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[2016] ZAKZDHC 12
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United Medical Devices LLC and Another v Blue Rock Capital Limited and Another (13398/2015) [2016] ZAKZDHC 12 (4 March 2016)
In
the High Court of South Africa
KwaZulu-Natal
Local Division, Durban
Case
No: 13398/2015
DATE:
04 MARCH 2016
In the matter
between:
United Medical
Devices
LLC
..........................................................................................
First
Applicant
United
Convenience Supply
LLC
...............................................................................
Second
Applicant
And
Blue Rock
Capital
Limited
..........................................................................................
First
Respondent
Espro
Investments
Limited
......................................................................................
Second
Respondent
In re:
Blue Rock
Capital
Limited
..............................................................................................
First
Applicant
Espro
Investments
Limited
.........................................................................................
Second
Applicant
And
United Medical
Devices
LLC
.......................................................................................
First
Respondent
United
Convenience Supply
LLC
............................................................................
Second
Respondent
Playboy
Enterprises
Incorporated
............................................................................
Third
Respondent
Registrar of
Trademarks and
Patents
.....................................................................
Fourth
Respondent
Judgment
Marks
AJ:
Introduction
[1]
The applicants seek the reconsideration and setting aside of this
court’s order dated 22 December 2015 authorising the
attachment
of property of the applicants in order to confirm jurisdiction
of this court and granting leave to the respondents
to institute an
action by way of edictal citation. This application has been
launched on an urgent basis in terms of Rule
6(12)(c) of the Uniform
Rules of Court. The respondents oppose the relief sought and
challenge the authority of the applicants’
legal
representatives, the authority of the deponent to the founding
affidavit (in a Rule 7(1) notice that was served on the applicant),
and the urgency with which the present application was brought.
[2]
Before dealing with these challenges raised or the merits of the
application, I deem it expedient to give a brief synopsis of
the
background history of the matter.
Background
[3]
The applicants are both private limited liability companies duly
incorporated in accordance with the company laws of the State
of
California, United States of America having their principal place of
business in California, United States.
[4]
The respondents are both private limited liability companies duly
incorporated in accordance with the company laws of the Republic
of
Mauritius with their principal places of business in Durban, Republic
of South Africa.
[5]
On 1 April 2014 at Durban, the parties signed a written agreement in
terms whereof the applicants granted to the respondents
the exclusive
right to advertise, market, offer, sell and distribute , condoms and
lubricants amongst other items, subject to certain
conditions for a
period of ten years commencing on 1 April 2014.
[6]
On 22 September 2015 the applicants sent a written notice of
cancellation of the aforementioned agreement contending that the
respondents have breached the conditions thereof.
[7]
On 29 November 2015 the respondents’ attorneys replied to the
notice stipulating that this amounted to a repudiation of
the
contract which the respondents do not accept.
[8]
After several letters of correspondence were exchanged between the
parties’ attorneys, on the 21 December 2015 the
respondents
approached this court with an urgent
ex parte
application to
found or confirm the jurisdiction of this court to entertain an
action which the respondents intended to pursue against
applicants as
peregrini.
The respondents also sought relief to serve
such papers on the applicants by way of edictal citation in the form
of an Intendit.
