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THE LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG

Reportable

Case No: J 905/21

In the matter between:

CGIS REFRIGERATION GROUP (PTY) LTD                                               Applicant

and

LIEBRECHT GERICKE                                                                   First Respondent

SOUTHEY HOLDINGS (PTY) LTD t/a

CONCORD REFRIGERATION                                                   Second Respondent

 

Heard:   03 September 2021 (via virtual proceedings)

Delivered:   This judgment was handed down electronically by circulation to the parties' legal representatives by email, publication on the Labour Court’s website and released to SAFLII. The date and time for hand-down is deemed to be 10h00 on 22 September 2021.

Summary:   Restraint of trade – rectification is untenable absent a common mistake between the parties – the is no law against partial enforcement of a restraint agreement.

JUDGMENT

NKUTHA-NKONTWANA, J

Introduction

[1]   The applicant approached this Court on urgent basis seeking a final relief to enforce its contractual rights that form the subject of the first respondent’s restraint of trade and confidentiality obligations (restraint agreement). The applicant seeks the enforcement of the restraint for a period of 18 months and throughout the Republic of South Africa. The first and second respondents are opposing the application on several defences on the merits. Alternatively, the first respondent has launched a counter-application seeking a rectification of the restraint agreement by adding the following clause:

‘Notwithstanding anything in this agreement, the confidentiality provisions and restraint undertakings operate in favour of the business division known as GLACIER DOOR SYSTEMS.’

[2]   Even though there was no relief sought against the second respondent, the applicant seeks costs against it since it is opposing the application. The respondents concede that the matter is urgent and I have dealt with it as such.  

Factual Background

[3]   On 25 November 2010, the first respondent commenced his employment with applicant’s business that was known as Glacier Doors (Pty) Ltd (Glacier Door) as a Panel Department Manager with his duties having included the selling and marketing of inter alia cold rooms and glass doors. He concluded a restraint agreement in favour of Glacier Doors.

[4]   On 1 July 2017, the first respondent was promoted to the position of National Sales and Marketing Manager within Glacier Doors. At about the same time, the applicant merged two business Glacier Doors and Insulated Structures (Pty) Ltd (Insulated Structures) and under the name of CGIS Refrigeration Group (Pty) Ltd and they became the divisions of the applicant. Glacier Doors is a manufacturer, supplier and installer of panels while it also makes panels for cold rooms and design and manufactures cold and/or freezer rooms. While Insulated Structures is a manufacturer and installer of panels, injected polyurethane metal and formica based sandwich panels used in refrigeration cabinets, remote cabinets and self-contained cabinets.

[5]   On 12 September 2017, the first respondent concluded another restraint agreement with the applicant in terms of which he, inter alia, undertook that, for a period of two years after the termination date of his employment, he would not directly or indirectly in any capacity whatsoever (including that of principal, proprietor, agent, partner, representative, shareholder, director, employee, consultant, adviser, financier, demonstrator) associate or concern himself with or otherwise be interested or engaged in any business competing with the applicant in the Republic of South Africa.

[6]   The first respondent resigned from the employ of the applicant effectively from 31 July 2021. He then took up employment with the second respondent with effect from 3 August 2021.The second respondent has two divisions, Concord Refrigeration (Concord), a manufacturer of refrigerated and heated supermarket display cases; and Rudnev Cold Rooms (Rudnev), a manufacturer of insulated panel and the installation of cold storage areas.

[7]   There is no stern impugn that the second respondent is the applicant’s direct competitor as they both specialise in services within the refrigeration and retail industry. The applicant assets that by assuming employment with the second respondent, the first respondent is acting in breach of the restraint agreement. The respondents are challenging the relief sought by the applicant on the following grounds:

[7.1]      The applicant relies on the protectable interest of Insulated Structures when the restraint agreement is limited to Glacier Doors in its application;

[7.2]      The first respondent’s employment by the second respondent’s Concord division will have nothing to do with the interests of the applicant’s Glacier Doors because Concord trades in different products;

[7.3]      The interests of Glacier Doors do not deserve protection since they are outweighed by his interests to pursue his career and to be economically active in the only industry known to him;

[7.4]      In seeking to enforce the restraint agreement, the applicant is acting selectively by targeting the first respondent while failing to enforce restraint agreements against others;

[7.5]      The first respondent undertake that he will only trade in hot and cold retail cabinets. While the second respondent undertakes that it will not receive any of the applicant’s confidential information from the first respondent and restrict his employment to its Concord division.

