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[2011] ZAKZDHC 27
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Southgate Electrical Wholesalers CC v Rabilal and Another (3113/2011) [2011] ZAKZDHC 27 (27 May 2011)
IN THE KWAZULU-NATAL HIGH
COURT, DURBAN
REPUBLIC OF SOUTH AFRICA
REPORTABLE
CASE NO: 3113/2011
In the matter between:
SOUTHGATE ELECTRICAL
WHOLESALERS CC
….........................................................
APPLICANT
and
AKASH RABILAL
…..............................................
FIRST
RESPONDENT
ARB ELECTRICAL
WHOLESALERS
(PTY) LIMITED
…............................................
SECOND
RESPONDENT
JUDGMENT
Heard: 13
th
April 2011
Delivered: 27
th
May 2011
P. GOVINDASAMY AJ
[1] This application
concerns the enforceability of a restraint of trade and
confidentiality/trade secrets clauses in an employment
agreement
entered into between Applicant and First Respondent. I shall refer to
the Applicant as “Southgate”, the First
Respondent as
“Rabilal” and the Second Respondent as “Arb”.
[2] On 11 March 2011 this
application was brought as a matter of urgency before Mbatha AJ (as
she then was) and she granted the
following order:
a) That a Rule Nisi is
hereby issued calling upon the Respondents to show cause, if any to
this Honourable Court on or before 24
March 2011 at 09H30 why an
Order in the following terms should not be granted:
i) the First Respondent
be and is hereby interdicted from being interested or concerned
either directly or indirectly and whether
as a director, partner,
member, employee, financier, advisor, or in any way whatsoever, in a
business similar to that being conducted
by the Applicant, or in any
business which competes or is likely to compete, with the business
being conducted by the Applicant’s
company;
ii) the First Respondent
be and is hereby interdicted from being so interested or concerned,
including as employee, in the business
of the Second Respondent;
iii) the First Respondent
be and is hereby interdicted from directly or indirectly canvassing
for, soliciting of, any business from
clients of the Applicant as at
7 February 2011, including Electrotech Electrical CC;
iv) the said restraints
are to remain in force until 3 February 2012, and are to apply with
the Province of KwaZulu Natal;
v) that the First
Respondent be ordered to pay the costs of this application unless it
is opposed by the Second Respondent, in which
event the Second
Respondent is to pay the costs of the application jointly and
severally with the First Respondent;
b) That pending the
return date or any extension thereof, paragraph 1.3 above will
operate as an interim order with immediate effect;
c) That the Respondents
are to deliver their answering affidavits on or before 17 March 2011.
d) That the Applicant is
to deliver its replying affidavit on or before noon on 23
rd
March 2011.
After the usual filing of
affidavits and the fixing of the return date, the matter was given
priority on the opposed motion court
roll, causing the application to
be fully argued before me on 13 April 2011. I am indebted to both Mr
Kamp on behalf of Southgate
and Mr Whitcutt who represented Rabilal
and Arb for their useful heads of argument.
[3] In Southgate’s
replying affidavit, it raised for the first time certain evidence
which is material to the determination
of this application and which
was not set forth or foreshadowed in it’s founding affidavit.
In particular Southgate raised
the issue of Rabilal’s knowledge
of it’s customer lists, price lists, settlement and trade
discounts none of which
is referred in Southgate’s founding
papers. Southgate also raised further instances in which Rabilal is
alleged to have solicited
customers form Arb. At the hearing of this
application Rabilal requested that I exercise my discretion, as
contemplated in Rule
6 (5)(e) of the Uniform Rules of Court, to
permit the filing of a supplementary affidavit as a fourth set of
affidavits so as to
allow it to place all the facts before the Court
in order to properly ventilate the issues between the parties and to
avoid any
prejudice to it. I have taken into account the fact that
Southgate ought to have made out its case in its founding affidavit
but
did not do so. In the circumstances, Rabilal in my view has made
out a proper case for the exercise of my discretion in his favour
to
allow the fourth set of affidavits to be filed.
[4] By
way of background it is important to mention that Southgate’s
business operates primarily in the electrical components
industry in
KwaZulu Natal.
Rabilal is a sales representative, a position
which he has held since 2000, having been originally employed by Arb.
He first moved
to Southgate for a period of two years and more
recently returned to work at Arb. It is common cause that Southgate
and Arb are
competitors, both being wholesalers of electrical
components,
inter alia
, within the province of KwaZulu-Natal.
Southgate is a small “family run” outfit set up by Allan
Christian Sprenger
in March 2001 after he left Arb where he was a
director and shareholder. It now comprises 25 employees operating out
of one office
in Durban. It services approximately 120 customers,
mainly in KwaZulu-Natal.
[5] By comparison, Arb
has been in operation for 31 years and employs approximately 450
staff in 12 offices across the country.
It is the second largest
wholesaler of electrical components in South Africa and one of the
four largest suppliers of electric
cable in the country. Arb has
approximately 3000 regular customers on its books. By Southgate’s
own admission, Arb is in
a different league and Southgate’s
customer base cannot even be compared to that of Arb.
