IN THE HIGH COURT OF SOUTH AFRICA (ORANGE FREE STATE PROVINCIAL DIVISION)
Case No. : 2925/2006
In the matter between:
TAURUS STOCK IMPROVEMENT CO-OPERATIVE LIMITED Applicant and
ROY WILLIAM DIXON 1st Respondent ROLF JOHN HENDRIKSEN 2nd Respondent ELIZABETH FRANSINA HERMINA CONRADIE 3rd Respondent HENDRINA JOHANNA BUCHNER 4th Respondent PIETER MULLER THEART 5th Respondent ROBERT JOHANNES SEPTIMUS BOSCH 6th Respondent FRANSINA JOHANNA HOLDER 7th Respondent XSEED GENETICS (PTY) LIMITED 8th Respondent ______
JUDGMENT: VAN DER MERWE, J ______
HEARD ON: 18 JULY 2006 ______
DELIVERED ON: 22 AUGUST 2006 ______
[1] On 3 August 2006 I made the following order:
“IT IS ORDERED THAT:
1. The respondents are interdicted and restrained from
disclosing and/or using for their own benefit or the benefit 2
of the 8th respondent or any other person, the following
confidential information of the applicant:
1.1 the information emanating from its relationships with
farmers;
1.2 its pricing structures and profit margins;
1.3 its marketing strategies;
1.4 its trade connections;
unless and until such time as such information belongs to
the public domain.
2. The respondents pay the costs of suit, jointly or severally,
the one paying the others to be absolved.”
I intimated at the time that reasons for the order would follow.
These are the reasons.
[2] It is necessary at the outset to deal with the submission on
behalf of the respondents that it was not shown that the
application was properly authorised by the applicant. The
founding affidavit was deposed to by the assistant general
manager, administration and finance of the applicant, who
stated that he was duly authorised to launch the application on
behalf of the applicant. This averment was met by a denial as 3 well as a reference to an electronic communication from one of the directors of the applicant to the effect that the director was unaware of the application and not in favour of the prosecution thereof. In reply hereto it was stated on behalf of the applicant that the management of the applicant acted in terms of “the authorities that it has” in launching the application. In a letter from the chairman of the board of directors of the applicant, attached to the papers, it is stated that the deponent to the founding affidavit is authorised to handle all matters relating to the present litigation. It can therefore be accepted that the board of directors of the applicant did not take a special resolution to authorise the present application. However, the averment that the application was launched by management in terms of general authority granted to it, may very well be true and correct. The respondents did not challenge the authority of the attorneys who launched the application on behalf of the applicant in terms of the provision of rule 7(1). In the circumstances I consider this to be decisive of the present question. See
UNLAWFUL OCCUPIERS, SCHOOL SITE v CITY OF
JOHANNESBURG 2005 (4) SA 199 (SCA) at 206 to 207 4
paragraphs 14 – 16. I conclude that the submission on behalf
of the respondents in this regard cannot be sustained.
[4] The applicant is a co-operative. It deals in cattle genetics
mainly by the selling of bull semen to dairy farmers and beef
cattle farmers.
[5] The first respondent was employed by the applicant for a
period of approximately 18 years. Up to 17 January 2006 he
was the overall or principal sales manager of the applicant.
Thereafter the first respondent was the manager in charge of
sales by the applicant of Holland Genetics and Ambreed
products. The first respondent resigned from his employment
with the applicant by letter of 5 May 2006 and was allowed by
the applicant to leave with immediate effect. The seventh
respondent was employed by the applicant as the personal
secretary of the first respondent. The seventh respondent
resigned from her employment with the applicant with effect
30 June 2006.
[5] Up to 30 June 2006 the second to sixth respondents were all
involved in sales on behalf of the applicant. They are referred 5 to in the papers by the applicant interchangeably as sales representatives or sales consultants or even sales consultant agents, but the applicant insists that they were all employed by the applicant. It is disputed that the contractual relationship between the applicant and each of the second, fourth and fifth respondents was one of employer and employee and stated that these respondents acted as agents for the applicant. I find it unnecessary to resolve this dispute. I am prepared to accept in favour of the second, fourth and fifth respondents that the contractual relationship between each of them and the applicant was one of agency. For the sake of convenience however, I will refer to the positions of the second to sixth respondents as sales consultants. The second respondent was the sales consultant for the applicant in Southern Natal.
