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[2015] ZASCA 111
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Novartis v Maphil (20229/2014) [2015] ZASCA 111; 2016 (1) SA 518 (SCA); [2015] 4 All SA 417 (SCA) (3 September 2015)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case
No: 20229/2014
DATE:
03 SEPTEMBER 2015
Reportable
In the matter
between:
NOVARTIS SOUTH
AFRICA (PTY)
LTD
.....................................................................
APPELLANT
And
MAPHIL TRADING
(PTY)
LTD
..................................................................................
RESPONDENT
Neutral Citation:
Novartis v Maphil (20229/2014)
[2015] ZASCA 111
(3 September 2015)
Coram: Lewis,
Majiedt, Pillay, Zondi and Mathopo JJA
Heard: 18 August
2015
Delivered: 3
September 2015
Summary: Contract
comprising written document, oral agreement and emails enforceable:
evidence demonstrated intention to conclude
contract in this way, as
well as actual authority of representatives to bind the appellant.
Principles of contractual intepretation
considered.
ORDER
On appeal from:
Gauteng Local Division of the High Court, Johannesburg (Boruchowitz J
sitting as court of first instance).
The appeal is
dismissed with costs including the costs of two counsel where so
employed.
JUDGMENT
Lewis JA
(Majiedt, Pillay, Zondi and Mathopo JJA concurring)
[1] The question to
be answered in this appeal is whether a contract between the parties
was concluded: if so, the appellant, Novartis
South Africa (Pty) Ltd
(Novartis), would be guilty of repudiation of the contract, and the
respondent, Maphil Trading (Pty) Ltd
(Maphil), would be entitled to
damages. The contract alleged by Maphil was in fact negotiated by
representatives of a company,
Hiline Medical (Pty) Ltd (Hiline), the
shares of which were sold after the events that I shall describe. The
name of the company
was changed to Maphil subsequently. All
references to Hiline in what follows apply thus to Maphil as well.
[2] Novartis is a
subsidiary of a pharmaceutical drug manufacturer and supplier based
in Switzerland. It operated ‘divisions’
(separate trading
entities, but not companies themselves) in South Africa, which in
turn supplied medicines to pharmacies and hospitals.
The Sandoz
Division supplied generic pharmaceutical products and the Sandoz
Specialty Division (SSD) supplied ‘ethical’
or
non-generic products.
[3] In 2004 the
Medicines and Related Substances Act 101 of 1965
was amended to
introduce, amongst other provisions, a prohibition on the supply of
medicines according to a bonus or rebate system,
or any other
incentive scheme. Regulations under the amended Act provided
stringent controls for the pricing of medicines and the
marketing,
sale and distribution of pharmaceutical products. Consequently,
Novartis and its divisions had to change their marketing
strategies.
[4] The
uncontroverted facts were these. The director of the SSD, Mr Ian van
der Spuy, and the business manager, Ms Annie van Jaarsveld,
in
consultation with other members of the SSD, came up with the idea of
putting the Sandoz brand and logo on packaging for medical
devices
(not medicines themselves) that would be seen by health
professionals. The idea was to market the Sandoz brand (its name),
particularly in hospitals, since the medicines themselves could not
be advertised. The strategy was approved not only by SSD but
also by
the executive committee of Sandoz (EXCO), and its chairman, Mr John
Hallam.
[5] Van Jaarsveld,
with the approval of members of SSD which met on 3 August 2004,
approached Mr Martin Lambrecht, a director of
Hiline, some time in
August 2004 and met him in Cape Town in September 2004: she suggested
that SSD and Hiline enter into an arrangement
in terms of which
Hiline would receive a fee for putting Sandoz branding on the
packaging of devices supplied by Hiline to hospitals.
Lambrecht was
amenable to this.
[6] The timing of
the approach was fortunate because Hiline was about to put in a bid
for the supply of medical devices to Mediclinic,
a national private
hospital group. If SSD committed to paying a fee for the marketing
proposed, Lambrecht would be able to reduce
the prices of the items
that Hiline was tendering to supply by some R3 million. Lambrecht’s
tender documents had to be submitted
to Disa-Med, the procurement
department for Mediclinic. The proposed marketing strategy had been
discussed with the procurement
manager of Disa-Med, Ms Anita
Hamilton. Indeed, it was she who had suggested Hiline to SSD as a
potential partner in a marketing
arrangement.
[7] The deadline for
submitting the tender was 14 October 2004. Lambrecht had, before
then, indicated to Van Jaarsveld that unless
he had a commitment from
SSD, he could not give the discounted prices to Mediclinic. On 14
October, Van Jaarsveld and Van der Spuy
went to Cape Town (they were
based in the Novartis offices in Johannesburg) with a draft marketing
agreement between SSD and Hiline,
signed by Van Jaarsveld and Van der
Spuy for SSD, offering a marketing fee of R3.5 million for the year
2005. After some amendments
effected to it by the SSD representatives
at Lambrecht’s request, he orally accepted the commitment. I
shall discuss the
terms of the marketing agreement itself in due
course since Hiline alleged that it formed part of the contract, the
balance of
which was concluded orally and by email exchange.