Legal principles

[8]   The legal principles are trite and are well articulated in Magna Alloys and Research (SA) (Pty) Ltd v Ellis[1], the locus classicus on this subject, inter alia, as follows:

‘12.1     There is nothing in our common law which states that a restraint of trade agreement is invalid or unenforceable;

12.2      It is a principle of our law that agreements which are contrary to the public interest are unenforceable. Accordingly, an agreement in restraint of trade is unenforceable if the circumstances of the particular case are such, in the court’s view, as to render enforcement of the restraint prejudicial to the public interest;

12.3      It is in the public interest that agreements entered into freely should be honoured and that everyone should, as far as possible, be able to operate freely in the commercial and professional world;

12.4      In our law the enforceability of a restraint should be determined by asking whether enforcement will prejudice the public interest;

12.5      When someone alleges that he is not bound by a restraint to which he had assented in a contract, he bears the onus of proving that enforcement of the restraint is contrary to the public interest.’

[9]   Thus, the legal position is that a party seeking to enforce a restraint agreement is required only to invoke the restraint agreement and prove a breach thereof. Forthwith, a party who seeks to avoid the restraint, bears the onus to demonstrate on a balance of probabilities, that the restraint agreement is unenforceable because it is unreasonable.[2] In Basson v Chilwan[3], the test for determining the reasonableness or otherwise of the restraint of trade provision was set out as follows:

[9.1]      Is there an interest of the one party, which is deserving of protection at the determination of the agreement?

[9.2]      Is such interest being prejudiced by the other party?

[9.3]      If so, does such interest so weigh up qualitatively and quantitatively against the interest of the latter party that the latter should not be economically inactive and unproductive?

[9.4]      Is there another facet of public policy having nothing to do with the relationship between the parties but which requires that the restraint should either be maintained or rejected?

[10]   Essentially, there are two types of proprietary interests that can be protected by a restraint agreement, which are:

[10.1]    ‘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’; and

[10.2]    ‘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”’.[4]

Is limited the restraint agreement limited to Glacier Doors?

[11]   The respondents do not necessarily dispute that the first respondent concluded the restraint agreement with applicant. They however take issue with the scope of its application and contend that protectable interests sought to be protected belong to Insulated Structure. The first respondent asserts that he specifically negotiated a limited restraint agreement with the applicant’s erstwhile CEO, Mr Anton Torlutter (Torlutter). To accommodate his concern, he signed the amended restraint agreement which included ‘t/a Glacier Door Systems’. This evidence is corroborated by Ms Oosthysen, who was the applicant’s Human Resources Manager at that time. The respondents contend, therefore, that the restraint agreement operates only in favour Glacier Doors, the applicant’s business division.

[12]   The heading and the body of the restraint agreement reads as follows:

‘CONFIDENTIALITY AND RESTRAINT OF TRADE AGREEMENT BY AND BETWEEN CGIS Refrigeration Group (Pty) Ltd t/a

GLACIER DOORS SYSTEMS

And

LIEBRECHT GERICKE

1.      CONFIDENTIALITY

1.1    undertaking. During the period of his employment, the employee will have access to trade secretes and confidentiality information of the Group, including, inter alia, and without limiting the generality of the aforegoing, the following:

1.1.1    details of the Group’s financial structure and operating results;

1.1.2    the policies and strategies of the Group;

1.1.3    information relating to the company’s business strategic objectives and planning;

1.1.4    information relating to the company’s business activities, business relations products, services customers and clients;

1.1.5    technical information contained in the company systems and associated material documentation;

1.1.6    technical, scientific, commercial, financial and market information, know-how and trade secretes;

1.1.7    other matters which relate to the business in respect of which information is not readily available to the ordinary course of business to a competitor of the group, or relevant client;

(hereinafter collectively referred to as “the confidential information”).

