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[2013] ZAKZDHC 17
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Dula Investments (Pty) Ltd v Woolworths (Pty) Ltd (1994/2013) [2013] ZAKZDHC 17 (8 May 2013)

IN THE HIGH COURT OF
SOUTH AFRICA
KWAZULU-NATAL HIGH COURT,
DURBAN
CASE NO. 1994/2013
In the matter between:
DULA
INVESTMENTS (PTY) LTD
....................................................
Applicant
and
WOOLWORTHS
(PTY) LTD
.........................................................
Respondent
JUDGMENT
HADE
BEER, A J
[1]
The Respondent In this matter is Woolworths (Pty) Ltd (“Woolworths”
or “the Respondent”). Woolworths
Is a well-known retailer
specialising in the food and clothing sectors of the market
throughout the Republic of South Africa. Woolworths
has positioned
itself as a supplier of quality goods and strives to provide and
maintain high quality standards of service and
retail quality
products through the Woolworths
brand,
[2]
The Applicant is Dula Investments (Pty) Ltd (“Dula” or
“the Applicant”). The sole member of the Applicant
is Mr
Haresh Ouderajh (“Ouderajh”). The Applicant is the
franchise holder of three franchised Woolworths stores in
KZN. Two of
the stores are situated on the KwaZulu-Natal North Coast at Ballito,
such stores being the Ballito Lifestyle Centre
Store (“the
Lifestyle Centre store”) and the Ballito Bay Mall Store (“the
Ballito Bay store”). The third
store is situated at Stanger
(Kwa Dukuza) (“the
Stanger
Store”). This application pertains only to the Stanger Store.
[3] The Applicant and the
Respondent concluded a written franchise agreement in relation to the
Stanger Store. The Stanger store
franchise agreement is comprehensive
and endures for a 10 year period (“the initial period”)
commencing on 1 March
2003 and terminating on 28 February 2013. The
dispute between the parties pertains to whether or not the Applicant
has acquired
the right to extend the Stanger store franchise
agreement for a further 5 year period from 1 March 2013 to 28
February 2018. In
this regard clause 7.2 of the franchise agreement
provides as follows:-
"7.2. The franchisee shall have
the right to extend this agreement for a period of 5 (five) years
reckoned from the effluxion
of the period in clause 7.1.2 (“the
initial period”), provided that the franchisee shall:
7.2.1. have given Woolworths written
notice of its intention to extend this agreement not less than 12
(twelve) months prior to
the effluxion of the initial period; and
7.2.2. not have committed any breach
of any of the provisions of this agreement at any time during the
initial period (regardless
of whether or not Woolworths shall have
given the franchisee notice to remedy such breach, whether under
clause 28 or otherwise).”
- (“the extension clause”).
[4]
For the purpose of this application, the Respondent accepts that the
Applicant gave timeous notice of its intention to extend
the
agreement in terms of clause 7.2.1 of the extension clause. What
remains in issue is the interpretation and implementation
of sub
clause 7.2.2 of the extension clause in the light of the background
and surrounding circumstances
1
and the history of the matter - that is to say. “the context”
or “factual matrix”.
APPLICATION FOR
REFERRAL TO ORAL EVIDENCE
[5] The papers in this
matter are voluminous running to 1287 pages. When the matter was
called Mr A K Kissoon-Singh SC, who appeared
for the Applicant
applied for the matter to be referred for the hearing of oral
evidence, alternatively, to trial on pleadings.
Ms Annandale SC, who
appeared on behalf of the Respondent, opposed the application. After
hearing argument I directed that the
application be argued on the
papers and my reasons for this ruling follow.
[6] Mr Kissoon-Singh SC
in support of the application for a referral submitted that oral
evidence was relevant in relation to the
various standards audits
conducted by the Respondent and to the Respondent's failure to notify
the Applicant timeously of any alleged
breaches of the agreement
thereby prejudicing the Applicant. He submitted further that there
were no objective standards against
which the Applicant's performance
could be measured and that oral evidence in this regard was
necessary. He furthermore submitted
that oral evidence was necessary
to deal with the Woolworths signage at the Stanger store and that
such evidence was both necessary
and relevant in relation to the duty
of good faith owed by the parties to the other both in terms of the
agreement and in terms
of MUbuntu".
[7]
The decision in this matter turns on the interpretation to be placed
on the extension clause in the context of the background

circumstances and the various alleged breaches of the agreement
relied on by the Respondent. The material facts are largely common

cause and, to the extent that they are not, oral evidence will not
take the matter any further. In any event, evidence of how the

Applicant interpreted the extension clause is inadmissible in that
interpretation is a matter for the court and not for the parties.
2
In the light of the aforegoing, the court directed that the matter be
argued on the papers.
