Basson v Chilwan and Others

• Jurisdiction: South Africa
• Judgment Date: 17 May 1993
• Citation: 1993 (3) SA 742 (A)

Basson v Chilwan and Others
1993 (3) SA 742 (A)

1993 (3) SA p742

Citation	1993 (3) SA 742 (A)
Court	Appellate Division
Judge	Botha JA, Van Heerden JA, Milne JA, Eksteen J, Nienaber JA
Heard	March 8, 1993
Judgment	May 17, 1993

Flynote : Sleutelwoorde G

Contract — Legality — Restraint of trade — Public policy — Restraint either wholly or partially assailable if it damages public interest and H therefore in conflict with public policy — Reasonableness of restraint judged on basis of broad interests of community on one hand and of interests of contracting parties on the other — Considerations applicable in such adjudication — Restraint unreasonable and contrary to public policy if it prevents one party, at termination of contractual relationship, from freely participating in commercial and professional I world without protectable interest of other party being served thereby — Restraint which is reasonable inter partes might still be against public interest for a reason not peculiar to parties and vice versa — Four questions to be asked in this regard, ie (a) whether claiming party has a protectable interest; (b) whether such interest prejudiced by other party; J (c) if so, whether such interest, weighed qualitatively and quantitatively

1993 (3) SA p743

A against interest of other party, such that latter should not be economically inactive and unproductive, and (d) whether there is another facet of public policy having nothing to do with relationship between parties which requires restraint either to be enforced or to be voided — Parties' own view, as reflected in contract, as to reasonableness of B restraint never decisive but only a factor to be considered in decision as to reasonableness or otherwise of restraint — Likewise the consideration that parties contracted on an equal footing.

Contract — Legality — Restraint of trade — Public policy — Mere C elimination of competition as such not an interest deserving of protection by way of restriction of freedom of trade on termination of contract — Position not changing because restraint not arbitrarily contracted but in order to protect investment of capital or of time and attention to training of employee — Proper way of protecting such interest that of contractually binding other party to employment for a stipulated term — D Employer then having usual common-law remedies at his disposal if employee leaves before end of stipulated term and works for competitor.

Headnote : Kopnota

Per Nienaber JA, Botha JA and Milne JA concurring: An agreement is assailable either in its entirety or partially if it damages the public interest and is therefore in conflict with public policy. A provision of E this nature which attempts to restrain an employee or partner after termination of the contract is in conflict with public policy if the effect of the restraint would be unreasonable. The reasonableness or otherwise of the restraint is judged on the basis of the broad interests of the community, on the one hand, and of the interests of the contracting parties themselves, on the other hand. As far as the broad interests of the community are concerned, there are two conflicting considerations: agreements should be abided by (even if this should promote F unproductivity); and unproductivity should be discouraged (even if that should wreck an agreement). As far as the parties themselves are concerned, a restraint is unreasonable if it prevents one party, after the termination of their contractual relationship, from participating freely in the commercial and professional world without a protectable interest of the other party being properly served thereby. Such a restraint is as such contrary to public policy. Moreover, a restraint which is reasonable inter G partes might nevertheless, for a reason not peculiar to the parties, damage the public interest; and possibly also vice versa. In this connection four questions should be asked: (a) Is there an interest of the one party which is deserving of protection at the termination of the agreement? (b) Is such interest being prejudiced by the other party? (c) If so, does such interest so weigh up qualitatively and quantitatively against the interest of the other party that the latter should not be economically inactive and unproductive? (d) Is there another facet of public policy having nothing to do with the relationship between the H parties but which requires that the restraint should either be maintained or rejected? Insofar as the interest in (c) surpasses the interest in (d), the restraint would as a rule be unreasonable and accordingly unenforceable. It is matter of judgment which can vary from case to case.

Per Nienaber JA, Botha JA and Milne JA concurring: The parties' own views, as reflected in the agreement, as to what is reasonable can never be I decisive. Firstly, the reasonableness of the restraint is judged only after consideration by a court on the basis of factors which might not necessarily have been present to the minds of the parties. Secondly, the content of the agreement cannot itself be the exclusive measure of what is reasonable because that would result in the propriety of the agreement being tested against itself. That the parties in concluding the agreement seriously considered such a restraint to be necessary, that they identified and evaluated the disputed interests and described the J restraint itself as most reason-

1993 (3) SA p744

A able cannot therefore be decisive. It can at most be said that it can be a factor to be considered in determining what is deserving of protection and of what is reasonable. The same applies to the consideration that the parties at the time of the conclusion of the contract were not acting on an equal footing - that is a factor, one of many, which can play a role in the determination of the reasonableness of the restraint. But there it ends. If the restraint, at the time of the adjudication thereof, is considered by the Court to be unreasonable it is not enforceable, B regardless of the parity or otherwise of the parties to one another and however they may have regarded and described the provision at the time of the conclusion of the contract. No agreement, however carefully worded, can entrench an otherwise unreasonable provision. In short, it is simply not possible for the parties to conclude an agreement whereby commercial intercourse is unreasonably shackled.

Per Nienaber JA, Botha JA and Milne JA concurring: It has long been C accepted that the mere elimination of competition as such is not the kind of interest which can be protected by a restriction of freedom of trade after the termination of a contract; that is, that it does not weigh up against the prejudice which the other party will suffer if he cannot freely exercise his calling. The position does not change because the restraint was not arbitrarily stipulated but was contracted for in order to protect an investment, irrespective of whether it was, as in casu, an investment of capital or whether it was an investment in time and D attention devoted to the training of an employee. That does not mean that an investment of this kind is not deserving of protection; it only means that it cannot normally be protected by means of a provision which attempts to restrict freedom of trade after termination of the agreement; stated differently, the interest which the restraint attempts to protect in this manner does not as a rule weigh up against the interest of the other party not to be unemployed in his chosen field. The proper way of best protecting such an interest would, most probably, be to bind the E other party contractually in employment for a stipulated term - in which case the employee would receive his agreed remuneration and not be unproductive, while the employer would have the usual common-law remedies at his disposal should the employee leave before the expiry of the agreed term and take up employment with a competitor.

Applying the principles set out above, the Court, in an appeal from a decision in a Provincial Division enforcing a restraint of trade covenant F in an agreement between members of a proposed close corporation which was to be formed (and was formed) for the purpose of the building and refurbishing of buses (the restraint prohibiting the appellant from being employed by or engaged or concerned in any other such business or similar business anywhere in southern Africa for a period of five years after the date upon which the appellant ceased to be an employee of the corporation), held that the corporation's 'trade secrets' (as defined in the contract) were in principle interests which were protectable by means G of a restraint provision. The Court held however that there was, firstly, really nothing in the activities of the corporation which was actually confidential and, secondly, even accepting that there was such confidentiality, that it had not been shown that the appellant had breached such confidentiality. It was further held that the respondents' clientele as a proprietary interest was protectable but that, on the facts, including the fact that the appellant was not involved in sales but in production both whilst employed by the corporation and at his new H employment with a competitor of the corporation, there was no suggestion that the appellant had enticed or attempted to entice the corporation's clients away. There was furthermore no well-grounded fear that such enticement would occur in the future. The Court accordingly held that the corporation's interest, accepting that it was protectable, had not been prejudiced by the appellant. The Court further held, accepting that the interest of the first four respondents, as members of the corporation, in their investment of capital in the corporation was protectable, that the I intention of such...