About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: North Gauteng High Court, Pretoria
SAFLII
>>
Databases
>>
South Africa: North Gauteng High Court, Pretoria
>>
2016
>>
[2016] ZAGPPHC 928
|
|
Enjoy Beauty (Pty) Ltd v Pretovia and Smit Beauty Salon CC and Others (67971/2016, 67970/2016) [2016] ZAGPPHC 928 (28 September 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION,
PRETORIA
REPORTABLE:
YES
OF
INTEREST TO OTHER JUDGES: YES
REVISED
DATE:
28/9/2016
Case
number: 67971/2016
Case
number: 67970/2016
In
the matter between:
ENJOY
BEAUTY (PTY)
LTD
Applicant
And
PETROVIA
AND
SMIT
BEAUTY
SALON
CC
First Respondent
KAREL
JACOBUS
SMIT
Second Respondent
ANGELINA
PETROVIA-SMIT
Third Respondent
NEUKIRCHER
AJ
1]
Two urgent applications served before me between the same parties and
the relief sought by the applicant against the three respondents
in
both matters is the same and it is for that reason that this judgment
will read as it does. I will separate the two matters
where
necessary, but for all intents and purposes the argument that was
presented was a singular argument save for one issue which
I will
deal with in the judgment. At the outset, Ms Kilmartin informed me
that the suit has been withdrawn against the second respondent
and
that the relief sought in prayers 2 and 3 are abandoned in the matter
under case number 67971/2016 and prayer 2 is abandoned
in the matter
under case number 67970/2016. This relief pertains to an order for
specific performance and will be relevant later.
What the applicant
does ask is for interim relief pending the final determination of
this application or an action to be instituted
within 30 court days
as follows:
1.1
the enforcement of its restraint of trade clause set out in the
franchise agreement until 14 August 2017;
1.2
an interdict preventing the first and third respondents from
infringing the PERFECT 10 trademarks.
THE
FACTS
2]
lmbalie Beauty Limited is a company which is listed on the
Johannesburg Stock Exchange. It is the holding company of Enjoy
Beauty
(Pty)Ltd (the applicant) as well as a number of other
companies including Dream Nails Beauty (Pty)Ltd, Placecol Fresh
Beauty (Pty)
Ltd and Placecol Skin Care (Pty)Ltd.
3]
The lmbalie Group renders a comprehensive range of health and beauty
services through franchised and company owned beauty salons
operating
under the names and trademarks such as Dream Nails Beauty, Placecol,
World of Beauty and PERFECT 10 which names and trademarks
belong to
various companies within the lmbalie Group. The group also sells and
distributes a range of beauty products through these
franchise
operations and large retailers nationwide.
4]
According to the applicant, the PERFECT 10 franchise, which is the
one under discussion in these matters, renders nail and beauty
services and provides beauty products. These services and products
are defined in the operations manual and software managements
system
which the franchisees are required to use and this incorporates
details of the recommended service and product charges.
5]
The products and services rendered by the PERFECT 10 franchise
include skincare products and services which one may typically
find
in beauty salons: facials, manicures, body and skin treatments,
waxing etc. PERFECT 10 also had what one may term an exclusive
brand
"look" which is the use of the red and grey colours, and
the trade marks, type face, store lay-out and signage
(to name but
some) and then of course with this was the use of the Skinderm range
of products and then there was the development
of what is termed the
"HeadStart salon management system" which is the new point
of sales system which the applicant
required all its franchisees to
start using during approximately 2012.
6]
On
18
May
2006
the
second
and
third
respondents,
as
members
of
the
first
respondent
signed
a franchise
agreement.
The
agreement
was,
in essence,
to operate
a franchise
of
PERFECT
10 from the
Woodlands
Boulevard,
Pretoria.
[1]
This agreement sets out the duties and obligations of both the
franchisor and the franchisee
quite
clearly.
And
purporting
to
be
part of that franchise
agreement
was a "Deed of Suretyship" which is signed by the second
and third respondents on 1
May 2006
[2]
.
I
will return
to this issue in due course.
7]
It would appear that the relationship between the parties was a
happy one until the occurrence of two events:
7.1
the roll out of the HeadStart operating system in 2012 which became a
contentious issue
during approximately August 2016; and
7.2
the insistence of the applicant that its franchisees sell only the
SKINDERM range of products
at the end of 2015.
8]
Now this was an issue because of the fact that the first respondent
had been operating its franchise since inception by marketing
and
offering its customers various other skin products such as Nimue,
Guiot, Environ and Bio Sculpture (the latter being a nail
product).