The order was duly granted by Balton J with the
return date being 9 March 2016 as follows :
that
the Applicants be and they are hereby authorised to attach, or to
cause to be attached, all the rights, title and interest
of UNITED
MEDICAL DEVICES LLC ("UMD") and UNITED CONVENIENCE SUPPLY
LLC ("UCS") to exclusively use the Trade
Mark "PLAYBOY"
and the Rabbit Head Design ("the Trademark") within, inter
alia, the Republic of South Africa
("the Territory") and to
exclusively advertise, market, offer, sell, distribute sell, amongst
other items, condoms, personal
non-medicated lubricants associated
therewith and smoke-free and tobacco-free electronic cigarettes,
electronic cigars and other
vapor products ("the Products")
either directly or through third party resellers, dealers or
sub-distributors within
the Territory to or through: (i) specialty
stores, mass market stores, convenience stores, drug stores, food
stores, hypermarkets
and any other retail stores that customary sell
the Products all of which may or may not have their own e-commerce
website; (ii)
duty-free stores (but specifically excluding in-flight
and cruise ship duty-free channels of distribution or duty-free sales
that
take place on airplanes, cruise ships or duty free magazines);
(iii) E-tailers which will promote the availability of the Products
via such E-tailers’ E-Commerce Website and which will fulfill
orders for the Products placed through such E- Commerce Website
to
and only to those addresses located in the Territory;
(iv) Playboy-branded
retail stores; (v) non-Playboy branded catalogs; and (vi) any other
channels as approved in advance in writing
by UMD and UCS ("the
Vested Rights") at the place of business of the Applicants at
231 Chamberlain Road, Jacobs, Durban,
Republic of South Africa, or at
such other address in the Republic of South Africa at which the same
might be located, so as to
confirm the jurisdiction of the above
Honourable Court to entertain an action to be instituted by the
Applicants against UMD and
UCS out of the above Honourable Court for
the relief referred to in clause 2 hereunder which attachment is to
be reflected in the
records of the Fourth Respondent, Pretoria;
1.2
That the Sheriff or his deputy be and he is hereby authorised
and required to attach the Vested Rights above referred to so as to
found or confirm jurisdiction as aforesaid.
2.1
granting the Applicant leave to institute action against UMD
and UCS out of the above Honourable Court by Edictal Citation in the
form of an Intendit, substantially in accordance with annex “PS
8” to the Founding Affidavit, and supporting documents
(“the
Action”), for an Order :
2.1.1
declaring that the written agreement entered into between the
Applicants and UMD and UCS respectively on 1 April 2014 (“the
User Agreement”), a copy of which is attached to the Founding
Affidavit and Marked “PS 4A”, is extant, operative
and of
full force and effect;
2.1.2
that UMD and UCS perform all their obligations towards the
Applicants under the User Agreement as and when they fall to be
performed
in terms thereof;
2.1.3
for further, other or alternative relief.
3.1
that the Intendit be served upon UMD, UCS, as well as upon
PLAYBOY ENTERPRISES INCORPORATED,respectively by a copy thereof being
delivered to an employee of each of them respectively, apparently
over the age of 16 years, at the following addresses, namely
3.1.1
UMD at 1901 Avenue of the Stars, Suite #470, Los Angeles,
California, CA 90067, United States of America;
3.1.2
UCS at 1901 Avenue of the Stars, Suite #470, Los Angeles,
California 90067, United States of America;
3.1.3
PLAYBOY INTERNATIONAL INCORPORATED at 9346 Civic Centre Drive
# 200, Beverly Hills, California, 90210, United States of America;
3.2
that the aforesaid service be effected by any person in
California, United States of America: -
3.2.1 Who is,
according to a certificate of:-
3.2.1.1 The head of
the South African diplomatic or consular mission or any South African
foreign service officer grade VII; or
3.2.1.2
any foreign diplomatic or consular officer attending to the
service of process or documents on behalf of the Republic of South
Africa
in the United States of America; or
3.2.1.3
any diplomatic or consular officer of the Republic of South
Africa serving in the United States of America; or
3.2.1.4
any official signing as or on behalf of the head of the
department dealing with the administration of justice in the United
States
of America, authorised under the law of the United States of
America to serve the same;
3.2.2
referred to in 3.2.1.1 or 3.2.1.2 if the law of the United
States of America permits him to serve the same, or if there is no
law
in the United States of America prohibiting such service and the
United States of American authorities have not interposed any
objection thereto;
3.2.3
who is an Attorney, Lawyer, Notary Public or other legal
practitioner who is under the law of the United States of America
authorised
to serve process of court or documents;
3.3
granting such other directions as to service of the
Application as this
Honourable
Court might deem meet;
4.
that UMD, UCS and PLAYBOY INTERNATIONAL INCORPORATED each be ordered
to file a Notice of Intention to Oppose the Action within
thirty (30)
days of the service thereof upon it, if any;
5.
that the costs of this application be costs in the cause of the
Action.
