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2012
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[2012] ZAKZDHC 67
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Kirk Marketing (Pty) Ltd v Burmeister and Another (10071/2012) [2012] ZAKZDHC 67 (19 October 2012)
IN THE KWAZULU-NATAL HIGH COURT,
DURBAN
REPUBLIC OF SOUTH AFRICA
CASE NO:10071/2012
In the matter between:
KIRK MARKETING (PTY) LIMITED
..................................................................
Applicant
and
GARETH BRENDAN BURMEISTER
....................................................
First
Respondent
TILE AND FLOOR CARE CHEMICALS (PTY)
LIMITED
................
Second
Respondent
__________________________________________________________________
JUDGMENT
__________________________________________________________________
Delivered : 19 October, 2012
M PILLEMER, AJ:
[1]
The Applicant seeks
an order enforcing a restraint of trade agreement against the First
Respondent, its erstwhile employee together
with an interdict against
the Second Respondent, the new employer of the First Respondent.
Second Respondent is a trade competitor
in relation to some of
Applicant’s product ranges.
[2]
The
matter was launched as an urgent application, which after directions
were given for the exchange of affidavits and a preferential
date
allocated. It was argued on the papers before me as an opposed motion
where final relief was sought. Neither party sought
a reference to
oral evidence notwithstanding factual disputes on the papers. The
approach adopted is practical and understandable
in the light of the
limited duration of the restraint and the delays involved in
attempting to resolve the factual disputes by
way of oral evidence.
The matter was thus argued on the basis of the rule in
Plascon-Evans
1
.
[3]
The
Founding Affidavit was very thin on factual detail and is replete
with what can be described as restraint of trade jargon together
with
factual conclusions devoid of detailed evidence from which such a
conclusion is to be drawn. This is particularly so when
the founding
affidavit deals with the topic of trade secrets and confidential
information, where the case is expressed in broad
generalisations.
The answering affidavit dealt with the founding papers fully in two
affidavits, the first drawn as a matter of
urgency to meet the urgent
application for interim relief and a supplementary affidavit that
fleshed the defence out more fully.
The Applicant attempted to
bolster the case by providing more detail in reply, but this really
is of little help and only served
to create factual disputes. The
case does not lend itself to being dealt with in the so-called robust
fashion because there was
nothing to suggest that the First
Respondent’s version was not truthful and bona fide.
[4]
The factual
picture upon which the application is to be decided can be summarised
as follows:
The Applicant describes itself as a
manufacturer, wholesaler and retailer of product ranges used in the
flooring and wall covering
industries throughout South Africa.
The First Respondent is a young man
who, before he took up employment with the Applicant, had about five
years work experience
with three different employers. He has a
personality suited to being a sales representative and was well
liked. He was reasonably
well educated and was studying part-time
towards an LLB degree, but gave that up in 2004. He had no knowledge
of the flooring
industry when he was employed. He received in house
training to equip him in understanding the products to be able to
effectively
sell them.
The Applicant required new employees
to sign a contract of employment and a restraint of trade agreement
as a condition of employment.
First Respondent was given the
contracts to look at on 18 April 2011 and he returned them signed on
21 April 2011. He believed
that if he wanted the job, which he did,
he had to sign and he duly did so without demur. His bargaining
position was much weaker
than that of the Applicant.
First Respondent’s salary was
R6 800 per month plus commission. The papers do not disclose what
the average commission was
that he earned. He had a three month
probationary period where he could be dismissed on short notice if
he was found to be unsuitable
and thereafter the contract was
terminable on a month’s notice.
The restraint of trade agreement is
obviously generic and intended for a range of employees and not
merely sales representatives.
It goes far beyond what would be
reasonable to protect the Applicant against a newly appointed junior
employee, which is what
he appears to be even though he is described
by the Applicant as fairly senior. The restraint is drawn in this
way presumably
because it is intended to remain in place for a long
time and to cover all bases and remain applicable as the employee
develops
and gains more experience of the business of the employer.
The First Respondent’s job was
typically that of a sales representative. He had to call on clients
and prospective clients,
had to meet sales targets, was required to
conduct in store training for clients in respect of some of the
product ranges, had
to check the client’s site to see that
their needs were being met by the Applicant and had to attend to
administrative
tasks relating to the sales function. He had a
special function in relation to a product range called Zierath
Mirrors, where
he received training and was required to train others
and to deal with product queries in relation to these mirrors.
During the
time he was employed one mirror was sold. It is an
expensive product.
The First Respondent was not given
access to information that made him privy to the applicant’s
profit or profit margins
in respect of the product ranges he was
tasked with selling, he did not know the identities of or the
location of the Applicant’s
suppliers and he had no knowledge
of the cost at which the Applicant acquired its products from its
suppliers. The Applicant
did not disclose sales or marketing
strategies to him. He was given a customer base of 140 customers
with most of the business
he did being with large retail chains,
which stocked not only the Applicant’s products but also those
of competitors including
the Second Respondent. The business
environment in which he worked was competitive and there were a
number of sales representatives
calling on the same customers. The
customers he serviced were long standing and loyal customers of the
Applicant and its product
range. He did not develop close
relationships with the contact persons of the customers and would
not be able to induce them
to give up their support of the
Applicant’s products. These contact persons interacted with a
number of different sales
persons as a matter of course and no
special relationships were built up. The customers First Respondent
dealt with were all
based in KwaZulu-Natal.
