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[2012] ZAGPJHC 224
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Uniplate Group (Pty) Ltd v New Number Plate Requisites CC (25718/2012) [2012] ZAGPJHC 224; [2013] 1 All SA 231 (GSJ) (29 October 2012)
Links to summary
REPORTABLE
SOUTH GAUTENG HIGH COURT, JOHANNESBURG
CASE NO:
25718/2012
DATE:29/10/2012
In the matter between:-
UNIPLATE GROUP (PTY) LTD
..................................................
Applicant
And
NEW NUMBER PLATE REQUISITES
CC
.................................
Defendant
J U D G M E N T
A J BESTER, AJ:
In this matter the Applicant
sought, in the main application, final, alternatively interim,
interdict relief against the Respondent.
The relief sought, is
founded in an alleged unlawful competition. More specifically, the
Applicant complains of an alleged
unlawful and intentional
interference with the contractual relationship created by the
Applicant’s standard customer rental
agreement.
In a counter application, the
Respondent sought a stay of the main application pending a referral,
in terms of section 65(2)(b)
of the Competition Act, 1988 (“the
Act”), to the Competition Tribunal (“the Tribunal”)
of an alleged
issue regarding the Applicant’s rental
agreement. The issue sought to be referred is whether that
agreement is lawful,
alternatively whether he exclusivity provisions
of that agreement are, prohibited and/or liable to be declared void,
having regard
to sections 5(1) and 8(1)(a), (c) and (d) of the Act.
On behalf of the Respondent it
was contended that a crucial issue in the determination of the
application and counter-application
is the enforceability of the
Applicant’s rental agreement and, in particular, the
exclusivity provisions in terms of that
agreement. The agreement,
it is alleged, not only contravenes the mentioned sections of the
Act, but is in any event
contra
bonos mores
under the
common law and is therefore unenforceable.
Section 65(2)(b), on which the referral application is based,
stipulates as follows :-
“
If,
in any Action in a civil court, a party raises an issue concerning
conduct that is prohibited in terms of this Act,
that
court must not consider that issue on its merits
,
and …
the
court must refer that issue to the (Competition) Tribunal to be
considered on its merits
,
if the court is satisfied that-
(i) the issue has not been
raised in a frivolous or vexatious manner; and
(ii)
the resolution of that issue is required to determine the final
outcome of the Action.
”
(my accentuation)
There was no real dispute between the parties at the hearing that
there is a substantial confluence between the principles underlying
the mentioned sections of the Act and those of the common law for
the purposes of deciding the lawfulness of the Applicant’s
contracts.
The Respondent’s
overarching submission was, therefore, that a resolution of the
competition issue is required in order
to determine the final
outcome of this application. Therefore, by virtue of the provisions
of section 65(2)(b) of the Act, the
issue must be referred to the
Tribunal.
At commencement of argument on
the day of the hearing, I was informed by the Applicant’s
counsel that the Applicant would
seek only interim relief. I was
furthermore informed by the Applicant’s counsel that the
Applicant accepts that, where
a party raises an issue concerning
conduct that is allegedly prohibited in terms of this Act, a High
Court is precluded from
attempting to resolve the issue, but that
the court may consider the issue only in order to establish whether
or not the referral
sought by the Respondent is frivolous or
vexatious and whether the resolution of that issue by the Tribunal
is required to determine
the final outcome of this application. The
Applicant, however, accepted that the issue must be referred to the
Tribunal. That
order will accordingly be made.
Counsel for the Applicant
submitted, rather strangely, in court (and in supplementary heads of
argument) that
“…
the Applicant has a clear right under s.65(1) as that section
precludes a finding of voidness of Applicant’s
contracts with
its customers … (t)his is what was decided in Bedford Square
per Spilg, J, which is binding
”.
Counsel for the Applicant
further submitted that, if Spilg J is not correct with his
interpretation of section 65(1), then, because
the Applicant “
has
a clear right under s.65(1)
”,
the Applicant has by the same token “
a
prima facie right although open to some doubt
”
and therefore “
satisfies
the first requirement for an interim interdict
”.
The full citation of the Spilg J
judgement relied upon by counsel for the Applicant in its
submissions is
Erf 179
Bedfordview (Pty) Ltd v Bedford Square Properties (Pty) Ltd
2011 JOL 27160
(GSJ). In that judgement Spilg J embarked, with his
trademark analytical thoroughness, on an interpretational meander
through
the intricacies of the Act and held that a High Court may
grant interim relief where a competition issue is in dispute.
It is perhaps necessary to refer
here, by way of introduction, to section 65(1), which stipulates as
follows :-
"
Nothing
in this Act renders void a provision of an agreement that, in terms
of this Act, is prohibited or may be declared void,
unless the
Competition Tribunal or Competition Appeal Court declares that
provision to be void.
”
If Spilg J had indeed made a
finding such as that submitted by the Applicant’s counsel,
then I would, with deference to
the learned judge, have disagreed
with his interpretation. But he did not. What Spilg J held,
paraphrased, is the following:-
In order to found its
allegation that it has a clear right in common law for the purposes
of interdict relief sought, the applicant
(in that case) relied on
a finding in that regard in its favour by Willis J in the first of
the trio of judgement in the Bedford
Square saga, namely,
Bedford
Square Properties (Pty) Ltd v Liberty Group Ltd and Others
2010 (4) SA 99
(GSJ. No Competition Act issue, however, served
before that court. The applicant’s clear right was therefore
res iudicata
when the matter served before Spilg J;
However, despite the finding by
Willis, J., a Competition Act issue did serve before Spilg J
Therefore, Spilg J held that
an interdict of final effect could not
be granted for the competition and common law issues overlapped.
The granting of final
relief would therefore constitute the making
of a decision that directly or indirectly usurped the exclusive
jurisdiction of
the Tribunal to determine that issue;
Spilg J therefore held that
section 65(1) must be read in a manner that would preserve the
right of a party to approach a High
Court in order to maintain a
status quo
by means of interim relief, and within the context of the inherent
jurisdiction of a High Court to grant such relief in order
to avoid
an injustice;
Reliance on section 65(1)
therefore does no more than to afford relief that is contingent on
the outcome of proceedings before
the Tribunal or the Competition
Appeal Court and, consequently, only interim relief may be granted
pending resolution of that
issue by the Tribunal or that Appeal
Court.
