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[2016] ZAWCHC 125
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Best Boland Motors CC and Others v Gratima 130 CC (A481/2015) [2016] ZAWCHC 125 (21 September 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
WESTERN
CAPE DIVISION, CAPE TOWN
DATE:
21 SEPTEMBER 2016
CASE
NO: A481/2015
REPORTABLE
In
the matter between:
BEST
BOLAND MOTORS
CC
......................................................................................
First
Appellant
BEST
BOLAND ONDERDELE
CC
..........................................................................
Second
Appellant
CHRISTIAAN
JOHAN
COETZEE
.............................................................................
Third
Appellant
CJ
COETZEE INDUSTRIES
CC
..............................................................................
Fourth
Appellant
PA
COETZEE
..................................................................................................................
Fifth
Appellant
ERICH
SCHIEMAN
.......................................................................................................
Sixth
Appellant
And
GRATIMA
130
CC
................................................................................................................
Respondent
JUDGMENT
DELIVERED ON 21 SEPTEMBER 2016
GAMBLE,
J:
INTRODUCTION
[1]
The
Volkswagen Beetle is an iconic 20
th
century automobile which was developed during the height of the Third
Reich when the Chancellor of Germany decided that the
Herrenvolk
needed an affordable mode of private transport, which could travel at
a speed of 100kph and cost less than 1000
Reichsmark
,
thereby becoming truly worthy of the of the nomenclature of “
a
people’s car
”.
Based on the original design of a certain Ferdinand Porsche,
incorporating a rear-mounted air-cooled engine, the first
VW Beetle –
so called because of its distinctive curved bug-like shape, was
produced in 1939, at a state-owned factory in
Wolfsburg, a
purpose-built city which owes its origin to the large-scale
production of these motor cars.
[1]
[2]
The
car became very popular in South Africa from the 1950s through to the
late 1970’s as an affordable, reliable and low maintenance
vehicle for people of any age - from students, through newlyweds to
pensioners and became eponymously known as a ‘
Volksie’,
a
‘
Vollatjie’,
a
‘
Bug’
or
simply
a ‘
Beetle’
[2]
.
[3]
The third appellant, Mr Christiaan Coetzee, evidently acquired his
first used Beetle while still in high school, and became
most adept
at the rebuilding, maintenance and repair thereof. Over the years
Coetzee built up a reputation in Stellenbosch as a
highly competent
Volkswagen mechanic, running a business known as “Best Beetle
Motors” which specialised in the repair
and maintenance of
Beetles.
[4]
The business flourished and in 1994 Coetzee relocated to premises in
an industrial area at Brackenfell in the Cape Peninsula,
where the
business was revamped as “Best Boland Motors”. The
business flourished and eventually Coetzee was able to
purchase the
premises from which it traded. As a wily businessman he spotted a
niche in the car rental business, namely the hiring
of second-hand
Beetles for those with the pang of nostalgia for a bygone era, or for
those looking for a cheaper form of long-term
car rental. He
eventually built up a fleet of around 100 Beetles, many of which were
made available for rental. Given the shortage
of spare parts for
Beetles, which had gone out of production at the Volkswagen factory
at Uitenhage in 1979, a handy supply of
used Beetles enabled the
business to efficiently maintain its fleet of hire vehicles by the
stripping and sourcing of used parts
from those other vehicles.
[5]
Through Best Boland Motors CC (“Best Boland”), which
traded as “
Best Beetle Hire”,
Coetzee operated
from premises located at no. 9 Staal Street, Brackenfell, where by
2004, the business employed a fair number of
people, including his
brothers, Francois Gunter Coetzee and Dirk Arno Coetzee. For the sake
of convenience I shall refer to these
two family members as “Gunter”
and “Dirk” respectively so as to distinguish them from
the third appellant.
Coetzee claimed that the business was well known
both locally and abroad and that many of the rental customers were
foreign visitors
to South Africa, who had become familiar with Best
Beetle via a web page on the Internet which was managed by Gunter.
[6]
Towards the beginning of 2004, Coetzee decided to dispose of Best
Beetle and to that end placed an advertisement in a local
newspaper
in May 2004 in which,
inter alia
, the net profit of the
business was claimed to be R120 000 per month. Persuant to this
advert, the respondent, Gratima 130 CC,
a business owned and managed
by Mr Pieter Stephan, bought the Best Beetle business from Best
Boland as a going concern. Coetzee
however maintained ownership and
control of Best Boland as also the name of the business. Stephan was
at that stage running a service
station and a convenience store
business in Paarl, having earlier given up his job as a marketing
consultant at the KWV, a large
co-operative winery. He admittedly had
no experience in the motor trade as such.
