International Quality and Productivity Centre (Pty) Ltd v Tarita and Others (17338/06) [2006] ZAGPHC 85 (30 August 2006)

IN THE HIGH COURT OFSOUTH AFRICA(WITWATERSRANDLOCAL DIVISION)CASE NUMBER:06/17338In the matter between:INTERNATIONAL QUALITYANDPRODUCTIVITY CENTRE (PTY)LTDApplicantandTARITA, IMOGENFirst RespondentOLIVER, PHILIPPASecond RespondentMOOKI, BRIANThird RespondentTHUSABATHO TRAINING NETWORK CCFourth Respondent______________________________________________________________JUDGMENT______________________________________________________________SCHWARTZMAN J:1.In this urgent application, the Applicant seeks to enforce a restraint of trade agreement against the First, Second and Third Respondent, all of whom used to work for the Applicant. They are presently employed by the Fourth Respondent, against whom an interdictis soughtagainst it continuing to employ the three Respondents in breach of their respective restraint agreements. An interdict is also sought to prevent the Fourth Respondent enjoying theproductsof the unlawful competitiongenerated by itsemployment of thefirstthree Respondents.2.This application was brought in the urgent court on 8 August 2006. It was set down for hearing on 15 August 2006. In the Notice of Motion, the Applicant required the Respondents to file their answering affidavits by 16h00 on Friday 11 August 2006. At 13h54 on 11 August, the Respondents’ attorney sent a telefax in which it was said that it would serve the affidavit “on late Friday afternoon, alternatively over the weekend, alternatively on Monday 14 August 2006.” On 14 August the Respondents’ attorney toldthe Applicant’s attorney that the affidavit would be served on 15 August 2006 “shortly before court”.3.In their answering affidavit, signed on 14 August 2006, the Respondents asked that they be given until 30 August 2006 to file their answering affidavit as it was not possible to do it in the four working days allowed in the Notice of Motion. They went on to say that they did not concede urgency. This was followed by a statement that there was no merit to the application set out in a 278 page founding affidavit. This statement was expanded on by the deponent setting out what was said to be the “essence of the Respondents case”.4.Followingadiscussion between the parties on 15 August 2006, they reached an agreement that was made an order of court intermsof which the Respondents were ordered to file their answering affidavit by 16h00 on 18 August 2006. Costs were reserved and the application was postponed to 24 August 2006. On 15 August 2006 an answering affidavit was filed as “a partial affidavit. Our right to deal with the merits of the application remain reserved, including the right to deal with the alleged urgency of the matter”. This “partial answer” dealt with a submission that in terms of the Competition Act 89 of 1989 (the Act), the High Court did not have jurisdiction to hear the application and a submission that theapplicationshould be referred to the Competition Tribunal. If this relief was declined, “the Respondents reserved their right to reconsider their position”. The Applicant’s replying affidavit was served on 23 August2006.5.The three issues debated before me on 24 August were those of urgency, the court’s jurisdiction and the right of the Respondents to file an affidavit on the merits should I rule against them on urgency or jurisdiction.URGENCY6.The First Respondent left the Applicant’s employ on 4 September 2005. Her one year restraint expires on Friday 7 September 2006. On the Applicant’s version, it learned of her breach of the restraint on 11 July 2006. The Applicant’s deponent consulted with its attorney on Thursday 17 July 2006. Following correspondence with the Respondents that did not resolve matters, the Applicant sought authority from its overseasholding company to bring this application. It got such authority on 25 July 2006. Seven court days later (i.e. on 8 August 2006) it launched this 278 page application, giving the Respondents seven calendar days within which to file their answering affidaviton 11 July 2006.The Applicantalso learned of theother Respondentsbreach of theirrestraints on 11 July 2006. Their restraints expire on 28 February 2007 and 31 May 2007 respectively.7.In addition to the urgency inherent in all employer employee restraints, urgency as far as the First Respondent is concerned arisesfrom the fact that without shortening the time periods, her restraint would have expired before the application would, in the ordinary course, have beenheard bya court. As the continuing breach of the restraint by all the Respondents could cause the Applicant harm, there was, in the case of all the Respondents, a degree of urgency.8.What I also took into account is that when initially faced with the need to file an answering affidavit, the Respondents did not contest urgency and in fact undertook on two occasions to file an answering affidavit before 15 August 2006. The issue of urgency only arose when it was mentioned in passing in the first answering affidavit filed on 15 August 2006.9.Taking into account all the facts, I was satisfied that the Applicant was entitled to bring this application by way of urgency. I so ruled and ordered the Respondents to proceed with their pointin limine.JURISDICTION10.1The Act prohibits two types of Restrictive Practice. Section 4 prohibits Horizontal Restrictive Practices while Section 5 prohibits Vertical Restrictive Practices.10.2Section 4 (b) of the Act states that an agreement betweenfirmsin a horizontal relationship is prohibited if “it involvesany of the following restrictive practices:"(b)directly or indirectly fixing a purchase or selling price or any other trading condition;"(c)dividing markets by allocating customers, suppliers, territories or specific types of goods or services;"(d)collusive tendering.”(My emphasis)10.3Section 1 of the Act defines a horizontal relationship as a relationship between competitors.Itdefines a firm as including a person.10.4A vertical relationship is a relationship between a firm (person) and its suppliers, its customers or both. Section 5 prohibits such a relationship if “it has the effect of substantially lessening competition in a market, unless a party to the agreement can prove that any technological efficiency or other pro-competition gain resulting from that agreement outweighs that effect.”10.5Section 65 (2) of the Act provides that where, in acivil action,a party raises an issue concerning prohibited conduct, such court must not consider the issue on its merits and(a)if the issue is one on which the Competition Tribunal or itsAppeal Courthas made an order it must apply the determination to the issueor"(b)otherwise the court must refer that issue to the Tribunal to be considered on its merits,ifthe court is satisfied that –(i)the issue has not been raised in a frivolous or vexatious manner and(ii)the resolution of that issue is required to determine the final outcome of the action.”(My emphasis)11.Each of the three Respondents entered intoaseparate contract of employment with the Applicant. In their agreements they acknowledged that during the course of their employment each of them would acquire confidential information and trade secrets of the Applicant that could be advantageous to any competitor of the Applicant. Each of them signed a restraint agreement in which they undertook (for the period referred to in their agreement) that on termination of their employment they would,inter alia, not set up in South Africa a business in opposition to that conducted by the Applicant at the date of termination or participate in any such business in any capacity, including that of an employee. Each of the Respondents acknowledged that the restraint was fair and reasonable as to subject matter and duration and “absolutely necessary” in the interests of the Applicant to protect its proprietary interests in the subject matter of the restraints. This is in summary what is set out in each of the separate restraints.12.On termination of their employment agreements with the Applicant,the threeRespondents took up employment with the Fourth Respondent.The Fourth Respondent competes with the Applicant.13.Restraints of trade involving an employer andanemployee have been the subject of judicial scrutiny in South African courts for more than a century.Such restraints will be enforced if the court finds that the former employer has a protectable interest ininter aliaits trade secrets and, or, confidential information.14.At page 8 of the introduction toCompetition Law (2002), edited by Martin Brassey, it is said that “Covenants in restraint of trade typically operate to restrain the seller of a business from competing with the purchaser and so undermining the goodwill that is so essential a part of the thing being sold. They are, no less frequently, imposed on employees by employers in order to protect their trade secrets and business know-how during the currency of the contract and for a limited period thereafter. They are the stuff of the overwhelming majority of restraint cases but are seldom of concern to competition lawyers for, while undeniably constituting restraints on competition, they operate within a narrow compass and they are, moreover, normally ancillary to conventional commercial; contracts and a necessary incident of their proper operation. What pricks the interest of the competition lawyer is the clutch of cases, small in number, in which a common-law attack is launched against agreements by which suppliers combine to create a cartel or similar organization that operates at the expense of a fellow supplier or serves to hold a prospective customer or supplier to ransom.”15.What pricked the interest of the competition lawyer has now been translated into theCompetition Act of 1998that appears tobe basedon a jurisprudence developed inNorth Americaand the European Union.16.Mr Van der Walt, who appeared for the Respondent, submitted that the scope of theCompetition Actisbroad enough toprohibit anemploymentagreementthatcontains arestraint of tradethat will operateon termination of the agreement with the consequencethatwhen this issue is raised in a civil action, itmust be referred to the Competition Tribunal.17.Thesubmission is founded on the proposition that an employment contract creates a horizontal relationship between employer and employee in that the parties thereto become parties to “a relationship between competitors” (see the definition sectionsupra). This somewhat startling proposition flies in the face of one of the fundamental duties of an employee, which is not to compete with hisor heremployer whilst employed as such.18.Mr Van der Walt however approached the matter from anotherangle, which was based on the unreported decision of theCompetition Tribunal handeddown on 1 February 2006 in the matter of Nedschroef Jhb (Pty) Ltd v Teamoor Ltd and Others (Case number: 95/1R/Oct/05)19.As I understand the factsofthe Nedschroef matter, itinvolved an agreement between parties engaged in the fastener industry, who sought to regulate their future business relationship. When the agreement was concluded Nedschroef andCBC, a party to the agreement, were not competitors in the sense that Nedschroef had not yet commenced business. What was however contemplated when the agreement was concluded was that Nedschroef andCBCwould in due course become competitors. The effect of the agreement was to create a restrainton competitionin favour ofCBCthat Nedschroef sought to escape.20.In paragraph 41 of its judgment the Tribunal said that Nedschroef contended that the agreement contravened Section 4 (1) (b) (ii) of the Act in that it constituted a market allocation between Nedschroef and CBCbecause it operated to divide the market and because it precluded Nedchroef from participating in certain segments of the market.Following a recital of the subsection andthedefinition of a horizontal relationship, the Tribunal went on to refer toCBC’s first defence, which wasthat Nedschroef was not its competitor because it was not a competitor when the agreement was signed. The tribunal said that:“44. Yet market division does not require that both firms be competitors prior to the act of division. If they are potential competitors this will suffice. Frequently firms will divide a market before they become de fact competitors precisely to avoid that outcome. Anticompetitive outcomes are no less serious as a result of such an outcome thanif the firms were pre-existing competitors prior to the market division. Case law supports this approach as well. In the United States the Supreme Court has addressed this issue in the case ofJayPalmer et al vBRGof Georgia, INC et al[1990] USSC 157;498 U.S. 46,111 S.CT. 401.