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[2008] ZAFSHC 110
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Royal Pack Distributors (Pty) Ltd v Van Greunen (906/2008) [2008] ZAFSHC 110 (20 August 2008)
IN
THE HIGH COURT OF SOUTH AFRICA
(ORANGE
FREE STATE PROVINCIAL DIVISION)
Case No. : 906/2008
In
the matter between:-
ROYAL
PACK DISTRIBUTORS (PTY) LTD
Applicant
and
VAN GREUNEN,
ANDRÉ
Respondent
_____________________________________________________
HEARD ON:
31
JULY 2008
JUDGMENT
BY:
EBRAHIM,
J
DELIVERED ON:
20
AUGUST 2008
[1] Pursuant to a
covenant in restraint of trade signed by the parties on 19 January
2004, the applicant launched an application
for a final interdict in
this Court prohibiting the respondent from trading in competition
with any of the existing clients of
the applicant in any concern
which carries on business similar to that carried on by the
applicant, nationwide, in the whole of
the Republic of South Africa
until 19 May 2009. More specifically the applicant requires an
interdict that the respondent is prohibited
from selling or supplying
food packaging products and food containers to the firm of Fruit and
Veg City in the Showgate Centre,
Curie Avenue, Bloemfontein, until 19
May 2009.
[2] The applicant is a
limited liability company with its principal place of business at 15
Beryllium Street, Alrode, Alberton and
carries on business
countrywide in the sale and distribution of generic and customised
food packaging materials and allied products.
It offers a one-stop
solution to the food and catering industry, with a comprehensive
selection of quality products. The applicant
is active in the whole
of South Africa, including the Free State Province in which it has a
regional office at 8 Maroela Street,
Oos-Einde, Bloemfontein.
[3] On 19 January 2004
the applicant entered into an employment contract with the respondent
in terms of which the applicant appointed
respondent as a sales
consultant. On the same day the applicant and the respondent signed
a restraint of trade agreement in terms
of which the respondent
acknowledged that he would be given the opportunity to develop and
maintain close personal contact with
the applicant’s clients
and, that, in the event he was required to perform any independent
service for a client or competitor
of the applicant without the
applicant’s knowledge and permission, the benefit of the
applicant’s client connections
would be available to its
competitors and would enable the competitor to compete unfairly with
the applicant to the prejudice of
the applicant. Ultimately the
respondent agreed not to carry on or be engaged in or have any
interest directly or indirectly in
any capacity in any concern or
business which carries on business similar to that carried on by the
applicant or in competition
with the applicant or with any of the
existing clients of the applicant.
[4] It is common cause,
although there appears to be some dispute on the papers as to the
exact date on which the respondent left
the employ of the applicant
(the applicant alleges that it was on 20 April 2007 and the
respondent alleges that it was on 1 May
2007), that the restraint
would be valid for 24 months hence. It is also common cause that
Fruit and Veg City in the Showgate
Centre, Curie Avenue, Bloemfontein
was a client of the applicant since February 2004 and that sometime
during the latter part of
2007 the applicant discovered that Fruit
and Veg City were no longer purchasing products from the applicant
and that they were
being supplied by the respondent through a new
firm operated by the respondent of products similar to that
manufactured by the
applicant. On becoming aware of the situation
the applicant instructed their attorneys to address a letter of
demand to the respondent
by registered post requesting him to desist
from dealing with the applicant’s client that is Fruit and Veg
City, as he was
in breach of the restraint agreement. The respondent
failed to respond. This occurred in July 2007. Thereafter in
February 2008
this application was launched.
[5] The applicant
contends that it has a valid protectable interest, which has been
infringed by the respondent. It was argued
on applicant’s
behalf by Mr. Moorcroft that the conduct of the respondent in
committing a breach in respect of even a single
client of the
applicant poses a serious threat to the continuity and success of the
applicant’s business in that other sales
consultants employed
by the applicant may be encouraged to do the same. In addition,
whilst conceding that there were no trade
secrets to be protected and
therefore confidentiality did not form an element of that protectable
interest, the applicant alleges
that the goodwill built up by it,
which has been established and maintained over a period of many years
mainly through its sale
consultants had been sullied because of the
unlawful competition which the respondent engaged in by doing
business with Fruit and
Veg City, Showgate Centre, Bloemfontein. The
respondent has admitted that he supplied Fruit and Veg City, Showgate
Centre, Bloemfontein
with lines of products similar to those carried
by the applicant. Respondent denies that he is in breach of the
restraint agreement
in view of the fact that it was not he who
solicited the applicant’s client, but the client, Fruit and Veg
City, through
one of its employees, who approached him.
