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2015
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[2015] ZAECELLC 9
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Strata Insurance Brookers CC v Goosen (EL 1361/14, ECD 2961/14) [2015] ZAECELLC 9 (30 June 2015)
IN
THE HIGH COURT OF SOUTH AFRICA
EASTERN
CAPE CIRCUIT LOCAL DIVISION, EAST LONDON
CASE
NO: EL 1361/14
ECD
2961/14
DATE:
30 JUNE 2015
In
the matter between
STRATA
INSURANCE BROKERS
CC
.................................................................................
Applicant
And
LEONORA
GOOSEN
...........................................................................................................
Respondent
JUDGMENT
HARTLE
J
1.
A rule
nisi
operates in favour of the applicant pending this judgment restraining
the respondent from:
1.1
utilising for her own benefit or the
benefit of any other person or business and not to disclose to any
third party any of the applicant’s
confidential information;
and
1.2
“
soliciting
business from the applicant’s clients contained in the short
term insurance book sold by Motorsure CC to the applicant
on 29
September 2011” (sic).
[1]
2.
The applicant, which operates a short term
insurance brokerage, purchased the entire book of clients of
Motorsure CC as “an
income earning activity” - including
the commission earned from such clients, as a going concern on 29
September 2011. The
purchase consideration paid for it was R1.1
million.
3.
At the time of the sale the registered
owner of the members’ interest in the close corporation was the
respondent’s
mother. The applicant alleges that the
respondent however held out to it at the time that she was the
de
facto
owner of the members’
interest in Motorsure CC and in fact conducted the negotiations on
behalf of the close corporation
which culminated in the agreement of
sale. She was the “central personality” within the
close corporation, so
it was alleged, and was also responsible for
servicing the clients who made up the short term insurance book which
the applicant
purchased from the close corporation during the course
of her employment with the applicant. The significance of these facts
is
that they seemingly underpin the fiduciary duty allegedly owed by
the respondent to the applicant in the peculiar circumstances
of the
matter to preserve the confidence of the confidential information
sought to be protected herein from use or disclosure.
4.
In the sale agreement the respondent and
Motorsure CC bound themselves to a restraint of trade agreement which
was to be signed
contemporaneously with the sale. The
respondent was to be employed by the applicant as a senior short term
insurance broker
in accordance with certain terms which were outlined
in a letter of appointment which predated the sale agreement. It was
further
agreed that she was to become a 10% member’s interest
owner of the close corporation in accordance with the terms contained
in her letter of appointment.
5.
Pursuant thereto, and as was agreed between
the parties, the respondent was employed by the applicant. The
applicant paid the purchase
price, but a sum of R200 000.00 was
deducted in lieu of the respondent’s acquisition of the 10%
member’s interest in
the close corporation.
6.
The respondent’s letter of
appointment was signed on 1 September 2011. One of the conditions of
her employment related to
confidentiality which she evidently
subscribed to.This condition is expressed in the following terms:
“
You
are required not to use for your own benefit or for the benefit of
any other person or business and not to disclose to any third
party
during the operation of this agreement or after its termination,
except in the ordinary and proper course of the Employer
business,
any confidential information but not limited to information regarding
the trade secrets, customer lists, business affairs,
supplier list,
technical methods and processes of the Employer.”
7.
Faithful to the obligation personally
undertaken by the respondent in the sale agreement, she signed a
restraint of trade agreement
together with her mother in favour of
the applicant in which she undertook that she would not:
“
....during
any part of the restraint period and thereafter, to the extent that
same are protected by law, disclose any trade secrets
and/or
confidential information of the business other than to persons
connected with the business and who are required to know
such secrets
or to have such confidential information. Trade secrets and
confidential information shall include (but not
be limited to) all
and whatever information relating to the business and their suppliers
and customers which is not readily available
in the ordinary course
of business to their competitors.”
8.
Also relevant is the respondent’s
obligation undertaken to the applicant not to trade in competition
with it for the period
of her restraint, expressed in the following
terms, namely that she would not:
“
....be
interested or engaged in any capacity whatsoever, including, but
without prejudice to the generality of the aforegoing, as
trustee,
proprietor, shareholder, member, manager, director, adviser,
consultant, partner, employee, financier or agent in or for
any
person which is directly engaged, interested or concerned in a
competitive activity in the territory.”
9.
“
Competitive activity” was
defined in the restraint agreement to mean:
“
any
sales or marketing activity in relation to the business’ client
base and/or client/s of the business during the restraint
period and
specifically precludes any signatory hereto of earning any income,
making contact or in any way attempting to take any
business and/or
income away from the business whether for personal benefit or for the
benefit of a third party in relation to such
clients.”
10.
Shortly thereafter the respondent advised
the applicant that she intended to relocate to Port Elizabeth for
personal reasons and
resigned from her employment with the applicant.
