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[2014] ZALCCT 31
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ARB Electrical Wholesalers (Pty) Ltd v Grove and Others (C335/14) [2014] ZALCCT 31 (3 June 2014)
REPUBLIC OF SOUTH
AFRICA
THE LABOUR COURT OF
SOUTH AFRICA, CAPE TOWN
JUDGMENT
NOT
REPORTABLE
OF
INTEREST TO OTHER JUDGES
CASE
NO: C 335/14
In
the matter between:
ARB
ELECTRICAL WHOLESALERS (PTY) LTD
Applicant
and
TEXAN
GROVE
First
respondent
DANE
UPTON
Second
respondent
AFRICAN
POWER TRADING (PTY) LTD
Third
respondent
Heard
:
30 May 2014
Delivered:
3 June 2014
Summary:
Restraint of trade.
JUDGMENT
STEENKAMP
J
Introduction
[1]
The applicant seeks to enforce restraint of trade
agreements against two former employees and their new employer.
[2]
The respondents take issue with the urgency of the
application. They also raise two further preliminary points. Before
dealing with
the preliminary points, I will sketch the context by
setting out the background to the dispute.
Background facts
[3]
The applicant (ARB) sells and distributes
electrical products to a range of customers, including Eskom,
municipalities and private
electrical contractors throughout South
Africa and the SADC region. It categorises its offerings as follows:
(a)
power and instrumentation cables (comprising
approximately 50% of its turnover);
(b)
overhead line (OHL) equipment and conductors
(comprising approximately 25% of its turnover); and
(c)
general electrical contracting material, such as
light fittings, switchgear and wiring accessories (comprising
approximately 25%
of its turnover).
[4]
The
first and second respondents are former employees of ARB. The first
respondent revels in the name of Texan Grove.
[1]
He has been employed by ARB since 2006, initially as a trainee sales
person. He rose through the ranks. When he resigned in December
2013
he held the position of “senior external sales representative”.
The second respondent, Dane Upton, held the position
of “senior
internal cable sales person” when he, too, resigned in January
2014. Immediately after they had resigned,
both of them took up
employment with the third respondent, African Power Trading (Pty) Ltd
(APT).
[5]
ABR and APT are competitors. Both employees were
bound by restraint undertakings. The question is whether, by taking
up employment
with APT; they have breached those undertakings; and if
so, whether the undertakings are reasonable and should be enforced.
First point
in
limine:
Upton’s restraint
[6]
The respondents (i.e. Grove, Upton and APT) have
raised a preliminary question whether Upton is bound by a restraint
of trade agreement
at all. That is because the relevant part of his
employment contract is worded differently to that of Grove –
due mainly
to bad drafting, it would appear.
[7]
Although Grove’s restraint of trade clause
is not a model of clarity either, it does make sense once one cuts
through the
clutter. The relevant paragraphs read as follows:
“
Restraint
1. You
shall not during your employment with the company
[2]
or at any time thereafter, either personally or in the capacity as a
director or shareholder or member of a juristic person, utilise
and/or directly or indirectly divulge and/or disclose to others
(except as required by the terms and nature of your employment
of the
company) any of the company’s trade secrets which have come to
your knowledge prior to or during your employment with
the company.
…
3. You shall not within a
period of one (1) year after the termination of your employment with
the company for any cause whatsoever,
in connection with any business
which carries on business in South Africa and which is similar to
compete with or endeavors [
sic
] to compete with the business
of the company directly or indirectly offer employment to or employ
or cause to be employed any person
who is employed by the company at
the date of the termination of your employment with the company for
any cause whatsoever or within
any time within six (6) months
immediately preceding such termination.
4. You shall not, for a
period of one (1) year after termination of your employment with the
company for any cause what so ever
[
sic
], either solely or
jointly or together with or as an employee, manager or agent for any
person firm or body corporate or incorporate,
directly or indirectly:
4.1 carry on or assist
financially or otherwise be engaged or concerned or interested in;
4.2 be a director o[r]
shareholder directly or member of;
4.3 act as a consultant
or ad visor [
sic
] to:
any company, closed [
sic
]
corporation or business which carries on business in South Africa
which is similar to or competes with or endeavors [
sic
] to
compete with the business carried on by the company as at the date of
termination of your employment with the company.”
