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[2016] ZALCJHB 456
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Sail Rights Commercialisation (Pty) Ltd v Riba (J2419/15) [2016] ZALCJHB 456 (19 February 2016)
THE
LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG
JUDGMENT
Not
reportable
case
no: J 2419/15
In the matter between:
SAIL
RIGHTS COMMERCIALISATION (PTY) LTD
APPLICANT
and
TENGELE (TEX)
RIBA
RESPONDENT
Heard
:
12 February 2016
Judgment
delivered: 19 February 2016
JUDGMENT
VAN
NIEKERK J
[1]
The applicant seeks a final order to enforce restraint of trade and
confidentiality clauses contained in the respondent’s
contract
of employment. In summary, the undertakings given by the respondent
in the applicant’s favour include a confidentiality
undertaking
in terms of which the respondent agreed that during and after the
termination of his employment, he would not divulge
or communicate to
any person whose province it was not to know the same, any of the
applicant’s secrets and other confidential
information which
the respondent obtained in relation to the company’s affairs.
Further, the respondent agreed that after
his employment with the
applicant ceases for any reason he would for a period of 12 months
after the termination date not be employed
by any of the applicant’s
direct competitors. This is a gloss on the comprehensive
restraint undertakings given by
the respondent to the applicant, but
it will suffice for present purposes.
[2]
The applicant is engaged in the sporting hospitality sector and makes
available to its clients services that include site management,
logistics, case management, land management and the like in respect
of specific events. It operates throughout the country and
boasts a
significant client portfolio. At the heart of the present dispute is
a seven-year commercial agreement with exclusive
rights to soccer
city and other sports stadiums concluded with Stadium Management
South Africa. Respondent was employed by the
applicant as a senior
sales manager and on termination of his employment on 20 November
2015, he was engaged as the head of sales.
During the course of his
employment, the respondent was required to exploit relationships and
connections established for the benefit
or potential benefit.
[3]
The deponent to the founding affidavit and the applicant’s
chief executive officer, Mr Beukes says during the course of
October
2015, it came to his attention that the respondent had been in
contact with one of the applicant’s direct competitors,
5th
Dimension. The respondents laptop was checked (ostensibly a spot
check for viruses) and a number of emails exchanged between
the
respondent and 5th Dimension were discovered. Amongst these were
correspondence between 5th Dimension’s client service
and
project manager, Bertrand, in which Bertrand requested the
respondent’s input for a business plan, details of the tender
for which the applicant was applying, a list of sponsorships and
commissions and other information. The applicant avers that it
is
apparent from these exchanges that the respondent was siphoning
information and clients from the applicant’s business
for his
personal gain. The respondent was suspended on 22 October 2015 and
given notice to attend a disciplinary enquiry. At the
enquiry, the
respondent was found to have committed the misconduct alleged, i.e.
that he was conspiring with a competitor to divert
work away from the
applicant. The respondent was summarily dismissed on 20 November
2015.
[4]
Beukes then says the following:
It
is, therefore, overwhelmingly likely that – if the relief
sought is not granted – respondent will take up employment
with
5
th
dimension and form a business in competition with the
applicant. There is a real risk he may divulge further of other
applicants
proprietary and confidential information. Any business it
up by the respondents will, as a result of information disclosed, be
competing with the applicant unlawfully.
[5]
In response, the respondent admits that he was approached by Bertrand
to join 5
th
Dimension on an unsolicited basis with a view
to his joining that company or a new venture to be formed. He
concedes further that
he entered into exploratory discussions but had
made no decision whether or not to leave the applicant’s employ
when the
present course of action was instituted.
[6]
The principles regulating the enforcement of restraint of trade
agreements are relatively well-established. In broad terms,
restraint
of trade agreements are enforceable unless and to the extent that
they are contrary to public policy because they impose
an
unreasonable restriction on the freedom to trade or to work (
Magna
Alloys and Research (SA) (Pty) Ltd v Ellis
[1984] ZASCA 116
;
1984 (4) SA 874
(A) at
891B-C)). Put another way, the restraint of trade agreement is
manifestly valid and enforceable unless it is unreasonable.
