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[2016] ZAGPPHC 55
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Hospitality Industrial and Commercial Underwriting Managers (Pty) Ltd v Dietrich and Others (38625/05) [2016] ZAGPPHC 55 (27 January 2016)
REPUBLIC OF SOUTH
AFRICA
IN THE GAUTENG
DIVISION OF THE HIGH COURT, PRETORIA
CASE
NO: 38625/05
DATE
HEARD: 02/03 – 05/03/2015
27/1/2016
NOT REPORTABLE
NOT OF INTEREST TO
OTHER JUDGES
REVISED
In the matter between:
HOSPITALITY
INDUSTRIAL AND COMMERCIAL
UNDERWRITING
MANAGERS (PTY) LTD
Plaintiff
and
LEON
IAN
DIETRICH
First
Defendant
ANNAA
BARBARA DIETRICH
Second
Defendant
FIRST
ON INVESTMENTS CC
Third
Defendant
SURENET
(PTY)
LTD
Fourth
Defendant
SURENET
GROUP (PTY) LTD
Fifth
Defendant
JUDGMENT
J
W LOUW, J
[1]
The plaintiff does business as insurance underwriting managers.
It opened a branch of its business in Pietersburg in July
2000 and
appointed the first defendant as manager of the branch. The
first defendant gave notice of his resignation on 1
March 2005, the
notice period terminating on 31 March 2005.
[2] During April 2005,
the plaintiff instituted an action against the first defendant and
the other four defendants. The plaintiff
claimed payment of
damages by the first defendant arising from an alleged breach by the
first defendant of a confidentiality and
restraint of trade
agreement. It further claimed payment of damages by the first
defendant and from the other four defendants
as joint wrongdoers
arising from alleged unlawful competition and copyright
infringement. There was also a claim based on
unlawful
interference with contractual relationships and a claim for return of
documents, but those fell by the wayside.
The trial did not
proceed against the fourth and fifth defendants, the plaintiff, so I
was informed, having reached a settlement
with them. I was not
made privy to the reasons why it took ten years for the matter to
come to trial against the first three
defendants, to whom I shall
refer as the defendants.
The
restraint of trade
[3]
During April 2004, whilst the first defendant was still employed, the
plaintiff required of the first defendant and the other
employees of
the plaintiff at the branch to sign a “Confidentiality and
Restraint of Trade Agreement”. This is
the agreement
which the plaintiff alleges was breached by the first defendant.
A copy of the agreement, which bears the signature
of Mr. John
Fitzpatrick, who was the plaintiff’s managing director at the
time, and that of the first defendant is annexed
to the plaintiff’s
particulars of claim. The agreement provides that the first
defendant shall not, during his employment,
divulge any confidential
information or trade secrets other than to persons connected with the
plaintiff, including the names and
contractual arrangements between
the plaintiff and its clients and trading partners. It further
provides that the first defendant
shall not for a period of one year
after termination of his employment with the plaintiff represent any
of the plaintiff’s
competitors or render services of a like
nature which are likely to compete with the service rendered by the
plaintiff or solicit,
interfere with or entice away any client of
trading partner of the plaintiff.
[4]
The plaintiff’s case was that the first defendant breached
those terms. It was conceded by Adv. Arnoldi SC, who
appeared
for the defendants, that if those were the terms of the agreement,
they were breached by the first defendant and that
the only issue
would then be the quantum of the plaintiff’s damage. The
defence which was pleaded by the first defendant
in his plea, which
was prepared by the first defendant’s previous counsel and
delivered on 20 June 2006, was that the agreement
was signed by the
parties against the background of a letter attached to the plea, that
the agreement was signed by the parties
with the common intention
that the letter would be incorporated into the agreement, and that
the letter provided that the agreement
would become null and void
“
should the company decide to restructure, centralize and/or
close branches, dismiss or terminate my employment, non-acceptance of
staff transfer offers to any alternative venues or where any such
change will directly or indirectly adversely affect me.