‘The defendants in Topco had never competed in the same market, but had simply agreed to allocate markets. Here, HBJ andBRGhad previously competed in theGeorgiamarket; under their allocation agreement.BRGreceived that market, while HBJ received the remainder of theUnited States. Each agreed not to compete in each other’s territories. Such agreement are anticompetitive regardless of whether the parties split a market within which both do business or whether they merely reserve one Markey for one and another for the other…’45. We find that there is no requirement in terms of the Act that firms must have been prior competitors for them to transgress section 4 (1) (b).21.Mr Van der Walt thensought toapplythe above reasoning to the facts of the present restraint and submitted that when the agreements were signed, each of the Respondents were at least potentialcompetitorsof the Applicant, which in turn meantthat the restraint contained in each agreement was, in terms of Section 4 (1) (b) (ii)per seprohibited in that it involved “dividing markets by allocating customers, suppliers, territories…”. What followedfrom this submissionwas that this court had no jurisdiction to hear the matter and that I was required to refer theapplicationto the Competition Tribunal.22.There is nothing to suggest that when the employmentagreementswere concluded, any of the first three Respondents and the Applicant were competitors. The employer / employee relationship created in terms of the employment contracts didnotcreate a horizontal relationship between the Applicant and any of the three Respondents. If anything it createda vertical relationship that is not governed by Section 5 of the Act. On termination of each contract of employment and in breach of the restraint in their employment contracts, the Respondents took up employment with the Fourth Respondent, who is in a horizontal relationship with the Applicant. As employees of the Fourth Respondent it can never be said that the first three Respondents and the Applicantbecameinvolved in a horizontal relationship. As there has never been a horizontal relationship between the parties, the first three Respondents cannot rely on the provisions of Section 4 (1) (b) (ii) of the Act to oust this court’s jurisdiction.23.Mr Van der Walt’s reliance on the Nedschroef decision isin any eventmisplaced. This decisionis in turn based on two decision of the United States Supreme Court. The first decision was that ofUnited Statesv Topco Associates, decided on 29 March 1972. Topco involved a co-operative association’s relationshipwith25 small and medium sized regional supermarkets whose members were given exclusive territories for theretailsale of the associations branded products undercertainconditions, and restricted to areas, imposed by the association. The court held thatthesehorizontal restraints between competitors at the same level of the market structure to allocate market territories wereper seviolations of theShermanAct without regard to their reasonableness.24.InJay Palmer vBRGof Georgia Inc, decided on 26 November 1990, the court held that an agreement between twoproviders of bar review courses that contained mutual covenants not to compete in the other provider’s market violated the Sherman Act. In paragraph 20 of this judgment I have set out the court’s findings.25.In all three of these decisions the court was dealing with companies at the same level of the market structure with a capacity to compete with each other. All three cases had to do with market division. Topco had to do with defendants who had not competed in the same market. Jay Palmer had to do with parties who had competed in the same market. What was decided in Nedschroef was that an agreementbetween parties at the same level of the market structureto divide a market beforetheparties becomede factocompetitors was prohibited for the reasons set out in paragraph 44 of the judgment. The Tribunal described the parties to such an agreement as “potential competitors”. Here, the word “potential”was used as a noun (i.e. the latent quality or ability that may be developed and lead to future success). The word was not being used as an adjective (i.e. having the capacity to develop into something in the future) – see the Concise Oxford Dictionary.26.Because the first three Respondents have nevercompeted with the Applicant at anylevel of the market structure, they cannot be said to be“potential competitors” in the sense in which these words are used in Nedschroef. That any one, or more, of them may havehadthe potential to develop into a competitor when they signed their employment agreement containingtherestraint is irrelevant. What must also be borne in mind is that having terminated their employment, the three Respondents are employees and not competitors.As to the meaning to be given to the words “potential competitor” it ishelpful to bear in mindthe European Union’s Guideline on the difference between an actual andapotential competitor. In footnote 9 at page 33 of the European OJC Series (reprinted from Westlaw 01.2001 C3/2 Celex 301Y0106 (01)) the following is said: “A firm is treated as a potential competitor if there is evidence that, absent the agreement, this firm could and wouldbe likely to undertake the necessary additional investments or other necessary switching costs so that it could enter the relevant market in response to a small and permanent increase in relative prices.This assessment has to be based on realistic grounds, the mere theoretical possibility to enter a market is not sufficient. …”In this application all thathas everexistedis a theoretical possibility that does not suffice.27.What further undermines Mr Van der Walt’s submission isthatassuming the parties to be in a horizontal relationship, thenon a proper construction of Section 4 (1) (b) (ii) of the Act, it can never be said that an otherwise enforceable restraint of trade that excludes the three Respondents from unlawfully competing with the Applicant amounts to “dividing the market by allocating customers, suppliers (or) territories.”By definition, an exclusionfor the periodof arestraint cannot amountto either adivision or an allocationof customers, suppliers or territories.28.Based on the above considerations, I find that the somewhat strained meaning sought to be given to the words “competitor” or “potential competitor” do not assist the three Respondents. Part of their problem appears to arise from the fact thatit appears to me, from a very brief acquaintance with the Act that it wasnotintended to change the common law of employer / employee restraints, which are more than adequately protected by the ongoing development of our common law on such restraints. In the circumstances, this is not a statute to which the law of unintended consequences canor should beinvoked to give a benefit to persons for whom the Act was not primarily intended (seeBekker & Another v Jiko2003 (1) SA 113(SCA)at page 123D to F.)29.Turning to Section 65 (2) of the Act the Competition Tribunal has not determined the issue raised in this application. I am only required to refer the issue to the Tribunalif I am satisfied that the issue has not been raised in a frivolous manner (see paragraph 10.5 hereof). In my judgment, the Respondents case, based on the provisions of the Act is hopeless. “There is authority for the proposition, which I endorse, that one who conducts a hopeless case actsfrivolously” – seeS v Cooper1977 (3) SA 475(T)at page 476D to G, cited with approval by Conradie JA inPlatinum Holdings (Pty) Ltd & 2 Others v Victoria & Albert Waterfront (Pty) Ltd & Another (SCA), unreported judgment in case number 03/428 handed down on 28 May 2004. In the circumstances there is nothing to refer to the Competition Tribunal, and in the result, the pointin limineis dismissed.THE MERITS30.I turn to the merits of the restraint. I have already dealt with the background giving rise to my hearing the application on 24 August 2006.31.Before I heard argument on the pointin limine, Mr Van der Walt told me that if I found against the Respondents on the pointin limine, he would ask me to receive an affidavit in which the Respondents deal extensively with the merits of the application brought against them. Given the background to this application – and, in particular, the two undertakings to file an answering affidavit before 15 August 2006, the court’s order of 15 August 2006 and the Respondents’ election when it filed its answer – I asked Mr Van der Walt on what authority he relied for adopting this novel approach. Apart from submitting that in urgent applicationsthis should be permitted, he was unable to refer me to any authority. What he could not suggest was any reason why the Respondents, who had been given a full opportunity to file an answering affidavit, should, in the event of the pointin liminebeing dismissed, be given a further opportunity to file an answering affidavit on the merits. Faced with the authority ofStandard Bank of South Africa Ltd v RTS Techniques & Planning (Pty) Ltd & Another1992 (1) SA 432(T), Mr Van der Walt could not advance any reason why I should give the Respondents an opportunity to file a further answering affidavit on the merits that would invariably have led to a further postponement of an urgent application that required a speedy resolution. I accordingly exercised my discretion against allowing the Respondents to file a further answering affidavit.32.In the answering affidavit filed by the Respondents on 14 August 2006it is said that “there are many factual disputes between the parties that will come to light” when they file their answering affidavit. Promises to file such an affidavit before 14 August 2006 were not kept. Thecourt order requiring the Respondents to file their answering affidavit by 15 August 2006, which by implication included theirs dealing with the merits, was unmeritoriously ignored. In the result, there is no answering affidavit dealing with the merits.33.The issues on the merits raised in the answering affidavit filed on 14 August 2006 do not create any material dispute of fact. Accordingly, and on the merits, my decisionmust bebased on the Applicant’s founding affidavit and its reply insofar as it deals with the merits.34.In the course of their employment with the Applicant, each of the three Respondents acquired trade secrets and confidential information of the Applicant. The restraints imposedon each of them were reasonable and enforceable for the purpose of protecting theApplicant’s legitimate interest.35.It is clear that each of thefirstthree Respondents are, by reason of their employment with the Fourth Respondent, in breach of their separate restraint agreements.36.Turning to the Fourth Respondent, it is clear that through its sole member, the husband of the First Respondent,it at all times knew that the First, Second and Third Respondent wereacting in breach of their restraints. TheApplicant states that theFourth Respondenthas intentionally usedthe three Respondents to breach their restraints and thereby created the situation whereby the Fourth Respondent could organise and promote the conferences referred to in paragraph 5.4.1 to 5.4.6 of the Notice of Motion. Such conferences are the fruit of the unlawful acts of the four Respondents in using the Applicant’s confidential information and trade secrets. In respect of these conferences, the Applicant has made out a case for an interdict against the Fourth Respondent.Here I would refer to what was said inIIR South Africa BV (Incorporated in the Netherlands) t/a Institute for International Research v Tarita and Others2004 (4) SA 156(W)at pages 170I to 172A – a judgment with which the First Respondent is no doubt familiar. I also refer to what was said by a full bench of this division inthe unreported judgment ofIIR South Africa BV (Incorporated in the Netherlands) t/a Institute for International Research v Hall & Another (Case number A5017/03).37.For these reasons, as amplified in the Applicant’s founding affidavit and in the reply, the Applicant is entitled to the relief set out in paragraph 2 to 5 of the Notice of Motion.In terms of paragraph 7 of the Notice of Motion, the Applicant is also entitled to a joint and several costs orderagainst the four Respondentsthat includes any reserved costs.38.To meet the urgency of this application I have had to preparethisjudgment in haste. I would like to thank both Counsel for providing me with supplementary heads dealing with the European and American lawthat I found of considerable assistance.39.I accordingly make an order in terms of paragraphs 2 to 5 of the Notice of Motion, and paragraph 7, which costs order shall include any reserved costs._________________________IW SCHWARTZMANJUDGE OF THE HIGH COURTCounsel for the Applicant: Mr J Campbell SCInstructed by: Mr D WanbladDeneys Reitz AttorneysCounsel for the First to Fourth Respondent: Mr T Van der WaltInstructed by: Ms J VenterLeppan Beech IncorporatedDate of Judgment: 30 August 2006