Subsequent to the two above
cited
Bedford Square
judgements by Spilg J and Willis J respectively, the Supreme Court
of Appeal in
Bedford
Square Properties (Pty) Ltd v Erf 179 Bedfordview (Pty) Ltd
2011 (5) SA 306
(SCA) upheld Willis J’s judgment.
In
Bedford
Square, SCA
, Harms DP
held as follows :-
“
[7]
The Respondent's first line of defence was that the case was brought
in the wrong forum because it is a competition issue which
belonged
to the Competition Tribunal in terms of the
Competition Act 89 of
1998
.
Although
this 'defence' was abandoned it is necessary to mention that the High
Court and this court (when hearing an appeal from
a High Court) do
not have any jurisdiction to consider competition matters.
This
means that the question whether the restraint may have been in
conflict with the Act cannot feature in this judgment
,
one of the consequences of compartmentalising legal doctrines, and of
divided jurisdiction. It cannot do the rule of law any
good if
different results may follow depending on which court system has to
deal with the matter.
”
(my accentuation)
In the case before me, contrary
to the case that served before Spilg J the alleged right of the
Applicant is as yet to be determined.
At face value, therefore,
Bedford Square, SCA
raises the question as to whether, because of the conceded
substantial confluence between the
ratio
for, and principles underlying the above mentioned common law wrong
and the sections of the Act, I can decide the lawfulness
of the
Applicant’s rental agreement in order to determine whether the
Applicant has shown a
prima
facie
right for the
interim relief purposes without at the same time, directly or
incidentally, resolving the issue as to whether or
not that
agreement is, or may be in conflict with the Act.
Counsel for the Respondent
agreed in debate (not without some apparent reluctance) that an
interpretation of paragraph 7 of
Bedford
Square, SCA
so as to
exclude the jurisdiction of a High Court to consider even interim
relief, would be too narrow.
Of course, the Respondent
submits in its heads of argument that the Applicant has not shown a
clear, or a
prima
facie
right, and it
therefore seeks a dismissal of the main application with costs. If
I am entitled to determine the existence or
not of a
prima
facie
right,
irrespective of whether or not it overlaps with, or falls foursquare
within the issue to be determined by the Tribunal,
then I can
dismiss the application or grant interim relief depending on what I
find. However, if I am not permitted to consider
even the question
of a
prima facie
right, then I cannot dismiss the application; I can only refer the
issue to the Tribunal and postpone the application
sine
die
pending the
determination of that issue.
Therefore, with reference to the
dictum
in paragraph 10 of
Bedford
Square, SCA
, counsel
for the Respondents submitted that this court is not precluded from
considering whether or not a
prima facie
right had
been established under the common law. The relevant part of the
dictum
in paragraph 10 reads as follows :-
“
These
cases were also not concerned with the issue whether a servitutal
restraint that is
contra
bonos mores
can be lawful. I would have thought that something that is
contra
bonos mores
and against public policy is by definition unlawful. I will assume
for the sake of argument that it is also possible (although
none was
conceived by counsel) to envisage cases where a real right could in
the course of time become invalid because its enforcement
would be
against public policy. Linvestment, too, has nothing to do with the
case. It was not concerned with the possible invalidity
of a
servitude because of public policy considerations.
”
I do not find in the above cited
paragraphs unequivocal support for the submission made on behalf of
the Respondent. The
dictum
in paragraph 10, although clearly weighty, is
obiter
.
The SCA furthermore does not, in that paragraph, speak at all to a
consideration of interim relief pending a referral in terms
of the
Act. It is therefore apposite here again to refer to Spilg J’s
judgement for, when read with the cited
dictum
the matter becomes less opaque :-
As pointed out above, Spilg J
held, in paragraphs 56 to 59 of his judgement, that section 65(1)
must be read in a way that preserves
the right to approach a High
Court for a remedy, for “
(w)here
there is a right there is a remedy …
(
ubi
ius ibi remedium
.
That truism, he held, is
supported by
Airoadexpress
(Pty) Ltd v Chairman, Local Road Transportation Board, Durban, and
others
1986(2) SA
663 (A) at 676D, in which case the Appellate Division had held that
a court retains the inherent jurisdiction to
grant interim relief
in order to avoid an injustice;
Therefore, he concluded that,
because section 65(1) preserves the validity of an agreement until
it is declared void or prohibited
by the Tribunal or Competition
Appeal Court, a party who seeks to uphold that agreement in the
interim, must be entitled to
approach a High Court for relief, and
that court would therefore be competent to grant such interim
relief to preserve the
status
quo
.
Spilg J’s reasoning, with
which I respectfully agree, is therefore not authority for the
proposition that section 65(1)
entitles the Applicant to contend
that it has a clear right, as submitted by counsel for the
Applicant. In fact, Spilg, J.’s
judgement is not even
authority for the proposition that the section entitles an applicant
to claim a
prima facie
right based purely on that section. It is authority only for the
proposition that a High Court may, irrespective of section
65(2),
grant interim relief in order to maintain a
status
quo
. Contrary
therefore to the position in the case heard by Spilg J where the
right was
res
iudicata
, that right
must in this case be proven; it cannot simply be assumed.
But section 65(1), in my view,
in effect, in any event clearly spells out that position. The
section does not say that, pending
a declaration of nullity by the
Tribunal, an agreement shall be deemed
valid
;
it simply says that an agreement that is prohibited or may be
declared void in terms of the Act shall be void only when so
declared. Therefore, for example, even a nominally void provision
in an agreement will stand until struck out. But that does
not
mean that, for purposes of deciding a
prima
facie
right, a
nominally void provision
is
deemed valid and enforceable
;
if the provision cannot be shown to be
prima
facie
valid, then
there can be no
prima
facie
right.
If the judgment of Spilg J is
therefore taken to its logical conclusion, then a High Court may,
for the purposes of establishing
a
prima
facie
right for the
purposes of interim relief, consider whether or not a provision is
prima facie
valid or not. But it cannot do more, for then it would infringe on
the exclusive jurisdiction of the Competition Tribunal or
the
Competition Appeal Court by, in effect, resolving the issue. This
interpretation accords with the
dictum
in
Platinum Holdings
(Pty) Ltd v Victoria and Alfred Waterfront (Pty) Ltd
[2004]
JOL 12746
(SCA), at paragraph 16, where it is held that the
prohibition of section 65(2) does not mean that a court can give no
consideration
at all to the issue as to whether a provision is in
conflict with the Act; it merely means that a court
may
not attempt to resolve the issue
.