Furthermore, the point of sale system used was known as the "Salon
Iris" system which accommodated all these
products and was well
known to the respondents and their staff and which, according to
third respondent, worked well. It would
appear that the intention of
the applicant was, at the end of 2015, to withdraw all other brands
of product from its franchisees
stores other than the SKINDERM range
which, as Mr Arnoldi put it during argument, would be "commercial
suicide" for his
client.
9]
However, what was even more onerous and contentious was the issue
surrounding the implementation of the HeadStart operating system.
In
2012 when this issue was first raised, the third respondent says that
she pointed out the shortcomings of that system to one
Ms Colyn of
the applicant. These shortcomings ranged from the cost of the system
to issues such as: it had no staff scheduler,
it could not program
treatment durations per therapist in order to schedule appointments,
it could not indicate treatment rooms
to allocate appointments, it
could not convert quotes and price enquiries into actual ticket
invoices. Accordingly, the developer
of the system, a certain Mr
Koekemoer, undertook to effect certain critical changes to the system
within 2 weeks. This is significant
as it was during this time that
the Menlyn agreement was signed and it was based upon the promises
and undertakings made by Mr
Koekemoer that the third respondent
accepted that the shortcomings in the HeadStart system would be
addressed. This was important
as paragraph 10.29 of the Menlyn
agreement entitles the applicant to insist on the respondents
switching to the HeadStart system
at the Menlyn branch.
10]
According to the respondent, the advantage of the HeadStart system
was that the applicant could control the franchisee's database
and
monitor their businesses on an ongoing basis. Interestingly enough
this is not denied by the applicant.
11]
In 2012 the applicant then allowed the respondents to continue using
the Salon Iris system for another 4 years until 2016 when
the
applicant began insisting that the HeadStart system be implemented.
12]
As Mr Arnoldi put it during his argument, the applicant was quite
willing to allow the respondents to run 2 point of sale systems
(ie
the Salon Iris system and the HeadStart system) but that this would
create chaos for his clients and was clearly unsustainable
and
counter-productive for the respondent's business. And this, he
argued, was a clear repudiation of the franchise agreement.
His
argument is also that there is no clause in the Woodlands franchise
agreement which allows the applicant to insist that the
respondent
change to the HeadStart point of sale system (unlike the Menlyn
agreement where clause 10.29 provides for this change).
The argument
goes further and runs to the issue of the SKINDERM range of products:
likewise, he argues, the applicant cannot insist
that the respondent
discontinue the use of all other brands of products and market only
the SKINDERM range. This, for the respondents
would be unsustainable
for their business and inasmuch as is affects their business, it is a
repudiation of the agreement between
the parties.
13]
Ms Kilmartin for the applicant argued that the HeadStart system was a
superior operating system which was implemented during
2012. Any
"bugs" that were there had been ironed out by Mr Koekemoer
and she referred to his affidavit which is attached
to the
application. In this affidavit Mr Koekemoer states that
".all
matters
referred
to
have
been
addressed and
form
now
integral
features
of HeadStart".
Whilst this is interesting, in my view it does not take the
matter any further as Mr Koekemoer does not explain how he addressed
the issues raised by the third respondent nor how he has facilitated
the shortcomings listed by her. It would not be necessary
to explain
the code he used to program this facility but how the push of the
button (so to speak) would bring up one menu and so
on. In other
words, in "plain speak" there is no explanation on when and
how he finalised these improvements and I thus
do not find his
affidavit particularly helpful.
THE
REPUDIATION
14]
The issue of which party actually repudiated the franchise agreement
is, of course, in dispute. The applicant alleges that the
respondents
repudiated the agreements by refusing to implement the HeadStart
system and by refusing to roll-out and exclusively
market the
SKINDERM range of products; the respondents allege that the
applicant repudiated the franchise agreements by insisting
that they
implement the HeadStart system and exclusively market the SKINDERM
range of products. Whatever the situation, it is not
in dispute that
the respondents sent a letter to the applicants on 15 August 2016 in
which they state that they are cancelling
the franchise agreements.
Both Mr Arnoldi and Ms Kilmartin are
ad idem
that for purposes
of the interim interdict, it is not necessary for me to decide the
issue of the repudiation - it is sufficient
for me to accept that
there has been a cancellation of the franchise agreement and it is
from this point of view that I view the
facts before me.
