REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA
GAUTENG LOCAL DIVISION
JOHANNESBURG

CASE NO:  17200/2013

(1)	REPORTABLE: YES / NO
(2)	OF INTEREST TO OTHER JUDGES: YES/NO
(3)	REVISED. 

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                   DATE			        SIGNATURE

In the matter between:

THE NEW RECLAMATION GROUP (PTY) LTD			 Applicant

and

NEIL DAVIES				                                First Respondent

WEST RAND SCRAP (PTY) LTD				     Second Respondent
______________________________________________________________ 

J U D G M E N T
______________________________________________________________

TSOKA, J:

[1] 	In this application, The New Reclamation Group Proprietary Limited (“the applicant”) seeks final relief to enforce the provisions of a restraint of trade agreement (“the agreement”) between it and Neil Davies (“the respondent”).

[2] 	Although the applicant’s case is premised on the agreement signed only by the respondent on 1 July 2011, the uncontested evidence is that the only agreement applicable and relevant is the one signed by both parties on 17 May 2008. That this is the agreement applicable admits no doubt.  The one dated 1 July 2011 constitutes an offer to be signed by the respondent, which offer, in spite of the applicant’s protestation, was not accepted by it. Realising this difficulty, the applicant, with leave of the court, filed a supplementary affidavit relying on the agreement dated 17 May 2008. The respondent, wisely, filed his reply thereto dealing with the agreement of 17 May 2008.  In this application, any reference to the agreement is the one of 17 May 2008. It is common cause that the terms and conditions of this agreement are not materially different from the unsigned one of 1 July 2011 other than its duration thereof. Although the agreement of 17 May 2008 is for 3 years, the applicant seeks enforcement of the agreement for a period of 2 years only.

[3] 	There are two issues to be resolved in this matter, namely:

3.1	Whether the applicant has a protectable interest worthy of protection; and

3.2	If there is such a protectable interest, whether it is reasonable to enforce the agreement against the respondent.  Put differently, does the applicant’s interest, weigh qualitatively and quantitatively against the interest of the respondent to be economically inactive and unproductive.

[4] 	It is trite that restraint of agreements are lawful and constitutional.  It is for the applicant to only prove the existence of such an agreement and the breach thereof, whereafter the onus is on a respondent to prove that such an agreement is against public policy, that is unconstitutional, in that it denies a respondent his right to be engaged in a trade of his choice, thus unreasonable and unenforceable.

[5] 	It is further settled that proprietary interests worthy of protection are –

5.1	customer connections; and

5.2	confidential/trade secrets, which if disclosed, would enable a competitor of an applicant to gain an advantage over the business of such an applicant.

[6] 	It has become settled that customer connections mean more than mere customer dealings. It means that when the employee (the respondent), as a result of the contact which he had with the customers, the customers get so strongly attached to him that when the employee quits and joints a rival, he would automatically carry such customers in his pocket. See 

Rawlins and Another v Caravantruck (Pty) Ltd 1993 (1) SA 537 at 541E.

[7] 	For the information sought to be protected, it must –

7.1	be useful in that trade and capable of application in that trade or industry;

7.2	not be public knowledge or public property but must only be restricted to a close circle of people;

7.3	objectively, be of economic value to the person seeking to protect it.  See Van Castricum v Theunissen & Another 1993 (2) SA 726 (T) at 731-732.

[8] 	Having set out, in general terms, the applicable legal principles regarding restraint of trade agreements, it is essential and necessary to set out the facts in this matter bearing in mind that each and every case depends on its own peculiar facts.

[9] 	Briefly the facts in this matter are as follows.  The applicant carries on business throughout the Republic of South Africa as well as its neighbouring countries and other African countries. It deals in scrap metals, both ferrous and non-ferrous.  In this field, it deals with other dealers, recyclers, processors and haulers. It operates more than 70 collection, processing and production sites. Its nature of business is that it purchases scrap metal from third parties including industrial companies, the informal sector and merchants that conduct business in the Republic of South Africa and in various countries throughout the world.  Once the scrap metal is acquired, it is then graded, sorted and processed for onward sale to customers.  For this purpose, the applicant has acquired specialised machinery to enable it to meet each and every customer’s requirements.  The applicant is therefore one of the largest collectors, processors and recyclers of both ferrous and non-ferrous metal in this country.  

[10] 	The applicant was co-founded by one David Kassel in 1970, its present chairman.  One of the companies founded by Mr Kassel, was Lemkas Metals (Pty) Limited.  Lemkas Metals (Pty) Ltd was well-equipped with specialised processing and densification plant and equipment. In 1998 the two companies morphed into Reclamation Group which then acquired various small scrap metal businesses including West Rand Recycling, a business owned by Lawrance Davies, the respondent’s father.  The respondent then the employee of West Rand Recycling, became an employee of Reclamation Group. As a result of a management buy-out in 2006, the applicant acquired all the assets and liabilities of the Reclamation Group who by then had ceased operations.

