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[2018] ZAGPJHC 642
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Plumlink SA (Pty) Ltd v Smith (38140/2018) [2018] ZAGPJHC 642 (13 November 2018)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NO:
38140/2018
Not
reportable
Not
of interest to other judges
Revised.
In
the application between:
PLUMLINK
SA (PTY)
LTD Applicant
and
CRAIG
EDMUND
SMITH Respondent
J
U D G M E N T
MAIER-FRAWLEY AJ
Introduction
1.
This is an urgent
application to enforce a contractual restraint of trade and
confidentiality agreement against the respondent arising
out of an
employment contract, and to interdict the respondent from unlawfully
competing with the applicant.
2.
The applicant seeks to
prevent the respondent from directly or indirectly:
2.1.
Competing with its
business for a period of one year (starting from 6 July 2018);
2.2.
Using or disclosing any
trade secrets or confidential information of the applicant, whether
for his own benefit or the benefit of
any other person;
2.3.
Soliciting
the business or custom of any existing or prospective customers or
clients of the applicant;
[1]
2.4.
Taking
up employment or becoming engaged or interested in any manner
whatsoever in any business which competes with the business
carried
on by the applicant,
[2]
including working in any capacity for any of the existing or
prospective clients of the applicant.
[3]
3.
Although
interim relief was sought in the notice of motion, during oral
argument presented to court, the applicant’s counsel
informed
the court that a final interdict would be sought.
[4]
In the circumstances, the evidence had to be approached on the basis
of the
Plascon-Evans
rule.
[5]
This meant that absent
a finding that the averments in the answering papers were so palpably
far-fetched or so clearly untenable
that they warrant rejection
merely on the papers, the matter had to be decided on the common
cause facts and on the respondent’s
version.
[6]
4.
In these proceedings,
the applicant seeks enforcement of the surviving restraint clauses
contained in an updated employment contract
concluded between the
parties on 25 June 2018. The applicant relies on a breach thereof by
the respondent in:
4.1.
taking up employment
with Independent Plumbing Suppliers (Pty) ltd (‘IPS’), a
direct competitor of the applicant, with
effect from September 2018;
and
4.2.
soliciting customers of
the applicant by contacting its customers with the view of acquiring
their business for IPS.
5.
The respondents oppose
the application on five grounds, namely:
5.1.
The applicant cannot
enforce a restraint-of-trade agreement (‘restraint’) that
forms part of a contract that was induced
by unfair dismissal and
fraud;
5.2.
The applicant does not
have a proprietary interest ‘worthy of protection’ and
the restraint is unreasonable and therefore
contra
bonis mores
and
unenforceable;
5.3.
The application amounts
to ‘irregular proceedings’. Having anticipated a material
dispute of fact, the applicant ‘should
have brought an
application by means of a statement of claim in terms of rule 5 of
the Labour Court Rules and an interim interdict
pendent
lite
could have
been sought by way of application in terms of rule 7 of the Labour
Court Rules;
5.4.
The applicant has
failed to establish the requirements for the grant of an interdict,
whether for interim or final relief;
5.5.
The applicant has
failed to make out a case for urgency.
6.
The
third ground pertaining to irregular proceedings was not pursued at
the hearing of the matter and therefore nothing more need
be said
about it. The fifth ground concerning urgency was not vociferously
pursued at the hearing, given that it has now become
accepted that
restraint of trade matters are inherently urgent,
[7]
which necessarily entails that they are heard in urgent court, ahead
of the claims of other litigants who proceed in the ordinary
course.
I deal with the remaining grounds below.
Background
7.
Certain
core facts are not disputed. The applicant conducts business as a
retail ‘merchandiser’
[8]
of plumbing, bathroom and related products
[9]
throughout South Africa and in Namibia.
8.
The
applicant sells plumbing equipment and related products directly to
members of the public at its self-service stores located
nationwide,
where different products at individually marked prices are on display
and where patrons can examine and select the
products they require.
Aside from the retail market, the applicant also services a contract
and maintenance market in selling products
to plumbing
sub-contractors
[10]
and
businesses that provide plumbing maintenance services to their
customers.
9.
The respondent
commenced employment with the applicant on 2 November 2015, as a
Trade Counter
Salesman
at the
applicant’s retail store located in Sandton (‘Sandton
branch’).
10.
The respondent was
promoted to the position of
2IC
at the applicant’s
Sandton branch, with effect from 1 February 2017, in terms of a
written employment agreement concluded
between the parties on 24
January 2017 (‘the 2017 contract’).
11.
Subsequent thereto, he
was promoted to the position of
Relief
Branch Manager
at
the applicant’s Sandton branch, with effect from 1 July 2018,
in terms of a written contract of employment agreement concluded
between the parties on 25 June 2018 (‘the 2018 contract’).
12.
