Silent Pond Investments CC v Woolworths (Pty) Ltd & another [2007 ] JOL 2008 8 (D) PDF

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Summary

academic writing on encroachment, helps with the August assignment...

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SilentPondInvestmentsCCvWoolworths(Pty)Ltd&another [2007]JOL20088(D) Reportedin (Butterworths)

NotreportedinanyLexisNexisButterworthsprintedseries.

CaseNo: JudgmentDate(s):

3487/07 25/06/2007

HearingDate(s): Markedas:

11/06/2007 Reportable

Country: Jurisdiction: Division:

SouthAfrica HighCourt Durban&Coast

Judge: Bench:

MorleyAJ GMorleyAJ

Parties:

Categories:

SilentPondInvestmentsCC(At);Woolworths(Pty)Limited(1R), EngenPetroleumLimited(2R) AdvAStokesSC,KnightTurner(At);MrEFagan,EdwardNathan Sonnenbergs(1R),AdvLAWinchesterSC(2R) ApplicationCivilSubstantivePrivate

Function:

ConfirmsLegalPrinciple

Appearance:

KeyWords ContractBreachofcontractInterdict MiniSummary Intermsofanagreementbetweentheapplicantandthesecondrespondent,theapplicantwasgiventherightto operateapetrolstationaccompaniedbyaconveniencestoreonacertainsite.Inthepresentapplication,the applicantsoughttointerdictthefirstrespondentfromoperatingoritselfopeningoroperatingastoreselling foodstuffsfromashoppingcentreneartheapplicant'sbusiness.Theapplicant'sobjectionwasbasedonits contentionthatthefirstrespondenthadbreachedtheparties'agreementbyestablishinganothershopsellingits goodsimmediatelyadjacenttotheapplicant'sconveniencestorewhichalsostockedfirstrespondent'sgoods. Heldthatalthoughtheagreementbetweenthepartiesdidnotguaranteeexclusivitytotheapplicant,therelevant clausecontainedanundertakingthatthepartieswouldobservetheutmostgoodfaithintheirdealingswitheach other,andtorefrainfromdoinganythingwhichmightprejudiceordetractfromtherights,assetsorinterestofthe otherofthem,thecourtfoundthatthefirstrespondent'sconductfellfoulofthatclause,andgrantedtheinterdict. Page1of[2007]JOL20088(D)

MORLEYAJ Introduction [1]Theapplicant,SilentPondInvestmentsCC,haslaunchedanapplicationagainstthefirstrespondent, Woolworths(Pty)Limitedandthesecondrespondent,EngenPetroleumLimitedinwhichitseeksthefollowing relief: "(a)

ThattheFirstRespondentbeandisherebyinterdictedfromfacilitatingoritselfopeningor operatingastoresellingfoodstuffsfromtheshoppingcentresituatedat14FlandersDrive,Mount Edgecombe,asfurtheridentifiedinannexure'AW4'hereto,foraslongastheagreementbetween theparties,annexedtothefoundingaffidavitandmarked'AW1'isinexistence;

(b)

TheFirstRespondentisdirectedtopaythecostsofthisapplication,unlessitis

Page2of[2007]JOL20088(D)

opposedbytheSecondRespondent,inwhicheventthefirstandsecondrespondentsaretopay thecostsofthisapplicationjointlyandseverally." [2]Imentionthatthesecondrespondenthasremainedonthesidelines,savefordartingontothefieldofplayin certainoftheinterlocutoryapplicationstowhichreferencewillbemade. [3]Theapplicationcamebeforemeasanopposedapplication.MrAStokesSCappearedfortheapplicantandMrE Faganappearedforthefirstrespondent.Iamgratefultocounselfortheirskeletonheadsandfortheirrespective oralargumentsbeforeme. Backgroundfacts [4]Thefollowingappeartometobetheessentialfacts.Mostofthesearenotindispute.Intermsofan agreementconcludedon7March2003betweentheapplicantandthesecondrespondent,theapplicantwasgiven therighttooperateanEngenpetroleumstationsituatedonthepremiseslocatedat37/38FlandersDrive,Mount