[6] The question then
arises whether, upon an analysis of the specific clause in the
agreement of restraint, a breach of that clause
was in fact committed
by the respondent when he did business with Fruit and Veg City,
Showgate Centre, Bloemfontein.
[7] The offending clause
in the restraint agreement appears at clause 1.5 which reads as
follows:
“
Therefore, the Employee agrees
that he/she will not in any way, without the prior written consent of
the Organisation, for the duration
of this agreement and for a period
of 24 (twenty-four) months after the termination of this agreement,
within the Territory, carry
on or be engaged or have an interest in,
whether directly of indirectly and whether a director, manager,
employee, agent, contractor,
consultant or in any other capacity, in
any concern of business which carries on business similar or
comparative to that carried
on by the Organisation, or in competition
with the business of the Organisation, or any of the existing clients
of the Organisation
at the time of the termination of this
independent contract agreement or be engaged independently of the
Organisation by the client
in any capacity whatsoever.”
To my mind the
prohibition is clear and it is this: that for a period of 24 months
after the termination of the agreement of employment
the respondent
is not to engage in any way directly or indirectly with any client of
the applicant independently of the applicant
in any capacity
whatsoever. The agreement does not make any specific provision for
the eventuality of the client approaching the
respondent. It simply
and unambiguously prohibits the respondent from engaging the clients
of the applicant in business in competition
with the applicant
without the knowledge and permission of the applicant for the period
of the restraint. It does not provide
that the restraint is only
invoked if it is the respondent who approaches the applicant’s
client to do business in competition
with the applicant. I conclude,
therefore, that the respondent was in breach of the restraint
agreement.
[8] Whether, however, the
applicant has a protectable interest in terms of its goodwill is
quite another matter. It was not disputed
by the respondent that the
applicant has goodwill which it has built up by way of its trade
reputation and good name, its credit
worthiness and/or the
personality of its management and staff. These are features
undoubtedly worthy of protection, but on the
evidence before me the
applicant has not established that any of these was threatened by the
respondent’s conduct in approaching
Fruit and Veg City,
Showgate Centre. I am accordingly not convinced that the applicant
has made out a case that it has a protectable
interest insofar as its
goodwill is concerned.
[9] 9.1 But the matter
does not rest there. The thrust of Mr. Moorcroft’s
submissions, when this matter was argued, was that
despite what was
conveyed in the founding papers, the main asset which the applicant
was seeking to protect in this case was its
customer connection.
There is authority in our law for protection of this kind. In
RAWLINS
AND ANOTHER v CARAVANTRUCK (PTY) LTD
[1992] ZASCA 204
;
1993 (1) SA 537
(A) at 542E – H the court held:
“
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 149). 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 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 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 . . .'
This statement has been applied in our
Courts... 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 lost after the employee left.”
9.2 What remains to be
done now is to apply these legal principles to the particular facts
of the present case. These facts are
that the respondent was
initially one of three sales consultants (later increased to six)
employed by the applicant to service
the Bloemfontein-area and the
applicant’s clients therein. The respondent does not dispute
the applicant’s allegation
in the founding papers that he
serviced Fruit and Veg City, Showgate Centre, on a regular basis and
that approximately six months
after he terminated his employment with
the applicant, this client stopped purchasing its usual supplies from
the applicant and
was supplied by the respondent instead. What is
disputed is the reason why this client terminated its relationship
with the applicant.
As this is an application for final relief, I
have decided this factual dispute on the basis of the respondent’s
version.
See
PLASCON-EVANS
PAINTS LTD v VAN RIEBEECK PAINTS (PTY) LTD
[1984] ZASCA 51
;
1984 (3) SA 623
(A) at 634H – I.
9.3 His version is that
the branch manager of the applicant’s Bloemfontein branch, one
Daniël Conrad van den Berg (“Van
den Berg”) was
ill-mannered and on more than one occasion respondent had to persuade
clients of the applicant not to cease
trading with the applicant
because of Van den berg’s rude behaviour towards these clients.
According to the respondent the
relationship between the applicant
and Fruit and Veg City, Showgate Centre, became tense and soured
because of Van den Berg’s
rude behaviour towards its owner, one
Oeloff Abraham Visser, who threatened to end his business association
with the applicant
and purchase the product lines supplied to him by
the applicant from a supplier in Johannesburg. The respondent
persuaded him
to carry on trading with the applicant through engaging
the services of the respondent as sales consultant, to which he
agreed.
9.4 In my view this
version establishes clearly that the respondent had personal
knowledge of and influence over Visser and that
Visser had formed
some attachment to the respondent as a result of the respondent
calling on him on a regular basis. This, together
with the fact that
shortly after the respondent left the applicant’s employ he
started supplying Visser through his own new
business, proves on a
preponderance of probabilities that a close business relationship of
sorts between the respondent and Visser
had been forged solely as a
result of the respondent’s tenure of employment with the
applicant, to such a degree that the
respondent successfully induced
Visser to follow him and break trade ties with the applicant. I find
accordingly that the threat
to the applicant’s customer
connection has been established on the respondent’s version and
the applicant is therefore
entitled to the relief it seeks.