Save
in the single respect detailed below, both the 2017 and 2018
contracts contain identical restraint of trade, non-solicitation
and
confidentiality clauses (‘restraint clauses’),
[11]
in terms of which the respondent is,
inter
alia,
prohibited from working for or being interested (in any capacity and
whether directly or indirectly) in any
restricted
(existing)
client or
prospective
client
[12]
of the applicant for a period of 12 months following the date of the
termination of respondent’s employment.
[13]
In the 2017 contract, the area of restraint was
restricted
to the province of Gauteng, whereas in the 2018 contract, the area of
restraint was
extended
to include the whole of South Africa.
13.
Although
the applicant avers in the founding affidavit that the respondent was
employed as Relief Branch Manager in June 2018 in
which position he
earned a ‘handsome salary’ of R29,000.00, it is common
cause on the papers that the applicant never
in fact worked as Relief
Branch Manager, as his employment in such capacity never came into
effect. This is because he was suspended
with immediate effect on 28
June 2018 and notified to attend a disciplinary enquiry on 6 July
2018, the outcome of which culminated
in his summary dismissal on 6
July 2018.
[14]
The respondent
thus never actually received the salary alleged to have been earned
by him in this position.
14.
On 1 September 2018,
the respondent commenced employment at IPS, a direct competitor of
the applicant. IPS operates in exactly the
same market and commercial
area as the applicant, offers the same services to its customers in
merchandising predominantly the
same products as the applicant, and
does so from premises situated approximately 250 metres from the
applicant’s Sandton
branch.
15.
It
is common cause that the applicant and IPS share certain customers in
common and that retailers in the industry (such as the
applicant and
IPS) buy plumbing equipment in bulk from importers and manufacturers
and then sell it at a profit to plumbing contractors,
maintenance
contractors, hardware stores and the general public.
[15]
Furthermore, in a typical case, a plumbing contractor will contact
IPS and ask IPS for a quotation for certain plumbing equipment.
The
contractor will then take such quotation to Plumlink and other
companies and ask them if they can beat the quoted prices.
Contractors use this method to negotiate for better prices.
16.
Certain
facts are in dispute.
[16]
I
deal with these when evaluating the opposing contentions of the
parties.
Relevant Legal
Principles
17.
The
respondent does not dispute the conclusion of the 2017 and 2018
contracts or the restraint clauses therein contained. Rather,
he
challenges the enforceability of the clauses. In our law, an
agreement in restraint of trade is, on the face of it, valid and
hence enforceable
[17]
unless
the respondent can show, at the time that enforcement is sought, that
‘
the
restraint is directed solely to the restriction of fair competition
with the ex-employer (the covenantee); and that the restraint
is not
at that time reasonably necessary for the legitimate protection of
the covenantee’s protectable proprietary interest,
being his
goodwill in the form of trade connection, and his trade secrets
.’
[18]
18.
The
test for determining reasonableness or otherwise of the restraint of
trade provision, is the following:
[19]
(i)
Is there an interest of
the one party which is deserving of protection at the termination of
the agreement?
(ii)
Is such interest being
prejudiced by the other party?
(iii)
If
so, does such interest so weigh up qualitatively
[20]
and quantitatively
[21]
against
the interest of the latter party that the latter should not be
economically inactive and unproductive?
(iv)
does the restraint go
further than is necessary to protect the interest sought to be
protected?
(v) 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?
19.
In
determining the reasonableness of restraint covenants, two competing
policy considerations come into play. The first is that
it is in the
public interest that people should be held to their agreements. The
second is that it is also in the public interest
that people should
be free to engage in economic activity.
[22]
20.
When
a court considers whether to enforce a restraint of trade, it is
required to exercise a value judgment on its assessment of
the facts
and circumstances, seen in the light of both common law principles as
well as constitutional values.
[23]
Guidance on how to approach this value judgment is to be found in
judgments such as
Basson
v Chilwan and others;
[24]
Reddy
supra
and
Kwik
Kopy (SA) (Pty) Ltd v Van Haarlem and Another.
[25]
Public
interest requires that, generally speaking, the freedom of each
individual to work and compete in the field for which he
or she is
qualified should not be curtailed. To hold an individual to such a
contractual obligation remains reasonable for as long
as, and to the
extent that, such curtailment is necessary for the legitimate
protection of the trade connection and trade secrets
of a former
employee.
[26]
The enquiry that
is undertaken at the time of enforcement covers a wide field and
includes the nature, extent and duration of the
restraint, factors
peculiar to the parties and their respective bargaining powers and
interests.
[27]
21.
It
is trite that the law endows confidential information with
protection. Whether information constitutes a trade secret is a
factual
question. For information to be confidential it must be
capable of application in the trade or industry, that is, it must be
useful
and not be public knowledge and property; known only to a
restricted number of people or a close circle; and be of economic
value
to the person seeking to protect it.
[28]
All that the applicant needs to do is to show that there is secret
information to which the first respondent had access, and which
in
theory the first respondent
could
transmit
to the second respondent should he desire to do so.
