Compendium Group Investment Holdings (Pty) Ltd and Another and Crofts and Others (D223/2024) [2024] ZALCD 18 (9 July 2024)

IN THE LABOUR COURT OF SOUTH AFRICA, DURBAN

Not Reportable

Case No: D 223/2024

In the matter between:

COMPENDIUM GROUP

INVESTMENT HOLDINGS

(PTY)

LTD

First Applicant

COMPENDIUM INSURANCE BROKERS (PTY) LTD Second Applicant

and

DEBRA

IRENE CROFTS

First Respondent

CORINA

COOPER

Second Respondent

TIB INSURANCE BROKERS DBN (PTY) LTD

Third Respondent

Order delivered: 1 July 2024

Judgment delivered: 9 July 2024 (electronically)

Summary: Enforcement of non-solicitation undertakings in contract of employment – res judicata

JUDGMENT

WHITCHER J

Introduction

[1] Compendium provides short and long-term insurance brokering as well as risk management products.

[2] Ms Crofts was employed by Compendium for 24 years before she resigned on 31 March 2023. At the time, she was employed as Compendium’s Claims Director.

[3] Ms Cooper was employed by Compendium for 25 years before she resigned on 30 June 2023. At the time, she was employed as the Group Technical Underwriting Manager.

[4] Crofts and Cooper ultimately took up employment with TIB, a direct competitor of Compendium; Crofts as a Claims Specialist and Cooper as an Underwriting Manager. It appears they took up the employment sometime after 10 October 2023.

[5] On 19 April 2024, Compendium launched this application in which it sought to restrain Crofts until 31 March 2026 and Cooper until 30 June 2025 and in the Republic of South Africa from directly or indirectly enticing, soliciting or attempting to solicit, or accepting business from, or canvassing any client of Compendium away from them, irrespective of whether Crofts and Cooper are directly or indirectly approached by such clients and whether for their own benefit or otherwise.

[6] The specific restraint provisions relied upon read as follows:

8 Restraint on prejudicial dealings with customers

8.3 The employee undertakes that, for a period of 36 months after ceasing to be employed by the company, he/she shall not, entice or solicit, or attempt to entice, or accept any business from, or canvass any client of the company, as the case may be, away from it, irrespective of the employee being directly or indirectly approached by a client, whether for his/her own benefit or otherwise.

8.4 Any client to whom the company has made sales, or rendered services, during 6 months preceding the date that the employee ceases to be an employee of the company shall rebuttably be presumed to be a client of the company at that date.

[7] The crux of Compendium’s contentions in their founding affidavit is that:

(i) Following Crofts and Cooper’s employment by TIB and because of their employment by TIB, certain of Compendium’s clients terminated their mandates and moved their business (portfolios) to TIB;

(ii) Crofts and Cooper have been engaged in the solicitation or persuasion of Compendium’s clients to terminate their relationship with Compendium and to move to TIB;

(iii) Crofts and Cooper “at the very least” have “accepted business” from Compendium’s clients because they are “dealing with” these clients.

[8] The identified clients are the City Logistics Group, the Alpine Motors Group, DSN Electrical and Mr Dave Da Silva who represents, inter alia, Royal Square Investments 217 CC, Pro-Hydraulics (Pty) Ltd and Pro-Hydraulics CC.

[9] Compendium contended that the financial loss associated with the termination by these clients of their mandates is estimated to be at least R2, 948, 017.81. However, the risk of harm to its business would be far higher if this Court did not grant the relief they sought and it was likely to be irreparable.

[10] On 1 July 2024, I dismissed the application with costs. What follows are my reasons for that order, which, summarised, are that the application against Croft, at least in respect of the City Logistics Group, is res judicata; clause 8 was clearly intended to be a non-solicitation clause as opposed to a partly non-competition clause as embodied by the clause “accept any business from”; while Crofts and Cooper are “dealing with” the said clients, I found no proof that they directly or indirectly solicited that business away from Compendium, or that they possessed the kind of customer connections that would justify the enforcement of the restraint.

Res judicata/issue estoppel – Crofts

[11] In line with the equitable approach articulated by the Supreme Court of Appeal in Goldex[1] and expounded on by Sutherland J in Ilima Projects[2], it is always open to a party to argue that res judicata should, in the prevailing circumstances, be relaxed; and a second suit can proceed with similar claims as presented in an earlier dismissed suit when the second suit has sufficiently new material facts and it’s fair to permit it.

[12] In this case, however, I found no reason, in equity or fact, to relax the principle of res judicata.

[13] In June 2023, Compendium sought the same order against Croft, namely that Crofts be interdicted until 31 March 2026, directly or

indirectly either for her own account or as a representative of inter alia TIB from “enticing, soliciting or attempting to solicit, or accepting business from, or canvassing any client of [Compendium] away from them, irrespective of whether [Crofts] is directly or indirectly approached by such client and whether for her own benefit or otherwise.”

[14] One of the clients at issue in that application, as in this application, was City Logistics.

