
st
Respondent: No
appearance
Counsel
for 2
nd
, 4
th
and 5th Respondents: Advocate
Jacobs
Instructed
by: Manoj
Haripersad
Counsel
for 3
rd
and 7
th
Respondents: Advocate
U. Lennard
Instructed
by: Law
Offices of Karen Oliver
c/o
Austen Smith Attorneys
[1]
Magna Alloys and Research (SA)(Pty) Limited v Ellis
[1984] ZASCA 116
;
1984 (4) SA 874
(A) at 891B-C.
[2]
Den Braven (Pty) Ltd v Pillay and Another
2008
(6) SA 229
(D) para 3.
[3]
[1993] ZASCA 61
;
1993
(3) SA 742
(A) at 767G-H.
[4]
(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 interest 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
be
maintained or rejected?
[5]
2013(1) SA 135 (GSJ).
[6]
1993 (1) SA 537 (A).
[7]
At
542.
[8]
At
542.
[9]
2008
(6) SA 229
(D).
[10]
para
6.
[11]
2007 (2) SA 271
(SCA) para 8.
[12]
Aranda Textile Mills (Pty) Ltd v L D Hurn [2000] 4 All SA 183 (E).
[13]
2007 (2) SA 486
(SCA)
para
15 – 16.
[14]
Den Braven (Pty) Ltd v Pillay and Another, supra, para 11.