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[1991] ZASCA 134
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Botha and Another v Carapax Shadeports (Pty) Ltd. (560/1989) [1991] ZASCA 134; 1992 (1) SA 202 (AD); [1992] 3 All SA 768 (AD) (27 September 1991)
LL
Case No 560/1989
IN THE SUPREME COURT OF SOUTH AFRICA APPELLATE DIVISION
In the matter between:
CHRISTIAAN JOHANNES BOTHA
First Appellant
HEINZ-BERNHARD WOLTERS
Second Appellant
and
CARAPAX SHADEPORTS (PTY) LIMITED
Respondent
CORAM: BOTHA, SMALBERGER, MILNE, F H GROSSKOPF JJA et KRIEGLER AJA
HEARD
: 15 AUGUST 1991
DELIVERED
: 27 SEPTEMBER 1991
JUDGMENT
BOTHA JA
:-
2.
The two appellants were formerly employed as sales representatives by a close
corporation, Carapax Shadeports CC, to which I shall
refer as "Carapax CC". In
terms of their written contracts of employment the appellants bound themselves
to Carapax CC not to become
involved in trading in competition with the business
of Carapax CC within a certain area for a period of one year after termination
of their services. During the latter part of 1988 Carapax CC ceased to carry on
business. Its business was acquired and taken over
by the respondent in this
appeal, and the employment of the appellants in the business came to an end, in
cir-cumstances to be mentioned
presently. The appellants thereupon joined forces
and set up their own business, within the area of the restraint, in competition
with the business of the respondent. This caused the respondent to apply on
notice of motion in the Transvaal Provincial Division
for orders enforcing
against the appellants the restraint provisions
3. contained in their
contracts with Carapax CC. The appellants opposed the application. The matter
was heard by DE KLERK. J. He granted
the respondent the relief it sought, with
costs, and thereafter dismissed an application by the appellants for leave to
appeal. In
conseguence of a petition addressed to the CHIEF JUSTICE, the
appellants were granted leave to appeal to this Court. The costs of
the two
applications for leave to appeal were reserved for decision by this Court.
Carapax CC carried on business as a manufac-turer and marketer of shadeports
and hailnet steel structures. The employment of the first
appellant in the sales
division of Carapax CC commenced in August 1986, and that of the second
appellant in June 1987. In May 1988
the appellants and Carapax CC entered into
written contracts of employment, the terms of which are identical. In each,
Carapax CC
is referred to as "the employer" and the appellants severally as
"the
4. employee". Each contract records,
inter alia
, that the
employer engages the employee, who agrees to serve the employer, in "sales
capacity"; that the employee shall duly and
faithfully perform all duties
reasonably assigned to him by the employer; that the employee shall devote all
his time and attention
during normal business hours to the business and affairs
of the employer; that the employee shall use his best endeavours to properly
conduct, promote and protect the business interests of the employer, to preserve
its reputation and goodwill; that the employment
of the employee shall continue
for an indefinite period, subject to not less than one calêndar month's
written notice being
given by one party to the other; and that the employee
shall be entitled to receive from the employer, in consideration of the services
to be performed by him, "commissions only".
Paragraphs 7 and 8 of each contract read as follows:
5.
"7. 7.1 The EMPLOYEE undertakes in favour of the EMPLOYER, that he will not,
either alone or together with [or] as agent for any
other person, firm, company
or association what-soever: -
7.1.1 carry on; or
7.1.2
be interested in any way, as a Director, Proprietor, Partner,
Shareholder, Financier, Advisor, Consultant or otherwise, in;
or
7.1.3 be engaged in; or
7.1.4
grant financial assistance or Loans of money
to;
any business which anywhere within the area known as the PRETORIA,
WITWATERS-RAND AND VEREENIGING (PWV) [area] conducts a business
in competition
with that of the EMPLOYER'S business.
7.2 The undertaking in sub-paragraph 7.1 (above) shall endure for a period of
ONE (1 ) year after the EMPLOYEES termination of employ-ment.
7.3 Each of the undertakings and restraints in sub-paragraph 7.1 (above), shall
be regarded as distinct and severable
convenances,
8. 8.1 The EMPLOYEE acknowledges that the restraints detailed above are fair and
reasonable; 8.2 It is recorded in this context,
that the EMPLOYER was the
founder of the said BUSINESS and that competition from the EMPLOYEE would
inevitably affect the said
6.
