In the KwaZulu-Natal High Court, Pietermaritzburg
Republic of South Africa
Case No : 1783/2011
In the matter between :
Hot Dog Café (Pty) Limited Applicant
and
Daksesh Rowen’s Sizzling Dogs CC First Respondent
Rowade Rajah Second Respondent
Judgment
Lopes J.
[1] The applicant in this matter conducts business as a franchisor of ‘Hot Dog
Café’. It franchises businesses under this name and style. Those businesses
consist of vending units and outlets selling hotdogs and ancillary items. The first
respondent is one of its franchisees, and the second respondent is its sole
member who runs the franchise.
[2] It is common cause that on the 18 th January 2010 a franchise agreement
was concluded between the applicant and the respondents. Pursuant to that
agreement the respondents have conducted the franchise business from Shop
No. 36, Liberty Midlands Mall, 5 Sanctuary Road, Pietermaritzburg.
[3] Pursuant to a dispute between the parties the applicant has purported to
cancel the franchise agreement and seeks an order directing the respondents
forthwith to cease trading as a Hot Dog Café franchise, return to the applicant the
signage containing the applicant’s trademarks and trade names, and compelling
the first respondent to sell those items of a tangible nature which were used in
the first respondent’s business to the applicant in terms of the provisions of the
franchise agreement. The applicant also seeks an order compelling the
respondents to comply with the restraint of trade clause contained in the
franchise agreement.
[4] The breach of the franchise agreement relied upon by the applicant is that
the first respondent failed to pay, in terms of clause 12.3, in cash and without
deduction or set off, a monthly advertising levy in respect of each trading period
of one calendar month, which levy would be equal to four percent of the gross
revenue of the first respondent in that month plus VAT.
[5] It is common cause that the first respondent did not pay over the
advertising levy for the month of November 2010 to the applicant. It allegedly
paid the monies to its attorneys, to be held by them pending the outcome of the
resolution of a dispute which it claims to have with the applicant regarding the
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use to which advertising levies have been, and are to be, put.
[6] In argument before me the following two defences were raised on behalf
of the respondents :-
(a) the applicant failed to specify in its letters of demand the exact amount
due for the advertising levy; and
(b) the defence of exceptio non adimpleti contractus – i.e. that the applicant
could not rely on the respondents non-payment of the advertising levy
because the applicant was in breach of its reciprocal obligation to provide
advertising in terms of the franchise agreement.
[7] It was submitted in argument on behalf of the respondents that because
the letters of demand did not set out the exact amount of the advertising levy
which the respondents should have paid in November 2010, they were not
placed in mora. I disagree. The amount of the advertising levy, being four
percent of the gross revenue of the first respondent for the month of November
(plus VAT) was something solely within the knowledge of the respondents. In
those circumstances any complaint that the applicant should have stated in its
letters of demand the exact amount, is without substance.
[8] With regard to the second defence, I was referred to Thompson v Scholtz
1999 (1) SA 232 (SCA) which lays down that the exceptio is available as a
defence to a party from whom performance is demanded by the other contracting
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party whose reciprocal performance has not been rendered precisely or in full.
The facts in that case involved a claim for occupational interest pursuant to the
sale of a farm. A deduction was allowed against the full occupational rental
payable because the seller failed to vacate the farmhouse on the farm prior to the
registration of transfer into the name of the purchaser.
[9] There seems little doubt that the obligations of the applicant and the
respondents in this regard are reciprocal. The payment of the advertising levy is,
in terms of clause 14.1 of the agreement to be applied as follows :-
‘The monthly advertising levy payable by the Franchisee to the Franchisor will be
used by the Franchisor to defray the expenses to be incurred by it for the
purpose of national or regional advertising, marketing, promotional and related
activities as the Franchisor shall deem reasonable and necessary from time to
time to develop general public recognition of the Trade Marks, Trade Names, as
well as the franchise business concept contemplated in this Agreement.’