[8]
The contract continues to explain what is included
in “trade secrets”, including knowledge of and influence
over the
company’s finances and clients, customers and
suppliers.
[9]
Stripped down to its intention, it is clear that
clause 3 is meant to act as a non-solicitation clause and clause 4 as
a restraint
of trade, both valid for a period of 12 months.
[10]
Upton’s restraint clause is to a large
extent a mirror image, except that it appears that some clauses have
been left out,
rendering the subclauses to clause 4 grammatically
nonsensical. The relevant portions of Upton’s restraint read as
follows:
“
Restraint,
Confidentiality and Documents
4. You shall not within a
period of one (1) year after the termination of your employment with
the company for any cause whatsoever,
in connection with any business
which carries on business in South Africa and which is similar to or
competes with or endeavors
[
sic
] to compete with the business
of the company directly or indirectly offer employment to or employ
or cause to be employed any person
who is employed by the company at
the date of the termination of your employment with the company for
any cause whatsoever or within
any time within six months immediately
preceding such termination
4.1 carry on or assist
financially or otherwise be engaged or concerned or interested in;
4.2 be a director or
shareholder directly or member of,
4.3 act as a consultant
or ad visor [
sic
] to:
any company, closed [
sic
]
corporation or business which carries on business in South Africa
which is similar to or competes with or endeavors [
sic
] to
compete with the business carried on by the company as at the date of
termination of your employment with the company.”
[11]
It is plain from a comparison of the two contracts
of employment that the same flawed restraint of trade clause has been
copied
and pasted into both contracts, warts and all. However, the
subclauses to clause 4 in Upton’s contract do not follow
logically
from the main clause.
[12]
This
court had the unfortunate task of making some sense of this
unappetising matzah pudding. In order to do so, I had regard to
the
principles of contractual interpretation that were recently
summarised by Wallis JA in
Natal
Joint Municipal Pension Fund v Endumeni Municipality
[3]
:
“
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 for 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.
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.
All
this is consistent with the ‘emerging trend in statutory
construction’. It clearly adopts as the proper approach
to the
interpretation of documents the second of the two possible approaches
mentioned by Schreiner JA in
Jaga v
Dönges and Another; Bhana v Dönges and Another
,
namely that from the outset one considers the context and the
language together, with neither predominating over the other. This
is
the approach that courts in South Africa should now follow…”
[13]
One has to discern a sensible meaning from clause
4 of Upton’s contract. The context is described by the heading:
“restraint,
confidentiality and documents”. It is clearly
meant to deal with a restraint of trade. And although the main clause
in clause
4 deals with non-solicitation, meaning must be attributed
to clause 4.1. In my view, the only way in which that can be done is
to read it as follows:
“
You
shall not within a period of one (1) year after the termination of
your employment with the company ...
carry on or assist
financially or otherwise be engaged or concerned or interested in ...
any company, close
corporation or business which carries on business in South Africa
which is similar to or competes with or endeavours
to compete
with the business carried on by the company as at the date of
termination of your employment with the company.”
Or, in an attempt to put
it in plain language:
“
You
may not, for 12 months after leaving ARB, work for a competitor in
South Africa.”
[14]
It is for these reasons that I ruled
in
limine
that Upton’s contract did
contain a restraint clause that would prevent him from working for
APT. Whether it is reasonable,
is a different question.
Second point
in
limine
: urgency
[15]
Grove gave one month’s notice on 29 November
2013. He left ARB at the end of December 2013. Upton gave notice at
the end of
December and left on 31 January 2014. ARB launched this
application on 5 May 2014, more than three months after Upton left
and
five months after Grove gave notice. Understandably, the
respondents raise the point that the urgency in the matter has been
self-created.
[16]
In order to decide whether this is so, the
circumstances have to be scrutinised rather more closely.