Edgecombe.Intermsofthatagreement,theapplicantwasobligedalsotooperateaconveniencestorefromthe samepremises,knownasa"QuickShop".TheapplicantoperatedanEngenpetroleumgarage,togetherwiththe QuickShop,attheabovepremisesfrom2003until2005. [5]During2005,andwitheffectfrom2November2005,thepartiesenteredintoaTripartiteAgreement(the annexure"AW1"referredtointhedraftorder Page3of[2007]JOL20088(D)

prayed),intermsofwhichtheapplicantwaslicensedtousetheWoolworthsnameandtosellWoolworths foodstuffsfromwithintheQuickShoppremises.Imentionthatthewrittenagreementappearstohavebeensigned bytherespondentsduring2007,althoughtheagreementbearstheyear2006abovetheirsignatures,andbythe applicanton15February2007,butnothingturnsonthis. [6]Clause2oftheTripartiteAgreementincorporateswhatistermedanintroductiontotheagreement.Itsetsout thepurposeoftheagreement.Itreadsasfollows: "2.1 Woolworthsisaleadingretailerof,interalia,foodstuffsofhighqualitythroughachainofretail storesthroughouttheRepublicofSouthAfricawhichtradeunderthename. 2.2

InconductingtheWoolworthsbusiness,Woolworthshasacquiredanddeveloped,overaperiod ofmanyyears,theknowhow.[ImentionthattheTripartiteAgreementdefines'knowhow'as meaningthe'knowhow,expertiseandexperienceasispossessedbyWoolworthsinrelationto theconductoftheWoolworthsbusiness'.]

2.3

Woolworthshasalsoexpendedconsiderableeffortsandfundsinrelationtothepromotionofthe NameandtheTradeMarksandatpresentsellsanextensiverangeofmerchandisebearingthe Nameand/orthetrademarksintheconductoftheWoolworthsbusiness.

2.4

Woolworthshas,moreover,establishedawidespreadreputationforprovidingtothepublichigh qualityfoodstuffsatreasonablepricesinanattractiveandpleasantshoppingenvironment.

2.5

Byreasonoftheabovementionedfactors,considerablegoodwillvestsinthename,thetrade marksandtheknowhow,andthereputationofWoolworthsextendsthroughoutSouthAfrica.

2.6

Engenisanintegratedoilcompanywhich,throughanetworkofEngenServiceStations,holdsthe positionofmarketleaderinthesalesanddistributionofautomotivefuels,petroleumproductsand forecourtconvenienceretailingtothepublic.

Page4of[2007]JOL20088(D)

2.7

Engen,intermsoftheWoolworthsagreement[whichisdefinedas'theagreemententeredinto betweenEngenandWoolworthsintermsofwhichEngenacquiredtherighttograntthebusiness rightstodealersnominatedbyEngen...'],obtainedtherighttolicencethebusinessrights [whicharedefinedintheTripartiteAgreementasmeaning'therightstobegrantedbyEngento thedealerascontemplatedinclause5']todealersnominatedbyEngenandagreedbetween EngenandWoolworthsfromtimetotime.

2.8

EngenandWoolworthshaveagreedthatEngenmaygrantthebusinessrightstothedealer.

2.9

Thepartiesaccordinglywishtoenterintothisagreementtorecordthetermsandconditions underwhichEngenshallgrantthebusinessrightstothedealerandmattersrelatedthereto."

[7]Imentionthatthe"name"isdefinedintheTripartiteAgreementasmeaning"thename'Woolworths'andany othernameunderwhichtheWoolworthssellingpointmayoperateinthefutureasdeterminedfromtimetotimeby Woolworths".Furtherintermsoftheagreement"thetrademarks"aredefinedasmeaning: "Allthetrademarks,emblems,logosordesigns,whetherregisteredornot,ownedand/orutilisedby WoolworthsintheconductoftheWoolworthsbusiness,includinginparticular: 1.

the'W'logoandthename'Woolworths';andanytrademarks,names,logosoremblemsusedin associationwiththeproducts;

2.

anynewtrademark,name,logooremblemwhichmaybedevelopedand/orusedinconnection withWoolworths'sellingpointand/ortheproducts(sic)."

