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[2018] ZALCJHB 318
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Betterbond (Pty) Ltd and Another v Smit and Another (J2898/18) [2018] ZALCJHB 318 (5 October 2018)
THE
LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG
Not
Reportable
Case
No: J2898/18
In
the matter between:
BETTERBOND
(PTY) LTD
BETTERLIFE
GROUP (PTY) LTD
First
Applicant
Second
Applicant
and
ALISTER
SMIT
MULTINET
HOME LOANS
First
Respondent
Second
Respondent
Heard
:
20 September 2018
Delivered:
05 October 2018
Summary:
Restraint of trade – no novation cannot be presumed – no
intention or evidence that novation occurred –
the full terms
of the restraint covenant are enforceable.
JUDGMENT
NKUTHA-NKONTWANA.
J
Introduction
[1]
This is an urgent application for a final
interdict to enforce restraint of trade and confidentiality
undertakings contained in
the first respondent’s (Mr Smit)
contract of employment. Mr Smit was employed by the first applicant
(Betterbond) on 2 March
2016 as a Home Loan Consultant. He resigned
from Betterbond on 25 July 2018 to take up employment with the second
respondent (Multinet),
a direct competitor of Betterbond.
[2]
Mr Smit is opposing the application, firstly, on
the basis of urgency and secondly, on several defences on the
merits.
Background
[3]
The facts
in this matter are mostly common cause. Betterbond and Multinet are
bond originators. Prior to joining Betterbond, Mr
Smit was employed
by Green Door Homeloans, also a bond originator. Considerable
business of bond originators depends on obtaining
referrals from
‘lead sources’ such as estate agents and developers.
[1]
According to Mr
Smit, when he joined Betterbond, he brought with him eight lead
sources. He was not earning any salary but paid
on commission.
[4]
Mr Smit was not allowed entry into the premises
of Betterbond after he had tendered his resignation on 25 July 2018.
Betterbond
did not oppose Mr Smit’s employment with Multinet.
However, it insisted that he should sign an undertaking it had
drafted
with the following terms:
‘
I, the undersigned, Alister
Smit, hereby undertakes:
1) for a period of 6 (six) months
calculated from 22 August 2018, restrain from dealing (in whatsoever
manner) with Betterbond’s
existing lead sources (including
estate agents, developers and closed channel partners);
2) for period of 12 (twelve) months
calculated from 22 August 2018, from soliciting or enticing any of
Betterbond’s employees
to terminate their employment with
Betterbond.
I hereby undertake not to disclose any
confidential information of Betterbond and will furthermore return
any copies of such information
and/or company equipment which may be
in my possession (in whatsoever format that may be) to Betterbond on
or before 17h00 on Wednesday,
1 August 2018.’
[5]
Mr Smit was not keen to commit himself initially
and raised the following concerns:
[5.1]
Clause 1 of the undertaking was overly wide and
he sought to have it amended to reflect that he would not contact any
of the lead
sources with the objective of soliciting business away
from Betterbond;
[5.2]
He had to earn income and would not turn away any
prospective business opportunities;
[5.3]
If he was approached by any of the lead sources
he had dealings with even prior to joining Betterbond, he would not
be restrained
from dealing with them.
[5.4]
Not being able to solicit business from clients
he has been dealing with is going to cause a dip in his income;
[5.5]
He believes that he should be compensated for the
restraint;
[5.6]
He requested all commission from the pipeline
which he closed prior to his resignation and for as long as those
income streams are
paid on registration.
[6]
After a marathon of correspondence between the
parties regarding the enforcement of the restraint and
confidentiality undertakings,
Mr Smit signed the undertaking on 6
August 2018. However, it was subsequently brought to the attention of
Betterbond that Mr Smit
was in breach of the restraint and
confidentiality undertakings in that he had solicited three of
Betterbond’s clients away
from its business to the business of
Multinet and disclosed their confidential details to Multinet.
[7]
Mr Smit had been allocated three bond
applications of Betterbond’s clients to process while he was
still in the employ of
Betterbond. Mr Smit processed all the three
applications through Multinet without any authorisation. Betterbond
was alerted about
Mr Smit’s conduct by the disgruntled clients.
[8]
Mr Smith
concedes that he took Betterbond’s clients with him on his
departure. However, he is adamant that his conduct does
not offend
the terms of the 6 August 2018 undertaking, a narrower version of the
restraint agreement. He asserts that he agreed
to the terms of the 6
August 2918 undertaking as a compromise since he had forsaken his
right to the lead sources he had introduced
to Betterbond for the
narrower terms than those in the restraint agreement. As such, the
undertaking does not restrict him from
dealing with restricted
parties
[2]
and Betterbond is
attempting to shift the goal post
ex
post facto
.
