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[2018] ZAGPJHC 688
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Applied Coating Technologies SA (Pty) Ltd v Wilford and Another (40433/18) [2018] ZAGPJHC 688 (26 November 2018)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
(GAUTENG
LOCAL DIVISION, JOHANNESBURG)
CASE
NO:
40433/18
In
the matter between:
APPLIED
COATING TECHNOLOGIES SA (PTY)
LTD Applicant
and
RAYMOND
VINCENT
WILFORD
First
Respondent
COATING
TECHNOLOGIES SA (PTY) LTD Second
Respondent
JUDGMENT
KEIGHTLEY J
1.
The applicant in this
matter, Applied Coating Technologies SA (Pty) Ltd (“ACT”),
designs, manufactures and supplies
custom-built powder coating
systems. It also has an exclusive distributor agreement for
Norsden spray guns, pumps and control
systems, which it markets
throughout sub-Saharan Africa. It uses Norsden equipment and
parts to manufacture custom-built
powder coating booths to meet its
clients’ requirements. The first respondents (Mr Wilford)
was employed by ACT for
many years, and held shares in the company.
He resigned at the end of July 2016, and is currently a director of
the second
respondent, Coating Techniques SA (Pty) Ltd (“CTSA”).
It is a competitor of ACT in the powder-coating market,
and is a
supplier of Electron equipment and parts.
2.
On 29 September 2016
ACT filed an urgent application against both respondents, on the
basis that they were engaging in unlawful
competition with it.
ACT averred that Mr Wilford was using ACT’s designs, costing
sheets, customer lists and other
confidential information and using
them to compete unlawfully with ACT. These averments were (and
remain) vehemently denied
by Mr Wilford. After the respondents
filed an answering affidavit in the urgent application, the parties
agreed to an order
that was endorsed by the court (“the
Order”).
3.
The pertinent terms of
the Order for present purposes are as the following:
“
1.
The first and second respondents shall not, directly or indirectly-
1.1 interfere with the
applicant’s existing or maturing business opportunities which
the first respondent became aware of
by virtue of his employment with
the applicant;
1.2 ...
1.3 pass off:
1.3.1
electron built or other products as ACT and/or Norsden products ....
.
”
4.
ACT contends that the
respondents breached these terms of the order and is in contempt of
court. It applied for an order declaring
them to be in
contempt, and further for a committal of Mr Wilford to prison for six
months or such other sanction deemed appropriate
by the court.
In essence, this is the application that serves before me. Once
again, the respondents vehemently dispute
that they are in contempt,
with Mr Wilford filing an answering affidavit setting out their
defence.
5.
When the parties filed
their heads of argument, ACT included therein a request that the
matter be referred to trial on the basis
that there were material
disputes of fact that rendered the matter incapable of determination
on the papers. ACT accepts
that if I refuse this request, and
decide that the matter can be determined on the papers, then the
respondents’ version
on factual disputes must prevail. In
effect, it accepts that in this event the application should be
dismissed.
6.
Under
uniform rule 6(5)(g), in cases where a material dispute of fact
arises in motion court proceedings the court has a discretion
as to
how the matter should proceed. It may refer the matter to trial
or oral evidence, or it may even, at the outset, dismiss
the matter.
It is a well-established principle in our law that an applicant who
proceeds by way of motion proceedings runs
the risk that serious
disputes of fact may be shown to exist, and that a court may, for
this reason, dismiss the application.
This risk exists
particularly in circumstances where, at the time proceedings were
instituted, the applicant had knowledge of the
probability that the
matter should be subjected to ordinary trial proceedings because a
serious dispute of fact was bound to develop.
[1]
In
those circumstances, the reprehensibility of the applicant’s
conduct, and its abuse of motion court proceedings, justifies
the
dismissal of the application. However, in the absence of
reprehensibility, the appropriate alternative is to refer the
matter
to trial.
[2]
The
court will be guided by the prospect of
viva
vice
evidence bringing the balance of probabilities in favour of the
applicant.