I am therefore of the view that
the submissions on behalf of the Applicant in respect of the import
and consequence of sections
65(1) and 65(2) of the Act have no merit
and that the understanding of the judgement of Spilg J is flawed.
Turning then to a consideration
of the two applications before me within the context of what I have
held above, the counter application
requires but brief consideration
:-
The Applicant says, in its
answer to the Respondents submissions in support of the counter
application, that it is "
neither
desirable nor necessary for Applicant to respond to the allegations
… at this stage, which … is in any
event, not
relevant to the relief sought
"
(sic) in that application.
The Applicant furthermore
suffices with the bald statement that "
the
numerous pro-competitive, technological and efficiency gains which
arise from its contractual relationships with its customers
which
far outweigh any anti-competitiveness
".
(It is this kind of meaningless, techno-gobbledygook that
apparently persuaded Cachalia AJA [as he then was] in
Automotive
Tooling System (Pty) Ltd v Wilkens and Others
2007
(2) SA 271
(SCA) to repeat, “
Graeca
non leguntur
”.)
Quite correctly, therefore, it
was submitted on behalf of the Respondent that the Applicant did
not set out any particular basis
for opposing the relief sought in
the counter application; hence the above-mentioned concession by
the Applicant regarding
the referral relief sought.
However, that is not the end of
the road for the Applicant. Before it knew that the Respondent
would raise a
Competition Act defence
, the Applicant adduced
evidence which it alleges establishes at least a
prima
facie
right under the
common law for the interim relief sought. As pointed out above,
the parties were in agreement that there is
a substantial confluence
between the common law and the Act in respect of the legality and
therefore the enforceability of the
Applicant’s rental
agreement. If I nevertheless find, upon the basis of the facts
before me in the main application,
that the Applicant has made out a
case for interim interdict relief then the Applicant would, on my
reading of the judgement
by Spilg J in
Bedford
Square
, be entitled
to such relief.
In order therefore to succeed
with a cause of action based on the alleged interference with a
contractual relationship, an applicant
must show, in its founding
affidavit, that a respondent, intentionally and without
justification, induced or procured customers
of the applicant to
breach their contracts with the applicant. Of course, for interdict
purposes, a real threat of such conduct
would also suffice.
See:
Atlas
Organic Fertilizers (Pty) Ltd v Pikkewyn Ghwano (Pty) Ltd
1981 (2) SA 173
(T) 200;
Lanco
Engineering CC v Aris Box Manufacturers (Pty) Ltd
1993 (4) SA 378
(D)
The Respondent’s defence
to the main application is, among others, that the Applicant has not
shown a
prima facie
right because:-
the Applicant’s standard
rental agreement is unenforceable for reasons of public policy and
because it is in breach of
the Act;
the Applicant has not shown that the Respondent had, intentionally
and without lawful justification, induced the Applicant’s
customers to commit a breach of their agreements with the
Applicant.
What makes this case unusual is
that the Respondent, who is not a contractor of the Applicant, but a
competitor, raises, as a
defence the validity of an agreement of
which it is not a party. That, in circumstances where the parties
to the agreement are
themselves content that it is not invalid, for
it has not been shown that that any customer of the Applicant
complained about
the alleged unfairness or unlawfulness of the
contract.
The facts in this matter are relatively straight forward :-
The Applicant and the
Respondent, both so-called “
Blankers
”,
or then, blank number plate manufacturers and suppliers, are active
in the same, fiercely competitive and apparently
completely
locked-in market and compete for the same customers. The latter,
called “
Embossers
”,
emboss blank number plates with alphanumeric characters and on-sell
them to dealers in motor vehicles and to the general
public;
All Blankers and Embossers have
to be registered with the SABS and the Gauteng Department of
Transport and Roads;
Currently, there are only 5
registered Blankers and some 1,000 registered Embossers. The
Respondent, as is the case with all
Blankers, has a contact list of
all of the registered Embossers;
All Blankers, including the
Applicant and the Respondent, supply blank number plates and
embossing equipment to Embossers contracted
to them in terms of
so-called
tie-in
arrangements
(to
which I return below);
The Applicant has contracted to
it, a customer base of about 700 Embossers and therefore holds 70
per cent of the market.
By contrast, the Respondent holds about
22 per cent of the market. The remaining market share of 8% is
serviced by the three
remaining Blankers. The Embosser market is
therefore fully spoken for;
The Applicant alleges that
during the course of March 2012, it came to its attention that the
Respondent was approaching Blankers
contracted to the Applicant and
that it was inducing them to breach their agreements with the
Applicant so as to enable them
to purchase blank number plates from
the Respondent;
Various cease-and-desist
letters were sent out to the Respondent calling upon it to refrain
from its alleged unlawful conduct
and to furnish undertakings that
it would do so;
However, the apparently stock
answer in response to those demands was that there is nothing that
precludes the Respondent from
manufacturing, selling, marketing or
distributing number plate blanks to any potential customer,
including those contracted
to the Applicant;
Further evidence thereafter
gathered by the Applicant showed that, despite these demands, the
Respondent had not only persisted
with its alleged unlawful
conduct, but had aggressively escalated its campaign.
