|
|
[Home]
[Databases]
[WorldLII]
[Search]
[Feedback]
South Africa: Supreme Court of Appeal |
[Database Search] [Name Search] [Recent Decisions] [Noteup] [Help]
CG CASE NUMBER: 152/92
IN THE SUPREME COURT OF SOUTH AFRICA (APPELLATE DIVISION)
In the matter between:
ELCENTRE GROUP HOLDINGS LIMITED First Appellant
ELCENTRE
CORPORATION LIMITED Second Appellant
VOLTEX HOLDINGS
LIMITED Third Appellant
VOLTEX (PROPRIETARY)
LIMITED Fourth Appellant
MULTILECTRONIC (PROPRIETARY)
LIMITED Fifth Appellant
and
JEREMIAH LIONEL BATTISS First Respondent
THELMA ANN
BATTISS Second Respondent
INTERNATIONAL CABLES CC Third Respondent
CORAM: CORBETT CJ, HEFER, NIENABER, VAN DEN HEEVER JJA et KANNEMEYER AJA
HEARD ON: 14 SEPTEMBER 1993
DELIVERED ON: 28-09-93
JUDGMENT VAN DEN HEEVER JA
2
The issue in this matter is one of language rather than law, namely the
interpretation to be placed on a restraint of trade provision
in a lengthy and
detailed document ("the contract") by which the second appellant ("Elcentre")
took over three companies, along with
the services of their four directors for a
period envisaged as being a minimum of three years.
The companies were JLB
Investments (Pty) Ltd ("JLB") and two trading companies: Atlas Cable Supplies
(Pty) Ltd ("Atlas") and Association
Cables (Pty) Ltd ("Association"). The
directors, referred to in the contract as "the executives", were first and
second respondents
who are husband and wife, and Messrs M S L Rall and E R Read.
Rall owned 20% of the issued shares in Association. First and second
respondents
between them held the rest of the shares in Association as well as all the
issued shares in JLB and Atlas. The take-over
by Elcentre was effected through
the purchase of the shareholding of the companies, along with
3 whatever
claims the sellers had against them as at 1 March 1987. The purchase price was
approximately ten million rand, adjustable
depending on certain contingencies,
for tangible assets and book debts estimated in the contract to be worth about
eight million
rand. We do not know what the value of the sellers' claims against
the companies amounted to, nor did the contract place any separate
value on
goodwill. Read who had no shares to sell was also a party to the contract,
receiving a consideration for undertaking the
same obligations and agreeing to
be bound by the same restraints as the sellers. All the executives received only
a small proportion
of the consideration due to him or her in cash. The balance
consisted of 200 cent shares in Elcentre, three quarters of those in
turn to be
issued to first appellant ("Elgro") of which Elcentre is a subsidiary, and Elgro
undertaking in consideration therefor
to issue twice as many 100 cent Elgro
shares. The board of directors of each of the companies was to
4 be
reconstituted according to Elcentre's directions but
the executives were to
remain on as directors for as
long as each was in the employ of the relevant company.
Each was obliged,
simultaneously with signing the
contract, to enter into a service contract
with Atlas or
Association.
The specimen service contract annexed to the
(main) contract provided that it was to continue
indefinitely subject to three months' written notice,
but no notice could
be given by the executive in
question to obtain his release sooner than three years
after the deemed service commencement date, namely 1
July 1987. The executive was bound to discharge his
duties in the cable and wire distribution and electrical
wholesaling
fields, using his best endeavours
"to promote and extend the business of the
company and its subsidiaries and fellow
subsidiaries for the time being ("the
Group")".
Atlas and Association were entitled to transfer their
5 rights and
obligations as employers to Elcentre or any subsidiary for the time being of
that company, subject to qualifications
which are irrelevant to the issue to be
determined, as are the other clauses of the service contract.
The contract
not only obliged the executives to serve what now became the Elcentre group of
companies for this minimum period, but
imposed two forms of restraint upon them.
The first relates to the disposal of any of the Elcentre shares each executive
received
as the major part of his or her consideration. This was totally
prohibited for a year, after which Rall and Read were free to do
so. First and
second respondents were however limited both as to the frequency with which they
could sell shares and the number that
was permitted to be sold on any one
occasion, all the sales being subject to a right of pre-emption in favour of
Elgro. The second
restraint relates to competition with the Elcentre group of
companies and protection of the
6 goodwill of the business of each of its
members. I quote the clauses that have a bearing on this in full:
"11.4 For the purpose of this clause -
11.4.1 'the area' means the Republic of
South Africa
as presently
constituted, Transkei,
Bophuthatswana, Ciskei, Venda,
South
West Africa/Namibia, Botswana,
Swaziland and Lesotho;
11.4.2 a 'competitive business' means an
undertaking of whatever
nature
carrying on business anywhere in the
area in competition with
Atlas,
Association and Elcentre and its
subsidiaries for the time
being
('the Elcentre group') in the
businesses of cable and wire
trading
and electrical wholesaling during
the period of six months ending
as
at the date on which the employment
of the executive concerned by
the
Elcentre group terminates for any
reason.
