PSG Wealth Financial Planning (Pty) Ltd v Louw and Others (556/2019) [2019] ZAECGHC 63 (18 June 2019)

IN THE HIGH COURT OF SOUTH AFRICA

[EASTERN CAPE DIVISION: GRAHAMSTOWN]

CASE NO. 556/2019

[REPORTABLE]

In the matter between:

PSG WEALTH FINANCIAL PLANNING (PTY) LTD Applicant

And

DAVID ABRAHAM LOUW

1st Respondent

MIDLAND BROKERS CC

(Registration No. 1985/008625/23) 2nd Respondent

GERBER BOTHA & GOWAR CONSULTANTS

(CRADOCK) CC t/a GBG CONSULTANTS CRADOCK

(Registration No. 2000/060440/23) 3rd Respondent

SANTAM LIMITED 4th Respondent

OLD MUTUAL INSURED LIMITED 5th Respondent

HOLLARD INSURANCE (PTY) LTD 6th Respondent

JUDGMENT

JOLWANA J

[1] The applicant approached this court by way of urgency seeking to enforce the restraint of trade agreement and confidentiality

undertakings given by the first and second respondents in favour of the applicant and to interdict the first and second respondents from breaking the said undertakings. Relief is also sought against the other respondents. However, only the first, second and third respondents oppose the relief sought by the applicant. The other respondents have indicated their intention to abide the decision of this court.

[2] On 08 March 2019 this court granted an interim order and the applicant now seeks its confirmation as well as other ancillary

relief foreshadowed in the notice of motion. The said interim order as amended on 11 March 2019 to correct paragraph numbering

reads as follows:

“1. A Rule Nisi is issued calling upon the respondents to show cause, if any, on 18 April 2019 at 09h30 as to why an order should not be granted in the following terms:

(a) That the first and second respondents be interdicted and restrained for a continuous period of twelve (12) months, commencing from the termination date, being 25 January 2019, and within the Republic of South Africa, directly or indirectly, through any entity, and whether for reward or not, from:

(i) soliciting or canvassing business or mandates from any of applicant’s clients; and or.

(ii) rendering any service or giving advice to, or doing any form of business with, any of Applicant’s clients;

“Client/s” being “a client in relation to the business and entity and/or client/s who was a customer, adviser, consultant or client of applicant during the period that First and/or Second Respondent associated with Applicant and as at 25 January 2019; and/or who was an adviser, consultant, or client of Applicant as at 25 January 2019 or whom the Second Respondent, First Respondent or any other representative of Second Respondent engaged or entered into negotiations, within the period of 12 months preceding 25 January 2019”.

“Business” being “that Business referred by First or Second Respondent to Applicant and such services being rendered, investments being made, a policy or loan being issued by an insurance company or financial institution to the proposer and/or any other business conducted by First or Second Respondent and/or Applicant from time to time”

(b) That the first and second respondents be interdicted and restrained from disclosing to any person any of the applicant’s confidential information, including but not limited to:

(i) the identity of the applicant’s clients and any information about those clients;

(ii) the services, investments, policies and insurance offered by the applicant to its clients;

(iii) any information and details of the applicant, which information and details are not readily available in the ordinary course of business to a competitor of the applicant.

(c) That the first respondent is directed to deliver up his personal computers/laptops and any external hard drives or memory storage devices and that of the second respondent to the applicant and in the company of a representative of the applicant, alternatively another party to be agreed between the parties, to erase any and all of the applicant’s confidential information from these computers laptops and external hard drives or memory storage devices by no later than five (5) days after confirmation of the rule nisi;

(d) That the first and second respondents are directed to deliver up any documents in their possession which constitute the applicant’s confidential information by no later than five (5) days after confirmation of the rule nisi;

“Confidential information” “as referred to in paragraphs (b), (c) and (d) above

being as defined in the association agreement concluded between the applicant and the second respondent on 22 September 2014.

(e) That the third respondent is directed to provide the applicant with the details of all the policies which have been transferred from the applicant to the first, second or third respondent since 25 January 2019, such information to be provided by no later than five (5) days after confirmation of the rule nisi;

(f) That until a period of 12 months after 25 January 2019 has expired, the third respondent is directed to notify the applicant should it receive any requests from the applicant’s clients for the appointment of the first, second or third respondents as their new broker;

(g) That until a period of 12 months after 25 January 2019 has expired, the third respondent is directed to notify the applicant of the transfer of any existing policy from the applicant to the first, second or third respondent;

(h) That the first, second and third respondents are directed to pay the costs of this application jointly and severally, and in the event of opposition by any of the other respondents, jointly and severally with such of the other respondents as may oppose;

2. That paragraphs 1 (a); (b); (c); (d); (e); (f); & (g) shall operate with immediate effect and insofar as computers and documents are to be handed over and certain information is to be erased in terms of those paragraphs, that part of the order dealing with the erasing of information be held in abeyance until confirmation of the rule.”

Background facts

[3] The applicant which previously conducted its business under the name of PSG Konsult Financial Planning (Pty) Ltd is a registered financial services provider. As required by the Financial Advisory and Intermediary Services Act (the FAIS Act)[1] and the Financial Sector Regulation Act[2] it is registered with the Financial Sector Conduct Authority (the FSCA Act) with registration number FSP 728. The applicant has a national footprint with clients all over the country to which it provides a wide range of financial services. These financial

services are provided by the applicant, inter alia, through its employees and independent contractors such as the first and the second respondents in terms of association agreements that it concludes with them from time to time.

[4] The first respondent is a sole member of the second respondent and he is now in the employ of the third respondent. The first respondent is a very highly experienced short term insurance broker who has been practising as such for a period spanning over two decades in the Somerset East Area. The second respondent has been in the short term industry in the Somerset East Area for even longer. It entered the short term insurance industry in 1985 then controlled by the first respondent’s father in law until 1995 when the first respondent took over the control of the second respondent servicing clients as a short term insurance advisor in the Somerset East Area. In 2005 he was employed by the applicant as a short term insurance advisor and established the applicant’s Somerset East branch of PSG Konsult Planning (Pty) Ltd, the name under which the applicant then operated.

[5] The applicant and the first respondent entered into their first association agreement on 29 August 2005 (the initial agreement). On 22 September 2014 the applicant and the second respondent represented by the first respondent concluded another association agreement (the second agreement). On 29 September 2014 the applicant and the first respondent effected an amendment to the initial agreement so as to align it with the second agreement replacing the first respondent with the second respondent in the initial agreement. However, nothing turns on the amendment agreement. On 25 January 2019 the first respondent sent a notice of termination of the initial agreement to the applicant alleging the latter’s breach of the said agreement.

[6] There are no fundamental differences between the initial and second agreements save for the period of restraint which is 6 months in the initial agreement and 18 months in the second agreement. It is worth mentioning that the first respondent claims to vaguely remember signing some documents round about the time that the amendment and the second agreements were signed. He also says that the important changes in the period of restraint which is 18 months and the change in the definition of client as contained in the second agreement were not brought to his attention. Had they been brought to his attention he would never have signed the second agreement as it is. Having said that I must point out that the validity of both agreements is not being challenged and is therefore not in issue.

The ownership of clients

[7] Central to the first and second respondents’ opposition to this application and therefore to the enforcement of the restraint of trade agreement is the issue of the ownership of the said clients. The issue of reasonableness or otherwise of the restraint of trade and confidentiality undertakings is raised in the context of these respondents’ vigorous contention that the clients they are alleged to have solicited are theirs. Therefore, in that context they are entitled to continue servicing their clients even through their employment with the third respondent. The third respondent is not involved at all either in the restraint of trade agreement alleged to have been breached or in the contest for the ownership of those clients. It is to this issue that I must first attend before dealing with the restraint of trade agreement and its alleged unreasonableness.

[8] The basis for the first respondent’s claim to ownership of the said clients is set out as follows in the answering affidavit:

“45. Clause 12 of the 2005 Agreement sets out various obligations undertaken by PSG. These include:

“12.1 To allow the Financial Planner Access to PSG client lists, details and particulars from time to time.

12.2 Never to make direct contact with the clients of the Financial Planner without the permission of the Financial Planner.”