IN THE HIGH COURT OF

SOUTH AFRICA

(

WITWATERSRAND

LOCAL DIVISION)

CASE NUMBER:06/17338

CASE NUMBER:

06/17338

In the matter between:INTERNATIONAL QUALITYANDPRODUCTIVITY CENTRE (PTY)LTDApplicantandTARITA, IMOGENFirst RespondentOLIVER, PHILIPPASecond RespondentMOOKI, BRIANThird RespondentTHUSABATHO TRAINING NETWORK CCFourth Respondent______________________________________________________________

In the matter between:

INTERNATIONAL QUALITY

AND

PRODUCTIVITY CENTRE (PTY)

LTD

Applicant

and

TARITA, IMOGEN

First Respondent

OLIVER, PHILIPPA

Second Respondent

MOOKI, BRIAN

Third Respondent

THUSABATHO TRAINING NETWORK CC

Fourth Respondent______________________________________________________________

JUDGMENT

______________________________________________________________SCHWARTZMAN J:1.

______________________________________________________________

SCHWARTZMAN J:

1.

In this urgent application, the Applicant seeks to enforce a restraint of trade agreement against the First, Second and Third Respondent, all of whom used to work for the Applicant. They are presently employed by the Fourth Respondent, against whom an interdictis soughtagainst it continuing to employ the three Respondents in breach of their respective restraint agreements. An interdict is also sought to prevent the Fourth Respondent enjoying theproductsof the unlawful competitiongenerated by itsemployment of thefirstthree Respondents.

In this urgent application, the Applicant seeks to enforce a restraint of trade agreement against the First, Second and Third Respondent, all of whom used to work for the Applicant. They are presently employed by the Fourth Respondent, against whom an interdict

is sought

against it continuing to employ the three Respondents in breach of their respective restraint agreements. An interdict is also sought to prevent the Fourth Respondent enjoying the

products

of the unlawful competition

generated by its

employment of the

first

three Respondents.

2.

This application was brought in the urgent court on 8 August 2006. It was set down for hearing on 15 August 2006. In the Notice of Motion, the Applicant required the Respondents to file their answering affidavits by 16h00 on Friday 11 August 2006. At 13h54 on 11 August, the Respondents’ attorney sent a telefax in which it was said that it would serve the affidavit “on late Friday afternoon, alternatively over the weekend, alternatively on Monday 14 August 2006.” On 14 August the Respondents’ attorney toldthe Applicant’s attorney that the affidavit would be served on 15 August 2006 “shortly before court”.