[15] Significantly, while the court (per Allen-Yaman J) found that SMG and City Logistics were clients of Compendium, that Compendium did not give consent to Crofts to continue to render services to either SMG or City Logistics (as it had been alleged) and that Crofts had developed relationships with Compendium’s clients as a claims handler, the court did not grant the order sought by Compendium. The Court only prohibited Crofts from disclosing Compendium’s confidential information and ordered her to destroy same that was in her possession.

[16] Compendium’s argument that because the “non-solicitation” relief was not specifically denied it remains open and can be sought in a fresh application, some six months later has no merit.

[17] The Court recorded in its judgment the relief that was sought, clearly examined the allegation that Crofts was dealing with City Logistics and that Crofts had strong relationships with its clients, made findings in this regard and nevertheless did not interdict her from dealing with them. The Court did not forget to consider the relief.

[18] In any event, as stated, the facts in the present application, do not establish any form of solicitation by Crofts (no matter how broadly the concept is defined) that justify the enforcement of the restraint.

Clause 8

[19] As indicated, the specific restraint provisions relied upon by Compendium read as follows:

8.3 The employee undertakes that, for a period of 36 months after ceasing to be employed by the company, he/she shall not, entice or solicit, or attempt to entice, or accept any business from, or canvass any client of the company, as the case may be, away from it, irrespective of the employee being directly or indirectly approached by a client, whether for his/her own benefit or otherwise.

8.4 Any client to whom the company has made sales, or rendered services, during 6 months preceding the date that the employee ceases to be an employee of the company shall rebuttably be presumed to be a client of the company at that date.

No soliciting of the clients

[20] As indicated in the papers, “entice” means to attract or tempt by offering an advantage; “solicit” means to approach with a request or plea; “solicitation” is defined as the act of asking somebody for something; and “canvass”

means to go to a person in order to solicit orders.

[21] All these terms connote an act by an ex-employee done with the hope of obtaining business from the erstwhile employer’s customers.[3]

[22] I agree with Mr Shapiro that there is no such thing as “passive solicitation” – that is a contradiction in terms.

Solicitation by its nature is active[4], it requires the employee to take some affirmative measures. I therefore disagree that a customer contacting a restrained employee

is also solicitation (as alluded to in the Experian case cited by Compendium). In any event, as contended by Mr Shapiro, that case is distinguishable from the facts here (as we shall see).

[23] It is true that the identified clients terminated the portfolios they had with Compendium and moved those to TIB. It is also true that Crofts and Cooper are “dealing with” these clients, where their respective roles require same. It is also true that at some stage prior to moving their portfolios, these clients did communicate with Crofts and Cooper. However, these facts

in context demonstrated no solicitation by Crofts or Cooper.

[24] On the evidence, Crofts nor Cooper notified any of these clients that they were leaving Compendium. The evidence before me further demonstrates that neither Da Silva nor Alpine nor City Logistics decided to follow either Crofts or Cooper when they left Compendium’s employ. These clients stayed at Compendium for months after Croft and Cooper left.

The Da Silva portfolio

[25] It is undisputed that Cooper did not deal with Da Silva or his portfolio whilst at Compendium and had no connection with him.

[26] On the evidence, Crofts was contacted by Da Silva after she left, but this was months before he moved his mandate and he contacted her not to move his business but regarding queries he wanted assistance with. Significantly, Crofts did not solicit his business but referred him back to Compendium, where after he remained there for seven months.

[27] On the facts, supported by Da Silva’s own affidavit, he eventually terminated Compendium’s mandate because of service issues, which issues Compendium was at all critical times aware of. Da Silva confirms on oath that he was not solicited or canvassed by Crofts to move his portfolio to TIB.

[28] Therefore, at the point that Compendium’s mandate was terminated, the customer connection had already been severed by service delivery issues – not by either ex-employees.

[29] This is entirely different to Experian and Adviceworx where the connection was extant, and it was the resignation of the employees that led to the “exodus” of clients.

The Alpine Group

[30] On the evidence, a Mr Tate from Alpine did contact Cooper and Crofts, but this again was months before he moved his mandate and the query related to advice on who at Compendium could assist him with a query. Here again, they immediately referred him back to Compendium and to the appropriate person, which is the opposite of soliciting.

[31] There is no evidence that Alpine moved it mandate following further contact with Crofts or Cooper.

[32] Here again, on the evidence the mandate was terminated for service delivery reasons about which Compendium was aware at all critical stages. The reasons for the termination of the mandate clearly had no connection to Crofts or Cooper.

City Logistics

[33] It was never alleged that Crofts and Cooper solicited work from City Logistics and the allegation was confined to “dealing with” their portfolio.

[34] Evidence also reveals that 85% of the City Logistics portfolio was always administered by TIB and that Compendium’s mandate extended only to its stock throughput policy.

