Court name
Supreme Court of Zimbabwe
Case number
SC 15 of 2007
Civil Appeal 103 of 2006

Greendale Hardware & Electrical (Pvt) Ltd v Bangaba (03/06) (SC 15 of 2007, Civil Appeal 103 of 2006) [2007] ZWSC 15 (09 July 2007);

Law report citations
Media neutral citation
[2007] ZWSC 15













Judgment No. SC
15/07


Civil Appeal
No. 103/06








GREENDALE
HARDWARE & ELECTRICAL (PVT) LTD v
GOODFELLOW BANGABA








SUPREME
COURT OF ZIMBABWE


SANDURA JA, CHEDA JA &
MALABA JA


HARARE, FEBRUARY 5,
2007 & JULY 10, 2007









T Biti, for the appellant


D. Pundu, for
the respondent









MALABA JA: This is an appeal from a judgment of the High Court
dated 7 April 2006, dismissing with costs an application for an
order
enforcing a restraint of trade contained in the respondent’s
contract of employment with the appellant on the ground that
the
restriction was unreasonable and unenforceable.






The appellant is a
member of the Crundal Group of companies carrying on the business of
retail and wholesale of general hardware,
specialized mining and
industrial cutting tools and protective clothing from No. 2 Hood
Road, Southerton, Harare under the name “Mining
and Industrial
Suppliers”.





The respondent is a
former employee of the appellant. He was engaged as a clerk/counter
salesman on 28 August 1998 and was later
promoted to the position of
external sales representative. On 31 October 2004 the respondent
left employment with the appellant
and entered the services of an
undertaking known as RG Tools Zimbabwe (“RG Tools”) carrying on
business from No. 196 Glen Eagles
Road, Willowvale, Southerton,
Harare.





When the appellant
and the respondent entered into the contract of employment they
acknowledged that, by virtue of his duties, the
respondent would
become possessed of knowledge of proprietary rights of the appellant
in the business carried on. Such proprietary
interests listed in
Clause D of the agreement included trade secrets and details of trade
connections. They also agreed that for
the purpose of protecting the
proprietary rights listed in clause D, against the abuse of their
knowledge by the respondent during
the period of employment and after
he left employment with the appellant, it was necessary for the
respondent to undertake a restraint
of trade.





The parties agreed
that:



“1. Unless he obtains the express written authority of the Managing
Director of the specific company within the Crundal Group by
which he
is employed, the employee warrants and undertakes unto and in favour
of the group that during the period of his employment
with the group
and for a period of two years after his employment with the group
terminates for any reason whatsoever, he shall be
restrained from
being interested either directly or indirectly and whether as a
Director, Partner, Owner, Promoter, Principal, Agent,
Representative,
Shareholder, Financier or Employee in any undertaking involved
directly or indirectly in any of the business undertaken
by the Group
and the Employee agrees that he will not:







    1. Use
      any such knowledge or exercise any such influence as is referred to
      in Clause D of the preamble hereto in any way directly
      or
      indirectly prejudicial to or in competition with the group;










    1. Perform
      any service of a type, class or kind similar to or in competition
      with the services of the type, class or kind performed
      by the
      group;









    1. Be
      employed by any business, firm, undertaking or company (all of
      which are hereinafter called ‘any undertaking’) or be the
      agent
      of, or the advisor to any undertaking which performs any activity
      to or in competition with those of the group;









    1. In
      any manner whatsoever assist in the activities of any undertaking
      which carries on business similar to or in competition with
      the
      activities of the group;









    1. Be
      financially interested directly or indirectly in any undertaking
      which carries on activities similar or in competition with
      those of
      the group;









    1. Take
      part in any undertaking carrying on business of a type, class or
      kind similar to or in competition with the type, class or
      kind of
      business carried on by the group.








2. Each restraint aforesaid shall be deemed to be a separate
restraint for the purpose of this agreement.”







As an external sales representative the duties of the respondent
involved the promotion and sale of appellant’s products to old
and
new customers. He would visit customers at their places of business
to discuss with and explain to them the qualities of the
products
sold by the appellant. As a result the respondent acquired knowledge
of the names and addresses of the customers. He got
to know of their
special requirements which the appellant had to meet. The business
of the appellant was very extensive. The list
of names of customers
with whom the respondent came into contact shows that they were
located in almost all the urban centres of
the country including
Harare.