[7]
Stephan
was introduced to the business in May 2004 and eventually a written
agreement of sale was concluded early in September 2004
in terms
whereof Best Boland’s business was sold to him for R2m. The
effective date for the takeover was to be 1 December
2004, with the
purchase of the new business contingent upon the sale of Stephan’s
existing business in Paarl. I shall refer
to this as the initial
agreement. In October 2004 the purchase price was reduced to R1,9m,
with a deposit in the amount of R1150
000 payable on the takeover
date and the balance payable in 24 equal monthly instalments,
together with interest of 10% per annum
due on the outstanding
balance. In the agreement of sale, the going concern, (‘
die
besigheid’)
was defined as the hiring and repair of motor vehicles, as also the
sale of used motor spares
[3]
. It
was to be conducted at the aforementioned premises at 9 Staal Street
in terms of a lease to be concluded with the second appellant,
Best
Boland Onderdele CC, an entity also effectively owned and controlled
by Coetzee
[4]
. For the purposes
of indentification in relation to the lease agreement I shall refer
to the second appellant as ‘
Onderdele’.
[8]
As things turned out the deposit for the purchase of the business
was late and only paid on 15 December 2004 but Stephan was
given
access to the business from the first day of that month. By
arrangement between the parties certain of Best Boland’s
employees stayed on in the business so as to familiarise Stephan with
the running thereof given that Coetzee described it as “fairly
complex”. Early in January 2005, Stephan indicated that he no
longer required the assistance of these employees who were
released
to go back to working for Coetzee at the business refered to
immediately below.
[9]
On 1 December 2004 Coetzee opened a new business a short distance
away at no 5 Staal Street. It was formally conducted by the
second
appellant under the name and style of “
Boland Kombi Golf and
Polo Centre”
, and for the sake of convenience I shall
hereinafter refer to this business conducted by the second appellant
as “
Boland Kombi”.
The business was said to have
specialised in the repair of Volkswagen vehicles manufactured after
1984. The significance of this
date is that all VW vehicles which
left the Uitenhage factory after that date were to be serviced using
computer-based technology.
The Beetle, which on the other hand had
been serviced and maintained according to basic manual methods using
standard workshop
equipment, was not upgraded to computer-based
technology. Coetzee’s new business venture would, to all
intents and purposes,
therefore not service Beetles.
[10]
During January 2005, Stephan noticed a significant drop-off in the
turnover of his business, then trading as “
Beetle Car
Rental”.
He attributed this to the success of Boland Kombi
which he said had filched customers and competed unfairly with his
business.
By February 2005, Stephan was looking around for a
purchaser of Beetle Car Rental. After a number of fruitless attempts
at disposing
of the business to third parties, he reverted to Coetzee
in December 2005 and sold the business back to him for R400 000.
[11]
On 17 December 2007, the respondent (“Gratima”) issued
summons out of this court against the first to fifth appellants
herein. It sought payment by Coetzee of four distinct claims, being
damages for breach of contract and/or unlawful competition,
amounts
due inrespect of the agreed use of its tow trucks, the refund of its
rental deposit paid to the second appellant in respect
of the lease
at 9 Staal Street and the costs of suit in certain interim litigation
between the parties. It was claimed that Coetzee
was personally
liable for the obligations of the close corporations controlled by
him by virtue of the provisions of
sec 26(5)
of the
Close
Corporations Act, 69 of 1984
.
[12]
After a somewhat protracted trial, judgment was granted in favour of
the respondent on 27 March 2014. The Court
a quo
awarded
Gratima damages in the sum of R1 182 812, 50, payment of
the sum of R 47 423, 14 in respect of the use of
the tow trucks,
repayment of the rental deposit in the sum of R 18 240 and the
costs of the interim litigation.
Mora
interest was also awarded, together with costs of suit, and all
amounts were ordered to be paid by Coetzee personally on the basis
as
claimed.
[13]
The Court
a quo
refused Coetzee leave to appeal, but after
petitioning the Supreme Court of Appeal, he was granted leave to
appeal only the damages
award, the order for repayment of the rental
deposit and the costs order in the trial itself. Leave was not
granted in respect
of the order declaring Coetzee personally liable
for the obligations of the close corporations.
APPLICATION
FOR CONDONATION
[14]
Coetzee was granted leave to appeal on 15 December 2014. In terms of
the applicable rules, his notice of appeal was to have
been filed on
Friday 16 January 2015. As a matter of fact, the notice of appeal was
filed the following Monday and was therefore
1 day late. In terms of
the Rules of Court, Coetzee was thereafter required to prosecute the
appeal within 60 days (i.e. by 13
April 2015). He failed to take this
step timeously and only did so early in August 2015.
[15]
Accordingly, an application for condonation for the late filing of
the notice of appeal and the prosecution of the appeal was
filed in
August 2015, which application was vigourously opposed by the
respondent. In the process, another 168 pages was added
to the record
in this matter. In the application, Coetzee said that he had been
hamstrung by a shortage of funds and had been unable
to instruct his
attorneys timeously. He pointed out that he had left the motor trade
and that his sole source of income was from
a building business in
which he was then involved. He complained about poor payment by the
owner of the house that he was building.
[16]
In the answering affidavit Stephan pointed out that Coetzee had been
economical with the truth in the founding affidavit in
the
application for condonation. He had failed to disclose his ownership
of a small-holding in the Klipheuwel district from which
a monthly
rental income was derived. It was suggested that the failure to
prosecute the appeal on the basis of impecunity was contrived
and
that the real reason was the fact that Coetzee had acquiesced in the
judgment of the court
a quo.
