/SG
IN THE HIGH COURT OF SOUTH AFRICA
(TRANSVAAL PROVINCIAL DIVISION)

                                                                  DATE: 19 MAY 2006
                                                               CASE NO: 38077/2005 

UNREPORTABLE

In the matter between:

STARTRAP SYSTEMS (PTY) LIMITED           APPLICANT

vs.

ADRIAAN S ENGELBRECHT                          RESPONDENT

_____________________________________________________
JUDGMENT
_____________________________________________________

BOTHA J:

The applicant is Startrap Systems (PTY) Ltd (Startrap).  The respondent is Mr Adriaan Engelbrecht.

The applicant asks a final interdict against the respondent interdicting him from being engaged in any business in competition with it until 31 March 2007 and interdicting him from divulging its trade secrets.

The applicant’s business is the supply of a traffic system.  The system consists of hardware and software which are used to interpret and manage information obtained from photographs taken by speed cameras on roads and cameras at intersections.  The information is loaded onto a data base and used by local authorities to issue summonses in traffic cases.

The applicant’s activities in South Africa are channelled through a licence agreement it has with Labat Traffic Solutions (Pty) Ltd (LTS).  In terms of the licence agreement, which was concluded on 30 May 2003, LTS has the exclusive right to use the applicant’s software in, amongst others, the Republic.  LTS is also obliged to make use of the applicant’s software unless the applicant is unable to provide LTS with any intellectual property or technology required and provided LTS has given the applicant written notice that it requires such intellectual property or technology.  See clause 6.1 of the licence agreement.

At the time of the conclusion of the licence agreement the respondent and one Van der Westhuizen were in the employ of a joint venture to which LTS was a party.  In the licence agreement the respondent is referred to as Riaan and Van der Westhuizen is referred to as Marius.  The licence agreement provides that the applicant will be entitled to conclude contracts of employment with the respondent and Van der Westhuizen.  See clause 5.1.  It also provided that the applicant will then make the services of the respondent and Van der Westhuizen available to LTS.

LTS has contracts with various local authorities in the Republic for the provision of the traffic system that is the subject of the licence agreement.  The applicant’s remuneration in terms of the licence agreement consists of a rental for each site where the system is installed.

As provided by the licence agreement the respondent and Van der Westhuizen were employed by the applicant.  In the case of the respondent his employment was regulated by a written agreement dated 24 June 2003.  According to clause 2.1 the employment is deemed to have commenced on 1 September 2002.  In terms of the agreement the respondent could terminate his employment by giving 30 days written notice.

Clause 10 is a confidentiality clause and it reads as follows:
It is recorded that the Employee, by virtue of his association with the Employer will become possessed of and have access to the Employer’s trade secrets and confidential information including, but without limiting the generality of the aforegoing, the following matters, all of which are hereinafter referred to as the ‘Employer’s trade secrets’ and in respect of which information is not readily available in the ordinary course of the business to a computer of the Employer.

Having regard to the facts recorded in 9.1, the Employee undertakes that in order to protect the proprietary interest of the Employer in the Employer’s trade secrets-
          
He will not at any time, whether before or after the termination date of his agreement either use or directly in indirectly divulge of disclose to others (except as required by the terms and nature of his employment by the Employer) any of the Employer’s trade secrets; 

Any written instructions, drawings, notes, memoranda or records relating to the Employer’s trade secrets which have been or are made by him or which came into his possession during the period of his employment by the Employer, shall be deemed to be the property of the Employer and shall be surrendered to the Employer on demand and in any event on the termination date of this agreement and the Employee will not retain any copies thereof or extracts therefrom;

He will not furnish any information or advice acquired by the Employee as a result of his employment by the Employer to anyone else which might result in any employee or consultant of the Emplyer becoming employed by, or directly or indirectly interested in any matter in, any business, firm, undertaking, employer, close corporation or other entity or association of persons.

Clause 14 is the restraint clause.  Subclauses 14.1, 14.2 and 14.3 read as follows:

The Employee undertakes that he shall not be directly in indirectly interested, engaged or concerned, whether as principal, agent, partner, shareholder, director, employee, consultant, advisor, financier, administrator, trustee, member or in any other like capacity, in any business carried on or service offered where such business or service is carried on in competition with the business carried on by the Employer.

The restraint shall be for an effective period of 2 (two) years calculated from the effective date (as defined below) hereof and shall be limited to the Republic of South Africa and/or any country to which he was seconded during the period of twelve months before the effective date.  (“effective date” means the date that the employees employment with the employer terminates for any reason whatsoever.)

The Employee acknowledges that the restraint imposed upon him in terms of this undertaking reasonable and in the light of the interests of the Employer which are sought to be protected and in any view of the remuneration payable by the Employer to the Employee in terms hereof and he confirms that he gives this undertaking voluntarily.

The applicant has an associated company in the United Kingdom called Startraq UK Ltd (Startraq).  On 26 June 2003 the respondent was advised by letter that in terms of clause 13.1.7 of his contract of employment he was seconded to Startraq.  It was stated that his terms of employment would he as agreed upon in his contract of employment with the applicant, but subject to additional terms set out in a letter from the applicant to Startraq.  See pp 320 and 321.  On 24 February 2005, whilst still seconded to Startraq, the respondent gave notice of his resignation with effect from the end of March 2005.

On about 15 April 2005 he joined Digital Traffic Solutions (Pty) Ltd (DTS) as their chief operations manager.

It is the case of the applicant that DTS is a competitor of it and that the respondent’s involvement with DTS constitutes a breach of the restraint clause.  It also alleges that the respondent will be able to make use of its trade secrets in his employment with DTS.  In this regard it referred to a quotation which the respondent, as chief operations manager of DTS, sent to LTS on 30 September 2005.  See FA4, p92 and FA5, p93.