[8] Lambrecht, when
testifying for Hiline, explained that the full contract could not be
concluded on 14 October 2014 because Hiline
and SSD had yet to agree
upon the exact items on which the Sandoz name would be used and on
the details of logos and naming. Moreover,
Hiline did not yet know
what items tendered for would be accepted by Disa-Med. Addendum A to
the agreement presented to Hiline
by SSD was headed ‘Marketing
Agreement’, and typed below that were the words ‘To be
finalized by 30 November
2004’. There was never any formalized
addition to the addendum. The marketing arrangements were agreed over
the telephone,
in emails, and at a meeting on 12 November 2004, on
Hiline’s version. The marketing agreement presented to Hiline
on 14 October,
signed by van Jaarsveld and Van der Spuy for SSD, was
at some time signed by Lambrecht and his brother for Hiline, but
Lambrecht
could not remember if the document with their signatures on
it was ever sent to SSD.
[9] The tender by
Hiline, in which the prices had been reduced by some R3 million, was
in due course accepted by Disa-Med. Hiline
proceeded as if there were
a contract with SSD as did SSD. By February of the following year,
Hallam had second thoughts about
the feasibility of the contract and
after a meeting with a representative of Mediclinic, at which he
discovered that SSD would
not get rebates on medicines. On 4 March
2005 Hallam wrote a letter to Hiline stating that there was no
contract between Novartis
and Hiline and that the invoice (with the
Sandoz logo already printed on it) that Hiline had submitted to it
for the first monthly
payment would not be paid.
[10] Hiline treated
Novartis’s conduct as a repudiation of the contract between
them, and instituted action in the Gauteng
Local Division for damages
for breach of contract. Boruchowitz J found for Maphil (which had, as
buyer of the Hiline shares, taken
over the claim) and awarded the sum
claimed – the fee that Hiline would have been entitled to had
the contract been performed
– and interest. Novartis appeals
with the leave of the trial court. That, in broad outline, is the
background to this appeal.
The contract relied
on by Hiline
[11] It is necessary
at this point to consider the way in which Hiline pleaded its claim
against Novartis. It alleged that there
were two components to the
contract on which it relied: first, the partly written marketing
agreement signed by Van der Spuy and
Van Jaarsveld on behalf of SSD
and presented to Lambrecht on 14 October 2004, which he accepted for
Hiline that day. The written
part was annexed to the particulars of
claim. Second, a subsequent partly oral and partly written agreement
in terms of which the
marketing activities were agreed, as
contemplated in the document accepted on 14 October 2004. That
agreement, Hiline alleged,
was reached on 12 November 2004 at a
meeting held in Cape Town with Lambrecht and his brother Phillip, and
Van der Spuy and Ms
L Biel, the product manager of SSD, for SSD.
[12] At that
meeting, it was alleged, the parties reached agreement on the Hiline
products that would bear the Sandoz logo, and
on putting the logo on
Hiline’s delivery vehicles. The written part of the agreement
on marketing activities comprised three
emails: one from Van
Jaarsveld, sent on 30 November 2004 to Lambrecht; a response from the
latter later in the same day, and a
further email from her to
Lambrecht, also on the same day.
[13] The first email
asked for details of Hiline’s registration number and banking
account, and set out the Hiline products
on which Sandoz logos would
be advertised. It was confirmed that the logo would be put on the
Hiline invoices as well. Van Jaarsveld
also advised that a new vendor
application form should be completed by a representative of SSD and
sent to her by fax.
[14] It should be
noted that Van Jaarsveld also said in that email that she intended to
send a draft agreement for Lambrecht’s
attention and that of
Hiline’s attorney, Mr Adriaan Hoeben of the firm Sonnenberg
Hoffman and Galombik (as it was known then)
in Cape Town. Lambrecht
responded saying that the detail for the logo on the invoices that
Hiline used had changed. He attached
a document confirming the
details of the marketing activities. The third email confirmed
details and said that Van Jaarsveld would
be seeing SSD’s
attorney, Mr Neil Kirby of Werksmans attorneys, the following day and
did not want to ‘get any of the
detail wrong’.
[15] Hiline pleaded,
accordingly, that the marketing agreement on which it relied,
comprising both written and oral agreements,
was concluded in the
meetings and by the exchange of emails, ending on 30 November 2004.
The material terms of the agreement were
that Hiline would perform
marketing activities for SSD at a fee of R3.5 million for the year
2005, payable in monthly instalments
on receipt of an invoice issued
by Hiline to SSD.
[16] Novartis raised
a number of defences in its plea: no contract had been proved; the
document signed on 14 October 2004 was inchoate
and lacked exigible
content; the parties had intended to conclude a contract only when
one was drafted by an attorney; and none
of the representatives of
Novartis who purported to bind it had authority to do so.
The terms of the
written document
[17] The preamble
stated that the agreement, dated 1 January 2005 to 31 December 2005,
was between Hiline and SSD; that Hiline is
a medical supplies
company; and that SSD manufactures and sells pharmaceutical products.
