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[2012] ZAKZDHC 87
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CMC Woodworking & Machinery Supplies (Pty) Ltd v Wilkie and Another (2442/2012) [2012] ZAKZDHC 87 (23 October 2012)
IN THE KWAZULU-NATAL HIGH COURT,
DURBAN
REPUBLIC OF SOUTH AFRICA
CASE NO: 2442/2012
In the matter between:
CMC WOODWORKING & MACHINERY
SUPPLIES (PTY) LTD
.....................................................................................
Applicant
and
COLIN DAVID WILKIE
......................................................................
First
Respondent
AUSTRO WOOD (PTY) LTD
........................................................
Second
Respondent
JUDGMENT
Delivered on: 23 October 2012
________________________________________________________________
Henriques J
Order
It is ordered:
The first respondent is interdicted
and restrained until 31 January 2013, from being interested, whether
directly or indirectly,
in, or by, or concerned with, whether as
proprietor, partner, director, shareholder, employee, consultant,
contractor, financier,
principal, agent, representative, assistant,
advisor, administrator, trustee or beneficiary of a trust or
otherwise:
1.1 any business which competes with
the applicant in South Africa, Zimbabwe, Botswana, Zambia, Mozambique
and/or Swaziland;
and
1.2 the second respondent.
2. The first respondent is interdicted
and restrained from using, whether directly or indirectly, or
divulging or disclosing to
any other person or entity (save and
except as may be required of him by law, or with the express written
permission of the applicant),
any of the applicant’s
confidential information or trade secrets pertaining to:
2.1. the requirements of any of the
applicant’s customers;
2.2. the fact, details or nature of
any negotiations between the applicant and its customers or
prospective customers;
2.3. prospective customers and their
possible requirements;
2.4. any quotations provided by the
applicant to any of its customers or prospective customers;
2.5. any details in respect of the
prices or discounts offered by the applicant’s suppliers to the
applicant;
2.6. any details relating to the
applicant’s profit margins or prices;
2.7. the identities of the applicant’s
existing or prospective customers as at 31 January 2012
.
3. The first respondent is interdicted
and restrained from furnishing any information or advice acquired by
the first respondent
as a result of his employment with the
applicant, to any other person or entity, which results or may result
in any of the applicant’s
employees becoming employed by, or
directly or indirectly interested, in any other business, firm,
undertaking, company or entity,
including the second respondent;
4. The first respondent is interdicted
and restrained from soliciting, interfering with (in any way, whether
directly or indirectly),
enticing or endeavouring to entice away from
the applicant, any person, firm or company who or which, during the
period 2 July
2005 to 31 January 2012 was a customer of the applicant
or was accustomed to dealing with the applicant;
5. The second respondent is
interdicted and restrained from using any of the applicants
confidential information disclosed to the
second respondent by the
first respondent;
6. The first and
second respondents are directed to pay the applicant’s costs of
the application, the one paying the other
to be absolved jointly and
severally, which in the case of the first respondent is on the
attorney and client scale.
1
Nature of Application
7. This is an application in which the
applicant seeks to enforce the terms of a restraint agreement
concluded between itself and
the first respondent. The applicant did
not initially seek any relief against the second respondent, but in
light of the contents
of the answering affidavit delivered, sought an
order against the second respondent interdicting and restraining it
from using
any of its confidential information which was disclosed to
it by the first respondent.
The Restraint Agreement
In the restraint agreement, which was
concluded in June 2005, the first respondent expressly acknowledges
that he has and will
be entrusted with confidential information
regarding all aspects of the applicant’s business, methods
techniques, clients
and confidential information which was unknown
to him at the time of commencing his employment with the applicant.
The first respondent specifically
agreed that the restraint was reasonable in relation to duration and
area and that he would
not persuade, induce, solicit or procure any
employee of the applicant to terminate his/her employment with the
company or become
employed with a competitor of the applicant.
The Applicable Test
The test
2
in determining
whether a restraint is enforceable is trite and five factors must be
considered namely:
10.1 Does the applicant have an
interest deserving of protection on termination of the first
respondent’s employment
.
10.2. Has the applicant’s
interest been threatened by the first respondent?
10.3 If so, does the applicant‘s
interest outweigh the first respondent’s interest not to be
rendered economically inactive
and unproductive?
10.4 Does public policy require that
the restraint be upheld or rejected?
