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[2015] ZALCCT 50
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TWK Agriculture Ltd v Wagner and Another (C633/15) [2015] ZALCCT 50 (12 August 2015)
REPUBLIC
OF SOUTH AFRICA
Of
interest to other judges
THE
LABOUR COURT OF SOUTH AFRICA, CAPE TOWN
JUDGMENT
C
ase
no: c 633/15
In
the matter between:
TWK AGRICULTURE LTD
Applicant
and
WAGNER, WYNAND
JOHANNES (SNR.)
First Respondent
WAGNER, WYNAND
JOHANNES (JNR.)
Second Respondent
Heard
:
7 August 2015
Delivered
:
12 August 2015
Summary:
(Restraint of trade – urgent –
protectable interest established – restraint reasonable except
for duration given
client base sought to be protected and closure of
branch from which clients were serviced
JUDGMENT
LAGRANGE
J
Introduction
[1]
This is an urgent application to prevent
the individual respondents in this matter from soliciting the custom
of clients or accepting
business from clients of the applicant for a
period of two years from 30 June 2015 and to prevent them from using
any confidential
information, trade secrets or particulars of clients
for their own or for a third party’s purposes.
[2]
The respondents are both short-term
insurance brokers formerly employed in the Mossel Bay branch of the
applicant’s business.
Previously the first respondent burned
his own brokerage business Wagner & Van Zyl (Pty) Ltd, which he
sold to the applicant
with effect from 1 June 2013.
[3]
The applicant decided to close the branch
and to service its existing clients in the Mossel Bay area from its
Knysna branch, pursuant
to which it retrenched the respondents with
effect from 30 June 2015. The respondents are contesting the fairness
of their retrenchment
in other proceedings.
[4]
In mid-July 2015 the applicant received
numerous cancellations of their mandate as brokers from clients who
had transferred their
mandate to All about Insurance Brokers or UMA
Underwriting Consultants with effect from 1 August 2015. A number of
the change of
mandate forms contained a written statement to the
effect that the policyholder had decided, of their own choice, to
retain one
of the respondents as their broker. The respondents are
now registered as brokers with the two entities in question. The
respondents
claim that the applicant’s former clients, entirely
of their own accord, cancelled the applicant’s appointment as
their
broker and transferred their mandates and not at the instance
of the respondents’ solicitations.
[5]
In terms of the respective restraint of
trade agreements signed by the respondents they undertook, in any
capacity, not to be involved
or interested in any undertaking in the
insurance industry for a period of 24 months after the termination of
their service, for
whatever reason, in the Mossel Bay area in respect
of the first respondent and in the Eastern Cape area in respect of
the second
respondent. They also undertook not to make use of any
information or knowledge, inter-alia of the applicant’s clients
acquired
by the respondents by virtue of their positions or arising
from the business of the applicant. Lastly, they undertook for the
duration
of the restraint period not to solicit the business of any
party that had been a client of the applicant in the 12 months prior
to the termination of their services and the inception of the
restraint period.
[6]
The respondents do not dispute the
existence of the restraint of trade agreements they both concluded
with the applicant. Similarly
they do not deny that they have a close
relationship with the clients, whom they describe as “friends
of the respondents”.
They maintain that the clients are free to
choose their own insurance broker and cannot be forced to stay with
the applicant. Consequently,
the respondents contend that the
cancellation of the applicant’s mandate and the appointment of
the new brokers does not
amount to a breach of their restraints. They
also contended that the period of the restraint is unreasonably long
and it is also
unenforceable owing to the unfairness of their
dismissals.
[7]
In
Omni
Technologies (Pty) Ltd t/a Gestetner Eastern Cape v Barnard and
others
[1]
,
the court reiterated the primary competing policy considerations in
deciding on the enforceability of a restraint, namely
that
the public interest requires that parties should comply with their
contractual obligations (the maxim applicable is
pacta
servanda sunt
)
and that all persons should in the interests of society be productive
and permitted to engage in trade and commerce or the professions.