[3]
7.
The
respondents contend that ACT must have known when it instituted its
contempt application that material disputes of fact were
bound to
arise, and that for this reason, the court should refuse to entertain
its request to have the matter referred to trial,
and should dismiss
the application at the outset. ACT disputes this. It
points out that contempt proceedings are usually
initiated by way of
a notice of motion.
[4]
Furthermore,
it points to correspondence between the parties that was exchanged in
the period after the granting of the Order and
before the contempt
application was launched. In the first letter of relevance, the
respondents’ attorneys wrote that:
“
Our
clients are entitled and intend to compete for the custom of your
client’s so-called clients
.”
ACT’s attorneys responded that this appeared to be in violation
of clause 1.1 of the Order, and that ACT reserved
its rights to
institute contempt proceedings. On 21 October 2016, in response
to this, the respondents’ attorneys replied
that:
“
Paragraph
4.1.4 of our letter records our clients’ position, as it has
been at all times, and confirms that they are entitled
and intend to
compete for the custom of your client’s
so-called
customers
:
...
this
paragraph does not mean and cannot be constructed to mean that our
clients are entitled and intend to compete for the custom
of your
client’s existing and maturing business opportunities
as contemplated in paragraph 1.1 of of the court order.
”
(my emphasis)
8.
ACT submits that this
paragraph can be understood to mean that the respondents were
confirming that they would not compete with
customers that ACT could
show were its actual, existing customers, or with those with whom it
was currently engaged in developing
business opportunities. I
should add that there had been an ongoing dispute between the parties
as to whether a customer
list prepared by ACT and presented to the
respondents was an accurate list of its current customers. The
respondents disputed
the list, contending that it was overly wide.
This would explain the reference to “so-called customers”
in the
first part of the paragraph.
9.
What happened after
this exchange of correspondence was that ACT says it found out that,
contrary to its assurance in its previous
letter, the respondents
were indeed interfering with its actual current customers. It
says further that given what the respondents
had stated in their
letter of 21 October 2016, ACT did not anticipate that the
respondents would seriously dispute ACT’s
averments and
evidence to this effect when it instituted its contempt proceedings.
10.
In addition, on 2
November 2016 ACT’s attorneys wrote to the respondents’
attorneys and referred to an invoice from
the respondents which
indicated that the respondents were using Norsden parts numbers to
quote for products the respondents were
supplying to ACT’s
customers. ACT indicated that this was passing off, in breach
of clause 1.3.1 of the Order.
The respondents were asked to
confirm that they were not using Norsden parts numbers to quote to
ACT’s existing customers.
Despite a follow up letter by
ACT’s attorneys, no response was forthcoming from the
respondents. In the absence of
a response to its allegations,
ACT again did not anticipate that its averments would be seriously
challenged by the respondents.
11.
Of course, as we now
know, the respondents have placed all of these averments from ACT
(relating to the alleged interference with
existing customers, and
passing off) in dispute.
12.
I am of the view that
in light of the developments preceding the present litigation, ACT
should not be disqualified at the outset
from the opportunity to have
the matter referred to trial simply because it elected to follow the
normal route of instituting contempt
proceedings by way of a notice
of motion with supporting affidavits. The respondents’ 21
October 2016 letter can reasonably
be understood to mean that while
they might dispute whether ACT’s alleged customers were in fact
customers, they accepted
that they would not interfere with those who
could be established to be customers. From this response, ACT
could reasonably
have anticipated that the respondents might have
disputed whether the customers it referred to in its founding
affidavit were indeed
existing customers. However, this was not
necessarily a dispute that should have required testing by way of
oral evidence
and cross-examination: it would have been possible for
ACT, if the respondents disputed the averments that the clients
referred
to in the body of the founding affidavit were ACT’s
current or existing clients, to provide invoices, email, quotations
and
the like to establish that they were indeed existing clients.
13.
In addition, it is now
apparent that the parties interpret the provisions of the Order
differently: on ACT’s version, it prohibits
the respondents
from interfering with (by soliciting custom from, doing business with
etc) any of its existing customers with whom
it is doing business, as
well and those with whom it is developing a business relationship.