”
It was pleaded that the plaintiff closed its Pietersburg branch
during May 2005 and that the restraint therefore lapsed
in terms of
this stipulation.
[5]
The evidence of Mr. Fitzpatrick was that the plaintiff’s
business was doing well in 2004 and that he started looking at
the
plaintiff’s exposure to competition. It also came to his
attention that certain employees wanted to start their
own business
and that the plaintiff’s data was being used in the market.
He therefore instructed the plaintiff’s
attorneys to draw up a
confidentiality and restraint agreement. When he received the
document from the attorneys, he discussed
it with the plaintiff’s
shareholders. He then sent it to the first defendant by fax
after inserting the date “April”
on the last page and
signing it himself.
[6]
He received the agreement back from the first defendant under cover
of a letter dated 13 April 2004. The relevant part
of the
letter reads as follows:
“
In
the light of our meeting held on the 8
th
April 2004, I agree to the principal
(sic)
of
the contract, subject to the amendments as set out below.
1)
Attached,
letter of amendment of certain terms to the contract, which forms an
integral and inseparable part of the contract stipulated
above and
without which the original contract remains nil
(sic)
and
void.”
[7] The letter
indicates that the first defendant had signed and faxed the agreement
back to Mr. Fitzgerald. Before doing
that, the first defendant
inserted the following final clause in the agreement:
“
Addendum:
(attached) – TO BE COUNTERSIGNED PLEASE.
”
[8]
It is common cause that the letter of amendment referred to in the
covering letter and the addendum referred to in clause 12
which the
first defendant inserted into the agreement are the same document.
The relevant part of that letter reads as follows:
“
THIS
DOCUMENT FORMS AN INTEGRAL AND INSEPERABLE PART OF THE AGREEMENT
SUBMITTED BY HIU
(the
plaintiff)
FOR
SIGNATURE AND APPLIES TO ANY FORM OF RESTRAINT OF TRADE
The
contract will be declared nil
(sic)
and
void, should:
1)
Mr.
J Fitzpatrick – retire, resign, pass away (decease), become
incapable of functioning in his current position for whatever
reason,
sell any shareholding or any portion thereof which may result or
bring about a change in his Management position as General
Manager of
HIU.
2)
Should
the company be sold.
3)
Should
the company decide to restructure, centralize and or close branches,
dismiss or terminate my employment, non acceptance of
staff transfer
offers to any alternative venues or where any such change will
directly or indirectly adversely affect me.
And:
1)
…………
..
2)
The
agreement applies ONLY to HIU core business being Hospitality driven
business projects, and all other forms of short term business
does
not form part of this agreement.
3)
……………
4)
……………
5)
……………
6)
In
the absence of any form of counter protection for myself, i.e.: Share
options, financial or monetary incentive, and or (currently)
unclear/undefined advancement potential within the Company, clauses
2.4 and 2.4.1 and 2.4.2
[1]
–
is
amended to read 6 (six) months.
………………
Please
sign a counter copy of this document and return at your earliest
convenience.”
[9]
Mr. Fitzpatrick testified that he did meet with the first defendant
around 8 April 2004 at which meeting the first defendant
raised his
concerns about the restraint agreement. The first defendant was
concerned that the agreement would limit him in his
area and he
wanted to impose terms and conditions. Mr. Fitzpatrick, on the
other hand, felt that if he agreed to the first
defendant’s
conditions, it would place him in a predicament as other staff
members had signed the agreement. He said
he agreed to, what he
termed, certain “
soft amendments”
which he put in
writing to the first defendant.
[10]
The letter which Mr. Fitzpatrick wrote to the first defendant about
the “
soft amendments”
was dated 7 May 2004.
However, that was only after the first defendant had written his two
letters to Mr. Fitzpatrick on 13
April 2004, referred to above.