[8]TheTripartiteAgreementdefinesthe"Woolworthsbusiness"asmeaning"thefoodretailingbusinessconducted byWoolworthsthroughthemediumofachainofretailoutletslocatedthroughouttheRepublicofSouthAfrica".The "Woolworthssellingpoint"means"thedesignatedareawithintheQuickShop, Page5of[2007]JOL20088(D)

tobeestablishedinaccordancewiththeWoolworths/Engenbuildingspecificationdocument,inwhichtheproducts shallbedisplayedforsaleunderthenameandthetrademarksandinaccordancewiththeknowhow,whichwill taketheformoftheminimarketmodel".Theagreementdefinesthe"minimarketmodel"inturnasmeaning"a WoolworthsSellingPointwhichtakestheformofasmall'ushaped'or'Lshaped'designatedareawithinaQuick

Shop".Finally,"products"means"theproductswhichWoolworthsshallsupplytotheLicensedDealersassetoutin annexure'A'heretowhichlistofProductsmaybeamendedbyWoolworthsinaccordancewithclauses26and29 below"(Irefertotheseclausesbelow).Annexure"A"consistsofalistofanumberof"products",whichareinthe natureof"conveniencefoods". [9]CertainofthetermsoftheagreementarematerialtothepresentdisputeandIrefertothesebelow: (a)

Clause5setsoutthegrantofbusinessrightstotheapplicantinthefollowingterms: "5.1 Engenherebygrantstothedealerthebusinessrightswhichshallcomprise: 5.1.1

therighttoestablishtheWoolworthsSellingPointintheQuickShopandtosellthe Productstherefrom;

5.1.2

therighttoobtainandutilisetheKnowHowinrelationtothesaleoftheProducts andtheestablishmentoftheWoolworthsSellingPoint;

5.1.3

therighttoutilisetheNameandtheTradeMarksinconnectionwiththesaleofthe ProductsfromtheWoolworthsSellingPoint;

5.1.4

subjecttotheprovisionsofclause7,therighttoa

Page6of[2007]JOL20088(D)

nontransferable,nonexclusivelicencetousethesoftware(areferencetothe softwarelicensedintermsoftheTripartiteAgreement), uponthetermsandsubjecttotheconditionssetoutinthisAgreement. 5.2 (b)

ThedealershallnotbeentitledtoutilisetheBusinessRightsoranypartthereofotherthan strictlyinaccordancewiththisAgreement."

Clause10dealswiththerelationshipbetweenthepartiesandprovidesthat: "Therelationshipbetweenthepartiesshallbethatofindependentcontractorsand,accordingly, n o th in gin th is Agr eemen ts h allc o n s titu teapar tn er s h ipin an ys h apeo r fo r mbetween Woolworthsand/orEngenand/ortheDealer,norshallitauthorisetheDealerand/orEngento incuranyliabilityofanynaturewhatsoeveronbehalfofWoolworths."

(c)

Thedealer'srightsandobligations,namelythoseoftheapplicant,aredealtwithintermsofclause12ofthe Agreement.Therelevantportionsofclause12arequoted: "TheDealershall: 12.1

12.3

neitherdoanythingnorrefrainfromdoinganythingwhichmightprejudiceordetractfrom thegoodwillandreputationattachingtotheName,theTradeMarksandtheKnowHow, including,withoutderogatingfromthegeneralityoftheaforegoing: 12.1.3

utilisingitsbestendeavourstoensureaconsistentcustomerexperienceofthe Woolworthsbrand;

12.1.5

complyingwithallprovisionsandstandardssetoutintheWoolworthsCodeof BusinessPrinciples;

intheexerciseofitsrightsandintheperformanceofitsfunctionsand

Page7of[2007]JOL20088(D)

dutiesintermsofthisAgreement,strictlyobserveandcomplywiththeOperatingManual asvariedfromtimetotimeandallotherreasonabledirectionsandinstructionsfurnished byWoolworthsfromtimetotimeinrelationtotheWoolworthsSellingPointand/orin accordancewiththetermsofthisAgreement,whethercommunicatedtotheDealerby WoolworthsorbyEngen; ... 12.6

notusetheName,theTradeMarksandtheKnowHow,exceptonthebasisandinthe manner setoutintheOper atingManualandinaccor dancewithalldir ectionsand instructionsfurnishedbyEngenand/orWoolworthstoitfromtimetotime;

