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[2017] ZALCJHB 463
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Mikeva Cash and Carry (Pty) Ltd and Another v Marx (J2720/17) [2017] ZALCJHB 463 (12 December 2017)
Of
interest to other judges
THE
LABOUR COURT OF SOUTH AFRICA,
HELD
AT JOHANNESBURG
C
ase No: J 2720/17
In
the matter between:
MIKEVA
CASH AND CARRY (PTY) LTD
First Applicant
MASSCASH
(PTY) LTD
Second Applicant
and
JAN ANDRE MARX
Respondent
Heard
:
08 November 2017
Delivered
:
12 December 2017
Summary:
(Restraint of trade – sale of business –ring fenced
stores – new store not covered by
ring-fencing provision –
geographical scope unnecessarily wide – set down at
inappropriate seat of court -costs)
JUDGMENT
LAGRANGE
J
Background
[1]
This is an application to enforce restraint of trade provisions in
the employment contract concluded between the first applicant,
Mikeva
Cash & Carry (‘Mikeva’) and the respondent, Mr J Marx
(‘Marx’).
[2]
The second applicant Masscash (Pty) Ltd (‘Masscash’)
acquired a controlling interest in Mikeva in 2009. On the same
premises where Mikeva conducted a cash and carry business at the
time, Marx owned a butchery business RA Meat CC trading as Ultra
Meats (‘RA Meat’).
[3]
In April 2014, Mikeva purchased RA Meat and a greengrocer’s
business (‘Ritma’) operated by Marx’s spouse,
which
was also situated on the same premises. The businesses were acquired
as going concerns subject to the provisions of section
197 of the
Labour Relations Act, 66 of 1995 (‘the LRA’). RA Meat was
purchased by Mikeva for close to R 8 million.
It was a condition of
the respective sales that both Marx and his wife entered into
restraint of trade agreements and were employed
by Mikeva for a fixed
period of 3 years under separate Service Agreements. Marx was
employed as the Perishables Manager of Mikeva
for the period of the
Service Agreement which ended in April 2017.
[4]
As part of the sale of business arrangements, the parties concluded a
Memorandum of Understanding (‘MOU’), which
was
specifically incorporated as part of the Sale of Business Agreement
(‘SOBA’) between them. Clause 11 of the MOU
reads:
11 RESTRAINT OF TRADE
11.1
R A MEAT, RITIMA, JA MARX and R MARX each by their signature hereto,
hereby
find themselves in their own capacities as well is jointly and
severally with one another to the restraints imposed by the Restraint
of Trade, as set out in clause 11 of the Service Agreement, attached
hereto … They hereby agree that such restraints and
provisions
in that clause 11, shall apply to them mutatis mutandis.
11.2
It is agreed that notwithstanding the fact that such restraints are
imposed
in the Service Agreements as obligations upon JA MARX, as an
employee of Mikeva, the same restraints, to the benefit of Mikeva,
are hereby imposed on R A MEAT, RITIMA, JA MARX and R MARX , as well,
in their capacities as Sellers of the BUSINESSES.
11.3
Notwithstanding the provisions of this clause 11, and as a sole
exception
there too, it is recorded that
MIKEVA consents to J A
MARX holding his current interest in two retail stores, known as
Meatspot, in which he presently holds an
interest
, provided that
such interest does not interfere with his employment obligations with
MIKEVA, as set out in the Service Agreement
…”
(Emphasis
added)
[5]
Clause 11 of the Service Agreement contains a detailed restraint of
trade provision. Only the relevant portions will be referred
to.
[6]
The area of the restraint is a 200 kilometer radius from any premises
at which the former business of RA Meat or the business
of Mikeva is
conducted. The restraint period is a period of 24 months from the
date Marx’s services terminated with Mikeva,
which was 30 April
2017.