BACKGROUND HISTORY OF
THE STANGER STORE
[8] Prior to the
conclusion of the franchise agreement, Resandri Investments CC was
the franchisee of the Stanger store. Resandri
Investments CC was
finally liquidated during 2002 and during the liquidation process,
Ouderajh expressed an interest in acquiring
the Stanger franchise.
Negotiations between the parties, culminated in the conclusion of the
franchise agreement on 26 March 2003.
Prior to the conclusion of the
franchise agreement, the Applicant submitted a business plan to the
Respondent. The business plan
was handed by Ouderajh to Mr Conelly,
the Respondent's regional manager and Mr
Antonio Enrico, the
Respondent's franchise manager at the time at a meeting in Cape Town.
[9] It is apparent that
the Applicant experienced difficulty in paying the Respondent’s
account from time to time - for example
on 17 February 2004 the
Respondent sent an e-mail to the Applicant recording receipt of R590
000,00 and stating that an amount
of R1 300 000,00 was 60 days
overdue for the Stanger store which opened in May 2003. On 20
February 2004 demand for payment was
made.
[10] On 18 March 2004 the
Lifestyle Centre store was opened by the Applicant and this store
forms the subject matter of an application
brought by the Respondent
in the Western Cape High Court under case number 25682/2011 to which
reference will later be made.
[11] Cash flow problems
persisted at the Stanger store, however, the Applicant paid the
arrears during July 2004.
[12] In the latter part
of 2005 Woolworths conducted a human resources and social compliance
audit in relation to all three of the
Applicant’s stores. The
report revealed a number of areas of non- compliance with labour
legislation and Woolworths operating
policy at the Stanger store
which the Applicant was requested to rectify. In a letter dated 10
October 2005 the Applicant, while
disputing certain of the breaches,
accused Woolworths of bad faith and suggested that Woolworths was on
a campaign to drive the
Applicant out of business. In this letter the
Applicant did however concede that it was in arrears with account
payments; that
not all the employment contracts were in place and
sought to blame an ex-Woolworths employee, one Malong, now working
for the Applicant;
that three of the employees at the Stanger store
were not being paid the minimum statutory wage and that in the case
of payment
for night work, the Applicant's pay administrator was
ignorant of the provision which affected approximately 5 employees
who would
now be paid back pay and an allowance. The Applicant
further states that the Respondent's human resources manager, one
Irma Robinson
tore up the 2005 audit report and apologised to
Ouderajh for its erroneous conclusions. Even if this is accepted as
true, it does
not affect the aforementioned concessions made by the
Applicant.
[13] Woolworths conducted
audits to monitor and ensure compliance with standards, operating
procedures and legislation from time
to time. The food audits are
sometimes outsourced to and conducted by an independent concern,
International Britannia Limited ("IBL").
The Woolworths
outlets comprise both corporate stores (that is to say owned and
operated by Woolworths) as well as franchised outlets
such as those
conducted by the Applicant. In 2008 Woolworths decided to extend the
internal audits to include all stores and the
Stanger store was
statistically selected for an audit in 2008. When the Woolworths
auditor, one Lorraine Blyth contacted Ouderajh
to arrange a date for
the audit, he (Ouderajh) stated that he would not allow the
Woolworths audit team into the Stanger store
and contended that
Woolworths had no right to conduct the audit which he viewed as an
interference in his business. This conduct
is a clear breach of
clauses 10.11 and 10.16 of the franchise agreement which provide
Woolworths unfettered access to the store
for the purpose of
inspecting the premises; the method of conduct of the franchise
business; the fulfilment by the franchisee of
its obligations under
the agreement and generally to determine whether the provisions of
the agreement are being properly implemented.
The legal department of
Woolworths intervened whereafter the Applicant relented and the audit
took place. The audit revealed numerous
areas of non- compliance - 22
out of 42 compliance requirements were met at the Stanger store,
however, on 11 key evaluations the
Stanger store scored 55%, any
score under 75% being considered unsatisfactory. In clause 10.18 of
the franchise agreement, the
Applicant was required to submit an
initial three-year business plan and an initial one-year operating
plan and annually thereafter
submit a revised three-year business
plan and a one-year operating plan. No such plans were submitted. In
terms of clause 10.9
of the franchise agreement the Applicant was
obliged to take out and maintain policies of insurance in relation to
such risks and
for such amount as the business may be exposed to from
time to time. The insurance policy provided by the Applicant did not
provide
confirmational details for cover in respect of deterioration
of stock; theft of stock; the loss of money; money in transit and
other damages. There were breaches of clause 10.8.2 of the franchise
agreement which require the Applicant to comply with applicable

labour legislation such breaches including no designated officer to
ensure compliance with the Occupational Health and Safety Act;
no
trained first aid staff available across all shifts; the first aid
kit did not contain minimum content requirements; there were
no
trained fire-fighters in the store; quarterly emergency evacuations
and training were not being held for all staff; there were
no
emergency exits in the back of the store; staff leave records were
non-existent or inadequate; overtime was not dealt with consistently;

no staff attendance register was kept; the store lighting required
maintenance in that numerous fluorescent tubes throughout the
store
were not working. These facts are not seriously in dispute.
