ARE RESTRAINT OF TRADE AGREEMENTS ALWAYS VALID AND ENFORCEABLE?

Historically restraint of trade agreements were void and unenforceable unless the employer could prove that it was a reasonable agreement entered into between the parties. Fortunately for employers the position in our law has changed.

What are restraint of trade agreements?

 An agreement that seeks to restrict a party’s right to carry on a trade, business or profession in such manner or with such persons as he/she sees fit, is restraint of trade.

Restraint of trade clauses are most commonly found in employment and partnership contracts, which usually takes effect after termination of the contract, or in sale of a business or practice.

Why are they controversial?

They are controversial because there is a clash of fundamental values: on the one hand there is freedom or sanctity of contract which relies on agreements being honoured, and on the other hand there is freedom of trade which is a constitutionally recognised right.

As with other contracts, restraint of trade agreements are presumed to be prima facie valid and enforceable. Whereas the onus had earlier been on the employer to prove that implementation of restraint of trade was fair and in public interest, the onus is now on the employee to show why enforcement in the particular circumstances would be against the public interest.

An unreasonable restraint is contrary to the public interest and hence unenforceable. The reasonableness of a restraint of trade clause or agreement is judged on two bases: broad interests of community, and interests of the parties themselves.

Reasonableness inter partes depends on a variety of factors:

  • Does the employer have a protectable interest?
  • Area and duration of restraint (possibility of partial enforcement)
  • Concession by the employee in the contract that restraint is reasonable, and inequality of bargaining power of parties (these factors carry little weight)

Examples of protectable interests are confidential information, trade secrets, customer connections and lists, and goodwill of the business. However, it does not include interest in the elimination of competition, and the investment of time and capital in the training of the employee.

It is not sufficient simply to label confidential information as such. In order to be confidential the information must be commercially useful, in other words capable of application in trade or industry, have economic value to the person seeking to protect it, and be known only to a restricted number of people.

With regards to trade connections, it will only be relevant when the employee has close working relations with the customers, to such an extent that there is a danger of him/her taking them with him/her when he/she leaves the business. Relevant factors here include the following:

  • duties of the employee;
  • his/her personality;
  • frequency and duration of the contact with the customers;
  • his/her influence over them;
  • nature of his/her relationship with them (degree of attachment, extent of their reliance on him/her);
  • level of competition between the rival businesses;
  • type of product sold; and
  • evidence that customers were lost when he/she left the business.

With reference to the above the following questions must be asked:

  1. Does party A have an interest deserving of protection?
  2. Is such interest being prejudiced by party B?
  3. If so, how does A’s interest weigh up qualitatively and quantitatively against B’s interest in not being economically inactive and unproductive?
  4. Is there some broader facet of public policy that requires the enforcement or rejection of the restraint?

If restraint of trade agreement is reasonable inter partes, it may still be unenforceable if it is damaging to the public interest for a reason not peculiar to the parties.

Sources:

Basson v Chilwan & Others [1993] 3 SA 742

Sunshine Records (Pty) Ltd v Flohing & Others 1990 (4) SA 782 (A)

Magna Alloys & Research (SA) (Pty) Ltd v Ellis 1984 (4) SA 874 (A)

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

DIE VERWEER VAN PROVOKASIE IN DIE STRAFREG

Kan ‘n beskuldigde in ‘n strafverhoor die verweer gebruik dat hy so kwaad geraak het dat hy nie geweet het wat hy doen nie?

In S v Eadie 2002(1) SACR 663 (HHA), het die Hoogste Hof van Appèl uitspraak gelewer wat twyfel bewerkstellig of daar nog ‘n verweer soos nie-patologiese kriminele ontoerekeningsvatbaarheid bestaan.

Die feite in die saak is as volg: X, ‘n kranige hokkiespeler, drink een aand by ‘n sosiale funksie ‘n groot hoeveelheid alkohol. Later die aand klim hy in sy motor en ry huis toe. Y, die bestuurder van ‘n ander motor, steek X verby en bestuur toe baie stadig voor hom sodat X hom nie kan verbysteek nie. Uiteindelik kry X dit reg om vir Y verby te gaan. Y ry toe teen ‘n baie hoë snelheid agter X. Die twee motors stop, X klim woedend uit die motor en gryp sy hokkiestok wat in sy motor was. Hy stap na Y en slaan sy motor met die hokkiestok. Daarna rand hy vir Y aan en ruk hom uit die motor. Y sterf as gevolg van die aanranding. Hierdie is ‘n saak van padwoede. Op die klag van moord opper die beskuldige die verweer van nie-patologiese kriminele ontoerekeningsvatbaarheid.