[7]
Clause 11.3 read with clause 1.2.6 prohibits Marx participating in
any capacity in relation to any entity engaged in an activity
“which
is the same or similar to or directly competitive with the businesses
and/or activities of the company as at the termination
date”
(capitalisation excluded). Further, clause 11.4 prevents him from
soliciting orders from customers or clients of the
business at the
time of his termination in respect of all goods or services dealt
with or supplied by the business or the company.
In passing, to be
mentioned that the reference to ’the company’ includes a
holding company such as Mass Cash. Likewise,
it prevents Marx from
canvassing business in respect of the same goods or service from such
customers or clients or respectively
selling or rendering such goods
or services to them.
[8]
There is no dispute the various agreements are binding on Marx. The
central issues in dispute are:
8.1 Is
the application urgent?
8.2 Did
Marx breach the restraint of trade agreement in the following
respects:
8.2.1
Is Marx in breach of the restraint of trade agreement insofar as it
relates to his operation
of the ring-fenced stores described in
clause 11 of the MOU?
8.2.2
Does the Meat Spot butchery in the new location compete with Mikeva’s
butchery?
8.3 Does
the applicant have legitimate protectable interests worthy of
protection and, if so, are
the provisions of the restraint too
extensive to preserve the applicants’ protected interests?
Urgency
[9]
It is trite that enforcement of restraint of trade agreement is
generally a matter of urgency, because the primary object of
a
restraint agreement is to enforce the provisions in the agreement,
rather than to lay a basis for a damages claim. The fact that
the
employer may also pursue a damages claim, is not a reason for denying
the covenantee the right to enforce the undertakings
made in its
favour by the former employee by seeking an order of specific
performance. Because every month which passes during
which a former
employee is in breach of a restraint limits the efficacy of the
restraint, it is important if meaningful relief
is to be obtained
that a restraint application should be determined before the period
of the restraint has expired.
[10]
Nonetheless, an applicant
wishing to enforce restraint must act with reasonable expedition once
it is aware that the former employee
seems to be acting in breach of
the restraint. See e.g.
Ecolab
(Pty) Ltd v R Thoabala & another
.
[1]
In that instance, it appears that the employee had taken up
employment with a competitor more than three months before the
applicant launched urgent proceedings to enforce the restraint. If an
applicant in the face of a breach is slow to take steps to
enforce
the agreement, it only has itself to blame if a court is not
sympathetic to its claim that the application is urgent.
[11]
In this case, Marx left the applicant’s employment at the end
of April 2017. However, it was only on 25 September 2017
that he
opened new butchery premises approximately 200 metres from Mikeva’s
store. The applicant contends that it is
both a wholesale and a
retail outlet. Correspondence between the applicant and Marx’s
attorney initially concerned the fact
that a company which he owned
had leased premises to a fruit and vegetable business, which would
compete with the applicant’s
activities. Mikeva sought a
specific undertaking in relation to that business from Marx but
became aware in early September that
Marx was intending to open a
butchery business on the same premises. Accordingly, when it received
a response to its initial request
to him that he would abide by the
restraints he had entered into, the applicant specifically raised a
concern that the letter from
Marx’s attorney dated 6 September
made no mention of the butchery business which he had intimated to
staff of the applicant
that he intended opening. In a letter dated 12
September, the applicant called on Marx to give certain undertakings
by 18 September,
failing which it might approach the appropriate high
court for relief.
[12]
The deadline was extended by the applicant to 21 September when Marx
had failed to respond by 19 September. This elicited a
response from
his attorney in which the submission was made that Marx was entitled
to operate the butchery business as one of the
ring fenced stores in
the MOU. He also claimed in that letter that the respondent had been
aware of his intention to move one of
the ring fenced businesses to
the new premises as early as March 2017. The matter was then referred
to the applicant’s current
attorneys of record who sent a
follow-up letter on 5 October 2017 seeking clarity on which of the
two retail stores mentioned in
the memorandum of understanding he
intended to operate at the new premises and the nature of that
business. Marx responded on 10
October without providing further
detail and stood by his earlier responses.