BUSINESS; ........"
The validity of the restraints, as such, is not in issue. Nor is it in issue
that the appellants' setting up and running of their
own business constituted an
infringement, ih a factual sense, of the terms of the restraints. It is common
cause that Carapax CC
would have been entitled to enforce the restraints against
the appellants, if it had not disposed of its business to the respondent;
and it
is common cause that, if the respondent were entitled to enforce the restraints,
the terms of the orders granted by the Court
a guo
are unobjectionable.
Accordingly, there is no need to recite the facts bearing upon the
reasonableness of the restraints, nor to
cite the orders issued
a
quo
.
The main issue in the appeal is whether the benefit of the restraints was
transmitted from Carapax CC to the respondent. In the latter's
founding
7.
affidavit, filed in support of its notice of motion, a number of grounds were
advanced for the contention that the respondent had
locus standi
to
enforce the restraints. Some of them resulted in disputes of fact arising on the
papers, e g as to whether the appellants knew
of the take-over of the business
by the respondent and whether they thereafter by their conduct entered into new
contracts of employment
with the respondent, on . the same terms as those
contained in their contracts with Carapax CC. In the view I take of the appeal,
it is not necessary to traverse the facts in any detail. In my judgment, the
appeal falls to be decided on a fairly narrow footing,
and for that purpose the
relevant facts can be stated briefly.
The respondent is a subsidiary of a company to which I shall refer as
"Alnet". Alnet, which is a member of the Rentmeester/Rentbel
group of companies,
was one of the largest suppliers of materials for the business of Carapax CC.
During the middle of 1988
8.
Alnet expressed an interest in taking over that business. In the negotiations
that ensued, it appeared that Alnet did not regard the
close corporation as a
suitable vehicle through which to acquire the business. A new company was
required to be formed for the purpose.
It was agreed that Carapax CC would
change its name and that the new company would take over the words "Carapax
Shadeports" in its
name. On 21 September 1988 a deed of sale was entered into
between Alnet, Carapax CC, and the latter's two members, Messrs Shaw and
Minnitt. Clause 2 of the deed of sale provides as follows:
"2.1 In this agreement unless inconsistent with or otherwise indicated by the
context -
2.1.1
2.1.6 'the Business' shall mean the whole of the business carried on by
Carapax Shadeports CC until the Effective Date under its name
and style at the
Premises;
2.1.10 'the Effective Date' shall mean 31 August 1988 notwithstanding.
the
9.
Date of Signature hereof;
2.1.18 'the Purchaser' shall mean Alnet in its capacity as a trustee for a
company to be formed or the company once it has been formed;
2.1.20 'the Seller(s)' shall mean Carapax
Shadeports CC, Shaw and Minnitt
collectively; ........."
Clause 3 of the deed of sale bears the heading "SALE".
It provides as follows:
"3. The Seller hereby sells to the Purchaser who hereby purchases the Business
as a going concern and as one indivisible transaction
with effect from the
Effective Date subject to the terms and conditions of this
agreement."
Clause 4 relates to the
purchase price. The stated
price is recorded to be "allocated" in three parts;
one for the trade
marks, another for the net asset
value of the business, and the remaining one "for the
goodwill of the Business". (In the copy of the deed of
sale which was placed before the Court
a quo
the
figures of the purchase price and each of its three
10.
constituent parts were obliterated, the explanation being that they were
confidential to the parties to the agreement.)
In short., Alnet, acting as
trustee for a company to be formed, purchased from Carapax CC its business as a
going concern, together
with the goodwill.
The respondent was incorporated on
4 November 1988. Thereafter its directors passed a resolution ratifying and
confirming the agreement
of 21 September 1988. It is common cause that the
contract of 21 September 1988 stipulated a benefit for a third party, that the
respondent was that third party, that it effectively accepted the benefit
conferred upon it, and that it accordingly stepped into
the shoes of Alnet as
the purchaser of the business and its goodwill. In what follows I shall, for
convenience, omit reference to
the intermediate step of Alnet's acquisition of
the business as trustee, and refer simply to the
11.
respondent's acquisition as if it had been direct.