This application was brought in the urgent court on 8 August 2006. It was set down for hearing on 15 August 2006. In the Notice of Motion, the Applicant required the Respondents to file their answering affidavits by 16h00 on Friday 11 August 2006. At 13h54 on 11 August, the Respondents’ attorney sent a telefax in which it was said that it would serve the affidavit “

on late Friday afternoon, alternatively over the weekend, alternatively on Monday 14 August 2006

.” On 14 August the Respondents’ attorney told

the Applicant’s attorney that the affidavit would be served on 15 August 2006 “

shortly before court

”.

3.

In their answering affidavit, signed on 14 August 2006, the Respondents asked that they be given until 30 August 2006 to file their answering affidavit as it was not possible to do it in the four working days allowed in the Notice of Motion. They went on to say that they did not concede urgency. This was followed by a statement that there was no merit to the application set out in a 278 page founding affidavit. This statement was expanded on by the deponent setting out what was said to be the “essence of the Respondents case”.4.Followingadiscussion between the parties on 15 August 2006, they reached an agreement that was made an order of court intermsof which the Respondents were ordered to file their answering affidavit by 16h00 on 18 August 2006. Costs were reserved and the application was postponed to 24 August 2006. On 15 August 2006 an answering affidavit was filed as “a partial affidavit. Our right to deal with the merits of the application remain reserved, including the right to deal with the alleged urgency of the matter”. This “partial answer” dealt with a submission that in terms of the Competition Act 89 of 1989 (the Act), the High Court did not have jurisdiction to hear the application and a submission that theapplicationshould be referred to the Competition Tribunal. If this relief was declined, “the Respondents reserved their right to reconsider their position”. The Applicant’s replying affidavit was served on 23 August2006.

In their answering affidavit, signed on 14 August 2006, the Respondents asked that they be given until 30 August 2006 to file their answering affidavit as it was not possible to do it in the four working days allowed in the Notice of Motion. They went on to say that they did not concede urgency. This was followed by a statement that there was no merit to the application set out in a 278 page founding affidavit. This statement was expanded on by the deponent setting out what was said to be the “

essence of the Respondents case

4.

Following

a

discussion between the parties on 15 August 2006, they reached an agreement that was made an order of court in

terms

of which the Respondents were ordered to file their answering affidavit by 16h00 on 18 August 2006. Costs were reserved and the application was postponed to 24 August 2006. On 15 August 2006 an answering affidavit was filed as “

a partial affidavit. Our right to deal with the merits of the application remain reserved, including the right to deal with the alleged urgency of the matter

”. This “

partial answer

” dealt with a submission that in terms of the Competition Act 89 of 1989 (the Act), the High Court did not have jurisdiction to hear the application and a submission that the

pplica

tion

should be referred to the Competition Tribunal. If this relief was declined, “

the Respondents reserved their right to reconsider their position

”. The Applicant’s replying affidavit was served on 23 August

2006.

5.

The three issues debated before me on 24 August were those of urgency, the court’s jurisdiction and the right of the Respondents to file an affidavit on the merits should I rule against them on urgency or jurisdiction.

URGENCY6.

URGENCY

6.

The First Respondent left the Applicant’s employ on 4 September 2005. Her one year restraint expires on Friday 7 September 2006. On the Applicant’s version, it learned of her breach of the restraint on 11 July 2006. The Applicant’s deponent consulted with its attorney on Thursday 17 July 2006. Following correspondence with the Respondents that did not resolve matters, the Applicant sought authority from its overseasholding company to bring this application. It got such authority on 25 July 2006. Seven court days later (i.e. on 8 August 2006) it launched this 278 page application, giving the Respondents seven calendar days within which to file their answering affidaviton 11 July 2006.The Applicantalso learned of theother Respondentsbreach of theirrestraints on 11 July 2006. Their restraints expire on 28 February 2007 and 31 May 2007 respectively.

The First Respondent left the Applicant’s employ on 4 September 2005. Her one year restraint expires on Friday 7 September 2006. On the Applicant’s version, it learned of her breach of the restraint on 11 July 2006. The Applicant’s deponent consulted with its attorney on Thursday 17 July 2006. Following correspondence with the Respondents that did not resolve matters, the Applicant sought authority from its o

verseas

holding company to bring this application. It got such authority on 25 July 2006. Seven court days later (i.e. on 8 August 2006) it launched this 278 page application, giving the Respondents seven calendar days within which to file their answering affidavit

on 11 July 2006

.

The App

licant

also learned of the

other Respondents

breach of the

ir

restraints on 11 July 2006. Their restraints expire on 28 February 2007 and 31 May 2007 respectively.

7.

In addition to the urgency inherent in all employer employee restraints, urgency as far as the First Respondent is concerned arisesfrom the fact that without shortening the time periods, her restraint would have expired before the application would, in the ordinary course, have beenheard bya court. As the continuing breach of the restraint by all the Respondents could cause the Applicant harm, there was, in the case of all the Respondents, a degree of urgency.

In addition to the urgency inherent in all employer employee restraints, urgency as far as the First Respondent is concerned ar

ises

from the fact that without shortening the time periods, her restraint would have expired before the application would, in the ordinary course, have been

heard by

a court. As the continuing breach of the restraint by all the Respondents could cause the Applicant harm, there was, in the case of all the Respondents, a degree of urgency.

8.

What I also took into account is that when initially faced with the need to file an answering affidavit, the Respondents did not contest urgency and in fact undertook on two occasions to file an answering affidavit before 15 August 2006. The issue of urgency only arose when it was mentioned in passing in the first answering affidavit filed on 15 August 2006.9.Taking into account all the facts, I was satisfied that the Applicant was entitled to bring this application by way of urgency. I so ruled and ordered the Respondents to proceed with their pointin limine.

What I also took into account is that when initially faced with the need to file an answering affidavit, the Respondents did not contest urgency and in fact undertook on two occasions to file an answering affidavit before 15 August 2006. The issue of urgency only arose when it was mentioned in passing in the first answering affidavit filed on 15 August 2006.

9.

Taking into account all the facts, I was satisfied that the Applicant was entitled to bring this application by way of urgency. I so ruled and ordered the Respondents to proceed with their point

in limine

JURISDICTION

10.1

The Act prohibits two types of Restrictive Practice. Section 4 prohibits Horizontal Restrictive Practices while Section 5 prohibits Vertical Restrictive Practices.

10.2

Section 4 (b) of the Act states that an agreement betweenfirmsin a horizontal relationship is prohibited if “it involvesany of the following restrictive practices:

Section 4 (b) of the Act states that an agreement between

firms

in a horizontal relationship is prohibited if “

it involves

any of the following restrictive practices:

"(b)

directly or indirectly fixing a purchase or selling price or any other trading condition;"(c)dividing markets by allocating customers, suppliers, territories or specific types of goods or services;"(d)collusive tendering.”

directly or indirectly fixing a purchase or selling price or any other trading condition;

"(c)

dividing markets by allocating customers, suppliers, territories or specific types of goods or services

;

"(d)

collusive tendering.

”

(My emphasis)

10.3

Section 1 of the Act defines a horizontal relationship as a relationship between competitors.Itdefines a firm as including a person.

Section 1 of the Act defines a horizontal relationship as a relationship between competitors.

It

defines a firm as including a person.

10.4

A vertical relationship is a relationship between a firm (person) and its suppliers, its customers or both. Section 5 prohibits such a relationship if “it has the effect of substantially lessening competition in a market, unless a party to the agreement can prove that any technological efficiency or other pro-competition gain resulting from that agreement outweighs that effect.”

A vertical relationship is a relationship between a firm (person) and its suppliers, its customers or both. Section 5 prohibits such a relationship if “

it has the effect of substantially lessening competition in a market, unless a party to the agreement can prove that any technological efficiency or other pro-competition gain resulting from that agreement outweighs that effect.