46. These clauses draw an important distinction between PSG clients, who are those obtained from PSG client lists supplied from time to time, and the clients of the Financial Planner (with whom PSG cannot have any contact without permission of the Financial Planner).

47. Clause 13 of the Agreement then sets out that the clients of PSG (namely those referred to in clause 12.1) will be regarded and treated as clients of PSG. Clause 2.3 of the same Agreement defines clients as meaning those who were customers of PSG. It is thus important to bear in mind that the provisions of the Initial Agreement relating to this Application dealt with the clients of PSG, and did not deal with the clients of the Financial Planner – those clients referred to in clause 12.2.

48. On any ordinary logical interpretation, the clients of the Financial Planner (Me) referred to in clause 12.2 of the Initial Agreement are those clients initially recruited and procured by me while the PSG clients are those clients who were canvassed and recruited by other PSG representatives and whose details were furnished to me by PSG, as envisaged in clause 12.2 of JE2”

[9] The interpretation that the applicant attaches to clause 12 is very different to that of the first respondent. Applicant submits that this clause cannot be and should not be interpreted in isolation but should be interpreted in the context of the definition of “clients” in the initial agreement cross-referenced with the definition of “business”. On the interpretation of that clause, so the submission goes, in the context of how “clients” and “business” are defined the prohibition on solicitation applies to all clients serviced by the first and second respondents under both the initial and the second association agreements. Clause 12.2 was intended to prevent applicant’s other representatives from contacting those clients without the permission of the first respondent.

[10] The definition of clients in clause 2.3 of the initial agreement reads as follows:

“2.3 ‘client/s’ means an entity and/or client/s who is or was a customer, advisor, consultant or client of PSG during the period that the Financial Planner was associated with PSG and at the Termination date and/or who is or was an advisor, consultant or client of PSG as at the termination date or whom the employee or any other representative of the company engaged or entered into negotiations with within the period of 12 (twelve) months preceding the termination date.”

Business is defined as follows:

“ ‘business’ means that business referred by the Financial Planner to PSG and such services being rendered, investments being made, a Policy or loan being issued by an insurance company or financial institution to the Proposer and/or any other business conducted by PSG from time to time.”

[11] It is not clear to me how on the basis of clause 13 the first respondent attaches the interpretation that he does to clause 12 and attach a meaning that is contrary to the clear definition of “clients”. In my view, it is not possible to interpret clause 12 in the manner suggested by the first respondent without first reading into clause 13 something that is not there which is what the first respondent is apparently doing. Clause 13 to which first respondent refers reads as follows:

“13. Client Base

Clients (as defined) of PSG shall at all times be regarded and treated as clients of PSG. All clients details, particulars and databases shall at all times remain the sole and exclusive property of PSG and shall not be disclosed to any other party or entity without the written consent of PSG the intention being that ownership of the clients shall at all times remain vested in PSG”.

[12] I simply do not understand how the first respondent contends on the basis of clause 13 that there is a distinction in the sense of ownership between clients of PSG and those of the financial planner and at the same time say that the initial agreement dealt with the clients of the applicant, and did not deal with his clients – those clients referred to in clause 12.2. It is either that the initial agreement dealt with his clients or it did not. If it did not, as he says it did not, then the logical conclusion has to be that both clauses 12.1 and 12.2 were dealing with the applicant’s clients.

[13] If the first respondent’s submission that the initial agreement only dealt with the clients of the applicant and did not deal with his clients is correct, it follows that both clauses 12.1 and 12.2 dealt with two categories of the applicant’s clients as explained by the applicant. If the intention was to create the distinction now contended for by the first respondent, it seems to me that a clear provision to that effect would have been made in the initial agreement specifically dealing with the ownership of those clients. This is more so that the first respondent would continue servicing those clients and at the same time recruit new clients for the applicant.

[14] There is another difficulty with the first respondent’s contention that even prior to the termination date the first and second respondents had clients of their own which he says are the ones provided for in clause 12.2 which were not clients of the applicant. In essence the submission, as I understand it, is that even after the conclusion of the initial agreement the ownership of those clients remained vested in him and he serviced them as his clients in his capacity as an independent contractor for the applicant for which applicant got paid a 30% share of the commission.

The regulatory framework

[15] In the papers and during argument the ownership of clients in the context of the regulatory framework was not raised. However, I do believe that it is extremely relevant if one has regards to one of the purposes of the whole legislative framework being to afford protection to consumers and hold, through the licencing mechanism, all financial services providers accountable.

[16] Section 13 of the FAIS Act provides that:

“13(1) A person may not –

(a) carry on business by rendering financial services to clients for or on behalf of any person who –

(i) is not authorised as a financial services provider; and

(ii) is not exempted from the application of this Act relating to the

rendering of a financial service;

(b) act as a presentative of an authorised financial services provider, unless such person –

(i) prior to rendering a financial service, provides confirmation,

certified by the provider, to clients –

(aa) that a service contract or other mandate, to represent the provider, exists; and

(bb) that the provider accepts responsibility for those activities of the representative performed within the scope of, or in the course of implementing, any such contract or mandate; and

(iA) meets the fit and proper requirements; and

(ii) ….

(c) render financial services or contract in respect of financial services other than in the name of the financial services provider of which such person is a representative.”

[17] Section 13(1)(b) required the first respondent, prior to providing a financial service to clients to provide to those clients a certificate or confirmation by the applicant that he was mandated to represent the applicant and that the applicant accepted

responsibility for his activities performed in pursuance of the applicant’s mandate. Independent contractors such as the first and second respondents are, in my view, included in section 13(1)(b).

[18] Whilst it may be so that the second respondent had its own FSP licence and therefore was an authorised financial services provider,

section 13(1)(c) prevented the first and second respondents from rendering financial services to the clients other than in the name of the applicant whilst the association agreements between the first and second respondents and the applicant existed. Therefore, in my view, they were, as a matter of law, not their clients. The FAIS Act simply does not provide for the first and second respondents to provide financial services for themselves and at the same time provide financial services for the applicant under one licence, that of the applicant. The contention that they were independent contractors in their relationship with the applicant and they rendered services to their own clients and not applicant’s clients is unsustainable.

[19] The first respondent makes the following averment in his answering affidavit:

“68.3 I repeat my comments above that Midlands had its own FSP license during 2005[3] and the only reasons that the applicant’s FSP license was used, was because of the applicant’s insistence in this regard.

PSG further insisted that the FSP license of Midlands be cancelled.”

68.4 Both Midlands and I were well established in the short term insurance industry in 2005 and we certainly did not attempt to ‘enter the insurance industry’ at that time.

68.5 After my association with PSG, Midland and I acted as brokers of my clients, and rendered insurance services and advice to them.”

[20] Firstly, this submission makes it clear that the first respondent in his capacity as the sole member of the second respondent agreed not to use the second respondent’s own FSP licence which was readily available. Secondly, he further agreed to its cancellation. In so doing he made it impossible on any interpretation of the association agreements to have clients or even to hold on to the clients that were his and the second respondent’s before he joined the applicant. To put the law in simple terms one cannot have clients for purposes of providing or rendering financial services without an FSP licence.

[21] The initial agreement also contained clause 11.1 in terms of which the first respondent undertook: “At all times to publicly promote PSG’s, good name, to build an objective, consultant image to the public and always be professional in his/her/or its conduct.” I do not see how it would have been possible for the first respondent to comply with this undertaking and still comply with section 8 (8) of the FAIS Act.

[22] Section 8(8) of the FAIS Act provides that:

“A licensee must –

(a) display a certified copy of the licence in a prominent and durable manner within every business premises of the licensee;

(b) ensure that a reference to the fact that such licence if held is contained in all business documentation, advertisements and other promotional material; and

(c) ensure that the licence is at all times immediately or within a reasonable time available for production to any person requesting proof of licensed status under authority of a law or for the purpose of entering into a business relationship with the licensee.”

[23] In the relationship between the applicant and the First Respondent the financial services provider was the applicant and it is its licence that had to be displayed to clients including the clients that were, prior to the conclusion of the initial agreement, clients of the first respondent under the FSP number of the second respondent as they were, at that stage, serviced under the licence of the applicant.