Further cessation demands were
therefore made by the Applicant. These demands solicited the
response that the Applicant’s
contractual relations with its
customers were anti-competitive and thus unlawful and, accordingly,
that the Respondent would
not accede to such demands;
Yet further evidence gathered
by the Applicant then showed that, when encountering customers
contracted to the Applicant in
the course of its canvassing
campaign, the Respondent had allegedly sought to induce them to
breach their agreements with the
Applicant and had even undertook
to pay their legal costs should litigation follow. The Respondent
allegedly also told these
customers that the Applicant could not
force them to purchase blanks from them under its rental agreement
as the Applicant’s
agreements were illegal;
The Respondent’s campaign
allegedly further comprised of the offering of number plate blanks
to such customers at a price
that was approximately 30 per cent
less than that ordinarily charged by the Applicant. The customers
were allegedly also informed
that the Respondent’s blanks
could be used on the embossing systems supplied to them by the
Applicant;
The Applicant contends that the
Respondent had so approached "
a
multitude
” of
the Applicants customers and, in support of that allegation listed,
by way of example, some 34 customers by name;
The Respondent disputes most of
the averments made by the Applicant. However, the Respondent does
concede the offering of blanks
at a substantially reduced price, and
does not deny that compatibility of embossing systems was
communicated. The Respondent
also admitted that it had sent, by way
of "
bulk
distribution
",
certain marketing material to all Embossers, although it denies that
the Applicant’s clients were "
targeted
specifically
";
The Respondent denies, somewhat
disingenuously, that it did not know, until an Embosser was
canvassed, whether that Embosser was
a customer of the Applicant or
that it was under contract with the Applicant. However, it seems
relatively obvious that the
Respondent would have known which
Embossers were contacted to it. No point would therefore have been
served by canvassing for
the business of such Embossers in order to
extend the Respondent’s customer base; they were already in
the Respondent’s
stable. It seems equally obvious that the
by far the greatest majority of the remaining Embossers (over 90% of
them) would
inevitably be contracted customers of the Applicant in
view of its admitted market share. Inevitably, therefore, it is
absolutely
improbable that the Respondent did not know that its
campaign would, despite its protestation to the contrary,
specifically target
the Applicant’s customers.
The Respondent nevertheless
denies that it has encouraged or induced any customer to breach
their agreements with the Applicant.
The Respondent does, however,
admit that it had contact with one customer of the Applicant when
leaving sample number plates with
her. The Respondent admits that
when she stated that she was bound to purchase number plates from
the Applicant in terms of
an agreement, the Respondent did express
the view that the Applicant’s agreement was unlawful and that
the matter had been
referred to the competition commission. The
Respondent further admitted that she was told that the Respondent
could assist her
with an embossing system developed by the
Respondent and that it could put her in contact with the
Respondent’s attorneys
about the unlawfulness of the
Applicant’s agreement.
Included in the Respondent’s
mentioned "
bulk
distribution
"
marketing material, was a circular forwarded Blankers in general.
The circular is addressed “
Dear
Embosser!
” and
it is entitled "
GOOD
NEWS!
” It
reads as follows:-
“
1.
We have recently had occasion to consult legal representatives in
regard to exclusive purchasing agreements between BLANKERS
and
EMBOSSERS and have been advised (sic) by our legal representatives as
follows:
1.1. Section
5(1) of the Competitions Act … provides that agreements
between parties in a vertical relationship is
prohibited
if it has the effect of substantially preventing or lessening
competition in a market, unless a party to the agreement can prove
that any technological, efficiency or other pro-competitive gain
resulting from that agreement outweighs that effect.
1.2. Exclusive
purchasing agreements between BLANKERS and EMBOSSERS which force
EMBOSSERS to purchase their blank number plates
from one BLANKER and
thereby prevent EMBOSSERS from purchasing blank number plates from
other suppliers have the effect of substantially
preventing or
lessening competition in the blank number plate market and
we
cannot see
that that can be justified on any pro-competitive grounds.
1.3. Such
exclusive purchasing agreements will
not
be enforced by the civil courts if a party raises an issue concerning
such agreements and the civil courts will have to refer the
matter to
the
COMPETITION
TRIBUNAL
for it to decide whether the agreement is enforceable as provided for
in section 65 of the Act.
2.
You are therefore encouraged to consider your position and seek
your own advice but in the light of the advice we have received
we
cannot see any reason why EMBOSSERS, even those with exclusive
purchasing agreements with a particular BLANKER should not purchase
blank number plates from
ANY
BLANKER
as
long as the price, product, service levels and other considerations
are acceptable.
3.
Please do not hesitate to contact us if you seek further
information.
”
The Applicant contends that this
circular constitutes clear evidence of intent on the part of the
Respondent to induce the Applicant’s
customers to breach their
agreements with the Applicant and to purchase blank number plates
from the Respondent.
In answer, the Respondent
contends, among others, that the circular :-
was intended merely to convey
to Embossers legal advice received by the Respondent in regard to
the legality of exclusivity
agreements in general;
does not refer to the
Applicant’s rental agreements specifically, but to
exclusivity agreements in general;
does not suggest that Embossers
who had concluded such agreements should ignore them and purchase
blank number plates from any
other Blanker; it suggests only that
they should take legal advice in regard to their position;
does not encourage the
Applicant’s customers to breach their agreements;
only furnishes advice that was
conveyed to the marketplace in general; etc.
Ironically, the Applicant points
out that the Respondent itself employs a tie-in agreement that has
exclusivity provisions that
are in effect more onerous than those in
the Applicant’s agreement. But that fact, the Respondent
contends, is irrelevant
because it is the Applicant’s
agreement that is in issue; not the Respondent’s.
In the context of the
substantial market share held by the Applicant, the Respondent
could, by virtue of the captive and already
locked-in Embosser
market, only increase their own market share by diverting customers
from other Blankers. Therefore, I have
no hesitation whatsoever to
find that the circular was but one component of a carefully crafted
ploy by the Respondent to increase
its market share by capturing a
substantial share of Applicant’s market. And that the
Respondent could only do by inducing
the Applicant’s customers
to breach their agreements and to do business with the Respondent.
On the inherent probabilities,
the circular was therefore aimed primarily, if not specifically, at
the Applicant’s customers
and it was intended to achieve
exactly what it encourages those customers to do, namely to
reconsider and to renege on their
agreements with the Applicant in
order to release them to do business with the Respondent, all on the
pretext that their agreements
with the Applicant are unlawful and
therefore not binding. I emphasise here that, whatever euphemistic
spin the Respondent
attempts to put on the circular, its general
tenor is
not
that the Applicant’s agreement should be considered to be
valid until it is found to be invalid; the tenor is that the
agreement
is unlawful
and thus invalid
.
The circular was also clearly crafted upon the basis that the advice
of the Respondent’s legal counsel was that the
agreement is in
fact unlawful and thus invalid. Hence the unequivocal declaration
by the Respondent in the circular that, “
in
the light of the advice we have received we cannot see any reason
why EMBOSSERS, even those with exclusive purchasing agreements
with
a particular BLANKER should not purchase blank number plates from
ANY BLANKER
”.