Annexure “J” is a
business card belonging to the respondent. It shows that he got
employment with RG Tools as a salesman. RG
Tools carried on the
business of “suppliers of mining and industrial tools and
equipment, electrical, building materials, abrasives
and general
hardware”. It was involved in the business of selling specialized
mining and industrial tools. It also dealt in general
hardware like
the appellant.





On 18 November 2004 the
respondent placed an order with “SANDVIK Tools” on behalf of RG
Tools for 33 facing tools and 15 external
tools. “SANDVIK TOOLS”
was one of the appellant’s customers with whom the respondent had
personal contact during the period
of his employment with the
appellant.





On 16 August 2005 the
appellant through its legal practitioners wrote to the respondent
informing him of the fact that his taking
up of employment with RG
Tools before the expiry of the period of two years from the date of
termination of employment with it was
in breach of the contract in
restraint of trade. It demanded an immediate cessation of the
respondent’s association with RG Tools.
By letter dated 26 August
2005 written on his behalf by legal practitioners the respondent
rejected the appellant’s demands on
the ground that the restraint
of trade was unreasonable and unenforceable.





On 27 September 2005
the appellant made an application to the High Court for an order in
the following terms:



“1. That the respondent be and is hereby restrained from being
interested either directly or indirectly and whether as a director,
partner, owner, promoter, principal, agent, representative,
shareholder, financier or employee in any business similar to and/or
in competition with the business undertaken by the applicant.





2. That this restraint
shall operate throughout Zimbabwe for a period of two (2) years
reckoned from the date of judgment.





3. That the respondent
and his legal practitioners Pundu and Company pay the costs of
the application on the legal practitioner and client scale, the one
paying the other to be absolved.”







The respondent admitted that he was employed by RG Tools as a
salesman. He denied the allegation that RG tools carried on business
similar to and in competition with that undertaken by the appellant.
The court a quo found that RG Tools was not involved in the
business of retail and wholesale of specialized mining and industrial
cutting tools undertaken
by the appellant. It found that RG Tools
carried on the business of selling general hardware.





Whilst holding that the
respondent was in breach of the restraint of trade undertaken by him,
in that he got employment with RG Tools
as a salesman and sold
general hardware, the court a quo determined that the
restraint of trade was unreasonable and unenforceable. The learned
Judge said at p 15 of the cyclostyled judgment:



“It became apparent that the applicant was concerned, not so much
with the general hardware operations of the respondent but feared
that he was also involved in the field of special cutting tools used
in mines. It also feared that he was introducing unwelcome
competition in its overall broad business operations.








Implicit in Mr Biti’s
submissions was a reluctant acceptance that the applicant could not
contract competition out in a restraint of trade agreement because
the line in which the respondent was involved in was prevalent
throughout Zimbabwe. In my view the respondent has established that
he is intimately involved with RG Tools in general hardware business
and that RG Tools does not pose any threats to the applicant’s
business activities especially in the special cutting tools line of
business. It would be unreasonable in my view to deny the respondent
a calling in the profession in which, he has been involved since
leaving school in 1990 … in a bid just to protect a general fear
of
competition in the general hardware business operations.”







The application was dismissed with costs. The appellant appealed
against the judgment on the grounds that:



“1. Having held that the respondent was in breach of the restraint
agreement the court a quo erred in holding that the restraint
was unreasonably wide and unforceable.





2. More importantly the
court a quo erred in failing to hold that the respondent had
failed to dislodge the onus upon his shoulders of showing that
the restraint was unreasonable, too wide and unenforceable.





3. Further and in any
event the court a quo erred in ignoring the fundamental fact
that the restraint in question could only be enforced after the
respondent had approached
the appellant for his approval or not. To
the extent that this was not done the court a quo erred in not
holding that the respondent was estopped from making a challenge on
the restraint of trade.”