[17]
When Grove gave notice, he disclosed that he would
be joining a competitor. But he did not say who it would be or what
he would
be doing. It is only when a representative of ARB attended a
site inspection at one of its customers in April 2014 that it
realised
that Grove had joined APT and was dealing exclusively with
an existing ABR customer called Prime Electrical.
[18]
Upton did disclose in his exit interview that he
was joining APT. But at that stage, ARB did not know that Upton would
be doing
the same job at APT, namely selling cables. It only realised
that in April 2014 when it saw an APT quote to another customer, VE
Reticulation.
[19]
On 17 April 2014, as soon as these facts came to
hand, ARB’s attorneys wrote to Grove and Upton respectively.
They pointed
out that both employees were in breach of their
restraint agreements; and asked for a written undertaking by 22 April
2014 that
they would leave APT. The attorneys also wrote to APT
asking for a similar undertaking. None was forthcoming. Instead,
APT’s
attorneys responded on 23 April 2014 and denied that APT
“has acted unlawfully in any manner in employing Mr Grove and
Mr
Upton and accordingly does not intend on complying with your
client’s demand.” ARB launched the application a week
after that.
[20]
The
restraint is for a period of 12 months, of which almost half has
already passed. The application is, almost by its very nature,
urgent. For every day that Grove and Upton remain with APT, they are
able to exploit the customer connections they built up with
ARB, as
will become apparent later. Although it may have appeared at first
blush that that urgency has been self-created, I am
satisfied that
that is not the case. Once it became clear that its interests are
indeed threatened, ARB acted as expeditiously
as possible. And, as
Davis J noted in
Mozart
Ice Cream Franchises (Pty) Ltd v Davidoff
[4]
,
breaches of restraint of trade have an inherent quality of urgency.
Third point
in
limine
: admissibility of further pleadings
[21]
This application was initially set down on the
urgent roll before Lagrange J last week, on Thursday 23 May 2014. ARB
had filed a
replying affidavit on Tuesday, 21 May 2014. On the day of
the hearing APT requested an opportunity to file a fourth set of
pleadings
in order to replicate to what it termed new matter raised
in reply. It did so, and ARB filed a fifth set of pleadings
responding
to it. ARB did so without prejudice and Mr
Gordon
reserve the right to argue that the fourth set of
pleadings filed by APT should not be allowed. He argued that point
when the matter
came before me a week later, on Friday, 30 May 2014.
[22]
The
general rule, of course, is that the court will not ordinarily
receive more than three sets of affidavits.
[5]
But the court retains a discretion to grant a party an indulgence to
file a further set of pleadings. That includes instances where
an
applicant raises something new in its replying affidavit.
[23]
There has been much argument whether the replying
affidavit does, in fact, introduce new matter. It is perhaps a matter
of degree;
but I am satisfied that the additional information
provided in the replying affidavit did call for a response. It is in
the interests
of justice for further information to be placed before
the court in order to provide it with a fuller picture. I have
therefore
exercised my discretion to allow the filing of the fourth
and fifth set of pleadings.
The applicable legal
principles : restraints of trade
[24]
Despite
some earlier skirmishes about the principles applicable to restraints
of trade in a constitutional era, those principles
are now well
settled. This court discussed them at length in
Esquire
[6]
and
Van Niekerk J summarised them as recently as two weeks ago in
New
Justfun Group
.
[7]
[25]
In
short, an agreement in restraint of trade is enforceable unless it is
unreasonable. It will generally be considered unreasonable,
and thus
contrary to public policy, if it does not protect some legally
recognisable interest of the party seeking to enforce it,
but merely
seeks to eliminate competition.
[8]
[26]
A
party seeking to enforce a restraint must invoke the restraint
agreement and prove its breach. A respondent who seeks to avoid
the
restraint bears an onus to demonstrate, on a balance of
probabilities, that the restraint is unenforceable because it is
unreasonable.
[9]
[27]
The
well-know test set out in
Basson
v Chilwan
[10]
for
determining the reasonableness of a restraint has stood the test of
time and constitutionality. The following questions must
be asked:
(a)
Is there an interest of the one-party which is
deserving of protection?