The breach of the restraint of trade agreement

[24] The events leading to the alleged breach of restraint and confidentiality undertakings are stated as follows by the applicant

in its founding affidavit:

“25.15 In November 2018, the First Respondent issued purported Notices of Breach to the Applicant, based on the Initial Agreement (not taking into account the provisions of the Amended Agreement or the Second Association Agreement) as a consequence of the First Respondent’s view that the Applicant owed him money. The Applicant persisted with its denial that any monies were owing to the First Respondent.

25.16 The First Respondent (in his personal capacity and in his representative capacity on behalf of the Second Respondent) issued a purported Notice of Termination of the Initial Agreement on 25 January 2019, relying on clause 20.2 of the Initial Agreement, recording the Applicant’s failure to remedy its “breach” and purporting to terminate the Initial Agreement.

25.17 The Applicant contends that the “Notices of Breach” and the purported “Notice of Termination” by the First and Second Respondents are invalid and of no force and effect.

25.18 The First and Second Respondents however proceeded on the basis of the First Respondent’s belief that the Initial Agreement (as amended) (and presumably, the Second Association Agreement) had been terminated and the First Respondent has consequently formed an association with the third respondent, which the first, second and Third Respondents described as an “amalgamation”.

25.19 It is common cause that the First and Second Respondents have now taken up business with the Third Respondent and that they are now conducting short-term insurance and financial services business for their joint benefit in direct competition with the Applicant). The extent to which they are actively soliciting the clients of applicant in order to do so has only now recently become apparent. Given the total attack on Applicant’s clients, which the First and Second Respondents think they can engage in with impunity it has become extremely urgent for the interdictory relief which is being claimed herein to be obtained.

25.20 On 12 February 2019, I gained access to the PSG email address of the First Respondent.

25.21 On gaining access to the emails I became aware of 23 email notifications of the cancellation of the Applicant’s appointment as the broker for clients of the Applicant with Old Mutual Insure which had been sent to the First Respondent’s PSGW (Applicant’s) email address 0n 6 and 8 February 2019.

25.22 I have since then conducted further investigations and it appears that the First Respondent and other representatives of the Second Respondent had caused more than 100 clients of the Applicant to terminate the broker’s appointment of the Applicant.

25.23 Letters were sent to First Respondent directly by the insurer. This was so because the First Respondent was an authorised representative of Applicant, had been allocated a specific product provider code by the Applicant to identify him as the relevant adviser for the client. In this context, First Respondent was identified and as such received the correspondence relating to the clients.

25.24 Some 100 such letters have already been sent to date. First Respondent had 615 policies (provided that he had uploaded everything on to the Applicant’s CRM system), of which, at this stage, he has already caused about a 5th of the policy holders to terminate the policies placed with the insurers under Applicant’s FSP code number. This quite clearly has caused Applicant to suffer the loss of income (30% of the commission) it would otherwise have earned on these insurance policies.

25.25 My investigations have also now revealed that the First Respondent already started soliciting, persuading or requesting clients last year to move their business or policies from the Applicant to the Third Respondent.

25.26 On 25 February 2019 the email below was sent to Applicant - clear proof of the fact that First and Second Respondents have been actively soliciting business from the Applicant, since it appears January of this year.

25.27 Given the importance thereof I reproduce it in full in this affidavit. A copy thereof together with the annexures to the email which was sent to the listed clients is also annexed hereto marked “JE1A”, “JE1B”, “JE1C”.

25.28 The email addresses of the clients (of Applicant) to whom the email below was sent would have been kept of Applicant’s database and removed from its database by the First Respondent in breach of the confidentiality undertakings quoted herein below.”

[25] There is no disagreement or issue about how the events unfolded as summarised above by the applicant, much of this narration is common cause or not disputed. The email referred to above was sent by the first respondent at 16:49 on 25 January 2019 from an email address davidl@gbggroup.co.za. It is addressed to a number of recipients and it reads as follows:

“Dear valued client

Please note the following important information. I have decided to join the GBG group as of 29 January 2019.

1. The offices will be located at 58 Nojoli Street, Somerset East.

2. Contact details are as follows:

Land line: 042 243 1139

Fax : 086 572 5823

Cellphone: 082 773 8857

Postal address: P.O Box 150, Somerset East, 5850

Email: davidl@gbggroup.co.za

Charmaine Dersley charmaine@gbggroup.co.za 083 468 0859

Dayle Els dayle@gbggroup.co.za

Engle–Mari Louw engle@gbggroup.co.za

I and the abovementioned staff are available to be your broker, servicing you with the same quality service as in the past.

We shall be in contact with you in the near future to discuss the options available to you as our valued client.

Should you wish to retain our services as your broker, kindly sign and return the attached appointment

Should you incur any problem in returning the form to us, we shall gladly assist.

Our aim is to continue providing an excellent service at all times

Please feel free to contact us should you have any questions or require clarity on any issues.

Kind regards

David Louw & team

David Louw

[26] It is evident from the email itself that in sending the above email the email signature of the third respondent was used and the email was sent to the clients or some of the clients that the first and second respondents serviced in terms of the association agreements. In the main the first respondent admits sending the email but contends that the recipients are his clients whom he, through his own efforts and those of the second respondent and its employees, had recruited and furnished with advice and that relationships were built up with those clients. Basically the first respondent claims that those were his clients and he had sent that email subsequent to his cancellation of the association agreements with the applicant.

The restraint agreement.

[27] The initial agreement contained the following restraint of trade and confidentiality undertakings:

“16. CONFIDENTIALITY, PROPERTY OF PSG AND RESTRAINT OF TRADE

16.1 The parties agree that all information supplied by the Financial Planner to PSG and vice versa shall be regarded as confidential.

16.2 All documents or information (confidential or otherwise) received by the Financial Planner from PSG will remain the property of PSG and shall be returned to PSG on request or at the termination of this Agreement. Should the Financial Planner fail to comply with this provision, PSG will be entitled to stop or suspend payment of any amounts due to the Financial Planner until such time as the Financial Planner has complied with this clause.

16.3 PSG shall be entitled to all designs, models, trademarks, diagrams, copyright, patents and intellectual property rights resulting from work the Financial Planner performs or the services rendered during the period of this agreement both in the Republic of South Africa and/or any other country and the Financial Planner undertakes to do all things necessary so as to give effect to this.

16.4 It is recorded and agreed that

16.4.1 the business is highly competitive;

16.4.2 PSG has valuable trade and business connections;

16.4.3 by reason of the Financial Planner’s prior direct or indirect interest in the business, as well as his/her/its appointment in terms of this agreement, the Financial Planner has and will acquire an in depth knowledge of the confidential information and the opportunity to lodge personal links and develop relationships with PSG’s clients;

16.4.4 should the Financial Planner sever his/her/its association with PSG and make the confidential information available to any person, entity competitor or client of PSG or utilise such confidential information in competition with PSG, it would cause PSG to suffer financial loss;

16.4.5 benefits have directly or indirectly accrued or will accrue to the Financial Planner arising out of this agreement;

16.5 It is accordingly necessary for PSG, in order to protect its goodwill and legitimate proprietary interests in the confidential information and other legitimate interests to conclude an agreement with the Financial Planner pursuant to which the Financial Planner will be restricted in certain and limited respects.

16.6 In consideration of the various matters referred to above, and in accordance with the agreement reached between the parties, the Financial Planner now agrees and undertakes to and in favour of PSG that;

16.6.1 the Financial Planner shall not directly or indirectly whilst an advisor or PSG or at any time after signature of this agreement use the confidential information for his/her/its own benefit or the benefit of any other person or entity, and shall furthermore not disclose any confidential information to any third party or entitles other than those persons or entitles, connected with PSG, who are required and entitled to have that information;

16.6.2 the Financial Planner as well as any entity in which he/she/it is directly interested shall not, except in the normal cause of the company’s business during any month of the restricted period and in the restricted area, directly or indirectly through any entity and whether for reward or not.