After the effective
date mentioned in the deed of sale (31 August 1988) Shaw and Minnitt carried on
with the business, and they continued
to do so after the respondent's
incorporation on 4 November 1988; as from the latter date, they were in control
of the business as
managers employed by the respondent. There was thus no
interruption in the conduct of the business. As between Carapax CC and the
respondent it was contemplated that the employees of the former would continue
their employment with the latter. As a matter of fact,
in an annexure to the
deed of sale of 21 September 1988, Carapax CC warranted,
inter alia
, that
its contracts with its employees were of full force and effect according to
their terms, and it was recorded that copies of
the contracts which were written
had been handed to the purchaser. As far as the appellants are concerned, they
continued working
as salesmen in the business during the process of the
take-over. They
12.
allege that they were under the impression that the take-over would occur at
a later date. They were told by Shaw and Minnitt that
when once the business was
transferred to the new owner, their terms and condi-tions of employment would be
altered,
inter alia
in respect of the basis of their remuneration by way
of commission. They were dissatisfied with this prospect, and decided to leave.
The first to go was the second appellant. In November 1988 there was a
discussion between Shaw, Minnitt and the appellants, during
which the second
appellant was told to leave immediately. He agreed to do so, but insisted that
he would take all his customer quotations
with him. A dispute ensued, which was
resolved by means of a written agreement drawn up and signed by the parties. (I
shall refer
to this again later.) The second appellant then left the business.
The first appellant agreed to stay on until February 1989, when,
by agreement
with Shaw and Minnitt, his association with the business was
13.
terminated. Thereafter the appellants commenced their
joint enterprise in
competition with the respondent.
So much for the facts. The gist of the
reasoning which led DE KLERK J in the Court
a quo
to
grant the
respondent's application, is reflected in the
following excerpts from his
judgment:
"Applicant submits that as a matter of law the benefit of the covenant in
restraint of trade passed to the purchaser of the business
(applicant) as part
of the goodwill when applicant bought the business."
"I agree with this principle. In my view a covenant for the restraint of trade
forms part of the goodwill, part of the assets of
the business irrespective of
whether the business is conducted by a company or by an individual and this
asset passes with the goodwill
when the business is sold."
"The Deed of Sale by virtue of which the business and the goodwill of the Closed
Corporation were sold clearly ceded to the purchaser,
that is the applicant, the
rights the Closed Corporation had in the restraint agreements and the restraint
agreements were not personal
to the Closed
Corporation."
In this Court counsel
for the appellants
14. challenged the correctness of this reasoning on a threefold basis,
submitting (1) that the benefit of the restraints could not
have been
transferred from Carapax CC to the respondent as a matter of law, since there
was no legal principle to such effect; (2)
that, as a matter of fact, there was
no cession to the respondent of the right of Carapax CC to enforce the
restraints, since the
evidence ' did not disclose such a cession; and (3) that,
in any event, even if the evidence did reveal a cession, it was invalid
and
ineffective as against the appellants, since their consent to it was necessary
and such consent was not proved in evidence.
I shall deal with the first two submissions together. In argument we were
referred to only two South African reported cases which
are more or less
directly in point:
Coetzee v Eloff
1923 EDL 113
and
Protea Holdings
Ltd and Another v Herzberg and Another
1982 (4) SA 773
(C). In
Coetzee v
Eloff supra
the plaintiff and the defendant had entered into a
contract
15. in terms of which the defendant undertook not to carry on the
trade of a blacksmith within a certain municipality during such
time as the
plaintiff or any of his successors in business might be carrying on the trade in
that town. (It does not appear from
the judgment under what circumstances the
undertaking was given, but it may be assumed, I think, that the defendant had
sold the
blacksmith's business to the plaintiff.) Thereafter the plaintiff in
terms of a verbal agreement sold the business and its goodwill
to a third party,
who carried on the trade. The plaintiff, alleging that the defendant was
carrying on trade in breach of his undertaking,
sued him in a magistrate's court
for payment of damages alleged to have been suffered by the third party, and for
which the latter
was holding the plaintiff liable. The magistrate found for the
defendant. An appeal against his decision was dismissed. The Court
held that the
benefit of the defendant's undertaking was included in
16.
the goodwill of the business and that it had passed to
the third party,
who was entitled to sue on it. For
this conclusion reliance was placed on two
English
cases,
Jacoby v Whitmore
(1883) 49 LT 335
and
Townsend
v Jarman
(1900) 2 Ch 698.
