---

REPUBLIC OF SOUTH AFRICA

GAUTENG LOCAL DIVISION, JOHANNESBURG

APPEAL CASE NO: A5053/2016

GJ CASE NO: 1612/2016

REPORTABLE

OF INTEREST TO OTHER JUDGES

REVISED.

9/5/2017

In the matter between -

BRIAN GREGORY CAMPBELL                                                                 1^ST APPELLANT

SHIRLEY CAMPBELL                                                                                2^ND APPELLANT

CAMPBELL MOTOR GROUP (PTY) LTD                                                  3^RD APPELLANT

and

REGAL BELOIT CORPORATION                                                          1^ST RESPONDENT

REGAL BELOIT SOUTH AFRICA (PTY) LTD                                       2^ND RESPONDENT

REGAL BELOIT AUSTRALIA (PTY) LIMITED                                      3^RD RESPONDENT

JUDGMENT

 

BORUCHOWITZ J

[1] This is an appeal, with leave of the court a quo, against an order of Wright J, enforcing a covenant in restraint of trade and undertakings relating to the use of confidential information, concluded between the respondents, Regal Beloit Corporation (RBC); Regal Beloit South Africa (Pty) Limited (RBSA); Regal Beloit Australia (Pty) Limited (RBA) and the first and second appellants, Brian and Shirley Campbell.  It also concerns an interdict restraining the infringement of a registered trademark. 

[2] RBC is a company incorporated and registered in accordance with the laws of the State of Wisconsin, the United States of America.  It is listed on the New York Stock Exchange and is the ultimate holding company in a group of companies referred to as “The RBC Group”.  The RBC Group has sales, engineering, manufacturing and distribution facilities throughout the Americas, Europe, Asia, Africa and Australia.  It is the largest motor manufacturer in North America, and is one of the three largest motor manufacturers in the world.  Currently, the motors are manufactured on its behalf predominantly in China, and marketed under one or more of the trademarks, including CMG and CMG Motors.

[3] RBSA is the South African subsidiary in the RBC Group.  It carries on business as a supplier of electric motors and other equipment under the CMG trademark, to sub-Saharan mining and industrial entities.

[4] RBA, the Australian subsidiary in the RBC Group, is the proprietor of the CMG registered trademark in South Africa.  

[5] Brian Campbell was a director and the chief executive officer of RBSA from 24 January 2003 until 26 February 2016.  His employment with RBSA terminated on 10 May 2016.  Shirley Campbell, his wife, was appointed as a director of RBSA from January 2003 and resigned as a director on 26 February 2016.  Her employment with RBSA terminated on 10 March 2016.  She is currently a director of the third appellant, Campbell Motor Group (Pty) Limited.

[6] The covenants in restraints of trade and confidentiality undertakings are contained in two written agreements, the one styled the “non-competition agreement” and the other “employee innovation and proprietary information agreement” (“the non-compete and EIPI agreements”), concluded during June 2011 between Brian and Shirley Campbell respectively, with RBC and its affiliates, which include RBSA and RBA.  They are also contained in a written employment contract allegedly entered into between RBSA and Brian Campbell on 3 September 2013.  A similar written employment contract was allegedly entered into with Shirley Campbell but she denies signing such document. 

[7] The terms of the non-compete and EIPI agreements as well as the alleged employment contracts are uncontentious and it is unnecessary for present purposes to refer thereto in any detail.  To the extent that it is necessary to do so, reference will be made to the material portions thereof later in the judgment. 

[8] In an application launched as a matter of urgency in the court below it was alleged that the Campbells had breached the agreements in the following respects:  Since about April 2016 they had commenced business in competition with RBSA and had acted contrary to its interests;  they directly or indirectly canvassed or solicited the supply of goods of a similar type to those acquired or provided by RBC, RBSA and RBA;  they directly or indirectly contacted, solicited or serviced active customers as defined in the agreements for the purposes of providing competitive products or services similar to those provided by the respondents;  they induced or attempted to induce employees, officers, agents or representatives of RBSA to leave the employment of RBSA;  they disclosed or used or caused to be disclosed or used, directly or indirectly, confidential or proprietary information of the respondents and infringed RBA’s CMG trademarks. 

[9] The application came before Wright J, who granted an order in the following terms:

“1. Interdicting the first and/or second respondents from, directly or indirectly, contacting, soliciting or servicing any Active Customers (as defined in paragraph 66.1 of the affidavit of Hilton Fortmann annexed hereto (“the Founding Affidavit”))  for a period of 24 months commencing 10 May 2016, in respect of the first respondent, and commencing 10 March 2016, in respect of the second respondent (with 10 May 2016, in respect of the first respondent, and 10 March 2016, in respect of the second respondent, constituting “the Departure Date”) for the purpose of providing competitive products or services similar to those provided by them on behalf of the applicants between the Departure Date and 12 months preceding the Departure Date;

2. Interdicting the first and/or second respondents from directly or indirectly requesting or advising any Active Customers, or suppliers or vendors of the applicants who have, or have had, business relationships with the applicants between the Departure Date and 12 months preceding the Departure Date, for a period of 24 months following the Departure Date to withdraw, curtail or cancel any of their business or relations with the applicants;