16.6.2.1 solicit or canvass business or mandates from any of PSG’s clients;

16.6.2.2 render any service or advice to or do any form of business with any of PSG’s clients;

16.7 Notwithstanding the contents of 16.6.2 above it is specifically recorded that clause 16.6.2.2 shall not apply if any client contacts the Financial Planner of their own volition after the expiry of a period of 6 (months) calculated with effect from the termination date;

16.8 The Financial Planner shall nor, either for the Financial Planner’s own account (or as representative or agent for any third party), whilst a Financial Planner of the company or thereafter and during any month of the restricted period, persuade, induce, encourage or procure any other employee or advisor employed or appointed by the company (including any employee/advisor employed/appointed by PSG within a period of 6 (six) months prior to the termination date);

16.8.1 to become employed by or interested directly or indirectly in any manner whatsoever, in any competitive activity or business or

16.8.2 to terminate his/her/its employment or association with PSG; or

16.8.3 to furnish any confidential information acquired by that employee/advisor as a result of his/her/its employment/association by/with PSG, to any unauthorised person or entity.

16.9 The Financial Planner further agrees that.

16.9.1 the restrictions imposed upon him/her/its in terms of this Agreement (interpreted in their widest sense as contemplated below are reasonable as to subject matter, period and area and that the said restrictions are fair, reasonable and justifiable (taking into consideration, his/her/its personal knowledge, wholly or partially of the confidential information, the considerable loss which PSG would suffer if the Financial Planner were to disclose such confidential information to any unauthorised person or entity or make his/her expertise, knowledge and experience available to a client of PSG, and the direct or indirect benefits referred to in this agreement) and go no further than is reasonably necessary to protect the proprietary rights and legitimate interests of PSG;

16.9.2 this agreement is entered into upon the basis that it is a material term of this agreement that the company would be entitled to the benefit of the restrictions as set out in this Agreement interpreted in their widest sense;

16.9.3 the stipulations in this agreement are separate, severable and independent stipulations in favour of;

16.9.3.1 PSG

16.9.3.2 any successors in title of such parties; and for purpose of this clause “successors in title” means any person or entity who acquires the business or becomes the beneficial owner of the business through its shareholding in any company or acquires the right to manage the business or has acquired by cession the rights to enforce the restrictions embodied herein;

16.9.4 which are capable of acceptance and enforcement by any such parties or successors in title at any time hereafter in any combination of one or more of them;

16.9.5 the provisions of this agreement shall be constructed as imposing separate, severable and independent restrictions in respect of ;

16.9.5.1 each of the months failing within the restricted period;

16.9.5.2 each province, division or council area, municipal area, magisterial district town and locality falling within the restricted area;

16.9.5.3 each category of person falling which the definition of clients;

16.10 The restrictions set out in this agreement shall be given the widest possible interpretation and no restriction or combination of restrictions shall be limited by reference to or inference from or to any other restriction or combination of restrictions, provided, however, that the invalidity or enforceability of any one or combination of restrictions referred to above (including the restrictions interpreted in their widest cumulative senses aforesaid) shall not affect the validity and enforceability of the other restrictions referred to in this agreement or any other combination of such restrictions;

16.11 The Financial Planner hereby further agrees and acknowledges that he/she/it has carefully read the provisions of the restrictions contained in this agreement and fully realises the implications and effect of the provisions thereof and has entered into such restrictions and restraints freely and voluntarily and that such restrictions will not cause him/her/it any hardship which he/she/it is not willing to bear in return for the benefits referred to in this agreement.”

[28] The respondents make the following averments in their answering affidavit:

“53. On 29 September 2014 an amendment to the October 2005 Agreement was concluded, Annexure JE3 to the founding affidavit. The second Association Agreement on which applicant relies, Annexure JE4 to the founding affidavit, was concluded a mere 7 days earlier, on 22 September 2014. I admit that I signed both Agreements.

54. I have no independent recollection as to the signing of Annexures JE3 or JE4. I point out that it is somewhat strange to effect an amendment to the August 2005 Agreement, as per Annexure JE3 and to replace that agreement in its entirety with the second Association Agreement, a mere 7 days earlier. I point that Rosalind Schultz, the PSG Western Cape and Eastern Cape Regional Manager, used to visit the offices in Somerset East on average two times a year. On each such visit she would discuss a host of issues with me and frequently have me sign several documents. I vaguely recall, at some point in time (which may well have been during 2014) her submitting contracts to me and stating that the contracts were primarily intended to reflect the

fact that PSG Consult Financial Planning (Pty) Ltd (the contracting party in respect of Annexure JE2) was being replaced by PSG Wealth Financial Planning (Pty) Ltd. I also recall her mentioning that it was necessary to record the fact that Midland Brokers CC was the party employing various personnel who were assisting me in running the brokerage. I did not read the two agreements, Annexure JE3 and JE4, through in any detail and Ms Schultz did not discuss these provisions with me in any detail. I now notice that clause 8 of Annexure JE3 stipulates that Midland Brokers will take over most of the responsibilities of PSG, including the responsibility to pay the monthly contribution for which provision is made in clause 8 of the 2005 Agreement. This was never pointed out to me at the time of signing and I would not have agreed to such a provision, had I known about it when signing the document, because it makes no sense whatsoever. I was the member of Midland Brokers CC and to all intents and purposes, the party in control of its affairs. In effect clause 8 of the amendment suggests that I must pay myself a contribution for incurring various expenses which I was obliged to incur, under the 2005 Agreement.

55. Important changes brought about by the second Association Agreement were:

55.1 That the definition of the term ‘client’ as contained in clause 13 of the first Association Agreement, compared to clause 12 of the second Association Agreement, was changed in a vital respect. The first Association Agreement provided that clients of PSG would at all times “be regarded and treated as clients of PSG”, while the second did not contain that limitation. Instead, it stated that “all clients and proposers shall at all times be regarded and treated as clients of PSGW”. The clause, in other words, suggested that even my own clients, as referred to in paragraphs 46 and 47 above, would henceforth be regarded as PSGW clients. This was never discussed with me and I would certainly not have agreed to such a term, if I had been made aware thereof at the time of signing the Agreement;

55.2 The restraint period imposed in clause 2.21, read with clause 16.62 of the first Association Agreement was changed from 6 to 18 months (clause 2-26 read with clause 15.6 of the second Association Agreement). This was never even mentioned to me by Ms Schutlz, or anyone else. I would certainly have recalled such a discussion and would have objected vigorously to such an increase. The reason why both the 6 and 18 months periods are wholly unreasonable is dealt with in paragraph 57 below, but the point is that this was never discussed with me, and would not have been agreed to by me had I been made aware of the term”

[29] Two very important points need to be emphasized. The first one is that the validity of the second agreement is not in issue. It remains valid and binding to all concerned. The second point is that it is indeed so that the second agreement concluded in 2014 is more elegantly couched in clearer terms than the initial agreement concluded in 2005. However, as already indicated above even on the 2005 initial agreement all clients are, in my view, clients of the applicant.

[30] The initial agreement was entered into and in terms thereof was effective on 29 August 2005. The second association agreement

was signed by both parties on 22 September 2014. However, the effective date thereof was agreed to be the 30 September 2005.

This means that the second agreement was made to cover the entire period during which the initial agreement was effective. Save for some expressed reservations about the circumstances in which it may have been signed and unhappiness about some of its clauses its validity is not being challenged or questioned.