The third respondent was the sales consultant of the applicant for the Tsitsikamma area. The fourth respondent was similarly the sales consultant for the applicant in the Eastern Cape region. The fifth respondent was stationed in Bloemfontein and the sixth respondent was the sales consultant for the applicant for the Southern Cape region. The second to sixth respondents each gave notice of termination of their relationship with the applicant on 30 may 2006 or 1 June 6
2006, with effect from 30 June 2006. It appears to be
common cause that the fourth respondent was required to
give 90 days notice of termination of her relationship with the
applicant, that her 30 days notice was not accepted by the
applicant and that she was at the time when the application
was launched, still contractually bound to the applicant even
though she effectively left at the end of June. All the other
respondents are presently involved in or employed by the
eighth respondent. Only the first respondent deposed to an
answering affidavit on behalf of the respondents.
[6] The eighth respondent is a competitor of the applicant
especially in respect of sales of bull semen. The first, second
and third respondents are the directors of the eighth
respondent. It appears from the papers that the change of
directors of the eighth respondent in respect of the first,
second and third respondents, was effected in the offices of
the Registrar of Companies on the 9th of May 2006. It goes
without saying that instructions to effect the change of
directors must have been given prior to 9 May 2006. On 30
June 2006, the applicant received a publication featuring a
prominent and colourful advertisement placed by the eighth 7 respondent. This advertisement is attached to the founding affidavit. In essence the advertisement announces the launch of the eighth respondent on 1 July 2006 as a new company in the field of stock genetics. In the advertisement it is indicated that the first respondent is the general manager of the eighth respondent and that the seventh respondent is responsible for administration and accounts. It is further indicated that second respondent is responsible for sales in Kwazulu Natal, the third respondent for sales in Tsitsikamma, the fourth respondent for sales in the Eastern Cape, the fifth respondent for sales in the Free State and North West and the sixth respondent for sales in the Southern Cape. It is apparent therefore that the second to seventh respondents hold similar positions with the eighth respondent as they did with the applicant up to 30 June 2006. It can be accepted that the first to seventh respondents must have made preparations and must have had negotiations in order to launch the eighth respondent on 1 July 2006 whilst they were still employed or contractually bound to the applicant. Much was made of this in argument on behalf of the applicant. I am however not persuaded that such conduct per se was unlawful or constitutes a ground for any of the relief claimed. Compare in 8
this regard the remarks made in ATLAS ORGANIC
FERTILIZERS (PTY) LTD v PIKKEWYN GHWANO (PTY)
LTD AND OTHERS 1981 (2) SA 174 (T) at 199 A – C.
[7] By a letter dated the 28th March 2006, the Netherlands
company which in terms of a marketing agreement granted to
the applicant the exclusive rights to distribute Holland
Genetics and Ambreed products in the Republic of South
Africa, gave three months notice in terms of that agreement to
the applicant of the termination of the marketing agreement.
The rights of the applicant to market Holland Genetics and
Ambreed products were therefore terminated effectively on
the 30th of June 2006. It is common cause that the eighth
respondent is now the marketer for Holland Genetics and
Ambreed products, as is also apparent from the aforesaid
advertisement of 30 June 2006. The applicant believes that
the first respondent was the cause of all this and that he must
have orchestrated the events since February 2006. It is true,
as was pointed out on behalf of the applicant, that although
the first respondent in the answering affidavit indicated that he
would furnish an account as to how it happened that the
marketing of Holland Genetics and Ambreed products was 9
moved from the applicant to the eighth respondent, he actually
never did so. I am however not persuaded that on the
evidence before me a finding can be made that the first
respondent acted in any unlawful or untoward manner in this
regard. The conclusion that the Netherlands company was
unhappy with the performance of the applicant and entered
into an agreement with the eighth respondent after resignation
of the first respondent, is on the evidence as probable as any
other conclusion in this connection.
