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[2017] ZALAC 59
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TIBMS (Pty) Ltd t.a Halo Underground Lighting Systems v Knight and Another (JA29-2017) [2017] ZALAC 59; (2017) 38 ILJ 2721 (LAC) (18 October 2017)
IN
THE LABOUR APPEAL COURT OF SOUTH AFRICA, JOHANNESBURG
Reportable
Case
no: JA29/2017
In
the matter between:
TIBMS
(PTY) LTD T/A HALO UNDERGROUND
LIGHTING
SYSTEMS
Appellant
and
KNIGHT,
DENISE
RENEE
First
Respondent
BREEDT,
BARBARA
Second
Respondent
Heard:
26 September 2017
Delivered:
18 October 2017
Summary:
Restraint of trade agreement– dispute of fact about the
existence of the restraint of trade and a possible hi-jacking
of the
employer business by the employees – employee conceding setting
UP a new business venture in direct competition with
the employer –
employer failing to produce the restraint of trade agreement and
contending that employees destroyed the restraint
of trade agreement
– employer failing to produce other staff members’
restraint of trade agreement which would have
weight in its favour –
dispute of fact could not be resolved on the paper – Plascon
Evans rule finding application
– Labour Court correct in
dismissing the application. Costs order granted in favour of the
respondents in the court
a quo
set aside due to their conduct
– Appeal partly upheld and partly dismissed.
Coram: Coppin and
Sutherland JJA et Savage AJA
JUDGMENT
SUTHERLAND
JA
Introduction
[1]
On 23
December 2016, the Labour Court dismissed an application by the
appellant, (Halo) for an interdict against its two former
employees,
the respondents (Knight and Breedt) to protect its confidential
information and customer connections. The application
relied on the
terms of alleged restraints of trade agreements between Halo and
Knight and Breedt, which prohibited them from being
involved in any
way with competitors for 24 months calculated from 30 November 2016.
[2]
The
application was dismissed by the Labour Court on a single point: a
dispute of fact about the existence of the restraint of trade
agreements. At issue was whether the respondents had deliberately
destroyed the agreements as part of a concerted programme of
action
designed to hi-jack the business of Halo, or whether no agreements
had ever existed.
Evaluation
of the Facts
The
business of Halo
[3]
The
business of Halo, which started in 2012, is the design of underground
lighting systems suitable to endure the harsh environment
of that
undertaking and the sale and distribution of such systems worldwide
as the “Halo lighting system”. Halo has
a South African
patent for the system, dated 30 October 2013. It had agents in
various countries including Australia, Canada and
USA. The provision
of the components for these systems are sourced and assembled
elsewhere and in the process of manufacture, the
systems are built up
to constitute the product to be sold. In particular, Clear Lighting
Company, in China, was at the relevant
time, Halo’s premier
manufacturer; a few other components were manufactured in South
Africa.
[1]
The
Respondents’ roles
[4]
Knight was
the General Manager of Halo, and reported to Karl Bezuidenhout, the
Managing Director and ostensibly the sole shareholder.
She was
recruited in 2012, initially as a marketing assistant, a post late
re-described as General Manager. She played a significant
role in
marketing the product internationally. Breedt was responsible for
distribution logistics and reported to Knight; in this
capacity,
Breedt had access to allegedly confidential customer connection
information. It is also alleged that she was also involved
in
marketing, but no substance to this assertion appears from the
record.
[5]
Knight was,
on her own say-so in complete control of the operations. The exact
hands-on involvement of Bezuidenhout is disputed,
Knight saying he
was largely an absentee, and Bezuidenhout claiming to have exercised
a tighter oversight than she claims. These
differences are
unimportant; rather, what is material is that she was involved in
every aspect of the business, save the technical
design function and
some higher-end financial decisions. When she had been recruited as a
marketing assistant, she had no know-how
about the product or of the
business and it was entirely through her role as a marketing
assistant and later general manager that
she acquired her skills in
the sales of the product. Breedt, similarly, was recruited in 2012
and had no prior knowledge of the
type of business of Halo.