... 12.11 totheextentpermissibleinlaw,selltheproductsatthesellingpricedeterminedtherefor byWoolworthsfromtimetotime,andinordertofacilitatetheproductsbeingsoldatthe correctpricesandforpropershelflifecontroltobemaintained,allproductswillbesupplied markedwithasellingprice(alternatively,WoolworthswillfurnishtheDealerwithprice ticketsfortheproducts,whichticketsmustbeplacedintheimmediatevicinityofsuch products,shouldWoolworthselectnottomarkthepricesontheproductsthemselves)and

theirsellbydate,andWoolworthswillprovidetotheDealer,thebarcodesoftheproducts tobelo adedon toth eDealer 'spoin tofsalesystemfor pr icean dpr odu ctco n tr o l scanning." (d)

Clause13dealtwithexclusivityandstatedasfollows: "13.1 TheDealeracknowledgesthatWoolworthshasgivencertainexclusivityundertakingsto En g e n ,  t h e  e f f e c t  b e i n g  t h at  W o o l w o r t h s  w i l l  no t  e n t e r  i n t o  an y  ag r e e m e n t s  o r negotiationswithanyothersupplierordistributorofautomotivefuelsandpetroleum productstothepublicortoanypersonwhoownsoroperatesservicestations,forthe supplyoftheProductsundertheMiniMarketModel. 13.2

TheDealer acknowledgesthebenefitswhichaccr uetotheDealer byvir tueofthe exclusivityundertakingsreferredtoinclause13.1and,accordingly,agreesthatitshallnot enterintoanyagreementornegotiations,withanybrandedorunbrandedretailer(which, withoutlimitingthegeneralityoftheterm,shallincludePick'nPay,Shoprite,

Page8of[2007]JOL20088(D)

Checkers,Spar,7Eleven,8'TilLate,OKMiniMarketandFriendlyGrocer)concerningthe establishmentofapresenceof,orthesaleofproductssimilartotheProducts,suppliedby anybrandedorunbrandedretailerattheEngenServiceStationatanytime." (e)

Clause14.1dealswithmarketingandprovides: "14.1 EngenandWoolworthsshallmarketandpromotetheestablishmentandoperationofthe WoolworthsSellingPointtothepublicinordertoensurethatthepublicareawareofthe existenceoftheWoolworthsSellingPointandtoencouragethesaleoftheProductsfrom theWoolworthsSellingPoint."

(f)

Althoughitisnotnecessarytoquotetherelevantparagraphs,theTripartiteAgreementcontainsextensive provisionspertainingtothepaymentofasocalled"administrationfee"of9.65%(whichappearstobemore inthenatureofaroyalty)onthecostpriceofgoodssuppliedtothedealerafterthefirstsixmonthsofthe agreementandacommissionof2.4%oncreditcardsales(clause15.1),theuseofthenameandthetrade marks(clause22),patentsanddesigns(clause23),theobligationtocomplywithWoolworths'sOperating Manual(clause24),theproducts(clause26),additionalproductitems(clause29)andconfidentiality(clause 32).

(g)

Certainoftheprovisionsofclauses26.7dealingwithproductsarerelevant,namely: "26.7

TheDealershallnot:

Page9of[2007]JOL20088(D)

26.7.1 purchaseorattempttopurchaseanyProductsfromanysourceotherthan Woolworths;or 26.7.2 sellorattempttosellanyProductsobtainedfromWoolworthsanywhereother thanfromaWoolworthsSellingPoint;or 26.7.3 sellorattempttosellanyproductswhichWoolworths,actingreasonablyandin goodfaith,determinesasbeingsimilartoorsubstitutesfortheProductslistedon annexure'A'heretoasfallingwithinthe'exclusivecategories'ofproducts, providedthattheprovisionsofthisclause26.7.3shallnotapplytoanyProducts soldbytheDealerfromanyAlternativeProfitOpportunity(APO)restaurantor takeawaywithinarestaurantwhichhasbeenapprovedbyEngenandwhichis operatedbytheDealerattheEngenServiceStation;

(h)

26.8

TheDealershallstockthatnumberandtypeofproductsfallingwithinthecoreproduct categoriesasmaybespecifiedbyWoolworthsfromtimetotime.

