Square One Power Solutions (Pty) Ltd v Norval and Others (5045/2003) [2004] ZAFSHC 11 (4 March 2004)

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[2004] ZAFSHC 11
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Square One Power Solutions (Pty) Ltd v Norval and Others (5045/2003) [2004] ZAFSHC 11 (4 March 2004)

IN THE HIGH
COURT OF SOUTH AFRICA
(ORANGE
FREE STATE PROVINCIAL DIVISION)
Case
No.: 5045/2003
In the
matter between:
SQUARE
ONE POWER SOLUTIONS (PTY) LTD
Applicant
and
LUTHER
NORVAL
First Respondent
BELINDA
NORVAL
Second Respondent
RENDEALS
FORTY FOUR BK
Third Respondent
_____________________________________________________________________
CORAM:
MUSI,
J
_____________________________________________________________________
HEARD
ON:
29 JANUARY 2004
_____________________________________________________________________
DELIVERED
ON:
4 MARCH 2004
_____________________________________________________________________
[1] The applicant is a duly incorporated company with
its head office in Sandton, Gauteng. It is represented in these
proceedings
by its managing director, Mr Neill Cunningham Schreiber
(Schreiber). The applicant’s main business is the sale and service
of
Uninterruptible Power Supply products (UPS products). According
to the first respondent, the correct name is Uninterrupted Power
Supply, but there is no doubt that it is essentially equipment which
is connected to things like computers or cash registers and
which
ensures that there is continuing power supply in the event of a cut
or disruption in the normal electrical power supply. The
applicant
conducts its business operations countrywide and has a branch in
Bloemfontein that serves the market in the Free State,
Northern Cape
and Lesotho.
[2] During April 2000 the first respondent was appointed
as manager of the applicant’s Bloemfontein branch and took full
responsibility
for its management, the marketing, selling,
installation and service maintenance of the applicant’s UPS
products in the areas under
his control. The first respondent is
also a shareholder of the applicant and is signatory to a shareholder
agreement Annexure “FA2”
to the applicant’s founding affidavit.
The shareholder agreement contains a clause relating to confidential
information which
is one of the issues around which the dispute
herein centres. Annexed to the applicant’s founding affidavit and
marked “FA3”
is also a contract of employment which was
apparently not signed by the first respondent. It can be accepted
though that the terms
thereof are binding on the first respondent and
no contrary argument has been proffered. The contract embodies a
confidentiality
clause which is also central to the dispute herein.
[3] The second respondent is the wife of the first
respondent and she was hitherto the sole member of the third
respondent, which
is a duly registered close corporation which trades
under the name of Power Unlimited, with its principal place of
business in Bloemfontein.
As its trading name suggests, the third
respondent’s main business is also the sale, installation, repairs
and maintenance of
the UPS products. It is, however, not a bulk
supplier and does not import the products. It used to buy some of
its products from
the applicant. In that sense it is alleged that it
is not a competitor of the applicant.
[4] This matter first came by way of urgency before
Wright, J when the applicant sought an interim interdict against the
respondents
as set out in prayer 2 of the notice of motion pending
finalisation of this application, alternatively an action to be
instituted.
The second part of the notice of motion reads as
follows:
“
AND
TAKE FURTHER NOTICE that the Applicant intends to make application
to this Court at 10h00 on 22 January 2004:
1. That the Respondents be
interdicted and restrained from approaching, contacting, soliciting
or doing business with the Applicant’s
customers as set out in the
list attached as annexure “A” to this notice of motion. …”
On 19 December 2003 Wright, J granted an order in the
following terms:
“
1. An order in terms of
paragraph 1 of the notice of motion.
2. That the respondents be
interdicted and restrained from approaching, contacting, soliciting
or doing business with the applicant’s
customers as set out in the
list attached as Annexure A to the notice of motion in respect of UPS
products sold by applicant up to
29 January 2003.
3. That
the application be postponed to 29 January 2004.
4. The applicant must supply
respondent with any further documents on which it may rely on or
before 28 December 2003.
