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[2008] ZAWCHC 98
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Vendomatic (Pty) Ltd v JT Internation South Africa (20827/2008) [2008] ZAWCHC 98 (24 December 2008)
1
IN
THE HIGH COURT OF SOUTH AFRICA
(CAPE OF GOOD HOPE PROVINCIAL
DIVISION)
CASE
NO
:
20827/2008
DATE
:
24
DECEMBER 2008
In
the matter between:
VENDOMATIC
(PTY) LTD
Applicant
And
JT
INTERNATIONAL SOUTH AFRICA
Respondent
JUDGMENT
DAVIS,
J
:
[1]
Applicant has approached this Court on an urgent basis for final
interdictory relief against respondent from unlawfully interfering
with applicant's contractual relationships and rights. The matter was
heard on an urgent basis before me on Monday 22 December,
2008, and
given the urgency of the application I have prepared under some
considerable pressure a judgment which I shall now read
into the
record.
[2]
Applicant's business is described by Mr Zelezniak who deposed to the
founding affidavit as follows:
"Agreements
are entered into between Vendomatic (the applicant) and the owners
or operators (the venue owners) of restaurants,
clubs, pubs and the
like entitling Vendomatic to install the cigarette vending machines
(machines) or similar devices at the
premises in question. These
agreements (the venue agreements) give Vendomatic the sole and
exclusive right to sell cigarettes
on the premises. The venue
agreements are typically for a three year term subject to a further
period of three years in the absence
of the venue owner giving
Vendomatic written notifications described. The venue owner receives
a payment styled the commission
calculated either on the basis of a
flat monthly rate or (more commonly) on the basis of the volume of
cigarettes sold from the
machine(s) in a month... Vendomatic derives
income from cigarettes sold from the machines and from what it
refers to as a distribution
fee payable by British American Tobacco
SA (Pty) Ltd (BATSA). BATSA is the most prominent producer and
distributor of cigarettes
in South Africa, its brands including
names such as Peter Stuyvesant, Dunhill, Kent and Rothmans. BATSA is
Vendomatic's principal
supplier, in terms of Vendomatic's
contractual relationship with BATSA various BATSA
cigarette brands
are prominently displayed on machines which
in turn house for the most part BATSA products. The distribution
fee is paid
by BATSA to Vendomatic for having BATSA products
identified and displayed on
the
machines.
Formally
Vendomatic likewise have an agreement(s) in place with the
respondent whereby the respondent similarly paid Vendomatic
a
distribution fee in respect of the respondent's products housed and
sold from the machines. The distribution agreement with
the
respondent terminated at the end of May 2007 at the instance of the
respondent notwithstanding my attempts to continue such
mutually
beneficial agreement.
Until
relatively recently the Vendomatic business was operated
countrywide. I decided in 2007 however to scale the business down,
this was done by selling off Vendomatic operations outside of the
Western and Eastern Cape. The Vendomatic business in the Western
and
Eastern Cape is in (indistinct) and consists of some thousand
machines in the Western Cape and some 400 machines in the Eastern
Cape. The business remains substantial and continues to
derive a distribution income from BATSA in addition to its
income
from the sale/vending of cigarettes".
[3]
It appears that respondent lodged a complaint against BATSA with the
Competition Commission, the complaint being based on
BATSA's alleged
abuse of dominance. This complaint and the proceedings pursuant
thereto are then set out in the founding affidavit.
Thereafter,
Zelezniak continues as follows:
"Recent
developments have shown that the respondent has now taken aggressive
action to expand its market share. To this end
the respondent has
been approaching Vendomatic's venue owners who are contractually
bound to Vendomatic in terms of the venue
agreements and has been
inducing and persuading such venue owners to stock and sell the
respondent's product on their premises
in contravention of the venue
agreements. Inducements include providing free product to the venue
owners and making cash payments
to them. In making these approaches,
the respondent would necessarily have known whether from the
extensive information obtained
by it in the course of the
Competition Tribunal proceedings or simply by the obvious presence
of the Vendomatic machines on such
premises (they are clearly
identified as Vendomatic machines) that the venue owners in question
were contractually bound to the
applicant.
Furthermore,
the respondent has various representatives attending on the various
venues to ensure that the Vendomatic machines
stock (and that such
stock is regularly replenished) with the respondent's products -
Camel filter, Camel Light, Winston, Davidoff
and/or 20.