11.5 ... Each of the sellers undertakes and ... Read undertakes in favour of each of the companies and in favour of each company which forms part of the Elcentre group and their respective successors-in-title and assigns that, for so long as he/she is employed by the Elcentre group and for at least three years thereafter, but for a period in any event aggregating not less than six years reckoned from" (the close of business on 30 June 1987) "he/she
7
shall not be interested, engaged or concerned in any capacity in any competitive business carried on anywhere within the area.
11.8 Each of the executives further undertakes that -
11.8.1 he/she will not during the period of
his/her employment by the Elcentre
group nor during the restraint
period referred to in this clause
11 -
11.8.1.1 persuade, entice, encourage or procure any employee who is in the employ of the Elcentre group to terminate his employment with that group or to take up employment in, render services to or become involved or interested in any business of a competitor of the Elcentre group;
11.8.1.2 solicit, interfere with or entice any person, company or other entity who or which is a customer of or is in the habit of dealing with the Elcentre group to refrain in any way from doing so or to restrict or curtail such business dealings;
11.8.2 he/she will not during the period of his/her employment by the Elcentre group or at any time thereafter divulge or make use of any of the trade secrets of any of the businesses of the Elcentre group;
11.8.3 he/she will not, directly or indirectly, at any time during the aforesaid restraint period employ any employee who was employed by
8
Atlas or Association or any other cable or wire business of the Elcentre group during the twelve month period immediately preceding the date of termination of his/her employment by the Elcentre group."
First and second respondents remained within the group for the obligatory
period during which a number of changes in company structures
and names took
place. Nothing hinges on those. The five appellants are linked in one way or
another and are accepted as being members
of the Elcentre group. First and
second respondents were in the employ of fourth appellant when they gave notice
that 30 June 1990
would be their last working day.
On 19 July 1990 third
respondent was incorporated with first and second respondents as its sole
members. Its main objective and business
is the export and import and sale of
cables. First and second respondents were actively and openly involved in the
management, control
and operation of this business until
9 appellants
obtained an interdict as a matter of urgency in the Witwatersrand Local Division
preventing all three respondents from
continuing that business. The founding
affidavit contains some general allegations possibly suggesting unfair
competition on the
grounds that first and second respondents possess detailed
and intimate knowledge of various aspects of the businesses conducted
by some of
the members of the Elcentre group. The application was however founded squarely
on the restraint of trade condition contained
in clause 11.5 read with 11.4 of
the contract, quoted above. Appellants' attitude was and remains, not that
respondents are trading
outside the bounds of permissible but restricted
competition, but that they may not become involved in the sort of business they
are conducting at all until six years have expired as from the close of business
on 30 June 1987. Respondents in their opposition
to the application made no
bones about their having entered the same field as that tilled by
10
appellants. They adopted and stand by the contention
that they are entitled
to do so within the limits set by
the contract.
Hartzenberg J in an extempore judgment held
that the definition of "competitive business" in clause
11.4 of the
contract is not very elegantly worded; that
it is necessary in order to give business efficacy to
the contract to
accept that what the parties must have
intended, bearing in mind the purchase price agreed, was
not the absurdity
that respondents were prohibited only
from joining any competitor of the
Elcentre group
already in existence during the six months before
the
parting of the ways came, but
"that companies in the applicant group of companies trading with cable and wire and doing electrical wholesaling during the six month period before the respondents' resignation are all to be protected"
against any participation by respondents in the same
sort of business as theirs.
In other words, he held that the adverbial
11
phrase of time contained in the definition of "a
competitive business" relates to the activities, not of
"an undertaking ... carrying on business ... in competition with"
members of the Elcentre group, but to the activities of
"Atlas, Association and Elcentre and its subsidiaries for the time being".
The phrase accordingly determines the identity of the
companies intended
to be protected, and not the identity
of competitors against whom protection
is to be
achieved.
This reasoning ignores the fact that if no
competition whatsoever was to be permissible, it was
unnecessary to
identify the individual components of the
group which were to be protected against competition.
The aim of the clause is to protect all the members of
the group throughout Southern Africa. The prohibition
against trading in the fields mentioned would
automatically continue as long as any member of the
Elcentre group continued to do so in the area. And in
12
the unlikely event of all the members disappearing from the field the
restraint would serve no purpose.