As a result the intended transfer of the 10% member’s interest
in the applicant
to the respondent was jettisoned. In a bid to
regulate the respondent’s exit from the applicant the
respondent on 13 August
2012 signed a further restraint of trade
agreement containing an undertaking in terms identical to the first
agreement, the seminal
clause of which is outlined in paragraph 8
above. Both restraints were operative in effect from 1 October 2012
to 30 September
2014.
11.
The departure agreement defined clients as
“all clients linked to Motorsure CC when (the applicant)
purchased the Motorsure
CC client base/book and who are registered as
short term insurance clients of Motorsure CC with any short term
insurer at the time
(the applicant) purchased the book and any
clients (the respondent) acquired for (the applicant) whilst an
employee of (the applicant)”.
12.
The respondent was required to advise the
clients of her intended departure and to facilitate the taking over
by her substitute
of these clients for whom she had been responsible.
13.
The
applicant co-incidentally attached to its founding affidavit as an
annexure to the initial sale agreement (Annexure JE 2) a
list of
clients. It was not identified in any way as a seminal client list
[2]
neither was it alleged that it was to be construed as the
“confidential information” it sought to protect the
respondent
from using or disclosing. The list, which contains the
header “Old Motorsure Clients,” tables in alphabetical
order
the name of each client and ostensibly with which insurer that
client’s business had been placed at the time. Email
or
postal addresses of each client, and in limited instances phone
numbers, are also detailed - some annotated in long hand.
Dates
are also tabulated opposite each client’s name which I assume
–since they pre-date the sale agreement, denote
when the
respective clients came onto Motorsure CC’s book. In all
respects the attachment appears to simply be a record of
which
clients comprised the book at the time of the sale.
14.
The applicant alleged that since working
for a competitor of it, T & M Broker Services - after the expiry
of the restraint of
trade during October 2014, the respondent
actively started contacting the applicant’s clientele. In
substantiation
of this allegation it referred to the fact that three
of its clients which were acquired by it from Motorsure CC and with
whom
the respondent had dealt during the term of her employment with
the applicant had moved their business to the competitor.
The
applicant alleged that it is “plain” from this that the
respondent is utilizing confidential information to solicit
business
for her employer and for her own benefit. That this purported
wrongful interference (i.e. that the respondent was using
its
confidential information) is based on nothing more than surmise is
confirmed by an allegation by the applicant elsewhere in
the founding
affidavit that the respondent is “no doubt” disclosing
its secrets and confidential information to her
employer and in turn
benefiting herself.
15.
The applicant avers as the basis for the
interdict sought that the respondent’s conduct in soliciting
clients of the applicant
to which “she is privy” and
which particularly is the proprietary property of the applicant is
not what is acceptable
as fair and honest competition. It pleads that
the respondent has both a common law and a fiduciary duty (arising
from the peculiar
circumstances of her involvement with the applicant
referred to above) not to use or disclose its confidential
information. She
also bound herself contractually not to do what she
is now doing on no more than three occasions and is in breach
of these
undertakings which co-incidentally survive her contract of
employment with the applicant as well as the expiry of the restraint
of trade agreements. The applicant pleads that the respondent “is
not entitled to compete with (it) in breach of all that
she undertook
not to do.”
16.
The applicant marks the respondent as a
threat especially on the basis that she is “intent upon action
with the intention
of soliciting away from (the applicant) its
clients which she has done and can do since she has knowledge of all
(the applicant’s)
client lists and particularly relating to
these clients” and that she is aware of what insurance cover
these clients have
in place and what may be earned from their
patronage as clients. It adds, without providing any substantiation
for the averment,
that its client list is “by its nature secret
and confidential” and that it has a substantial economic value.
17.
Seemingly however the real sting of the
matter (and this is a complaint that is emphasised throughout the
applicant’s papers
and more especially in its replying
affidavit) is that she is purportedly infringing its right to
goodwill for which, in no small
part, it paid a substantial sum and
also employed her and made her a member of the applicant.
18.
In addition the applicant claimed that the
respondent had made herself guilty of acting dishonestly even while
still in its employ,
flagrantly in breach of all her contractual
duties owed to it as her then employer, in breach of her fiduciary
duty then owed to
it as a member of the applicant and also in breach
of the restraint of trade agreements (while they were still in
operation) for
various reasons which it outlined in its founding
affidavit. The respondent has vociferously denied these assertions
but is unnecessary
in my view to resolve these disputes of fact since
the allegations – included no doubt to give atmosphere to the
application
and to present the respondent as an unscrupulous person
and or competitor, do not in my view bear on the limited issues which
are
required to be determined in this matter.
19.
