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25 SEPTEMBER 2008 reportable /BH

IN THE HIGH COURT OF SOUTH AFRICA

(TRANSVAAL PROVINCIAL DIVISION)

CASE NO: 42671/08

IN THE MATTER BETWEEN:

SUBTROPICO MARKAGENTE

(EDMS) BPK APPLICANT

AND

MARIUS KARSTEN FIRST RESPONDENT

ANTHON MICHAEL MEYER SECOND RESPONDENT

JUDGMENT

MAKGOBA J:

This matter came before me by way of urgency on 25 September 2008. After hearing argument I gave an order dismissing the Application with costs and indicated to the parties that my reasons for judgement would follow in due course. The following are my reasons:

[1] The Applicant applied for an order interdicting and restraining the Respondents from taking up employment with one of its competitors citing an agreement of restraint of trade under which the Respondents had undertaken not to take up employment with any of the Applicant’s Competitors at the Springs Fresh Produce Market for a period of 12 (twelve) months after termination of their employment, and not to disclose any of the Applicant’s confidential information.

[2] Concisely stated the applicant seeks enforcement of a restraint of trade against the Respondents as well as orders to prevent the Respondents from unlawfully competing with the Applicant’s business. The relief sought is intertwined with the Respondents’ obligation not to breach their fiduciary and statutory duties towards the applicant.

[3] The Respondents are former managers and employees of the Applicant’s business as a fresh produce market agent on the Springs Fresh Produce Market. The First Respondent has been employed by the Applicant since January 2002 when the Applicant and the First Respondent entered into a written agreement annexed to the founding affidavit as Annexure “D”. This agreement was for a period of five years and had lapsed in December 2007. This agreement contained a restraint of trade clause in terms whereof the First Respondent would not compete with the Applicant by operating or being employed in the same type of business within twelve months of termination of the agreement.

[4] The Second Respondent joined the Applicant’s business during May 2007. The Second Respondent, unlike the First Respondent did not enter into a written agreement with the Applicant.

It is the Applicant’s case that during March 2008 both the Respondents entered into a written agreement annexed to the founding affidavit as Annexure “G”. The aforesaid is however disputed by the Respondents.

Annexure “G” which purports to be an agreement between the parties was signed only by the Applicant on 20 March 2008. It is common cause that both Respondents did not sign Annexure “G”. The aforesaid Annexure “G” also contained a restraint of trade clause similar to that contained in Annexure “D”.

[5] It is common cause that the Respondents terminated their employment with the Applicant during or about the 3^rd of September 2008, without prior notice to the Applicant, and that they have since been doing business from the premises of a competitor of the Applicant situated adjacent to and under the same roof with the Applicant’s business premises.

[6] The Respondent’s allegations in resisting this application can be summarised as follows:

6.1 The Respondents deny that they entered into the agreement annexed as Annexure “G” to the founding affidavit, with the Applicant;

6.2 The Respondents deny that the Applicant has any protectable interests; and

6.3 The Respondents allege that the restraint of trade is unreasonable and therefore unenforceable.

[7] The Springs Fresh Produce Market in Springs is regulated by the Ekurhuleni Metropolitan Municipality. The Municipality issues licences to “Companies” to allow them to conduct business at the market. The Applicant is one of these companies. According to the Respondents there are six companies in total operating from the market. All the Companies operate under one large building. The floor space of the building is divided between the companies. The companies’ individual floor space is separated from each other using movable partitions.

[8] The mode of operation at the market is set out clearly in the First Respondent’s answering affidavit: The market is supplied by farmers, the “produce providers”. The produce providers will deliver their produce to the market and in so doing a produce provider is not bound to deliver his produce to only one company. A produce provider, for example, delivering potatoes to the market, has the right to deliver half his load to one company and the other half of his load to the next company. He obviously also has the right to deliver his whole load to only one company. There are many produce providers that deliver, for example, their potatoes to one company and their onions to a different company. There are also many produce providers that deliver half a load of potatoes to one company and the other half of their potatoes to another company. The reason for this is premised on the principle of a free market economy.

[9] One can deduce from the above explanation by the Respondents that the produce providers are in general never exclusive clients of a particular company in the normal sense of the word as they are free to use whatever company they choose.

[10] Both Respondents allege that they have over the many years in the fresh produce industry come to know many produce providers. The First Respondent entered the industry during the year 1978 and the second Respondent during 1970. Accordingly they have obtained a vast amount of knowledge and experience in this business over the years. That there is no information regarding the industry that the Applicant has that they do not know already.

[11] The Respondents deny that the Applicant has any confidential information never mind information that is worthy of protection. The Applicant’s business, so they submit, is managed no different to any of the other companies in the fresh produce market. They deny that they had access to or knowledge of any confidential information, client information, contacts or any other information of the Applicant.

