---

IN THE HIGH COURT OF SOUTH AFRICA

FREE STATE DIVISION, BLOEMFONTEIN

Case No: 3559/2013

In the matter between:

FREE STATE TRANSFORMERS (PTY) LTD

trading as FREE STATE TRANSFORMERS

FIELD SERVICES ….....................................................................................................Applicant

and

FANIE ACKERMAN........................................................................................ First Respondent

TRANSLEC (PTY) LTD ….......................................................................... Second Respondent

JUDGMENT: DAFFUE, J

HEARD ON: 21 NOVEMBER 2013

DELIVERED ON: 12 DECEMBER 2013

INTRODUCTION

[1] Applicant seeks to enforce a restraint of trade agreement (hereinafter referred to as “the restraint”) against its former employee.  The application is opposed.  Oral arguments were addressed to me on 21 November 2013 on which date I reserved judgment.  Adv SJ Reinders appeared for applicant and Adv PJJ Zietsman for respondents.

THE PARTIES

[2] Applicant is Free State Transformers (Pty) Ltd trading as Free State Transformers Field Services.  Its business consists of the manufacturing, maintenance and service of transformers.  Its customers are distributed throughout the Republic of South Africa and even outside the borders thereof.  First respondent is Fanie Ackerman, a qualified electrician presently in the employ of Translec (Pty) Ltd, second respondent.   Ex facie the notice of opposition and other notices filed, both respondents oppose this application, although first respondent only filed an answering affidavit.

THE RELIEF SOUGHT

[3] Applicant seeks an order in terms whereof first respondent be prohibited from contravening the restraint for a period of thirty six (36) months from 1 January 2013, the effect being that he may not provide any services as set out in the restraint within a radius of five hundred (500) km from applicant’s business premises in Bloemfontein until 31 December 2015.  The relief applicant seeks is in line with the restraint contained in clause 16(2)(d) of the written employment contract which reads as follows:

“The employee shall not for a period of thirty six (36) months after the termination of his employment … at any time for any cause whatsoever and whether or not at the employee’s instance or at the instance of the employer, either solely or jointly or as employee, manager or agent for any person, firm or body corporate or incorporate, directly or indirectly:

(i) carry on or otherwise be engage (sic) or concerned or interested or employed in;

(ii) solicit business for;

(iii) be a director or shareholder in;

(iv) act as a consultant, advisor to;

(v) lend or advance or bind himself as surety for any sum or sums of money to or financially (sic)

any person, company or association or finance any business which carries on business within five hundred (500) kilometre radius from the employer which is similar to or competing with or endeavouring to compete for business on by the employer.”

THE FACTUAL MATRIX

[4] On 3 June 2011 a contract of employment was entered into between applicant and first respondent in terms whereof first respondent bound himself to the restraint.

[5] First respondent resigned as applicant’s employee with effective date 31 December 2012.

[6] During his employment first respondent was in direct contact with applicant’s customers in that he personally had to oversee the installation, service and maintenance of transformers of such customers.  He was provided with applicant’s data base pertaining to customers and was aware of the price structure as he from time to time supplied quotations on behalf of applicant.  Furthermore he obtained knowledge of the types of oil used and when transformers were installed and might be needed service and/or maintenance.

[7] When first respondent left the services of applicant he indicated that he intended to investigate a business opportunity in England.

[8] A few months later it came to applicant’s knowledge that first respondent was conducting business in Bloemfontein under the name Translec (the second respondent), alternatively that he was employed by or in one or other capacity involved with Translec.  Translec provides some of the services rendered by applicant and is regarded as a competitor in the particular market segment.  This caused applicant to instruct its attorneys to write a letter of demand to first respondent which letter is dated 16 May 2013.

[9] On 5 June 2013 first respondent’s attorneys responded to the letter, requesting details of the alleged breach of the restraint.  In this letter first respondent admitted being an employee of second respondent.  Two further letters were written, but nothing further transpired for several months.

[10] On 3 September 2013 the present application was launched.  On 15 October 2013 and rather belatedly, first respondent filed his answering affidavit.  Simultaneously an application for condonation for non-compliance with the rules of court was filed.  Applicant’s replying affidavit was filed on 28 October 2013 whereupon the matter was enrolled for hearing on 21 November 2013. 

[11] Applicant relies on certain photographs indicating that first respondent is in fact employed by second respondent, an aspect which has been admitted by him even before the application was issued.  Applicant avers that it is apparent that the trailer depicted in the photographs was built with similar equipment as used by applicant.  It is also evident from the evidence that Translec is in the same business as applicant and that first respondent is conducting the same services as he used to be responsible for when in the employ of applicant.