The respondent does not interpret
the Order in the same way. I
will discuss in more detail later what the respondents’
position is in this regard, but
for present purposes it is safe to
say that the difference in interpretation forms a major part of the
respondents’ opposition
to the contempt application. The
difference in interpretation, and in particular the stance the
respondents adopt, has factual
ramifications that I am not persuaded
ACT should have foreseen as giving rise to the probability of the
existence of material factual
disputes when it launched the contempt
application.
14.
The respondents also
submitted that the matter should be dismissed on ACT’s founding
affidavit alone, without even the necessity
of considering whether it
warrants a referral to trial. The respondents say that none of
the averments by ACT in its founding
affidavit establish a case of
breach, and that ACT should thus be prevented from having another
bite at the cherry so that it can
beef up a non-existing case in a
trial.
15.
I do not agree with
this submission. In the founding affidavit ACT makes out a case
for the respondents to answer at least
in the following respects:
(a)
The respondents’
invoice submitted to ACT’s long-standing customer, Tool Room
Services (Pty) Ltd (“Tool Room”)
on 12 October 2016
indicating that the respondents had supplied and invoiced Tool Room
with parts identified by Norsden parts numbers.
ACT obtained
confirmation of this from Tool Room in March 2017. This relates
to the issue of whether the respondents have
breached the passing-off
component contained in paragraph 1.3.1 of the Order. ACT did
not obtain a confirmatory affidavit
from Tool Room. However, it
indicated that Tool Room had not wanted to get involved in the
matter.
(b)
Allegations that ACT
believed that the respondents had sourced business from three
businesses that were existing clients of ACT
at the time the Order
was granted. ACT’s belief was based on the fact that Mr
Wilford had serviced all of these customers
when he was employed by
ACT, and that these three companies (Modrac, Kyler-Mech and Palian)
had all stopped purchasing from ACT
after Mr Wilford left.
While ACT did not have proof to establish this belief, in my view,
given the respondents’ clear
stance in the earlier
correspondence that they did not believe that they were prohibited
from approaching everyone on ACT’s
original customer list for
business, ACT’s belief cannot be dismissed as being without any
foundation: the co-incidences
cited, and Mr Wilford’s declared
intent that he would solicit business from companies that ACT claimed
from its list to be
its customers, at least called for some
explanation from the respondents to dispel the belief.
(c)
The incident with
Tandem Lawn Industries that occurred in April 2017. ACT averred
that Mr Wilford knew full well that Tandem
Lawn was its customer.
The managing director of Tandem Lawn reported to ACT that Mr Wilford
had appeared at their plant and,
under the pretext that he had a
meeting with the supervisor and that he was there to take photos and
measurements for a quote for
a new plant, he had accessed the
premises. The managing director, Mr Morrison, told ACT no-one
at Tandem Lawn had contacted
Mr Wilford. He indicated that they
viewed his conduct to be verging on the criminal.
16.
There are other
allegations made in the founding affidavit which, if the matter is
referred to trial, may be explored in more detail
at that stage.
The above examples are sufficient, in my view, to dispel the
conclusion that ACT made out no case in its founding
affidavit.
The coincidence that it lost three clients after Mr Wilford resigned
and started trading through CTSA is not fanciful,
particularly in
view of the other evidence that the respondents have, indeed, done
business with companies who ACT claims are its
customers. The
incident regarding the invoice in which the respondents quote
specific Norsden part’s numbers speaks
for itself as providing
prima facie
evidence that the respondents may have conducted themselves in breach
of the Order. The same goes for the Tandem Lawn incident.
It is also important to underline that these incidents should not be
viewed in isolation. I am satisfied that on a conspectus
of all
the allegations made in the founding affidavit viewed together, ACT’s
case was not speculative or without foundation,
warranting an
outright dismissal of the application as argued by the respondents.
17.