[6] Approximately 75% of
Southgate’s business is the sale of overhead line cables
(colloquially referred to as “OHL”
products) to a small
market of niche customers. The remainder of Southgate’s
customers purchase the broad range of electrical
products on the
market. Arb also sells OHL products but it’s primary sales are
of electrical components and electrical cables
to a panoply of
customers ranging from corporations, industries, and corporations to
hardware stores and electricians.
[7] Both Southgate and
Arb purchase their products from the same suppliers, most of whom are
local suppliers. Being a much larger
operation, Arb is able to store
much of its products on offer for immediate sale to its customers.
Southgate stocks far fewer products,
which must consequently be
ordered and thereafter delivered to it’s customers. Southgate
and Arb compete in the same market,
along with dozens of other
electrical component wholesalers. The regular customers who purchase
components are well known in the
industry and the market is a
competitive one.
[8] Rabilal’s
function, initially as a salesman and later as a branch manager,
since 1 June 2009, in the employ of Southgate,
was to, inter alia,
secure contracts and orders for Southgate as well as maintain contact
and a relationship with existing clients
so as to maintain clients as
customers and where possible, to conclude new contracts and further
to seek new customers for Southgate.
[9] The employment
agreement between Southgate and Rabilal contained two clauses giving
rise to this dispute, a restraint of trade
clause and a trades
secrets/confidentiality clause, which read as follows:
Restraint of trade
The employee may not for a period of
one (1) year from the date of termination of your employment with the
Company for any cause
whatsoever, in connection with any business
which carries on business in South Africa and which is similar to or
competes with
or endeavours to compete with the Company directly or
indirectly, offer employment to, or employ, or cause to be employment
to,
or employ, or cause to be employed any person who is employed by
the company at the date of termination of your employment with
the
company for any cause whatsoever or within any time within six (6)
months immediately preceding such termination.
You shall not, for a period of one (1)
year after termination of your employment with the Company for any
cause what so ever, either
solely or jointly or together with or as
an employee, manager or agent of any person, firm or body corporate
or incorporate, directly
or indirectly:
Carry on or assist financially or
otherwise be engaged or concerned or interested in;
Be a director or shareholder directly
or member of:
Act as a consultant or advisor to:
Any company, closed corporation or
business which carries on business in South Africa which is similar
to or competes with the business
carried out by the employer as at
the date termination of your employment with the company.
The restraint imposed on you in terms
of the aforegoing shall:
Be deemed to be in respect of each
part thereof, entire, separate, severable , and separately enforced
in the widest of sense
from the parts thereof:
An undertaking or restraint shall be
deemed to be a separate undertaking or restraint notwithstanding the
fact that it appears
in the same clause, sub clause or sentence of
any other undertaking, or is imposed by the introduction of a word
or phase conjunctively
from or alternatively two other words or
phases.
Be for the benefit of the Company as
well as all its shareholders to protect their financial interest in
the company.
Company trade secrets shall mean
without purporting to constitute an exhaustive list.
All internal systems including the
company’s accounting and administration
Financial details of the Company’s
relations with its clients, customers and suppliers.
Details of the company’s
financial structure and operating results
The contractual agreement between the
Company and others within whom it has business arrangements of
whatsoever nature, including,
but not limited to financial
arrangement and supply agreements.
Details of any customers or suppliers
of the Company.
Any marketing or price structure
utilised by the Company
Trade secrets/confidentiality
The employee undertakes, without
prejudice to any general duty of confidentiality, not to disclose
during the continuance of this
contract or afterwards, any of the
trade secrets of the employer or any information which is
confidential to the employer’s
business
Trade secrets include the following,
any documentation or records (including written instruction,
drawings, notices, memoranda,
customer lists, or lists of suppliers)
relating to the company’s business Trade Secrets which are made
or concluded by you
or which came into your possession during your
period of employment by the Company, shall be deemed to be property
of the Company
and shall be surrendered to the Company on demand and
in any event, upon termination of your employment and you will not
retain
any copies or extracts there from.
The employee further undertakes
immediately after the termination of his/her services to hand over to
the employer all documentation
and data in his/her possession
belonging to the employer, whether in hard copy, contained on
computer disc or any other recording
medium, including documents made
by him/her in the course of his/her employment. The aforementioned
implies that any copy, abstract,
or any précis of any document
belonging to the employer made by the employee or any other person
shall itself belong to
the employer.
[10] It is trite law that
an agreement in restraint of trade is enforceable unless it is
unreasonable.
1
It is generally accepted
that a restraint will be considered to be unreasonable, and thus
contrary to public policy, and therefore
unenforceable, if it does
not protect some legally recognisable interest of the employer but
merely seeks to exclude to eliminate
competition.
2
[11]
A
party seeking to enforce a contract in restraint of trade must invoke
the contract and prove the breach thereof. Thereafter, a
respondent
who seeks to avoid the restraint bears an onus to demonstrate, on a
balance of probabilities, that the restraint agreement
is
unenforceable because it is unreasonable.
3
[12] In the light of the
test set out in
Basson
4
in determining the reasonableness or otherwise of a
restraint of trade clause there are four pertinent questions to be
answered:
(a)
is
there an interest of the one party (Southgate) which is deserving of
protection at the termination of the agreement?
If so, is such interest
being prejudiced or threatened
by the other party (Arb)?
