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IN THE HIGH COURT OF SOUTH AFRICA

NORTH GAUTENG HIGH COURT

(PRETORIA)

CASE NUMBER: 17025/11

DATE: 19 APRIL 2011

REPORTABLE

OF INTEREST TO OTHER JUDGES

In the matter between:

ENELON CC t/a REALNET NILGERS &...........................................................................................Applicant

SURROUND

and

MARIANNE NORTJE..............................................................................................................First Respondent

ROBERTO LOPES SALVADO...........................................................................................Second Respondent

JUDGMENT

LEGODI J,

1. A restraint of trade agreement and trading as an estate agent without a fidelity certificate had become the centre of a dispute between the parties before me.

2. The applicant is the ex-employer of both the first and respondents.

3. The first and second respondents were employed by the applicant as estate agents on or about 10 February 2010 and 3 March 2010 respectively.

4. The two respondents respectively signed a restraint of trade agreement in terms whereof, amongst others, undertook not to compete with the applicant directly or indirectly for period of 12 months after termination of their employment with the applicant and not to operate within 5 Km radius during the said period.

5. On or about 24 February 2010, the respondents terminated their employment with the applicant. Subsequent thereto, they joined the applicant’s competitor (Property 100 Agency).

6. The applicant caused letters of demand to be addressed to the respondents in terms whereof the two were reminded of the terms and conditions of the restraint of trade agreement aforesaid.

7. On 16 March 11, the present applicant was instituted in terms whereof the applicant seeks for relief in Afrikaans as follows:

"1. Dat die Agbare Hof kondonasie sal verleen in terme van reël 6(12) van die reels van hierdie Agbare Hof en dat die applikant afstand doen vir die vereiste vortn en tydperke van betokening;

2. Dat klousule agt van die dienskontrak soos gesluit tussen die eerste respondent en tweede respondent en applikant afgedwing word en dat respondent verbied om teenstrydig met die bepalings van klousule agt op te tree. Dienskontrak hierby aangeheg as aanhangsel "KVM1”

3. Dat die eerste en tweede respondent gesamentlik en afsonderlik beveel word om die koste van hierdie aansoek op ‘n skaal soos tussen prokureur en ele kliënt te betaal, die een betaal die ander vrygestel te word.

4. Verdere en/or alternatiewe regshulp”.

8. The application was brought on the basis that the two respondents had breached the restraint of trade agreements respectively and in particular that the respondents are operating within 5 km radius in direct competition with the applicant contrary to the provisions of clauses of the said agreement.

9. For the purpose of the order, I do not find it necessary to go into the details of the provisions of clauses 8. It suffices to mention that the 12 months period restraint after termination and the restraint within 5 km radius appeared to have prompted the application.

10. Four defences were identified and confirmed by counsel on behalf of the respondents and can be summed up as follows:

10.1 That the present employer of the respondents is an interested party and should therefore have been joined in these proceedings,

10.2 That the relief sought is unenforceable, having regard to its wide terms,

10.3 That the respondents were not made aware that they were signing a restraint of trade agreement,

10.4 That the applicant has no locus standi to bring the present application without a fidelity certificate having been issued for the period 2010.

11. For the purpose of the order I intend making hereunder, I shall deal with two defences that had been raised and argued before me. These relate to non-joinder and locus standi. The latter issue was raised and prompted by the court during argument as follows:

IS A RESTRAINT OF TRADE AGREEMENT ENTERED INTO WITHOUT A FIDELITY CERTIFICATE VALID AND ENFORCEABLE?

12. The issue raises a question of law. Both parties were asked to deal with it, especially in the light of the provisions of sections 26 and 34 of Estate Agency Affairs Act, no. 112 of 1976 (hereinafter referred to as the Act).

13. I find it necessary to specifically quote the two sections:

“26. Prohibition of rendering of services as estate agent in certain circumstances -

No person shall perform any act as an estate agent unless a valid fidelity fund certificate has been issued to him or her and to every person employed by him or her as an estate agent and if such person is-

(a) a company, to every director of that company, or

(b) a close corporation to every member referred to in paragraph (b) of the definition of “estate agent” of that corporation.

34. Offences and Penalties -

Any person who contravenes or fails to comply with any provision of this Act, or any order or request or addressed hereunder, shall be guilty of an offence and liable on conviction to a fine not exceeding five thousand rand or to imprisonment for a period not exceeding five years or to both such find and such imprisonment”.

