---

Not Reportable

IN THE HIGH COURT OF SOUTH AFRICA

EASTERN CAPE – GRAHAMSTOWN

Case No: 1368/2011

Date Heard: 18/08/2011

Date Delivered: 7/10/2011

In the matter between

DISTINTIVE CHOICE 780 CC t/a

MULTI SECURITY …................................................................Applicant

and

EDWARD JOSEPH PRESTON ….....................................First Respondent

JOSUA HERMANUS JOUBERT …................................Second Respondent

COPPER EAGLE TRADING 295 CC

t/a COPPER EAGLE …..................................................Third Respondent

JUDGMENT

REVELAS J

[1] The applicant is a registered security and armed response provider. It operates within the Ndlambe municipal area, which includes Port Alfred, Bathurst, Kleinemonde, Kasouga, the surrounding rural and farming communities, servicing approximately 2500 customers.

[2] The applicant seeks an interdict restraining the first and second respondents from being engaged in, directly or indirectly, in any firm or business which carries on a business similar to that of the applicant, for a period of two years from differing dates and geographical areas. In addition the applicant seeks to prevent these two respondents from utilising, directly or indirectly, for their own benefit or for the benefit of any other person, any trade secrets or confidential information by the applicant or any information concerning the marketing, customer base and product information pertaining to the applicant.

[3] The first and second respondents are former employees of the applicant and are currently employed by and/or are members and owners of the third respondent, also a security service provider and installer of alarm systems, who is cited insofar as it may have an interest in the proceedings. Since it did not oppose the application, the applicant seeks no relief against the third respondent.

[4] The principal place of business the third respondent (“Copper Eagle”) is Grahamstown. The interdicts sought against both the first and second respondents are based in contract which provides for a restraint of trade, and which came about in the circumstances set out below:

[5] The first respondent (“Preston”) owned his own security business, also a close corporation (“Access Security”) which ceased operations at some point before March 2010, when he began to work for the applicant as its operational manager. It is common cause that the contract of employment which contains a restraint of trade clause (clause 27) was not signed by Preston, who simply says he refused to sign it but does not elaborate on the reasons for his refusal. According to the applicant, the document was not signed because of a delay in the deregistration proceedings of Access Security.

[6] There was also another contract which was signed by Preston. This was an agreement of sale, in terms whereof the applicant purchased Access Security for R450 000.00. The agreement of sale was entered into between the applicant and Access Security and signed by Preston on 15 July 2010. Clause 12 of the agreement of sale was a restraint of trade clause. It provides that the seller (Access Security), or any of its members or employees (which of course would include Preston), may not to be engaged directly or indirectly and in whatever capacity in any firm, company, or business or enterprise which carries on a business similar to “the Business” within a 60 (sixty) kilometre range from Port Alfred, measured by road, for a period of five years after the date of signature (15 July). Under “Definitions”, “the Business” is defined as the business “of a security service provider comprising of 250 customer contracts, monitoring equipment and alarm systems at the premises of the customers”. The applicant relies on both restraint clauses in respect of Preston, i.e. the contract’s of sale and his employment contract. On 29 October 2010 the agreement of sale was varied. The variation was in respect of the total number of customer products and the actual purchase price.

[7] Before commencing employment with the applicant, Joubert was also the sole member of Copper Eagle, which he de-registered when he started working for the applicant. Joubert was employed by the applicant during 2009 as a technician in its security operational area. He was also presented with a similar contract of employment as Preston, which he signed on 23 April 2010, and which became effective 1 May 2010. Clause 27 of the employment contract is the restraint of trade clause relied on by the applicant prohibiting Joubert from opening, being involved in, working for, or consulting for a “similar type of business for a period of two years from the date of terminating this employment contract within the Port Alfred Area”. Clause 22 of the agreement is a confidentiality clause in the wording of the second part of the interdict sought against the first two respondents.

[8] The contract of employment which the applicant contends pertained to Preston, also contained in it clauses 22 and 27 respectively, a confidentiality clause and a restraint of trade clause. In Preston’s case, the areas in which he may not do a similar type of business for two years from the date of terminating the agreement, is the Port Elizabeth and Grahamstown area.

