Lilliput Treatment Technologies International CC v Polson and Others (4372/2006) [2006] ZAFSHC 63 (15 December 2006)

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[2006] ZAFSHC 63
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Lilliput Treatment Technologies International CC v Polson and Others (4372/2006) [2006] ZAFSHC 63 (15 December 2006)

IN
THE HIGH COURT OF SOUTH AFRICA
(ORANGE
FREE STATE PROVINCIAL DIVISION)
Application
No. : 4372/2006
In
the matter between:-
LILLIPUT
TREATMENT TECHNOLOGIES
Applicant
INTERNATIONAL
CC
and
CHARLES
POLSON
1
st
Respondent
PRESARIO
INVESTMENTS (PTY) LIMITED
2
nd
Respondent
AMANDLA
WATER
3
rd
Respondent
DESERT
CHARM TRADING 30 (PTY) LTD
4
th
Respondent
AMANDLA
ENVIRONMENTAL
5
th
Respondent
HERMAN
PIETERSE
6
th
Respondent
BEN
MNISE
7
th
Respondent
KOPANO
MOPELI
8
th
Respondent
_______________________________________________________
HEARD
ON:
14 DECEMBER 2006
_______________________________________________________
JUDGMENT
BY:
KRUGER J
_______________________________________________________
DELIVERED
ON:
15 DECEMBER 2006
_______________________________________________________
[1] Applicant
seeks
interim
relief pending the outcome of proceedings to be
instituted based on breach of agreements, alternatively unlawful
competition.
[2] In the Notice of
Motion the following relief is claimed:
“
1. That the
forms and service provided for in the Rules be dispensed with in
terms of Rule 6(12) and that the matter be dealt with
urgently.
2. That, pending the outcome of
proceedings to be instituted by the applicant against the
respondents, or some of them, for a final
interdict and/or damages:
(a) The respondents are interdicted
and restrained from:
(i) making use of the applicant's
confidential information pertaining to the treatment of domestic
effluent, which confidential information
includes, but is not limited
to:
(aa) technologies in various stages of
development;
(ab) designs;
(ac) drawings;
(ad) specifications;
(ae) models;
competing unlawfully with the
applicant in the field of domestic effluent treatment;
(b) The sixth and seventh respondents
are interdicted and restrained from:
(i) being directly or indirectly
involved in any project or business which is or may become
competitive with or to the business of
the applicant;
(ii) using the applicant's
confidential information otherwise than exclusively for the purpose
of selling and marketing the applicant's
Lilliput plants;
disclosing the applicant's
confidential information in any manner whatsoever to any person
except as authorised by the applicant;
exploiting in any manner confidential
information of the applicant save as agreed by the applicant;
The seventh respondent is interdicted
and restrained from being directly or indirectly concerned in the
business of treating and/or
disposing of sewage within South Africa
either as director or shareholder, member employee, trustee,
beneficiary, agent or representative
of such business;
The respondents, jointly and
severally, pay the applicant's costs of this application;
Further or other relief.
3. That paragraph 2(a) to 2(c) above
operate as an interim order with immediate effect.
4. That the applicant institutes the
proceedings referred to in paragraph 2 within thirty days of the
grant of a final order herein.
5. Further or other
relief.”
[3] There
are two main parties in these proceedings, namely Mr. Mark Ross who
made the founding affidavit and is the member of the
applicant and on
the other hand Mr. Charles Polson the first respondent, who appears
to be in control of the second respondent and
other respondents as
set out below.
[4] The
second respondent is Presario Investments (Pty) Ltd of which first
respondent is the managing director. The eighth respondent
is also a
director of the second respondent. It trades as Amandla
Environmental (the fifth respondent). The first respondent through
the second respondent and/or the fourth and fifth respondents
previously marketed the applicant’s technology.
[5] The
fourth respondent is Desert Charm Trading 30 (Pty) Ltd which is
according to the first respondent a dormant company.
[6] The
sixth respondent, Herman Pieterse and the seventh respondent, Ben
Mnise from time to time do work for the second respondent,
the first
respondent says, on a contractual basis as independent contractors.
Sixth and seventh respondents were previously employed
by the
applicant in applicant’s workshop at Drummond, KwaZulu Natal.