It was held, further,
that,
as no particular form of words were required for the
purpose of
effecting "a complete cession of action",
nor that it should be in
writing,
"the verbal sale of the goodwill in this case was quite sufficient, therefore,
to effect such cession."
In the result it was held
that the plaintiff's right to
sue was extinguished and that he had no cause of action
against the
defendant.
In the
Protea Holdings
case
supra
FRIEDMAN J
said (at 787G) that it was clear that
"the benefit of a covenant in restraint of trade can pass to the purchaser of a
business as part of the goodwill of that
business",
citing
Coetzee v Eloff supra
and
Townsend v Jarman
supra
. However, on the peculiar facts of that case it
17.
was held that the transaction between the two parties
concerned had not brought about a passing of the goodwill, in fact, and that
therefore it could not be, contended that the right to enforce the restraint
clause had been transferred from the one party to the
other, as a concomitant of
the goodwill.
I turn to the English cases mentioned above. In
Jacoby v
Whitmore supra
one Cheek, described as "an oil colour man and Italian
warehouseman", had employed Whitmore as a shopman, in terms of an agreement
in
which Whitmore undertook not to carry on a similar business within a mile of
Cheek's shop. Whitmore left Cheek's employ and Cheek
sold his business to
Jacoby, assigning to him the "beneficial interest and goodwill" in the business.
Whitmore set up his own business
within a mile of the premises that Jacoby had
taken over from Cheek. The Court of Appeal held that Jacoby was entitled to an
injunction
against Whitmore. BRETT
18.
MR said (at 337):
"He [Cheek] sold to Jacoby the 'beneficial interest and goodwill' of the
business, and as the cases I have referred to decide that
such a contract adds
to the goodwill, under
the word 'goodwill' alone in this assignment the benefit of the agreement with
Whitmore would, in my opinion, pass."
COTTON LJ said
(at 338):
"Although the assigns of the covenantee are not mentioned in the agreement, the
covenantor has a property in the goodwill, and we
must consider what was
necessary for his protection at the time when the contract with Whitmore was
entered into. These covenants
are essentially assignable, for protection to the
goodwill is required after it has been sold. Another question is, Has the
goodwill
been assigned? The object of the agreement was to keep to the business
the customers who traded at Cheek's shop. The benefit derived
from so keeping
the customers was. a benef icial interest, if it was not part of the goodwill,
though I feel no doubt that it was
part of the goodwill. Therefore I amof
opinion that the covenant was in fact
assigned."
In
Townsend v Jarman
supra
the defendant had
taken the plaintiff into partnership in an established
business, under an agreement in terms of which the
19.
plaintiff was restrained from carrying on a similar
business after the
dissolution of the partnership.
Some years later the parties sold and
assigned their
beneficial interest and goodwill in the business to
a
company. Thereafter the company was wound up and the
goodwill of the
business was sold and assigned to the
plaintiff. In an action by the
plaintiff against the
defendant (for relief which need not be referred
to
here), the defendant put up a counter-claim for an
injunction restraining the plaintiff from carrying on
the business, contending that the benefit of the
covenant in restraint of
trade did not pass to the
company on its purchase of the partnership business, as
it was merely a covenant between the partners and not a
portion of the partnership business. FARWELL J
rejected the contention as fallacious, and went on to
reason as follows (at 703-704):
"The defendant, therefore, cannot success-fully assert that this was a covenant
in gross not incident to the
business.
20.
Moreover, it plainly increased the value of the business in the hands of an
assignee, and the defendant in terms assigned the whole
of the goodwill to the
company. The defendant, therefore, is in this dilemma: if it is a covenant in
gross, it is void; if it is
not, the benefit of it is not vested in him, but in
his assignees. Test it in this way. Suppose the plaintiff had gone out of the
partnership so that the defendant was entitled to enforce the covenant against
him, and the defendant had then sold the goodwill
to the company, could it have
been contended that the company had not got the benefit of this covenant? The
point would have been
hopelessly unarguable. The benefit of the covenant,
therefore, passed as incident to the goodwill, not only for the reason I have
suggested., but also for the reason given in the case of
Jacoby v.