[9] Clinton Millard (“Millard”), who deposed to the founding affidavit, stated that even though the agreement was not signed by Preston, he accepted its terms. On the probabilities, this seems to be correct because Preston does not explain why some of the material terms of the contract were clearly accepted by him, nor did he specify ones were not applicable to him.

[10] The confidentiality clause (clause 22) in the employment contract prevented employees of the applicant (which the applicant contends was Preston and Joubert) from disclosing, use for someone else’s and their own benefit, either during or after the termination of the agreement, any confidential information relating to the applicants business. The confidentiality clause pertained to, but was not limited to, trade secrets, data, reports, systems, marketing, contracts, customer information source and costs of products purchased, financial information, technical knowhow and programs.

[11] On 8 September 2010, Preston resigned, giving a months’ notice (as required by the agreement he did not sign) with effect from 31 October 2010. Joubert left in July 2010 after his resignation, and re-registered Copper Eagle as a close corporation and commenced business in Grahamstown.

[12] According to Millard’s replying affidavit Joubert, Preston and a third party are the current owners of Copper Trading. Preston stated in his answering affidavit that he was only an employee. Attached to Millard’s replying affidavit was an invoice submitted by Preston for work performed by him in Port Alfred, for a client. The payment was to be paid into Preston’s bank account, and the invoice slip was a Copper Eagle invoice.

[13] Preston took issue with the 80 km radius referred to in the applicant’s notice of motion and pointed out that the restraint of trade clause in the agreement of sale applies to a 60km radius and Copper Eagle is based in Grahamstown which is more than 60km by road from Port Alfred. He concluded that it was never intended, nor does the agreement have the effect that the area of the restraint of trade extents to Grahamstown. Preston denied that he was ever employed as the applicant’s manager of operations in Bathurst. He stated that his employment was restricted to Kleinemonde and in support thereof relied on the fact that he never signed the employment agreement, which indeed provides that he would be employed in Bathurst as well as the Kleinemonde area (clause 2). It was accepted by all concerned during argument that the interdict refers to a radius of 60 kilometres and would not extend to Grahamstown.

[14] The applicant is of the view that during their time spent with the applicant, Preston and Joubert acquired personal knowledge of, and influence over the applicant’s customer, sufficient to enable them to take advantage of the customer connections and compete with the applicant, if permitted. Preston disputes this and argues that any customer connection, if it ever existed, has long since faded. The applicant avers that Joubert and Preston had access to its customer database and had became privy to a substantial amount of information of a proprietary nature and built up significant relationships with its customers. Preston denied having any access to the applicant’s computer database or that he was privy to any information of a proprietary nature. He stated that he only had access to the database for communication with existing customers (of the applicant).

[15] The applicant argues that since Preston and Joubert operate as security and armed response providers in the Ndlambe municipal area, they are in breach of their contracts of employment, and in particular their restraint of trade agreements.

[16] According to the applicant these two respondents have also taken to luring staff away from the applicant to join Copper Eagle. Audrey Oosthuizen, a security officer employed by the applicant, deposed to an affidavit wherein she confirmed that she was approached by Preston and someone called Nicolette Daniëls and offered employment with Copper Eagle. Similarly, a Ms Dewey and Ms Forbes, both employed by the applicant, deposed to affidavits stating that they had been approached by Preston who offered them employment with Copper Eagle. This evidence was not placed in dispute. According to Millard, on 8 December 2010, one of the applicant’s security guards (Mr Sokuntsa) told him that he was approached by Preston to join Copper Eagle and he accepted the offer and commenced employment there in January 2011. In support of these allegations, he attached photographs to his affidavit which depicts the house of this security guard (Sokuntsa) in Bathurst with the advertisement sign of Copper Eagle attached to the fence of Sokuntsa’s property. According to Preston, Sokuntsa was unhappy at the applicant and approached Preston for a position at Copper Eagle.

