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[2018] ZAGPJHC 594
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Discovery Life Limited v De Meyer (31288/18) [2018] ZAGPJHC 594 (26 October 2018)
REPUBLIC OF
SOUTH AFRICA
IN THE HIGH
COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NUMBER: 31288/18
In
the matter between:
DISCOVERY
LIFE LIMITED
Applicant
And
DEVAN
ANDRE DE MEYER
Respondent
JUDGMENT
Windell
J
[1]
This is an application to enforce certain restraint provisions
against the respondent, emanating from a contract of employment
that
was terminated on 31 August 2018. The application was initially
brought as one of urgency, but was struck from the urgent
court roll
with costs on a punitive scale for lack of urgency on 20 September
2018.
[2]
The applicant seeks an order interdicting and restraining the
respondent from directly or indirectly contacting, enticing or
soliciting away from the applicant or any company in the Discovery
Group, any of the clients listed on the annexures attached to
the
founding affidavit, pending the final determination of an application
to be brought by the applicant against the respondent
for final
relief, which application is to be instituted no later than thirty
days from the date of this order. It is common cause
that the list of
clients annexed to the applicant’s founding affidavit
constitutes the respondent’s client base during
the course of
his employment with the applicant.
[3]
The respondent does not dispute that the contract of employment which
had previously existed between the respondent and the
applicant
contains restraint of trade provisions. The applicant mainly relies
on the provisions contained in clause 17.8 of the
agreement. In
essence, clause 17.8 stipulates the following:
[3.1] On termination of
employment should the respondent take up employment with a competitor
or should the applicant for any reason
wahtsoever refuse to consent
to the transfer or linking of the respondent’s client base to
the respondent or a third party,
then:
[3.1.1] the respondent
shall not be entitled to the transfer of his client base;
[3.1.2] the respondent
would be restrained from directly or indirectly contacting, enticing
or soliciting any clients within his
client base for a period of
twelve months following termination of his employment;
[3.1.3] the respondent
would be obliged to immediately return all client records in his
possession to the applicant.
[4]
It is common cause that the respondent resigned from the applicant’s
employment on 29 August 2018 with the intention
of joining a
competitor, MedBond Insurance Brokers (Pty) Limited (“MedBond”).
It is further common cause that the respondent
refused to consent to
the transfer or linking of the respondent’s client base to the
respondent or to Medbond. In terms of
clause 17.8 the respondent was
therefore obliged to immediately return all client files in his
possession to the applicant. The
files were only returned a month
later, on 28 September 2018. It is not disputed that these files
contain details of the applicant’s
clients, including the
clients’ medical records and history, the clients’ level
of income, the nature and type of the
Discovery products that the
clients have subscribed to and the clients’ entire investment
portfolios. The respondent admits
that the information contained in
those client files is confidential to the applicant.
[5]
On the day of his resignation (29 August 2018) the respondent’s
attorney, (“Steenkamp”), addressed a letter
to the
applicant’s representatives and demanded that the respondent’s
“
client book in totality
” be transferred to
Medbond on or before 28 September 2018 – a failure of which
would “
result in swift action”.
In response
to those demands the applicant’s attorneys, Keith Sutcliffe &
Associates Inc (“KSA”), addressed
a letter to Steenkamp
on 31 August 2018 calling on the respondent to return the
applicant’s assets, information and
the like and to confirm
that he had not shared with any third party the applicant’s
proprietary information.
[6]
A series of correspondence followed, culminating in a letter from KSA
to Steenkamp on 4 September 2018 wherein the respondent
was afforded
a final opportunity to provide a written undertaking to the applicant
that he would not breach the restraint provisions
contained in the
contract of employment. Steenkamp replied to the letter on 5
September 2018, but the undertaking that KSA had
demanded on behalf
of the applicant was not given.
[7]
The applicant submits that the fact that the respondent had been in
possession of the applicant’s client files is in conflict
with
the express provisions of the employment agreement and that the
applicant is therefore in breach of those provisions. The
applicant
subsequently also discovered that the respondent had, over a period
of thirty days, including after he had resigned his
employment with
the applicant, exported to various email addresses, including his
wife’s email address, thousands of items
of information
relevant to the applicant’s clients. The applicant
contends that this information is confidential to
the applicant and
is an additional clear breach by the respondent of the restraint. It
is further contended that this is a clear
indication that the
respondent is intended on continuing to trade on the protected client
book and to solicit the applicant’s
clients for that purpose.
[8] The respondent contends that he
has never provided cause for the applicant to believe that he
intended to breach the terms of
the employment agreement and he has
in any event confirmed in his opposing affidavit that he had no
intention to breach the terms
of the agreement between the parties.
Proof of this is his resignation letter, attached to the founding
affidavit, wherein he set
out his esteemed opinion of the applicant
and tendered his assistance to the applicant.
Legal
principles
[9]
It
is trite that the applicant
need
do no more than to invoke the provisions of the contract and prove
the breach.
[1]
T
he
provisions of the contract of employment, incorporating the restraint
provisions, which the applicant seeks to enforce, are not
disputed.
[10]
The applicant alleges that respondent is in breach of the restraint
provisions in that he has retained possession of the applicant’s
client files. The respondent concedes that at the time of the
launching of the application he was in possession of the files and
that the files were at his home, but contends that he is not in
breach of the restraint as those files were returned to the applicant
on 28 September 2018.
[11]
The respondent was already aware on 24 August 2018 that the applicant
will not be transferring the client book. The respondent
had
therefore, on its own version, breached the restraint provisions by
not returning the client files when he resigned on 24 August
2018. He
continued to breach the restraint by not returning the files to the
applicant when it was demanded from him on 31 August
2018. He also
breached the restraint provisions by transferring confidential client
information to a private email address. The
fact that he returned the
files a month later, on 28 September 2018, after the application was
instituted, does not remedy the
breach or assist the respondent.