3. Interdicting the first and/or second respondents from directly or indirectly soliciting the employment of any current employee of the applicants for a period of 24 months following the Departure Date;

4. Interdicting the first and/or second respondents, for a period of 24 months following the Departure Date, from disclosing or using, or causing to be disclosed or used, directly or indirectly, in any capacity, in any geographic area in which such use or disclosure could harm the applicants’ existing or potential business interests, any Proprietary Information (as defined in paragraph 69.1 of the Founding Affidavit);

5. Interdicting first and/or second respondents from using or disclosing the applicants’ Trade Secrets (as defined in paragraph 69.2 of the Founding Affidavit) as long as they remain Trade Secrets;

6. Directing the first and/or second respondents to deliver to the applicants, promptly, and by no later than 5 days after the date of the order sought herein, all items which belong to the applicants or which by their nature are for the use of the applicants’ employees only, including, without limitation, all written and other materials which are of a secret or confidential nature relating to the business of the applicants;

7. Interdicting the first and/or second respondents from holding him-/herself out or representing him-/herself as being employed by or connected with RBSA in any way whatsoever;

8. Interdicting the first and/or second respondents, for a period of 12 months from the Departure Date, from carrying on business, or being concerned in any business carried on, in the Restraint Area (as defined in paragraph 74.15 of the Founding Affidavit) which is competitive or likely to be competitive with any business carried on at any time during the 12 months preceding the Departure Date by RBSA and/or any of the Related Companies (as defined in paragraph 72 of the Founding Affidavit) of RBSA; 

9. Interdicting the first and/or second respondents, for a period of 12 months from the Departure Date, from canvassing or soliciting business or custom for goods or services of a similar type to those provided by RBSA and/or any of the Related Companies of RBSA from any person who is, at the Departure Date, or was at any time between the Departure Date and 12 months preceding the Departure Date and 12 months preceding the Departure Date, a customer of RBSA and/or any of the Related Companies of RBSA;

10. Interdicting the first and/or second respondents, for a period of 12 months from Departure Date, from canvassing or soliciting the supply of goods or services of a similar type to those acquired by RBSA and/or any of the Related Companies of RBSA from any person who is, at the Departure Date, a supplier to RBSA and/or any of the Related Companies of RBSA;

11. Interdicting the first and/or second respondents, for a period of 12 months from the Departure Date, from inducing or attempting to induce a supplier of RBSA and/or any of the Related Companies of RBSA to cease to supply, or restrict or vary the terms of supply to RBSA and/or any of the Related Companies of RBSA;

12. Interdicting the first and/or second respondents, for a period of 12 months from the Departure Date, from inducing or attempting to induce any employee, officer, agent or representative of RBSA and/or any of the Related Companies of RBSA to leave the employment of RBSA and/or any of the Related Companies of RBSA;

13. Directing the first and/or second respondents to protect the business and operations of RBSA for a period of 12 months following the Departure Date;

14. Interdicting the first and/or second respondents from doing anything which may disparage or damage the business, operations and goodwill of RBSA for a period of 12 months following the Departure Date;

15. Directing the first and/or second respondents to keep confidential, all Confidential Information (as defined in paragraph 74.7 of the Founding Affidavit) and to use his/her best endeavours to prevent the disclosure of Confidential Information to any person;

16. Interdicting the first and/or second respondents from using Confidential Information for a purpose other than for the benefit of RBSA;

17. Interdicting the first and/or second respondents from making a copy or other record of the Confidential Information or removing from RBSA’s premises any information or copies of information;

18. Directing the first and/or second respondents to return to RBSA all papers, record and documents (including electronic documents records and emails) in his/her possession which relate in any way to the business of RBSA and/or any of the Related Companies;

19. Restraining the respondents, in terms of section 34(3)(a), read with section 34(1)(a) of the Trade Marks Act, 1993 (“the Act”), from infringing the third applicant’s trade mark registration numbers  2005/17847 CMG and 2005/17849 CMG (“the CMG trade marks”) and any marks so nearly resembling the CMG trade marks as to be likely to deceive or cause confusion;

20. Restraining the respondents, in terms of section 34(3)(a), read with 34(1)(b) of the Act, from infringing the CMG trade marks, by using the marks CMG, CMG ELECTRIC MOTORS and/or CMG MOTOR and any marks similar to the CMG trade marks, in relation to any goods or services which are so similar to the goods and services in respect of which the CMG trade marks have been registered that, in such use, there exists the likelihood of deception or confusion;

21. Directing the respondents, in terms of section 34(3)(b) of the Act, to remove the offending marks from all material including goods, electric motors, worm and geared gearboxes, drives and related equipment, containers, packaging, labels, advertising matter, websites, domain names and email addresses, and documents of whatever sort bearing, containing or referring to the offending marks, which may be in their possession or under their control and, where the offending marks are inseparable or incapable of being removed, an order directing that all such material be delivered up to the third applicant or its legal representatives;

22. Directing, in terms of section 34(4), read with sections 34(3)(c) and (d) of the Act, that an inquiry be held to determine the quantum of damages suffered by, alternatively the reasonable royalty due to, the third applicant as a result of the infringement of the CMG trade marks;

23. Directing that, in relation to the inquiry, in the event that the parties are unable to reach agreement as to any aspects of the procedure to be followed by the holding of the said inquiry, each of the parties is authorised to make application to the Honourable Court for directions in regards thereto;

24. Ordering the respondents, jointly and severally, the one paying the others to be absolved, to pay the applicants’ costs of suit on a scale as between attorney and own client, including the costs of two counsel.”

