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Indwe Risk Services (Pty) Limited v 4 Sure Insurance Brokers (Pty) Limited and Others (25300/2007) [2008] ZAGPHC 291 (14 March 2008)

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CASE NO 25300/2007

In the matter between










[1] This application concerns a covenant of restraint of trade in the field of short term insurance brokerage. The setting presenting itself in this matter is the usual: the applicant (Indwe) is the former employer and the first respondent (4 Sure) the new employer of the employees bound by the restraint, who are the second and third respondents.

[2] Indwe (formerly known as Prestasi Brokers) and 4 Sure are rival brokers in short term insurance industry, both operating in the Potchefstroom/Klerksdorp area. The second respondent was employed as manager and the third respondent as administrative assistant in charge of general office management, by Indwe at its Potchefstroom branch office. They both resigned from Indwe’s services with effect from 1 November 2006, and immediately joined 4 Sure, where they have since been appointed as co-directors.

[3] On 18 October 2007 Indwe launched the present application. In part A of the notice of motion an Anton Piller order is sought and in part B final alternatively, interim interdictory relief. On 23 October 2007 an Anton Piller order in the form of a rule nisi, was granted ex parte. The order was executed on 25 October 2007, leading to the seizure of the information and documentation I will presently refer to. On the return day of the rule nisi, it was confirmed without opposition thereto and the costs thereof by agreement were reserved. The applicant filed a supplementary affidavit, in which the execution of the Anton Piller order is fully dealt with. Annexed thereto is a report of the independent attorney, who was appointed by the Court to be present and oversee the execution of the order. The respondents filed an answering affidavit to both the applicant’s founding and supplementary affidavits and the applicant in response thereto filed a replying affidavit. All this culminated into an impressive record extending into some 900 pages.

[4] The starting point in the determination of this application is a consideration of the provisions of the restraint of trade. I should mention that the second and third respondents initially vehemently denied being bound by the provisions of the restraint clause, which in my view showed nothing more than an attempt to capitalise on the name changes the applicant had undergone since the date of conclusion of the restraint of trade agreement. At the commencement of the hearing before me, I was informed that the respondents, wisely I should add, no longer persisted with their disputation of this aspect. It is accordingly not in dispute and has therefore become common cause that the second and third respondents are bound to the applicant by the provisions of the restraint of trade. Summarised and in essence the second and third respondents in terms of the restraint agreed not to “canvass or take up” insurance business from any client of the applicant, as at the date of termination of their employment, for a period of two years from the date thereof, which as I have mentioned was 31 October 2006. As for the period of the restraint, it is necessary to mention that it will expire on 31 October 2008 and that the remainder thereof at this stage is some seven months. The significance hereof will become apparent later in the judgment.

[5] The provisions of the restraint must of course be considered against the backdrop of the general principles applicable thereto, as have been enunciated in a number of decisions. For present purposes it suffices to refer to the recent judgment of the Supreme Court of Appeal in Reddy v Siemens Telecommunications (Pty) Ltd 2007 (2) SA 486 (SCA). The relief sought by the applicant, initially included a blanket prayer, in terms of which the applicant sought an order prohibiting the respondents from:

“B 1.1.8 Competing unfairly with the applicant”

The prayer introduced into the arena the aspect of unlawful competition and of course the common-law principles applicable thereto. Apart from a major contribution to the mass of paperwork in this application, the issue also enjoyed significant prominence in counsels’ heads of argument. All this was however laid to rest when counsel for the applicant, at the commencement of the hearing before me, applied for an amendment of the relief sought in part B of the notice of motion, which in the absence of an objection, I allowed. The effect of the amendment, amongst other things, was to remove par B1.1.8 from the prayer, on the basis, as rightly conceded by counsel, that it in any event was too wide.

