About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Labour Appeal Court
SAFLII
>>
Databases
>>
South Africa: Labour Appeal Court
>>
2014
>>
[2014] ZALAC 59
|
|
Bonfigioli South Africa (Pty) Ltd v Panaino (CA 19/13) [2014] ZALAC 59; (2015) 36 ILJ 947 (LAC) (23 October 2014)
REPUBLIC OF SOUTH
AFRICA
THE LABOUR APPEAL
COURT OF SOUTH AFRICA, JOHANNESBURG
JUDGMENT
Reportable
Case
no:
CA 19/13
In the matter
between:
BONFIGIOLI SOUTH
AFRICA (PTY)
LTD
........................................................................
Appellant
and
MICHAEL WAYNE
PANAINO
...........................................................................................
Respondent
Heard:
04 September 2014
Delivered:
23 October 2014
Summary:
Restraint of trade agreement and retention bonus- parties entering
into a retention bonus and restraint of trade agreements
–
meaning and purpose of restraint of trade and retention bonus
distinguished- restraint of trade agreement preventing employee
to
compete with his/her ex-employer after termination of employment -
retention bonus rewarding employee for staying in the employment
of
the employer. Interpretation of a deeming clause for the purpose of
the termination of employment. - Employee resigning from
employment-
Labour Court finding that the deeming clause defining exclusively the
termination of employment- Appeal - Deeming clause
expanding the
meaning of termination of employment to make it difficult for the
employee to get the retention bonus- Restraint
of trade starting
after the termination of employment. Appeal upheld. Labour Court’s
judgment upheld- with costs- Appellant’s
prayers in the notice
of motion granted.
Coram: Musi JA et
Murphy AJA et Setiloane AJA
JUDGMENT
MUSI JA
[1]
This appeal, which is with the leave of
this Court, raises the question whether the respondent was bound by
the obligations created
in a restraint of trade agreement.
[2]
The appellant approached the Labour Court
with an urgent application for an order in the following terms:
‘
1.
Condoning the applicant’s non-compliance with the rules
relating to forms and service provided for in the rules of this
Honourable Court and dispensing with this matter in such manner and
in accordance with such procedure as seems appropriate in terms
of
Rule 8 and treating this matter as one of urgency.
2. Interdicting and
restraining the respondent for a period of twelve (12) months, from
05 June 2013 to 04 June 2014, from directly
or indirectly competing
with the applicant’s business or becoming involved in any way
in the activities of a business which
is in competition with the
business of the applicant.
3. Interdicting and
restraining the respondent for a period of twelve (12) months, from
05 June 2013 to 04 June 2014, from directly
or indirectly being
interested, engaged or concerned in, whether as principal, agent,
partner, representative, shareholder, trustee,
beneficiary, director,
employee, consultant, advisor, officer or member of or holding any
other capacity in relation to any person,
syndicate, partnership,
joint venture, trust, corporation or company whether for his direct
or indirect benefit and whether for
reward or not, or in any other
like capacity in any business carried on within the Republic of South
Africa which is in competition
with or similar to the business of the
applicant.
4. Interdicting and
restraining the respondent for a period of twelve (12) months, from
05 June 2013 to 04 June 2014, from making
use of any trade
connections of the applicant in respect of any business which is
competitive or similar to the business of the
applicant within the
Republic of South Africa.
5. Interdicting and
restraining the respondent from utilizing or directly or indirectly
disclosing or making available any of the
applicant’s
intellectual property, trade secrets or confidential information.
6. Interdicting and
restraining the respondent for a period of twelve (12) months, from
05 June 2013 to 04 June 2014, from canvassing,
enticing, employing,
appointing or procuring the employment or appointment of any person
who is and/or was an employee, consultant,
officer or agent in
respect of the business of the applicant in respect of any business
which is competitive or similar to the
business of the applicant
within the Republic of South Africa.
7. Ordering the
respondent to pay the costs of this application.
8. Granting the
applicant further and/or alternative relief.’
The
Labour Court (Basson, J) dismissed the application with costs
.
This appeal is against that order.
[3]
The Bonfiglioli Group was established in
1956 in Italy. It manufactures high quality industrial gearboxes and
geared motors for
use in the industrial, mining and agricultural
sectors.