[14] The Applicant
contends that a 55% score is not a failure and that the Woolworths
benchmark of 75% is arbitrary. The Applicant
contends further that
the audit is unfair, incorrect and inaccurate and states that during
several visits to Cape Town to the Respondent's
head office the
aforementioned matters were not raised. Moreover the Applicant
employed a former Woolworths employee, one Malong,
who had previously
been trained by and who had worked for Woolworths to take
responsibility for the Stanger store as its branch
manager. The
Applicant sought to blame Malong for any alleged shortcomings and, by
extension, Woolworths for not training him properly.
The Applicant
further contended that subsequent correspondence dealing with the
alleged shortcomings highlighted by the 2008 audit
report were not
brought to Ouderajh’s attention in that the correspondence was
with Malong.
[15] During September
2009 the parties concluded a franchise agreement in relation to the
Ballito Bay store. The Applicant contends
that the Respondent would
not have concluded this agreement had it been so desperately unhappy
with the Applicant's performance
at the Stanger store.
[16] During January 2010
Woolworths took a policy decision not to open any new franchise
outlets and not to extend current contracts
once the franchise
agreements reached the end of their duration. Woolworths sought to
purchase the businesses of the various franchisees
on a commercial
basis, however, the parties could not reach agreement as to the price
to be paid. In the view of the court, the
change in Woolworths’
policy to wind down its franchise operations cannot affect the
existing franchise agreements and any
rights to an extension thereof
which the franchisee may have acquired and the matter must be
approached on the aforegoing basis.
[17] During June 2010 an
external audit was conducted by IBL. The Stanger store failed the
audit in several respects.
[18] The audit records a
failure in respect temperature records - to ensure that foods are
cooked to the correct safe temperature
and are safe for consumption,
the core temperature of foods to be sold at the interactive counter
must be checked prior to their
removal from the ovens as well as
during display. Records must be kept of those temperatures in pro
forma documents supplied to
all Woolworths outlets. The purpose of
the records is to ensure that there is proof that the readings are
being taken and to enable
management to check on and ensure
compliance. The IBL audit revealed a failure in that there were no
records of various temperature
readings, however, the Stanger store
management had nonetheless signed off the documentation. Apart from
the aforegoing, overall
compliance was good at the Stanger store.
[19] During July 2010 a
further audit was conducted at the Stanger store. The report
indicates that an improvement had taken place
but there were certain
critical issues that needed to be addressed to ensure compliance and
the Applicant was requested to ensure
compliance by the end of July
2010.
[20] At a follow-up
meeting on 12 August 2010, one Hargreaves, the Woolworths area
manager South Region Franchise Division met Malong
at the Stanger
store and various areas of concern were identified and documented.
These items included store layout; the provision
of first aid and
fire-fighting training and attention to the exterior of the building.
[21] During August 2010
Woolworths conducted an internal food hygiene audit at the Stanger
store as part of the follow-up to the
failed external IBL audit. The
results were unsatisfactory to the extent that the store manager,
Malong, conceded that had the
audit been an external IBL audit, it
would have resulted in “critical failure” and closure of
the food counter.
[22] In February 2011 the
Respondent took up the question of the dilapidated state of the
exterior of the Stanger store with the
Applicant. The evidence in the
form of photographs depict a dilapidated building which has extensive
paint peeling and bubbling
and the sign lacks the blocked
"Woolworths" logo. The undisputed evidence is that the sign
was never rectified and, indeed,
deteriorated further.
[23] On 15 April 2011 the
Respondent again addressed the Applicant with regard to the condition
of the exterior of the building
and the signage and Malong undertook
to attend to the necessary. At this point it will be recalled that
one of the Applicant's
complaints is that the Respondent dealt with
the store manager, Malong, and that Ouderajh was not aware or fully
aware of what
was going on. This was incorrect in as much as the
e-mail of 15 April 2011 was copied to Ouderajh. Furthermore at a
level of probabilities,
it is highly unlikely that Malong did not
report the shortcomings to Ouderajh.
[24] On 16 May 2011
Hargreaves conducted another routine visit at the Stanger store. This
visit identified the following problems
- the outside of the building
had not been attended to; the blocked in "Woolworths" logo
of the sign was missing; stock
levels in the clothing department were
low; there were numerous problems in the food area with poor stock
levels; ice cream, prawns,
fish and frozen vegetables were stored in
a single freezer; numerous shelf pricing labels were missing and the
pricing labels did
not correlate to the products on the shelves.
[25] On 19 May 2011 the
Applicant gave written notice of its intention to extend the
franchise period in respect of all three franchise
stores. As
previously mentioned, the validity of this notice is not in dispute
for present purposes.