[8] By way of amendment made during argument, the applicant
moved for the following order:
“1. That the respondents be interdicted and restrained from:
1.1 Disclosing and/or using for their own benefit or the
benefit of the eighth respondent or any other
person, the confidential information of the applicant,
including but not limited to the company’s trade
secrets, pricing structures, marketing strategies,
profit margins, trade connections, customer lists and
contact people at customers; unless and until such
time as such information belongs to the public
domain; 10
1.2 Contacting any of the applicant’s customers, being
customers having been dealt with by the first to
seventh respondents, as at 30 June 2006.”
[9] There are several reasons why the relief claimed in paragraph
12 quoted above, cannot be granted. The main reason in my
view, is that the contracting per se of the customers of an ex-
employer or ex-principal cannot be regarded as unlawful. In
the present case the applicant relies upon prevention of
disclosure and/or use of the applicant’s confidential
information as the basis for this relief. As was fairly conceded
by counsel for the applicant, protection of confidential
information is properly and sufficiently dealt with in paragraph
1.1 quoted in paragraph 8 above.
[10] I therefore turn to the question of disclosure and/or of the
applicant’s confidential information by the respondents. The
point of departure in this regard is that as a general rule, every
person is entitled freely to carry on his trade or business in
competition with his rivals but that the competition must
remain within lawful bounds. See SCHULTZ v BUTT 1986 (3)
SA 667 (A) at 678 F – G. The use or disclosure of confidential
information would be unlawful if it takes place in breach of an 11
express, tacit or implied term of a contract and the respondent
does not prove that enforcement of such contractual provision
would be contrary to public policy. It is normally an implied
term of every contract of employment that an employee will
not use confidential information acquired during his period of
service for his own benefit or to the determent of his employer
and such term binds the employee even after he has left the
service of the employer. See ALUM-PHOS (PROPRIETARY)
LIMITED v SPATZ AND ANOTHER 1997 (1) ALL SA 616 (W)
at 623 c – d. In respect of other fiduciary relationships such
as the contract between a principal an his agent, a similar
contractual duty to refrain from using or disclosing confidential
information, is implied by law. See METER SYSTEMS
HOLDINGS LTD v VENTER AND ANOTHER 1993 (1) SA
409 (W) at 426 E – J.
[11] In the absence of a contractual provision, the use and/or
disclosure will be unlawful if it is so regarded by the
application of the objective norm of public policy, the boni
mores. See ATLAS ORGANIC FERTILIZERS v PIKKEWYN
GHWANO, supra at 188 H – 189 G. In this context, Stegman,
J in KNOX D’ARCY LTD AND OTHERS v JAMIESON AND 12
OTHERS 1992 (3) SA 520 (W) at 527 F – I drew a distinction, relied upon by counsel for the respondents in this matter, between trade secrets in a broad sense and other confidential information in the following terms:
“(a) 'trade secrets', in a broad sense, being confidential
information of an employer to which an employee may
have access and which is of such a nature that the
employee may never use it except for the benefit of the
employer, and which the employee remains bound to
keep secret at all times after leaving that employer's
employ; and
(b) other confidential information of an employer which an
employee must guard as confidential as long as he
remains employed by the employer, by virtue of his
general implied duty of good faith to his employer (a duty
the extent of which varies according to the nature of the
contract), but which is of such a nature that 'it is inevitably
carried away in the employee's head after the
employment has ended', and which the employee then
remains free to use for the benefit of himself or others
provided that he has not, whilst still employed by that
employer, broken his duty of good faith by, for example,
making or copying a list of that employer's customers or
deliberately memorising such a list.” 13
See also METER SYSTEMS HOLDINGS LIMITED v
VENTER AND ANOTHER supra at 532 C – D. In VAN
HEERDEN AND NEETHLING, UNLAWFUL COMPETITION, pagina 237, this approach was criticised in the following manner:
“It is difficult to see on which grounds a distinction is or can be
made between trade secrets (as confidential information) and
other confidential information – Stegman J gave no indication as
to the criterion(a) to be employed. Indeed, it seems that even
information which may correctly be classified as trade secrets
under type (a), may as a result of many years of experience,
involvement in the development of the secret and above
average intelligence also ‘be carried away in the employee’s
head after the employment had ended’. Does this information
then cease to be a trade secret? Because of its impracticability,
it is submitted that Stegman J’s view should not be followed.”