The respondent makes no secret of the fact
that since the expiry of her restraint she has contacted some of the
applicant’s
clientele who happen to be among the list of
clients which made up the book purchased by it from Motorsure CC. She
denies that
she utilised the applicant’s confidential
information in order to do so, as appears to have been assumed by the
applicant,
but claims to have procured the details of these persons
using the telephone directory. She submits that it is not
unlawful
for her to solicit the applicant’s clients even if
they are among those listed as part of the client book sold by
Motorsure
CC to the applicant since she is no longer subject to
the restraint of trade. It is her contention that the applicant
is unfairly seeking to interdict her in perpetuity from contacting
its clientele, in the process masquerading her undertaking to
maintain confidentiality as a basis to justify an additional and
prolonged restraint of trade. The sentiment however is that
she
has already honoured her restraint undertaking for the relevant
period and ought now to be allowed to continue practising her
trade
without impediments even if it is unfortunately in competition with
the applicant. Indeed, so she asserts, she must
be allowed to
fairly and honestly compete with the applicant for its clientele.
20.
Also submitted on the respondent’s
behalf is that the applicant has misconstrued or conflated the notion
of clientele itself
(in the sense of “goodwill”) with the
separate concept of confidential information, simply assuming without
laying
any basis for it that the clientele itself must be construed
as confidential information and therefore protected from
solicitation.
The respondent submits that the applicant has no
proprietary claim to the clientele itself, only to confidential
information insofar
as it establishes that it has such a protectable
interest in all the circumstances of the matter.
21.
After the issue of the present application,
the respondent in her answering affidavit, despite denying that she
had utilised or
disclosed confidential information belonging to the
applicant in order to solicit its clients, gave an undertaking in the
following
terms:
“
I
nevertheless undertake, for the sake of displaying my good faith,
that I shall not utilise and/or disclose for my own benefit,
or the
benefit of others, any confidential information which I may have had
access to during my tenure at the applicant and/or
Motorsure CC.
While not conceding that it necessarily constitutes confidential
information, it will nevertheless include
(inter alia) the client
list annexed to the founding papers, marked Annexure “JE 2”.”
22.
It is to be noted that this undertaking in
effect accords with the relief contained in paragraph 2.1 of the
applicant’s notice
of motion. The applicant submits
therefore that the rule
nisi
should to this extent be confirmed since it amounts to a concession
as it were that the applicant was and is justified in approaching
the
court on an urgent basis for the relief which it seeks now in final
terms. The respondent contends on the other hand
that a general
undertaking to refrain from doing something which is unlawful does
not amount to a concession that she has engaged
in the alleged
unlawful conduct per se, neither does it entitle the applicant to a
blanket interdict in this regard without establishing
the necessary
requirements for the grant of the interdict. Indeed - so it was
submitted on the respondent’s behalf, the evidence
fails to
establish either a clear right or an injury actually committed or
reasonably apprehended and the respondent’s undertaking
does
not co-incidentally remedy this shortcoming. The respondent submitted
further that the third requirement for the grant of
the interdict has
not and cannot be established because the applicant says (albeit
somewhat ambivalently) that it can prove a damages
claim and hence it
has a satisfactory alternative remedy open to it, but by virtue of
the position I take in the matter it is unnecessary
to decide whether
an interdict should be refused for want of the third requisite.
23.
The narrow issues to be determined are
whether the applicant has established that it has/had a proprietary
interest worthy of protection
in the form of confidential information
and whether the respondent appropriated or made improper use thereof
in order to
or in the process of soliciting the applicant’s
clientele.
24.
These
issues must be resolved by applying the test enunciated in
Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd
[3]
namely that the interdict sought can be granted only if the facts as
stated by the respondent, together with the admitted facts
in the
applicant’s affidavit, justify the grant thereof.
25.
Before proceeding to examine these
questions, I mention that despite the separate prayers referred to in
paragraph 2 of the notice
of motion, the applicant has not in my view
indicated clearly where its cause (or cases) of action was (or were)
intended to be
directed, the various allegations stated in the
founding affidavit as a basis for the relief sought being somewhat
all over the
place. From the context of the founding affidavit the
second sub paragraph is allied to the first and appears to be relief
flowing
from it. In other words it does not appear to be a self
standing second complaint of unlawful competition under a different
category than the misuse of confidential information based on delict.
Despite the manner in which the applicant pleaded its case,
Mr De la
Harpe, who appeared for the applicant, disavowed the suggestion by Mr
Steenkamp, who appeared for the respondent, that
the applicant had
confused the two prayers and was mistakenly of the view that they
were synonymous of each other. On the
contrary Mr De la Harpe
maintained that the prayers were different and that an order
specifically interdicting the respondent from
soliciting the
applicant’s clientele was not one which flowed from the first.
The arguments made on behalf of the applicant
in this respect (both
in heads of argument and orally) do not however necessarily line up
with the case as pleaded by it. I therefore
proceed on the basis that
the mischief sought to be interdicted is strictly the alleged misuse
of confidential information and
that the solicitation of clientele by
the respondent - according to the applicant by the respondent
accessing or using its confidential
information, is or was simply a
manifestation of that supposed unlawful conduct.