5. The respondents may file
further documents, a further affidavit on or before 8 January 2004.
6. The applicant may reply to
such an affidavit on or before 19 January 2004.
7. The costs of today to stand
over to the final hearing of this application.”
Paragraph 2 of the order is clearly an interim interdict
pending the further hearing of the matter on 29 January 2004 when the
parties
would have had enough time to file further papers, in
particular the respondents were afforded the opportunity to file
supplementary
opposing affidavits and the applicant was entitled to
reply thereto. This has happened and the matter was then ripe for
full hearing
on 29 January 2004.
[5] The applicant has to date not instituted any action
and it appears that it was contemplated that the application that was
to be
heard on 29 January 2004 was to be the one set out in the
second part of the notice of motion. There being no pending action
this
would, in my view, be an application for a final interdict. In
order to succeed, therefore, the applicant must establish the three
requirements for a final interdict, namely a clear right, a
reasonable apprehension of harm and the absence of an alternative
remedy.
Urgency is no longer an issue and no contrary contention has
been made. Having heard full argument on 29 January 2004, I
postponed
the matter and extended the interim order to 26 February
2004. I, however, amended paragraph 2 of the interim order by
replacing
the phrase “doing business with the applicant’s
customers” with the phrase “or in any way touting the applicant’s
customers”.
On the latter date I was ill-disposed and not
available and arranged for the interim order to be extended further
to 4 March 2004.
[6] In his heads of argument Mr Bothma for the applicant
submitted that the applicant has made out a case for a clear right.
He says
that the first respondent has over a period of time and
whilst employed by the applicant high-jacked the applicant’s
business,
in that he transferred the applicant’s clients and orders
to the third respondent and used the applicant’s confidential
information
to promote the business of the third respondent to the
detriment of the applicant’s business, with full collaboration of
the second
respondent. The respondents have thus been engaged in
unlawful competition with the applicant, are still doing so and
intend continuing
doing so. He submits that there is a reasonable
apprehension of harm and that the applicant has no alternative
remedy.
[7] In argument before me, however, Mr Bothma appeared
to lose confidence in one aspect of his argument, namely whether the
applicant
has established a clear right and he shifted focus to the
alternative argument raised in paragraph 7 of the heads of argument
to
the effect that the issue of whether the applicant has a clear
right be referred to oral evidence. He handed in a draft order
wherein
he included the question of whether the applicant has a
well-grounded apprehension of harm for referral to oral evidence. He
submitted
that there was a dispute of fact which could not be
resolved on the papers in regard to these two issues. He proceeded
to elaborate
on the relevant considerations that should guide the
Court in the matter of referral to oral evidence.
[8] Mr Van der Merwe, for the respondents, vigorously
opposed the application for referral to oral evidence and submitted
that the
dispute of facts were clearly foreseeable and that the
applicant must stand or fall by the affidavits filed of record. In
his heads
of argument he dealt in detail with the issues raised in
the papers and elaborated further in oral argument. Mr Van der Merwe
focused
on two main issues. Firstly, the confidentiality of the
customers’ list Annexure “A” to the applicant’s founding
affidavit
(hereinafter referred to simply as Annexure “A”), and
the knowledge, expertise and experience of the first respondent.
Secondly,
the confidentiality of the applicant’s pricing structure.
Mr Van der Merwe conceded that the first respondent breached the
terms
of his employment by promoting the work of the third respondent
whilst still employed by the applicant and that such conduct was
unlawful. He argued that the picture has however changed with the
resignation of the first respondent. In the absence of a restraint
of trade contract the first respondent was at large to compete with
the applicant and was free to canvas the applicant’s clients
and to
do business with them. The conduct of the first respondent can only
amount to unlawful competition if,
inter alia
,
the information relating to the clients list and the pricing
structure was confidential or secret, so he argued. In relation to
the unlawful conduct of the first respondent whilst still employed by
the applicant, it was contended that the only remedy available
to the
applicant is an action for damages, and that an interdict was no
longer available to it.