Does the restraint go further than
is reasonably necessary to protect the applicant’s interest?
Our courts have
held that restraint agreements are valid and enforceable unless they
are unreasonable and contrary to public policy.
Should the restraint
be designed to exclude or eliminate competition and not protect a
protectable interest of an employer, it
will be considered
unreasonable and against public policy.
3
The party who
challenges the enforceability of the restraint bears the burden of
alleging and proving that it is unreasonable
and against public
policy
4
.
If the facts
concerning the reasonableness of the restraint are in dispute, it
must be resolved in favour of the respondent. What
is called for is
a value judgment by the court on the assessed facts
5
.
The exercise of the value judgment involves two considerations
namely that the parties should comply with their contractual
obligations i.e the legal maxim
pacta
servanda sunt is
applicable
and that all persons should be productive and permitted to engage in
trade and commerce or in their professions.
6
The enquiry to be undertaken is done
at the time that enforcement of the restraint provisions is sought.
Among the considerations are:
is there any
other activity that the employee can undertake;
7
does the interest
which is sought to be protected belong to the employer. The
question is whether the skill, expertise and knowledge
that the
employee acquires was one which accrues to the employer and not to
the employee. The dividing line between the two
is often difficult
to define and is a question of degree
8
.
15. The mere fact that an employee has
taken up employment with a competitor would not in itself entitle the
erstwhile employer
to relief if all that the employee will be doing
is applying his or her skills and knowledge
acquired while in
the erstwhile employment, but without such activity impinging on a
proprietary interest of the erstwhile employer.
9
16. In Aranda
Textiles supra confidential information, which includes trade secrets
it was held
“
that
in order to qualify as confidential information, the information must
be capable of application in trade or industry; not be
public
knowledge (objectively determined, it must be known to a restricted
number of people or to a closed circle);objectively
determined be of
economic value to the person seeking to protect it. The nature of the
information is irrelevant, as long as it
complies with the above
requirements…the mere fact that a trade secret is known to a
group of people who compete with each
other does not necessarily lead
to the inference that it ceased to be a trade secret.”
10
In Rawlins &
another v Caravan Truck (Pty) Ltd
11
in
so far as an employers trade connections are concerned the court
held the following “
the
need of an employer to protect his trade connections arises where
the employee has access to customers 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…”
.
Our courts have
held that in order to determine whether the criteria are satisfied
involves a question of fact and “
will
depend on the duties of the employee, his personality, the frequency
and duration of the contact between him and the customers,
where
such contact takes place, what knowledge he gains of their
requirements and business, the general nature of their relationship
including whether an attachment is formed between them, the extent
to which customers rely on the employee and how personal their
association is, how competitive the rival businesses are, in the
case of a salesman, the type of product being sold; and whether
there is evidence that customers were lost after the employee
left.”
12
In Reddy v Siemans
13
the court held the
following “
it
is not that the mere possession of knowledge is sufficient, and this
not what was suggested by Marais J in BHT Waters case
, Reddy will
be employed by Ericsson a concern which carries on the same business
as Siemans in a position similar to the one
he occupied with Seimans
his loyalty will be to his employers and the opportunity to disclose
confidential information at his
disposal, whether deliberately or
not, will exist. The restraint was intended to relieve Siemans
firstly of this risk of disclosure.
In this circumstance the
restraint is neither unreasonable nor contrary to public policy.
In Reddy the court referred to the
remarks of Marais J in BHT Water
1993 (1) SA 47
at 57 J – 58 B
where the court held the following “
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 the first respondent of the secret
formulae. 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, and 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 of a
competitor of the applicant. Nor in my view, can the ex- employee
defeat the restraint by saying that he does remember
the
confidential information to which it is common cause that he has had
access. This would be the more so where the ex- employee,
as is the
case here, has already breached the terms of the restraint by
entering the services of the competitor.”
Respondents Challenge
The respondents oppose the
application on the following grounds namely :-
that the application was not urgent;
that there are countless factual
disputes on the papers which require the application to be
determined on the respondent’s
version;
the restraint is unreasonable as
there is no protectable interest and consequently there is no
threat;
the interests of the first
respondent should a protectable interest be found to exist,
outweighs that of the applicant.
At worst for the first respondent the
submission is that the applicant proved the requirements of a
protectable interest in respect
of the areas of Gauteng, Limpopo,
North West, Mpumalanga, Botswana, Zimbabwe and Mozambique.
