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[2018] ZALCJHB 271
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Gavilon South Africa (Pty) Ltd v Lotz and Others (J2501-18) [2018] ZALCJHB 271 (28 August 2018)
Of
interest to other judges
THE
LABOUR COURT OF SOUTH AFRICA,
HELD
AT JOHANNESBURG
Case
no: J 2501-18
In
the matter between:
GAVILON
SOUTH AFRICA (PTY) LTD
Applicant
and
LEON
LOTZ
First
Respondent
TWK
AGRI (PTY) LTD
Second
Respondent
CONSTANTIA
KUNSMIS (PTY) LTD
Third
Respondent
Heard
:
23 August 2018
Delivered
:
28 August 2018
Summary:
(Urgent – restraint of trade – three month duration –
short duration not disentitling
employer to relief – competitor
– confidential information - protectable interests)
JUDGMENT
LAGRANGE
J
Introduction
[1]
This is an urgent application to enforce a restraint of trade
agreement, which was launched on 26 July 2018 for hearing on 23
August 2018. The application is not opposed by the second and third
respondents, namely Twk Agri (Pty) Ltd (‘TWK’)
and
Constantia Kunsmis (Pty) Ltd (‘Constantia’). Answering
and replying affidavits were filed, but no request or application
was
made by the first respondent, Mr L Lotz (‘Lotz’), to file
a supplementary affidavit as often occurs in this type
of
application.
[2]
The relief sought on an urgent basis by the applicant (‘Gavilon’)
is, in summary, to interdict Lotz from:
2.1 being concerned, associated,
engaged, interested or employed by 2R or 3R, or any other competitor;
2.2 soliciting employees of the
applicant to terminate their employment with it;
2.3 furnishing information, advice or
using any other means designed to cause a customer, supplier or
business associate of the
applicant to terminate its association with
the applicant or transfer its business to a third party,
and further
2.4 directing him to return or destroy
confidential information of the applicant in his possession and
2.5 prohibiting him from disclosing
information or using confidential information of the applicant for
the benefit of third parties.
[3]
Lotz was employed as the National sales manager of Gavilon having
been employed with it since 15 March 2013. On 25 June 2018
he gave a
somewhat cryptic notice of his resignation in an email in the
following terms, under the heading ‘Bedanking’
(resignation):
Hiermee gee ek Gavilon kennis dat ek
my dienste opskort.
Laat weet asb wat is die proses
vorentoe
[
translation:
I herewith give
Gavilon notice that I suspend my services
Please advise what the process is
going forward]
[4]
There is a dispute whether this resignation took effect immediately
or whether it was subject to one month’s notice. Lotz
agrees
that clause 2.3 of his contract of employment with Gavilon required
him to give one month’s notice. Clause 2.4 of
his contract
states:
During any period of notice, the
company shall be entitled to require the employee not to attend the
company’s premises and/or
not to perform any work, and/or not
to have any contact with all or any of the company’s employees,
customers, clients, distributors
and suppliers, provided that during
any such period the company shall continue to pay the employee’s
normal remuneration
in the normal course.
[5]
In any event, Lotz took up employment with Constantia as early as 10
July 2018 as a marketing manager. Constantia is a wholly
owned
subsidiary of TWK.
[6]
Clause 16 of Lotz’s contract imposed a restraint of trade,
pertinent provisions of which are:
16.1 The employee shall not, for a
period of 3 (three) months following termination of his employment
with the company for any reason
whatsoever and in South Africa, be
interested or engaged, directly or indirectly, in any capacity
(including but not limited to
advisor, agent, consultant, director,
employee, financier, manager, member of a close Corporation, member
of a voluntary association,
partner, proprietor, shareholder,
trustee) in any company, firm, business, trade, undertaking or
concern directly or indirectly
engaged in any activity that is the
same or similar to that of the company.