In the event of such
interest being prejudiced or threatened, does such interest weigh up
qualitatively and quantitatively against
the interest of the latter
party [Rabilal] that he should not be economically inactive and
unproductive?
is there another facet
of public policy, having nothing to do with the relationship between
the parties, but which requires that
the restraint should either be
maintained or rejected?.
[13] The party seeking to
avoid enforcement of the restraint is required to prove, on a balance
of probabilities, that, in all the
circumstances of the particular
case, it will be unreasonable to enforce the restraint. In this
connection, in
Reeves & Another v Marfield
Insurance Brokers CC & Another
,
5
the Court observed -
“
The
circumstances to which regard may be had cover a wide field and
include typically those pertaining to the nature, extent and
duration
of the restraint and the legitimate interests of the respective
parties in relation thereto…Even factors such as
the equality
or otherwise of the bargaining power of the respective parties may be
taken into account
.”
[14] Insofar as the first
leg of the test in
Basson,s
case, is concerned, it is well
established that the proprietary interests that can be protected by a
restraint agreement are essentially
of two kinds, namely:
all confidential matter
which is useful for the carrying on of business and which could
therefore be used by a competitor, if
disclosed to him, to gain a
relative competitive advantage; and
the relationship with
customers, potential customers, suppliers and others that go to make
up what is compendiously referred to
as the “trade connection”
of the business, being an important aspect of its incorporeal
property known as goodwill.
6
[15] Whether information
constitutes a trade secret is a factual question. For information to
be confidential it must be –
capable of application
in trade of industry, that is, it must be useful and not be public
knowledge and property;
known only to a
restricted number of people or a closed circle; and
of economic value to the
person seeking to protect it.
7
[16]
As to customer connection the court in Rawlins and Another v
Caravantruck (Pty) Ltd
8
the court said that 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 a customer
so that when he leaves the employer’s service,
he could easily
induce the customers to follow him to a new business.
Heydon
The Restraint
of Trade Doctrine
(1971)
at 108
, quoting an
American case, says that the “customer contact” doctrine
depends on the notion that the “
the
employee, by contact with the customer, gets the customer so strongly
attached to him that when the employee quits and joins
a rival he
automatically carries the customer with him in his pocket”.
In
Morris
(Herbert) Ltd v Saxelby
[1916] (1) AC 688
(HL) at 709
it was said that the relationship
must be such that the employer acquires “
such
personal knowledge of and influence over the customers of his
employer … as will enable him (the servant or apprentice),
if
competition were allowed, to take advantage of his employer’s
trade connection…
”
[17]
What is clearly established is that the
proprietary interest must be one that might properly be described as
belonging to the employer,
rather than to the employee, and in that
sense “proprietary to the employer”. The rationale for
this policy was succinctly
explained by Kroon J in
Aranda
Textile Mills (Pty) Ltd v Hurn & Another
9
as follows:
“
A
man’s skills and abilities are a part of himself and he cannot
ordinarily be precluded from making use of them by a contract
in
restraint of trade. An employer who has been to the trouble and
expense of training a workman in an established field of work,
and
who has thereby provided the workman with knowledge and skills in the
public domain, which the workman might not otherwise
have gained, has
an obvious interest in retaining the services of the workmen.
In
the
eye of the law, however, such an interest is not in the nature of
property in the hands of the employer. It affords the employer
no
proprietary interest in the workmen, his know-how or skills. Such
know-how and skills in the public domain become attributes
of the
workman himself, do not belong in any way to the employer and the use
thereof cannot be subjected to restriction by way
of a restraint of
trade provision. Such a restriction, impinging as it would on the
workman’s ability to compete freely and
fairly in the market
place, is unreasonable and contrary to public policy.
”
[18] All agreements,
including agreements in restraint of trade, are subject to
Constitutional rights obliging Courts to consider
fundamental
Constitutional values when applying and developing the law of
contract in accordance with the Constitution of the Republic
of South
Africa 1996.
10
[19] As Southgate seeks
final relief, in evaluating the evidence on the papers, the Court is
bound to follow the approach set out
in
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
.
11
Where the facts concerning the reasonableness or
otherwise of the restraint have been fully explored in the evidence,
any of those
facts that are in dispute must be resolved in favour of
the respondent.
12
Consequently, regardless of the incidence of the onus,
the above Honourable Court may only find in favour of applicant “if
the facts as stated by respondent together with the admitted facts in
applicant’s affidavits justify such an order...”
The
Court is, in effect bound by what respondent states in his affidavit,
unless it is “so far-fetched or clearly untenable
that the
Court is justified in rejecting them merely on the papers”.
13
If the facts disclosed in the affidavit, assessed in
that manner, disclose that the restraint is reasonable, then an
applicant may
succeed. If, on the other hand, those facts disclose
that the restraint is unreasonable, then respondent must succeed.
What that
calls for is a value judgment, rather than a determination
of what facts have been proved, and the incidence of the onus will
play
no role.
14
[20] A Court must make
the value judgment with two principal policy considerations in mind
in determining the reasonableness of
a restraint.