[11] 	The first respondent qualified as an accountant in 1997. From early on in his career, the first respondent joined his father’s company trading as West Rand Recycling as an accountant.  In 1998 Reclamation Group acquired a company known as Lexshell 246 (Pty) Ltd which in turn acquired West Rand Recycling.  From November of 1998, the first respondent was appointed as a financial manager of the West Rand Division of Reclamation Group.  In 2003, the first respondent left Reclamation Group and began his own plastic business which proved unsuccessful.  On 12 May 2008 the first respondent was re-employed by the applicant as a trader in non-ferrous metals. On 17 May 2008 he signed the restraint of trade agreement with the applicant.

[12] 	It is against these background facts that I am required to determine whether applicant’s 2008 agreement contains interests worthy of protection.

[13] 	A word of caution must, at the commencement, be given.  It is not what the applicant says is worthy of protection that should be protected.  It is only what is objectively viewed that is worthy of protection which the law then regards as protectable interest.  The applicant’s say so, no matter how descriptively and colourfully it described as its protectable interests, would not amount to such.

[14] 	It is the applicant’s case that the first respondent, in his capacity as a trader, and the nature of his duties, functions and responsibilities including sales of ferrous and non-ferrous materials both locally and internationally, the purchasing of non-ferrous metals, negotiation of selling prices; setting conditions and terms of such sales, the settling of the purchase price on non-ferrous metals and dealing with all the logistics involved in the purchase and selling of non-ferrous metals, the monitoring of supplies, calling on existing customers to deal with their problems, the  growing of applicant’s business, the follow-up on consumers and suppliers, the ensuring that targets are met and the submission of tenders, was exposed to its trade secrets, worthy of protection.

[15] 	The first respondent, who during his employment with the applicant was promoted to different positions, in addition to his duties, functions and responsibilities stated in para [14] above, attended bi-weekly meetings of the applicant.  According to the applicant “at these meetings, the first respondent was privy to confidential discussions in relation to applicant’s business” which confidential information includes applicant’s international operations; pricing; recruitment of staff; staff training; opening of new markets and updated reports regarding applicant’s branches.

[16] 	Furthermore, as a result of the first respondent’s “association” with the applicant, the first respondent had “access to ‘applicant’s trade secrets’ and acquired” considerable know-how and learnt about “applicant’s techniques” and then forged “very close connections” with its customers.

[17] 	In support of applicant’s contention for the existence of a protectable interest worthy of protection, it mentions three customers who dealt with the applicant namely, Rudi’s Scrap Metals, JJD Recycling and Magogo Scrap Metals. Affidavits submitted on behalf of these three entities are deposed to by Jan Johannes Stols, Cornelius Andries Jacobus Gildenhuys and Maria Elizabeth Gildenhuys, respectively.

[18] 	According to Rudi’s Scrap Metals, which has been in existence for a period of 16 years dealing in both ferrous and non-ferrous metals and is applicant’s West Rand division’s largest suppliers, during December 2012, the first respondent approached it to cease supplying applicant with scrap metal since the first respondent, who was by now employed by the second respondent, a competitor of the applicant, would be able to offer it a better price.

[19] 	JJD Recyling CC, applicant’s supplier of scrap metals for many years, was also enticed by the first respondent during March 2013, that going forward, “all available scrap metal that would ordinarily be supplied to” the applicant should be supplied to the second respondent. For this purpose, the second respondent would be permitted to place scrap metal collection bins at its premises.

[20] 	With regard to Magogo Scrap Metals, also applicant’s supplier of many years, during March 2013, it was also approached by the second respondent to consider, in future supplying the second respondent with all of its scrap materials instead of the applicant.

[21] 	Rudi’s Scrap Metals regarded the first respondent as a “key contact person” and “first port of call” at the applicant.   It was only when the applicant  advanced to it the amount of R150 000 in cash that it supplied the applicant with about 30 tons of scrap metals.

[22] 	According to JJD Recycling, its relationship with the applicant was “looked after” by the first respondent. It regarded the first respondent as “at the forefront” of applicant’s business with the result that
It is for the above reasons that JJD has come to know and trust Davies (the first respondent).  It would be fair to say that a strong relationship was forged between Davies (on the one hand) representing Reclaim (the applicant) and JJD (on the other) (emphasis added).