[17] There was another contract which was highly relevant to this application, and that was a sub-contract entered into by the applicant and Copper Eagle. It was signed a month after Joubert and Preston had left the applicant’s services. In terms of this agreement, Copper Eagle as “a registered Technical Business responsible for the Installation of Security, Burglar Alarms Systems and Associated Components” undertook to install new burglar alarms at all the applicant’s newly acquired customers and also attend to service calls and jobs of the customers concerned. The contract provided that all work must be instructed and directed through the applicant’s technical services department and that the “Sub-Contractor (sic) will not be allowed to liaise or have any direct contract with any of the [applicant’s] customers”.

[18] The contract also makes provision for a confidentiality clause and outlaws providing the same service to competitors in the Ndlambe municipal area. The applicant explained the following about the sub-contractor’s agreement: Preston and Joubert were qualified security technicians and they both undertook not to compete with the applicant before the latter entered into the sub-contractor’s agreement with Copper Eagle, which was viewed by all parties concerned as beneficial to them. It allowed the applicant the time to train and employ qualified technicians to fill the void left in that regard by their departure and Joubert and Preston could then generate income to fund their Grahamstown operation.

[19] The primary question to decide in this application is whether the applicant can establish a breach of a valid restraint of trade in respect of both Preston and Joubert.

THE APPLICABLE PRINCIPLES

[20] In Magna Alloys and Research (SA) (Pty) Ltd v Ellis [1984] ZASCA 116; 1984 (4) SA 874 (A) at 898 A-B, it was held that agreements in restraint of trade were prima facie valid and enforceable unless they are unreasonable and therefore contrary to public policy, which, because of their common-law validity has the result that the party challenging the enforceability of the agreement, also bears the onus of alleging and proving its unreasonableness. In other words, the party seeking to escape the restraint bears that onus. (See: Reddy v Siemens Telecommunications (Pty) Ltd 2007 (2) SA 486 (SCA) at paragraph [10]).

[21] In the aforesaid judgment, Malan AJA (as he then was) held that in determining what a reasonable restraint is, the court has to make a value judgment with due regard to two principal policy considerations, the first being that parties should comply with their contractual obligations and the second being that it is in the best interests of society if all persons be permitted to carry on their trades and business and engage in commerce or the professions. It was also emphasized that a restraint would also be unenforceable if it prevents a party from participating in trade, commence or the professions “without a corresponding interest of the other party deserving of protection” (at paragraphs [15-16]). (See also: Automotive Tooling Systems (Pty) Ltd v Wilkens and Others 2007 (2) SA 271 (SCA) at 277 G). A restraint will also be considered unreasonable and contrary to public policy if it merely seeks to exclude or eliminate competition (See: Basson v Chilwan and Others [1993] ZASCA 61; 1993 (3) SA 742 (A) at 767 D-F.

[22] Where the competition complained of involves use of confidential information, the party seeking enforcement of a confidentiality clause must show that it has an interest in the confidential information; that the information is confidential; a relationship must exist between the parties which imposes the duty on one of them to keep the information in confidence, for example the relationship of an employer and employee, or a competitor who has obtained information inappropriately; the confidential nature of the information and its value must be known to the party who is expected to preserve it. The knowledge can be express or implied and the improper use must have been made of that information, whether as a springboard or otherwise. (See: Van Castricum v Theunissen and Another 1993 (2) SA 726 (TPD) at 730 D-G). The aforesaid principles have been restated recently in this Division by Roberson J in van der Merwe and Others v van Rensburg, under case No 2654/2010 dated 22 November 2010 (unreported) at paragraphs [9]-[10].