16.2 the employee further undertakes
that neither the employee nor any company, firm, business, trade,
undertaking or concern in
or by which the employee are directly or
indirectly interested or employed will, for a period of 3 (three)
months following the
termination of his employment with the company
for any reason whatsoever, directly or indirectly:
16.2.1 encourage or entice or incite
persuade or induce any other employee of the company, who was
employed by the company as at
the time of the termination of your
employment, to terminate his employment by the company; or
16.2.2 furnishing any information or
advice (whether oral) to any client, supplier business associate of
the company or use any
other means or take any other action which is
directly or indirectly designed, or in the ordinary course of events
calculated,
to result in any such client, supplier business associate
terminating its association with the company and/or transferring his
business to any other person than the company, or attempt to do so.
[7]
Clause 15 of the contract dealt with confidentiality of Gavilon’s
information and
inter alia
provided that:
The employee shall not, either during
the continuance of his employment under this agreement or at any time
thereafter, use to the
detriment prejudice of the company or, except
in the proper course of the employee’s duties, divulge to any
person any confidential
information concerning the business or
affairs of the company or its holding or affiliated companies which
may have come to the
employees knowledge during his employment.
Confidential
information was also defined in the agreement in wide terms.
Issues
in dispute
[8]
The central issues in dispute between the parties are whether:
8.1 the application is urgent;
8.2 the restraint agreement expires on
25 September or 25 October 2018;
8.3 Lotz is in breach of the restraint
agreement by taking up employment with Constantia, which principally
concerns whether or
not either Constantia or TWK is a competitor of
Gavilon, and
8.4 if the proprietary interest of
Gavilon in its confidential information is at risk by virtue of Lotz
being employed by Constantia.
Lastly,
the respective interests of the parties for and against upholding the
restraint need to be evaluated if the above issues
are determined in
Gavilon’s favour.
Urgency
[9]
Prior to launching this application on 26 July 2018, within a
fortnight of Lotz tendering his resignation, Gavilon sought
undertakings
from him to abide by the restraint provisions in his
contract when it became aware of his engagement with the TWK group.
He was
unobtainable in early July owing to the fact that he had
previously arranged to take leave. Although there is some dispute
about
what took place in the conversation between Lotz and Gavilon’s
managing director on 11 July 2018, it is common cause that
Lotz did
not confirm his employment by Constantia at that stage and undertook
to revert to Gavilon, which he only did through his
attorney on 16
July 2018. The application was launched within ten days thereafter,
in circumstances where the founding affidavit
had to be deposed to by
Gavilon’s managing director who was in Georgia, USA.
[10]
[11]
Taking the above into account, I am satisfied that the applicant was
not dilatory and did attempt to secure undertakings from
Lotz in
circumstances where Lotz would not, or could not, confirm his
employment status with Constantia and had undertaken to revert
to
Gavilon. In my view, Gavilon proceeded with sufficient expedition in
launching the application and gave Lotz ample time to respond
to it.
Is
Constantia a competitor of Gavilon?
[12]
Pertinent facts that are not disputed in relation to this issue are
the following:
12.1 Gavilon is an importer and
supplier of a variety of fertiliser products to the agricultural
industry and has a significant
warehouse storage facility for its
products in Durban, which is leased.
12.2 Gavilon imports most of its
supplies and deals with ten international suppliers, four of which
supply 60% of its imports and
have long term supply agreements with
Gavilon.
12.3 Gavilon has an extensive national
customer base. The wholesale customer base consists of nationwide
distributors, small blenders,
agricultural cooperatives and large,
buying groups. 50% of Gavilon’s sales volume is sold wholesale
to five large entities
including TWK, Multi-Green. The remainder of
its sales are in the retail market to more than 150 customers around
the country.
12.4 Constantia and TWK both purchase
fertiliser products from Gavilon and are also local suppliers of
fertiliser products to the
agricultural industry.
