Random Logic (Pty) Ltd t/a Nashua, Cape Town v Dempster
| Jurisdiction | South Africa |
| Judge | Desai J, Erasmus J, Bozalek J |
| Judgment Date | 12 December 2008 |
| Docket Number | A419/2007 |
| Court | Cape Provincial Division |
| Hearing Date | 21 January 2008 |
| Citation | 2008 JDR 1526 (C) |
Bozalek J:
Appellant, a company carrying on business as a distributor of office automation and electronic equipment, brought an application against respondent, a former employee, seeking to enforce certain restraint of trade provisions in the employment agreement and to prevent him divulging its trade secrets and confidential information.
Bozalek J
The relief initially sought by appellant on an urgent basis in October 2006 was cast in extremely wide terms, namely, a rule nisi whereby respondent would be interdicted from using or disclosing appellants trade secrets and confidential information and from being employed by, or having any interest in, any business competing with appellant. No geographical limitation to the restraint of trade relief was envisaged. A rule nisi granting appellant certain interim relief was made whereafter the matter came before Blignault J on the return day for the determination of final relief. He dismissed the application but granted appellant leave to appeal to this court.
FACTUAL BACKGROUND
Appellant is a Nashua franchisee for a defined area in and around Cape Town including the central city and the southern suburbs but excluding the northern suburbs. One of its directors, Greenwood, testified that he had acquired the franchise for an amount exceeding R25 million and that the franchisor spent millions of rands each year on the Nashua brand name. It was uncontested that appellant sells office or automation equipment to approximately 5 000 clients and its annual turn-over exceeds R150 million.
Respondent was employed by the appellant as a sales representative for three years until his resignation in August 2006. Upon leaving he advised appellant that he was going to work for a glass company but, within a matter of weeks, was working as a sales representative for
Bozalek J
Gestetner, a competitor of appellant's within its franchise area. However, by the time the matter was argued before Blignault J, respondent had left Gestetner's employ and was working as a sales representative for another business known as Smart Copy, also a competitor of appellant in the office automation market in the larger Cape Town area.
Respondent testified that when he took up his position with Gestetner it was on the basis that he would work in the northern suburbs of Cape Town which falls outside appellant's exclusive franchise area. Regarding appellant's trade secrets and confidential information, respondent disputed that the information which he had gained during his employment with appellant amounted to trade secrets or confidential information which enjoyed protection in law. He stated that in any event he had little, if any, opportunity to utilise such knowledge given that he was working outside appellant's exclusive franchise area. Respondent testified, furthermore, that when he took up his position with Gestetner he undertook contractually not to use any of the information he had access to whilst employed by appellant nor to divulge such information to Gestetner. Similarly, he was contractually bound by his new employer not to target any of appellant's existing client base.
Both Gestetner's and Smart Copy's head office were located in central Cape Town. When respondent commenced employment with Smart
Bozalek J
Copy he concluded a employment agreement which, again, provided that he would work as a sales person in the northern suburbs of Cape Town until September 2008 (when his restraint with Nashua would expire) whereafter he could be deployed elsewhere. Although not directly dealt with in the affidavits, it seems clear that the office automation business, at least in the greater Cape Town area, is very competitive. Furthermore, judging by the number of similar applications brought by appellant in the two years prior to the present application, the phenomenon of employees leaving to join competitors or set up their own businesses is quite common-place.
THE INTERIM RELIEF OBTAINED
The terms of the rule nisi comprising the order made in December 2006 called upon respondent to show cause on the return day why he should not:
be interdicted and restrained from directly or indirectly utilizing, disclosing, divulging or making known the trade secrets and confidential information of the Applicant;
pending the advent of 4th August 2008 be interdicted and restrained from:
approaching, advising or contacting in order to either directly or indirectly solicit the custom of any person or entity who was a customer with whom or to whom either on behalf of the Applicant negotiations, discussions or representations were entered into or made during the period of the Respondent's employ with the Applicant;
either directly or indirectly being employed by or having an interest in either as employee, principal, agent, worker director, shareholder, partner, consultant, financier or advisor in or in any other like capacity in any concern or entity which carries on the same business or a business similar to or alike the business of the Applicant within the exclusive area of the franchise of the Applicant."
The latter prayer largely follows the provisions of the key clauses of the restraint agreement. In terms of the same order it was stipulated that the provisions of paragraphs 1.1 and 1.2.1 would operate as an interim
Bozalek J
interdict. At the hearing of the matter on the return date the parties' arguments focused, however, on the relief sought in paragraph 1.2.2 of the rule nisi i.e. the enforcement of the restraint of trade, with the result that, when he found against appellant in respect of such relief, Blignault J dismissed the application with costs, thereby discharging the rule nisi in its entirety.
THE JUDGMENT OF THE COURT A QUO
In dealing with the merits of the application, Blignault J saw the crux of appellant's case as being an attempt to protect confidential information in regard to its customer connections. As a result the critical question was whether it would be reasonable for appellant to enforce the restraint clause against respondent in circumstances where he was actually working, and intended to continue working until the restraint expired, as a sales representative in an area outside appellant's exclusive franchise area. The Court noted that, although it was not suggested that respondent himself would exploit these connections, appellant's case was that there was a danger that he might convey the confidential information in his possession about his former customer connections to fellow employees of his new employer who would then be in a position to exploit these connections within the exclusive franchise area of appellant to its detriment.
The learned judge considered the two categories of interest which appellant was seeking to protect and found that, on the facts before
Bozalek J
him, respondent's mere knowledge of customer connections, in an area where he himself was not working as a sales representative, was insufficient to justify the enforcement of the restraint.
With regard to appellant's reliance on the protection of its trade secrets, Blignault J then considered whether he was being required by appellant to protect the knowledge which respondent had acquired of appellant's customers during his employment. He found that although a customer list could, in appropriate circumstances, qualify as protectable confidential information, a distinction had to be drawn where such confidential information was used for the purposes of impersonal large scale marketing, as was the case in Telefund Raisers CC v Isaacs and Others 1998 (1) SA 521 (C), and the situation where the sales representative builds up personal connections with the customers. Presumably taking into account the fact that respondent would not be working in the appellant's exclusive franchise area, at least until his restraint expired, and his undertaking not to target the appellant's existing customers, Blignault J concluded that appellant had not established that it reasonably required to enforce the restraint clause against respondent in the area where he was working for the purposes of protecting its confidential information about customers.
GROUNDS OF APPEAL
Appellant's main grounds of appeal were that the court a quo failed to have proper regard to the nature of competition within the office
Bozalek J
automation industry and the value to competitors of appellant's...
To continue reading
Request your trial