Provided by De Rebus: SA Attorneys' Journal: The Law Reports
Restraint of trade: Two cases dealing with this sub-topic of the law of contract were reported in the material under review. In both cases the applicant-employer who wished to enforce the restraint of trade clause was a Netherlands company, registered as an external company in South Africa. (I will refer to it here as 'IIR'.) It was part of a world-wide organisation that organised conferences. It had conducted its South African business since 1990.
The first of these cases was reported under the citation of IIR South Africa BV (Incorporated in the Netherlands) t/a Institute for International Research v Tarita and Others 2004 (4) SA 156 (W). In this case Marais J had to deal with the following set of facts. An ex-employee who was bound by a one-year restraint left her employer (IIR) and joined a competing company. The latter was aware of the restraint. Before she joined, the ex-employee obtained legal advice to the effect that the restraint was unenforceable against her.
Marais J held that IIR had had protectable confidential information, and that while employed by the competing company, the ex-employee assisted in the organisation of two conferences that were held during March and April 2003. What was not proved, according to Marais J, was that IIR's confidential information had been used in the organisation of the two conferences. In the judgment, signed on 14 March 2003, the ex-employee's continued employment by the competing company, for the duration of the restraint, was interdicted.
As against the competing company, it was interdicted from holding the two conferences. In formulating his decision, Marais J reasoned that the issue was whether the conferences could be interdicted 'on the basis that the [competing company] used the [ex-employee], acting in breech of her restraints in favour of [IIR] to organise such conferences' and whether 'the [competing company] also assisted the [ex-employee] to breach her restraint'. On the facts, the court held that the competing company could be interdicted only if it could be found that it had committed the delict of competing unlawfully with IIR. But what the court had not dealt with was what had to be proved to establish the delict.
In formulating his finding, Marais J reasoned as follows:
'The very object of the restraint was to prevent the first respondent [the ex-employee] from assisting a competitor of the applicant [IIR], and preventing the competitor from deriving the benefit of such assistance. If the third respondent [the competing company], despite acting bona fide [in the sense that they may have bona fide believed that the ex-employees were not in breach of the restraint], put together conferences with the assistance of the first respondent [ex-employee] who was restrained from giving such assistance, then I consider that the third respondent [competing company] was competing unfairly with the applicant [IIR]' (my insertions) (170"171).
In support of his finding Marais J referred with approval to the decision in Genwest Batteries (Pty) Ltd v Van der Heyden and Others 1991 (1) SA 727 (T) at 729. The problems leading up to the decision in IIR v Tarita were not the only ones experienced by IIR. A second senior conference organiser in their employ, one Hall, also resigned to take up a similar job at a competing company.
IIR approached the court to interdict the competing company from holding 14 conferences. Its application was dismissed by Willis J but he granted it leave to appeal to a full bench of the Witwatersrand Local Division. The appeal of this application has now been reported under the citation of IIR South Africa BV (Incorporated in the Netherlands) t/a Institute for International Research v Hall (aka Baghas) and Another 2004 (4) SA 174 (W). Suffice it to mention here that IIR applied also for an interdict against Hall preventing her from breaching the restraint, but since she had subsequently left the employ of the competing company (the second respondent in the present proceedings), she did not bother to oppose the application.
In IIR v Tarita both the ex-employee and the competing company acted bona fide in believing that neither had breached the restraint. But in IIR v Hall the ex-employee was not bona fide. Hall blatantly lied at the job interview with the competing company by telling it that she was not under a restraint at IIR. After IIR had informed the competing company that Hall's employment was in breach of the restraint, the competing company dismissed Hall after conducting a disciplinary inquiry.
On appeal Schwartzman J (Gildenhuys J and Browde AJ concurring) held that IIR's claim against Hall was in contract, and the claim against the competing company in delict. The lex Aquilia was the correct remedy to employ where IIR sought relief against the misuse of confidential information and trade secrets by the competing company to advance its own business interests at the expense of IIR.
For space considerations I will merely mention here that the court dealt at length with the fundamental differences between the two distinct causes of action, contract and delict respectively. The fundamental difference between the two remedies was that in the delictual claim it did not suffice for the ex-employer (IIR) merely to prove that the ex-employee (Hall), who had protectable information, had taken up employment with a rival, who was unaware of the restraint.
In addition, what had to be proved was an existing use, or a threatened use, of such information by the third party (the competing company). Thus, unlawful or unfair competition could result only if the new employer (the competing company), through the ex-employee, used, either intentionally or innocently, confidential information of the ex-employer. In such circumstances, the ex-employer was entitled to an interdict against unfair competition.
In the IIR v Hall case the only 'unlawful act' or wrongdoing committed by the competing company was to employ a person bound by a restraint. That act did not result in the misuse of any confidential information by the competing company. Any harm that the competing company might cause during the remaining period of restraint was obviated by the interdict granted against Hall.
To interdict the competing company from holding two (of the 14) conferences appeared to be nothing more than a punishment for unwittingly employing a person subject to a restraint. There were no public policy or legal requirements to justify such an order. As against Hall, IIR received the benefit of the restraint clause when the competing company had dismissed her. As it was not proved that the competing company had had possession, or had used, or had threatened to use IIR's confidential information, there was no reason to interdict the holding of the 14 conferences.
The appeal was accordingly dismissed with costs.