10.5

Section 65 (2) of the Act provides that where, in acivil action,a party raises an issue concerning prohibited conduct, such court must not consider the issue on its merits and(a)

Section 65 (2) of the Act provides that where, in a

civil a

ction

,

a party raises an issue concerning prohibited conduct, such court must not consider the issue on its merits and

(a)

if the issue is one on which the Competition Tribunal or itsAppeal Courthas made an order it must apply the determination to the issueor"(b)

if the issue is one on which the Competition Tribunal or its

Appeal Court

has made an order it must apply the determination to the issue

or

otherwise the court must refer that issue to the Tribunal to be considered on its merits,ifthe court is satisfied that –(i)

otherwise the court must refer that issue to the Tribunal to be considered on its merits,

i

f

the court is satisfied that –

(i)

the issue has not been raised in a frivolous or vexatious manner and(ii)the resolution of that issue is required to determine the final outcome of the action.”

the issue has not been raised in a frivolous or vexatious manner and

(ii)

the resolution of that issue is required to determine the final outcome of the action.

11.

Each of the three Respondents entered intoaseparate contract of employment with the Applicant. In their agreements they acknowledged that during the course of their employment each of them would acquire confidential information and trade secrets of the Applicant that could be advantageous to any competitor of the Applicant. Each of them signed a restraint agreement in which they undertook (for the period referred to in their agreement) that on termination of their employment they would,inter alia, not set up in South Africa a business in opposition to that conducted by the Applicant at the date of termination or participate in any such business in any capacity, including that of an employee. Each of the Respondents acknowledged that the restraint was fair and reasonable as to subject matter and duration and “absolutely necessary” in the interests of the Applicant to protect its proprietary interests in the subject matter of the restraints. This is in summary what is set out in each of the separate restraints.

Each of the three Respondents entered into

separate contract of employment with the Applicant. In their agreements they acknowledged that during the course of their employment each of them would acquire confidential information and trade secrets of the Applicant that could be advantageous to any competitor of the Applicant. Each of them signed a restraint agreement in which they undertook (for the period referred to in their agreement) that on termination of their employment they would,

inter alia

, not set up in South Africa a business in opposition to that conducted by the Applicant at the date of termination or participate in any such business in any capacity, including that of an employee. Each of the Respondents acknowledged that the restraint was fair and reasonable as to subject matter and duration and “

absolutely necessary

” in the interests of the Applicant to protect its proprietary interests in the subject matter of the restraints. This is in summary what is set out in each of the separate restraints.

12.

On termination of their employment agreements with the Applicant,the threeRespondents took up employment with the Fourth Respondent.The Fourth Respondent competes with the Applicant.

On termination of their employment agreements with the Applicant,

the three

Respondents took up employment with the Fourth Respondent.

The Fourth Respondent competes with the Applicant.

13.

Restraints of trade involving an employer andanemployee have been the subject of judicial scrutiny in South African courts for more than a century.Such restraints will be enforced if the court finds that the former employer has a protectable interest ininter aliaits trade secrets and, or, confidential information.

Restraints of trade involving an employer and

an

employee have been the subject of judicial scrutiny in South African courts for more than a century.

Such restraints will be enforced if the court finds that the former employer has a protectable interest in

its trade secrets and, or, confidential information

14.

At page 8 of the introduction toCompetition Law (2002), edited by Martin Brassey, it is said that “Covenants in restraint of trade typically operate to restrain the seller of a business from competing with the purchaser and so undermining the goodwill that is so essential a part of the thing being sold. They are, no less frequently, imposed on employees by employers in order to protect their trade secrets and business know-how during the currency of the contract and for a limited period thereafter. They are the stuff of the overwhelming majority of restraint cases but are seldom of concern to competition lawyers for, while undeniably constituting restraints on competition, they operate within a narrow compass and they are, moreover, normally ancillary to conventional commercial; contracts and a necessary incident of their proper operation. What pricks the interest of the competition lawyer is the clutch of cases, small in number, in which a common-law attack is launched against agreements by which suppliers combine to create a cartel or similar organization that operates at the expense of a fellow supplier or serves to hold a prospective customer or supplier to ransom.”

At page 8 of the introduction to

Competition Law (2002)

, edited by Martin Brassey, it is said that “

Covenants in restraint of trade typically operate to restrain the seller of a business from competing with the purchaser and so undermining the goodwill that is so essential a part of the thing being sold. They are, no less frequently, imposed on employees by employers in order to protect their trade secrets and business know-how during the currency of the contract and for a limited period thereafter. They are the stuff of the overwhelming majority of restraint cases but are seldom of concern to competition lawyers for, while undeniably constituting restraints on competition, they operate within a narrow compass and they are, moreover, normally ancillary to conventional commercial; contracts and a necessary incident of their proper operation. What pricks the interest of the competition lawyer is the clutch of cases, small in number, in which a common-law attack is launched against agreements by which suppliers combine to create a cartel or similar organization that operates at the expense of a fellow supplier or serves to hold a prospective customer or supplier to ransom.

15.

What pricked the interest of the competition lawyer has now been translated into theCompetition Act of 1998that appears tobe basedon a jurisprudence developed inNorth Americaand the European Union.

What pricked the interest of the competition lawyer has now been translated into theCompetition Act of 1998that appears to

Competition Act of 1998

be based

on a jurisprudence developed in

North America

and the European Union.

16.

Mr Van der Walt, who appeared for the Respondent, submitted that the scope of theCompetition Actisbroad enough toprohibit anemploymentagreementthatcontains arestraint of tradethat will operateon termination of the agreement with the consequencethatwhen this issue is raised in a civil action, itmust be referred to the Competition Tribunal.

Mr Van der Walt, who appeared for the Respondent, submitted that the scope of theCompetition Act

Competition Act

isbroad enough to

prohibit an

employment

agreement

that

contains a

restraint of trade

that will operate

on termination of the agreement with the consequence

when this issue is raised in a civil action, it

must be referred to the Competition Tribunal.

17.

Thesubmission is founded on the proposition that an employment contract creates a horizontal relationship between employer and employee in that the parties thereto become parties to “a relationship between competitors” (see the definition sectionsupra). This somewhat startling proposition flies in the face of one of the fundamental duties of an employee, which is not to compete with hisor heremployer whilst employed as such.

Th

e

submission is founded on the proposition that an employment contract creates a horizontal relationship between employer and employee in that the parties thereto become parties to “

a relationship between competitors

” (see the definition section

supra

). This somewhat startling proposition flies in the face of one of the fundamental duties of an employee, which is not to compete with his

or her

employer whilst employed as such.

18.

Mr Van der Walt however approached the matter from anotherangle, which was based on the unreported decision of theCompetition Tribunal handeddown on 1 February 2006 in the matter of Nedschroef Jhb (Pty) Ltd v Teamoor Ltd and Others (Case number: 95/1R/Oct/05)

Mr Van der Walt however approached the matter from another

angle

, which was based on the unreported decision of the

Competition Tribunal handed

down on 1 February 2006 in the matter of Nedschroef Jhb (Pty) Ltd v Teamoor Ltd and Others (Case number: 95/1R/Oct/05)

19.

As I understand the factsofthe Nedschroef matter, itinvolved an agreement between parties engaged in the fastener industry, who sought to regulate their future business relationship. When the agreement was concluded Nedschroef andCBC, a party to the agreement, were not competitors in the sense that Nedschroef had not yet commenced business. What was however contemplated when the agreement was concluded was that Nedschroef andCBCwould in due course become competitors. The effect of the agreement was to create a restrainton competitionin favour ofCBCthat Nedschroef sought to escape.

