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[1992] ZASCA 204
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Rawlins and Another v Caravantruck (Pty) Ltd. (256/91) [1992] ZASCA 204; 1993 (1) SA 537 (AD); [1993] 1 All SA 389 (A) (24 November 1992)
/CCC
CASE NO 256/91
IN THE SUPREME COURT OF SOUTH AFRICA (APPELLATE DIVISION)
In the
matter between:
NEVILLE RICHARD RAWLINS
FIRST APPELLANT
CURNOW M & G LIMITED
SECOND APPELLANT
and
CARVANTRUCK (PTY) LIMITED
RESPONDENT
CORAM
: HOEXTER, NESTADT, KUMLEBEN, NIENABER JJA
et HOWIE AJA
DATE HEARD
: 2 NOVEMBER 1992
DATE DELIVERED
: 24
NOVEMBER 1992
JUDGMENT NESTADT, JA
:
This is an appeal against the grant of an interdict prohibiting the breach of
a restraint of
2
trade clause consequent upon the termination of the
contract of employment
in which it was contained.
The respondent was the employer. It carries
on business from premises in East London as a
distributor of
inter
alia
decorative automobile and
industrial paints. With effect from 27 November 1989
it engaged the first appellant (Rawlins) as a so-called
sales representative. After an initial three month
probationary period a written agreement was entered into
between them. In terms of the agreement Rawlins was to
be paid a "basic salary" of Rl 800 per month plus a
commission. The agreement does not define the duration
of the employment but one months notice of its
termination by either party is provided for. The
restraint clause reads as follows:
"You [Rawlins] undertake not to be involved directly or indirectly in any
other business or undertaking during your employment. On
termination of your
employment you will refrain from being
3
engaged directly or indirectly with our suppliers or competitors in the Eastern
Cape, Border, Transkei and Ciskei, for a period of
two
years."
Rawlins worked for the respondent for
about
fifteen months. During this period he sold the
paint products marketed by
the respondent to customers
in the East London area and in Transkei. On 28
February 1991, however, he
terminated his employment
with the respondent. Thereupon he immediately took
up
a position as a salesman with the second appellant
(Curnow). It also carries on business in East London
selling the same type and indeed the same brand of paint
as the respondent and in most cases to the same
customers. In the result, Rawlins, on behalf of
Curnow, began calling on and selling paint to persons
(in the East London area and the Transkei) whom he had
previously dealt with when working for the respondent.
It was in these circumstances that the
4
respondent, on 5 March 1991, brought em urgent application in the Eastern
Cape Division against Rawlins and Curnow. Relying on the
restraint of trade
clause it claimed an order (as eventually amended) in effect interdicting:
(i) Rawlins for a period of two years from 1 March 1991 and within the areas
of the Eastern Cape, Border, Transkei and Ciskei from
working for Curnow; (ii)
Rawlins from "contacting and/or soliciting" any of the respondent's customers as
at the date of termination
of his employment with the respondent; and (iii)
Rawlins and Curnow from using any information or documents relating to the
respondent's
business or its clients acquired by Rawlins during the course of
his employment with the
5
respondent. The matter came before VAN RENSBURG J who despite opposition
substantially granted the relief sought. However, the area
of the interdict
referred to in (i) was limited to East London and its environs (as defined by
the court) and Transkei. Also, in
relation to (iii), the reference to
"documents" was deleted. Rawlins and Curnow were ordered to pay the costs of the
application
jointly and severally. With the leave of the judge a
quo
Rawlins and Curnow now appeal against the order made.
The wording of the order gives rise to certain problems which it is as well
to deal with at the outset. As regards (i), the prohibition
is (in accordance
with the terms of the restraint clause) against being employed by a competitor
in any capacity. Moreover, it may
be that on a proper interpretation of (ii)
Rawlins
6
cannot contact or solicit even those customers of the
respondent with whom he had no dealings during his employment with the
respondent.
Rawlins, however, did not complain about these matters. This being
so, and assuming that the clause was otherwise enforceable, the
respondent was
entitled to the order sought. It is clear from what has been said that it and
Curnow are competitors. Nor was it in
dispute that Rawlins, on leaving the
respondent's employ, became "engaged...with" Curnow within the meaning of this
term as used
in the restraint clause and that this occurred within the East
London and Transkei areas. And, as regards paragraph (ii), dealing
with the
respondent's customers would be a facet of Rawlins' duties as an employee of
Curnow and thus fall within the scope of the
restraint. In other words this part
of the order, though probably super-fluous, is really nothing more than an
amplification of
7
and an adjunct to the first order prohibiting Rawlins from being engaged with
Curnow. As such it must, even though this is not stated,
be read as being
restricted to the area and period referred to in (i) . And as far as Rawlins is
concerned no independent argument
against order (iii) was advanced.
