SPP Pumps (South Africa) (Pty) Ltd v Stoop and Another (J2475/14) [2014] ZALCJHB 453; (2015) 36 ILJ 1134 (LC) (19 November 2014)

REPUBLIC OF SOUTH AFRICA

THE LABOUR COURT, JOHANNESBURG

Reportable

Case No: J2475/14

In the matter between -

SPP PUMPS (SOUTH AFRICA) (PTY) LTD........................................................................Applicant

and

JACQUES STOOP.......................................................................................................First Respondent

ALKATREZ INVESTMENT (PTY) LTD

T/A AMAKOSI FIRE...............................................................................................Second Respondent

Heard: 28 October 2014

Delivered: 19 November 2014

Summary: Urgent application-enforcement of the restraint of trade covenant. The question of restraint of trade enforceable only upon payment for its consideration.

JUDGMENT

MOLAHLEHI J

Introduction

[1] This is an application for the final interdictory relief based on the enforcement of the restraint of trade. The essence of the restraint of trade agreement, which the applicant relies on is that the first respondent (‘the respondent’) undertook not to involve himself in any business that would be in competition with the applicant once the employment contract was terminated.

[2] The respondent opposed the application and the essence of his opposition is that the restraint of trade is unenforceable because the applicant has failed to comply with the terms of the contract in relation to the payment of his commission. The respondent also contends that the restraint of trade is unenforceable because it is unreasonable and also that the applicant has not paid the commission as agreed to and in consideration of the restraint.

Background facts

[3] The applicant is a registered company duly incorporated in terms of the company laws of South Africa and carrying on the business of a specialist manufacturer of fire protection pumps which are used in fire protection systems. The system is a sprinkler system which automatically goes into operation once there is fire in any building where the system is installed.

[4] The details of the operation of the system and its composition are set out in the applicant’s founding affidavit which is not disputed by the first respondent. I will for that reason not repeat the same in this judgment.

[5] The dispute between the parties in this matter arose subsequent to the respondent resigning from his employ with the applicant and forming his own company which performs the same business as that of the applicant.

[6] It is common cause that the respondent had three contracts of employment with the applicant. The first contract of employment was in 2004 when the respondent was employed as a junior mechanical technician. He resigned from that position but only to return after seven months to the employ of the applicant and that is in 2007.

[7] On his return in 2007, the respondent signed the second employment contract (‘the 2007 contract’) which amongst others

provided for a restraint of trade. He then signed the third contract agreement in 2013 (‘the 2013 contract’) whose terms and conditions are the same as those of the 2007 contract except that the latter makes provision for payment of a commission.

[8] It would appear that the 2013 contract was signed following the rumors that the respondent intended to leave the employ of the applicant.

He was for that reason approached by Mr. Van Wyk, the manager of the applicant, who sought confirmation of the rumor. The respondent refuted the rumors and indicated that he was happy to sign a further restraint of trade agreement but proposed that the new contract should include payment of the commission. It would seem that there had previously been some confusion or uncertainty as to the payment of the commission. The respondent had obtained advice from a consultant who had advised him that in order to avoid the confusion regarding the payment of the commission, he should ensure that the contract provides expressly for its payment.

[9] The proposal for the inclusion of the payment of commission was accepted and included in the contract. Mr Van Wyk, signed the agreement on behalf of the applicant. The relevant part of the contract of employment regarding the issue of the payment of commissions reads as follows:

" Compensation package/Entitlement

Your compensation package with effect from 01 January 2013 will be as follows:

. . .

3% commission for any orders one for the Fire Division and is relevant to the total Invoice amount excluding VAT. This amount is due and payable to the employee when SPP Pumps SA Pty Ltd receives the monies from the debtor."

[10] The applicant does not dispute the above provisions of the employment contract except that it contends that the provision is unenforceable

because Mr Van Wyk included this clause without the express approval of the board.

[11] After his resignation, the respondent established the second respondent – a company registered in terms of the company laws of South Africa and involved in the same business as that of the applicant.