Reasonableness of the restraint and confidentiality provisions

[31] The first and second respondents object to the restraint of trade and confidentiality provisions very strenuously on the basis that they are unreasonable and therefore unenforceable. In their answering affidavit the objection is couched in the following terms:

“57 I have approximately 550 clients with approximately 615 policies, Mr de Bruin (or any other person that PSG may elect) could contact my clients by email. PSG has all of their contact details. Mr de Bruin could also telephonically contact my clients. It must be borne in mind that PSG has vast personnel resources at its disposal, and could easily arrange for several other PSG employees to assist him in this task. Lastly, Mr de Bruin or any other PSG representative could arrange to have an initial introductory meeting with the clients. Such introductory meeting requires no longer than an hour, and it would be possible to see 10 such clients a day. Somerset East is a small town, traveling from one client to another takes very little time. The point is this, therefore, that it would be possible to call on all these clients over a period of 60 work days, or 3 months. There is no need whatsoever for the restraint imposed on First or Second Respondent to be for an 18 month period. The only reason why Applicant wishes to enforce a restraint agreement for such an inordinately long period of time is to prevent First and Second Respondents from making contact with their own clients, and to prevent them from competing with Mr de Bruin (or whatever other sales people PSG may appoint). PSG does not only want to enable Mr de Bruin to contact the prospective clients, but wishes to eliminate the competition so that the clients will be forced to deal with Mr de Bruin”

[32] The main contention of the respondents is that as a matter of law it is against public policy to enforce a covenant in a restraint of trade which unreasonably restricts the covenanter’s freedom to trade or work. So important is this old principle of our law that it also finds direct expression in the Bill of Rights[4]. These respondents place reliance in the main on the case of Reddy v Siemens Telecommunication (Pty) Ltd[5] in which the court articulated the legal position and also affirmed the validity of the restraint of trade agreements under the

constitutional dispensation in the following terms:

“[15] A court must make a value judgment with two principal policy considerations in mind in determining the reasonableness of a restraint of trade. The first is that the public interest requires that parties should comply with their contractual obligations, a notion expressed by the by maximum pacta servanda sunt. The second is that all persons should in the interest of society be productive and be permitted to engage in trade and commerce or the professions. Both considerations reflect not only common law but also constitutional values. Contractual autonomy is part of freedom informing the constitutional value of dignity, and it is by entering into contracts that an individual takes part in economic life. In this sense, freedom to contract is an integral part of the fundamental right referred to in s 22. Section 22 of the Constitution guarantees’ [e]very citizen … the right to choose their trade occupation or profession freely reflecting the closeness of the relationship between the freedom to choose a vocation and the nature of a society based on human dignity as contemplated by the Constitution. It is also an incident of the right to property to the extent that s25 protects the acquisition, use, enjoyment and exploitation of property, and of the fundamental rights in respect of freedom of association (s 18), labour relations (s 23) and cultural, religious and linguistic communities (s 31).

[16] In applying these two principal considerations, the particular interests must be examined. A restraint would be unenforceable

if it prevents a party after termination of his or her employment from partaking in trade or commerce without a corresponding interest

of the other party deserving protection. Such a restraint is not in the public interest. Moreover, a restraint which is reasonable as between the parties may for some other reason be contrary to the public interest. In Basson v Chilwan and Others, Neinaber JA identified four questions that should be asked when considering the reasonableness of a restraint:

(a) Does the one party have an interest that deserves protection after termination of the agreement?

(b) If so, is that interest threatened by the other party?

(c) In that case, does such interest weigh qualitatively and quantitatively against the interest of the other party not to be economically inactive and productive?

(d) Is there an aspect of public policy having nothing to do with the relationship between the parties that requires that the restraint be maintained or rejected? Where the interest of the party sought to be restrained weighs more than the interest to be protected, the restraint is unreasonable and consequently unenforceable. The enquiry which is undertaken at the time of enforcement covers a wide field and includes the nature, extent and duration of the restraint and factors peculiar to the parties and their respective bargaining powers and interests.

[17] The common-law approach in balancing or reconciling the concurring interests in this manner gives effect to the precepts of s 36 (1) of the Constitution:

‘The rights in the Bill of Rights may be limited only in terms of law of general application to the extent that the limitation is reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom, taking into account all relevant factors, including –

(a) the nature of the right;

(b) the importance of the purpose of the limitation;

(c) the nature and extent of the limitation;

(d) the relationship between the limitation and its purpose; and

(e) less restrictive means to achieve the purpose’.

An agreement in restraint of trade is concluded pursuant to the law of general application referred to in s 36(1). What is meant by this expression includes the law in the general sense of the legal system applicable to all which in this case, consists of the corpus of law generally known as ‘the law of contract’ and which allows for contractual freedom and the conclusion of agreements pursuant thereto. The four questions identified in Basson comprehend the considerations referred to in s 36(1). A fifth question, implied by question (c) which may be expressly added, viz whether the restraint goes further than necessary to protect the interest, corresponds with s 36(1)(e) requiring a consideration of less restrictive measures to achieve the purposes of the limitation. The value judgment required by Basson necessarily requires determining whether the restraint or limitation is ‘reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom’.”

[33] It is common cause that long before the conclusion of the initial agreement the first and second respondents had been rendering

brokerage services in Somerset East to their clients. It is also common cause that when the initial agreement was concluded the second respondent conducted its brokerage under its own FSP number. It is further common cause that after the conclusion of the initial agreement the first respondent agreed to the cancellation of the second respondent’s FSP number and used the FSP number of the applicant to service all clients. The respondents contend that “[t]here is no suggestion that respondents could not, after commencement of the Initial Agreement, not have continued utilising their own FSP number and nothing therefore turns on the fact that the applicant’s FSP number was used, once the Initial Agreement

commenced operating.”

[34] I am unable to agree with this submission because it ignores two fundamental facts. Firstly, the second respondent which had an FSP number of its own was not a party to the initial agreement and the first respondent had no FSP number. The fact that the first respondent was a sole member of the second respondent does not mean that the first respondent had its own FSP number which it could use without the agreement between the applicant and the second respondent.

[35] The procurement of clients by the first respondent in terms of the initial agreement and the second respondent in terms of the second agreement is exactly what those agreements were all about, the procurement of clients for the applicant. To procure those clients the applicant insisted that its licence be used and the first respondent agreed. Whether or not the second respondent’s licence was at some point readily available is irrelevant as it was never used and was in fact subsequently cancelled.

[36] The respondents made a submission that because the first and second respondent did all the work of procuring clients, interacting with them and furnishing advice to the clients, connections that were created as a result are those of the first and second respondents as would happen in a franchise context. The submission is that both agreements, correctly analysed are akin to a franchise

relationship. Based on this submission reliance was placed on U-Drive Franchise Systems Pty Ltd v Drive Yourself (Pty) Ltd and Another 1976 (1) SA 137 (D) in which the court said:

“I do not think that it can be said that the business built up by the franchisee is, even in a general sense, the business of the franchisor. Clause 8 of the franchise agreement certainly restricts the rights of the franchisee in relation to the sale of the business. It is nevertheless clear, in my view, that, subject to those restrictions, the franchisee’s business belongs to him and he is entitled to the proceeds thereof if he sell it. Furthermore, it seems to me that while the applicant is entitled to protection of trade, connections built up by itself, the customer connections built up by the respondent while using the applicant’s name (for which it paid the franchise fee and monthly commission) must be regarded as the respondents’ ‘property’ with this rider, that cross-referred customers cannot be regarded as a trade connection built up by the respondents, since the cross referrals do not depend on their efforts or activities.”

[37] In this matter both agreements are not franchise agreements. This clearly makes this case very distinguishable to U-Drive. Secondly, I am not aware of any decision by any of our courts in which an agreement akin to the two agreements in this matter the court used the franchise agreement principles. I was not referred to any authority in this regard. In U-Drive Milne J also said that:

“[I]t is necessary to examine the nature of the business conducted by the applicant. That business is, it seems to me, to deal in franchises.”

[38] In my view, U-Drive makes it clear that the nature of the business must be examined and determined. If the parties wanted to enter into a franchise agreement or one akin to it they would have done so. It matters that they agreed to shape their relationship differently. I cannot see how a court could import principles and the legal position applicable to franchises when that was clearly not the intention of the parties.

[39] In BKB Limited and Another v Collins and Another (1016/2011) [2011] ZA ECGHC 107 (12 May 2011) Pickering J stated that:

“[I]n the absence of an agreement between the broker and the Financial Services Provider specifying otherwise, the accepted norm is that the Financial Services Provider retains a proprietary right to all information which it has collated in respect of clients who have appointed the Financial Services Provider as a broker or insurance agent to act on their behalf. The extent of a broker’s rights to commission to insurance policy sold remains dependent upon the contractual agreement concluded between the broker and the Financial Services Provider”

[40] I agree with these sentiments and I add that who the financial service provider is, is itself determined by the licence on which those clients were dealt with. In other words the licence determines the relevant financial services provider and therefore

ownership of the clients. It would make no sense for the contract to say that the ownership of clients vests in somebody else and yet the licence displayed belongs to somebody else. This is so because the licence determines the party that is accountable in terms of the FAIS Act – a very important issue about which there should be no confusion so that a financial services consumer is not prejudiced by the contractual arrangements between the broker and the Financial Services Provider.