As I understand the facts

of

the Nedschroef matter

, it

involved an agreement between parties engaged in the fastener industry, who sought to regulate their future business relationship. When the agreement was concluded Nedschroef and

CBC

, a party to the agreement, were not competitors in the sense that Nedschroef had not yet commenced business. What was however contemplated when the agreement was concluded was that Nedschroef and

would in due course become c

ompetitors

. The effect of the agreement was to create a restraint

on competition

in favour of

that Nedschroef sought to escape.

20.

In paragraph 41 of its judgment the Tribunal said that Nedschroef contended that the agreement contravened Section 4 (1) (b) (ii) of the Act in that it constituted a market allocation between Nedschroef and CBCbecause it operated to divide the market and because it precluded Nedchroef from participating in certain segments of the market.Following a recital of the subsection andthedefinition of a horizontal relationship, the Tribunal went on to refer toCBC’s first defence, which wasthat Nedschroef was not its competitor because it was not a competitor when the agreement was signed. The tribunal said that:

In paragraph 41 of its judgment the Tribunal said that Nedschroef contended that the agreement contravened Section 4 (1) (b) (ii) of the Act in that it constituted a market allocation between Nedschroef and CBC

because it operated to divide the market and because it precluded Nedchroef from participating in certain segments of the market.

Following a recital of the subsection and

the

definition of a horizontal relationship, the Tribunal went on to refer to

’s first defence

, which was

that Nedschroef was not its competitor because it was not a competitor when the agreement was signed. The tribunal said that:

“44. Yet market division does not require that both firms be competitors prior to the act of division. If they are potential competitors this will suffice. Frequently firms will divide a market before they become de fact competitors precisely to avoid that outcome. Anticompetitive outcomes are no less serious as a result of such an outcome thanif the firms were pre-existing competitors prior to the market division. Case law supports this approach as well. In the United States the Supreme Court has addressed this issue in the case ofJayPalmer et al vBRGof Georgia, INC et al[1990] USSC 157;498 U.S. 46,111 S.CT. 401.‘The defendants in Topco had never competed in the same market, but had simply agreed to allocate markets. Here, HBJ andBRGhad previously competed in theGeorgiamarket; under their allocation agreement.BRGreceived that market, while HBJ received the remainder of theUnited States. Each agreed not to compete in each other’s territories. Such agreement are anticompetitive regardless of whether the parties split a market within which both do business or whether they merely reserve one Markey for one and another for the other…’45. We find that there is no requirement in terms of the Act that firms must have been prior competitors for them to transgress section 4 (1) (b).

“

44. Yet market division does not require that both firms be competitors prior to the act of division. If they are potential competitors this will suffice. Frequently firms will divide a market before they become de fact competitors precisely to avoid that outcome. Anticompetitive outcomes are no less serious as a result of such an outcome tha

n

if the firms were pre-existing competitors prior to the market division. Case law supports this approach as well. In the United States the Supreme Court has addressed this issue in the case of

Jay

Palmer et al v

BRG

of Georgia, INC et al

[1990] USSC 157;498 U.S. 46,111 S.CT. 401

[1990] USSC 157

498 U.S. 46

111 S.CT. 401

‘The defendants in Topco had never competed in the same market, but had simply agreed to allocate markets. Here, HBJ and

had previously competed in the

Georgia

market; under their allocation agreement.

received that market, while HBJ received the remainder of the

United States

. Each agreed not to compete in each other’s territories. Such agreement are anticompetitive regardless of whether the parties split a market within which both do business or whether they merely reserve one Markey for one and another for the other…’

45. We find that there is no requirement in terms of the Act that firms must have been prior competitors for them to transgress section 4 (1) (b).

21.

Mr Van der Walt thensought toapplythe above reasoning to the facts of the present restraint and submitted that when the agreements were signed, each of the Respondents were at least potentialcompetitorsof the Applicant, which in turn meantthat the restraint contained in each agreement was, in terms of Section 4 (1) (b) (ii)per seprohibited in that it involved “dividing markets by allocating customers, suppliers, territories…”. What followedfrom this submissionwas that this court had no jurisdiction to hear the matter and that I was required to refer theapplicationto the Competition Tribunal.

Mr Van der Walt then

sought to

appl

y

the above reasoning to the facts of the present restraint and submitted that when the agreements were signed, each of the Respondents were at least potential

competitor

s

of the Applicant, which in turn m

eant

that the restraint contained in each agreement was, in terms of Section 4 (1) (b) (ii)

per se

prohibited in that it involved “

dividing markets by allocating customers, suppliers, territories…

”. What followed

from this submission

was that this court had no jurisdiction to hear the matter and that I was required to refer the

application

to the Competition Tribunal.

22.

There is nothing to suggest that when the employmentagreementswere concluded, any of the first three Respondents and the Applicant were competitors. The employer / employee relationship created in terms of the employment contracts didnotcreate a horizontal relationship between the Applicant and any of the three Respondents. If anything it createda vertical relationship that is not governed by Section 5 of the Act. On termination of each contract of employment and in breach of the restraint in their employment contracts, the Respondents took up employment with the Fourth Respondent, who is in a horizontal relationship with the Applicant. As employees of the Fourth Respondent it can never be said that the first three Respondents and the Applicantbecameinvolved in a horizontal relationship. As there has never been a horizontal relationship between the parties, the first three Respondents cannot rely on the provisions of Section 4 (1) (b) (ii) of the Act to oust this court’s jurisdiction.

There is nothing to suggest that when the employment

agreements

were concluded, any of the first three Respondents and the Applicant were competitors. The employer / employee relationship created in terms of the employment contracts did

not

create a horizontal relationship between the Applicant and any of the three Respondents. If anything it created

a vertical relationship that is not governed by Section 5 of the Act. On termination of each contract of employment and in breach of the restraint in their employment contracts, the Respondents took up employment with the Fourth Respondent, who is in a horizontal relationship with the Applicant. As employees of the Fourth Respondent it can never be said that the first three Respondents and the Applicant

became

involved in a horizontal relationship. As there has never been a horizontal relationship between the parties, the first three Respondents cannot rely on the provisions of Se

ction 4 (1) (b) (ii) of the Act to oust this court’s jurisdiction.

23.

Mr Van der Walt’s reliance on the Nedschroef decision isin any eventmisplaced. This decisionis in turn based on two decision of the United States Supreme Court. The first decision was that ofUnited Statesv Topco Associates, decided on 29 March 1972. Topco involved a co-operative association’s relationshipwith25 small and medium sized regional supermarkets whose members were given exclusive territories for theretailsale of the associations branded products undercertainconditions, and restricted to areas, imposed by the association. The court held thatthesehorizontal restraints between competitors at the same level of the market structure to allocate market territories wereper seviolations of theShermanAct without regard to their reasonableness.

Mr Van der Walt’s reliance on the Nedschroef decision is

in any event

misplaced

. This decision

is in turn based on two decision of the United States Supreme Court. The first decision was that of

v Topco Associates, decided on 29 March 1972. Topco involved a co-operative association’s relationship

with

25 small and medium sized regional supermarkets whose members were given exclusive territories for the

retail

sale of the associations branded products under

certain

conditions, and restricted to areas, imposed by the association. The court held that

these

horizontal restraints between competitors at the same level of the market structure to allocate market territories were

violations of the

Sherman

Act without regard to their reasonableness.

24.

InJay Palmer vBRGof Georgia Inc, decided on 26 November 1990, the court held that an agreement between twoproviders of bar review courses that contained mutual covenants not to compete in the other provider’s market violated the Sherman Act. In paragraph 20 of this judgment I have set out the court’s findings.

In

Jay Palmer v

of Georgia Inc

, decided on 26 November 1990, the court held that an agreement between two

providers of bar review courses that contained mutual covenants not to compete in the other provider’s market violated the Sherman Act. In paragraph 20 of this judgment I have set out the court’s findings.

25.

