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[2013] ZAFSHC 222
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Free State Transformers (Pty) Ltd trading as Free State Transformers Field Services v Ackerman and Another (3559/2013) [2013] ZAFSHC 222 (12 December 2013)
IN
THE HIGH COURT OF SOUTH AFRICA
FREE
STATE DIVISION, BLOEMFONTEIN
Case
No: 3559/2013
In
the matter between:
FREE
STATE TRANSFORMERS (PTY) LTD
trading
as
FREE STATE TRANSFORMERS
FIELD
SERVICES
….....................................................................................................
Applicant
and
FANIE
ACKERMAN
........................................................................................
First Respondent
TRANSLEC
(PTY) LTD
…..........................................................................
Second Respondent
JUDGMENT:
DAFFUE, J
HEARD
ON:
21 NOVEMBER 2013
DELIVERED
ON:
12 DECEMBER 2013
INTRODUCTION
[1]
Applicant seeks to enforce a restraint of trade agreement
(hereinafter referred to as “the restraint”) against its
former employee. The application is opposed. Oral
arguments were addressed to me on 21 November 2013 on which date
I
reserved judgment. Adv SJ Reinders appeared for applicant and
Adv PJJ Zietsman for respondents.
THE
PARTIES
[2]
Applicant is Free State Transformers (Pty) Ltd trading as Free State
Transformers Field Services. Its business consists
of the
manufacturing, maintenance and service of transformers. Its
customers are distributed throughout the Republic of South
Africa and
even outside the borders thereof. First respondent is Fanie
Ackerman, a qualified electrician presently in the
employ of Translec
(Pty) Ltd, second respondent.
Ex
facie
the notice of opposition and
other notices filed, both respondents oppose this application,
although first respondent only filed
an answering affidavit.
THE
RELIEF SOUGHT
[3]
Applicant seeks an order in terms whereof first respondent be
prohibited from contravening the restraint for a period of thirty
six
(36) months from 1 January 2013, the effect being that he may not
provide any services as set out in the restraint within a
radius of
five hundred (500) km from applicant’s business premises in
Bloemfontein until 31 December 2015. The relief
applicant seeks
is in line with the restraint contained in clause 16(2)(d) of the
written employment contract which reads as follows:
“
The
employee shall not for a period of thirty six (36) months after the
termination of his employment … at any time for any
cause
whatsoever and whether or not at the employee’s instance or at
the instance of the employer, either solely or jointly
or as
employee, manager or agent for any person, firm or body corporate or
incorporate, directly or indirectly:
(i)
carry on or otherwise be engage (sic) or
concerned or interested or employed in;
(ii)
solicit business for;
(iii)
be a director or shareholder in;
(iv)
act as a consultant, advisor to;
(v)
lend or advance or bind himself as surety
for any sum or sums of money to or financially (sic)
any
person, company or association or finance any business which carries
on business within five hundred (500) kilometre radius
from the
employer which is similar to or competing with or endeavouring to
compete for business on by the employer.”
THE
FACTUAL MATRIX
[4]
On 3 June 2011 a contract of employment was entered into between
applicant and first respondent in terms whereof first respondent
bound himself to the restraint.
[5]
First respondent resigned as applicant’s employee with
effective date 31 December 2012.
[6]
During his employment first respondent was in direct contact with
applicant’s customers in that he personally had to oversee
the
installation, service and maintenance of transformers of such
customers. He was provided with applicant’s data
base
pertaining to customers and was aware of the price structure as he
from time to time supplied quotations on behalf of applicant.
Furthermore he obtained knowledge of the types of oil used and when
transformers were installed and might be needed service and/or
maintenance.
[7]
When first respondent left the services of applicant he indicated
that he intended to investigate a business opportunity in
England.
[8]
A few months later it came to applicant’s knowledge that first
respondent was conducting business in Bloemfontein under
the name
Translec (the second respondent), alternatively that he was employed
by or in one or other capacity involved with Translec.
Translec
provides some of the services rendered by applicant and is regarded
as a competitor in the particular market segment.
This caused
applicant to instruct its attorneys to write a letter of demand to
first respondent which letter is dated 16 May 2013.
