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IN THE LABOUR COURT OF SOUTH AFRICA, CAPE TOWN

Not Reportable

Case no: C467/2021

In the matter between:

JF HILLEBRAND SOUTH AFRICA (PTY) LTD                                             Applicant

and

SHAUN CUTTING                                                                             First Respondent

OUTSOURCE LOGISTICS CC                                                    Second Respondent

 

Date heard:  15 September 2021 by means of virtual hearing

Delivered:  16 September 2021 by means of email. Deemed to have been received on the 17 September 2021 at 10.00h.

JUDGMENT

RABKIN-NAICKER J

[1]   This application was brought on an urgent basis to enforce the restraint of trade agreement signed by the first respondent (Cutting) as part of his employment contract. The restraint provision reads in material part as follows:

“You undertake to, not at any time, whether during the continuation in force of this Agreement or at any time after the termination thereof, divulge any information to any person relating to the Company’s private affairs or business practices or methods of carrying on business.

You undertake that, for a period of 1 (one) year after the termination of this Agreement for any cause whatsoever, you will not represent or canvass or accept orders for and on behalf of any person, firm or company similar to those of the Company and the areas in which The Hillebrand Group specialize. You agree to not be personally engaged or be interested, whether directly or indirectly whether as principal, owner, agent or employee, in any business competing with that of the Company you last operated or spent the majority of your time during your employ with ourselves.”

[2]   The application is opposed by both the respondents. It was submitted on behalf of the respondents that any urgency herein was self-created by the applicant, given that the breach of the restraint took place on the 1 August 2021 when Cutting took up employment with the second respondent. I am however inclined to exercise my discretion to hear the matter on an urgent basis given the nature of the application[1], and taking into account that efforts were made by the applicant and the second respondent to avoid coming to Court during the intervening period.

[3]   Certain facts are not in dispute or are common cause as follows:

3.1   The applicant carries on business in the freight forwarding industry and specializes in freight forwarding for customers in the beverage industry, primarily wine (including bulk wine), beer and spirits.

3.2   Cutting was employed by the applicant, between July 2013 and July 2021, as a Logistics Coordinator and throughout his employment he was almost exclusively engaged in bulk wine export orders.

3.3   Cutting tendered his resignation from the applicant’s employ on the 18 June 2021, effective 31 July 2021.

3.4   On the 1 August 2021, Cutting started employment with the second respondent in the position of Operations Supervisor: Wine, based at its offices in Paarl. His job offer stated that his responsibilities would include the function of all coordination, supervision and support within the Wine Logistics Team and the administration thereof.”

3.5   The applicant is a direct competitor of the second respondent in the Western Cape. Amongst other services, the second respondent provides freight forwarding services to customers in the beverage industry, including wine and bulk wine. It competes for the same business as the applicant in the Western Cape.

[4]   The legal principles applicable to agreements in restraint of trade were well summarized by Mbha J (as he then was) in Experian SA (Pty) Ltd v Haynes & another[2] as follows:

“[12] The locus classicus on this subject is Magna Alloys & Research (SA) (Pty) Ltd v Ellis [1984] ZASCA 116; 1984 (4) SA 874 (A) at 897F-898E, where Rabie CJ summarized the legal position, inter alia, as follows:

12.1  There is nothing in our common law which states that a restraint of trade agreement is invalid or unenforceable.

12.2  It is a principle of our law that agreements which are contrary to the public interest are unenforceable. Accordingly, an agreement in restraint of trade is unenforceable if the circumstances of the particular case are such, in the court's view, as to render enforcement of the restraint prejudicial to the public interest.

12.3  It is in the public interest that agreements entered into freely should be honoured and that everyone should, as far as possible, be able to operate freely in the commercial and professional world.

12.4 In our law the enforceability of a restraint should be determined by asking whether enforcement will prejudice the public interest.

12.5 When someone alleges that he is not bound by a restraint to which he had assented in a contract, he bears the onus of proving that enforcement of the restraint is contrary to the public interest.

See also John Saner Agreements in Restraint of Trade in SA Law (issue 13 October 2011) at 3-5, 3-6.