Whitmore
. . . , namely that the covenant was for the benefit of the
business. ... The foundation of that decision was that the covenant added
to the
value of the goodwill, and the inf erence, therefore, was irresistible that in
conveying the goodwill the grantor intended
to convey and the grantee to obtain
the whole of the benefit and protection of everything incident or beneficial to
the goodwill.
... That an assignment of the goodwill passes the benefit of such
a covenant is plain from
Jacoby v. Whitmore
. ... I therefore hold that
the benefit of the covenant was one of the incidents of the goodwill, and that
it was conveyed by the
defendant to the company, and by them to the
plaintiff."
21.
The effect of these two cases was summarised
by FARWELL LJ in
Henry Leetham & Sons Limited
v
Johnstone-White
(1907) 1 Ch 322
(CA) at 327 as follows:
"It seems to me to follow from the decision of the Court of Appeal in
Jacoby
v Whitmore
..., applied by me in
Townsend v Jarman
..., that on the
sale of a business with a goodwill, although nothing more is said, the benefit
of the restrictive covenant passes
with the business, because it is not for the
benefit of the individual, but it is for the benefit of the
business."
The.notion that the benefit
of a covenant in
restraint of trade forms part of the goodwill of a
business would seem to be well established in English
law. It may, perhaps, be explored a little further, in
the context of the concept of goodwill generally. The
nature of goodwill is most frequently described with
reference to the attributes of a business which are apt
to promote its trade. So, in
Jacobs v Minister of
Agriculture
1972 (4) SA 608
(W) COLMAN J said (at 621A-
B):
"... goodwill is an intangible asset
22.
pertaining to an established and profitable business, for which a purchaser of
the business may be expected to pay, because it is
an asset which generates, or
helps to generate, turnover and, consequently,
profits."
(See also
Slims (Pty) Ltd and Another v
Morris NO
1988
(1) SA 715 (A) at 727H-I). In
The Commissioners of
Inland
Revenue v Muller & Co's Margarine Ltd
1901 AC
217
(HL) at 224 LORD
MACNAGHTEN said of goodwill,
succinctly:
"It is the attractive force which brings in
custom."
But, as he went on to say,
"Goodwill is composed of a variety of elements."
It
differs in its composition, according to the
circumstances of any particular
case. The seller of a
business who does not put himself under a restraint
of
trade may not solicit old customers of the business,
but he is free to
enter into trade in competition with
the purchaser of the business (
A Becker & Co (Pty) Ltd
23.
v Becker and Others
1981 (3) SA 406
(A) at 414H and
417C-419A).
Such competition will usually be detri-
mental to the business. Conversely,
an undertaking by
the seller not to enter into competition will enhance
the value of the business. The same considerations
apply to the case of an
employee of the business. It
follows logically, therefore, that a restraint of trade
against a seller
or an employee should be regarded as a
part of the goodwill of the business. This was indeed
expressly recognized to be the case in the speech of
LORD LINDLEY in
The Commissioners of Inland Revenue v
Muller & Co's Margarine Ltd supra
at 235:
"Goodwill regarded as property has no meaning except in connection with some
trade, business, or calling. In that connection I understand
the word to include
whatever adds value to a business by reason of situation, name and reputation,
introduction to old
customers, and
agreed
absence
from
competition
,
or any of these things, and
there may be others which do not occur to
me."
(My emphasis.)
24.
And in
Jacoby v Whitmore supra
BRETT MR observed (at
337):
"It has been said that such an agreement does
not add to the value of the
goodwill, because
it does not bring fresh customers,
but
it
prevents them from beinq taken away
."
(My
emphasis.)
(See also
Townsend v Jarman supra
at 703.)
The view reflected in the cases discussed above may be paraphrased as
follows: the benefit of an agreement in restraint of trade,
which exists for the
advantage of a business, passes to the purchaser of that business and its
goodwill, as part of the goodwill.