15
The first is that the public interest, fashioned by
Constitutional values, requires that parties should comply with their
contractual
obligations, a notion expressed by the maxim
pacta
servanda sunt
. The second is that all persons
should in the interests of society be productive and be permitted to
engage in trade and commerce
or the professions. Both considerations
reflect not only common-law, but also Constitutional values.
16
[21] In applying these
two principle considerations, the particular interests must be
examined. A restraint would be unenforceable
if it prevents a party
after termination of his or her employment from participating in
trade or commerce without a corresponding
interest of the other party
deserving of protection. Such a restraint is not in the public
interest.
17
[22] It is well
established that the determination as to the reasonableness or
otherwise of a contract in restraint of trade is
determined at the
time the contract is sought to be enforced.
18
[23] The evidence reveals
that Rabilal was a monthly paid employee of Southgate and when he
resigned with immediate effect on 4
February 2011, he had been
employed by Southgate for no less than 2 ½ years. He commenced
employment with Arb on 7
th
February 2011 as a sales
representative. Rabilal, whilst employed by Southgate, had access to
Southgate’s full customer list,
including their names,
telephone numbers and contact persons details. Rabilal copied at
least some of Southgate’s customer
details from his work phone
. Rabilal upon taking up employment with Arb on 7
th
February 2011, sent an sms to at least some of Southgate’s
customers. The sms reads as follows:
“
Hi
everybody. Please note that this is my new cell
number: 082 320 2553. My
new email address is
akashr@arb.co.za
.
My
office line is: 031 9100200.”
[24]
T
here is no dispute that Rabilal concluded a restraint of
trade agreement with Southgate and that he left Southgate’s
employment
on 4 February 2011 to work for one of its competitors,
Arb. The question which arises is whether Southgate has an interest
which
is sufficiently deserving of protection to render the
enforcement of the restraint reasonable in the circumstances. In
contending
that it has a protectable interest, Southgate primarily
relies on the alleged damage to its “customer connections”
as well as the risk of disclosure of confidential information.
Southgate professed fear is that the customers with whom Rabilal
interacted whilst working as a salesman at Southgate will now take
their business to Arb. Without doubt, this movement of customers
would have to be causally linked to Rabilal’s move in order for
the restraint undertakings to be invoked. To establish customer
connections worthy of protection, it must be evident from the papers
that the employee acquires:
“
such
personal knowledge of and influence over the customers of his
employer . . . as would enable him (the servant or apprentice),
if
competition were allowed, to take advantage of his employer's trade
connection . . .
”
19
.
As stated in
Rawlins v
Caravantruck
, establishing customer connections depends on the
notion that:
'the
employee, by contact with the customer, gets the customer so strongly
attached to him that when the employee quits and joins
a rival he
automatically carries the customer with him in his pocket'.
20
[25] Whether the criteria
are satisfied is a question of fact in each case, and in many, one of
degree to be determined by: the
duties of the employee; his
personality; the frequency and duration of 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.
21
[26] In order to qualify
as a protectable interest, the relationship must not simply come into
being because the former employee
had contact with the employer’s
customer in the course of his or her work: the connection between the
former employee and
the customer must be such that it will probably
enable the former employee to induce the customer to follow him or
her to a new
business.
22
[27] In this matter, just
as in
Rectron (Pty) Ltd v Govender &
Another
, Southgate and Arb serviced the same
customers, but for a few exceptions which in my view does not
materially affect the outcome
of the dispute between the parties. As
Southgate and Arb share the same customers, it is not open to
Southgate to assert an exclusive
customer connection with any of
these customers. At best for Southgate, both competitors may regard
the relationships between their
sales people and their common
customers as a customer connection. One must, therefore, be all the
more cautious in assessing the
limits of Rabilal’s influence,
if any, over Southgate’s customers. It is not enough, where
customers are shared, to
point to movement and blame Rabilal. Unless
the enforcement of the restraint would prevent such movement, it
would be unreasonable
to preclude Rabilal from being employed by Arb,
because no corresponding interest would, in fact, be protected
thereby. This is
an issue that falls pertinently into the third leg
of the enquiry in
Basson
.
For it is only where an employee is able to carry those common
customers across in his pocket, that the customer connection may
be
regarded as worthy of protection.
[28] Based on the papers,
the extent which Rabilal did interact with customers at Southgate
could never cause them to move their
business to Arb, the driving
force in the market being price, and to a lesser extent, availability
of stock. Moreover, factually,
none of Southgate’s customers
have followed Rabilal in the wake of his departure. According to
Rabilal, there is little customer
loyalty in the industry. Like most
sales industries, price is the most important factor. As far as
industries, municipalities,
contractors and hardware stores are
concerned, which make up the bulk of Arb’s regular customers, a
prerequisite to any order
being placed is the initial procurement of
at least three quotes from three separate suppliers. The standard
procedure enables
customers to establish the relative price of the
goods on the market at any one time, and to place their order on the
most competitive
terms. Far from blindly following personalities,
customers “shop around” to find the best prices on offer
from the
applicant and all its competitors.
23
In my view therefore it is not realistic for Southgate
to maintain that price is not the driving force in the market.
[29] It is this
bargaining tool which customers have at their disposal, the ability
to play one wholesaler off against another,
which ensures that prices
remain competitive and that customers achieve the most favourable
deal.