[4]
On 01 April 1991, Bonfiglioli Power
Transmission (Pty) Ltd (BPT) was incorporated in South Africa. It was
the sole supplier of Bonfiglioli
products in Sub-Saharan Africa.
[5]
The respondent was employed by BPT with
effect from 01 April 1991 as an internal sales engineer at its
Johannesburg offices. During
1999, the respondent was transferred to
Cape Town to establish a sales office. After doing so, he was
promoted to the position
of branch manager of the Cape Town branch.
The respondent’s responsibilities included marketing, sales and
management. As
such, he had direct access to the appellant’s
confidential and sensitive information. The sensitive information
included
the South African pricelist for all products supplied by the
appellant, the costing of products, customer databases - containing
information and records relating to the appellant’s customers
nationally - and sales reports.
[6]
On 14 April 2000, the respondent and BPT
concluded an executive retention and restraint agreement. In terms of
this agreement, BPT
would invest R300.000.00 in unit trust over three
years in its name for the benefit of the respondent. The accumulated
value of
the investment would become the exclusive property of the
respondent on 01 January 2004 provided he was still in BPT’s
employ
on that date.
[7]
On 12 April 2004, the parties entered into
another executive retention and restraint agreement because they were
of the view that
they complied with the terms of the 2000 agreement.
The 2004 agreement was similar to the 2000 agreement except for the
fact that
BPT was to invest R340.000.00 over three years which would
accrue to the respondent if he was still in BPT’s employ on 01
January 2009. On 12 April 2006, the 2004 agreement was extended for
one year to January 2010. BPT invested an additional R160 000.00
for
the respondent’s benefit, which would accrue to him on 01
January 2010, if he was still in the appellant’s employ.
It is
common cause that all the money invested by BPT for the respondent’s
benefit was paid out to him. The relevant parts
of the agreement read
as follows:
‘
WHEREAS
Bonfiglioli has, with effect from 1
st
January 2004 retained the services of the Executive for an
unspecified period of time, upon the terms and conditions as
contained
in a separate contract of employment;
AND WHEREAS
Bonfiglioli desires to retain the services of the Executive for at
least (five) 5 years from the date above;
AND WHEREAS
Bonfiglioli desires to restrain the Executive from entering into
unfair competition with it upon the future termination
of his
services;
AND WHEREAS
Bonfiglioli desires to create, an incentive for the Executive to
agree to the above retention and restraint, an executive
retention
payment;
NOW THEREFORE the
parties agree as follows:
RETENTION SCHEME
1. Bonfiglioli will,
upon acceptance of this agreement by the Executive by signature
hereof, allocate to a special provision account
/ deposit with a unit
trust fund to be selected by the Executive a total amount of R340
000-00 (Three Hundred Forty Thousand Rand)
(“The capital
amount”), to be invested in three equal tranches of R113,
333-33 (One Hundred Thirteen Thousand Three
Hundred Thirty Three Rand
and Thirty Cents) on the date of signing this document and the two
ensuing anniversary dates;
2. The investment in
terms of 1 above will be made in the name of Bonfiglioli, who shall
have all the legal rights, title and interest
in the amount(s) so
deposited until the entitlement of the Executive to such amount(s) or
parts thereof become unconditional in
terms of this agreement...
7. Subject to the
conditions as contained in this agreement, the Executive will become
entitled to the accumulated value of the
unit trust investment on
January 1, 2009 at which time the unit trust investment shall be
transferred in ownership to him.
CONTINUED SERVICE
WITH BONFLIGLIOLI POWER TRANSMISIONS (PTY) LTD
10. It is an express
condition for payment of the amounts in terms of this agreement that
the Executive remains in the employ of
Bonfiglioli and has not
terminated if, at any date prior to January 1, 2009.
11. For the purposes
of this agreement the employment of the Executive will be deemed to
have been terminated if, at any date prior
to January 1, 2009;
11.1 The Executive
has tendered his/her resignation.
11.2 The Executive
is subjected to a disciplinary enquiry or hearing in which he/she is
charged with or suspected of committing
fraud, theft or any other
offence involving dishonesty, and he/she is subsequently found guilty
and dismissed.