It was followed by a heading ‘Sandoz
[SSD] obligations’,
and continued:
‘A. Marketing
Fee
Sandoz agrees to pay
Hiline a marketing fee of R3.5 million per annum. This will be paid
as a fixed monthly marketing fee on receipt
of a tax invoice from
Hiline, confirming marketing activities carried out during the
previous month.
B. Legal
Sandoz confirms
that should the marketing activities under this agreement be
challenged with possible litigation, Sandoz undertakes
responsibility
of defending this action in total.’
Under the heading
‘Hiline Medical Obligations’ the document continued:
‘A. Marketing
Activities
1 Hiline agrees to
adhere to the marketing activities as outlined in Addendum A.
2 These activities
will be confirmed by a tax invoice on a monthly basis.
3 Should Hiline be
in a position not to provide these marketing services, Sandoz will be
timeously advised.
4 Hiline agrees that
all marketing activities contemplated above, will be in accordance to
the Novartis Code of Conduct (supplied
by Sandoz).
B. Payment
Payment of marketing
fee will take place thirty (30) days from receipt of tax invoice.’
[18] There followed
various general provisions which included a clause stating that the
agreement could not be amended or modified
except by a written
instrument signed by both parties; that the agreement, including
addenda, constituted the ‘entire agreement
and understanding
between the parties . . . and shall supersede all prior oral or
written negotiations, agreements or understandings
between the
parties with respect to the subject matter of this Agreement’.
[19] Addendum A,
headed marketing agreement, stated no more than that it would be
‘finalized by 30 November 2004’. Addendum
B, that dealt
with SSD products, listed four drugs.
The findings of the
trial court
[20] Boruchowitz J
found that the contract pleaded had been proved. The documents on
which Hiline relied, and the oral evidence
of Lambrecht and Van
Jaarsveld, who testified for Hiline, as well as the evidence of
Hallam, who gave evidence for Novartis, supported
the conclusion that
Hiline and SSD had intended to enter into a contract on the terms set
out in the document styled a marketing
agreement which was concluded
when the marketing activities had been agreed by 30 November 2004.
The conclusion was supported by
the fact that, despite Novartis’s
argument that the contract had no exigible content, both Hiline and
SSD had started to
perform their obligations in terms of the
contract. This was the evidence of Lambrecht, Van Jaarsveld and even
Hallam for SSD,
who regarded the contract as binding. I shall deal
with their evidence shortly.
[21] Boruchowitz J
also considered that the subsequent agreement on marketing activities
was not precluded by the clause that provided
that the agreement and
addenda constituted the entire agreement – that referred to
prior oral and written agreements, not
to those agreed subsequently,
and to which Addendum A expressly referred. That entailed, in turn,
that the agreement was not inchoate
since the marketing activities
were in fact agreed by 30 November as contemplated. And the fact that
both parties proceeded to
perform their obligations under the
contract necessarily meant that the agreement was not vague, lacking
exigible content.
[22] In its plea, as
I have said, SSD alleged that none of Van Jaarsveld, Van der Spuy or
Biel had the authority to bind SSD. It
was made clear in her evidence
that Van Jaarsveld did not have the authority to bind SSD, but Van
der Spuy was the head of the
division and the trial court concluded
that even if he did not have actual authority to bind SSD, he at
least had the ostensible
authority to do so.
Novartis’s
arguments on appeal
[23] Novartis
challenges all of these findings on appeal and contends that the
trial court materially misdirected itself in assessing
some of the
evidence. Its principal argument, however, is that the trial court
did not properly apply the rules relating to the
interpretation of
contracts. I shall turn to that argument briefly although, in my
view, the question before us is not what the
contract alleged meant.
The question, as I said at the outset, is whether there was a
contract at all on the terms alleged by Hiline.
Interpretation of
the contract
[24] The argument of
Novartis, as I understand it, is that interpretation is an entirely
objective process: in deciding what a contract
means, a court must
have regard to the words used and construe them objectively. Novartis
cites in this regard passages from KPMG
Chartered Accountants (SA) v
Securefin Ltd & another
[2009] ZASCA 7
;
2009 (4) SA 399
(SCA)
para 39, and Natal Joint Municipal Pension Fund v Endumeni
Municipality
[2012] ZASCA 13
;
2012 (4) SA 593
(SCA) para 18
(Endumeni).
[25] The relevant
passage in KPMG reads:
‘First, the
integration (or parol evidence) rule remains part of our law.