[29]
22.
Knowledge
of a customer base and pricing structures constitute proprietory
information which can be protected by a restraint of
trade
clause.
[30]
23.
Discussing
the term ‘trade connection,’ in
Rawlins,
[31]
and Another v Caravantruck (Pty) Ltd
Nestadt
JA remarked
as
follows: ‘
Whether
the criteria referred to are satisfied is essentially a question of
fact in each case, and in many, one of degree. Much
will depend 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
…’
(own
emphasis)
Evaluation
24.
The
applicant seeks enforcement of the restraint clauses in the 2018
contract, subject only to one limitation, being in respect
of the
area to which it will apply. In its papers, the applicant seeks to
limit enforcement to the Gauteng region. Even where enforcement
of a
covenant in restraint of trade in restricted form is sought, the onus
of showing that enforcement of the cut down restraint
is
unreasonable, remains on the respondent.
[32]
25.
The respondent denies
that the applicant is possessed of trade secrets or customer
connections, such as to constitute protectable
interests worthy of
protection by means of a restraint of trade. He also disputes that
the restraint sought to be imposed is reasonable.
More specifically,
he contends that the restraint of trade provision is too wide, both
in its scope and effect, for it to be considered
as reasonable.
Applicant’s
Protectable interests
26.
It is well established
that proprietary interests that can be protected by a restraint
agreement are essentially of two kinds, namely:
26.1.
the relationships with
customers, potential customers, suppliers and others that go to make
up what is compendiously referred to
as the ‘trade connections’
of the business, being an important aspect of its incorporeal
property known as goodwill;
and
26.2.
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 a
‘trade
secrets.’
[33]
27.
The applicant alleges
that its trading information,
inter
alia,
relating to
its pricing of products, particularly, as regards the gross profit
margin percentages achieved in relation to the product
lines
merchandised by it, coupled with the discount price strategy employed
by it, is confidential and constitutes trade secrets,
being
information that is not public knowledge and which the respondent,
due to his position, had access to and acquired knowledge
of during
his employment at the applicant.
28.
The
respondent disputes that pricing information is confidential because
the price at which the applicant is willing to sell its
products is
no secret – customers obtain quotations and then use the
information to source or negotiate better prices from
the applicant’s
competitors. The applicant however explains that whilst the base
price may be known, the end sale price is
not known. This is because
the respondent was given an open mandate to discount the end selling
price to any extent he saw fit
within certain authorised parameters,
namely, as long as the discount given did not compromise the
applicant’s profitability
in the sale. It is this process, so
the applicant contends, that determines the extent of the profit
margin that is attained in
the sale. On-the-spot sales are thus often
generated by virtue of the percentage discount offered to customers.
I am inclined to
agree with the applicant’s counsel that the
respondent’s bald denial of these substantive allegations in
the answering
affidavit are of the nature that courts reject as
being
bald, laconic and unsubstantiated, and thus incapable of engendering
a real dispute of fact.
[34]
29.
The applicant’s
case is that knowledge by the respondent of the its peculiar pricing
discount strategy and profit margins,
would always afford a
competitor of the applicant an unfair advantage in dealing with
customers in the industry, as such knowledge
would allow the
competitor to consistently undercut the prices charged by the
applicant. The argument is not without force. The
amount of profit
the applicant is able to make in selling its products is directly
linked to the price at which it sells the products
to its customers
vis-a vis
the price at which it purchases the products from its suppliers. The
respondent must have had knowledge of the applicant’s
pricing
information pertaining to its profit margins in order to be equipped
to maintain a level of profitability when concluding
sales at
discounted prices.
30.
As regards the
applicant’s trade connections, the applicant sought to make out
a case that the respondent performed duties
akin to those
traditionally performed by sales representatives, who actively go out
and canvass clients to promote, canvass and
solicit business on
behalf of an employer. In so doing, the sales representative would
ordinarily have both the means and the opportunity
to establish close
and meaningful relationships with key contact persons at the relevant
customer. It is not in dispute on the
papers that the applicant in
fact employs nine sales representatives in its business for this
purpose. The respondent, on the other
hand, was based in-store and
serviced walk-in customers for purposes of securing on-the-spot
sales. He also performed the task
of preparing written quotations,
in-store, for customers of the applicant, which he averred, comprised
the bulk of his duties.
According to the respondent, he did not, in
such role, develop close, personal or meaningful relationships with
any customers,
at least not in the sense that he acquired intimate
knowledge of all the applicant’s customers or their in depth
needs and
requirements. As pointed out by the respondent in the
answering affidavit, he was not tasked to bring in new customers. He
did
not conduct cold – marketing, as this was performed by the
relevant sales reps.
31.