[9] In my view, the real issues for determination in
this matter are firstly whether the clients list, Annexure “A”,
constitutes
confidential information, for if it is and the first
respondent used it even after his resignation to promote the
business of the
third respondent to the detriment of the applicant’s
business, then that would constitute unlawful competition. (Compare
CAMBRIDGE PLAN AG AND ANOTHER v MOORE AND
OTHERS
1987 (4) SA 821
(D&CLD) at
846C;
COOLAIR VENTILATOR CO (SA) LTD v
LIEBENBERG AND ANOTHER
1967 (1) SA 686
(W) at 691B
). Secondly, and if such list is
not confidential, whether the first respondent’s conduct in luring
the applicant’s clients in
the circumstances of this case
nonetheless constitutes unlawful competition.
[10] The collateral issue raised by the respondents that
the third respondent is not a competitor of the applicant is, to put
it mildly,
devoid of any merit and can be summarily dismissed. Even
if the third respondent had in the past ordered UPS products from the
applicant,
and was the applicant’s associate, it is now clear that
it is in cahoots with one of the applicant’s chief rivals, UPS
Direct.
The affidavit filed by Mr Andrew Ingram of the latter firm
in support of the respondents speaks for itself and the tone of his
averments
betrays his desire for vengeance against the applicant.
The third respondent may not compete with the applicant in terms of
pricing
but it still actively lures away the applicant’s clients
with products supplied by the applicant’s rivals, and there is
nothing
preventing the third respondent from negotiating prices with
such rivals in order to undercut the applicant’s pricing. Now if
that is not competition, I do not know what else is.
[11] The disputes around the confidentiality of the
pricing structure and whether the knowledge and expertise that the
first respondent
has acquired in this specialised field of business,
were acquired through his employment with the applicant and are of
the kind that
can be classified as being trade secrets of the
applicant and therefore worthy of protection, can be left out of the
reckoning.
The simple reason for this is that the applicant has not
seriously countered the respondents’ averments in regard thereto.
In
relation to the knowledge and expertise of the first respondent,
even the probabilities favour his version that he was employed and
given incentives precisely because of such knowledge and expertise.
[12] In support of his argument for referral to oral
evidence, Mr Bothma indicated that there is a dispute of fact as to
whether Annexure
“A” constitutes confidential information, but he
links this to the question of whether the applicant has a clear
right. I think
counsel confused issues here. The absence of
confidentiality is not equal to the absence of a clear right. The
applicant has a
right to the goodwill of its business and to the
protection of such right against wrongful infringement. What is in
issue here is
whether there is a wrongful infringement of such right.
Now legitimate competition in trade normally entails infringement of
a competitor’s
right to goodwill. (Neethling, Potgieter and Visser,
Law of Delict
at p.316 refers to this as factual infringement). It is only when
the infringement is regarded as wrongful that we talk of unlawful
competition. Filching confidential information of a trader to
promote the interests of another to his prejudice is one of the
instances
that are recognised by our law as unlawful competition.
And a trader needs no restraint of trade contract to obtain
protection against
such unlawful conduct. The position was put as
follows in
EASYFIND INTERNATIONAL v
INSTAPLAN HOLDINGS
1983 (3) SA 917
(W)
at 927D
:
“
What is clearly established
in our law is that it is unlawful for a servant to take his master’s
confidential information or documents
and use them to compete with
the master.”
(See also
COOLAIR VENTILATOR
CO (SA) LTD v LIEBENBERG & ANOTHER
(
supra)
)
.
[13] Confidential information is, broadly speaking,
information that is meant for the exclusive use of a trader and
circulates within
the confines of such trader’s business. It is
not readily available to the public or, as it is generally expressed,
it is not
public knowledge. The position was stated as follows in
VAN CASTRICUM v THEUNISSEN AND ANOTHER
1993 (2) SA 726
(T) at 730H
:
“
The
information must have the necessary quality of confidence about it,
namely it must not be something which is public property and
public
knowledge.”
