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[2011] ZAKZDHC 51
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Longfields Trading CC v Bradfiled and Another (10605/2011) [2011] ZAKZDHC 51 (23 November 2011)
IN
THE KWAZULU-NATAL HIGH COURT, DURBAN
REPUBLIC
OF SOUTH AFRICA
Case No: 10605/2011
In the matter between:
LONGFIELDS
TRADING CC
….........................................................................
Applicant
and
SHERRYL
GAYLE BRADFIELD
…........................................................
First
Respondent
NAKED
SOLUTIONS 001 t/a
HEADWEAR
24 GLOBAL MANUFACTURERS
…...........................
Second
Respondent
JUDGMENT
SEEGOBIN
J
[1] The applicant, Longfields Trading
CC, carries on business as a manufacturer and supplier of hair
accessories. It trades under
the name “Chic”. The first
respondent is Sherryl Gayle Bradfield. The second respondent is Naked
Solutions 001 which
trades as Headwear 24 Global Manufacturers.
[2] The business of Chic was
originally owned by one Bruno Watzek (“Watzek”) who is
the first respondent’s brother-in-law.
Chic was started by
Watzek some forty (40) years ago and from the outset the first
respondent was employed by it as a buyer and
sales executive. Some
years ago Watzek sold the business to one Mark Tonkinson. In about
mid July 2008 the applicant acquired the
business from its then
proprietor, Longfield Sales and Marketing CC alternatively Tonkinson
who controlled the members
’
interest in Longfield Sales and Marketing CC. The members
’
interest in the latter entity was sold to one Errol Anstey (“Anstey”)
and Roy Douglas Hockey (“Hockey”).
The proprietor of Chic
is now the applicant, controlled by Anstey and Hockey.
[3] The present application was
launched as a matter of urgency on 21 September 2011. The applicant
seeks interdictory relief against
the first and second respondents in
the following form:
“
1.
A
rule
nisi
do
issue calling upon
SHERRYL
GALE BRADFIELD
(“
the
first respondent
”
)
and
NAKED
SOLUTIONS 001 trading as HEADWEAR 24
(“
the
second respondent
”
)
to show cause to this Honourable Court sitting at Durban on the day
of
OCTOBER
2011
at
09h30
or
so soon thereafter as the matter may be heard, why an Order should
not be made in terms set out in paragraphs 2 to 8 (inclusive)
of this
Order.
2.
The first respondent is interdicted and restrained, for a period of 3
(three) years commencing 24 August 2011 and terminating
23 August
2014, anywhere within the Republic of South Africa, and whether
directly or indirectly and whether solely or jointly
with any other
person, from:
2.1.
carrying on; or
2.2.
being engaged, concerned or interested in or employed by; or
2.3.
soliciting business for; or
2.4.
being a proprietor of or director, shareholder, member or partner in;
or
2.5
acting as a consultant, trustee, manager, employee, agent,
representative, partner, advisor, officer or in any other capacity
to; or
2.6
rendering any service to,
any
business, person, company, close corporation, partnership, trust,
body corporate or incorporate, association or other legal
entity
which within the Republic of South Africa competes with or endevours
to compete with the applicant in relation to the applicant’s
clients, including, without limiting the generality of the
aforegoing, the second respondent, insofar as the second respondent
continues to compete or endeavours to compete with the applicant in
relation to the applicant’s customers.
3.
The first respondent is interdicted and restrained for a period of 3
(three) years commencing 24 August 2011 and terminating
23 August
2014 from, anywhere in the Republic of South Africa, canvassing,
influencing or trying to persuade any customer of the
applicant to
take its custom elsewhere and/or to purchase the services and/or
goods offered by the applicant from any other person/entity,
including, without derogating from the generality of the aforegoing,
the second respondent, and, for purposes of the aforegoing
“
customer
”
shall mean any person/entity
listed in annexure “B” to the notice of motion.
4.
The first respondent is interdicted and restrained, for a period of 3
(three) years, commencing 24 August 2011 and terminating
23 August
2014 from, anywhere in the Republic of South Africa, offering
employment to or causing to be employed any person who
was employed
by the applicant at any time within the 2 (two) year period
immediately preceding 24 August 2011.
5.
The first respondent is interdicted and restrained from at any time
utilising, divulging and/or disclosing, whether directly
or
indirectly, to any person any of the applicant’s confidential
information pertaining to the applicant’s business.
6.
The second respondent is interdicted and restrained from canvassing,
trying to persuade or influencing any customer of the applicant,
as
listed in annexure “B” to the notice of motion, to
transfer any of its custom to the second respondent in relation
to
any of the products sold or offered for sale by the applicant, as
listed in annexure “A” to the notice of motion,
or to
offer to sell, or to sell any such products to any of the applicant’s
customers, as listed in annexure “B”
to the notice of
motion.
7.
The second respondent is interdicted and restrained from utilising
any confidential information pertaining to the applicant’s
business communicated to the second respondent by or through the
first respondent at any time.
8.
The first and second respondents are ordered jointly and severally,
the one paying, the other to be absolved, to pay the costs
of the
applicant’s costs of suit.
9.
The Orders in paragraphs 2 to 7 (inclusive) of this Order shall
operate as interim orders with immediate effect.
10.
Further, other and/or alternative relief.
”
Annexure A to the Notice of Motion
contains a list of the following products:
Hair Clips
Hair brushes
Combs
Hair attachments
Hair bands
Hair extensions
Head Pieces
Hair slides
Hair grips
Alice Bands
Head Bands
Hair accessories
Annexure B contains a list of the
following customers:
Clicks
Foschini
Miladys
Edgars
Mr Price
Spar
[4] On 23 September 2011, the first
and second respondents consented to certain interim relief being
granted against them pending
final determination of the matter. The
parties further agreed on dates for the filing of papers. The matter
was fully argued before
me on 21 October 2011. The applicant was
represented by Mr
Smithers
SC
and the respondents were
represented by Mr
Saks
and Mr
Pillay
respectively. The relief sought is
final in effect. It is trite that a final order can only be granted
in motion proceedings if
the facts stated by the respondent together
with the admitted facts in the applicant’s affidavits justify
the order, and
this applies irrespective of where the
onus
lies
1
.
