Maclear Financial Services (Pty) Ltd v Human (468/08) [2008] ZAECHC 43 (20 March 2008)

IN THE HIGH

COURT OF SOUTH AFRICA

(SOUTH EASTERN CAPE LOCAL DIVISION)

In the matter between: Case No: 468/08

MACLEAR FINANCIAL SERVICES (PTY) LTD APPLICANT

AND

NICOLAAS

JOHANNES HUMAN RESPONDENT

_________________

JUDGMENT

CHETTY, J

This is an application to enforce a covenant in restraint of trade by way of a permanent interdict. In J Louw and Co (Pty) Ltd v Richter and Others 1987 (2) SA 237 (N) Didcott J, with reference to earlier authorities including Magna Alloys and Research (SA) (Pty) Ltd v Ellis [1984] ZASCA 116; 1984 (4) SA 874 (A) succinctly stated the legal position at 243B-D as:-

“From the judgments that were delivered one learns the following, all of which is now clear. Covenants in restraint of trade are valid. Like all other contractual stipulations, however, they are unenforceable when, and to the extent that, their enforcement would be contrary to public policy. It is against public policy to enforce a covenant which is unreasonable, one which unreasonably restricts the covenantor’s freedom to trade or to work. In so far as it has that effect, the covenant will not therefore be enforced. Whether it is indeed unreasonable must be determined with reference to the circumstances of the case. Such circumstances are not limited to those that existed when the parties entered into the covenant. Account must also be taken of what has happened since then and, in particular, of the situation prevailing at the time enforcement is sought.”

In the context of this matter and the submissions advanced on behalf of the Respondent it is appropriate to refer to the remarks of E.M. Grosskopf J.A in Sunshine Records (Pty) Ltd v Frohling and Others 1990 (4) SA 782 (a) at 794B-E where the learned judge stated:-

“In determining whether a restriction on the freedom to trade or to practice a profession is enforceable, a court should have regard to two main considerations. The first is that the public interest requires, in general, that parties should comply with their contractual obligations even if these are unreasonable or unfair. The second consideration is that all persons should, in the interest of society, be permitted as far as possible to engage in commerce or the professions or, expressing this differently, that it is detrimental to society if an unreasonable fetter is placed on a person’s freedom to trade or to pursue a profession. In applying these two main considerations a court will obviously have regard to the circumstances of the case before it. In general, however, it will be contrary to public interest to enforce an unreasonable restriction on a person’s freedom to trade.”

Post constitutionally the common law position remains unaltered. As pointed out by Liebenberg J in Fidelity Guards Holdings (Pty) Ltd v Pearmain 2001 (2) SA 853 (SECLD) at 862B:-

“In so far as a restraint is a limitation of the rights entrenched in s 22, the common law as developed by the Courts, in my view, complies with the requirements laid down in s 36 (1)."

It is against this background that I turn to consider whether the applicant is entitled to the relief it seeks. The factual background is largely common case. On 7 October 2005, the respondent sold his medical aid brokerage business, Medcon, to the applicant for R633 000, 00 in terms of a written agreement of sale. Clause 24 of the agreement, under the rubric Restraint provided that:-

“The Seller shall not, for a period of 5 years from the effective date be interested or engaged, whether as proprietor, partner, director, shareholder, employee, member of a syndicate or otherwise howsoever in any business which carries on in competition to “the business” hereby sold and within a radius of 150 kilometres unless special arrangement and consent from buyer is obtained.”

A special condition, appended to the written agreement as paragraph 8 provided that:-

“Saleslady to undertake to sign employment contract in which she undertakes not to leave the business within a period of 12 months from the effective date.”

The relevance of this clause will be revealed in due course save to state at this juncture that the saleslady, a certain Ms Heidi Brown, resigned from her employment on 15 September 2006.

During January 2008 the applicant discovered that the respondent had opened a business, similar in all respects to Medcon in the Humansdorp area. His initial response was to obtain confirmation and he discovered that the respondent had indeed commenced a business styled Healthwise in the Humansdorp area. Notwithstanding the restraint in Clause 24 of the agreement, the applicant addressed a letter to the respondent congratulating him on his new venture but simultaneously expressed concerns that Ms Brown appeared to be operating as his agent in Port Elizabeth and its environs. The written assurance from the respondent that he would not breach the restraint clause was swift and this assurance placated the applicant. Unbeknown to the applicant however the respondent thereafter for reasons of self preservation breached the restraint clause and in his answering affidavit admits having done so. The reasons advanced for having done so are articulated thus:-

“19. I never intended to enter the Medical Aid market again after the sale of Medcon. However events have left me with no form of employment other than what I had been doing for twenty years. My health had suffered and the fact that I, after starting Healthwise after two years out of the industry, made me feel somewhat useful again and is helping in my recovery.

I submit that I have no alternate means to earn a living, and that given the circumstances of this matter I beg the court to find that the restraint of trade is unreasonable and therefore against public policy rendering the covenant in restraint of trade unenforceable in law and therefore not binding on me.

I further submit that the covenant in restraint of trade only seeks to protect the applicant in so far as me being in competition with the applicant. The Covenant’s purpose is to give the Applicant five years head start in this field of work. This to me

does not seem like a protectable proprietary interest.

I further submit that my bargaining power was somewhat unequal in weight to that of Mr Maclear and I was prepared at the time to sign any covenant in restraint of trade regardless of how unreasonable the clause was worded. As stated above I never intended to return to the industry again. I was just eager to obtain the value of the purchase price of the sale of Medcon in order to

establish means for my retirement.”

It will be gleaned from the aforegoing that the respondent disputes not only that the applicant has a proprietary interest that requires protection but that the restraint is unreasonable and contrary to the public interest. In as much as one may be tempted by maudlin sympathy to assist the respondent given his current financial predicament it is apparent from the papers and in particular the sale agreement that the restraint was imposed primarily, given the respondent’s business acumen in the field, to protect the applicant’s proprietary interests viz its client base and goodwill. It was no doubt because of these factors that the purchase price was agreed at R633 000, 00. To now suggest that they contracted on unequal terms is disingenuous.

There is furthermore no question that the covenant is unreasonable. The respondent opened Healthwise within a geographic area prohibited by the covenant. Notwithstanding, the applicant permitted him to ply his trade within the Humansdorp area. The fact that he found it “financially straining to commute to Humansdorp every day” was certainly no licence to do what he did. I am far from persuaded that the circumstances of this case are of such a nature that it can be said that the covenant is an unreasonable one. In any event, the respondent is not without a remedy. If he considers the ambit of the covenant oppressive he is at large to approach the applicant to agree to a relaxation of some of its terms. This, the clause allows him to do. However, no submissions were advanced before me in this regard and I am accordingly not at liberty to mero motu amend the terms of the covenant. The respondent is at liberty should he so desire to take steps in this regard.

In the result the following order will issue:-

The Respondent is prohibited until 7 October 2010 from being interested , or engaged, whether as proprietor, partner, director, shareholder, employee, member of a syndicate or otherwise however in any business conducted in competition to Medcon within a radius of one hundred and fifty kilometres from the Avenues Shopping Centre, Walmer, Port Elizabeth.

The Respondent is to pay the costs of this application.

_______

D. CHETTY

JUDGE

OF THE HIGH COURT

Date Heard: 13 March 2008

Date Delivered: 20 March 2008

For the Applicant: Adv N. Mullins instructed by Burmeister De Lange

For the Respondent: Mr K Fourie of Kevin E. Fourie Attorneys