The
hi-jacking of the business
[6]
Knight’s
unlawful activities in breach of her obligations as an employee are
hardly in dispute, as she candidly confesses
to several serious
transgressions.
[7]
Knight
confesses to being aggrieved with Bezuidenhout, who, in short, as she
saw things, failed to give due financial recognition
to her pivotal
role in the business. There had also been a flutter about a potential
retrenchment; alternatively, a personnel restructuring
exercise to
make the employees “consultants”, depending on whose
version is preferable. Resolving that issue is unnecessary.
The
significant point is that her grievances are the ostensible root of
her decision to go into business with her brother in law,
David
Welbourne, the ostensible financier of the venture, and David Peters
of Mineglow, the Halo Australian agent, in direct competition
with
Halo.
[8]
The plot
embraced creating a new business, Global Lighting Systems (GLS) which
would market and sell a product to be called “Safeglow”
to be manufactured by Clear Lighting in China and with Knight’s
intimate knowledge of Halo’s customers’ needs,
offer this
rival product to them in competition with Halo. This plan was hatched
while she was the general manager of Halo, and
involved, even on her
own say- so, the most egregious actions calculated to sabotage Halo’s
business.
[9]
From as
early as September 2016, Knight confesses, she conspired with the
Australian Agent, David Peters, to setting up GLS. In
late
October/early November 2016, she clandestinely approached Halo’s
premier manufacturer, Clear Lighting Company, in China,
under the
pretext of visiting her family abroad. She and her co-conspirators
met with the directors of Clear Lighting in China.
There she
succeeded in suborning Clear Lighting, which, as a result, ceased to
supply Halo in consequence thereof. Moreover, Clear
Lighting
undertook to supply her new business, GLS with the components with
which it had acquired familiarity as the supplier of
Halo. A 5%
interest in GLS was offered to Clear Lighting. She was to take a 30%
share, Peters a 25% share and Welbourne, a further
unstated portion.
The Canadian agent, OFM, which was peeved because Halo would not
grant it a licence to also sell in USA, also
jumped ship to support
GLS in North America. The upshot was that Halo lost not only its
entire managerial echelon but also its
Australian and Canadian agents
in November/December 2016. GLS and the former agents are said by Halo
to targeting its customer
base.
[10]
Whilst
still away in China, her scheme was uncovered, and when she was
confronted, she promptly resigned. Breedt resigned to take
a job with
GLS after she had been confronted about the plot and after she had
deposed to two affidavits on 1 November 2016, and
about which more is
said hereafter.
[11]
Knight
protests that she proposes not to compete with Halo in South Africa
but to do so elsewhere in the world. This competition,
she claims is
not unlawful; the assertion being premised on clause 2.1.2 of the
text of the restraint template that the restraint
is, in any event,
limited to “Gauteng and any other province in which Halo
operates”. This might limit the reach of
the restraint but of
course, does not impinge on her common-law obligation not to filch or
use confidential information.
[12]
She lamely
apologises for not resigning before embarking on this venture.
Notably, having made out a case for her role being of
critical
importance to the success of Halo, she fails wholly to deal in any
meaningful way with the suborning of the two agents
and the Chinese
manufacturer, and the entirely foreseeable detrimental effect this
had on her jettisoned employer. Instead, she
offers several
complaints which are peripheral or irrelevant to the critical issue
of her gross violation of her duties as an employee;
these tangents
do not warrant being traversed.
[13]
Breedt’s
only potential culpability in respect of breaching a restraint is
limited to accepting a job, as an “administration
manager”,
(a vague appellation not unreminiscent of her old role in the
distribution of products to customers of Halo) with
GLS.
The
disputed existence of the agreements in restraint of trade
[14]
It is
common cause that the restraint agreement documents, alleged to exist
by Halo, cannot be produced.