Die hof bespreek vorige beslissings wat volledig met die verweer handel en dan word daar in par. 57 van die uitspraak bevind dat daar geen verskil is tussen nie- patologiese kriminele ontoerekeningsvatbaarheid te danke aan stres en provokasie aan die een hand, en die verweer van gesonde outomatisme aan die ander hand nie. Meer spesifiek, volgens die hof is daar geen verskil tussen die tweede kognitiewe been van die toets van kriminele toerekeningsvatbaarheid ( X se vermoë

om te handel met die wete dat dit onregmatig/verkeerd is, met ander woorde sy vermoë om die versoeking te weerstaan) en die vereiste wat toepassing vind by die handelingselement dat X se ligaamlike bewegings vrywillig was nie. As X beweer dat hy as gevolg van provokasie homself nie meer kon beheer nie, sou hy dus onwillekeurig opgetree het. So ‘n pleit van onwillekeurige gedrag is niks anders as die verweer van gesonde outomatisme nie.

Die hof bevind nie dat die verdediging van nie-patologiese kriminele onbevoegdheid nie meer bestaan ​​nie en maak wel ‘n paar stellings wat impliseer dat die verweer nog bestaan. Nogtans verklaar die hof dat indien ‘n persoon homself op die verweer van provokasie beroep, kom dit op niks anders neer nie as die verweer van gesonde outomatisme (die verweer dat hy nie vrywilliglik gehandel het nie.) Die hof het ook weereens bevestig dat die verweer van gesonde outomatisme nie maklik slaag nie.

Na die beslissing in Eadie is dit hoogs onwaarskynlik dat ‘n beskuldige sal slaag met ‘n argument/verweer dat as gevolg van sy nie-patologiese kriminele ontoerekeningsvatbaarheid hy vrywillig opgetree het, maar bloot ontoerekeningsvatbaar was.

Hierdie is ‘n algemene inligtingstuk en moet gevolglik nie as regs- of ander professionele advies benut word nie. Geen aanspreeklikheid kan aanvaar word vir enige foute of weglatings of enige skade of verlies wat volg uit die gebruik van enige inligting hierin vervat nie. Kontak altyd u regsadviseur vir spesifieke en toegepaste advies. (E&OE)

WHAT HAPPENS IF I DIE WITHOUT A WILL?

Attorneys often emphasise the fact that you should have a will drawn up and revise it regularly in order to facilitate the bequeathing of your possessions after your death. Many people still omit to do this. The problem is that, should a person die without leaving a valid will, in other words intestate, his/her estate will be administered and distributed according to the stipulations of the Intestate Succession Act No 81 of 1987.

Below is a basic example of the effect an intestate death will have on the distribution of an estate. Should the composition of the beneficiaries of the deceased be more complex, the administering of the estate in terms of the Intestate Succession Act will also become more complicated.

Let us assume that person A dies and the value of his estate is R1.8 million. He is survived by his wife (B) and 2 children, of which one is of age and the other is a minor.

Scenario 1:

A and B is married out of community of property.

B inherits R125 000 or a child’s portion, whichever is the largest.

A child’s portion is calculated by dividing the total value of the estate by the spouse and number of children, in other words R1.8 million/3 = R600 000.

The spouse and children therefore inherits R600 000 each.

The inheritance of the minor will be paid to the Master’s Guardian’s Fund, as there is no will which determines that the minor heir’s inheritance should be placed in e.g. a Testamentary Trust, where the funds will be administrated on behalf of the minor until he/she becomes of age or reaches any other specified age.

Scenario 2:

A and B is married in community of property.

B inherits 50% of the estate due to the marriage in community of property.

B also inherits R125 000 or a child’s portion, whichever is the largest, with regard to the other half of the estate.

A child’s portion is calculated by dividing half of the total value of the estate by the spouse and number of children, in other words R900 000/3 = R300 000.

The spouse inherits R1.2 million and the children R300 000 each.

The inheritance of the minor will be paid to the Master’s Guardian’s Fund, as there is no will which determines that the minor heir’s inheritance should be placed in e.g. a Testamentary Trust, where the funds will be administrated on behalf of the minor until he/she becomes of age or reaches any other specified age. It is therefore clear that Intestate inheritance may result in an unpractical and often even impracticable division of assets.

