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IN THE HIGH COURT OF SOUTH AFRICA

NORTH WEST DIVISION – MAHIKENG

 

Reportable: YES / NO

Circulate to Judges: YES / NO

Circulate to Magistrates: YES / NO

Circulate to Regional Magistrates: YES / NO

 

CASE NO: UM263/2020

In the matter between:

PRIME INSTRUMENTATION CC                                                                 Applicant

(Reg. No: 1986/000323/23)

 

And

 

KODILO GODFREY MODISE                                                                      Respondent

 

JUDGMENT

 

MAKOTI AJ

INTRODUCTION

 

[1]        This matter began as an urgent application, with the Applicant seeking to enforce restraint of trade against the Respondent. The trigger of this application is the Respondent’s resignation as employee of the Applicant on 02 June 2020. Cut to the bare minimum, the Applicant’s case is simply that the Respondent should be interdicted and restrained from:

 

[1.1]     Using its confidential information for the benefit of Mokubung Solutions (Pty) Ltd (‘Mokubung’) or for any other person, whether as a shareholder, director, an employee, a consultant, a trustee or in any capacity; or

 

[2.2]     Being in any manner directly or indirectly engaged in any competitive activity, trade or business against the Applicant in the provinces of Free State, Gauteng, Limpopo, Mpumalanga and the Northern Cape.

 

[2]        The application is opposed by the Respondent, citing grounds that he has not engaged in any activity in competition with the Applicant, nor has he used any of its confidential information to solicit work for Mokubung. Also, it was the Respondent’s contention that the restrained clause relied upon by the Applicant lacks sufficient particularity, is unintelligible and accordingly unreasonable and unenforceable.

 

[3]        The question for determination by the court is whether the Respondent is to be interdicted and restrained from: (a) using confidential information of the Applicant for the benefit of Mokubung or others, (b) performing activities that are allegedly in competition with the Applicant’s business and, (c) soliciting work the nature of which is similar to the business of the Applicant.  

 

THE RESTRAINT PROVISIONS

 

[4]        There are two separate legal instruments which purport to regulate relations between the parties. The Applicant relies on the two instruments in its pursuit to enforce restraint of trade against the Respondent. The first instrument is Members’ Association Agreement[1] (‘Association Agreement’), especially the terms encapsulated in clause 13 while the second legal instrument is the Employment Agreement[2] which contains restraint provisions in clause 28.

 

[5]        The employment relationship between the parties is a matter of common cause, and so is the fact that their written employment contract contains a restraint clause. The concept of restraint of trade has been subject to numerous litigation matters in our courts and, in Labournet (Pty) Ltd v Jankielsohn and Others[3] it was explained it as follows:

 

“[39] According to the decision in Magna Alloys and Research SA (Pty) Ltd v Ellis, (“Magna Alloys”) restraints of trade are enforceable unless they are proved to be unreasonable. Because the right of a citizen, to freely choose a trade, occupation, or profession and to practice such, is constitutionally protected, the onus to prove “the reasonableness” of a restraint might well have been affected.” (Emphasis added)

 

[6]        In accordance of the principles canvassed in Labournet, as they were also dealt with in Magna Alloys,[4] the restraint clause(s) may be upheld by the Court if they are found to be reasonable. Reasonableness talks to the extent of application of such clause whether geographically or otherwise.

 

[7]        The Respondent disputed that the Association Agreement was applicable or binding to him in that he has since 20 September 2016 ceased to be a member of the Applicant. The term member is defined in the Agreement as meaning ‘a person designated as a member of the Corporation …’.[5] Clause 13 of the Association Agreement reads as follows:

 

“13.1 The Third and Fourth Members undertakes towards the First and Second Members and all the Members collectively also towards the Corporation, that during their membership of the Corporation and for a period of two years thereafter, they will not directly or indirectly within the North-West Province, Gauteng Province, Limpopo Province and Mpumalanga Province of the Republic of South Africa, either as principal, partner, shareholder, director, employee, consultant, financier or any other like capacity be engaged or associated with any business or concern which carries on business of a similar nature or in competition with the Corporation.”