On appeal to the full bench of the
Transvaal Provincial Division Eloff J held, Mc Creath and Van der Merwe JJ
concurring, that the
clause is neither ambiguous nor leads to any absurdity and
that there is no occasion to alter its wording. The order of the court
of first
instance was set aside with costs, including the costs of two
counsel.
Appellants are before us on leave sought and obtained in terms of
section 20(4)(a) read with section 21(2) of Act 59 of 1959.
Clause 11.4.2 and
clause 11.5 are an inelegant pair. Clause 11.5 deals with a restriction against
competition for a period of six
years regardless of whether an executive is
still employed within the Elcentre group or not; yet, on either interpretation
of clause
11.4.2, the definition of "competitive business" seems to be capable
of application only in the case
13 where the employment of the executive
concerned has been terminated. It is irrelevant for present purposes whether
prohibition
is imposed against competition by an executive while still in the
employ of the group, though the service contract would seem to
cater for that.
What has to be determined is what are the limitations placed on the executives
after leaving the employ of the group.
Appellants made much of the fact that
the singular, i.e. the word "business", is used in clause 11.4.2 in that part of
the definition
reading "a 'competitive business' means an undertaking of
whatever nature carrying on business anywhere in the area", as contrasted
with the plural later used in "the businesses -of cable and wire trading
and electrical wholesaling". The reasoning was that the plural of necessity
related to more than one undertaking,
and so did not refer to a competitive
undertaking, but must refer to the companies within the Elcentre group,
which were then qualified by
14
the adverbial phrase of time. There is no merit in this argument. "Carrying
on business" is merely synonymous with "trading". The
use of the plural in "the
businesses of cable and wire trading and electrical wholesaling" is appropriate
to describe different spheres
of operation and does not necessarily connote
different entities indulging in trade.
Appellants' contention would require
the wording of 11.4.2 to be altered. Their counsel suggested that 11.4.2 should
read "carrying
on business ... in competition with Atlas, Association and
Elcentre and its subsidiaries for the time being . . . which have conducted
the" (or perhaps "in their") "businesses of cable and wire trading
and electrical wholesaling during the period of six months ending" etc. There is
however
no absurdity in the contract which requires the wording to be tampered
with, nor does the contract lack business efficacy despite
the fact that its
terms are perhaps somewhat unusual in that a competitive business is
15
customarily one identified by its present activities rather than what it did
before the date on which an ex-employee is forbidden expressis verbis to
join it. On appellants' contention the provisions of clause 11.8.1
would become
totally redundant. I can think of no reason why the activities listed there
should be forbidden to first and second
respondents unless what in fact came
about had been contemplated by Elcentre at the time of contracting as a real and
permissible
possibility: that respondents on leaving the Elcentre group might
wish to set up on their own again in the field they knew well.
Clause 11.8.3
also indicates that that must have been envisaged, hence a lengthy twelve month
quarantine period was laid down before
respondents could engage someone formerly
in the employ of the group, ex abundanti cautela, to protect the goodwill of the
businesses
within the group. I say ex abundanti cautela since, because of the
way the contract was structured, respondents' interests would
run parallel
16
with those of the Elcentre group at least until they had disposed of all their
shares. They must have each still owned close on
two million of those, which
would take a considerable time to dispose of, when their period of compulsory
bondage came to an end.
As I have said, a "competitive business" would
perhaps usually be identified according to its activities at the time an
ex-employee
to be restrained seeks to join such opponent rather than by
reference to its trading activities for a period before such event. There
is
however nothing bizarre in the notion of using a time frame immediately
preceding an executive's so leaving the group for purposes
of identifying those
who fall within the class of established competitors one of which might be
dangerously strengthened were the
executive to join forces with it. Use of that
particular time frame in relation to the members of the group to be protected is
bizarre
since there was no suggestion of any practical purpose it might
serve.
17
In short, I agree with the tenor of the
paraphrase of the clause read as it has to be in the
context of the
contract as a whole, offered on behalf of
respondents. In the contract appellants were saying
on behalf of each member of the group something like
this:
"When you leave the group you may enter the field again, but only on the basis that you do not strengthen my existing competitors or take away my employees or existing customers or suppliers and so damage my business."
The appeal is dismissed with costs, to include
the costs of two counsel.
L VAN DEN HEEVER JA
Concur:
CORBETT CJ) HEFER JA) NIENABER JA) KANNEMEYER AJA)
SAFLII:
|
Terms of Use
|
Feedback
URL: http://www.saflii.org/za/cases/ZASCA/1993/143.html
.PDF of original document
.RTF of original document