[10] A matter that has occasioned much difficulty to both the parties and the Court is the fact that the judgment appealed against was given without any or proper reasons for the conclusions reached.  The application was opposed and the papers ran to over 450 pages.  But the unreasoned ex tempore judgment runs to nine lines.  Little purpose would be served referring to the judgment, save to state that it was given in the vaguest and most ambivalent terms, notwithstanding that it concerned final orders requiring the resolution of disputes that impacted on the lives of the Campbells and the companies involved.

[11] In Mphahlele v First National Bank of SA Ltd [1999] ZACC 1; 1999 (2) SA 667 (CC) the Constitutional Court held that the judiciary has a general constitutional duty, derived from the rule of law, to give reasons for their decisions.  Goldstone J, writing for the Court, said the following at para [12]:

“There is no express constitutional provision which requires Judges to furnish reasons for their decisions.  Nonetheless, in terms of s 1 of the Constitution, the rule of law is one of the founding values of our democratic state, and the Judiciary is bound by it.  The rule of law undoubtedly requires Judges not to act arbitrarily and to be accountable.  The manner in which they ordinarily account for their decisions is by furnishing reasons.  This serves a number of purposes.  It explains to the parties, and to the public at large which has an interest in courts being open and transparent, why a case is decided as it is.  It is a discipline which curbs arbitrary judicial decisions.  Then, too, it is essential for the appeal process, enabling the losing party to make an informed decision as to whether or not to appeal or, where necessary, seek leave to appeal.  It assists the Appeal Court to decide whether or not the order of the lower court is correct.  And finally, it provides guidance to the public in respect of similar matters.  It may well be, too, that where a decision is subject to appeal it would be a violation of the constitutional right of access to courts if reasons for such a decision were to be withheld by a judicial officer.”

[12] The failure to give full and proper reasons was also emphasized by Corbett JA in Botes and another v Nedbank Ltd 1983 (3) SA 27 (A), where the following is stated at 27H in fin to 28A: 

“In my view, this represents an unacceptable procedure.  In a case such as this, where the matter is opposed and the issues have been argued, litigants are entitled to be informed of the reasons for the Judge’s decision.  Moreover, a reasoned judgment may well discourage an appeal by the loser.  The failure to state reasons may have the opposite effect.  In addition, should the matter be taken on appeal, as happened in this case, the Court of Appeal has a similar interest in knowing why the Judge who heard the matter made the order which he did.”

[13] The difficulties envisaged in Mphahlele and Botes arise pertinently in the present case.  As a result of the failure to give any or adequate reasons, the appellants advanced numerous grounds in the notice of appeal which could not be proceeded with and were ultimately abandoned.  At the hearing of the appeal, the appellants applied to amend the notice of appeal so as to introduce three new grounds but that application was refused.  The reasons for the refusal are set out in a separate judgment delivered immediately prior to the hearing of the appeal.  In the event, the appellants proceeded with only two grounds of appeal.  All of this occasioned prejudice, inconvenience and the incurrence of unnecessary costs. 

[14] At issue in the appeal is the following.  The appellants challenge the enforceability of the respective agreements on two grounds.  First, they allege that the non-compete and EIPI agreements were novated by the employment contracts concluded during September 2013.  Second, that Brian Campbell’s employment contract is inchoate or did not come into force or effect.  They also contend that because Shirley Campbell had not signed the 2013 employment contract, such contract is therefore of no force or effect. 

[15] The relief granted in paragraphs 1 to 3 of the order is founded upon the non-compete agreements and in paragraphs 4 to 6 on the EIPI agreements.  Paragraphs 7 to 18 of the order arise from the employment contracts. 

[16] The following provisions of the non-compete, EIPI agreements and employment contracts are germane to the question as to whether or not there was a novation. 

[17] The non-compete agreements commence with the following words:

“The Regal Beloit Corporation, acting for itself and its Affiliates, (the “Company”) and … … (“Employee”) desiring to set forth their understandings regarding Employee’s restrictions from competing against Company, agrees as follows: …”

An “affiliate” is defined in clause 2(c)(iv) as “an entity that is directly or indirectly controlled by Regal Beloit Corporation”.  “Control” means “the right to cast, directly or indirectly, more than 50% of the voting interests in an entity”.  RBSA and RBA are affiliates of RBC.