If one has regard to the test to be
applied, the respondents do not appear to take issue with the
restraint on the basis of the
requirement referred to in paragraph
10.4. above. The challenge is limited to the other requirements.
Essentially the
relief which the applicant seeks is final in form. Consequently,
such relief can only be granted in motion proceedings
if the facts
as stated by the respondent together with the admitted facts in the
applicants affidavit justify the order
14
.
The first respondent has to show that
the applicant does not have a proprietary or protectable interest
which is threatened by
his employment with the second respondent.
The applicant in
its founding papers relies on the following protectable interests
namely, its customer connections and confidential
information. These
have long been recognised as protectable interests
15
.
It is common cause between the
parties that the first respondent was employed by the applicant as a
salesperson in Durban, thereafter
he was employed as a branch
manager. The first respondent resigned and took up employment with
the second respondent with effect
from the 3
rd
February
2012.
During the course of his employment
with the applicant the first respondent concluded a restraint of
trade agreement, on 6 June
2005. The terms of the restraint are
common cause.
The applicant and the second
respondent are in direct competition with each other in the
woodworking and aluminium working machinery
sales industry.
It would appear that there is a close
link between the customer connections and confidential information
of the applicant.
Was the first respondent in a
position were he had access to customers and can now build up a
relationship with customers of the
applicant so that he will easily
induce customers to follow him?
The applicant’s business is
that of an importer and distributor of industrial and domestic
woodworking machinery and related
equipment. In or about 2008 the
applicant, also imported and distributed aluminium working machinery
and related equipment. In
addition the applicant’s business
includes the sale of new and second hand industrial and domestic
woodworking machinery.
It has expanded its business outside the
domestic market and has undertaken extensive advertising and
established contact with
the respective chambers of commerce in
Swaziland, Botswana, Zimbabwe and Mozambique. Amongst its customers
who operate nationally
and internationally are York Timbers and Hans
Merinsky and Steinhoff and Lumber City.
The second respondent operates in the
same national market as the applicant but according to the founding
affidavit does not import
and sell aluminium machinery and related
equipment. The second respondent is one of the applicant’s
largest direct competitors.
The first respondent was employed
initially as a salesperson and subsequently moved up the ranks in
the company and became its
managing director. The first respondent
was in a peculiar relationship to the applicant specifically its
managing director. It
is not disputed that the first respondent had
repeatedly approached Olivier requesting employment and had no
experience as a
sales person or that Olivier took him under his wing
and mentored him personally. He received detailed training at the
applicant’s
expense and accompanied Olivier to visit the
applicant’s clients and was personally introduced to their
clients and received
the applicants support and assistance every
step of the way. In addition he accompanied Olivier to Italy were he
was acquainted
with the applicant’s imported products. He
attended trade fairs in Germany to learn the applicant’s
products and
this enabled him to give expert advice to the
applicant’s customers.
On the 30 March 2007, the parties
concluded an addendum to the contract of employment in terms of
which the first respondent undertook
to reimburse the applicant for
certain of the expenses that the applicant had incurred in the event
of the first respondent leaving
the applicant’s employment
within a specified period of his return.
The first respondent progressed and
was appointed as the applicant’s branch manager in
Johannesburg in December 2007 and
as branch manager 80% of his time
was focused on sales to the applicant’s customers and he
became the applicant’s
key sales person nationwide.
It would appear that the first
respondent was able to develop personal relationships with
applicant’s customers and this
stood him in good stead to
attract orders from customers of the applicant. In addition to
building customer connections, the
first respondent became
acquainted with the applicant’s confidential information. He
became familiar with the applicant’s
suppliers, the discounts
and pricing structures in place both in Europe and in Asia.
It is clear that
the first respondent was trained and acquired the skill and
expertise at the expense of the applicant but also
which accrued to
the applicant by its very nature. In as much as the applicant and
second respondent may share the same customers
this cannot assist
the first or second respondents if one has regard to
Rawlins.
16
The first
respondent in my view through his interactions with the applicant’s
customers has built up a special relationship
which places him in a
position where he can induce them to follow him, Lisa Hartzenberg
being one such example and Knight Shopfitters
having regard to the
papers.