[7] Applicant
contends that the respondents are unlawfully making use of
applicant’s confidential information and are unlawfully
competing
with the applicant which the respondents deny.
[8] Applicant
says it is the designer of a domestic effluent technology in respect
of which application for a trademark (Lilliput)
has been made. First
respondent says that as the trademark has not been registered, no
rights can be enforced in respect thereof.
[9] The
application to register the trademark was made by African Water and
Waste (Pty) Ltd (AWW) in which the deponent to the founding
affidavit, Mr. Mark Ross, held all the shares. The sixth and seventh
respondents were previously employed by AWW and subsequently
by
applicant.
[10] Lilliput
is a technology for the treatment of domestic effluent. It turns
domestic effluent (sewage) into water, which is fit
for discharge
into the environment, either by way of irrigation or into streams or
other water bodies.
[11] Applicant
describes the Lilliput process. First respondent says this process
is not unique to the applicant and is utilised
widely in the
industry. In reply applicant says that Lilliput pre-digestion system
uniquely has a “three chamber” system. Applicant
says it is not
the fact of the existence of the extra chamber, but the use thereof
for the balancing process that is unique to Lilliput.
Applicant says
the devices used by it, are not commercially available. Applicant
concedes that Scarab now manufactures “media
perfected by the
applicant” but the deponent to the founding affidavit says that he
does not believe that they are commercially
available.
[12] Applicant
concedes the process of turning waste or sewage water into fit for
discharge into the environment is not unique to
Lilliput. However,
there are elements of its design and technology which are unique.
These include -
(a) the balancing process
between the third chamber and the reactor;
(b) the control of the
volume of air in the reactor;
(c) the
return of a measured quantity of effluent back from the reactor to
the third chamber.
[13] First
respondent says there is absolutely nothing unique and different
regarding the applicant’s process. Professor W.A. Pretorius,
a
specialist in water purification, in support of respondents, says in
his affidavit that the processing units used in water purification
have been known for years in the industry and are used in different
combinations in the waste water industry. He says:
“
10. Die wyse waarop die
eenheidprosesse in die verskillende prosseseenhede van die
Lilliput-stelsel toegepas word, is dus niks nuuts
of unieks nie.”
He
says it is in the public domain and accordingly not capable of
protection and in any event the alleged unique features relied upon
by the applicant are not being used by respondents.
[14] First
respondent says no patent has been registered. Applicant’s system
is in the public domain and may be copied in terms
of section 15(A3)
of the Copyright Act. In reply applicant says that it has the right
to insist upon compliance with the agreements
and that respondents
may not compete with it unlawfully.
[15] The
deponent to the founding affidavit says that the first respondent
established a relationship with AWW while first respondent
was
conducting business under “Amandla Water”. First respondent
signed a reciprocal non-disclosure agreement with AWW during
2003.
At that stage it was envisaged that first respondent would market
Lilliput. First respondent says this is correct. First
respondent
says the applicant was provided with all information pertaining to
the Petro process and this is where applicant learned
of the method
of recycling of oxygen rich water into the anaerobic portions of the
plant.
[16] During
the middle of 2005 first respondent indicated to applicant that he
had prospects of securing contracts to supply effluent
purification
systems. First respondent agrees with this statement and says that
it obtained contracts in the Free State with Leratong
School. First
respondent is currently focussed on supplying effluent systems to the
Free State Schools and Northern Cape. It does
not compete directly
with applicant.
[17] Applicant
says first respondent marketed Lilliput. First respondent was
trained by the applicant to install and maintain Lilliput.
First
respondent says he marketed applicant’s products through AWW mainly
in Botswana unsuccessfully (no sales resulted) as the
products of
applicant were too costly. First respondent agrees that he was paid
a commission of 10 – 15% for Lilliput systems
sold by him.
[18] During
the latter part of 2005 a dispute developed between applicant and the
first respondent. According to first respondent
a breakdown of the
relationship was evident. Applicant assumes that the real reason for
the disagreement was that first respondent
had already formulated a
plan to compete with applicant. As a result of the breakdown of the
relationship first respondent stopped
placing orders for Lilliput
systems early in 2006. First respondent says he started employing an
alternative source and contacted
other suppliers. He says all
suppliers used similar equipment and processes. In the replying
affidavit applicant contends that
they do not use the same processes
as Lilliput.