26.
It
was, for example, contended in heads of argument filed on behalf of
the applicant that the respondent had acted contrary to public
policy
by “sell(ing) a client list, for significant financial benefit,
and then seek(ing) to derive a second benefit by actually
using
confidential information as to the identities and needs of the
clients on that list to solicit business for another,”
and that
to allow that to go unchecked would be tantamount to “sanctioning
(the respondent) obtaining a benefit from the
client list she sold
twice.” Reliance was also placed on the judgment of A Becker
and Co v Becker and Others
[4]
seemingly as authority for the proposition that an implied term not
to solicit a purchaser’s business which the seller sells
to it
can be enforced against the seller. The undercurrent is that –
despite the allegation that the goodwill in this
instance was sold to
the applicant by Motorsure CC itself (as opposed to the respondent)
such an implied term falls to be enforced
against the respondent as
if she were the actual seller, seemingly in perpetuity. In my opinion
however such a clear self standing
act of unlawful competition is not
made out in the papers.
27.
Competitive
trading is unlawful when it involves a wrongful interference with
another trader’s rights and is actionable under
the
Lex
Aquilia
if it results in loss.
[5]
28.
It
is trite that a person may freely exercise his or her trade,
profession or calling in competition with his or her rival, subject
to the restriction that the competition remains within lawful
bounds. If it is carried on unlawfully, in the sense that it
involves a wrongful interference with another’s right as a
trader, such conduct will constitute an
injuria
for which the Aquilian action lies if it has directly resulted in
loss.
[6]
29.
Our
courts in considering whether or not competition is lawful have
placed emphasis on criteria such as fairness and honesty having
regard to the boni mores and general sense of justice in the
community.
[7]
Questions of
public policy, such as the significance of a free market and of
competition may also be important in a particular
case.
[8]
30.
There
is no
numerous
clausus
of acts that constitute unlawful competition but certain categories
of clearly recognized illegality have evolved, among which
is
included the misuse of confidential information in order to advance
one’s business interests and activities at the expense
of a
competitor’s. Confidential information may be protected by
means of an interdict and a claim for damages.
[9]
31.
Evident
from the following extract referred to in Waste Products Utilization
(Pty) Ltd v Wilkes and Another
[10]
are the essentials that a plaintiff is required to prove in order to
succeed in a claim (and by analogy to obtain an interdict)
to protect
confidential information:
“
The
plaintiff must have an interest in the confidential information,
which need not necessarily be ownership. The information must
be of a
confidential nature. There must exist a relationship between the
parties which imposes a duty on the defendant to preserve
the
confidence of information imparted to him, which could be the
relationship between the employer and employee, or the fact that
he
is a trade rival who has obtained information in an improper manner.
The defendant must have knowingly appropriated the confidential
information. The defendant must have made improper use of that
information, whether as a springboard or otherwise, to obtain an
unfair advantage for himself. Finally, the plaintiff must have
suffered damage as a result.”
32.
It is not in dispute that the respondent as
a former employee of the applicant is under a general duty to the
applicant not to take
or use for the benefit of herself or an
employer any of its confidential information, such as it exists.
It is for this reason
that she ostensibly had no qualms in giving the
undertaking which she did outlined in paragraph 20 above based on the
relevant
agreements signed by her, except it was emphasised on her
behalf that the undertaking given to generally maintain
confidentiality
survive the expiry of the restraint agreements
thereafter only “to the extent that same are protected by law.”
In any
event, the potential interpretation that the undertaking given
in the restraint of trade agreements, insofar as they relate to
preserving confidential information (seemingly in perpetuity)
is not relevant for present purposes as the applicant’s
claim
is founded on the Aquilian action of unlawful competition rather than
on contract.
33.
Turning now to the other essentials, the
applicant fails to spell out in the founding affidavit what exactly
the confidential information
is which is the subject matter of the
interdict sought. On the contrary the Applicant sweeps widely with a
prayer which seeks to
interdict and restrain her from using or
disclosing “any” of the applicant’s confidential
information. Assuming
generously the contentious confidential
information referred to in its founding affidavit to be its customer
list, it also fails
to state what it is about such list (whether
tangible or just its store of information regarding the identity and
particularity
of its client base) gives it the necessary quality of
confidentiality.
34.
There
is no limit to the number of potential categories of information
which may meet the criteria for protection as “confidential”
under our law either in delict or in contract,
[11]
but in order to qualify as such, the information concerned is
required to meet certain requirements. Firstly, it must involve and
be capable of application in the particular trade or industry, in
other words it must be useful. Secondly, it must not (objectively
determined) be public knowledge or public property. In other
words in must be known to a restricted number of people only;
and,
thirdly, the information (objectively determined) must be of economic
value to the person seeking to protect it.