The basis on which Rawlins (and, as will be seen, Curnow) opposed the
respondent's application was that the restraint clause was unenforceable.
VAN
RENSBURG J rejected this contention. The issue in this appeal is whether he was
right in doing so.
Applying the principles laid down in
Magna Alloys and Research (SA) (Pty)
Ltd vs Ellis
1984(4) SA 874(A) (and see too
Sunshine Records (Pty) Ltd vs
Frohlinq and Others
1990(4) SA 782(A) at 794 D-E and 795 G-I), the matter
turns on whether Rawlins has shown that, judged at the time of the application,
the
8
restraint was an unreasonable one and therefore against
the public
interest. He sought to do this along
traditional lines. His case was that
the respondent had no proprietary interest which required protection; in
particular no misuse
or exploitation of either its trade secrets or trade
connections was involved. It was furthermore argued that the restraint was in
any event too wide, particularly as to time.
I do not propose to analyse what the affidavits say about the issue of trade
secrets. I shall assume in favour of Rawlins that he
discharged the onus of
proving that no information confidential to the respondent was disclosed to him
during his employment. This
leaves for consideration the question whether
Rawlins negatived the second type of proprietary interest, ie trade connections.
It
follows from what I have said that unless he did, the restraint clause, not
having been
9
shown to be unreasonable, was enforceable.
The need of an employer to
protect his trade connections arises where the employee has access to customers
and is in a position to
build up a particular relationship with the customers so
that when he leaves the employer's service he could easily induce the customers
to follow him to a new business (Joubert:
General Principles of the Law of
Contract
149). Heydon:
The Restraint of Trade Doctrine
(1971) 108,
quoting an American case, says that the "customer contact" doctrine depends on
the notion that "the employee, by contact
with the customer, gets the customer
so strongly attached to him that when the employee quits and joins a rival he
automatically
carries the customer with him in his pocket". In
Herbert Morris
Limited vs Saxelby
[1916] 1 AC 688
(HL) at 709 it was said that the
relationship must be such that the employee acquires
10
"such personal knowledge of and influence over the customers of his
employer...as would enable him (the servant or apprentice), if
competition were
allowed, to take advantage of his employer's trade connection..." This statement
has been applied in our courts
(by eg EKSTEEN J in
Recycling Industries (Pty)
Ltd vs Mohammed and Another
1981(3) SA 250 (SE) at 256 C-F) . Whether the
criteria referred to are satisfied is essentially a question of fact in each
case,
and in many, one of degree. Much will depend on the duties of the
employee; his personality; the frequency and duration of contact
between him and
the customers; where such contact takes place; what knowledge he gains of their
requirements and business; the general
nature of their relationship (including
whether an attachment is formed between them, the extent to which customers rely
on the employee
and how personal their association is); how
11
competitive the rival businesses are; in the case of a salesman, the type of
product being sold; and whether
there is evidence that customers were lost after the employee left (Heydon:
108-120; and see also
Drewtons (Pty) Ltd vs Carlie
1981(4) SA 305(C) at
307 G-H, and 314 C and G).
Many of the facts relevant to the issue whether the respondent's trade
connections required protection are in dispute. It is, however,
unnecessary to
attempt (as the court a
quo
in certain respects did) to resolve the
disputes. The rule (stated in
Plascon-Evans Paints Ltd vs Van Riebeeck Paints
(Pty) Ltd
1984(3) SA 623(A) at 634-5) to the broad effect that an
application for final relief is generally decided on a respondent's version,
applies even where the onus of proof is on such respondent (
Ngqumba en ' n
Ander vs Staatspresident en Andere
1988(4) SA 224(A) at 259 D-E
12
and 262 B) . This being so, it suffices to examine only Rawlins' answering
affidavit. He denies the allegation made in the respondent's
founding affidavit
that prior to his employment with the respondent he had not been aware of the
respondent's clients; that the respondent
introduced him to them; and that he
built up clientele as a direct result thereof. Rawlins says that prior to his
employment with
the respondent he had worked for a number of years for suppliers
of automotive products in the areas in question; in this way he
already had a
"following of (his) own in the automotive industry in the Eastern Cape"; he had
developed good relations with the buying
staff of the various consumers; he had
an intimate knowledge of their identity; save for a few exceptional cases he was
never introduced
to the respondent's customers; on the contrary his function was
to find customers (by introducing the respondent's
13
products to "my existing clients") or by "using the Yellow Pages in order to
make new contacts"; in the result he never built up any
appreciable clientele
because of any introductions by the respondent. In
conclusion he states:
"I do not consider my contacts in the automotive industry in East London and
Transkei to be the intellectual property of the Applicant,
as I have built up
these contacts over very many years and I respectfully submit that it would be
against public policy for me to
be deprived of my right to earn a living simply
because I utilised these contacts whilst in the employ of the
Applicant."