[9]
On 5 June 2013 first respondent’s attorneys responded to the
letter, requesting details of the alleged breach of the restraint.
In this letter first respondent admitted being an employee of second
respondent. Two further letters were written, but nothing
further transpired for several months.
[10]
On 3 September 2013 the present application was launched. On 15
October 2013 and rather belatedly, first respondent filed
his
answering affidavit. Simultaneously an application for
condonation for non-compliance with the rules of court was filed.
Applicant’s replying affidavit was filed on 28 October 2013
whereupon the matter was enrolled for hearing on 21 November
2013.
[11]
Applicant relies on certain photographs indicating that first
respondent is in fact employed by second respondent, an aspect
which
has been admitted by him even before the application was issued.
Applicant avers that it is apparent that the trailer
depicted in the
photographs was built with similar equipment as used by applicant.
It is also evident from the evidence that
Translec is in the same
business as applicant and that first respondent is conducting the
same services as he used to be responsible
for when in the employ of
applicant.
[12]
First respondent’s response to the photographs is that they
depict a mobile oil refinery installation which he personally
designed and built by making use of information readily available on
the internet and in the industry. This response caused
applicant to aver in reply that first respondent caused a similar oil
refinery installation to be manufactured whilst he was still
in the
employ of applicant by copying applicant’s installation.
Fact of the matter is that
ex facie
first respondent’s answering
affidavit the second respondent did not have a similar installation
prior to the one allegedly
designed and manufactured by first
respondent.
[13]
Since he left applicant’s employ first respondent has had
personal contact – as far as could be established –
with
two of applicant’s customers, to wit National Real Estate and
Transnet. First respondent does not deny this contact
and in
fact confirms that he has done work for National Real Estate whilst
in the employ of second respondent. It is his
version that this
entity is not a customer of applicant as applicant has delivered
services to it on one occasion in the past only.
Furthermore,
pertaining to Transnet, he was in communication with personnel of
Transnet’s offices in Port Elizabeth which
city is in excess of
500km from Bloemfontein. In reply applicant insists that
National Real Estate is its customer and although
Port Elizabeth is
further than 500km from Bloemfontein, the Transnet transformers which
had to be serviced are situated in De Aar
and Hanover which towns are
within the 500km radius.
[14]
It is applicant’s case that first respondent utilises the
knowledge and information which he obtained whilst in the employ
of
applicant as a springboard to compete with applicant and this should
not be allowed. This is denied by respondent.
THE
LEGAL PRINCIPLES AND AUTHORITIES
[16]
The court can only grant final relief in application proceedings if
the facts stated by the respondent together with the admitted
facts
in the applicant’s affidavits and the evidence presented
justify the order. See
Plascon-Evans
Paints Limited v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(AD) at 634H-635B. This general rule does not apply
if it is found that the respondent’s version is so untenable
and far-fetched
that the court is justified in rejecting it on the
papers.
[17]
In order to consider the reasonableness of a restraint the following
four questions should be asked:
(a) Does the one
party have an interest that deserves protection after termination of
the agreement?
(b) If so, is that
interest threatened by the other party?
(c) In that case,
does such interest weigh up qualitatively and quantitatively against
the interest of the other party not to be
economically inactive and
unproductive?
(d)
Is there any aspect of public policy having nothing to do with the
relationship between the parties that requires that the restraint
be
maintained or rejected?
See
Basson v Chilwan and Others
[1993] ZASCA 61
;
1993 (3) SA 742
(A) at 767G-H and also
Reddy
v Siemens Telecommunications (Pty) Ltd
2007 (2) 486 (SCA) at para [16].
[18]
The need of an employer to protect his trade connections arises where
an employee has access to customers during his employment
and is in a
position to build up a particular relationship with the customers so
that when he leaves the employer’s service
he could easily
induce the customers to follow him to a new business. See
Rawlins and Another v Caravantruck
(Pty) Ltd
[1992] ZASCA 204
;
1993 (1) SA 537
(A) at
541D-H and
Den Braven (Pty) Ltd v
Pillay and Another
2008 (6) SA 229
(D&CLD) at 235F-236C. The mere fact that a former employee
had contact with the employer’s customers during his
employment
does not mean that the employer has a protectable interest in the
form of customer connections. Something more
is required as
stated
supra
.