On
the evidence before me, I am not persuaded that the respondent had
any demonstrable close and strong relationships with the applicant’s
customers such as would have enabled him to ‘take them away
with him in his pocket.’ Moreover, in so far as the respondent
might have become acquainted with the applicant’s more regular
walk-in customers at the applicant’s Sandton branch,
there is
nothing to suggest that his prior relationship with those customers
is something to which much value could be attached
by the applicant,
when the typical sales transaction, as outlined by the respondent, is
considered. In
Hendred
Freuhof (Pty) Ltd v Davel and another,
[35]
Lagrange
J, in dealing with a similar case involving a salesman, remarked that
the
‘customer would typically phone to find out the price of a
particular part, and if the price offered was higher than the
price
offered by another competitor, the sales person would be asked if
they could obtain a discount, which could only be authorised
by a
supervisor. It is difficult to see how any customer goodwill was
intrinsically generated by such elementary transactions.
Such
goodwill that might have been generated is more likely to have been a
consequence of the personality of the salesperson
than the nature of the service provided by the applicant, or the
salesperson’s intimate knowledge of the applicant’s
product line
.’
(own emphasis). I respectfully agree with these sentiments.
32.
In
any event, the applicant does not identify any customers with whom
the respondent might have developed close connections, such
that he
would have been able to influence them to transfer their custom to
IPS, nor has it been suggested that any of the applicant’s
customers were lost since the respondent took up employment with IPS.
The applicant’s case is also not that sales are exclusively
generated by means of on-the–spot discounts offered to
customers.
[36]
The common
cause evidence is that certain customers tend to purchase products
they require from any supplier who has stock on hand
and who charges
the better price. It accordingly seems to me that customer
loyalty, such as may exist, is more determined
by the price offered
to the customer than his or her attachment to the counter salesman
who assists the customer. (See: Rawlins
supra
at 541 D-F).
33.
Having
regard to what is stated in para 96.4 of the answering affidavit,
[37]
I am not persuaded that the facts support a finding that the
respondent acquired any influence over the customers with whom he
dealt, such as would enable him to influence or induce such customers
to refer their exclusive trade to IPS.
34.
According to the
respondent, he is not tasked to perform marketing functions or to
bring in new customers at IPS. He is employed
as a counter
salesman, which means that he stands behind a counter and helps
walk-in customers. It is on this basis that the respondent
has denied
that he is trying to solicit customers away from the applicant with
the view of acquiring their business for IPS. He
admits that on one
single occasion, he phoned a customer of IPS (who happens to be a
shared customer with the applicant) to inform
him about a special
that was being run by IPS, i.e., sale of some of its stock. He did
this, so he says, not to take away trade
from the applicant, but
merely to inform IPS’s own customer of its sale. The applicant
contends, however, that this amounts
to ‘nothing other than
soliciting trade’ from its customer on behalf of IPS. This
must, however, be considered within
the context of all the relevant
circumstances. The customer was not exclusive to the applicant. It
was, in fact, also an existing
customer of IPS. Prices offered during
‘specials’ are in any event advertised on a supplier’s
website and are
within the public domain. There is no evidence to
suggest that a discount was offered to this customer by the
respondent or that
the respondent had intricate knowledge of the
customer’s requirements or in fact negotiated any price with
the customer for
purposes of securing a sale on this single occasion.
35.
The papers are devoid
of any suggestion that the respondent is mandated, at IPS, to offer
discretionary discounts to customers,
in order to secure on-the-spot
sales at IPS and as such, it is difficult to see how knowledge by the
respondent of the applicant’s
pricing discount strategy is
being or is likely to be threatened by means of the respondent’s
employment at IPS. The respondent
is a recent appointee of relatively
low level ranking in his employment at IPS. He has not yet proven
himself. Even if he were
to be mandated to offer discounts at IPS,
the likelihood is strong that any discount offered would have to be
authorised by a supervisor
or superior at IPS. On this basis,
the sentiments expressed by Lagrange J in Hendred Freuhof
supra,
would find
application.
36.
According to the
applicant, its sales have not declined as a result of the
respondent’s employment at IPS. The applicant avers
that its
profit margins have, however, declined. The applicant suspects that
this is occurring because the respondent is undercutting
its prices
by employing the applicant’s pricing discount strategy for the
benefit of IPS. The difficulty with this contention
is that there is
nothing to suggest that discretionary or specifically mandated
discounts are in fact being offered by the respondent
at IPS or that
a system other than the one described in paragraphs 11 and 75.1 of
the answering affidavit, prevails as regards
sales generated at IPS.
The applicant’s suspicion appears to me to lack factual
foundation. And as such, it rests on inadmissible
speculation or
conjecture. It also does not appear to me to be reasonable, for
reasons which follow.
37.
The applicant was at
pains to illustrate precisely how talented a salesman the respondent
is, describing him in the founding affidavit,
as a ‘
supreme’
salesman. The respondent is presently 24 years of age. He commenced
working for the applicant when he was 21 years of age. Prior
thereto
and after leaving high school, he performed ‘menial work’,
doing Tele Sales Marketing, printing of labels (as
assistant in a
workshop), and chemical cleaning of pipelines (as a fitter for an
entity that conducted business in the steel industry).