(See also
TOWNSEND PRODUCTIONS
(PTY) LTD v LEECH AND OTHERS
2001 (4)
SA 33
(C) at 53J-54A
). Whether the
requirements for confidentiality have been met is an issue to be
decided with reference to the facts of the particular
case. But
there are certain factors that would point to the confidential nature
of the information. Usefulness to a rival is one
such factor in the
sense that the information would give him/her an advantage over the
trader from whom the information comes. The
presumption of
confidentiality would be even stronger where an employer’s
information divulged by his/her employee has in fact
been used by a
rival to the detriment of the employer. (See
COOLAIR
VENTILATOR CO (SA) LTD v LIEBENBERG AND ANOTHER
(
supra
) at
699F-H
). Our law also
recognises certain categories of information or documents as being of
a confidential nature. A customer’s list
is one such type of
document. Van Heerden & Neethling,
Unlawful
Competition
at p.227 specifically lists a
customer’s list as such. In
EASYFIND
INTERNATIONAL v INSTAPLAN HOLDINGS
(
supra
) at
929D
it is categorically stated:
“Customer
lists certainly are confidential information.”
Compare also
METER SYSTEMS
HOLDINGS LTD v VENTER AND ANOTHER
1993
(1) SA 409
(W) at 428B
.
Turning to the facts of the instant case the clients
list, Annexure “A”, would normally qualify as a confidential
document.
However, in his answering affidavit, the first respondent
attacked its confidentiality on various grounds. He says that it was
arbitrarily
drawn and is not an accurate reflection of the
applicant’s clients. He challenged the applicant to produce its
debtor’s list,
which would reflect its active clients. The first
respondent thereby implies that this list was compiled recently and
was not there
whilst he was employed by the applicant.
On the other hand, the applicant insists that Annexure
“A” is in fact its debtor’s list. The first respondent also
annexed
to his answering affidavit and marked “N6” a list of
clients that was allegedly given to the third respondent by Andrew
Ingram
of UPS Direct which has many of the names that appear in
Annexure “A”. That was in support of his contention that the
particulars
of the entities concerned are public knowledge. The
applicant’s response in this regard was that the allegation is
irrelevant.
This response would, in my view, be valid in respect of
the allegations contained in paragraph 3.5 of the answering affidavit
relating
to the list that the first respondent allegedly brought from
ATG Technologies, his former employer. But information about a list
in the possession of the applicant’s rivals is very much relevant.
There is also a dispute whether Annexure “A” as such was
passed
onto the second or third respondent. In his founding affidavit
Schreiber refers to Annexure “FA15” as the list that the
first
respondent sent to the second respondent on 2 October 2002. In his
answering affidavit the first respondent says that “FA15”
is a
different list that was given to him by Rudolf Holzhausen before
Rudolf joined the applicant. There are also questions about
the
motives of some of the deponents to the affidavits filed in support
of the respondents. Certainly one of them, Andrew Ingram
of UPS
Direct, is a fierce competitor of the applicant and he does not
disguise his bias and hostility towards the applicant.
[14] It is clear that there are serious factual disputes
around this issue of the confidentiality of the clients list which
cannot
be resolved on the papers. I have, however, decided against
referring the issues to oral evidence partly because, in my view, it
would not be in the interest of justice to do so given the nature of
the matter. Most importantly referral is unnecessary in the
view
that I take of the matter as set out
infra.
It stands to reason that it has not been shown that Annexure “A”
is a confidential document.
[15] What emerges clearly from the papers and which was
conceded by counsel for the respondent is that over a period of time,
from
2002 up to his suspension on 30 October 2003, the first
respondent whilst an employee of the applicant, was engaged in
activities
that amounted to a breach of his fiduciary relationship
with the applicant and contract of employment and therefore unlawful.
He
stealthily promoted the interests of the third respondent with
the full collaboration of the second respondent to the detriment of
his employer. He actively solicited, successfully in some cases,
orders from the applicant’s clients on behalf of the third
respondent.
He did repairs and maintenance work for the clients thus
diverted and other clients of the third respondent for the latter’s
benefit.