Mr. Fitzpatrick conceded in cross-examination that it was possible
that he had said to the
first defendant at their 8 April 2004 meeting
that he should put his concerns in writing. When he received
the letter containing
the first defendant’s conditions, he
wrote the words “
AS DESCRIBED”
next to the second
paragraph 2 thereof. He said that he wrote the words because
they had discussed this issue at the meeting.
He said in
cross-examination that he didn’t disagree with the first
defendant about this and that he had no problem with
it. He
further wrote the word “
NO”
next to paragraph 6 of
the letter. He said he did that as he would never have agreed
to changing the period of the restraint
to six months as that would
be unfair to the other members of the staff who had agreed to a
period of one year.
[11]
Mr. Fitzpatrick was asked what the reason was for only replying to
the first defendant’s letter on 7 May 2004.
He said that
he thought that he had first referred his letter to the shareholders
for their approval. His letter reads as
follows:
“
Thank
you for your response on the Restraint documentation sent by you to
our office in Johannesburg. As discussed with you
we are not in
a position to change any details of the proposed restraint document.
At our meeting we agreed to waive the
restraint should I resign or
leave the Company or that I become deceased this we have no problem
with however all other conditions
of the restraint document will
apply. Therefore your conditions stated in your covering letter
are not acceptable or is to
form part of the restraint document.
This letter as agreed with you will for
(sic)
the
basis for the agreed change to the document clause pertaining to the
above amendments to your signed original document.
It
would be deemed unfair to favor individuals with a lesser restraint
therefore it will apply to all other employees who are contracted
to
the restraint document.”
[12]
Mr. Fitzpatrick did not receive any response to the letter from the
first respondent. When the first respondent resigned
in March
the following year, the plaintiff was not able to find a suitable
replacement and closed the branch down at the end of
May 2005.
[13]
During cross-examination, Mr. Fitzpatrick said that his views as
expressed in the notes which he made on the first defendant’s
letter of 13 April 2004 were discussed with the first defendant at
their meeting of 8 April 2004. His first communication
with the
first defendant after receipt of the first defendant’s letter
of 13 April 2004 was the letter which he wrote to
the first defendant
on 7 May 2004. He thereafter said that he summoned the first
defendant to a meeting after he received
the first defendant’s
letter, where some of the first defendant’s points were
discussed. Such second meeting
was not mentioned by Mr.
Fitzpatrick in his evidence in chief and was also denied by the first
defendant when he testified.
The letter of 7 May 2004 does also
not refer to a second meeting and rather appears to be a response to
the first defendant’s
written proposals for amendment.
The discussion to which the letter refers is more likely the
discussion of 8 April 2004.
I don’t believe much turns on
whether a second meeting took place or not.
[14]
After completion of Mr. Fitzpatrick’s evidence in chief, Mr.
Arnoldi applied for an amendment of the defendants’
plea which
was not opposed and which was granted. The amendment introduced
an alternative to the defendants’ plea,
to which I have
referred. The amendment was to the effect that the first
defendant’s letters of 13 April 2004 constituted
a
counter-offer which was not accepted by Mr. Fitzpatrick; that by
writing the words “
as described”
and “
no”
on the first defendant’s letter of 13 April 2004 a further
counter-offer to the first defendant was prepared but not
communicated
to him; and that Mr. Fitzpatrick’s letter of 7 may
2004 constituted a further counter-offer in which the first defendant
was advised that his conditions were unacceptable. The
conclusion pleaded is that no confidentiality and restraint agreement
was entered into between the plaintiff and the first defendant.
[15]
The question whether or not an agreement was concluded depends on
whether the first defendant received the letter of 7 May
2004 and
whether he accepted that his conditions had been rejected by the
plaintiff. I must immediately say that
I was not
impressed with the first defendant’s evidence in general.
If one has regard to the position to which he was
appointed and to
the letters which he wrote, he is clearly not unintelligent.