[9]
Mr Smith further denies that he had disclosed
confidential information to Multinet as the details were merely names
of clients and
the biographic data and other details required by the
banks for a bond application (biographic information). The biographic
information
does not relate to Betterbond but rather to the clients
and is available to any bond originator in the normal course of
business.
The mere fact that a person is Betterbond’s client
could not turn the biographic information into confidential
information,
so the argument further went.
Whether
the restraint of trade and confidentiality undertakings were
superseded by the undertaking given by Mr Smit in favour of
Betterbond
[10]
Advocate Miltz SC, Betterbond’s counsel,
submitted that it was never Betterbond’s intention to novate
the restraint
of trade and confidentiality undertakings in Mr Smit’s
contract of employment when it sought the 6 August 2018 undertaking.
In any event, Mr Smit failed to make out a case for novation, so it
was further argued. On the other hand, Mr Smit is adamant that
the
undertaking is binding and must have legal consequences, especially
since it was authored by Betterbond.
[11]
To the
extent that Mr Smit’s defence is premised upon novation, it is
important that I deal with this aspect. The Supreme
Court of appeal
(SCA) succinctly expounded the principle of novation in
National
Health Laboratory Service v Lloyd-Jansen van Vuuren
.
[3]
It was stated:
‘
[15] …There is a
presumption against novation because it involves a waiver of existing
rights. When parties novate they intend
to replace a valid contract
with another valid contract. In determining whether novation has
occurred, the intention to novate
is never presumed. In
Acacia
Mines Ltd v Boshoff
,
[4]
the court held that novation is essentially a question of intention.
[16] In
Proflour
(Pty) Ltd & another v Grindrod Trading (Pty) Ltd t/a Atlas
Trading and Shipping & another
[5]
the court, when determining whether the agreement resulted in a
novation, referred to the decision
of
Electric Process Engraving and Stereo Co v Irwin
1940 AD 220
at 226-227 where the court said:
‘
The law on the subject was
clearly enunciated as far back as 1880 in the well-known case of
Ewers v The Resident Magistrate of Oudtshoorn and Another
,
(Foord) 32, where DE VILLIERS, C.J, said: “The result of the
authorities is that the question is one of intention and that,
in the
absence of any express declaration of the parties, the intention to
effect a novation cannot be held to exist except by
way of necessary
inference from all the circumstances of the case.”’
It
follows that in order to establish whether novation has occurred, the
court is entitled to have regard to the conduct of the
parties,
including any evidence relating to their intention.’
[12]
Turning to the present case, Mr Smit concedes
that there was no express intention to effect novation. Also, the
communication between
the parties preceding the signing of the 6
August 2018 undertaking negates any occurrence of novation. In a
letter dated 31 July
2018, Betterbond addressed Mr Smit on his
obligations in terms of the restraint of trade and confidential
undertakings as contained
in his contract of employment. The contents
are as follows:
‘
1 we refer to your contract of
employment dated 1 March 2016 (“employment agreement”).
2 During your employment as Bond
Consultant you were exposed to confidential business information
including, but not limited to,
clients list, company strategy,
business methodology and you built up significant client
relationships. With a view to protecting
our interests we concluded
with you a written employment agreement that contained a number of
restraint of trade obligations.
3 In terms of the employment agreement
you were restrained from,
inter alia
, for a period of 6 (six)
months after the termination date of your employment from: –
3.1 conducting any business which is
the same or similar to or in competition with Betterbond in regard to
any restricted lead source
(being an entity that continues to be or
has in the 12 months prior to your termination, been a business lead
source of Betterbond);
and
3.2 be interested in any legal entity
that conducts business with any restricted lead source.
4 We attach a copy of the relevant
pages of the agreement (annexure “A”) – We also
attach the names of the relevant
restricted lead sources (annexure
“B”).
5 You tendered your resignation from
Betterbond on Wednesday, 25 July 2018 and informed us that you intend
to join Multinet (a direct
competitor of Betterbond). We hereby
accept your resignation. We require that you provide us 4 (four)
weeks’ notice of termination
and accordingly your last working
day will be 22 August 2018 (“termination date”).
6 During the notice period, we require
that you will not attend at the Betterbond offices. In accordance
with clause 25,3 of your
employment contract, we will pay you
commission in respect of transaction that may register on/before the
termination date.