Although he denies it, his conduct amounted to unlawful
competition
vis-á-vis
the applicant. I have already found that the third respondent was a
competitor of the applicant and it makes no difference that
it was at
some stage branded an associate of the applicant. This fact was
initially not disclosed to Schreiber and when he did come
to know
about it, it was not disclosed to him that the second respondent was
the proprietor of the third respondent. On the contrary,
he was
misled into believing that the second respondent was not involved in
the UPS products business. In all probability this association
was a
camouflage for the first respondent to spring-board the third
respondent. As soon as the truth was found out and he was suspended,
the first respondent speedily resigned and openly continued his
competition with the applicant. The first respondent has tried to
explain away his cheating activities in relation to some of the
transactions detailed in the applicant’s papers, but the
explanations
can truly be described as disingenuous and irrelevant.
There is no
bona fide
dispute of fact in this regard.
[16] The argument advanced on behalf of the respondents
in this regard is that the position changed with the first
respondent’s
resignation. That he is now free to compete with the
applicant in the absence of a restraint of trade agreement and he has
made
clear his intention to continue to canvas and do business with
the applicant’s clients. I have already referred to the details
of
this argument, the essence of which is that the applicant could only
obtain an interdict if it was established that Annexure “A”
constitutes confidential information. Put otherwise, the
respondents’ conduct could only amount to unlawful competition if
it
was shown that the first respondent had filched confidential
information from his former employer.
[17] It has been laid down that for competition to
become unlawful it must infringe upon a legal norm. That norm is the
legal convictions
of the community, also referred to as the
boni
mores
or public policy. There are certain
categories of competition that the Courts have classified as being
contra bonos mores
or
offensive to the convictions of the community and therefore amount to
unlawful competition. The filching of confidential information
by an
employee or ex-employee to be used to harm the business interests of
the employer is one such instance. This does not, however,
mean that
liability is limited to these recognised categories. The Court has a
wide discretion to decide whether any new situation
before it amounts
to unlawful competition on the basis of the broad principles of the
actio legis Aquiliae
.
See Boberg,
The Law of Delict
Vol.1 at p.149
et.seq
.
and the authorities cited there. The learned author puts the
position as follows:
“
Declining
to define the limits of lawful competition, our Courts have retained
flexibility to deal with whatever new schemes for the
downfall of
others their untiring imagination of the dishonest made ….”
As for the factors to be taken into account in
determining and applying the relevant norm see
ATLAS
ORGANIC FERTILIZERS (PTY) LTD v PIKKEWYN GHWANO
1981 (2) SA 173
(T) at 188-189
;
LORIMAR
PRODUCTIONS INC. AND OTHERS v STERLING CLOTHING MANU-FACTURERS (PTY)
LTD
1981 (3) SA 1129
(T) at 1152 –
1153
.
[18] Back to the facts of the instant case. It is clear
that whilst in the applicant’s employ, the first respondent engaged
in
unlawful competition with his employer and the employer would have
been entitled to stop such activities,
inter
alia
, with an interdict. Should the
applicant now be denied an interdict simply because the first
respondent is no longer its employee?
What the first respondent did
was to abuse his position as the local manager of the applicant to
build a rival business and as soon
as he was caught and suspended he
quickly resigned and now wants to take with him the applicant’s
clients. In my view, that is
by all accounts morally reprehensible
conduct that the trading community would frown upon. It is certainly
unfair and dishonest
a practice that cannot be tolerated. It does
not matter that some of the clients are his former clients that he
had brought along
when he joined the applicant. He was employed
precisely to bring in clients and he himself says that one of the
reasons that the
applicant took him into its service was precisely
his capacity to bring in new clients. Indeed he was paid monthly for
doing that
and was even given additional incentive in the form of
shares in the applicant. But once the clients were brought on board,
they
became the applicant’s clients and he was not entitled to
simply walk away with them as if it were his personal property. It
is
not the fact that the first respondent has been canvassing the
clients after his resignation that taints his conduct. What does
taint his conduct is the fact that he abused his relationship of
trust to initiate this process of luring away the clients. He now
wants to be free to complete that illegitimate process from outside.