Grounds of appeal (1) and (2) can be disposed of right away. A
finding of the fact that the respondent breached the restraint of
trade did not bar the court a quo from enquiring into and
determining the question whether the restraint was unreasonable. The
unreasonableness of a restraint of
trade is a question of law. Its
determination involves the application by a court of a legal standard
to the facts of a particular
case. The relevant circumstances are
those existing at the time the restraint of trade is sought to be
enforced in so far as they
impinge upon public interest. What
constitutes public interest changes from time to time. As such the
unreasonableness of a restraint
of trade would not depend upon the
fact of approval or disapproval of the conduct of the respondent by
the Managing Director of the
appellant. A restraint of trade which
is otherwise unreasonable would not become reasonable merely because
of a provision that the
consent of the covenantee shall be sought
before the prohibited conduct is undertaken. It is not a question of
the restraint. It
is a question of the legality of the restraint.




The
only question for determination is therefore whether or not the court
a quo was correct in holding that the restraint of trade
sought to be enforced by the appellant against the respondent was
unreasonable.
Before I answer the question it is necessary to
comment on the correctness of the findings of fact made by the court
a quo.






The learned Judge
found that RG Tools was not carrying on the business of retail and
wholesale of specialized mining and industrial
cutting tools. The
business card belonging to the respondent shows that RG Tools traded
in mining and industrial tools. The order
(Annexure “K”) placed
by the respondent with “SANDVIK Tools” on behalf of RG Tools was
for industrial tools. In the opposing
affidavit the respondent
admitted that these industrial tools were used in machining.
Although he alleged that general hardware
was what he sold he did not
deny that RG Tools carried on the business of retail and wholesale of
mining and industrial tools like
the appellant. What he denied was
that he acquired the knowledge and skill of salesmanship from
employment with the appellant.





In light of the
evidence contained in the founding affidavit and the opposing
affidavit, the finding by the court a quo that RG Tools did
not carry on the business of retail of mining and industrial tools
was wrong.





I now turn to answer
the question for determination in the appeal. The correct test for
the validity of a restraint of trade in
a contract of employment is
whether there are proprietary rights for the protection of which the
restraint was imposed by the employer
and undertaken by the employee.
If there are proprietary interests to be protected the next question
is what are they being protected
against and is the restraint more
than is reasonably necessary for the protection of the proprietary
interests.





In Herbert Morris
Limited v Saxelby
[1916] AC 688 at 710, LORD PARKER said:



“… the reason, and the only reason, for upholding such a
restraint on the part of an employee is that the employer has some
proprietary
right, whether in the nature of trade connection, or in
the nature of trade secrets for the protection of which such a
restraint
is ... having regard to the duties of the employee ...
reasonably necessary.”




A restraint of trade is an
obligation voluntarily undertaken by the employee to refrain from the
exercise of freedom of trade in favour
of the employer in the
exercise of freedom of contract. It is therefore prima facie
valid and the onus is on the employee who seeks to resile from
its burden to show that it is nonetheless against public interest and
unenforceable.
See Magna Alloys and Research (SA)
(Pty) Ltd v Ellis 1984 (4) SA 874(A); Book v
Davidson
1988(1) ZLR 365(S) at 385D.





A restraint of trade
which does no more than protect the employer against mere competition
from a former employee by preventing him
or her from carrying on
business similar to that undertaken by him or entering the services
of an undertaking carrying on business
similar to that undertaken by
him in fear that in doing so the employee would exercise the
knowledge and skill acquired during employment
with him is an
unreasonable restraint. So is a restraint of trade which is too wide
as to time or place or scope depending, of course,
on the nature of
the business carried on and the duties of the employee.