However, it is frequently ignored by practitioners
and seldom
enforced by trial courts. If a document was intended to provide a
complete memorial of a jural act, extrinsic evidence
may not
contradict, add to or modify its meaning (Johnson v Leal
1980 (3) SA
927
(A) at 943B). Second, interpretation is a matter of law and not
of fact and, accordingly, interpretation is a matter for the court
and not for witnesses (or, as said in common-law jurisprudence, it is
not a jury question: Hodge M Malek (ed) Phipson on Evidence
(16 ED
2005) para 33-64). Third, the rules about admissibility of evidence
in this regard do not depend on the nature of the document,
whether
statute, contract or patent (Johnson & Johnson (Pty) Ltd v
Kimberly-Clark Corp [1985] ZASCZ 132 (at www.saflii.org.za),
1985
Burrell Patent Cases 126 (A)). Fourth, to the extent that evidence
may be admissible to contextualise the document (since
“context
is everything”) to establish its factual matrix or purpose or
for purposes of identification, “one must
use it as
conservatively as possible” (Delmas Milling Co Ltd v du Plessis
1955 (3) SA 447
(A) at 455B-C). The time has arrived for us to accept
that there is no merit in trying to distinguish between “background
circumstances” and “surrounding circumstances”. The
distinction is artificial and, in addition, both terms are
vague and
confusing. Consequently, everything tends to be admitted. The terms
“context” or “factual matrix”
ought to
suffice. (See Van der Westhuizen v Arnold
2002 (6) SA 453
(SCA) paras
22 and 23 and Masstores (Pty) Ltd v Murray & Roberts (Pty)
Ltd
[2008] ZASCA 94
;
2008 (6) SA 654
(SCA) para 7.)’
[26] The passage
relied on by Novartis in Endumeni reads (footnotes omitted):
‘Over the last
century there have been significant developments in the law relating
to the interpretation of documents, both
in this country and in
others that follow similar rules to our own. It is unnecessary to add
unduly to the burden of annotations
by trawling through the case law
on the construction of documents in order to trace those
developments. The relevant authorities
are collected and summarised
in Bastian Financial Services (Pty) Ltd v General Hendrik Schoeman
Primary School [[2008] ZASCA 70;
2008 (5) SA 1
(SCA) paras 16-19.]
The present state of the law can be expressed as follows.
Interpretation is the process of attributing meaning
to the word used
in a document, be it legislation, some other statutory instrument, or
contract, having regard to the context provided
by reading the
particular provision or provisions in the light of the document as a
whole and the circumstances attendant upon
its coming into existence.
Whatever the nature of the document, consideration must be given to
the language used in the light of
the ordinary rules of grammar and
syntax; the context in which the provision appears; the apparent
purpose to which it is directed
and the material known to those
responsible for its production. Where more than one meaning is
possible each possibility must be
weighed in the light of all these
factors. The process is objective not subjective. A sensible meaning
is to be preferred to one
that leads to insensible or unbusinesslike
results or undermines the apparent purpose of the document. Judges
must be alert to,
and guard against, the temptation to substitute
what they regard as reasonable, sensible or businesslike for the
words actually
used. To do so in regard to a statute or statutory
instrument is to cross the divide between interpretation and
legislation. In
a contractual context it is to make a contract for
the parties other than the one they in fact made. The “inevitable
point
of departure is the language of the provision itself” [a
reference to Re Sigma Finance Corp
[2008] EWCA Civ 1303
(CA) para
98], read in context and having regard to the purpose of the
provision and the background to the preparation and production
of the
document.’
[27] I do not
understand these judgments to mean that interpretation is a process
that takes into account only the objective meaning
of the words (if
that is ascertainable), and does not have regard to the contract as a
whole or the circumstances in which it was
entered into. This court
has consistently held, for many decades, that the interpretative
process is one of ascertaining the intention
of the parties –
what they meant to achieve. And in doing that, the court must
consider all the circumstances surrounding
the contract to determine
what their intention was in concluding it. KPMG, in the passage
cited, explains that parol evidence is
inadmissible to modify, vary
or add to the written terms of the agreement, and that it is the role
of the court, and not witnesses,
to interpret a document. It adds,
importantly, that there is no real distinction between background
circumstances, and surrounding
circumstances, and that a court should
always consider the factual matrix in which the contract is concluded
– the context
– to determine the parties’
intention.
[28] The passage
cited from the judgment of Wallis JA in Endumeni summarizes the state
of the law as it was in 2012. This court
did not change the law, and
it certainly did not introduce an objective approach in the sense
argued by Novartis, which was to
have regard only to the words on the
paper. That much was made clear in a subsequent judgment of Wallis JA
in Bothma-Botha Transport
(Edms) Bpk v S Bothma & Seun Transport
(Edms) Bpk
[2013] ZASCA 176
;
2014 (2) SA 494
(SCA), paras 10 to 12
and in North East Finance (Pty) Ltd v Standard Bank of South Africa
Ltd
[2013] ZASCA 76
;
2013 (5) SA 1
(SCA) paras 24 and 25. A court
must examine all the facts - the context - in order to determine what
the parties intended. And
it must do that whether or not the words of
the contract are ambiguous or lack clarity. Words without context
mean nothing.
[29] Referring to
the earlier approach to interpretation adopted by this court in
Coopers & Lybrand & others v Bryant
[1995] ZASCA 64
;
1995 (3)
SA 761
(A) at 768A-E, where Joubert JA had drawn a distinction
between background and surrounding circumstances, and held that only
where
there is an ambiguity in the language, should a court look to
surrounding circumstances, Wallis JA said (para 12 of Bothma-Botha):
‘That summary
is no longer consistent with the approach to interpretation now
adopted by South African courts in relation
to contracts or other
documents, such as statutory instruments or patents. While the
starting point remains the words of the document,
which are the only
relevant medium through which the parties have expressed their
contractual intentions, the process of interpretation
does not stop
at a perceived literal meaning of those words, but considers them in
the light of all relevant and admissible context,
including the
circumstances in which the document came into being. The former
distinction between permissible background and surrounding
circumstances, never very clear, has fallen away. Interpretation is
no longer a process that occurs in stages but is “essentially
one unitary exercise” [a reference to a statement of Lord
Clarke SCJ in Rainy Sky SA v Kookmin Bank
[2011] UKSC 50
, [2012]
Lloyd’s Rep 34 (SC) para 21].