[9]
The applicants then launched the present application for the
reconsideration and setting aside of this order on an urgent basis
which was opposed and argued before me on 18 February 2016.
[10]
Before dealing with the merits of the application, I deem it
expedient to deal with the provisions and purpose of Rule 6(12)(c).
Purpose
of Rule 6(12)(c)
[11]
Rule 6(12)(c) permits a party against whom an order was granted in
their absence in an urgent application, to set the matter
down by
notice for reconsideration by the court.
[12]
The dominant purpose of Rule 6(12)(c) is to afford an aggrieved party
a mechanism to redress imbalances in, and injustices
and oppression
flowing from, an order being granted in such circumstances.
[1]
In any event, it is not disputed between the parties that even in
terms of the common law, a party has a right to make an
application
for the setting aside of an order for attachment to found or confirm
jurisdiction, which the court granted on an
ex
parte
basis against such party
[2]
.
The
Contentions of the Parties
[13]
The applicants contend that the granting of the order by Balton J on
22 December 2015 was wrong in law for three fundamental
reasons.
Firstly, South African law does not apply to disputes arising between
the parties from the Distribution Agreement
as clause 18(g) of
the Distribution Agreement, which was annexed to the respondents’
founding papers in their urgent application,
ousts the South African
courts’ jurisdiction. Secondly, the relief sought in the
intended action is not of a kind in
respect of which an order for
attachment to found or confirm jurisdiction can be sought.
Thirdly, the “property”
which has been attached is not
susceptible to an attachment order as this “property” is
merely personal contractual
rights and do not constitute rights to or
in property where execution can be levied in satisfaction of a
judgment. The applicants
further contend that the order is overly
broad and unreasonable and if enforced will have the effect of
preventing the applicants
from conducting business in South Africa.
[14]
Counsel for the applicants Mr
K W Luderitz
SC in oral argument
contended that the respondents had not disclosed to the court when
the urgent
ex parte
application was sought before Balton J,
that clause 18(g) of the agreement entered into between the parties
ousted the jurisdiction
of this court, and that litigation between
the parties is already proceeding in the Californian courts. Summons
was issued out
of the Californian court in September 2015 and that
the matter has been transferred to the Federal Supreme Court. He
argued on
that basis alone the order should be set aside.
[15]
The respondents, in a “provisional“ answering affidavit
which is a partial reply to the allegations in the founding
affidavit, have raised points regarding the lack of urgency of
the present application and the lack of authority filed in
the notice
in terms of Rule 7(1). In doing so, the respondents have not
seriously contested the applicants’ assertions
that there is no
basis in law for the order to stand except to contend that clause
18(g) of the distribution agreement does not
oust the jurisdiction of
the South African courts.
[16]
Counsel for the respondents Mr
R B G Choudree
SC contended
that all the facts were disclosed to the Judge at the time the
ex
parte
application was launched. Further, that the agreement
was part of the papers that were before Balton J when the order was
granted. At the time the initial application was launched, the
respondents were not aware that summons had been issued out
of the
California Court sometime in September 2015.
[17]
Mr
Choudree
argued that the applicants’ assertion that
the South African court’s jurisdiction is ousted by clause
18(g) of the
distribution agreement was not pleaded by the applicants
in their founding affidavit and therefore it is not competent for
them
to make such submissions in their heads of argument.
Further that clause 18(g) at most might have the effect of requiring
this court to apply Californian law.
[18]
Mr
Luderitz
contended that the respondents had the duty to
draw the Judge’s attention to clause 18(g) of the agreement
when they initially
sought the attachment order. Further, there
is no mention in the respondents’ founding affidavit that at
most clause
18(g) had the effect of only requiring the South African
courts to apply Californian law. Moreover, it was the duty of
the
respondents at the
ex parte
application to disclose this
to the Judge who dealt with the matter and granted the order.
[19]
The Distribution Agreement that was attached to the founding
affidavit of Prasanth Seevnarayan, the manager of both the
respondents,
in the
ex parte
application is a lengthy document
comprising 17 pages. It sets out the terms and conditions of
both parties. For the
purpose of this judgment there is no need
for its incorporation in its entirety as the only contentious clause
is found in clause
18(g).