[23] 	Magogo Scrap Metals, which had 4 years relationship with the applicant, “trusted” the first respondent while still with the applicant and regarded him “as the face of” the applicant.  As a result of the relationship it had with the first respondent, a strong relationship of trust has developed between MSM (Magogo Scrap Metals) and Davies (the first respondent) and MSM would have no hesitation in doing business with Davies in the future regardless of where he is employed.

[24] 	The first respondent is opposing the application. He filed an answering affidavit denying that the applicant has a interest worthy of protection. Thus he submits that the agreement it has with the applicant is against public policy and therefore unenforceable.

[25] 	The applicant will succeed if the facts stated by the first respondent together with the admitted facts stated in its affidavit justifies the granting of the application unless the facts stated by the first respondent are far-fetched or untenable.  See Plascom-Evans Ltd v Van Riebeeck Paints (Pty) Ltd 1984 (4) sa 623 (A) at 634H-635B.

[26] 	Regard being had to first respondent’s affidavit, the following facts emerge.  From early on, the first respondent, though qualified as an accountant, worked in the same trade or industry as the applicant.  He had 10 years experience when joining the applicant.  His love of the scrap metals industry started as a child growing up.  He had the intention to one day succeed his father’s business and eventually take it over and operate it.

[27] 	According to him, the success or otherwise of any scrap metal business depends on the price at which a supplier or merchant is prepared to pay or sell a processed end product.   According to him, price is key although even though price may be key and therefore confidential, its confidentiality is of a short duration.

[28] 	Suppliers of scrap metals compete on price and in this regard an attempt is always made to obtain the best price possible, and to this end, it is a common practice in this trade, that any information with regard to price is openly disclosed to different competing scrap metals merchants.  In essence, a seller of scrap metal or supplier thereof, advises other merchants interested in such scrap metal, of the prices that its competitors are prepared to pay. Consequently, the price at which a dealer is willing to pay will be confidential from the moment at which a decision is made until such time as it has been published to the suppliers. The confidentiality of the price is for a short duration until publication whereafter it is no longer confidential and secret, but public knowledge. In substantiation of this fact, the first respondent refers to an SMS that the applicant sent to Santi Scrap Metals on 4 June 2013 which was, immediately, on-sent to the second respondent for a competitive price.

[29] 	Furthermore, the price a trader in the industry is prepared and willing to pay for scrap metal, depends on the assessment at the time of the margin that one would make on resale.  ‘That determination is one involving commercial balance based upon one’s experience in the field and to an extent, apart from knowledge of the industry, involves judgment based on that experience’ which experience would determine whether, in the short term, it would be profitable to pay such a price or not.

[30] 	The price of scrap metal is not only determined by the London Metal Exchange, but also by the exchange rate between the rand and the US dollar, which fluctuates on a daily, if not, on an hourly basis.

[31] 	In support that the only determining fact is price, the first respondent refers to an incident in 2004 when the applicant and some dealers in the scrap metals trade colluded among themselves in contravention of the Competition Act, 89 of 1998 and fixed the price at which scrap metal would be sold to customers. According to the first respondent, the applicant is not shy to advance cash to dealers and suppliers of scrap metals for them to only supply it with the necessary scrap metal.

[32] 	With regard to customer connections, it is necessary to scrutinize what the three dealers referred to by the applicant, are in fact saying.  Although both JJD Recycling CC and Magogo Scrap Metals regarded the first respondent as someone they would follow wherever he goes, they were both surprised that the first respondent signed a confidentiality agreement with the applicant, which surprise, implies that in this industry there is nothing confidential to be protected by a restraint of trade agreement. Rudi Scrap Metals commenced supplying the applicant with scrap metals once the applicant advanced to it, Rudi, the cash amount of R150 000.

[33] 	The three affidavits do not support applicant’s contention that the first respondent had them in his pocket and that they have become so attached to him that, bar any cash incentive, they would follow him to the second respondent.

[34] 	The three dealers deposed to an affidavit before the issuing of the application.  None of them state whether they had any exclusive relationship with the applicant other than to say that they dealt with the applicant on a ‘regular’ basis, and on dealing with the applicant, they regarded the first respondent as the ‘face’ or ‘port of first call’ of the applicant.  It is only Magogo Scrap Metals CC who attempts to suggest any closer attachment with the respondent. This attachment, in my view, falls far short of proving customer connections worthy of protection by the law.

[35] 	In spite of the colourful and flowery description of its business, the applicant has, in my view, no trade secrets worth protecting.  It is startling to see how staff training and attending meetings in one’s capacity as a senior official in an organisation could be regarded as ‘trade secrets’.  It is in the nature of the business, that a senior person, such as the first respondent, trains his staff and attends meetings.  This comes with the territory.