[19]
Pacta servanda sunt.
This
maxim remains applicable notwithstanding the constitutional era in
which we find ourselves. See:
Barkhuizen
v Napier
[2007] ZACC 5
;
2007 (5) SA 323
(CC) para
30 at pp 333G – 334A. The public interest still requires that
parties should comply with their contractual obligations.
However courts are allowed to decline to enforce contractual terms
that are in conflict with the constitutional values even though
the
parties agreed thereto. The effect of this is that the employer
seeking to enforce the restraint needs to do no more
than to prove
the existence of the restraint and a breach thereof by the former
employee. The former employee who seeks to
prevent enforcement
is required to prove on a preponderance of probabilities that in all
the circumstances of the particular case
it will be unreasonable to
enforce the restraint. The former employee is thus burdened
with a true
onus
in this regard because public policy requires that people should be
bound by their contractual obligations. See:
Magna
Alloys and Research (SA) (Pty) Ltd v Ellis
[1984] ZASCA 116
;
1984 (4) SA 874
(A) at 893.
Notwithstanding criticism from some quarters, this judgment remains
the
locus classicus
pertaining
to the issue of
onus
in
restraint of trade matters
.
Refer
also to
Den Braven
supra
and
the exposition of Wallis AJ (as he then was) at paras [28] –
[35], pp 246G-253F. A covenant in restraint of trade
may
protect trade connections and confidential information such as price
and strategies and manufacturing processes, methods of
operations,
knowledge of business conditions and customer relationships and
attachments. For a detailed list of categories
of protectable
confidential information the reader is referred to
Dickinson
Holdings (Group) (Pty) Ltd v Du Plessis
2008 (4) SA 214
(N) at para [33], p 225D-H.
[20]
An employee’s personal skill and abilities are part of his
make-up and he cannot ordinary be precluded from making use
of them
through a contract in restraint of trade. The employer’s
interest in retaining the services of such an employee
is not an
interest in the nature of property in the hands of the employer and
the employer has no proprietary interest in the employee,
his
know-how or skills. See
Aranda
Textile Mills (Pty) Ltd v Hurn & Another
[2000] 4 ALL SA 183
(E) at para [33] and
Automotive
Tooling Systems (Pty) Ltd v Wilkens & Others
2007 (2) SA 271
(SCA) at para [20] where Cachalia AJA (as he then
was) declared as follows:
“
In
my view the facts establish that the know-how for which the appellant
seeks protection is nothing other than skills in manufacturing
machines, albeit it that they are specialised skills. These skills
have been acquired by the first and second respondents in the
course
of developing their trade and do not belong to the employer - they do
not constitute a proprietary interest vesting in the
employer - but
accrue to the first and second respondents as part of their general
stock of skill and knowledge which they may
not be prevented from
exploiting. As such, the appellant has no proprietary interest that
might legitimately be protected. The
restraint is therefore inimical
to public policy and unenforceable.
”
[21]
When an application is considered based on the allegation that secret
or confidential information to which the former employee
had access,
might be used by him to the advantage of his new employer or his new
business, the following
dicta
are apposite:
“
In
my view all that the applicant can do is to show that there is secret
information to which the respondent had access, and which
in theory
the first respondent could transmit to the second respondent should
he desire to do so. The very purpose of the
restraint agreement
was that the applicant did not wish to have to rely on the
bona
fides
or lack of retained knowledge on
the part of first respondent, of the secret formula. In my
view, it cannot be unreasonable
for the applicant in these
circumstances to enforce the bargain it has exacted to protect
itself. Indeed, the very ratio
underlying the bargain was that
the applicant should not have to content itself with crossing its
fingers and hoping that the first
respondent would act honourably or
abide by the undertakings he has given…. In my view, an
ex-employee bound by a
restraint, the purpose of which is to protect
the existing confidential information of his former employer, cannot
defeat an application
to enforce such a restraint by giving an
undertaking that he will not divulge the information if he is
allowed, contrary to the
restraint, to enter the employment of a
competitor of the applicant.”