7 It is not our intention to preclude
you from taking your new position with Multinet, provided that you do
not approach, solicit
business or provide (whether directly or
indirectly) any bond origination service to any of our restricted
lead sourced or otherwise
breach the confidentiality and restraint
undertaking in your employment agreement. Should you not adhere to
the provisions stipulated
above, all of Betterbond’s rights
will be reserved fully to enforce the full extent of the
confidentiality and restraint
undertakings, including in regard to
your employment by Multinet and your servicing of restricted lead
sources. Nothing in this
letter should be construed in any manner as
a waiver of any of Betterbond’s rights to enforce each and
every aspect of your
confidentiality and restraint undertaking.
8 We also note that your agreement
includes 12 (twelve) month restriction in respect of soliciting of
Betterbond’s staff.
9 We hereby demand that you undertake
in writing to desist from breaching the restraint and confidentiality
undertakings in the
employment agreement and that you comply with all
the restraint of trade obligations that you owe us.
10 We attach as annexure “C”
a draft undertaking for you to sign and return to us and confirm that
we require these
undertakings as a matter of urgency, but not later
than 17h00 on Wednesday, 1 August 2018, failing which we shall
institute legal
proceedings against you.
11 We await your urgent response. All
of the Betterbond’s rights are expressly reserved.’
[13]
It is evident that Betterbond never intended to
waive its rights to fully enforce the restraint and confidentially
undertakings.
Conversely, Betterbond was indulgent and did not seek
to prevent Mr Smit from joining its competitor to the extent that he
complied
with the restraint and confidentiality undertakings. As
such, the 6 August 2018 undertaking did not vary or cancel the
obligations
imposed by the restraint and confidentiality undertakings
contained in Mr Smit’s contract of employment.
[14]
It follows that novation did not occur.
Are
the restraint of trade and confidentiality undertakings enforceable?
[15]
Mr Smit
concedes that by pocketing Betterbond’s clients to Multinet, he
breached his restraint and confidentiality undertakings.
Accordingly,
Mr Smit bears the onus to demonstrate on a balance of probabilities
that the restraint is unreasonable and therefore
unenforceable. In
turn, 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.
[6]
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.
[7]
The principles are
trite and it is not necessary to restate them. What follows becomes
apparent when applying those principles to
the issues at hand in this
application.
[16]
Mr Smit’s unreasonableness argument is
hinged on two issues; firstly, that Betterbond’s information is
not confidential;
secondly, that the eight lead sources mentioned in
his answering affidavit are historically his and he should be
permitted to pocket
them to Multinet.
Confidential
information
[17]
Mr Smit does not necessarily dispute that
Betterbond’s key competitive differentiators in the mortgage
origination industry
are the relationships it holds with its lead
sources. It should then follow, as contended by Betterbond, that the
lead sources
and their agreements with them are not only confidential
but the relationship that is fused between Betterbond and its lead
sources
is proprietary interest.
[18]
Accordingly, Mr Smit’s submission that the
names of clients, their biographical information and other details
required by
banks for a bond application do not constitute ‘client
lists’ as contemplated in his contract of employment and are
publicly available to any bond originators is untenable. The
definition of confidential information as contained in his contract
of employment includes any other information relating to existing and
prospective customers.
[19]
The information loosely referred to by Mr Smit as
biographic details of clients consists of clients’ confidential
information,
which includes bank statements, monthly earnings,
employers’ details, etc, disclosed on confidential basis. Mr
Smit gained
access to the three clients’ information solely
because he was in a confidential relationship with the clients as a
Betterbond
employee. Mr Smit has since disclosed and used this
confidential information for Multinet’s benefit despite his
undertaking
not to do so.
[20]
Clearly, his loyalty is with Multinet hence he
did not hesitate to disclose Betterbond’s confidential
information at his disposal
at the given opportunity.
Protectable
interest
[21]
Mr Smit
relies on a further ground in support of his case that the respondent
had no trade connections capable of protection. He
asserts that
Betterbond had no protectable interest in its lead sources,
particularly the eight lead sources with whom his relationship
predates his employment with Betterbond. That cannot be true as the
protection of potential business opportunities as well as the
commodity in the form of customer goodwill is also a protectable
interest. Pertinently, in
Rawlins
and Another v Caravantruck (Pty) Ltd,
[8]
the Appellate
Division stated:
‘
Even though the persons to whom
an employee sells and whom he canvasses were previously known to him
and in this sense “his
customers”,
he may nevertheless
during his employment, and because of it, form an attachment to and
acquire an influence over them which he
never had before. Where this
occurs, what I call the customer goodwill which is created or
enhanced, is at least in part an asset
of the employer.