[18] The covenant in restraint of trade is embodied in clauses 2(a) and (b).  They read:

“(a) During Term of Relationship.  During Employee’s relationship with Company, Employee will not, in any capacity, participate in, provide assistance to, or have a financial or other interest in any activity or enterprise that competes with Company.  The ownership of less a 1% interest in a corporation or other entity, whose securities are traded in a recognized stock exchange or traded in the over-the-counter market, even though that corporation or other entity may be a competitor of Company, shall not be deemed financial participation in a competitor.

(b) Upon Termination of Relationship.  Commencing on the termination of Employee’s employment and during the Non-competition Period (as defined below), Employee will not, directly or indirectly, contact, solicit or service any Active Customers (as defined below) for the purpose of providing competitive products or services similar to those provided by Employee on behalf of Company during the Measurement Period (as defined below).”

The “non-competition period” and “measurement period” referred to in the above clauses are defined in sub-clauses 2(c)(i) and (iii) as follows:

“(i) “non-competition period” shall mean the twenty-four month period following the termination of Employees employment with company, or the duration of employment if less than twenty-four months.

…

(iii) “Measurement Period” shall mean the twelve-month period preceding the termination of Employees employment with Company, or the duration of employment if less than twelve months.”

[19] In clause 5(d) the following is stated:

“(d) The failure by Company to enforce any right or remedy available to it under this Agreement shall not be construed to be a waiver of such right or remedy with respect to any other prior, concurrent or subsequent breach or failure.  No waiver of rights under this Agreement shall be effective unless made in writing with specific reference to this Agreement.”

[20] The purpose of the EIPI agreement is to protect the proprietary information and trade secrets of RBC and its affiliates.  It commences in the same way as the non-compete agreement substituting only the words “obligations and restrictions related to inventions technical or business innovations, and the disclosure and use of Company Proprietary Information” for the words “restrictions for competing against the Company” in the non-compete agreement.  An affiliate is defined in the same way as in the non-competition agreement. 

[21] The restrictions agreed to are set out in clauses 2(c) and (d), which provide:

“(c) Disclosure Use – Company’s Proprietary Information. Employee agrees that, during the term of Employee’s relationship with Company and until the first to occur of (i) such time as the Proprietary Information becomes generally available to the public through no fault of Employee or other person under a duty of confidentiality to Company, (ii) such time as the Proprietary Information no longer provides a benefit to Company, or (iii) the second anniversary of the termination of Employee’s employment with Company, Employee will not disclose or use, or cause to be disclosed or used, directly or indirectly, in any capacity, in any geographic area in which such use or disclosure could harm Company’s existing or potential business interests, any Proprietary Information.  This provision does not prohibit Employee’s use of general skills acquired prior to or during employment by Company, as long as such use does not involve the use or disclosure of Proprietary Information or Trade Secrets.

(d) Trade Secrets.  Notwithstanding any other provision in this Agreement, the parties agree that nothing in this Agreement shall be construed to limit or negate any statutory or common law of torts or trade secrets, where such law provides Company with broader protection than that provided in this Agreement.  During Employee’s employment by Company, Employee shall do what is reasonably necessary to prevent misappropriation or unauthorised disclosure of the Company’s Trade Secrets as long as they remain Trade Secrets.”

[22] Clauses 4(e) and (g) state:

“(e) The failure by Company to enforce any right or remedy available to it under this Agreement shall not be construed to be a waiver of such right or remedy with respect to any other prior, concurrent or subsequent breach or failure.  No waiver of rights under this Agreement shall be effective unless made in writing with specific reference to this Agreement.

…

(g) This Agreement supersedes and replaces any existing agreement between the Company and Employee relating generally to the same subject matter.  This Agreement may not be modified or terminated in whole or part, except in writing signed by an authorised representative of the Company.” 

[23] The relevant terms of Brian Campbell’s employment contract with RBSA are the following.  The contract commences with these words:

“I am pleased to confirm our offer of employment to you as CEO of the above company.  This letter sets out the terms and conditions of the offer.  If accepted by you, this letter will constitute your contract of employment from 1 July 2013 onwards, notwithstanding the signature date thereof.”

[24] Clause 1.1 provides:

“1.1 You shall continue to be employed as CEO of Regal Beloit South Africa (Pty) Limited (Regal Beloit SA) from 1 July 2013 (‘commencement date’) at Regal Beloit SA’s premises located at 288B Fleming Road, Meadowdale, Germiston 1614, Johannesburg, Republic of South Africa.  With effect from the Commencement Date the provisions of this contract of employment will supersede your existing employment contract in relation to your employment by the company after the Commencement Date, in all respects.”  [My emphasis]

[25] Remuneration is dealt with in clause 2.  Sub-clauses 2.4, 2.6 and Schedule 1, which are relevant for present purposes read:

“2.4 A 25% incentive bonus based on sales budget achievement as agreed upon between you and the company shall, subject always to the terms and conditions of the prevailing Regal Beloit Corporation’s standard SVA bonus scheme, also be payable to you.  Your sales budget achievement for the twelve month period commencing on 1 July 2013 and ending on 30 June 2014 is set out in Schedule 1 hereto.