A
restraint will be considered to be unreasonable and thus contrary to
public policy, and therefore unenforceable, if it does not
protect a
legally recognisable interest of the employer, but merely seeks to
exclude or eliminate competition (see
Magna Alloys
(
supra
)
at 893C-G and 897H – 898D). An applicant seeking to enforce a
restraint of trade agreement need only invoke the contract
and prove
a breach of the contract; the onus to prove that the restraint is
unreasonable and therefore unenforceable rests on the
party resisting
its enforcement.
[7]
When it determines the reasonableness of the restraint, a court is
required to make a value judgment, bearing in mind two principal
considerations. The first is the public interest that requires a
party to comply with the contractual obligations (
pacta sunt
servanda
); the second is the broader interest that requires all
persons to be productive and to be permitted to engage in trade and
commerce
(
Reddy v Siemens Telecommunications (Pty) Ltd
2007
(2) SA 486
(SCA)). The test for reasonableness of restraint of trade
provisions remains that expressed in
Basson v Chilwan and others
[1993] ZASCA 61
;
1993 (3) SA 742
(A) where the court said the following, at 767A-D:
a.
Is there an
interest of the one party which is deserving of protection at the
termination of the agreement?
b.
Is such
interest being prejudiced by the other party?
c.
If so, does
such interest so way up qualitatively and quantitatively against the
interest of the other party that the letter should
not be
economically inactive and unproductive?
d.
Is there
any other 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?
[8]
Some decisions have added a fourth requirement in the form of an
enquiry into whether the restraint goes further than is necessary
to
protect the interest claimed. Others have considered that this
enquiry is part and parcel of the test reflected above. What
matters
for present purposes is that the reasonableness enquiry extends to
both the geographical and temporal elements of restraint.
[9]
In so far as the first leg of the test in
Basson
is
concerned, the interests that can be protected by a restraint
agreement include confidential information regarding the
running or
carrying on the business which could be used by a competitor, if
disclosed, to gain a relative competitive advantage,
and secondly the
relationship with customers, potential customers and suppliers
(sometimes referred to as ‘trade connection’
of the
business), being a component of the incorporeal property known as
goodwill.
[10]
I am not satisfied in the papers before me that the applicant has
shown, as it is required to do, that the respondent is actually
in
breach of his restraint undertakings. He may well have been, if only
by disclosing confidential information to a competitor
but the
applicant elected to deal with that breach by instituting
disciplinary proceedings against the respondent, and ultimately
by
dismissing him summarily as it did on 20 November 2015. There is no
evidence in the papers before me that after the termination
of the
respondent’s employment (which in terms of the restraint
agreement, as the trigger for the restraints on which the
applicant
relies) that the applicant disclosed any confidential information to
any third party or that he breached the restraint
by soliciting any
of the applicant’s clients. In short, the conduct of the
respondent in which the applicant now relies to
enforce the restraint
agreement occurred prior to the date on which the restraint was
triggered. I appreciate that can be said
in the circumstances that
the applicant is in breach of the restraint, certainly in so far as
restraints against the disclosure
of confidential information are
concerned. In so far as the restraint of trade is concerned,
similarly, the high water mark in
the applicant’s case is that
it thinks it is ‘overwhelmingly likely’ that if relief is
not granted, the respondent
will take up employment with 5th
Dimension or form a joint venture in competition with the applicant.
The applicant has therefore
failed to show any breach of the
restraint undertaking by the respondent, in the form of his being
engaged as an employee or in
some other prohibited capacity by any
direct competitor.
[11]
Ordinarily, the failure by an applicant to clear the hurdle
established in paragraph (b) of the
Basson v Chilwan
test
would result in the application being dismissed. However, the present
matter is unusual in that the respondent does not seek
to oppose the
application on the basis that the applicant has no protectable
interest either in the form of confidential information
or customer
connections. In his answering affidavit, the respondent states that
he opposes the relief sought by the applicant because
the terms of
the restraint are ‘too restrictive’ the effect of which
is unconstitutional, that he was coerced into
signing the restraint
undertaking, and that the hearing which resulted in his dismissal was
substantively procedurally unfair and
which thus led to the ‘wrong
outcome’.