But he could not explain why he had previously
in his plea and in an
affidavit to which he had deposed in an Anton Piller application
which had been brought by the plaintiff
prior to the institution of
the action, admitted that an agreement had been concluded. He
said that he was not legally qualified,
that he did not consider the
restraint as binding because his conditions were not accepted and
that he had thought that his offer
was still open. When asked
why he did not say in his affidavit that he did not consider himself
bound, he said that he was
led by his counsel. It was common
cause between the parties that the letter of 7 May 2004 formed part
of the papers in the
Anton Piller application. I have little
doubt that if it had been the first defendant’s case that he
did not receive
the letter, he would have said so and would therefore
have said that no agreement had been concluded.
[16]
The question whether the first defendant received the letter of 7 May
2004 is a question about which there was much vacillation
by the
first defendant when he testified. In his evidence in chief he
said that he couldn’t remember receiving the
letter but that it
was possible that he did receive it. In cross-examination he
said that he doesn’t remember receiving
the letter and that
there was therefore no finality. When it was later put to him
that when he received the letter saying
that the plaintiff did not
agree to his conditions but that it would waive the restraint if Mr.
Fitzgerald should die, he said
that that is what the letter says.
He did not deny receiving it. It was then put to him that he
must have known after
a month had passed that there had been no
agreement on the restraint. He said that that must have been
his line of thinking.
When it was then put to him that that was
contrary to his earlier evidence that he realised in 2006 that there
was no agreement,
he said that he didn’t recall receiving the
letter and that he thought that his conditions were still open for
acceptance.
This despite the fact that he had resigned in
2005. He was asked why he did not effect an amendment to his
plea for the next
seven years. His answer was that from a cost
perspective he couldn’t afford to. He was later asked
why, when
certain other amendments to the plea were done in 2010, the
plea was not also amended to introduce the latest amendment. He
again resorted to saying that he was led by his counsel. He
couldn’t comment why his counsel did not make such amendment.
[17]
It is clear from the aforegoing that the first defendant was simply
not telling the truth when he said that he did not recall
receiving
the letter of 7 May 2004. He had put his conditions in writing
to Mr. Fitzpatrick and was obviously waiting for
an answer. If
he did not receive an answer, he would have followed it up. In
my view, the probabilities are overwhelming
that he did receive the
letter and that he accepted that, save for his condition about Mr.
Fitzpatrick resigning or passing away,
the plaintiff was not prepared
to agree to his other conditions. That also explains why he had
previously not disputed that
an agreement did exist and why he relied
on the defence that he was not bound by the restraint as the
Pietersburg branch was closed
down. The closing down of the
branch was one of the first defendant’s conditions which was
not accepted by the plaintiff.
That defence can accordingly not
succeed. This was conceded by Mr. Arnoldi.
[18]
I conclude, therefore, that the plaintiff has proved that the first
defendant was bound by the terms of the confidentiality
and restraint
agreement. As mentioned earlier, it was conceded on behalf of
the first defendant that if the first defendant
was bound by those
terms, they were breached by the first defendant and that the only
issue would then be the quantum of the plaintiff’s
damage.
The plaintiff and the defendants reached an agreement regarding the
quantification of the plaintiff’s claim
for damages arising,
according to the heading of the written agreement, out of the first
defendant’s breach of the restraint
and “other unlawful
competition”. Mr. Arnoldi conceded that if any award was made
against the first defendant, that
it be made jointly and severally
against the second and third defendants. In paragraph 1 of the
written agreement, which
was handed in as an exhibit, the parties
agreed as follows:
“
In
the event of the court finding that the restraint of trade bound the
first defendant for a period of 12 months, commencing upon
the
termination of his employment with the plaintiff, then (subject to
argument by the parties) the court ought to award the plaintiff
R543 895.79 in damages arising out of the breach of the
restraint of trade, if the plaintiff is correct in its argument to
be
delivered on the principle of how the damages ought to be calculated
(being that, whenever the transgression is made, one year
of lost
income is added),
alternatively
,
the plaintiff ought to be awarded R221 527.00, if the first
defendant’s argument is accepted as to (the) principle
of how
the damages ought to be calculated (being that the loss is calculated
with the date of the transgression as point of departure,
and taking
it until the last day of the 1 year period.)”