12.
It is also an expressed condition for payment of the amounts in terms
of this agreement that performance targets are met.’
[8]
On 10 January 2008, BPT sold its business
as a going concern to the appellant. When the appellant acquired the
business, it obtained
by way of assignment all right, title and
interest in all agreements between BPT and third parties including
all employment contracts
between BPT and its employees.
[9]
On 31 May 2013, after approximately 22
years’ service, the respondent tendered his resignation, giving
one month’s notice.
On 05 June 2013, the respondent met with Mr
Robert Rohman, the Managing Director of the appellant. During this
meeting, the respondent
was informed that he will not be required to
work during the notice period.
[10]
On 12 June 2013, the respondent sent an
e-mail to some of the appellant’s clients informing them that
he has resigned and
offered to assist them with any issues or
concerns. He gave them his new contact details.
[11]
The respondent registered a company called
Motovario South Africa (Pty) Ltd during July 2013 of which he is the
sole director. It
is common cause that Motovario is an international
competitor of the Bonfiglioli Group.
[12]
The respondent did not deny that he
registered Motovario in order to compete with the appellant.
[13]
The appellant approached the court
a
quo
on 05 August 2014, on an urgent
basis, in order to enforce the restraint agreement. The respondent
raised three grounds in order
to displace the appellant’s case.
Firstly, the respondent contended that the restraint of trade
agreement was for a definitive
period and had elapsed by the
effluxion of time. Secondly, he contended that the appellant had no
right to enforce the agreement
because it was not a party to the
agreement and thirdly that the application is premature because the
respondent has referred a
constructive dismissal dispute to the CCMA
and the outcome of that process will have a major bearing on the
enforceability of the
restraint agreement.
[14]
The court
a
quo
found that the retention and
restraint agreement elapsed on 01 January 2010 and therefore the
respondent was not bound by the agreement
when he resigned on 31 May
2013. It consequently dismissed the application with costs.
[15]
Mr Leslie, on behalf of the appellant,
submitted that the court
a quo
erred in interpreting the agreement in the manner that it did.
[16]
The court
a
quo
erred in particular, so he argued,
in finding that clause 11 serves to exhaustively define “termination
of employment”
when in fact it was a deeming provision that
merely adds to the meaning of the term. He submitted that the court
a
quo
erred in failing to appreciate that
the agreement contained two distinct parts i.e. the retention bonus
part and the restraint
part. He further submitted that the court
a
quo
should have found that the
restraint part was triggered on the date of termination and not
before then.
[17]
Mr Rautenbach, on behalf of the respondent,
argued that clause 11 is applicable to the entire agreement and that
the date of termination
of the agreement is relevant for both the
retention and the restraint clauses. According to him, the maturity
date for the retention
bonus and the date on which the entire
contract lapses coincided.
[18]
In
Natal
Joint Municipal Pension Fund v Endumeni Municipality,
[1]
it
was said that:
‘
[18]
Over the last century there have been significant developments in the
law relating to the interpretation of documents, both
in this country
and in others that follow similar rules to our own. It is unnecessary
to add unduly to the burden of annotations
by trawling through the
case law on the construction of documents in order to trace those
developments. The relevant authorities
are collected and summarised
in
Bastian Financial Services (Pty) Ltd
v General Hendrik Schoeman Primary School.
The present state of the law can be expressed as follows.
Interpretation is the process of attributing meaning to the words
used
in a document, be it legislation, some other statutory
instrument, or contract, having regard to the context provided by
reading
the particular provision or provisions in the light of the
document as a whole and the circumstances attendant upon its coming
into existence. Whatever the nature of the document, consideration
must be given to the language used in the light of the ordinary
rules
of grammar and syntax; the context in which the provision appears;
the apparent purpose to which it is directed and the material
known
to those responsible for its production. Where more than one meaning
is possible each possibility must be weighed in the
light of all
these factors. The process is objective not subjective. A sensible
meaning is to be preferred to one that leads to
insensible or
unbusinesslike results or undermines the apparent purpose of the
document. Judges must be alert to, and guard against,
the temptation
to substitute what they regard as reasonable, sensible or
businesslike for the words actually used. To do so in
regard to a
statute or statutory instrument is to cross the divide between
interpretation and legislation. In a contractual context
it is to
make a contract for the parties other than the one they in fact made.
