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By Hannah Claassens (Associate at Hayes Incorporated)


This case of The Velvet Cake Company (Pty) Ltd v R Niehaus & Blondies and Brownies Bakery CC 2016 [Reportable] centres around two bakeries in Cape Town CBD, The Velvet Cake Company (Velvet) and Blondies and Brownies Bakery (Blondies and Brownies) which are situated less than 10 km from each other, and an employee, Ms Niehaus, who had signed a restraint of trade agreement with Velvet.

The applicant in this matter, Velvet, sought to interdict its previous employee from breaching her restraint.
Ms Niehaus, in her restraint of trade agreement with Velvet, agreed that upon termination with Velvet she would be restrained for a period of two years and for a radius of 100 km from Cape Town CBD from being employed by any direct competitors of Velvet. She further undertook, as per a standard restraint clause, not to make any of Velvet’s trade secrets available to competitors.

Velvet asserted that Ms Niehaus came into contact with all of Velvet’s confidential and proprietary trade secrets including recipes, techniques, marketing research and strategies. Velvet noted that its business is currently valued at approximately R7 million and emphasised the unique quality of its product and at the length of time it takes to create one of its cakey creations from inception to final product. The main complaint raised by Velvet was that the cakes of Ms Niehaus’s new employer revealed a marked similarity to the products sold by Velvet.

Blondies and Brownies asserted that Velvet products are not unique in that they are mere adaptations of knowledge obtained from generally accessible public sources and that Velvet used elements of recipes and cake decoration found from Internet search results. Because of this, Blondies and Brownies asserted that Velvet did not enjoy a protectable interest over its products.

Much of the case turned on the question of whether information that is readily available in the public domain has a protectable interest.

The Judge found it difficult to determine, with any precision, from the photographs provided to the court, whether the cakes and cupcakes sold by Velvet are substantially the same as those being sold by Blondies and Brownies. In evaluating whether the products produced by Velvet are so similar to those which one can observe on the Internet, Judge Davis applied the test found in the Meter Systems Holdings case which states that information found in the public domain, and that is thus freely accessible to all members of the public, may be protected as confidential when skill and labour have been expended in gathering and compiling it in a useful form and when the compiler has kept the information confidential.

When forced to weigh up the competing interests of the parties based on the tests established by precedent, the Judge found that Velvet had provided sufficient basis to justify a protectable interest over the confidential information and that even if actual harm had not been shown to be suffered as a consequence of the breach of the restraint, the potential of Ms Niehaus to exploit the confidential information which she had gained while in the employment of Velvet was shown (using the test found in the oft cited Reddy case). The Judge did use his judicial discretion concerning the duration of the restraint and found that due to the innovative nature of Velvet’s business a restraint of 12 months would be reasonable in the circumstances, both protecting Velvet’s proprietary interest and promoting healthy competition.

In his Judgment, Judge Davis grappled with the traditional approach adopted by our courts which places a higher value on sanctity of contract then it does on the concept of freedom of trade. The Judge lamented the weightier allocation to sanctity of contract as a measure of competitive process and hinted that perhaps the kitchen scales were incorrectly tipped in favour of freedom of contract.

It seems that there may be room for development in the law regarding enforcement of restraints, to reintroduce a concept not fully explored. Interpreting and enforcing restraints should be tempered by a more closely considered assessment of the concept of, and need for, freedom of trade whose value in a competitive democracy has previously been undermined and which, in practice, can and should be evaluated afresh in each individual case.

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