[6] But counsel for the applicant had another string to his bow: he submitted, focussing on the words “not…to take up business…” forming part of the restraint clause, that the respondents on their own version, were acting in contravention thereof. The version of the respondents counsel referred to, in a nutshell is their admission that a number of the applicant’s erstwhile clients had since the date of the respondents’ resignation, according to them out of their own accord and without having been influenced thereto by the respondents, diverted their short term insurance from Indwe to 4 Sure. Counsel submitted that their business was accordingly “taken up” by the respondents within the meaning of the restraint. Looking at it from the perspective of the respondents, they were in terms of the restraint prohibited from accepting any insurance business from the applicant’s erstwhile clients. The contention need not detain me unnecessarily: the result of such a prohibition as contended for, in my view, violates the most basic and well entrenched principle militating against the validity of restraints of trade which is to stifle lawful competition of a rival, which it has now become settled, is contrary to public policy. (Cf Magna Alloys and Research SA (Pty) Ltd v Ellis [1984] ZASCA 116; 1984 (4) SA 874 (A); Basson v Chilwan and Others [1993] ZASCA 61; 1993 (3) SA 742 (A) at 767E-F; Automotive Tooling Systems (Pty) Ltd v Wilkens and Others 2007 (2) SA 271 (SCA) at 277G-279C; Rawlins and Another v Caravantruck (Pty) Ltd [1992] ZASCA 204; 1993 (1) SA 537 (A) at 540I; Canon Kwazulu-Natal (Pty) Ltd t/a Canon Office Automation v Booth and Another 2005 (3) SA 205 at 209B-G; and Walter McNaughtan (Pty) Ltd v Schwartz and Others 2004 (3) SA 381 (C) at 390D). It further curtails the unfettered rights of third parties to appoint an insurance broker of their choice. It follows that the words relied upon give rise to an unenforceable restraint of trade and that they for that reason ought to be regarded as pro non scripto.

[7] This brings me to the relief sought by the applicant in the amended notice of motion. The applicant seeks to prohibit the respondents from:

2.1.1 canvassing or taking up insurance business from any client of the applicant mentioned in annexure “S” to the founding affidavit for a period of two years from 1 November 2006;

2.1.2 divulging to any unauthorised person any confidential matter or information relating to the business, affairs or processes of the applicant;

2.1.3 contacting any current clients of applicant, as reflected in annexure “S” to the founding affidavit, in any way whatsoever, direct or indirect, orally, in writing, telephonically, electronically or otherwise;

2.1.4 utilizing any confidential information with regard to any of the current clients of the applicant for the benefit of any of the respondents, directly or indirectly, in any way whatsoever;

2.1.5 utilizing any information and documents belonging to applicant, of any nature whatsoever, stored in any form whatsoever, including electronic form, including those referred to in pages 280 to 313, which must be returned to applicant forthwith;

2.1.6 utilizing any confidential information of applicant for any purposes whatsoever, directly or indirectly, stored in any way whatsoever, as referred to in pages 280 to 313;

2.1.7 interfering with any contractual relationship between applicant and any of its clients, referred to above, or between applicant and any of its employees.”

Prayer 2.1.3 and 2.1.7 are tautologies of prayer 2.1.1. Bundled together these prayers will further in this judgment be referred as the applicant’s main relief. Prayers 2.1.2, 2.1.4, 2.1.5 and 2.1.6 strictly speaking form part of the Anton Piller proceedings. The page references in prayers 2.1.5 and 2.1.6 are to the applicant’s supplementary affidavit and refer to the information and documents seized during the execution of the Anton Piller order. The respondents admittedly have neither claim in nor right to the applicant’s confidential information in whatever form and it follows that these prayers (save for a further amendment effected by me to prayer 2.1.5 by adding the words “if still in possession of the any of the respondents”, which has the effect that the order will only be effective should the respondents be in possession of the specified information or documents) should be granted perhaps also merely to afford to the applicant absolute protection against the unauthorised use thereof by the respondents. The costs relating to these prayers form part of the costs of the Anton Piller proceedings, which I will presently deal with.