[13]
Lotz admits TWK purchases fertilizer from the applicant, which is
then stored and sometimes blended at Constantia depots before
being
sold to farmers in the retail market. However, he denies TWK can
compete with Gavilon because it does not have the internal
supply
arrangements with any of the international suppliers that Gavilon has
and would have to cease trading if it no longer supplied
them. He
goes further to state that the applicant has a wholesale monopoly
over the supply of specialized fertilizer and fertilizer
products
which TWK and Constantia have to live with as buyers. He contends
that the respondent companies are merely customers of
Gavilon. In
essence, Lotz tries to make out a case that Gavilon operates in the
wholesale fertiliser market and the respondent
companies, who are
wholly dependent on it for supplies, operate in the retail market.
Consequently, he contends that any increase
in fertiliser sales by
the respondent companies necessarily will also benefit Gavilon as the
wholesale supplier because it will
be supplying them with greater
volumes of fertiliser.
[14]
In reply, Gavilon provided greater detail of competition in the
retail space. It also disputes Lotz’s allegation that
it has a
monopoly of fertiliser supplies to the respondent companies. It
points out that, fertilizer as a commodity is not specialized
and is
bought from various sources. More particularly, it states that it
only supplies 20% of the volume of national fertiliser
consumption
and the respondent companies in fact do purchase fertiliser from
other local suppliers such as Foskor and Sasol Fertiliser
Ltd as well
as from Yara, an international producer. In addition there are other
wholesale suppliers of fertiliser which compete
with Gavilon, from
which the respondent companies could purchase supplies. Consequently,
they are not tied to Gavilon as a sole
supplier. Moreover, Gavilon’s
sales to the respondent companies for the period April to July 2018
of 4000 MT shows a dramatic
decline from the same period in 2016 and
2017 when Gavilon’s sales to them amounted to 36,000 MT and
38,000 MT respectively.
[15]
Lotz claims that Gavilon ought to have pleaded these details in its
founding affidavit, but did not apply to strike them out
of the
replying affidavit nor did he seek to file a supplementary affidavit
in reply. It is trite that an applicant cannot make
out a case in
reply. However, some of the additional material contained in the
replying affidavit is a direct response to new issues
raised by Lotz.
For example, his claim that Gavilon is a monopoly supplier to the
respondent companies necessitated evidence in
rebuttal. In relation
to the competitive space in which Gavilon and the respondent
companies operate, it is clear that in the founding
affidavit Gavilon
identified both a retail and wholesale component to its market
profile, which each account for approximately
50% of its national
sales. Further, Lotz did not dispute the division of Gavilon’s
sales between the retail and wholesale
market and it stands to reason
that even if the respondent companies only operate in what might be
called the retail market there
is an overlap between their market and
Gavilon’s market even on the founding and answering affidavits.
That is sufficient
to establish them as competitors in at least one
national market.
[16]
Accordingly, even on his own papers, it is clear that his employment
with Constantia is employment with a competitor of Gavilon
and is in
breach of clause 16.1 of his contract of employment.
Does
Lotz’s employment by Constantia pose a threat to Gavilon’s
proprietary interest in its confidential information
and trade
connections?
[17]
Gavilon claims that Lotz as its National sales manager had built up
significant and influential relationships with key customers.
Further, it claims he has significant knowledge of its customer base,
the creditworthiness of different customers and the terms
of their
sale contracts.
[18]
Importantly, though Lotz claimed credit for bringing some of these
customers to Gavilon when he joined it (albeit that this
is strictly
irrelevant in a restraint of trade application), he does not dispute
that he does have relationships with some of Gavilon’s
customers and that such relationships “could constitute
protectable interests”. However, he denies the value of such
relationships to the respondent companies based on his claim that
they were not competitors with Gavilon. In view of the discussion
above that is an untenable claim and accordingly the relationships he
developed do constitute a protectable interest of Gavilon.
[19]
Lotz also argues that the creditworthiness of customers is something
that can be obtained by other means by any interested
third-party.
The respondent concedes that credit checks are an alternative way of
acquiring certain information about a customer’s
creditworthiness, it has further information about customers’
records as reliable purchasers of fertiliser products, which
is part
of Gavilon’s own confidential information about its customers
and not in the public domain.