[12] First respondent’s response to the photographs is that they depict a mobile oil refinery installation which he personally designed and built by making use of information readily available on the internet and in the industry.  This response caused applicant to aver in reply that first respondent caused a similar oil refinery installation to be manufactured whilst he was still in the employ of applicant by copying applicant’s installation.  Fact of the matter is that ex facie first respondent’s answering affidavit the second respondent did not have a similar installation prior to the one allegedly designed and manufactured by first respondent.

[13] Since he left applicant’s employ first respondent has had personal contact – as far as could be established – with two of applicant’s customers, to wit National Real Estate and Transnet.  First respondent does not deny this contact and in fact confirms that he has done work for National Real Estate whilst in the employ of second respondent.  It is his version that this entity is not a customer of applicant as applicant has delivered services to it on one occasion in the past only.  Furthermore, pertaining to Transnet, he was in communication with personnel of Transnet’s offices in Port Elizabeth which city is in excess of 500km from Bloemfontein.  In reply applicant insists that National Real Estate is its customer and although Port Elizabeth is further than 500km from Bloemfontein, the Transnet transformers which had to be serviced are situated in De Aar and Hanover which towns are within the 500km radius.

[14] It is applicant’s case that first respondent utilises the knowledge and information which he obtained whilst in the employ of applicant as a springboard to compete with applicant and this should not be allowed. This is denied by respondent.

THE LEGAL PRINCIPLES AND AUTHORITIES

[16] The court can only grant final relief in application proceedings if the facts stated by the respondent together with the admitted facts in the applicant’s affidavits and the evidence presented justify the order. See Plascon-Evans Paints Limited v Van Riebeeck Paints (Pty) Ltd [1984] ZASCA 51; 1984 (3) SA 623 (AD) at 634H-635B. This general rule does not apply if it is found that the respondent’s version is so untenable and far-fetched that the court is justified in rejecting it on the papers.

[17] In order to consider the reasonableness of a restraint the following four questions should be asked:

(a) Does the one party have an interest that deserves protection after termination of the agreement?

(b) If so, is that interest threatened by the other party?

(c) In that case, does such interest weigh up qualitatively and quantitatively against the interest of the other party not to be economically inactive and unproductive?

(d) Is there any aspect of public policy having nothing to do with the relationship between the parties that requires that the restraint be maintained or rejected?

See Basson v Chilwan and Others [1993] ZASCA 61; 1993 (3) SA 742 (A) at 767G-H and also Reddy v Siemens Telecommunications (Pty) Ltd 2007 (2) 486 (SCA) at para [16].

[18] The need of an employer to protect his trade connections arises where an employee has access to customers during his employment 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.  See Rawlins and Another v Caravantruck (Pty) Ltd [1992] ZASCA 204; 1993 (1) SA 537 (A) at 541D-H and Den Braven (Pty) Ltd v Pillay and Another 2008 (6) SA 229 (D&CLD) at 235F-236C.  The mere fact that a former employee had contact with the employer’s customers during his employment does not mean that the employer has a protectable interest in the form of customer connections.  Something more is required as stated supra.

[19] Pacta servanda sunt.  This maxim remains applicable notwithstanding the constitutional era in which we find ourselves.  See: Barkhuizen v Napier [2007] ZACC 5; 2007 (5) SA 323 (CC) para 30 at pp 333G – 334A. The public interest still requires that parties should comply with their contractual obligations.  However courts are allowed to decline to enforce contractual terms that are in conflict with the constitutional values even though the parties agreed thereto.  The effect of this is that the employer seeking to enforce the restraint needs to do no more than to prove the existence of the restraint and a breach thereof by the former employee.  The former employee who seeks to prevent enforcement is required to prove on a preponderance of probabilities that in all the circumstances of the particular case it will be unreasonable to enforce the restraint.  The former employee is thus burdened with a true onus in this regard because public policy requires that people should be bound by their contractual obligations.  See: Magna Alloys and Research (SA) (Pty) Ltd v Ellis [1984] ZASCA 116; 1984 (4) SA 874 (A) at 893.  Notwithstanding criticism from some quarters, this judgment remains the locus classicus pertaining to the issue of onus in restraint of trade matters.  Refer also to Den Braven supra and the exposition of Wallis AJ (as he then was) at paras [28] – [35], pp 246G-253F.  A covenant in restraint of trade may protect trade connections and confidential information such as price and strategies and manufacturing processes, methods of operations, knowledge of business conditions and customer relationships and attachments.  For a detailed list of categories of protectable confidential information the reader is referred to Dickinson Holdings (Group) (Pty) Ltd v Du Plessis 2008 (4) SA 214 (N) at para [33], p 225D-H.