[30] Lord Clarke in
Rainy Sky in turn referred to a passage in Society of Lloyd’s v
Robinson [1999] 1 All ER (Comm) at 545,
551 which I consider useful.
‘Loyalty to
the text of a commercial contract, instrument, or document read in
its contextual setting is the paramount principle
of interpretation.
But in the process of interpreting the meaning of the language of a
commercial document the court ought generally
to favour a
commercially sensible construction. The reason for this approach is
that a commercial construction is likely to give
effect to the
intention of the parties. Words ought therefore to be interpreted in
the way in which the reasonable person would
construe them. And the
reasonable commercial person can safely be assumed to be unimpressed
with technical interpretations and
undue emphasis on niceties of
language.’
[31] This was also
the approach of this court in Ekurhuleni Metropolitan Municipality v
Germiston Municipal Retirement Fund
[2009] ZASCA 154
;
2010 (2) SA 498
(SCA) para 13. A further principle to be applied in a case such as
this is that a commercial document executed by the parties with
the
intention that it should have commercial operation should not lightly
be held unenforceable because the parties have not expressed
themselves as clearly as they might have done. In this regard see
Murray & Roberts Construction Ltd v Finat Properties (Pty)
Ltd
[1991] ZASCA 130
;
1991 (1) SA 508
(A) at 514B-F, where Hoexter JA
repeated the dictum of Lord Wright in Hillas & Co Ltd v Arcos Ltd
[1932] UKHL 2
;
147 LTR 503
at 514:
‘Business men
often record the most important agreements in crude and summary
fashion; modes of expression sufficient and
clear to them in the
course of their business may appear to those unfamiliar with the
business far from complete or precise. It
is accordingly the duty of
the court to construe such documents fairly and broadly, without
being too astute or subtle in finding
defects.’
[32] Novartis argued
that the purpose of Addendum A was to provide clarity and certainty
as to the marketing activities to be performed
by Hiline. When
completed it would define its obligations. To allow for the
substitution of an oral agreement or one concluded
by the exchange of
emails, without a formal amendment to the document to which A was an
addendum, would be ungrammatical and would
be in disregard of the
purpose to be served by the addendum. The plain meaning of clause II
A 1, cited above, was unambiguous:
Addendum A would be the source of
Hiline’s obligations. There could be no other. Reference to
another document was impermissible.
Nothing was set out in Addendum
A: thus, it contended, the contract had no exigible content.
[33] Furthermore,
the argument went, what is meant by the words in Addendum A, ‘To
be finalized by 30 November’? They
could mean only that
Addendum A had to be completed by a written instrument defining the
marketing activities. And that was in
turn precluded by the provision
of the document that it was the sole memorial of the agreement. Parol
evidence was impermissible
to add to the document, it was contended,
and Addendum A could only have been completed with a written
instrument signed by both
parties.
[34] That argument
can be disposed of by having regard to what the parties expressly
excluded: any variation or addition to the
marketing agreement. But
that agreement expressly provided that the marketing activities had
to be finalized in the future –
before 30 November 2004. In
agreeing such activities in a meeting and by way of email the parties
did exactly what they contemplated
in agreeing to the content of the
document. And nothing in the document required that the future
agreement should comply with any
formality. Absent a statutory
requirement that particular formalities be adhered to, or an
agreement that an instrument will have
no force unless particular
formalities are followed, as long as the terms of a contract satisfy
other requirements for contractual
validity, the parties may conclude
their contract in any manner they choose. See, most recently in this
regard, Pillay & another
v Shaik & others
[2008] ZASCA 159
;
2009 (4) SA 74
(SCA) para 50.
[35] The argument
that the words of the document, signed by Van Jaarsveld and Van der
Spuy on 14 October 2004, must be examined
only linguistically, and
that the genesis of the document, subsequent conduct and other facts
relevant to the conclusion of the
contract be ignored, is directly
contrary to the decisions of this court cited above, and many others.
But, as I have said, the
issue here is not what the parties intended
their contract to mean, but whether they intended to bind themselves
contractually.
That inevitably requires an examination of the factual
matrix – all the facts proven that show what their intention
was in
respect of entering into a contract: the contemporaneous
documents, their conduct in negotiating and communicating with each
other,
and, importantly, the steps taken to implement the contract.