The
respondent would in particular have been aware of the material terms
of the venue agreements, including the provisions that
Vendomatic
was to have the sole and exclusive right to sell cigarettes on the
premises. For the duration of the venue agreement
the venue owner
was not to allow or cause to be allowed any person other than
Vendomatic to place or install on or at the premises
a machine or
other similar device which would in any way have the effect of
competing for the customers of the machines".
[4]
Zelezniak then sets out in his founding affidavit various examples
of what he avers is respondent's unlawful interference
by way of
approaches to venue owners who have entered into a standard
agreement.
I
should addthat attached to the founding affidavitis such
an agreement.
[5]
From the founding affidavit it is therefore alleged that the
applicant has concluded venue agreements with some 1 400 venue
owners along the lines of the standard agreement attached to the
founding affidavit. Applicant's case further is that respondent
has
approached a number of applicant's venue owners and has
secured their apparent agreement to the installation of
the
respondent's OTC unit in contravention of the standard exclusivity
provision contained in all of the venue agreements to
which I have
already made reference.
[6]
Applicant provides evidence of such approaches and this applicant
contends is in material respects corroborated by the evidence
put up
on behalf of the respondent in the answering affidavit. Applicant
avers further that respondent's Mr Roesstorff
approached
Mitchell's Ale House, African Shebeen Pub and Forest Lodge Pub, all
of whom it is averred are venue owners. By virtue
of Roesstorff's
employment with respondent, applicant infers that he would have
known or necessarily foreseen by the mere presence
of Vendomatic
machines that these were applicant's venues and therefore that
contracts of a standard nature had been entered
into between these
establishments and applicant. Accordingly, applicant submits
that Roesstorff would have been alive to
the
nature
of their contractual relationship with the applicant.
[7]
Similarly, the respondent would have been aware from the evidence
placed before the Competition Tribunal in the matter to
which I have
made reference, that the applicant had venue agreements with the
Stone's venues nationwide. Until the termination
of their marketing
arrangement at the end of May 2007, respondent readily received a
schedule of applicant's venues when the
respondent was billed with
an applicable marketing fee.
[8]
Mr
Rosenberg
,
who Appeared on behalf of the applicant, submitted that this
evidence merely provided a context in support of the need for the
relief which had been claimed. The need for that relief, in his
view, became apparent in the wake of respondent's refusal to
provide
an undertaking sought by applicant's attorney in a letter of 28
November 2008. In that letter applicant's attorney pointed
out to
respondent that the applicant's installation of cigarette vending
machines was pursuant to a standard contract with venue
owners in
terms whereof applicant enjoyed a sole and exclusive right to
sell cigarettes on these premises. Respondent
was well aware of
the terms of the applicant's standard contract, not least of all
because of the evidence which had been placed
before the Competition
Tribunal pursuant to the complaint.
[9]
Given that the applicant had recently become aware of
respondent's approaches and inducements to the
applicant's
venue owners, respondent had been called upon to give an
unequivocal undertaking to cease what applicant considered to be
intentional
interference with its contractual arrangements.
[10]
Mr
Rosenberg
submitted that the respondent's answering letter of 5 December 2008
was in itself illuminating. In that letter respondent declined
to
furnish an undertaking on the ground that its conduct in approaching
the venue owners was not unlawful. Mr
Rosenberg
viewed it significant that it did not indicate that its problem
in furnishing an undertaking lay in the fact that in approaching
venue owners it was not sure whether or not they were applicant's
venue owners and, further, that it was unaware of the
material terms of the venue agreements.
[11]
Mr
Rosenberg
therefore submitted that in the circumstances there was little doubt
that the respondent considered itself to be at large to
continue
approaching these venue owners and that indeed it would do so. From
its answering papers that this particular intention
had become
clear. From the evidence provided by the respondent it was clear in
the applicant's view that respondent was intent
on approaching the 1
000 venue owners in the Western Cape.
[12]
Mr
MacWilliam
,
who appeared on behalf of the respondent, complained about the very
nature in which this application had been launched. He first
observed that applicant had applied for relief on an extremely
urgent basis, as he said three days before Christmas in the middle
of a court vacation. It had given the respondent three days' notice
of the application, served its replying affidavit at approximately
10:30 on the morning of the hearing and in that replying affidavit
indicated that it was intent on moving two further amendments
to its
notice of motion. In Mr
MacWilliam's
view
the application was patently not urgent, alternatively it was never
sufficiently urgent to justify the procedure which applicant
had
adopted.