[26] On 23 June 2011
Woolworths conducted a hygiene audit at the Stanger store. The audit
score was 96 which yielded a green rating.
[27] During February
2012, John Fraser, the Respondent’s regional franchise manager
contended that the Applicant had breached
the Woolworths code of
ethics in relation to the physical layout of the food market at the
Lifestyle Centre store. Woolworths stated
that there would be a fee
attaching to the change, however, as it transpired, Woolworth was
incorrect. In e-mail correspondence
dated 23 February 2012 Ouderajh
made certain intemperate remarks such as -
"As for your other remarks I will
treat it as a sick joke coming from a privileged Anglo-Saxon who has
no sensitivity. You
want to lecture me on running my business when
your asset-base is nothing to brag about considering your privileged
background."
Frazer apologised for his
mistake but recorded his astonishment at the ill-tempered nature of
Ouderajh's communication.
[28] During December 2011
Ourderajh sent an SMS to Mr Susman, the chairman of Woolworths
Holdings Limited in which he accused Fraser
and one Ian Moir of
allegedly hacking his telephone. Susman informed Ouderajh that
Woolworths took these allegations very seriously
and suggested an
independent investigation be concluded on receipt of a formal written
complaint. Susman also informed Ourderajh
that should Ouderajh not
wish to pursue the allegations he should withdraw them in writing and
apologise. Ourderajh didn't make
any formal complaint nor did he
apologise.
[29] On 2 October 2012 an
Imperial Logistics delivery truck damaged the Woolworths sign.
Imperial Logistics undertook to pay for
the repair of the sign and
requested the Applicant for quotations. The Applicant advised
Imperial Logistics that the signage had
to be authorised by
Woolworths. Despite requests for a quotation to repair the sign, the
Applicant did not take it upon itself
to request a quotation until 4
February 2013. The sign was never repaired.
[30]
Woolworths brought an application in the Western Cape High Court in
relation to the Lifestyle Centre store and obtained a declaratory

order that the Applicant did not have the right to renew the
franchise
agreement
pertaining
to that store
after the effluxion of the
period
of
that agreement (9 December
2013). The extension clause in the Lifestyle Centre franchise
agreement is identical to the extension
clause in the present matter.
Her Ladyship the Honourable Deputy Judge President Traverso granted
the Applicant leave to appeal
to the Supreme Court of Appeal and the
appeal is pending.
[31] In January 2013
Ourderajh was contemplating selling all three franchises, that is to
say the Stanger store, the Lifestyle Centre
store and the Ballito Bay
store. He was obliged to afford Woolworths a right of first refusal,
however, Woolworths declined to
purchase the store. Ouderajh
contemplated selling a 40% interest in each of the franchises to the
prospective buyer and would remain
a working partner, it being
contemplated that ail three franchises would be put into a new
entity. In January 2013 Woolworths recorded
that the agreements did
not cater for a situation in which one franchise entity was
substituted for another and would consider
the position. Woolworths
recorded that it would not in all likelihood approve the sale of the
Lifestyle Centre store having regard
to the litigation between the
parties.
[32]
In early February 2013 one du Plessis attended the Stanger store and
Identified numerous problems including no ticketing for
weekly active
promotions; shelf edge labels were improperly
affixed
to
shelves; hygiene standards
were poor; fluorescent bowl lights were not working; 22 spotlights
were not working on the sales floor
and 12 spotlights in the windows
were not working; there were at least 6 damaged floor tiles on the
sales floor constituting a
hazard to customers; occupational and
safety health issues had not been addressed.
[33] On 11 February 2013
Woolworths advised the Applicant that it would not renew the
franchise and that the franchise agreement
terminated on 28 February
2013.
[34]
Correspondence ensued between the parties' attorneys and the
Applicant launched the present application as a matter of urgency
on
25 February 2013 seeking, in the first instance, a rule
nisi
with
interim relief
interdicting the Respondent from interfering with its trading
activities at the Stanger store and requiring the
Respondent to
fulfil its obligations under the franchise agreement with effect from
28 February 2013 onwards. The Applicant went
on to claim by way of a
second order prayed a declaratory order that it had given proper
notice of its intention to extend the
franchise agreement and that
the franchise agreement had been validly extended for a period of 5
years from 1 March 2013 together
with an order that the Respondent
pay the costs of the application. When the matter was called it was
approached on the basis that
the Applicant was seeking final
declaratory relief.