[5] The interdictory relief against
the first respondent is for the enforcement of a restraint of trade
agreement with the applicant
while the relief against the second
respondent is to restrain it from competing unlawfully with the
applicant. The relief sought
against the second respondent is founded
in delict. The relief against both respondents is limited to a period
of three (3) years,
effective from 24 August 2011, the date on which
the first respondent left the applicant’s employment. It is
common cause
that the first respondent is now employed by the second
respondent.
THE RESTRAINT
[6] The restraint clause relied upon
by the applicant is contained in Annexure “RH2” to the
founding papers. “RH2”
is a Letter of Appointment that
was signed by the first respondent on 3 June 2008 at the time when
the applicant acquired the business
of Chic. The clause reads as
follows:
“
You
shall not within a period of 3 (three) years after the Termination
Date, whether directly or indirectly and either solely or
jointly:
carry
on; or
be
engaged, concerned or interested in or employed by; or
solicit
business for; or be a proprietory director, shareholder, member or
partner in; or
act
as a consultant, trustee, manager, employee, agent, representative,
partner, advisor, officer or in any other capacity to;
or
render
any service to; or
lend
or advance or bind yourself as surety for, any sum of money or
otherwise assist financially, any business, person, company,
close
corporation, partnership, trust, body corporate or incorporate,
association or other legal entity which within the Territory
(the
Republic of South Africa] competes with or endeavours to compete
with the Company in relation to the Company’s clients.
Canvas,
influence or try to persuade any customer of the Company to take its
custom elsewhere and/or to purchase the services
offered by the
Company from any other person/entity and, for purposes of the
aforegoing, “
customer
”
shall mean any person/entity
which has at any time prior to the Termination Date utilised or
placed an order to utilise or negotiated
to utilise the services
offered by the Company; within a period of 3 (three) years prior to
your Termination Date;
Offer
employment to or cause to be employed any person who was employed by
the Company at any time within the 2 (two) year period
immediately
preceding the Termination Date
.
The
restraints imposed on the Restrained Party in terms of this provision
shall be deemed to be, in respect of each party thereof,
entire,
separate, severable and separately enforceable in the widest sense
from the other 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 as
any other undertaking, or is imposed by the introduction of a word or
phrase conjunctively with or disjunctively
from or alternatively to
other words or phrases.
The
Restrained Party hereby acknowledges, agrees and records that he has
given careful consideration to the restraints as provided
for herein
and that such restraints are fair and reasonable (after taking all
relevant circumstances into consideration) and go
no further than is
reasonably necessary to protect the Protectable interests.
The
restrains imposed upon the Restrained Party in terms of these
provisions shall be deemed to have been imposed separately in
respect
of each of the countries, provinces, states or territories forming
part of the Territory and the fact that it may not be
valid or
enforceable in respect of any one of such countries, provinces,
states or territories shall not affect its validity or
enforceability
in the other countries, provinces, states or territories forming part
of the Territory.
The
restraints imposed upon the Restrained Party in terms of the
provisions herein shall not preclude:
The
Restrained Party, after the Termination Date, from being engaged
generally in any entity which carries on the business of
a private
equity fund, provided that he does not compete with or endeavour to
compete with any investment or potential investment
of the Company;
The
Restrained Party from holding, by way of
bona fide
investments, any shares, stocks, debentures, debenture stock or
other securities of any company which is quoted and dealt with
on
any recognized stock exchange in the Territory and which carries on
any business which is similar to or will compete with
or endeavour
to compete with the Business, provided that such holding (which
shall include any interest in any such holding)
does not exceed 5%
(Five Percent) of the total shares, stock, debentures, debenture
stock or other securities of such company
in issue, provided always
that nothing herein contained shall permit the Restrained Party from
directly or indirectly being actively
engaged or concerned or
interested in any way in the affairs or management of any such
company.”
[7] The words “the Protectable
Interests” as used in the above clause
“
mean
the Company’s goodwill, technical and business know-how, trade
secrets, confidential information in connection with the
Business and
the Company’s intangible assets in general which are not
readily available to a competitor of the Company in
the ordinary,
normal and regular course of business.”
IN LIMINE
OBJECTIONS
[8] The respondents raised two
preliminary objections to the application. The first was whether the
contract (
“
RH2
”
)
containing the restraint clause was a pre-incorporation contract and
if so, whether it had been properly ratified or adopted by
the
applicant. The second concerned the effect of section 197
2
of the Labour Relations Act (“LRA”)
on the contract.
SECTION 53 OF THE CLOSE
CORPORATIONS ACT 69 OF 1984 (“THE ACT”) AND SECTION 197
OF THE LRA
[8.1]
Section 53
of the
Close
Corporations Act provides
that any contract in writing, entered into
by a person professing to act as an agent or a trustee for a
corporation not yet formed,
may after its incorporation be ratified
or adopted by such corporation as if the corporation had been duly
incorporated at the
time when the contract was entered into
(s53(1)).
Section 53(2)
requires the ratification or adoption to take place in
the form of a consent in writing of all the members of the
corporation,
given within a time specified in the contract or, if no
time is specified, within a reasonable time after incorporation.
[8.2] Annexure “RH2” was
signed by the first respondent on 3 June 2008 and by Anstey on 4 June
2008. The preamble to
“RH2” reads as follows:
“
As
trustee of a company or close corporation still to be formed (The
Company) under the terms of the Longfield Sales & Marketing
CC
(LSM) sale agreement signed by myself, Mark Tonkinson and Roy Hockey
and witnessed by you, I hereby confirm the terms of your
employment
with The Company as agreed
.”