The Applicant gave the First
Respondent some training. He says that the only formal training
involved attendance at two internal
sales conferences, which focused
mainly on sales shortfalls, how to boost sales and on new products
that would be introduced.
In reply the Applicant has set out
information that the training was more extensive than that testified
to by the First Respondent,
but since it is evidence in reply and
the matter is to decided on the
Plascon Evans
rule not much
turns on this. He had no knowledge of contractual arrangements or
new client development strategies.
The First Respondent was provided
with information relating to special pricing structures applicable
to certain of the customers,
of the discount structures and the
Applicant’s payment terms for certain clients and early
payment discounts. The customers
themselves did not treat this kind
of information as confidential and were quite willing to provide it
to competing sales representatives.
The First Respondent had a file
relating to the same kind of information in relation to competitors
of the Applicant, which was
provided to him by the customers on his
request.
The special arrangements were in most
circumstances long standing arrangements, where the intricacies such
as costing calculations
and margins were not made available to the
First Respondent and the arrangements were concluded between the
customer and the
senior management of the Applicant. As a sales
representative the First Respondent had no say in making or changing
these arrangements.
The Second Respondent employed the
First Respondent because he had experience and knowledge in the
flooring industry, which he
gained while working for the Applicant.
The job offer that he accepted from Second Respondent was a career
advancement for him.
The salary was higher and he fulfilled a
managerial role. Second Respondent instructed First Respondent to
inform the Applicant
immediately he accepted the position, which
First Respondent did. Second Respondent has not received any
confidential information
from the First Respondent in relation to
the Applicant’s business. Second Respondent put up a short
affidavit setting out
its position, but otherwise abides the
decision of the court.
[5] The
restraint as set out in the restraint of trade agreement was
extremely wide and went way beyond protecting the Applicant
against
the risk First Respondent may have presented to it in his role as
sales representative. In it he agrees that he will not
for a period
of one year after the date of termination within the provinces of the
Republic of South Africa in whatever capacity,
directly or indirectly
be associated or concerned with, interested or engaged in any
business that is with the prescribed business
of the employer and
prescribed business is a defined term covering the following: “the
employer carries on business of the
marketing, selling, advertising,
hardware, blades, chemicals, trims, tools, and various manufacturing
processes and any other products
that the employer may at its
discretion deal in from time to time”.
[6] Prayer
2.2 of the Notice of Motion seeks an interdict in these wide terms
paraphrasing the restraint provisions save that the
period now asked
for is nine months and not a year. This goes much further than the
reasonable protection an employer may require
and as it stands is way
too broad and unreasonable. Mr Combrinck, who appeared for the First
Respondent,
contended that in
the result the restraint is unreasonable and the Applicant is not
entitled to any relief under it
2
.
[7]
Although the interdict sought in prayer 2.2 is in my view overbroad
and accordingly unreasonable and the relief sought in those
terms
must be refused, this does not provide the whole answer to the
Application. What is referred to as the perennial problem
of
overbreath is discussed in
Den
Braven SA (Pty) Ltd v Pillay and another
3
,
which expressly disapproved of and
declined to follow Avtech, in which Wallis AJ (as he then was) points
out that generally if the
conduct complained of falls within the
restraint and what is sought is to prevent that conduct, then relief
may be granted even
if there is other conduct set out in the
overbroad restraint of trade agreement which it would be unreasonable
to prevent, but
which is not being attempted and there is no
application to prevent it. It would lead to a failure of justice if
the conduct that
it would be reasonable to prevent and which falls
within the restraint cannot be prevented.
[8] Prayer 2.1 of the Notice of Motion
seeks only to prevent the First Respondent being employed by the
Second Respondent. The First
Respondent agreed not to be employed by
a competitor in the overbroad undertaking he gave and so what is
sought is a remedy that
is foreshadowed by the restraint and,
provided protectable interests are established that it would not be
in the public interest
not to enforce, the relief limited in that way
may still be granted. It is necessary therefore to examine whether or
not the facts
establish a protectable interest that may be endangered
if the First Respondent is employed by Second Respondent.
[9] The Applicant relies firstly upon
trade connections and secondly on trade secrets and confidential
information to which the
First Respondent was privy over which it
asserts a proprietary interest that it contends is protectable.
[10] A restraint of trade agreement is
valid and enforceable unless it is unreasonable because then it is
against public policy
to enforce it. In a matter where the facts upon
which the decision has to be made are essentially common cause
because it is being
decided on the
Plascon Evans
rule, the
court has to make a value judgment with two principle policy
considerations in mind in determining the reasonableness
of the
restraint. The first is that the public interest requires that
parties should comply with their contractual obligations.