In my judgment, that view, as a general
proposition, has everything to commend itself, and we should approve of it. It
is, I consider,
in consonance with the common understanding of what goodwill
comprises, and with the exigencies of modern commerce. It is also in
harmony
with the principles of our law, subject to the observations which follow.
25.
It is necessary to examine the view stated
above a little more closely, in order to identify its
legal and factual
implications. In the case of
Slims
(Pty) Ltd and Another v Morris NO supra
CORBETT JA said
of a "business" that it is "a somewhat amorphous
concept" (at 740 A/B), and NICHOLAS AJA said (at 727E):
"The components of the
merx
in a sale of a business are to be ascertained
from the contract of sale".
These remarks apply
equally to the goodwill of a
business, and to the sale of the goodwill. What
is
comprised in the sale of the goodwill of a business in
a particular case
is essentially a question of fact,
not law. There is no fixed or invariable rule by which
the benefit of an agreement in restraint of trade
passes to the purchaser of the goodwill of a business.
For instance, such an agreement may in terms confer a
purely personal benefit on the owner of the business
only; in such a case, the benefit of it does not enure
to the advantage of the business, it is not part of the
26.
goodwill, and it will not pass to the purchaser. An
example of such a case
is to be found in
Davie
s v
Davies
(1887) 36 Ch 359
(CA). There
an agreement
restrained a retiring partner from trading "in any way
so as to either directly or indirectly affect" the two
remaining partners
(referred to in the quotation below
as "the father" and "the half-brother").
In his
judgment COTTON LJ mentioned that counsel had referred
to
Jacob
y
v Whitmore supra
, and went on to say (at
388):
"... but in my opinion there is one great objection to enforcing this covenant,
that I do not think it is a covenant the benefit
of which would pass with the
goodwill to the purchasers, the company. The case to which he ref erred was a
case where there was a
contract not to trade within certain limits. That was
evidently a covenant in order to protect the business and the goodwill of it,
and therefore it was one which would pass with the goodwill to a purchaser of
the goodwill; but there is no such absolute covenant
here, and, to my mind, it
is a covenant which points to the personal benefit of the father and of the
half-brother rather than to
any protection of the
goodwill."
27.
In Heydon
The Restraint of Trade Doctrine
at 200-201 we
find the
following comment:
"Since a covenant protecting goodwill is normally for the benefit of the
business rather than its current owner, it can be freely
assigned, and will pass
to assignees inter vivos and personal representatives whether they are mentioned
or not, and whether the
assignment is of the whole business or only part of it.
These are the general rules; they give way to the contrary intention of the
parties. But there is a presumption of assignability, for to construe goodwill
covenants as personal only 'is to deprive them of
much, if not most, of their
value. The seller expects a better price, and the buyer is willing to pay a
better price, than the business
would command without it. But the business, when
once purchased, is worth on the market only what the owner can reasonably hope
to
sell it for, and if he cannot sell it, without destroying its protection
against cpmpetition Sy the man who created and built it
up, he is quite sure to
suffer loss.' Examples of the parties expressly indicating a different intention
are agreements not to compete
while the buyer owns the business, or not to
compete 'in opposition to Robert F. Shaw, Jr.,' or, by a retiring partner, not
to act
so as to 'affect the continuing
partners.'"
In practice a purely personal restraint
will no doubt
be the exception, not the rule. Ordinarily a
28.
restraint of trade agreement is entered into for
the
benefit of the business. In such a case the benefit of
it is
incidental to the business, and part of its
goodwill. As such the benefit
will ordinarily pass to
the purchaser of the goodwill, that is to say, if
no
contrary intention of the parties appears, and all
other things being
equal. Ultimately, what one is
dealing with here, is an inference of fact as
to the
intention of the parties. Hence the observation of
FARWELL J in
Townsend v Jarman supra
, in the passage
quoted above, that:
"... the inference ... was irresistible that in conveying the goodwill the
grantor-intended to convey and the grantee to obtain the
whole of the benefit
and protection of everything incident or beneficial to the
goodwill."
