Roxsure Insurance Brokers (Pty) Ltd v Salomon and Another (11834/2015) [2015] ZAGPJHC 64 (20 April 2015)

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG LOCAL DIVISION, JOHANNESBURG

Case number: 11834/2015

NOT REPORTABLE

NOT OF INTEREST TO OTHER JUDGES

DATE: 20 APRIL 2015

In the matter between:

ROXSURE INSURANCE BROKERS (PTY) LTD........................................................ APPLICANT

and

TRACY ETHEL SALOMON.................................................................................1ST RESPONDENT

CC & A ANDERSON INSURANCE BROKERS (PTY) LTD............................2ND RESPONDENT

JUDGMENT

NICHOLLS J:

[1] The applicant, Roxsure Insurance Brokers (Pty) Ltd brings an urgent interdict against the first respondent, Tracy Salomon (“Salomon”),

a former employee of the applicant. CC & A Anderson Insurance Brokers (Pty) Ltd, a company that currently employs the first

respondent, is the second respondent. The applicant seeks an order, firstly, restraining Salomon for a period of 24 months calculated

from 1 February 2015, from being employed in various capacities by any entity which may compete with the applicant in short-term

corporate personal insurance broking and secondly, that she be interdicted from disclosing the applicant’s confidential information. Against the second respondent the applicant seeks to restrain it from entering any relationship with Salomon for a period of 24 months calculated as from 1 February 2015.

[2] Salomon has been in the insurance industry since the 1980’s. In 2000 she was the owner of the members’ interest in Falkow Salomon and Associates CC, a close corporation operating as an insurance broker in personal and corporate short-term insurance. On 17 May 2011 the applicant, represented by Margrietha Magdalena Elizabeth Grove (“Grove”) and Falkow Salomon and Associates CC, represented by Salomon, entered into a written agreement in terms of which Roxsure purchased the business of Falkow Salomon and Associates CC. The price was determined by a formula calculated by multiplying the business income by a factor of 1.75. The applicant paid a total of R2 923 260.00 for the business.

[3] Clause 22 of the agreement provides as follows:

“22. Restraint

22.1. In order to protect the interests of the Purchaser in the Business, but subject to the provisions of Clauses 22.3 and 22.4 Tracy hereby agrees and undertakes in favour of the Purchaser that during the period of her employment by the purchaser and for a minimum period of 5 (five) years from the date of the commencement of her employment or two years after termination of such employment for whatever reason, whichever period is the longer by the Purchaser for whatever reason she shall not, directly or indirectly: (whether as proprietor, partner, director, shareholder, member, employee, consultant, contractor, financier, agent, representative or otherwise and whether for reward or not) directly or indirectly, be interested or engaged in or concerned with or employed by any company, close corporation, firm, undertaking or concern which renders services which are or which carries on business which is competitive with the business carried on and/or services rendered by the Seller on the effective date or any new but similar business established by the Purchaser after the effective date; and

22.1.1. furnish any information or advice (whether oral or written) to any clients of the Purchaser or use any other means or take any other action which is directly or indirectly designed, or in the ordinary course of events calculated, to result in any such clients terminating their association with the Purchaser and/or transferring its business to any other group, firm, close corporation, undertaking or concern; and

22.1.2. encourage or entice or incite or persuade or induce any employee of the Purchaser to terminate his employment with the Purchaser; and

22.1.3. furnish any information or advice (whether oral or written) to any employee then employed by the Purchaser or to any prospective

employer of such employee or use any other means which are directly or indirectly designed, or in the ordinary cause of events

calculated, to result to result in any such employee terminating his employment by the Purchaser and/or becoming employed

by or directly or indirectly in any way interested in or associated with any other company, close corporation, firm, undertaking or concern; and

22.1.4. approach or communicate with any of the clients of the Purchaser with a view to asking for any business of the sort provided by the Purchaser; and

22.1.5. persuade the clients of the Purchaser to cancel their business with the Purchaser, and to place their business with Tracy or any new but similar business established by Tracy; and

22.1.6. accept any business from any clients of the Purchaser.

