Heintzmann Traffic Accommodation (Pty) Ltd and Another v Van Oudtshoorn and Others (J743/2023) [2023] ZALCJHB 196 (30 June 2023)

IN THE LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG

Not Reportable

Case No: J743/2023

In the matter between:

HEINTZMANN TRAFFIC ACCOMMODATION (PTY) LTD First Applicant

HEINTZMANN ROAD SAFETY (PTY) LTD Second Applicant And

QUINTON

VAN OUDTSHOORN First Respondent

ABRAHAM

PAULUS SINDEN Second Respondent

SALES OPS (PTY) LTD Third Respondent

Heard: 15 June 2023

Delivered: 30 June 2023

JUDGMENT

PHEHANE, J

Introduction and background

[1] The first and second respondents (referred to as Messrs. van Oudtshoorn and Sinden respectively) were both employed by the second applicant in August 2020 as a sales manager and sales representative respectively. Mr. Sinden was initially employed as a trainee sales representative and worked his way up to the position of sales representative. In December 2020, Mr. van Oudtshoorn concluded a contract of employment with the first applicant, also in the position of sales manager. It is common cause that these were senior positions. The employment contracts of both Messrs. van Oudsthoorn and Sinden contain identical restraint and confidentiality undertakings, which they both admit. They were both dismissed from the employ of the first and second respondent, as the case may be, on 17 February 2023 for misconduct.

[2] Following their dismissal, Messrs. van Oudsthoorn and Sinden registered the third respondent and are its directors.

[3] The applicants bring this application on an urgent basis, to enforce the restraint of trade and confidentiality undertakings. They require Messrs. van Oudsthoorn and Sinden to return confidential information to them, which they have failed to do and are therefore, in breach of clause 15 of the employment contracts, which make provision for the return of confidential information to the applicants upon tremination of their contracts. The applicants lament that when Messrs. van Oudsthoorn and Sinden registered the third respondent, they were in possession of this confidential information. The applicants further allege that the third respondent is a direct competitor of the applicants. The applicants fall shy of properly explaining their respective businesses and how the businesses are linked. The applicants describe their business collectively as follows:

‘In the broadest terms, the Applicants manufacture, supply, rent out and install road safety products, including but not limited to road safety barriers, guards, rails, protective devices, safety cones, fixtures and all equipment or devices, as well as accessories considered necessary for the safe use of roads by users, also known as road furniture.’[1]

[4] Apart from describing their collective business in broad terms as aforesaid, this Court is left to guess what the business of either respondent is. With the scant explanation of the business of each applicant, I enquired from Mr. Roode for the applicants what the nature of the business of each applicant is. He explained that the business of both applicants is road traffic accommodation, which entails focussing on road furniture or accessories. This did not make the explanation of the business of the applicants any clearer. He further explained that the business of the second applicant is the manufacture of guard rails. In addition, that both applicants sell guard rails and road furniture and they both install these products.

Argument

[5] Urgency is not disputed.

[6] The respondents oppose this application on three main bases: firstly, that the applicants have failed to demonstrate any proprietary interest that is worthy of protection. Secondly, they deny that the information the applicants seek to protect is confidential, alternatively, that the information is of no use to them. Thirdly, that the third respondent is not a competitor of the applicants, as its business, insofar as road construction is concerned, is different, in that it is a sales agent for manufacturers in the road construction industry and it conducts the business of procuring and selling products to end users and earns a commission when such products are bought. The respondents boldly state that as a sales agent, the third respondent can procure and sell the applicants’ products to end users in the construction industry. Put differently; the respondents pitch themselves to be in the position of a go-between between the applicants’ suppliers and competitors in the market – they can approach the applicants, its suppliers, its competitors and procure and sell the products of all the aforesaid in the construction industry.