[10] The remainder of clause 14 prohibits the respondents from carrying on
any advertising or the display of promotional items without the prior written
approval of the applicant.
[11] It is clear that the respondents were unhappy with the way in which the
advertising levy was being expended by the applicant. In this regard they
addressed certain correspondence to the applicant. The applicant’s attorneys in
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correspondence recorded that on the 2 nd December 2010 the applicant provided
the respondents with details of how the advertising levy was being utilised. That
however is not the end of the matter. Clause 12 of the franchise agreement
provided :-
’12.3 In addition, the Franchisee shall pay to the Franchisor, in cash and without
deduction or set-off, a monthly advertising levy in respect of each trading period
of one calendar month (being the period from the first day to the last day of a
month), which fee shall be equal to 4% (four percent) of the Gross Revenue of
the Franchisee in that month, plus VAT.
12.4 The fees and levies referred to in clauses 12.2 and 12.3 shall be paid by
the Franchisee on or before the 7 th day of the month following the month in
respect of which they are due.
12.5 Notwithstanding the above, it is recorded and agreed by the parties that all
payments due are payable in cash, without deduction or set-off of any kind
whatsoever.’
[12] Given the clear wording of clauses 12.3 – 12.5 of the agreement, the first
respondent was not entitled to withhold payment of the monthly advertising levy
for the reason given. If the respondents were unhappy with the way in which the
advertising levy was applied by the applicant, the proper course of conduct was
to address those concerns in writing and, if they were not satisfied, to bring an
application to compel the applicant to comply with the provisions of the
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agreement relating to the application of the advertising levy. In any event, the
respondents’ complaint appears to have been that the respondents wanted to be
provided with a breakdown of how those funds were spent. This was because
they suspected that the funds paid over were being used for purposes other than
advertising. The fact that the applicant may have applied the advertising levy in
a way which displeased the respondents, in no way entitled the respondents to
desist from complying with their obligation to pay the advertising levy. The first
respondent’s failure to comply with payment of the advertising levy is a breach of
the franchise agreement entitling the applicant to cancel it.
[13] In this regard I refer to the matter of Altech Data (Pty) Ltd v M B
Technologies (Pty) Ltd 1998 (3) SA 748 (W) at 761B – 763B. The agreement
between the parties clearly precludes the respondents from withholding payment
of the advertising levy. That does not mean that the respondents are in any way
precluded from pursuing any complaints they may have with regard to the use to
which the advertising levy monies are being allocated by the applicant. I am
accordingly of the view that these two defences raised have no merit.
[14] Clause 19.1 of the franchise agreement states :-
‘Should the Franchisee or the Individuals :
…
19.1.2 commit any other breach of this Agreement or fail to pay any
amount due to the Franchisor as provided for in this Agreement and
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fail to remedy such breach within 7 (seven) days after written notice
to do so from the Franchisor; or
…
then the provisions of 19.2 shall apply.
19.2 In the event of any breach of the aforesaid, the Franchisor may,
without prejudice to any other rights or remedies available to it :
19.2.1 forthwith cancel this Agreement and claim all its damages;
…’
[15] It was accordingly incumbent upon the applicant to deliver a notice to the
first respondent requiring it to remedy its breach within seven days after delivery
of the written notice. One Liza Pietersen addressed an email to the respondents
dated the 15th December 2010, drawing their attention to the fact that the
advertising levy for November of 2010 had not been paid. The relevant
provisions of the franchise agreement were set out in full. The respondents deny
having received that email. They do so by simply denying the allegations in the
paragraph of the founding affidavit alleging the sending of the email. No reasons
are given.
[16] That email concluded by recording that a registered letter of demand
would be posted to the domicilium citandi et executandi of the respondents, and
requiring the first respondent to remedy the breach within seven days, failing
which the applicant would start proceedings to cancel the franchise agreement
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and claim damages.
