TIBMS (Pty) Ltd t.a Halo Underground Lighting Systems v Knight and Another (JA29-2017) [2017] ZALAC 59; (2017) 38 ILJ 2721 (LAC) (18 October 2017)

IN THE LABOUR APPEAL COURT OF SOUTH AFRICA, JOHANNESBURG

Reportable

Case no: JA29/2017

In the matter between:

TIBMS (PTY) LTD T/A HALO UNDERGROUND

LIGHTING SYSTEMS Appellant

and

KNIGHT, DENISE RENEE First Respondent

BREEDT, BARBARA Second Respondent

Heard: 26 September 2017

Delivered: 18 October 2017

Summary: Restraint of trade agreement– dispute of fact about the existence of the restraint of trade and a possible hi-jacking of the employer business by the employees – employee conceding setting UP a new business venture in direct competition with the employer – employer failing to produce the restraint of trade agreement and contending that employees destroyed the restraint of trade agreement – employer failing to produce other staff members’ restraint of trade agreement which would have weight in its favour – dispute of fact could not be resolved on the paper – Plascon Evans rule finding application – Labour Court correct in dismissing the application. Costs order granted in favour of the respondents in the court a quo set aside due to their conduct – Appeal partly upheld and partly dismissed.

Coram: Coppin and Sutherland JJA et Savage AJA

JUDGMENT

SUTHERLAND JA

Introduction

[1] On 23 December 2016, the Labour Court dismissed an application by the appellant, (Halo) for an interdict against its two former employees, the respondents (Knight and Breedt) to protect its confidential information and customer connections. The application relied on the terms of alleged restraints of trade agreements between Halo and Knight and Breedt, which prohibited them from being involved in any way with competitors for 24 months calculated from 30 November 2016.

[2] The application was dismissed by the Labour Court on a single point: a dispute of fact about the existence of the restraint of trade

agreements. At issue was whether the respondents had deliberately destroyed the agreements as part of a concerted programme of action designed to hi-jack the business of Halo, or whether no agreements had ever existed.

Evaluation of the Facts

The business of Halo

[3] The business of Halo, which started in 2012, is the design of underground lighting systems suitable to endure the harsh environment of that undertaking and the sale and distribution of such systems worldwide as the “Halo lighting system”. Halo has a South African patent for the system, dated 30 October 2013. It had agents in various countries including Australia, Canada and USA. The provision of the components for these systems are sourced and assembled elsewhere and in the process of manufacture, the systems are built up to constitute the product to be sold. In particular, Clear Lighting Company, in China, was at the relevant time, Halo’s premier manufacturer; a few other components were manufactured in South Africa.[1]

The Respondents’ roles

[4] Knight was the General Manager of Halo, and reported to Karl Bezuidenhout, the Managing Director and ostensibly the sole shareholder. She was recruited in 2012, initially as a marketing assistant, a post late re-described as General Manager. She played a significant role in marketing the product internationally. Breedt was responsible for distribution logistics and reported to Knight; in this capacity, Breedt had access to allegedly confidential customer connection information. It is also alleged that she was also involved in marketing, but no substance to this assertion appears from the record.

[5] Knight was, on her own say-so in complete control of the operations. The exact hands-on involvement of Bezuidenhout is disputed, Knight saying he was largely an absentee, and Bezuidenhout claiming to have exercised a tighter oversight than she claims. These differences are unimportant; rather, what is material is that she was involved in every aspect of the business, save the technical design function and some higher-end financial decisions. When she had been recruited as a marketing assistant, she had no know-how about the product or of the business and it was entirely through her role as a marketing assistant and later general manager that she acquired her skills in the sales of the product. Breedt, similarly, was recruited in 2012 and had no prior knowledge of the type of business of Halo.

The hi-jacking of the business

[6] Knight’s unlawful activities in breach of her obligations as an employee are hardly in dispute, as she candidly confesses to several serious transgressions.

[7] Knight confesses to being aggrieved with Bezuidenhout, who, in short, as she saw things, failed to give due financial recognition to her pivotal role in the business. There had also been a flutter about a potential retrenchment; alternatively, a personnel restructuring exercise to make the employees “consultants”, depending on whose version is preferable. Resolving that issue is unnecessary. The significant point is that her grievances are the ostensible root of her decision to go into business with her brother in law, David Welbourne, the ostensible financier of the venture, and David Peters of Mineglow, the Halo Australian agent, in direct competition with Halo.