[19] During
February 2006 the sixth respondent left applicant’s employ. An air
ticket had been purchased for him to go to Zambia
on behalf of
applicant to install a Lilliput system. He, however, walked out
suddenly according to the applicant. First respondent
says the
relationship between the parties had broken down. Sixth respondent
was unaware of the air ticket which had been purchased
and was
dissatisfied with Lilliput management. In the replying affidavit
applicant’s deponent says he telephoned sixth respondent
before the
date and confirmed particulars of his air ticket.
[20] A
hearing was held into the conduct of the sixth respondent. He walked
out, but subsequently asked for his job back. He left
suddenly on 20
February 2006.
[21] The applicant
obtains its tanks, which form part of Lilliput, from "JoJo",
a supplier. Some of these are manufactured
according to a mould
designed by applicant.
[22] With a view to the
fact that first respondent would market Lilliput he signed a
reciprocal non-disclosure agreement (Annexure
"A"). I
shall revert to this and other agreements relied upon by applicant
below.
[23] Applicant says that
the second respondent, and in particular the first, sixth and seventh
respondents, are using applicant's
knowledge in their manufacturing.
Applicant alleges that the respondents have no idea why the sizes and
volumes are what they are.
First respondent says that they use their
own calculations and evaluate performance to develop the required
level of expertise.
[24] Applicant says that
because there are similarities, in appearance, between the effluent
treatment system manufactured by the
respondents and Lilliput, there
is a real risk that respondents' system may be mistaken for Lilliput.
Applicant does however not
rely on passing-off. First respondent
points out that there is no proof of any instance where there was in
fact any mistake regarding
the identity of the products. He also
denies that Lilliput has built up a reputation as effluent
manufacturer.
THE LAW
[25] Mr.
Voormolen, for applicant submitted that, this being an application
for
interim
relief the applicant must show a
prima facie
right though open to some doubt. If serious doubt is thrown upon the
prima facie
case, the applicant cannot succeed in obtaining
temporary relief. But if there is mere contradiction, or
unconvincing explanation,
the matter should be left to trial and the
right to be protected in the meanwhile, subject to the respective
prejudice in the grant
or refusal of
interim
relief. See
WEBSTER v MITCHELL
1948 (1) SA 1186
(W) at 1189. In
regard to disputes of fact the court’s approach in determining
whether the applicant’s right is
prima facie
established,
though open to some doubt, is to take the facts as set out by the
applicant together with any facts set out by the respondent,
which
the applicant cannot dispute, and to consider whether having regard
to the inherent probabilities the applicant should on those
facts
obtain final relief at the trial of the main action. See
L F
BOSHOFF INVESTMENTS (PTY) LTD v CAPE TOWN MUNICIPALITY
1969
(2) SA 256
(C) at 267 E – F.
[26] The
test for unlawfulness of a competitive action is essentially public
policy and the legal convictions of the community. This
includes not
only right thinking members of the community, but also those involved
in the industry, the business ethics of that section
of the community
where the norm is applied. There are also elements like an inherent
sense of fair play and honesty; the importance
of a free market and
strong competition in our economic system, the question whether the
parties concerned, are competitors. See
GRÜNDLINGH AND
OTHERS v PHUMELELA GAMING AND LEISURE LIMITED
2005 (6) SA 502
(SCA) at 517 par. 40.
[27] As
a general principle every person is entitled freely to exercise his
or her trade or professional calling in competition with
others. See
G A FICHARDT LIMITED v THE FRIEND NEWSPAPERS LIMITED
1916 AD 1
at 6. The freedom is however, not unfettered. The right
to compete is not absolute and competition must remain within lawful
bounds.
A wrongful interference with a person’s right as a trader
constitutes an
iniuria
for which one can bring an
aquilian
action if loss has resulted. See
SCHULTZ v BUTT
1986
(3) SA 667
(A). The basic criterion is public policy as manifested
in public opinion. The interests of the competing parties have to be
weighed
bearing in mind also the interest of society and the business
ethics of that part of the community are of major importance in this
determination. See
WASTE PRODUCTS UTILISATION (PTY) LTD v
WILKES AND ANOTHER
2003 (2) SA 515
(W) at 570 F – 571 F.