[20]
Further, it is common cause that between 5 and 17 June 2018, a couple
of weeks before he resigned, that Lotz forwarded various
items of
confidential information of Gavilon to his wife’s email
address, which included
inter alia
:
20.1 sales order information for the
period April 2017 until May 2018;
20.2 budget information for the 2017
and 2018 fiscal years;
20.3 a detailed list of all Gavilon’s
customers and their information, and
20.4 details of Gavilon’s
pricing model relating to certain fertiliser products.
Lotz
admits that even if he had not sent this information he was privy to
it during his employment with Gavilon. He also agrees
that the
information is not publicly available except for the identity of
customers. Once again, he disputed the value of this
information to
the respondent companies because of his primary claim they were not
competitors of Gavilon. Further, he claims that
he was entitled to
the information in question and had destroyed all hard copies of it
and the emails in question he had deleted
from his personal computer.
[21]
In relation to the specific information mentioned, Lotz responded
that:
21.1 the value of information about
product pricing models was exaggerated because prices fluctuate
regularly owing to a variable
foreign exchange rate, and therefore
the information loses its value when it is no longer current;
21.2 the detailed list of all
customers was used by him to contact customers from his home office;
21.3 the budget information was
required for measuring his own sales performance, and
21.4 similarly, he always received an
update of sales done for previous months to measure his own
performance.
[22]
Gavilon disputes the need for Lotz to send all this valuable
information to a personal email shortly before he resigned. It
is
telling that of 280 emails sent to his home email address since
mid-August 2017, the only ones containing updates of sales done
for
previous months were the ones sent in June 2018. Moreover, the
information contained not merely customer sales but also sales
volumes, type of product, prices and delivery periods for the
imminent peak season. They also included details of sales for which
Lotz was not responsible. Further, the pricing model contained
information about the operating costs and margins of Gavilon, which
were not variable, and would be of value to a competitor.
[23]
What emerges from the above is that, it is difficult to escape the
conclusion, given the scale of the content and the timing
of the
emails, that Lotz sent information to a private email address not for
the purpose of performing his current duties in the
last couple of
weeks of his employment with a capital Gavilon but more probably
because that information would be of great interest
to a potential
competitor such as Constantia.
[24]
On this evidence alone, there is more than sufficient reason to
believe that Gavilon’s proprietary interest in that information
would be threatened if Lotz worked for Constantia. It is trite law
that, it is not necessary for an applicant in a restraint of
trade
application to prove that an employee has actually exploited it’s
confidential information, but merely that there is
a risk the
employee might do so. In this case, there is even reason to believe
that the information Lotz transmitted to a private
email address
indicated an intention to exploit the information, which is conduct
the restraint agreement seeks to forestall occurring.
[25]
One of the more curious defences raised by Lotz was that given the
short duration of the restraint, the trade connections he
had
developed would not vanish within three months and in so far as he
had knowledge of customer profiles, that too would not be
worthless
after the restraint had ended. As a matter of logic, there is
certainly some merit in that argument. However, despite
his claim
that the selling period for fertiliser is throughout the year,
contrary to Gavilon’s claim in its founding affidavit
that the
peak sales period is from August to November each year, the more
detailed evidence provided in rebuttal confirms Gavilon’s
account. Accordingly, whatever the value of the three month restraint
may be in protecting Gavilon’s interests, it could
not have a
greater value than it has at present during the critical period when
the bulk of the fertiliser market sales are in
contention.
Does
the restraint terminate in September or October 2018?
[26]
Lotz contends that his services terminated the day he gave notice,
namely 25 June 2018. He claims that, contrary to clause
2.3 of his
contract of employment requiring him to give a month’s notice,
his resignation was immediate as evidenced by his
reference to
‘suspending’ his services in his resignation email. He
maintains that the lack of response from Gavilon
and its subsequent
cancellation of his company credit card and the collection of his
cell phone, laptop computer and other company
property from his
residence on 27 June 2018 was indicative of Gavilon accepting that
his services had terminated. He also claims
that the letter from his
attorney dated 16 July 2018 also made this clear. What that letter
stated into alia was:
1. Our client indeed resigned on 25
June 2018. Upon resigning, our client requested confirmation from
your client on the way forward.