 

[8]        From the reading of this restraint clause, the impression that one immediately gets is that it has stopped being applicable to the Respondent two (2) years after his resignation from membership of the Applicant, that is, at least with effect from 19 September 2018. The fact that the Respondent resigned his membership of the Applicant on 20 September 2016 has not been gainsaid by the Applicant and can be considered as common cause between the parties. Its attempt to enforce this restrain clause is to stretch the issue, knowing well that it is no longer applicable to the Respondent.

 

[9]        What then remains as restraint clause between the parties is clause 28 of the employment agreement, which reads in part that: “The employee will not, at any time during the restraint period, do anything referred to in 28.3.2 outside the restraint area which has the effect of causing the group or the business prejudice in the restraint area;”. The agreement’s clause 28.1.8 intended to define the restrain area, but there was no specific determination of the area.

 

[10]      The important provisions of clause 28.3.2 of the employment agreement provides inter alia that the employee was not permitted to, during the existence of the parties’ employment relationship or within the restraint period of twelve (12) months:

 

“28.3.2.5 render any service (gratuitously or otherwise) to; any entity directly or indirectly engaged or interested in any competitive activity in the restraint area.”

 

[11]      The phrase any service seems quite broad and does not allow the Respondent to perform any work for what may be a competitor even though some services may not require the use of what the Applicant considers to be its trade secrets. There are two additional clauses of importance and which are directly relevant for the Court’s determination of this application. The clauses read as follows:

 

“28.3.3. The employee will not, at any time during the restraint period, and in the restraint area, carry on or otherwise be engaged or concerned or interested in or employed by any entity with the purpose of such engagement, concern, interest, employment or business being the training of individuals or groups in/on or regarding the business;”

 

And

 

“28.3.4. The employee will not, at any time during the restraint period, do anything referred to in 28.3.2. outside the restraint area which has the effect of causing the group or the business prejudice in the restrain area;” [Emphasis added]

 

[12]      One of the fundamental grounds upon which the Respondent has objected to the enforcement of the restraint clause is that it has failed to define the specific restraint area. When it was confronted with this reality the Applicant contended that the restraint area should be determined in relation to the area that was defined in clause 13.1 of the Membership Agreement.

 

[13]      I have found nothing in the employment agreement to suggest that it was intended to import some of the provisions of clauses of the Membership Agreement. Also, there is nothing to suggest that the terms of the Membership Agreement were to apply for as long as the employment agreement between the parties remained in place. If that was the intention, the employment agreement would have stated so.[6] This is because the fundamental consideration in determining the terms of a written contract or its application to an event that arose during the course of their relationship is to discern the intention of the parties from the words used in the context of the document as a whole, the factual matrix surrounding the conclusion of the agreement and its purpose.[7]

 

[14]      In any case this Court is not entitled, in terms of parol evidence rule from importing the terms of another document in order to interpret or give effect to the written agreement under consideration.[8] It is long established that the parol evidence rule prescribes that where parties to a contract have reduced their agreement to writing, it becomes the exclusive memorial of the transaction, and no extrinsic evidence may be used to prove the terms of the agreement other than the document itself, nor may the contents of the document be contradicted, altered, added to or varied by oral evidence.[9]

 

[15]      Nothing in the two agreements suggests that they were intended to operate in tandem or as complimentary.  That they are to operate separately can also be read from the fact that their stipulated periods of restrain differ, being two years[10] and one year[11] respectively. In the premises, I am unable to agree with the Applicant’s contention that the terms of the Association Agreement are to be imported into the restraint clause in terms of the employment agreement. This implies, therefore, that the agreement has failed to specify or determine the restraint area.