The fact that the inheritance of the minor will be paid to the Master’s Guardian’s Fund may place the spouse in such a dilemma that she has to devise plans to finance the amount payable to the Master’s Guardian’s Fund to the benefit of the minor heir. Alternatively she could register a mortgage against an immovable property in favour of the Master’s Guardian’s Fund.

In case of death without a valid will there will of course be no person or institution appointed to support the surviving spouse in the administering of the estate. This should not usually present a huge obstacle, but the spouse should consider carefully which person or institution she appoints to assist her in this task. She should also negotiate the Executor’s fee with the relevant person or institution before the administering of the estate commences.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

TRUSTEES OF BODY CORPORATE NOT ALLOWED TO DISCONNECT ELECTRICITY OR WATER SUPPLY TO A SECTION AS A DEBT COLLECTION MEASURE

The default of levy payments is a frequent problem for the trustees of body corporates as well as the managing agent. It is the way in which the defaulting owner is treated and the outstanding debt collected, that will make the difference between a functioning, financially stable sectional title scheme or an impending disaster zone.

In these testing economic times, monthly levy payments are sometimes considered by owners of sectional title sections to be an optional expense in making ends meet on a tight budget. Once an owner has got away with defaulting on one payment, habitual default becomes easy, and more so if the trustees and management agent are slow to react to the failure to pay. The problem is worsened by the fact that the monthly levy is carefully calculated prior to the annual general meeting to be the minimum amount possible, in an attempt to accommodate the owners. However, these small monthly levies could easily accrue over a few months to a significant amount, aggravated by interest and reflected as a substantial outstanding debt.

These non-payers place severe financial restraints on the cash flow of a body corporate which is largely dependent on the timeous monthly payments by all its members to fulfil its monthly obligations to, inter alia, municipalities regarding water and common area electricity usage, security, and general upkeep of the property. If the body corporate does not have large financial reserves on which it can rely in the event of default by its members, the impact of the default can be severe and can cause unnecessary hardship for other owners. There are known instances of special levies raised in order to assist the body corporate in its financial hardship.

Many trustees and managing agents, in order to recover outstanding amounts, revert to taking the law into their own hands by cutting off the water and electricity supply to such members’ sections or units. Some have even passed rules which allow for such actions. Justifications for these actions by trustees and management agents are abundant, but none of these are legally sound or will stand in court.

By withholding the water and/or electricity supply to the section, whether or not it is allowed for in the rules, the trustees and management agent not only disregard the owner’s constitutional rights to access to water as well as the provisions of the electricity act, but also specific stipulations of the Sectional Title Act, Act 95 of 1986 as amended (“the Act”) and confirmed in case law. Such trustees and managing agents expose themselves and the trustees in their personal capacity, to an application by the owner and/or the occupier, against the spoliation of such services, or access with a court order for immediate re-connection. The body corporate or management agent may not interfere with water and electricity services rendered to a section or unit. The penalty will be a cost order, if not granted on a punitive scale, red faces, and a lot to answer to at the next annual general meeting.

The Act clearly stipulates in Section 37(2) that trustees must approach by action any court, including the Magistrate’s court, for recovery of any and all contributions levied under the provision of Section 37(1), which include monthly levies, special levies, interest, and legal costs on attorney and client scale.

The trustees and managing agent have no choice herein. Prompt debt collection action taken against any owner immediately on default, will be the best defence. Therefore the trustees must ensure that the appointed management agent either has a proven track record or a detailed collection policy prior to appointment of such agent. We all know that the wheels of justice turn slowly, and that it can take months for the default judgement to be granted and the warrant issued. By delaying the collection process the outstanding levy account increases exponentially, together with the burden on paying owners.

Therefore, the trustees themselves should keep a watchful eye on monthly payments and ensure that defaulting owners are immediately contacted by the management agent and, if they persist in the default, handed over to competent attorneys for collection. The sooner, the better. The old adage “absentee landlords gather no crops” is fitting, and trustees should ensure that the management agents attend to defaulters speedily and effectively in the interest of both their own property investment and that of the other owners in the sectional title scheme.

For further reading, see the judgement by Blieden J with Serobe AJ concurring in Queensgate Body Corporate vs MJV Claesen delivered on 26 November 1998 in the Witwatersrand Local Division, case number A3076/1998, and case law referred to therein.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)