L G ELECTRONICS (PTY) LTD. Urgent application to enforce restraint of trade. Matter is not urgent. JUDGMENT

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1 THE LABOUR COURT OF SOUTH AFRICA JOHANNESBURG Not reportable Case number: J 2330/2016 In the matter between: L G ELECTRONICS (PTY) LTD Applicant and NATHAN NEYT IMPERIAL AIR CONDITIONING (PTY) LTD First Respondent Second Respondent Heard: 20 October 2016 Delivered: 27 October 2016 Summary: Urgent application to enforce restraint of trade. Matter is not urgent. JUDGMENT PRINSLOO. J Introduction: [1] The Applicant filed an urgent application seeking to interdict and restrain the First Respondent (Neyt) from inter alia being employed or performing work in any capacity for the Second Respondent (Imperial) or any competitor of the

2 2 Applicant, from encouraging, enticing, inciting, persuading or inducing any employee of the Applicant to terminate his or her employment with the Applicant and from making use, directly or indirectly, or disclosing any of the Applicant s trade secrets or confidential information. The area of operation of the interdict sought is the Republic of South Africa and the period of enforcement is one year from the date of the Court order, alternatively the date of termination of Neyt s employment with the Applicant. [2] Neyt opposes the application and took issue with urgency. Neyt disputes that the matter is urgent, and that any urgency that may be found to exist, has been self created. [3] In my view the issue of urgency has to be decided first. Material facts: [4] The Applicant conducts business in the electronics sector and more specifically in the manufacture, marketing and sale of consumer electronics, mobile communications, air conditioning, IT products and home appliances throughout South Africa. [5] Neyt was employed by the Applicant on 1 August 2012 as a technician in the Applicant s air conditioning and energy department. Neyt signed a contract of employment with the Applicant on 27 June 2012 and a confidentiality agreement on 15 September During 2014 Neyt was promoted to the position of acting technical manager in the Applicant s air conditioning and energy department. Neyt held this position until 27 July 2016, when he resigned to take up employment with the Second Respondent (Imperial). [6] Imperial is a distributor in South Africa for Midea Air Conditioning (Pty) Ltd. Midea has an international presence and operates in the global market. Midea manufactures and sells various types of air conditioners in the residential, commercial and industrial ranges. The Applicant s case is that Imperial s target market is the same as that of the Applicant s air conditioning division and that they are direct competitors in the South African air conditioning market. [7] In his capacity as acting technical manager, Neyt was required to manage and foster the existing relationships between LG Electronics and some of its

3 3 important and valued customers. Neyt does not dispute that he had access to highly confidential information, but he denied that he had used any such information or customer connections to facilitate unlawful competition with the Applicant and stated that he has no intention to do so in future. [8] On 11 October 2016 the Applicant filed an urgent application seeking the relief which I have already alluded to herein above. The applicable principles [9] Whether a matter is urgent involves two considerations. The first is whether the reasons that make the matter urgent have been set out and secondly, whether the applicant seeking relief will not obtain substantial relief at a later stage. In all instances where urgency is alleged, the applicant must satisfy the court that indeed the application is urgent. Thus, it is required of the applicant adequately to set out in his or her founding affidavit the reasons for urgency, and to give cogent reasons why urgent relief is necessary 1. [10] In Vermaak v Taung Local Municipality 2 this Court has held that: 'The consideration of the first requirement being why is the relief necessary today and not tomorrow, requires a court to be placed in a position where the court must appreciate that if it does not issue a relief as a matter of urgency, something is likely to happen. By way of an example if the court were not to issue an injunction, some unlawful act is likely to happen at a particular stage and at a particular date.' [11] It is equally trite that an applicant is not entitled to rely on urgency that is selfcreated when seeking a deviation from the rules 3. [12] In National Police Services Union and others v National Negotiating Forum and others 4 this Court held the view that the latitude extended to parties to dispense with the rules of the court in circumstances of urgency is not available to parties 1 Transport and Allied Workers Union of SA vs Algoa Bus Company (Pty) Ltd (2015) 36 ILJ 2148 (LC). 2 (JR315/13) [2013] ZALCJHB 43 (12 March 2013) at para Jiba v Minister: Department of Justice and Constitutional Development and others (2010) 31 ILJ 112 (LC). 4 (1999) 20 ILJ 1081 (LC).