[8] Central to the application is the applicant’s reliance on a protectable interest in regard to its customer connections, in respect of which customer lists recording all the necessary information concerning its customers in order for it to properly conduct its business, were compiled. It is common cause that those lists containing according to the applicant “almost every bit of information that the applicant has and owns pertaining to its personal lines clients”, as well as confidential proposal documents, and documents containing information regarding new clients, were found at 4 Sure’s business premises, which is where the Anton Piller order was executed. The information pertaining to the customer list was electronically stored on a laptop computer (the ownership of which is in dispute), as an Excel workbook under different names and consisting of a number of Excel spreadsheets. The applicant, as I have mentioned, considers those lists as confidential. The mere fact of the applicant labelling it as such, of course does not per se make them confidential. All of the relevant circumstances must be looked at. The type of factors to be considered are dealt with by Thring J in Telefund Raisers CC v Isaacs and Others 1998 (1) SA 521 (C), where the learned Judge, having considered all the factors he regarded as relevant, held that the clients lists of the applicant, a fund raising organisation, were confidential and therefore worthy of protection. I do not think it will serve any useful purpose to attempt to list here all the relevant factors that generally need to be considered in order to determine the confidentiality thereof. In casu the type of information recorded in the customer list although not decisive, is of substantial importance: they contain categories of information concerning the applicant’s 1962 personal and 400 commercial lines customers. The information comprise the full personal particulars and contact details of each client, particulars pertaining to the underwriting insurer of each client, the classification of clients according to their premium income and finally, a range of policy and premium information classified under different headings.

[9] The applicant in my view reasonably and with ample justification regards the information recorded in its customer lists as confidential. The applicant’s time and effort produced the lists, in which information is recorded in respect of a client base which has become established over a period of time. The importance, financial value and confidentiality of the information contained in the customer lists are all aspects which the second respondent expressly acknowledged in the first restraint agreement of trade agreement concluded with the applicant, when it was still known as Prestasi Makelaars. The involvement of the second respondent in establishing the applicant’s client base and the third respondent in compiling the customer lists all occurred during their term of employment with the applicant and at its cost. It has therefore become an asset of the applicant. The information in my view therefore is confidential in nature and worthy of protection: in the hands of a competitor it would provide a valuable “springboard”, saving it time and effort in searching and finding potential customers (See Van Castricum v Theunissen and Another 1993 (2) SA 726 (T) at 731F-H).

[10] The time period of the restraint, as mentioned, is two years. The question arises whether the two year period can be regarded as reasonable, given all the relevant circumstances of this matter. Regrettably, this aspect was left untouched in the papers before me. It was raised by counsel for the respondents in argument before me. Counsel submitted that the period of two years, in the circumstances of this case, is unreasonable. For this submission reliance was placed on the judgment of Stegmann J in Meter Systems Holdings Ltd v Venter and Another 1993 (1) SA 409 (W), where the learned Judge, in dealing with the protection of confidential information held as follows (at 430E):

10 …

Where information is protected as confidential by law, the confidentiality is not always absolute, nor is the protection always permanently available. Amongst the limitations are:

10.1 the limit to the protection of the information in a customer list, which I have already mentioned in 1 above;

[Par 1, the learned Judge referred to, reads as follows:

Customer lists drawn up by a trader, and kept confidential for the purposes of his own business, contain confidential information, the property of the trader: Pelunsky & Co v Teron 1913 WLD 34; Robb v Green [1895] 2 QB 315 (CA). The legal protection afforded to this type of confidential information is limited by the fact that the law, whilst prohibiting an employee from taking his employer’s customer list, or deliberately committing its contents to memory, 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 interests of anyone else, including a new employer who competes with the old one: Freight Bureau (Pty) Ltd v Kruger and Another 1979 (4) SA 337 (W) at 341E-F; Roberts v Elwells Engineers Ltd [1972] 2 All ER 890 (CA) at 894 f-h.”]

10.3 the information in question may be useful and relevant, and therefore confidential, for no more than a limited time (ie the time which any independent enquirer would take to gather it for himself). It is then only protectable for a very limited period, if at all. This is the basis of the “springboard” doctrine: Compare Atlas Organic Fertilizers (supra [1981 (2) SA 173 (T)] at 191 C – 192 G).