22.2. For the purposes hereof, clients of the Purchaser means any person:-

22.2.1. who was a client of the Seller at the Effective Date;

22.2.2. who was a client of the Purchaser at Tracy’s resignation date;

22.2.3. who was a prospective client of the Seller at the Effective date, whom the Seller had approached to do business with the Seller within a period of 1 (one) year preceding the Effective date;

22.2.4. who was a prospective client of the Purchaser at Tracy’s resignation date, whom the Purchaser had approached to do business with the Purchaser within an period of 1 (one) year preceding Tracy’s resignation date;

22.2.5. to whom services were rendered by the Seller within a period of 1 (one) year preceding the Effective date;

22.2.6. to whom services were rendered by the Purchaser within a period of 1 (one) year preceding Tracy’s resignation date;

22.3. Notwithstanding the aforementioned restraints, it is further recorded that Tracy shall be entitled to act as and/or employed/engaged as an underwriter and/or administrator.

22.4. Tracy agrees that:-

22.4.1. the restraints imposed upon her in terms of this clause are reasonable as to subject matter and duration and are reasonably

necessary in order to preserve and to protect the goodwill and proprietary rights and interests of the Purchaser;

22.4.2. notwithstanding the manner in which the restraints are grouped together, each of them constitutes a separate and independent

restraint, severable from each of the other restraints.”

[4] Counsel for the applicant stated that for the purposes of this application the applicant was relying on para 22.1, namely that

Salomon would not, for a period of two years after the termination of her employment for any reason whatsoever, be employed by a competitor. This is subject to the proviso in para 22.3 that Salomon would be entitled to be employed as an “underwriter and/or administrator”.

[5] Salomon was employed by the applicant as from 1 July 2011 and continued servicing the client base that the applicant had acquired

pursuant to the agreement. Her letter of appointment describes her position as “Administrator/Underwriter of Sales of Life, Medical Aid and Short Term Insurance” subject to the terms set out in annexure A. Annexure A states that her initial employment would be for 24 months to ensure a “seamless transition of clients purchased as per the sale agreement”.

[6] The Falkow Salomon and Associates CC client base purchased by the applicant consisted of 319 short-term clients, 225 of which were personal policies while 94 were commercial policies. Over time a pattern emerged where Salomon dealt primarily with the corporate

clients while the personal policies were handled by other staff as well as Salomon. Grove, who deposed to the applicant’s founding affidavit, stated that Salomon was reluctant to acquaint herself with the applicant’s internal and administrative systems. The back-office functions were generally left to other employees while Salomon interacted with clients. This state of affairs allegedly caused some discontent amongst the staff.

[7] Following the resignation of a key staff member in early 2014, Salomon was obliged to come in over weekends to familiarise herself

with the administrative and computer systems of the applicant. As a result Salomon had full access to all the applicant’s client information.

[8] On 22 December 2014 Salomon resigned from her employment with the applicant with effect from the end of January 2015. Grove was informed by Salomon in January 2015 that she was to be employed as a portfolio manager in the film and advertising industry. The parting was apparently amicable until 16 March 2015 when Grove was informed in passing by one Mervyn Naidoo (“Naidoo”), who worked for insurance underwriters, Astra Marine, that Salomon had contacted him for a quotation the previous week. Naidoo mentioned that Salomon was working for the second respondent.

[9] Grove immediately telephoned Salomon who confirmed her employment with the second respondent but made a distinction between her employment as a broker with the applicant and her appointment with the second respondent as an underwriter which, she pointed out, was permitted by para 22.3 of the agreement. A few days thereafter Grove consulted her attorneys and this application was launched on 26 March 2015.

