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[2018] ZAFSHC 46
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Best Advice Financial Services (Pty) Ltd v Smith and Another (1991/2018) [2018] ZAFSHC 46 (10 May 2018)
IN
THE HIGH COURT OF SOUTH AFRICA,
FREE
STATE DIVISION, BLOEMFONTEIN
Reportable:
NO
Of
Interest to other Judges: NO
Circulate
to Magistrates: NO
Case
number: 1991/2018
In
the matter between:
BEST
ADVICE FINANCIAL SERVICES
(PTY)
LTD
Applicant
and
MARIE
SMITH
First Respondent
AT
RISK ADVISORS (PTY)
LTD
Second Respondent
CORAM:
LEKALE, ADJP
HEARD
ON:
25
APRIL 2018
JUDGMENT
BY:
LEKALE,
ADJP
DELIVERED
ON:
10
MAY 2018
SUMMARY:
Restraint of trade- Enforcement the
re
of-
Restrainee contacting clients she used to service on behalf of
restrainor before termination of consultancy contract with full
knowledge of the prohibition- Covenant going further than necessary
and as such unreasonable- Duration of covenant reduced accordingly.
BACKGROUND
AND INTRODUCTION
[1]
On 21 September 2004 the applicant and the first respondent concluded
a written agency/consultancy contract which included a
restraint
clause in terms of which the first respondent, as a consultant,
inter
alia,
undertook not to be engaged in any business that is similar to that
of the applicant as a consultant or advisor in the Mpumalanga
Province for a period of 3 years after its termination.
[2]
On 12 January 2018 the applicant debarred the first respondent in
terms of section 14 of Financial Advisory and Intermediary
Services
Act 36/2002 (FAISA) and terminated the consultancy contract following
a disciplinary inquiry into allegations of unethical
conduct levelled
against her as a consultant. The first respondent, thereafter,
secured an order suspending her debarment
from the High Court in
Pretoria on 20 February 2018 and subsequently secured affiliation
with the second respondent which does
business similar to the
applicant and is based in Johannesburg.
[3]
On or about 10 April 2018 the applicant received information
indicating that first respondent was contacting some of the clients
she used to service in Mpumalanga as a consultant attached to the
applicant introducing herself as a representative of the second
respondent and soliciting business as a short term broker.
Several of such clients have since switched loyalty from the
applicant to the second respondent by assigning the latter as their
servicing advisor and on 17 April 2018 the applicant received
a
request from an insurer to move three more clients to the second
respondent.
[4]
The applicant feels aggrieved by the conduct of the first respondent
and launched the instant application on an urgent basis
on 19 April
2018 moving,
inter
alia
,
for an order enforcing the covenant against the first respondent.
The first respondent, on her part, opposes the motion
while there are
no opposing papers filed by the second respondent.
ISSUES
FOR DETERMINATION
[5]
Parties are
ante omnia
at variance on whether or not the
matter warrants urgent attention on the part of the court with the
first respondent contending
that urgent relief is not necessary
insofar as the applicant expressly became aware of her alleged
offending conduct in early March
2018 but waited until mid April 2018
to launch the present proceedings.
[6]
In the event of the court finding cause to entertain the matter out
of turn as urgent, the parties are in dispute over whether
or not the
first respondent breached the covenant insofar as she is employed in
Johannesburg and the clients she contacted are
those she used to
service and, as such, her own and not new clients.
[7]
In the further event of the question in [6] above being decided in
the affirmative then the dispute between the parties extends
to the
question whether or not the covenant goes further than necessary and
is, as such, unreasonable with the first respondent
effectively
contending that three years is inordinately long.
CONTENTIONS
FOR THE PARTIES
[8]
Mr Bester for the applicant submits on papers and before the court,
inter
alia,
to the effect that the relief sought is inherently urgent and that
the applicant has protectable interest in the form on clients
based
within Mpumalanga province. The covenant is reasonable in all
respects insofar as it seeks to protect such interest
to which the
first respondent has access as a result of her previous professional
relationship with the clients.