[8.3] It was contended on behalf of
the respondents that since Anstey concluded the contract as a trustee
of a company or close
corporation which at that time still had to be
formed, the applicant was obliged to comply with the provisions of
section 53
of the
Close Corporations Act. It
was further contended
that the applicant had failed to allege such ratification or adoption
and failed to put up such written report.
The applicant on the other
hand maintained that the contract was a
stipulatio alteri
as a
consequence of which it did not need to comply with section 53 of the
Act.
[8.4] The Longfields Sales and
Marketing CC (“LSM”) sale agreement referred to above and
which was witnessed by the
first respondent, is Annexure “RH14”
to the applicant’s replying affidavit.
[8.5] Annexure “RH13” to
the applicant’s replying affidavit is the Memorandum of
Agreement which was concluded
when Watzek sold the business of Chic
to Tonkinson and Hockey. This agreement will hereafter be referred to
as “the Watzek
Agreement”. It is significant to note that
the first respondent was also a party to this agreement.
[8.6] In order to decide these
arguments
in limine
, it is perhaps convenient to briefly
examine the purpose for which the applicant was formed and how the
agreements referred to
above came into being.
[8.7] There can be no dispute about
the following facts: The business of Chic was, until June 2006, owned
by WATTAN ENTERPRISES
(PTY) LTD, and controlled by Watzek. On 6 June
2006 Wattan sold the business to Tonkinson in his capacity as a
trustee for a close
corporation to be formed or purchased. Tonkinson
duly formed a close corporation called Longfield Sales and Marketing
CC (“LSM”)
in which Tonkinson and Hockey became
co-members. The Watzek agreement (
“
RH13
”
)
relates to the contract of sale of the business to LSM.
[8.8] There are certain salient
features of the Watzek agreement which cannot be ignored:
[8.8.1] The first respondent initialed
each page and signed this agreement on 6 June 2006.
[8.8.2] Clause 17 of the agreement
contains a restraint of trade clause which relates to both Watzek and
the first respondent.
[8.8.3] Clause 3 deals with the
position of employees and provides as follows:
“
Employees”
Unless
otherwise agreed by an employee, all rights and obligations between
the Seller and each of the persons employed by the
Seller in
connection with the business on the Effective Date (close of
business on 28 February 2006) will continue in force
on and after
the Effective Date in accordance with the requirements of
section
197
of the
Labour Relations Act, 1995
as if there had been rights
and obligations between the Buyer and the said employees …”
[8.9] On 22 and 23 May LSM sold the
business of Chic to Anstey in his capacity as trustee for a company
or close corporation to
be formed. The LSM Sale Agreement is Annexure
“
RH14
”
as mentioned above.
[8.10] The salient features of “RH14”
are the following:
[8.10.1] The first respondent signed
“
RH14
”
as a witness.
[8.10.2] Clause 2 of the LSM Sale
agreement contains certain suspensive conditions to which the LSM
Sale Agreement was subject.
One of the suspensive conditions was that
the sale agreement would be of no force and effect unless fourteen
(14) days from the
date of signature of the LSM Sale Agreement, or
such later date as the parties may agree in writing, Anstey provided
Tonkinson
with confirmation that Anstey was satisfied that the first
respondent would continue to be employed in the business after the
effective
date (1 July 2008) in terms of a written agreement of
employment to the satisfaction of Anstey, and that her employment
would be
governed by a suitable restraint of trade. It was for this
reason, so it seems, that the first respondent was requested to read
and sign the LSM Sale Agreement as a witness.
[8.10.3] Clause 13 of the LSM Sale
Agreement relates to the position of employees and provides as
follows:
“
13.
EMPLOYEES
In
accordance with
section 197
of the
Labour Relations Act 6 of 1995
,
as amended, the contracts of employment with employees of the
Business will automatically transfer to the Purchaser.
The
Seller shall be responsible for all liabilities to employees up to
the Effective Date (1 July 2008) subject to the provisions
of
clause 7 above, and the purchaser thereafter.
The
Seller and Purchaser agree that they shall effect a valuation as at
the effective date (1 July 2008) of the leave pay, severance
pay
and any other payments accrued to employees as contemplated in
section 197(a)
of the
Labour Relations Act 1995
, as amended.
It
is further recorded that the Seller and Purchaser have agreed
herein that the Purchaser shall be liable
f
o
r
all payments of the amounts
valued in terms of clause 13.3 and that the Sellers contribution is
similarly recorded herein. The
Purchaser shall meet any payments
from its own resources
.”
[9] From all of the above, there can
be no dispute that the applicant was duly formed for the purpose of
acquiring the business
of Chic. Hockey and Anstey became co-members
in the applicant.
[10] It seems to me, that the LSM
Agreement of Sale was in fact a
stipulatio
alteri
for the benefit of
the applicant. In these circumstances, there was no need for the
applicant to have complied with the provisions
of section 53 of the
Act. Furthermore, it sees to me that the first respondent was, at all
material times, fully aware of her position
both in so far as the
Watzek Agreement is concerned as well as the LSM Agreement which she
was asked to witness. There can be no
dispute that the first
respondent was a key employee in the business before and after it was
sold to the applicant. In my view,
she was fully aware of her rights
and obligations which flowed from the agreements that were concluded
relating to the sale of
the business and the formation of the
applicant herein.
