JSE-listed Reunert has won a court victory that it believes will scuttle alternative telecoms provider AppChat, which is set to launch a disruptive mobile voice over IP offering in October.
AppChat was founded by former ECN CEO and founder John Holdsworth and aims to undercut on-net calls by as much as 80%. Holdsworth sold ECN to Reunert in June, for R171.9 million.
The listed company took Holdsworth and AppChat to court, arguing he breached a termination agreement and his contract of employment by launching a new telecoms company.
Judge Selby Baqwa ruled that Holdsworth breached his restraint of trade by seeking to start a competitive offering, and had also solicited staff and clients in a bid to launch AppChat. Reunert argued that AppChat was based on a mobile VOIP product that it was set to launch, which would be scuttled if AppChat went ahead.
The decision, handed down by the North Gauteng High Court on Friday, ruled that Holdsworth may not compete unlawfully, poach staff or clients, or make use of any of Nashua ECN's maturing corporate opportunities.
Holdsworth says he will appeal the judgement as it is fatally flawed and he has denied being aware of Nashua ECN's plans to enter the mobile VOIP space, and stealing its staff and customers. He says he is still allowed to compete, as long as he does not do so in an anti-competitive manner, which he has no intention of doing.
Competitive environment
Baqwa granted several of Reunert's requests, including upholding Holdsworth's restraint of trade until the end of this month. The ruling also stops him and AppChat from approaching any of Nashua ECN's staff.
Reunert's notice of motion asked that Holdsworth and AppChat be prevented from sharing confidential information, such as source codes, new technologies or marketing and distribution activities. It also requests an interdict against Holdsworth from “diverting or usurping” the “maturing corporate opportunities of the client”.
Both those requests were granted.
In addition, the request that Holdsworth and AppChat be stopped from unlawfully competing with Nashua ECN or engaging in any form of corporate sabotage was also granted. Reunert believes these aspects do not have an expiry date and they effectively stop AppChat from launching.
If relief was not granted, Nashua ECN could be run into the “ground” if Holdsworth and AppChat were allowed to continue unchecked, soliciting customers and staff, said Baqwa. “We have here a case of solicitation of both employees and customers.”
Nashua ECN MD Andy Openshaw says the legal view is that AppChat cannot carry on. He says the company is considering a damages claim against Holdsworth and AppChat.
Flawed ruling
However, Holdsworth says, according to the ruling, from 31 August he can compete with Nashua ECN, but may not do so in an anti-competitive manner by soliciting staff or customers, which he has no intention of doing. “The effect of the judgment is that both AppChat and I are required to adhere to the contractual restraint until 30 August 2012, which expires on Thursday.”
Holdsworth is “appalled at the number of factual errors”, such as that he chaired the Nashua ECN board, which he says was never the case. “I am clearly disappointed with the judgment and will most certainly be appealing it.”
Holdsworth, a “major shareholder” in ECN, started the company in the first quarter of 2005 to take advantage of a shift to voice over IP. He took up a consulting role in July, but left the company's employ in November.
AppChat and Holdsworth denied being in a business that is the same, or substantially the same, as that of Nashua ECN. The product being developed is different to what Nashua ECN had been working on, the parties claimed, according to the judgement.
In addition, AppChat and Holdsworth argued that Nashua ECN operates in the fixed-line segment, while their offering targets the mobile industry, and would only have started operating after the restraint of trade had lapsed.
Baqwa wrote that Holdsworth was aware of Nashua ECN's plans to enter the mobile market and that it was developing a mobile VOIP product. The judge said the restraint was relevant. “I am satisfied that the business the applicant proposes contravenes the restraint in material respects.”
Holdsworth says, from June 2011, he did not perform any work on behalf of Nashua ECN. “I had no idea that Nashua ECN was developing a VOIP application for mobile phones.”
He adds that it is “surreal if not somewhat disturbing” to be accused of soliciting ECN's customers when he has not met or spoken a word to a single ECN customer since his contract was terminated almost 10 months ago.
“I will make a comprehensive announcement on Friday when my restraint has expired. In the interim, I will have lunch with my friends, go to the gym and resume my garden leave duties; the grass has been neglected and needs cutting.”
Holdsworth and AppChat were ordered to pay “wasted” costs, including that of two counsel.
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