[12]
35.
Client
lists have been held by our courts to be worthy of protection and -
so it appears, need not necessarily be embodied in a
document to be
construed as confidential information. It was submitted on behalf of
the respondent, for example, that it had to
be established by the
applicant as a
sine
qua non
that she was indeed in possession of confidential information,
supposedly as a tangible object. Stated with approval in Van
Castricum
v Theunissen and Another
[13]
in this regard however is the
dictum
in Printers and Furnishers Ltd v Holloway
[14]
to the following effect:
“
The
mere fact that the confidential information is not embodied in a
document but is carried away by the employee in his head is
not, of
course, of itself a reason against the granting of an injunction to
prevent its use or disclosure by him. If the information
in question
can fairly be regarded as a separate part of the employee's stock of
knowledge which a man of ordinary and honest intelligence
would
recognise to be the property of his own employer, and not his own to
do as he likes with, then the Court, if it thinks
that there is
danger of the information being used or disclosed by the ex-employee
to the detriment of the old employer, will do
what it can to prevent
that result by granting an injunction. Thus an ex-employee will be
restrained from using or disclosing a
chemical formula or a list of
customers which he has committed to memory.”
36.
The
approach adopted by courts regarding the manner and protection of a
repository of client information (their details and particularity)
was expressed as follows in Telefund Raisers CC v Others and
Others
[15]
and is useful to
have regard to if only to demonstrate the shortcoming in the
applicant’s papers in setting out clearly the
right sought to
be established:
“
...
there
can be no doubt that the applicant has at all material times regarded
what is recorded in its customer lists as confidential,
and has
believed it to be so. In my view, that belief was not an unreasonable
one in the circumstances. The release of the contents
of the lists to
a trade rival such as the fourth respondent would, in the applicant's
belief, be injurious to the applicant
and advantageous to the rival.
That belief, too, is, to my mind, reasonable. The customer lists took
time and effort to compile.
They contain the names and telephone
numbers of a large number of persons and business entities who, over
a period, have done business with
the applicant, all or most of
whom are also potential future customers: in fact, it is not unlikely
that many of them, in the future,
will place further orders for
baskets with the applicant. However, be that as it may, it is
undeniable that the persons and businesses
whose names appear on the
customer lists constitute a substantial and promising potential
market for this type of goods. Mr
Gamble
has argued, as was argued in
Van
Castricum's
case
supra
,
that the telephone numbers of the applicant's customers can easily be
ascertained from a telephone directory, and
that is no
doubt true. However, as was said by Roos J in that case, that
statement is correct only 'provided . . . you know who
the clients
are' (at 734C). The identity of the applicant's existing actual
customers and likely future customers is something
known only to the
applicant and its employees: that information is commercially
valuable to the applicant, and would be equally
commercially valuable
to a competitor. Its disclosure to such a competitor could normally
be expected to be deleterious of the
applicant's interests
and beneficial to those of the competitor. The competitor would
be saved by such disclosure from having
to spend time, money and
effort searching for and finding potential customers: it would be
furnished with what has been called
a 'springboard' from which to
launch and market its products. It would have a list of identified
potential customers. It could
canvass the applicant's customers
knowing that they were the applicant's customers, and attempt to
persuade them to deal with
it rather than with the applicant. If
it succeeded, it would benefit thereby, and the applicant would
suffer.”
37.
Evidently in the present instance the
applicant is not relying on a tangible client list such as in the
Telefund Razors matter,
or to the attachment to Annexure “JE2”
to its founding affidavit per se. The confidential information it
hopes to protect
one must surmise is further not limited to that list
but also includes any other clients additional to the book purchased
by the
applicant from Motorsure CC whom the respondent serviced
during her employment with the applicant, the identity and details of
whom she would have been privy to between the date of the sale and
her resignation from the applicant’s employment.
38.
The applicant contents itself with the
submission that the information which it seeks to protect in this
instance is confidential
as demonstrated by the fact that the
applicant at all times regarded its customer list as confidential and
stipulated as much in
each of the three confidentiality clauses to
which the respondent agreed to be bound. That may well be true
but the applicant
avoids identifying the information with any
clarity. The result of this is that it cannot be said
that the respondent
has knowledge of the confidentiality of the
information (alleged to have been improperly used or disclosed) or
its value, an essential
which the applicant is also required to
establish. For example, on what basis does it follow that the
respondent’s undertaking
to maintain confidentiality in general
terms somehow equates to an undertaking at the same time not to
solicit clients of
the applicant.
39.
The applicant submits further that the
information contained in the list cannot be said to be freely
available in the public domain
as only its employees, members and the
respondent would have been aware of the names contained on the list
purchased by the applicant.
