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[2019] ZALCJHB 5
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Apollo 21 Used Trucks and Spares (Pty) Ltd v Swart and Another (J4349/18) [2019] ZALCJHB 5 (8 January 2019)
IN
THE LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG
Not
Reportable
Case
no: J4349/18
In
the matter between:
APOLLO
21 USED TRUCKS AND SPARES (PTY)
LTD Applicant
And
MARIO
SWART First
Respondent
POWERTRAIN
TRUCK SPARES (PTY) LTD Second
Respondent
Heard:
12 December 2018
Delivered:
08 January
2019
Summary:
Restraint of trade
JUDGMENT
MABASO,
AJ
Introduction
[1]
The applicant is Apollo 21 Used Trucks and Spares (Pty) Ltd (the
applicant), the first respondent is Mario Swart (the employee),
and
the second respondent is Powertrain Truck Spares (Pty) Ltd (the
current employer). The applicant approached this court seeking
an
order in the following terms:
“
2. That the first
respondent be interdicted and restrained until 30 September 2019, and
within the area of the province of Gauteng:
2.1
from being directly or indirectly, personally or through any nominee,
engaged as proprietor, partner, member of the syndicate,
employee,
contractor, shareholder or director, financier, advisor,
representative, or howsoever in any firm, business, undertaking
or
company which carries on business in competition with the applicant
or any of its divisions or affiliates;
2.2
from acting as a representative, agent or advisor to or in any way to
assist in the trading or other activities of any firm,
business,
undertaking or company which carries on business in competition with
the applicant or any of its divisions or affiliates,
2.3
from performing any work of any firm, business, undertaking or
company which carries on business in competition with the applicant
or any of its divisions or affiliates;
2.4
from directly or indirectly, personally or through any nominee,
solicit orders, customs of business in competition to the business
of
the applicant or any of its divisions or affiliates;
2.5
fronting directly or indirectly, personally or through any nominee,
engaged as proprietor, partner, member of the syndicate
all employees
contractor shareholder or director financial adviser representative
or howsoever in any form business undertaking
or company which is a
client potential client or former client of the applicant or which
have approached the applicant for business
purposes of which have
been approved by the applicant for business purposes;
2.6
from acting as a preventative, agent or adviser to or in any way to
assist in the trading or other activities of any firm, business,
undertaking or company which is a client, potential client or former
client of the applicant or which have approached the applicant
for
business purposes for which have been approached by the applicant for
business purposes;
2.7
from performing any work for any firm, business, undertaking or
company which is a client, potential client or former client
of the
applicant or which have approached the applicant for business
purposes of which have been approved by the applicant for
business
purposes;
2.8
from directly or indirectly personally or through any nominee,
solicit orders, customs of business in competition to the business
of
the applicant or any of its departments from a client, potential
client or former client of the applicant or which have approached
the
applicant for business purposes of which have been approved by the
applicant for business purposes.
3. That the first
respondent be ordered to forthwith terminate his employment with the
second respondent,
4. That the first
respondent be interdicted and restrained from using or disclosing
diverging to any person or entity any confidential
information of the
applicant which information shall include but not limited to the
names of the principles agents are clients
of the applicant, the
contractual arrangements between the applicant and its principles,
clients, agents and or other parties,
the financial details of the
applicants relationship with its principles, clients, agents and or
other parties, discount structures,
the names of the clients of
prospective clients of the applicant and the requirements, know-how
ideas trade secrets, suppliers
principles customs and trade
connections of the applicant.”
[2]
Gleaning
from these prayers, there are three interrelated issues raised
herein, namely the confidentiality of information, the customer
connections, and competition. The applicant’s representative,
during argument, submitted that the issue is not about preventing
the
employee from using his skill/knowledge somewhere else. Under the
circumstances, I proceed to look at the issues by applying
the
applicable principles thereof. I must confess that in deciding issues
of this nature, which involves allegations of unlawful
competition,
it is not easy to separate the issue of unlawful competition from
what the applicant’s representative
says is not the issue
herein.
[1]
[3]
It is common cause that the applicant and the employee entered into a
restraint of trade agreement which governs such a relationship
during
and after the employment relationship. In matters like in
casu,
the following questions are yardsticks in determining whether or not
an existing restraint of trade agreement between parties is
unreasonable and contrary to public policy and therefore
unenforceable. The
onus
is on the employee who is resisting
the enforcement, taking into account that restraint of trade
agreements are valid and enforceable
unless they impose an
unreasonable restriction on the party’s freedom of trade:
“
(a) Does the one
party have an interest that deserves protection after termination of
the agreement?
(Question A)
(b) If so, is that
interest threatened by the other party?