1.2     Obligations.        The employee acknowledges that the Confidential Information is of considerable value to the Group and accordingly agrees:-

1.2.1    only use such Confidential Information as may be required to enable the Employee perform the functions required of him in terms of this Agreement;

1.2.2    …

2.      RESTRAINT UNDERTAKINGS BY THE EMPLOYEE

2.1     Restraint. The employee, in order to protect the proprietary interests and goodwill of the Business and the Group, by his signature hereto agrees and undertakes that he will not, at any time during the currency of this Agreement and/or a period of 2 years after the Termination Date:

2.1.1    in any capacity whatsoever (including that of a principal, proprietor, agent, partner, representative, shareholder, director, employee, consultant, advisor, financier, demonstrator) directly or indirectly be associated or concerned with or interested or engaged in ant business competing with or entity carrying on a business competing with the Business in the Territory;

2.1.2    directly or indirectly use for his own benefit or that of any other entity, or divulge to any third party and Confidential Information, the Company’s proprietary interest is such information being hereby acknowledged, unless such disclosure is as contemplated in the exclusion to the definition of Confidential Information mentioned in clause 1 hereof, or legally required by law or by the rules of any recognised stock exchange; 

2.1.3    …

2.2     …

2.3     …

2.4     Acknowledgements. The Employee, after due consideration, agrees and acknowledges that:

2.4.1    the Employee has been actively involved in and has been substantially responsible for the historic operations of the Business. The Employee is in and shall come into possession of confidential and sensitive information relating to the Business and the Group;

2.4.2    ...

3.      Territory means the Republic of South Africa and the territory which the Company or any member of the Group has conducted its business at any time during the period of 12 months immediately prior to the Termination Date.’

[13]   What needs to be determined is, therefore, the effect of adding ‘t/a GLACIER DOORS SYSTEMS’ in the heading of restraint agreement to the parties’ rights and obligations. This entails an apt construction of the provisions of restraint agreement.[5]

[14]   In Kilburn v Tuning Fork (Pty) Ltd,[6] confronted with a similar question of inclusion of trading name in the heading of a contract, albeit in a deed of suretyship, enquired as to what was intended by the inclusion of that particular trading name. It was pertinently stated that:

‘In dealing with the first contention, Tuning Forks relied on a dictum of Cloete JA in Sentinel Mining Industry Retirement Fund & another v WAZ Props (Pty) Ltd & another 2013 (3) SA 132 (SCA) para 10, where he said, ‘. . . where a heading conflicts with the body of the contract, it must be the body of the contract which prevails because the parties' intention is more likely to appear from the provisions they have spelt out than from an abbreviation they have chosen to identify the effect of those provisions’. Cloete JA went on to say, however, that ‘. . . where the heading and the detailed provisions can be read together, that should be done. And in the present case, they can.’ They can also be read together in the present matter. The apparent conflict between the heading and the detailed provisions of the deed of suretyship disappears when they are read together.’[7] (Emphasis added)

[15]   The first challenge facing the respondents is that the first respondent readily concedes that in 2017 the applicant changed its name from Glacier Door Systems (Pty) Limited to CGIS Refrigeration Group (Pty) Limited and as a result both Glacier Doors and Insulated Structures became the trading divisions of the applicant. The assertion that the restraint agreement is limited to Glacier Doors accordingly begs a question about the rationale of even concluding in a new one when the old restraint agreement that was concluded between the first respondent and Glacier Doors could have sufficed.

[16]   Secondly, use of the trading name may not necessarily define the makeup of the contract between the parties. That is established by the rights and obligations which constitute the contract. Nevertheless, the use by the parties in their contract of the trading name or tag might be a factor which influences the interpretation of their rights and obligations. In the present instance, it is apparent from the body of the restraint agreement that it protects the proprietary interest of the Business and the Group, a fact acknowledged by the first respondent.