THE INTERPRETATION
OF THE EXTENSION CLAUSE
[35]
In interpreting a
contractual
provision the starting point is the frequently quoted dictum of
Wessels C J in
Scottish Union and
National
Insurance
Company Limited vs Native Recruiting Corporation Limited
1934 A.D. 458
to the following effect: -
"It has
been repeatedly decided in our courts that in construing every kind
of written contract the court must give effect
to the grammatical and
ordinary meaning of the words used therein. In ascertaining this
meaning, we must give to the words used
by the parties their plain,
ordinary and popular meaning, unless it appears clearly from the
context that both the parties intended
them to bear a different
meaning. If, therefore, there is no ambiguity in the words of the
contract, there is no room for a more
reasonable interpretation than
the words themselves convey. If, however, the ordinary sense of the
words necessarily leads to some
absurdity or to some repugnance or
inconsistency with the rest of the contract, then the court may
modify the words just so much
as to avoid that absurdity or
inconsistency but no more/’
3
[36]
In
Natal Joint Municipal Pension Fund
vs Endumeni Municipality
2012
(4) SA 593
(SCA)
it
was stated at paragraph 18 -
"The inevitable point of
departure is the language of the provision of itself, read in context
and having regard to the purpose
of the provision and the background
to the preparation and production of the document."
[37]
Furthermore, a contractual provision can only be regarded as
enforceable if it makes commercial sense or has business efficacy.
4
The purpose of the provision has to be reconciled with the words
chosen to express that purpose in order to arrive at the meaning

which the contracting parties must be taken to have intended.
5
In this process, the context is everything.
6
[38] In interpreting the
extension clause it is necessary to have regard to the nature of the
contract and, in particular, to the
relationship between the
Applicant as franchisee and the Respondent as franchisor. The
franchise agreement includes the Woolworths
code of ethics; the
Woolworths code of business principles and the operating manual. The
code of ethics requires that efforts must
be made to build and
maintain
mutually beneficial
relationships with all stakeholders, staff (employees), customers,
suppliers, shareholders, community and franchisees.
The code of
business principles emphasises the necessity to comply with
legislation including occupational health and safety legislation,
the
need for on-site inspections and the need to retain records to
demonstrate compliance.
[39] Guy Triton writing
in "Intellectual Property in Europe"; Third Edition
describes the relationship between the franchisor
and franchisee in
general terms as comprising four features namely the independence of
the franchisor and franchisee; the existence
of a contractual licence
for the use of the franchisors trade name, trademark, emblems,
symbols and the like; the provision of
continuing assistance to the
franchisee by the franchisor and a contractual control by the
franchisor over the way in which the
franchisee conducts the business
so that there is uniform presentation by all franchisees. He goes on
to say: -
"Contractual controls, which
ensure the quality and uniformity of the network and thus maintain
the reputation and goodwill
of the franchise's trading name, are
necessary ancillary restraints because it is precisely the attraction
of setting up business
under a name which possesses a substantial
reputation that encourages persons to take out franchises. If such
controls were held
to be anti­competitive and hence illegal, then
the franchisees reputation would fragment because of the inability of
the franchisor
to impose
effective
quality-control measures and other control measures to maintain the
identity and reputation of the franchise network.”
7
[40] In "The
Franchise Relationship under South African Law" Professor Woker
writes -
"The
parties in a franchise relationship are regarded as independent
entrepreneurs but the
nature
of this relationship is categorised by a degree of intimacy not found
in other business relationships. This closeness is the result
of the
franchisors and franchisees being partners in one another's business
ventures such that the success or failure of one individual
partner
has a direct effect upon the well­being of the
other
members of the partnership. Of course the franchise relationship is
not a partnership in the strict legal sense of the term but
it has
some of that business model’s characteristics, including the
notion of shared responsibility.’’
8
[41]
It is thus clear that in order to succeed the franchisor and
franchisee must be prepared to co-operate and work together towards

the attainment of a common goal including the maintenance and
promotion of the
brand
in question.
[42]
On the face of it, the extension clause is unequivocal ~
any
breach
of
any
of the provisions of this agreement at
any
time during the initial period (regardless of whether or not
Woolworths shall have given the franchisee notice to remedy such
breach, whether under clause 28 or otherwise) disqualifies the
Applicant from extending the franchise agreement. The word "any"

has a wide ambit. Albeit in a different context, the following was
said in
Commissioner of inland
Revenue vs
NST
Ferrochrome (Ptv) Limited
: -
"The word
"any" is a word of wide and unqualified generality It may
be restricted by the subject matter of the context,
but
prima
facie
it is unlimited. R vs Hugo
1926 A.D. 268
at 271; Commission of Inland Revenue vs Ocean
Manufacturing Limited
[1990] ZASCA 66
;
1990 (3) SA 610
(A) at 618H.”
9
[43] Clause 28 of the
franchise agreement headed "Early Termination" is the
breach clause which entitles Woolworths to
cancel the franchise
agreement in the event of Dula breaching the agreement. Various
breaches are identified and, depending upon
the type of breach,
Woolworths is required to give various periods of notice within which
Dula is required to remedy the identified
breach in question or, in
relation to certain other breaches, no notice is necessary before
Woolworths is entitled to cancel the
agreement.
[44] Although clause 28
is referred to in the extension clause, the two clauses are totally
separate and distinct and deal with
entirely different
situations.
