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[2015] ZALCJHB 353
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Showgroupworld (Pty) Ltd v Johannes and Another (J1876/15) [2015] ZALCJHB 353 (12 October 2015)
THE
LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG
JUDGMENT
Not Reportable
Case no: J1876/15
In the matter between:
SHOWGROUPWORLD
(PTY) LTD
Applicant
And
JOHANNES IZAK ELS
First Respondent
EPH PRODUCTIONS
Second Respondent
Heard:
1 October 2015
Delivered:
12 October 2015
JUDGMENT
RABKIN-NAICKER, J
[1]
This matter heard in urgent court, concerns the enforcement of a
restraint of trade
agreement. The second respondent abides the order
of this court. The relief sought is as follows:
“
2.
That the first respondent be interdicted and restrained from being
employed by the second respondent within
the Republic of South Africa
for a period of 30 (thirty) months until 25 March 2018;
3. That the
first respondent be interdicted and restrained from being employed by
any entity (including
the Second Respondent) which conducts
activities in competition with the applicant within the Republic of
South Africa for a period
of 30 (thirty) months, until 25 March 2018;
4. That the
first respondent be interdicted and restrained from encouraging
and/or enticing any employee
of the applicant to terminate his or her
employment with the Applicant.
5. That the
First Respondent be interdicted and restrained for a period of 30
(thirty) months, until 25
March 2018, from:
5.1 Furnishing any
information or advice to any employee or prospective employer of such
employee, to result
in any such employee terminating his/her
employment with the company and/or becoming employed by or directly
or indirectly in any
interested in or associated with any other
entity which competes with the Applicant.
5.2 Furnishing any
information or advice to any customer or using any other means or
taking any other action
which is directly or indirectly designed, or
in the ordinary course of events calculated, to result in such
customer terminating
its association with the Applicant or
transferring its business to or purchasing any products or services
from any person other
than the Applicant; and
5.3 Furnishing any
information or advice to any supplier or using any other means or
taking any other action
which is directly or indirectly designed, or
in the ordinary course of events calculated, to result in such
supplier terminating
its association with the Applicant or
transferring its business to or supplying any products or services to
any person other than
the Applicant.”
[2]
The first respondent (Els) has been employed by the applicant (the
company) since
1 January 2001 and was appointed as a Key Accounts
Manager during 2004. The company operates nationally and is in the
business
of organising events. Two agreements, an employment contract
and a stockholders agreement both containing the restraint of trade,
were entered into between the parties in June and September 2012
respectively. Els avers that these agreements followed on the
expansion of the business and following negotiations. He acquired
18,25% of the shares of the company in terms of the stockholders
agreement which at that time represented a value of R3 200 000.
[3]
Els resigned on the 21 August 2015. The company sets out it averments
regarding the
alleged breach of the restraint and the association
between Els and the second respondent in detail in its founding
affidavit It
is not necessary for me to traverse the details in
the papers. I do not find Els’ denials of the breach to raise a
bona
fide
dispute of facts on the papers. As the SCA in
Fakie
NO v CCII Systems (Pty) Ltd
[1]
put
it:
“
[55]
That conflicting affidavits are not a suitable means for determining
disputes of fact has been doctrine in this court
for more than 80
years. Yet motion proceedings are quicker and cheaper than
trial proceedings and, in the interests of justice,
courts have been
at pains not to permit unvirtuous respondents
to shelter behind patently implausible affidavit
versions or bald
denials. More than 60 years ago, this Court determined that a Judge
should not allow a respondent to raise 'fictitious'
disputes of fact
to delay the hearing of the matter or to deny the applicant its
order. There had to be 'a
bona
fide
dispute of fact on a material matter'. This means that an
uncreditworthy denial, or a palpably implausible version, can be
rejected
out of hand, without recourse to oral evidence. In
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
,
this Court extended the ambit of uncreditworthy denials. They now
encompassed not merely those that fail to raise a real, genuine
or
bona
fide
dispute of fact but also allegations or denials that are so
far-fetched or clearly untenable that the Court is justified in
rejecting
them merely on the papers.”
[4]
Essentially the defence to the application is the following:
4.1
The restraint of trade agreement is incorporated in both an
employment contract and a stockholders
agreement;
4.2
The stockholders agreement provides background and surrounding
circumstances pertinent to
the interpretation of the restraint of
trade provision in both agreements;
4.3
The restraint agreement is unreasonable and unenforceable.