For these reasons, I am
disinclined to dismiss the application without considering ACT’s
request that the matter be referred
to trial.
18.
I turn then to consider
whether a referral to trial is warranted.
19.
In respect of the
allegations under paragraph (b) above: the Modrac, Kyler-Mech and
Palian incidents, the respondents provide a
generalised answer.
Significantly, Mr Wilford admits that the respondents have done
business with these companies “
at
various times
”
by supplying products and related services to them. However, he
says that this did not occur in a manner that breached
any term of
the Order. He does not give his reasons for this conclusion.
20.
As regards the Tool
Room incident, Mr Wilford says that the Norsden serial numbers were
inserted for the customer’s purposes,
to enable the customer to
identify what Norsden parts had been replaced. He denies he
supplied Norsden parts, or passed off
the non-Norsden parts as
Norsden parts. He says that the customers knew that they were
receiving non-Norsden parts and requested
them. Although he
criticizes ACT for not providing a confirmatory affidavit from Tool
Room, the respondents also do not provide
any confirmation from Tool
Room, or from any of their other clients whom they claim knew and
requested non-Norsden parts.
21.
As regards the Tandem
Lawn incident, he claims that he had no knowledge of this company
from his employment with ACT. He says
that the whole incident
was orchestrated by ACT, but does not explain what the basis is for
his belief.
22.
The main foundation of
the respondents’ defence to the contempt allegations is that on
a proper interpretation of the Order,
they have not acted in breach.
For this reason, they also say that the case for contempt is
still-born because provided there
is a dispute about the proper
interpretation of the Order, a court will never find that the
respondents had the requisite
mens
rea
to commit
contempt.
23.
In principle this
stance makes some sense. However, questions arise when one
tries to fathom exactly what the respondents
say the proper meaning
is of the Order, and why they contend that they were not in breach.
What the respondents say clearly
(in both their answering affidavit
and in argument before me) is that just because a business was once a
client of ACT, this does
not mean that they fall into the category of
“
existing or
developing business opportunities
”.
In other words, the Order, properly interpreted does not prohibit the
respondents from soliciting and doing business
with any company that
was ever a client of ACT.
24.
The respondents also
say that just because ACT did business with a company does not mean
that those customers are obliged, or bound,
from then onwards, to do
business for maintenance, parts, new plant etc only from ACT.
Companies that have done business
with ACT are free, say the
respondents, to shop around for new suppliers. This is all
clear insofar as it goes.
25.
What is not clear,
though, is what the respondent says the Order means
in
relation to companies that ACT can show were existing clients at the
time the Order was granted, and on what basis the respondents
claim
they have not committed a breach of the Order in relation to those
clients
.
Counsel for the respondents seemed to accept at the hearing that his
client couldn’t interfere in existing
business relationships
ACT had at the time the order was granted (and in respect of whom Mr
Wilford had gained knowledge through
his employment with ACT) but
insisted that ACT’s case was that the Order meant that it could
not do business even with past
customers.
26.
From the affidavits
filed by ACT this does not appear to me to be its case.
It does not aver that the respondents are
prohibited under the order
from soliciting business from all the businesses listed on its
original list (to which the respondents
took objection). Its
averments in the founding affidavit are more limited than this and
the incidents of breach it alleges
refer to specific companies it
says are long-standing, or existing customers, or those who provide
ongoing future business opportunities
through ACT’s maintenance
of their systems.
27.
Once the interpretive
issues in dispute between the parties are delineated on these lines,
it seems to me that material disputes
of fact arise. ACT has
claimed certain companies as existing clients at the time the order
was granted, of whom Mr Wilford
had knowledge. It will be
essential for purposes of determining whether there was a breach of
the Order to determine factually
which companies referred to in the
founding affidavit actually do fall into the category of existing or
maturing business opportunities.
As I have already
indicated, this issue does not, in and of itself, necessarily require
oral evidence and cross-examination.
Critically, however, it
will be important to establish the factual basis on which Mr Wilford
says that despite them being existing
customers, he did not act in
breach of the order, either because he did not do business with them,
or, if he did, why he did not
breach the order in doing so.