[20] An employee’s personal skill and abilities are part of his make-up and he cannot ordinary be precluded from making use of them through a contract in restraint of trade.  The employer’s interest in retaining the services of such an employee is not an interest in the nature of property in the hands of the employer and the employer has no proprietary interest in the employee, his know-how or skills.  See Aranda Textile Mills (Pty) Ltd v Hurn & Another [2000] 4 ALL SA 183 (E) at para [33] and Automotive Tooling Systems (Pty) Ltd v Wilkens & Others 2007 (2) SA 271 (SCA) at para [20] where Cachalia AJA (as he then was) declared as follows:

“In my view the facts establish that the know-how for which the appellant seeks protection is nothing other than skills in manufacturing machines, albeit it that they are specialised skills. These skills have been acquired by the first and second respondents in the course of developing their trade and do not belong to the employer - they do not constitute a proprietary interest vesting in the employer - but accrue to the first and second respondents as part of their general stock of skill and knowledge which they may not be prevented from exploiting. As such, the appellant has no proprietary interest that might legitimately be protected. The restraint is therefore inimical to public policy and unenforceable.”

[21] When an application is considered based on the allegation that secret or confidential information to which the former employee had access, might be used by him to the advantage of his new employer or his new business, the following dicta are apposite:

“In my view all that the applicant can do is to show that there is secret information to which the respondent had access, and which in theory the first respondent could transmit to the second respondent should he desire to do so.  The very purpose of the restraint agreement was that the applicant did not wish to have to rely on the bona fides or lack of retained knowledge on the part of first respondent, of the secret formula.  In my view, it cannot be unreasonable for the applicant in these circumstances to enforce the bargain it has exacted to protect itself.  Indeed, the very ratio underlying the bargain was that the applicant should not have to content itself with crossing its fingers and hoping that the first respondent would act honourably or abide by the undertakings he has given….  In my view, an ex-employee bound by a restraint, the purpose of which is to protect the existing confidential information of his former employer, cannot defeat an application to enforce such a restraint by giving an undertaking that he will not divulge the information if he is allowed, contrary to the restraint, to enter the employment of a competitor of the applicant.”

See BHT Water Treatment (Pty) Ltd v Leslie and Another 1993 (1) 47 (W) at 57J-58B, referred to with approval by the SCA in Reddy v Siemens Telecommunications (Pty) Ltd supra as well as the following dictum in Reddy at 499G:

“Reddy is in possession of trade secrets and confidential information….. Reddy will be employed by Ericsson, a 'concern which carries on the same business as [Siemens]' in a position similar to the one he occupied with Siemens. His loyalty will be to his new employers and the opportunity to disclose confidential information at his disposal, whether deliberately or not, will exist.  The restraint was intended to relieve Siemens precisely of this risk of disclosure.”

[22] In Den Braven (Pty) Ltd supra Wallis AJ set out his viewpoint as follows at 253E-F:

“The employee who seeks to turn their employer's confidential information, trade secrets or trade or customer connection to their own account for the benefit of themselves or a competitor of their employer acts in a no less reprehensible fashion and I can think of no good reason why our law should not afford a remedy to a business that seeks protection against this type of unfair competition. Where the business has sought to protect itself by securing a restraint of trade undertaking from the employee there is no reason for the courts or the law to view this with disfavour. It is only where the bounds of public policy are overstepped that the court will withhold its assistance.”

[23] Notwithstanding serious debate and conflicting judgments it is apparent that a court adjudicating a restraint of trade agreement may, instead of dismissing an application due to over-breadth, (i.e. when it is couched in unreasonably wide terms) still be prepared to enforce the restraint although on terms narrower than originally formulated by the parties.  In Dickinson Holdings supra at para [98] the full bench found that a restraint of three years was not unreasonable given the nature of the employer’s business and the respondent’s former senior position in the company.  In that case it was not disputed that it took anything from two to three years to complete feasibilities studies for projects in the refractory industry.  From date of tender to consideration thereof and commencement of construction could take anything from four to five years whilst most contracts are multi-million rand contracts.  The territory protected, being the Republic of South Africa, Mozambique, Zimbabwe and Zambia, was also considered not to be too wide in those circumstances.  Bearing in mind the majority of the authorities a restraint of two years appears to be the outer limit and it is frequently found that restraints of six to twelve months are regarded as sufficient protection.  In Den Braven (Pty) Ltd supra at para [55], p 263E the court found that a period of eight months was sufficient for the following reasons:

“In my view the period of the restraint should not be any longer than is necessary to enable the applicant to place a new salesperson in the field, enable them to become acquainted with the products and the customers and to make it plain to the latter that they are now the person with whom to deal on behalf of the applicant. Having regard to the nature of the products, the type of customer to whom they are sold and the number of customers who will need to be contacted I think that a period of eight months is sufficient for those purposes.”