See
BHT Water Treatment (Pty) Ltd v
Leslie and Another
1993 (1) 47 (W)
at 57J-58B, referred to with approval by the SCA in
Reddy
v Siemens Telecommunications (Pty) Ltd
supra
as
well as the following
dictum
in
Reddy
at
499G:
“
Reddy
is in possession of trade secrets and confidential information…..
Reddy will be employed by Ericsson, a 'concern which
carries on the
same business as [Siemens]' in a position similar to the one he
occupied with Siemens. His loyalty will be to his
new employers and
the opportunity to disclose confidential information at his disposal,
whether deliberately or not, will exist.
The restraint was
intended to relieve Siemens precisely of this risk of disclosure.”
[22]
In
Den Braven (Pty) Ltd
supra
Wallis AJ set out his viewpoint as follows at 253E-F:
“
The
employee who seeks to turn their employer's confidential information,
trade secrets or trade or customer connection to their
own account
for the benefit of themselves or a competitor of their employer acts
in a no less reprehensible fashion and I can think
of no good reason
why our law should not afford a remedy to a business that seeks
protection against this type of unfair competition.
Where the
business has sought to protect itself by securing a restraint of
trade undertaking from the employee there is no reason
for the courts
or the law to view this with disfavour. It is only where the bounds
of public policy are overstepped that the court
will withhold its
assistance.”
[23]
Notwithstanding serious debate and conflicting judgments it is
apparent that a court adjudicating a restraint of trade agreement
may, instead of dismissing an application due to over-breadth, (i.e.
when it is couched in unreasonably wide terms) still be prepared
to
enforce the restraint although on terms narrower than originally
formulated by the parties. In
Dickinson
Holdings
supra
at para [98] the full bench found that a restraint of three years was
not unreasonable given the nature of the employer’s
business
and the respondent’s former senior position in the company.
In that case it was not disputed that it took
anything from two to
three years to complete feasibilities studies for projects in the
refractory industry. From date of
tender to consideration
thereof and commencement of construction could take anything from
four to five years whilst most contracts
are multi-million rand
contracts. The territory protected, being the Republic of South
Africa, Mozambique, Zimbabwe and Zambia,
was also considered not to
be too wide in those circumstances. Bearing in mind the
majority of the authorities a restraint
of two years appears to be
the outer limit and it is frequently found that restraints of six to
twelve months are regarded as sufficient
protection. In
Den
Braven (Pty) Ltd
supra
at para [55], p 263E the court found that a period of eight months
was sufficient for the following reasons:
“
In
my view the period of the restraint should not be any longer than is
necessary to enable the applicant to place a new salesperson
in the
field, enable them to become acquainted with the products and the
customers and to make it plain to the latter that they
are now the
person with whom to deal on behalf of the applicant. Having regard to
the nature of the products, the type of customer
to whom they are
sold and the number of customers who will need to be contacted I
think that a period of eight months is sufficient
for those
purposes.”
[24]
Mr Reinders referred me to an unreported judgment of my brother
Jordaan concerning the same applicant who was successful in
two
applications heard simultaneously. In the first the duration of
the restraint was twelve months and the radius 500 km,
whilst in the
second the duration was three years and the area was limited to the
magisterial districts within the Free State Province.
Mr
Reinders appeared in those two applications as well. It is
apparent from the judgment that neither the radius, nor the
period of
three years was considered at all.
Ex facie
the judgment
there is no indication that these aspects were contested or that
arguments were advanced to the court as to the applicability
and
reasonableness of the restraints, in particular pertaining to the
three year period and a 500 km radius. Mr Reinders
confirmed
that Jordaan J did not hear any arguments in this regard.
EVALUATION
OF THE EVIDENCE, THE LEGAL POSITION AND THE SUBMISSIONS OF COUNSEL
[25]
Mr Zietsman gave notice in his heads of argument that he would apply
at the hearing that certain portions of applicant’s
replying
affidavit should be struck out on the basis that these contained
inadmissible hearsay evidence. No formal application
was
brought in terms of rule 6(15) and consequently no averments were
made to indicate on what basis first respondent would be
prejudiced
if the matter was allowed to remain. These allegations relate
to the development and manufacturing of a similar
oil refinery
installation to which applicant referred in its founding affidavit.