Novartis’s
contentions based on the evidence
[36] Novartis
contends that a number of undisputed and contemporaneous matters
require the court to infer that, on the probabilities,
an agreement
was not concluded. The document presented by SSD to Hiline on 14
October 2014 made provision for the signature of
the representatives
of both parties, yet only the SSD representatives, Van Jaarsveld and
Van der Spuy, signed on that day. Lambrecht
said that he accepted the
SSD commitment orally, and only signed the document for record
purposes (to complete the paperwork, in
his words) subsequently. Yet
he also said that he was not ready to ‘conclude’ the
contract then – the marketing
activities could not at that
stage be finalized.
[37] Moreover,
Lambrecht wanted to ensure that any agreement reached would not be in
contravention of the Act, and wanted to check
it with Hiline’s
attorney. That he did – asking Hoeben to give comments on the
lawfulness of the ‘proposed agreement’.
Hoeben responded
on 28 October 2004, dealing primarily with the regulatory regime, but
he also expressed the view that the proposed
agreement with which he
had been provided needed significant changes and additions in order
to get clarity on the marketing activities.
[38] None of that is
inconsistent with Lambrecht’s evidence that he wanted a
commitment from SSD before he reduced the prices
in the tender to
Disa-Med and that the marketing activities had still to be finalized
before 30 November. In the face of persistent
cross-examination to
the effect that he had not concluded a contract on 14 October, he
consistently said that SSD had made a commitment
– but that he
wanted still to get legal advice and to see the terms on which the
tender would be awarded before taking the
steps to agree on the
marketing activities. Hiline’s case, as pleaded from the start,
was that the contract relied upon was
concluded only on 30 November
2004. As at 14 October, therefore, he would not have told Hoeben that
the agreement was concluded.
He did not think it was.
[39] Novartis places
considerable emphasis on the parties’ respective dealings with
their attorneys, and draft agreements
that were prepared for them to
sign. Hiline did not dispute that it wanted an attorney to draft a
contract to govern the relationship
with SSD. Lambrecht wanted the
assurance that their venture was lawful. There were meetings between
their respective attorneys
in Cape Town. Mr Neil Kirby of Werksmans
attorneys went to Cape Town to meet Hoeben. It was agreed that a
colleague of Kirby, with
expertise in the drafting of contracts,
would draft the agreement. In fact, there were regular exchanges
between Van Jaarsveld,
Kirby and Hoeben about getting the agreement
finalized. It became apparent that the attorney’s draft would
not be completed
before the end of 2004, but it was anticipated that
Kirby would attend to it early in 2005 when business resumed after
the festive
season.
[40] Lambrecht and
Van Jaarsveld were taxed with the question why they wanted a contract
drafted by an attorney if, as Hiline argued,
one was already in
place. Van Jaarsveld had written several emails to SSD indicating
that the delay was hampering the project.
On 8 December 2004, for
example, she said, in an internal email:
‘We cannot
finalize our legal agreement until such time that all advertising
activities are completely final and I am getting
really worried about
the delays and cost implications with the backwards and forwards and
constant tweaking of artwork.’
[41] She also wrote
to Hoeben on the same day stating that there had been ‘delay
finalizing our agreement’. She added:
‘Remember when
you said the most important and most difficult part would be the
listing of marketing/advertising activities?
And how vehemently I
disagreed?? . . . I won’t argue with you again!!’ . . .
Neil will send a draft agreement to you,
probably early in January
2005.’
[42] When
testifying, both Lambrecht and Van Jaarsveld said that they had
anticipated a second agreement that would supersede the
current one.
They had hoped to have a contract drafted by a lawyer. And since that
did not materialize the contract concluded on
30 November 2004
remained in force. Counsel for Novartis argued that this was a
‘stratagem (contrivance)’ to explain
their ongoing
meetings and correspondence with Hoeben and Kirby, and was
inconsistent with the correspondence such as that quoted
above.
[43] In my view that
criticism is unfair. Both parties did want a lawyer’s contract
to replace the one drafted by SSD, signed
by Van Jaarsveld and Van
der Spuy, and concluded orally and by email correspondence. But they
nonetheless regarded the latter as
binding, and took steps to
implement it on that understanding. Lambrecht’s evidence that
the contract was not concluded on
14 October when he was given the
undertaking by van Jaarsveld and Van der Spuy does not assist
Novartis. He made it clear that
he wanted legal advice and to know
the outcome of Hiline’s tender to Disa-Med: but these matters
had been resolved by 30
November when the marketing activities were
confirmed.
[44] And complaints
about the artwork were of no moment to Hiline: it was entirely up to
SSD to determine how they wanted their
logos and name to appear on
packaging and vehicles. In fact SSD had prepared and approved the
artwork for packaging, Hiline invoices,
and for Hiline delivery
vehicles by the time SSD repudiated the contract. In rejecting
Novartis’s argument that the agreement
was inchoate because not
all of its terms were agreed by 30 November 2004, Boruchowitz J in
the trial court relied on dicta of
Corbett JA in CGEE Alsthom
Equipments et Enterprises Electrique, South African Division v GKN
Sankey (Pty) Ltd
1987 (1) SA 81
(A) at 92A-E:
‘There is no
doubt that, where in the course of negotiating a contract the parties
reach an agreement by offer and acceptance,
the fact that there are
still a number of outstanding matters material to the contract upon
which the parties have not yet agreed
may well prevent the agreement
from having contractual force. A good example of this kind of
situation is provided by the case
of OK Bazaars v Bloch . . .[1929
WLD 37] (see also Pitout v North Cape Livestock Co-operative Ltd . .