[20]
Clause 18(g) of the agreement is titled ‘the governing law and
consent to the personal jurisdiction’. The
clause
stipulates that:
“
The
agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of California and that
the
distributors have agreed to submit to the jurisdiction of courts
located in Los Angeles County, California, to the venue therein
and
waives personal service of process upon the distributor.”
A
careful analysis of this Clause clearly demonstrates that the
respondents consented to the jurisdiction of the courts located
in
California.
Non-Disclosure
[21]
In an
ex
parte
application for interim relief the applicant must disclose all
material facts, which could influence the court to grant or refuse
the relief sought. Failure to comply with this rule can have
serious consequences. The utmost good faith must be shown by
litigants making
ex
parte
applications in placing material facts before the court. If an
order has been granted upon an
ex
parte
application and it appears that material facts have been kept back,
whether willfully and
mala
fide
or negligently, which might have influenced the decision of the court
whether to make an order or not, the court has a discretion
to set
the order aside with costs on the ground of non-disclosure.
[3]
[22]
The urgent court sometimes has to decide these matters on the basis
of commercial urgency, being deprived of the benefit and
advantages
of argument from the party against whom the order is sought.
Had the applicants been given an opportunity to answer
the
allegations in the respondents’ founding papers, the Judge
would have been better placed to arrive at a decision au fait
with
all the facts. It is doubtful whether the Judge would have made
an order in the terms that she did.
[23]
In the present matter, it was incumbent on the respondents to
disclose to Balton J that litigation proceedings had already
been
instituted in the Californian Court of the United States of America
between the parties, albeit of a somewhat different nature.
It
should also have been brought to the attention of the Judge that the
agreement that the respondents relied upon in all likelihood
provides
for Californian law to apply and oust the jurisdiction of the South
African Courts. They should also have included
in their
founding papers an expert’s report that Californian law is no
different from South African law. These facts
are material.
[4]
Why this was not disclosed has not been explained. In my view
the respondents were duty bound to have disclosed this.
In the
circumstances I believe that on this basis alone the order should be
set aside.
[24]
In the event that I am wrong, it is necessary for the purposes of
this judgment to examine the order that was granted and the
founding
papers of the respondents in that application to determine whether
the court order should be set aside or even amended.
[25]
The purpose of attachment
ad
fundandam
is to create jurisdiction where no other ground of jurisdiction
arises at all and to provide an asset in respect of which execution
can be levied in the event of judgment being granted in favour of the
plaintiff
incola
.
The purpose of an attachment of property
ad
confirmandam jurisdictionem
is to confirm a jurisdiction which already exists and furnish an
asset in respect of which execution can be levied in the event
of
judgment in favour of the plaintiff
[5]
.
[26]
In order to determine if an attachment to found or confirm
jurisdiction should be granted, regard must not only be had to the
nature of the property sought to be attached, but also the type of
judgment the
incola
intends to pursue against the
peregrinus
.
[27]
Historically, applications for attachment to confirm jurisdiction for
claims for the enforcement of an agreement which was
not a claim
sounding in money were not granted. Our law does recognize such
attachment in cases of claims involving property
or real rights to
property, including incorporeals. However, it does not have
application to matrimonial causes or actions
in
personam
which do not have a monetary or property component.
[6]
[28]
The relief to be pursued by the respondents in the action and for
which the order for service by way of edictal citation was
sought,
amounts to specific performance in terms of the distribution
agreement. An order to this effect is not executable
in
nature. It has no monetary component and is declaratory in
nature.
[29]
The order provides for the attachment of the applicants’ rights
to exclusively use the Playboy trademark and the rabbit
head design
in South Africa and to exclusively advertise, market, offer, sell and
distribute the items referred to directly or
indirectly.
[30]
However, a conspectus of all the evidence including the affidavits,
the agreement and other documents attached to the papers
shows that
the first applicant is
not
the proprietors of the trademarks
of Playboy and the rabbit head design. It is the third
respondent in the main action, Playboy
Enterprises International Inc
(Playboy International) an American company, that is the proprietor
therefor in
inter alia
South Africa.