[17]   Nothing much turns on the fact that the word ‘Group’ is not defined. The first respondent concedes that, as the National Sales and Marketing Manager of Glacier Doors, he was a member of the applicant’s management committee (MANCO) since 2017. As result, he participated in MANCO meetings where important operational decisions concerning the applicant’s business divisions were taken and was exposed to the full extent of the applicant’s confidential information. That, to my mind, is a compelling indication that the applicant proprietary interests vest with the applicant in respect of both divisions and the restraint agreement seeks to protects both. Since the heading is obviously in conflict with the body of the restraint agreement, the body must prevails.[8]

[18]   In the alternative, the first respondent seeks rectification of the restraint agreement to limit it to Glacier Doors. Tritely, ‘[a] party is entitled to rectification of a written agreement which, through common mistake incorrectly records the agreement which they intended to express in the written agreement’[9]. Yet, in the present instance, the first respondent failed to show that the restraint agreement incorrectly recorded the true intention of the parties.

[19]   Ms Oosthuysen, equally failed to identify any mistake in the drafting of the document she claimed to have authored. In any event, Ms Oosthuysen does not proffer any explanation for the fact that, despite her allegation that the two divisions operated autonomously, the first respondent was a member of the applicant’s MANCO and he concedes that operational decisions were taken in relation to both divisions and confidential information communicated.

[20]   It is also of no consequence that Mr Torlutter did not dispute first respondent’s allegations that the restraint agreement is limited to Glacier Doors. As pointed out above, the body of the restraint agreement and the conduct of the parties strongly suggests that the parties never had in mind that the restraint be limited to Glacier Doors. It is also instructive that rectification was never mentioned in correspondence from the respondents’ attorneys that preceded this application.

[21]   Nevertheless, even if the rectification were to be upheld, as submitted by the applicant, the first respondent would still be in breach of the restraint agreement as he has taken up employment with the second respondent, a direct competitor of the applicant. Tellingly, the first respondent has already disclosed the applicant’s confidential information to the second respondent; and he is upfront about his intention to approach the same customers he serviced while in the employ of the applicant.

[22]   Accordingly, it cannot be said that the applicant’s ‘allegations or denials of the facts relevant to the aspect of rectification are so far-fetched or clearly untenable that the court would be justified in rejecting them merely on the papers. Applying the Plascon-Evans rule, it is thus clear that the papers before the court do not establish the essentials of rectification’[10].

[23]   By the same token, section 197 of the LRA finds no application in this matter as Glacier Doors underwent a name change and amalgamated with Insulated Structures. The analysis in Sanlic House of Locks (Pty) Ltd v Strydom Johannes Theodorus[11] affords no assistance, even by analogy, in the light of the finding above that the impugn on the applicant’s locus standi to enforce the restraint agreement is untenable.

Customer connection

[24]   The applicant contends that the customers of the two divisions are the same and tenders will very often include items for which both divisions will quote, a fact the first respondent does not seriously dispute. As mentioned above, it is clear ex facie the restraint agreement that it aims to provide protection to the applicant and not only to its Glacier Doors division.

[25]   It is of little comfort to the applicant that the first respondent, who has joined its competitor, will be selling different products in the form of retail cabinets only as the applicant also trades in retail cabinets. In fact, there is a glaring overlap between the businesses of the applicant’s divisions. Insulated Structures manufactures, supplies and provides installation of panels used in refrigeration cabinets and the manufacture of cabinets for cold rooms and the design and manufacture of cold rooms and freezer rooms. While Glacier Doors manufactures and provides specialist products such as glass processing, shelving, glass doors, insulated panels for cold rooms, polyurethane metal and sandwich based panels and the design and manufacture of cold and freezer rooms.

[26]   In an attempt to fortify his contention for the rectification, the first respondent and Ms Oosthuysen were adamant that the two divisions even compete for the same customers. It must then follow that the second respondent’s Concord division is a direct competitor of both of the applicant’s divisions, and pertinently Insulated Structures. The distinction that the respondents seek to draw between the applicant’s divisions is not only artificial, but will benefit the second respondent and its Concord division. Besides, the first respondent is unequivocal about his intention to approach the same customers which he had previously dealt with on behalf of the applicant’s Glacier Doors Division to market and sell the products of the second respondent’s Concord division. He is resolute to do so notwithstanding his concession that he was introduced to these customers and was able to build connections with them because of this employment by the applicant.[12]