…

2.6 Your salary and bonus will be reviewed in consultation with you annually on or before the anniversary of the signature date of this contract of employment.”

[26] Schedule 1, to which reference is made in clause 2.4, reads as follows:

“Schedule 1

SALES BUDGET ACHIEVEMENT TARGET

“Currently being negotiated between the Company and Mr Campbell”.  Once agreement has been reached it will be reduced to writing, initialled by the Parties for ease of reference and a copy of the signed version of the Sales Budget Achievement Target will be attached as Schedule 1 to this agreement in substitution for this Schedule 1.”

[27] The undertakings given in respect of the protection and disclosure of confidential information are set out in clause 8.  Sub-clause 8.3 provides that “confidential information” includes, -

“without being limited to the following trade secrets and other information regarding the affairs of Regal Beloit SA;  information relating to products manufactured or distributed by Regal Beloit SA;  business plans, forecasts, financial records, reports, accounts, pricing information, quotations and tenders submitted or prepared for submission to customers or potential customers by Regal Beloit SA and customer lists, names of customer contacts and terms of trade with customers and supplier lists, names of supplier contacts and terms of trade and suppliers of Regal Beloit SA.”

[28] In sub-clauses 8.6 and 8.7 it is provided that:

“8.6 Your obligation of confidentiality exists both during your employment and at all times after your employment ceases. 

8.7 In addition, you undertake to protect the business operations of Regal Beloit SA for the duration of your employment contract and for a period of 12 months after cancellation or termination of your employment contract …” [My emphasis]

[29] A covenant in restraint of trade is set out in clause 9.  It reads:

“9. RESTRAINT

9.1 In this contract of employment:

9.1.1 “Departure Date” means the day on which you cease to be employed by Regal Beloit SA, for wherever reason;

9.1.2. “Restraint Period” means the period of 12 months from your Departure Date.

9.1.3 “Restraint Area” means any and all countries in Sub Saharan Africa.

9.2 You agree with Regal Beloit SA that during the Restraint Period you shall not do any of the following: 

9.2.1 carry on or be concerned in any business carried on in the Restraint Area which is competitive or likely to be competitive with any business carried on at the Departure Date by Regal Beloit SA and/or any of the Related Companies of Regal Beloit SA at any time during the 12 months preceding the Departure Date;

9.2.2 canvass or solicit business or custom for goods or services of a similar type to those provided by Regal Beloit SA and/or any of the Related Companies of Regal Beloit SA at the Departure Date from any person who is at the Departure Date, or who was at any time during the 12 months preceding the Departure Date, a customer of Regal Beloit SA and/or any of the Related Companies of Regal Beloit SA;

9.2.3 canvass or solicit the supply of goods or services of a similar type of those acquired by Regal Beloit SA and/or any of the Related Companies of Regal Beloit SA at the Departure Date from any person who is at the Departure Date, a supplier to Regal Beloit SA and/or any of the Related Companies of Regal Beloit SA;

9.2.4 induce or attempt to induce a supplier of Regal Beloit SA and/or any of the Related Companies to cease to supply, or to restrict or vary the terms of supply to, Regal Beloit SA and/or any of the Related Companies of Regal Beloit SA;

9.2.5 induce or attempt to induce any employee, officer, agent or representative of Regal Beloit SA and/or of any of the Related Companies of Regal Beloit SA to leave the employment of Regal Beloit SA and/or any of the Related Companies of Regal Beloit SA.

9.3 For the purposes of this contract of employment, the circumstances in which you are concerned in a business include any of the following circumstances:

9.3.1 Where you are a director, officer, employee, partner, trustee, beneficiary, consultant or agent of a person who carries on business; and

9.3.2 where you have a direct or indirect financial interest in a person who carries on the business, including an interest as shareholder or member of a company or other legal entity which carries on the business or beneficiary or object of a trust estate the trustee of which carries on the business.  …”

[30] “Related Companies”, to which reference is made in clauses 8 and 9, are defined in sub-clause 8.3.1 of the employment contract as “[RBSA’s] holding company, subsidiaries and affiliated companies from time to time”.  RBC and RBA are thus related companies for the purposes of the employment contract.

[31] It is settled law that there are two forms of novation:  Compulsory novation (novatio necessaria) which takes place by operation of law, and voluntary novation (novatio voluntaria) which has its origin in contract.  The latter occurs when the parties intend to replace a valid contract by another valid contract (Swadif (Pty) Limited v Dyke NO 1978 (1) SA 928 (A) at 940G and cases there cited).

[32] Novation is essentially a question of intention and consensus (Swadif (Pty) Limited v Dyke NO 1978 (1) SA 928 (A) at 940G-H).  The onus of establishing it lies upon the party placing reliance thereon and clear and cogent proof of novation is required.  Because it involves a waiver of rights, there is a presumption against novation (Marendaz v Marendaz 1953 (4) SA 218 (C) at 226-227). 