The Respondent’s
contention that the circular was innocuous and well-intended legal
advice to the general market is therefore
not supported by the
contents of the circular. On the contrary, the proffered
justification is so extra-ordinary and so contrary
to ordinary human
expectation that it is simply improbable. The contents of the
circular in the peculiar circumstances of this
case rather speak to
a fierce, no holds barred struggle for a greater market share by the
Respondent and of an attempt to veil
a deliberate act of subterfuge
under a cloak of altruistic philanthropy in order to avoid the
consequences of its unlawful conduct.
The Respondent’s tale
is so far-fetched and clearly untenable that it can in my view be
rejected without further ado.
(See:
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(A) at 634H – 635C).
I therefore find that the
Respondent, intentionally and without justification, sought to
induce or procure customers of the Applicant
to breach their
contracts with the Applicant. Moreover, because of the Respondent’s
persistent denials of its direct or,
at the very least, indirect
intent to induce such breaches, and because of its tenacious
insistence the Applicant’s agreements
are in fact unlawful, I
also find that the Respondent, unless interdicted, will simply
persist with its conduct.
Having decided those
jurisdictional requisites for the wrong relied upon by the
Applicant, what remains to be considered, other
than the residual
interim interdict requirements, is the Respondent’s argument
that the Applicant has not shown that it
has a
proprietary
interest
deserving of
protection under the delict of unlawful competition. Unfortunately,
this aspect of the Respondent’s case,
which demanded closer
analysis, was accorded scant attention in the Applicant’s
Heads of Argument and argument on its behalf
in court.
I would have thought that, once
established that a trader has a contractual relationship with a
customer, it stands to reason
that the relationship itself, as a
component of the goodwill of the business of the trader,
would constitute a
protectable proprietary interest for the purposes of the relief
sought by the Applicant. (See, for example:
Botha and Another v Carapax Shadeports (Pty) Ltd.
[1991] ZASCA 134
;
1992
(1) SA 202
(A) at 211 to 214;
Slims (Pty) Ltd and Another v Morris NO
1988 (1) SA 715
(A) at 740A-B; J
acobs
v Minister of Agriculture
1972 (4) SA 608
(W) at 624 to 625;
Caterham
Car Sales & Coachworks ltd v Birkin Cars (Pty) Ltd. and Another
[1998] ZASCA 44
;
1998 (3) SA 938
(SCA) paragraphs 15-16)
Not so, submits the Respondent.
It contends that the exclusivity provisions in the Applicant’s
agreements, which are in
my view perhaps best characterised as
vertical tie-in arrangements, are "
considered
to be agreements in restraint of trade
"
which "
may be
held to be unenforceable on grounds of public policy and in
particular whether… (they are) reasonable or not
".
Having simply proceed direct to
the conclusion that the exclusivity provisions are tantamount to
agreements in restraint of trade,
the Respondent then submits,
relying on
Basson v
Chilwan & Others
1993(3) SA 742 (A) at 767G-H (that
locus
classicus
on
restraints of trade), that the point of departure in the
determination of the Applicant’s alleged
prima
facie
right, is
therefore to determine whether the Applicant has shown that it has
an interest deserving of protection. It is then
submitted that, on
the application of the principles of law applicable to covenants in
restraint of trade, the Applicant does
not, for the goodwill that it
has, was acquired "
solely
as a result of illegal or impermissible activities
”
and "
by means of
inter alia the unlawful exclusivity provisions in the …
agreements
".
Therefore, the Applicant did not “
acquire
a right to its alleged goodwill
".
Furthermore, the exclusivity provisions, “
designed
solely to stifle competition
”
and to “
secure …
(an) effective monopoly … in the market
”
for the Applicant are unreasonable and contrary to public policy.
In support of these submissions,
counsel for the Respondent relied on
Boiler
Efficiency Services CC v Coalcor (Cape) (Pty) Ltd
1989 (3) SA 460
(C) at 465, where the court held as follows :-
“
In
regard to the present point appellant's counsel relied upon the
decision in Unity Longhauls (Edms) Bpk v Grindrod Transport (Pty)
Ltd
and Others
1978 (2) SA 77
(D) at 79F, and the views of Van Heerden
and Neethling Onregmatige Mededinging at 158 n 40. The learned
authors' proposition is
clearly correct that an Applicant trader who
seeks to interdict competition must show that his clear right is
based, inter alia,
on the fact that his own trading is lawful. And
their reference to the Unity Longhauls case in this connection is
certainly appropriate.
”
Captivating thought the
Respondent’s argument might at face value be, it is, in my
view, founded in the false premise that
the exclusivity provisions
in the Applicants agreement are or can, without further ado, be
equated with a covenant in restraint
of trade and, in particular,
with a restraint that is unreasonable and contrary to public policy.
The argument is furthermore
founded on the further false premise
that a court will interfere in a commercial contract at the instance
of non-contract party
simply upon the basis that the contract
contains vertical tie-in, exclusivity provisions.
Contractual arrangements such as
the Applicant’s standard tie-in customer rental agreement,
which contractually tie customers
in to purchase all related
products and/or services together from the same supplier, have been
described as “
enigmatic
economic devices
”.
Scholars, both legal and economic, have propounded competing and
even mutually exclusive theories on such relationships
running into
thousands of pages of opinion and academic literature. Suffice it
for present purposes to say that, at the one
end of the scope, the
thesis is that such tying arrangements suppress competition and
should therefore be prohibited. On the
other hand, the antithesis
proclaims that such arrangements cannot extend market power from one
market to another; do not suppress
competition; and should therefore
not be condemned. And such antitheses, or a variation of the same
theme, are readily to be
found in our case law: see, e.g.,
Matthews
and Others v Young
1922 AD 492
;
Roberts
Construction Co Ltd v Verhoef
1952
(2) SA 300
(W);
Nel v
Drilec (Pty) Ltd.