[27]   In Medtronic (Africa) Proprietary Limtied v Cawood and Another,[13] this Court, per Prinsloo J, rejected the similar defence as mooted by the first respondent. Prinsloo J precisely opined that the ability to forge relationships and build customer connections is the critical factor and it is not dependent on the type of the products that is sold. As a result the employer is contractually entitled to an opportunity for employee’s replacement to develop an equivalent relationship with the relevant customers.[14]

[28]   Likewise, in the present instance, the type of product that the first respondent sold is immaterial as the issue is about the relationship forged and customer connections which are protectable interests he intends exploit for the benefit of the second respondent. Obviously, the respondents’ submission that, by comparison, the restraint agreement is tantamount to restraining an employee that marketed and sold eggs for an egg farmer to a supermarket, from becoming employed by a beef farmer selling meat to the same supermarket is misplaced.

Confidential information

[29]   The respondents do not necessarily dispute that the third respondent had access to the applicant’s confidential information in respect of both its divisions, which include the business strategies, financial statements, pricing information, customer list which was during MANCO meetings.

[30]   In Labournet (Pty) Ltd v Jankielsohn and Another, [15] the Labour Appeal Court (LAC) stated that ‘It is well-accepted that for information to be confidential ‘it must (a) be capable of being applicable in trade or industry, that is, it must be useful; not be public knowledge and property; and (b) it must be known only to a restricted number of people or a closed circle, and (c) be of economic value to the person seeking to protect it’.

[31]   Even though the first respondent tried to make light of the value of the confidential information he was exposed to, it cannot not be gainsaid that the pricing information, financial statements, business strategies have economic value to the applicant, not public knowledge and would be useful to the competitor.

[32]   In my view, the undertaking given by the second respondent that it is not interested and would not make use of the applicant’s confidential information is an outward show. The first respondent has already made known where his loyalty lies as he did not hesitate to disclose the applicant’s confidential information in a form its profit mark up in his answering affidavit.

[33]   Besides, since it clear that the second respondent is a direct competitor of the applicant, the risk of harm to the applicant given the fact that the first respondent has taken up employment with its competitor is obvious. In Reddy v Siemens Telecommunications (Pty) Ltd[16], this point was expounded as follows:

‘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.’

[34]   It is well accepted that the very purpose of the restraint agreement is that the applicant does not wish to have to rely on the bona fides or lack of retained knowledge on the part of the first respondent insofar as the applicant’s confidential information is concerned.[17] The applicant is enforcing the bargain it has obtained to protect itself which in turn entails that it does not have to cross its fingers and hope that the respondents would act honourably or abide by the undertakings that they have given.[18]

[35   Also, there are no facts to support the allegation that the first respondent was unfairly targeted as other erstwhile employees were not subjected to restraint agreements. This allegation is untenable since the first respondent concedes that he was part of MANCO and was accordingly exposed to more confidential information than the other employees and built up substantial customer connections which the applicant is entitled to protect.

Whether the applicant’s interest weighs up qualitatively and quantitatively against the interest the first respondent in order to avoid a situation where the first respondent is economically inactive and unproductive

[36]   There is nothing tangible before me to support the first respondent’s assertion that the enforcement of the restraint agreement will prevent him from remaining economically active despite the fact that the onus was on him. That is so notwithstanding the fact that he had been employed in another industry before and failure to disclose reasons why he cannot secure employment in any other or related industry that does not compete with the applicant.

[37]   The applicant claims that it needs 18 months to re-establish customer connections without providing explanation why it would need that time period to develop new customer relationships. The respondents takes issue with time period and contend that, since the applicant served the same customers through both divisions for years, all it needs to do is to introduce the new Sales Manager to the customers which, who has already been appointed. Also that the confidential information used to market and sell the applicant’s products is normally updated in monthly basis. These contentions are not seriously disputed.