[7] The respondent’s business is that of a sales agent in various industries including the road construction industry.[2] Messrs. van Oudtshoorn and Sinden aver that the third respondent does not manufacture any of the products it sells.[3] However, on a reading of Mr. Sinden’s introductory letter to a client of the applicants, which letter the respondents admit, Mr. Sinden refers to the products in the said letter as the products of the third respondent which are manufactured to the highest quality standards. Further, that the third respondent provides a range of road safety materials, installation services and affordable solutions for road safety requirements.

Legal Framework

[8] The legal principles applicable in restraint disputes are now settled in our law.[4]

[9] The onus is on the applicant to invoke the restraint agreement and to prove a breach thereof. Thereafter, the onus shifts to the respondent to prove, on a balance of probabilities, that the restraint undertakings are unreasonable and thus unenforceable.

[10] In Experian South Africa (Pty) Ltd v Haynes & Another,[5] the Court stated as follows as to the nature of proprietary interests that are worthy of protection:

‘[17] It is well established that the proprietary interests that can be protected by a restraint agreement are essentially of two kinds, namely:

17.1 The first kind consists of the relationships with customers, potential customers, suppliers and others that go to make up what is compendiously referred to as the “trade connection” of the business, being an important aspect of its incorporeal property known as goodwill;

17.2 The second kind consists of all confidential matter which is useful for the carrying on of the business and which could therefore be used by a competitor, if disclosed to him, to gain a relative competitive advantage. Such confidential material is sometimes compendiously referred to as “trade secrets”.

See Sibex Engineering Services (Pty) Ltd v van Wyk and Another 1991 (2) SA 482 (T) at 502D-F.’

[11] Whether information is confidential requires a factual enquiry - the information should be of economic value to the applicant and should not be available in the public domain.

[12] Where the respondent has access to customer information and has built a relationship with these customers such that he could induce them to follow him/her to a new employer, such information is worthy of protection.[6]

[13] The test is whether the respondent could use the information that s/he has access to, so that the competitor of the applicant would gain an unfair competitive advantage over the applicant.

[14] Restraining a respondent for the sole purpose of eliminating competition is unreasonable.[7]

Evaluation

[15] The applicants contend that Messrs. van Oudtshoorn and Sinden, have, by virtue of their senior positions, acquired access to confidential information in respect of the applicants’ customers and suppliers, including the specific requirements of such customers and suppliers, the business prospects available to the applicants, the pricing schedules and business and marketing strategies of the applicants. In particular, the applicants contend that Messrs. van Oudtshoorn and Sinden are privy to confidential information in the form of technical detail, operating methods, cost and source of material, pricing and purchasing policies, contractual arrangements between suppliers, clients, agents and business associates, names of clients, projects, quotations, bidding, intellectual property and potential customers which constitutes proprietary interest that is deserving of protection.

[16] Further, that during the course of the employment with the applicants, Messrs. van Oudtshoorn and Sinden gained invaluable knowledge of the crucial personal relationships that are unique and specialised to the business of the applicants, including the names and details of the contact persons of the applicants’ suppliers and clients and their particular requirements and needs.

[17] In summary, the relevant restraint and confidentiality undertakings as contained in clause 17 of the contracts of employment provide that should Messrs. van Oudtshoorn and Sinden commence trading for their own account within a 100km radius of the cities or territories in which the applicants conduct business, this could be prejudicial to the proprietary interest of the applicants, considering the nature of their work. Further, that Messrs. van Oudtshoorn and Sinden will not, within the territory of the applicants and for a period of 24 months post termination of their employment, be interested, engaged, whether directly or indirectly, whether as proprietor, partner, shareholder, member, director, employer, employee, agent, consultant or otherwise, in any firm, business or undertaking which carries on any activity either solely or in conjunction with any party, in competition with the business of the applicants and will not, for a period of 24 months post the termination of their employment, encourage, persuade, induce or solicit any supplier or client of the applicants to terminate their agreement with the applicants, or enter into a supply or any other agreement with a third party or entity.