(b)
Is that interest prejudiced by the other party?
(c)
If so, does that interest weigh up qualitatively
and quantitatively against the interest of the latter party that he
or she should
not be economically inactive and unproductive?
(d)
Is there another facet of public policy that
requires that the restraint should be maintained or rejected?
[28]
Proprietary interests that are worthy of
protection are essentially of two kinds, namely:
(a)
confidential matter that could be used by a
competitor to gain a competitive advantage, usually referred to as
‘trade secrets’;
and
(b)
relationships
with customers, potential customers, suppliers and others that go to
make up what is referred to as the ‘trade
connections’ of
the business.
[11]
[29]
The
need of an employer to protect its trade connections arises where the
employee has access to customers and is in a position
to build up a
particular relationship with the customer. It is sufficient for the
applicant to show that the customer contacts
exist and that they can
be exploited by the former employee. Once the conclusion has been
reached that the former employee could
easily induce customers to
follow him to a new business, and the new employer is a competitor of
the applicant, the risk of harm
is apparent.
[12]
[30]
The
onus is on the respondent to prove the unreasonableness of the
restraint.
[13]
Once the
applicant has shown that there is confidential information to which
the employee had access and which he could transmit
to his new
employer, the applicant is entitled to the protection afforded by the
restraint. The applicant should not have to content
itself with
crossing its fingers and hoping that the former employee will not
breach the restraint.
[14]
Application to the
facts
[31]
In this case, Grove had close contact with and
influence over ARB’s customers. He was a senior external
salesperson and had
been in sales at ARB for more than seven years.
He assisted customers with their tendering process and he had created
a master
file which recorded each customer’s pricing and the
details applicable to each quote. He managed customers’ tenders
once those tenders had been awarded.
[32]
One of the customers that Grove serviced was Prime
Electrical. That company contributed to one third of Grove’s
sales in the
last year of his employment with ARB. Grove now deals
primarily with Prime Electrical as a customer for APT. It is quite
clear
that Grove had customer connections that could induce customers
like Prime Electrical to take more of the business to Grove’s
new employer. Indeed, it appears that sales to Prime Electrical had
dropped off significantly since Grove left ARB and that APT
has
benefited; but the figures are not conclusive. That does not matter.
It is enough of that Grove could potentially, in breach
of his
restraint agreement, induce customers like Prime Electrical to move
the rest of their business to APT.
[33]
Upton was employed as a senior internal cable
salesperson at ARB. He was the most senior member of its cable sales
department under
the direct manager and branch manager. He was
responsible for ensuring that customers’ orders, consisting of
large quantities
of different varieties of cables that had to be
delivered at different times of the different sides, ball
satisfactorily executed.
He had ongoing interaction with ARB’s
customers and was privy to its confidential information.
[34]
APT also services the cabling market. The risk of
Upton divulging confidential information relating to cable sales to
his new employer
is self-evident. For example, Upton is dealing with
a company called VE Reticulation, an ARB customer that is now doing
business
with APT.
[35]
It is evident that both Grove and Upton were privy
to confidential information relating to pricing; and that they had
extensive
customer connections with ARB. They are uniquely positioned
to use this information for the benefit of APT. They are clearly in
breach of their restraint of trade agreements.
[36]
In weighing up the respective interests of ARB and
the two employees, I am not persuaded that the effect on their
freedom to work
is disproportionate. They can work for any employer
anywhere, provided they do not breach the restraint clauses for a
period of
12 months. Only seven and eight months, respectively, of
that period remains. After that, they are free to take up employment
with
APT or any other competitor again. In my view, the restraint is
not unreasonable.
[37]
ARB
has established a clear right for the relief it seeks. The
respondents have committed and continue to commit an injury, as
demonstrated above. The remaining question is whether ARB has another
satisfactory remedy.
[15]
[38]
The theoretical remedy of a damages claim in due
course is cold comfort to ARB. A damages claim in these circumstances
is difficult
to quantify and does not protect its rights at this
stage. ARB has satisfied the requirements for a final interdict.