.
[1977 (4) SA 842
(A)] Where the law denies such an agreement
contractual force it is because the evidence shows that the parties
contemplated that
consensus on the outstanding matters would have to
be reached before a binding contract could come into existence (see
Pitout’s
case supra at 851B-C). The existence of such
outstanding matters does not, however, necessarily deprive an
agreement of contractual
force. The parties may well intend by their
agreement to conclude a binding contract, while agreeing, either
expressly or by implication,
to leave the outstanding matters to
future negotiation with a view to a comprehensive contract. In the
event of agreement being
reached on all outstanding matters the
comprehensive contract would incorporate and supersede the original
agreement. If, however,
the parties should fail to reach agreement on
the outstanding matters, then the original contract would stand. (See
generally Christie
The Law of Contract in South Africa at 27-8.)
Whether in a particular case the initial agreement acquires
contractual force or
not depends upon the intention of the parties,
which is to be gathered from their conduct, the terms of the
agreement and the surrounding
circumstances (see Pitout’s case
supra at 815D-G).’
[45] I agree that
these principles are germane, but would limit their application to
the arrangements in respect of artwork, which
was in SSD’s
domain. The material terms of the contract had in fact been agreed,
and I consider that the contract pleaded
and relied on by Hiline was
concluded by 30 November 2004 as the trial court found. It remains to
consider whether Van Jaarsveld
and Van der Spuy had the authority to
conclude a contract for Hiline.
Authority to
conclude the contract
[46] Novartis raised
the question of the authority of its representatives in its plea.
Hiline replicated that both Van Jaarsveld
and Van der Spuy had
authority to conclude the contract. In giving particulars for trial,
Hiline averred that Novartis operated
the two divisions referred to
earlier. Van der Spuy was the director of the SSD. Each division was
authorized to perform all actions
relevant to its business, and was
conducted by particular committees. Sandoz had an executive
committee, the EXCO, of which Hallam
was the chair and Van der Spuy a
member. SSD had a management committee of which Van der Spuy was the
chair, and Van Jaarsveld,
the business manager of SSD, a member.
Novartis had structured SSD as a separate business entity.
[47] Van Jaarsveld
testified that she did not herself have the authority to conclude an
agreement: her function was to initiate
and negotiate agreements. She
had to get the authorization of Van der Spuy for the purpose of
making the undertaking to pay a marketing
fee to Hiline.
[48] Hiline argued
that the structure of the separate divisions itself gave rise to the
inference that Van der Spuy, at least, had
actual authority to
conclude the marketing agreement. That document recorded that it was
concluded on behalf of SSD by Van der
Spuy and Van Jaarsveld. Van
Jaarsveld was mandated by the SSD Management Committee, at its
meeting on 3 August 2004, to approach
Hiline. And even before then,
she and Reinhold Just, who was on the EXCO, had consulted with their
attorney Kirby to get advice
on the legality of the venture that the
SSD had approved.
[49] On 22 October
2004, the management committee met and it was minuted that Hiline
would be paid R3.5 million and that the marketing
activities would be
finalized by 30 November 2004. At the EXCO meeting of November 2004
it was minuted that the ‘JV campaign
[the joint venture between
SSD and Hiline] utilizing a Surgical Supplier has been initiated and
vetted in depth by Werksmans [Kirby]
from a legal point of view.’
It would be implemented from January 2005. Hallem chaired that
meeting. Just and Van der Spuy
would have been present although the
minute in the record does not reflect who was there.
[50] Another fact
supporting the inference that the contract was actually authorized is
that a positive performance appraisal of
Van Jaarsveld was done by
Van der Spuy early in February 2005. It was noted that she ‘did
a good job keeping Sandoz on the
map’. Hallam approved the
appraisal. This, as Hiline argued, was irreconcilable with her having
acted without authority.
And Hallam, when meeting Mr J Ludorf of
Mediclinic in February 2005 indicated that SSD had a contract with
Hiline, a fact that
was uncontroverted.
[51] Nonetheless,
Novartis relied on a document setting out the manner in which
contracts could be authorized within the company.
Neither of Hallam
or Van der Spuy had that authority in terms of this document. Van
Jaarsveld testified that she had not been aware
of its existence and
Hallam conceded when being cross-examined that it was not followed in
general. He accepted also that he had
decided to treat the marketing
agreement as binding. And when he made that decision in November 2004
it was a ‘Sandoz’
decision, that he did not refer for
approval to the directors of the Novartis board: despite that he
conceded that it was an authorized
decision.
[52] Van Jaarsveld
wrote to Kirby of Werksmans on 15 February 2005, asking again when he
would furnish the agreement that was being
drafted by his colleague,
and said that Hallam had requested a written legal opinion ‘on
the current agreement with Hiline
being binding. He said he had no
doubt that it would be, but he would like expert opinion on this. He
knows that they have lowered
tender prices on the R3.5 mill from
Sandoz.’