The second
that all persons should in the interests of society be productive and
permitted to engage in trade or commerce or the
professions. Both
considerations reflect not only common law but constitutional values.
The four questions that have to be considered
in determining the
reasonableness of a restraint are
4
:
(a) Does on party have an interest
that deserves protection after the termination of the agreement?
(b) If so, is that interest threatened
by the other party?
(c) In that case, does the interest
weigh qualitatively and quantitatively against the interest of the
other party not to be economically
inactive and unproductive?
(d) Is there an aspect of public
policy having nothing to do with the relationship between the parties
that requires the restraint
to be maintained or rejected?
The first question of the four that
has to be answered therefore is whether or not there is a protectable
interest.
[11] With regard to trade connections,
to be protectable the connection between the customer and the former
employee must be such
that it will probably enable the former
employee to induce the customer to follow him to a new business.
5
The contention made on behalf of Applicant that the First Respondent
is able to induce customers to change allegiance because of
his
special relationship with them is far fetched and fanciful on the
facts. First Respondent was only one of many sales representatives
calling on the Applicant’s long established clients, many of
whom were national chains were the pricing and deals were negotiated
at head office level. He only did this for a relatively short period
and had to service one hundred and forty customers. The customers
stocked products of the Applicant and its competitors. There was no
evidence of anything out of the ordinary in relation to these
customers that would give the First Respondent some hold over them or
any factual basis given as to why he would “have them
in his
pocket”, which is what is required to be established. The
protectable interest based on the trade connections was
accordingly
not established.
[12] In relation to trade secrets and
confidential information, the only aspect where there is some factual
evidence to support
such a contention relates to the knowledge the
First Respondent accepts he acquired of special pricing structures
applicable to
some of the customers, his knowledge of the discount
structures and his knowledge of the terms for payment of certain
clients and
early settlement discounts. I accept that this is the
kind of information that ordinarily would be regarded as confidential
and
possibly a trade secret deserving of protection. However on the
facts before me the First Respondent was dealing with one hundred
and
forty customers and to keep such information in his head after he
left is some mammoth task. Added to that he was only privy
to part of
the information and importantly it was that part that the customer
itself did not regard as confidential and was willing
to share with
other sales representatives. This kind of information is by its
nature fluid and changes over time. The information
the First
Respondent would have been able to take away with him is what he
remembers and even then the information he had was of
limited value
since it did not include costs or margins. Although I accept that
this is borderline I have come to the conclusion
that it is too
flimsy to be deserving of protection, but even if it is, the balance
that has to be achieved under the third question
of making a value
judgment and measuring whether the interest weighs qualitatively and
quantitatively against the interest of the
other party not to be
economically inactive and unproductive is in my assessment against
affording Applicant protection.
[13] It follows that the restraint
that the Applicant seeks to enforce against First Respondent is found
to be unreasonable.
[13] As against Second Respondent the
Applicant seeks to interdict it using Applicant’s trade secrets
communicated to it by
the First Respondent. The Second Respondent
says it has not been given any and has no intention of using any
information. There
is not reason to doubt this evidence. Against a
third party like the Second Respondent the Applicant had to set out
evidence to
establish the delict it relied upon, but the papers did
not achieve this result. The application against Second Respondent
must
fail for want of evidence of it committing a delict of the kind
that would justify this kind of relief.
[11] In the result the Application is
dismissed with costs.
_______________________
M PILLEMER, AJ
`
Counsel for the Applicant
: Theresa Smit
Applicant’s Attorneys
: Nicci Ferguson Attorneys (Cape Town)
Care of G H Ismail & Associates
Counsel for the First Respondent
: P J Combrinck
First Respondent’s Attorneys
: Gael Barrable Attorney
Care of Livingstone Leandy Inc
Date of hearing
: 16 October 2012
Date of Judgment
: 19 October
2012
1
In
Polaris Capital (Pty) Ltd v Registrar of Companies and Another
2010 (2) SA 274
(SCA ) at para [5] the SCA summarised the essence of
the rule as follows: “Being an application for final relief
the Plascon-Evans
rule applied and the matter had to be decided on
the facts stated by the second respondent and the facts stated by
the appellant
insofar as those facts were admitted by the second
respondent or not denied in a manner that raises a real, genuine or
bona fide
dispute of fact.”
2
Advtech
Resourcing (Pty) Ltd t/a Communicate Personnel v Kuhn and Another
2008 (2) SA 375
(C)
3
2008
(6) SA 229
(D)
4
Reddy
v Siemens Telecommunications (Pty) Ltd
2007 (2) SA 486
(SCA)
paras [15] and [16], approving of
Basson v Chilwan and Others
[1993] ZASCA 61
;
1993 (3) SA 742
(A) at 767G-H
5
Den
Braven SA (Pty) Ltd v Pillay and another
2008 (6) SA 229
(D) at
236D-E after the extensive quotation from
Rawlins and another v
Caravantruck (Pty) Ltd
[1992] ZASCA 204
;
1993 (1) SA 537
(A) at 541D-H