[11] A variety of factors, depending on the particular circumstances of each case, may of course be relevant in determining the reasonableness of the period of the restraint. In the present matter we are concerned with the business of insurance broking. In general a number of considerations seem obvious: The information contained in the customer lists of an insurance broker may well be more readily ascertainable than in other spheres of business. That may lead one to conclude that a shorter period of protection would be reasonable. So too, is it necessary to examine the scope of the particular protection. A very narrow prohibition, which leaves open a wide field of unrestrained competitive action by the employee, may well justify a longer period of protection (Cf Stenhouse Australia Ltd v Phillips [1973] UKPC 1; [1974] 1 All ER 117 PC at 122 f).

[12] In casu it appears to me that the following considerations are relevant: the second respondent was a well known insurance broker in the Potchefstroom/Klerksdorp area because of, as I understand it, his friendly and social personality, from which it can be inferred that clients would follow him wherever he goes. The information on the client lists are, for the bulk of it, readily ascertainable from other sources. But there are I think further factors deserving consideration. One thereof coming to mind is the time it would take a short term insurance broker to establish a client base and to compile a customer list; another is the accessibility in general of information concerning customers in the insurance business; and yet another the nature and permanence of the relationship between broker and client. All these aspects are not dealt with in the papers before me. I am therefore to a large extent dependant upon speculation without the benefit of having heard evidence which may well exist, making it of course undesirable to finally pronounce on this aspect. On the other hand the time period of the restraint cannot simply be ignored. I am prima facie of the view on the limited information available to me, that the period of two years may well be excessive. I am however, due to the lack of evidence on this aspect, constrained to refrain from making any final determination. The significance and effect hereof, will become apparent later in the judgment.

[13] I proceed now to consider the main relief sought by the applicant. In the view I take of the matter I do not consider it necessary to traverse all the aspects which were argued before me. The applicant seeks to protect the confidential information contained in its customer lists by means of an interdict. The requirements for obtaining such relief are set out by Lewis J (as she then was) in Waste Products Utilisation (Pty) Ltd v Wilkes and Another 2003 (2) SA 515 (a) at 573 G, as follows:

The plaintiff must have an interest in the confidential information, which need not necessarily be ownership. The information must be of a confidential nature. There must exist a relationship between the parties which imposes a duty on the defendant to preserve the confidence of information imparted to him, which could be the relationship between the employer and employee, or the fact that he is a trade rival who has obtained information in an improper manner. The defendant must have knowingly appropriated the confidential information. The defendant must have made improper use of the information, whether as a springboard or otherwise, to obtain an unfair advantage for himself. Finally, the plaintiff must have suffered damage as a result.”

(See also IIR South Africa BV (Incorporated in the Netherlands) t/a Institute for International Research v Hall (aka Baghas) and Another 2004 (4) SA 174 (W)).

The fifth requirement mentioned by Lewis J which is the improper possession or use of the confidential information whether as springboard or otherwise, is the subject of the main dispute between the parties.

[14] The applicant contends that the respondents are using its confidential information as a “springboard”, using the benefit of Indwe’s labour to establish their name and business as insurance brokers. In support hereof reference was made to the conduct of the respondents in regard to inter alia the launch of their business shortly after they had left Indwe at which customers of Indwe were invited; the fact that the business of forty two of its customers was lost to 4 Sure almost immediately after the respondents had left Indwe; the assistance given by the respondents to customers diverting their insurance from Indwe to them and then of course the well grounded feared results of the execution of the Anton Piller order. The third respondent it seems was well aware of the confidential information being in the respondents’ possession: her actions during the execution of the Anton Piller order confirm as much. She moreover belatedly for the first time raised in the answering affidavit alleged that the laptop on which the confidential information was stored in fact did not belong to her but to her fiancé. These and numerous other contentions which were advanced by and on behalf of the applicant are all weighty considerations pointing to the respondents having canvassed the applicant’s customers. That however does not conclude the enquiry: I am of course required to consider the matter as a whole.

[15] That brings me to the version of the respondents. It is common cause that many of the applicant’s erstwhile customers have moved their short term insurance business to 4 Sure. They did so, the respondents allege, of their own accord having independently made the decision, without the respondents’ solicitation. In support thereof, the respondents have annexed a large number of affidavits of such clients all setting out their reasons for having diverted their insurance business to 4 Sure. Those reasons vary from dissatisfaction with Indwe’s level of service to merely personal preference to rather do business through 4 Sure. Customers from Indwe were required to sign a document prepared by 4 Sure, in which it is declared that the move was not occasioned through solicitation of 4 Sure. The respondents explained that this was done merely to confirm beyond any doubt, what in fact had happened. Some of the affidavits the applicant has pointed out in the replying affidavit reveal certain inconsistencies regarding the alleged poor service delivery, but in many others the reasons for the move cannot be assailed.