[18] “Territory” is defined in the employment contracts as “any country, region or area where the Employer conducts business via a direct means or via a franchise or any other structure”.[8]

[19] The applicants contend that by virtue of the senior positions that were held by Messrs. van Oudtshoorn and Sinden, and as their respective job descriptions required them to support each other, they had intimate knowledge of all financial aspects of the business of the applicants relating to inter alia, the pricing and profitability of the applicants’ products, technical data and design of software and hardware utilized by the respondents. In particular, Mr. Sinden had access to a sales application (sales app) that contained detailed information relating to the applicants’ customers, the projects they are involved in and the status of such projects, which information, if made available to the third respondent, would give it an unfair competitive advantage. Messrs. van Oudtshoorn and Sinden failed to return confidential information in their possession when their employment was terminated, contrary to the terms of their employment contracts that they do so. Mr. Sinden, having been tasked as an employee to develop the sales app, only returned hard copies of the documentation in the sales app one month after his dismissal. He was in possession of this information when he and Mr. van Oudtshoorn registered the third respondent.

[20] Further, the applicants allege that Messrs. van Oudtshoorn and Sinden have approached at least two of its clients in breach of their restraint undertakings to supply the same products that are supplied by the applicants.

[21] Mr. van Oudtshoorn denies being in possession of any confidential information and asserts that his laptop was confiscated on termination of his employment. Messrs. van Oudtshoorn and Sinden admit contacting two clients of the applicants (Edwin Construction and Botle Ba Afrika), but deny being in breach of their restraint undertakings as they contend that the third respondent’s business is different from that of the applicants and is, therefore, not a direct competitor. They further contend that these clients are

situated outside the 100km radius. Mr. van Oudtshoorn states that Edwin Construction was working with his previous entities in which he was a director prior to his employment with the applicants. This demonstrates that he has influence over at least one client of the applicants and that such client could follow him to a new employer. Although the respondents state that Edwin Construction is outside the 100 km radius, they do not, in their introductory letter, state which area they approached this client to conduct business.

Undertaking

[22] During the period 23 to 24 May 2023, the applicant’s attorney of record demanded an undertaking from Messrs. van Oudtshoorn and Sinden that they would adhere to their restraint undertakings.[9] It is noteworthy that the “cities and territory” of the applicants are specified in the applicants’ letter of demand, compared to the very broad definition in the contracts of employment, as follows:

‘The territory should be regarded as a radius 100km from the following cities/territories from which our client does business:

- Rissi Street, Kwaggafontein, Bloemfontein

- 42 van Eck street, Chamdor, Krugersdorp, Jhb depot

- CPT Depot- 9 Duncan Road, Table Bay Harbour, Cape Town

- PE Deport – 145 Grahamstown Road, Port Elizabeth

- Durban Depot –Unit 3A Liecester Rd, Mobeni, Durban.’

[23] The said letter demands an undertaking from Messrs. van Oudtshoorn and Sinden as per paragraphs 17.2, 17.6 and 17.8 of their restraint

undertakings, that they will not conduct business in competition with the business of the applicants’ within a 100km radius of the territories as described in the said letter and that they will not, for a period on 24 months in the territories as defined, be interested in, engaged in any firm, business or undertaking that carries on any activity in competition with the applicants’ business and that they will not, or a period of 24 months, persuade, induce, solicit and supplier or client of the applicants to enter into a supply or other agreement with the respondents.

[24] In a letter dated 24 May 2023, the attorney of record for Messrs. van Oudtshoorn and Sinden stated inter alia, that the restraint undertakings are unreasonable, but they gave an undertaking not to unlawfully compete with the applicants within a reduced radius of 50 km of the territory as defined by the applicants and for a reduced period of 12 months calculated from 17 February 2023 and not to induce, encourage, procure or solicit any supplier of the applicants to terminate its existing agreement with the applicant or to enter into any supply agreement with the respondents’ clients for a reduced period of 12 months calculated from 17 February 2023.