[41] Therefore, what my brother Pickering J called “agreement concluded between the broker and the Financial Services Provider”

falls in the realm of freedom to contract about which the parties are at liberty to specify in the contract in whichever way they choose. However, the legal ownership of a client cannot be a matter only of the contractual arrangements where such contractual arrangements are not aligned to the regulatory framework and may in fact prejudice consumers who could suffer damages due to inappropriate financial advice.

[42] It seems to me that in restraint of trade matters courts generally embark on a two stage enquiry. The first enquiry is whether there is an enforceable restraint of trade agreement. It is not difficult to imagine a situation in which the restraint of trade agreement is embodied in a contract which is unenforceable for one reason or the other. If, for whatever reason, the conclusion is that the contract was not authorised and is therefore said to be invalid, that is a different matter altogether to a case where that is not in issue at all. One other example would be where the independent contractor or employee were to allege that the contract that he or she signed did not have a restraint clause by way of another example. The second enquiry is whether the restraint of trade provision is reasonable or not. In this leg of the inquiry the length of the period of restraint in relation to what it seeks to achieve becomes relevant. The issues of whether or not it was not entered into for the sole purpose of eliminating competition with no corresponding interest to the person who seeks to enforce it are all matters that would feature prominently.

[43] In this matter the first and second respondents accept that there is a valid restraint of trade agreement between them and the applicant. However, many reasons are cited why the court should refuse to enforce the restraint of trade and confidentiality provisions contained in the two association agreements. The respondents make the following submissions in their answering affidavit.

“52. The confidentiality provisions and restraint of trade provisions contained in JE2 and JE4 do not entitle PSG to lay claim to referred in paragraph 51 above, information pertaining to my clients, and nor do these provisions entitle PSG to restrain me or any other party from continuing to deal with and provide services to my clients after termination of the Initial Agreement. If it is the contention of PSG that the relevant clauses oblige me or the Second Respondent to furnish to PSG information regarding my clients, or to refrain from dealing with such clients in the alleged six month or 18 month restricted restraint period (or any part thereof), then I point out that:

52.1 Such an interpretation cannot be correct, and loses sight of the distinction to be drawn between my clients and the PSG clients, as highlighted above:

52.2 Such an interpretation would have the effect that I am obliged to refrain from dealing with my own clients, and that I am obliged to make available to PSG details and information pertaining to my clients, at no cost or remuneration. That, in effect, would be tantamount to effecting an expropriation of my and/or the Second Respondent’s business and the compulsory transferring of such business to PSG. The clause, interpreted in the aforesaid manner, would serve no other purpose than to prevent Second Respondent and myself from competing with PSG and/or to compel Second Respondent and myself to remain associated with PSG in what amounts to a state of commercial slavery;

52.3 The interpretation of the restraint provisions which applicant puts forward, in support of the relief sought by it in the Notice of Motion, is that clause 16.2 of the 2005 Agreement obliges me, on termination of the Agreement, to furnish to PSG the details of my own clients, procured by me at my cost and through my efforts and the efforts of the employees remunerated by me. Applicant furthermore contends that clause 16.6 of the Initial agreement has the effect that, during the 6 month restraint period, I may not solicit any business from my own clients or render any services to my own clients. This will amount to an expropriation of the clientele built up by me, at my own cost and by reason of my own efforts, over the years, as explained above. It will also have the consequence that I will, for a period of 6 months after terminating my relationship with PSG, be deprived of an income. I will have to build up a clientele from scratch and that is a time- consuming process. In effect, clause 16.6, on the interpretation adopted by Applicant, will make it impossible for me to ever terminate the relationship with Applicant, and will place me in the position of commercial slavery towards Applicant for the rest of my career as a broker. This is aggravated by the fact that clause 11.8 read with clause 11.27 of the 2005 Agreement prevent me from dealing with any insurance company or financial institution with which PSG has an agreement (obviously an agreement entitling it to commission). The sole purpose of this provision is to prevent me from at any later stage competing with PSG.

52.4 The clause also has the effect that my clients, procured by me and serviced by me at my cost as already explained, will be deprived of the right to utilize the broker of their choice – and, in particular, their right to employ my services as a broker if they so wished. Annexed hereto, marked “DL6 – DL8”, are various letters from clients of mine confirming that, although I am no longer associated with PSG, they wish to continue utilizing my services as a broker. The relief which Applicant seeks would mean that they, despite their having excised their aforesaid right and entitlement, are precluded from utilizing my services. It is not only wholly unconscionable for Applicant to seek such relief, in the circumstances, but it is also not procedurally possible to obtain such relief without joining the clients in question, whose contractual rights the Applicant seeks to subvert, in these proceedings.

52.5 Any contractual provision having the effect as referred to above would constitute a wholly unreasonable restraint of trade, would be contra bonis mores and therefore illegal, and would clearly fall foul of the provisions of Section 48(1) of the Consumer Protection Act (under which Act 1 clearly enjoy a number of rights and safeguards). A clause interpreted in this manner would also constitute a prohibited

practice, having regard to Sections 4 or alternatively 5 of the Competitions Act, No. 89 of 1989. The restraint clauses in the Association Agreements on which applicant relies has the effect of eliminating competition in the market, solely in order to promote the interests of applicant. There is no technological, efficiency or other pro-competitive gain resulting from such Agreements which outweighs the anti-competitive effect thereof, and the restrained provisions in the Association Agreements therefor constituted prohibited vertical or alternatively horizontal practises.”

[44] In making the above submissions the first respondent makes a number of points that are based on his conclusion that the clients

throughout the relationship were those of the first or second respondents or both. I have come to the conclusion that to the extent that any or all of those clients were served by the first and second respondents under the licence of the applicant, they in fact belonged to the applicant and even on the interpretation of both agreements those clients belonged to the applicant.

2. Confidential information

[45] In the main first respondent’s submission in this regard is that the only confidential information of relevance is the short term policy details and terms and other information pertaining to specific clients and some other information that is widely known in the industry. The attempt at giving a definition to confidential information that only includes trade secrets and inventions unknown to the industry is not what the parties agreed upon and that limitation is not in line with case law. A number of authorities suggest that even information that is ordinarily available could be confidential information.

[46] In Experian South African (Pty) Ltd v Haynes and Another 2013 (1) SA 135 (GSJ) at para 44 the court dealt with this subject matter as follows:

“[I]t is clear from several reported judgments on this issue, that irrespective of whether or not information is in the public domain

the fact that the first respondent has obtained such information within the context of a confidential relationship means that it is in fact protectable. In Multi Trade Systems v Pointing and Others 1984 (3) SA 182 at 189 C-E, Broome J quoted from Terrapin Ltd v Builders’ Supply Co (Hayes) Ltd 1960 RPC 128 as follows:

‘As I understand it the essence of this branch of the law, whatever the original of it may be, is that a person who has obtained information in confidence is not allowed to use it as a springboard for activities detrimental to the person who made the confidential communication; and springboard it remains even when all the features have been published or can be ascertained by actual inspection by any member of the public… Therefore, the possessor of the confidential information still has a long start over any member of the public’.

Moreover, in Van Costricum v Thenmissen and Another 1993 (2) SA 726 at 731 F-H, Roos J held that:

‘What is clear from the aforesaid, is that someone who saves himself the trouble of going through the process of compilation of the document, even where it is compiled from information which is available to anybody, such a person would be interdicted if that information had been obtained in confidence. The reason is simply that confidential information may not be used as a springboard for activities detrimental to the person who made the confidential information available. It would remain a springboard even when all the features have been published or can be ascertained by actual inspection by any member of the public.’.”

[47] It seems to me that even on the first respondent’s definition or explanation of what information they have or had acquired during their association with the applicant remains embargoed for purposes of being used as a “springboard” in the relationship between the first and second respondents on the one hand and the third respondent on the other or for any purpose not authorised by the applicant.