As such
it becomes a trade connection of the employer which is capable of
protection by means of a restraint of trade clause.
The onus being on Rawlins to prove
the unreasonableness of the restraint, it was for him to show that he
never acquired any significant
personal knowledge of or influence
over the persons he dealt with as a salesman of the respondent, over
and above that which previously
existed
. In my opinion he did not
do so. No allegation that he did not acquire such knowledge or
influence is made by Rawlins. Nor do I
think that it can be inferred.
On the contrary, it would appear to be no less probable that Rawlins'
relationships with the customers
he dealt with as a salesman of the
respondent were such as to make it reasonable for the respondent to
protect itself. Rawlins
worked for the respondent for some fifteen
months. During this time he received training in the use and
marketing of products sold
by the respondent. He was obviously a
successful salesman.
Taking account of the realities of commerce,
it is a fair inference in these circumstances that it was Rawlins'
employment with
the respondent that gave him the opportunity to
consolidate or even strengthen the prior rapport which he had with
his customers
.’ (Emphasis added).
[22]
Similarly, in the present case, Mr Smit failed to
show that he never acquired any significant personal knowledge of or
influence
over the eight lead sources he had introduced to Betterbond
over and above that which previously existed. On the contrary,
Betterbond’s
assertion that Mr Smit’s relationship with
the eight lead sources developed and grew during his employment with
Betterbond,
is highly probable and was never challenged. The
confirmatory affidavits from the eight lead sources do not assist Mr
Smit in this
regard.
[23]
In the circumstances, it is reasonable to
conclude that the rapport which Mr Smit had with the eight lead
sources was enhanced or
reinforced during his employment with
Betterbond.
Geographical
area
[24]
The remaining issue is the reasonableness of the
geographical area of the restraint which Betterbond seeks to enforce,
being Gauteng
Province. Mr Smit seeks a reduction of the geographical
area of the restraint to Pretoria. He asserts that while in the
employ
of Betterbond he worked almost exclusively in Pretoria and
only 1 to 2 percent of his work was in Johannesburg.
[25]
I am not convinced that the geographical area of
the restraint is overbroad. Mr Smit concedes that he did work in
Johannesburg,
despite the extent of the work he did. Betterbond seeks
to enforce the restraint and confidentiality undertakings in Gauteng
only
insofar as protecting its business connections and confidential
information in relation to its clients, restricted lead sources,
restricted parties, restricted transaction, and current employees. Mr
Smit is free to venture into other provinces.
Urgency
[26]
It is generally accepted that enforcement of the
restraint of trade is inherently urgent. There is no need to overly
deliberate
on this issue as, having read the papers before me, I am
satisfied that the matter is urgent and have treated it as such.
Conclusion
[27]
In all the
circumstances, the restraint is neither unreasonable nor contrary to
public policy.
[9]
Accordingly,
the requirements for the grant of a final interdict have been met.
Betterbond successfully demonstrated that it has
a clear right which
has since been breached (an injury actually committed) and that there
is no other appropriate remedy than to
hold Mr Smit to his
contractual undertakings.
[10]
Costs
[28]
Even though costs do not follow the result in
this Court, this case is an exception. Mr Smit ought to have been
advised of the prospects
of opposing this application. In fact, he
had been offered an opportunity to consent to the order sought in the
Notice of Motion
but to no avail.
[29]
In the circumstances, I make the following order:
Order
1. This application is heard as one of
urgency and the applicants’ failure to comply with the normal
time periods is condoned.
2. The first respondent, Mr Alister
Smit, is interdicted and restrained in the Gauteng area until 25
February 2019:
2.1
Either for his own account or as a representative or as an agent for
the any third party, from conducting any business, the
same as,
similar to or in competition with the business of the applicants in
regard to any restricted lead sources (as defined
in the first
respondent’s contract of employment);
2.2
Either for or on his own behalf or on account or as a representative
or as an agent for any third party, from persuading, inducing,
procuring, soliciting, enticing or attempting to entice away a
restricted party (as defined in the first respondent’s contract
of employment) from the business of the applicants and/or from
conducting a restricted transaction (as defined in the first
respondent’s
contract of employment);
2.3
From acting in any capacity in dealing in any way with a restricted
party in respect of any services and/or products which are
substantially the same as those services and/or products offered by
the applicants to the restricted part in question.