The inevitable point of departure is the language
of the provision
itself,
read in context and having regard
to the purpose of the provision and the background to the preparation
and production of the document.’
[19]
The court
a
quo
found that clause 11 of the contact
is the only provision which ascribed a meaning to the phrase
“termination of employment”.
It further found that the
definition of the phrase was for purposes of the whole agreement –
i.e. including the restraint
of trade part of the agreement.
[20]
Clause 11 mentions two scenarios which do
not amount to termination of employment and deem those scenarios for
the purposes of the
agreement between the parties to be “termination
of employment”. Was it the intention of the parties that clause
11
shall define the phrase “termination of employment”
exhaustively in their contract?
[21]
In
N.G.J
Trading Stores (Pty) Ltd v Guerreiro,
[2]
it
was said (quoting
Pinkey
v Race Classification Board and Another
1966
(2) SA 73
at p 77) that:
‘
Generally
speaking when you talk of a thing being deemed to be something, you
do not mean to say that it is that which it is deemed
to be. It is
rather an admission that it is not what it is deemed to be and that,
notwithstanding it is not that particular thing,
nevertheless... it
is to be deemed as that thing
.’
[22]
A deeming provision creates a fiction. That which is deemed to be
what it is not is only so deemed for the purposes of a specific
contract or statute. In this contract, clause 11 deems the phrase
termination of employment to mean what it says it means for the
purposes of the entire contract and not only for the purposes of
retention bonus or clause 10. In order to determine whether the
phrase was intended to define the phrase termination of employment
exhaustively we must ascertain the context in and the purpose
for
which the fiction was resorted to in order to give full effect to the
intention of the parties. A convenient starting point
is to ascertain
the purpose of a restraint of trade agreement on the one hand and a
retention bonus on the other.
[23]
A contract in restraint of trade is one that prevents an employee
from exercising his or her trade, profession or calling,
or engaging
in the same business venture as the employer for a specified period,
and within a specified area after leaving employment.
[3]
Van
Der Merwe
et
al
explain it thus:
‘
Employers
often restrain employees in their service contracts to the extent
that an employee who leaves the employ undertakes not
to compete with
his former employer, either independently or in the employ of
another.
’
[4]
[24]
The restraint agreement is therefore geared at protecting the
employer’s proprietary interest after the employee has
left the
employer’s employment. In
Reeves
and Another v Marfield Insurance Brokers CC and Another,
[5]
the
object of a restraint of trade term was described as follows:
‘
The
legitimate object of a restraint is to protect the employer’s
goodwill and customer connections (or trade secrets) and
the
restraint accordingly remains effective for a specified period (which
must be reasonable) after the employment relationship
has come to an
end. The need for the protection exists therefore independently of
the manner in which the contract of employment
is terminated and even
if this occurs in consequence of a breach by the employer.’
[6]
[25]
A retention bonus, as the phrase suggests, is paid in order to retain
the services of an employee for a specified period. Payment
of the
retention bonus is contingent upon the employee entering into an
agreement with the employer to complete a specific period
of service
with the employer. The bonus can be paid after the expiration of the
period, during the period or at the beginning of
the period,
depending on the agreement between the parties. The purpose of a
retention bonus is
inter alia
to avoid instability caused by
employees, especially senior employees, who would constantly search
for greener pastures; to retain
institutional memory and to promote a
seamless continuity of operations.
[26]
The restraint of trade agreement is therefore to prevent the employee
to compete with his/her ex-employer after the employment
relationship
has come to an end whereas the retention bonus is to reward the
employee for staying in the employment of the employer.
There is
generally no need for an employer to enter into a restraint of trade
agreement with an employee whilst the employer-employee
relationship
is still intact. This is so because at common law, the employee owes
the employer a duty of good faith. In
Ganes
and Another v Telecom Namibia Ltd,
[7]
it
was said that the duty of good faith entails that an employee is
obliged not to work against the interests of his/her employer
and not
to place himself/herself in a position where his/her interests
conflicted with those of the employer. In
Council
for Scientific & Industrial Research v Fijen,
[8]
it
was stated that:
‘
It
is well established that the relationship between employer and
employee is in essence one of trust and confidence and that, at
common law, conduct clearly inconsistent therewith entitled the
‘innocent party’ to cancel the agreement.