[48] At 52.2 of his answering affidavit the first respondent also submits that preventing him and second respondent from competing with applicant or forcing him to remain associated with applicant would amount to commercial slavery. He contends that preventing them from soliciting any business from first respondent’s own clients amounts to an expropriation of his clients built up over many years and thus deprive him of an income. In effect the first and second respondents say that the applicant has no protectable interest based on the notion that those clients were his clients even during the effective period of the association agreements. As indicated above those clients could not be the clients of the first and second respondents.

[49] Applicant pointed out in its replying affidavit that both clauses 11.8 and 11.27 of the initial agreement do not apply post the termination of the association agreement. This is how these clauses read:

“11.8 That he/she/it will only place Business with the Insurance Companies and/or financial institutions with which PSG has agreements from time to time.

11.27 Not to do business with any insurance company or financial institution with which PSG does not have an agreement, unless the written permission of PSG has first been obtained therefor.”

[50] Besides the fact that the above clause do not apply after the termination of the association agreements as the applicant has

pointed out they are also not part of the restraint clause which is intended to apply after the termination of the agreements.

Therefore the submissions based on these clauses are as misplaced as the submissions based on the clients being owned by the first and second respondents on the basis that those were their clients long before the association agreements were concluded as if those

agreements did not affect how the relationship between the first and second respondents and the applicant was to be understood.

[51] The general rule in restraint of trade cases is that the onus to prove that a restraint of trade agreement or provision is

unreasonable and therefore unenforceable is on the party who alleges unreasonableness. In Magna Alloys and Research (SA) (Pty) Ltd v Ellies [1984] ZASCA 116; 1984 (4) SA 874 (A) the summary of the legal position is stated as follows in the headnote:

“The approach, followed in many South African judgments, that a covenant in restraint of trade is prima faice invalid or unenforceable stems from English law and not our common law, which contains no rule to that effect. The position in our law is that each agreement should be examined with regard to its own circumstances to ascertain whether the enforcement of the agreement would be contrary to public policy, in which case it would be unenforceable. Although public policy requires that agreements freely entered into should be honoured, it also requires, generally, that everyone should be free to seek fulfilment in the business and professional world. An unreasonable restriction of a person’s freedom of trade would probably also be contrary to public policy, should it be enforced. Acceptance of public policy as the criterion means that, when a party

alleges that he is not bound by a restrictive condition to which he had agreed, he bears the onus of proving that the enforcement of the condition would be contrary to public policy. The court would have to have regard to the circumstances obtaining at the time when it is asked to enforce the restriction. In addition, the Court would not be limited to a finding in regard to the agreement as a whole, but would be entitled to declare the agreement partially enforceable or unenforceable.”

[52] To the extent that the first and second respondents’ case rested on the belief that the clients that were serviced by them before the association agreements were concluded are theirs, it is an untenable submission as already indicated elsewhere in this judgment. Our courts have consistently maintained that even in those circumstances where the clients have a history of being the employee’s clients the coming into the picture of the employer has a bearing on those clients. They are not unaffected by what the court in BKB called, “the accepted norm”.

[53] In TWK Agriculture Ltd v Wagner and Another [2015] ZA LCCT 50 Lagrange J had this to say:

“The applicant’s interest in those connections is an important aspect of the applicant’s incorporeal property in the form of goodwill and it is trite law that it is entitled to protect that interest. When the respondents dealt with those clients, they did so on behalf of the applicant’s business and not for their own account. Whether those clients were ones that they had originally brought into the applicant’s business through the sale agreement or whether those with clients they acquired in the course of working for the applicant, the insurance business and relationship developed with those clients and was that of their employer and not theirs to exploit for their own personal gain, even if they had been responsible for obtaining such business or sustaining it through their personnel relationship with those clients.”

[54] What court said in TWK Agriculture is, in my view, a reaffirmation of the legal position which was previously stated in Rawlins and Another v Caravantruck (Pty) Ltd [1992] ZASCA 204; 1993 (1) SA 537 (A) at 542 in which Nestad JA, writing for the full court had this to say:

“Even though the persons to whom an employee sells and who he canvasses were previously known to him and in this sense ‘his customers’, he may nevertheless during his employment and because of it, form an attachment to and acquire an influence over them which he never had before. Where this occurs, what I call the customer goodwill which is created or enhanced, is at least in fact an asset of the employer. As such it becomes a trade connection of the employer which is capable of protection by means of a restraint of trade clause.

The onus being on Rawlins to prove the unreasonableness of the restraint, it was for him to show that he never acquired any significant personal knowledge of or influence over the persons he dealt with as a salesman of the respondent over and above that which previously existed. In my, opinion he did not do so.”

[55] In this case it is common cause that the applicant is a national company with well over 200 branches country wide. First

respondent has not shown that the national brand that applicant is did not strengthen those existing relationships. I do not think he would have been able to do so in any event. It must have been that brand of the applicant that attracted him in the first place to cross over with his clients to join the applicant and even agree not to use the FSP licence that second respondent had. He remained in association with the applicant for almost 14 years during which period he signed two association agreements in which he re-affirmed his commitment to their relationship. This long period of association with the applicant, if nothing more, proves, by and in itself, that applicant did acquire a protectable interest and the agreed mechanism, agreed twice, was the restraint of trade agreement to protect that interest on termination.

[56] My attention was drawn to the dicta in Walter McNaughtan (Pty) Ltd v Schwartz & Others 2004 (3) SA 381 (CPD) in which Van Reenen J said in reference to what the Appellant Division had said in Rawlins:

“It is apparent from that dictum that, in a case such as the present, customer connections will be capable of protection, by means of a covenant in restraint of trade only if the attachment or influence that would enable the employee to induce customers to follow him or her to a new business did not exist before but came into being only during his or her employment with the particular employer.”

[57] Besides the fact that Walter McNaughtan is clearly distinguishable from this matter, I do believe, with respect, that the court in Walter McNaughtan misinterpreted the dicta in Rawlins to the extent that it relied on Rawlins to say what it said above. Each case has to be considered on its own facts and circumstances. It cannot be that in all cases the influencing or inducing pre association attachment is not affected by the new employer’s market brand and its methods and thus enhanced the broker’s ability to sell more products to both the existing and new clients.

The Consumer Protection Act

[58] The submission by the respondents based on the Consumer Protection Act, 68 of 2008 (the CPA) is that the second association agreement is excessively one-sided in favour of the applicant and therefore section 52 of the CPA enjoins the court to declare void in whole or part an agreement that contravenes section 48.

[59] Section 48 of the CPA reads:

“48. Unfair, unreasonable or unjust contract terms. –

(1) supplier must not –

(a) offer to supply, supply, or enter into an agreement to supply, any goods or services –

(i) at a price that is unfair, unreasonable or unjust; or

(ii) on terms that are unfair, unreasonable or unjust;

(b) market any goods or services, or negotiate, enter into or administer a transaction or an agreement for the supply of any goods or services, in a manner that is unfair, unreasonable or unjust; or

(c) require a consumer, or other person to whom any goods or services are supplied at the direction of the consumer –

(i) to waive any rights;

(ii) assume any obligation; or

(iii) waive any liability of the supplier,

On terms that are unfair, unreasonable or unjust, or impose any such terms as a condition of entering into a transaction.

(2) Without limiting the generality of subsection (1), a transaction or agreement, a term or condition of a transaction or agreement, or a notice to which a term or condition is purportedly subject, is unfair, unreasonable or unjust if –

(a) it is excessively one sided in favour of any person other than the consumer or other person to whom goods or services are to be supplied;

(b) the terms of the transaction or agreement are so adverse to the consumer as to be inequitable;

(c) the consumer relied upon a false, misleading or deceptive representation, as contemplated in section 41 or a statement of opinion provided by or on behalf of the supplier, to the detriment of the consumer; or

(d) the transaction or agreement was subject to a term or condition, or a notice to a consumer contemplated in section 49 (1), and –

(i) the term, condition or notice is unfair, unreasonable, unjust or unconscionable; or

(ii) the fact, nature and effect of that term, condition or notice was not drawn to the attention of the consumer in a manner that satisfied the applicable requirements of section 49.”