[13]
In the preliminary answering affidavit filed by the respondent,
respondent takes up this particular theme as follows:
"Respondent's
first over-the-counter dispensing solution (called the MAC)
unit was installed by the applicant at Stone's
Night Club in
Durbanville in May 2008, this is the club referred to in paragraph
15.6 of the founding affidavit. At the time
Stones had a Vendomatic
vending machine installed. Not only that but Stones also had a
digital distribution machine...which is
the OTC solution used by the
British American Tobacco South Africa...to sell cigarettes".
In
short, the point being made by the respondent was that the
apprehension of any interference with applicant's venue owners had
taken place so long ago, namely in May 2008, that in itself this
indicated that the frenetic launching of an application three
days
before Christmas was itself evidence that the urgency had been
self- induced rather than having had the application launched
shortly after the apprehension of harm.
[14]
Mr
MacWilliam
also submitted that the applicant seeks to appropriate to itself
anyone who it regards as a venue owner. In his view it seeks
to do
this in circumstances which has never informed a single venue owner
that it intends to bring the present application, notwithstanding
that it is these venue owners' rights as much as anyone else's,
which will be prejudiced by the application should
it
be successful.
[15]
Mr
MacWilliam
further noted that not only has a single affidavit been put up by a
venue owner, nor has a venue owner been cited as
a
respondent but when the respondent sought to approach the
venue owners referred to by applicant, the applicant warned
the
respondent to cease behaving in this fashion applicant's attorneys
claiming "it would be appreciated if you would request
Orin and
any other employees not to attend on the venues referred to in the
court papers until such time as the matter has been
resolved".
[16]
Mr
MacWilliam
also referred to the seven venue owners who are described in the
founding affidavit. Of these, one did not have a contract with
the
applicant, a fact that has been admitted, another contract which has
been properly
attached in reply may well have expired. In
relation to a third contract, applicant did not contest that the
person who signed
the contract was not so authorised to do so. In
the circumstances Mr
MacWilliam
submitted that in no less than three of the seven contracts referred
to which were put up, as he said, at mildest(?) suspect,
applicant
now seeks final relief in relation to every other possible
venue
owner without even informing, let alone joining, these venue owners
to the application.
[17]
In any event, in the circumstances Mr
MacWilliam
submitted,
it was clear that before the applicant could obtain any relief which
affects any venue owner, the venue owner must
have been joined to
the proceedings.
[18]
So much therefore for the disputes between the parties as they
flowed from the papers.
The
requisites for a final interdict
[19]
The three requisites for a final interdict are trite. They are
briefly;
A
clear right on the part of the applicant
An
injury actually committed or reasonable apprehended
3.
The
absence of any other satisfactory remedy
(See
Setlogelo
v Setloqelo
1914 AD 221)
[20]
Turning to the question of a clear right, Mr
Rosenberg
referred to McKerrin and
The
Law of Delict
(7
th
ed.) where the learned author writes that in South African law, as
in English law
"Intentionally
and
without lawful
justification
to induce or procure anyone to break a contract made by him with
another is a wrong action and pursuit of that other
if damage
results". McKerrin writes that the rule is merely a branch of a
much wider proposition, namely that he who wilfully
induces another
to do an unlawful act which, but for his persuasion would or might
never have been committed, is answerable for
the wrong which he has
procured.
[21]
More recently Van Heerden-Neethling:
Unlawful
Competition
(2
nd
ed.) state that interference with the contractual relationship is;
present where a third party's conduct is such that the contracting
party does not obtain the performance to which he is entitled from
the other party or where the contracting party's contractual
obligations are increased by a third party. They state that this
type of conduct may naturally also occur in the context of
commercial competition.
[22]
At page 245 of their work, the learned authors state:
"In
South African law the general rule is that the intentional
interference by a third party with the contractual relationship
of another in principle constitutes an independent
delictual cause of action. Much of the decisions deal with
intentional interference in circumstances where a third party
induces, entices or instigates one of the contracting parties
to
commit breach of contract".
In
Atlas
Organic Fertilisers (Pty) Ltd v Pikkewyn Ghwano (Pty) Ltd
1981(2) SA 173 (T) at 202,
Van
Dijkhorst.
J
stated:
"A
delictual remedy is available to a party to a contract who complains
that a third party has intentionally and without
lawful
justification induced another party to a contract to commit a breach
thereof".
Van
Heerden and Neethling submit that this principle also applies to the
conduct of competitors. Accordingly, A acts unlawfully
towards B, a
rival, if he entices away B's customers, supplies, credit granters
etcetera by inducing them to commit breach of
contract.