His experience
as salesman in the plumbing industry was gained whilst he was
employed at the applicant, where he exhibited a natural
inclination
and talent for selling plumbing products.
38.
When considering a
typical case where a customer would call in to enquire about the
price of a particular product, and, if the price
offered was higher
than the price offered by a competitor, the sales person would be
asked by the customer if he or she could obtain
a discount, which
discount, if granted, would still ultimately have to be one which was
authorised. To borrow from the words of
Lagrange J in Hendred Freuhof
supra,
it
is difficult to see how any customer goodwill would intrinsically be
generated by such an ‘elementary’ transaction.
Such
goodwill that might have been generated is more likely to have been a
consequence of the personality of the salesperson than
the nature of
the service provided by the applicant, or the salesperson’s
intimate knowledge of the applicant’s product
line or the
discount strategy employed.
39.
Furthermore, there is a
suggestion on the papers that prices are not static in the industry.
It is not difficult to envision price
fluctuations, given that
certain products are imported from suppliers/manufacturers abroad.
The prices paid would necessarily be
subject to changes occurring in
exchange rates. The built-in profit margin that is added onto the end
retail sale price would hence
not necessarily remain constant. And
this in itself would introduce a change or a variable in the
authorised parameters within
which a salesman (such as the
respondent) employed by the applicant, could operate. There is no
suggestion whatsoever on the papers
that the respondent would be in a
position to know when or whether or the extent to which the prices at
which the applicant purchases
stock from its suppliers/manufacturers
have changed over time. That being the case, a change in the price
that is paid by a retail
competitor of IPS to the former’s
supplier would not necessarily be known to the respondent, who would
also not be able to
rely on any retained knowledge of the last known
price for purposes of employing the applicant’s parameterised
deviation
therefrom when seeking to facilitate a sale at a cheaper
price for the benefit of IPS.
40.
In my view, it has not
been demonstrated in these proceedings that the respondent would be
able to use any confidential information
belonging to the applicant
in such a manner that it would give the respondent company an unfair
commercial or strategic advantage.
Reasonableness of the
Restraint
41.
The
applicant seeks to enforce the restraint
[38]
for the limited area of Gauteng
[39]
in respect of any possible competitor of the applicant. The period of
12 months of the restraint will expire on 6 July 2019, and
has
approximately 8 months left to run. The respondent’s actual
exposure was in relation to customers in Gauteng, via the
applicant’s
Sandton branch. The applicant has about 97 branches nationwide,
whilst IPS has only one store, located at its
address in Sandton.
42.
The
applicant contends that the limited application of the restraint to
only the Gauteng area, for the limited remaining period
of 8 months,
is not unreasonable. The respondent states that his only marketable
skill, for purposes of employment, is in regard
to sales of plumbing
products, based on the fact that he knows plumbing equipment. When
regard is had to the respondent’s
apparent inclination, natural
talent and flair for sales within the plumbing industry, and the
nature of his prior short-term employment
exposure, the respondent’s
submission appears not to lack substance. Moreover, a prohibition
against employment
in
any capacity
at any existing or prospective clients of the applicant within the
Gauteng province, as sought to be imposed in terms of the contractual
restraint,
[40]
would
necessarily entail the relocation of the respondent to another
province for purposes, not only of seeking employment, but
of
pursuing his chosen career as salesman within the plumbing industry.
Even were he not to pursue the career of salesman within
such
industry, when regard is had to the broad definition of prohibited
employers in clause 14, the restraint would effectively
prevent the
respondent from being employed in the area in which he resides or
from using his own skills within Gauteng in virtually
any industry.
In my view, it would be unreasonable to restrain the respondent from
any form of employment, whether in the current
industry or any other
industry, in Gauteng. In my view, this would amount to an
unreasonable restriction on the respondent’s
freedom to trade
or his ability to work in the field for which he is qualified,
rendering the restraint unenforceable and against
public policy.
Requirements for
Interdict
43.
It is common cause that
the first respondent has taken up employment at IPS in ostensible
breach of the restraint provision contained
in clause 14.5.1.2 read
with 14.5.2 of the 2018 contract, during the operative period of the
restraint. I have already found that
the restraint is unreasonably
wide in its import, scope and effect and hence unenforceable.
44.
The
applicant seeks interdictory relief on the ground of unlawful
competition. As stated in
Wholesale
Housing Supplies (Pty) Ltd v Bramley and Another
(6688/08)
[2008] ZAGPHC 283
(17 September 2008)
at
para 29, competition
per
se
is
not unlawful. The respondent denies that he has or will or is able to
use the applicant’s information. In accepting the
facts stated
by the respondent together with the admitted facts in the applicant’s
affidavits, I am unable to find any existing
use or threatened use by
the respondent of any confidential information or trade secrets of
the applicant.