[31]
The applicants’ rights to use the trademark are thus personal
and contractual in nature. The first applicant has an agreement
with
Playboy International to exclusively use the trademark in connection
with the design, manufacture, advertising, provision,
sale and
distribution by the first applicant of condoms in
inter alia
South Africa. The second applicant was granted the exclusive right to
use the trademark in connection with the design, advertising,
distribution and sale of non-medical personal lubricants, smoke-free
and tobacco-free electronic cigarettes and cigars and mint
products
in
inter alia
South Africa.
[32]
The parties concluded a written agreement in terms of which the
applicants granted to the respondents
inter alia
distribution
rights in respect of the products aforementioned (the distribution
agreement).
[33]
The applicants cancelled the distribution agreement on 22 September
2015 contending that the respondents breached the terms
of the
distribution agreement. This contention is disputed by the
respondents. In the application for the attachment
order, the
respondents alleged that the applicants’ termination of the
distribution agreement constituted a repudiation of
the agreement,
which repudiation was rejected.
[34]
An order made against the applicants, who reside in California, to
render specific performance in terms of the distribution
agreements,
will be ineffective and is not rendered effective by attaching any
rights of the applicants. Furthermore, the
property to be
attached must have some saleable value.
[7]
[35]
As stated the applicants are not the proprietor in South Africa of
the trademarks, but merely hold contractual rights to use
the
trademarks. Moreover, these contractual rights have no saleable
value and cannot be sold to a third party without the
consent of
Playboy International.
[36]
The nature of the rights which have been authorised for attachment,
are not of the kind in regard to which attachment to found
or confirm
jurisdiction can be granted. The attachment order that was
granted on an
ex parte
basis is provisional in nature only.
The applicant has shown good cause why the order should be set aside.
[37]
In reconsidering an order in terms of Rule 6(12)(c) this court has a
wide discretion and may take into consideration factors
such as the
imbalance, injustice and oppression resulting from an order granted
on an urgent basis in the absence of a party.
[38]
The effect of the order granted is not just the attachment of rights
of the applicants to or in
property,
but a wide prohibition on
the applicants’ ability to do business in South Africa. Given
the wide ambit of the order, coupled
to the fact that the provisions
of clause 18(g) to the distribution agreement was not brought to the
Judge’s attention when
the matter was brought before her on an
ex parte
basis, I am of the view that on reconsideration of
all the facts the order should be set aside, otherwise it will
clearly amount
to an injustice. It would not only cause undue
oppression for the applicants but would condone the behavior of the
respondents
in not disclosing in a frank and full manner which is
required when applications are brought on an
ex parte
basis.
[39]
This view is strengthened by the fact that the respondents themselves
have indicated by notice that they intend to amend the
Intendit.
To my mind this is an attempt to bolster their initial application in
order to prove that the cause of action they
now intend to pursue
will be one sounding in money or property which is required for
attachment to confirm jurisdiction.
[40]
In regard to the points referred to by the respondents regarding lack
of authority and lack of urgency, in the present application
the
deponent to the founding affidavit in the
ex parte
application, Judy Kawal, has been approved by one Jimmy Esebag CEO
and Chairman of both the applicants with authority to depose
to the
affidavit and to instruct attorneys to act on behalf of the
applicants. Judy Kawal is the Vice President of the business
and
Legal Officer of both the applicants.
[41]
The argument by the respondents is nothing more than an attempt to
cloud the issues. Firstly, Kawal has been appointed
by the
Chairman of both applicants, she in turn has instructed the firm of
attorneys Adams & Adams to act on behalf of the
applicants.
Proof of such power of authority and power of attorney is attached to
the applicants’ papers. This
point concerning lack of
authority cannot be sustained especially in the light of the fact
that we are dealing with proceedings
in terms of Rule 6(12)(c), and
the fact that her evidence in this respect stands uncontradicted.
[42]
The same applies in respect of the argument of lack of urgency.