[11] The first respondent’s
contentions that the terms of the restraint as contained in
“
RH2
”
were less favourable to her than those
contained in the Watzek Agreement and that she was “duped”
into signing the contract,
ring rather hollow when one has regard to
the role she herself played in the conclusion of the agreements
referred to above. Additionally,
the relevant agreements make full
provision for the employees of the business and the effect of s197 of
the LRA on them. No doubt,
the first respondent would have raised
objections and/or disputes concerning the terms of the restraint if
she seriously believed
that she would be prejudiced thereby. She did
not. In my view, her current objections, raised as they are in this
application,
are rather opportunistic. The first respondent bore the
onus
3
of establishing that when she signed
the contract (
“
RH2
”
),
she did so as a result of misrepresentations, duress or being unduly
influenced in some way or the other. The first respondent
has failed
to discharge the onus in this regard. I accordingly find that the
technical defences raised by the respondents fall
to be dismissed for
the reasons set out above.
[12] I turn now to consider whether
the applicant has made out a proper case for the interdictory relief
which it seeks against
the respondents. I commence by looking at the
case made out against the first respondent.
CASE AGAINST FIRST RESPONDENT
[13] It is well established that
restraint of trade agreements are enforceable unless, and to the
extent that, they are contrary
to public policy because they impose
an unreasonable restriction on the former employee’s freedom to
trade or to work
4
.
The onus of proving that the restraint is unreasonable and
unenforceable rests upon the former employee
5
.
The acceptable test is that set out in
Basson
v Chilwan & Others
6
and is the following:
(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 qualitatively and
quantitatively against the interest of the other party not to be
economically
inactive and unproductive?
(d)
Is there an aspect of pubic policy having nothing to do with the
relationship between the parties that requires that the restraint
be
maintained or rejected?
In
Reddy
v Siemens Telecommunications (Pty) Ltd
2007(2)
SA 486 SCA, a fifth factor was considered, viz whether the restraint
goes further than necessary to protect the interest.
[14] The issue to be determined at the
outset is whether the applicant has a protectable interest that is
threatened by Mrs Bradfield’s
employment with the second
respondent. In contending that it had a protectable interest the
applicant relied on a risk of harm
to its customer or trade
connections and the risk of disclosure and use of confidential
information.
CUSTOMER OR TRADE CONNECTIONS
The legal position where an employer
seeks to enforce a restraint of trade agreement on the basis of a
risk of harm to its trade
connections and in particular its
connections with its customers have been authoritatively set out as
follows
7
:
“
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 (Joubert
General
Principles of the Law of Contract
at
19). Heydon
The
Restraint of Trade Doctrine
(1971)
at 108, quoting an American case, says that the ‘customer
contract’ doctrine depends on the notion that
‘
the
employee, by contract 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 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 employers trade
connection …’
This
statement has been applied in our Courts (for example, by Eksteen J
in
Recycling Industries (Pty) Ltd v Mohammed and Another
1981
(3) SA 250
(E) at 256C-F). Whether the criteria referred to are
satisfied is essentially a question of fact in each case, and in
many, one
of degree. Much will depend on 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 lo
s
t
after the employee left …”
[15] It should be noted that a mere
contact that the former employee had with the employers customers in
the ordinary course of
their work, is not sufficient for a conclusive
finding that a protectable interest in the form of customer
connection had arisen:
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
8
.
[16] There is no dispute at all that
the first respondent was a key employee of the applicant. According
to the applicant, the first
respondent was the face of the applicant
insofar as the customers were concerned. In fact, she was integral to
the applicant’s
business. She was the primary interface between
the applicant and the applicant’s major retail customers, viz
Clicks, Mr
Price, Edgars, Milady’s and Foschini. Being the
applicant’s major retail accounts manager, the first respondent
built
up strong, ongoing relationships with the buyers of these
retail customers particularly Clicks, which according to the
applicant
accounted for approximately fifty five percent (55%) of the
applicant’s annual turnover and which utilised the applicant as
its sole supplier of
its
hair accessor
ies
and related range for many years.
[17] The first respondent
’
s
answer to all this is to aver that the relationships she developed
with the applicant’s customers were already in place
when the
applicant purchased the business of Chic and employed the first
respondent with effect from 1 July 2008. The thrust of
this defence
seems to be that the applicant had no customer connections to
protect, because the customer connections were either
part of the
first respondent’s general stock of knowledge, skill and
experience that are personal to her, or the customer
connections were
the first respondent’s personal customer connections and not
the applicant
’
s.
As already mentioned, the first respondent was employed in the
business throughout her working life, commencing some forty (40)
years ago when the business of Chic was owned by Walton Enterprises,
controlled by Watzek. As such, the relationships that the
first
respondent built up with Wattan’s customers over the years were
Wattan’s customer connections and accordingly
protectable at
the instance of Wattan. No explanation has been advanced by the first
respondent as to how or when Wattan’s
customer connections
became part of the first respondent’s general stock of skill,
knowledge and experience, personal to
her. What is apparent is that
Wattan sold its business, including the goodwill to Tonkinson who, in
turn sold the business (including
the goodwill) to the applicant.
[18] The onus being on the first
respondent to establish the unreasonableness of the restraint,
9
it was for her to show that she never
acquired any significant personal knowledge of or influence over the
persons she dealt with
as a sales person of the applicant, over and
above that which previously existed. The first respondent has not
done so.
[19] The first respondent’s
further attack on the restraint was to say that price is more
important than her skill or expertise
or the relationship that she
may have fostered with the applicant’s customers. While price
is no doubt an important consideration
in the commercial world, it
cannot be everything. Relationships such as those established by the
first respondent with the applicant’s
customers, are generally
built on trust and confidence which factors are substantially more
important in ensuring loyalty to the
applicant.
CONFIDENTIAL INFORMATION
[20] The test for confidentiality is
an objective one
10
.