In Saxelby’s case
supra
LORD PARKER said that a purchaser of the goodwill of a
business may take a covenant against competition from his vendor to
protect
what he is contracting to buy. It was quite different in the
case of an employer taking such a restraint from his employee. His
LORDSHIP at 709 said:



“The goodwill of his business is under the conditions in which we
live necessarily subject to the competition of all persons (including
the servant or apprentice) who choose to engage in similar trade.
The employer in such a case is not endeavouring to protect what
he
has, but to gain a special advantage which he could not otherwise
secure. I cannot find any case in which a covenant against
competition by a servant or apprentice has, as such, ever been upheld
by the Court. Wherever such covenants have been upheld it
has been
on the ground, not that the servant or apprentice would, by reason of
his employment or training, obtain the skill and knowledge
necessary
to equip him as a possible competitor in the trade, but that he might
obtain such personal knowledge of and influence over
the customers of
his employer, or such an acquaintance with his employer’s trade
secrets as would enable him, if competition were
allowed, to take
advantage of his employer’s trade connection or utilize information
confidentially obtained.”







In Super Safes (Pty) Ltd & Ors v Voulgarides & Ors
1975(2) SA 783 (W) at 785E NICHOLAS J said:



“A bare covenant not to compete cannot be upheld. A restraint
against competition must, if it is to be valid, serve some interest
of the person in whose favour it was inserted … the purchaser of a
business, for example, who requires protection against the erosion
of
its goodwill by the competition of the seller; or the employer who
requires that his trade secrets and his trade connections be
protected against exploitation by the man whom he is taking into his
employment.”



The
accepted proposition that an employer is not entitled to protection
from mere competition by a former employee means that the
employee is
entitled to use to the full any personal skill or experience even if
it has been acquired in the service of his employer.
It is this
freedom to use to the full a man’s improving ability and talent
which lies at the root of the policy of the law regarding
this type
of restraint. The additional knowledge and skill acquired during
employment belong to the employee and their exercise
cannot be
lawfully restrained by an employer as they are not his property.





The first question is:
Was there a proprietary right for the protection of which the
appellant needed a restraint of trade to be
undertaken by the
respondent? It is clear from the founding affidavit and the list of
names of customers with whom the respondent
had established personal
contact in the performance of his duties as sales representative,
that the appellant had trade connections
against the abuse by the
respondent of the knowledge of which it required protection.





In Paragon Business
Forms (Pty) Ltd v Du Preez
1994 (1) SA 434, LEACH J at 444C said:



“Where an employee has access to customers and is in a position to
build up a particular relationship with customers so that when
he
leaves his employer’s service he could easily influence them to
follow him to his new business, there does not seem to me to
be any
reason why, in principle, a restraint should not be enforced to
protect the employer’s trade connections.”






The order the
respondent placed with “SANDVIK Tools” on behalf of RG Tools
induced a reasonable apprehension in the appellant
that he could use
the knowledge of and influence over its customers to take them with
him to RG Tools.





The next question is
this: Was the restraint of trade, sought to be enforced by the
appellant against the respondent, an appropriate
remedy for the
protection of its trade connections? The restriction is undoubtedly
a no-competition restraint. As stated by LORD
PARKER in the
Saxelby’s case supra a no-competition restraint can be used
for the protection of trade connections where, if competition were
allowed, the employee would
take advantage of the employer’s
customer connections. It must, however, be shown that the
proprietary rights in the trade connections
could only be adequately
protected against prejudicial interference by the employee, if the
no-competition restraint is imposed and
enforced. In other words,
there must be no other restraint protecting the same proprietary
rights. No-competition restraints were
upheld as appropriate methods
of protecting trade connections in Paragon Business Forms (Pty)
Ltd v Du Preez supra and Basson v Chilwan & Ors supra
.





In my view, the
no-competition restraint in this case does not protect the
appellant’s proprietary rights. It is not in collocation
with the
other restraints. It stands alongside the other restraints from
which it is severable. The intention of the parties in
Clause 2 of
the agreement was that each restraint should be deemed to be a
separate restraint of trade. Clause 1.1 is the special
restraint for
the protection of the appellant’s proprietary rights in the trade
connections against the exploitation by the respondent
upon
termination of his employment. The anti-solicitation restraint
covered the trade connection and being severable from the
no-competition
restraint, would have been enforceable. The presence
of an enforceable anti-solicitation restraint diminished the need for
a wider
restraint for the protection of the same trade connections.