1976 (3) SA 79
(D);
Sibex
Engineering Services (Pty) Ltd v Van Wyk
1991
(2) SA 482
(T) 1991 (2) SA at 501;
Troskie en 'n ander v Van der Walt
1994 (3) SA 545
(O);
Counsel for the Respondent
submitted in argument that the following features of the Applicant’s
rental agreement are covenants
in restraint of trade that are
contra
bonos mores
because
they “
secure …
(an) effective monopoly … in the market
”
for the Applicant :-
Embossers are tied in to an
exclusive purchasing arrangement with the Applicant for a duration
of 10 years;
The rental payable by Embossers
for number plate equipment supplied, is payable over the period of
10 years;
Embossers never acquire
ownership of the equipment;
Embossers may, for as long as
the agreement subsists, purchase, among others, blank number plates
and related equipment only
from the Applicant;
Embossers may sell such
equipment only in accordance with the Applicant’s prevailing
price list, which shall be subject
to periodic increases;
Embossers are restricted to a
designated geographical area in which they can operate their
businesses;
Upon termination of the
agreement, it may be renewed for a further period of 10 years;
The equipment supplied to
Embossers is warranted only for a period of six months from the
date of its delivery and installation;
Embossers have the option,
during the currency of the agreement, to purchase the equipment
rented for R39,950.00, but irrespective
of such a purchase,
Embossers are still obliged to purchase all their equipment and
supplies from the Applicant;
Embossers who purchase and/or
rent embossing equipment from the Applicant are tied-in also to
purchase number plate blanks from
the Applicant.
These features of the
Applicant’s agreement, however, simply serve to show that the
agreement hardly differs in any major
respect from a run-of-the-mill
franchise agreement, which is in effect also a vertical tie-in
agreement. Furthermore, various
indicators in the agreement that
point to the fact that it is not a restraint, have apparently
escaped the Respondent’s
attention: all of the covenants by
the Embosser in the Applicant’s standard agreement are
positive commercial
covenants
. And
whatever negative covenants may arguably be implied in the
agreement, are purely incidental and normal to the positive
commercial arrangements at which the agreement is aimed. Moreover,
and also contrary to a covenant in restraint of trade, those
positive covenants are directed at what is to happen
during
the currency of the agreement; not thereafter
.
At face value, therefore, the
Applicant’s agreement is not a restrain as alleged on behalf
of the Respondent and there is
therefore no room for the application
of the doctrine of restraint of trade and the principles of law that
govern it.
Nevertheless, as a point of
departure in the determination of whether a tie-in agreement such as
that of the Applicant could conceivably
be said to be a covenant in
restraint of trade, or even that it is unreasonable and therefore
unlawful, reference should be made
to
Roberts
Construction
,
supra
,
at 304. Although the case was decided in the employer/employee
context, which by nature could lend itself to characterisation
as a
restraint, the principles applied by the court equally apply here.
In that case it was held that a positive restrictive
provision in an
agreement that was operative only during the currency of the
agreement and not thereafter does not render the
agreement a
covenant in restraint of trade and unreasonable. The court held as
follows :-
“
In
William
Robinson & Co., Ltd v Heuer
,
1898 (2) Ch.D. 451
, a covenant indistinguishable from the present one
was considered. The covenant ran:
'Heuer shall not during this
engagement, without the previous consent in writing of the said W.
Robinson & Co., Ltd. . . . carry
on or be engaged either directly
or indirectly as principal, agent, servant, or otherwise, in any
trade, business, or calling,
either relating to goods of any
description sold or manufactured by the said W. Robinson G &
Co. Ltd. . . . or in any other
business whatsoever.'
Of this covenant LINDLEY, M.R.,
says:
'There
is no authority whatever to show that that is an illegal agreement -
that is to say, that it is unreasonable, and goes further
than is
reasonably necessary for the protection of the plaintiffs. It is
confined to the period of the engagement, and means simply
this - 'So
long as you are in our employ you shall not work for anybody else or
engage in any other business'. There is nothing
unreasonable in that
at all.'
I
respectfully associate myself with that view.
”
The court in
Roberts
Construction
,
supra
,
at 306, furthermore referred with approval to
Warner
Bros Pictures Inc v Nelson
[1936]
3 All ER 160
, at 163, in which it was held that
“(w)here,
as in the present contract, the covenants are all concerned with
what is to happen whilst the defendant is employed
by the plaintiffs
and not thereafter, there is no room for the application of the
doctrine of restraint of trade.
”
These cases were in turn
referred to with approval by Franklin, AJ., (as he then was) in
Tension Envelope
Corporation (SA) (Pty) Ltd v Zeller and Another
1970
(2) SA 333
(W) in which the learned judge held, at 339B, that
“(a)
perusal of the authorities appears to me to indicate quite clearly
that in no circumstances will the Court grant an
interdict …
unless the defendant has entered into an independent negative
stipulation by which he expressly precludes
himself from acting
inconsistently with his positive contract.
”
Thereafter, in
Nel
v Drilec (Pty) Ltd.
1976 (3) SA 79
(D), the court was also called upon to consider
whether or not an agreement with a positive restrictive covenant
constituted
a restraint of trade. In this case the applicant
claimed an interdict to restrain the respondent from selling clothes
driers
manufactured by the respondent to any party other than the
applicant. The applicant alleged that it had concluded an oral
agreement
with the respondent in terms of which it had been given
the sole right to sell driers. The respondent in turn contended
that
the agreement was subject to the condition that the applicant
would purchase 200 driers per month. However, as the applicant had
breached that condition, the respondent was entitled to cancel the
agreement and to sell driers direct to the public. The applicant’s
reply was it had merely agreed to order 200 units at a time, as and
when it had sold all of those driers purchased. Commenting
on the
nature of that agreement, the court held, at 81C-G, as follows :-
“
I
do not think that the agreement alleged by the respondent is one
which falls within the ambit of the doctrine regarding agreements
in
restraint of trade. If it does fall within the ambit of that
doctrine then it is
prima
facie
reasonable. Cf
Shell
Company of SA Ltd. v Gerrans Garage (Pty.) Ltd.,
1954 (4) SA 752
(GW) at p. 756C - D, and see Cheshire and Fifoot, Law
of Contract, 7th ed: at p. 343, where the following passage appears:
'if,
for instance, a manufacturer agrees that X shall be the sole agent
for the sale of his output, the scope of his liberty of
disposition
is no doubt fettered, but the object of the arrangement is to
increase his trade, and it has become a normal incident
of commercial
practice'.
”
I respectfully agree with these
conclusions. A vertical tie-in agreement such as that of the
Applicant with positive restrictive
covenants that operate only for
the duration of the agreement cannot be said to be a covenant in
restraint of trade. Neither
can it be said to be unreasonable
simply because it ties the Applicant’s customers in to do
business with it only –
such agreements are, as opined by
Cheshire and Fifoot, a normal incidence of commercial practice.