[2]
[15]
Bezuidenhout
says he can positively state the agreements indeed exist because he
signed them after being presented with them, bearing
the respondents’
signatures, in 2013. He offers a manifestly weak corroborating
affidavit by his sister, Fritz, who claims
she was present when the
documents, signed by the respondents, were bandied about. She does
not say when this occurred; supposedly,
sometime in 2013, some three
years prior to her recollection. Moreover, she does not hint at how
or why she might remember the
event after that elapse of time. In
addition, emphasis was placed on the common cause fact that in 2013,
fresh contracts for the
entire staff were composed, a point thought
to bolster the averment of the signing of restraint agreements at
that time. This common
cause fact must, however, go hand in hand with
Knight’s assertion that she declined to sign either the 2013
employment agreement
or the addendum containing the restraint, and
that she had left the unsigned document in her desk drawer, where
Bezuidenhout could
verify the allegation.
[16]
The sole
reason alleged by Bezuidenhout why the documents cannot be produced
is that the two respondents, in mid-October 2016, took
the documents
from the company records and destroyed them. How could he know that?
Halo adduced two affidavits from Breedt, attested
on 1 November 2016,
which admit to these actions. Reference was made to this circumstance
in the founding affidavit, served on
Knight on 25 November 2016.
[17]
Knight’s
answer, served on 2 December 2016, attacks the allegation of the
existence of any agreement and seeks to refute the
averment in two
further ways; first to raise points about the appearance of the
document attached to the founding affidavit suggesting
its provenance
is in doubt, and secondly, by flatly denying the tale of destruction.
[18]
The “odd
appearances” thesis addresses the document attached to the
founding affidavit which supposedly contains a sample
of the text of
the agreements allegedly concluded in 2013. The allegations about the
appearances of the alleged 2013 exemplar,
back and forth, seem, in my
view, to be nit-picks, which in any event, drew explanations for the
differences which were not implausible.
The notion that the
observations point towards a forgery is strained and no inference can
be drawn that the documents
per
se
are
not genuine. There is no need to unravel this dispute because the
squabble over the genuineness of this attached document,
which is no
more than a draft or a template, misses the real point, which not
whether such a document
exists,
but rather, whether such a document was
ever
signed
by the respondents, an assertion not established by the mere
existence of the sample document. In a similar vein, the allegations
about the fabrication of the “2012” signed employment
agreement proffered by Knight can also be understood to be a
distraction from the real factual controversy.
[19]
Both
respondents allege that Breedt was bullied into signing the
affidavits. Only the second affidavit implicates Knight in the
actual
theft and destruction, but the allegations of knowledge by Breedt of
Knight’s plot, an uncontroversial aspect, are
made throughout
both affidavits.
[20]
When
Breedt, deposed to her answering affidavit on 7 December (the
application being served on her only on 2 December; the same
day that
Knight served her answer), she stated that she was intimidated by
threats of criminal prosecution and imprisonment to
depose to the two
affidavits. In evaluating this assertion, there must also be weighed
an admission by Bezuidenhout that Breedt
is a meek person. That
disposition lends a measure of credence to the allegation of her
being bullied into making the affidavits
in the form deposed to and
that the contents were dictated to her; evident also from
Bezuidenhout’s own allegations to explain
the need for a second
affidavit to extend their scope to implicate Knight. Breedt’s
answering affidavit does, however, not
recant the account she swore
to, which axiomatically, need not be untrue even if she was
intimidated to depose to it. The absence
of a clear statement by her
declaring the contents to be a fabrication is another snippet which
must be weighed against other contra-indications
in the record.
[3]
[21]
Knight’s
attorney had served on 28 November, a notice to produce these
agreements and, also, other documents, including the
restraints of
the rest of the staff.
[4]
This
was done well knowing that Halo had stated that the originals of the
two respondents’ agreements had been allegedly
destroyed by
herself and Breedt. The demand could not therefore have been met.