[35] Given this percentage, Compendium does not explain how dealing with the stock through policy requires the enforcement of the restraint (to the extent enforceable) or protects its legitimate interests. On the face of things it makes sense for TIB to deal with the entire portfolio so the decision to move the stock throughout policy was always potentially there.

[36] Compendium’s entire case against Cooper is that she is probably dealing with City Logistics. She agrees she is – but only with the work that TIB originally had. Compendium produced no evidence to gainsay this.

Or accept any business from / dealing with

[37] In this regard, Compendium’s case is that “at the very least” Crofts and Cooper have “accepted business from” the identified clients because they are “dealing with” these clients. How “dealing with” former clients of Compendium (on the facts of this case, as described above) is the same as Crofts and Cooper (backroom operators) “accepting business from” the clients was not clearly explained.

[38] On the facts, the business came to TIB who accepted the business for reasons unrelated to any conduct by Crofts or Cooper.

[39] As to the words “accept any business from”, I have taken note of Mr Shapiro’s argument that:

(i) The phrase interpreted in context (the clause as a whole, its heading and purpos

(ii) e) restrains an employee from profiting from indirect solicitation of the client.

(iii) The clause neither contemplates nor restrains an employee from “dealing with” a client who leaves the employer for entirely unrelated reasons, having nothing to do with that employee at all.

(iv) If the clause was meant to prohibit “dealing with” clients, no matter the form, it would have said so either in content.

[40] More compelling, in my view, is that based on the language “or accept any business from”, the clause is a non-competition clause as opposed to a non-solicitation clause.

[41] That clause 8 was meant to operate only as a classic non-solicitation clause, which in general means the “act or an instance of requesting or seeking to obtain something” and “an attempt or effort to gain business”[5], is fortified by the fact that separate from the restraint contained in clause 8, Croft had a 3-month non-competition restraint (which had expired by the time of this application). The non-competition clause (clause 9) stipulated that “for a period of 3 months after ceasing to be an employee…she will not compete with the company.”

[42] On Compendium’s own version, it does not seek to restrain Crofts or Cooper from directly or indirectly competing with it or working for a competitor.

[43] It follows thus that in the absence of any solicitation proper, Crofts and Cooper are not in breach of their restraint by dealing with City Logistics, Alpine and Da Silva on behalf of their employer.

DSN Electrical

[44] To me there can be no controversy here. On the evidence, DSN was not a “potential customer” as defined in the restraints.

Compendium’s complaint in context and customer connections

[45] As pertinently highlighted by Mr Shapiro, in the fourteen months since Crofts left Compendium, two clients terminated the mandate (because of service issues). In the same period, one client took one policy that had been administered by Compendium for under a year and centralised it with the rest of its portfolio which was being administered by TIB. There has therefore been “no exodus” of clients, and Compendium have not alleged that any other clients are following the same “playbook” or are fixing to leave.

[46] On the facts, the only clients that terminated their mandate did so because of service issues, which cannot be laid at the door of either Crofts or Cooper. More importantly, Compendium had been aware of these issues for some time and given the time periods, been in a position to potentially deal with same and “shore up” its relationships with them.

[47] Ultimately, there are therefore no “customer connections” in respect of Crofts or Cooper as our courts have defined the term or “pull” that would justify the enforcement of any restraint and Compendium has already successfully protected its relationships with existing clients because all (but 3) have remained with it and have not left.

[48] There is therefore no purpose established for the enforcement of the restraint.

Damages

[49] Finally, there is a material dispute of fact as whether Compendium will suffer irreparable financial harm and the extent of the damages incurred by the loss of the three clients. According to Crofts, Compendium has been paid the full annual commission for City Logistics for 2023/2024 and the loss (even if suffered) constitutes no more than one or two percent of Compendium’s turnover, which she claims is hardly irreparable.

[50] But more importantly, as indicated, the evidence reveals that the clients left because of service issues and Compendium had an opportunity for months to rectify same.

Conclusion

[51] It is for all the reasons set out above that I rejected Compendium’s contentions and made the order that I did, as set out in paragraph 10 of this judgment, supra.

Costs

[52] I did take note of Crofts and Cooper’s submissions on costs. However, I was not pursued that a punitive cost order is in order.

Benita Whitcher

Judge of the Labour Court of South Africa

APPEARANCES:

For the Applicants:

A Snider SC (with P Bosman), instructed by Edward Nathan Sonnenbergs Inc.

For the First and Second Respondents:

W Shapiro SC, instructed by Macgregor Erasmus Attorneys Inc.

[1] Prinsloo NO & Others v Goldex 15 (Pty) Ltd & Another 2014 (5) SA 297 (SCA).

[2] Ilima Projects (Pty) Ltd v MEC Gauteng Department of Infrastructure Development [2019] ZAGPJHC 384.

[3] Trident Insurance Brokers (Pty) Ltd v Ellwood 1999 (4) SA 455 (W) at 460-461.

[4] Sellers v Eliovson and Others 1985 (1) SA 263 (W) at 265A-266D.

[5] See: Black’s Law Dictionary.