THE
INTERDICT
AND
THE TRADE
MARK
INFRINGMENT
15]
It is Ms Kilmartin's submission that, given the cancellation of the
franchise agreement, the respondents are no longer allowed
to utilize
the PERFECT 10 trade mark or branding anywhere inside or outside of
either the Woodlands or Menlyn stores. She pointed
out that, despite
the fact that the letter of 15 August 2016 cancels the agreement, and
the letter of 16 August 2016 states that
the respondents will
".
.
.shortly
take
the
necessary
steps
to remove
all
reference
to Perfect
10,
including
the removal
of signage,
in
accordance
with the
cancellation
of the Franchise Agreement",
only the signage outside the Woodlands and Menlyn Stores were
removed, and this after the application was launched, and thus the
interdict sought in the Notice of Motion is necessary to protect the
proprietorship of its trade mark as it appears that the respondents
are still trading using the Perfect 10 branding.
16]
Mr Arnoldi's argument is the following: the respondents started
taking down the applicant's signage but were advised to stop
doing so
upon receipt of this application. The reason for this, he argues, is
quite clear - if one has regard the specific performance
relief which
was originally sought, it would have meant that had the applicant
persisted with and been successful with that relief,
they would have
been entitled to receive a store "in tact" (as he put it).
It was only at the hearing of the matter that
the relief was
abandoned which meant that his clients would not be in contempt were
such an order to be granted and now his clients
could continue
removing all branding and signage belonging to the applicant. He
argues that thus there can be no possibility of
the respondents
infringing on the applicant's trade marks at this stage.
17]
The argument is a cogent one. The applicant originally sought relief
in the alternative. On the one hand it sought relief which
would have
seen the store run in tact of its branding and signage and on the
other it sought relief, in the alternative, preventing
the
respondents from using the branding and signage. It was only upon the
election of one of the alternatives (or if persisted
with upon
judgment) that the respondent would know where it stood. Thus the
position that the respondent found itself in was actually
of the
applicant's making - had it communicated its election sooner,
perhaps this situation could
have been
avoided.
18]
It is clear from the respondents conduct that they had not intended
to infringe on the applicant's trade mark and I thus find
that on the
issue of the trade mark infringement the application is premature and
the applicant has failed to make out a case,
at this stage, for the
relief sought.
THE
RESTRAINT OF TRADE
19]
The argument on the issue of the restraint of trade is more complex
and holistic and hinges on the issue of the goodwill that
ensures to
the PERFECT 10 brand and the Woodlands and Menlyn stores as a result.
20]
Whilst one may think that the PERFECT 10 brand is simply about the
logos and branding, Ms Kilmartin has submitted that it goes
beyond
that. She submits that we are also dealing with products and services
which are provided and sold in the PERFECT 10 stores.
She submitted
that the customers are attracted to the Woodlands and Menlyn stores
because of the branding and once inside they
are exposed to the
products and services. She submitted that even were the PERFECT 10
branding and logos to be removed, the customers
would still remember
where the PERFECT 10 stores were and they may even remember the
therapist who provided their treatment and
seek them out there again.
Thus, it is about the goodwill of the location which is provided by
the PERFECT 10 brand.
21]
The respondents allege that they have no intention of infringing or
confusing or deceiving customers which is exactly why they
have
undertaken to remove all branding, logos, promotional material and
other identifiable marks of the applicant and return it
to the
applicant.
22]
The applicant however, alleges that this will not go far enough to
protect its goodwill, It alleges that the restraint clause
must be
applied as:
22.1
the applicant has established a substantial reputation and goodwill
in the unique
trading style of the franchised businesses;
22.2
the respondents have had access to and been privy to the applicant's
business systems;
22.3
the respondents have acquired knowledge regarding the specific needs
and requirements
of the customer;
22.4
the respondents have had access to the applicant's trade secrets and
confidential
information regarding its products, services and
suppliers.
23]
The particular restraint clause provides for a restraint for a period
of 1 year upon termination of the agreement anywhere in
the territory
which is described as follows:
23.1
in the Woodlands agreement it
"...means
the
area
of
Woodlands
Boulevard,
Woodhills, Pretoria plus
a
5km
radius and the first refusal for: Menlyn Shopping CENTRE, Brooklyn
Mall and Irene Mall."
23.2
in the Menlyn agreement it
"...means the areas
of
Menlyn Park
Shopping
Centre, cnr
Atterbury
Road
and Lois Ave
and
a
radius
of
5
kilometres of this shopping
centre or as indicated on the attached map, If applicable."