Elaborating
on this balancing of rights, the court stated:
“
A
restraint is against public policy and unenforceable if it would
prevent a party after termination of his or her employment from
participating in trade or commerce without a corresponding interest
of the other party deserving of protection. Five questions
require to
be answered when the reasonableness of a complaint is considered (the
fifth one being implied by the third).
(i)
Does the one party have an interest that
deserves protection after termination of the agreement?
(ii)
If so, is that interest threatened by the
other party?
(iii)
In that case, does such interest weigh up
qualitatively and quantitatively against the interest of the other
party not to be economically
inactive and unproductive?
(iv)
Is there an aspect of public policy having nothing to do with the
relationship between
the parties that requires the restraint to be
maintained or rejected?
(iv)
Does
the restraint go further than necessary to protect the interest?”
[2]
The
existence of a protectable interest
[8]
The applicant does not seek to enforce the
geographical restraint preventing the respondents from pursuing the
business of insurance
broking in the areas mentioned. All it seeks is
to preserve its interest in its trade connections with clients with
whom it did
business in the 12 months prior to the termination of
the respondents’ services. The applicant’s
interest in those connections is an important aspect of the
applicant’s
incorporeal property in the form of goodwill and it
is trite law that it is entitled to protect that interest. When the
respondents
dealt with those clients, they did so on behalf of the
applicant’s business and not for their own account. Whether
those
clients were ones that they had originally brought into the
applicant’s business through the sale agreement, or whether
those
with clients they acquired in the course of working for the
applicant, the insurance business and relationship developed with
those
clients and was that of their employer and not theirs to
exploit for their own personal gain, even if they had been
responsible
for obtaining such business or sustaining it through
their personal relationship with those clients. The respondents
argued that
the protectable interest which the applicant had ended
when it closed the Mossel Bay office in which they were employed.
[9]
The applicant’s right to immunise
itself from the prospective exploitation of its confidential client
information is also
a proprietary interest it is entitled to protect.
The
threat to the applicant’s protectable interest
[10]
The respondents contend that there is no
proof that the respondents had influenced the choice of the
applicant’s clients to
transfer their business to the
brokerages in which they are presently engaged, in the absence of any
affidavits from the applicant’s
erstwhile clients. They also
argued that there was no evidence of any further cancellations by the
applicant’s clients after
the initial surge of applications and
therefore no reason to believe that a further loss of clients to the
respondents’ current
brokerage agencies would occur, and it was
suggested in argument that the applicant had an alternative claim in
damages which it
could pursue in respect of the business it had lost.
[11]
Firstly, it may be so that the applicant
did not obtain an affidavit from any of the former clients who
transferred their business
to the respondents. It may also be true
that those clients might not have required much inducement to cease
doing business with
the applicant after it closed the office where
the respondents were employed. However, it is apparent that the vast
majority of
the approximately 70 forms revoking the applicant’s
mandate and appointing the new brokerages appear to have been signed
on 1 July 2015, the day after the respondents were retrenched. It
seems highly improbable that this simultaneous mass cancellation
immediately after the respondents’ services were terminated
would have occurred without active canvassing by the respondents.
Secondly, the fact that such a large number of cancellations were
effected initially provides little reassurance that if the
respondents
are not restrained at this point they will not redouble
their efforts thereafter to obtain more of the applicant’s
existing
business.
The
balance of competing interests and other public policy
considerations.
[12]
As mentioned, the applicant seeks to
prevent the respondents from re-launching independent careers as
insurance brokers by exploiting
the applicant’s trade
connections. The applicant does not seek to prevent them from
pursuing those careers by soliciting
insurance business from other
potential clients within the ambit of the applicant’s
geographical sphere of operation. Granting
the relief would not
require the respondents to abandon their work as insurance brokers,
but merely not to engage with the applicant’s
clients for a
defined period. It would curtail their ability to use the applicant’s
client base as a foundation for their
future business. They may feel
aggrieved that they had personally cultivated those clients during
their employment with the applicant,
but that did not make those
clients ‘theirs’. On this basis the applicant’s
interest in enforcing the restraint
outweigh those of the respondents
in not enforcing it.