24
It should be easy to open an account with an electrical
wholesaler. In addition, for some customers the value of their credit
with
a wholesaler may gradually improve over the years. Southgate is
much smaller than Arb and will not satisfy their common customers
with the same level of credit which Arb is in a position to offer.
Moreover, Arb holds more stock than Southgate and is therefore
able
to offer its products immediately. It is the availability of stock
which may also lead customers to move away from Southgate,
as was the
case with Electrotech. Therefore personal relationships could never
clinch a deal in the face of a more lucrative offer,
especially in
today’s market.
[30] Rabilal formed no
“customer connections” at Southgate, this fact is borne
out by the dearth of evidence before
the Court that any of
Southgate’s customers have, in the two months since his
departure from Southgate, followed him to Arb.
Rabilal acquired the
majority of his knowledge about customers in the electrical
components industry from his work at Arb where
he was employed from
February 2000 to February 2008. In the seven years of his employment,
Rabilal learnt everything he knows about
the industry, rising through
the ranks from his initial appointment as a trainee to the position
of general sales representative
in July 2007. Rabilal did not meet
any new customers when he moved across to Southgate, all of whom he
had already met or known
about from his years at Arb. In his
affidavit he emphasised that during the two years of his employment
at Southgate he did not
form close relationships with any of his
customers which included socialising with them, etc.
[31] At Southgate,
customers deal with the same sales representatives more out of habit
and convenience, but when one representative
is on the road, the
customer will deal with whoever is in the office. Moreover, sales
representatives at Southgate did not have
the authority to vary
prices to the extent that they may have formed a close relationship
with customers or influenced them to
place orders with the applicant.
This is most probably due to the fact that considerations of price
outweigh considerations of
personal influence. It should not be
forgotten that Rabilal was also required to run almost all price
reductions past Sprenger
prior to providing quotes to customers. For
all these reasons, the position held by Rabilal did not engender the
kind of relationship
that would carry customers with him.
Significantly, when Rabilal moved across from Arb to Southgate in
March 2008 none of these
customers with whom he had done business at
Arb ceased placing orders with Arb, and followed him to Southgate. In
this regard reference
should be made to Rabilal’s supplementary
affidavit in which he denies any knowledge of Neville Nels or the
business known
as ‘Rooms Electrical”. Similarly, with
this move, Southgate has failed to furnish any evidence of those
customers diverted
to Arb by Rabilal. There has been speculation that
has been refuted with reference to the true facts, from the papers.
[32] A salient feature of
Southgate’s case against Rabilal is a claim that commission is
payable to a sales representative
for each order placed by a customer
through that sales representative and this incentive compels the
sales representative to see
to it that the bond between him/her and
the customer is maintained. Rabilal denies that he is entitled to a
commission on his individual
customer sales and points out that
Southgate has misrepresented the true position because commission is
only received on the total
branch sales. What this means is that
there is clearly no individual benefit for sales representatives in
fostering relationships
with customers. Significantly Sprenger in his
replying affidavit admits that Rabilal has described the commission
structure more
accurately and that commission is earned only on total
branch sales and not individual sales. Southgate’s contention
that
Rabilal was compelled to maintain the bond between him and his
customers due to the commission earned from sales from these
customers
is therefore misconceived and should be rejected.
[33] I am acutely aware
that Rabilal was responsible for sales in Southgate’s business
and the need for the restraint clause
was to protect Southgate’s
interest and prevent industrial espionage by moving Southgate’s
customers with him to it’s
competitor, Arb. This would cause
Southgate to go insolvent in no time. However Southgate loses sight
of the fact that Rabilal
initially moved over to it from Arb in 2008,
Rabilal bringing with him the customers lists of Arb to Southgate.
Whatever sympathy
I may have for the family business of Southgate, is
thrown out of the window, when I consider that the fundamental issue
in this
matter is the customer lists or at least 80% of them are
common to both Southgate and Arb. It should be borne in mind Rabilal
disputes
that he dealt with approximately 70% of Southgates 125
customers. He contends that he only dealt with Southgate’s
general
electrical market which accounts for 25% of it’s
overall business and in this regard he only handled 70% of these
customers.
He denies that he dealt with the OHC customers. For this
reason Southgate cannot lay claim to the customer list as an interest
worthy of protection and I am not persuaded by Mr Camp that Southgate
has discharged the onus of showing that it has an interest
that is
deserving of protection.
[34]
While
damage is not necessary to hold that a restraint is enforceable, it
is relevant as to whether Southgate has in fact established
a
proprietary interest in customer connections. In
Rectron
(Pty) Limited v Govender and Another
,
it has held to be the “single most important factor”.
25
[35] The first of
Southgate’s fears, that Rabilal had caused its longstanding
customer, Electrotech Electrical CC to redirect
its business to Arb,
is misconceived and incorrect. As is evident from the facts contained
in Rabilal’s and Arb’s interim
and answering affidavits,
Rabilal played no role whatsoever in Electrotech’s placing of
orders for electric cables. It is
clear from the evidence that:
Electrotech requested
quotations for cables from Southgate and Rabilal .
On 19 January 2011,
Electrotech placed an order for materials and poles with Southgate.
