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IN THE HIGH COURT OF SOUTH AFRICA

EASTERN CAPE DIVISION – PORT ELIZABETH

                                                                                               Case No: 887/14

                                                                                   Date Heard: 01/04/2014

                                                                              Date Delivered: 08/04/2014

 

In the matter between:

 

DATACENTRIX (PTY) LTD                                                                                APPLICANT

 

And

 

MICHEAL DUFFY                                                                                         RESPONDENT

 

JUDGMENT

 

SMITH J:

 

[1] The applicant, a company carrying on business in the information technology sector, seeks an urgent order against the respondent for the enforcement of a restraint of trade and confidentiality agreement. The applicant initially applied for a rule nisi and interim relief, but after answering and replying papers had been filed, the parties agreed to argue the final relief.

[2] In essence, the applicant seeks to restrain the respondent from: being either directly or indirectly employed or associated with his new employer, namely the First Technology Group, or any other entity which trades in competition with it, within the magisterial district of Port Elizabeth for a period of fifteen months commencing on 28 February 2014; and from divulging any of its trade secrets or confidential information to the First Technology Group, or any other entity which does business in competition with it.

[3] The respondent was employed by the applicant at its Port Elizabeth branch, with effect from 1 March 2013, until he tendered his resignation on 1 January 2014.  It is common cause that he subsequently, on 1 March 2014, took up employment with the First Technology Group, a company which, according to the applicant, carries on business in the information technology sector in competition with it.

[4] The applicant furthermore averred that the respondent has forwarded confidential information to his personal e-mail address after his resignation. It asserted that the respondent intends to utilise this information for his own benefit, and to further the interests of his new employer.

[5] It is common cause that when the respondent commenced his employment with the applicant, he signed a comprehensive restraint of trade and confidentiality agreement which effectively prohibited him from divulging any confidential information to any other party, and from being either directly or indirectly involved with any other entity which carries on business in competition with the applicant in the magisterial district of Port Elizabeth, within a period of fifteen months after termination of his employment.

[6] The respondent opposed the application on the following grounds:

(a)         the matter was not sufficiently urgent to justify the extent to which the applicant had truncated the prescribed time periods;

(b)         the applicant had no real proprietary interest which was worthy of protection in terms of a restraint of trade covenant;

(c)         a bona fide dispute had arisen which cannot be resolved on the papers; and

(d)         the respondent is entitled to raise the defence of exceptio non adimpleti contractus.

[7] In the light of the fact that the question as to whether or not the respondent is entitled to rely on the exceptio non adimpleti contractus to resist the enforcement of the restraint may well be decisive of the matter, I have chosen to consider the arguments advanced in this regard first.

[8] It is trite that restraints of trade agreements are enforceable unless they offend against public policy. The onus of proving that a restraint is contrary to public policy lies with the party resisting the enforcement of the restraint. (Magna Alloys Research SA v Ellis 1984 (4) SA 784 (A) at 791-792)

[9] A respondent may however resist the enforcement of a restraint covenant by raising the exceptio non adimpleti contractus as a defence. (International Executive Communications Ltd t/a IIR v Turnley 1996 (3) SA 1043 (W) at 1347I-F; Universal Storage Systems (Pty) Ltd v Crafford and Others [ 2001] 4 All SA 675 (W) at paragraph 8)

[10] Mr Dyke who appeared for the respondent, submitted that a share option which entitled the respondent to acquire 5000 shares in the Datacentrix Holdings Trust (“the Trust”) was intended by the parties as a quid pro quo for the respondent to conclude the restraint of trade agreement. He contended that the contractual provisions relating to the share option plan and the restraint of trade are thus reciprocal in nature, and the respondent is accordingly entitled to resist enforcement of the restraint on the basis of the principle of reciprocity enunciated in BK Tooling Edms (Bpk v Scope Precision Engineering (Edms) Bpk 1979 (1) SA 391 (A).

[11] In this regard he relied on the following clause contained in the “Offer of Employment”, dated 11 February 2013:

“Share option plan

In addition you will be required to sign a comprehensive restraint of trade agreement (for the IT Industry as defined by the attached document) which will be valid for a period of 15 months after your employment terminates. The document must be signed and returned before the start state (sic).

On receipt of the signed restraint of trade agreement, you will receive 5000 (five thousand) at the five day weighed average price prior to the date you start at the company. This will be detailed in the ROT document.

The options will be subject to the rules of the Share Incentive Trust. If your employment is terminated before exercising an option, for whatever reason, the option will lapse.”