14. I have had difficulties in understanding counsel for the applicant on this issue. It sounded like the first suggestion was that, the applicant did everything in its power to apply for the fidelity certificate. Secondly, it wanted to attribute blame to the Estate Agency Board for not issuing such a fidelity certificate. Lastly, it sounded like the applicant wanted to suggest that such a certificate might be lying somewhere in the offices of the Estate Board.

15. The fidelity certificate under discussion relates to the period from January 2010 to the 31 December 2010. As a background, during 2009, a fidelity certificate under number 200910/556 was issued to Fransiska Schutte Properties operating under the name of Enelon CC. This certificate was valid for the period 1 January 2009 to 31 December 2009. Fransiska Scheutte is the deponent to both the founding and replying affidavits. She is the sole member of the applicant.

16. On 9 February 2011, a fidelity certificate for 2011 was also issued to Ms Fransiska Schutte and is valid until 31 December 2011.

17. With regard to the fidelity certificate for the period 2010, the applicant in its replying affidavit annexed the following:

17.1 a copy of undated application form for the issue of a fidelity certificate in respect of the second respondent and proof of payment to the Estate Board on 3 October 2010 in the amount of R364.90

17.2 a copy of application form for the issue of fidelity certificate dated 1 February 2010 in respect of the first respondent,

17.3 a copy of undated letter addressed to the Estate Agents Board in terms whereof the Board was notified that the first respondent had joined Realnet Witzers & Surround with effect from 1 February 2010. In the letter of 19 June 2009 addressed to the Board, it was stated that the applicant was trading as Realnet Witzers & Surround.

18. Counsel for the applicant sought to argue that all the annexures referred to above, should be seen as excusing the applicant to have traded without a fidelity certificate during 2010. He sought to blame the Board for having failed to issue such certificates. I do no think that this could serve as an excuse for trading illegally in terms of sections 34 and 34A read together with section 26 of the Act.

18.1 Application for a fidelity certificate is not a guarantee that such a certificate would be issued. It might be that there are outstanding issues between the applicant and the Board. In terms of section 7, the objects of the Board and having regard to the public interest, is to maintain and promote the standard of conduct of estate agents and to regulate the activities of the estate agents. Section 30 of the Act, deals with conduct deserving of sanction by estate agents. In terms of subsection (1), any estate agent shall be guilty of conduct deserving of sanction if he, amongst others:

(a)

(b) fails in respect of any act performed by him as an estate agent to give a full and proper explanation in writing, within 30 days of being called upon in writing to do so, to any person having a material interest in the performance of such act,

(c) fails to pay any moneys due by him to the board or in respect of the fund within one month after such moneys become due,

(d) fails to furnish in writing within such period as the board may determine such information as the board

may request in writing and reasonably require in order to exercise its powers properly under this Act,

(e) ...

(f) fails to comply with any provision of section 28(8), 29 or 32, or contravenes any provision of section 26, 32A(2)(a) or (b) or 34B.”

19. Section 29 deals with duty of estate agent to keep accounting records. Section 29 is clearly intended at protecting the public who places their funds or moneys in the care of an estate agent. Existence of fidelity fund certificate is to back up such a measure of ensuring that the public is protected. I am mention all these just to make the point that, when an estate agent has applied for the issue of a fidelity certificate and it is not issued or the Board does not react thereto, one cannot conclude that there are no reasons for not issuing such a certificate.

20. If the applicant really believed that there are no such reasons, the least it could have done was to get a confirmation from the Board, for example, a confirmation by the Board, that it was an oversight on its part not to issue such a certificate. Instead of seeking for such a confirmation or an explanation why such a confirmation could not be obtained, the applicant seems to have contented itself with the annexures to the replying affidavit referred to earlier in this judgment, coupled with the contention that the Board’s administration is in a mess.

21. It was only at the end of the discussion and submissions when the applicant sought to obtain the certificate or certificates from the Board. The applicant was required to submit such a certificate before 1 April 2011. Failing which it was indicated that this court will deal with the matter as if such certificate was never issued. To date, the applicant had failed and or neglected to submit such a certificate. The matter is therefore dealt with on the basis that no fidelity certificate was ever issued for the applicant and its sole members, the first and second respondents for the period 2010. This then brings me back to the issue raised in paragraph 11 above.

22. Counsel for the applicant suggested that, what had occurred before the respondents’ termination of their services and therefore the alleged breach, is immaterial. I understood this to suggest that the court must confine itself only to the termination and conduct of the respondents subsequent to termination of their employment. In my view, the applicant’s counsel fails to take into consideration the source of such a breach by or conduct of the respondents amounting to the alleged breach.