Conclusion
[39]
ARB is entitled to the relief it seeks. The relief
sought in the notice of motion, though, is cast in the same wide
terms as the
restraint of trade clause. In my view, the actual relief
can be simplified without detracting from the relief due to ARB. I
intend
formulating the order in simpler terms.
Costs
[40]
Both parties have asked for costs to follow the
result. However, Mr
Gordon
submitted that the complexity of the matter did
not necessitate the use of senior and junior counsel by ARB. As he
pointed out,
he was able to represent all three respondents very
competently as a single counsel with the assistance of his attorney.
I agree.
Although restraint of trade disputes are never simple, this
dispute did not raise any new legal questions or any matters of such
factual complexity that it necessitated the use of two counsel.
Order
[41]
I therefore order that:
(a)
The first and second respondents, Grove and Upton,
are interdicted and restrained until 31 December 2014 and 30 January
2015 respectively,
and within the Republic of South Africa:
(i)
from employing, offering employment to or causing
to be employed by a competitor anyone who was employed by ARB in the
period from
June 2013;
(ii)
from working for or otherwise being engaged in the
business of the third respondent, APT, or any other competitor of
ARB.
(b)
Grove and Upton are interdicted from disclosing
any of ARB’s trade secrets to any third party.
(c)
The respondents are ordered to pay the costs of
this application –including the postponement on 22 May 2014 --
jointly and
severally, the one paying, the other to be absolved,
including the costs of one counsel.
____________________________
Anton J Steenkamp
Judge of the Labour
Court of South Africa
APPEARANCES
APPLICANT:
Christopher Whitcutt SC (with him Claire de Witt)
Instructed
by Brian Kahn, Johannesburg.
RESPONDENTS:
Roy Gordon
Instructed
by DLA Cliffe Dekker Hofmeyr, Cape Town.
[1]
Counsel assured me that
his surname is Grove and not Grové. The image of a cowboy on
horseback riding through a lane of
oranges is heard to dispel.
[2]
"The company"
is not defined. One presumes it is meant to refer to ARB; although,
in the first paragraph of the contract
of employment, it is stated
that ARB Electrical Wholesalers (Proprietary) Limited is "hereafter
referred to as ARB".
[3]
2012 (4) SA 593
(SCA)
paras 18-19.
[4]
2009 (3) SA 78
(C) 89A.
[5]
Wightman t/a JW
Construction v Headfour (Pty) Ltd
[2008] ZASCA 6
;
2008
(3) SA 371
(SCA) 375G – 376C.
[6]
Esquire System
Technology (Pty) Ltd t/a Esquire Technologies v Cronjé
& ano
(2011)
32
ILJ
661 (LC).
[7]
New Justfun Group
(Pty) Ltd v Turner & ors
[2014]
LALCJHB 177 (14 May 2014).
[8]
Automotive Tooling
Systems (Pty) Ltd v
Wilkens
& ors
2007
(2) SA 271
(SCA);
Reddy
v Siemens Telecommunications (Pty) Ltd
2007
(2) SA 406
(SCA);
Den
Braven v Pillay & ano
2008
(6) SA 229 (D).
[9]
Magna Alloys and
Research SA (Pty) Ltd v Ellis
[1984] ZASCA 116
;
1984
(4) SA 874
(A);
Experian
South Africa (Pty) Ltd v Haynes & ano
2013
(1) SA 135
(GSJ), (2013) 34
ILJ
529 (SCA).
[10]
1993 (2) SA 742
(A).
[11]
Sibex Engineering
Services (Pty) Ltd v Van Wyk
1991
(2) SA 482 (T).
[12]
Rawlins v
Caravantruck (Pty) Ltd
1993
(1) SA 537 (A) 541 C-D.
[13]
Cf
Reddy
v Siemens (supra).
[14]
BHT Water Treeatment
(Pty) Ltd v Leslie & ano
1993
(1) SA 47
(W) 57J – 58D.
[15]
Setlogelo v Setlogelo
1914
AD 221.