[16] I have carefully analysed and considered the aspects referred to above. I have come to the conclusion that a material dispute of fact exists on this aspect which cannot be resolved on the papers as they stand. The rule stated in Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd [1984] ZASCA 51; 1984 (3) SA 623 (A) at 634-5 to the broad effect that an application for final relief is generally decided on a respondent’s version, applies. Some arguments and inferences sought to be drawn, quite understandably are raised for the first time in the replying affidavit. The respondents have not had the opportunity to respond thereto (Cf Director of Hospital Services v Mistry 1979 (1) SA 626 (A)). All issues therefore have not been fully canvassed. The respondents deny that they have any interest in the applicant’s customer lists or other confidential information, or that they have made or will in future make use of it. I am unable to pronounce on where the truth lies. It can only be decided on oral evidence having been presented.

[17] Normally the irresolvable dispute of fact would have resulted in an order referring this aspect for the hearing of oral evidence. Such a referral would have included determining the scope of the prohibition, should an interdict be granted, as well as a determination of the reasonableness of the restraint period, which I have earlier dealt with. Procedurally, however, a referral for the hearing of oral evidence at this late stage will be an exercise in futility. The two year period expiring at the end of October 2008, leaves insufficient time for the matter to come up for hearing. The only purpose a referral would serve would be to burden another court with the invidious task of having to decide the question of costs only. I can only assume that it is for this reason that the applicant did not, by way of alternative or otherwise seek an order for the referral of the matter for the hearing of oral evidence.

[18] The allegations made by the parties pertaining to the main relief sought are evenly balanced. The only hurdle preventing the final adjudication of the application is procedural in nature. Neither party can be blamed for this. It follows that the orders I propose to make, ought to reflect the neutral stance I am bound to take in regard to disputed facts. I therefore propose firstly, not to make an order in respect of the main relief sought in the amended notice of motion and secondly, save for the costs of the Anton Piller relief which I will presently deal with, for each party to pay its own costs.

[19] It remains to consider the costs relating to the Anton Piller proceedings. Counsel for the respondents sought to attack the application for Anton Piller relief on the basis of what I prefer to refer to as procedural imperfections, such as the founding affidavit when the Anton Piller order was sought, containing unconfirmed hearsay allegations and to which signed but not commissioned affidavits were annexed. In my view these aspects do not have any bearing on the question of costs. In determining the liability for costs a consideration of not only the Anton Piller application, but also the results obtained in the execution thereof, are called for. The applicant undoubtedly, was fully justified in bringing the application. The fears expressed of the respondents being in possession of its confidential information turned out to be well grounded. As I have alluded to, almost each iota of the applicant’s confidential information was found in their possession. Added hereto are the seemingly unsatisfactory explanations given for the storage of the information under another and in fact seemingly misleading name as well as the attempted passing of the buck by the third respondent of the ownership of the laptop on which the information was stored and found. The fact of the matter is that the applicant’s confidential information was found at 4 Sure’s business premises, which of course in itself established at least the potential of it being misused by the respondents to their own advantage.

[20] In these circumstances I am of the view that the respondents should bear the costs relating to the Anton Piller proceedings and that such costs should include the costs relating to the applicant’s supplementary affidavit.

[21] In the result, I make the following order:

1. An order is granted in terms of prayers 2.1.2, 2.1.4, 2.1.5 (as amended), and 2.1.6 of the applicant’s amended notice of motion.

2. No order is made in respect of the remainder of the prayers contained in the applicant’s amended notice of motion.

3. The respondents are ordered jointly and severally, the one paying the other to be absolved, to pay the applicant’s costs relating to the Anton Piller proceedings, such costs to include the costs relating to the applicant’s supplementary affidavit.

4. Each party will pay its own costs in regard to the remainder of the application.