If it appears, then, on the
facts, that the
benefit of a restraint agreement forms part of the
goodwill of a business which is sold, and is thus
intended to pass to the purchaser, how, in the eyes of
29.
the law, is that benefit transferred to the purchaser? What I have been
referring to as "the benefit" of an agreement in restraint
of trade, pertaining
to a business, is, in the eyes of the law, the contractual right to enforce the
restraint. It vests in the owner
of the business. He is the creditor in respect
of it. When he sells the goodwill of the business, the
merx
embraces that
contractual right. We have, therefore, a sale of the contractual right, or
claim. In our law, the transfer of a contractual
right, or claim, by the
creditor to another person takes place by means of a cession of the right. In
Johnson v Incorporated General Insurances Ltd
1983 (1) SA 318
(A) at
331G-H JOUBERT JA referred to the two elements involved in a cession of a right
as the "agreement of transfer" and the "obligatory
agreement" (the latter may
also be referred to as the "obligationary agreement" - see Scott
The Law of
Cession
(2nd ed) at 59 note 1). Applying that terminology to the situation
now being
30. discussed, the obligatory agreement is the sale of the
goodwill, including as it does the contractual right, while the transfer
agreement by which the right is
conveyed to the purchaser, is constituted by
the delivery by the seller, and the acceptance by the purchaser, of the physical
possession
of the business, pursuant to the sale. The incorporeal assets
comprising the goodwill are incidental to the business itself and they
are
transferred together, in the intendment of the law. In the context of a
situation like the one now under discussion, and in accordance
with modern
trends of thought, I am convinced that nothing more is required by law to render
the cession effective as between cedent
and cessionary, whatever theories may be
advanced in other contexts (
pac
e Scott
op cit
at 27-44). On the
other hand, the remark in
Coetzee v Eloff supra
, quoted earlier, that the
sale of the goodwill was "guite sufficient ... to effect such cession", should
be read subject to what
has been said
31 .
above.
It remains to apply the views set forth above to the facts of the
present case. Doing that, the results are (I hope) self-evident.
The restraints
imposed on the appellants by clauses 7 and 8 of their contracts of employment
were clearly agreed upon for the benefit
of the business of Carapax CC. They
were incidental to that business and formed part of its goodwill. The
contractual right to enforce
them, which vested in Carapax CC, was sold to the
respondent, as part of the goodwill. The cession of the right was effected
together
with the delivery of the business by Carapax CC to the respondent,
pursuant to the sale. The benefit of the restraints passed from
Carapax CC to
the respondent, as a matter of fact, since the evidence shows that there was an
effective cession of the right by Carapax
CC to the respondent, in accordance
with the requirements of the law.
32.
That disposes of the first two submissions of counsel for the appellants.
Before I turn to the third one, there is a further aspect
of the matter to which
I should refer briefly, for the sake of completeness. As was mentioned earlier,
the appellants allege that
they were told that their conditions of employment
would change when the business was transferred to its new owner, and that this
was unacceptable to them. In November 1988 the second appellant was told by
those in control of the business that he should leave
his employment
immediately, which he did. On this basis the point was made in the written heads
of argument for the appellants that
Carapax CC had repudiated its obligations
under the contracts of employment, that the appellants had accepted the
repudiation, and
that the restraints were accordingly not enforceable against
them. The response in the written heads of argument for the respondent
was a
contention that the facts relating to the alleged repudiation and the
acceptance
33.
of it were irrelevant. For this contention reliance was placed on the
decision in
Capecan (Pty) Ltd T/A Canon Western Cape v Van Nimweqen and
Another
1988 (2) SA 454
(C), a case which concerned the enforcement of an
agreement in restraint of trade against an employee, following upon the latter's
unlawful dismissal. In argument before this Court there was some debate about
the correctness or otherwise of the reasoning in the
judgment in that case.
However, in the course of the argument counsel for the appellants informed us
that he could not pursue the
contention that, on the facts, there had been a
repudiation of the employer's obligations, or that the appellants' employment
had
been unlawfully terminated. Counsel's attitude was right. The evidence on
record shows that the appellants' contracts were terminated
by mutual agreement.
They are, therefore, in the same position as if their contracts had been
terminated on ohe month's notice, as
provided for. Accordingly I
34.
expressly refrain from expressing any view on the correctness of the decision
in the
Capecan
case
supra
.