By this submission the applicant
narrows the confidential information to the tangible list yet fails
to establish that the respondent
is “in possession” of
the list and benefiting from using any of the particulars on it to
benefit herself or another.
Conversely, the applicant fails to aver
that the list (if it is the attachment to Annexure “JE 2”)
was secret in relation
to the sale or that the respondent was not
entitled to keep a copy of it (assuming she kept a copy, which she
denies). Concerning
the applicant’s submission that the
information is relevant to the industry within which the applicant
conducts its business
it simply does not say why that is so.
The list was simply an attachment to the sale agreement, nothing more
and nothing
less. The contention that the information self
evidently has value to the applicant or it would not have paid for it
belies
that the applicants cause of action is one for the misuse of
confidential information. In reality the gripe is that the goodwill
was sold for a price and it now appears unfair that the respondent
should have the gall to compete with it by marketing to the
very
clients whose business came with the insurance book. The fact
of the matter is that the proprietary interest for a claim
for the
misuse of confidential information resides in the information itself
and not the relationships with the customers. As Mr
Steenkamp
correctly pointed out, customers cannot be owned and are all fair
game so to speak. In my view clients with insurance
needs retain the
freedom of choice especially in the industry to place insurance with
whoever they choose using brokers if they
prefer or dealing directly
with insurers.
40.
In the result the applicant has failed to
establish the first requirement for a final interdict, namely a clear
right on its part.
41.
Concerning the second requirement for the
grant of a final interdict, the only basis on which the applicant
suggests there has been
an unlawful interference with its
confidential information (and its apprehension going forward) is its
assumption that because
three of its clients have moved their
business to the competitor after the respondent solicited them it
must follow as surely as
day follows night that the respondent used
or exploited its confidential information in order to solicit these
clients.
It has made absolutely no allegation concerning
how the respondent supposedly made improper use of a tangible
customer list (or
her privileged knowledge of who its customers are
and what their details are) so as to obtain an unfair advantage, or
even alluded
to an unfair advantage actually achieved by her.
On the contrary the transcripts of discussions held with the clients
alleged
to have been touted by the respondent do not give any
impression that she had any advantage over the applicant which she
exploited
unfairly. Evidently the respondent won their custom fair
and square by adopting superior marketing methods which it cannot be
speculated
amounted to a misuse of (undefined) confidential
information.
42.
The respondent denied that she used or
exploited the applicant’s confidential information to solicit
the contentious clients.
She says that she got their contact
details from the telephone directory and does not keep or utilise a
list. It was submitted
on behalf of the applicant that it is unlikely
that the respondent would know who to look up in the directory unless
she knows
the potential client independently of its client list or
the confidential information which it claims she would have been
privy
to.
43.
While
it may be so that the respondent knows which of the applicants
clients are (or once were) in the market for insurance because
she
garnered this information during her employment with the applicant or
because she once serviced them as clients of Motorsure
CC, it cannot
in my view be fair to expect her to refrain from seeking their custom
in perpetuity simply because she once confidentially
knew them to be
clients and undertook to maintain confidentiality regarding the fact
of that relationship and their personal information
or details. It is
one thing to expect her to respect confidentiality which she is
evidently prepared to do (and which she doesn’t
breach per se
by the mere act of soliciting that person as a client), but it is
quite another to limit her freedom of trade under
the guise of
maintaining such confidentiality. It is trite that a former employee
is entitled to freely utilise recollected confidential
information
reduced to memory. It was held in Meter Systems Holdings Ltd v
Venter
[16]
that:
“
The
legal protection afforded to this type of confidential information is
limited by the fact that the law, whilst prohibiting
an employee
from taking his employer's customer list, or deliberately committing
its contents to memory, nevertheless recognises
that, on termination
of an employee's employment, some knowledge of his former employer's
customers will inevitably remain in the
employee's memory; and it
leaves the employee free to use and
disclose such recollected knowledge,
in his own interests, or in the interests of anyone else, including a
new employer who competes
with the old one:
Freight
Bureau (Pty) Ltd v Kruger and Another
1979
(4) SA 337
(W) at 341E-F;
Roberts v
Elwells Engineers Ltd
[1972] 2 All ER
890
(CA) at 894
f
-
h
.”
44.
A distinction must therefore be drawn
between the use of an employer’s confidential information on
the one hand (which he
is not allowed to disclose if bound by a
restraint) and the use of his own skill, knowledge or experience
which he cannot be restrained
from using. It is not improbable
that he will learn the names of clients he deals with and retain an
independent memory of
these. Unless there is a restraint of
trade agreement in place it would not be appropriate in law to
restrain him from competing
with his erstwhile employer in the same
industry by using the knowledge which he has naturally so acquired.
Of course it
is a different matter if he copies a client list with
the intention to use the details contained therein to compete with
his erstwhile
employer because that would be dishonest and clearly
amount to an appropriation of the latter’s confidential
information.
