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[2018] ZALCJHB 245
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Twincare International (Pty) Ltd v Nel (J2249/17) [2018] ZALCJHB 245; (2018) 39 ILJ 2760 (LC) (20 July 2018)
THE
LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG
Reportable
Case No: J2249/17
In
the matter between:
TWINCARE
INTERNATIONAL (PTY) LTD
(Registration
Number:1995/002691/07)
Applicant
and
DEBORAH
NEL
Respondent
Heard
:
19 June 2018
Delivered:
20 July 2018
Summary:
Deregistered entity has no
locus standi
–
amendment to substitute a party is untenable.
JUDGMENT
NKUTHA-NKONTWANA
J.
Introduction
[1]
The applicant approached the Court by way of urgency seeking to
enforce a service, confidentiality and restraint agreement (the
agreement) entered into between the parties in 2006. The period of
the restraint is 24 months and the scope is nationwide.
[2]
The matter was placed on the urgent roll of 5 October 2017 before Van
Niekerk J and was struck of the roll with costs. However,
the
applicant was directed to approach the Judge President of this Court
for an expedited allocation, hence these proceedings.
[3]
The application is vigorously opposed by the respondent and takes two
points
in limine
. Firstly, the respondent argued that the
applicant has no
locus standi
to launch this application by
virtue of it being finally deregistered. Secondly, that the applicant
has failed to set out sufficient
grounds or merit of urgency.
Background
[4]
The applicant is involved in the professional beauty industry and
distributes professional retail hair, skin and nail care products
with a national customer base. The services offered by the education
division include assisting customers in the sale of products,
educate
their own staff in product education and basic communication, sales,
advertising, merchandising, administration, computerisation,
goal
setting, and motivation skills and teaching customers how to run a
more professional, profitable and efficient business.
[5]
The respondent was employed by the applicant as an educator in the
Skincare Division sometime in April 2006 and was involved
in a
countrywide education programme to train the staff members of the
applicant’s customers who are mainly salons. According
to the
applicant, the respondent was also part of the dedicated sales,
education and marketing team responsible for selling the
applicant’s
products and forging, preserving, enhancing and maintaining
relationship with its customers.
[6]
In May 2006
the respondent signed the agreement in terms of which she agreed to
be bound by a restraint of trade for 24 months subsequent
to the
termination of her employment in tandem with other service and
confidentiality undertakings. It would seem that sometime
in
May 2013 there was a section 197 of the Labour Relations Act
[1]
(LRA) transfer of the respondent’s contract of employment to an
entity called Golden Beauty consequent to its amalgamation
with the
applicant. It is not clear from the papers before the Court as to how
Golden Beauty acquired the applicant’s name
yet again.
Nonetheless, what is clear is that as at about June 2013, at least,
the entity called Twincare International with registration
number
1993/006350/07 emerged. In fact, an unsigned letter dated 16 June
2013 purporting to be the respondent’s letter of
appointment
evinces the transition. Also, that letter refers to an unsigned copy
of an updated agreement which noticeably reduced
the scope of the
restraint to only the Skincare division and period of the restraint
to 12 months. Both parties distanced themselves
from the updated
agreement as it is not signed. Save, for the mention that the company
is defined as Twincare International (Pty)
Ltd with registration
number 1993/006350/07.
[7]
The respondent resigned from her employment with the applicant
effectively at the end of February 2017 on the basis that she
was
retiring for health reasons. In a letter accepting her resignation,
the applicant sternly warned the respondent as follows:
‘
5.
In terms of the signed restraint agreement concluded between you and
the company you are reminded that:
5.1
for period of one year from 17
th
February 2017, within
each province of South Africa, you may not, in the manner detailed in
the restraint agreement, became involved
with any third party which
carriers on the business including, without limitation, any service
relating to Wholesaling and/or its
subsidiary from time to time an
any other services relating to the business conducted by the skin and
care division of the company
from time to time;
5.2
in order to protect the company’s interest in its confidential
information and trade secrets you may
not at any time after
termination of your employment –
5.2.1
use, divulge or disclose to any third parties any of the company’s
trade secrets;
5.2.2
retain copies of any written instructions, drawings, notes,
memorandum
or records relating to the company’s trade secrets…’
[8]
In September 2017, almost 7 months after her resignation, the
respondent was seen by the applicant’s employees at the
event
called Expo for Professional Beauty (Beauty Expo) promoting a rival
product called Mary Cohr in breach of the agreement.