[36] 	In the result, I find that the first respondent has proved that the applicant has neither trade secrets nor business connections deserving protection. In any event, even if there is such protectable interest worthy of protection, such protectable interests do not in my view, weigh up qualitatively and quantitatively that, the first respondent’s right to choose a profession of his own should be rendered economically inactive and unproductive.

[37] 	It is cold-comfort for the applicant to contend that the first respondent should not be involved in scrap metal industry but to return to his profession of accountancy.  The first respondent, though qualified as an accountant, chose to follow in his father’s footsteps to become a trader in scrap metals.  There being no factual and legal basis to restrain him from following his profession of choice, he is at liberty to remain in this trade.

[38] 	With regard to the alleged soliciting of applicant’s former employees, in contravention of the agreement, the applicant claims that the first respondent offered employment to two drivers employed by the applicant.

[39] 	The first respondent disputes applicant’s assertions. His version is that one of the drivers, at the beginning of March 2013, telephoned an employee of the second respondent after establishing that the first respondent had joined the second respondent to find out whether  there is any chance of him, the driver, being offered employment by the second respondent.  This employee was seeking an opportunity to earn more money, as, ostensibly, he was earning less at the applicant.  The first respondent ensured that indeed the driver secured employment with the second respondent and earned a better salary.

[40] 	The second driver also approached the second respondent through the second respondent’s employee who in turn referred this driver to the first respondent.  The first respondent offered this driver employment at a higher salary.

[41] 	Employment of these two drivers, who are semi-skilled workers and possessed no information that can be used beneficially to a competitor of the applicant, such as the second respondent, cannot prejudice the applicant in any way.  Neither can their driving be regarded as applicant’s proprietary interest worthy of protection.

[42] 	With regard to the other two employees who left the applicant for the second respondent, the first respondent’s version is that he did not offer them employment with the second respondent.  According to the first respondent, these other two employees contacted another person in the employ of the second respondent, and that it was this person who referred the two to the first respondent to see whether the first respondent would be able to offer them employment.  No employment was offered to these two.

[43] 	It is instructive to recall what Van Dijkhorst J said in the matter of Atlas Organic Fertilizers v Pikkewyn Ghwano 1981 (2) SA 174 (TPD) at 200D-E.  The learned Judge, as to whether enticing or inducing employees to lawfully terminate their employment is unlawful and therefore actionable, said the following –

‘… Is it unfair competition to induce an employee to terminate his contract of employment lawfully?  Put differently, can it be unlawful conduct to exhort someone to do something lawfully?  This proposition falls strange on the ear. In our competitive economy it is normal for employers to bid for their labour, the price of which is subject to the law of supply and demand. As long as the employee is free to leave others are entitled to offer him better terms of employment. The fact that the loss of the employee might cause damage to the employer is incidental and irrelevant …’

[44] 	Public policy, as is espoused by our Constitution, which guarantees one’s right to choose a trade or profession of his liking; the right to dignity and to sell one’s labour at a competitive price with no intent to unlawfully ‘cripple or eliminate the business competitor’, dictates that the first respondent’s conduct, in the circumstances of this matter, is not unlawful.  This being not unlawful, cannot in any way be construed as protectable interest worthy of any protection. Neither can first respondent’s conduct be said to amount to unlawful competition actionable in our law.

[45] 	It is unhelpful for the applicant to rely on the alleged fraud perpetrated by the first respondent that culminated in him being internally disciplined and ultimately being dismissed. The dishonesty of the first respondent is, in my view, irrelevant as to whether the applicant has a protectable interest or not.

[46] 	In all the circumstances, it is my view that the first respondent has succeeded in proving that the applicant has no protectable interest worthy of protection. The restraint of trade agreement dated 17 May 2008 is against public policy, unreasonable and thus unenforceable.

[47] 	In the result the application is dismissed with costs, such costs to include the costs occasioned by the employment of two counsel.

			       __________________________________________
					  	      M TSOKA
			       JUDGE OF THE HIGH COURT OF SOUTH AFRICA
					    GAUTENG LOCAL DIVISION
					        JOHANNESBURG.

COUNSEL FOR THE APPLICANT:	Adv A Subel SC
		Adv KS Hofmeyr

INSTRUCTED BY:	Werksmans Attorneys
		155-5th Street					Sandown, Sandton

COUNSEL FOR THE RESPONDENT:	Adv PJ Van Blerk SC

INSTRUCTED BY:	Brain Kahn Incorporated 
		Attorneys
		Umlilo House, 2 Burnside
		Island, 410 Jan Smuts Avenue
		Graighall Park
		Johannesburg.

DATE OF HEARING:	25 February 2014

DATE OF JUDGMENT:	20 March 2014