Clause 28 deals with material breaches whereas the extension clause
is wide in ambit and refers to
any
breach. Furthermore, the breaches under clause 28 generally require
Woolworths to give notice to remedy the breach whereas no such
notice
is required under the extension clause. The underlying purpose of the
two clauses is likewise totally different in as much
as clause 28
provides a basis for early termination of the franchise agreement by
Woolworths in the event of breach by Pula, whereas
the extension
clause (in the absence of breach by Dula) provides for the
continuation and extension of the franchise agreement
for a further 5
years at the instance of Dula on giving the requisite notice.
[45] The real question is
whether or not the Applicant has acquired the right to extend the
agreement for a further 5 years. This
concept was summarised by the
Appellate division (as it was then called) in the context of a right
to renew a lease where it was
held -
"The issue here is not whether
the Appellant "forfeited" or "lost" a right to
renewal. The simple question
is whether the Appellant ever required
it. It was for the Appellant, as the party claiming something from
the Respondent, to satisfy
the court that it was entitled to what
it claimed In this connection the
Appellant was unaided by any
presumption in his favour and, in my
opinion, he was clearly
saddled with the
onus of establishing that the prerequisite to the exercise of the
option had been satisfied. "
10
[46] Applying the Ok
Bazaars case, the onus of establishing the jurisdictional facts, that
is to say the giving of notice to extend
the franchise (which is not
in dispute) and proof that the Applicant has not committed any breach
of the agreement is on the Applicant.
Once these jurisdictional
requirements are established, the Applicant is entitled to an
extension of the franchise agreement and
there is nothing that
Woolworths is obliged or entitled to do.
[47]
Analysing the phrase "at
any
time during the initial period" the court is of the view that,
at face value, any breach at any time either prior to the giving
of
the notice to extend or thereafter is to be taken into account up
until the last day of the initial period. Even if the Applicant
were
to breach the agreement on the last day of the initial period, this
would disqualify the Applicant to an extension of the
agreement. As
was held in Seaborne vs Smith: -
"Hence the
right to a renewal cannot come into existence until the end of the
lease, and the lessee's conduct is to be under
review right up to the
end, and not merely up to the date of the giving of the notice."
11
[48]
The Applicant argues that it would be unfair to permit Woolworths to
rely on a trivial breach at an early stage of the contractual

relationship thereby precluding the Applicant from extending the
franchise agreement. The Applicant argues that both in terms of
the
agreement and on the principles of Ubuntu, Woolworths is required to
act in good faith. In the opinion of the court, concepts
of "good
faith" and Ubuntu constitute a two-way street and are not
unilateral obligations owed by one
party
to the other. In order to give business efficacy in a commercial
sense to the extension clause, it is quite conceivable that
Woolworths
would be prepared to countenance minor breaches of the
agreement from time to time without invoking its right to cancel the
agreement
under clause 28 whereas it might not be prepared to
continue to do business with the Applicant beyond the termination
date of the
franchise agreement. In this regard I am in complete and
respectful agreement with the reasoning and remarks of Traverso, DJP
in
the matter between the parties in the Western Cape High Court
where it was stated: ~
"The clause
under consideration (referring to the extension clause) must be
interpreted in a manner to get a business efficacy
and is clearly
inserted by the Applicant (Woolworths) in order to avoid being
saddled, after the expiry of the franchise agreement,
with the
franchisee whose performance of its obligations during the currency
of the agreement has been unsatisfactory.”
12
[49]In deciding the
parties’ competing interests the court has to decide whether,
on a proper interpretation of the extension
clause and having regard
to the background circumstances and history of the matter, the
Applicant has acquired the right to benefit
from trading as a
Woolworths franchisee for a further 5 years at the Stanger store or
whether the situation is such that Woolworths
should not be
contractually shackled to the Applicant for a further period of five
years.
[50]
The history of the matter demonstrates that the relationship between
the parties has not been a happy one. Non-compliance with
the
agreement and the Woolworths standards are protracted and extend over
a long period of time. The question of the Woolworths
sign is a case
in point. In terms of the Applicant’s lease, the landlord is
obliged to maintain the exterior of the premises
and if the landlord
fails to do so, the Applicant is entitled to effect the necessary
work itself and
claim
the cost from the landlord and should the landlord fail to pay, the
Applicant is entitled to set off the amounts spent against
the rental
due. The problem with the Woolworths sign first manifested itself in
February 2011 in that the blocked in "W"
of the Woolworths
corporate logo was missing. Malong, the Applicant’s store
manager was requested to address the issue. The
sign was further
damaged on 2 October 2012 by a truck and despite correspondence the
sign has still not been repaired. The condition
of the sign is
lamentable. A photograph of the sign demonstrates that the first "O”
and the “T" in the name
"Woolworths" is
completely missing. The wall on which the sign is mounted is cracking
and has paint peeling. In short,
the sign is shoddy, downmarket and
is manifestly not in keeping with the required standards. In the view
of the court the Applicant’s
failure to address the question of
the sign since at least February 2011 demonstrates an apathy or an
unwillingness on the part
of the Applicant to adhere to Woolworths
standards and branding. In the opinion of the court this alone is
sufficient justification
for Woolworths not to wish to continue the
franchise relationship with the Applicant beyond the expiry of the
initial period.