The case of the applicant

[12] The essence of the applicant’s case is that it is entitled to the relief sought because it has proprietary interests that need to be protected following the resignation of the respondent and the setting up of the business that is in competition with that of the applicant. In seeking to assert the enforcement of the restraint agreement, the applicant contends that the respondent is privy to confidential information which he had access to whilst he was in its employ and in particular the following information:

a. the respondent was aware of the suppliers from whom the applicant sourced and purchased the components of its pump system.

b. the respondent knew the cost price at which the applicant obtained the components of the system.

c. The respondent was aware of the costs incurred by the applicant in manufacturing and supplying its pumps.

d. The respondent was aware of the gross margin applied by the applicant to its pumps sales.

e. The respondent was privy to the applicant’s creditors’ information.

f. The respondent had access to the applicant’s monthly management accounts.

g. The respondent was privy to the applicant’s customer lists.

[13] The other aspect of the confidential information which the applicant relies on has to do with the manner in which the sales are generated. According to the applicant, its sales are generated “directly as a result of the relationship that has been forged” between it and the limited pool of suppliers.

The case of the respondent

[14] The respondent contends that the applicant is not entitled to the relief sought because a dispute of fact has arisen which cannot be resolved through motion proceedings.

[15] The respondent further contends that the enforcement of the restraint agreement is unenforceable, there being no mention in the agreement to the due consideration for the restraint and further that no payment was effected in that regard.

[16] The restraint is unreasonable according to the respondent because its area of coverage which according to him covers five provinces.

[17] The respondent further contends that the products supplied by the applicant are not unique to justify protection under the restraint of trade agreement. The other point raised by the respondent is that the agreement is not enforceable because the information upon which the applicant seeks to rely on is already available in the public space through the internet.

Legal principles

[18] As indicated earlier the applicant is seeking a final order and therefore it must satisfy the following requirements:

a. a clear right;

b. the injury actually committed or is not apprehended; and

c. the absence of any other satisfactory remedy.

[19] The applicant has elected to prosecute its claim by way of motion proceedings. The respondent contends in the first instance that the applicant is not entitled to the relief sought because a dispute of fact has arisen.

[20] In general an application in motion proceedings will fail where there is a genuine dispute of fact. It has however been accepted in our law that a dispute of fact does not arise on a mere and bare denial of the applicant’s claim by the respondent. [1] A relief could still on the authority of Plascon-Evans Paints (Pty) Ltd v Van Riebeeck Paints (Pty) Ltd,[2] be granted even where there is a dispute of fact. The court will grant the relief even where there is a dispute of fact if it is

satisfied that the applicant is entitled to the relief based on those facts stated by the respondent together with those facts which are common cause between the parties.

[21] The case of the respondent is that the matter cannot be resolved on the papers as there is a material dispute of fact as to whether Mr Van Wyk had the authority to conclude the employment contract on behalf of the applicant in 2013.

[22] The dispute of fact as alleged by the respondent arises from the averment made by the applicant in the matter which is pending before the Gauteng South High Court concerning the enforcement of clause 4 in the employment contract which deals with the the commission.

[23] As I understand the issues raised in the High Court case, the matter does not concern the challenge regarding the validity of the

employment contract as a whole but rather is limited to that part of the contract dealing with the payment of the commission to the first respondent. In other words the applicant in that matter is not repudiating the whole of the contract of employment but is repudiating clause 4 of the employment contract. The repudiation of the clause relating to payment of the commission is based on the ground that Mr Van Wyk did not have the authority to conclude such an agreement.

[24] If the applicant is successful in the repudiation of the clause relating to the payment of the commission, only that part may be declared invalid due to lack of authority on the part of Mr. Van Wyk, if proven, that is the case. Thus the contract as a whole, including the portion dealing with the restraint of trade would remain in force even after the determination that Mr Van Wyk did not have the authority to agree to the payment of the commission. Similarly, nothing would change if the applicant was to be unsuccessful.

[25] In light of the above analysis it is my view that there exists no real dispute of fact that would hamper this Court from considering the relief sought by the applicant.