23. The source of such a breach is the restraint of trade agreements entered into between the applicant and the first and second respondents respectively. Both these agreements were concluded when neither the applicant nor its sole member Ms Schutte had a fidelity certificate. The fidelity certificate preceding the two agreements expired on 31 December 2009. By 10 February 2010 or 3 March 201 one would have expected the applicant or its member to have long applied for the fidelity certificate for the period 1 January to 31 December 2010.

24. Instead, the first respondent having started working for the applicant on 1 February 2010 and the applicant having applied for the issue of the fidelity certificate for the first respondent on 1 February 2010, on 10 February 2010, it decided to conclude restraint of trade agreement. As it did so, it knew that neither itself nor the sole member, Ms Schutte, or the first respondent was having a fidelity certificate.

25. The provision of section 26 is clear. No person shall perform any act as estate agent, unless a valid fidelity certificate has been issued. It is not the applicant’s case that for the period 1 January 2010 to 31 December 2010, it has not been performing any act as an estate agent. It is not the applicant’s case that since 1 February 2010 to 31 December 2010 the first respondent had not been performing any such act as an estate agent.

26. Such conduct does not only deserve a sanction in terms of section 30, but it is also an offence in terms of section 34 of the Act. It is the contract that was entered into without a valid fidelity certificate that the applicant wishes to rely on as its cause of action.

27. The contract is so tainted, that it should be found to have been null and void from the start. As to why the applicant decided to conclude or enter into the agreement on 10 February 201, is one thing I do not understand. One would have expected the applicant to wait for the issue of the fidelity certificate before it entered into such an agreement, or to ensure that it is obtained immediately thereafter, not only for itself, but also for the respondents.

28. There is another issue which worries me. It looks like the applicant adopted the attitude that it had no obligation to ensure that the respondents were having valid fidelity certificates before and or after the conclusion of the respective restraint of trade agreements. It expresses itself as follows in this regard:

“15.

Die onus om gerigestreer te word by die Estate Agency Affairs Board (EAAB) berus op die agente self en nie op die prinsipaal nie. Ek het aansoek self aan die EAAB gestuur. Ek heg as bewys daarvan. Aanhangsel “X2” en “X3” aan. Ek wil weereen op rekord plaas dat daar geen plig op die prinsipaal rus nie vir die registrasie van agente nie. Ek het die aansoek uit die goedheid van my hart namens die Respondente gedoen. Die tweede Respondente erken in paragraph 31 dat die applicant wel aansoek gedoen het vir beide die Respondente se registrasie"

29. Of course, the applicant is mistaken if it thought that it had no obligation in ensuring that the respondents had valid fidelity certificates before they could perform any act as estate agents. This obligation should be seen not only in terms of section 26, but also in the light of the fact that, the two respondents were employed by the applicant. Even most importantly, in the light of the provisions of section 34A. In terms of subsection (1) hereof, no estate agent shall be entitled to any remuneration or other payment in respect of or arising from performance of any act, referred to in subparagraph (i), (ii), (iii) or (iv) of paragraph (a) of the definition of “estate agent”, unless at the time of the performance of the act a valid fidelity fund certificate has been issued to:

(a) such an estate agent, and

(b) if such estate agent is a company, to every director of such company or, if such estate agent is a close corporation, to every member referred to in paragraph

(b) of the definition of “estate agent” of such corporation.

30. In the present case, the applicant would have been entitled to remuneration or other payment raised by either the first or second respondent or both of them. Therefore, by virtue of section 34A, the applicant was obliged to ensure that both respondents who were facilitating a remuneration or other payment to the applicant had fidelity certificate before performing any act as estate agents for the applicant.

31. The situation in the present case was in my view worse. It was not only the estate agents who were without the fidelity certificate, but also the principal or her corporation (the applicant). Therefore, not only conduct amounting to an offence in terms of section 34, but also in terms of section 34 A.

32.Before I conclude on the issue and inasmuch as the applicant wishes to rely on payment to the Board for its justification, firstly, it failed to provide such a proof that when it submitted the application form for the issue of the fidelity certificate in respect of the first respondent, it paid for the required levy.

33. Section 16(1) provides that every estate agent or prospective estate agent, excluding an estate agent referred to in paragraph (cA) of the definition of “estate agent” in section 1, shall within the prescribed period and in the prescribed manner, apply to the board for a fidelity fund certificate and such application shall be accompanied by the levies referred to in section 9(l)(a) and the contribution referred to in section 15. As I said, the applicant failed to show this in respect of the first respondent.