Southgate confirmed that
it would order the materials but advised Electrotech that it needed
to source the conductor cabling from
SA Asia Cable Company Limited
in the Far East.
A letter of confirmation
was sent to Electrotech by Southgate on 25 January 2011 advising
that a delay of 6 weeks was expected
on account of the conductor
cabling being sourced from abroad. In the facsimile, Southgate
requested confirmation that the time
delay was acceptable.
On 26 January 2011,
Electrotech wrote to Southgate cancelling the order of conductor
cables. The reason for cancellation was due
to the long waiting
period for the cable… and that it could not wait for delivery
as it had to meet a deadline on the
project…”.
As Arb was able to make
the cabling available immediately, on 16 February 2011, Electrotech
proceeded to place an order for a
portion of the conductor cabling
with Arb in accordance with the terms of Arb’s original
quotation.
Rabilal had nothing to
do with the placing of the order with Electrotech and did not
receive any commission for the order. In
other words, enforcement of
the restraint would have made no difference whatsoever to the
outcome. Where no practical benefit
is afforded to Southgate by
enforcement, the prejudice to Rabilal of being rendered economically
inactive (the third leg of the
test in
Basson
) renders
enforcement of the restraint contrary to public policy.
[36] Similarly,
Southgate’s fears that Rabilal has taken the business of
Harbour View Electrical are assuaged when it is apparent
that Arb
closed its account with Harbour View on 2 February 2011. Avishkar
Rabilal, the brother of Rabilal confirmed that Harbour
View placed
orders with his new employer. Once again Southgate’s
(speculative) fears are dispelled when the true facts are
known. And,
it bears emphasising, enforcement of the restraint would again have
no bearing on the Harbour View issue, since whether
or not Rabilal
remains in Arb’s employ it poses no threat in relation to
Harbour View. This has a bearing on the second leg
of the test in
Basson
(infringement) as well as the third leg (the weighing
of interests).
[37] Rabilal has also
denied that he has had dealings with other customers named by
Southgate, including Jack’s Paint and
Mervyn Padayachee. He
disputes that he has attempted to poach one Neville Nels / Rooms
Electrical, demonstrating that he doe not
even know of such a
customer. Southgate’s own assertions about that customer are
not borne out by the investigations conducted
by Rabilal who points
out that this customer is based in Pietersburg which is outside of
KwaZulu-Natal.
[38] In the absence of
any evidence that Southgate’s former customers are now placing
orders with Arb, Southgate has assumed
that those who have not placed
orders since February 2011 are doing so as a consequence of the first
respondent’s departure
to work for a competitor. It is evident
from the facts however, that Southgate’s conclusion is pure
conjecture.
[39] If it is true that
Southgate suffered a 20% drop in sales for the months of February and
March 2011, then in my view this is
not attributable to Rabilal
diverting business from Southgate to Arb. The more cogent explanation
for any downturn in Southgate’s
business is due to the fact it
lost all three of its sales representatives, namely, Rabilal, his
brother Avishkar Rabilal and Logan
Ramachandradoo in its electrical
section in February 2011. Avishkar Rabilal and Logan Ramachandradoo
have taken up employment with
competitors who are now servicing
Southgate’s customers, which in all probability is the cause of
Southgate’s drop
in sales.
[40] Annexure “AR3”
to Sprenger’s replying affidavit, is a list of customers who
Southgate claims have failed
to place any orders with it since
February 2011. From the papers, it is evident that Rabilal has not
dealt with any of the customers
which are exclusive to Southgate
since leaving its employ, rather he has been handed customers at Arb
to canvas. Furthermore Rabilal
has also not opened any new accounts
at Arb nor sought to introduce
any
new customers to its
business. To make matters worse Rabilal’s brother Avishkar and
Ramachandradoo who are working as sales
representatives for Natal
Electrical Supplies and All Electrical 4 Supplies respectively are
presently doing business with almost
all of the customers listed in
annexure “RA5” of Sprenger’s affidavit and other
customers as well.
[41] There can be no
suggestion that Southgate may assert a proprietary interest in cash
customers, who are almost always once-off
customers, and it is
improbable that sales representatives, including Rabilal form
relationships with them.
[42] In the circumstances
I am of the view that none of Southgate’s customers have been
diverted to Arb and Southgate cannot
assert a customer connection
through Rabilal. Despite this conclusion which would have made it
unnecessary for me to deal with
the other questions laid down in the
test in
Basson’s
case, I am compelled to consider the
other issues raised by Southgate, particularly it’s claim to
trade secrets.
[43] As far as its trade
secrets are concerned, Southgate has in its replying affidavit,
belatedly and without any real conviction,
also sought to assert a
protectable interest in its price lists, costings, discount and trade
settlements, which it alleges that
Rabilal may take with him and use
for the benefit of Arb. There is no explanation at all as to why any
of the information identified
truly constitutes confidential
information in the requisite sense. Rabilal sets out with clarity the
detail of his day to day activities
whilst he was in Southgate’s
employ, and demonstrates that his knowledge was confined, firstly, so
as to exclude any OHL
products and also that Sprenger was the person
who had knowledge of the kind of information which may be of
assistance to a competitor.