’
[9]
[27]
The tendering of a resignation, with one month’s notice, as the
employment contract stipulated, would not have terminated
the
employment relationship until the notice period had run. Likewise
being charged with an offence involving dishonesty, within
a specific
period, would not have amounted to termination of employment. The
termination would only take effect when the employee
is dismissed for
the act of dishonesty.
[28]
These instances were included in order to expand the meaning of
termination of employment to make it difficult for the respondent
to
get the retention bonus. Therefore, if the two scenarios are also
deemed to be termination of employment then the respondent
would not
be entitled to the bonus, if any of them happened before 1 January
2010, notwithstanding the fact that the contract of
employment was
still extant as at 01 January 2010.
[29]
In
R
v Verrette,
[10]
the
Canadian Supreme Court, per Beez J said the following about a deeming
provision:
‘
A
deeming provision is a statutory fiction; as a rule it implicitly
admits that a thing is not what it is deemed to be but decrees
that
for some particular purpose it shall be taken as if it were that
thing although it is not or there is doubt as to whether
it is. A
deeming provision artificially imports into a word or an expression
an additional meaning which they would not otherwise
convey beside
the normal meaning which they retain where they are used; it plays a
function of enlargement analogous to the word
“includes”
in certain definitions; however “includes” would be
logically inappropriate and would sound
unreal because of the
fictional aspect of the provision.’
[11]
[30]
I agree. It is clear that the parties wanted clause 11 to enlarge the
meaning of termination of employment. The phrase termination
of
employment retained its ordinary meaning but in addition thereto it
also had the meaning ascribed to it in clause 11 of the
agreement.
This interpretation is in sync with the context and does not lead to
an absurdity. Clause 11 supplemented the meaning
of termination.
[31]
The preamble of the agreement make plain that the agreement served
three purposes –viz:
i) to retain the
services of the respondent for at least five more years,
ii) to restrain the
respondent from entering into unfair competition with the appellant
upon the future termination of his services
and
iii) to create an
incentive for the respondent to agree to the retention and restrain
obligations in the form of an executive retention
payment.
[32]
The retention bonus was paid to retain the respondent’s
services for the period mentioned in the agreement and later
extended
by one year. It also served as payment for him agreeing to enter into
the restraint agreement, which would be triggered
at the termination
of the employment relationship. The purpose of the restraint
agreement – like most if not all such agreements
– was to
protect the appellant’s proprietary interest against unfair
competition by the respondent following termination
of his
employment. Clause 18 and 19 of the agreement read as follows:
‘
18
The executive hereby undertakes to be restrained from entering into
competition, whether directly or indirectly, with Bonfiglioli
upon
termination of his/her employment with Bonfiglioli.
“
19
The executive will be restrained from acting for a period of 12
(twelve) months after termination of his/her employment in the
territory.’
[33]
It is clear that the restraint part of the agreement was triggered
when the respondent’s employment was terminated in
2013.
[34]
The respondent’s argument, which found favour with the court
a
quo,
is untenable and leads to an absurdity. I deal briefly with
the respondent’s argument.
[35]
The respondent argued that the restraint of trade part of the
agreement begun and ended whilst the respondent was still in
the
appellant’s employment. The respondent’s argument was
predicated on the premise that clause 11 exhaustively defined
the
term “termination of employment” for the purpose of the
entire agreement. Accordingly, the respondent’s employment
could only be terminated if termination occurred prior to 01 January
2010 and it had to occur as a result of the respondent tendering
his
resignation (before 01 January 2010) or the respondent being
subjected to a disciplinary enquiring or hearing (before 01 January
2010) whereat he/she is charged with or suspected of having committed
an offence involving dishonesty and he being subsequently
(after 01
January 2010) found guilty and dismissed.
[36]
If the respondent’s argument is accepted, the fiction created
by clause 11 would lead to an absurdity. In my view, when
a contract
or statute states that something shall be deemed to be that which it
is not, the court is entitled and bound to ascertain
for what purpose
the fiction was created and endeavour to give full effect to the
fiction in order to carry it to its logical conclusion.