He wants to use his resignation as a magic wand to legitimise
his
otherwise unlawful activity. I am positive that that cannot be
countenanced by the trading community, and indeed by the community
at
large. Nor can the provisions of clause 19.3 of the shareholders
agreement legitimise such conduct. The position would be different
if the first respondent had not been cheating his employer and
started canvassing the applicant’s clients only after resigning.
[19] The respondents complain that the interdict would
deprive them of a means of livelihood as they rely entirely on the
business.
That cannot be so for they would still be free to canvas
people and firms not included in the applicant’s client lists. The
first
respondent has in fact referred to some of the lists that he
has as having more clients than the applicant’s list and he has a
vast untapped reservoir in other places like Lesotho. Moreover, the
respondents’ predicament is of their own making and in that
sense
they are the authors of their own misery. In my view, the protection
of the applicant’s interests and those of fair competition
generally outweigh the interests of the respondents. Moreover, the
protection afforded to the applicant will be of limited duration.
[20] I have come to the conclusion that the first
respondent’s conduct in the particular circumstances of this case
amounts to unlawful
competition. The applicant has a right to the
protection of its goodwill against unlawful infringement. It has
established a clear
right. There can be no doubt that the conduct of
the respondents is calculated to cause the applicant prejudice. It
is trite that
for the purposes of an interdict it is sufficient that
there be potential prejudice. See Harms,
Civil
Procedure in the Supreme Courts
, par
A5.4. Luring clients away from the applicant obviously entails
diminition of its business. I hold therefore that the applicant
has
shown a reasonable apprehension of harm and the threat of such harm
continued even after the first respondent’s resignation.
The
applicant has contended that it has no alternative remedy. In
principle it would be entitled to sue for damages, but its contention
that it would be difficult to quantify damages in the circumstances
of this case is reasonable and acceptable. It has to be borne
in
mind that the first respondent was the man in charge of the
applicant’s Bloemfontein operations and he is the person with
intimate
knowledge of the workings and transactions of that branch.
In his absence it would be difficult to compute damages. Case law
also
reveals that an interdict is generally a more preferred remedy
for unlawful competition.
The position of the second and third respondents
presents no difficulty. The second respondent was the sole member of
the third respondent
and she fully collaborated with the first
respondent in the latter’s dealings, which were all for the benefit
of the respondents.
[21] Finally, a distinction has to be drawn between the
confidentiality of the clients list, Annexure “A” and its
authenticity
as representing the names of the applicant’s clients.
The first respondent has not really disputed that these are the
applicant’s
clients. What he says is that they are not exclusive
to the applicant. Secondly, that he has himself brought the bulk of
them and
he wrongly assumes that they remained his even after he
resigned. He also says that some of the entities are no longer in
operation
and that yet others were once-off clients of the applicant.
All these are not valid grounds for the contention that these are
not
the applicant’s clients. And the fact that some appear in
various other lists is not relevant. Whatever factual dispute is
there
around this issue is not a
bona fide
one and I accept that Annexure “A” is a true list of the
applicant’s clients.
It is also only proper that the protection that I
propose granting to the applicant should be for a limited period and
I think eight
(8) months would be appropriate.
[22] In
the result the following orders are made:
1. The respondents are finally interdicted and
restrained for a period of eight (8) months from date hereof from
approaching, contacting,
soliciting or in any way touting the
applicant’s customers as set out in the list attached as Annexure
“A” to the notice of
motion.
2. The
respondents are ordered to pay the costs of suit jointly and
severally, the one paying the others to be absolved, which costs
shall include the costs of the hearing of 19 December 2003.
_____________
H.M.
MUSI, J
On behalf of Applicant:
Adv.
H.C. Bothma
instructed by
Honey
Attorneys
On behalf of Respondents:
Adv.
M.P. van der Merwe
instructed by
E.G.
Cooper & Sons Inc.
/scd