[24] Mr Reinders referred me to an unreported judgment of my brother Jordaan concerning the same applicant who was successful in two applications heard simultaneously.  In the first the duration of the restraint was twelve months and the radius 500 km, whilst in the second the duration was three years and the area was limited to the magisterial districts within the Free State Province.  Mr Reinders appeared in those two applications as well.  It is apparent from the judgment that neither the radius, nor the period of three years was considered at all.  Ex facie the judgment there is no indication that these aspects were contested or that arguments were advanced to the court as to the applicability and reasonableness of the restraints, in particular pertaining to the three year period and a 500 km radius.  Mr Reinders confirmed that Jordaan J did not hear any arguments in this regard.

EVALUATION OF THE EVIDENCE, THE LEGAL POSITION AND THE SUBMISSIONS OF COUNSEL

[25] Mr Zietsman gave notice in his heads of argument that he would apply at the hearing that certain portions of applicant’s replying affidavit should be struck out on the basis that these contained inadmissible hearsay evidence.  No formal application was brought in terms of rule 6(15) and consequently no averments were made to indicate on what basis first respondent would be prejudiced if the matter was allowed to remain.  These allegations relate to the development and manufacturing of a similar oil refinery installation to which applicant referred in its founding affidavit.  However in reply more detail was supplied and applicant also relied on a letter of a certain Johan Fouche of JF Onderneming en Bakbouers to confirm its version.  Mr Fouche’s letter was not confirmed under oath and should not be regarded as admissible evidence.  Mr Reinders argued that this evidence can be disregarded as applicant had made out a proper case even if such evidence was ignored.  I shall not consider this evidence at all.  In my view and bearing in mind the approach adopted by counsel it is not necessary to make a formal ruling pertaining to the so-called application for striking out.

[26] On the first respondent’s own version he has had contact with at least two customers of applicant since he left applicant’s employ, to wit National Real Estate and Transnet.  He also confirms that he had direct contact with applicant’s customers during his employment and that he was supplied with a data base of all customers.  He was aware of applicant’s price structure in so far as he from time to time did quotations as well.  In fact it was his view at an early stage of his employment with applicant that applicant was charging unreasonably high tariffs, that it lost customers as a result and that it might price itself out of the market.  His knowledge affords him a valuable opportunity to offer second respondent’s services to applicant’s customers at lower rates, especially if it is borne in mind on his own version that applicant does not have service contracts with its customers.

[27] As field service manager, first respondent had to oversee all of applicant’s operations pertaining to the installation, maintenance and service of customers’ transformers and there can be no doubt that he was to a certain extent the face of applicant who was or might have been approached directly by customers experiencing problems with their transformers.  It is logical that customers may be induced easily to follow first respondent to his new business, particularly when they will receive the same service at a discount.

[28] I take into consideration that first respondent was employed for eighteen months only.  No evidence was placed before me that it was or would be impossible to replace first respondent soon, or at least within a few months, and to ensure that the replacement employee become acquainted with applicant’s customers, its products, services and confidential information.

[29] I also take into consideration that applicant, already being aware of first respondent’s breach of the restraint as long ago as May 2013 and just over four months since his resignation, waited until September, i.e. a further five months before it launched this application.  This is to an extent indicative of a lack of fear on the part of applicant that first respondent may cause it any harm unlawfully.  It might be that the application has been launched as a matter of principle, but I have not been convinced that relief is sought merely to prevent competition and that this was the sole aim as Mr Zietsman urged me to do.  However this is a borderline case.

[30] Mr Zietsman submitted that applicant did not have any proprietary interest in respect of first respondent’s skills and know-how which he has obtained long before his employment with applicant.  That might be true to a certain extent, but it is apparent that applicant specialises in a specific field and that even its competitors make use of its services.  This has not been denied.  I do not believe first respondent’s version that any qualified electrician is capable of doing all the work conducted by applicant.  He contradicted himself in that he stated that the basic training of an electrician included the service and maintenance of transformers, whilst he also averred that he received on the job training at Tri.Lectro to service and maintain transformers, including the testing, refinery and replacement of transformer oil.  Mr Zietsman further submitted that applicant does not possess any secret or confidential information acquired by first respondent which could be utilised by first respondent whilst in the employ of second respondent and consequently no entitlement to relief was proven.  First respondent’s version in this regard is rejected as untenable and false.  It is apparent that all information on his laptop was deleted before he left applicant’s employ.  Why would he do that if it was not in an attempt to disguise his actions and future plans even when still employed by applicant.  I am satisfied that first respondent saw an opening in the market for a competitor with appropriate skills and know-how to compete directly with applicant by inducing its customers to make use of his new business’ cheaper rates.  He is using applicant and its customer base as his springboard.  He manufactured for second respondent a mobile oil refinery installation similar to the one used by applicant to enable second respondent to compete with applicant which it would otherwise not be able to do.  He is clearly in breach of the restraint.