In MOTION TRANSFER & PRECISION ROLE GRINDING
CC v CARSTEN AND ANOTHER 1998 (4) ALL SA 168 (N) at
176 to 177, Page J favoured the viewpoint of Van Heerden and Neethling in this regard. I respectfully agree with the latter viewpoint. The application of a single criterion, namely 14
the objective and the reasonable one of public policy, appeals
to me as being both principled and flexible.
[12] There is no closed category of confidential information in this
context. In ALUM-PHOS (PROPRIETARY) LIMITED v
SPATZ AND ANOTHER, supra, at 623 g – j, Southwood J
gave a full exposition of the three requirements for information
to qualify as confidential information. First, it must invole and
be capable of application in trade or industry; i.e. it must be
useful. Second, it must not be public knowledge and public
property; i.e. objectively determined, it must be known only to
a restricted number of people or a closed circle and third, the
information objectively determined must be of economic value
to the person seeking to protect it. The next question for
decision therefor is whether the applicant has made a case
that the respondents are privy to such confidential information.
[13] In this regard the following is firstly stated on behalf of the
applicant:
“ The applicant as the name suggests in primarily concerned
with stock improvement of dairy herds and to a lesser extent of 15 beef herds. The way in which this is done is that Taurus sells bull semen to farmers for the purposes of artificial insemination of its cows in order to improve the quality of the stock that the farmer owns from both a milk producing basis as well as from a calving and meat production basis. In order to do so Taurus has sourced what it considers to be very good bull stock both within South Africa and internationally, so as to offer the best possible service to local farmers. For such stock improvement to be effective, this requires that a relationship be built up with a farmer over a number of years as his herd increases and improves, and to see the effect of the bull semen that has been used by the particular farmer of his herd. It entails a continuous relationship and one in which much confidential information is obtained and shared between the Applicant and the farmer. In this regard, the quality and extent of the farmer’s herd, the price of the bull semen, the bull from whom the semen is sourced and many other bits of information and data that are not known to the general public are sourced and shared between the
Applicant and the farmer in the joint efforts of the Applicant’s business acumen and activities. Such information would include the details of the cow insemination, her off-spring, the details of the insemination of her daughters and comparing the details and effect of all of the above. All of this information would be of confidential nature and known only to the farmer and the Applicant through its employees and sales consultants.” 16
[14] In response hereto the first respondent does not dispute the
applicant’s method of doing business. The first respondent
states however that the relationship between the applicant
and its customers is primarily dependent on the quality of the
products sold as well as the after sales service in respect of
the products. He adds that the customers of the applicant do
buy bull semen from various suppliers. It is also stated that
the information referred to by the applicant belongs to the
farmer and not the applicant and that the information is readily
obtainable from publications, including on the internet, by such
entities as breeder’s societies and the Department of
Agriculture.
[15] I do not think that the response of the first respondent
materially detracts from what the applicant stated above. The
existence of the relationships with farmers that the applicant
relies upon, is not denied as such. That the quality of the
products and after sales service are important matters, must
be true, but that does not in my view bring into dispute that
relationships of the kind described by the applicant, do exist,
nor does the mere fact that bull semen is also obtained from
other suppliers. I accept that the information referred to, 17
belongs to the farmer. The mere fact however that the farmer
may divulge confidential information is immaterial. Until the
information is so divulged, it remains confidential. Clearly not
all the information referred to above is ever published in the
publications of the nature that the first respondent mentions.
Until the information that will be published is actually
published, it remains confidential. Even when some
information is published it will probably not be done in a
compilation of form equal or comparable to the exact insight
that the applicant has in the set-up at the particular farmer.