[10] The law relating to restraints of trade is well settled. Covenants in restraint of trade are consistent with the Constitution and enforceable unless they are unreasonable and contrary to public policy.[1] It is in the public interest that agreements entered into freely and voluntarily should be honoured. It is also in the public interest that all persons be productive and be permitted to operate freely in the commercial and professional world. The party who challenges the enforceability of the restraint of trade bears the burden of proving that it is unreasonable and therefore contrary to public policy.[2]

[11] A restraint of trade will be considered to be unreasonable if it does not protect some legally recognisable interest of the employer but merely seeks to protect the employer against competition. An employee, once her contractual relationship has ended, can be restricted from participating freely in economic activity only if the employer’s protectable interest is served thereby.

[12] Proprietary interests protectable by an agreement in restraint of trade are of two kinds. The first is customer connections, which entails the relationship a business has with its customers and potential customers. This is an important aspect of a business’s

goodwill. The second category is confidential information or trade secrets which, if revealed to a competitor, would give it a

competitive advantage.[3]

[13] Our courts have held that five questions have to be asked when determining whether an agreement in restraint should be upheld [4]. These are:

13.1 Is there an interest of one party which is deserving of protection after the termination of the contract of employment?

13.2 Is such interest being prejudiced by the other party?

13.3 If so, does the interest of the party asserting the interest (usually the employer) outweigh the interest of the other party (usually the employee) to be economically active?

13.4 Are there public policy considerations militating against the enforcement of the restraint?

13.5 Does the restraint go further than it is necessary to protect the interest claimed.[5]

[14] The restraint contended for in this case is that of customer connections. To succeed on a case based on customer connections, it is insufficient to allege that the employee had extensive contact with a customer in the course of his/her employment. This in itself will not amount a protectable interest. The relationship must be of such a nature that it would influence the customer who would be induced to follow the employee to a new business.[6]

[15] Salomon raised 2 points in limine, the first being that the application was fatally defective on the grounds that the applicant

had not complied with clause 16 of the agreement. Clause 16 provides that:

“16. BreachShould either party commit a material breach of any material provision of this agreement (other than a breach of warranty) and fail to remedy such breach within 14 (fourteen) days of receiving written notice delivered by hand or by telefax from the aggrieved party requiring it to do so, then such aggrieved party shall be entitled, without prejudice to its other rights in law, to cancel this agreement or to claim specific performance in either event, without prejudice to the aggrieved party’s right to claim damages.”

[16] It is argued that the applicant, having agreed to a process in the event of a breach of the agreement, cannot ignore these provisions and demand specific performance. Applicant’s failure to comply with clause 16 precludes it from seeking the relief contemplated in the notice of motion.

[17] The applicant’s response is that when faced with a clear repudiation of the agreement, the party not in breach is entitled to cancel the contract without delay and without giving notice as contemplated in clause 16. I agree that no purpose would have been served by such a notice. The parties had had discussions by the time the application was launched and Salomon had made it clear that she did not believe that she was in breach of the agreement. In such circumstances, a formal notice of breach would have been an exercise in futility.[7] The first point in limine is dismissed.

[18] The second point in limine relates to the dispute of fact alleged by Salomon particularly in relation to her employment as an underwriter or administrator and exactly what this entails. This issue is inextricably bound up with the merits and will be dealt with later in this judgment.

[19] The applicant alleges that Salomon is acting as a broker for the second respondent and not as an underwriter as she claims. These are two separate and distinct roles. It is submitted that if she were an underwriter it would not be necessary for Salomon to contact Naidoo, another underwriter. She makes reference to “looking after clients” which is the function of a broker and not an underwriter.

[20] The Financial Services Board (FSB) website describes Salomon as an intermediary. The second respondent on its website describes itself as a “firm of independent short term insurance brokers…” offering a range of solutions under one roof including “dealing with client queries, providing advice, implementing of cover, updates, amendment and start to finish claims processing”.

Salomon’s function with the second respondent is described as follows:

“I am an authorised representative of CC & A Anderson Insurance Brokers (Pty) Ltd and meet all the required honesty, integrity and educational standards…

I have experience in providing advice and provide service on the following sub-categories: short term insurance: personal lines, short term insurance: commercial lines.