[17]
The requirements in an application for condonation for the failure to
prosecute an appeal are contained in
Rule 49
and the priciples
regarding the application thereof are trite: non-compliance with the
60 day time limit prescribed by
Rule 49(6)
leads to the automatic
lapsing of the appeal and the appellant is then required to file a
substantive application fully explaining
the reasons for the delay.
The court hearing the application will consider the reasonableness of
the explanation put up and weigh
it up against the prospects of
success on appeal: the stronger the prospects, the more likely the
court is to grant condonation,
moreso where the explanation is not
convincing. Ultimately, however, the court exercises a discretion
with due regard for the interests
of justice and the right of the
successful party in the litigation to finality in the proceedings.
[5]
[18]
There is a further procedural hurdle which Coetzee failed to clear in
the run-up to this appeal: no heads of argument were
filed on his
behalf. In terms of Practice Direction 49 of this Division such a
failure can lead to the appeal either being struck
off the role or
dismissed in its entirety. There is no written explanation before us
as to the failure on the part of Coetzee to
file his heads of
argument but the reason is not difficult to find. On 6 June 2016 his
attorneys withdrew as attorneys of record
and at the hearing of the
appeal Coetzee appeared in person, claiming also to represent the
first, second and fourth appellants.
Given that those appellants are
deregistered companies and accordingly non-existent entities, Coetzee
was before us only in his
personal capacity as the third appellant -
the party who had been ordered to effect payment of the amounts due
in terms of the
judgment of the court
a quo.
Coetzee proceeded
to argue the appeal without heads of argument but he was nevertheless
more than capable in his address to this
court.
[19]
In argument before us, counsel for Gratima made much play of the
non-disclosure by Coetzee of his additional source
of
income. I agree that the failure to fully disclose his income and his
assets is a serious shortcoming in the application for
condonation.
However what is clear, is that Coetzee is financially stretched - I
have little doubt that had he been able to afford
the services of a
lawyer he would have appointed one given that the amount that he is
liable to pay in terms of the court order
is substantial.
[20]
In the circumstances, I am prepared (albeit reluctantly) to accept
the explanation put up by Coetzee for the failure to prosecute
the
appeal timeously. Consideration must then be given to the prospects
of success in the appeal and it is to that aspect of the
case that
the focus of this judgment will be directed.
THE
PRINCIPAL CLAIM AS PLEADED IN THE COURT
A QUO
[21]
In its particulars of claim as amended, Gratima relied, for its
principal claim, on a written agreement of sale concluded
with Best
Boland on 9 September 2004 with the parties thereto represented as
set out above. It alleged that in terms of that agreement
(as
amemded), it purchased the business as a going concern from Best
Boland for a purchase consideration of R1, 9 million. It went
on to
allege that the existing stock of certain used spare parts was an
integral part of the business.
[22]
Gratima pleaded that the agreement was breached in the following
respect -
22.1
That Best Boland removed almost the entire stock of spare parts from
the workshop prior to 1 December 2004 when Gratima took
over the
business; and
22.2
That the removal of the said stock of spare parts (which were said to
be unobtainable elsewhere) rendered the rental component
of the
business incapable of operation by virtue of the non-availability of
spare parts with which to repair the rental vehicles.
[23]
In the alternative, Gratima contended that Coetzee had intentionally
and unlawfully competed with it in 4 respects, namely,
by
23.1
opening the business of Boland Kombi at 5 Staal Street, Brackenfell,
which was identical to the unique repair and rental business
operated
by Gratima and which was in direct competition with it;
23.2
wrongfully removing all of the customer books and lists from the
business premises;
23.3
intentionally filching clients from the business; and
23.4
intentionally causing the erosion of the goodwill of the business,
which was said to form an essential component of the
res vendita.
[24]
It was said that in consequence of Coetzee’s aforesaid unlawful
compettion, after a 10 month period the business was
incapable of
trading profitably and in order to limit its loses Gratima was
obliged to sell the business to Boland Kombi in December
2005 for the
sum of R400 000. Gratima claimed that as a consequence of the
breach of the initial agreement, alternatively
the unlawful
competition by Coetzee, it had suffered damages in the amount of
R1 182 812,50 being the revised purchase price
(R1,9m) less the
sum of all payments made to Best Boland under the agreement (R1 582
812.50) and less the proceeds of the
resale (R400 000).
[25]
The plea to the allegations of unlawful competition in support of the
principal claim reads as follows –
“
13.1
The Defendants plead that to the knowledge of the Plaintiff the Third
Defendant was already conducting a car rental and repair
business at
5 Staal Street, Brackenfell Industria at the time of the conclusion
of the agreement with the Plaintiff, and that the
parties were aware
that such business would continue.
13.2
The Third Defendant sold the aforesaid business during or about March
2005.
13.3
The Third Defendant admits that he was in competition with the
Plaintiff for a period but denies that his conduct was a breach
of
the agreement concluded between the parties and/or constituted
unlawful competition.