24]
There was no argument that the restraint was not reasonable and
correctly so. The attack was as against the suretyship signed
by the
third respondent. The argument for the applicant was that clause 3 of
the suretyship bound the third respondent to the provisions
of the
restraint. This clause reads as follows:
"3.
The SURETIES
hereby
acknowledge
and agree that any undertaking given by or obligation placed
upon the FRANCHISEE in the franchise
agreement
to be entered into simultaneously
with the
signing of this deed of suretyship shall be equally binding upon and
enforceable against each
SURETY."
25]
Mr
Arnoldi
argues
that,
whatever
the
provision,
the
suretyship
is
void
as
it
was not
entered
into
"simultaneously"
with
the
franchise
agreement
-
it
was
signed
prior to the
franchise
agreement
and
it
is thus
unenforceable.
I would
agree
with this.
The
main
Woodlands
franchise
agreement
was
signed
by
the
second and
third
respondents
on 18
May
2006 and
by
the
applicant's
representative
of 19 May 2006.
The
suretyship
however
was
signed
on
1 May 2006.
In any
event were
one to read the
provisions
of the
suretyship
carefully
[3]
,
it is quite clear that the intention of the document
is to
provide for the ongoing indemnification by the second
and
third
respondents
of
the
first
respondents monetary
obligations
towards the franchisor
in respect
of the franchise
agreement.
In my view
to read the
provisions
of
the
suretyship
in
isolation
of
each
other
is
not
an
argument
which
holds
water.
I am
also
of
the
view
that
had
it
been
the
intention
of
the
agreement
to hold
the second
and third respondents
to the
restraint,
the
franchise
agreement
itself
should
have
made
better
provision
for
it
-
it
did
not.
Whatever the situation, it is my view that the third respondent is
not bound to the provisions
of
the
restraint
clauses
in
either
the
Woodlands
agreement
or
the Menlyn
agreement.
26]
The question now is: what of the first respondent? It is trite that
it is lawful for a business franchisor with a protectable
interest to
provide for a restraint of trade in a franchise agreement that the
franchisee will not engage in a similar business
within a specified
area for a certain period of time.
27]
The legal principles relating to the enforcement of the restraint of
trade agreements are well established and can be summarised
as
follows:
27.1
restraint
of
trade
agreements
are
enforceable
where
an
applicant's protectable
interests
are
infringed
by
an
unlawful
act,
unless
they
are
contrary
to
public
policy.
The
onus to
prove the
latter
lies with
the
party who
asserts that the agreement offends against public policy
[4]
;
27.2
in order to determine the reasonableness of a restraint of trade
agreement the court
must consider the following:
(i)
does the applicant have an interest that deserves protection after
termination of the agreement?
(ii)
if so, is that interest threatened by the respondent?
(iii)
does the applicant's interest weigh qualitatively and quantitatively
against the interests of
the respondent to be economically active and
productive?
(iv)
are there
other
aspects
of
public
policy,
having
nothing to
do with the
relationship between the parties, that require the restraint to be
enforced?
[5]
(v)
does
the
restraint of
trade
agreement
go
further
than what
is
reasonably required to protect the interests of the applicant?
[6]
27.3
Restraint
of trade agreements may be declared to be partially enforceable or
unenforceable.
[7]
28]
There can be absolutely no doubt that the present restraint as it
stands is reasonable both in time frame and geographical extent
and
so the question is: what is the protectable interest? According to Ms
Kilmartin it is the applicant's goodwill built up over
the years in
respect of the PERFECT 10 brand.
29]
The franchise agreement itself actually defines the goodwill and
states the following:
"2.
7
The GOODWILL: means
the
goodwill
arising out of the
use of the BUSINESS SYSTEM
and
the INTELLECTUAL PROPERTY
by
the
FRANCHISOR and/or its franchisees,
including the FRANCHISEE"
30]
The "business system" is defined as
"the system
operating
the
nail
studio
and beauty
salon business,
designed,
compiled and finalised by the FRANCHISOR an
essentially
reflected
in
the
OPERAT!ONS
MANUAL
and
includes
any
improvements or variations made thereto by the FANSHISOR from
time to time."
31]
The "intellectual property" is defined as
"
including, without limitation:
2.
8.
1
The
KNOW-HOW;
2.8.2
The
COPYRIGHT;
2.8.3
The
GOODWILL;
2.
8.
4
The TRADE
DRESS;
2.
8.5
The TRADE MARKS; and
2.
8.