34. As regard the second respondent, there was an undated application for the issue of the fidelity certificate for the period 2010. There is then a Standard Bank print out attached to the replying affidavit which shows that an amount of R394.90 was paid on 3 October 2010, the beneficiary being ID no. 460105 5077 086. In the application form the same identity number is indicated as being that of the second respondent.

35. Inasmuch as the payment of R364.90 is intended to be levies and contributions referred to in section 16, one can therefore assume that the application for the issue of the fidelity certificate for 2010 in respect of the second respondent was made during October 2010.

36. The result of this is that, the second respondent had been unlawfully performing acts as an estate agent without even having applied for a fidelity certificate for the period March 2010 until October 2010. Only in October 2010 did the applicant apply for such a certificate. By this time, the second respondent was only left with two months for 2010. Therefore, neither the second respondent nor the applicant or its member, were entitled to operate as estate agents and neither were they allowed to receive remuneration or other payment based on an act performed as an estate agent by the first and or second respondent as envisaged in section 34A.

37. It looks like section 16 in its reference to “prospective estate agent”, the legislature intended a situation like in the present case. That is, the one who is not in possession of a fidelity certificate, but intends to perform acts as an estate agent, could then apply as a “prospective estate agent" for the issue of such a certificate. This is what the applicant could have done. But until such time that the certificate is issued, the applicant be allowed to enforce an agreement that was concluded and terminated without such a certificate.

NON-JOINDER

38. The applicant wishes to dismiss this issue as being insignificant. That is, the dispute between the applicant and the respondents had nothing to do with the respondents’ new employer.

39. Quite very often in matters like this, the new employer is cited as a party to the proceedings. The real issue is whether Property 100 Estate Agents (the new employer) is having material interest in the proceedings.

40. Of course, it does have and I do not intend wasting time on the issue. The essence of an estate agent business is to earn a commission. Depending on who is the owner of an estate agency, those estate agents who are working for the owner, further earns their income from such commission. The estate agency or the owner thereof is dependent on a commission in respect of deals negotiated and concluded by its or his estate agents.

41. Shutting down on the activities of such estate agents will of necessity have a bearing on the owner of the estate agency or the agency itself.

42. From the applicant’s own version, the respondents seem already to be actively selling houses or immovable properties on behalf of the new employer. For example, on pages 64 to 69 of the paginated papers, reference is made in the founding affidavit to “FOR SALE” boards that had been fixed or exhibited by the first respondent at different areas, within the 5 km radius. All these boards show the logo of the new employer, Property 100 Group.

43. To say the new employer has no material interest in the present proceedings defeats one’s sense of logic. If the relief was to be granted, this would have the effect that the boards will have to be removed and therefore never replaced again or will have to be replaced by another estate agent from the new employer or another agency.

44. The non-joinder issue should be found to be justified in the circumstances of the present case. The issue is not much what defence could be raised by such a new employer. Once one finds that it does have material interest in the proceedings to speculate on a good or otherwise defence would be dangerous. Therefore, even if one was to be wrong with regard to the issue of invalidity and unenforceability of the restraint of trade agreement, the application ought to be disposed off on the non-joinder issue, without going into the merits of the application.

45. The other issue that was raised relates to the unenforceability of the restraint of agreements resulting from its wide restraint in terms of clauses 8. Two issues were raised in this regards. That is, the restraint is too wide that it will be impossible to enforce and that it is therefore unreasonable. Secondly, that inasmuch as the applicant wishes to rely on a narrow consideration of clause 8, on the period, the 5 km radius and the actions complained of, it is not permissible as it would amount to the rewriting of the agreement for the parties by severing other portions of the terms and conditions of the agreement. As I said, I do not find it necessary to venture into the dispute around this.

46. The other defence relates to the respondents alleging that each signed the agreement without reading it and therefore, they were not aware that they were agreeing to a restraint of trade. This has a bearing on merits. The two issues dealt with above, make it unnecessary to go into this defence.

47. Consequently, the application is hereby dismissed with costs.

M F LEGODI

JUDGE OF THE HIGH COURT

FOR THE APPLICANT

LINKY SCHUTTE ATTORNEYS

150 Daffodil Street

Lynnwood Rigde

PRETORIA

Tel: 012 348 8584

Ref: J Fourie/LS1411

FOR THE RESPONDENTS

THYS CRONJE INC.

The Works, 258 Brooklyn Road

Menlopark,

PRETORIA

Ref: 012 362 4959

Ref: Chantelle vd Heever LN0000

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