[10] The applicant wisely
obviated the necessity for argument to be advanced and for this Court
to decide the further issue raised
on the papers of the
unreasonableness or otherwise of the restraint by conceding that it
would be satisfied with a partial restraint
limited only to the city
of Bloemfontein. In
NATIONAL
CHEMSEARCH (SA) (PTY) LTD v BORROWMAN AND ANOTHER
1979 (3) SA 1092
(T) at 1116D – G the following approach was
held by Botha J to be the proper approach to follow in the
enforcement of restraint
of trade undertakings:
“
When a restraint according to
its terms as agreed upon is found to be unreasonably wide in its
scope of operation, the Court can,
in a proper case, enforce the
restraint partially, by issuing an order incorporating the addition
of such limiting words to the
restraint as agreed upon as are
appropriate to restrict its scope of operation to what is found to be
reasonable.”
It is apposite also to
quote from the well-known decision of
MAGNA
ALLOYS AND RESEARCH (SA) (PTY) LTD V ELLIS
[1984] ZASCA 116
;
1984 (4) SA 874
(A) where Rabie CJ held that the onus of proving that
the restraint was unreasonable rested upon the party bound by the
restraints.
With regard to partial enforcement of the restraint he
held as follows at p. 894F of the judgment:
“
Aanvaarding van die sienswyse
dat wanneer 'n Hof gevra word om 'n beperkende bepaling af te dwing,
hy ag slaan op omstandighede
wat heers wanneer hy gevra word om die
beperking af te dwing, bring myns insiens verder logies mee dat die
Hof op daardie tydstip
moet beslis of hy gaan beveel dat die geheel,
of slegs 'n gedeelte, of geen gedeelte, van die beperking afgedwing
behoort te word.
Dit sou miskien gesê kan word dat die afdwing
van enigiets minder as die geheel van die beperking waarop die partye
oorspronklik
ooreengekom het, daarop neerkom dat die Hof se bevel op
'n wysiging van die ooreenkoms wat die partye aangegaan het, neerkom,
en
in 'n sekere sin is dit natuurlik so. Hou 'n mens egter in gedagte
dat die vraag waarom dit gaan die afdwingbaarheid al dan nie
van die
beperkende bepaling is en, verder, dat oorwegings van die openbare
belang bepaal of so 'n beperking afdwingbaar behoort
te wees, dan is
dit myns insiens logies en realisties om die houding in te neem dat
indien die afdwing van enige gedeelte van 'n
beperking op die
relevante tydstip vir die gemeenskap skadelik sou wees, die Hof by
magte moet wees om te beveel dat daardie gedeelte
nie afgedwing kan
word nie. Hierdie gedagte dat die Hof nie daartoe beperk moet wees om
te kan sê dat 'n beperking in sy
geheel òf afdwingbaar
òf onafdwingbaar is nie, maar dat hy ook by magte moet wees om
in 'n gepaste geval, in die
lig van die vereistes van die openbare
belang, te kan sê dat 'n beperking slegs ten dele afdwingbaar
of onafdwingbaar is,
is reeds in sekere onlangse beslissings
uitgespreek, en ek stem daarmee saam.”
In passing I merely
remark that on the facts of this case I am not entirely convinced
that a partial restraint would result in any
injustice to the parties
themselves.
[11] There remains the
question of costs. In view of the fact that the applicant has made
the concession as to partial legality
of the restraint agreement, it
is not entitled to a costs order in its favour. I therefore make the
following order:
11.1 The respondent is
interdicted from carrying on or being engaged in or having any
interest directly of indirectly in any capacity,
in any business
concern which carries on business similar or comparative to that
carried on by the applicant and/or which is in
competition with the
applicant and with any of the existing clients of the applicant in
the area and city of Bloemfontein until
19 May 2009.
11.2 The respondent is
interdicted from selling or supplying food packaging products and
food containers to the firm Fruit and Veg
City, Showgate Centre,
Curie Avenue, Bloemfontein until 19 May 2009.
11.3 Each party is to pay
its own costs.
_____________
S. EBRAHIM, J
On
behalf of Applicant: Adv. J. Moorcroft Instructed by:
Labuschagne
Du Plessis Foster
c/o
Symington & De Kok
BLOEMFONTEIN
On
behalf of Respondent: Adv. J.P. Daffue
Instructed
by:
McIntyre
& Van der Post
BLOEMFONTEIN
/sp