[33] The intention to novate must be clear and unequivocal.  Where an express intention to novate cannot be proved, it may be tacitly established by way of necessary inference from all the circumstances of the case (Ewers v Resident Magistrate of Oudsthoorn and another 1880, Foord, p 32;  Electric Process Engraving and Stereo Co v Irwin 1940 AD 220 and French v Sterling Finance Corporation (Pty) Ltd 1961 (4) SA 732 (A) at 736D-H). 

[34] The approach to be followed is eloquently expressed by Fannin J, in Trust Bank of Africa Limited v Dhooma 1970 (3) SA 304 (N) at 307D-C:

“Voluntary novation is the result of a contract, and it can thus come about either by express agreement or by implication.  (See Caney, The Law of Novation, at p 16;  Acacia Mines Limited v Boshoff 1958 (4) SA 330 (AD) at p 337).  However, as in a question of waiver, an intention to novate an existing right is not readily inferred, and, where such an intention is sought to be established by implication, the intention must be ‘clear and unequivocal’ – this, it seems, is because it is more likely that a creditor who has an existing enforceable right, will intend, when he enters into any new arrangement in regard thereto, to reinforce rather than to destroy that right and accept something else in its place.  (See, eg Caney, op cit at p 16).  In the absence of express agreement to novate, the intention to do so will be inferred, therefore: 

(a) where the terms of the new arrangement are inconsistent with the continued existence of the original right (Wessels, Law of Contract, 2^nd ed., para. 2400, p 665, and Caney, op cit at p 22).

(b) where the admissible evidence as to the circumstances in which the new arrangement was made lead to the necessary inference that the parties intended that the original right should be novated and be replaced by the new.  (See Farlam and Hathaway, Case Book on the SA Law of Contract, at p 365 and the authorities cited in the notes to text 32).”

[35] The case advanced by the appellants is the following:

(a) The employment contract signed in September 2013 specifically states, in clause 1.1, that -

“… [W]ith effect from the Commencement Date, the provisions of this contract of employment will supersede your existing employment contract in relation to your employment by the Company after the Commencement Date, in all respects.” 

(b) As from June 2011, the non-compete and EIPI agreements formed part and parcel of the terms upon which Campbell was to be employed by RBSA.  At the time that Campbell signed the non-compete and EIPI agreements he was an employee of RBSA which is an affiliate of RBC as defined in these agreements. 

(c) The scope of the restraints and confidentially undertakings given in each agreement is substantially the same.  The 2013 employment contract covered all the subject-matter in Campbell’s earlier employment contract, which incorporated the non-compete and EIPI agreements of June 2011. 

(d) Accordingly, the Campbells’ prior employment contract, incorporating the provisions of the non-compete and EIPI agreements which form part thereof since June 2011, was superseded and replaced by the 2013 employment contract.    

(e) The Campbells could not have been simultaneously restrained for two years in terms of the non-compete agreement, and for one year in terms of the 2013 employment contract.  That RBSA and Campbell were prepared, in 2013, to enter into a shorter restraint of trade than that imposed by the non-compete agreement, covering a limited area (sub-Saharan Africa), is an acknowledgement by RBSA that by 2013 it had reassessed its position and determined that it no longer required a twenty-four-month restraint covering an indefinite area.

[36] There is, in my view, no merit in the appellants’ submissions. 

[37] As is apparent from the authorities to which I have referred, it is a fundamental requirement that the agreement to novate be entered into between the same parties.  In casu, the contracting parties of the respective agreements are distinct.  The employment contract does not refer to the non-compete or EIPI agreements and there is no evidence that they were incorporated in Campbell’s employment contract;  RBSA and RBA are merely affiliates of RBC, as defined in the non-compete and EIPI agreements, and neither is party to the employment contract.

[38] The non-compete and EIPI agreements are clearly intended to supplement the terms of any employment contract and to have an independent existence apart from any employment relationship.  The protectable interests of RBC and RBSA differ:  The interest which RBC had in the restraint clause was an interest as controlling shareholder, and the interest of RBSA was that of an employer.  That they were intended to have an independent existence is further evident from the wording of clauses 5(a) of the non-compete agreement and 4(a) of the EIPI agreement.  Also, the non-compete and EIPI agreements do not contain any of the provisions relating to the particulars of the Campbells’ employment.

[39] Insofar as there is an overlap of subject-matter in the respective agreements, the detail is clearly different and does not result or lead to the inference that there had been a novation.  There is no reason why the Campbells could not be restrained for a particular period in one agreement, and for another period in the other.

[40] Novation constitutes the waiver of a right.  The non-compete and EIPI agreements both provide that no waiver of rights shall be effective unless made in writing with specific reference thereto (see clauses 5(d) of the non-compete agreement and 4(e) of the EIPI agreement).  There is no written proof of waiver or novation.  The novation contended for would also amount to a modification or termination as envisaged in clause 4(g) of the EIPI agreement which, in order to be valid, had to be in writing, signed by an authorised representative of the company.  This did not occur.

[41] Brian Campbell, who bears the requisite onus, has not demonstrated that there has been a valid express or tacit agreement by the parties to extinguish and replace the non-compete and EIPI agreements with his employment contract.  The alleged novation has therefore not been established.

