ENSafrica has successfully represented one of its clients in an unusual unlawful competition case, one involving the misappropriation of confidential information. On 21 October 2014 Judge Weiner of the South Gauteng High Court handed down her judgment in the case of Southern African Institute of Chartered Secretaries and Administrators (‘the Institute) v Careers-In-Sync.
The Institute regulates the training and other affairs of accredited company secretaries in South Africa. One of the services it offers its members is assistance with finding jobs. To do this, the Institute has what’s referred to as an ‘Appointments Register’, which contains detailed information of its members. The Appointments Register has been around since 1957 - although initially contained in a lever arch file, it was subsequently computerised and captured on a CD.
Although the Institute initially ran the employment service itself, it outsourced this function to an individual in 2002, and later to Careers-In-Sync in 2006. When the Institute appointed Careers-In-Sync it handed over the Appointments Register, in other words the lever arch file and the CD.
The parties also signed a Service Level Agreement (SLA) that imposed obligations on both parties. For example, Careers-In-Sync – which was charged with the ‘maintaining of an appointments register of members seeking employment opportunities’ for and on behalf of the Institute - undertook to treat all information relating to the Institute and its members and clients confidentially, and it agreed not to compete with this recruitment service. The Institute, on the other hand, undertook to refer any queries from employers to Careers-In-Sync rather than to the members themselves or other agencies, and to provide Careers-In-Sync with a mechanism for verifying the good standing of members.
Careers-In-Sync ran the service until 31 December 2013 when it decided not to renew the contract. It also decided to hold on to the Appointments Register, a decision that forced the Institute to approach the High Court for its return. The Institute sought an interdict (injunction) which would stop Careers-In-Sync from using or disclosing the Appointments Register to others.
The Institute based its claims on the delict (civil wrong or tort) of unlawful competition. This prompted Careers-In-Sync to raise a preliminary legal point that went like this: the relationship between the parties is a contractual one; what you’re in fact alleging is that it was an implied term of the contract that we would return the Appointments Register when the agreement came to an end; so you should have brought your claim under contract law rather than the law of delict. Careers-In-Sync relied on the famous case of Lillicrap, Wassenaar & Partners v Pilkington Brothers (SA) (Pty) Ltd 1985 (1) SA 274 (A), where the court held that delictual actions should generally not be extended to duties subsisting between the parties to a contract of professional services. But the judge rejected this preliminary point because there is also authority - Holtzhausen v ABSA Bank Ltd 2008 (5) SA 630 - that concurrence of actions is possible where same facts give rise to a claim for damages in delict and in contract, which means that a party can choose which route to follow.
The judge then considered the unlawful competition claim. She looked at various decided cases and made the point that, although the law says that everyone is entitled to compete, the right is not absolute and it must be kept within lawful bounds. In order to determine whether an action is wrongful or unlawful the court must have regard to vague and elastic criteria like fairness and honesty. As the court said in the famous case of Atlas Organic Fertiliser (Pty) Ltd v Pikkewyn Guano (Pty) Ltd 1981 (2) SA 173 (T), the ‘norm to be applied is the objective one of public policy... the general sense of justice of the community, the boni mores (good morals), manifested in public opinion.’
The judge pointed out that there have been cases involving misuse of confidential information which suggest that the relationships involved may be that of employer/employee or principal/agent. There have also been cases that suggest that there is a legal duty to respect confidentiality outside of a contractual relationship. In this case it wasn’t exactly clear what the nature of the relationship between the parties was in legal terms, but it was probably one of mandate. What mattered was that Careers-In-Sync undertook to provide certain services and it was therefore the Institute’s service provider.
The judge referred to the well-known South African case of Dun and Bradstreet (Pty) Ltd v SA Merchants Combined Credit Bureau (Cape) Pty Ltd 1968 1 SA 209 (C), where the court approved this statement that appears in the UK decision of Seagar v Copydex: ‘The law on the subject does not depend on any implied contract. It depends on the broad principle of equity that he who has received information in confidence will not take unfair advantage of it. He must not make use of it to the prejudice of him who gave it without obtaining his consent.’ The judge in Dun and Bradstreet also quoted this from the UK case of Terrapin: ‘A person who has obtained information in confidence is not allowed to use it as a springboard for activities detrimental to the person who made the confidential communication.’
According to Dun and Bradstreet, it’s necessary to establish the following in order to succeed in a confidential information case: that you have a quasi-proprietary right or legal interest in the information; that the information has the necessary quality of confidentiality; that there is a relationship that imposes a duty on the other party to preserve confidence; that the other party knew that the information was confidential and understood its value; and that the other party is in improper possession of the information and is likely to use it to your detriment.
The judge felt that all these requirements had been met. The Institute had a right to the information – the judge rejected Careers-In-Sync’s argument that the information was theirs, because all the information had been accumulated as a consequence of the agreement. The information was clearly confidential – the judge rejected Careers-In-Sync’s argument that the confidence attached to the members and not the Institute, because it had been accumulated on behalf of the Institute. Clearly the information had an economic value. As regards the issue of improper possession, the morals of the marketplace were such that Careers-In-Sync could not realistically have anticipated that it would be entitled to keep the Appointments Register on expiry of the contract. And clearly Careers-In-Sync would gain an unfair advantage or ‘springboard’ if it kept it.
So the judge granted an order interdicting Careers-In-Sync from using or disclosing the Appointments Register and from soliciting business from persons who appear in the Appointments Register. She also ordered Careers-In-Sync to deliver-up the hard copies and CDs. A resounding success for the Institute. As well as the concept of fair competition!