[13] These principles have been reaffirmed in other decisions of our courts. In Basson v Chilwan & others [1993] ZASCA 61; 1993 (3) SA 742 (A) at 776H-J to 777A-B, Botha JA stated, in a separate judgment, that:

'The incidence of the onus in a case concerning the enforceability of a contractual provision in restraint of trade does not appear to me in principle to entail any greater or more significant consequences than in any other civil case in general. The effect of it in practical terms is this: the covenantee seeking to enforce the restraint need do no more than to invoke the provisions of the contract and prove the breach; the covenantor seeking to avert enforcement is required to prove on a preponderance of probability that in all the circumstances of the particular case it will be unreasonable to enforce the restraint; if the Court is unable to make up its mind on the point, the restraint will be enforced. The covenantor is burdened with the onus because public policy requires that people should be bound by their contractual undertakings. The covenantor is not so bound, however, if the restraint is unreasonable, because public policy discountenances unreasonable restrictions on people's freedom of trade. In regard to these two opposing considerations of public policy, it seems to me that the operation of the former is exhausted by the placing of the onus on the covenantor; it has no further role to play thereafter, when the reasonableness or otherwise of the restraint is being enquired into.'

[14]  The position in our law is, therefore, that a party seeking to enforce a contract in restraint of trade is required only to invoke the restraint agreement and prove a breach thereof. Thereupon, a party who seeks to avoid the restraint, bears the onus to demonstrate on a balance of probabilities, that the restraint agreement is unenforceable because it is unreasonable.

[15] The test set out in Basson v Chilwan & others at 767G-H, for determining the reasonableness or otherwise of the restraint of trade provision, is the following:

15.1 Is there an interest of the one party, which is deserving of protection at the determination of the agreement?

15.2  Is such interest being prejudiced by the other party?

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

15.4  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?

[16]   In Kwik Kopy (SA) (Pty) Ltd v Van Haarlem & another  1999 (1) SA 472 (W) at 484E, Wunsh J added a further enquiry, namely whether the restraint goes further than is necessary to protect the interest.”

[5]   On the facts in this matter, it is undisputed that there has been a breach of the agreement. The onus is thus on the first respondent to establish that the restraint is not reasonable and should not be enforced. Has the respondent proved that on a balance of probabilities the restraint is unreasonable? This brings us to the Basson v Chilwa requirements in determining whether the restraint is reasonable or not. First, is there a protectable interest at issue? It is well established that the proprietary interests that can be protected by a restraint agreement are of two kinds. The first consists of the relationships with customers, potential customers, suppliers and others that go to make up what is referred to as the 'trade connections' of the business, being an important aspect of its incorporeal property known as goodwill. The second kind consists of all confidential matter which is useful for the carrying on of the business and which could therefore be used by a competitor, if disclosed to him, to gain a relative competitive advantage. Such confidential material is sometimes referred to as 'trade secrets'. [3]

[6]   In Rawlins and Another v Caravantruck (Pty) Ltd [4] Nestadt JA stated that —

'(t)he need of an employer to protect his trade connections arises where the employee has access to customers and is in a position to build up a particular relationship with the customers so that when he leaves the employer's service he could easily induce the customers to follow him to a new business'.

[7]   Whether information constitutes a trade secret is a factual question. For information to be confidential, it must be capable of application in the relevant industry. It must thus be useful and not be public knowledge and property; known only to a restricted number of people or a close circle; and be of economic value to the person seeking to protect it.[5]

[8]   I am in agreement, considering the pleadings in this matter, and those facts that are undisputed by Cutting in his answering papers, that in the course of the past eight (8) years he has developed strong relationships with applicant’s customers. As submitted on behalf of the applicant, the papers reflect that:

8.1   Cutting is the key contact person with customers throughout the freight forwarding process. He was required to have a high degree of customer interaction during each step of the process.

8.2   It was not disputed that applicant’s customers came to rely and depend on the first respondent and that for all intents and purposes he came to be regarded as part of the customers’ supply chain management process.