[13]
It
was also argued by the respondents that the circumstances of their
retrenchment should be considered as a factor militating against
the
enforcement of the restraint. In support of this, the respondent’s
cited the judgment of the industrial court in
Sharp
v New Wave Surfing Promotions CC t/a Island Style
.
[3]
In that case the court awarded an employee compensation for his
unfair retrenchment calculated on the basis of the financial loss
suffered by the employee as a result of the imposition of a restraint
of trade. However, there is ample later authority that the
question
of determining whether or not an employer has demonstrated a
proprietary interest worthy of protection after an employee
is
dismissed is quite distinct from the question whether or not the
employee was fairly dismissed.
[4]
[14]
The applicant seeks to prevent the
respondent’s from doing business with those of its clients who
were doing business with
it in the 12 months preceding the inception
of the restraint but seeks to extend its right to exploit that base
for two years hence,
in circumstances where it has also closed the
branch in which that business was generated and from which clients
were serviced.
While its interest in that client base is undeniable
and though it maintains it will service those clients from its other
branches
in that part of the country, its commitment to the client
base of that branch is clearly not what it was when it maintained a
local
branch office to service that clientele more conveniently.
In the circumstances, I think a restraint period of twenty four
months is unreasonable to try and preserve clients who were not
necessarily clients for longer than a year and given the applicant’s
reduced branch profile and dedicated resources in that area. A
period of twelve months would constitute a more reasonable
limitation
in my view.
Existence
of an alternative remedy
[15]
It was argued that the applicant could
simply sue the respondent’s for damages rather than stopping
them from doing business
with its former clients. The applicant
can do this in any event, but curtailing the respondent’s
unlawful business
activities is not what a damages claim in due
course would achieve, nor would it stop them committing further
breaches of the restraint
agreement in the near future.
Urgency
[16]
The application was launched on 29 July and
was set down for hearing on 7 August 2015. The evidence of the
cancellations came to
light in July. It might have been brought
earlier in July, but it was brought within reasonable time. On the
facts of the case,
the respondents had sufficient time to adequately
oppose the application. I am satisfied the matter is urgent enough to
be heard
within 10 days of it being filed.
Costs
[17]
As the respondents appear to have solicited
a significant number of the applicant’s former clients and the
applicant is largely
successfully, costs should follow the result.
Order
[18]
The matter is heard as one of urgency.
[19]
The first and second respondents are
interdicted from directly or indirectly: –
19.1
Soliciting the custom of clients of the
applicant and/or accepting any business or custom from the clients of
the applicant, and/or
in any manner enticing the clients of the
applicant to terminate their business with the applicant, in
particular those clients
appearing on the schedule annexed hereto as
Annexure “A”, for a period of 12 (twelve) months; and
19.2
Conducting any business with, or having any
business relationship with, any of the cancelled clients of the
applicant that have
cancelled their business with the applicant after
30 June 2015, and in particular any clients appearing on the schedule
annexed
hereto as Annexure “A”, for a period of 12
(twelve) months; and
19.3
Revealing or disclosing or in any way
utilising, whether for the first and second respondent’s own
purposes, or for the purposes
of any third party, any of the
applicant’s confidential information and/or client particulars
relating to any clients appearing
on the schedule which is Annexure
“A” to this order.
19.4
This order applies only to clients that
were clients of the applicant during the period 1 July 2014 to 30
June 2015.
19.5
The respondents are jointly and severally
liable for the applicant’s costs, the one paying the other to
be absolved.
_______________________
Lagrange
J
Judge
of the Labour Court of South Africa
APPEARANCES
Applicant:
S
Snyman of Snyman Attorneys
Respondents:
Instructed
by:
J
O Hanekom
Leon
Frank & Partners.
[1]
[2008]
2 All SA 207 (SE)
[2]
At
211
[3]
[1994]
10 BLLR 149 (IC)
[4]
See
Bonfiglioli
SA (Pty) Ltd v Panaino
(2015) 36 ILJ 947 (LAC)
at 954, para [24].