[37]
In
East
End Dwellings v Finsbury Borough Council,
[12]
Lord
Asquith said the following:
‘
If
you are bidden to treat an imaginary state of affairs as real, you
must surely, unless prohibited from doing so, also imagine
as real
the consequences and incidents which, if the putative state of
affairs had in fact existed, must inevitably have flown
from or
accompanied it. One of these in this case is emancipation from the
1939 level of rents. The statute says that you must
imagine a certain
state of affairs, it does not say that having done so; you must cause
or permit your imagination to boggle when
it comes to the inevitable
corollaries of that state of affairs.’
[13]
[38]
The argument advanced by the respondent in relation to the deeming
clause is unconvincing because it causes the mind to boggle
when it
comes to the consequences of the agreement. If the respondent’s
interpretation is accepted, it would mean that the
appellant wanted
to protect its interest during the time that the respondent was still
in its employment, whereas the need for
protection arose only after
the termination of employment. The contract would, on the
respondent’s interpretation, yield
not only an insensible but
also an unbusinesslike result.
[39]
The respondent argued that because he resigned after 01 January 2010,
the restraint provisions were not applicable because
the entire
agreement had lapsed. The respondent submitted that this must be so
because after the first contract was fulfilled the
parties entered
into another contract. At first glance this argument makes sense.
However it is clear that the parties were under
a misapprehension as
to the true nature of the agreement. They were not alive to the fact
that the restraint part of the agreement
would only kick-in after
termination and that the entitlement to the bonus kicked in on the
date specified in the contract. Based
on this misunderstanding of
their contract, they entered into the second contract which was
effectively a novation of the first
contract.
[40]
In my view, there is no ambiguity in the agreement. The deeming
clause supplemented and did not supplant the meaning of termination
of employment. The deeming provision was inserted to expand the
meaning of termination of employment to make it impossible for
the
respondent to get the retention bonus if he tendered his resignation
or committed misconduct in the form of dishonest conduct
before 1
January 2010, the date on which the bonus was due. The phrase
termination of employment should be given its ordinary grammatical
meaning in all other respects in the contract. That being the case, I
find that the respondent’s employment was terminated
on 5 June
2013 after he tendered his resignation on 31 May 2013. The 12 month
restraint period, only commenced on 05 June 2013
when the appellant
waived the notice period.
[41]
It was not in dispute that the restraint agreement was valid and that
the period was reasonable. It was also not in dispute
that the
respondent registered Motovaria in order to compete with the
appellant.
[42]
The parties were
ad idem
that the matter is not moot, because
the appellant intends instituting a claim for damages against the
respondent. A judgment in
the appellant’s favour would
therefore obviate a plea of
res judicata
or issue estoppel in
those proceedings. This judgment therefore has practical value. The
order of the court
a quo
ought to be set aside.
[43]
I therefore make the following order.
a. The appeal is
upheld with costs.
b. The order of the
Labour Court is set aside and replaced with the following:
c.
Prayers 1 to 7 of the notice of motion are granted.
_
C J Musi JA
Murphy
AJA and Setiloane AJA concurred.
APPEARANCES:
FOR
THE APPELLANT: Mr Leslie
Instructed
by Cowan Harper Attorneys (Sandton)
FOR
THE RESPONDENT: Mr Rantenbach
Instructed
by Chafeker & Shabodien Inc (Cape Town)
[1]
2012
(4) SA 593
SCA at para 18.
[2]
1974
(4) SA 738
(A) at 744.
[3]
See
Basson
et
al
Essential
Labour Law
4
th
edition (Labour Law Publication 2005) at page 46.
[4]
Van
Der Merwe
et
al
Contract:
General Principles
4
th
edition (Juta 2012) at page 183 to 184
[5]
1996
(3) SA 766 (A).
[6]
at
772F-G.
[7]
(2004)
25 ILJ 995 (SCA) at 1003; para 25.
[8]
(1996)
17 ILJ 18 (A).
[9]
at
26D-E.
[10]
[1978]
2 SCR 838.
[11]
at
847.
[12]
[1952]
AC 109 (HL).
[13]
at
132-133