[19]
Paragraph 2 of the agreement on quantum provides alternative figures
in the event of it being found that the restraint bound
the first
defendant only for the period from the date of termination of his
employment until 31 May 2005, being the date on which
the branch was
closed down. In view of the finding that the closure of the branch
was not a condition to which the plaintiff agreed,
this alternative
method of calculation need not be further considered.
[20]
The one year restraint is worded as follows in clause 2.4 of the
agreement:
“
The
Employee shall not, directly or indirectly, for a period of 1 (one)
year after termination of his/her employment agreement with
HIU:-
2.4.1
represent HIU or any of its competitors or render services of a like
nature or which are likely to compete with the service
being rendered
by HIU in the Hospitality Underwriting Business enter into any
transactions with customers or trading partners of
HIU in competition
with HIU, if such transaction falls within the scope of HIU’s
normal business on termination of his/her
employment, without the
prior written consent of HIU, which shall not be unreasonably
withheld.
2.4.2
shall not directly or indirectly for a period of 1 (one) year after
the employee ceases to be employed with HIU solicit, interfere
with
or entice away from HIU any customer or trading partner.”
[21] The evidence of
Ms. Dendleigh Wilensky, the plaintiff’s current executive
director and who has been employed by the plaintiff
since September
2000, was that clients on average maintained their policies for four
to five years. The basis of the agreement
between the parties
in regard to the quantum of the plaintiff’s claim is that, had
it not been for the first defendant’s
breach of the restraint,
the policies sold by the defendants would have been sold by the
plaintiff and that such policies would
not have been cancelled by the
clients in question within the first year of the life of the
policies. That means that the
plaintiff would have received the
benefits from those policies for a period of at least one year.
The principle of how the
plaintiff’s damage ought to be
calculated as contended for by the plaintiff, i.e. that whenever a
transgression occurred,
one year of lost income is added, is
obviously correct. It is not correct, as contended for on
behalf of the defendants that
the loss should be calculated from the
date of a transgression until the end of the one year restraint
period. If a policy
sold by the defendants in breach of the
first defendant’s restraint was, say, six months old at the
date of the expiry of
the restraint, it would leave the defendants
reaping the benefits of such policy for the remaining six months.
I accordingly
find that the quantum of the damages to which the
plaintiff is entitled is the sum of R543 895.79.
Unlawful
competition
[22] Having regard to
the heading of the written agreement between the parties in regard to
quantum, I understood that the agreement
related to the alleged
breach of the restraint by the first defendant and to the alleged
unlawful completion by the defendants.
Adv. Arnoldi was, at
least initially, of the view that it applied to both. Adv.
Bishop, however, submitted that there was
no agreement on the quantum
of the plaintiff’s claim for unlawful competition. It
was, however, contended by Adv. Bishop,
who appeared for the
plaintiff with Adv. Hardy, that it did not matter because
contractually the first defendant was obliged not
to breach his
restraint and, thus, to place the plaintiff in a position in which
the obligation not to breach was fulfilled would
have the same result
as applying the delictual but-for approach. I agree with the
submission. It is therefore not necessary to
separately consider the
quantum of the plaintiff’s claim for unlawful competition.
Copyright
infringement
[23]
The plaintiff claims ownership of copyright in certain portions of
certain documents used by it in the course of its business.
The
evidence of Ms. Wilensky and Mr. Fitzpatrick was that those portions
of the documents were the result of a long process of
amending
documents over the years. The documents had originally come
into existence in about 1998. Some base documents
appear to
have come from Allianz Insurance when it formed a joint venture with
Hanover Re as joint shareholders of the plaintiff
at the time. The
plaintiff’s case is that large portions of those documents,
including the portions which were added,
were copied verbatim by the
plaintiff.