In these
proceedings, the respondent seeks to enforce the restraint agreement
in its entirety.
Locus
Standi
[9]
The applicant is cited as Twincare International (Pty) Ltd with
registration number 1995/002691/07. This registration number
is
referred to in the notice of motion, Founding Affidavit and its
annexures and in particular annexures ‘X1’- resolution
by
its directors; ‘A’ - respondent’s fixed term
contract; ‘B’ - agreement; ‘C’ - respondent’s
appointment letter; ‘D’ - amalgamation letter; ‘F’
- training agreement; ‘K’, ‘L’
and ‘M -
confirmatory affidavits.
[10]
The respondent’s online search with the Companies and
Intellectual Property Commission (CIPC) revealed that the applicant
had been finally deregistered as of 8 March 2017. Accordingly, the
respondent’s assail to the applicant’s claim is
that, as
a deregistered company, the applicant has no
locus standi
to
launch these proceedings and/or enforce any of its rights as its
legal persona ceased to exist.
[11]
In response, the applicant launched an interlocutory application
wherein it seeks leave to amend and supplement the founding
papers in
the main application. The interlocutory application was served on the
respondent on 3 October 2017 and she was given
until the next day, 4
October 2017, to file her notice of intention to oppose and answering
affidavit. The respondent’s answering
affidavit, opposing the
interlocutory application, was only served and filed on 7 June 2018.
The applicant objects to the respondent’s
answering affidavit
on the basis that it was filed out of time. I do not think much time
should be spent on this issue as the applicant
is seemingly oblivious
of the fact that this matter was instituted as an urgent application
and the Rules of procedure are somewhat
relaxed.
[12]
Quintessentially, the applicant seeks to amend its founding papers
and annexures as mentioned above by removing the registration
number
1995/002691/07 and substituting with the registration number
1993/006350/07. The explanation proffered is that the defect
came as
a result of a typographical error which was overlooked because the
application was launched on urgent basis. Nonetheless,
the applicant
is indeed Twincare International (Pty) Ltd as reflected in the CIPC
certificate.
[13]
On 3 October 2017, the board of directors of Twincare International
(Pty) Ltd, 1993/006350/07 passed a resolution stating that
the was a
typographical error in the founding papers and accordingly authorised
Mr Stavros Dimitriadis, the Chief Executive Officer
and the Director
who is also the deponent to both the founding affidavit in the main
application and the supporting affidavit in
the interlocutory
application, to act on behalf of the company.
[14]
The applicant’s counsel submitted that the application for
leave to amend and supplement must be granted in the interest
of
justice; and that the respondents opposition and overly technical
approach, notwithstanding the explanation by the applicant,
is aimed
at impeding the right of the applicant to access to justice. That is
so because the applicant has conceded to the amendment
by preparing
and taxing the bill of costs pursuant to the matter being stuck off
the roll under the Twincare International (Pty)
Ltd 1993/006350/07,
so it was further argued.
[15]
The respondent’s opposition is mainly premised on the
contention that the applicant in the interlocutory application
still
lacks the requisite
locus standi
to amend the founding papers
in the main application by virtue of the fact that it is the same
applicant who lacks
locus standi
to launch the main
application. The applicant further contents that there are two
different legal entities at stake and that the
one before the Court
had been deregistered and it would seem, an incorrect party.
Therefore, the applicant’s application
to emend and supplement
constitutes an irregular step as it is clear that the applicant seeks
to substitute or replace or alternatively,
to or join in a party into
these proceedings, so it was further argued.
[16]
It is a
settled fact that the Court has a discretion to grant or refuse an
amendment; a discretion which profusely tilts towards
the proper
ventilation of disputes.