13.4
Save as aforesaid, the contents of this paragraph are denied as if
specifically traversed.”
[26]
The plea to the allegations of the unlawful removal of spare Beetle
parts from the premises at 7 Staal Street was a blanket
denial
thereof and there was also a denial of the alleged importance of such
parts to the business which Gratima had purchased.
Further the
quantum of the plaintiff’s claim was placed in issue by Boland
Kombi.
THE
CLAIM FOR THE RETURN OF THE RENT DEPOSIT
[27]
In the particulars of claim, Gratima referred to an agreement of
lease it concluded with Onderdele on 31 January 2005, in terms
whereof, it leased the premises at 9 Staal Street, Brackenfell
Industria for a period of three years at a monthly rental of R 18
240, 00. Clause 5.1 thereof provided for payment of one month’s
rental in advance as a continuing deposit under the lease
and clause
5.3 thereof provided for repayment of the deposit 60 days after the
expiry of the lease and the complete discharge of
all the lessee’s
obligations towards the landlord. Gratima claimed that,
notwithstanding its entitlement to repayment of
the deposit,
Onderdele had failed to effect payment thereof to it.
[28]
In the plea Onderdele replied as follows –
“
The
Defendants deny that the Second Defendant has an obligation to repay
the deposit allegedly paid by the Plaintiff. The Defendants
plead
that it was a specific term of the agreement evidenced in annexure
“A” hereto that the the Plaintiff agrees and
undertakes
to accept the termination of the agreement of lease in respect of the
premises and agrees that it shall have no further
claim against the
landlord.”
[29]
The agreement alluded to in this paragraph of the plea was the
memorandum of agreement concluded between the parties on 9 December
2005 in terms whereof Gratima resold the business to Onderdele. In
clause 16 thereof, which is entitled “
Whole agreement
”,
the following was agreed upon:
“
16.3
Best Boland Motors CC and the Seller hereby agree that upon
fulfilment of the obligations of the Parties in terms of this
agreement, all the obligations of the Parties to the Initial
Agreement as amended or extended from time to time, shall have been
extinguished.
D.W.S alle vorige oorenkomste.
”
The
Afrikaans phrase in bold, which was added to the typed document in
manuscript, is to be translated as “
i.e. all previous
agreements”.
[30]
In the circumstances, there is no defence to the claim for repayment
of the rent deposit other than the assertion that the
issue had been
settled in terms of clause 16.3 of the resale agreement.
THE
IMPORT OF CLAUSE 16.3 GENERALLY
[31]
Significantly, Best Boland did not put up a plea of novation or
compromise in respect of Gratima’s contractual claims
to the
extent that clause 16.3 may have afforded it such a defence.
Nevertheless, in the court below the parties approached the
matter on
the basis that clause 16.3 could be interpreted to mean that Gratima
was precluded from claiming any contractual damages
whatsoever (and
not just in respect of the rental deposit). However, in argument
before us, Mr Vivier SC, focused his energies
on the claim arising
out of unlawful competition and did not delve too deeply into the
effect of clause 16.3 upon the contractual
claims before the court
a
quo
. In my view, this is the prudent way to approach the matter.
[32]
It seems to me that the particulars of claim purported to advance a
double-barrelled approach. On the one hand it was said
that Best
Boland had breached the initial agreement and that as a consequence
thereof Gratima had suffered contractual damages.
Secondly, it was
said that certain of the alleged wrongful acts which constituted the
breach of the initial agreement were facts
which, when viewed in
conjunction with others, were unlawful and permitted a claim in
delict against Boland Kombi. This type of
pleading is permissible as
the judgment of Grosskopf AJA in
Lillicrap
[6]
confirms:
“
In
the present case it is common cause that the damages which the
respondent is claiming pursuant to the Aquilian action could,
insofar
as they arose before the assignment of the contract… have been
claimed on the basis of breach of contract. The respondent’s
contention is that in the circumstances of the present case the facts
gave rise to both causes of action. In principle there would
be no
objection in our law to such a situation. Roman law recognised the
possibility of a
concursus actionem
ie the
possibility that different actions could arise from the same set of
facts. More particularly, the facts giving rise to a
claim for
damages under the
lex Aquilia
could overlap with
those founding an action under certain types of contract such as
deposit… lease, partnership… etc.
In such a case a
plaintiff was in general entitled to elect which
actio
t
o
employ…… In modern South African law we are of course
no longer bound by the formal
actiones
of Roman
law, but our law also acknowledges that the same facts may give rise
to a claim for damages
ex delicto
as well as one
ex contractu
, and allows the plaintiff to
choose which he wishes to pursue…. The mere fact that the
respondent might have framed his
action in contract therefore does
not
per se
debar him from claiming in delict.
All that he needs show is that the facts pleaded establish a cause of
action in delict. That
the relevant facts may have been pleaded in a
different manner so as to raise a claim for contractual damages is,
in principle,
irrelevant.”