6 The TRADE SECRETS
.
.."
32]
The "KNOW HOW" is defined as
"includes
without
limitation,
all
confidential, technical, and commercial information relating
to
the
operation of the FRANCHISE SYSTEM
and
BUSINESS SYSTEM
existing
from
time
to
time,
including, without
limitation, information contained
in
the
OPERATIONS MANUAL or other
documents, together with unrecorded information known to the
FRANCHISOR
and to individuals
who are
office bearers,
employees,
partners,
directors, members or shareholders of the FRANCHISOR, as well as
information known to franchisees of the FRANCHISE SYSTEM
"
33]
Given the aforementioned
it brings
to mind the words of Wunsh J
[8]
:
''The
know-how
and
confidential
information
which
are
described
in
the
agreement
and
the
founding
affidavit
are
particularly
unimpressive. The information
and
advice offered and given by the applicant
seem
to be geared to assist
an
inexperienced
business
person
to
set
up
a
business
and
to
manage
and market
it.
There
is no list
of
any
special
techniques
or
methods
of
printing and copying or of any unique marketing methods"
[9]
and
"...none
of the
information
which
the applicant
undertook
to
and did convey
to
the
first
respondent
is
worthy of the protection
of
the law
.
"
[10]
34]
Applied to this matter it means that the operations manual and
operating system was unique to the applicant as was their own
specific product, branding and logos and everything that constituted
their trade marks. Absent of this, there was nothing unique
about
their services that they allege are offered by their franchisees ie
the specific beauty services such as the nail services,
waxes, skin
and body treatments etc. In fact, if one recollects the answering
affidavit, the marketing of other products than the
exclusivity of
the SKINDERM range was one of the main reasons that this relationship
came to an abrupt end.
35]
Once the applicant has taken back both the Salon Iris and HeadStart
operating systems, removed the SKINDERM products and stripped
the
respondents of all identifying features of the PERFECT 10 branding,
the question is what is left?
36]
And the question is whether or not the applicant must be protected
against competing business from the respondents? In this
specific
matter it is not in dispute that the respondents, in addition to
selling the applicant's products, also sold a range of
other
products. The applicant however, placed no information before me
pertaining to the sales figures of its own products as opposed
to
products belonging to other brands marketed and sold by the
respondents.
Similarly,
no information was placed before me that the treatments offered by
the PERFECT 10 franchises are unique in any way or
that any specific
trade secrets pertain to those treatments. Had the applicant done so,
it may have been clearer what the protectable
interest was that the
restraint sought to cover. Had the respondents exclusively sold,
marketed and used the applicant's products,
this may also have cast a
different light on the matter sufficient to warrant a different
outcome.
37]
It
must
be
said
that
a
restraint
will
not
be
enforced
when
it
merely
serves
to prevent
competition
[11]
and on the
facts placed before me I cannot find that there is a
sufficient
protectable
interest to
warrant
the
restraint
being
enforced.
I am thus
of the view that in
both
the
Woodlands
and
the Menlyn
matters, the applicant has failed to make out a case to warrant an
interim order.
38]
Thus the order that I make is the following:
38.1
In case number 67970/2016 the application is dismissed with costs
which costs are
to include the costs consequent upon the employment
of senior counsel.
38.2
In case number 67971/2016 the application is dismissed with costs
which costs are
to include the costs consequent upon the employment
of senior counsel.
______________________
B
NEUKIRCHER·J
28
September
2016
[1]
On 27 July 2012 the Menlyn agreement was signed.
[2]
The franchise agreement was renewed on 7 March 2016 on exactly the
same terms and conditions and
the 2006
agreement. Interestingly enough the suretyship attached to the
Menlyn agreement was unsigned.
[3]
Whether regarding Menlyn or Woodlands
[4]
Magna Alloys and Research (Pty) Lyd v Ellis
1
984
(4) SA 784 (A)
[5]
Basson v Chilwans and others
1
993(3)
SA 792 (A)
[6]
Reddy v Siemans Telecommunications (Pty)Ltd 2007 (2) SA 486 (SCA)
[7]
Aranda Textile Milla (Pty)Ltd v Hurn [2000] s All SA 183 (E )
[8]
Kwik Kopy (SA) (Pty) Ltd v Van Haarlem and Another 1999 (1) SA 472
(W)
[9]
At pg
486E-F/G
[10]
At p487H-J
[11]
Pam Golding Franchise Services (Pty)Ltd v Douglas
1
996
(4) SA 12
1
7
(D)