[44]
It
is salutary to bear in mind that confidential information does not
become confidential simply because the parties to an agreement
refer
to it as ‘confidential information’. This is illustrated
by the following passage from
Cansa
(Pty) Ltd v Van Der Nest
26
:
“
Respondent’s
counsel contended that the matters
relied on by applicant were not
secrets but matters of
common knowledge in the business
world. He relied
on Heydon, the Restraint of Trade
Doctrine, at page
107 where the learned author quotes
the
following –
‘
You can’t
have vanilla ice-cream without
having ice-cream. You can’t
have business or
trade secrets without secrets. You
don’t make
the multiplication tables a secret
merely by
calling them a secret.’
[45] In
Metre
Systems Holdings Ltd v Venter and Another
27
Stegmann J pointed out
that:
“
The
knowledge gained by an employee of a trader relating to the method of
conducting the business, and relating to the identity
of the
suppliers to such business, need not necessarily be confidential at
all ...”
[46]
Significantly, in concluding the evaluation of Southgate’s
alleged proprietary interests (the first leg of the
Basson
enquiry) it must not be overlooked that by Southgate’s own
admission, it has no real proprietary interest in Rabilal either
in
the form of customer connections, or in the form of trade secrets. At
paragraph 28 of its replying affidavit, Sprenger tellingly
states:
“
The
Applicant would not have enforced the restraint against the First
Respondent
if
the First Respondent had used his skills and experience by taking up
employment elsewhere and
even
in opposition
without
having solicited Applicant’s customers and causing harm to
Applicant’s business.”
[47] The admission by
Southgate gives the lie to its assertion of a legitimate protectable
interest and reveals that the true motivation
for seeking to enforce
the terms of the restraint is not that it has a proprietary interest
recognisable in law, but its impression
that Rabilal has solicited
its customers and caused it to suffer a loss in business. That
impression is, as a fact, incorrect,
is evident from the papers.
[48] It is apparent from
what has already been stated that Rabilal is not the cause of the
applicant’s downturn in business.
The facts also reveal that
none of Southgate’s suspicions that Rabilal has been soliciting
customers amounts to anything.
[49] Much is made in
Southgate’s affidavits of the text messages sent by Rabilal to
its cellphone contacts. Rabilal’s
intention in sending the
“group text” was not to divert customers, but only to
pass on his new contact details to all
his contacts. His intention is
both credible and plausible given the number of contacts on his
cellular telephone. Of the 120 contacts,
only 27 were business
companies
,
23 of whom/which are customers common to both Arb
and Southgate. The other business contacts comprised two suppliers,
friends of
Rabilal and one of Southgate’s cash customers.
[50] Perhaps most
importantly, however, there is no suggestion that any further text
messages will be sent, indeed, on the contrary,
Rabilal’s
explanation makes it plain that no further messages will be sent.
Having regard to the fact that Southgate seeks
a final interdict, the
requisites for such relief have not been established: the text
messages were sent before the application
was launched. It is well
established that an interdict cannot be granted in relation to prior
conduct.
[51]
The second question which arises, is whether such interest is being
prejudiced by Rabilal should
Southgate have demonstrated a
protectable proprietary interest in either customer connections or
confidential information which
I have found it has failed to do.
Rabilal’s day to day to day responsibilities at Arb as a
marketer on the road, are different
from those he discharged at
Southgate, as a salesman. Moreover, the fact that the majority of
Southgate’s turnover is derived
from OHL business, with which
Rabilal had no involvement whatever, whereas the majority of Arb’s
turnover is derived from
the sale of electrical components and
cables, is also relevant to a determination of infringement. Lastly,
the admitted overlap
between customers of Southgate and Arb directly
raises the question whether enforcement of the restraint against
Rabilal, in circumstances
where customers will stay or leave
Southgate regardless, can ever be justified.
[52] The third question
which arises is, (if Rabilal has caused prejudice to such interest)
whether such interest weighs up qualitatively
and quantitatively
against the interest of Rabilal that he should not be economically
inactive and non productive?. Whitcutt submitted
that, in all the
circumstances, Rabilal’s interests in remaining economically
productive manifestly outweigh Southgate’s
interests (if any)
in its customer connections and confidential information. The
following relevant facts should be considered
- the circumstances
under which the restraint undertakings were obtained from Rabilal,
when it was cleared by Sprenger that the
restraint undertakings would
not be enforced against Rabilal for reasons which are explored in the
papers and which are completely
inconsistent with Southgate’s
concerns about protecting its legitimate proprietary interests.
Furthermore Rabilal has been
involved only in the electrical industry
for his entire working life. He has no experience in any other field
or industry. He is
the sole breadwinner for his extended family. He
cannot relocate outside of KwaZulu-Natal. In my view the enforcement
of the restraint
will confer no proportionate benefit upon Southgate,
whilst seriously affecting Rabilal’s ability to be economically
productive.
[53] I agree with Mr
Whitcutt’s submission that this application has little to do
with the protection of legitimate proprietary
interests but has much
to do with bad blood and animosity. Indeed, on Southgate’s own
version it would have been content
for Rabilal to have taken up
employment with a direct competitor, provided that no approaches were
made to customers. As is demonstrated
in Rabilal’s papers, he
has not solicited Southgate’s customers and Southgate
contentions in that regard are mistaken
and should be rejected.