But it never was the applicant’s case in the
present matter that the respondent in fact appropriated a tangible
list and
has used or disclosed that confidential information to her
new employer or misused it for her benefit. The respondent disavows
that she accessed any of the applicant’s information on the
client list and has in fact undertaken to destroy the list which
is
the attachment to annexure “JE 2”.
45.
It is in my view entirely in line with the
probabilities (and therefore not a far-fetched or untenable
proposition to be rejected
out of hand) that the respondent has
retained a personal memory of persons in the market for insurance who
she once did business
with under the auspices of Motorsure CC or the
applicant’s business and that she independently sourced the
details of the
applicant’s clients which she solicited from a
telephone directory in order to make contact with them. From the
applicant’s
own admission it is evident that the respondent was
the central personality within the business so it is not surprising
that she
would be able to call up in her memory the names of clients
who are in the market for insurance. Certainly it appears to be part
of her arsenal to know who is in the market for insurance and to
follow through on these opportunities. This is her particular
skill which no doubt made her an attractive proposition to be
employed by the applicant. Since she is no longer bound by any
restraint
of trade, there is nothing unlawful or unfair in her
competing with the applicant for its clientele. Indeed it was exactly
this
competitive activity which the applicant envisaged would be
undertaken by the respondent when it came to its attention that she
intended to end her employment with it and which caused it to prevail
upon her at the time to bind herself to a restraint of trade
for a
period which was regarded by all concerned at the time to be
reasonable.
46.
I
am inclined to agree with the submission made on behalf of the
respondent that what the respondent sought to do in the present
matter is to hold the respondent to an ill defined and general
confidentiality agreement which it co-incidentally latched on to
once
the restraint of trade agreement had run its course under the guise
that this undertaking behoves her not to solicit its clients.
It is a stretch of the imagination that touting for these clients,
which competitive activity is to be expected under all the
circumstances and which is not unlawful, automatically equates to a
breach of her confidentiality provisions. The absurdity
of this
proposition is that the applicant may achieve by this stratagem an
interdict in perpetuity against lawful competition under
the guise of
an undertaking to maintain confidentiality which (certainly in
respect of the respondent’s employment agreement)
is not
constrained by time. I am comforted by the fact in this regard
our courts have, in tempering threats of unlawful competition
in
situations similar to this where an employee has been privy to
confidential information and thereafter seeks to apply what he
has
learnt and knows concerning the business for his own benefit –
more particularly soliciting clients, limited the time
period of
interdicts granted in such situations in order to balance competing
interests
[17]
. On the
one hand “fair protection” has been provided to employers
to ameliorate the “unfair and unlawful
advantage” of the
erstwhile employee who is enriched so to speak by knowledge of its
confidential information, but limited
to reasonable periods in which
the unfair advantage may reasonably be expected to continue in
recognition too of the employee’s
right to earn a living from
his acquired knowledge in any other business including a competitor.
In this regard the respondent
has abided the restraint imposed on her
for a period of two years which strikes me as fair in all the
circumstances.
47.
In the result the applicant has failed to
establish the second requisite for the grant of a final interdict.
Further, notwithstanding
the undertaking given the respondent in
paragraph 20 above, neither does the evidence establish an injury
actually committed or
reasonably apprehended that the responded has
misused any of its confidential information. The fact that the
respondent was prepared
to give the undertaking (which obviously
still stands) does not automatically entitle the applicant to an
order in this regard,
nor is the court obliged to make the
undertaking an order of court merely for the sake of it.
48.
The applicant appears to be of the view
that since directions were issued by a judge of this court permitting
it to enrol the matter
for hearing on the basis of urgency, that it
passed that hurdle and had no obligation to account for the manner in
which it had
launched the application and prejudiced the respondent
by short service thereof and what the respondent referred to as the
“unrealistic
time table” foist on her in circumstances
where the applicant had known of the alleged unlawful conduct on her
part since
7 October 2014 already. The applicant had further denied
her a reasonable request for a short postponement in order to afford
her
an opportunity to deliver an answering affidavit and, as it
transpired, took the interim order which it did on 11 November 2014
in her absence.
49.
A
direction issued pursuant to the provisions of paragraph 12 (a) (i)
of the Joint Rules of Practice of this division does not necessarily
mean that the judge has exhaustively considered the issue of
urgency. This is because his or her decision is based solely
on
the certificate of urgency without a perusal of the application
papers and is meant to be a rough and ready determination.