[23] In order to succeed, the applicant also had to establish the three prerequisites set in Setlogelo v Setlogelo 1914 AD 221 at 227, namely a clear right, an act of interference, and that there exists no other remedy than the one sought. The applicant must therefore prove on a balance of probabilities the right which it seeks to protect (Nienaber v Stuckey 1946 AD 1049 at 1053-1054; de Villiers v Soetsane 1975 (1) SA 360 E at 362); it must establish an act on the part of the first two respondents showing interference with the exercise of its clear right, alternatively a well founded apprehension that the acts complained of will be committed by the aforesaid respondents (See: Bok v The Transvaal Gold Exploration and Land Company (1883) SAR 75 at 76); the interference or threat to the right must be continuous and not an incident restricted only to the past (See: Phillip Morris Incorporated and Another v Marlboro Shirt Company SA Ltd and Another 1991 (2) 720 A at 735 B and Stauffer Chemical Products Division of Chesebrough Ponds (Pty) Ltd v Monsanto Company 1988 (1) SA 805 (T) at 809 F).

DISCUSSION

[24] The provisions of clause 12 of the agreement of sale are clearly applicable to Preston who appended his signature to that agreement. At that time he was the owner and sole member of Access Security and in terms of this clause he, as a member agreed not to be engaged in, directly or indirectly, in a business which carries on similar businesses, within a sixty kilometre radius of Port Alfred measured by road for a period of five years after the date of signature of that agreement which was 15 July 2010.

[25] Clause 27 of the contract of employment between Joubert and the applicant and Preston and the applicant similarly constitute restraints of trade. These restraint clauses, including clause 12 in the agreement of sale, have not been shown to be unreasonable and therefore they are valid. The respondents did not seriously challenge the reasonableness of the abovementioned restraints but rather focussed their opposition to the relief sought on the applicant’s assertion that these restraint clauses were breached.

[26] There are some significant facts which are common cause or not in dispute, upon which one can come to a determination of the issues on the papers as they stand. The denials by the respondents do not raise any real dispute of fact and some may be roundly rejected as not being bona fide disputes of fact.

[27] Joubert avers that he conducts business as sole member of Copper Eagle in Grahamstown and added that inasmuch as he conducts business in Port Alfred, he does so in terms of the sub-contractor’s agreement concluded between the Copper Eagle and the applicant in August 2010. In his answering affidavit Joubert denied that he was “conducting any business in Ndlambe via Third Respondent or otherwise, in competition with Applicant in Port Alfred”.

[28] Preston disputed Millard’s statement that the applicant’s control room operator’s and the two of them had unlimited access to the applicant’s software monitoring system, which program contained all information about clients and the history of specific systems. Joubert and Preston, according to Millard were also privy to the master code of all the applicant’s installed alarm systems which would enable them to manipulate, override and reprogram systems without detection by the operating software. Attached to its replying affidavit was a second affidavit deposed to by Audrey Oosthuizen wherein she stated that Preston had asked her recently to “confirm that the master code used by Multi Security had not been changed by them recently”. The code would enable them to enter any premises and reprogram the code without detection.

[29] Joubert’s statement that he did not perform any security work in the area of the Ndlambe municipal area, other than installations in terms of the sub-contractors agreement, was disputed by Millard in his replying affidavit. He attached to affidavits by a Mr Hains (“Hains”) and a Mr Hanly (“Hanly”), both from Port Alfred. Hains obtained a quotation for the installation of a new burglar alarm system from Joubert, and paid the money due after installation into Jouberts account. However the applicant attends to the monitoring of the alarm. Hanly said he needed a new alarm system to be installed and contacted Preston, who submitted a quotation and installed the new alarm system. This illustrates that both Joubert and Preston had direct contact with the applicant’s customers in breach of sub-contractor’s agreement. In the founding affidavit, Millard stated that a Mr de Klerk, one of the applicant’s employees attended a service call for Hains and could not program the alarm system. Joubert denied that he would not give de Klerk the applicable manual as alleged by Millard. Jouberts suggestion that the latter could easily have programmed the latter was refuted by Millard, who explained that the applicant’s equipment was different from Copper Eagles’. What is also not denied, is that Copper Eagle had installed the alarm.

[30] Neither of the first two respondents, save for a denial, have actually dealt with the question of poaching the applicant’s staff and I am compelled to accept that this had occurred.

[31] The applicant was able to provide proof of two instances of alarm systems being installed by Preston at two of its clients in Port Alfred, for which the applicant was not invoiced. Joubert’s denial that he met with prospective clients when he installed the alarms is therefore disingenuous.