[33]
The submissions advanced before the court
a quo
on behalf of
Boland Kombi that a contractual claim by Gratima was hit by the
provisions of clause 16.3 was a compelling argument
indeed. However,
in view of the argument put up before us by Mr Vivier SC in regard to
the alternative claim for unlawful competition,
I am of the view that
it is not necessary to deal with the court
a quo’s
apparent
finding in the judgment at [114] that Boland Kombi was liable to
Gratima ‘
for such damages as plaintiff will be able to prove
for breach of contract.’
UNLAWFUL
COMPETITION
[34]
The court
a
quo
thouroughly
analysed the principles applicable to a claim for unlawful
competition and I agree with approach adopted. To be sure,
there can
be no complaint that in a market economy such as our’s fair and
honest competition between parties with similar
business interests is
permissible. Indeed, the proponents of a free market economy would
suggest that it lies at the core of a
vibrant economy, an approach
which has been endorsed by our courts over time. For instance, in
Silver
Crystal
[7]
Page J remarked that –
“
[I]t
is not the function of the Courts to stifle healthy competition
which, in a free enterprise society, can only redound to the
benefit
of the public”.
[35]
In
Grundlingh
[8]
Comrie
AJA cautioned that such competition may not be unbridled –
“
[24]…..
Businessmen sometimes believe that markets created or materially
enhanced by them somehow belong to them. This is
a fallacy in a free
market economy. Subject to statutory protection, granted for
legislative good reason, commercial demand is
open to all competitors
to supply. Supply and demand is a basic tenet of any free economy,
which explains why competition is regarded
as healthy and not
generally to be curbed.
Non constat
that the
manner
of competition may not travel beyond what
is recorded by courts as fair (and even robust), and cross the border
into the realm of
legal unfairness and therefore unlawfulness.”
[36]
As adverted to by Comrie AJA, the
locus
classicus
in
our law of unfair competition is the judgment of Corbett J in
Dun
and Bradstreet
[9]
where
the learned judge gives some guidance as to how to give definition to
the unlawfulness element of such a delict –
“
The
main difficulty in this branch of the law is to determine the
dividing line between lawful and unlawful interference with the
trade
of another. One of the ‘rights’ comprehended in the
general right to carry on a trade is the right to attract
custom.
Competition by a rival trader necessarily involves an interference
with the exercise of this right in that it results,
to some degree,
in the diversion of such custom to the rival trader. As pointed out
in the above-cited passage from
Matthews v Young
[
1922
AD 492
at 507],
such competition is not in itself unlawful. It
may, however, be rendered unlawful by the manner in which the rival
conducts his
trade and a trader damnified thereby is entitled to
relief…
…
.
There is no independent criterion whereby the conduct of a trader who
seeks to pass off his goods as being those of a competitor
can be
categorised as unlawful; it is unlawful because of the general
principle, known to Roman-Dutch Law, that a person cannot
by
imitating the name, marks or devices of another, who has acquired a
reputation for his goods, filch the former’s trade….
The
position is similar in the case of a trader who makes a wilful
misrepresentation as to his own business, as a result of which
customers or potential customers of a competitor are induced to deal
with him rather than with his competitor. I know of no ground
upon
which such trading methods can be held unlawful apart from the fact
that they constitute an unlawful infringement of the competitor’s
rights.”
(Authorities otherwise omitted)
[37]
After a detailed discussion of the law both here and abroad, Corbett
J summarised his understanding of the position thus at
221 C –
222 A -
“
Reverting
to the position in our law and without attempting to define generally
the limits of unlawful competition, it seems to
me that where, as in
this case, a trader has by the exercise of his skill and labour
compiled information which he distributes
to his clients on a
confidential basis (i.e. upon the basis that the information should
not be disclosed to others), a rival trader
who is not a client but
in some manner obtained this information and, well knowing its nature
and the basis upon which it was distributed,
uses it in his competing
business and thereby injures the first mentioned trader in his
business, commits a wrongful act
vis-à-vis
the
latter and will be liable to him in damages. In an appropriate case
the plaintiff trader would also be entitled to claim an
interdict
against the continuation of such wrongful conduct. Although there is
no precise precedent in our law for this proposition,
I am of the
opinion that it is a well-founded development of our law relating to
unlawful competition in trade and is in accordance
with trends of
legal development elsewhere. Quite apart from questions of copyright,
the fact that the information is distributed
on a confidential basis
to a limited class of persons prevents it, in my view, from becoming
public property capable of being used
or imitated by rival traders.
In such circumstances the conduct of a rival trader who obtains and,
well knowing the position, uses
the information to advance his own
business interests and activities amounts to a deliberate
misappropriation and filching of the
products of another’s
skill and labour. Such conduct must, in my view, be regarded as
dishonest and as constituting a fraud
upon the compiler of the
information. I consider that, as in the case of false
misrepresentations concerning one’s own wares
or of
passing-off, our Courts should treat this as constituting unlawful
competition and as being actionable at the suit of the
trader
damnified thereby. As in those cases, the conduct of the trader
misappropriating the information would amount to an infringement
of
the rights of the compiler thereof to carry on his trade and attract
custom without unlawful interference from competitors;
and the damage
suffered would normally consist of the loss of customers or potential
customers who have been introduced by such
conduct to deal with his
competitor rather than with the compiler himself. Bearing in mind the
Aquilian character of a claim based
upon such conduct, it seems to me
that the suffering of damage in this form and its causal connection
with the acts of unlawful
competition are essential ingredients of
the claimant’s cause of action.”
