14 December 2008 by

Restraint of trade: lack of proprietary interest

In the unreported case of Digicore Fleet Management (Pty) Ltd vs Steyn and Another (722/2007: SCA) handed down on 22 September 2008, the SCA had to determine the enforceability of a restraint of trade undertaking made by Steyn in favour of Digicore. Steyn had resigned from Digicore to take up a similar job with a competitor firm, Smartsurv Wireless.

Steyn was employed by Digicore for eight months as a sales executive for motor vehicle tracking devices. In terms of her employment contract, she had to maintain confidentiality in her work while in Digicore's employ and was restrained from competing with it for two years after leaving Digicore.

Digicore specialised in the sale of different tracking devices to fleet owner clients and also supplied tracking systems for individual users.

Steyn had previous experience in selling tracking systems, and had also worked in the insurance industry, where she developed good client networks. Digicore had offered Steyn the sales executive position because of her previous experience and contacts, which represented a new source of business to Digicore.

Smartsurv approached Steyn while she was with Digicore, offering her better pay and benefits. Steyn accepted the job offer, resigned from Digicore at the end of December 2006 and commenced work for Smartsurv in January 2007.

On learning that Steyn had approached two of its clients in early 2007, Digicore sought to restrain Steyn from competing with it for the duration of the restraint period.

The High Court refused Digicore's urgent application and the matter proceeded, with leave to appeal, to the SCA. Digicore had contended that the restraint was reasonable in order to protect its interest in its customer base. It claimed that it had trained Steyn and provided her with support to enable her to market and sell its recovery systems. It also claimed to have provided her with confidential information, such as client lists.

Steyn averred that she had not undergone any induction programme and that the only support she received was a laptop computer, a cell phone and brochures describing Digicore's range of products. She admitted being given a list of 20 customers that had been generated and compiled by the previous sales executive.
Steyn argued that Digicore had in the past concentrated mainly on corporate and fleet management clients and that she had brought her own potential customers and contacts because of her experience and expertise. She had cultivated those contacts. This was new business that followed her when she joined Smartsurv.

When Steyn left Digicore she took with her no more than what she had brought to the business initially. The High Court concluded that Digicore did not have a proprietary interest that was in jeopardy when Steyn resigned to join a competitor. The clients Steyn had attracted had been previously unknown to Digicore and it had no right to prevent her from using them.

Digicore had contended that Steyn had had access to its database, yet Steyn was able to demonstrate that the information to which she had access was in the public domain. While Digicore claimed Steyn had contacted two of its established customers, Steyn demonstrated that she did not know one of the customers named and that the other, which she had contacted, had made it plain he would remain a customer of Digicore. There was no evidence before the High Court that she had breached her restraint obligations to Digicore.

In determining whether or not the High Court had been correct to conclude that Digicore had no proprietary interest worthy of protection, the SCA had reference to the four-fold test enunciated by Nienaber JA in Basson vs Chilwan 1993 (3) SA 742 (A) at 768F-H, namely:

  • Is there an interest of the one party which prior to the conclusion of the restraint agreement warranted protection?
  • Is that interest threatened by the other party?
  • If so, does the interest weigh "qualitatively and quantitatively" against the interest of the other party resulting in that party becoming economically inactive and unproductive?
  • Is there another aspect of public interest that does not affect the parties per se, but requires that the restraint be enforced?

The SCA applied this test and concluded that Steyn presented no threat to Digicore's interests. She was using her own contacts and information acquired before her employment with Digicore. She was not making improper use of confidential information. She had no experience in fleet management clients and made no effort to break into that area of business. Her employment with Digicore had also been very short. Her client contacts wished to move with her to Smartsurv. It could not be said that Digicore's interest could be regarded qualitatively or quantitatively as warranting protection. Steyn, on the other hand, could have been left economically inactive if the restraint was enforced. There was no other public interest issue requiring such enforcement. The appeal was dismissed with costs.

This case provides a practical set of guidelines to determine whether a restraint of trade covenant is capable of enforcement. The four questions are the key considerations in determining whether there is a protectable interest, which is a factual debate.

Fiona Leppan

The information and material published on this website is provided for general purposes only and does not constitute legal advice.

We make every effort to ensure that the content is updated regularly and to offer the most current and accurate information. Please consult one of our lawyers on any specific legal problem or matter.

We accept no responsibility for any loss or damage, whether direct or consequential, which may arise from reliance on the information contained in these pages.

Please refer to the full terms and conditions on the website.

Copyright © 2021 Cliffe Dekker Hofmeyr. All rights reserved. For permission to reproduce an article or publication, please contact us cliffedekkerhofmeyr@cdhlegal.com