[60] Applicant contends that the CPA does not apply in this case and places reliance on the definition of “service.” The CPA defines service as follows in section1:

“service” includes, but is not limited to –

(a) any work or undertaking performed by one person for the direct or indirect benefit of another;

(b) the provision of any education, information, advice or consultation, except advice that is subject to regulation in terms of the Financial Advisory and Intermediary Services Act, 2002 (Act No. 37 of 2002);

(c) any banking services, or related or similar financial services, or the undertaking, underwriting or assumption of any risk by one person on behalf of another, except to the extent that any risk by one person on behalf of another, except to the extent that any such service –

(i) constitutes advice or intermediary services that is subject to regulation in terms of the Financial Advisory and Intermediary Services Act, 2002 (Act No. 37 of 2002); or

(ii) is regulated in terms of the Long-term Insurance Act, 1998 (Act No. 52 of 1998), or the Short-term Insurance Act, 1998 (Act No. 53 of 1998),

(d) the transportation of an individual or any goods;

(e) the provision of –

(i) any accommodation or sustenance;

(ii) any entertainment or similar intangible product or access to any such entertainment or intangible product;

(iii) access to any electronic communication infrastructure;

(iv) access, or of a right of access, to an event or to any premises, activity or facility; or

(v) access to or use of any premises or other property in terms of a rental;

(f) a right of occupancy of, or power or privilege over or in connection with, any land or other immovable property, other than in terms of a rental; and

(g) rights of a franchisee in terms of a franchise agreement, to the extent applicable in terms of section 5 (6) (b) to (e), irrespective of whether the person promoting, offering or providing the services participates in, supervises or engages directly or indirectly in the service.”

[61] What becomes immediately clear from this provision is that services that are already regulated by the FAIS Act, the Long Term Insurance Act 52 of 1998 or the Short-term Insurance Act 53 of 1998 are all excluded from the provisions of the CPA. I did not understand Mr Oosthuizen, counsel for the respondents to be contending otherwise.

[62] In any event, as Mr Stelzner, counsel for applicant, submitted that, even if the provisions of section 48(1) were applicable to the second association agreement or the relationship between the parties the prohibition contained in section 48 is only applicable if an agreement is subject to a condition or conditions that are unfair, unreasonable or unjust. Section 48(2)(a) qualifies or defines an unreasonable or unjust agreement or condition as the one that is excessively one-sided in favour of any person other than the consumer.

[63] To say that a term or condition or agreement is one sided against a consumer is not enough. It must be excessively one sided against the consumer for the prohibition contained in section 48(1) to apply and that this so is specifically stated is in section 48(2)(a). In this regard the respondents have not made out a case as the onus would still be on the first and second respondents to demonstrate that the terms of the restraint are excessively onesided. They have not done so therefore section 48(1) is inapplicable. I cannot see how section 48(1) could possibly apply if regard is had to the definition of service in section1 of the CPA in any event.

[64] Even if by some construction of section 48 the conclusion were to be that it is in fact applicable to the CPA there would still have to be some formula of arriving at the conclusion that a clause in a restraint of trade agreement is unfair, unreasonable and unjust which are the jurisdictional factors for the section 48(1) prohibition. The test of what is unfair, unreasonable and unjust is still the common law test which in Basson v Chilwan and Others [1993] ZASCA 61; 1993 (3) SA 742 (A) at 753 was articulated as follows:

“The reasonableness or otherwise of the restraint is judged on the basis of the community on the one hand and of the interests of the contracting parties themselves on the other hand. As far as the broad interests of the community are concerned, there are two conflicting considerations: agreements should be abided by (even if this should promote unproductivity); and unproductivity should be discouraged (even if that should wreck an agreement). As far as the parties themselves are concerned, a restraint is unreasonable if it prevents one party, after the termination of their contractual relationship, from participating freely in the commercial and professional world without a protectable interest of the other party being properly served thereby. Such a restraint is as such contrary to public policy. Moreover, a restraint which is reasonable inter partes might nevertheless, for a reason not peculiar to the parties, damage the public interest; and possibly also vice versa.

In this connection four questions should be asked: (a) Is there an interest of the one party which is deserving of protection at the termination of the agreement? (b) Is such interest being prejudiced by the other party? (c) If so, does such interest so weigh up qualitatively and quantitatively against the interest of the other party that the latter should not be economically inactive or unproductive? (b) Is there another facet of public policy having nothing to do with the relationship between the parties but which requires that the restraint should either be maintained or rejected?”

[65] I agree with Mr Stelzner’s submission that all that section 48 has done is to codify the common law in this regard. It did not introduce any new test or formula. It would make no sense, to try and distinguish between the provisions of section 48 and the common law of what is or is not a reasonable restraint of trade by establishing a new formula under section 48 when the result will evidently be the same. I also cannot see how one can come to a conclusion under common law which is different to the conclusion that one reaches under section 48 as that would mean that common law has been amended in that regard, which is clearly not the case.

The competition Act

[66] Although a point was raised about restrictive practices under the Competition Act and the fact that this court may not consider the merits of such an issue, that point was not persisted with. The reason for its apparent abandonment was that referral of the matter to the Competition Tribunal would have had the logical consequence of the Rule Nisi being extended until the Competition Tribunal deals with the issue – a result which neither of the parties had an appetite for. In any event the provisions of sections 4 and 5 of the Competition Act are simply inapplicable and the point raised to the extent that it was raised was frivolous. I was not in any event asked to refer the matter to the Competition Tribunal as this court has no jurisdiction to decide the merits of a competition issue.

Requirements for a final interdict

[67] The test for a final interdict has been stated and restated over and over again. I see no need to repeat the test in this matter as the first, second and third respondents have raised nothing new on those requirements. Save to point out that in my view, the requirements for the granting of a final interdict have been met. Even the issue of an alternative for damages being available, as the first and second respondents submit, is in my view a matter of pure conjecture in this case. For instance I do not know how any of the parties would know that over time the same number of clients would or would not have left but for the first and second respondents who acted in breach of the restraint of trade agreement. In my view, this case is certainly not the correct case for the refusal of a final interdict on the bases of a damages claim being a mere possibility and thus allow only on that basis the first and second respondents to act with impunity. This has implications for the rule of law which is also a constitutional imperative for an orderly society.

Conclusion.

[68] The initial agreement had a restraint period of 6 months. The second agreement provides for an 18 month period. The applicant has since argued for a period of 12 months based on the fact that the policies of its clients are normally renewable after 12 months. I do not understand the basis of the restraint period being pegged on the policy anniversary of normally 12 months. There are many problems with this reasoning one of which is the fact that policies are not taken on the same date and therefore their anniversary is never the same. I am also of the view that the real question is what would be a reasonable period of restraint necessary before the respondents are allowed to solicit the business of the applicant’s clients. On the facts of this matter, I am of the view that a period of 9 months is reasonable reckoned from 25 January 2019. This should be sufficient for the new broker to acquaint himself with the clients previously serviced by the first respondent. It is also not so long as to unduly hinder the first and second respondents from freely plying their trade and marketing freely the services that the third respondent is offering even to the clients of the applicant.

[69] In the result the applicant succeeds and the following order shall issue:

1. That the rule nisi is confirmed subject to the period of restraint being reduced to 9 months from 25 January 2019.

2. That the first, second and third respondents are ordered to pay the costs of this application including costs in respect of obtaining the interim interdict.

__________________

M.S. JOLWANA

JUDGE OF THE HIGH COURT

Appearances

Counsel for the Applicant: R.G.L. STELZNER

Instructed by: HUXTABLE ATTORNEYS

GRAHAMSTOWN

Counsel for 1st to 3rd Respondents: A.C. OOSTHUIZEN

Instructed by: NETTELTONS ATTORNEYS

HEARD ON: 17 APRIL 2019

DELIVERED ON: 18 JUNE 2019

[1] Financial Advisory and Intermediary Services Act No. 37 of 2002

[2] Financial Sector Regulation Act No.9 of 2007

[3] My emphasis

[4] Section 22 of the Constitution of the Republic of South Africa, 1996 provides that: “Every citizen has the right to choose their trade, occupation or profession freely.”

[5] 2007 (2) SA 486 (SCA)