8.3   This was particularly true of the 33 core bulk wine customers assigned to him.

[9]   It is expressly admitted by Cutting that he had to be in continuous contact with his clients. It was common cause that he has an affable personality and professional work ethic. It was further undisputed that he developed a detailed knowledge of the customers’ businesses and their specific requirements.

[10]   In the replying affidavit, the applicant quoted from a letter written by Cutting when he unsuccessfully applied for promotion with the applicant in December 2020 as follows:

“I think one of the biggest motivators would be my already longstanding relationship with most of our customers built up over my years at JFH I have had the opportunity to work with most of our customers throughout my time at JFH Most of our clients are familiar with me and know the kind of person/employee I am which I think would make the transition smoother for all involved…”

[11]   It is further evident from the papers that Cutting informed customers that he was moving jobs and that he had their names and contact details on his private cell phone.

[12]   Despite efforts on behalf of Cutting to down play both the nature of the work that he does, and his relationships with clients of the applicant built over the past eight years, it is clear that the applicant has a proprietary interest in the customer connections established by him. Mr Leslie submitted that these customer connections on their own constitute a sufficient ground on which the restraint could be enforced. I am in agreement with this submission.

[13]   I do not intend to deal in great detail with the factual matrix relating to confidential business information known to Cutting, given my conclusion on the customer connections. The confidential information included that contained on the applicant’s internal software system; the pricing structure of the applicant including preferential rates and discounts; its buying rates and selling rates. Cutting does not deny that he was privy to this information but avers that; “As operations controller, I was not particularly involved in or concerned with profit margins, buying rates or other so-called special rates”. The bottom line as far as I am concerned is that Cutting was privy to confidential information of the type that is protectable in law, and that such information would be of benefit to competitors of the applicant.

[14]   This brings me to the question of prejudice and policy considerations that need to be weighed in deciding whether the restraint should be upheld. It was argued on behalf of Cutting that the covenant was unreasonable and that I should take into consideration undertakings made by him that he would not divulge confidential information now or in future. As to the undertakings, the courts have rejected such assurances from employees bound by restraints of trade in numerous cases.[6] I follow these authorities.

[15]   On the issue of prejudice and the relative interests of the applicant on the one hand, and Cutting on the other, Mr Herbst for Cutting, argued forcefully that his client’s interests outweigh that of the applicant. Included in this analysis was the current economic crisis, and the personal circumstances of Cutting, in particular that he has three young children. It was submitted that Cutting’s “right to earn a living excessively outweighs the Applicant’s purported protectable interests and possible (but uncertain) prejudice.”

[16]   It was after these submissions that the applicant made an open tender to re-employ Cutting on the same terms and conditions of employment should he change his course, and heed the restraint. I gave the parties time to discuss same, and was informed that the tender was not accepted. In these circumstances, the efforts on behalf of Cutting to convince me on the prejudice and policy questions, most especially that Cutting risked becoming economically inactive should the restraint be upheld, came to nothing. I note in addition, that the restraint is not over broad in length or area of operation.

[17]   In the Court’s view, the applicant has established a clear right to protect its proprietary interests. I accept the submissions on behalf of the applicant that seeking damages in the long term would not provide it with an adequate remedy to protect those interests. I make the following order, taking into account that this is a contractual matter and the law on costs in the labour courts as set out in Zungu is not applicable.

Order

1.      This matter is treated as urgent.

2.      The first respondent is interdicted and restrained, until 31 July 2022, anywhere within the Western Cape Province, from:

2.1.   Being personally engaged or interested, directly or indirectly, whether as principal, owner, agent or employee, in the second respondent and/or any business competing with that of the applicant;

2.2.   Acting in breach of clause 16 of the contract of employment entered into between the applicant and the first respondent on or about 15 July 2013;

3.      The first respondent is ordered, to terminate his employment with the second respondent forthwith, and to furnish satisfactory written proof to the applicant that this has been done;

4.      Costs of this application are to be paid by the respondents jointly and severally, the one paying the other to be absolved.

H.Rabkin-Naicker

Judge of the Labour Court

Appearances:

Applicant:             Graham Leslie SC instructed by Guy and Associates

Respondents:       Barnard Incorporated.

 

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