[8] The plot embraced creating a new business, Global Lighting Systems (GLS) which would market and sell a product to be called “Safeglow”

to be manufactured by Clear Lighting in China and with Knight’s intimate knowledge of Halo’s customers’ needs, offer this rival product to them in competition with Halo. This plan was hatched while she was the general manager of Halo, and involved, even on her own say- so, the most egregious actions calculated to sabotage Halo’s business.

[9] From as early as September 2016, Knight confesses, she conspired with the Australian Agent, David Peters, to setting up GLS. In late October/early November 2016, she clandestinely approached Halo’s premier manufacturer, Clear Lighting Company, in China, under the pretext of visiting her family abroad. She and her co-conspirators met with the directors of Clear Lighting in China. There she succeeded in suborning Clear Lighting, which, as a result, ceased to supply Halo in consequence thereof. Moreover, Clear Lighting undertook to supply her new business, GLS with the components with which it had acquired familiarity as the supplier of Halo. A 5% interest in GLS was offered to Clear Lighting. She was to take a 30% share, Peters a 25% share and Welbourne, a further unstated portion. The Canadian agent, OFM, which was peeved because Halo would not grant it a licence to also sell in USA, also jumped ship to support GLS in North America. The upshot was that Halo lost not only its entire managerial echelon but also its Australian and Canadian agents in November/December 2016. GLS and the former agents are said by Halo to targeting its customer base.

[10] Whilst still away in China, her scheme was uncovered, and when she was confronted, she promptly resigned. Breedt resigned to take a job with GLS after she had been confronted about the plot and after she had deposed to two affidavits on 1 November 2016, and about which more is said hereafter.

[11] Knight protests that she proposes not to compete with Halo in South Africa but to do so elsewhere in the world. This competition, she claims is not unlawful; the assertion being premised on clause 2.1.2 of the text of the restraint template that the restraint is, in any event, limited to “Gauteng and any other province in which Halo operates”. This might limit the reach of the restraint but of course, does not impinge on her common-law obligation not to filch or use confidential information.

[12] She lamely apologises for not resigning before embarking on this venture. Notably, having made out a case for her role being of critical importance to the success of Halo, she fails wholly to deal in any meaningful way with the suborning of the two agents and the Chinese manufacturer, and the entirely foreseeable detrimental effect this had on her jettisoned employer. Instead, she offers several complaints which are peripheral or irrelevant to the critical issue of her gross violation of her duties as an employee; these tangents do not warrant being traversed.

[13] Breedt’s only potential culpability in respect of breaching a restraint is limited to accepting a job, as an “administration manager”, (a vague appellation not unreminiscent of her old role in the distribution of products to customers of Halo) with GLS.

The disputed existence of the agreements in restraint of trade

[14] It is common cause that the restraint agreement documents, alleged to exist by Halo, cannot be produced.[2]

[15] Bezuidenhout says he can positively state the agreements indeed exist because he signed them after being presented with them, bearing the respondents’ signatures, in 2013. He offers a manifestly weak corroborating affidavit by his sister, Fritz, who claims she was present when the documents, signed by the respondents, were bandied about. She does not say when this occurred; supposedly, sometime in 2013, some three years prior to her recollection. Moreover, she does not hint at how or why she might remember the event after that elapse of time. In addition, emphasis was placed on the common cause fact that in 2013, fresh contracts for the entire staff were composed, a point thought to bolster the averment of the signing of restraint agreements at that time. This common cause fact must, however, go hand in hand with Knight’s assertion that she declined to sign either the 2013 employment agreement or the addendum containing the restraint, and that she had left the unsigned document in her desk drawer, where Bezuidenhout could verify the allegation.

[16] The sole reason alleged by Bezuidenhout why the documents cannot be produced is that the two respondents, in mid-October 2016, took the documents from the company records and destroyed them. How could he know that? Halo adduced two affidavits from Breedt, attested on 1 November 2016, which admit to these actions. Reference was made to this circumstance in the founding affidavit, served on Knight on 25 November 2016.

[17] Knight’s answer, served on 2 December 2016, attacks the allegation of the existence of any agreement and seeks to refute the averment in two further ways; first to raise points about the appearance of the document attached to the founding affidavit suggesting its provenance is in doubt, and secondly, by flatly denying the tale of destruction.