WAS
THERE COMPETITION AND WAS IT UNLAWFUL?
[38]
As I have attempted to demonstrate above, it was not in dispute on
the pleadings that Boland Kombi competed with Gratima after
the sale
of the business to it. The apparent defence on the pleadings to the
claim of unlawfulness is not clearly articulated but
seems to be one
of consent. It is said that Gratima was aware of the state of affairs
at 5 Staal Street at the time that the initial
agreement was
concluded and that the parties conducted their affairs on that basis.
[39]
The initial agreement was concluded on 6-8 September 2004 and
thereafter subjected to various written amendments. The evidence
presented by Coetzee sought, in the first place, to demonstrate that
he had not conducted any business in competition with Gratima.
Not
only was such evidence inadmissible in light of the admissions made
in the pleadings, but it failed woefully to establish the
proposition
contended for. Secondly, Coetzee attempted to show that his new
business had started long before September 2004 (around
May 2004, he
suggested) and that at the time the agreement of sale was concluded
his new enterprise was up and running, a fact
which he claimed would
have been known to Stephan when he concluded the deal with Coetzee.
[40]
The court
a quo
undertook a detailed assessment of the
evidence and came to the conclusion that Coetzee was a poor witness.
I agree with those credibility
findings which are in any event, not
lightly to be interfered with on appeal. The record shows that
Coetzee was a shocking witness
who opportunistically changed his
version when it suited him without so much as the blink of an eye.
His denial of competition
and the assertion that the new business was
being openly conducted by September 2004 is manifestly not capable of
belief.
[41]
But, perhaps the most damning evidence against the denial of the
establishment of a competitor is to be found in a string of
email
correspondence between Gunter and a German client, one Constantine,
who had come across the Best Beetle hire business being
conducted by
Boland Kombi through a web page which Gunter continued to operate
after the sale of the business to Gratima. Through
some deft
handiwork, Stephan came across the correspondence which demonstrates
how brazenly Gunter went about soliciting business
over the Internet.
I shall quote just a portion of the correspondence to demonstrate
this.
“
Constantine
We
can indeed arrange car for your friend too, and there will definitely
be discounts if you take a second Beetle for a longer period.
We are
in Brackenfell, but Best Beetle has moved from our old offices to new
ones. Make sure that you do not go to the old offices
as another
operator who bought all our old cars we (sic) discontinued will
probably try to rent a couple of tacky Beetles out to
you without you
realising you’re at the wrong place…”
[42]
Furthermore, certain photographs were placed before the trial court
of a Beetle parked outside the premises of Boland Kombi
at 5 Staal
Street. Emblazoned on the driver’s door of the car are words
“
Best Boland Group, Kombi, Golf & Polo
Centre
”
replete with the 2 landline telephone numbers of Boland Kombi. On the
right rear window the words “
Best Beetle Car Rental,
Brackenfell
” appear together with a cell phone number used
by Coetzee. Coetzee’s explanation that this vehicle was only
used as
a courtesy car by Boland Kombi is not persuasive if regard be
had to the Constantine email. Self-evidently it was also used as a
mobile advertisement for the competing hire business.
[43]
In the circumstances, I am satisfied that the court
a quo
correctly found that Coetzee had almost immediately set up a
business in direct competition with Gratima just a short distance
away
from his previous business. The question that must now be
addressed is whether that business competed unlawfully with that of
Gratima.
[44]
The Constantine email demonstrates a clear misrepresentation by
Gunter regarding the business trading as Beetle Hire - the
prospective client is cautioned about mistaking the old business for
the new. As Corbett J suggested in
Dun and Bradstreet
such a misrepresentation, made with the intention of filching clients
away from the competitor, would render the competition unlawful.
But
there are other factors too which point towards unlawful conduct on
the part of Coetzee and Boland Kombi. Firstly, there is
the claim
that a large proportion (said to be of the order of 70% or more) of
the used Beetle spares which were housed at 9 Staal
Street before the
sale of the business were missing when Stephan took over. Coetzee’s
denial of this fact was at odds with
the evidence of certain
employees of Best Beetle who described how parts were removed and
stored elsewhere. Secondly, there was
a claim by Stephan that the
customer invoice books which formed part of the business at no. 9,
had disappeared. Once again, Coetzee’s
denial of this fact was
contradicted by a former administrative clerk who described how she
had handed the documents in question
over to an ex-employee who had
accompanied Coetzee to the new business.
[45]
Something such as an invoice book is an integral part of the records
of any business and would enable a person taking over
such business
immediate contact with previous clients, and, given that Coetzee’s
admitted practice was to use the invoice
book to follow up with
existing clients every couple of months or so, the utility thereof to
his competing business is obvious.