[53] Kirby responded
with a letter written on 23 February, addressed to Novartis, stating
that his view was that ‘a partly-written
partly-oral agreement
currently exists between Sandoz and Hiline, which is regulating the
relationship between the parties;’
he further advised that
Hiline would be entitled to rely on this agreement to enforce the
obligation to pay the amount of R3.5
million.
[54] On 25 February
Van der Spuy, Van Jaarsveld and Just met with Kirby to discuss the
opinion. The only matter they asked to be
corrected was to make clear
that the R3.5 million was payable in monthly instalments and not as a
lump sum, as Kirby had indicated.
Kirby issued a revised opinion
correcting the manner of payment. None of the Sandoz representatives
suggested that the agreement
was unauthorized. Hallam terminated
Kirby’s mandate on 2 March 2005 and asked for a return of his
file. When asked during
cross-examination why he had done this, he
responded ‘he did not tell me the story I wanted to hear and
secondly I just felt
that we should try to see if there was another
way that we could address the matter’.
[55] And tellingly,
the financial director of Novartis, Ms Maria-Dolores Solè,
when she heard about the joint venture, wrote
an email to Hallam
complaining that she was told that commitments had been made. And
when, in February 2005, Novartis repudiated
the agreement, Solè
instituted disciplinary charges against both Van der Spuy and Van
Jaarsveld. Initially Van Jaarsveld
was charged with having been
instrumental in SSD ‘entering into a contract with Hiline’.
That charge was withdrawn,
because, as Hallam said, if it got out, it
would damage Novartis’s case. A new charge was laid after
Hiline had sent its
letter of demand, the complaint being that Van
Jaarsveld had acted without authority. She resigned before the
disciplinary inquiry
began. Van der Spuy also resigned from Novartis.
[56] Novartis
argued, however, that Van Jaarsveld alone was not authorized to
conclude a contact on her own. Indeed, she said as
much. But Van der
Spuy, she said, had such authority and he had not only gone to Cape
Town with her to present the marketing agreement
but had also signed
it. He was not, thereafter, involved with the negotiations about
marketing activities, and had not been at
the meeting of 12 November
when Biel and Van Jaarsveld had finalized those activities orally.
Nor had he sent the emails of 30
November. So, the argument went, he
had not authorized the contract as a whole.
[57] The argument
is, in my view, absurd. The whole transaction was known about by
members of the SSD, and discussed at management
meetings, and Van der
Spuy had certainly approved it in that body. Van der Spuy had signed
the new vendor application form for
Hiline, referred to by Van
Jaarsveld in her email to Lambrecht on 30 November, referred to
earlier.
[58] So too, Hallam
knew about it and approved throughout. Even in the absence of any
company resolution authorizing the contract,
it was clearly
authorized by implication by EXCO, chaired by Hallam, as reflected
earlier. It is trite that implied authority,
which is actual
authority, can arise from the conduct of a person in a position to
represent the company, as Van der Spuy, as divisional
director of the
SSD, would have been. As Jennifer A Kunst, Professor Piet Delport &
Professor Quintus Voster Henochsberg on
the Companies Act 5 ed
(2011), 128-129 (dealing with the Companies Act 61 of 1973, in force
at the relevant times) states, authority
may be implied –
‘when it is
inferred from the conduct of the parties and the circumstances of the
case, such as when the board of directors
appoint one of their number
to be a managing director. They thereby impliedly authorize him to do
all things as fall within the
usual scope of that office’.
[59] Van der Spuy
was not a director of Novartis. But he was the director of the SSD,
which operated as an independent business
entity. He undoubtedly had
implied, actual authority to conclude the contract, which he did.
Boruchowitz J found that SSD’s
representatives were in fact
authorized to enter into the marketing agreement, but nonetheless
went on to consider whether Novartis
was bound by its agents’
ostensible authority – whether it had misrepresented that Van
Jaarsveld and Van der Spuy had
authority to conclude the contract,
and that Hiline had acted to its detriment in reasonably relying on
that misrepresentation.
He found that Novartis was bound by its
representations as to Van der Spuy’s authority.
[60] I do not think
it necessary to consider the issue of ostensible authority. Hallam
and Van der Spuy had actual authority to
conclude the contract. And
the decision to treat the contract as binding by Hallam was
admittedly authorized.
[61] In all the
circumstances, I conclude that the trial court correctly found that
there was an enforceable contract between the
parties, repudiated by
Novartis. The order that Novartis pay damages in the sum of R3 418
000 plus interest, and the costs of suit,
must thus be upheld.
[62] Accordingly,
the appeal is dismissed with costs including the costs of two counsel
where so employed.
C H Lewis
Judge of Appeal
APPEARANCES
For Appellant: M
v R Potgieter SC
Instructed by:
Webber Wentzel Attorneys, Sandton
Honey Attorneys,
Bloemfontein
For Respondents:
M J Fitzgerald SC (with him R M G Fitzgerald)
Heads of argument
drawn by J G Dickerson SC
Instructed by:
Bowman Gilfillan Inc, Sandton
Matsepes Inc,
Bloemfontein