[41]
45.
The customer who was
contacted by the respondent turned out to be a customer of IPS and
there is no evidence to suggest that this
customer was not an
existing customer of IPS even prior to the respondent’s
employment with IPS.
46.
The grant of
interdictory relief is discretionary. In circumstances where I have
already found that the restraint is unreasonably
wide so as to
preclude its enforcement, and where the proprietary interest of the
applicant has not been shown to be under threat
by the respondent’s
conduct, I decline to exercise my discretion in favour of the
applicant.
Validity of
restraint
47.
The respondent contends
that he was induced to sign the 2018 contract under false pretences
of a promotion in circumstances where
he was suspended from
employment shortly after signing the contract and prior to the date
on which he was to assume duties in the
new position. He never, in
fact, assumed duties under the 2018 contract, as he was called to a
disciplinary enquiry during the
period of his suspension.
48.
There exists a dispute
on the papers concerning the circumstances surrounding the conclusion
of the 2018 contract and the reason
why its area of application was
extended to incorporate the whole of South Africa.
49.
In the light of the
conclusion to which I have come in this matter, it is not necessary
for me to resolve the dispute in these proceedings.
Suffice it to say
that the respondent believes that he was fraudulently induced to
conclude the 2018 contract. His case in this
regard appears to be
based on a mistaken reading of the date on which he was notified, in
writing, to attend a disciplinary enquiry
and in terms whereof he was
placed under immediate suspension. He signed the 2018 contract on 25
June 2018. He was notified to
attend a disciplinary enquiry on 28
June 2018 (and not 20 June 2018, as he erroneously believed), on
which date he was suspended
from employment, as has plainly been
demonstrated in the replying affidavit.
50.
The 2017 contractual
restraint survived the termination of the 2017 contract by means of
the 2018 contract. Likewise, the contractual
restraint in the 2018
contract survived the termination of the respondent’s
employment on 6 July 2018.
Costs
51.
I am satisfied that the
applicant has discharged the burden of proving the existence of the
restraint agreement and its breach by
the first respondent in taking
up employment with IPS, a prohibited employer thereunder. The
respondent has, however, successfully
established that the restraint,
notwithstanding constraints as to area and period, is unreasonably
restrictive or oppressive and
therefore unenforceable. The general
rule is that costs follow the result. I see no reason to depart
therefrom. Even though each
party requested that an order for
punitive costs be granted against the other, both parties were
asserting their legal rights,
in the pursuit of justice, which they
were wholly entitled to do. In the circumstances, I decline to grant
an order for costs on
the punitive scale.
52.
The following order is
made:
1.
The application is
urgent and the applicant’s failure to comply with the forms,
service requirements and time periods provided
for in the Uniform
rules of court is condoned.
2.
The application is
dismissed.
3.
The applicant is to pay
the respondent’s costs on the scale as between party and party.
_______________________
MAIER-FRAWLEY
AJ
Date
of hearing: 31 October 2018
Judgment
delivered: 13 November 2018
APPEARANCES:
Counsel
for Applicant: Adv. P. Lourens
Attorneys for the
Applicant: Werksmans Attorneys
Ref:
Mr. D. Van der Berg
Counsel
for the Respondents: Adv. Fourie
Attorneys
for the Respondents: Steyn Attorneys
Ref:
Mr. Steyn.
[1]
Either
for his own account or as representative or agent for any third
party or in conjunction with any person, company, business entity
or
other organisation whatsoever.
[2]
Whether as
proprietor, partner, shareholder,
employee,
financier, agent, consultant
or
otherwise
.
[3]
Whether for his own account or as representative or agent for any
third party, or in conjunction with any person, company, business,
entity or other organisation whatsoever.
[4]
This is because the relief sought in prayer 2.2 of the notice of
motion, namely, that the respondent be interdicted
until
6 July 2019
and within the
Gauteng Region of the applicant’s business, covered the
duration of the restraint period as set out in the
restraint-of-trade agreement.
[5]
See:
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984
(3) SA 623
(A)
at 634H-635C, where,
inter
alia
,
the following was said: ‘
where
in proceedings on notice of motion disputes of fact have arisen on
the affidavits, a final order, whether it be an interdict
or some
other form of relief, may be granted if those facts averred in the
applicant's affidavits which have been admitted by
the respondent,
together with the facts alleged by the respondent, justify such an
order
…’
[6]
This trite principle was restated in
National
Director of Public Prosecutions v Zuma
[2009] ZASCA 1
;
2009
(2) SA 277
(SCA) para 26.
[7]
See:
ARB Electrical
Wholesalers (Pty) Ltd v Texan grove
,
an unreported decision of the labour Court (Cape Town) under case
no. 335/2014 at [20
];
Boomerang Trade CC v Groenewald
2012
JDR 1713 (ECG) at p.14, para 36.