[28] A
person who has obtained information in confidence is not allowed to
use it as a springboard for activities detrimental to the
person who
made the confidential communication. See
WASTE PRODUCTS
,
supra
at 573 D – E.
[29] Applicant
relies in the first instance on the provision of certain agreements
concluded with some of the respondents.
Firstly, a reciprocal
non-disclosure agreement which was concluded on 31 January 2001
between AWW and Amandla Water (third respondent).
At that stage the
third respondent was represented by the first respondent. AWW
subsequently sold its business to the applicant.
There
is a secrecy undertaking signed by the sixth and the seventh
respondents that is Ben Mnise and H Pieterse. They are dated
18
September 2001 and 5 July 2002 respectively and are annexures “B”
and “C”. According to par. 4.1.2 of those agreements
they
endure indefinitely. They are undertakings given to AWW.
There
is a restraint of trade agreement (annexure “D”) with the
seventh respondent. That restraint of trade was given to AWW
on 18
September 2001. The restraint endures for a year after the person
has left the employ of the company in question. In terms
of
PRISM
HOLDINGS LIMITED AND ANOTHER v LIVERSAGE AND OTHERS
2004 (2)
SA 478
(W) at 483 A – B the court says that a contract in
restraint of trade is to be regarded as part of the goodwill of the
business
and on sale of the business the benefits of the restraint
are
ipso facto
transferred to the purchaser. No cession is
necessary. However, Mr. Du Plessis, for respondents, contends that
that principle
does not apply where there is a non-variation clause,
as here, requiring amendments to be in writing.
There
is also a memorandum of understanding concluded by the first
respondent on behalf of second respondent. These are annexures
“E”,
and “F”. All are unsigned drafts. The fourth and fifth
respondents are mentioned as parties to annexure “H”.
[30] First
respondent says that as these agreements are not between the parties
at present before the court, but with AWW they cannot
serve the
interests of the applicant and the applicant cannot enforce them
herein and in respect of the memorandum of understanding
that alleged
agreement is unsigned, therefore it has no weight. Regarding the
restraint of trade first respondent says that the
seventh respondent
works on a contractual basis as an independent contractor and does
not fall within one of the categories mentioned
in the restraint of
trade.
[31] The
high-watermark of applicant’s case can probably be found in the
affidavit of Gouws. Gouws says that on 14 November 2005
he was
dispatched to deliver, install and commission a Lilliput domestic
sewage effluent treatment plant at Leratong School in Botshabelo
in
the Free State. He was on site on 15 November 2005. There he was
met by the first respondent whom he believed was the client.
First
respondent remained on site for the duration of the installation and
asked many questions as to the working of Lilliput plants.
He took
numerous photographs of the plant with particular emphasis on the
inner configuration of the bioreactor and media. Towards
the end of
the day the second respondent asked him whether he would be
interested to work for him. The first respondent says this
was
simply idle chatter which he conducted while he was waiting for the
installation. He took photographs because this was the first
packaged plant to be installed, including peripheral issues (septic
conversion/concrete slab/electrical supply/palisade). He was
eager
to understand the working thereof.
[32] The
question is whether the sixth and seventh respondents are using any
information that they cannot use. There is a relationship
of good
faith between employer and employee. See
HARVEY TILING CO
(PTY) LTD v RODOMAC (PTY) LTD AND ANOTHER
1977 (1) SA 316
(T): where a businessman wrongfully uses the skill and knowledge of a
competitor in business to further his own business interests
such use
may constitute unfair competition. See Lee and Honoré
The
S A Law of Obligations
, 2
nd
Edition, par. 629. In
AUTOMOTIVE TOOLING SYSTEMS (PTY) LIMITED v WILKENS AND OTHERS
SCA
case no. 581 of 2005, judgment delivered on 28 September
2006 in par. 8 it is said that the interest must be such that it must
properly
be described as belonging to the employer rather that the
employee. The question in each case is whether the interest that is
relied
upon, the skill expertise and knowhow that employees
undoubtedly acquire in the techniques while doing their work is one
that accrued
to the employer or the employee. In
ARANDA
TEXTILE MILLS (PTY) LTD v HURN AND ANOTHER
[2000] 4 ALL SA
183
(E) 192 par. 33 Kroon J points out that an employer trains a
workman who is thereby provided with knowledge and skills in the
public
domain. In the eye of the law 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 workman, his knowhow or
skills. Such know how and skills in the public domain become the
attributes
of the workman himself and do not belong in any way to the
employer and the use thereof cannot be subjected to restriction by
way
of restraint of trade provision. It is undoubtedly so that in
the course of doing work employees acquire certain skills and
knowledge
of the work they are dealing with. The court has to weigh
up the respective prejudice of the parties. The respondent will be
prejudiced
if the relief against it is granted even on an
interim
basis.
