In the High Court of South Africa s15

IN THE HIGH COURT OF SOUTH AFRICA (ORANGE FREE STATE PROVINCIAL DIVISION)Case No. : 2925/2006In the matter between:TAURUS STOCK IMPROVEMENT CO-OPERATIVE LIMITED Applicant andROY 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. SeeUNLAWFUL OCCUPIERS, SCHOOL SITE v CITY OFJOHANNESBURG 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 effect30 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 62006, 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 30June 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 ORGANICFERTILIZERS (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 HollandGenetics and Ambreed products in the Republic of SouthAfrica, 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 andAmbreed 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 andAmbreed 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; 101.2 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 paragraph12 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 paragraph1.1 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 SYSTEMSHOLDINGS LTD v VENTER AND ANOTHER 1993 (1) SA409 (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 PIKKEWYNGHWANO, supra at 188 H – 189 G. In this context, Stegman,J in KNOX D’ARCY LTD AND OTHERS v JAMIESON AND 12OTHERS 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.” 13See also METER SYSTEMS HOLDINGS LIMITED vVENTER AND ANOTHER supra at 532 C – D. In VANHEERDEN 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 GRINDINGCC v CARSTEN AND ANOTHER 1998 (4) ALL SA 168 (N) at176 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 vSPATZ 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 theApplicant 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 ofAgriculture.[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 HOLDINGSLTD 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 HollandGenetic 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 NewZealand 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, JOn behalf of the applicant: Adv. M. Rip SC Instructed by: Bezuidenhout & Milton Earle Inc. BLOEMFONTEINOn behalf of the respondents: Adv. A.F. Jordaan SC and N. Snellenburg Instructed by: Honey Attorneys BLOEMFONTEIN/em

In the High Court of South Africa s15

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