[24]
The documents, if original, qualify as literary works in terms of 2
of the Copyright Act, 98 of 1978 (the Act). Section
3 of the
Act provides that copyright shall be conferred by that section on
every work, eligible for copyright, of which the author
is at the
time the work or a substantial part thereof is made, in the case of
an individual, a South African citizen or is domiciled
or resident in
the Republic. In terms of s 21(1)(d) of the Act, if a work is
made in the course of the author’s employment
by another person
under a contract of service, that other person shall be the owner of
any copyright subsisting in the work by
virtue of s 3 or 4 of the
Act. Section 4 is not relevant for present purposes. In
order for an employer to claim ownership
of copyright in a work
created by an employee during the course of his or her employment,
the employer must therefore prove who
the author of the work was,
that he or she is a South African citizen or is domiciled or resident
in the Republic, and that the
author was employed by the employer at
the time the work was made.
[25]
The allegation in the plaintiff’s particulars of claim is that
the authors of those parts of the documents in which the
plaintiff
claims copyright are Mr. Fitzpatrick, alternatively Mr. Paul Halley,
and that they both are South African citizens.
The evidence of
Mr. Fitzpatrick was that he, Mr. Paul Halley and Mr. Carl Hamel
looked at the existing policy wording and that
they changed the
wording when they saw an opportunity for the plaintiff. He said
that HIU broadened their product as time
progressed. They
broadened the cover for which the policy provided based on the needs
of clients. I understood Mr.
Fitzpatrick to convey that the
amendments were done by the three of them jointly, i.e. that they
were co-authors. He did
not testify that any specific
amendments were done by him alone or by any of the other two
gentlemen acting alone. He testified
that he was the
plaintiff’s managing director and that he was employed by the
plaintiff from June 1998 until January 2007.
He did not say
whether Mr. Halley or Mr. Hamel were employed by the plaintiff.
Ms. Wilensky, who joined the plaintiff in
September 2000, testified
that the amendments were done by Mr. Fitzpatrick and Mr. Halley.
She, of course, had no knowledge
of what occurred before she joined
the plaintiff. She said that Mr. Halley was a director of the
plaintiff. That does,
of course, not mean that he was employed
by the plaintiff. No evidence was presented that either Mr.
Halley or Mr. Hamel
were South African citizens or that they were
domiciled or resident in the Republic.
[26] It follows that
the plaintiff failed to prove that the authors were all employed by
the plaintiff when the amendments were
made and that they were all
South African citizens or domiciled or resident in the Republic at
the relevant time. The plaintiff
is accordingly not entitled to any
relief in respect of the alleged copyright infringement.
Costs
[27]
In addition to the costs of the action, the plaintiff applies for the
costs of the Anton Piller application brought by it against
the
defendants, which costs were reserved. The defendants formally
admitted that the documents contained in exhibits A1 and A2,
bearing
the stamp of the sheriff, were found by the sheriff in hard copy form
during the execution of the order. Many of
the documents were
referred to in evidence during the trial. During argument, Mr.
Arnoldi agreed that the costs of the Anton
Piller application should
follow the result.
[28] In the result, the
first, second and third defendants are ordered, jointly and
severally, to pay to the plaintiff, the one
paying the other to be
absolved:
(i)
the
sum of R543 895,79 together with interest thereon at the rate of
15,5% per annum from 8 May 2006 to date of payment;
(ii)
the
plaintiff’s costs of the action, including the costs of the
Anton Piller application which were reserved on 6 December
2005 and
14 March 2006, and the costs of two counsel where two counsel were
employed.
Counsel for plaintiff:
Adv.A. Bishop, Adv. G. Hardy
Instructed
by: Dewey Hertzberg Levy Inc, Sandton
Counsel for 1
st
,
2
nd
and 3
rd
defendants: Adv. A.F. Arnoldi SC
Instructed
by: Coetzer & Partners, Pretoria
[1]
These are the clauses which
provide that the first defendant shall not compete with the
plaintiff for a period of one year after
termination of his
employment.