[2]
In
Affordable
Medicines Trust and others v Minister of Health and Another,
[3]
the Constitutional Court endorsed the practical rule that
‘amendments will always be allowed unless the amendment is
mala
fide
(made in bad faith) or unless the amendment will cause an injustice
to the other side which cannot be cured by an appropriate order
for
cost, or unless the parties cannot be put back for the purposes of
justice in the same position as they were when the pleading
which is
sought to amend was filed.’
[17]
In the present case, the main obstacle facing the applicant is the
reality that there are two entities involved in this matter.
The
Twincare International (Pty) Ltd with registration number
1995/002691/07 (Old Twincare) is a separate legal entity from
Twincare
International (Pty) Ltd 1993/006350/07 (New Twincare). In
fact, even the restraint covenant sought to be enforced is concluded
in the name of the Old Twincare. To ignore this fact is to pierce the
corporate veil and ignore the uniqueness of legally incorporated
entities. Also, it is common cause that there was a corporate
rearrangement through amalgamation of the Old Twincare and Golden
Beauty and the emergence of the New Twincare, which is said to be the
Old Twincare’s successor in title. The Old Twincare
was
subsequently deregistered.
[18]
In
Miller
and Others v Nafcoc Investment Holdings Co Ltd and Others
,
[4]
the
Supreme Court of Appeal (SCA) held that the
deregistration
‘puts an end to the existence of the company. Its corporate
personality ends in the same way that a natural
person ceases to
exist on death. Once there has been deregistration there is obviously
no purpose in a corporate post mortem and
no-one would have the
authority to conduct one.’ Consequently, deregistration
automatically terminates the office of a director
as nobody can be a
director of a non-existent company and any act by such company is
void.
[5]
[19]
Even though
the applicant’s counsel submitted that the amendment sought by
the applicant is to actually correct a typographical
error, in my
view, this is not a case of mere misnomer. The effect of the
amendment would be to introduce a new applicant (New
Twincare). It is
clear that the Old Twincare is defunct by virtue of deregistration
and accordingly has no
locus
standi
to
institute the main application. The respondent’s counsel
correctly submitted that the applicant’s attempt to introduce
a
new party by way of an amendment is fatally flawed.
[6]
A new party cannot be added or substituted under the guise of an
amendment.
[7]
[20]
On this
ground alone, I am convinced that this matter stands to be dismissed.
In fact, my conclusion accords with the view expressed
by the
Constitutional Court in
Areva
NP Incorporated in France v Eskom Holdings SOC Ltd
and
another,
[8]
that:
‘
It seems to me
that…where a litigant has failed to show that it has standing,
the Court should, as a general rule, dispose
of the matter without
entering the merits and that it should only enter the merits in
exceptional cases or where the public interest
really cries out for
that.’
[21]
Similarly, the present case does not cry for that. Firstly, the
process is a nullity since it is instituted by a deregistered
company. Secondly, the applicant was alerted to the lack of
locus
standi
as early 4 October 2017, as this point was raised for the
first time in the respondent’s answering affidavit. The
applicant
ought to have been better advised on the correct legal
process to remedy the flawed litigation. A fresh application or
substitution
would have sufficed.
Merits
[22]
Even if I am wrong in the conclusion I have come to above, I am not
convinced the applicant has made out a case for the enforcement
of
the agreement.
[23]
It is common cause that the respondent was employed in the
applicant’s Skincare Division and dealt only with two products,
Guinot and Mary Cohr. As an educator, she only dealt with salons, who
were the applicant’s primary clients. When her daughter,
Mrs
Jenna Olendzki-Brown (Mrs Brown), the applicant’s erstwhile
marketing manager at its Johannesburg branch, purchased the
right to
distribute Mary Cohr products, the respondent conducted training
solely in Guinot. Ms Brown and her sister are the shareholders
of a
company called Natural Elegant Life (Pty Ltd (NEL) which is the sole
distributor of Mary Cohr products. NEL is the applicant’s
competitor.
[24]
The crux of the respondent’s’ opposition is that she did
not breach the restraint provisions and that the applicant
has no
protectable interest. Conversely, when confronted by the applicant
about the breach of the agreement, on 18 September 2017,
she
furnished an undertaking not use or divulge any information obtained
whilst in the employ of the applicant and for period of
12 months
from the date of her resignation, not to solicit, entice, or
interfere,
inter alia,
with the applicant’s clients and
suppliers, and not to persuade, entice or encourage any of the
applicant’s employees
to terminate their employment and to join
her.