[13]
The application was launched on 23 October approximately a fortnight
after this last response. Apart from the fact that the
prior
knowledge of Marx’s intentions on the part of the applicants is
a matter of considerable dispute, I do not think that
the applicants
can be blamed for not launching the application before Marx had taken
unequivocal action to open the store in the
new location and before
they had given him a reasonable opportunity to reconsider his
position. In my view the applicants moved
reasonably expeditiously to
assert their rights and did not unduly delay in bringing the
application. Accordingly, it is justifiable
to deal with the
application as one of urgency.
Breach
[14]
There are two issues relating to the opening of the store close to
the premises of Mikeva. The first issue is whether Marx
was entitled
to move either of the ring fenced stores to any new location in terms
of the memorandum of understanding, without
affecting their
‘protected’ status. The second issue is whether the
butchery operating at the new location competes
with the butchery of
Mikeva.
[15]
When the declaration of interest was signed by Marx as an employee of
Mikeva, he described the two Meat Spot entities as being
located in
“town CBD” and “Danova” which were located
3.6 km and 1.7 km from Mikeva’s premises. The
latter store was
closed at the end of August 2015 and then “reopened” at
the new premises at 4 Mossel Street in September
2017, a location a
mere 500 metres from Mikeva’s premises. It trades under the
name Hyper Meat t/a The Meat Spot.
[16]
If one has regard to the memorandum of understanding, the critical
provision is the description of the two ring fenced businesses
in the
following terms:
“
Mikeva consents to J A MARX
holding his
current interest
in
two retail stores
,
known as Meat spot,
in which he presently holds
an interest.”
[17]
The essential issue which arises is whether that description of the
stores extended to any location in which the stores were
situated. If
the location of the stores were irrelevant, then nothing would
prevent Marx from opening a store opposite Mikeva’s
premises,
should space become available. It seems inconceivable that when the
parties concluded the memorandum of understanding
they intended that
the ring fenced businesses which he was allowed to retain an interest
in could be located anywhere, including
on the doorstep of Mikeva’s
premises. It seems far more likely that the reference to his current
interests was a reference
to the existing stores at the time of
concluding the memorandum of understanding. It is also noteworthy
that the memorandum described
them as ‘stores’ rather
than ‘businesses’, which is more indicative of businesses
conducted at particular
premises. Moreover, it is difficult to see
how Marx’s current interest in the Danova store could be
preserved despite that
store being closed for two years, and
consequently being non-existent, and then resurrected in different
premises.
[18]
This also raises the question of the nature of the business. It is
common cause that both the original Meat spot stores were
retail
outlets selling pre-packaged meats. By contrast, the Ultra Meats
butchery sold to Mikeva was a wholesale and retail butchery.
Marx
does not dispute that the previous meat spot stores did not have the
cutting and packaging equipment to produce pre-packaged
meat products
including band saws, strip cutters, slicers, mincers, vacuum packing
machines et cetera. Marx also does not dispute
that new outlet in
Mossel Street has two band saws, a mincer, a sausage filler, a polony
slicer, a steamer, and a smokehouse which
are all indicative of an
enterprise that can operate as a wholesale butchery. However, whether
the new store is a retail or wholesale
butchery outlet or a mixture
of both, either activity clearly falls within the scope of
“competitive activity” which
is defined in the Service
Agreement as “any activity which is the same or similar to or
directly competitive with the businesses
and/or activity of the
company at the termination date.” ‘Businesses’
are defined to mean “the Butchery
and Fruit and Vegetable
businesses, previously conducted by RA Meat CC and Ritima CC,
respectively, which have been purchased by,
and transferred to, the
Company” (full capitalisation omitted).
[19]
In summary, it is difficult to escape the conclusion that Marx is in
breach of the restraint agreement in the Service Agreement
by virtue
of engaging in competitive activity in opening the new store in
Mossel Street which is not covered by the exception created
in clause
11.3 of the MOU.