2. In response, and on that same day,
our client was told that his company credit card. It is immediate
effect, and that he had
to hand in his telephone, laptop computer and
all your clients’ property in his possession. All this property
was collected
from our client on 27 June 2018.
3. It was patently clear that your
client did not want our client to work out his notice. Our client was
also on pre—approved
leave in the first week of July 2018, and
never instructed to resume duties. Your client’s allegations
that client does took
it upon himself to be absent from work after
resigning is devoid of any truth, and any difficulty to contact our
client was caused
by client’s conduct as aforesaid.
4.
Your client’s belated attempt, as contained in your letter to
record that he is not required to work after 11 July 2018
is
contrived, as this was already the case from 25 June 2018.
[27]
The letter of 9 July 2018 from Gavilon’s attorneys to which
Lotz’s attorney referred, asserted, amongst other things,
that:
27.1 Lotz was still employed as the
National sales manager.
27.2 He was required to give one
month’s notice and accordingly his service would only terminate
on 25 July 2018 and he remained
an employee of Gavilon until that
time.
27.3 That he had absented himself from
work even though he was only entitled to be on leave from 2 to 5 July
2018.
27.4 That he had advised Gavilon he
would only be available after 10 July 2018.
27.5 He was reminded that he was still
an employee of Gavilon and obliged to be remain in contact and to
cooperate with it on work-related
matters.
27.6 It would treat his absence from
work until 10 July 2018 as annual leave and there after it invoked
clause 2.4 of the contract
which required him not to perform any
work.
27.7 Despite invoking clause 2.4, he
remained an employee and was obliged to act in the best interests of
Gavilon, which included
not taking up other employment.
27.8 He was further advised that he
would be paid until 25 July 2018 on the normal monthly payroll.
[28]
Ultimately, Lotz was not paid his salary for July, which he took as a
further indication that Gavilon had accepted that his
services had
terminated on 25 June 2018. He further argues that because he was not
required to work and not paid for any work one
of the essentiality of
a contract of employment was absent and accordingly, he could not
have been employed during the purported
notice period. Gavilon
retorts that since Lotz was in breach of his employment obligations
by taking up employment with Constantia
during his notice period, it
did not have reciprocal obligation to pay him for that time.
[29]
There is no indication from Lotz that he was instructed to absent
himself from 25 June until his leave commenced on 2 July
2018. In
fact, it was he who “suspended” his services in his
resignation email. Although he claims that, that message
was the
equivalent of a summary termination on his part, the use of the term
‘suspend’ is difficult to reconcile with
an intention to
end one’s service permanently forthwith. He claimed to seek
directions from Gavilon on the way forward, but
had unilaterally
decided not to render his services with immediate effect for an
indeterminate period. Under these circumstances,
where his own
intentions were not unambiguous, and given that he had withdrawn his
services without warning, it does not follow
in my view that he could
just assume that retrieval of company property from him meant that
Gavilon had interpreted his “suspension”
of his services
as an immediate termination of his employment and acquiesced to it.
[30]
As a matter of law, Gavilon had an election how to respond to his
action. It could have accepted it as a repudiation of his
contract of
employment. As it is, it chose to enforce the notice requirement in
his contract, which included an entitlement to
require him to remain
in its employment, but effectively in quarantine for the period of
his notice. That included not having any
contact with customers. It
also did not relieve him of the obligation not to act against his
employer’s interests. In taking
up employment with Constantia,
he breached both of those obligations and Gavilon, having tendered to
pay him for his notice period
declined to on the basis that he had
not performed his employment obligations. Somewhat paradoxically,
those obligations, in the
context of clause 2.4 of his contract,
required him to render no productive service, but also not to have
anything to do with the
business or its customers and not to reach
his common law obligation not to act contrary to its interests. Lotz
could not say that
there was an unequivocal act by Gavilon in
response to his ambiguous resignation, which indicated it had tacitly
accepted that
his email amounted to an immediate resignation, which
it accepted.