However in reply more detail was supplied
and applicant also relied
on a letter of a certain Johan Fouche of JF Onderneming en Bakbouers
to confirm its version. Mr
Fouche’s letter was not
confirmed under oath and should not be regarded as admissible
evidence. Mr Reinders argued
that this evidence can be
disregarded as applicant had made out a proper case even if such
evidence was ignored. I shall
not consider this evidence at
all. In my view and bearing in mind the approach adopted by
counsel it is not necessary to
make a formal ruling pertaining to the
so-called application for striking out.
[26]
On the first respondent’s own version he has had contact with
at least two customers of applicant since he left applicant’s
employ, to wit National Real Estate and Transnet. He also
confirms that he had direct contact with applicant’s customers
during his employment and that he was supplied with a data base of
all customers. He was aware of applicant’s price
structure in so far as he from time to time did quotations as well.
In fact it was his view at an early stage of his employment
with
applicant that applicant was charging unreasonably high tariffs, that
it lost customers as a result and that it might price
itself out of
the market. His knowledge affords him a valuable opportunity to
offer second respondent’s services to
applicant’s
customers at lower rates, especially if it is borne in mind on his
own version that applicant does not have service
contracts with its
customers.
[27]
As field service manager, first respondent had to oversee all of
applicant’s operations pertaining to the installation,
maintenance and service of customers’ transformers and there
can be no doubt that he was to a certain extent the face of
applicant
who was or might have been approached directly by customers
experiencing problems with their transformers. It is
logical
that customers may be induced easily to follow first respondent to
his new business, particularly when they will receive
the same
service at a discount.
[28]
I take into consideration that first respondent was employed for
eighteen months only. No evidence was placed before
me that it
was or would be impossible to replace first respondent soon, or at
least within a few months, and to ensure that the
replacement
employee become acquainted with applicant’s customers, its
products, services and confidential information.
[29]
I also take into consideration that applicant, already being aware of
first respondent’s breach of the restraint as long
ago as May
2013 and just over four months since his resignation, waited until
September, i.e. a further five months before it launched
this
application. This is to an extent indicative of a lack of fear
on the part of applicant that first respondent may cause
it any harm
unlawfully. It might be that the application has been launched
as a matter of principle, but I have not been
convinced that relief
is sought merely to prevent competition and that this was the sole
aim as Mr Zietsman urged me to do.
However this is a borderline
case.
[30]
Mr Zietsman submitted that applicant did not have any proprietary
interest in respect of first respondent’s skills and
know-how
which he has obtained long before his employment with applicant.
That might be true to a certain extent, but it
is apparent that
applicant specialises in a specific field and that even its
competitors make use of its services. This has
not been
denied. I do not believe first respondent’s version that
any qualified electrician is capable of doing all
the work conducted
by applicant. He contradicted himself in that he stated that
the basic training of an electrician included
the service and
maintenance of transformers, whilst he also averred that he received
on the job training at Tri.Lectro to service
and maintain
transformers, including the testing, refinery and replacement of
transformer oil. Mr Zietsman further submitted
that applicant
does not possess any secret or confidential information acquired by
first respondent which could be utilised by
first respondent whilst
in the employ of second respondent and consequently no entitlement to
relief was proven. First respondent’s
version in this
regard is rejected as untenable and false. It is apparent that
all information on his laptop was deleted
before he left applicant’s
employ. Why would he do that if it was not in an attempt to
disguise his actions and future
plans even when still employed by
applicant. I am satisfied that first respondent saw an opening
in the market for a competitor
with appropriate skills and know-how
to compete directly with applicant by inducing its customers to make
use of his new business’
cheaper rates. He is using
applicant and its customer base as his springboard. He
manufactured for second respondent
a mobile oil refinery installation
similar to the one used by applicant to enable second respondent to
compete with applicant which
it would otherwise not be able to do.
He is clearly in breach of the restraint.