Because the Respondent’s
defence to the main application is balanced solely on the erroneous
assumption that the Applicant’s
agreement is a restraint and
that the principles of law applicable to restraints therefore apply,
that defence must fail when
it is found, as I do, that it is not a
restraint. That conclusion, in my view, should generally forestall
the necessity further
to consider the facts in this case in order to
determine whether or not they would show that an enforcement of the
Applicant’s
agreement would be unreasonable.
However, there is another
wrinkle in this case. There can be no doubt that a court will not
enforce a covenant in restraint of
trade that places an unreasonable
restraint on freedom to trade upon the basis that such restraints
are unenforceable for reasons
of public policy. But it has also
been held that the collision between the two ideas of freedom of
trade and the sanctity of
contracts that presents itself in the case
of covenants in restraint of trade does not necessarily arise in
commercial agreements.
The Applicant’s agreement is not a
covenant; it is a commercial agreement and the question as to its
validity
ought
therefore to boil down to the simple proposition that the sanctity
of a commercial, vertical tie-in agreement should generally
take
precedence over the idea of freedom of trade.
Atlas Organic Fertilizers
,
supra
,
192-3;
National
Chemsearch (SA) (Pty) Ltd v Borrowman and Another
1979 (3) SA 1092
(T) at 1099;
Roffey
v Catterall, Edwards & Goudré (Pty) Ltd
1977 (4) SA 494
(N) at 503 - 504
Therefore, in
Roffey
,
supra
,
approved in
National
Chemsearch
,
supra
,
the court held that “
there
is a tenet of public policy, more venerable than any thus engrafted
onto it under recent pressures, which is likewise in
conflict with
the ideal of freedom of trade … (i)t is the sanctity of
contracts
”.
The court then, with approval, referred to the judgement in
Printing
and Numerical Registering Co. v Sampson,
(1875) L.R. 19 Eq. 462
, at 465, where that court held as follows :-
"(I)f there is one thing
which more than another public policy requires, it is that men of
full age and competent understanding
shall have the utmost liberty of
contracting, and that their contracts when entered into freely and
voluntarily shall be held sacred
and shall be enforced by courts of
justice. Therefore you have this paramount public policy to consider
- that you are not lightly
to interfere with this freedom of
contract.
The
"inviolability" of contracts was described by LINDLEY, M.R.
in E. Underwood and Son Ltd. v Barker,
(1899) 1 Ch. 300
(C.A.) at p.
305, as essential to trade and commerce.”
However, irrespective of whether
or the Applicant’s agreements are or should be regarded as
agreements in restraint of trade,
the law is not stagnant. It is
conceivable that even vertical tie-in agreements, the validity of
which the parties to it accepted
without demur, and which are
otherwise valid in form,
could
be held to be
contra
bonos mores
and
therefore unenforceable. But I would surmise that no court would
readily do so and then certainly not without very good reasons.
It
is therefore necessary to consider whether, in the final fall-back,
the Respondent could argue that even if the Applicant’s
agreement is not a restraint, then it is still invalid for public
policy reasons such as, for example, the stifling of competition
by
the creation of a monopoly.
In
African
Dawn Property Finance 2 (Pty) Ltd. v Dreams Travel and Tours CC and
Others
2011 (3) SA
511
(SCA) the court had to consider whether or not an apparently
ordinary commercial lending transaction between litigants, secured
by suretyship, was usurious, therefore
contra
bonos mores
and thus
unenforceable. As things are wont to be in the often murky world
of financial dealings with the not so creditworthy,
the
cash-strapped debtor, eager for a loan and content to accept it
subject to whatever conditions the lender might set, swiftly
morphed
into recalcitrance when settlement became due, and what was at first
accepted as fair, with alacrity transformed into
the usurious, the
contra bonos mores
,
and thus the unlawful.
Not overly impressed with that
defence, the court pointed out that, as far back as in
Merry
v Natal Society of Accountants
1937 AD 331
, at 336, the Appeal Court had affirmed that, under
common law, the position has always been that, in order to render a
transaction
usurious, it must be shown to be tainted with
oppression, extortion, or something akin to fraud. However, the
debtor in
African Dawn
did not contend
anything of the sort; the case was that the rate of interest charged
by the lender was excessive, unconscionable
and against public
interest. That, the SCA held, “
one
would have thought, would have been the end of the enquiry
”
(unwittingly echoing
Shell
Company of South Africa
,
supra
,
at 757E) because if there was no extortion or fraud, then the public
interest does not come into play. But, quite creatively,
if not
adventurously, the final fall-back by the debtor was, as is the
position in far too many cases, that “
king’s
cure-all
”;
namely the Constitution. It was argued that the common-law rule is
inconsistent with the Constitution; that the court
was consequently
under a duty to develop the common law to reflect the changing
social, moral and economic fabric of the country;
etc.; etc.
The SCA reaffirmed, with
reference to
Roffey
,
supra
,
that “
contracts
valid in form are prima facie enforceable in South African law and
effect will be given to them unless grounds for their
avoidance are
proved
”.
However, as confirmed in
Napier
v Barkhuizen
2006 (4)
SA 1
(SCA), paragraph 13, the court held that the Constitution
requires of the courts “
to
employ its values to achieve a balance that strikes down the
unacceptable excesses of freedom of contract, while seeking to
permit individuals the dignity and autonomy of regulating their own
lives
”. When
Napier
,
supra
,
went on appeal to the Constitutional Court, the latter court held
(in
Barkhuizen v
Napier
[2007] ZACC 5
;
2007 (5) SA
323
(CC) paragraph 57 and 87) that,
“
On
the one hand public policy, as informed by the Constitution, requires
in general that parties should comply with contractual
obligations
that have been freely and voluntarily undertaken
.
This consideration is expressed in the maxim
pacta
sunt servanda
,
which, as the Supreme Court of Appeal has repeatedly noted, gives
effect to the central constitutional values of freedom and dignity.
Self-autonomy, or the ability to regulate one's own affairs, even to
one's own detriment, is the very essence of freedom and a
vital part
of dignity.
The
extent to which the contract was freely and voluntarily concluded is
clearly a vital factor as it will determine the weight
that should be
afforded to the values of freedom and dignity
.'
…
'Pacta
sunt servanda
is a profoundly moral principle, on which the coherence of any
society relies. It is also a universally recognised legal principle.