[26] The legal principles governing the enforcement of the restraint of trade agreement can be summarized in the following terms:

a. The restraint of trade agreement is an enforceable contract.

b. The restraint of trade is enforceable if it protects legally recognized interests of the party seeking to enforce it.

c. The restraint of trade is unenforceable if it is unreasonable and contrary to public policy.

d. The restraint of trade is unenforceable if it merely seeks to limit competition. [3]

[27] The onus to establish the existence of the restraint of trade agreement rests with the party seeking the enforcement including the breach thereof. Thereafter the onus rests on the party resisting the enforcement of the restraint of trade to show that the restraint is unreasonable and therefore unenforceable.

[28] The factors to consider in determining whether the restraint of trade is reasonable or otherwise are set out in Basson v Chilwan and Others[4] in the following terms:

a. Is there interest of the one-party which is deserving of protection at the termination of the agreement?

b. Is such interesting prejudiced by the other party?

c. If so, does such interest so weigh up quantitatively and qualitatively against the interests of the latter party that the latter should not be economically inactive and unproductive?

d. Is that another facet of public policy having nothing to do with the relationship between the parties but requires that the restraint

should either be maintained or rejected?

[29] According to Basson[5] there are two kinds of propriety interests that may be protected through the restraint of trade contract; namely:

“all confidential matters which is useful for the carrying on of the business and which could therefore be used by a competitor, if disclose to him, to gain a relative competitive advantage. Such confidential material is sometimes compendiously referred to as “trade secrets” and the relationship with customers, potential customers, suppliers and others that go to made what is compendiously referred to as the “trade connection” of the business, being an important aspect of incorporeal property known as goodwill”.

[30] In New Justfun Group (Pty) Ltd v Tuner and Others, Labour Court case no:J786/14,[6] where Van Niekerk J in dealing with the issue of customer connections held that:

“…it is sufficient for the applicant to show that the customer contract exists and that they can be exploited by the former employee.”

And in relation to confidential information the learned judge held that:

“the respondent must establish that he or she had access to that information or that he or she never acquired any significant personal

knowledge of, for instance, the applicant customers while in the applicant’s employ.”

[31] The other issue to consider in this matter is the point raised by the respondent that the restraint of trade covenant is unenforceable

because the confidential information upon which the applicant relies on in asserting its right is already in the public space through the Internet. This issue received attention in Exprerian South Africa (Pty) Ltd v Haynes and Another[7], where the Court held as follows:

“…the contention was legally untenable in that it 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 respondent has obtained such information within the context of a confidential relationship means that it in fact protectable.”

[32] The last issue raised by the respondent is that the restraint of trade in this matter is unenforceable because he was not paid any

consideration for the restraint of trade.

[33] The question of whether there is in law, an obligation to pay a consideration in return for the enforcement of the restraint of trade was answered in De Klerk, Vermaak en Vennote v LKoetzer.[8] In that case an attorney was in terms of the restraint of trade prohibited from practicing in certain magisterial districts within two years of resigning from the law firm. The respondent’s attorney argued in that case that the restraint of trade clause was unenforceable because he did not earn compensation in return for his submission to the restraint of trade clause. The court held in that case that the fact that the attorney did not receive direct compensation for the inclusion of the restraint of trade was not contrary to public interest.

Evaluation

[34] Having regard to the facts and the nature of the claim, I am satisfied that the requirements of urgency have been satisfied. Thus the applicant has established that it has a right needs protection.

[35] In opposing the applicant’s claim the respondent as indicated earlier raised the preliminary point concerning dispute of fact. It should be apparent from the earlier discussion that the only reasonable conclusion to arrive at with regard to this issue is that there is no real dispute of fact in the present matter. It is for that reason that I proceed to deal with the merits of the claim on the basis of the papers before the Court.

[36] As concerning the propriety interests which the applicant seeks to protect, the respondent in it’s answering affidavit focused

mainly on the process and the methodology including the equipment used to install the fire protection system. He deals superficially with the issue of the confidential information he had acquired in his position as an employee of the applicant.