[5]
The law in respect of restraints of trade has been most usefully
summarised
in
Experian South Africa (Pty) Ltd v Haynes and
Another
2013 (1) SA 135
(GSJ):
“
[12] The
locus
classicus
on this subject is
Magna
Alloys and Research (SA) (Pty) Ltd v Ellis
[1984] ZASCA 116
;
1984 (4) SA 874
(A) at 897F – 898E, where Rabie CJ summarised
the legal position,
inter
alia
,
as follows:
[12.1] There is nothing in
our common law which states that a restraint of trade agreement is
invalid or unenforceable.
[12.2] It is a principle
of our law that agreements which are contrary to the public interest
are unenforceable. Accordingly,
an agreement in restraint of trade is
unenforceable if the circumstances of the particular case are such,
in the court's view,
as to render enforcement of the restraint
prejudicial to the public interest.
[12.3] It is in the public
interest that agreements entered into freely should be honoured and
that everyone should,
as far as possible, be able to operate freely
in the commercial and professional world.
[12.4] In our law the
enforceability of a restraint should be determined by asking whether
enforcement will prejudice
the public interest.
[12.5] When someone
alleges that he is not bound by a restraint to which he had assented
in a contract, he bears the
onus of proving that enforcement of the
restraint is contrary to the public interest…..
[14] The position in our
law is, therefore, that a party seeking to enforce a contract in
restraint of trade is required
only to invoke the restraint agreement
and prove a breach thereof. Thereupon, a party who seeks to avoid the
restraint bears the
onus to demonstrate, on a balance of
probabilities, that the restraint agreement is unenforceable because
it is unreasonable.
[15] The test set out in
Basson
v Chilwan and Others supra
at 767G – H for determining the
reasonableness or otherwise of the restraint of trade provision, is
the following:
[15.1] Is there an
interest of the one party which is deserving of protection at the
determination of the agreement?
[15.2] Is such interest
being prejudiced by the other party?
[15.3] If so, does such
interest so weigh up qualitatively and quantitatively against the
interest of the latter party
that the latter should not be
economically inactive and unproductive?
[15.4] Is there another
facet of public policy having nothing to do with the relationship
between the parties, but which
requires that the restraint should
either be maintained or rejected?
[16] In
Kwik Kopy (SA) (Pty)
Ltd v Van Haarlem and Another
1999 (1) SA 472
(W) ([1998]
2 All
SA 362)
at 484E Wunsh J added a further enquiry, namely whether the
restraint goes further than is necessary to protect the interest.
[17] It is well established
that the proprietary interests that can be protected by a
restraint agreement are
essentially of two kinds, namely:
[17.1] The first kind
consists of the relationships with customers, potential customers,
suppliers and others that go
to make up what is compendiously
referred to as the 'trade connections' of the business, being an
important aspect of its incorporeal
property known as goodwill.
[17.2] The second kind
consists of all confidential matter which is useful for the carrying
on of the business and which
could therefore be used by a competitor,
if disclosed to him, to gain a relative competitive advantage. Such
confidential material
is sometimes compendiously referred to as
'trade secrets'.
See
Sibex Engineering Services
(Pty) Ltd v Van Wyk and Another
1991 (2) SA 482
(T) at 502D –
F”
[5]
It is not disputed that Els was employed as the key accounts manager
with his primary
function and duty to secure events and establish
relationships and connections with customers and clients of the
company. Further
Els does not dispute that he was exposed to the
company’s trade secrets, customer connections and products in
that he had
all customer related information on his cellphone and
computer. There is clearly a protectable interest in
casu
.
[6]
It was submitted by on behalf of Els that the restraint of trade is
unreasonable and
unenforceable in that:
6.1 It
covers the whole of South Africa ;
6.2 It
endures for a period of 30 months.
6.3. Els is
not qualified or equipped for any form of commercial activity or
income generation other than the coordination
of events.
6.4 The
effect of the restraint will be that he will be unable to be
economically active and to earn a living
for a period of 30 months;
6.5 His
interest evidently outweighs the protectable interest of the
Applicant.
[7]
It is further averred by Els that at the time of the concluding of
both the agreements
it was contemplated by the parties that the
shareholding would serve as a
quid quo pro
for the restraint.
It is undisputed that the shares are now of an insignificant value in
the market and as a consequence Els submits
that the allocation of
shares to him cannot serve as a justification for the unreasonable
terms of the restraint whereby his commercial
autonomy is effectively
terminated for a period of 30 months.