[22]
However,
Knight had alleged that an unsigned 2013 employment draft agreement
been left in her desk drawer, which contained no restraint
addendum.
She deposes with conscious mysteriousness that her reason for
declining to sign these documents shall be disclosed at
another time;
however, this melodramatic interlude does not contribute anything
useful to the resolution of the puzzle. Had an
unsigned 2013 draft
agreement been produced it would in any event not be dispositive of
her having signed a restraint, but might
have added weight to her
assertions that if she had not signed the principal document it was
unlikely she signed an addendum.
[23]
On this
score, it is, perceptively argued on behalf of the respondents that
Halo’s dilemma about the contested existence of
the agreements
might have been ameliorated had Halo, as requested in the demand to
produce documents, presented a set of agreements
for the whole staff
which illustrated that only the two respondents’ restraints
agreements were missing. The refusal by Halo
to produce those
documents on grounds of confidentiality is described as implausible.
I agree. First, if confidentiality could
exist, the disclosure was
nevertheless appropriate and functional to protect a legitimate legal
interest, and further, were the
picture presented by such disclosure
proven that everyone, bar the two respondents, had such agreements,
it could have had a powerful
effect, affording weight to the veracity
of the 1 November affidavits of Breedt, who because of her disavowal
of these affidavits,
is an otherwise unreliable witness. By contrast,
the failure to do so, could justify an adverse inference, which the
respondents
argue should be drawn. In my view, these considerations
simply leave the question unanswered.
The
Labour Court’s decision
[24]
The Labour
Court, upon being confronted by this dispute of fact, concluded that
no relief should be granted, and because no ancillary
application to
refer the matter for an urgent oral hearing was sought, no
alternative relief was appropriate either.
[5]
No other issues were canvassed.
[25]
This
decision of the Labour Court is criticised on the basis that the
dispute of fact is not
bona
fide
or
material and that upon the authority of
Plascon
Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd 1984(3) SA 623 (AD),
a
decision ought to have been made to believe the version of
Bezuidenhout.
[26]
I am unable
to agree. Whilst the denial of the existence of the agreements, is
not wholly convincing, that is never sufficient,
on paper, to justify
an outright rejection. The denial is not bald nor unsupported by
allegations of fact nor are the allegations
of fact inherently
implausible.
[27]
The heavy
emphasis on Knight’s clandestine
modus
operandi
is unhelpful because it is consistent with her self-awareness of her
breach of the duty of good faith in terms of the invariable
consequences of the employment relationship, and not only consistent
with the existence of a restraint agreement.
[28]
Halo’s
approach in the application seems to have been premised on strategic
decisions which inhibited a finding in its favour.
28.1.
The first
strategic decision was the omission to show the exceptionality of the
absence of a restraint agreement by either two respondents
by
disclosing the uniform set of agreements for everyone else; if Halo
could indeed do so.
28.2.
The second,
strategic decision is the point, quite properly mentioned by the
Labour Court, that the option of seeking an interim
order pending a
referral to oral evidence, although initially pursued in its relief
sought, was subsequently spurned by Halo.
28.3.
Lastly, the
appeal too was argued solely on the premise that a final interdict
should have be granted.
[29]
The dispute
of fact in this matter cannot be resolved on paper, even on a robust
approach, as whatever nuances may nibble at the
edges of either
version, neither can be dismissed out of hand. Credibility is only
capable of being addressed on paper when the
assertions are palpably
absurd or demonstrably false. The threshold that had to be cleared is
“wholly fanciful and untenable”.
[6]
Moreover, the appetite to resolve paper contests by reference to the
probabilities, though ever present, is not appropriate.
[7]
On the allegations canvased on the record, the threshold was not
cleared.
Conclusion
[30]
Accordingly,
it cannot be held that the Labour Court misdirected itself in
dismissing the application.
Costs
[31]
However, as
regards the costs of that application, it is my view that the
exercise of the discretion to award the respondents their
costs was
inappropriate, given the requirement that such decisions be governed
by both law and equity. Such an assessment is informed
by a holistic
consideration of the entire conspectus of circumstances that are
pertinent to the relationships among the litigants.
