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[2015] ZAGPPHC 715
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Hospitaliy Industrial and Commercial Underwriting Managers (Pty) Ltd v Dietrich and Others (38625/05) [2015] ZAGPPHC 715 (25 May 2015)
REPU
B
LIC
OF
SOUTH
AFRICA
IN
TH
E
GAUTE
NG
DIVISION
OF
TH
E
HIG
H
COU
RT, PRETORIA
CASE
NO: 38625/05
DATE
HEARD: 02/03 – 05/03/2015
DATE
OF JUDGMENT: 25/5/15
In
the matter between:
HOSPITALITY
IN
DUSTRIAL AN
D COM
M
ERCIAL
U
N
DERWRITING
M
A
NAG
ERS
(
PTY)
LTD
Plaintiff
and
LEON
IAN DI ETRICH
First
Defendant
AN
NAA
BARBARA
DI
ETRICH
Second Defendant
FIRST
ON
INVESTM ENTS
CC
Third
Defendant
SU
REN
ET (
PTY)
LTD
Fourth
Defendant
SUREN
ET G
ROU
P (
PTY)
LTD
Fifth
Defendant
J
U
DG
M
ENT
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]
IIt 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
HIV
(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 HIV.
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 HIV 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
DESCRI
BED"
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]
Iconclude, 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 HIV, 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 yea r 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.
Unla
wful 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 Al 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 respondents 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°/o per annum from 8 May
2006 to date of payment;
(ii)
the plaintiff's costs of the application, 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 LevyInc, Sandton
Counsel
for 1st, 2nd and 3rd 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.