In all three of these decisions the court was dealing with companies at the same level of the market structure with a capacity to compete with each other. All three cases had to do with market division. Topco had to do with defendants who had not competed in the same market. Jay Palmer had to do with parties who had competed in the same market. What was decided in Nedschroef was that an agreementbetween parties at the same level of the market structureto divide a market beforetheparties becomede factocompetitors was prohibited for the reasons set out in paragraph 44 of the judgment. The Tribunal described the parties to such an agreement as “potential competitors”. Here, the word “potential”was used as a noun (i.e. the latent quality or ability that may be developed and lead to future success). The word was not being used as an adjective (i.e. having the capacity to develop into something in the future) – see the Concise Oxford Dictionary.

In all three of these decisions the court was dealing with companies at the same level of the market structure with a capacity to compete with each other. All three cases had to do with market division. Topco had to do with defendants who had not competed in the same market. Jay Palmer had to do with parties who had competed in the same market. What was decided in Nedschroef was that an agreement

between parties at the same level of the market structure

to divide a market before

parties become

de facto

competitors was prohibited for the reasons set out in paragraph 44 of the judgment

. The Tribunal described the parties to such an agreement as “

potential competitors

”. Here, the word “potential”

wa

s used as a noun (i.e. the latent quality or ability that may be developed and lead to future success). The word was not being used as an adjective (i.e. having the capacity to develop into something in the future) – see the Concise Oxford Dictionary.

26.

Because the first three Respondents have nevercompeted with the Applicant at anylevel of the market structure, they cannot be said to be“potential competitors” in the sense in which these words are used in Nedschroef. That any one, or more, of them may havehadthe potential to develop into a competitor when they signed their employment agreement containingtherestraint is irrelevant. What must also be borne in mind is that having terminated their employment, the three Respondents are employees and not competitors.As to the meaning to be given to the words “potential competitor” it ishelpful to bear in mindthe European Union’s Guideline on the difference between an actual andapotential competitor. In footnote 9 at page 33 of the European OJC Series (reprinted from Westlaw 01.2001 C3/2 Celex 301Y0106 (01)) the following is said: “A firm is treated as a potential competitor if there is evidence that, absent the agreement, this firm could and wouldbe likely to undertake the necessary additional investments or other necessary switching costs so that it could enter the relevant market in response to a small and permanent increase in relative prices.This assessment has to be based on realistic grounds, the mere theoretical possibility to enter a market is not sufficient. …”In this application all thathas everexistedis a theoretical possibility that does not suffice.

Because the first three Respondents have never

competed with the Applicant at any

level of the market structure, they cannot be said to be

” in the sense in which these words are used in Nedschroef. That any one, or more, of them may have

had

the potential to develop into a competitor when they signed their employment agreement containing

t

h

restraint is irrelevant. What must also be borne in mind is that having terminated their employment, the three Respondents are employees and not competitors.

As to the meaning to be given to the words “potential competitor” it is

helpful to bear in mind

the European Union’s Guideline on the difference between an actual and

potential competitor. In footnote 9 at page 33 of the European OJC Series (reprinted from Westlaw 01.2001 C3/2 Celex 301Y0106 (01)) the following is said: “

A firm is treated as a potential competitor if there is evidence that, absent the agreement, this firm could and would

be likely to undertake the necessary additional investments or other necessary switching costs so that it could enter the relevant market in response to a small and permanent increase in relative prices.

is assessment has to be based on realistic grounds, the mere theoretical possibility to enter a market is not sufficient

. …

In this application all that

has ever

exist

ed

is a theoretical possibility that does not suffice.

27.

What further undermines Mr Van der Walt’s submission isthatassuming the parties to be in a horizontal relationship, thenon a proper construction of Section 4 (1) (b) (ii) of the Act, it can never be said that an otherwise enforceable restraint of trade that excludes the three Respondents from unlawfully competing with the Applicant amounts to “dividing the market by allocating customers, suppliers (or) territories.”By definition, an exclusionfor the periodof arestraint cannot amountto either adivision or an allocationof customers, suppliers or territories.

What further undermines Mr Van der Walt’s submission is

assuming the parties to be in a horizontal relationship, th

en

on a proper construction of Section 4 (1) (b) (ii) of the Act, it can never be said that an otherwise enforceable restraint of trade that excludes the three Respondents from unlawfully competing with the Applicant amounts to “

dividing the market by allocating customers, suppliers (or) territories.

By definition, a

n exclusion

for the period

of a

restraint cannot amount

to either a

division or an allocation

of customers, suppliers or territories.

28.

Based on the above considerations, I find that the somewhat strained meaning sought to be given to the words “competitor” or “potential competitor” do not assist the three Respondents. Part of their problem appears to arise from the fact thatit appears to me, from a very brief acquaintance with the Act that it wasnotintended to change the common law of employer / employee restraints, which are more than adequately protected by the ongoing development of our common law on such restraints. In the circumstances, this is not a statute to which the law of unintended consequences canor should beinvoked to give a benefit to persons for whom the Act was not primarily intended (seeBekker & Another v Jiko2003 (1) SA 113(SCA)at page 123D to F.)

Based on the above considerations, I find that the somewhat strained meaning sought to be given to the words “

” or “

potential competitor

” do not assist the three Respondents. Part of their problem appears to arise from the fact that

it appears to me

, from a very brief acquaintance with the Act that it was

ot

intended to change the common law of employer / employee restraints, which are more than adequately protected by the ongoing development of our common law on such restraints. In the circumstances, this is not a statute to which the law of unintended consequences can

or should be

invoked to give a benefit to persons for whom the Act was not primarily intended (see

Bekker & Another v Jiko2003 (1) SA 113(SCA)

2003 (1) SA 113

at page 123D to F.)

29.

Turning to Section 65 (2) of the Act the Competition Tribunal has not determined the issue raised in this application. I am only required to refer the issue to the Tribunalif I am satisfied that the issue has not been raised in a frivolous manner (see paragraph 10.5 hereof). In my judgment, the Respondents case, based on the provisions of the Act is hopeless. “There is authority for the proposition, which I endorse, that one who conducts a hopeless case actsfrivolously” – seeS v Cooper1977 (3) SA 475(T)at page 476D to G, cited with approval by Conradie JA inPlatinum Holdings (Pty) Ltd & 2 Others v Victoria & Albert Waterfront (Pty) Ltd & Another (SCA), unreported judgment in case number 03/428 handed down on 28 May 2004. In the circumstances there is nothing to refer to the Competition Tribunal, and in the result, the pointin limineis dismissed.

Turning to Section 65 (2) of the Act the Competition Tribunal has not determined the issue raised in this application. I am only required to refer the issue to the Tribunal

if I am satisfied that the issue has not been raised in a frivolous manner (see paragraph 10.5 hereof). In my judgment, the Respondents case, based on the provisions of the Act is hopeless. “

There is authority for the proposition, which I endorse, that one who conducts a hopeless case act

frivolously

” – see

S v Cooper1977 (3) SA 475

1977 (3) SA 475

(T)

at page 476D to G, cited with approval by Conradie JA in

Platinum Holdings (Pty) Ltd & 2 Others v Victoria & Albert Waterfront (Pty) Ltd & Another (SCA)

, unreported judgment in case number 03/428 handed down on 28 May 2004. In the circumstances there is nothing to refer to the Competition Tribunal, and in the result, the point

is dismissed.

THE MERITS

30.

I turn to the merits of the restraint. I have already dealt with the background giving rise to my hearing the application on 24 August 2006.

31.