[25]
I accept that the applicant has a legitimate interest in protecting
its confidential information, particularly, the marketing
strategies,
costs sensitive and price points of numerous brands of products; and
customer connections. However, I reckon that the
Old Twincare
agreement goes beyond what is reasonable to protect the applicant’s
legitimate business interests.
[26]
It
is an established principle that the reasonableness of a restraint of
trade is determined with reference to public policies that
enjoin
parties to abide by the contractual obligations and the
constitutional right to freely choose a trade, occupation, or
profession
and to practice such.
[9]
Therefore,
for a restraint to be reasonable and enforceable, it must serve to
protect an interest, which, in terms of the law, requires
and
deserves protection.
[10]
In
Labournet
Labournet
(Pty) Ltd v Jankielsohn and Another,
[11]
quoted with approval in
Aqatan
(Pty) Ltd and Aquatan (Pty) Ltd v Janse Van Vuuren and Another
[12]
referred to by the respondent’s counsel, the LAC stated that:
‘
According
to the Appellate Division in
Basson
v Chilwan and Others,
[13]
the
following questions require investigation; namely, whether the party
who seeks to restrain has a protectable interest, and whether
it is
being prejudiced by the party sought to be restrained. Further, if
there is such an interest – to determine how that
interest
weighs up, qualitatively and quantitatively, against the interest of
the other party to be economically active and productive.
Fourthly,
to ascertain whether there are any other public policy considerations
which require that the restraint be enforced. If
the interest of the
party to be restrained outweighs the interest of the restrainer –
the restraint is unreasonable and unenforceable.
It
is now clear from,
inter
alia, Basson
and
Reddy
that
the reasonableness and enforceability of a restraint depend on the
nature of the activity sought to be restrained,
the
rationale
(purpose)
for the restraint, the duration of the restraint, the area of the
restraint, as well as the parties’ respective
bargaining
positions.
The reasonableness of the restraint is determined with reference to
the circumstances at the time the restraint is sought to be
enforced.
[14]
With
reference particularly to the facts of this matter, it is an
established principle of law that the employee cannot be interdicted
or restrained from taking away his or her experience, skills or
knowledge, even if those were acquired as a result of the training
which the employer provided to the employee
.
[15]
Even
though it is acknowledged that it is difficult to distinguish between
the employee’s use of his or her own knowledge,
skill and
experience, and the use of his or her employer’s trade secrets,
it is accepted that an employee cannot be prevented
from using what
is in his, or her, head.
[16]
Also
relevant to this matter are the principles relating to the
reasonableness of the duration of the restraint. This aspect is
generally assessed as part and parcel of assessing the reasonableness
of the restraint, but it bears mentioning that the duration
must the
rational and reasonable. It cannot be reasonable if it is not
rational
.’ (Emphasis added)
[27]
Turning to the present case, as sated above, there are two restraint
agreements, the one the applicant seeks to enforce was
concluded in
2006 with the company being the Old Twincare and an unsigned copy
reflecting the company as of the New Twincare. In
short, the
respondent is restrained for a period of 24 months from the date of
her resignation from taking up employment or being
engaged or
associated with any company or entity that sells, markets and/or
renders any business, services and products similar
to or competitive
with:
27.1
Any business or activities or products carried on and/or rendered or
provided by the applicant’s
hair, nail and skin care division
(all the applicant’s divisions) at any time the during the
period of her employment. That
include any services relating to
wholesaling and/or retailing to wholesaling and/or retailing of sold
products sold by all the
applicant’s divisions and/or its
subsidiaries from time to time to or for the benefit of any person
whomsoever or attempting
to do so (prescribes services).
27.2
any company, person, firm or association, partnership. Trust,
business, close corporation or other
entity or undertaking that is a
client or had been serviced by all of the applicant’s divisions
at the time of the applicant’s
resignation or 12 months prior.
That includes entities the respondent had had contact with during her
employment with a view of
rendering the prescribes services
(prescribes clients).