[12] The applicant’s obligation to procure transfer of the shares is repeated in the restraint of trade agreement under the heading: “Restraint of Trade”. The relevant portion thereof reads as follows:

“4.9.1 The company shall procure that the trustees of the DATACENTRIX HOLDINGS SHARE TRUST (“the Share Trust”) shall allocate and grant to the employee an opinion (sic) to acquire 5 000 (five thousand) ordinary shares having a par value of 0.01 (nought coma nought one) cents each in the issued share capital of Holdings, at a premium of 339 (THREE HUNDRED AND THRITY NINE CENTS) per share…”

[13] In my view it is abundantly clear from the aforementioned terms that the contractual obligation undertaken by the applicant to procure that the option to acquire the shares was allocated to the respondent, was reciprocal to the respondent’s obligations in terms of the restraint of trade covenant.  The respondent was, in terms of the “Offer of Employment”, expressly required to sign the restraint of trade agreement before the shares were allocated to him. There can thus be little doubt that, on a reasonable construction of these provisions, the share option was in consideration for the respondent’s willingness to restrict his right to pursue his chosen career in the open market for an agreed period.

[14] Mr Dyke has, in my view, correctly submitted that a fundamental and bona fide dispute has arisen on the papers in this regard.  The respondent has denied that the share option had been allocated to him. The onus of proving that there was performance of the reciprocal obligation (namely the allocation of the share option), or that such performance had been excused, thus lies with the applicant. (BK Tooling Edms (supra) at 419H)

[15] The applicant did not apply for the matter to be referred for oral evidence and, these being motion proceedings, I am thus constrained to decide the dispute on the basis of the principle enunciated in Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd [1984] ZASCA 51; 1984 (3) SA 623 (A) at 634H-635C), namely on the facts alleged by the respondent, together with those undisputed facts alleged by the applicant.

[16] I am unable to find on the papers that the respondent’s version is so uncreditworthy or fundamentally improbable that it should be rejected out of hand. Mr Dyke has correctly submitted that the very nature of the procedure involved in the transfer of shares in corporate entities would have made it relatively easy for the applicant to trump the respondent’s assertion in this regard with conclusive proof. Instead the sum total of its reply to the respondent’s unequivocal assertion in this regard was little more than a bald assertion. In this regard the following is averred in its replying affidavit:  

“The shares were, in accordance with the applicant’s undertaking allocated to Respondent and remained at his disposal. Subsequent to his breach of the agreement this is no longer the case. Under those circumstances I submit there is no merit in the point raise herein.”

[17] Mr Jooste, who appeared for the applicant, submitted that the obligation to allocate the share option to the respondent was in any event that of the Trust, and the failure to transfer the shares, if any, cannot be raised as a defence against the former. This argument is in my view untenable. It is clear from the terms of the restraint of trade agreement that it was the applicant who had undertaken the contractual obligation to procure that the trustees allocate and grant the share option to the respondent.

[18] In summary then I find that:

(a)         the applicant’s obligation to procure that the share option was allocated to the respondent by the Trust was reciprocal to the respondent’s obligations under the restraint of trade covenant;

(b)         the dispute which has arisen on the papers in this regard must be resolved on the respondent’s version, namely that the share option had not been allocated to the respondent;

(c)         in the result the respondent is entitled raise the exceptio non adimpleti contractus as a defence; and

(d)        the applicant is thus precluded fro enforcing the restraint of trade.

[19] In the light of my findings in respect of the issue of reciprocity, it not necessary for me to consider the other arguments advanced on behalf of the respondent.

[20] In the result the application is dismissed with costs.

_____________________

J.E SMITH

JUDGE OF THE HIGH COURT

 

Appearances      

Counsel for the Applicant                             :   Advocate Jooste

Attorney for the Applicant                             :  Drake Flemmer and Orsmond

                                                                               Port Elizabeth

                                                                               Ref: AJ Pringle

                                                                               c/o

                                                                               Greyveinsteins

                                                                               104 Park Drive

                                                                               Port Elizabeth

                                                                               Tel: 041 501 5500

                                                                               Ref:   Mat50096/g/parker/mvs

    

Counsel for the Respondent               :           Advocate Dyke

Attorneys for the Respondent             :           Brown Braude & Vlok 317 Cape Road

                                                                                Newton Park

                                                                                Tel: 041 365 3668

                                                                                Port Elizabeth

                                                                                Ref: C Jessop/ydm

 

Date Heard                                        :                    1 April 2014

Date Delivered                                   :                    08 April 2014

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