4 4 who are dilatory to the point where their very inactivity is the cause of the harm on which they rely to seek relief. [13] It is evident from the authorities referred to supra that the first issue to be considered is the reasons why the application is urgent. Reasons for urgency [14] In opposing the application, Neyt took issue with urgency and stated that any urgency that may be found to exist, has been self created. This calls for a closer consideration of the reasons why the application is urgent and the question of when the Applicant became aware of the alleged breach of the restraint and confidentiality agreements. [15] The deponent to the Applicant s founding affidavit is Farzana Abdul (Abdul), the Applicant s legal and human resources manager. In the founding affidavit Abdul made the following pertinent averments: Neyt resigned on 27 July 2016 and thereafter LG Electronics came to learn that the respondent had taken up employment with Imperial. In the circumstances, it is apparent that the respondent sought to deliberately conceal the fact that he was taking up employment with Imperial. [16] Adbul further explained that it is a usual practice at LG Electronics for an employee who resigned to take up employment with a competitor, not to serve the full notice period. Abdul stated that the respondent was aware or should reasonably have been aware of this practice of LG Electronics but nonetheless continued to conceal the fact that he was due to take up employment with Imperial, this further exacerbates the concerns of LG Electronics. [17] The Applicant s case is that it only became aware on 31 August 2016 that Neyt had taken up employment with Imperial in the position of sales engineer when an unnamed client of the Applicant informed Louis Nortje (Nortje) that Neyt had been giving information to it regarding LG Electronics pricing, product data and the like to show that Imperial s product (sic) were better. Nortje is the Applicant s general manager in the air conditioning and energy department and he deposed to a confirmatory affidavit, confirming Abdul s affidavit to be correct insofar as it relates to him.

5 5 [18] The Applicant also became aware that the Respondent was contacting existing employees of LG Electronics in an attempt to solicit and recruit them, which is in breach of the restraint of trade provisions, as contained in Neyt s contract of employment. These targeted employees are key employees of great value to the Applicant. Specific reference is made to Anzel Steyn, who resigned from the Applicant to take up employment with Imperial. Steyn has subsequently withdrew her resignation and she is still in the Applicant s employ. [19] In the same founding affidavit, Adbul made the following statement: As stated above, during September 2016 LG Electronics became aware that the respondent had left his employ and taken up employment with Imperial. LG Electronics thereafter instructed its attorneys of record, Cliffe Dekker Hofmeyr (CDH) to address correspondence to the respondent and Imperial to seek undertakings from the respondent and Imperial. [20] The letter Cliffe Dekker Hofmeyr addressed to Neyt and Imperial was appended to the founding affidavit and it appears from the letter that it is dated 3 October In the letter it was stated that during September 2016 it came to the Applicant s knowledge that Neyt contacted and tried to solicit certain of the Applicant s customers and that it now came to the Applicant s knowledge that he was trying to entice employees to leave the Applicant and to work for Midea. [21] In the same letter Cliffe Dekker Hofmeyr stated that Although entitled to, our client, without prejudice to its rights, did not object to your employment by Midea. Our client s lack of objection to this conduct was extended as a courtesy to you, due to the relationship between you and our client, and on the understanding that you would not use our client s trade secrets and confidential information, including its client connections, to compete with it. [22] In explaining the urgency of the application, Abdul stated that it only came to the Applicant s attention during September 2016 that Neyt had taken up employment with Imperial as sales engineer. Abdul alleged that LG Electronics acted immediately by contacting CDH in September [23] Abdul stated that the respondent is in possession of highly sensitive information that is confidential and proprietary to LG Electronics. For every day that the