[33] Regarding
the restraint of trade that contract is with AWW but the question
arises whether it was in terms of the
PRISM HOLDINGS
-case
transferred to the applicant. It expires in February 2007.
[34] There are a number
of features of applicant’s case which are against it:
(i)
Why
interim
relief
[35] In
the final paragraph of the founding affidavit the following is said:
“77
The Applicant intends to, and
undertakes to institute proceedings for final interdict relief with
or without a damages claim within
such time limits as may be imposed
by this Honourable Court in its discretion. Provision therefore will
be made in the order sought
from this Court.”
[36] The
applicant may or may not institute a damages claim. It may decide
not to. What would the purpose be of applying only for
a final
interdict in trial proceedings? By the time the trial is heard –
probably a year or two (or more) from now – the second
respondent
will, if an
interim
interdict is granted – be out of
business.
[37] In considering the
balance of convenience a value judgment of public interest, one also
has to consider the probable duration
of the interim order. In this
case that is practically indefinite. That does not favour
applicant's demand for relief.
[38] This
is where the balancing of interests is important. If an
interim
interdict is granted, the second respondent will be put out of
business, allowing the applicant to expand its business and
capitalise
on opportunities not previously exploited by it. The
relief claimed is final in essence.
[39] On
the papers it cannot be said that the applicant will probably succeed
in the main case (for a final interdict, where it will
have to
establish a clear right).
(ii)
The
patent application
[40] In
the founding affidavit applicant says a South African Patent
Application AWW (No. 2002/0614) is pending. First respondent
deals
with this allegation. He instructed attorneys to conduct a search
through records of South African patents. It was found
that the
patent application of applicant was withdrawn on 13 January 2003.
The attorneys found that two further South African provisional
patent
applications have been lodged, ZA2003/0379 and ZA2004/3975, both in
the name of the deponent to the founding affidavit, both
entitled: “A
process for treating sewage effluent”.
[41] In
reply the deponent says that patent application no. ZA2003/0379
lapsed on 14 April 2004. On 21 May 2004 a new patent application
was
lodged, accompanied by the same patent specification. The deponent
to the replying affidavit does not say what the status of
that
application is. He says it was not intended to mislead the court.
He disavows any reliance on patent rights.
[42] This is an
unsatisfactory aspect of applicant’s case. If it had a protectable
interest, one would assume that that would by
now have been patented.
(iii)
Confidentiality
[43] The
respondents have put up evidence of an expert, saying there is
nothing confidential about the applicant’s process. In
reply, the
applicant has not put up any expert evidence. In its founding papers
applicant replied on a pending application, but
when it was pointed
out by the respondents that there was no such pending patent
application, applicant explained that there was
now a new pending
patent application, which has been pending since 2004, without any
explanation of what the current status thereof
is, simply disavowing
reliance on patent.
[44] The
applicant does not rely on patent or copyright, simply on
confidential information. The respondent has provided strong
evidence
creating serious doubt whether applicant’s process it
seeks to protect is confidential. Applicant cannot prohibit workmen
from
using their skills. Applicant would be entitled to protection
in respect of novel concepts jealously guarded by patent or otherwise
(see
VALUNET SOLUTIONS INC t/a DINKUM USA AND ANOTHER v eTEL
COMMUNICATIONS SOLUTIONS (PTY) LTD
[2005] ZAGPHC 10
;
2005 (3) SA 494
(W) par.
15 (per Van Oosten J).