26.9

TheDealeragreesthatWoolworthsshallbeentitled,butnotobliged,torequirethe DealertosellWoolworthsproductsfallingwithinthe'nonexclusivecategories'of pr oductsaslistedonannexur e'A'her eto,whichpr oductsshallbesoldfr omthe WoolworthsSellingPoint.Fortheavoidanceofdoubt,thepartiesrecordthattheDealer shallbeentitledtostockandsellproductswhichmaybesimilartoorsubstitutesfor productsfallingwithinthenonexclusivecategories.

26.10

TheDealeracknowledgesthatWoolworthsshallbeentitledtodeterminethemaximum numberofproductitemstobesoldfromtheWoolworthsSellingPointfromtimetotime. TheDealershallcomplywithWoolworths'determinationinthisregard.

26.19

Thenonexclusivecoreproductcategoriesspecifiedinannexure'A'heretomaybe amendedbyagreementbetweenWoolworthsandEngen."

Clause29providesthat:

"Thedealeracknowledgesthat,EngenmaycompeltheDealertostockaspecifiednumberof otherproductitemsfallingwithintheproductcategoriessetoutinAnnexure'A'.Inthisregardthe Dealeragrees Page10of[2007]JOL20088(D)

that,asandwhenEngenprovidestheDealerwithalistofsuchotherproductitems,whether suchproductitemsfallwithin'ExclusiveCategories'or'NonExclusiveCategories',theDealershall selectthespecifiednumberofsuchproductitemsfromthelistofavailableproductitems.Forthe avoidanceofdoubt,suchproductitemsshall,totheextentpermissibleinlaw,besoldatthe sellingpricedeterminedbyWoolworthsfromtimetotime." (i)

Ofparticularimportance,andtheclausetobeinterpretedintheseproceedings,isclause41.4whichprovides: "Inimplementationofthisagreement,thepartiesheretoundertaketoobservetheutmostgood faithandtheywarrantintheirdealingswitheachotherthattheyshallneitherdoanythingnor refrainfromdoinganythingwhichmightprejudiceordetractfromtherights,assetsorinterestof theotherofthem."

[10]Ihavenotquotedalltheclausesreferredtobytheapplicantinitsfoundingpapersbutoverall,theprovisions oftheTripartiteAgreementsupportthegeneralstatementmadebytheapplicantinitsfoundingpapersthatthe firstrespondent,Woolworths,retainsasubstantialmeasureofcontroloverwhattheapplicantisentitledtosell, thequantitiesofaparticularproductthatmaybesold,thewaythatitissold,thepricespaidandcharged(Ineed notconsidertheextenttowhichsuchcontrolmightbeexercisedlawfully),andwastohavefullaccesstothe applicant'srecordsofdailysales,purchasesandsoon.Itwouldappearthatpreferencewastobegivento Woolworthsproductseveninthenonexclusivecategoriesofproducts.Theapplicanthadtocomplyatalltimeswith theprovisionsofthefirstrespondent'soperatingmanualandthismanualcouldbevariedattheinstanceofthefirst respondent.Ibelieveitisimportant Page11of[2007]JOL20088(D)

tostressthatthereisnothingcontrarytolawinsuchacontract,designedtoforgoodreasontoprotectthefirst respondent'sinterests. [11]Althoughnotdescribedassuch,therelationshipbetweentheapplicantandthefirstrespondentisinthe natureofabusinessformatfranchise.Intheordinarycourse,ashappenedinthepresentcase,thefranchisorhas valuableintellectualpropertyandabusinesssystem,theu...