6 6 respondent remains in the employ of Imperial there is a risk that this confidential and proprietary information will be made known to Imperial. [24] In summary, the following case is made out in the founding affidavit: Neyt resigned from the Applicant on 27 July 2016 and he deliberately concealed the fact that he was taking up employment with Imperial. Only on 31 August 2016, alternatively September 2016, and via a client of the Applicant, did the Applicant become aware that Neyt was employed by Imperial. The Applicant acted immediately and contacted Cliffe Dekker Hofmeyr and this urgent intervention resulted in this application. [25] In his opposing papers Neyt explained that the Applicant was fully aware of his future employment as sales engineer with Imperial, a direct competitor and that it did not proffer any objection or impediment thereto. Neyt explained the facts leading up to his resignation in great detail and his version is that he told Nortje on 25 July 2016 that he considered resigning and that he was interested in taking up a position at Imperial. Neyt s case is further that he received a written offer from Imperial on 26 July 2016 and that he gave a copy thereof to Nortje shortly after he received it. He tendered his resignation on 27 July 2016, which resignation Nortje accepted and advised Neyt that he would be required to undertake an exit interview immediately. Neyt confirmed that the Applicant s practice was for an employee leaving the company to take up employment with a direct competitor, to waive the notice period and leave immediately. Neyt s version is that Abdul and Nortje met with him and advised him that he was required to sign a waiver of his notice period, which he did. [26] Neyt s version is that at no stage prior to his resignation or at the time of his resignation or at the subsequent meeting with Abdul and Nortje, did the Applicant raise the issue of the restraint or was any objection or impediment raised to his employment at Imperial by virtue of him having knowledge of confidential information or by virtue of trade connections built up at the Applicant. [27] Neyt explicitly stated that any allegation by the Applicant that he concealed the fact that he was taking up employment with Imperial is untrue.

7 7 [28] Neyt attached a confirmatory affidavit from Riaan van der Westhuizen, who provides human resource services to Imperial wherein he confirmed that Nortje sent him a whatsapp text message on 25 July 206 regarding the intended employment of Neyt. In the message Nortje stated Ek sien julle target alweer vir Nathan!?. [29] In summary the answering affidavit stated that the Applicant knew since 27 July 2016 that Neyt was taking up employment with Imperial, a direct competitor and that the Applicant never took issue with that. [30] Neyt s version in this regard is supported by the letter from Cliffe Dekker Hofmeyr wherein the attorneys for the Applicant stated on 3 October 2016 that the Applicant did not object to your employment by Midea. Our client s lack of objection to this conduct was extended as a courtesy to you, due to the relationship between you and our client, and on the understanding that you would not use our client s trade secrets and confidential information, including its client connections, to compete with it. [31] The Applicant filed a replying affidavit in response to the opposing papers. The allegations in Neyt s opposing papers were not dealt with ad seriatim but Abdul specifically addressed the issue of urgency and submitted that the Applicant was not dilatory in bringing this application. [32] Abdul s version in reply is that Neyt misled them (Abdul and Nortje) at the time of his resignation as to the nature of the role he was taking up at Imperial. Further Abdul conceded that they adopted the view that the Applicant would not enforce the restraint of trade and confidentiality agreements as it would not infringe to a material degree on the Applicant s confidential information or customer connections. This was based on the understanding that Neyt would be doing technical work at Imperial. [33] Abdul in reply also disclosed the name of the client who informed Nortje on 31 August 2016 of the fact that Neyt was involved in sales and was trying to solicit business from one of the Applicant s clients, Africa Power Equipment. [34] Abdul explained that during September 2016 the Applicant attempted to assess the level and scale of Neyt s competition and interference with the Applicant s customer relations by making enquiries in the market place. The Applicant

8 8 received little information and it appeared that Neyt s approach to Africa Power Equipment was a once-off event. However, on 30 September 2016 the Applicant became aware that Neyt was involved in efforts to entice Steyn to leave her employment with the Applicant to take up employment with Midea. It then became apparent to the Applicant that Neyt was acting in repeated breach of his restraint. [35] It is evident from the contents of the replying affidavit that the Applicant moved from a position where it claimed that it was unaware until 31 August 2016 or September 2016 that Neyt was employed by Imperial and that this fact was deliberately concealed by him, to a different position. The Applicant, in reply, does not dispute that Neyt informed the Applicant at the time of his resignation that he was going to be employed by Imperial, a competitor, and that the Applicant adopted the view that it would not enforce the restraint of trade and confidentiality agreements as it would not infringe to a material degree on the Applicant s confidential information or customer connections. [36] The Applicant s case in reply is that Neyt misled them as to the nature of the role he was taking up at the Second Respondent. This is a version vastly different from the one proffered in the Applicant s founding affidavit. [37] Based on the facts placed before me, I find that the Applicant was aware of the fact that Neyt was taking up employment with Imperial since 27 July 2016 and that it then elected not to enforce the restraint of trade. In my view, based on the affidavits filed, the Applicant s allegation that it was misled on 27 July 2016 as to the position Neyt was going to occupy at Imperial, must be taken with the proverbial pinch of salt and with due consideration of the well established principles that an applicant s case has to be made out in the founding affidavit, where this case was obviously not made out. [38] In justification for the urgency, the Applicant alleged that Neyt is in possession of highly sensitive information that is confidential and proprietary to LG and for every day that he remains in the employ of Imperial, there is a risk that this confidential and proprietary information will be made known to Imperial. [39] That ship not only left the harbour but has sailed. The Applicant knew since 27 July 2016 that Neyt was employed by Imperial, it was allegedly told by a client