The
existence of a protectable interest
[20]
Marx claims that he is not in possession of any confidential
information about Mikeva’s butchery business and that, in
effect, nobody in the meat industry has an interest in keeping prices
confidential, including suppliers to the butchery sector.
Further,
there are only a few suppliers in the sector and their identity is
not secret. In addition, his knowledge of current prices
when he left
Mikeva is of transient value and can become irrelevant in a matter of
weeks. As to customers, his clientele in the
Mossel Street store are
all walk-in customers and the identity of Mikeva’s customers is
not a matter of confidential knowledge.
[21]
Against those considerations must be weighed Marx’s admission
that he knew Mikeva’s clients and key contact persons
of those
clients, though he suggests that this was knowledge he acquired when
he operated RA Meats previously. He also admits to
certain, albeit
limited, personal links he forged with clients when he started
working for Mikeva in 2014. However, his pre-existing
knowledge of
clients and the relationships he developed in the business he sold to
Mikeva were part of the goodwill that he sold
to Mikeva. That did not
revert to him when he left Mikeva. Similarly, any relationships
developed with customers during his employment
by Mikeva were for the
benefit of Mikeva and not for him to take with him when he left.
Mikeva is entitled to protect the
investment which it made in
acquiring that goodwill when it acquired Marx’s business.
[22]
Is the 24 month, 200 kilometer scope of the restraint necessary to
protect that interest? Marx is not without means to
restart his
former business. He clearly has extensive experience and also has the
capital to enter into competition with Mikeva,
even if on a smaller
scale. Mikeva purchased his interest in the business for a
considerable sum. Under other circumstances, if
he had merely been an
employee and had not sold his business to Mikeva and was going to
work for an existing competitor, it might
be debatable whether two
years is reasonably justified. However, given that he had sold the
goodwill and that he clearly intends
to set up a competing business
in much closer proximity to Mikeva than either of the ring-fenced
retail businesses.
[23]
The reasonableness of the 200 kilometer restraint is more difficult
to justify. If one has regard to the fact that the applicants
did not
feel that Marx’s existing meat spot stores a few kilometres
away posed any meaningful threat to their interests even
in the
retail trade, it is difficult to understand what legitimate interest
would be served by preventing Marx from operating in
the butchery
trade in an area so vast that it would include George, Knysna and
Oudtshoorn, the nearest of which is close to 50
kilometers away.
There was no evidence of any other stores of the applicants that
would be threatened by Marx trading outside of
Mossel Bay. Further,
insofar as the restraint sought to preserve Mikeva’s legitimate
economic interest in the business it
had purchased from Marx, there
is nothing to suggest that interest extended beyond the wholesale
meat market in Mossel Bay at best.
In the circumstances, I am
satisfied that the geographic scope of the restraint is unnecessarily
wide and goes the protection of
any demonstrable legitimate interests
of the applicants.
[24]
A couple of other points that need to be made about the relief sought
by the applicants. The restraint provisions of the various
documents
binding the parties which purportedly entitle the applicants to
prevent Marx from dealing with suppliers would prevent
him from
dealing with suppliers even in respect of the remaining ring fenced
store in the Mossel Bay CBD and in respect of any
butchery interests
he has outside the geographical area of the restraint. Such
provisions go beyond what the protectable interests
of the applicants
require and no relief should be granted in that respect. Secondly,
clause 11.3.2 of the Service Agreement which
prevents Marx from doing
“anything referred to in clause 11.3.1 outside of the
prescribed area which has the effect of causing
the company prejudice
in the prescribed area”, is simply another way of extending the
geographical scope of the restraint
and any relief in that regard
should not be entertained. Lastly, the provisions in the Service
Agreement designed to prevent the
enticement of the applicants staff
also purport to include “prospective employee(s)” of the
applicants. Such a class
of person includes anyone in the labour
market who might apply for a job with the applicants and the
applicants cannot lay claim
to any contractual relationship with such
persons which requires protection. Accordingly, the relief cannot be
extended to apply
to that class of individuals.