(Question B)
(c) In that case, does
such interest weigh qualitatively and quantitatively against the
interest of the other party not to be economically
inactive and
unproductive? (
Question C)
(d) Is there an aspect of
public policy having nothing to do with the relationship between the
parties that requires that the restraint
be maintained or rejected?
Where the interest of the party sought to be restrained weighs more
than the interest to be protected
the restraint is unreasonable and
consequently unenforceable. The enquiry which is undertaken at the
time of enforcement covers
a wide field and includes the nature,
extent and duration of the restraint and factors peculiar to the
parties and their respective
bargaining powers and interests.
(
Question D )
A fifth question, implied
by question (c), which may be expressly added, viz whether the
restraint goes further than necessary to
protect the
interest.”
[2]
(
(Question
E)
Confidential
information
The
applicant’s assertions
[4]
Confidential
information falls under the description of protectable interest,
[3]
however, in order for the Court to determine as to whether or not
there is any confidential information, the party alleging such
has a
burden to show it, when it is in dispute. For information to be
confidential it must (a) be capable of application in trade
or
industry, that is, it must be useful; not be public knowledge and
property; (b) it must be known only to a restricted number
of people
or a closed circle, and (c) be of economic value to the person
seeking to protect it.
[4]
[5]
During argument, the applicant’s representative said the issue
is about unlawful competition as in its heads of argument
contends
that “
the applicant cannot and does not claim these clients
as exclusive clients, but that is not the point”.
The
applicant in paragraphs 40 to 45, and 49 of the founding affidavit
avers that: the employee had access to its database containing
names
of existing clients, names and contact details of contact persons at
a particular client, and the credit limit of the client.
This
information is confidential, and only salespersons employed by the
applicant, including the employee, had access to it. The
employee had
access to the statement enquiry of each and every active client on
the data base showing all transactions by the clients.
[6]
The
information on that system could easily be downloaded by a limited
number of people having access thereto and could be easily
stored on
a removable storage device or printed and stored in hard copy. The
employee in executing his duties was actively involved
in the
preparation of the quotes for the applicant’s clients
[5]
.
It further submitted that the employee also attended sales meetings
with management and other staff of the applicant where strategic
techniques relating to marketing, pricing structures, discount
structures and profit margins were discussed. Those clients who
were
targeted were discussed during these meetings.The applicant further
asserts that this information is not publicly known and
is only known
to a restricted number of persons including the employee.
[7]
This Court is advised that as a result of the employee’s
excellence in building relationships and maintaining same with
the
applicant’s clients, and the confidential information obtained
during his employ with the applicant, he is in a position
to
influence the clients decisions in respect of taking their business
from the applicant to a competitor, which in this case is
the second
respondent. It, therefore, avers that as a result of the existing
restraint of trade it is “
reasonably necessary for the
protection of the applicant’s legitimate and protectable
interests in the form of confidential
information and customer
connections.”
The
Respondents’ assertions
[8]
The employee does not deny that he excelled in building relationships
with the clients, but avers that such relationships were
established
when he was working for the new employer (back in 2009) before
joining the applicant. As examples, he mentioned Gecko
Gearbox &
Diff Repairs, and Gearbox Centre. In support of these, he attached
annexures MS1 and MS2 which are letters from both
these companies. As
the applicant has indicated that the clients are not its exclusive
clients. He denies taking with him any records
of the applicant and
downloading any information that belonged to the applicant (says he
did not even know that such information
could be downloaded).
[9]
The information that he is currently using belongs to the second
respondent's system and depends on the relationships that the
new
employer built over the years with the clients. In respect of
annexure FA3, says it is not the previous invoices and quotes,
and
according to him this is the first time viewing a document of this
nature which reflects payments and transfers however he
says the
system that he used while he was working for the applicant was
similar in format and did not contain any trade secrets
or intimate
information.
[10]
The
employee asserts that the applicant has failed to show that the
selling of truck spares is confidential or secretive, in that
the
cost price of all spares from all suppliers are not secret, as the
applicant and the second respondent have the same modus
and the
system will reflect the cost price and the lowest selling price the
sale representative is allowed to go to. In respect
of potential
clients and the target markets, he says this is publicly known. As
this is a motion application, I am compelled to
apply the
Plascon-Evans
rule as
summarised by Harms DP in
National
Director of Prosecutions v Zuma(Mbeki and another intervening)
[6]
where he said:
“
Motion
proceedings, unless concerned with interim relief, are all about the
resolution of legal issues based on common cause facts.
Unless the
circumstances are special, they cannot be used to resolve factual
issues because they are not designed to determine
probabilities. It
is well established under the Plascon-Evans rule that where in motion
proceedings disputes of fact arise on the
affidavits, a final order
can be granted only if the facts averred in the applicant’s (Mr
Zuma’s) affidavits, which
have been admitted by the respondent
(the NDPP), together with the facts alleged by the latter, justify
such order.”