Moreover, properly understood, a customer connection is in any event
of very limited influence in the industry.
There is, furthermore, no
discernible proprietary interest in confidential information. In the
circumstances, enforcement of the
restraint would weigh heavily
against Rabilal without protecting any corresponding interest on the
part of Southgate which is contrary
to public policy.
[54] In the result
Rabilal is entitled to the discharge of the rule. During argument
Southgate sought costs from Arb as at 18
th
March
2011 when the latter withdrew from the case. I do not agree with this
argument for the reasons aforesaid, particularly since
Southgate was
in no position to seek any relief from Arb whatsoever. In my view the
restraint clause against Rabilal can have nothing
whatsoever to do
with Arb. In fairness Arb is entitled to its reasonable costs up to
the time of its withdrawal from the case.
Accordingly I make the
following order:
the application against
First Respondent is dismissed with costs, such costs to include the
costs consequent upon the employment
of two Counsel;
the Applicant shall pay
Second Respondent’s costs up to and including 18
th
March 2011.
P GOVINDASAMY AJ
For Applicant: Advocate A Camp
instructed by Zeiler Jankey Attorneys,
Durban
For Respondent: Advocate C Whitcutt
Advocate J Nicholson
Instructed by Brian Kahn Inc,
Johannesburg
1
Automotive
Tooling Systems (Pty) Ltd v Wilkens & Others
2007 (2) SA 271
(SCA) para 8 at 277G;) Magna Alloys & Research (SA) (Pty) Ltd v
Ellis
[1984] ZASCA 116
;
1984 (4) SA 874
(A) at 891B-C; Basson v Chilwan & Others
[1993] ZASCA 61
;
1993 (3) SA 742
(A) at 767A-D; Reddy v Siemens Telecommunications
(Pty) Ltd 2007 (2SA 486 (SCA) [10] at 493E-G; Den Braven SA (Pty)
Ltd v Pillay
& Another
2008 (6) SA 229
(D) para 3 at 233J-34A.
2
Automotive
Tooling Systems (Pty) Ltd v Wilkens & Others, supra para 8 at
277G-H- 78A;
3
Basson
v Chilwan & Others supra at 767F-I; Magna Alloys supra at
892I-93E; Sibex Engineering Services (Pty) Ltd v Van Wyk
&
Another
1991 (2) SA 482
(T) at 502D-F; Reddy v Siemens
Telecommunications (Pty) Ltd supra para 10 at 493 G; Den Braven,
supra, para 3 at 234A-B
4
At
767G-H; Reddy v Siemens Telecommunications (Pty) Ltd supra para 16
at 497; Den Braven SA (Pty) Ltd supra para 4 at 235A-B.
5
[1996] ZASCA 39
;
1996
(3) SA 766
(A) at 776E-F
6
Sibex
Engineering, supra, at 502D-E-F
7
Townsend
Productions (Pty) Ltd v Leech,
2001 (4) SA 33
(C) at 53J-54B;
Mossgas (Pty) Ltd v Sasol Technology (Pty) Ltd
[1999] (3) All SA 321
(W) at 333F;
8
[1992] ZASCA 204
;
1993
(1) SA 537
(A) at 541C-F.
9
[2000]
4 All SA 183[E]
para 33 at 192; referred to with approval in
Automotive Tooling Systems supra 278E-G-279A
10
Napier
v Barkhuizen
2006 (4) SA 1
(SCA) para 6 at 6
11
[1984] ZASCA 51
;
1984
(3) SA 623
(A) at 634H - 635B
.
12
Plascon-Evans
Paints, supra at 634 E-I
13
Plascon-Evans
Paints supra at 634 – 635
14
Reddy
v Siemens at 496C-D
15
Reddy
v Siemens at 496D-E; Reeves & Another v Marfield Insurance
Brokers CC & Another
[1996] ZASCA 39
;
1996 (3) SA 766
(A) at 775J-776F
16
Reddy
v Siemens, supra para 15 at 496D-F
17
Reddy
v Siemens, supra para 16 at 497C-D
18
Reddy
v Siemens, supra, para 16 at 497
19
Morris
(Herbert) Ltd v Saxelby
[1916] 1 AC
688
(HL) at 709.
20
Rawlins
v Caravantruck (Pty) Ltd
[1992] ZASCA 204
;
1993 (1) SA
537
(A) at 541D–H.
21
Rawlins
supra
at 541
G–I.
22
Den
Braven
,
supra
at 236 D–E.
23
Rectron
(Pty) Ltd v Govender and Another
[2006]
2 All SA 301
(D) para 35.7 at 318 where the Court was also faced
with customers who were common to both competitors and considered
the importance
of customers’ bargaining power.
24
Rectron
,
supra
para 35.7 at 319 where the learned McLaren J held that
it is this aspect of the relationship between customer and supplier
which
allows the customer to say to its supplier at the appropriate
time, “I can always go to my other supplier.”
25
[2006]
2 All SA 301
(D) para 35.9 at 319
26
1974
(2) SA 64
(C) at 69 A-B
27
1993
(1) SA 409
W at 430E-H