UBUNTU
[51]
The concept of Ubuntu includes "fairness" and informs
public policy in the sphere of contract.
13
The constitutional court has sought to infuse the common law contract
with the constitutional value of Ubuntu, however, the constitutional

court has affirmed "the age-old contractual doctrine that
agreements solemnly made should be honoured and
enforced
- pacta sunt servanda”.
14
Development of the common law in the light of Ubuntu does not endorse
the notion that judges may decide cases on the basis of what
they
regard as reasonable and fair.
15
To do so would lead to intolerable legal uncertainty.
16
[52]
The Applicant is seeking to contend that by relying on allegedly
non-material breaches Woolworths is not acting in good faith

according to the principle of Ubuntu. As previously mentioned, Ubuntu
is a two way street and the Applicant’s conduct bears
scrutiny.
Ouderajh has accused Woolworths of being unethical, racist and
monopolistic. He has expressed the view that Woolworths
is pursuing a
hidden agenda in respect of audits in order to drive Ouderajh out of
business. Ouderajh has referred to a Woolworths
manager, Fraser, as a
“privileged Anglo Saxon with a privileged background”;
Ouderajh has accused Woolworths employees
of "hacking his phone"
but did not persist with the allegation or withdraw it or tender an
apology. The aforementioned
instances are not exhaustive. These are
factors which weigh
against
the Applicant in asserting and claiming a right to extend the
franchise agreement.
THE APPLICANTS
VARIOUS SUBMISSIONS
[53] It is necessary to
deal with various submissions made by the Applicant to the extent
that they have not already been covered
in this judgment.
[54] The general
submission is that the Applicant did not breach the agreement at all,
alternatively, did not breach it to the extent
that it precludes the
Applicant from extending the franchise agreement and that the
Respondent’s alleged complaints about
breaches are trivial.
[55] The Applicant
contends that the Respondent should have immediately informed the
Applicant of the breaches relied on and of
its intention not to
extend the franchise agreement on receipt of the notice of extension
on 19 May 2011. The court is of the view
that there is no merit in
this submission. Firstly, there is no onus or duty on Woolworths to
do so. Secondly, the agreement still
had another 22 months to run
until 28 February 2013 and any breaches occurring after the giving of
notice on 19 May 2011 would
have disqualified the Applicant from an
extension of the agreement.
[56] The Applicant
submits that it was unfair of Woolworths to notify the Applicant in
February 2013 of its decision not to permit
an extension of the
franchise agreement. Again in the court's view, there is no merit in
this submission because there is no duty
on Woolworths to notify the
Applicant any sooner.
[57]
The Applicant submits that the Respondent by not also bringing an
application in relation to the Stanger store in the Western
Cape High
Court
thereby
"waived"
it's right to rely on any breaches and misled the Applicant into
believing that the Stanger store franchise
would be extended. In the
courts view there is no foundation to this submission. In this regard
there is the usual "non waiver"
clause (clause 36.1) which
precludes the Applicant from relying on this argument. Different
considerations may wel! have pertained
to the Lifestyle Centre store
not the least of which was that the period of the Lifestyle Centre
store franchise agreement expired
on 10 December 2013 (with the
potential for a further 5 years renewal thereof) as opposed to the
Stanger store franchise agreement
which expired on 28 February 2013.
[58] The Applicant argues
that Woolworths did not send any breach notices as such and, so it is
argued, the Applicant was not breach
or the Respondent did not regard
such breaches as sufficiently serious as a ground for not agreeing to
extend the franchise agreement.
This argument overlooks the
differentiation between clause 28 of the franchise agreement and
extension clause which has been dealt
with in this judgment in
paragraphs 43 and 44. Furthermore, the various audit reports and
e-mails were sent to the Applicant and
such demonstrate
non-compliance with and breaches of the franchise agreement and the
operating manual.
[59]
The Applicant submits that during the discussions pertaining to the
sale of the three franchises to third parties, Woolworths
did not
mention a possible contestation of the renewal at the Stanger store.
The argument
is
effectively that
Woolworths
was under a "duty to speak” and to inform the Applicant
that it would not renew the franchise agreement in
relation to the
Stanger store having
regard
to the fact that that store was to be sold as a going concern. In the
view of the court this cannot affect the interpretation of
the
extension clause more specifically having regard to the fact that the
focus of the discussion was on the sale of all the three
franchises
and was not specific to the Stanger store or any extension of the
franchise agreement.