CC&A Anderson Insurance Brokers (Pty) Ltd accept responsibility for the advice given by myself during the course and scope of my duties. I am a representative…”

[21] The above, argues the applicant, shows that the probabilities overwhelmingly support the conclusion that Salomon is not employed as an underwriter/ administrator but rather as a broker in breach of the restraint clause in the agreement. Counsel for the applicant at the commencement of argument indicated that its case was confined to clause 22.1 of the agreement. This means that the crux of the complaint against Salomon is that her employment with the second respondent is prohibited by the restraint of trade agreement. It is not alleged that she has disclosed confidential information nor that there are any trade secrets to be protected.

[22] The applicant seems to be of the view that by virtue of her employment with the second respondent, there is a possibility

that Salmon could disclose trade secrets. For this proposition reliance is placed on International Executive Communications Ltd t/a Institute for International Research v Turnley and Another[8]. In this case it was held that if there exists a reasonable possibility that an employee may disclose trade secrets by virtue of

having had access to confidential information, an application to enforce a restraint cannot be defeated on the basis of an undertaking

from the employee that these will not be disclosed. Further, that by entering into an agreement in restraint of trade an employer was endeavouring to safeguard itself from the un-policeable danger of the employee communicating trade secrets to its rival.[9] In the IIR cases the court dealt with the business of organising conferences and the employees concerned had entered

into restraint of trade agreements where they had agreed not to pass on trade secrets. There are no trade secrets contended for in this case.

[23] Salomon is adamant that she is employed as an underwriter and/or administrator. She denies any solicitation of clients and points out that nowhere in the restraint of trade agreement is there any reference to a broker, a term which is not properly understood.

She avers that the definitions of an underwriter and an administrator which the applicant has not attempted to provide, overlap with the functions of a broker. In the definitions provided by Salomon an administrator, inter alia, liaises with policyholders. This definition is not challenged by the applicant. Salomon also says that the second respondent is not only an insurance broker, but has what is referred to as a binder agreement with Hollard Insurance Company in terms of which it issues insurance policies to clients. Therefore she is obliged to interact with other underwriters in this capacity.

[24] Because of the uncertainty regarding the definitions of the various roles, the respondents argue that there is an irresolvable dispute of fact that cannot be resolved on the papers alone. There is undoubtedly merit in this argument. The finer details of what distinguishes an administrator and underwriter from a broker are not apparent from the papers. In fact, although it is common cause that Salmon was employed as a broker by the applicant, her job description with the applicant is that of administrator/underwriter. This underscores the difficulty in differentiating between the two functions.

[25] The applicant seeks final interdictory relief and accordingly the Plascon Evans rule[10] is applicable. Salomon states that she is an underwriter and/or administrator and her version must prevail unless it is so far-fetched as to be untenable. There is no suggestion that Salmon’s version is far-fetched.

[26] Even if one were to assume in the applicant’s favour that the distinction was clear and a case had been made out that Salomon was employed as a broker by the second respondent, the decisive issue is whether there is a protectable interest served by the restraint in the form of customer connections. The applicant alleges only that Salomon is systematically attempting “to place insurance cover for the customers of the Applicant, from her new position with the Second Respondent”. There is no allegation that Salomon has used the applicant’s customer connections or attempted to lure them from the applicant. To the contrary, she has refused to accept customers of the applicant. Further, the applicant has not described the extent and nature of the customer connections. It is alleged that Salomon possesses confidential information but it is not established that this information is worthy of protection.

[27] Counsel for the applicant argued that the protectable interest consists of the R2 923 260.00 paid by the applicant for the Falkow Salomon and Associates CC client base. Salomon argues, correctly in my view, that in reality what the applicant seeks to do is impose a blanket restraint preventing her from working in the insurance industry.

[28] On the facts of this case the applicant has failed to make out a case that Salomon is working as a broker rather than underwriter/administrator. Neither has it shown that there is an interest worthy of protection either in the form of customer connections, or trade secrets. It is unnecessary to deal with the other four questions our courts have held should be considered. The applicant has failed to cross the first hurdle of showing that there is an interest of one party which is deserving of protection after the termination of the contract of employment. Absent a protectable interest, the restraint of trade is not reasonable and cannot be upheld as against Salomon.