3. The first respondent is interdicted
and restrained in the Gauteng area until 25 August 2019 from
persuading, inducing, encouraging,
procuring or soliciting any
current employee of the applicants or who was employed by the
applicants within 6 months from the date
of the first respondent’s
termination of employment with the first applicant to: -
3.1
Become employed by, or have an interest directly or indirectly in any
manner whatsoever, in any business which is in competition
with the
business of the applicants;
3.2
Terminate his/her employment or association with the applicants;
3.3
Furnishing any information or advice, acquired by that employee or
consultant as a result of his/her employment or association
with the
applicants, to any unauthorised person;
3.4
Transfer, divert or refer any of the applicants’ customers,
business or restricted transactions to any restricted party,
whether
in a form of leads, confirmed or unconfirmed sales, or any form in
any manner whatsoever, whether for gain or not.
4. The first respondent is restrained
and interdicted from using the confidential information of the
applicants, whether directly
or indirectly, for his own benefit or
for the benefit of any other person other than the applicants.
5. The first respondent is interdicted
from diverting the applicant’s clients to the second respondent
or any other third
party.
6. The first respondent pays the
applicants’ costs.
__________________
P Nkutha-Nkontwana
Judge of the Labour Court
of South Africa
Appearances
For
the Applicant: Advocate I Miltz SC with Advocate S Swartz
Instructed
by : Cliff Dekker Hofmeyr Inc.
For
the Respondent: Advocate DJ Erasmus
Instructed
by: Theron & Theron Attorneys
[1]
Clause 19.1.4 of Mr Smit’s contract of employment defines
‘
Restricted Lead
Source
’ as ‘each
and every entity that continues to be, or has been in the last 12
(twelve) months prior to the Termination
Date, a business lead
source for Employer and/or the Group in regard to the Business
within the Territory, including, but not
limited to, any estate
agency, estate agent, attorney firm, auctioneer, aggregation
franchise that has received or in entitled
to receive remuneration
from the Employer or Group for the referral of business.’
[2]
Clause
19.1.5 defined ‘
Restricted
Party
’
as each and every entity with whom the Employee has interacted with,
in the course and scope of his/or her employment
and/or on behalf of
the Employer or the Group and all or any entities with which the
Employer or Group participates or proposes
to participate in a
Restricted Transaction, to the reasonable knowledge of the
Employee.’
While
clause 19.1.6 defines ‘
Restricted
Transaction’
as ‘any
business transaction or proposed transaction between the Employer of
the Group and any other entity in regard to
the Business within the
Territory, undertaken or under consideration as at or during the
preceding 12 (twelve) months of the
Termination Date including, but
not limited to, any transaction pursuant to which the Restricted
Party will participate in the
conduct of the Business with the
Employer and/or the Group, whether as a lead source or otherwise.’
[3]
[2015]
ZASCA 20
;
2015 (5) SA 426
(SCA) at paras 16 to 17.
[4]
Acacia
Mines Ltd v Boshoff
1958 (4) SA 330
(A) at 337D.
[5]
Proflour
(Pty) Ltd and Another v Grindrod Trading (Pty) Ltd t/a Atlas Trading
and Shipping and Another
[2010] 2 All SA 510
(KZD) at para 10.
[6]
See:
Christie, the Law of Contract in South Africa, 6
th
Edition,
p 554;
Labournet
(Pty) Ltd v Jankielsohn and
Another
[2017] ZALAC 7
at
para 39.
[7]
Labournet supra
at
para 41
; Experian South
Africa (Pty) Ltd v Haynes and Another [2012] (2013) 34 ILJ 529 (GSJ)
at paras 12 to 19; Basson
v Chilwan and Others
[1993] ZASCA 61
;
1993
(3) SA 742
(A) at 7761 I-J;
Aqatan
(Pty) Ltd and Aquatan (Pty) Ltd v Janse Van Vuuren and Another
[2017] ZALCJHB 141; (2017)
38 ILJ 2730;
Reddy v
Siemens Telecommunications (Pty) Ltd
2007
(2) SA 486
(SCA
); Ball v
Bambalela Bolts (Pty) Ltd and Another
(2013) 34 ILJ 2821 (LAC).
[8]
[1992]
ZASCA 204
;
1993 (1) SA 537
(A) at 542G-H.
[9]
See Experian South Africa
supra
at para 19; and
Reddy
supra
at
para 20.
[10]
Reddy supra
n 6 at para 22.