But
the general rule that agreements must be honoured cannot apply to
immoral agreements which violate public policy
.
As indicated above, courts have recognised this and our Constitution
re-enforces it.
'”
(my accentuation)
Of course, the
dictum
that the extent to which the contract was freely and voluntarily
concluded should be a vital factor in the determination of the
weight that ought to be accorded to the values of freedom and
dignity is not entirely new, and can be found in cases decided
as
far back as
Van der
Pol v Silbermann and Another
1952 (2) SA 561
AD at 574. In that case the court considered the
kind of evidence adduced and the considerations that have in the
past served
to displace the “
probability
of reasonableness arising from the free assent of the parties
”.
The court held that the fact that parties had agreed on certain
terms might not be conclusive evidence that such terms
are in fact
reasonable as between them. However, once that agreement is
established, it is “
weighty
evidence
” that
points to the conclusion that the agreed restraints imposed on their
contractual freedom was no more than that necessary
to protect the
interests of the parties concerned and as such it was reasonable
inter partes
.
As well, In
Shell
Company of South Africa
,
supra
,
cited with approval in
Drilec
,
supra
,
the court not only found no wrong in commercial, vertical tie-in
arrangements; it also held, at 756H to 758A, that the fact
that the
parties to the dispute had negotiated with one another
on
an equal footing
is
vital in the determination of the validity of such an agreement.
The court then held that from “
this
fact alone there arises a presumption that the restraint was
reasonable as between the parties
”.
The court in
Shell
Company
,
supra
,
further referred with
approval to
North
Western Salt Co., Ltd v Electrolytic Alkali Co., Ltd.,
1914 A.C. 461
, in which case the court distinguished between
controversies relating to the validity of an employment and
commercial agreements.
In the former, the court considered the fact
that an employee would have little opportunity of choice to preclude
himself from
earning his living by the exercise of his calling after
the period of service is over; therefore the law would look
“
jealously at
the bargain
”.
However, in the case of commercial agreements, “
the
law adopts a somewhat different attitude - it still looks carefully
to the interest of the public, but it regards the parties
as the
best judges of what is reasonable as between themselves
”.
Of course, the main difficulty
that faced the Respondent in this case was that, generally it would
bear a very substantial onus
to show that an agreement that is
apparently reasonable as between the parties is injurious to the
public (see:
Shell
Company of South Africa
,
supra
,
at 757F, citing with approval
A.G.
of the Commonwealth of Australia v Adelaide S.S. Co. Ltd.
,
[1913] UKPCHCA 2
;
1913 A.C. 781).
That onus, the court held, “
is
not a light one … and consequently cases in which such
agreements have been held void, are rare
”.
In this case the Applicant not
only relied on a commercial arrangement between consenting parties,
but also on an agreement comprising
only of positive covenants
effective for the duration of the relationship. The Applicant
furthermore adduced evidence that such
agreements are the norm in
the industry. By contrast, the Respondent has put up no evidence
whatsoever to show, for example,
that the Applicant and its
customers had not negotiated and contracted on an equal footing;
that any of those customers regard
the agreement as
contra
bonos mores
; that the
positive covenants in the Applicant’s agreement differ in any
manner from what is considered to be acceptable
in the industry;
that the agreements are regarded as unfair in the industry; etc. In
essence, what the respondent relied upon
to advance its case is
therefore not evidence, but argumentative submissions and
contentions on the validity of the agreement.
The latter, of
course, cannot serve to displace or refute the presumption of
validity that arises by virtue of the Applicant’s
evidence
that the parties themselves did not consider the agreements as
unlawful. Neither can these submissions and contentions
serve to
cast serious doubt on the validity of the Applicant’s
agreement.
Turning to the remaining
requirements for an interim interdict and costs, I am of the view
that these require but cursory consideration.
If the Respondent is
not interdicted, and if its unlawful acts succeed, the harm to the
Applicant is self-evident. Moreover,
the loss that would follow in
the wake of such unlawful conduct would be very difficult, if not
impossible accurately to quantify.
The most appropriate remedy to
restrain and to prevent a continuation of such unlawful conduct, and
to mitigate the accumulation
of further potential damages to the
Applicant, is undeniably, therefore, an interdict. The balance of
convenience also clearly
favours the Applicant - the further
potential harm that will be suffered by the Applicant if the
Respondent is not interdicted,
is far greater than the harm that
will be suffered by the Respondent if it is interdicted. All that
the Respondent needs to
do in its competitive struggle for a greater
market share is to keep its marketing activities within lawful
bounds.
The Applicant sought, in a draft
order handed up at hearing of this application, costs against the
Respondent. Where interim
relief is sought, the appropriate order
is generally to direct that the costs of the application in the
application for final
relief or, where an action will be launched,
pending the final resolution of that action. I see no reason to
differ from that
approach in this case.
Therefore, I make the
following order
:-
The issue as to whether the
Applicant’s standard agreement concluded with its customers,
an example of which is attached
to the Applicant’s founding
affidavit as Annexure "NPC–2", alternatively the
issue as to whether the exclusivity
provisions in that agreement is
prohibited or declared void in terms of the Competition Act, 1998
(“the Act”) is
referred to the Competition Tribunal to
be considered on the merits in terms of section 65 of the Act;
Pending the final determination
of the issue so referred :-
the Respondent is interdicted
and restrained from unlawfully and intentionally interfering with
the Applicant's contractual
relationship with its customers by
soliciting, inducing and persuading and by attempting to solicit,
induce or persuade any
of such customers to sever and/or in any
manner whatsoever to breach their agreements with the Applicant;
the Applicant’s main
application for final interdict relief under case number 25718/2012
is postponed
sine
die
;
The costs of this application
will stand over for final determination when the Applicant’s
main application for final relief
is heard.
_____________________________
A J BESTER
ACTING
JUDGE OF THE SOUTH GAUTENG HIGH COURT,
JOHANNESBURG
COUNSEL
FOR THE APPLICANT : ADV L J MORRISON, SC; F SAINT
INSTRUCTED
BY: MAHMOOD MIA ATTORNEYS
COUNSEL
FOR THE RESPONDENT: ADV A SUBEL, SC; A C BOTHA
INSTRUCTED
BY: BLAKE BESTER ATTORNEYS
DATES
OF HEARING : 15 OCTOBER 2012
DATE
OF JUDGMENT: __ OCTOBER 2012