[31]
First respondent is also of the view that the breadth of the
restraint, being 500 km in radius and thirty six months in duration,
is unreasonable. Mr Zietsman submitted that the aim of the
restraint is really to put applicant in a position to appoint
a new
field service manager and to allow such new employee an opportunity
to make contact with customers and become acquainted
with them.
He argued that a period of six months was adequate for such purpose
and therefore a restraint of six months, or
twelve months at the
most, would be more than reasonable. Pertaining to the 500 km
radius he argued that there was no rationale
for such distance as it
would effectively mean that first respondent would only be able to
work in cities such as Port Elizabeth
and Cape Town and not in cities
like Johannesburg and Pretoria.
[32]
Mr Reinders readily conceded that a period of three years was
excessive, but submitted that the radius of 500 km was in order.
It must be said that although applicant has customers across the
country, there is no evidence to contradict first respondent’s
version that he did not do business and did not become acquainted
with any customers in Limpopo, Natal, Gauteng, Mpumalanga, North
West
and the Western Cape.
[33]
I am satisfied that applicant has made out a case for relief. It
proved the terms of the contract as well as first respondent’s
breach of the restraint. Applicant’s interest deserves
protection and such interest has been and is threatened by first
respondent. If I weigh up the parties’ respective
interests there is no doubt that applicant should be entitled to
relief as the restraint, curtailed as I am entitled to do, would not
unnecessary prevent first respondent from being economically
active
in his chosen field of practice. No aspect of public policy
stands in the way of granting relief to applicant.
First
respondent did not prove on a balance of probabilities that it would
be unreasonable to enforce the restraint, save in so
far as I am
satisfied that the restraint should be curtailed both pertaining to
the period and the area and/or radius. In
my view a period of
twelve months would be more than sufficient to serve the purpose of
the restraint which should be limited to
a radius of 300 km from
applicant’s business premises. So curtailed, most parts
of the Free State and Kimberley in
the Northern Cape and several
other towns outside the Free State’s borders are covered.
There is no reason why respondent
should not be allowed to practise
his trade in places such as Vanderbijlpark, Vereeniging, Johannesburg
and Pretoria, all of which
are further than 300 km from Bloemfontein.
[34]
Mr Zietsman urged me not to grant any costs in so far as whatever
order I might make would be of little practical value in
so far as
the period of twelve months since the termination of first
respondent’s employment would have lapsed almost by
the time
judgment is granted. I am not prepared to heed to this
submission. Applicant is materially successful and
there is no
reason why applicant should not be awarded its costs. Although
second respondent is cited as such, no relief
is sought against it,
save in the event of the application being opposed in which event
applicant seeks an order in terms whereof
first and second
respondents shall pay costs of the application jointly and
severally.
Ex facie
the notice of opposition and other
notices filed herein both respondents oppose the application.
If this was done by mistake
respondents’ attorneys must take
the blame. The costs order shall be made against both
respondents.
ORDER
[35]
Consequently the following orders are made:
35.1 First
respondent is for a period of 12 (twelve) months from 1 January 2013
and within a radius of 300 km from applicant’s
offices at 29
George Lubbe Street, Hamilton, Bloemfontein prohibited to, either
solely or jointly or as employee, manager or agent
for any person,
firm or body corporate, directly or indirectly:
(i) carry on or
otherwise be engaged or concerned or interested or employed in;
(ii) solicit
business for;
(iii) be a director
or shareholder in;
(iv) act as a
consultant, advisor;
(vi)
lend or advance or bind himself as surety
for any sum or sums of money to or financially assist
any
person or company or association or finance any business which
carries on business which is similar to or competing with or
endeavour to compete for the business of applicant.
35.2 First and
second respondents are ordered to pay applicant’s costs of the
application on an opposed basis, jointly and
severally, the one to
pay, the other to be absconded.
______________
J.
P. DAFFUE, J
On
behalf of the applicant: Adv. S. J. Reinders
Instructed
by:
McIntyre
& Van der Post
BLOEMFONTEIN
On
behalf of the first
respondent:
Adv. P.J.J. Zietsman
Instructed
by:
Honey
& Partners
BLOEMFONTEIN