[9]
On behalf of the first respondent Mr Roux submits, both on papers and
before the court,
inter
alia
,
that the first respondent was aware that the effect of the restraint
clause was to prohibit her from contacting applicant’s
clients
based in Mpumalanga although it does not expressly refer to such
clients. The first respondent only contacted the
relevant
clients in order to set the record straight after the applicant
tarnished her name when it debarred her. Six months
would be
reasonable as the duration of the covenant in question in the
circumstances of the present matter regard being had to
the first
respondent’s personal circumstances and right to earn a living
for herself and her children as a single parent.
APPLICABLE
LEGAL POSITION
[10]
In motion proceedings urgency is a boarding pass which entitles an
applicant for urgent relief to jump the queue, to forge
its own rules
with regard to service and form subject to the court’s approval
in order to be heard out of turn. (See
East
Rock Trading 7 (Pty) Ltd and Another v Eagle Valley Granite (Pty) Ltd
and Others
[2015] JOL 28244
(GSJ)).
[11]
In proceedings of the instant nature where a final relief is sought
on motion the onus on the applicant includes showing, on
a balance of
probabilities, that it has a clear right which it seeks to protect,
actual or imminent injury to the same as well
as absence of
alternative appropriate relief. (See
V&A
Waterfront Properties (Pty) Ltd and Another v Helicopter Marine
Services (Pty) Ltd and Others
2006 (1) SA 252
(SCA).
[12]
At common law, where the final relief sought is the enforcement of a
restraint clause the onus on the applicant is limited
to proof of the
existence of the covenant relied upon with the consequence that once
established the restraint is
prima
facie
enforceable until and unless it is shown by the party seeking to
escape it that it is unreasonable and
contra
bonos mores
.
(See
Magna
Alloys and Research SA (Pty) Ltd v Ellis
[1984] ZASCA 116
;
1984 (4) SA 874
(A)).
[13]
Where the facts concerning the reasonableness or otherwise of the
restraint are fully before the court the court makes a value
judgment
on whether or not the restraint is reasonable regard being had to the
fact that public interest requires that the parties
should comply
with their contractual obligations in line with the notion expressed
in the maximum
pacta
servanda sunt
as well as the fact that it is in the interest of society that all
people should “
be
productive and be permitted to engage in trade and commerce or
professions”.
(See
Reddy
v Siemens Telecommunications (Pty) Ltd
2007 (2) SA 486
(SCA)).
[14]
The enquiry as to the reasonableness of a contractual restraint
involves consideration of facts and circumstances prevailing
at the
time the restrainor seeks to enforce the restraint such as the
duration of the restraint, the area over which it applies,
whether or
not the restrainee was paid any consideration in respect of the
restraint, whether the restrainee would still have the
ability to
earn a living if the restraint is enforced and that the “
proprietary
interest or capital asset which the restrainor seeks to protect as
well as all other relevant circumstances prevailing
at the time
enforcement is sought”.
(See
Magna
Alloys and Research SA (Pty) Ltd
supra
and
J
Louw and Company (Pty) Ltd v Richter and Others
1987 (2) SA 237
(N)).
[15]
In assessing the reasonableness of the restraint the court considers
the questions whether or not there exists an interest
which deserves
protection after the termination of the contract between the
parties; whether such protectable interest is
threatened by the
other party; whether such interest weighs both qualitatively
and quantitatively heavier than the interest
of the other party not
to be economically inactive and unproductive; whether there is
an aspect of public policy which either
militates against or supports
the enforcement of the restraint and lastly whether the retraint goes
further than necessary to protect
the relevant interest. (See
Basson
v Chilwan & Others
[1993] ZASCA 61
;
1993 (3) SA 742
(A) at 767 and
Kwik
Copy SA (Pty) Ltd v Van Haarlem and Another
1991
(1) SA 472
(W) at 484E with regard to the last enquiry)
[16]
A covenant which prevents a party after termination of his or her
employment from earning a living by partaking in trade or
industry or
profession without a corresponding interest of the other party
deserving of protection is unreasonable and, as such,
unenforceable.
(See
J
Louw and Company (Pty) Ltd v Richter and Others
supra
.