[8]
As
ordinarily denoted by the term ‘merchandising’, a
t
retail in-store level, merchandising generally refers to the variety
of products available for sale at individually marked prices
and the
display of those products in such a way that it stimulates interest
and entices customers to make a purchase.
[9]
The
applicant sells and supplies all products necessary for all aspects
of the carriage of water from water mains, through various
plumbing
systems until water is ultimately returned to the sewer mains.
[10]
These are
contractors who require plumbing, bathroom and related products for
use in the construction of buildings, apartments,
houses, shopping
malls, schools and the like.
[11]
The ‘restraint clauses’ are detailed in clause 12 of the
2017 contract and clause 14 of the 2018 contract. The 2018
contract
comprises an
updated
letter
of employment because it deals with the respondent’s internal
promotion to the position of Relief Branch Manager.
[12]
In terms of
clause 14.1.2 of the 2018 contract [12.1 in the 2017 contract],
‘
restricted
client’
means any person, company, corporation, partnership or other legal
entity who, at the Termination Date, [being the date on which
the
respondent’s employment with the applicant terminates for any
reason whatsoever] or at any time during the preceding
12 month
period immediately prior to the termination date, was a customer of
the applicant. In terms of clause 14.1.4 pf the
2018 contract
[12.1.4 of the 2017 contract], ‘
prospective
client’
means
any person, company, corporation, partnership or other legal entity
who at the Termination Date or at any time during the
preceding 12
month period immediately prior to the termination date, was a
prospective client of the applicant.
It is hard to know what is actually
meant by ‘prospective’ in this clause, as the word is
not specifically defined
therein, nor have the parties explained its
meaning in the affidavits. Assuming that ‘prospective client’
means a
potential future new client – in the sense that
he/she/it is not yet a client but may become one in the future, then
this
would include any member of the general public at large or any
person representing any type of legal entity, including persons
representing legal entities who do not as such compete with the
business conducted by the applicant but who might purchase plumbing
and related products, even only sporadically.
[13]
“
Termination
date’
for purposes of enforcement of the restraints in the respective
contracts is defined as ‘the date on which your employment
with Plumlink terminates…’
[14]
The reasons
for and the circumstances surrounding the dismissal are not relevant
to question of whether or not the restraint of
trade relied upon in
these proceedings is reasonable and thus enforceable, but will
undoubtedly form part of the proceedings
for unfair dismissal
proceedings instituted by the respondent against the applicant in
another forum. Restraint clauses in both
the 2017 and 2018 contracts
survive the termination of employment.
[15]
It is not
in dispute that t
he
applicant and IPS are able to purchase plumbing equipment at a
cheaper rate than what plumbing contractors are able to do,
because
they buy in bulk. It is not seriously disputed by the applicant that
most, if not all plumbing contractors buy plumbing
equipment from
major retailers, depending on where they can find particular stock
the cheapest. A plumbing contractor can therefore
be listed as a
customer of the applicant, but that same contractor will also buy at
IPS and will therefore also be listed as
a customer of IPS.
[16]
Disputes
arising in the affidavits concern,
inter
alia,
the nature and scope
of the respondent’s duties during his tenure of his employment
at the applicant; the validity and
enforceability of the 2018
contract; whether the respondent solicited any of the applicant’s
customers; whether the respondent
held a key position in the
position of 2IC or relief branch manager at the applicant, having
regard to his
de facto
duties; whether the applicant is possessed of customer connections
which require protection by means of a restraint of trade;
and the
reasonableness [and hence enforceability) of the restraint of trade
sought to be imposed.
[17]
In
Experian
South Africa (Pty) Ltd v Haynes and Another
2013
(1) SA 135
(GSJ) at para 14, Mbha J put it thus: ‘‘
The
position in our law is, therefore, that a party seeking to enforce a
contract in restraint of trade is required only to invoke
the
restraint agreement and prove a breach thereof. Thereupon, a
party who seeks to avoid the restraint, bears the onus
to
demonstrate on a balance of probabilities, that the restraint
agreement is unenforceable because it is unreasonable
.”
[18]
Sibex Engineering Services
(Pty) ltd v Van Wyk and Another
1991
(2) SA 482
(T) at 503 A.
[19]
See:
Experian
supra
at para 15 (applying
Basson v Chilwan and Others
[1993] ZASCA 61
;
1993 (3) SA 742
(A) at 767
G-H);
Reddy
v Siemens Telecommunications (Pty) Ltd
2007
(2) SA 486
(SCA) at para 17.
[20]
with
regard to the quality or qualities of something rather than its
quantity.
[21]
with
regard to the quantity of something rather than its quality.
[22]
Magna Alloys,
at
893 H-C. Section 22 of the Constitution now protects the right to
choose a ‘trade, occupation or profession freely’.