[12]
The fairness of the respondent’s dismissal is irrelevant to
these proceedings. Should the respondent feel aggrieved by
the
outcome of the disciplinary hearing he is entitled, as it appear he
has done, to refer the matter to the relevant statutory
dispute
resolution structures. In so far as the respondent relies on duress,
the answering affidavit falls hopelessly short of
what is required to
establish duress for the purposes of escaping a contractual
obligation. It is telling that the respondent does
not appear to have
made any formal objection at the time to the applicant’s
insistence that he signed the restraint undertakings;
this is a
matter expediently raised at the point of an attempt to enforce those
undertakings. In so far as the respondent suggests
that the restraint
undertakings are unconstitutional and therefore unenforceable, this
is a submission that ignores the properties
to be applied in a matter
such as the present. The courts have long recognised that by
requiring a respondent in any application
to enforce a restraint
agreement to discharge the onus to establish the unreasonableness of
the restraint, constitutional values
are realized. This is
particularly so in relation to the last of the enquiries in the
Basson v Chilwan
test, which accounts for the broader public
interest.
[13]
In so far as confidential information is concerned, the respondent
admits in his answering affidavit that he was privy to a
great deal
of information that is proprietary and confidential to the applicant.
Further, he admits that relationships with clients
form an important
part of the applicant’s business and that he was crucial to the
applicant’s success in recent years
but states that this is ‘by
no means all that is required for success’. In
Den Braven SA
(Pty) Ltd v Pillay and another
2008 (6) SA 229
(D), Wallis AJ
cautioned against the subconscious temptation to regard the person
engaged in sales as ‘just a salesman’
and to treat the
attempt to enforce the restraint as one in which the employer seeks
to use a sledge hammer to crack a nut (see
paragraph 11 of the
judgment). The court went on to say:
However,
in any business dependent for its profits on the sale of its
products, the sales function is of fundamental importance
and the
salesperson’s ability to damage the business of the employer
may be very considerable or even fatal, notwithstanding
the fact that
the salesperson may seem to stand fairly low in the staff hierarchy….
It
must be borne in mind that what is referred to in the cases as a
customer connection is often constituted by intangibles such
as the
relationship on personal issues between salesperson and purchaser;
the reputation of the salesperson for dealing with complaints
and
problems and his or her all round willingness to ‘go the extra
mile’ in order to secure a sale.
[14]
Given that the applicant has established at least a likelihood that
the respondent may become employed by a direct competitor,
and given
the respondent’s coyness about his short term
employment-related intentions (he states that no decision has been
taken as to his future employment or career but admits that it is
‘very likely’ to be in the same line of business),
coupled with the respondent’s concessions on the papers in
relation to his access to the applicant’s confidential
information and its trade connections, it seems to me that the
equitable order to make in the present instance is an unusual one,
but one that acknowledges the interests of both parties and serves to
preserve the status
quo.
The
order that I intend to make is to remove the application from the
roll, but to grant the applicant leave to re-enroll the matter,
supplemented with further affidavits if necessary, during what
remains of the restraint period.
I
make the following order:
1.
The
application is removed from the roll.
2.
The
applicant is granted leave to re-enroll the application for hearing,
as a matter of urgency if required, supplemented by such
additional
affidavits as may be necessary, at any stage during the balance of
the restraint period, should it become apparent that
the respondent
has become employed by any direct competitor of the applicant or
otherwise acted in breach of his restraint undertakings.
3.
There is no
order as to costs.
ANDRÉ
VAN NIEKERK
JUDGE
OF THE LABOUR COURT
APPEARANCES
For
the Applicant: Ms. L Salt of Baker & McKenzie
For
the Respondent: Adv. J Kayser instructed by DHD Attorneys