[8]
In
Advtech
Resourcing (Pty) Ltd t/a Communicate Personnel Group v Kuhn &
Another
[2]
,
Davis J had this to say about the determination of reasonableness:
“
[17] The
fact that parties to an agreement choose to describe a restraint as
being reasonable, as in the present case, is not itself
decisive. The
reasonableness or otherwise thereof is a matter for the court to
determine (
Basson
(
supra
)
at 768A - C). The party seeking to avoid enforcement of the restraint
is required to prove, on a balance of probabilities, that,
in all
the circumstances of the particular case, it will be unreasonable to
enforce the restraint. In this connection
in
Reeves
and Another v Marfield Insurance Brokers CC and Another
[1996] ZASCA 39
;
1996 (3) SA 766
(A) the court observed at 776E - F:
[18]
The circumstances to which regard may be had cover a wide field and
include typically those pertaining to
the nature, extent and duration
of the restraint and the legitimate interests of the respective
parties in relation thereto. .
. . Even factors such as equality or
otherwise of the bargaining power of the respective parties may be
taken into account.
”
[9]
It was submitted on behalf of the applicant that Els has the skills
to obtain employment
outside of the events industry with reference to
his
Curriculum Vitae
. This reflects that he had been in sales
and fashion and involved in the design of corporate wear up until the
year 2000. Although
in the events industry for 15 years, it appears
from the C.V. that he has considerable experience in the fashion and
design industry.
[10]
However, I agree with the submissions for the respondent that the
restraint should be considered
having regard to the surrounding
circumstances and context of its conclusion, and that the fact that
it is also contained in the
shareholders agreement ( i.e. the
quid
pro quo
issue) should weigh with this court in deciding whether
in the circumstances, it is reasonable.
[11]
It was raised in argument on behalf of the applicant that should this
court find the restraint
over broad, the time period of its operation
could be lessened in terms of the court order. The applicant operates
nationally however,
and it did not submit that the territorial
application should be tampered with. In response to this submission,
Mr Leeuwner on
behalf of Els argued that given the applicant did not
raise this in his papers, the court was precluded from making such an
order.
He relied on
Sunshine
Records (Pty) Ltd v Frohling
[3]
where the court stated
that:
“
If the
appellant had wished to rely on less than the complete contract, it
was, in my view, obliged to raise
this
pertinently as an issue to be dealt with in evidence and argument.
Vide
the
National
Chemsearch
case
supra
at 1114D - F, 1116G - H. The appellant has not done so, and this
Court should not in my view decide an issue on appeal which was
not
properly canvassed in the Court
a
quo
.”
[12]
The matter was pertinently raised in submissions in this court and I
do not consider the dictum
above, which deals with an issue on
appeal, as precluding this court from fashioning an order which seeks
to give proportionality
to the ambit of the restraint. This case
really rests on the balancing of the interests of the parties in a
context in which there
is a protectable interest at stake. I do find
that Els has met the onus in establishing that the restraint
infringes his right
to ply his trade to an unreasonable extent, given
the changed circumstances of the company as reflected in its share
value. I therefore
consider that the duration of the restraint should
be lessened to a period of 12 months from his date of resignation
from the applicant.
[13]
I consider that given the terms of the following order, each party
should pay its own costs.
My order is as follows:
1.
The First Respondent is interdicted and restrained from being
employed by the
Second Respondent within the Republic of South Africa
until 25 August 2016;
2.
The First Respondent be interdicted and restrained from being
employed by any
entity (including the Second Respondent) which
conducts activities in competition with the Applicant within the
Republic of South
Africa until 25 August 2016;
3.
That the First Respondent be interdicted and restrained from
encouraging and/or enticing any employee of the applicant to
terminate his or her employment with the Applicant.
4.
The First Respondent is interdicted and restrained, until 25 August
2016, from:
4.1
Furnishing any information or advice to any employee or prospective
employer of such employee, to result
in any such employee terminating
his/her employment with the company and/or becoming employed by or
directly or indirectly in any
interested in or associated with any
other entity which competes with the Applicant.
4.2
Furnishing any information or advice to any customer or using any
other means or taking any other action
which is directly or
indirectly designed, or in the ordinary course of events calculated,
to result in such customer terminating
its association with the
Applicant or transferring its business to or purchasing any products
or services from any person other
than the Applicant; and
4.3
Furnishing any information or advice to any
supplier or using any other means or taking any other action
which is
directly or indirectly designed, or in the ordinary course of events
calculated, to result in such supplier terminating
its association
with the Applicant or transferring its business to or supplying any
products or services to any person other than
the Applicant.
__________________
Rabkin-Naicker, J
Judge
of the Labour Court of South Africa
APPEARANCES:
On behalf of the
Applicant:
McLarens Attorneys
On
behalf of the First Respondent:
P.G. Leeuwner of Leeuwner
Maritz Attorneys
[1]
2006 (4) SA 326
(SCA)
[2]
2008 (2) SA 375
(C)
[3]
1990 (4) SA 782
(A)