 

LEGAL PRINCIPLES APPLICABLE FOR RESTRAINT OF TRADE

 

[16]      At the outset, it is to be recognised that the legal principles as to the applicability of restraint of trade agreements were affably expounded by the Appellate Division in Magna Alloys and Research (SA) (Pty) Ltd v Ellis[12] as follows:

 

“… in South African law, an agreement in restraint of trade is, on the face of it, valid – and hence enforceable – and will only be invalid and unenforceable if it is contrary to public policy on account of it unreasonably restricting a person’s right to trade or to work”

 

[17]      The parties readily accept that restraint of trade agreements for part of our jurisprudence. One of its fundamental principles is that the party invoking or seeking to enforce a restraint provision bears the onus to prove breach of the provision. On the other hand, the party seeking to avert enforcement has to that it is unreasonable for the clause to be enforced. These legal positions have been reaffirmed in numerous decisions of our courts. One such instance was in the case of Basson v Chilwan and Others[13] (‘Basson’) the SCA per Botha JA stated that:

 

“… 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. …” (Emphasis added)

 

[18]      The burden of proof on the party seeking to avoid enforcement of a restraint clause is pitted higher because public policy requires that people should be bound by their contractual undertakings. A case in point is ABSA Bank Ltd v Swanepoel NO,[14]  where Cameron JA went as far as explaining the already known principle that contract is binding and enforceable once there was a meeting of minds between contracting parties. As the court held in Basson,[15] public policy discountenances unreasonable restrictions on people's freedom of trade.

 

[19]     Another important consideration by the court when faced with the enforcement of restraint of trade was dealt with in the matter of Kwik Kopy (SA) (Pty) Ltd v Van Haarlem and Another[16] where the court held that an enquiry should be conducted to determine whether the restraint goes further than is necessary to protect the interest. This characterises one of the grounds that the Respondent relies upon in his opposition of the application.

 

[20]      What is required, therefore, is for the court to consider the facts as presented to it to determine whether the restraint clause can or should be enforced. This is because while the law prohibits, for instance, an employee from taking his employer’s customer list or deliberately commit its contents to memory, it nevertheless recognises that on termination of an employee’s employment, some knowledge of his former employer’s customers will inevitably remain in the employee’s memory and it leaves the employee free to use and disclose such recollected knowledge in his own interests, or in the interest of anyone else including the new employer who competes with the old one.[17]

 

[21]      Additionally, the court held in the case of Motion Transfer & Precision Roll Grinding CC v Carsten[18] that it would be unrealistic to expect a person who held a particular employment position to, at the termination of employment, somewhat automatically forget and shun all the customers with whom he had built relations over time. The court said the following:

 

“As regards the alleged unlawful misappropriation of the applicant's goodwill, flowing from the first respondent's relationship with the applicant's clients built up during the course of his employment, it is obvious that every employee occupied in the field of customer relations must become acquainted with and build up a relationship with his employer's customers. It would be totally unrealistic to expect him after termination of his employment to shun all such customers.”

 

[22]      Both parties made reference to the authority espoused in Sibex Engineering Services (Pty) Ltd v Van Wyk and Another[19] in which it was held that:

 

“It is well established that the proprietary interests that can be protected by a restraint agreement, are essentially of two kinds, namely:

 

“The first kind consists of the relationships with customers, potential customers, suppliers and others that go to make up what is compendiously referred to as the “trade connection” 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 compendiously referred to as “trade secrets”.” (Emphasis added)

 

[23]      One of the lessons to be drawn from these authorities is that both the employer and the employee carry separate or distinct burdens which are imposed on them. The employer has the onus to show that it has a protectable interest to protect in the restraint agreement which may be in the form of trade secrets, pricing or customer connections.[20] It will suffice if the employer can show that the acquisition of such protectable knowledge or interest (as trade secrets) prevailed during the term of employment of the respondent and that it had the potential to be used or has been used in competition against him.[21] 

 

[24]      Once the employer has discharged its onus, as the authorities have found, it becomes the employee’s turn to discharge the onus and to show on a preponderance of probabilities that the restraint was unreasonable, with reference to the circumstances that prevailed when the agreement was concluded and what occurred during the term of employment, in particular the events that caused the application to be launched.   