[11]
The
applicant is asking for a final interdict, and the employee has not
placed before this Court a bare denial to the applicant’s
assertions but support such by documents, MS1 and MS2 mentioned in
paragraph 8 above. The applicant in the replying affidavit and
in its
heads of argument stated that the clients are not exclusive clients.
Further in respect of prospective clients, the respondents
say this
is public knowledge. Being guided by the
Plascon-Evans
rule I accept that the clients information herein cannot be
classified as confidential information. Further under the facts
and circumstances of this matter the employee did not , for the
first time as alluded by the applicant, built a connection
with those
clients to enable him to induce them to follow him to the new
employer.
[7]
I accept the
version of the employee in this issue that there is no customer
connection’s case that has been established.
[12]
However, in
respect of the applicant’s assertion that sales meetings,
attended by the employee with management and other staff
of the
applicant, in respect of its business techniques, marketing
strategies, and costs structures remain conclave, which aspect
is
dealt with in paragraphs 42
[8]
and 57
[9]
of the founding
affidavit, and the respondents in paragraphs 68 to 68.8 of the
answering do not seriously deny this particular
issue. The Supreme
Court of Appeal in
Zuma
(supra) continued in the same paragraph and said:
“
It may be
different if the respondent’s version consists of bald or
uncreditworthy denials, raises fictitious disputes of
fact, is
palpably implausible, far-fetched or so clearly untenable that the
court is justified in rejecting them merely on the
papers
.”
[10]
[13]
On this aspect, without any doubt, the applicants’ sales
meetings, attended by the employee with management and other
staff of
the applicant, in respect of its business techniques (such as
marketing strategies,) remain confidential information,
like in all
other businesses; therefore they cannot be regarded as public
knowledge. I, therefore, conclude that the applicant
has proved that
it has confidential information relating to business techniques and
marketing strategies, discussed during the
meetings, and that these
are protectable interests.
[14]
However, the findings in the preceding paragraph are not the end of
the inquiry as for to the second question to be determined
is whether
the protected interests of the applicant is “threatened”
by the employee working for the second respondent?
Put simply, can
the employment relationship between the employee and the current
employer be ordered to be terminated because the
applicant attended
meetings where these issues were discussed? In my view, when deciding
this question, sometimes questions C –
E are not avoidable. One
has to take into account that restraint of trade is a common law
principle and when courts apply them
they will have to take into
account that they must not encroach on the right to free trade and
security of employment. The
answer to this question is no. My
reasoning is thus: the second respondent is a business that is owned
by the employee’s
uncle, therefore it is a family business.
Whether or not the employee is employed by the second respondent
logic dictates that
if he has such information in his possession, it
could be easily transmitted to his uncle’s business, which is
the current
employer.
[15]
However, one has to look at the prayers (specifically prayer 4) in
the notice of motion. In this prayer, it is asked that such
trade
tools, which are protectable interests, should not be disclosed in
whatever manner. I note that there are no specific business
techniques and marketing strategies that have been detailed in the
affidavit. In asking the applicant to detail such information
would
be absurd taking into account
inter alia
that confidential
information is in discussion and the minute it is disclosed it loses
its sweetness, and further that it is not
disputed by the employee.
I, therefore, reject the employee’s contention that the
applicants’ case is entirely based
on mere conjecture but
conclude that the applicant should
partly
succeed in respect
of prayer 4.
Unlawful
competition
[16]
The applicant asserts that the employee excelled in building
relationships and maintaining a very good relationship with its
clients. As a result of the departure of the employee, the applicant
has appointed another salesperson in the employee’s
position,
and this Court is advised that he will have to rebuild and strengthen
the client relationships formed and/or maintained
by the employee.
Moreover, restraint places the applicant in the position to
maintain and strengthen the relationship with
its clients without
interference by the current employer
.
[17]
The applicant further asserts that after the resignation of
the employee one of its sales representatives visited one of the
clients
that were serviced by the employee, Biddulphs International,
and learned that the applicant had dropped off a catalogue of the new
employer and he had offered to open an account for this client with
the new employer. The applicant further contends that the employee
approached clients such as KL Engineering, Electronic Transmission
Services, Gecko Gearbox & Diff, Pro Gearbox & Diff and
Mohammed’s Hardware and asked that he be given an “
opportunity
to quote for them as he would provide them with a very competitive
prices.”
There are no confirmatory affidavits from such
clients, to confirm these allegations. In disputing these
allegations, the employee
says he did not approach Gecco Gearbox, but
it approached him. He attached customer sales trends held by the new
employer for Gecko
Gearbox, KL Engineering and Electronic
Transmission Services showing that these clients have been purchasing
spares from the second
respondent as far back as March 2017 while the
employee was still employed by the applicant.