However, the objective of Rule 6(12)(c) is to permit a party
aggrieved by the issue of an order granted in his absence in an
urgent
application to have it reconsidered, including even the
question of urgency. (See in this regard the approach adopted in
Caledon
Street Restuarants C v D’Aviera
[18]
where, although not presented as a “reconsideration”
per
se
,
the respondent in that matter also argued as a defence that the
applicant was not entitled to have brought the application as
one of
urgency. The court found that although the matter was ripe for
hearing, the manner in which the applicant had breached
the rules to
secure a swift hearing of the matter in the first place could not at
the hearing stage, even though the question of
urgency had seemingly
become moot, conveniently be swept under the carpet. As a mark of its
disapproval of the unnecessary invocation
of the provisions of Rule
6(12), it dismissed the application without regard even to the merits
of the matter and ordered the applicant
to pay the costs).
50.
In an instance such as the present where
the applicant never had a protectable interest to begin with, and
where the urgency was
ostensibly self created, it appears to be
proper to award costs against the applicant on a punitive scale. A
further basis for
such an order is the negative effect to the
respondent of the interim interdict which has remained in place since
the rule was
first obtained on the basis of hype rather than
substance. The fact that the respondent gave the undertaking which
she did referred
to in paragraph 20 above does not change the
position because a similar undertaking was given on her behalf to the
applicant’s
attorneys on 15 October 2014 well before the launch
of the present application not to unlawfully compete with it.
The view
was expressed in that correspondence that the applicant had
no case (in respect of which portent she will be vindicated by the
discharge of the rule) and the warning sounded that the respondent
would seek a punitive cost order if the applicant persisted with
the
threatened application. The request to furnish particularity
regarding the purported breach of confidentiality was also
ostensibly
ignored.
51.
In the result I grant the following order:
51.1
The rule nisi first issued by this court on 11 November 2014 is
discharged; and
51.2
The applicant is directed to pay the costs of the application,
including the reserved costs of 9 December 2014, on the scale
of
attorney and client.
B
C HARTLE
JUDGE
OF THE HIGH COURT
DATE
OF HEARING : 19 March 2015
DATE
OF JUDGMENT : 30 June 2015
Appearances:
For
the applicant: Mr D De La Harpe instructed by Drake Flemmer &
Orsmond Inc., East London.
For
the respondent: Mr J P Steenkamp instructed by Carlo Swanepoel
Attorneys, East London
[1]
Paragraph
2.2 of the original rule dated 11 November 2014 simply read “(t)hat
the respondent (is) interdicted and restrained
from soliciting
business from the applicant’s clientele”. In
circumstances which are not clear the rule was amended
on 9 December
2014, I assume to qualify and limit the reach of the interim
interdict seemingly confining it to clients who the
respondent
supposedly knew the identity and particularity of by virtue of her
involvement with Motosure CC before the sale and
during her
subsequent employment with the applicant.
[2]
This despite the applicant’s case being one for relief aimed
at interdicting the respondent from utilizing its “confidential
client list” according to the certificate of urgency put up on
its behalf, as well as the general tenor of its founding
affidavit.
[3]
[1984] ZASCA 51
;
1984 (3) SA 623
(A) at 634 E – G.
[4]
1981 (3) SA 406 (A).
[5]
Schultz v Butt 1986 (3) SA 667 (A) 678.
[6]
Schultz v Butt,
Supra
,
at 678 F – G.
[7]
Dunn and Bradstreet (Pty) Ltd v SA Merchants Combined Credit Bureau
(Cape) (Pty) Ltd
1968 (1) SA 209
(C) at 218 H – 219 A.
[8]
Schultz v Butt 1986,
Supra
,
at 679 E.
[9]
Waste Products Utilization (Pty) Ltd v Wilkes and Another
2003 (2)
SA 515
(W) at 570 I - J and 573 F – G.
[10]
Waste Products Utilization (Pty) Ltd,
Supra
,
at 573 F – I.
[11]
Meter Systems Holdings Ltd v Venter and Another
1993 (1) SA 409
(W)
at 428 A – C.
[12]
Alum-Phos (Pty) Ltd v Spatz and Another
[1997] 1 All SA 616
(W) at
623.
[13]
1993 (2) SA 726
(T) at 732 I – 733 B.
[14]
[1965] RPC 239
(CH) at 255 – 256.
[15]
1998 (1) SA 521
(C) at 531 g – 532 d.
[16]
1993 (1) SA 409 (W).
[17]
See Telefund Raisers CC,
Supra
,
at 536 where a restraint applied for 1 year. See also Knox
D’Arcy Ltd v Jamieson
1992 (3) SA 520
(W) at 528 in which the
respondents were interdicted from soliciting the applicant’s
clientele for a period of only 4 months.
In Van Castricum,
Supra
,
a restraint was granted for 18 months. Atlas Organic Fertilizers
(Pty) Ltd v Pikkewyn Ghwano (Pty) Ltd and Others
1981 (2) SA 173
(T)
at 192 E and Meter Systems Holdings Ltd,
Supra
,
at 430H are also authority for the proposition that clientele is
protectable only for a limited time.
[18]
[1998] JOL 1832
(SE)