Bujini Projects v Jadoonandon

Restraint of trade: Bujini Projects (Pty) Ltd v Jadoonandon (2022/4054) [2024] ZAGPJHC 1268

The case of Bujini Projects (Pty) Ltd v Jadoonandon (“Bujini”) examines the enforceability of a restraint of trade agreement. A restraint of trade agreement is a contractual provision restricting an individual’s ability to engage in a profession, trade, or business. Such agreements typically arise in three contexts:

1. Employment contracts, where employees agree not to compete with their employer after termination.
2. Sales of business goodwill, where sellers agree not to establish a competing business.
3. Partnership agreements, where partners agree not to compete with the partnership post-dissolution.

The enforceability of these agreements requires balancing two competing principles:
i) The sanctity of contract, which upholds agreements voluntarily entered into, even if they limit economic activity.
ii) The right to freedom of trade, which protects individuals’ ability to engage in economic activity without unreasonable restrictions.

Facts of the case

In Bujini, the applicant, Bujini Projects (Pty) Ltd, sought to enforce a restraint of trade agreement against the respondent, Amith Jadoonandon. The agreement imposed a three-year restraint. Labournet, representing Bujini Projects (Pty) Ltd, argued that the duration and geographical scope were reasonable but later conceded that three years was excessive, proposing instead a 12-month restraint.

However, the applicant’s founding papers failed to provide sufficient evidence to justify the restraint, particularly concerning the nature of trade connections, long-term client relationships, and specific protectable interests. The central issues for the court’s determination were:
i. Whether the restraint protected a legitimate interest and was reasonable in duration and scope.
ii. Whether Bujini Projects (Pty) Ltd’s request for costs on an “attorney and own client” scale was justified or vexatious.

Legal Principles

The common law principle regarding restraints of trade is rooted in Magna Alloys and Research (SA) (Pty) Ltd v Ellis.¹ The court in Magna Alloys held that restraint agreements are valid unless proven to be unreasonable and contrary to public policy. This was a departure from the traditional English law presumption of invalidity.

The onus lies on the party seeking to escape the restraint to demonstrate its unreasonableness. The court in Reeves v Marfield Insurance Brokers CC reaffirmed that a party challenging a restraint bears the burden of proving its unreasonableness with clear evidence.² The test for reasonableness was articulated in Basson v Chilwan,³ which set out four key criteria:

1. Does the restraint protect a legitimate interest of the party in whose favour it is imposed?
2. Is that interest prejudiced by the restrained party’s conduct?
3. If so, does such prejudice outweigh the restrained party’s interest in being economically active and productive?
4. Does public policy require the restraint to be upheld or struck down?

These criteria demand a fact-specific inquiry, including consideration of the nature, duration, and geographical scope of the restraint. The enforceability of a restraint largely depends on whether it protects a legitimate proprietary interest, such as relationships with customers, clients, or suppliers (trade connections), or trade secrets or proprietary knowledge crucial to the business (confidential information).

In Reddy v Siemens Telecommunications (Pty) Ltd,⁴ the court underscored the need to protect confidential information and customer connections, particularly when an employee’s new position creates a real risk of misuse. The advent of the Constitution of the Republic of South Africa, 1996 (“the Constitution”) has infused public policy with values of fairness, reasonableness, and justice. Section 22 of the Constitution guarantees the right to freely choose a trade, occupation, or profession, subject to limitations imposed by law. As held in Barkhuizen v Napier,⁵ this right is not absolute and must be balanced against the principle of pacta sunt servanda (agreements must be kept).

In Johannesburg Stock Exchange v Beinash,⁶ the court observed that public policy must align with constitutional values, but contractual freedom remains a cornerstone of South African contract law. The principle of public policy is context-dependent, as noted in Botha (now Griessel) v Glenton & Mitchell.⁷ Public policy requires balancing the enforcement of contractual obligations with the need to avoid undue hardship or societal harm. In the past, restraints have been struck down by courts in cases where they were excessively broad in scope or duration⁸ and where they were designed solely to stifle competition.⁹

Application in Bujini
Returning to Bujini, the court held that the three-year duration was excessive. However, the applicant failed to substantiate its alternative proposal of 12 months as reasonable. Lucas van Tonder AJ emphasised that the reasonableness of a restraint is a value judgment based on the facts presented, adding that the applicant’s founding papers failed to:
a. Establish protectable interests, such as trade secrets or long-term client relationships and
b. Justify the duration and geographic scope of the restraint.

The court referred to Sibex Engineering Services (Pty) Ltd v Van Wyk,¹⁰ which held that restraints cannot protect interests that are not contemplated by the parties or those unreasonable in scope. It also relied on Basson v Chilwan,¹¹ where excessive limitations on an individual’s trade were deemed unreasonable.

Regarding the applicant’s request for punitive costs on an “attorney and own client” scale, the court found the request baseless and vexatious. It emphasised that punitive costs orders deter abusive litigation, referencing Johannesburg City Council v Television & Electrical Distribution (Pty) Ltd.¹² The court also cited Gois t/a Shakespeare’s Pub v Van Zyl¹³ and Brown v Papadatis,¹⁴ which outlined factors such as reckless or unreasonable conduct as justifications for punitive costs.

Order
The court made the following order:

1. The application was dismissed with costs.
2. The applicant was ordered to pay costs on an attorney and client scale.
3. Costs were to be taxed on the applicant’s initiative within 90 days and paid within 10 days thereafter.

You can read the Bujini Projects v Jadoonandon judgement here.

Written by Theo Tembo

citation: Tembo, T. “Restraint of Trade: The Bujini case” (12 Feb 2025). The Legal Desk. Available at: https://wp.me/pfvcwT-75

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