In
Coolair Ventilator Co
(SA) (Pty) v Liebenberg
11
Marais J said the following:
“
The
difficult question in each case would be to decide which information
gleaned by an employee is to be regarded as disclosable
as being
harmless or general knowledge and what items are confidential or
secret. The dividing line may move from case to case,
according to
what is the general practice or convention in the category of trade
or manufacturing in which the plaintiff falls,
with particular
reference to existing or potential competitors of his. If, however,
it is objectively established that a particular
item of information
could reasonably be
useful
to a competitor as such, i.e. to gain an advantage of the plaintiff,
it would seem that such knowledge is
prima
facie
confidential
as between an employee and third parties and that disclosure would be
a breach of the service contract. If use has
in fact been made of it
in an effort to harm the business interests of the plaintiff the
presumption will be even stronger that
the employer and the employee,
who would in the course of his employment obtain knowledge of it,
intended it to be treated as confidential
information not to be
divulged to third parties.”
[21] In order to claim an infringement
of its proprietary interests and therefore the enforcement of a
restraint, an employer need
prove only that its erstwhile employee is
potentially able to exploit its trade secrets or business connections
in his or her new
employment. The loyalty which the employees owe his
or her employer will be sufficient to create the real probability
that he or
she will, consciously or unconsciously, do so.
12
In
Partserve
Channel Support (Pty) Ltd v Rajap,
13
Mahlanya J said the following:
“
The
question whether the information which the applicant seeks to protect
is confidential or secret information can be answered
by stating the
following. The first respondent admits that he had access to the
applicant’s database including information
about applicant’s
customer purchases. He further admits that he was aware of the
applicant’s full details when it came
to profit margins,
mark-ups and marketing strategy including stock levels at any given
time. In my opinion, all the first respondent
has admitted herein can
be described as the applicant’s confidential information or
knowledge and indeed proprietary interests.
This information was
obtained by him as a result of his position as an internal sales
consultant with the applicant.”
14
[22] There is no dispute in the
present matter that during the first respondent’s employment
with the applicant she was integrally
involved in negotiating prices
from and to the applicant’s suppliers. As a result of this she
acquired detailed knowledge
of the applicant’s cost structures,
turnover, margins, volumes and the relative importance of each of its
customers to the
applicant’s business. In these circumstances
it can hardly be suggested that the first respondent did not acquire
confidential
information which was not only useful to her but also
was of economic value to the applicant.
15
The first respondent herself admits in
her answering affidavit that price is “everything
”
in the retail industry, which by its
nature involves high volumes. In my view, a competitive price which
affects profitability can
only be achieved if one is possessed with
confidential information which can be used in the bargaining process.
Inasmuch as the
respondents may wish to deny that the first
respondent will not occupy a position similar to the one she had with
the applicant,
their versions in the answering affidavits,
16
although couched in veiled terms,
leads to the inescapable inference that the first respondent will
continue as a procurement and
sales executive as she did for the
applicant.
I accordingly find that the applicant
has established that it has proprietary interests in the nature of
the two dealt with herein
that are worthy of protection.
It follows that I am satisfied that
the applicant has discharged the onus of showing that it has a
commercial interest that is deserving
of protection at the
termination of the agreement and that such interest will be
prejudiced by the first respondent taking up employment
with the
second respondent and occupying a similar if not the same position as
she previously held with the applicant. The only
issue which remains
to be decided insofar as the first respondent is concerned relates to
the reasonableness or otherwise of the
restraint.
REASONABLENESS OF RESTRAINT
[23] It is well established that
public policy requires contracts to be enforced. This is consistent
with the constitutional values
of dignity and autonomy.
17
The restraint agreement in this matter
is not against public policy and no argument was advanced by the
first respondent that it
was. The only complaint from the first
respondent is that the period of three (3) years is unduly long given
her age (which was
said to be sixty three (63)) and her ability to
secure alternative employment. On this basis Mr
Saks
contended that given the nature of the
business and dynamic nature of the fashion industry, a restraint of
six (6) months would
be reasonable in the circumstances. Given the
nature of the first respondent’s employment with the applicant,
which related
mainly to the sourcing and supplying of hair
accessories and related products, I consider that the restraint
period of three (3)
years is a long time. The period of restraint
should, for all practical reasons,
“
not be longer than is necessary
to enable the applicant to place a new salesperson in field in order
to enable him or her to become
acquainted with the products and the
customers and to make it place to the latter that they are now the
person with whom to deal
on behalf of the applicant.”
18
In the circumstances I consider a
period of six months to be fair and reasonable given the nature of
the applicant’s business
herein. Since the applicant has not
made out a case for the relief sought in paragraph 4 of the Notice of
Motion, no such relief
will be granted.
CASE AGAINST SECOND RESPONDENT
[24] As already pointed out, the
relief sought against the second respondent stands on a different
footing from that sought against
the first respondent. Whereas the
relief against the first respondent is founded in contract, the
relief against the second respondent
is founded in delict.
[25] It is well established that when
an ex-employer seeks finally to interdict a third party on the ground
that it is competing
unlawfully, by employing an ex-employee who has
breached a restraint, the ex-employer is required to prove that:
It has confidential or trade secrets;
The third party is making use of, or
is likely to make use of, such information or trade secrets, either
knowingly or innocently;
It has a real right not to be placed
with unfair competition – in deciding fairness, a court is
entitled to look at the
competing interests of the parties; and
It has no other remedy.
19
[26] In its founding affidavit the
applicant relies on three pieces of evidence which the applicant
contends leads one to the conclusion
that the respondents are
filching the applicants business. The three lines of evidence relied
on are the following:
Mr Price email exchange of 27 July
2011 (
“
RH6
”
);
Edgars Kiddies Headband’s email
exchange (
“
RH4
”
);
Clicks meeting scheduled for 28
September 2011 (
“
RH7
”
).