This is not simply a question of a legal interpretation of the Order,
as even the respondents
seem to accept to some degree that they
cannot interfere with existing clients. This is a factual
dispute that, it seems
to me, would be proper to refer to trial.
As Mr Wilford has not made it clear what the factual basis is for his
stance that
he did not breach the order as regards such customers,
his evidence and cross-examination of it will be valuable to the
court.
28.
Mr Wilford admits the
respondents did business with Modrac, Kyler-Mech and Palian, but says
that it was not in breach of the Order.
Why not? Is it
because he disputes that they were in fact existing business
opportunities? Or is it because he disputes
that he solicited
business from them? Did these customers approach him out of the
blue, despite his previous interactions
with them while he
represented ACT? Mr Wilford denies that he knew of Tandem Lawn
as a customer of ACT. He does so
by way of a bald denial.
He provides an explanation regarding the Tool Room invoice that
raises questions, rather than provides
answers: usually the item
number of an invoice refers to the item that was supplied, rather
than the item that was replaced.
This seems to me to be an
issue to be explored by oral evidence and cross-examination.
Did the customers he supplied with
Electron parts (as he claims) know
that they were not Norsden parts as Mr Wilford claims? There
are no confirmatory affidavits
from any of them to confirm his
averment that this was the case.
29.
All of these questions
relate directly and materially to the allegations of breach and the
denials made by the respondents.
In my view, the respondents’
denials, and its version, are
not
such that they warrant acceptance simply on the papers. The
court in determining whether there was a breach of the Order
will
undoubtedly be assisted by the leading of oral evidence and
cross-examination of all parties concerned. This will include
companies whom either party may wish to subpoena to give evidence.
Judging from the general absence of confirmatory affidavits
by both
parties (although I note that Mr Morrison provided a confirmatory in
reply), the power to subpoena will be a valuable tool
for both sides
if the matter is referred to trial. It seems to me from a
consideration of all of these issues that there
will be considerable
value in the matter being referred to trial, in respect of both the
issue of whether a breach has been established,
and if so, whether Mr
Wilford had the necessary
mens
rea
to be held in
contempt.
30.
I accordingly find, in
the exercise of my discretion, that the matter be referred to trial.
31.
I make the following
order:
31.1. The matter is
referred to trial;
31.2. The notice of
motion and founding affidavit are to stand as a simple summons;
31.3. The answering
affidavit is to stand as the notice of intention to defend;
31.4. The applicant will
deliver its declaration within 20 days of this order;
31.5. The costs of the
application are costs in the action.
R
M, KEIGHTLEY
JUDGE
OF THE HIGH COURT OF SOUTH AFRICA,
GAUTENG
LOCAL DIVISION, JOHANNESBURG
DATE
OF HEARING: 29 OCTOBER 2018
DATE
OF JUDGMENT: 26 NOVEMBER 2018
APPEARANCES
APPLICANT’S
COUNSEL: NPG REDMAN (SC); S FREESE
INSTRUCTED
BY: SHAHEED DOLLIE INCORPORATED
RESPONDENT’S
COUNSEL: J DANIELS (SC); C DE VILLIERS-GOLDING
INSTRUCTED
BY: SHABAN CLARK COETZEE
[1]
Room
Hire Co (Pty) Ltd v Jeppe Street Mansions (Pty) Ltd
1949 (3) SA
1155
(T) at 1162; Gounder v Top Spec Investments (Pty) Ltd
[2008] ZASCA 52
;
2008 (5)
SA 151
(SCA) at 154
[2]
Standard
Bank of SA Ltd v Neugarten and Others
1987 (3) SA
695
(W) at 699A-C
[3]
Hansa
Silver (Pty) Ltd v Obifon (Pty) Ltd t/a The High Street Auction Co
2015 (4) SA
15
(SCA) at 26D-F
[4]
Laubscher
v Laubscher
2004
(4) SA 350
(T) at para [10]