As stated, the purpose of Rule 6(12)(c) is to allow parties
who were
not present when an urgent
ex parte
order is made, to approach
the court for reconsideration of the order and place facts before the
court. To permit the respondents
to themselves now claim lack of
urgency on the part of the applicants would undermine
audi alterem
partem
which Rule 6(12)(c) gives effect to.
[43]
I must thank counsel on both sides in this matter. Due to the
urgent nature of the application I have borrowed substantially
from
their heads of argument and the authorities they have referred me to
for the preparation of this judgment in the short period
of time in
which I have prepare it.
[44]
Having considered the aforegoing, I am of the view that the urgent
interim relief granted by Balton J on 22 December 2015 must
be
reconsidered and set aside in its entirety.
Costs
[45]
Both parties have complained about the behavior of their opponents
and have sought punitive cost orders in the notice of motion
and
during oral argument by counsel in court.
[46]
The application to found or confirm jurisdiction was ill-considered.
There was no basis for the respondents to have argued
that it was
competent for this court to order the attachment given the type of
relief the respondents intend to pursue against
applicants or the
type of rights which are the subject matter of the attachment.
[47]
Furthermore, the conduct of the respondents needs to be examined in
this regard. After the applicants had launched this
application, which they were entitled to do in terms of Rule
6(12)(c), the respondents caused various notices to be served on the
applicants, such as a notice in terms of Rule 7 as aforementioned
and a Rule 47(1) notice calling upon the applicants to
provide
security for costs in respect of this application.
[48]
In the circumstances, the applicants should not carry the burden of
paying for the costs of legal proceedings to set aside
the order that
was granted in such circumstances. The respondents’
conduct in failing to make a full and frank disclosure
at the outset
as well as their obstructive conduct by raising points
in limine
such as the lack of urgency and filing notices in terms of Rule 7 and
Rule 47(1) justifies the punitive cost order being
sought by
the applicants.
[49]
Accordingly I make the following order.
1.
The order of this court, dated 22 December 2015 under case number
13398/2015 be set aside.
2.
That the respondents pay the costs of this application including the
costs of two counsel on the scale of attorney and client.
MARKS
AJ
Date
of hearing : 18
th
February 2016
Date
of judgment :4
th
March 2016
Counsel
for the Applicants : K W Luderitz SC with H P Pretorius (instructed
by Adams & Adams
Counsel
for the Respondents : R B G Choudree SC with M Manikam (instructed by
[1]
National
Director of Public Prosecutions v Braun and Another
2007
(1) SA 189
(C) para 23; see also
Industrial
Development Corporation of South Africa v Sooliman and Others
2013 (5) SA 603
(GSJ) para 10;
Basil
Read (Pty) Ltd v Nedbank Ltd and Another
2012 (6) SA 514
(GSJ) para 37.
[2]
Republica
Popular de Mocambique v Main Spares Acc (Pty) Ltd
1986 (4) SA 927
(W);
Elseint
(Pty Ltd v Mobile Medical Scanners (Pty) Ltd
1986 940 SA 552 (W)
[3]
Schlesinger
v Schlesinger
1979
(4) SA 342 (W)
[4]
National
Director of Public Prosecutions v Basson
2001 (2) SACR 712
(SCA). The court accepted the principles
enunciated in
Schlesinger
v Schlesinger
and
appeared to imply the facts not disclosed must be material facts.
[5]
MT
Tigr : Owners of the MT
Tigr
and
Another v Transnet Ltd t/a Portnet (Bouygues Offshore SA and Another
Intervening)
1998
(3) SA 861
(SCA) 870 B – D;
Simon
NO v Air Operation of Europe AB and Others
[1998] ZASCA 79
;
1999
(1) SA 217
(SCA) 230 D - E
[6]
Simon
NO v Air Operation of Europe AB and Others
[1998] ZASCA 79
;
1999
(1) SA 217
(SCA);
Di
Bona v Di Bona
1993
(2) SA 635
[7]
Thermo
Radiant Oven Sales (Pty) Ltd v Nelspruit Bakeries (Pty) Ltd
1969
(2) SA 295
(A)