[28]
The unsinged agreement dated 9 July 2013 that would have been
concluded by the New Twincare sought to reduce the restraint
period
from 24 months to 12 months and limit the scope of prescribed
services and prescribed clients to the skincare division.
Even though
nothing turns on the New Twincare agreement as it was never
formalised, it nonetheless gives credence to the respondent’s
argument that the Old Twincare agreement is too wide, vague and
ambiguous and as such its enforcement would be completely
unreasonable.
[29]
The applicant failed to explain the rationality for seeking to
enforce the unsevered untrammelled restraint agreement. I am
disinclined to enforce a restraint agreement which is patently
unreasonable in relation to the nature of the protectable interest
when balanced with the countervailing respondent’s right to
work in a new role where the confidential information she had
acquired from the applicant would be irrelevant. The respondent was
involved in the Skincare Division as the educator, dealing
with
specific clients who are mainly salons. Other than being seen at the
Beauty Expo 7 months after her resignation, there is
no evidence that
she had attempted to solicit or entice the applicant’s clients
or employees to join NEL.
[30]
What is fatal to the case of the applicant is the fact that the
respondent has furnished it with an undertaking not to violate
the
restraint obligations for a period of 12 months. The respondent
failed the explain why it rejected the 12 months undertaking
when the
respondent was not a senior manager. Clearly the applicant’s
persistence with its claim for unrestricted enforcement
of the
agreement is unreasonable as it is contrary to the 12 months’
period it has communicated to the respondent when accepting
her
resignation. The applicant’s counsel would this Court to
believe that the 12 months’ period in that letter was
just
another typographical error. I am convinced. However, even if it is
an error, it is a fatal one in the circumstances.
[31]
In addition, the 12 months’ period undertaken by the respondent
expired at the end of February 2018 and, as at the hearing
of the
matter, it was almost 9 months from 18 September 2017, the date the
undertaking was communicated to the applicant. There
was nothing
placed before the Court to indicate that the respondent’s
undertaking was not made in good faith. As a matter
of fact, the
applicant’s counsel conceded that it would seem that the
respondent has at least complied with her undertaking
as there were
no further allegations of breach of the restraint agreement reported.
As things stand,16 months have also passed
since the respondent’s
resignation and there is a great possibility that the confidential
information has lost its value.
Conclusion
[32]
In the circumstances, I am persuaded that the applicant has no
locus
standi
to institute these proceedings and the substitution of
a party under the guise of an amendment is impermissible.
Alternatively,
I find that the restraint of trade agreement is
unreasonable and accordingly unenforceable.
Costs
[33]
Both
parties seek attorney and client costs
de
bonis propriis
.
I, however, do not think that this matter presents the extraordinary
circumstances to award attorney and client costs
de
bonis propriis
.
Even though the launch of these proceedings was misconceived, I am
not convinced that the applicant ‘acted or conducted
itself in
a
mala
fide
,
…capricious, brazen and/or cowboyish manner in its approach to
the litigious process and not have cared what the consequences
of its
acts or actions would be on the legal process and/or the other
side.’
[17]
[34]
In
SA
Liquor Trader’s Association v Gauteng Liquor Board,
[18]
addressing the costs
de
bonis propriis
,
the Constitutional Court stated that : judgment in the case of:
“
An order of costs
de bonis propriis
is made against attorneys where a court is
satisfied that there has been negligence in a serious degree which
warrants an order
of costs being made as a mark of the court’s
displeasure. An attorney is an officer of the court and owes a court
an appropriate
level of professionalism and courtesy.”
[35]
Pertinently,
in
Multi-links
Telecommunications Ltd v Africa Prepaid Services Nigeria Ltd and
Others, Telkom SA Soc Ltd and Another v Blue Label
Telecoms Ltd and
Others,
[19]
the Court stated that:
‘
It is true that
legal representatives sometimes make errors of law, omit to comply
fully with the Rules of Court or err in other
ways related to the
conduct of the proceedings. This is an everyday occurrence. This does
not however per se ordinarily result
in the court showing its
displeasure by ordering the particular legal practitioner to pay the
costs from his own pocket. Such an
order is reserved for conduct
which substantially and materially deviates from the standard
expected of the legal practitioners,
such that their clients, the
actual parties to the litigation, cannot be expected to bear the
costs, or because the court feels
compelled to mark its profound
displeasure at the conduct of an attorney in any particular context.