[37] In my view, the respondent acquired the confidential information of the business of the applicant including personal knowledge of the customers by virtue of his duties and the relationship he had with the suppliers and customers of the applicant. It is for this reason that I am of the view that the applicant has made out a case which has not been seriously challenged. The case is that the applicant has interest in the confidential information acquired by the respondent during his employment. There is very strong evidence in this regard that the respondent had during his employ with the applicant acquired confidential information which requires protection. The information which the respondent acquired, particularly the relationship with the customers is of such nature that when he left the applicant’s employ, he posed a risk to the applicant’s business if he was to join any other competitor. The level of risk rose higher when he established the second respondent and commenced conducting the business in competition with the applicant.

[38] The earlier analysis answers the question as to whether the entitlement to the commission constitutes “consideration” relevant to the enforcement of the restraint of trade agreement. There is clearly no relationship between the entitlement to the commission and the restraint of trade in this instance. The commission, as it stands in the contract is not paid upon termination of the contract but during its existence. In other words the restraint of trade is not conditional on the payment of the commission. The undertaking was that the respondent made is very clear in that it provides unconditional protection of the applicant’s proprietary interests in its confidential information.

[39] Similarly the issue of the alleged constructive dismissal has no relevance to the consideration of whether the applicant has propriety interest which deserves protection. The undertaking made by the respondent was not conditional on the nature and the circumstances of the termination of the employment contract. This issue was addressed in Reeves and Another v Marfield Insurance Brokers and Another,[9] where the court held that:

“the legitimate object of the restraint is to protect the employer’s goodwill and customer connections (or trade secrets) and the restraint accordingly remains effective for a specified period (which must be reasonable) after the employment relationship has come to an end. The need for the protection exists therefore independently of the manner in which the contract of employment is terminated and even if this occurs in consequence of a breach by the employer.”

[40] The final issue to consider concerns the reasonableness or otherwise of the restraint. The restraint of trade as provided for in clause 12 of the employment contract is for a period of two years from the date of the signature of the employment contract and applies within a 200 km radius around Sparton in Kempton Park. I find nothing unreasonable as to both the area and the period of operation of the restraint in particular when regard is had to the fact that the respondent whilst in the employ of the applicant serviced the clients of the applicants across South Africa.

[41] In conclusion, it is common cause that the parties concluded a restraint of trade agreement. The applicant has shown that the respondent is in breach of the agreement. The respondent has failed to show that the agreement is unreasonable or that it is against public policy. Accordingly the applicant’s application stands to succeed.

[42] In the circumstances of this case I do not belief that it would be fair to order the costs to follow the result.

Order

[43] In the premises the following order is made:

1. This matter is treated as one of urgency and the forms and service provided for in the rules are dispensed with.

2. The respondent is interdicted and restraint until 09 October 2015 and within a radius of 200 km of Sparton, Kempton Park, Gauteng from:

i. directly or in directly having an interest in, involvement with, connection to or being employed by the second respondent or any other company, cooperation, firm, partnership, association or other form of business entity whether incorporated or unincorporated, which conducts business along lines similar to or in competition with that of the applicants; and acting as an employee, director, shareholder, member, partner, consultant, financier, agent for, or advisor to, the second respondent or any competing business in respect of the restraint activities, being all activities associated with installing, commissioning and servicing problems in the fire protection sector.

ii. the respondent is interdicted and restraint from disclosing any of the applicants confidential information and or trade secrets to any person and or utilizing, communicating and or publishing any confidential information concerning the applicant’s business at any time.

3 There is no order as to costs.

E Molahlehi

Judge of the Labour Court of South Africa

Appearances:

For the Applicant: Advocate C Whitcutt SC with Adv C de Witt

Instructed by : Weberwentzel Attorneys .

For the First Respondent: Advocate J L Myburg

Instructed by : Hills Inc.

[1] See South African Football Association v Mangope [2011] 4 BLLR 391 (LC)

[2] 1984 (3) SA 623 (A)

[3] Automotive Tooling Systems (Pty) Ltd 2007 [2] SA 271 (SCA) and

[4] 1993 (SA 742 (A)

[5] (supra)

[6] Unreported at para [12]-[13]

[7] 2013 (1) SA 135 GSJ at 148 para G-H

[8] 1999 [4] SA 115 [w] at 1281 I to 129 C.

[9] [1996] ZASCA 39; 1996 (3) SA 766 (A) at 772 para F-G