[18]
The applicant further asserts that the
second respondent sold to KL Engineering a specialist part at a
lesser price after the employee
joined which resulted in it adjusting
its price. The employee in responding to this averment
inter
alia
says that the way this business
is run is that “
the client is
to obtain quotes from all the competitors and negotiate for a lower
price. This is how the industry runs and has been
and remains an open
industry”.
This part of the
evidence is not seriously disputed by the applicant.
[16]
In
Phumelela
Gaming and Leisure Ltd v Gründlingh and Others
[11]
,
Langa CJ said:
“
[32]
Fundamental to a determination of whether competition is unlawful is
the boni mores or reasonableness criterion. This is a
test for
wrongfulness which has evolved over the years…
The
Bill of Rights …also promotes and protects other freedoms,
notably in this case, the right to freedom of trade.
[12]
The
consequence of the right to freedom of trade is competition.
[34]
The question is whether, according to the legal convictions of the
community, the competition or the infringement on the goodwill
is
reasonable or fair when seen through the prism of the spirit, purport
and objects of the Bill of Rights. Several factors are
relevant and
must be taken into account and evaluated. These factors include the
honesty and fairness of the conduct involved,
the morals of the trade
sector involved, the protection that positive law already affords,
the importance of competition in our
economic system, the question
whether the parties are competitors, conventions with other countries
and the motive of the actor.”
[19]
In executing his duties, on behalf of
the new employer, the employee will be using his knowledge/skill
acquired at the time when
he was with the applicant, which I have to
admit is not easy to deduce such skill/knowledge from the
tricks/strategies acquired
at the time of employment with the former
employer, which is the applicant. As it was reiterated by the Labour
Appeal Court in
the matter of
Labournet
(supra) where it said:
“
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.”
[20]
Competition
is allowed in South Africa based on the provisions of the
constitution of the Republic of South Africa
[13]
.
All parties herein have acknowledged that there are competitors in
this industry. Taking into account the confirmation by the
applicant
that at the time the employee was employed by it, he was an excellent
employee, then obviously as is the nature of any
business, that when
you lose your best performer your business or your department where
he was working in would be affected. I
have also taken into account
the applicant’s assertion that the employee, using both his
capacity in building and maintaining
good relationships with the
clients and the alleged confidential information, could easily
convince the applicant’s clients
to move to the competitor.
Applying the principle, in the preceding paragraph, the applicant
cannot be prevented from doing that
in this nature of the business.
Moreover, the applicant does not claim exclusivity of the clients as
stated in paragraph 41 of
the heads of argument. The applicant
provided a plausible explanation in respect of the arranged price for
the sale of Voith retarder
seal kit when he says clients obtain
quotations from all competitors and negotiate for a lower price. The
applicant has to allow
the consequences of competitions herein, and
preventing the employee from working for the new employer will be
unreasonable under
the circumstances. I am of the view that there is
no unlawful competition herein.
[21]
In respect of costs, I am of the view that fairness calls for each
party to pay its own costs.
[22]
Wherefore the following order is made:
Order
1. The application is
heard as urgent;
2. The first respondent
is interdicted and restrained from disclosing to any person or entity
any confidential information relating
to business techniques, and
marketing strategies of the applicant, which such information was
acquired during strategic meetings
of the applicant;
3. The remaining prayers
of the notice of motion are dismissed;
4. There is no order as
to costs.
_______________________
S
Mabaso
Acting Judge of the
Labour Court of South Africa
Appearances
For
the Applicants: Adv R Grundlingh
Instructed
by
: Bester & Rhoodie Attorneys
For
the Respondent: Adv Naidoo
Instructed
by : Nishlan Moodley Attorneys
[1]
"I am not the first nor will I be the last to lament upon the
difficulty of determining the dividing line between lawful
and
unlawful interference with that of another” (
Atlas
Organic Fertilizers (Pty) Ltd v Pikkewyn Ghwano (Pty) Ltd &
others
1981 (2) SA 173
(T)).
[2]
Reddy v
Siemens Telecommunications (Pty) Ltd
2007 (2) SA 486
(SCA), at paras 16 and 17.
[3]
Den
Braven S.A. (Pty) Limited v Pillay and Another
[2008] 3 All SA 518 (D).
[4]
Walter McNaughton (Pty) Ltd v Schwartz & Others
2004 (3) SA 381
(C) at 390 C-D.
[5]
See Annexure FA3.
[6]
[2009] 2 All SA 243
(SCA) at para 26.
[7]
Id fn 3.
[8]
Founding affidavit.
[9]
Replying affidavit.
[10]
Court’s emphasis.
[11]
[2006] ZACC 6
;
2006 (8) BCLR 883
(CC) at para 32.
[12]
See:
Labournet
(Pty) Ltd v Jankielsohn & another
(2017) 38 ILJ 1302 (LAC) at para 39.
[13]
Act 108 of 1996.