[12]
Once the applicant has established the agreement and its breach, the
respondent, as the party seeking to avoid the restraint,
bears the
onus of demonstrating, on a balance of probabilities, that the
restraint is unenforceable because it is unreasonable
[2]
.
[13]
The respondent does not dispute that customer goodwill is an asset of
the applicant and that it is a protectable interest capable
of
protection by way of enforcement of a restraint of trade. I agree
with counsel for the applicant that the very purpose of the
restrictions imposed on the respondent in the employment agreement,
vis-à-vis the protected client base arises from the
fact that,
as a broker/ financial advisor, the respondent has established close
and personal relationships with the client base
he introduced to the
applicant. The applicant contends that it needs to protect its trade
connections in circumstances in which
the respondent has, admittedly,
built-up close relationships with the applicant’s customers so
that, now that he has left
the applicant’s employ, he could
easily induce the customers to follow him to the new business. It is
contended that the
aforesaid customer connections and the association
that the respondent has established with the applicant’s
clients legitimately
entitles the applicant to the relief that it
seeks.
[3]
[14]
The respondent admitted that he has established close and personal
relationships with his client base and that he is a very
successful
broker and that his success is ‘
entirely dependent upon the
maintenance of these existing client relationships
‘. He
contends that the relief sought therefore places unreasonable
restrictions on his right to practice in the marketplace.
He further
contends that he will be prejudiced by the relief sought as he will,
in effect, have to commence his career afresh having
lost the clients
that he introduced to the applicant. In the same breath the
respondent however asserts that he intends to honour
his obligations
in terms of the contract of employment and that he will not use the
information in the applicant’s client
base / files and never
intended to do so.
[15]
The applicant had originally been prepared to accept a written
undertaking from the respondent in an attempt to avoid litigation.
It
was the respondent’s failure to give that undertaking that
compelled the applicant to approach this court for relief.
I agree
with counsel for the applicant that given the respondent’s
prior behaviour and, in particular, his retention of the
applicant’s
client files, the transfer of the clients’ personal data,
together with his expressed intention to trade
on the protected
client base, that the undertakings are not an answer to the
application.
[16]
In
Document
Warehouse (Pty) Limited v Trubody
[4]
Salduker
J (as she then was) held that:
[5]
“
The
applicant should not have to accept Trubody’s ipse dixit that
she has not or will not disclose the contents of the lists
to any
third party. The applicant correctly asserts that this
constitutes evidence that she has appropriated to herself details
of
the applicant’s customer connections which she is now in a
position to disclose and use to her advantage in her employment
with
Metro File.
’
[17]
Similarly, in
IIR
South Africa BB t/a Institute for International Research v Tarita
[6]
Marais
J stated that:
“
It
does not lie in the mouth of the ex employee who has breached
her restraint agreement to say to her ex-employer ‘Trust
me : I
will not break the restraint further than I have already been proved
to have done’.”
[18]
The very purpose of a restraint agreement is that the applicant does
not have to rely on the
bona
fides
or lack of retained knowledge on the part of a respondent. Marais J
held in
BHT
Water Treatment (Pty) Limited v Leslie and Another,
[7]
that
it cannot be unreasonable for an applicant in those circumstances to
enforce the bargain it has exacted to protect itself.
The
learned Judge stated as follows:
[8]
“
Indeed,
the very ratio underlying the bargain was that the applicant should
not have to content itself with crossing its fingers
and hoping that
the first respondent would act honourably or abide by the
undertakings that he has given
”
.
[19]
The respondent’s statement that he will not disclose the
information contained in the applicant’s client files
to a
third party and his assertion that he will not solicit or engage the
protected client base cannot defeat the application to
enforce the
restraint.
[20]
In conclusion: It is common cause that the client files contain
information which is confidential to the applicant and which
constitutes its customer or trade connections. The risk to the
applicant’s customer connections and confidential information
is self-evident. The respondent’s denials of illegality
or breach cannot preclude the applicant from enforcing the
common
cause terms of the contract of employment which seek to protect the
applicant’s legitimate interests. The applicant’s
confidential information contained in its client files (and, indeed,
any other information that the respondent may retain which
is
confidential to the applicant) can be protected, pending final
determination of the application for final relief, by means of
interdictory relief. The interdictory relief will preclude the
respondent from using the contents of the applicant’s
client
files, and his customer connections with the protected client base.
[21]
In the result the following order is made:
[21.1] The application is granted
with costs on an attorney client scale.
[21.2] Draft order marked “X”
made an order of court.
______________________________
L. WINDELL
JUDGE OF THE HIGH COURT
GAUTENG LOCAL DIVISION,
JOHANNESBURG
Counsel
for the appellant: Advocate
A.
R. G. Mundell SC
Instructed
by:
Faber
Goertz Ellis Austen Inc
Counsel for the
first respondent: Advocate
Instructed
by:
Johan
Victor Attorneys
Date of
hearing: 22 October 2018
Date of
judgment: 26 October 2018
[1]
Basson v
Chilwan & Others
[1993] ZASCA 61
;
1993
(3) SA 742
(A) at 776 H-J.
[2]
Experian South Africa (Pty)
Limited v Haynes and Another
2013
(1) SA 135
(GSJ)
at
[14].
[3]
Lifeguards Africa (Pty) Limited v
Raubenheimer
2006 (5) SA
364
(D) at [41].
[4]
[2010] ZAGPJHC 92 (13 October 2010).
[5]
At [39].
[6]
2004 (4) SA 156
(W) at p167A.
[7]
1993 (1) SA 47 (W).
[8]
At p 58A-C.