[45] The respondents
point out that the applicant has not identified any trade secrets or
confidential information which the respondents
are using at this
point in time, or which must be protected. The confidential
information which the applicant wants protected pertaining
to the
treatment of domestic effluent has not been identified. The prayers
in the notice of motion are based on the definitions
of confidential
information in the non-disclosure agreement (Annexure “A” to the
founding affidavit) and the secrecy undertaking
(Annexure “B” and
“C” to the founding affidavit). Mr du Plessis says the applicant
has not made out a case of what it wants
protected. What the
applicant seeks to protect should be before the court. The designs,
drawings, specifications and models referred
to in the notice of
motion are not identified.
[46] Applicant
has failed to show a breach of a fiduciary duty. Regarding the
requirements for the interdict applicant seeks, it
has not shown it
has a
prima facie
case which will probably succeed on trial.
[47] Mr.
Du Plessis contends that, whatever the respondents have taken from
the applicant, is, on the evidence, especially that of
Prof.
Pretorius, in the public domain.
(iv)
Irreparable
harm and urgency
[48] The
application was brought as one of urgency. The deponent to the
founding affidavit says that the unlawful actions of the
respondents
are on-going. The applicant can no longer afford to delay the
proceedings. In the replying affidavit the deponent says:
“The
object of these proceedings is to prevent irreparable harm”,
without detailing the alleged “irreparable harm”. There
is a
bald allegation of irreparable harm without any details.
[49] The
applicant does not say why it could not successfully institute a
damages claim. It should be relatively simple to identify
sites
where second respondent has installed units, and the losses could be
calculated.
(v)
The
agreements
[50] As
to the transfer of the agreements as being part of the goodwill,
there are the following two problems which applicant has
to face:
The non-variation
clause;
Annexure "A"
to Annexure "X", the sale agreement, listing the assets
transferred, is not attached to the papers.
One does not know
whether the agreements were part thereof.
[51] It
is a factual enquiry whether the restraint and other contracts were
transferred. The applicant must place the necessary evidence
before
the court –
SECURICOR (SA) (PTY) LTD AND OTHERS v LOTTER AND
OTHERS
2005 (5) SA 540
(E) par 12. The applicant has failed
to provide proof that the rights under the agreements were
transferred to it.
[52] The
first respondent says he would not have signed a document such as a
memorandum of understanding, for a period longer than
six months.
This statement appears to be borne out by clause 4 of Annexure "E",
which states that its term will be until
1 December 2006. Clause 3
of Annexure "F" states its term to be until 1 December
2006. As the applicant has been unable
to provide a signed final
copy of the memorandum of understanding, and as, according to the
drafts furnished by applicant, they expired
on 1 December 2006, the
applicant cannot place any reliance on any memorandum of
understanding.
CONCLUSION
[53] The
applicant has not put up details of its alleged confidential
operations; it has not given any plans or drawings. It has
said that
the information is in the heads of the respondents. Such information
has not been shown to be a protectable interest.
[54] In
my view serious doubt has been created on the facts as to the alleged
confidential information which the respondents allegedly
have.
Further, looking at the balance of convenience, a value judgment must
be made. On the facts before the court the applicant
is not entitled
to relief which will put the second respondent out of business and
leave the other respondents to look for work.
My value judgment on
fairness to all parties requires that no relief be granted.
[55] Applicant seeks to
enforce a restraint of trade agreement against the seventh
respondent. In view of the non-variation clause
therein, and the
lack of proof that it was transferred from AWW to the applicant
because of the absence of annexure “A”, and
the fact that only
about two months of the period remains, it would not be in the public
interest to enforce it, also considering
the respective interests of
applicant and seventh respondent.
[56] As
to costs, this is a substantial application in which intricate points
of law were raised which are important to the parties.
The
respondents were justified in employing two counsel.
[57] The
application is dismissed with costs, including the costs consequent
upon the employment of two counsel.
____________
KRUGER,
J
On
behalf of applicant: Adv. Vos Voormolen
Instructed
by:
Webbers
BLOEMFONTEIN
On
behalf of respondents: Adv. Roelof du Plessis SC
Adv.
Craig Snyman
Instructed
by:
O.J.
van Schalkwyk
BLOEMFONTEIN
/sp