When selling a business as a going concern, inclusive of its goodwill, there is an implied prohibition against canvassing of customers with regards to the seller. In Grainco (Pty) Ltd v Van der Merwe (20693/2014) [2016] ZASCA 42 the Supreme Court of Appeal had to decide whether this prohibition extends to anyone other than the seller.

The facts of the case were briefly as follows: Grainco was sold to BKB and included in the sale was Grainco’s goodwill. The sale agreement included a restraint of trade which inter alia restrained Grainco and two of its senior employees for a period of 5 years from competing directly or indirectly and from canvassing any customers of BKB (the previous Grainco customers). The five years past and the two senior employees started a new venture which essentially competed directly with Grainco. BKB applied for an interdict against the two employees.

The court a quo referred to the implied prohibition against canvassing the customers as the Trego-prohibition. The reference is to the English case being Trego and another v Hunt [1869] AC 7 (HL). Lord Macnaghten set out the prohibition and stated:
‘And so it has resulted that a person who sells the goodwill of his business is under no obligation to retire from the field.

Trade he undoubtedly may, and in the very same line of business. If he has not bound himself by special stipulation, and if there is no evidence of the understanding of the parties beyond that which is to be found in all cases, he is free to carry on business wherever he chooses.

But, then, how far may he go? He may do everything that a stranger to the business, in ordinary course, would be in a position to do. He may set up where he will. He may push his wares as much as he pleases. He may thus interfere with the custom of his neighbour as a stranger and an outsider might do; but he must not, I think, avail himself of his special knowledge of the old customers to regain, without consideration, that which he has parted with for value. He must not make his approaches from the vantage-ground of his former position, moving under cover of a connection which is no longer his. He may not sell the custom and steal away the customers in that fashion.

That, at all events, is opposed to the common understanding of mankind and the rudiments of commercial morality, and is not I think to be excused by any maxim of public policy.’

This aforementioned principal was adopted into South African law in the case of  A Becker & Co (Pty) Ltd v Becker and others 1981 (3) SA 406 (A). According to the principle, the seller of goodwill is prohibited from taking it back by canvassing its old customers.

The Supreme Court of Appeal in the Grainco-case again confirmed the Trego prohibition and stated that it is line with South African law. The court, however, quantified the prohibition in that is only in relation to a seller of a business and the two employees cannot also be bound indefinitely.

Conclusion
When selling a business it is of the utmost importance to do so with the assistance of an attorney. As with abovementioned case, the parties would not have had any protection if they did not, at least, have the restraint of trade for the first five years. Other that a restraint of trade there are various other legal aspects one needs to know about and record during the sale.

Submitted by Schoeman Law