[17] On the 20th December 2010, the applicant’s attorneys addressed an email
to the respondents’ attorneys recording, inter alia, that on the 15 th December
2010 the applicant had sent to the respondents, by registered post and email, a
letter of demand, giving them seven days from the date thereof within which to
remedy the breach of their failure to pay the November 2010 advertising levy.
The respondents denied receiving this letter of demand. They do so by denying
the allegations in the relevant paragraph, and by stating that :-
(a) their attorneys’ offices closed on the 15th December 2010; and
(b) denying that the letter dated the 20 th December 2010 was received by
them on the 20th December 2010.
[18] On the 13 th January 2011, the applicant’s attorneys addressed a further
letter to the respondents’ attorneys, recording the respondents’ failure to remedy
the breach recorded in the letter of the 20 th December 2010 and other letters of
demand, and cancelling the franchise agreement with immediate effect. The
letter then calls on the respondents, inter alia, to cease trading as a Hot Dog
Café. Once again the respondents deny the allegations regarding the sending of
this letter, recording only that the relevant paragraph is denied ‘in its entirety’.
[19] The respondents’ attorneys, however, replied to that letter on the 14 th
January 2011. They referred to the previous concerns which the respondents
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had raised in their letter of the 15 th December 2010. They recorded that the
threat to cancel the agreement was ‘most unreasonable’ and concluded by
refusing to give the applicant an undertaking to cease trading.
[20] On the 17 th January 2011 the applicant’s attorneys then sent an email to
the respondents’ attorneys recording that the second respondent had told the
applicant that they had never received a copy of the applicant’s attorneys’ letter
of the 20th December 2010. On the 18th January 2011 the respondents’ attorneys
replied stating that they were ‘now in receipt of your email dated 20 th December
2010’. Certain without prejudice suggestions were then made, which I have not
in any way considered for the purpose of this application.
[21] The attitude of the applicant’s attorneys was thereafter that the applicant
had lawfully cancelled the franchise agreement (in terms of the letter dated the
13th January 2011). It is important to note that in the email of the 15 th December
2010 the applicant’s Liza Pietersen recorded that the registered letter of demand
would be posted off to the respondents’ domicilium citandi et executandi,
requiring the first respondent to remedy the breach. Clause 24 of the franchise
agreement refers to ‘ADDRESSES AND NOTICES’ and records at sub-
paragraph 24.2 that :-
‘Any notice to be given in terms of this Agreement may be :
24.2.1 delivered by hand, in which event it will be deemed to have been
received on the date of delivery; or
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24.2.2 sent by prepaid registered post, in which event, unless the contrary
is proved, it shall have deemed to have been received 5 (five)
business days after it has been posted;
24.3 For all purposes under this Agreement and in particular under this
clause, the Parties hereby choose as their domicilium citandi et
executandi the following physical addresses :
…
24.3.2 Franchisee and the Individuals :At the physical address of the
Franchisee’s Premises as set out in Annexure “A” hereto.’
24.4 The parties further choose the following addresses for the delivery
of notices in terms of this Agreement :
24.4.1 by hand – the respective domicilium address specified above;
24.4.2 by post;
…
24.4.2.2 Franchisee and Individuals : at the postal address as set out in
annexure “A” hereto.
[22] Annexure “A” to the franchise agreement records :-
‘…
2. Physical Address of Franchisee’s business
[left blank]
3. Postal address
T/A Hot dog Café
10
c/o Postnet Suite 540
Private Bag X9118
Pietermaritzburg
3201
8. Premises
The Hot Dog Café at Liberty Midlands Mall.’
[23] The agreement accordingly states that notices could be delivered to the
respondents’ physical address in Annexure “A” (which was left blank) or by hand
at the respondents’ domicilium address in Annexure “A” (which was the physical
address left blank, although under the heading ‘Premises’ the physical address of
the business is set out) or by post. The postal address of the respondents is set
out in Annexure “A” at clause 3, and a different postal address is recorded under
the heading ‘Residential and Postal Address’ below the second respondent’s
signature as ‘3 Railton Crescent, Bellevue, Pietermaritzburg, 3201.’