Examples are, dishonesty, obstruction
of the interests of justice,
irresponsible and grossly negligent conduct, litigating in a reckless
manner, misleading the court,
and gross incompetent and a lack of
care.’
[36]
In the circumstances, I make the following order:
Order
1.
The application is dismissed with costs on a party to party scale.
__________________
P
Nkutha-Nkontwana
Judge
of the Labour Court of South Africa
Appearances
For
the Applicant:
Advocate I L Posthunius
Instructed
by :
McLarens Attorneys
For
the Respondent:
Advocate H Van Beek
Instructed
by:
Schindlers
Attorneys
[1]
Act 66 of 1995 as amended.
[2]
Blaauwberg
Meat Wholesalers CC v Anglo Dutch Meats (Exports) Ltd
[2003]
ZASCA 144
;
2004 (3) SA 160
(SCA) at para 12.
[3]
[2005] ZACC 3
;
2006 (3) SA 247
(CC) at para 9.
[4]
2010
(6) SA 390
(SCA) at para 11.
[5]
Supra at para12. However, the Court have been amenable to take into
account the
de
facto
control of the deregistered company. In Newlands Surgical Clinic
(Pty) Ltd v Peninsula Eye Clinic (Pty) Ltd
[2015] 2 All SA 322
(SCA), it was found that the reinstatement of deregistered company
has complete retrospective effect, including validation of
corporate
activities during period of deregistration. That is not the case in
this instance.
[6]
M&V
Tractor & Implement Agancies BK v Vennootskap D S U Cilliers and
Seuns;
Hoogkwartier Landgoed (Edms) Bpk;Olierivier Landgoed (Edms) Bpk
2000
(2) SA 571
(NC) at 579H-I.
[7]
.
Associated
Paint and
Chemical
Industries (Pty) Ltd t/a Albestra Paint and Lacquers v
Smit
[2000] ZASCA 11
;
2000 (2) SA 789
(SCA);
[2000] 2 All SA 115
(A)
(28 March 2000) at para11.
[8]
2017
(6) BCLR 675
(CC) at para 41.
[9]
Labournet
(Pty) Ltd v Jankielsohn and Another
[2017]
ZALAC 7
at para 39.
[10]
Supra
at
para 41.
[11]
Supra at paras 42 to 45.
[12]
[2017] ZALCJHB 141; (2017) 38 ILJ 2730.
[13]
[1993] ZASCA 61
;
1993
(3) SA 742
(A) at 767E-I.
[14]
See:
Reddy
v Siemens Telecommunications (Pty) Ltd (above)
at
497F, at para 16;
Ball
v Bambalela Bolts (Pty) Ltd (above)
at
para 17.
[15]
See:
inter
alia
,
Easy
Find International SA (Pty) Ltd v Insta Plan Holdings
1983 (3)
SA
917
(W)
at 929F-930A and the cases cited there.
[16]
See;
for example,
Northern
Office Microcomputers (Pty) Ltd v Rosenstein
[1981] 4
All SA
509
;
1981 (4) SA 123
(C); Knox D’Arcy Ltd v Jamieson [1992] 4
All SA
275;
1992 (3) SA 520
(W).
In, inter alia,
Automotive
Tooling Systems (Pty) Ltd v Wilkens
2007 (2) SA 271
(SCA) at 282E-G
,
it was held that the skills which an employee acquired in the course
of developing his or her trade, even if they were specialised,
did
not constitute a protectable interest of the employer who sought to
restrain the employee.
[17]
Rudman
v Maquassi Hills Local Municipality and Others
[2013] ZALCJHB 166; (2014) 35 ILJ 765 (LC) at para 35.
[18]
2009
(1) SA 565
(CC) at 582 F.
[19]
[2013]
ZAGPPHC 261;
[2013] 4 All SA 346
(GNP);
2014 (3) SA 265
(GP) at para
35.