[31] First respondent is also of the view that the breadth of the restraint, being 500 km in radius and thirty six months in duration, is unreasonable.  Mr Zietsman submitted that the aim of the restraint is really to put applicant in a position to appoint a new field service manager and to allow such new employee an opportunity to make contact with customers and become acquainted with them.  He argued that a period of six months was adequate for such purpose and therefore a restraint of six months, or twelve months at the most, would be more than reasonable.  Pertaining to the 500 km radius he argued that there was no rationale for such distance as it would effectively mean that first respondent would only be able to work in cities such as Port Elizabeth and Cape Town and not in cities like Johannesburg and Pretoria.

[32] Mr Reinders readily conceded that a period of three years was excessive, but submitted that the radius of 500 km was in order.  It must be said that although applicant has customers across the country, there is no evidence to contradict first respondent’s version that he did not do business and did not become acquainted with any customers in Limpopo, Natal, Gauteng, Mpumalanga, North West and the Western Cape.

[33] I am satisfied that applicant has made out a case for relief.  It proved the terms of the contract as well as first respondent’s breach of the restraint.  Applicant’s interest deserves protection and such interest has been and is threatened by first respondent.  If I weigh up the parties’ respective interests there is no doubt that applicant should be entitled to relief as the restraint, curtailed as I am entitled to do, would not unnecessary prevent first respondent from being economically active in his chosen field of practice.  No aspect of public policy stands in the way of granting relief to applicant.   First respondent did not prove on a balance of probabilities that it would be unreasonable to enforce the restraint, save in so far as I am satisfied that the restraint should be curtailed both pertaining to the period and the area and/or radius.  In my view a period of twelve months would be more than sufficient to serve the purpose of the restraint which should be limited to a radius of 300 km from applicant’s business premises.  So curtailed, most parts of the Free State and Kimberley in the Northern Cape and several other towns outside the Free State’s borders are covered.  There is no reason why respondent should not be allowed to practise his trade in places such as Vanderbijlpark, Vereeniging, Johannesburg and Pretoria, all of which are further than 300 km from Bloemfontein.

[34] Mr Zietsman urged me not to grant any costs in so far as whatever order I might make would be of little practical value in so far as the period of twelve months since the termination of first respondent’s employment would have lapsed almost by the time judgment is granted.  I am not prepared to heed to this submission.  Applicant is materially successful and there is no reason why applicant should not be awarded its costs.  Although second respondent is cited as such, no relief is sought against it, save in the event of the application being opposed in which event applicant seeks an order in terms whereof first and second respondents shall pay costs of the application jointly and severally.  Ex facie the notice of opposition and other notices filed herein both respondents oppose the application.  If this was done by mistake respondents’ attorneys must take the blame.  The costs order shall be made against both respondents.

ORDER

[35] Consequently the following orders are made:

35.1 First respondent is for a period of 12 (twelve) months from 1 January 2013 and within a radius of 300 km from applicant’s offices at 29 George Lubbe Street, Hamilton, Bloemfontein prohibited to, either solely or jointly or as employee, manager or agent for any person, firm or body corporate, directly or indirectly:

(i) carry on or otherwise be engaged or concerned or interested or employed in;

(ii) solicit business for;

(iii) be a director or shareholder in;

(iv) act as a consultant, advisor;

(vi) lend or advance or bind himself as surety for any sum or sums of money to or financially assist

any person or company or association or finance any business which carries on business which is similar to or competing with or endeavour to compete for the business of applicant.

35.2 First and second respondents are ordered to pay applicant’s costs of the application on an opposed basis, jointly and severally, the one to pay, the other to be absconded.

______________

J. P. DAFFUE, J

On behalf of the applicant: Adv. S. J. Reinders

Instructed by:

McIntyre & Van der Post

BLOEMFONTEIN

On behalf of the first

respondent: Adv. P.J.J. Zietsman

Instructed by:

Honey & Partners

BLOEMFONTEIN

---