[24] The email of the 15 th December 2010 addressed by Liza Pietersen to the
respondents records that the registered letter of demand would be posted off to
the respondents’ domicilium citandi et executandi. The applicant however did
not put up any proof of the actual posting of the letter of demand foreshadowed
in the email of the 15 th December 2010, nor did it indicate how, or to which
address the letter of demand was to be sent.
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[25] In its opposing affidavit the respondents denied that the Liberty Midlands
Mall address of its premises was its chosen domicilium citandi et executandi, and
averred that the correct domicilium citandi et executandi of the respondents was
at 3 Railton Crescent, Bellevue, Pietermaritzburg.
[26] The question then is whether I should be satisfied that the applicant
properly placed the respondents in mora for their breach of contract in not paying
the November advertising levy and properly cancelled the contract.
[27] Significant aspects of the respondents’ opposing affidavit in this regard
are :-
(a) that the respondents deny that there has been any lawful cancellation of
the agreement;
(b) the respondents rely for that statement on the fact that the first respondent
had paid the November 2010 advertising levy into their attorneys’ trust
account where the money remained;
(c) somewhat disingenuously the respondents deny having received the
applicant’s email of the 20th December 2010. The basis for that is :-
(i) the offices of their attorney closed on the 15th December 2010;
(ii) the letter dated 20 th December 2010 was not received ‘on the
20/12/2010’. The respondents’ opposing affidavit does not in any way
state when the respondents’ attorneys re-opened, or when the
respondents received the email of the 20th December 2010;
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(d) the respondents in their opposing affidavit denied paragraph 18 of the
applicant’s founding affidavit which alleges the sending of the letter of the
13th January 2011. It is clear from the letter addressed by the
respondents’ own attorney on the 14 th January 2011 that the applicant’s
letter of the 13th January 2011 was not only received, but appreciated and
dealt with, by the respondents’ attorneys.
[28] Given the tenor of the responses raised by the respondents and the
contents of their affidavit, and considering the contents of the emails and letters
exchanged by the parties and their representatives, I find on a balance of
probabilities that the respondents were well aware of the fact that the applicant
regarded the short payment of the November 2010 advertising levy as a breach
of the franchise agreement, and required that the respondents remedy that
breach within seven days. It was their considered stance that they would not pay
that amount to the applicant, and instead paid it to their attorneys. That remains
their stance, and constitutes a deliberate and continuing repudiation of the
agreement.
[29] In those circumstances the applicant has properly cancelled the franchise
agreement between the parties. The vague and ambiguous denials in the
respondents’ answering affidavit places the respondents’ defences in the
category of those which do not raise real, genuine or bona fide disputes of fact as
envisaged in Plascon-Evans Paints Ltd v van Riebeeck Paints (Pty) Ltd 1984(3)
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SA 623 (A) at 634 H – I. I am accordingly of the view that the applicant has
correctly cancelled the agreement in terms of the letter dated 13th January 2011.
[30] No argument was addressed to me at the hearing of the application, that
in the event of my finding the agreement was properly cancelled, that the
applicant is not entitled to the relief sought in its notice of motion. However, it
would seem that the relief sought by the applicant in prayer 3.2 is so vague and
onerous that I am not prepared to grant an order in those terms.
[31] I accordingly grant an order in terms of paragraphs 2, 3.1 and 4 of the
notice of motion dated 17th February 2011 with the following amendments :-
a) in sub-paragraph 2.3 by the insertion of the words ‘to the applicant’
after the word ‘sell’ in the first line thereof;
b) in sub-paragraph 2.3, by the insertion of the words ‘as an expert’
between the words ‘valuer’ and ‘shall’ in the second last line thereof.
Date of hearing : 13th June 2011
Date of judgment :14th July 2011
Counsel for the applicant : E Bezuidenhout (instructed by D’Amico Incorporated)
Counsel for the respondent : V Moodley (instructed by Serge Brimiah &
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Associates)
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