In summary then, what Rawlins says is
that
during his employment with the respondent he largely
dealt, not with its existing customers, but with his own
pre-existing following or buyers whom he later found.
Does this establish that the respondent did not have a
proprietary interest of the kind under consideration?
It is, of course, a factor in his favour; but not
14
conclusively so (see
Cansa (Pty) Ltd vs Van der Nest
1974(2) SA 64(C)
at 69 E-H and
M & S Drapers vs Reynolds
[1956] 3 All ER 814
(CA) at
820 E; compare, however, the views of DENNING W at 821 A-E). 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
15
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
16
consolidate or even strengthen the prior rapport which
he had with his
customers. This in substance is what
the judge a
quo
, with
justification, found. He
states:
"(W)hat is of importance is that in the course of his employment with the
applicant the first respondent must have obtained orders
from customers for the
applicant's products. By so doing the first respondent brought into being a
business relationship between
the applicant and those customers who had not
previously had dealings with the applicant. In the case of existing customers,
he furthered
an already existing business relationship. This would have been the
position irrespective of whether or not the customers concerned
were business
acquaintances of the first respondent before he entered the employ of the
applicant and irrespective of whether the
names of customers were obtained from
customer lists furnished to the first respondent by the applicant or from the
Yellow Pages.
The point is that having done business with customers on behalf of
the applicant while in the applicant's employ there was every
prospect that
after leaving the employ of the applicant and entering the employ of one of the
applicant's competitors, the first
respondent would be in a position to approach
the same customers as a salesman who had previously dealt with them on behalf of
the
applicant and induce them to place orders with his new employer. This is
especially
17
so in the case of the second respondent, in whose
employ the first respondent presently is, if regard is had to the fact that the
second respondent markets the selfsame products as
the applicant produced by the
same manufacturer."
It might be that VAN RENSBURG J states the
propositions
contained in this passage somewhat too strongly. The
point
is, however, that Rawlins says nothing, along the
lines alluded to earlier, about the nature of the
relationship that was formed with his customers. In
particular, he does not explain how many there were or
how frequently or for how long he saw them. Nor, save
for a bald statement that he had an "intimate knowledge
of the identities of buyers and businesses in the
automotive industry", does one know how close his
previous ties with such buyers were. Bear in mind also
that Rawlins acquired his clientele in relation to the
supply of tyres and motor vehicle spare parts and
accessories. Prior to his employment with the
18
respondent he never sold them automotive paint. This
consideration must to my mind detract somewhat from the
relevance of his trade connections in his subsequent
transactions on behalf of the respondent. Finally, and
as I have indicated, there would appear to be two
categories of customers who cannot be said to have been
part of his own trade connections. One was those
customers to whom he was admittedly introduced by the
respondent. He says of them:
"It is true that occasionally Higson (the managing director of the
respondent) requested me to call upon customers who, (to use his
words) 'hadn't
seen a rep in six months', and that some of these customers were not previously
known to me. This, however, accounts
for a very small proportion of the
activities in which I was engaged whilst in the employ of the Applicant."
The other category consisted of the "Yellow Pages...
contacts". Rawlins does not say how many customers
these two groups comprised or (save for describing the
19
one as a "very small proportion") what proportion they formed of the total
number of customers he dealt with.
Rawlins, however, relies on a further ground in support of his case that the
respondent had no trade connections capable of protection.
He avers that because
the respondent and Curnow "have historically shared the same customers...there
are no customers who could be
said to belong exclusively to the Applicant or the
second respondent". I do not think this conclusion is at all sound. It must be
a
common phenomenon in the business world for trade rivals to have mutual
customers. No reasons are given why it is inconsistent
with one of the suppliers
building up and maintaining a trade connection with such customers. On the
contrary, it might enhance the
need to do so.