[25] The applicants’ rejected the respondents’ undertaking firstly on the basis that it was an attempt to renegotiate the restraint undertakings and secondly, they held the view that the undertaking was not bona fide, as at the time the undertaking was made, Mr. Sinden approached three clients of the applicants’ in KwaZulu-Natal.

[26] The respondents admit approaching the applicants’ clients, however, they assert that these clients are outside the 100km radius. The respondents deny that Mr. Sinden approached the applicants’ clients in KwaZulu-Natal, and at the same time, they contradict

themselves and state that Mr. Sinden was not acting in competition with the applicants’ business.[10]

[27] During the proceedings, the respondents were at pains to inform this Court that in order to avoid litigation, their undertaking was communicated to the applicants bona fide. In response to a question by the Court as to whether the undertaking was still on the table, Ms. van der Westhuizen, for the respondents, answered in the affirmative.

[28] The applicants’ reaction to this, as explained by Mr. Roode, is that they are willing to agree to the reduction of the radius to 50 km from the territories of the applicants, as well as the reduction of the duration to 12 months calculated from the date of the order of this Court. Mr. Roode informed this Court that the territory in which the applicants conduct business is broader than the areas defined in their letter of demand. He explained that the applicants’ territories include “areas where road works happen” and that the applicants want to protect their national projects with their existing clients on these roads. In other words, what the applicants seek is that the respondents will not approach any of the applicants’ existing clients no matter the radius, as the radius would be obsolete given that the applicant has clients working on various projects on various roads within the territory of South Africa. In my view, this is the classic case of the pot calling the kettle black, as the applicants sought to renegotiate the restraint undertakings and in so doing, presented the respondents with a Trojan horse. This proposal was rejected by the respondents, and correctly so.

[29] What remains is for this Court to determine whether the applicants have made out a case for restraint of trade. It is common cause that Messrs. van Oudtshoorn and Sinden have restraint and confidentiality undertakings with the applicants. It is common cause that they were senior employees who had intricate knowledge of and had built up relations with the applicants’ clients (trade connections). On their own admission, had built up relations with them and it is likely that these clients could follow them to their new business, in this case, the third respondent.

[30] On the Plascon-Evans[11] principle, I find that the respondent’s products which they introduced to Edwin Construction, a client of the applicants, are the same or similar products that are manufactured by the applicants, which on the respondents’ own version, are products

manufactured by them and installed by them. I also find on the same principle, that the respondents approached three of the applicants’

clients in KwaZulu-Natal to do business. The applicants have a national footprint and by the nature of their business and the restraint undertakings provide that the respondents are not to conduct competitive business within a 100km radius of the cities or territories in which the applicant conducts business.

[31] The respondents have not denied access to confidential information. They have made no undertaking to expunge the information in the sales app to which they gained access. I find, given the conduct of the respondents in approaching the applicants’ clients, that there is a likelihood that the applicants’ clients could follow the respondents due to the trade connections formed and established while they were in the employ of the applicants.

[32] I am of the view that the area of the restraint is unreasonable. The definition of “territory” in the contracts of employment is very broad - that is, the respondents are restricted from conducting similar business as the applicants within a radius of 100km of any country, region or area where the applicants or their franchise or structure (which is undefined) conduct business. The practical effect of this is that the respondents are ousted from conducting business in South Africa. It appears that the applicants were alive to the very broad terms of the area of the restraint undertaking in their favour when they defined the “territories” in their letter of demand. A balancing of the doctrine of pacta sunt servanda and the respondents’ constitutional rights of freedom of trade and occupation should happen and as applicants are amenable to reducing the areas and period of the restraint), the following order is made:

Order:

1. The matter is heard as urgent in terms of Rule 8 of the Labour Court Rules.

2. The respondents are interdicted and restrained, for a period of 12 months commencing on 17 February 2023, from conducting business which is in direct competition with that of the applicants, within a 50 km radius of the following cities or territory in which the applicants conduct business:

2.1 Rissi Street, Kwaggafontein, Bloemfontein;

2.2 42 van Eck street, Chamdor, Krugersdorp, Johannesburg depot;

2.3 Cape Town depot - 9 Duncan Road, Table Bay Harbour. Cape Town;

2.4 Port Elizabeth deport – 145 Grahamstown Road, Port Elizabeth; and

2.5 Durban depot –Unit 3A Liecester Rd, Mobeni, Durban.

3. The respondents are interdicted for a period of 12 months from 17 February 2023 from being interested or engaged, whether directly or indirectly, and whether as proprietor, partner, shareholder, member, director, employer, employee, agent, consultant, or otherwise in any firm, business or undertaking which carries on any activity either solely or in conjunction with any party, in competition with the business carried on by the applicants.

4. The respondents are restrained and interdicted for a period of 12 months from 17 February 2023, either for their own account, or as representative or agent of any third party, from persuading, inducing, encouraging, procuring, soliciting or employing any employee or consultant engaged by the applicants who has an interest directly or indirectly in any manner whatsoever, in any business which is in competition with the business carried on by the applicants, from terminating his/her employment or association with the applicants, and from furnishing any information or advice acquired by that employee or consultant as a result of his association with the applicants to any unauthorised person.

5. The respondents are restrained and interdicted for a period of 12 months from 17 February 2023 either for their own account or as representative or agent for any third party, from persuading, inducing, encouraging, procuring or soliciting any supplier or client of the applicants to:

5.1 terminate its/their supply and/or other agreement with the applicants;

5.2 enter into a supply and/or other agreement with the respondents or any third party or entity;

5.3 require any agreement with the applicants to be altered to and conditions less advantageous to the applicants.

6. There is no order as to costs.

M. T. M. Phehane

Judge of the Labour Court of South Africa

Appearances:

For the Applicant: Adv. B. Roode Instructed by: Tintingers Attorneys For the First Respondent: Adv. M. van der Westhuizen (Ms.) Instructed by: Gresse and Stapelberg Inc.

[1] Founding affidavit, at para 11, p 8.

[2] Answering affidavit, at para 26, pp 160 to 161.

[3] Answering affidavit, at para 27, p 161.

[4] See: Globeflight Worldwide Express v Jennifer Marais and another, unreported judgment dated on 24 June 2021, case number J306/21 at paras [25] – [34]; Experian South Africa (Pty) Ltd v Haynes and another 2013 (1) SA 135 (GSJ) (Experian); Magna Alloys and Research (SA) (Pty) Ltd v Ellis [1984] ZASCA 116; 1984 (4) SA 874 (A); Basson v Chilwan and others [1993] ZASCA 61; 1993 (3) SA 742 (A). In respect to the factual determination as to whether information constitutes a trade secret, see: Townsend Productions (Pty) Ltd v Leech and others 2001 (4) SA 33 (C) at 53J – 54B; Mossgas (Pty) Ltd v Sasol Technology (Pty) Ltd [1999] 3 All SA 321 (W) at 333F. See also: IIR South Africa BV (incorporated in the Netherlands) t/a Institute for International Research v Tarita and others [2003] 3 All SA 188 (W), where the Court stated that customer lists are generally confidential and all the employer need demonstrate is that the employee could use the information.

[5] Experian supra at para 17.

[6] Rawlins and another v Caravantruck (Pty) Ltd 1993 (1) SA 537 (A).

[7] Ball v Bambalela Bolts (Pty) Ltd and another (2013) 34 ILJ 2821 (LAC).

[8] Clause 1.1.16, p 45.

[9] Annexures “HM10” and “HM11”, pp 119 to 187.

[10] Answering affidavit, at para 101, pp 183 to 184.

[11] Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd (1984) 2 AII SA 366 (A).