9 9 on 31 August 2016 that Neyt was disclosing confidential information about LG, yet the Applicant approached this Court only on 11 October 2016, with the expectation to make out a case for urgency because every day Neyt remains in the employ of Imperial, there is a risk that confidential and proprietary information will be made known to Imperial. If that risk existed and if it was real, the Applicant would not have waited from 27 July 2016 until 11 October 2016 to seek relief from this Court, and that without an explanation for the tardiness to file this urgent application. [40] I am not convinced that the Applicant has made out a case for urgency. If I am wrong on this point and if a case for urgency had indeed been made out, such urgency is self created and does not entitle the Applicant to urgent relief. [41] However, that is not the end of the enquiry. I also have to consider whether the Applicant will not obtain substantial relief at a later stage and the reasons why urgent relief is indeed necessary. Is urgent relief necessary? [42] The question is why is the relief necessary today and not tomorrow. As held in Vermaak, a court needs to be placed in a position where it must appreciate that if it does not issue a relief as a matter of urgency, something is likely to happen. [43] The Applicant has two main complaints in respect of the conduct of Neyt. [44] This first is that he competed with the Applicant by using his customer connections built up while in the Applicant s employ to attempt to solicit business from the Applicant s customers. The only evidence in this regard placed before Court is that Neyt contacted an unnamed client of the Applicant, who was later named as Garth Mitchley (Mitchley) from Africa Power Equipment, who informed Nortje that Neyt had been giving information to it regarding LG Electronics pricing, product data and the like to show that Imperial s product (sic) were better. [45] Mitchley subsequently deposed to an affidavit that was placed before this Court wherein he stated that he had been requested by the Applicant s attorneys to provide a statement as to his interactions with Neyt, as those may be relevant to the application to enforce the restraint of trade. I have no doubt that Mitchley

10 10 knew and understood the context within which he was asked to depose to the affidavit he placed before Court. [46] Mitchley explained that Africa Power Equipment has a sole supplier arrangement with the Applicant in terms of which it could only source air conditioning equipment from LG Electronics and not any other supplier. He further explained that he knew Neyt as they were both employed by LG and they had regular interaction on work matters and that they enjoyed a good working relationship. Mitchley left LG Electronics in June 2016 to join Africa Power Equipment as general manager and in August 2016 he called Neyt to ask for technical advice, as he thought Neyt was still employed by LG, but Neyt told him that he was working at Midea. On 31 August 2016 Neyt came to his office and brought with him catalogues and price lists from Midea and after a general chat, Neyt left. [47] Mitchley s version differs materially from the Applicant s version in that he stated under oath that Neyt brought him a catalogue and price list for Midea, where after they had a general chat. The Applicant on the other hand claims that Neyt gave Mitchley information regarding LG Electronics pricing, product data and the like to show that Imperial s products were better. It is noteworthy that Mitchley confirmed that Africa Power Equipment has a sole supplier agreement with LG and cannot source from any other supplier. [48] I find it very strange that Mitchley, who allegedly told Nortje that Neyt had been giving information to it regarding LG Electronics pricing, product data and the like to show that Imperial s product were better does not state that in his own affidavit, nor does he confirm the affidavit deposed to by Abdul to be correct. [49] I have to reject the version put forward by the Applicant in this regard as it is simply not supported by the affidavit of the person who allegedly disclosed the information to the Applicant and who informed Nortje, as alleged by the Applicant. [50] Furthermore, on the Applicant s own version it attempted to assess the level and scale of Neyt s competition and interference with the Applicant s customer relations by making enquiries in the market place during September The