[18] The “odd appearances” thesis addresses the document attached to the founding affidavit which supposedly contains a sample of the text of the agreements allegedly concluded in 2013. The allegations about the appearances of the alleged 2013 exemplar, back and forth, seem, in my view, to be nit-picks, which in any event, drew explanations for the differences which were not implausible. The notion that the observations point towards a forgery is strained and no inference can be drawn that the documents per se are not genuine. There is no need to unravel this dispute because the squabble over the genuineness of this attached document, which is no more than a draft or a template, misses the real point, which not whether such a document exists, but rather, whether such a document was ever signed by the respondents, an assertion not established by the mere existence of the sample document. In a similar vein, the allegations

about the fabrication of the “2012” signed employment agreement proffered by Knight can also be understood to be a

distraction from the real factual controversy.

[19] Both respondents allege that Breedt was bullied into signing the affidavits. Only the second affidavit implicates Knight in the actual theft and destruction, but the allegations of knowledge by Breedt of Knight’s plot, an uncontroversial aspect, are made throughout both affidavits.

[20] When Breedt, deposed to her answering affidavit on 7 December (the application being served on her only on 2 December; the same day that Knight served her answer), she stated that she was intimidated by threats of criminal prosecution and imprisonment to depose to the two affidavits. In evaluating this assertion, there must also be weighed an admission by Bezuidenhout that Breedt is a meek person. That disposition lends a measure of credence to the allegation of her being bullied into making the affidavits in the form deposed to and that the contents were dictated to her; evident also from Bezuidenhout’s own allegations to explain the need for a second affidavit to extend their scope to implicate Knight. Breedt’s answering affidavit does, however, not recant the account she swore to, which axiomatically, need not be untrue even if she was intimidated to depose to it. The absence of a clear statement by her declaring the contents to be a fabrication is another snippet which must be weighed against other contra-indications in the record.[3]

[21] Knight’s attorney had served on 28 November, a notice to produce these agreements and, also, other documents, including the restraints of the rest of the staff.[4] This was done well knowing that Halo had stated that the originals of the two respondents’ agreements had been allegedly destroyed by herself and Breedt. The demand could not therefore have been met.

[22] However, Knight had alleged that an unsigned 2013 employment draft agreement been left in her desk drawer, which contained no restraint addendum. She deposes with conscious mysteriousness that her reason for declining to sign these documents shall be disclosed at another time; however, this melodramatic interlude does not contribute anything useful to the resolution of the puzzle. Had an unsigned 2013 draft agreement been produced it would in any event not be dispositive of her having signed a restraint, but might have added weight to her assertions that if she had not signed the principal document it was unlikely she signed an addendum.

[23] On this score, it is, perceptively argued on behalf of the respondents that Halo’s dilemma about the contested existence of the agreements might have been ameliorated had Halo, as requested in the demand to produce documents, presented a set of agreements for the whole staff which illustrated that only the two respondents’ restraints agreements were missing. The refusal by Halo to produce those documents on grounds of confidentiality is described as implausible. I agree. First, if confidentiality could exist, the disclosure was nevertheless appropriate and functional to protect a legitimate legal interest, and further, were the picture presented by such disclosure proven that everyone, bar the two respondents, had such agreements, it could have had a powerful effect, affording weight to the veracity of the 1 November affidavits of Breedt, who because of her disavowal of these affidavits, is an otherwise unreliable witness. By contrast, the failure to do so, could justify an adverse inference, which the respondents argue should be drawn. In my view, these considerations simply leave the question unanswered.

The Labour Court’s decision

[24] The Labour Court, upon being confronted by this dispute of fact, concluded that no relief should be granted, and because no ancillary application to refer the matter for an urgent oral hearing was sought, no alternative relief was appropriate either.[5] No other issues were canvassed.

[25] This decision of the Labour Court is criticised on the basis that the dispute of fact is not bona fide or material and that upon the authority of Plascon Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd 1984(3) SA 623 (AD), a decision ought to have been made to believe the version of Bezuidenhout.

[26] I am unable to agree. Whilst the denial of the existence of the agreements, is not wholly convincing, that is never sufficient, on paper, to justify an outright rejection. The denial is not bald nor unsupported by allegations of fact nor are the allegations of fact inherently implausible.

[27] The heavy emphasis on Knight’s clandestine modus operandi is unhelpful because it is consistent with her self-awareness of her breach of the duty of good faith in terms of the invariable

consequences of the employment relationship, and not only consistent with the existence of a restraint agreement.

[28] Halo’s approach in the application seems to have been premised on strategic decisions which inhibited a finding in its favour.

28.1. The first strategic decision was the omission to show the exceptionality of the absence of a restraint agreement by either two respondents by disclosing the uniform set of agreements for everyone else; if Halo could indeed do so.

28.2. The second, strategic decision is the point, quite properly mentioned by the Labour Court, that the option of seeking an interim order pending a referral to oral evidence, although initially pursued in its relief sought, was subsequently spurned by Halo.