[31]
In the circumstances, I am satisfied that Gavilon was entitled to
hold Lotz to his notice period, and did so. On the basis
that he did
not perform important, though limited, obligations, Gavilon did not
pay him his July remuneration, rather than accept
that
non-performance as a repudiatory breach and cancel the contract
summarily. The notice pay may be the subject matter of another
dispute, but for present purposes what concerns the court is when his
service terminated, which would have been 25 July 2018. Accordingly,
the restraint runs for three months from that date until 25 October
2018.
Reasonableness
of the restraint
[32]
The period of the restraint is very limited. Nonetheless, Gavilon
clearly has a protectable interest in its customer connections
and
confidential information, which could be harmed by Lotz’s
employment by Constantia. While it is true that the restraint
may not
be enough to protect it against all harm its protectable interests
might suffer because it is of such a short duration,
it can at least
protect those interest for the most active sales period of the year,
which the restraint will cover most of. Just
because the restraint
might be less effective than it might have been if a more extensive
period had been agreed upon, does not
dis-entitle Gavilon to the
limited relief it can provide. It cannot be said that providing such
relief at a critical juncture of
the peak sales season is trivial or
insignificant. By contrast, Lotz will only be prevented for a very
limited time from pursuing
employment in the very same line of work
he was engaged in and will be free to work for a direct competitor
shortly.
[33]
He also received a substantial bonus in excess of R 700,000 from
Gavilon shortly before he gave notice, and gives no indication
he
will be facing any short term economic hardship that must be balanced
against the harm that Gavilon might suffer if he was allowed
to
continue working for Constantia.
[34]
Weighed up qualitatively and quantitatively the interest of Gavilon
should prevail against the limited period that Lotz might
be
economically inactive in the area he has chosen to make a living in.
There are no other facets of public policy which are unrelated
to the
interests of the parties which lead me to a different conclusion.
[35]
There is no reason why costs should not follow the cause in this
instance.
Order
[1]
Non-compliance with the forms and service provided for in the Rules
of the Labour Court are dispensed with and the matter is
disposed of
as a matter of urgency in terms of rule 8 of the Labour Court Rules.
[2]
The First respondent is interdicted and restrained until 25 October
2018 within the territory of the Republic of South Africa
from,
directly or indirectly, in any capacity whatsoever:
2.1 being concerned, associated,
engaged, interested in or employed by:
2.1.1
the Second or Third respondent, or
2.1.2
any other competitor of the Applicant;
2.2 encouraging or enticing or
inciting or persuading or inducing any other employee of the
Applicant, who was employed by the Applicant
time of the termination
of his employment, to terminate his/her employment with the
Applicant; or
2.3 furnishing any information or
advice (whether oral or written) to any customer, supplier or
business associate of the Applicant
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 any such
customer, supplier or business associate terminating its association
with the Applicant and/or
transferring its business to any person
other than the Applicant, or attempting to do so.
[3]
The First respondent is directed to return or destroy any
confidential information belonging to the Applicant which remains
in
his possession whether electronically or in hard copy.
[4]
The First respondent is interdicted and restrained from disclosing
the confidential information of the Applicant to any third
party
including the Second and Third respondents, or attempting to do so.
[5]
The First respondent is interdicted and restrained from using the
confidential information of the Applicant for the benefit
of any
third party, including the Second and Third respondents or attempting
to do so.
[6]
The First respondent is ordered to pay the Applicant’s Costs
including the costs of one counsel
_______________________
R
Lagrange
Judge
of the Labour Court of South Africa
APPEARANCES
APPLICANT:
I
Miltz SC instructed by Edward Nathan Sonnenbergs Inc
FIRST
RESPONDENT:
R
J C Orton of Snyman Attorneys