[17]
Trade secrets, pricing a customer/supplier connections are all
proprietary interests which
prima
facie
deserve protection. A protectable customer or supplier
relationship exists where an employee has personal knowledge of and
influence over the customers or suppliers of his/her employer such
that if he or she where to leave the employer he or she would
automatically carry the customers with him or her and, if competition
where to be allowed, he/she would be able to take advantage
of his
employer’s trade connections. (See
Rawlins
and Another v Caravantruck (Pty) Ltd
[1992] ZASCA 204
;
1993 (1) SA 537
(A) at 541 (D-I)).
APPLICATION
OF LEGAL POSITION AND FINDINGS
[18]
There is no dispute about the existence of the covenant and as such
the onus is on the first respondent to show that it is
unreasonable
and
contra
bonos mores
.
[19]
The parties are further effectively in agreement that the covenant
not only prohibits the first respondent from taking up employment
in
Mpumalanga with a company which carries a business similar to that of
the applicant but that it also prohibits her from contacting
the
applicant’s clients in Mpumalanga for the purposes of
soliciting business. To the extent that the first respondent
contacted such clients with a view to soliciting business from them
she breached the relevant covenant regard being had to the
fact that
the applicant’s interest in this regard undisputedly deserves
protection insofar as the first respondent has influence
on such
clients.
[20]
It is true, as contended by the first respondent, that the
relationship she had with the clients whilst working as a consultant
with the applicant was personal and that she built the relationship
over a period of 20 years earning a living from such services.
A period of 3 years therefore appears to be very long regard being
had to the fact that for a new consultant to take over the relevant
clients on behalf of the applicant it would definitely take far less
than 3 years. On the other hand the first respondent
had been
working as a consultant for the applicant for about 14 years and
reasonably knows the industry very well around the area
in question.
To deprive her of the opportunity to earn a living in familiar
neighbourhood appears unreasonable regard further
being had to her
need to earn a living and to be productive for the benefit of not
only herself but also her children. Striking
a healthy balance
between the protectable interests of the applicant and the rights of
the first respondent is the real issue between
the parties
in
ca
s
u
.
It should, further, be noted that the first respondent received no
compensation from the applicant for forfeiting her right
to partake
in trade or commerce or profession in the Mpumalanga Province where
she has been working for 20 years. In my view 6
months is a
reasonable period in the circumstances of the instant matter for the
operation of the restraint.
COSTS
[21]
The applicant asked for punitive costs against the first respondent
while the first respondent, on her part, asked that no
order as to
costs be made against her and each party be directed to pay its own
costs.
[22]
The question of costs is dictated to a large extent by fairness.
I am persuaded that the duration of the covenant as
it stands is
inordinately long and has the effect of totally rendering the first
respondent unproductive in the relevant area.
To the
preceding extent I am satisfied that the first respondent
achieved some success and is, as such, also entitled
to a recognition
that she had cause to oppose the matter in order to get relief as far
as the duration of the covenant is concerned.
In the
circumstances parties were successful in their respective
claims.
ORDER
[23]
In the result non- compliance with the rules of the court in respect
of dies, form and service, are condoned in terms of rule
6(12) of
Uniform Rules of Court and the matter is, as such, heard as an urgent
application.
[24]
The first respondent is interdicted and restrained from being
involved as proprietor, partner, director, shareholder, member,
employee, consultant, contractor, financer, agent, representative,
assistant or otherwise and whether for reward or not, directly
or
indirectly in any company, close corporation, firm, undertaking or
concern carried on in the territory of Mpumalanga and which
performs
or makes available prescribed services or in the cause of the
business of which prescribed services are offered or performed
as per
the definition in the restraint of trade agreement dated 21 September
2004 for the period of six months calculated from
12 January 2018.
[25]
The first respondent is interdicted from contacting and/or soliciting
any of the applicant’s
clients in Mpumalanga Province in
respect of the delivery of prescribed services for the period of six
months calculated from 12
January 2018.
[26]
Each party to pay its own costs.
_______________
LJ
LEKALE, ADJP
On
behalf of applicant:
Adv. M Bester
Instructed
by:
Rossouws Attorneys
Bloemfontein
On
behalf of respondents: Adv. LA Roux
Instructed
by:
Peyper Austen Inc.
Bloemfontein