Appropriate
seat of the court
[25]
An issue which arose in this matter was whether this application
should have been launched at the Johannesburg seat of the
Labour
Court, when both the first applicant and the respondent were located
in Mossel Bay, which is roughly equidistant from the
Port Elizabeth
and Cape Town Labour Courts both of which are about one third of the
distance from Mossel Bay to Johannesburg. I
was given the impression
before the matter was heard that there had been agreement the matter
could be heard in Johannesburg, but
it became clear I had been
misinformed.
[26]
It is true that the Labour Court is a national court with national
jurisdiction, but in my view it is an abuse of process to
put
respondents to the inconvenience of having to defend a matter in the
seat of the Labour Court that is furthest away from where
the
respondent is situated and where the dispute arose. Had I not been
under the wrong impression prior to the matter been heard,
I would
have directed that it should be transferred either to the Labour
Court in Port Elizabeth or Cape Town. Since the matter
did proceed in
Johannesburg, it is at least appropriate that the respondent should
not have to pay any travel and accommodation
costs incurred as a
result of the application being set down in Johannesburg.
Costs
[27]
In relation to the other legal fees incurred by the parties, the
applicants were largely successful, even though the geographical
extent of the restraint requires variation. As a matter of law and
fairness, it is therefore right that the respondent should pay
the
bulk of the applicant’s costs.
Order
[1]
The matter is heard as one of urgency and any non-compliance with the
forms and service
provided for in the Labour Court rules is condoned.
[2]
The respondent is interdicted and restrained until 30 April 2019
(‘the restraint period’)
and within the municipal area
Mossel Bay (‘the prescribed area’) from being engaged
or obtaining business interests,
whether directly or indirectly, in
any capacity whatsoever in:
2.1 the
business conducted under the name and style of Hyper Meats t/a The
Meat Spot situated at the
premises located at 4 Mossel Street, Mossel
Bay, Western Cape province;
2.2 any
business which is the same as or similar to or competitive with the
business of the first
applicant.
[3]
During the restraint period the respondent is interdicted within the
prescribed area from
directly or indirectly:
3.1
soliciting orders from prescribed customers of the applicants, as
defined in the fixed term agreement
concluded between the 1
st
applicant and the respondent on 16 April 2 014 (‘ the
agreement’) for prescribed goods and/or prescribed services as
defined in the agreement;
3.2
canvassing business in respect of prescribed goods and/or prescribed
services, as defined in the
agreement, from prescribed customers of
the applicants as defined in the agreement;
3.3
selling or otherwise supplying prescribed goods and/or prescribed
services, as defined in the
agreement, to prescribed customers of the
applicants as defined in the agreement;
3.4
rendering any prescribed services, as defined in the agreement, to
prescribed customers as defined
in the agreement;
3.5
encouraging, enticing, inciting or persuading any manager or employee
of the applicants to terminate
his or her employment with the
applicants;
3.6
furnishing any information or advice to any manager or employee of
the applicants or using any
other means, whether directly or
indirectly designed, or in the ordinary course of events calculated
to result in such manager
or employee terminating his or her
employment by the applicants and/or becoming employed more directly
or indirectly interested
in or associated with any other company,
close Corporation, firm, undertaking or concern.
[4]
The respondent is interdicted and restrained from using any
confidential information of
the applicants or disclosing it to any
third party including the entity trading under the name and style of
hyper meat t/a the
Meat Spot.
[5]
The respondent must pay two thirds of the applicants’ costs.
[6]
The applicant must pay the travel and accommodation costs incurred by
the respondent as
a result of the matter being set down in
Johannesburg.
_______________________
Lagrange
J
Judge
of the Labour Court of South Africa
APPEARANCES
APPLICANT:
P Bosman instructed by ENS Inc.
RESPONDENT:
J Moorcroft instructed by
Viljoen-French & Chester Inc.
[1]
Labour Court judgment (J 1716/17, dated 23/8/17) at paras [16] to
[20].