[23]
At 252 of their work, the authors then continue:
"It
is nevertheless important to note that in particular circumstances
breach of contract by an entrepreneur they
also
constitute unlawful competition against his rivals with whom he
does not stand in a contractual relationship and
whose goodwill is
or will be infringed as a result of the conduct complained of".
Such
a case apparently came before the Court in
20
th
Century
Fox Films Corp v Anti (indistinct) Films (Pty) Ltd
.
The applicants, rivals of the respondent in the field of video
cassettes, applied for an interdict restraining respondent
with whom they had no privety of contract from competing with them
in breach of his contractual obligations towards a third party.
The
second applicant's case was based on the fact that
respondent has breached the terms of the contract subject
to which
it had purchased the cassettes in the United Kingdom. Those terms
were imposed to protect it (the second applicant's)
own interests
and those of the first applicant. That such breach is prejudicial
and damaging to it, the second applicant intends
to trade in video
cassettes in South Africa and that therefore the respondent
has acted unlawfully in competition
with the second
applicant.
Goldstone,
J
decided that:
"On
the assumption that the applicant's allegations of fact are true and
correct, I cannot find at this stage of the proceedings
that the
applicant does not have a
prima
facie
cause
of action for an interdict and damages".
[24]
This excursus into the law very briefly reveals that an intentional
interference in circumstances where a third party induces
one of the
contracting parties to commit a breach of contract is a delict and,
accordingly, our law protects therefore the rights-holder,
that is
the rights- holder who can source its rights in a contract which a
third party is seeking to render redundant. In my
view, therefore,
in South African law there is a right on the part of a party such as
applicant to approach this Court to protect
their contractual
relationships.
[25]
Turning to the question of an injury actually committed or
reasonably apprehended, in
V&A
Waterfront Properties v Helicopter Marine Services
2006(1) SA 252 (SCA) at 257,
Howie,
P
confirmed that what is comprehended by an injury is essentially an
infringement or an invasion of right. In that case the
threatened
invasion of the first appellant's rights under the lease agreement
constituted proof of reasonably apprehended injury.
[26]
Turning to the question of the absence of any other satisfactory
remedy,
Howie,
P
stated that the appellant in that matter was entitled to enforce its
bargain, that being so a prohibitory interdict was the only
satisfactory way to
ensure
that enforcement of the bargain.
[27]
Respondent appears to take the view that it has a defence based on
justification that is legitimate competition. There is
no question
that our law seeks to promote legitimate competition and that is why
in all forms of restraints an exercise of proportionality
between
legitimate rights of competition and the protection of contractual
arrangements which have been voluntarily entered into
needs to be
exercised. However, competition which involves the intentional
interference with a competitor's contractual rights
by inducing, in
this case venue owners to breach a material term of their venue
agreement with applicant, does not amount to
lawful conduct, that
must be clear from the jurisprudence already analysed in this case.
There would have to be some compelling
reasons of social and
economic policy to trump the generally applicable
principle that
intentional
interference with contractual rights of another, particularly in the
form of an inducement to breach the contract,
is unlawful. There is
nothing in the papers which suggests the case put up by the
respondent as to what the social or policy
considerations might be
in these circumstances.
[28]
The threatened invasion or infringement of theapplicant's rights
not to have its contractual arrangements
unlawfully
interfered with is therefore clearly an injury for the purposes of
the interdictory requirements. It is also clear
that an interdict is
the appropriate remedy. It is here where it appears to me that Mr
MacWilliam's
analysis of the dispute is palpably
incorrect.
The
relief sought is not to
recover
damages
from the seven venue owners who were cited in the founding
affidavit, it is of an anticipatory nature that is to prevent
further inroads into its venue owner base to protect rights which
it had entered into with venue owners and which it
anticipates
may be destroyed by virtue of conduct which has been commenced by
respondent and which it has every reason to believe
will continue.
(See in this particular case respondent's own answering affidavit
and its response to applicant's
attorney's letter to which
I have already made reference).
[29]
In response to respondent's case about non-joinder of the venue
owners, Mr
Rosenberg
submitted that the relief which is sought in respect of the venue
owners is sought by reference to them as a group or body.