[27] According to the applicant, the
Mr Price email exchange provides
prima facie
proof of an
intention on the part of the first respondent to join the second
respondent’s employment and to take the applicants
customer, Mr
Price, with her. The second respondent’s explanation pertaining
to this email is to the following effect:
“
The
email referred to relates to our attempt to sell licenced
merchandise, particularly the Marvel comic characters to Mr Price.
Mr
Price is however not keen on this merchandise. Mr Price [in relation
to the licenced Marvel comic book merchandise] does not
want to ‘come
on board’
.”
The applicant contends that a reading
of this email suggests that the first respondent intended to bring a
lot more than just one
of the applicant’s customers with her.
This further emerges from the reply sent by the member of the second
respondent who
suggests that Mr Price’s “coming on board”
is not very important because it “really is only one customer”.
[28] Insofar as the issue relating to
Edgars is concerned, the applicant contends that kiddies headbands
were sought for the benefit
of the second respondent. According to
the applicant, in relation to at least two persons with whom the
respondent dealt in the
course of her employment with the applicant
(viz Doris and Niki), the first respondent took active steps to
conceal from the applicant,
her communication with the persons
concerned. The applicant contends that the respondent’s
explanation that the kiddies headbands
were being sourced for the
benefit of the applicant is untrue because if it was true, there was
no need for the first respondent
to communicate with the applicant’s
employees on a “personal” basis.
[29] Insofar as the email relating to
Clicks is concerned, the applicant contends that it is clear from the
said email that the
proposed meeting had everything to do with “hair
accessories”. The explanation provided by the second respondent
with
regard to this email is that a person by the name of Scholtz was
to attend the Clicks meeting on the 28 September 2011 and not the
first respondent. Mr Scholtz is in fact the second respondent’s
principle buyer/salesperson and the former head buyer for
Mr Price.
According to the second respondent Mr Scholtz is a well-known buyer
and merchandiser for head gear and hair accessories.
He has contacts
with almost all the major retail chains and was the driving force
behind the second respondent’s initiative
to enter the hair
accessory market. On the basis of these emails and the explanations
provided by the respondents, which the applicant
does not accept, the
applicant contends that it is clear that the first respondent was
using her customer connections in order
to solicit and take away
customers from the applicant to the second respondent.
[30] According to the second
respondent (and this is not disputed), it is the largest supplier of
head wear and related accessories
within the Republic of South
Africa. In fact, the second respondent has branches located in
Durban, Cape Town, Johannesburg and
Port Elizabeth. It is also in the
process of setting up a business unit in the United Kingdom. The
deponent to the second respondents
answering affidavit, Bevan Edgeley
(“Edgeley”), makes the point that whilst the second
respondent will enter the hair
accessories market, the second
respondent intends to source its products through its own efforts and
not by targeting those products
specifically marketed by the
applicant. According to Edgeley, the second respondent employs
approximately sixty (60) staff members,
the majority of whom are
involved in the actual business operations of the company, including
supply chain management, costing,
sales and development, marketing,
research and general administration. Unlike the applicant, the second
respondent contends that
its business is geared towards actual supply
and delivery of products and not largely warehousing. There is no
dispute that the
second respondent does a turnover in excess of
R90million and whereas the applicant does an annual turnover not
exceeding R20 to
R25million. The second respondent contends that in
the course of its business it developed strong business connections
within the
retail and wholesale apparel and accessories sectors. It
states that the second respondent does approximately R3million to
R4million
per month of business with the Mr Price Group. It further
contends that as a result of its business operations, the second
respondent
has established strong working relationships with buyers,
suppliers and other key personnel of various high profile customers
including
the customers listed by the applicant namely, Clicks,
Foschini, Milady’s, Edgars, Mr Price and Spar.
[31] According to Edgeley, he and
Ambler-Smith took a decision almost two (2) years ago to enter the
hair accessories market. That
decision was motivated by the fact that
they had access to the wealth of knowledge and skill possessed by
Watzek who is his father-in-law.
Watzek is regarded to be a pioneer
in this field. The second respondent contends that Watzek’s
knowledge of this business
far exceeds any information that the first
respondent may possess. The second respondent contends that over the
years it developed
its own methodologies relating to price
structures, turnover margins etc., and does not need to rely on such
information either
from the first respondent or the applicant.
Additionally, any information which the second respondent requires in
this market,
it can obtain from Watzek directly. Watzek owes no
fiduciary duty to the applicant in this regard.
[32] In the
IIR South Africa BV
trading as Institute for International Research v Hall
case,
supra,
the court considered whether, on the facts, an
interdict could be granted against the ex-employee’s new (but
in that case
erstwhile) employer in circumstances where, immediately
upon learning that the ex-employee was subject to a restraint, the
new
employer had dismissed her. Despite the dismissal, the applicant
nevertheless sought to interdict the second respondent from holding
conferences organized whilst the ex-employee was still in his employ.
The court held that, on the facts of that case, it could
not.
Schwartzman J held as follows:
“
[20.1]
An ex-employer having protectable confidential information gets the
benefit of its contractual bargain against the ex-employee
by
obtaining an interdict against his or her continued breach of the
restraint in taking up employment with a competitor.
[20.2]
The competitors employment of the ex-employee with or without
knowledge of the restraint cannot of itself amount to the delict
of
unlawful competition. Unlawful or unfair competition can only result
if the new employer, through the ex-employee, uses either
intentionally or innocently confidential information of the
ex-employer.
[20.3]
In such circumstances, the ex-employer is entitled to an interdict
against unfair competition.
[20.4]
An interdict is granted to prevent a future unlawful act, wrong doing
or harm. The competitors’ only ‘unlawful’
act or
wrong doing was to employ a person bound by a restraint. This act did
not result in the misuse of any confidential information
of the
ex-employer. Any harm that the ex-employee might have caused during
the remaining period of restraint was obviated by the
interdict
granted against the ex-employee. To interdict the competitor from
holding the two conferences appears to be nothing more
than a
punishment for unwittingly employing the person subject to a
restraint. There is no public policy or legal requirement to
justify
such an order.”