28.3. Lastly, the appeal too was argued solely on the premise that a final interdict should have be granted.

[29] The dispute of fact in this matter cannot be resolved on paper, even on a robust approach, as whatever nuances may nibble at the edges of either version, neither can be dismissed out of hand. Credibility is only capable of being addressed on paper when the assertions are palpably absurd or demonstrably false. The threshold that had to be cleared is “wholly fanciful and untenable”.[6] Moreover, the appetite to resolve paper contests by reference to the probabilities, though ever present, is not appropriate.[7] On the allegations canvased on the record, the threshold was not cleared.

Conclusion

[30] Accordingly, it cannot be held that the Labour Court misdirected itself in dismissing the application.

Costs

[31] However, as regards the costs of that application, it is my view that the exercise of the discretion to award the respondents their costs was inappropriate, given the requirement that such decisions be governed by both law and equity. Such an assessment is informed by a holistic consideration of the entire conspectus of circumstances that are pertinent to the relationships among the litigants.

[32] Knight was guilty of egregious conduct qua employee. She ought not to have been granted costs, having regard to equitable considerations. It was argued that it was, or ought to have been plain, before the application was lodged that a restraint agreement could not be proven. The need to protect the protectable interest urgently was however manifest. The risk of taking a weak case to court to assert that harm has been perpetrated ought not to be harshly condemned. Holistically approached, equity is better served by no order as to costs in her favour. Similarly, in the appeal, the same reasoning should prevail. Knight should bear her own costs.

[33] As to Breedt, it is nowhere meaningfully articulated in the record why her taking up a post in the competitor, even if the applicability of a restraint of trade agreement were to be assumed, threatened seriously a protectable interest. Her exposure to confidential information was not described, and other than her awareness of the identities of customers and of suppliers, per se, and their usual needs. The confidentiality of such information is tenuous as these needs would have been broadcast to any prospective vendor. Therefore, the case for a protectable interest being in danger by reason of Breedt’s role in GLS is tenuous at most. In the absence of a resolution of the dispute of fact, Breedt’s disputed culpability in the destruction of the documents cannot weigh in determining an equitable costs order. However, the consequences of her deposing to the two incriminating affidavits per se were sufficient to warrant her being joined in the initial application, and that action on her part ought, in equity, to have consequences.

Her actions laid an important part of the foundation for the litigation. The appropriate costs order would have been to make no

order of costs in her favour in recognition of that aspect of her conduct. The position on appeal ought to be no different.

The Order

(1) The appeal is dismissed in part and upheld in part.

(2) The dismissal of the application is confirmed.

(3) The costs orders made by the Labour Court are set aside.

_____________________

Sutherland JA

Sutherland JA (with whom Coppin JA and Savage AJA concur)

APPEARANCES:

FOR THE APPELLANT: Attorney Sean Snyman.

FOR THE FIRST RESPONDENT: Adv John Whitehead SC,

Instructed by Commins and Associates

FOR THE SECOND RESPONDENT: Adv H M Viljoen,

Instructed by Metcalfe Attorneys.

[1] It was disputed by Knight that the Halo lighting system was unique and it is averred that Halo is a mere distribution agent for Clear Lighting. However, this assertion is moderated by the allegation that Clear Lightings’ product is used as a component of the Halo Lighting ‘system’. Accordingly, this debate is at cross purposes. For the purposes of this case, the ‘system’ must be construed as the ‘ultimate product’ in which Halo can claim a protectable interest.

[2] In advance of filing an answer, a formal demand was made to produce these documents, and others, as the first salvo fired in their resistance to the urgent application. The ancillary squabble about whether it was legitimate to call for the production of documents under a High Court Rule is now an irrelevance and warrants no further comment.

[3] Halo did not file a replying affidavit to Breedt’s answer. The explanation, given from the bar, is that the answer was tendered at the hearing and no opportunity existed to reply unless a postponement was sought, a course of action which was, pragmatically, decided against in the interests of expedition. No adverse inference can, therefore, be fairly drawn against Halo.

[4] The controversy about the competence to make the demand is irrelevant to the assessment of the evidential issue being addressed.

[5] In so doing, the Labour Court followed the authority of Plascon Evans at 634E-635C.

[6] Buffalo freight Systems (Pty) Ltd v Crestleigh Trading (Pty) Ltd 2011 (1) SA 8 (SCA); [2011] 1 All SA 1 (SCA) at para 19.

[7] See Da Mata v Otto N.O. 1972(3) SA 858 (A) at 865H.