[29] As regards the second respondent, there are no public policy considerations or legal requirements justifying the grant of an order to prevent the second respondent from employing Salomon. The relief that the applicant seeks against the second respondent is a separate cause of action founded in delict. The relief sought against Salomon is a cause of action founded in contract. As pointed out by a full bench of this court in IIR South Africa BV (Incorporated in the Netherlands) t/a Institute for International Research v Hall (aka Baghas) and Another 2004 (4) SA 174 (W), this distinction of often overlooked. A claim against a third party is a delictual one based on unfair competition. In order to succeed in interdicting the second respondent, the applicant has to plead and prove not only that Salomon

has confidential trade secrets or information, but also that the second respondent is making use of this information.[11]

[30] The applicant has failed to allege the existence of confidential information worthy of protection and failed to allege that the second respondent has utilized any such information, or intends to use it. To allege that merely by virtue of its employment of Salomon, the second respondent must possess the information, is inadequate to sustain the relief sought against the second respondent. The relief sought against the second respondent must fail.

In the result I make the following order:

The application is dismissed with costs.

___________________________C. H. NICHOLLSJUDGE OF THE HIGH COURT OF SOUTH AFRICAGAUTENG LOCAL DIVISIONJOHANNESBURG

Appearances

Counsel for the applicants : Adv. Van Huyssteen

Instructing Attorneys: Fluxmans Inc

Counsel for the 1st respondent: Adv. N. Redman

Instructing Attorneys: Michael Salomon & Associates

Counsel for the 2nd respondent: Adv. C. Nel

Instructing Attorneys: MacGregor Erasmus Attorneys

Date of hearing: 02 April 2015

Date of judgment: 20 April 2015

[1] Magna Alloys & Research (SA) Pty Ltd v Ellis [1984] ZASCA 116; 1984 (4) SA 874 (A);The New Reclamation Group (Pty) Ltd v Davies and Another case number 17200/2013 GSJ judgment delivered on 20 March 2014; Reddy v Siemens Telecommunications (Pty) Ltd 2007 (2) SA 486 (SCA); Den Braven SA (Pty) Ltd v Pillay & Another 2008 (6) 229 (D).

[2] Magna Alloys & Research (SA) Pty Ltd v Ellis 1984 (4) SA 874 (A)

[3] Sibex Engineering Services (Pty) Ltd v Van Wyk & Another 1991 (2) SA 482 (T)

[4] Basson v Chilwan and Others [1993] ZASCA 61; 1993 (3) SA 742 (A); Automotive Tooling Systems (Pty) Ltd v Wilkens and Others [2007] 4 All SA 1073 (SCA)

[5] Kwik Kopy (SA) (Pty) Ltd v Van Haarlem & Another 1999 (1) SA 472 (W)

[6] Den Braven SA (Pty) Ltd v Pillay & Another, supra; Rawlins & Another v Caravan Truck (Pty) Ltd [1992] ZASCA 204; 1993 (1) SA 537 (A); The New Reclamation Group (Pty) Ltd v Davies and Another case number 17200/2013 GSJ judgment delivered on 20 March 2014

[7] Taggart v Green 1991 (4) SA 121 (W)

[8] 1996 (3) SA 1043 (W); See also IIR South Africa BV (Incorporated in the Netherlands) t/a Institute for International Research v Hall (aka Baghas) and Another 2004 (4) SA 174 (W)

[9] IIR South Africa BV (Incorporated in the Netherlands) t/a Institute for International Research v Tarita and Others 2004 (4) SA 156 (W)

[10] Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd [1984] ZASCA 51; 1984 (3) SA 623 (A)

[11] IIR South Africa BV (Incorporated in the Netherlands) t/a Institute for International Research v Hall (aka Baghas) and Another, supra, at page 180