It is convenient at this stage to set out the various defences raised by the respondent.

The first one is that he left the employment of the applicant when he was seconded to Startraq and that the two year period of the restraint has expired.

The second defence is that the applicant is not carrying on business in South Africa.

The third defence is that DTS is not a competitor of the applicant because it does not use the same technology.  The thrust of the defence is that the applicant’s system is not based on images captured by analogue technology (which is described as outdated) whilst DTS uses a system based on digital photography.  Another ground for alleging that DTS is not in competition with the applicant is that the applicant has granted LTS an exclusive licence.

The respondent also alleges that the system marketed by DTS, the so called IOC system, had been designed before he joined DTS.

In my view there is no merit in any of these defences.

It is clear from the contract of employment that the secondment of the respondent was in the contemplation of the parties and that in that event his contract of employment would remain in force.  It is also clear that from the letter setting out the terms of the secondment that that would be the case.

The evidence shows that the applicant did not move its business to the United Kingdom as suggested by the respondent, but that it subcontracted its business in South Africa to LTS.

The contention that DTS is not a competitor of the applicant cannot be accepted.  In argument it was accepted that DTS was in competition with the applicant.  

It markets, or attempts to market the same product, namely a traffic system consisting of software whereby images from traffic cameras can be converted to data that can be processed for the purposes of law enforcement.  It makes no difference, in my view that the one system starts with images captured by analogue cameras and the other one with images captured by digital cameras.  In the end the data is stored and processed in digital form.  It also appears from a letter written by the respondent whilst in the employ of the applicant, that the applicant’s system is capable of processing images captured by digital cameras.  See p346.  In FA4, written by the respondent in behalf of DTS, he was referring to the final design of a Truvelo interface, which is a mechanism to convert an analogue image to a digital one.  All this shows that the type of hardware used to capture the image is not the essence of the software.

The argument that DTS is not in competition with the applicant because the applicant has given LTS an exclusive right to use its software, can also not be accepted.  To the extent that DTS sells software to LTS which the applicant is capable of providing, it impinges on the applicant’s ability to derive income from LTS.  To the extent that it sells systems or software to local authorities, it reduces the potential of growth of LTS, with a concomitant negative effect on the applicant’s prospects of deriving increased income from LTS contracting with more local authorities.

As I understand the case of the respondent DTS only operates  through LTS as a “middle man”.  See p159.  Where LTS is the applicant’s only customer in South Africa that must be competition.  In view of the terms  of the licence agreement it may even be unlawful competition.
There is also no merit in the contention that the IOC system had been designed before the respondent joined DTS.  It does not take away that DTS is in competition with the applicant.  What is more it appears from FA5 that according to the respondent the IOC system is unstable, and has to be developed or re-designed.  See p93.

I conclude therefore, for the purposes of clause 14 of the employment contract, that the respondent is engaged as an employee in a business which is carried on in competition with the applicant.

Mr de Beer who appeared for the respondent argued that the restraint should not be enforced because the applicant has no protectable interest.  He submitted that the effect of imposing the restraint would only be to stifle competition.  He referred to Tor Industries (Pty) Ltd v Gee – Six Superweld CC and others 2001(2) SA 146 W and Ocean Diamond Mining Southern Africa v Louw [2001] 1 A11 SA 241 C.  These two cases are distinguishable.  The case of Tor Industries supra concerned customer connections.  In the Ocean Diamond Mining case supra the court found that the applicant had no proprietary interest in the skills of the respondent, which had been acquired in the course of exercising his profession.

In this case the evidence shows that the respondent is in possession of the applicants trade secrets.  He was intimately involved in the development of the applicant’s software.  See p153.  I agree with Mr Subel SC, who with Mr Blou, appeared for the applicant that in such a situation it is sufficient for the enforceability of a restraint if it appears that the covenantor finds himself in a position where, objectively speaking, he might disclose trade secrets.  See International Executive Communications Ltd t/a IIR v Turnley 1996(3) SA1043 at 1056A – 1057A.  One must also look at his status with DTS.  He is the chief operations manager.  If one looks at FA5 the danger of the respondent using his knowledge against the applicants is not theoretical.  In my view the applicant has a protectable interest.

Mr de Beer also argued, with reference to the case of Tor Industries supra, that it was too late to enforce the restraint because the information had already been imparted.  That is not what the respondent said.

It was also argued, perhaps in the context of the requirements for an interdict, that the applicant could exercise its rights in terms of the licence agreement.  In my view that agreement, as far as the respondent is concerned, is res inter alios acta.  It cannot come to the respondent’s rescue.  It cannot, as a matter of public policy, render the restraint unenforceable.

Mr de Beer also argued that the restraint was geographically too widely cast.  This was never raised in the papers.  The sites where LTS have installed the applicant’s system are not confined to any specific region.  There is no reason to assume that the operations of LTS are not intended to be nation wide.

For all these reasons I am of the view that the applicant has made out a case for the enforcement of the restraint.  In view of the fact that the respondent is employed by a competitor of the applicant, there is sufficient reason to fear possible harm arising from the use the respondent’s knowledge of the applicant’s trade secrets.  Accordingly I am of the view that the applicant is also entitled to an interdict to restrain the respondent from disclosing its trade secrets.

It follows that the applicant is entitled to an order as prayed.

I agree that it was a reasonable precaution for the applicant to engage two counsel.

Accordingly an order is granted in terms of prayers 1,2 and 3, the costs of the two counsel being allowed. 

_________________________
C. BOTHA
JUDGE OF THE HIGH COURT