[32] The applicant has in my view, sufficiently demonstrated that its protectable interests are at risk while Preston and Joubert act contrary to their restraint agreements. In response to the applicant’s letter requesting the respondents to desist from poaching its staff and customers, both Preston and Joubert denied any breach of their restraint of trade agreements and threatened with a damages claim for breaching “material terms of the agreement”.

[33] Preston simply relied on his allegation that he was only an employee of Copper Eagle and not a member, did not sign the contract of employment, and accordingly that the applicant has no contractual rights to the relief he seeks against him.

[34] The applicant disputed that by concluding the sub-contractor’s contract with Copper Eagle, it had thereby waived any of its rights pertaining to restraint conditions applicable to Joubert and Preston, and argues that the restraint was further amplified by the clauses in the sub-contractor’s contract. By concluding the sub-contract, Copper Eagle has limited its right to carry on business in competition with the applicant. There is also a presumption against any waiver and since the parties to the sub-contract and the parties to the employment contracts are not the same, there can accordingly be no waiver of rights (of restraint) by the applicant in respect of Joubert and Preston personally, apart from the trite requirement that a waiver must be unequivocal.

[35] On these papers, the disputes of fact raised in the answering affidavits are not bona fide and have been exposed as unreliable in the replying affidavit. Accordingly, it can be accepted that Preston and the Joubert do conduct business in the Ndlambe municipal area in completion with the applicant, and in breach of the restraint clauses. Furthermore it also has to be accepted that both Preston and Joubert (even in his position as technician) acquired an influence over the applicant’s customers. The aforesaid conduct is also in breach of the confidentiality clauses in the contracts of employment for the same reasons as set out above.

[36] Finally, I conclude that the applicant has demonstrated a clear contractual right, a protectable interest worthy of protection, and the conduct of the first two respondents infringed those contractual rights which are enforceable. Therefore the applicant is entitled to the relied sought in the notice of motion, save for the 80 kilometre radius which must be 60 kilometres, and the reference to Grahamstown. There is no reason why a punitive costs order must be made against any of the respondents and this request was not pursued with much enthusiasm during argument.

[37] I make the following order:

1. The first respondent is hereby interdicted and restrained, as from 16 July 2010, for a period of five years, not to be interested in or engaged in, whether directly or indirectly, and in whatever capacity, in any firm, company, business, or enterprise which carries on a business similar to the applicants business, including the third respondent, within a 60 kilometre radius from Port Alfred.

2. The first respondent is further interdicted and restrained, as from 1 October 2010, for a period of two years, and within the Ndlambe municipal area from:

1. opening, being involved in, working for or consulting in a similar type of business (security and technical support);

2. using directly or indirectly for his own benefit or for the benefit of any other person, firm, company or close corporation any trade secrets or confidential information of the applicant or any information concerning the marketing, contracts, customer information, sales information, source and cost of products purchased, financial information and technical know-how and programs;

3. The second respondent is hereby interdicted or restrained, as from 27 July 2010 for a period of two years, and within the Port Alfred area, from:

1. opening, or being involved in, or working for, or consulting in a similar business, in completion with the business carried on by the applicant, to the extent that such competition is detrimental to the interests of the applicant;

2. using directly or indirectly for his own benefit or for the benefit of any other person, firm, company or close corporation any trade secrets or confidential information of the applicant or any information concerning the data, reports, systems, marketing, contracts, customer information, sales information, source and cost of products purchased, financial information, technical know-how and programs;

4. The first and second respondents are ordered to pay the cost of this application on a scale as between party and party.

____________________

E REVELAS

Judge of the High Court

Counsel for the applicant: Adv Brooks

Grahamstown Chambers

Instructed by: Netteltons Attorneys

Grahamstown

Counsel for the respondents: Adv Boswell

Grahamstown Chambers

Instructed by: Leon Keyter Attorneys

Grahamstown

Date Heard: 18 August 2011

Date Delivered: 07 October 2011

---