[32]
Knight was
guilty of egregious conduct
qua
employee.
She ought not to have been granted costs, having regard to equitable
considerations. It was argued that it was, or ought
to have been
plain, before the application was lodged that a restraint agreement
could not be proven. The need to protect the protectable
interest
urgently was however manifest. The risk of taking a weak case to
court to assert that harm has been perpetrated ought
not to be
harshly condemned. Holistically approached, equity is better served
by no order as to costs in her favour. Similarly,
in the appeal, the
same reasoning should prevail. Knight should bear her own costs.
[33]
As to
Breedt, it is nowhere meaningfully articulated in the record why her
taking up a post in the competitor, even if the applicability
of a
restraint of trade agreement were to be assumed, threatened seriously
a protectable interest. Her exposure to confidential
information was
not described, and other than her awareness of the identities of
customers and of suppliers,
per
se,
and
their usual needs. The confidentiality of such information is tenuous
as these needs would have been broadcast to any prospective
vendor.
Therefore, the case for a protectable interest being in danger by
reason of Breedt’s role in GLS is tenuous at most.
In the
absence of a resolution of the dispute of fact, Breedt’s
disputed culpability in the destruction of the documents
cannot weigh
in determining an equitable costs order. However, the consequences of
her deposing to the two incriminating affidavits
per
se
were
sufficient to warrant her being joined in the initial application,
and that action on her part ought, in equity, to have consequences.
Her actions laid an important part of the foundation for the
litigation. The appropriate costs order would have been to make no
order of costs in her favour in recognition of that aspect of her
conduct. The position on appeal ought to be no different.
The
Order
(1)
The appeal
is dismissed in part and upheld in part.
(2)
The
dismissal of the application is confirmed.
(3)
The costs
orders made by the Labour Court are set aside.
_____________________
Sutherland
JA
Sutherland
JA (with whom Coppin JA and Savage AJA concur)
APPEARANCES:
FOR
THE APPELLANT: Attorney Sean Snyman.
FOR
THE FIRST RESPONDENT: Adv John Whitehead SC,
Instructed
by Commins and Associates
FOR
THE SECOND RESPONDENT: Adv H M Viljoen,
Instructed
by Metcalfe Attorneys.
[1]
It was disputed by
Knight that the Halo lighting system was unique and it is averred
that Halo is a mere distribution agent for
Clear Lighting. However,
this assertion is moderated by the allegation that Clear Lightings’
product is used as a component
of the Halo Lighting ‘system’.
Accordingly, this debate is at cross purposes. For the purposes of
this case, the
‘system’ must be construed as the
‘ultimate product’ in which Halo can claim a protectable
interest.
[2]
In advance of filing an
answer, a formal demand was made to produce these documents, and
others, as the first salvo fired in their
resistance to the urgent
application. The ancillary squabble about whether it was legitimate
to call for the production of documents
under a High Court Rule is
now an irrelevance and warrants no further comment.
[3]
Halo did not file a
replying affidavit to Breedt’s answer. The explanation, given
from the bar, is that the answer was tendered
at the hearing and no
opportunity existed to reply unless a postponement was sought, a
course of action which was, pragmatically,
decided against in the
interests of expedition. No adverse inference can, therefore, be
fairly drawn against Halo.
[4]
The controversy about
the competence to make the demand is irrelevant to the assessment of
the evidential issue being addressed.
[5]
In so doing, the Labour
Court followed the authority of
Plascon
Evans
at 634E-635C.
[6]
Buffalo freight
Systems (Pty) Ltd v Crestleigh Trading (Pty) Ltd
2011 (1) SA 8
(SCA);
[2011] 1 All SA 1
(SCA) at para 19.
[7]
See
Da
Mata v Otto N.O.
1972(3) SA 858 (A) at 865H.