[46]
Then there is the fact that the initial agreement contained a
restraint of trade clause which precluded Coetzee from being
involved
in any competitive business within a radius of 8km for a period of
two years. This clause was not the subject of any subsequent
variation. The reason for the inclusion of such a clause makes good
business sense: obviously Stephan did not think that it would
be
financially viable to buy the business if the seller was allowed to
compete with him by opening up a similar venture just down
the road.
The restraint of trade clause as such is probably hit by the
provisions of clause 16.3 of the resale agreement and would
therefore
not afford Gratima a cause of action in contract. But for the
purposes of a delictual claim it affords strong proof,
in my view, of
what the parties considered to be fair in the circumstances.
[47]
In assessing whether a competitor’s business is being conducted
fairly or not Comrie AJA described the approach as follows
in
Grundlingh
at 514 E –
“
[28]
The question which remains is whether the appellant’s conduct
is or is not to be condemned as unlawful. The answer depends
on this
Court’s assessment of the
boni mores
of
the community…. Where a competitor has directly
misappropriated his rival’s business system, product,
performance
and repute – at no significant expense to himself -
I consider that right-thinking members of the community should and
would
condemn it without much ado…”
(Authorities
omitted)
[48] At 517 F in
Grundlingh
Farlam
et
Conradie JJA (who differed
with
Comrie AJA on the
facts) described the test as follows –
‘
[40]
The test for the unlawfulness of a competitive action is essentially
public policy and the legal convictions of the community.
The latter
concept ordinarily includes not only right-thinking members of the
community who might be expected to hold a view on
the particular
topic but also, as Van Dijkhorst J said in
Lorimar
Productions
[10]
…
‘
(t)he
business ethics of that section of the community were the norm is to
be applied.’ Apart from these considerations there
are elements
like ‘an inherent sense of fair play and honesty; the
importance of a free market and strong competition in
our economic
system;[and] the question whether the parties concerned are
competitors…”
[49]
In
Schultz
[11]
Nicholas AJA concurred with the assessment of Corbett J in
Dun
& Bradstreet
[12]
that
-
‘
(f)airness
and honesty are themselves somewhat vague and elastic terms but,
while they may not provide a scientific or indeed infallible
guide in
all cases to the limits of unlawful competition, they are relevant
criteria which have been used in the past and which,
in my view, may
be used in the future in the development of the law relating to
competition in trade.”
However
, said Nicholas AJA ,
“
(w)hile
fairness and honesty are relevant criteria in deciding whether
competition is fair, they are not the only criteria. As pointed
out
in the
Lorimar Productions
case…
questions of public policy may be important in a particular case,
e.g. the importance of a free market and of competition
in our
economic system.”
[50]
When the mandated approach is applied to the facts of this case there
can be little doubt that Boland Kombi’s admitted
competition
was unfair and accordingly unlawful. No right-thinking person would
pay around R2m for a business, include a restraint
of trade provision
in the agreement of sale and permit or tolerate the seller opening up
a competitive business just a few doors
away in the same street. The
situation is compounded when the seller unlawfully removes spare
parts essential to the continuation
of the going concern and takes
documentation with him which enables him to make immediate contact
with his former clients effectively
providing him with a springboard
in the new business. In my view, therefore the trial court correctly
found that Coetzee conducted
the hire business of Boland Kombi
unlawfully in competition with that of Gratima.
THE
ASSESSMENT OF GRATIMA’S DAMAGES
[51]
With the amendment of its particulars of claim in August 2012,
Gratima refined the quantification of its damages on the basis
set
out in para 24 above. Boland Kombi sought to demonstrate at
trial that the failure of the new business was attributable
to
Stephan's admitted lack of experience in the trade. It was also
suggested that he had not shown sufficient interest in the business
initially (the allegation that he had unnecessarily gone on leave in
December 2004 was, however, disputed) and had unwisely released
former employees of Beetle Hire who were assisting Gratima in January
2005 from their obligation to continue working in the business
after
the purchase thereof. The fact of the matter is that within the third
month of operation, the new business was in dire trouble
and urgent
steps had to be taken to address the situation. Stephan decided that
the best way to limit his damages was to look for
a new purchaser.
[52]
Stephan’s attempts to procure a purchaser were hamstrung by
Coetzee’s obstinate refusal to agree to the transfer
of the
Beetles in the rental business to a third party until sufficient
payment had been made to warrant the cancellation of a
notarial deed
held over the vehicles to secure payment of the outstanding purchase
price. In such circumstances, Gratima was held
in a double bind and
given little room within which to manoeuvre. Ultimately, the only
deal which was practically attainable (particularly
in light of the
notarial deed) was a resale to Coetzee, hence the significantly
reduced value which was placed on the business
by him a year later.
The calculation of damages was therefore based upon the initial
purchase price, the resale price and all payments
made in the
interim. None of these components was seriously challenged before the
trial judge and, as Mr Vivier SC pointed out
in argument, there was
therefore no real issue at trial as regards the quantification of the
claim.