Venue
owners
are
those who have concluded, whether now or in the future, a venue
agreement with the applicant containing standard terms in
a typical
form as is clearly attached to the founding affidavit. As
much advantage as Mr
MacWilliam
would seek to squeeze from the fact that the Court was not given all
1 400 agreements, it is clear from the agreement attached
to the
founding affidavit and further agreements in replying affidavits
that a standard form contract has been employed. Given
that the
venue owners' body changes over time with fresh venue
agreements being concluded and existed
venue
agreements
being terminated on occasion, it was neither necessary nor
appropriate that the relief granted should go further than
referring
to the applicant's venue owners as the group or body which
symbolises effectively the
contractual
relationships entered into by applicant and which are now
under threat given the conduct orthreatened
conduct of the
respondent.
[30]
Given the respondent's contention that it was unaware of those
venues which have contracted with the applicant, Mr
Rosenberg
submitted that this could be addressed by making an operational?)
interdict framed in the notice of motion in respect of any
of the
applicant's venue owners, subject to the applicant having given the
respondent written notification that the venue or
venue owner in
question
is bound by the applicant's standard venue agreement.
[31]
The critical response to respondent's case is that there is no
reason in law or logic why the venue owner should thus be
joined.
The relief sought is to prevent the commission of an apprehended
wrong, rights of the venue owners are not affected.
Certainly
such venue owners do not have a right or entitlement to be
approached by the respondent with a view to inducing them
to breach
their venue agreements or obligations to the applicant. So much is
clear from the law which I set out and to
which Mr
MacWilliam
took no issue in argument.
[32]
Turning to the question therefore of urgency, respondent's complaint
was not so much that the matter is not otherwise
sufficiently
urgent to justify the procedure adopted, it appeared from
what I have already stated that the urgency
was somewhat
self-created. As stated by Mr Zelezniak, respondent's approaches to
the applicant's venue owners only came to the
attention of
applicant
during the course of November 2008. The matter was then
investigated, legal action was taken and the letter to which
I
have made reference was then generated on 28 November 2008.
Respondent then
declined
to furnish an undertaking on 5 December 2008. Accordingly, it does
appear that on the case made out there is no basis
for concluding
that this was simply a matter of self-created urgency.
[33]
To summarise therefore, I am satisfied that our law does provide
applicant with a right to seek the relief sought. I am
satisfied
further that when the papers are taken as a whole, that is
applicant's and respondent's versions, there is a reasonable
apprehension that the respondent will continue to seek to induce
venue owners to become part of its custom and therefore by virtue
of
the contracts entered into between applicant and the venue owners,
breach the contracts so entered into.
[34]
I am further satisfied that the basis of the remedy is anticipatory
in nature, that is not to seek damages in cases here
the breach has
already occurred (that is not before me), but rather to prevent the
very business which applicant conducts to
be eroded to such an
extent that it would be rendered nugatory by the time any further
action can be taken by way of damages.
[35]
The only issue that then remains is the following; having
established the requirements should final relief be granted.
Respondent complains of being compelled to answer within three days
and there is a case in point. The scope of the relief may
therefore
be difficult to determine with the precision required to grant final
relief given the papers which have been presented
to the Court.
There are allegations of the lack of knowledge of the existence of
venue owners and therefore the scope of permissible
marketing by
respondent into these areas. In my view, therefore, final relief may
well be premature on the papers entered into.
Manifestly, it is
within the power of this Court to refuse final relief but to grant
interim
relief by way of a temporary interdict, this
notwithstanding that applicant asked for final relief.
[36]
In relation to the question of costs, given that a tender was made
in open
court
by
the applicant that this case could be resolved by way of a
temporary interdict pending further papers being generated
by the
parties so that the issue of a final interdict could be argued at a
later stage rather than placing this Court under undue
pressure in
the circumstances of this case and that that tender was refused, it
does appear to me that an adverse costs order
against respondent is
therefore appropriate.
[37]
For these reasons therefor the following order will be granted:
A
rule
nisi
is
issued calling upon the respondent to show cause as to why an order
should not be made on 9 February 2009 as follows:
1.
Interdicting
and restraining the respondent from approaching, inducing or
persuading the applicant's venue owners in order to
secure the
installation at the venues in question of the
respondent's
over-the-counter units or with a view to securing any right or
arrangement for the distribution of the respondent's
products at the
venues in question.
2.
Interdicting
respondent from interfering in any
way
with the applicant' contractual arrangements with its venue owners.
3.
Paragraphs
1 and 2 shall operate as interim orders pending the return date of
the rule.
4.
Respondent is to pay applicant's costs.
DAVIS,
J