11 11 Applicant received little information and it appeared that Neyt s approach to Africa Power Equipment was a once-off event. [51] I am not convinced that if relief is not issued as a matter of urgency, something is likely to happen in respect of Neyt competing with the Applicant by using his customer connections, built up while in the Applicant s employ, to solicit business from the Applicant s customers. On the Applicant s own version this happened in August 2016 and it appeared to be once off. [52] The second complaint is that Neyt was contacting existing employees of LG Electronics in an attempt to solicit and recruit them, which is in breach of the restraint of trade provisions. These targeted employees are key employees of great value to the Applicant. The Applicant failed to mention who these alleged key employees of great value are and no details are provided in respect of this allegation. The allegation is vague and unsubstantiated. [53] The only employee that specific reference is made to is Anzel Steyn, who resigned from the Applicant to take up employment with Imperial, but subsequently withdrew her resignation and is still employed by the Applicant. [54] In his opposing papers Neyt denied that he has targeted Steyn or anyone else to join Imperial. He admitted that he had breakfast with Steyn on 31 August 2016 and that he advised her of a vacant position available at Imperial. He submitted that he did not offer the position to Steyn, nor did he negotiate with her or enticed her and he denied that his conduct constituted a breach of the non-solicitation provisions of the contract. [55] In reply the Applicant dealt with issue with reference to the position Neyt took up with Imperial and requested for the issue to be referred to oral evidence. What the Applicant did not deal with, is Neyt s allegations that he has not targeted Steyn or anyone else and that he has not enticed her to take up employment with Imperial. [56] This allegation could have been supported and substantiated by an affidavit deposed to by Steyn wherein she could have confirmed the Applicant s allegations that Neyt solicited and enticed her to take up employment with Imperial. I find the absence of such an affidavit strange and concerning, more so where the allegations were denied by Neyt and the fact that Steyn is still

12 12 employed by the Applicant and would therefore be available to depose to such an affidavit. [57] Mr Fourie for the Applicant was unable to explain why an obviously needed affidavit was not placed before Court. [58] In this regard I am also not convinced that if relief is not issued as a matter of urgency, something is likely to happen in respect of Neyt s alleged soliciting of the Applicant s employees and enticing them to leave the Applicant s employment and take up employment with Imperial. No details were provided of any employees Neyt contacted and solicited, apart from Steyn. Steyn withdrew he resignation and is still in the Applicant s employ and there is clearly no urgent relief required to prevent something from happening. [59] I already alluded to the fact that the Applicant failed to place an affidavit deposed to by Steyn before this Court and this allegation is nothing more that the Applicant s say so hearsay evidence. [60] The Applicant failed to demonstrate that the matter is urgent. Costs [61] The court has a broad discretion to make orders for costs according to the requirements of the law and fairness. The requirement of law has been interpreted to mean that the costs would follow the result. [62] Both parties argued for costs. Mr Nepgen for the the First Respondent argued that the Applicant should be ordered to pay Neyt s costs on a punitive scale. The issue of costs on a punitive scale had been raised in Neyt s opposing affidavit and Mr Nepgen argued that punitive costs would be justified in view of the conduct of the Applicant. He submitted that the Applicant was untruthful in the founding affidavit and presented another version in reply and such dishonest conduct justified punitive costs. Mr Nepgen further argued that Neyt is an individual, whilst the Applicant is a corporate entity with deep pockets, that seeks to enforce a restraint where there is no proof of a breach thereof placed before Court. Mr Fourie on the other hand argued that costs should follow the result and that there was no justification for a punitive cost order.

13 13 [63] I can see no reason why costs should not follow the result on a scale as between attorney and client. The conduct of the Applicant in these proceedings justifies such a cost order. [64] Order In the premises, I make the following order: 1. The application is struck off the roll for lack of urgency; 2. The Applicant to pay the costs on a scale as between attorney and client. Connie Prinsloo Judge of the Labour Court

14 14 APPEARANCES: For the Applicant Instructed by : Advocate G Fourie : Cliffe Decker Hofmeyr Attorneys For the First Respondent: Advocate J Nepgen Instructed by Le Roux Inc Attorneys