[53]
Counsel for Gratima went on to refer the court to various decisions
in which it has repeatedly been emphasised that such damages
need not
be established with any great degree of precision. To be sure,
special damages need not be established and as Corbett
JA said in
Reeva
Forman
[13]
“..
in
the nature of things the Court’s assessment of the loss here
cannot be more than a rough estimate”,
while
in
Hushon
SA
[14]
Nienaber JA (following
Reeva
Forman
)
observed that “
(i)n
those circumstances
[ie
where there is difficulty in devising an appropriate method of
quantification]
a
court has no option but to resort to the rough and ready method of
the proverbial estimated guess…. and to do the best
it can on
such material as is placed before it.”
[54]
In my view, therefore the trial court cannot be faulted for the way
it went about quantifying Gratima’s loss and given
that the
calculation of damages is pre-eminently the function of the trial
court, this court would in any event be loath to intervene
where the
trial court has properly exercised its discretion as to the
quantification of the damages.
THE
CLAIM FOR RECOVERY OF THE DEPOSIT
[55]
Finally, I come to the claim for recovery of the rental deposit. This
was resisted before the trial court by Onderdele on the
basis that
the claim fell foul of the provisions of clause 16.3.of the re-sale
agreement. The answer to that claim, addressed at
the level of the
interpretation of the clause
[15]
,
is that the obligations addressed by the clause relate to contractual
obligations of the parties to “
the
Initial Agreement”.
The
rental deposit was paid to Onderdele which was not a party to the
original agreement of September 2004 between Best Boland and
Gratima,
the lease agreement having only been concluded with Gratima in
January 2005. The trial court accordingly was correct in
upholding
this claim.
CONCLUSION
[56]
In light of the aforgoing, I am of the view that there is no merit in
the appeal and there are accordingly no prospects of
success in the
application for condonation in terms of
Rule 49.
In the
circumstances, I would order that the appeal be struck from the roll
with costs.
GAMBLE, J
I
AGREE.
IT
IS ORDERED THAT THE APPEAL BE STRUCK FROM THE ROLL WITH COSTS.
LE GRANGE, J
I
AGREE.
WEINKOVE, AJ
[1]
Wikipedia
Online Encyclopaedia
sv
“
Volkswagen”;
Toni
Younghusband
, Wallop! An Advertising
Phenomenon Called Rightford, Searle-Tripp and Makin.
[2]
The
occasional incorrect reference in this appeal record to a “Beatle”
relates to another 1960’s icon of similar
universal
popularity.
[3]
“’
Besigheid’
beteken
verhurings-, motorherstel- en ‘n gebruikte onderdele besigheid
wat deur die Verkoper as ‘n lopende besigheid
soos op die
bepaalde datum bestuur word en sluit die besigheidsbates in.”
[4]
The
lease agreement was ultimately concluded at the end of January 2005.
[5]
United
Plant Hire (Pty) Ltd v Hills
1976(1)
SA 717 (A) at 720E-G;
Van
Wyk v Unitas Hospital (Open Democratic Advice Centre as
amicus
curiae
)
2008(2) SA 472 (CC) at 477 A-B.
[6]
Lillicrap,
Wassenaar and Partners v Pilkington Brothers (SA) (Pty) Ltd
1985(1)
SA 475 (A) at 495 I – 496 H. See also
Durr
v ABSA Bank Ltd
1997(3) SA 448 (SCA) at 435 G;
Holtzhausen
v ABSA Bank Ltd
2008(5)
SA (SCA) at [7];
Van
der Merwe
et
al
Contract,
General Principles 4
th
ed at 283 - 7
[7]
Silver
Crystal Trading (Pty) Ltd v Namibian Diamond Corporation (Pty) Ltd
1983(4)
SA SA 884 (D) at
888
[8]
Grundlingh
and Others v Phumelela Gaming and Leisure Ltd
2005(6)
SA 502 (SCA) at 513
[9]
Dun
and Bradstreet (Pty) Ltd v SA Merchants Combined Credit Bureau
(Cape) (Pty) Ltd
1968(1)
SA 209(C) at 216 E -217 G
[10]
Lorimar
Productions Inc and Others v Sterling Clothing Manufacturers(Pty)
Ltd; Lorimar Productions Inc and Others v OK Hyperama
Ltd and
Others; Lorimar Productions Inc and Others v Dallas Restaurant
1981(3)
SA 1129 (T) at 1153 A-C
[11]
Schultz
v Butt
1986(3)
SA 667 (A) at 679 A-H
[12]
At
218
[13]
Caxton
Ltd and Others v Reeva Forman (Pty) Ltd and Another
[1990] ZASCA 47
;
1990
(3) SA 547
(A) at 573 J
[14]
Hushon
SA (Pty) Ltd v Pictech (Pty) Ltd and Others
1997
(4) SA 399
(SCA) at412 H
[15]
Applying
the approach in cases cases such as
KPMG
v Securifin Ltd and Another
2009(4)
SA 399 (SCA) at [39] ;
Ekurhuleni
Municipalty v Germiston Municipal Retirement Fund
2010(2)
SA 498 (SCA) at [13] and
Unica
Iron and Steel (Pty) v Mirchandani
2016(2)
SA 307 (SCA) at [21]