[42] It is necessary to say something in regard to Shirley Campbell’s employment contract with RBSA.  It is not in dispute that she was a director and employee of RBSA during the period 24 January 2003 to 26 February 2016, when she resigned her directorship.  Her employment terminated on 10 March 2016.  It is also common cause that on 9 June 2011, she and RBC entered into the non-compete and EIPI agreements. 

[43] The respondents allege that RBSA and Shirley Campbell concluded a written employment contract in September 2013 on identical or substantially the same terms as that concluded with Brian Campbell but that the written contract has been removed from her personal file at RBSA and they are unable to produce a copy thereof.

[44] Counsel for the appellants submitted that it must be accepted that there is no 2013 employment contract between RBSA and Shirley Campbell.  That submission is in my view an over-simplification.  The contention that an employment contract was not entered into between RBSA and Shirley Campbell in 2013 was raised for the first time in appellants’ counsel’s heads of argument.  In the papers before the Court the only contention was that the 2013 employment contract had not been signed;  there was no dispute that the contract had been entered into.  That there was no 2013 employment contract at all between RBSA and Shirley Campbell was not raised in the notice of appeal, and may not be raised in argument.

[45] The respondents allege that at the very least, the restraint and confidentiality undertakings were tacitly or impliedly incorporated in Shirley Campbell’s employment contract.  It was rightly submitted on behalf of the respondents that, given the seniority of Shirley Campbell’s position and the fact that, on the uncontested evidence, such restraints routinely formed part of RBSA’s employment contracts, that a tacit agreement incorporating the terms of the restraint existed between them.

[46] That there was a tacit agreement as alleged is baldly denied by the Campbells.  In paragraph 11.49 of the answering affidavit, Brian Campbell states:

“I am advised that the Second Respondent denies, in the most vehement of terms, that she signed any such agreement, is bound by a restraint or that she has removed any documents as implied”. 

And, in paragraph 11.50, he continues:

“Legal argument will be addressed on these issues at the appropriate time.  In short, I deny being bound by any restraint provisions as a result of my earlier averments, and the Second Respondent denies being bound to any restraint agreement whatsoever.”

[47] On 16 March 2016, RBC addressed a letter to Shirley Campbell in which she was reminded of her post-employment obligations, which included the restraints alleged to be contained in her employment contract.  Despite receiving the letter she did not refute its contents. 

[48] The bare denial relied on is not such as to raise a real, genuine or bona fide dispute of fact (see Wightman t/a JW Construction v Headfour (Pty) Limited and another [2008] ZASCA 6; 2008 (3) SA 371 (SCA) paras [12] and [13].  And the failure of Shirley Campbell to contradict the contents of RBC’s letter of 23 March 2016 affords strong support for the appellants’ version. 

[49] It is my conclusion, therefore, that Shirley Campbell is bound to the alleged tacit or implied restraints contained in her 2013 employment contract.   It also follows, for the reasons previously stated, that her employment contract did not novate the non-compete and EIPI agreements. 

[50] I turn now to consider the contention that Brian Campbell’s 2013 employment contract was inchoate or did not come into force or effect. 

[51] This argument is premised on the proposition that notwithstanding signature of the employment contract, it did not acquire contractual force as a material term relating to Campbell’s remuneration still had to be agreed upon. 

[52] Reliance is placed on clause 2.4 of the employment contract, which provides that Campbell was to receive a 25% bonus based on the sales budget achievement as agreed upon between him and RBSA.  More specifically, reliance is placed on the following sentence in clause 2.4, which reads:  “…  Your sales budget achievement for the twelve month period commencing on 1 July 2013 and ending on 30 June 2014 is set out in Schedule 1 hereto”.

[53] It was submitted that on a plain reading of Schedule 1 there was no agreement at all on a sales budget.  The schedule reads: 

“Currently being negotiated between the Company and Mr Campbell.  Once agreement has been reached it will be reduced to writing, initialled by the parties for ease of reference and a copy of the signed version of the Sales Budget Achievement Target will be attached as Schedule 1to this Agreement in substitution for this Schedule 1.”

[54] For these reasons, it was submitted that the employment contract was inchoate and did not obtain contractual force. 

[55] It frequently occurs that parties reach agreement leaving some outstanding issues for further negotiation.  Our case law recognises that in such circumstances two possibilities may arise.  The first is that there is no contractual relationship unless and until the outstanding issues have been settled by agreement.  The second is that the parties intend that there be a binding contract and that the outstanding issues would be left over for later negotiation.  In this case, should the parties fail to reach agreement on the outstanding issues, the initial contract would stand (see Command Protection Services (Gauteng) (Pty) Ltd t/a Maxi Security v South African Post Office Limited 2013 (2) SA 133 (SCA) paras [12] and [13], where reference is made to the leading case of CGEE Alsthom Equipments et Enterprises Electriques, South African Division v GKN Sankey (Pty) Ltd 1987 (1) SA 81 (A) at 92A-E).