In the final result the court found
that it had not been shown that, during the period of the first
respondents employment with
the second respondent, the first
respondent had imparted any confidential information, or that the
second respondent had used such
information in the planning or
production of the fourteen (14) conferences, the holding of which the
applicant sought to interdict.
In
Vital
Administration CC v Irenco (Pty) Ltd
20
Bertelsmann J said that
“
as
long as the third respondents principle aim was to benefit itself by
enticing applicants employees to join its service, that
object was
lawful, even if the applicant might have suffered severely as a
result thereafter
”.
[33] While it may be accepted that the
applicant and the second respondent are trade competitors, the size
of the second respondent’s
business operations, its unique
costing program developed by “iSync Solutions”, its
annual turn-over, profit margins
and volumes, in my view, far exceed
that of the applicant. Additionally, I consider that the second
respondent
’
s access to Watzek who
by all accounts is a pioneer in the business of acquisition,
marketing and supply of hair accessories, places
the second
respondent in a completely different league from the applicant. There
is no dispute that the second respondent has already
established a
strong business relationship with some of the major retailers such as
Mr Price, Foschini, Miladys etc. The second
respondent has made out a
compelling case that it is not reliant on any confidential
information or customer connections that the
first respondent has
acquired through her employment with the applicant. In my view, the
applicant, on whom the onus rests in this
regard, has failed to prove
that the second respondent has solicited and/or taken away any of the
applicant’s customers by
exploiting any information in
possession of the first respondent. I further consider that
interdicting the first respondent is
enough and obviates the need to
interdict her new employe
r
as well. The
case against the second respondent is at best highly speculative and
does not justify the orders sought against it.
It follows then that
the application against the second respondent must fail.
ORDER
[34] For the reasons set out above, I
grant the following order:
The first respondent is interdicted
and restrained, for a period of six (6) months commencing 24 August
2011 and terminating
on 24 February 2012, anywhere within the
Republic of South Africa, and whether directly or indirectly and
whether solely or
jointly with any other person, from:
carrying on; or
being engaged, concerned or
interested in or employed by; or
soliciting business for; or
being a proprietor of or director,
shareholder, member or partner in; or
acting as a consultant, trustee,
manager, employee, agent, representative, partner, advisor, officer
or in any other capacity
to; or
rendering any service to,
any business, person, company, close
corporation, partnership, trust, body corporate or incorporate,
association or other legal
entity which within the Republic of South
Africa competes with or endeavours to compete with the applicant in
relation to the applicant’s
clients, including, without
limiting the generality of the aforegoing, the second respondent,
insofar as the second respondent
continues to compete or endeavours
to compete with the applicant in relation to the applicant’s
customers.
The first respondent is interdicted
and restrained, for a period of six (6) months commencing 24 August
2011 and terminating
on 24 February 2012 from, anywhere in the
Republic of South Africa, canvassing, influencing or trying to
persuade any customer
of the applicant to take its custom elsewhere
and/or to purchase the services and/or goods offered by the
applicant from any
other person/entity, including, without
derogating from the generality of the aforegoing, the second
respondent, and, for the
purposes of the aforegoing “customer”
shall mean any person/entity listed in annexure “B” to
the notice
of motion.
The first respondent is interdicted
and restrained from at any time utilizing, divulging and/or
disclosing, whether directly
or indirectly, to any person any of
the applicant’s confidential information pertaining to the
applicant’s business.
The first respondent is directed to
pay the applicant’s costs of the application.
The application against the second
respondent is dismissed with costs.
Date of Hearing : 21 October 2011
Date of Judgment : 23 November 2011
Counsel for Applicant : Adv. M
Smithers SC
Instructed by : Barkers Attorneys
Counsel for First Respondent : Adv.
Saks
Instructed by : Hassan, Parsee &
Poovalingam
Counsel for Second Respondent : Adv. I
Pillay
Instructed by : MacGregor Erasmus
Attorneys
1
Plascon-Evan
Paints v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(A) at 634 H
– 635 B
2
197. Transfer
of contract of employment.
—
(1) In
this section and in
section
197A
—
(
a
) “
business”
includes the whole or a part of any business, trade, undertaking
or service; and
(
b
) “
transfer”
means the transfer of a business by one employer (“the old
employer”) to another employer (“the new employer”)
as a going concern.
(2)
If a transfer of a business takes place, unless otherwise
agreed in terms of
subsection
(6)
—
(
a
) the new
employer is automatically substituted in the place of the old
employer in respect of all contracts of employment in
existence
immediately before the date of transfer;
(
b
)
all the rights and
obligations between the old employer and an
employee
at the
time of the transfer continue in force as if they had been rights
and obligations between the new employer and the
employee
;
(
c
)
anything done before
the transfer by or in relation to the old employer, including the
dismissal
of an employee or the commission of an unfair
labour practice or act of unfair discrimination, is considered to
have been done
by or in relation to the new employer; and
(
d
) the
transfer does not interrupt an
employee’s
continuity of
employment, and an
employee’s
contract of employment
continues with the new employer as if with the old employer.
(3) (
a
)
The
new employer complies with
subsection
(2)
if
that employer employs transferred
employees
on
terms and conditions that are on the whole not less favourable to
the
employees
than
those on which they were employed by the old employer.
(
b
)
Paragraph
(a)
does
not apply to
employees
if
any of their conditions of employment are determined by a collective
agreement.
(4)
Subsection
(2)
does
not prevent an employee from being transferred to a pension,
provident, retirement or similar fund other than the fund to
which
the employee belonged prior to the transfer, if the criteria in
section
14 (1) (c)
of
the Pension Funds Act, 1956 (
Act
No. 24 of 1956
),
are satisfied.