The third submission advanced by
counsel for the appellants was that the right to enforce the restraints could
not validly be ceded
without the consent of the appellants. Although counsel
spent some time in developing the submission, I propose to dispose of it
briefly. The thrust of the argument was that the contracts of employment were so
personal in nature that they involved an element
of
delectus personae
. It
was said that one must have regard not only to the nature of the services that
the appellants were obliged to render, as set
forth in the contracts, but to the
whole of the relationship between the employer and the employees. For instance,
counsel said,
the employees could expect that their conditions of employment
with Carapax CC would not be changed to their detriment; they could
expect that
their beneficial remuneration by way of commissions would not be replaced by a
less
35. advantageous salary; that their entitlement to leave would not be
curtailed; that, in the ordinary course of events, their contracts
would not be
terminated on notice; and so forth. All these expectations, counsel urged, would
be dashed if Carapax CC were entitled
to cede its rights under the contracts to
a stranger, without the appellants' consent.
In my view the argument is
untenable, in the face of the recent . decision of this Court in
Densam (Pty)
Ltd v Cywilnat (Pty) Ltd
[1990] ZASCA 120
;
1991 (1) SA 100
(A). What was said there, at
112A-113I, may be paraphrased briefly as follows: for the purpose of deciding
whether a debtor's consent
is required to a cession of the creditor's right
against him, regard must be had to the debtor's obligation which is the
counterpart
of the right in question, in order to assess whether it would make a
difference to the debtor if the right is enforced against him
by the cessionary,
in place of the cedent. In the present case, the obligation of the
36.
appellants with which we are concerned, is the obligation not to trade in the
manner specified in the restraint clauses, an obligation
which comes into
operation after the termination of the contracts of employment. It can make no
difference at all to the appellants
whether the right to enforce compliance with
that obligation is exercised by the cedent, Carapax CC, or the cessionary, the
respondent.
Counsel's submission is rejected.
Finally, it remains to deal with a subsidiary argument raised by counsel for
the appellants. It relates to written agreements entered
into by each of the
appellants at the time when they left their employment, with Shaw and Minnitt.
(According to the latter, they
were acting at the time on behalf of the
respondent, which is borne out by the fact that the respondent is named in the
agreements
as the other party to them; the appellants say that they did not
notice that and that they thought they were dealing
37. with Carapax CC; but there is no need to pursue this aspect of the
matter.) I mentioned earlier that, when the second appellant
left in November
1988, he
threatened to take his customer quotations with him,
and that the ensuing
dispute was resolved by means of
an agreement. In terms of the agreement, the
second
appellant relinquished "all benefits and rights to
quotations written by
himself but not signed by
client", in consideration of which he was paid
R10 000,00. The agreement
then records that the second
appellant:
"agrees that existing quoted clients cannot be approached by himself for a
period ending 30/6/89."
The first appellant entered
into a similarly worded
agreement when he left in February 1989.
The argument for the appellants was that
these agreements operated as a novation of the
restraint provisions contained in the contracts of
employment. In my view the argument is not open to the
38.
appellants. There is no hint whatever in their affidavits, filed in
opposition to the application, that they would seek to rely on
a defence of
novation;
the agreements were not referred to in that context at all. The
respondent was not alerted to such a defence and it cannot be surmised
that, had
it been so alerted, it would not have been able to put forward relevant evidence
to controvert the defence. But, in any
event, on the papers as they stand I am
satisfied that the argument based on novation is without merit. It is not enough
that the
provisions of the agreements to some extent overlap the provisions of
the restraint clause. At the time when the parties entered
into the agreements
there was a specific dispute relating to the appropriation of customer
quotations which required to be resolved,
quite apart from- the general
restraints. For novation, it must be shown that the parties intended to
extinguish the existing obligations
arising out of the restraint provisions in
the contracts of
39.
employment. It is impossible to find for the appellants on that score.
The appeal is dismissed, with costs.
Such costs include
-
(a) the costs flowing from the employment of
two counsel in the appeal;
(b) the costs of the application for leave
to appeal in the Court
a
quo
; and
(c) the costs of the application to this
Court for leave to
appeal.
A.S. BOTHA JA
SMALBERGER JA
MILNE JA
CONCUR
F H GROSSKOPF JA
KRIEGLER AJA