[38]   In Advtech Resourcing v Kuhn,[19] referred to by the respondents, Davis J, endorsed the notion that a Court is not required to rewrite or trim an unreasonable restraint that is formulated in manner that ‘it would require major plastic surgery, in the form of a drastic recasting of its provisions, to make it reasonable’. However, that notion was not rejected by Wallis AJ (as he then was) in Den Braven SA (Pty) Limited v Pillay and Another,[20] referred to by the applicant, where had the following to say in support of a partial enforcement of a restraint despite the document being phrased in liberal terms:

‘It follows that for those reasons I find myself in respectful disagreement with the views of Davis J in Advtech and with any views to similar effect expressed in the cases referred to in footnote 50 of this judgment. In doing so I do not necessarily criticise the results of those cases many of which turned upon the absence of any protectable interest vested in the applicant. That is an entirely different question. I confine my remarks to the question whether a restraint of trade agreement that is too broad in its terms can on those grounds be held to be contrary to public policy and unenforceable in circumstances where, within the four corners of the agreement, there are restraints clearly spelt out which are reasonable in nature and which are the only restraints that the court is asked to enforce. In my judgment in that situation the court should in accordance with binding precedent grant relief to the applicant. There is no basis in law for it refusing to do so by holding the entire agreement to be unenforceable on the grounds of public policy. Such a finding is in my view contrary to the law as first articulated by Botha J in National Chemsearch v Borrowman, supra and endorsed by the Appellate Division (as it then was) in Magna Alloys and by the Supreme Court of Appeal in a number of subsequent cases, of which Reddy v Siemens Telecommunications is the most recent. It is not appropriate in those circumstances to seek to apply the principles of severability applicable in other contractual situations as laid down in cases such as Sasfin v Beukes, supra. (Emphasis added)

[39]    Of course, the period of the restraint should not be any longer than is necessary to afford the applicant an opportunity to acquaint the first respondent’s replacement with its products and customers and sever the ties between its customers and the first respondent as the point of contact. In the light of the nature of the applicant’s nature of the business, products and clientele, I am of the view that 18 months is excessive. Likewise, the four months period suggested by the respondents is inadequate. To my mind, a period of 8 months should suffice for those purposes and to commence from 31 July 2021, the first respondent’s date of resignation.

Conclusion

[40]   In all the circumstances, the restraint sought is reasonable and the requirements for the grant of a final interdict have been met.[21] The applicant successfully demonstrated that it has a clear right which has since been breached (an injury actually committed) and that there is no other appropriate remedy than to hold the first respondent to his contractual undertakings.

Costs

[41]   Both parties pursued costs and there is no reason why costs should not follow the result. The first respondent shall pay the applicant’s costs in relation to the application for rectification. The first and second respondents shall pay the applicant’s costs, jointly and severally, the one paying the other to be absolved in respect of the main application.

[42]   In the circumstances, I make the following order:

Order

1.      This application is heard as one of urgency and the applicant’s failure to comply with the normal time periods is condoned.

2.      The first respondent’s application for rectification is dismissed with costs.

3.      The first respondent is hereby interdicted and restrained for a period of eight (8) months, calculated with effect from 31 July 2021, from:

3.1    assuming and/or continuing employment with the second respondent and from rendering services to the second respondent as an employee or in any like capacity;

3.2    directly or indirectly in any capacity whatsoever (including that of principal, proprietor, agent, partner, representative, shareholder, director, employee, consultant, adviser, financier, demonstrator) being associated or concerned with or otherwise interested or engaged in any business competing with the applicant in the Republic of South Africa;

3.3    directly or indirectly using for his own benefit or for that of any other entity, or divulging to any third party any confidential information that belongs to the applicant;

3.4    soliciting a customer or client of the applicant who was in the period of 12 months prior to 31 July 2021 a customer or client of the applicant whether for the first respondent’s benefit or that of a third party or to induce any such customer or client to cease doing business with the applicant.

4.      The first and second respondents shall pay the costs of this application jointly and severally in solidum the one paying the other to be absolved.

P Nkutha-Nkontwana

Judge of the Labour Court of South Africa

Appearances

For the Applicant:            Advocate C Bester

Instructed by:                  Flaxmans Inc.

For the Respondent:       Advocate J Marais SC

Instructed by:                  Norton Rose Fulbright SA Inc.

 

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