No serious attack was made on the reasonableness of the area of the restraint
or the
20
manner in which its sphere of operation was cut down by
the court below. Accordingly, the remaining question
in regard to the enforceability of the clause is whether
its duration is unreasonably long. The answer depends
upon a value judgment (
National Chemsearch (SA) (Pty)
Ltd vs Borrowman and Another
1979(3) SA 1092(T) at 1105
C), taking into account (according to one test) how soon
the hold of the old employee over customers will weaken
(Haydon, 159). It will be recalled that the restraint
is for a period of two years. I confess to thinking
that this is rather a long time. It must be close to
the limit which would be reasonable in this type of
case. Rawlins' salary (excluding commission) was a
modest one. He had not been long in the respondent's
employ. On the other hand he was a salesman who
because of his experience had a particular expertise.
Furthermore, for the reasons given by VAN RENSBURG J,
21
and bearing in mind the limited area to which the
restraint applies, it would not seem that its |
enforcement will appreciably inhibit Rawlins' ability to |
earn a living. On a conspectus of all the facts and in
the absence of anything in his affidavit alleging
unreasonableness of the duration of the restraint, I am
not persuaded that the two year period is unfair.
It may be that a referral to oral evidence
would have enabled Rawlins to make out his case on the
issue under consideration. There was, however, no
application to the court a
quo
that this be done. Before
us, however, it was (faintly) suggested that the matter
be remitted for this purpose. There is no merit in the
request if only for the reason that this is a case of a
paucity of evidence rather than a case of a material
dispute of fact. The result is that, the allegations
made by Rawlins being insufficient to show either that
22
the respondent was not entitled to protect its trade connections or that, as
ordered, the restraint was unreasonably wide, he failed
to prove that it was
unenforceable. It follows that the sanctity of contract must prevail. The
interdict against Rawlins was correctly
granted. His appeal must fail.
This brings me to to Curnow's appeal. It can be briefly disposed of. Mr
Lang
, on behalf of the respondent, conceded that it had to succeed. I
agree. The application against Curnow could only be granted on a
delictual cause
of action. In argument only two were referred to viz, the procurement of a
breach of contract and unfair competition.
Neither, however, was established on
the papers.
Plainly, Rawlins as the unsuccessful party must pay the respondent's costs
both in the court a
guo
and on appeal. But a problem as to Curnow's
costs
23
arises. On the basis that costs follow the event, it
would
normally be entitled to its costs in both courts.
However, I do not think
that in
casu
this result should
follow. Firstly, Curnow and Rawlins
have at all stages
of the proceedings in this matter been represented
by
the same attorneys and counsel. Secondly, Curnow in
opposing the
application and advancing the appeal made
common cause with Rawlins. By this
I mean that the
main basis on which it denied liability was not that
the
respondent had no cause of action (as discussed above)
against it. It
was rather that the restraint was
unenforceable. In the result Curnow's
actual costs were
limited; and its success, in relation to the
defences
raised, was also limited. In these circumstances it
would, I
consider, be wrong for Curnow to get all its
costs. Were this to happen, the
order that Rawlins pay
the respondent's costs would be ineffectual.
Counsel
24
estimated that not more than 20% of the argument in the court a
quo
was devoted to the relief sought against Curnow. Before us, I think it was less
than 10%. On an overview of the matter I think the
fairest order is that the
respondent be directed to pay 15% of Curnow's costs (in both courts).
As I indicated towards the beginning of this judgment, paragraph (ii) of the
court a guo's order must be read subject to the constraints
as to area and time
specified in paragraph (i) thereof. I propose to amend the order to reflect
this.
The following order is made: (1) (a) The appeal of Rawlins (the first
appellant) is
dismissed with costs. (b) The appeal of Curnow (the second appellant)
succeeds. The respondent is to pay Curnow
15% of its costs of appeal.
25
(2) The order of the court a
gup
is altered to read:
"1. The First Respondent be and is hereby interdicted for a period of two
years from the 1st March 1991 from being engaged directly
or indirectly with
suppliers or competitors of the Applicant within the areas of Transkei and East
London, the East London area being
defined as comprising the municipal areas of
East London, Cambridge, Beacon Bay and Gonubie. 2. The First Respondent be and
is hereby
interdicted for the period and within the area referred to in
paragraph 1 from contacting and/or soliciting as customers of Second
Respondent
any of the Applicant's customers as at the date of termination of his employment
with the Applicant.
26
3. The First Respondent be and is hereby interdicted from attempting to utilise
in the conduct of the business of the Second Respondent
any information relating
to the Applicant's business and/or its clients acquired by the First Respondent
during the course of his
employment by the Applicant.
4. The application against the Second Respondent is
dismissed.
5 (a) The First Respondent is to pay the
applicant's costs. (b) The Applicant is to pay the Second Respondent 15% of its
costs."
NESTADT, JA
HOEXTER, JA )
KUMLEBEN, JA ) CONCUR
NIENABER, JA )
HOWIE, AJA )