It
has, however, been held that common law rules relating to restraint
of trades are not unconstitutional. See:
Knox
D’ Arcy Ltd and another v Shaw and another
1996
(2) 651 (W) at 660I-661A
[23]
This
involves a balancing of competing interests, the first being
embodied in the maxim
pacta
sunt servanda
(meaning,
‘agreements must be kept’, based upon the principle of
good faith) and the second being reflected in the
provision in
section 22 of the Constitution that every citizen has the right to
freely choose his occupation, bearing in mind
the interests of
society which require that a person should be productive and
permitted to engage in a trade of his choice.
[24]
[1993] ZASCA 61
;
1993 (3) SA 742
(A) at 767 G-H, where the test for determining the
reasonableness or otherwise of the restraint provision is set out.
[25]
1999 (1) SA
472
(W), where Wunsch J added a further enquiry, namely, whether the
restraint goes further than is necessary to protect the interest.
[26]
See:
The Waste Group (Pty)
Ltd v Brereton
2017 JDR
1019 (GP) at para 22, quoting
Sibex
Engineering Services (Pty) Ltd v Van Wyk
1991
(2) SA 482
(T) at 505 H-I.
[27]
Ibid
Reddy.
[28]
See:
Experian supra
at para 19 and authorities there cited.
[29]
BHT Water Treatment (Pty)
Ltd v Leslie and
another
1993 (1) SA 47
(W) at
p.57
at I-J.
[30]
See:
BoomerangTrade CC v
Groenewald
2012 JDR 1713
(ECG) at para 63;
Rawlins
and another v Caravantruck (Pty) Ltd
[1992] ZASCA 204
;
1993 (1) SA 537
(A) at 541D-F. In
BHT
Water Treatment (Pty) Ltd v Leslie and
another
1993 (1) SA 47
(W) at p.56 B, Marais J pointed out that ‘
Trade
secrets, or trade or customer connection, are the traditional
matters which an employer can legitimately seek to protect
by means
of a restraint of trade clause’
.
[31]
Cited in fn 30 above, at 541 G-H..
[32]
See: BHT Water
supra
at 52 H- 54 I-J; Rawlins
supra
at 540I-541A.
[33]
See:
Sibex Engineering
Services (Pty) Ltd v Van Wyk and another
1991
(2) SA 482
(T) at 502D-F;
Experian
supra,
at para 17.
[34]
See:
AM Moolla Group Ltd
and Others v The Gap Ltd and Another
[2008] ZASCA 6
;
2008 (3) SA 371
(SCA) at 585C, para 31:
Wrightman
t/a JW Construction v Headfour (Pty) Ltd and Another
[2008] ZASCA 6
;
2008
(3) SA 371
(SCA) at 375E-I, para 12-13 & para 18
[35]
(2011) 32 ILJ 618 (LC)
[36]
In this regard, see fn 8 above. It is conceivable that certain
walk-in customers may choose to simply pay the advertised price
depicted on the product without requesting any discount.
[37]
There the respondent points out that most, if not all of the
applicant’s customers also buy from the applicant’s
competitors from time to time. This appears to be common cause on
the papers.
[38]
Being the restraint contained in 2018 contract.
[39]
a
s
opposed to the whole of SA, as per the 2018 contractual restraint.
Had enforcement of the restraint throughout SA been sought,
this
would effectively have prohibited the respondent from being
employed, in the words of the respondent, ‘as a cleaner
at
Spar in Pofadder’ (Northern Cape), when regard is had to the
wide definition concerning prohibited employers in the
definition
clause of the restraint, in which regard, see further fn 12 above.
This is because even retailers like Spar, or Pick
‘n Pay or
Shoprite and the like, all sell plumbing equipment, which thus
brings them in competition with the applicant.
[40]
See footnotes 12 and 40 above.
Clause
14.1.1.2 defines information pertaining to customers as including
potential customers as well as potential customers whom
Plumlink has
not yet contacted, but intends contacting for the purposes of doing
business – this could effectively or potentially
apply to any
man in the street or any business entity within Gauteng.
In
terms of clause 14.3.1.2, the respondent is prohibited from working
for any of the restricted or prospective clients
in any capacity,
either for his own account or as representative or agent for any
third party, or in conjunction with any person, company, business
entity or other organisation whatsoever, whether directly or
indirectly.
In
terms of clause 14.5.1.2, the respondent is prohibited, for the
restraint period, from directly or indirectly having an interest
in
any business that competes with Plumblink in the restraint area.
Clause 14.5.2 contains a wide deeming provision as to the
circumstances in which the respondent would be deemed to have an
interest in a business which cometes with the applicant’s
business, effectively precluding employment in any capacity
whatsoever in any business that competes with the applicant or which
carries on business in any of the prohibited fields of activity.
[41]
See too
: IIR South Africa
BV v Hall (aka Baghas)
2004 (4) SA 174
(WLD) at p.179E-181A.