[16] I understand the evidence of the applicant set out above to
mean that as a result of the continuous relationship between
the applicant and farmers, all the detailed confidential
information mentioned, is shared between them with a
common purpose, namely to improve the heard of a particular
farmer and the performance thereof. The effect thereof to my
mind is that the complete history, thinking behind and future
purpose of the breeding of the farmer is known to and utilised
by the applicant. Such comprehensive knowledge could be
obtained by someone else, but that would entail considerable
research, effort and time. The confidential information 18
emanating from such relationships enables the applicant to
immediately identify the needs of the customer and to focus
thereon. See for instance METER SYSTEMS HOLDINGS
LTD v VENTER AND ANOTHER, supra, pagina 428 G – H. I
conclude therefore that the applicant has established that the
respondents are privy to confidential information emanating
from the applicant’s relationships with farmers, in compliance
with the test for confidential information stated above.
[17] In my judgement the applicant’s internal pricing structures and
profit margins, as opposed to actual prices charged in the
market, constitute confidential information as defined above.
The same applies in my view to the applicant’s marketing
strategies and trade connections, especially its suppliers and
relationships between the applicant and its suppliers. It is
clear from the answering affidavit of the first respondent that
all of this information falls within the knowledge of
respondents, especially the first respondent who as sales
manager of the applicant was intensely involved in these
matters with the applicant. 19
[18] I am satisfied that the use and/or disclosure of the confidential
information of the applicant referred to above, must be
regarded as unlawful. The first to seventh respondents were
all employees or sales agents of the applicant. It is clear that
the respondents that I accept to have been agents and not
employees were bound to act only for and in the interests of
the applicant. I find that each of the first to seventh
respondents are bound by an implied contractual term not to
disclose and/or use confidential information of the applicant
for his or her own benefit or to the detriment of the applicant. I
am not persuaded that it would be contra bono mores to
enforce these provisions. I am in any event satisfied that
according to public policy the use or disclosure of the said
confidential information would be unlawful. It is common
cause that the market in question is highly competitive. To
allow the respondents in the circumstances set out above to
use the confidential information of the applicant referred to
above, would in my view be or tantamount to a so-called
springboard and be frowned upon by the reasonable members
of the public. 20
[19] There is in my judgement at least a reasonable apprehension
of disclosure and/or use of the confidential information of the
applicant in competition with the applicant. There is little
doubt that the respondents intend to deal with the farmers with
whom the applicant has relationships giving rise to confidential
information as set out above. This is in my view borne out by
the fact that the first respondent does not regard this
information as confidential and believes that the respondents
are entitled to make use thereof. Furthermore, in this regard I
take cognizance of the attitude displayed by the first
respondent in the answering affidavit in respect of the
applicant’s pricing structures and profit margins, marketing
strategies and trade connections. In the answering affidavit
the first respondent for instance stated that the applicant
suffered a loss of R20,00 per straw on sales of Holland
Genetic products and that 40% of the applicant’s customers
buy only South African developed semen. He further stated
that the eighth respondent intends using a different marketing
strategy to that of the applicant. He also stated in the
answering affidavit that the applicant at no stage had any
distribution or marketing agreement with Ambreed of New
Zealand and that Holland Genetics made the Ambreed 21
products available to the applicant for marketing. All of these
statements amount to disclosure of confidential information of
the applicant. This indicates a preparedness to make use of
confidential information or at least a lack of appreciation as to
what constitutes confidential information. It was not argued
that in case of these findings, another adequate remedy was
available to the applicant, correctly so in my view. For these
reasons I concluded that the applicant made a case for a final
interdict.
[20] The applicant did not show that it is entitled to an interdict in
respect of customer lists or contact people at customers. In
my judgment an order should only be granted in respect of
information that I have found to constitute confidential
information. This should not prejudice the respondents, as the
result is that an order was granted in terms less wide than
relief claimed. The order should be limited in duration. I
believe it suffices to restrain the disclosure or use of
confidential information until it is in the public domain as
suggested by the applicant. Costs should follow the result. 22
[21] For these reasons the order set out in paragraph 1 above,
was made.
______C.H.G. VAN DER MERWE, J
On behalf of the applicant: Adv. M. Rip SC Instructed by: Bezuidenhout & Milton Earle Inc. BLOEMFONTEIN
On behalf of the respondents: Adv. A.F. Jordaan SC and N. Snellenburg Instructed by: Honey Attorneys BLOEMFONTEIN
/em