[12] The position in our law regarding the validity and enforceability of a restraint of trade agreement has been well set out in the case of Magna Alloys and Research (SA) (Pty) Ltd v Ellis [1984] ZASCA 116; 1984 (4) SA 874 (A).

It was decided that a party wishing to be absolved from a restraint of trade agreement has to allege and prove that the enforcement of the restrictive condition would be contrary to public policy. Each agreement should be examined with regard to its own circumstances to ascertain whether the enforcement of the agreement would be contrary to public policy, in which case it would be unenforceable.

Although public policy requires that agreements freely entered into should be honoured, it also requires, generally, that everyone should be free to seek fulfilment in the business and professional world. An unreasonable restriction of a person’s freedom of trade would probably also be contrary to public policy, should it be enforced.

[13] Didcott, J in J Louw and Co (Pty) Ltd v Richter and Others, 1987 (2) SA 237 (N) at 243B-C set out the law in this regard as follows:

“Covenants in restraint of trade are valid. Like all other contractual stipulations, however, they are unenforceable when, and to the extent that, their enforcement would be contrary to public policy. It is against public policy to enforce a covenant which is unreasonable, one which unreasonably restricts the covenanter’s freedom of trade or to work. In so far as it has that effect, the covenant will not therefore be enforced. Whether it is indeed unreasonable must be determined with reference to the circumstances of the case.”

[14] Applying the above principles to the case in casu, Counsel for the Respondents submits, correctly in my view that the effect of such enforcement will be that the Respondents will not be able to work at all in their hometown. There is only one market in Springs. All competitors are under the same roof. The Respondents will be forced to go to another market away from Springs. Given the nature of how the produce market works, produce providers being free to move between companies as they please, the restriction will apart from not allowing the Respondents to apply their trade in Springs for 12 months, have no practical effect. In the circumstances the restriction is unreasonable and therefore contrary to public policy.

[15] If the restraint is too broad, it is for the party who wishes to enforce a lesser restraint to raise divisibility as an issue. See Sunshine Records (Pty) Ltd v Frohling 1999 (4) SA 782 (a) at 795-796.

In the present case the Applicant seeks to enforce a lessor restraint of trade in that it seeks to restrict the Respondents from working at the Springs Fresh Produce Market. However the Applicant fails to set out any facts or information in either the founding affidavit or the replying affidavit regarding the divisibility.

[16] A contract in restraint of trade must protect some proprietary interest of the person who seeks to enforce it, before it will be enforced. Such interest may take the form of trade secrets, confidential information or goodwill or trade connections.

In Basson v Chilwan [1993] ZASCA 61; 1993 (3) SA 742 (A) an employer’s application to assert a protectable interest in respect of customer connection against an employee who had no such connections was dismissed. In casu, it is the Respondents’ case that the Applicant has no confidential information or client/customer connection worthy of protection.

[17] In Reddy v Siemens Telecommunications (Pty) Ltd 2007 (2) SA 486 (SCA) at 497F Malan, AJA said the following:

“Where the interest of the party sought to be restrained weighs more than the interest to be protected, the restraint is unreasonable and consequently unenforceable.”

See Sibex Engineering Services (Pty) Ltd v Van Wyk 1991 (2) SA 482 (T) at 486 D; Van Castricum v Theunissen and Another [1993] 4 All SA 279 (T).

[18] In my view the Applicant has failed to set out a proprietary interest worthy of protection or what confidential information it seeks to protect. The names of the produce providers who supply to the Applicant can never be confidential because of the very nature of how the market place works. It is common cause that a produce provider can and does deliver produce to more than one company. The names of specific produce providers are hardly a secret or confidential.

[19] As mentioned earlier in this judgment the written agreement Annexure “G” has not been signed by the Respondents even though the Applicant sought to hold them to it. The Applicant in the replying affidavit states that in the event of the Court finding that Annexure “G” was not the agreement between the parties, it will seek an order against the First Respondent based on Annexure “D”.

[20] The Applicant actually seeks to introduce an alternative cause of action against the First Respondent in the replying affidavit. The Applicant cannot be allowed to make out its case in its replying affidavit. The Applicant’s application is based on the allegation that Annexure “G” was the agreement between the parties. It must stand or fall by this. If it cannot prove Annexure “G” the application must fail.

[21] In conclusion, my findings are that Annexure “G” to the founding affidavit does not constitute a binding agreement between the parties and further that, such restraint of trade clauses as may be contained in Annexure “G” or any verbal agreement between the parties are found to be against public policy, unreasonable and thus unenforceable.

[22] The application is dismissed with costs.

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E M MAKGOBA

JUDGE OF THE HIGH COURT

FOR THE APPLICANT: ADV. J W SCHABORT

INSTRUCTED BY WILLEMSE BENADE VENTER DAVIS ATTORNEYS

FOR RESPONDENTS: ADV S D RIDING

INSTRUCTED BY RABIE & VAN DER NEST ATTORNEYS

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