Before I heard argument on the pointin limine, Mr Van der Walt told me that if I found against the Respondents on the pointin limine, he would ask me to receive an affidavit in which the Respondents deal extensively with the merits of the application brought against them. Given the background to this application – and, in particular, the two undertakings to file an answering affidavit before 15 August 2006, the court’s order of 15 August 2006 and the Respondents’ election when it filed its answer – I asked Mr Van der Walt on what authority he relied for adopting this novel approach. Apart from submitting that in urgent applicationsthis should be permitted, he was unable to refer me to any authority. What he could not suggest was any reason why the Respondents, who had been given a full opportunity to file an answering affidavit, should, in the event of the pointin liminebeing dismissed, be given a further opportunity to file an answering affidavit on the merits. Faced with the authority ofStandard Bank of South Africa Ltd v RTS Techniques & Planning (Pty) Ltd & Another1992 (1) SA 432(T), Mr Van der Walt could not advance any reason why I should give the Respondents an opportunity to file a further answering affidavit on the merits that would invariably have led to a further postponement of an urgent application that required a speedy resolution. I accordingly exercised my discretion against allowing the Respondents to file a further answering affidavit.

Before I heard argument on the point

, Mr Van der Walt told me that if I found against the Respondents on the point

, he would ask me to receive an affidavit in which the Respondents deal extensively with the merits of the application brought against them. Given the background to this application – and, in particular, the two undertakings to file an answering affidavit before 15 August 2006, the court’s order of 15 August 2006 and the Respondents’ election when it filed its answer – I asked Mr Van der Walt on what authority he relied for adopting this novel approach. Apart from submitting that in urgent application

this should be permitted, he was unable to refer me to any authority. What he could not suggest was any reason why the Respondents, who had been given a full opportunity to file an answering affidavit, should, in the event of the point

being dismissed, be given a further opportunity to file an answering affidavit on the merits. Faced with the authority of

Standard Bank of South Africa Ltd v RTS Techniques & Planning (Pty) Ltd & Another1992 (1) SA 432

1992 (1) SA 432

, Mr Van der Walt could not advance any reason why I should give the Respondents an opportunity to file a further answering affidavit on the merits that would invariably have led to a further postponement of an urgent application that required a speedy resolution. I accordingly exercised my discretion against allowing the Respondents to file a further answering affidavit.

32.

In the answering affidavit filed by the Respondents on 14 August 2006it is said that “there are many factual disputes between the parties that will come to light” when they file their answering affidavit. Promises to file such an affidavit before 14 August 2006 were not kept. Thecourt order requiring the Respondents to file their answering affidavit by 15 August 2006, which by implication included theirs dealing with the merits, was unmeritoriously ignored. In the result, there is no answering affidavit dealing with the merits.

In t

he answering affidavit filed by the Respondents on 14 August 2006

it is said that “

there are many factual disputes between the parties that will come to light

” when they file their answering affidavit. Promises to file such an affidavit before 14 August 2006 were not kept. The

court order requiring the Respondents to file their answering affidavit by 15 August 2006, which by implication included theirs dealing with the merits, was unmeritoriously ignored. In the result, there is no answering affidavit dealing with the merits.

33.

The issues on the merits raised in the answering affidavit filed on 14 August 2006 do not create any material dispute of fact. Accordingly, and on the merits, my decisionmust bebased on the Applicant’s founding affidavit and its reply insofar as it deals with the merits.

The issues on the merits raised in the answering affidavit filed on 14 August 2006 do not create any material dispute of fact. Accordingly, and on the merits, my decision

must be

based on the Applicant’s founding affidavit and its reply insofar as it deals with the merits.

34.

In the course of their employment with the Applicant, each of the three Respondents acquired trade secrets and confidential information of the Applicant. The restraints imposedon each of them were reasonable and enforceable for the purpose of protecting theApplicant’s legitimate interest.

In the course of their employment with the Applicant, each of the three Respondents acquired trade secrets and confidential information of the Applicant. The restraints imposed

on each of them were reasonable and enforceable for the purpose of protecting th

Applicant’s legitimate interest.

35.

It is clear that each of thefirstthree Respondents are, by reason of their employment with the Fourth Respondent, in breach of their separate restraint agreements.

It is clear that each of the

three Respondents are, by reason of their employment with the Fourth Respondent, in breach of their separate restraint agreements.

36.

Turning to the Fourth Respondent, it is clear that through its sole member, the husband of the First Respondent,it at all times knew that the First, Second and Third Respondent wereacting in breach of their restraints. TheApplicant states that theFourth Respondenthas intentionally usedthe three Respondents to breach their restraints and thereby created the situation whereby the Fourth Respondent could organise and promote the conferences referred to in paragraph 5.4.1 to 5.4.6 of the Notice of Motion. Such conferences are the fruit of the unlawful acts of the four Respondents in using the Applicant’s confidential information and trade secrets. In respect of these conferences, the Applicant has made out a case for an interdict against the Fourth Respondent.Here I would refer to what was said inIIR South Africa BV (Incorporated in the Netherlands) t/a Institute for International Research v Tarita and Others2004 (4) SA 156(W)at pages 170I to 172A – a judgment with which the First Respondent is no doubt familiar. I also refer to what was said by a full bench of this division inthe unreported judgment ofIIR South Africa BV (Incorporated in the Netherlands) t/a Institute for International Research v Hall & Another (Case number A5017/03).

Turning to the Fourth Respondent, it is clear that through its sole member

, the husband of the First Respondent,

it at all times knew that the First, Seco

nd and Third Respondent were

acting in breach of their restraints. The

Applicant states that the

Fourth Respondent

has intentionally used

the three Respondents to breach their restraints and thereby created the situation whereby the Fourth Respondent could organise and promote the conferences referred to in paragraph 5.4.1 to 5.4.6 of the Notice of Motion. Such conferences are the fruit of the unlawful acts of the four Respondents in using the Applicant’s confidential information and trade secrets. In respect of these conferences, the Applicant has made out a case for an interdict against the Fourth Respondent.

Here I would refer to what was said in

IIR South Africa BV (Incorporated in the Netherlands) t/a Institute for International Research v Tarita and Others2004 (4) SA 156(W)

2004 (4) SA 156

at pages 170I to 172A – a judgment with which the First Respondent is no doubt familiar. I also refer to what was said by a full bench of this division in

the unreported judgment of

IIR South Africa BV (Incorporated in the Netherlands) t/a Institute for International Research v Hall & Another (Case number A5017/03)

37.

For these reasons, as amplified in the Applicant’s founding affidavit and in the reply, the Applicant is entitled to the relief set out in paragraph 2 to 5 of the Notice of Motion.In terms of paragraph 7 of the Notice of Motion, the Applicant is also entitled to a joint and several costs orderagainst the four Respondentsthat includes any reserved costs.

For these reasons, as amplified in the Applicant’s founding affidavit and in the reply, the Applicant is entitled to the relief set out in paragraph 2 to 5 of the Notice of Motion.

In terms of paragraph 7 of the Notice of Motion, t

he Applicant is also entitled to a joint and several costs order

against the four Respondents

that includes any reserved costs.

38.

To meet the urgency of this application I have had to preparethisjudgment in haste. I would like to thank both Counsel for providing me with supplementary heads dealing with the European and American lawthat I found of considerable assistance.

To meet the urgency of this application I have had to prepare

this

judgment in haste. I would like to thank both Counsel for providing me with supplementary heads dealing with the European and American law

that I found of considerable assistance.

39.

I accordingly make an order in terms of paragraphs 2 to 5 of the Notice of Motion, and paragraph 7, which costs order shall include any reserved costs.

_________________________IW SCHWARTZMANJUDGE OF THE HIGH COURTCounsel for the Applicant: Mr J Campbell SCInstructed by: Mr D WanbladDeneys Reitz AttorneysCounsel for the First to Fourth Respondent: Mr T Van der WaltInstructed by: Ms J VenterLeppan Beech IncorporatedDate of Judgment: 30 August 2006

_________________________I

W SCHWARTZMAN

JUDGE OF THE HIGH COURTCounsel for the Applicant: Mr J Campbell SCInstructed by: Mr D WanbladDeneys Reitz AttorneysCounsel for the First to Fourth Respondent: Mr T Van der WaltInstructed by: Ms J VenterLeppan Beech IncorporatedDate of Judgment: 30 August 2006