The restraint of
trade sought to be enforced in this case is under clause 1 and not
Clause 1.1. Clause 1 does not even prohibit
the use of knowledge of
and influence over appellant’s customers, suggesting that it was
not intended to protect trade connections
against exploitation by the
respondent upon termination of his employment with the appellant. It
is too wide as it prevented the
respondent from being engaged by any
undertaking carrying on business similar to that undertaken by the
appellant in any part of
the country.





To preclude a former
employee from carrying on his natural trade in any part of the
country on his own, or in association with others,
is a very strong
prohibition which requires exceptional justification. It appears to
me that the restraint sought to be enforced
by the appellant in this
case is in effect a restraint against mere competition from the
respondent in the use after termination
of employment, of personal
knowledge and skill in the trade in which he is involved, acquired
during the period of employment with
the appellant.





In American
Building Maintenance Co v Shandley
58 DLR (2d) (1966) 525
the appellant sought to enforce a no-competition restraint to protect
proprietary rights in trade connections when
there was a separate and
severable no-solicitation restraint covering the same proprietary
interests. BULL JA held that the restraint
was invalid and
unenforceable because it was directed primarily to the prevention of
competition and the use of the personal skills
and knowledge acquired
by the respondent in the appellant’s business.





The learned JUDGE OF
APPEAL had this to say at 534:



“If the ‘no-competition’ clause were merely an extension of the
‘no-disclosure’ and ‘no-solicitation’ covenants there
might
well be merit in the submission (that the restraint was no more than
was reasonably necessary to protect the appellant’s
proprietary
rights in trade marks, confidential information and customer
connections, the subject-matter of the two earlier specific
restrictive covenants) but to this conclusion I cannot come. Each of
the three covenants, in my opinion, is severable, clear and
unambiguous, and can be separately and adequately enforced without
reference to or affecting the others. It is obvious that to prevent
the respondent from engaging at all in a similar business in the
appellant’s area likely would be an effective way to discourage
or
prevent any disclosures and, particularly, any solicitations being
made. But they are not in pari materia, because one can still
disclose information and solicit regardless of whether or not a like
business is being carried on. Therefore,
where such a restriction
against engaging in business is added to specific covenants clearly
forbidding the actions of disclosure
and solicitation, that
restriction of necessity must constitute nothing more or less than a
covenant to restrain the respondent from
business competition. The
appellant relies on Putsman v Taylor (1927) 1 KB 637 and
Herbert Morris, Ltd v Saxelby (1916) 1 AC 688, to support its
position that such ‘no-competition’ clauses have been upheld on
the ground that if restraint
against the competition were not allowed
the former employee could take advantage of his employer’s ‘trade
connections or utilize
information confidentially obtained’. But
it is to be observed that in both those cases, and I venture to say
in others where
such clauses have been upheld on such grounds, the
only covenant being considered by the courts was the one preventing
the engagement
in the competitive business and if there were present
any special covenants specifically forbidding those very things which
it was
alleged that the no-competition clause was aimed to prevent,
no mention was made of them. I conclude that the presence of the
‘no-competition’
clause in the case at bar cannot be based or
justified on the hypothesis that its purpose is merely to give
reasonable protection
to the proprietary rights of the appellant
already fully covered by the other two clauses, but on the contrary
that the clause is
directed primarily to the prevention of
competition and the use of the personal skills and knowledge acquired
by the respondent in
the appellant’s business. It is, therefore,
invalid and unenforceable.”







See Maguire v Northland Drug Co. [1935] 3 DLR 521 at 526;
Herbert Morris Ltd v Saxelby supra at 710; Attwood v Lamont
(1920)3 KB & 571 at 136; Stenhouse Ltd v Phillips [1974]
AC 391 at 403.






This, in my judgment,
was not a case in which from the nature of the respondent’s duties,
the only method by which the appellant
could obtain protection for
its trade connections was by prohibiting competition on the part of
the respondent after he left its
employment. The restraint was, in
the circumstances of this case, a restraint against competition only.
It is, therefore, unreasonable
and unforceable.






The appeal is accordingly dismissed with costs.















SANDURA JA: I agree.














CHEDA JA: I agree.















Honey &
Blanckenberg
, appellant’s legal practitioners


Pundu & Company,
respondent’s legal practitioners