 

[25]      What can be further deduced from the legal authorities canvassed above is that they have made it clear that, for information to be characterized as confidential and therefore protectable, it must satisfy the following requirements:

 

(i)        First, it must pertain to and be capable of application in trade or industry, implying that the information sought to be protected must be useful;

(ii)        Second, it must not be public knowledge and public property;

(iii)      Third, the information, objectively viewed, must be of economic value to the person seeking to protect it.

 

[26]      In paragraph 75 of the founding affidavit the Applicant alleged that it found out with ‘shock and surprise’ that the Respondent had been utilizing Mokubung behind its back and soliciting business in competition with it. From the established facts of this matter, which were set out by the Applicant in paragraphs 67 to 70 of the founding affidavit, and in light of the responses obtained from the Respondent:

 

[26.1]    The Applicant became aware of the business that had been conducted by Mokubung and that such knowledge has been in place since October 2019 and for the period leading to April 2020; and

[26.2]    Such business activities of Mokubung were conducted also for the financial benefit of the Applicant.

 

[27]      Quite apart from what the Applicant alleged, the email communications from Anzelle Smith, inter alia, on 04 December 2019 proves the existence of a mutually beneficial business relations with Mokubung. It cannot be correct, therefore, that the Applicant discovered with shock and dismay the business that the Respondent was conducting through Mokubung. What the Respondent did, it seems, which displeased the Applicant, is that the Respondent through Mokubung continued with business similar in nature to the business which it [Applicant] was interested in.

 

[28]      These facts pose a logical conundrum whether what the Applicant seeks to protect in this application are trade secrets or information that can be considered confidential, that is, if such information was to its knowledge exposed to Mokubung. In the email the parties are discussing closing balances dating back to September 2018, which lends credence to the facts presented by the Respondent. I am mindful that the Applicant disputes that it participated in the business that was executed by Mokubung. Despite denying knowledge of the business that the Respondent and Mokubung were conducting, it is not explained by the Applicant as to what business, by its own version, was Mokubung performing which resulted in the exchange of emails relating to the accounts.

 

[29]      In my view the Applicant ought to have done more to disclose what the trade secrets are that it is seeking to protect from the Respondent, apart from what Mokubung had already been exposed to. The facts expounded by the Applicant do not meet the criteria espoused by the authorities referred to above.

 

[30]      Before me there is no evidence that the Respondent has the Applicant’s trade secrets and what those secrets fully entail. The information he has is either in the public domain or of general application in the industry and has been exposed to Mokubung. The restrain clause does not specify the Applicant’s client lists and the restraint area. He might be knowing them through his longstanding interaction with them, through which he honed his skills in the industry.

 

[31]      It is my view that the first respondent can hardly be said to be riding on the crest of applicant’s good will. If anything, his reputation albeit gained during his employment with the Applicant, placed him in good stead.  It cannot be expected that the Respondent having worked in the industry for such a long time will come out with no skill and knowledge. Such cannot without more from the applicant be protectable interests of the Applicant.[22]

 

[32]      Under those circumstances, I am not persuaded that the Applicant has made out a case for the relief he seeks.

 

CONSIDERATION OF COSTS

 

[33]      The determination of costs is in the discretion of the Court, which discretion must be applied judiciously.[23] The default position is that costs follow the cause and I find no reason why the costs should not follow the result. The awarding of a cost order against a litigant must still be just and equitable. In the present case, given what I have already stated above, I see no reason why it would not be just and equitable to award costs to the successful litigant. In my view, the costs should follow the cause.

 

ORDER

 

[34]      I accordingly make the following order:

 

1.            The application is dismissed with costs.

 

 

M.Z MAKOTI

ACTING JUDGE OF THE HIGH COURT

NORTH WEST DIVISION: MAHIKENG

 

APPEARANCES

 

DATE OF HEARING             :      05 March 2021

DATE OF JUDGMENT          :      09 April 2021

 

COUNSEL FOR APPLICANT          :             Advocate M P Van der Merwe SC

COUNSEL FOR RESPONDENT     :             Advocate V P Ngutshana

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