53a
(5) (
a
)
For
the purposes of this subsection, the
collective
agreements
and
arbitration awards referred to in
paragraph
(b)
are
agreements and awards that bound the old employer in respect of the
employees
to
be transferred, immediately before the date of transfer.
(
b
) Unless
otherwise agreed in terms of
subsection
(6)
,
the new employer is bound by—
any
arbitration award made in terms of this Act, the common law or any
other law;
any
collective
agreement
binding
in terms of
section
23
;
and
any
collective
agreement
binding
in terms of
section
32
unless
a commissioner acting in terms of
section
62
decides
otherwise.
(6) (
a
)
An
agreement contemplated in
subsection
(2)
must
be in writing and concluded between—
(i) either the old
employer, the new employer, or the old and new employers acting
jointly, on the one hand; and
(ii)
the appropriate person or body referred to in
section
189 (1)
,
on the other.
(
b
) In
any negotiations to conclude an agreement contemplated by
paragraph
(a)
,
the employer or employers contemplated in subparagraph (i), must
disclose to the person or body contemplated in subparagraph
(ii),
all relevant information that will allow it to engage effectively in
the negotiations.
(
c
)
Section
16 (4)
to
(14)
applies,
read with the changes required by the context, to the disclosure of
information in terms of
paragraph
(b)
.
(7) The old
employer must—
(
a
) agree with
the new employer to a valuation as at the date of transfer of—
(i) the leave pay
accrued to the transferred
employees
of the old employer;
(ii) the severance pay
that would have been payable to the transferred
employees
of
the old employer in the event of a dismissal by reason of the
employer’s operational requirements; and
(iii) any other
payments that have accrued to the transferred
employees
but
have not been paid to
employees
of the old employer;
(
b
) conclude a
written agreement that specifies—
(i)
which employer is liable for paying any amount referred to in
paragraph
(a)
,
and in the case of the apportionment of liability between them, the
terms of that apportionment; and
(ii)
what provision has been made for any payment contemplated in
paragraph
(a)
if
any
employee
becomes
entitled to receive a payment;
(
c
)
disclose the terms of the agreement contemplated in
paragraph
(b)
to
each
employee
who
after the transfer becomes employed by the new employer; and
(
d
)
take any other measure that may be reasonable in the circumstances
to ensure that adequate provision is made for any obligation
on the
new employer that may arise in terms of
paragraph
(a)
.
(8) For
a period of 12 months after the date of the transfer, the old
employer is jointly and severally liable with
the new employer to
any
employee
who
becomes entitled to receive a payment contemplated in
subsection
(7) (a)
as
a result of the
employee’s
dismissal
for
a reason relating to the employer’s
operational
requirements
or
the employer’s liquidation or sequestration
,
unless the old employer is able to show that it has complied with
the provisions of this section.
(9) The old
and new employer are jointly and severally liable in respect of any
claim concerning any term or condition
of employment that arose
prior to the transfer.
(10) This section
does not affect the liability of any person to be prosecuted for,
convicted of, and sentenced for, any
offence.
3
Savvidies
v Savvidies 1986(2) SA 325 (T). See also, n duress in general: Kerr
The Principles of the Law of Contract 3
rd
Ed, 191. Christie The Law of Contract in South
Africa 5
th
Ed,
309.
4
Magna
Alloys and Research (SA) (Pty) Ltd v Ellis 1984(4) SA 874 (A) at 891
B-C
5
Magna
Alloys
supra
.
See also Den Braven SA (Pty) v Pillay & Another 2008(6) SA 229
(D & CLD) at 234 A-C
6
[1993] ZASCA 61
;
1993
(3) SA 742(A)
at 767 G-H
7
Rawlins
and Another v Caravantruck (Pty) Ltd 1993(1) SA 537 (A) at 541 D-H.
See also Nampesca (SA) Products (Pty) Ltd and Another
v Zanderer and
Others 1991(1) SA 886 (C) at 899 B-900C
8
Walter
McNaughtan (Pty) Ltd v Schwartz and Others
2004 (3) SA 381
(C) at
390 C-D
9
Magna
Alloys,
supra
.
See also Rawlins and Another v Caravantruck (Pty) Ltd,
supra
,
at 542F-543B
10
Telefund
Raiser CC v Isaacs
1998 (1) SA 521
(C) 523I. Also, Van Castricum v
Theunissen 1993(2) SA 726 (T) 732 G-D. The mere
ipse
dixit
of the applicant will not
suffice to establish that information is confidential. Facts must be
set up from which the conclusion
can be drawn that something is
indeed confidential or secret. See also Automative Tooling System
(Pty) Ltd v Wilkens
2007 (2) SA 271
(SCA) 281B-D
11
1967
(1) SA 686 (W) 698 F-H
12
Turner
Morris (Pty) Ltd v Riddell
1996 (4) SA 397
(E) 409J-140 A. Also, BHT
Water Treatment (Pty) Ltd v Leslie
1993 (1) SA 47
(W) at 571 I-58D
13
[2005]
J 13589 (W) p6
14
See
also Poolquip Industries (Pty) Ltd v Griffin 1978 (4) 353 (W) 362
C-E
15
Townsend
v Leech 2001(4) SA 33(C)
16
First
Respondent’s answering affidavit at page 97 (para. 1.1), page
115 (para. 82.1). Second Respondent’s answering
affidavit,
page 136 (para. 58)
17
Reddy
v Siemen’s Telecommunications (Pty) Ltd
supra
18
Per
Wallis J in Den Braven,
supra
at page 263, para [55]
19
See
generally IIR South Africa v Hall (aka Baghas)
2004 (4) SA 174
(W)
at 180 C-G
See also Kennitex Africa Limited v Coverite Limited
1967(3) SA 307 (W) at 309 D-F
20
[2004]
4 All 354 (T)