By virtue of his mentoring, training
and positions held during his employment with the applicant, the
first respondent in my view
has had access to confidential
information. It is not necessary for purposes of this judgement to
canvass these in detail but
the first respondent has had access to
client lists, pricing, quotations etc. In addition if one has regard
to the papers it
is apparent that the first respondent has used this
information acquired, for the benefit of his new employer to entice
customers
and orders have been lost. The second respondent has had
access to this information and has benefitted from it.
Not only has the first respondent
threatened the applicant’s confidential information and
customer connections but appears
to have attempted to entice the
applicant’s employees. It is clear that the first respondent’s
loyalty is to his
new employer, the second respondent. Thus the
first two legs of the test in my view have been satisfied.
If one has regard to the first
respondent’s work history and curriculum vitae, he has
technical skills which he can utilise
to obtain alternative
employment alternatively engage in sales with an entity not in
competition with the applicant. In my view,
he would not be rendered
economically inactive and the interests of the applicant outweigh
his.
The period of the restraint is a year
and in my view is not unreasonable. The applicant’s customer
connections in South
Africa and the neighbouring countries have been
threatened and warrant protection.
I am accordingly of the view that the
applicant has shown it has a protectable interest warranting
protection in terms for the
restraint. The various legs of the test
for a restraint have been satisfied and consequently, the applicant
is entitled to the
relief it seeks.
As far as costs are concerned, the
restraint agreement makes provision for the first respondent to pay
these costs on an attorney
client scale. In light of the fact that
the second respondent has had access to the applicant ‘s
customer connections and
confidential information and appears to
have benefitted from same, I am satisfied that the costs order
requested by the applicant
is warranted.
I am also of the view that there is
no merit in the points raised by the respondents in relation to the
aspect of urgency or non
compliance with the rules.
______________
HENRIQUES J
DATE OF HEARING: 28 MARCH 2012
DATE OF JUDGMENT: 23 OCTOBER 2012
APPLICANTS ATTORNEYS: FURCHER
ATTORNEYS
APPLICANTS COUNSEL M.D.C.SMITHERS SC
FIRST AND SECOND
RESPONDENTS ATTORNEY KEVIN HYDE
ATTORNEYS
c/o ARNOTT AND ASSOCIATES
RESPONDENTS COUNSEL H.P.VAN
NIEUWENHUIZEN
1
The
restraint agreement makes provision for the payment of costs on an
attorney client scale in the event of legal proceedings
being
instituted and decided in favour of the applicant.
2
Basson
v Chilwan and Others 1993(3) SA 742 (A) at 767 G to H; Reddy v
Siemens Telecommunications (Pty) Ltd
2007 (2) SA 486
(SCA) at 497
paragraph 16
3
Automotive
Tooling Systems (Pty) Ltd v Willkens & others
2007 (2) SA 271
SCA @ 277 – 278 at paragraph 8
4
Magna
Alloys and Research ( SA) (Pty) Ltd v Ellis
[1984] ZASCA 116
;
1984 (4) SA 874
(A)
5
Omni
Technologies (Pty) Ltd v Barnard & others[2008]
2 All SA 207
(SA) @ 211 a-c referring to Reddy supra at paragraph 14 pages 495 to
496
6
Reddy
supra at paragraph 15 page 496
7
Aranda
Textile Mills
[2000] 4 All SA 183
SE @ 189 c
8
Automotive
Tooling Systems (Pty) Ltd v Willkens & others
2007 (2) SA 271
SCA @ 277 -279
9
Automotive
Tooling Systems (Pty) Ltd v Willkens & others
2007 (2) SA 271
SCA @ 277 -279
10
Aranda
Textile Mills supra at paragraphs 29 and 30, Omni Technologies supra
at paragraph 12 ©
11
[1992] ZASCA 204
;
1993
(1) SA 537
AD @ 541 c-h
12
Omni
supra at page 213 d - g
13
2007
(2) SA 486
@ 497 @ para 20 @ 499 G -500 E
14
Plascon-Evans
Paints v Van Riebeeck Paints 1984(3) SA 623 A
15
Rawlins
vs Caravantruck (Pty) Ltd
[1992] ZASCA 204
;
1993 (1) SA 537(A)
at 541 B
Sibex Engineering
Services vs Van Wyk
1991 (2) SA 482
(T) at 502 C-F, 505 F-I; 507 D
to 508 A.
16
At
page 544