[60]
The Applicant submits that should it be held that the
Applicant
has
not validly extended the
period of the franchise at the Stanger store, the Applicant will
incur stock losses for stock purchased
in anticipation of renewal and
its staff will lose jobs. As far as the stock is concerned, the
Applicant should not have ordered
stock beyond the expiry of the
initial period and can, in any event, relocate such stock to its
other franchise stores and the
stock will not be wasted. As far as
the employees are concerned, Woolworths has tendered to procure
alternative suitable employment
for any employees who may be
dismissed. In any event, the aforegoing considerations cannot affect
the meaning of the extension
clause.
DECLARATORY RELIEF
SOUGHT
[61]
As previously indicated, the Applicant is seeking declaratory relief
in final form. In this regard the court has a discretion
as to
whether or not to make a declaration of rights.
17
[62] Having regard to the
history of the matter and, in particular, Ouderajh’s conduct,
the court is not prepared to exercise
its discretion in the
Applicant’s favour and grant the declaratory relief sought. To
the extent that the Applicant may have
a remedy in law, which has not
been demonstrated on the evidence before this court, it is open to
the Applicant to pursue a claim
for damages against Woolworths for
any losses suffered in consequence of the franchise of the Stanger
store not being extended
for a further period of 5 years. I am not
persuaded by Mr Kissoon-Singh SC’s argument that the proof of
such damages would
be
“
impossible".
The claim would (presumably) be a claim for loss of nett profit based
on historical figures and projections over
the ensuing 5 year period
and this is an exercise which is frequently undertaken.
[63] Having regard to a
proper interpretation of the extension clause and the history of this
matter, I am not satisfied that the
Applicant has discharged the onus
of proving that it has acquired the right to trade from the Stanger
store for a further period
of 5 years.
ORDER
[64] In the result, the
application is dismissed with costs, such costs to include the costs
of two Counsel where so employed. For
the guidance of the taxing
official, the employment of Senior Counsel was justified having
regard to the nature of the matter.
H A DE BEER, AJ
Appearances
For
the Applicant:
Mr
A K Kissoon-Singh SC
M
Manikam
Instructed
by:
Krish
Naidoo, Govender & Company
Tongaat
Ref:
Mr R Govender
Tel:
032 944 4181
For
the Respondents: Ms A M Annandale SC
A
J Boulle
Instructed
by:
Edward
Nathan Sonnenbergs Inc
Durban
Ref:
Mr C Jones
Tel:
031 301 9340
Date
of Hearing: 12 April 2013
Date
of Filing of Judgment:8 May 2013
1
There
is no longer any legal distinction between "background”
and “su rounding" circumstances ~ KPMG Chartered

Accountants SA vs Securefin Limited
2009 (4) SA 399
(SCA); paragraph
39.
2
KPMG
Chartered Accountants SA vs Securefin Limited
2009 (4) SA 399
SCA;
para 40.
3
Scottish
Union and National Insurance Company Limited vs Native Recruiting
Corporation Limited
1934 A.D. 358
at 465; S vs Zuma and Others 1995
(2) SA (CC), paragraphs 17-18
4
ABSA
Bank Limited vs Swanepoel N O
2004 (6) SA 178
(SCA) paragraphs 6 to
8; cf Siyepu and Others vs Premier; Eastern Cape
2013 (2) SA 425
ECB, paragraphs 23 and 35
5
Commissioner
for SARS vs Airworld CC and Another
2008 (3) SA 335
(SCA) Paragraphs
10 and 25; Mittal Steel South Africa Limited vs Harmony Gold Mining
Company Limited and Another
[2009] ZACAC 1
; Paragraph 28
6
Standard
General Insurance Company Limited vs Commissioner for Customs and
Excise
2005 (2) SA 166
(SCA); Paragraphs 25 and 37
7
Pages
961 - 962
8
The
Franchise Relationship under South African Law; Tanya Woker
2012;
Page 231.
9
Commissioner
of inland Revenue vs NST Ferrochrome (Pty) Limited References
1999
(2) SA 228
(T) at Page 232 D - E
10
Ok
Bazaars (1929) Limited vs Cash-ln CC
[1993] ZASCA 204
;
1994 (2) SA 347
(A) at 361 I
11
Seaborne
vs Smith
1955 (4) SA 339
at 343 H
12
Woolworths
(Pty) Limited vs Dula Investments (Pty) Limited
[2012] ZAWCHC 183
paragraph 19
13
Barkhuizen
vs Napier 2007 (5) 323 CC; paragraph 51
14
Everfresh
Market Virgina (Pty) Limited vs Shoprite Checkers (Pty) Ltd
2012 (1)
SA 256
CC at Paragraphs 70 and 72
15
Potgieter
and Another vs Potgieter N O and Others
2012 (1) SA 637
; paragraph
34
16
Potgieter
at paragraph 34
17
Cordiant
Trading CC vs Daimler Chrysler Financial Services (Pty) Ltd
2005 (6)
SA 205
SCA; paragraph 17