[56] The approach to be followed in order to determine which of the two abovementioned possibilities is applicable was described by Corbett JA in Alsthom Equipments at 92E-F: 

“Whether in a particular case the initial agreement acquires contractual force or not depends upon the intention of the parties, which is to be gathered from their conduct, the terms of the agreement and the surrounding circumstances …”

[57] The following are clear textual indications that the 2013 employment contract was intended to be immediately binding. 

[58] The first paragraph of the offer of employment reads:

“ I am pleased to confirm our offer of employment to you as CEO of the above company.  This letter sets out the terms and conditions of the offer. If accepted by you, this letter will constitute your contract of employment from 1 July 2013 onwards, notwithstanding the signature date hereof.”

[59] Clause 1.1 provides that “[Y]ou shall continue to be employed as CEO or Regal Beloit South Africa (Pty) Ltd (“Regal Beloit SA”) from 1 July 2013 (“Commencement Date”).”

[60] Brian Campbell does not dispute that he signed the 2013 employment contract, and nor does he dispute its terms.  The employment contract was signed by him on 3 September 2013 and the following words appear above his signature:  “I accept the offer of employment on the terms and conditions as set out above …”.

[61] In my view, the following wording in Schedule 1 makes it plain that the employment contract was to be immediately binding.  It provides that “[o]nce agreement has been reached it will be reduced to writing, initialled by the Parties for ease of reference and a copy of the signed version of the Sales Budget Achievement Target will be attached as Schedule 1 to this Agreement, in substitution for this Schedule 1”.  The fact that a new schedule was to be substituted for the present schedule presupposes the existence of the employment contract.

[62] It is also clear that the sales budget achievement target was to be reviewed and set annually.  Clause 2.6 provides that -

“[y]our salary and bonus will be reviewed in consultation with you annually on or before the anniversary of the signature date of this contract of employment.”

[63] The aforegoing are clear indications that the 2013 employment contract was intended to give rise to a binding contract and that the outstanding issue of remuneration would be left over for later negotiation.

[64] It is also not without significance that during the period 24 January 2003 until 10 May 2016, Brian Campbell performed services in terms of his employment contracts with RBSA.

[65] Finally, it was argued that if the employment contract is found to have contractual force, then its operation was suspended as it was subject to a suspensive condition which had not been fulfilled.  Schedule 1, it was contended, had the effect of being a suspensive condition.

[66] Schedule 1, which is supposed to contain the suspensive condition, is nothing more than a term of the employment contract.  It has not been couched as a condition and there is nothing in the remainder of the contract to suggest that it was intended to operate as such.

[67] There is a material difference between a suspensive condition and a term of a contract.  This was explained by Botha J in Design and Planning Service v Kruger 1974 (1) SA 689 (T) at 695C-E as follows: 

“  In the case of a suspensive condition, the operation of the obligations flowing from the contract is suspended, in whole or in part, pending the occurrence or non-occurrence of a particular specified event (cf Thiart v Kraukamp, 1967 (3) SA 219 (T) at p 225).  A term of a contract, on the other hand, imposes a contractual obligation on a party to act or to refrain from acting, in a particular manner.  A contractual obligation flowing from a term of the contract can be enforced, but no action will lie to compel the performance of a condition (Scott and Another v Poupard and Another, 1971 (2) SA 373 (A) at p 378 in fin).”

[68] There is nothing in the wording of Schedule 1 to suggest that the contract of employment would be suspended until agreement was reached in regard to the sales budget achievement target.

[69] Schedule 1 must be read together with clauses 2.4 and 2.6.  Clause 2.6 provides that Campbell’s salary and bonus will be reviewed in consultation with him annually on or about the anniversary of the signature date of the contract of employment.  It is clear from these provisions that there was an obligation on the parties to agree upon the sales budget achievement target, which obligation could be enforced.

[70] For these reasons it is my conclusion that the 2013 employment contract between RBSA and Brian Campbell was not subject to the suspensive condition contended for and that it is fully enforceable.

[71] In the result, the appeal cannot succeed. 

[72] The following order is granted:

(a) The appeal is dismissed with costs;

(b) The costs are to be paid by the appellants jointly and severally, the one paying, the others to be absolved, and are to include the costs consequent upon the employment of two counsel.

_____________________________

P BORUCHOWITZ

JUDGE OF THE GAUTENG

HIGH COURT, JOHANNESBURG

 

I agree:

 

_____________________________

E MATOJANE

JUDGE OF THE GAUTENG

HIGH COURT, JOHANNESBURG

 

I agree:

_____________________________

M  SAWYER AJ

ACTING JUDGE OF THE GAUTENG HIGH COURT, JOHANNESBURG

 

COUNSEL

FOR APPELLANTS : Advocate Anthony Bishop

ATTORNEYS FOR THE APPELLANTS: Gittins Youngman & Associates

Ref: Mr AJ Gittins

Email:  agittins@gyattorneys.co.za

COUNSEL FOR RESPONDENTS: JPV McNally SC

with Adv S Southwood

ATTORNEYS FOR RESPONDENTS: Webber Wentzel

Ref: J Brinks/S McKenzie/K Eksteen 

/3008746

Email: sarah.mckenzie@webberwentzel.com

---