Bellville Apteek BK and Another v Nortje (PTY) Limited and Others (9462/02) [2003] ZAWCHC 8; [2003] 2 All SA 68 (C); 2004 (6) SA 442 (C) (13 March 2003)

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[2003] ZAWCHC 8
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Bellville Apteek BK and Another v Nortje (PTY) Limited and Others (9462/02) [2003] ZAWCHC 8; [2003] 2 All SA 68 (C); 2004 (6) SA 442 (C) (13 March 2003)

IN THE HIGH COURT OF
SOUTH AFRICA
(Cape
of Good Hope Provincial Division)
REPORTABLE
Case
No. 9462/02
In
the matter between:
BELLVILLE APTEEK BK
First Applicant
THE
PHARMACEUTICAL SOCIETY OF SOUTH Second Applicant
AFRICA
and
T
NORTJÉ (PTY) LIMITED
First Respondent
NORTJÉ
TOBIAS GERHARDUS Second
Respondent
THE
SOUTH AFRICAN PHARMACY COUNCIL Third Respondent
PICK
‘n PAY PHARMACEUTICAL WHOLESALERS Fourth Respondent
(PTY)
LTD
JUDGMENT DELIVERED ON 13 MARCH 2003
DAVIS
J,
Introduction:
First applicant is a pharmacy trading in
Bellville. Second applicant is an unincorporated national
association of pharmacists which
interests itself in combating
commercial permeation of the industry. Applicants contend that
first and second respondents have
conducted a pharmacy business in
contravention of the provisions of the Pharmacy Act 53 of 1974 (‘the
Act’) and regulations which
have been promulgated pursuant thereto.
Applicants
seek a final interdict against first and second respondents to
prevent them from operating a pharmacy which trades using
a trading
name and signage which indicates that it is associated with the
‘Pick ‘n Pay’ retail group and from allowing the
Pick ‘n Pay
group to hold any interest in the business of the pharmacy or from
exercising any control over the management and operation
of the
pharmacy.
Factual
Background.
First
and second respondents commenced trading on 27 November 2002
alongside the Parow Pick ‘n Pay supermarket situated at the Pick
‘n
Pay family supermarket centre, Parow. A promotional leaflet which
was distributed prior to the opening of the pharmacy provides
an
indication as to the nature of the business. The leaflet which is
attached to respondents answering affidavit reads as follows:
‘My
name is Toby Nortjé, I’m the proud owner of the Parow family
pharmacy which is the new franchise in Parow conveniently situated
at
the Pick ‘n Pay family supermarket centre in Parow and supported
by HealthPharm the new concept in pharmacy franchising. My
family,
staff and I pledge to deliver our professional and caring service to
you and your family at all times. We are privileged
to be supported
by the Pick ‘n Pay franchise family’s reputation for buying,
marketing and information technology.’
It
appears that the Parow family pharmacy was the fifth HealthPharm
franchisee to open its doors. The other four franchisees operate
in
Gauteng, the first of which began conducting business in September
2001.
First
respondent’s pharmacy was registered as a pharmacy in the category
‘community pharmacy’ on 1 November 2001. On the same
day the
trading title of first respondent was registered as ‘Parow Family
Pharmacy’.
Applicants
contend that the franchise agreement and the contents of the
franchise manuals to which first and second respondents are
required
to adhere gives rise to a regime that contravenes the provisions of
the Act, the Rules and the Regulations made pursuant
to the Act. In
particular, applicants contend that first and second respondents have
granted to the Pick ‘n Pay retail group:
An
improper interest in the business of the retail pharmacy conducted
by the first and second respondents and an improper interest
in the
shares of the first respondent.
An
impermissible degree of administrative or managerial control over
the retail pharmacy business.
The
regime has also imposed upon the first and second respondents an
obligation to utilise a trading title which has not been authorised
by third respondent.
Standing.
Before
dealing with the substantive questions raised by applicant, the
question of applicants’ standing must be considered. Mr
Gauntlett,
who appeared together with Ms Fichardt on behalf of first and second
respondents, contended that the applicants were required
to show a
direct and substantial interest in the subject matter of the
litigation and that an indirect commercial interest alone
could not
suffice. What was required was ‘an interest in the right which is
the subject matter of the litigation and…not merely
a financial
interest which is only an indirect interest in such litigation’.
See
Henri Viljoen (Pty) Ltd
v Awerbuch Brothers
1953(2)
SA 151 (O) at 169 H –170 H.
In
its founding affidavit, first applicant avers that it has a real and
substantial interest in ensuring that there is adherence to
the legal
requirements for the carrying on of the practice of a pharmacy.
Mr
Gauntlett submitted that merely to allege a contravention of the
provisions of the Act and Regulations does not
per
se
confer
locus
standi
upon applicants’
for the relief sought. To
the extent that first applicant contended that its goodwill had been
infringed and that it stood to suffer
financial loss as a result of
the establishment of the business of first and second respondent, no
facts were provided in its papers
in general and in the founding
affidavit in particular to substantiate this contention. In
particular, Mr Gauntlett referred to
the uncontested fact that there
were no less than eleven pharmacies doing business on the main route
between the first applicant’s
business and that of the first
respondent. In addition there were approximately ninety five
pharmacies trading within a ten kilometre
radius of the first
applicant. No evidence was supplied to show why or how first
applicant stood to suffer in any way as a causal
result of the trade
practices of the Parow Family Pharmacy. Nor in Mr Gauntlett’s
view, was it possible to draw any adverse inference
against
respondents.
In
summary, Mr Gauntlett contended there was no basis by which it could
be accepted that first applicant, as opposed to any of the
other 106
pharmacies in the area, would be adversely affected by the business
operation of first and second respondents.
Mr
Gauntlett also questioned the
locus
standi
of second applicant.
Second applicant was not a trading entity but a voluntary association
operating as a national and not a local
body which had no interests
surpassing those of its members. It had neither demonstrated that
any right which it held had been
infringed in any way nor that it was
likely to suffer loss of any nature.
In
support of this submission Mr Gauntlett referred to the decision in
SA Optometric Association v
Frames Distributors
1985(3)
SA 100(O) at 104 B – F in which
Lichtenberg
J
said:
‘
Any individual member would
obviously have the required direct and substantial interest in the
subject matter of the present litigation
and consequently in the
outcome thereof because his profits from the sale of spectacle frames
are detrimentally affected by the sale
of such frames by respondent;
but can the applicant – association be said to have anything more
than at most an indirect interest
in the subject – matter of this
application? I think not. The fact that some of its members stand
to lose the profits which they
would make from the sale of spectacle
frames if a non-optometrist like the respondent is not interdicted
from selling such frames
does not accord the applicant as a “non
profit association, an association not for gain” the required legal
interest in the sense
set out above. Since its own interest in the
subject matter of the present dispute is no more than an indirect
one, and it is certainly
not a direct financial interest at all.
Applicants “interest” in what happens to the profits of its
members can, at best, be
merely an indirect interest’.
Mr
Gauntlett also submitted that second applicant was not properly
before the court, because in the affidavit deposed to on its behalf
by Mr Kotze, it had not been shown that Kotze had been properly
authorised to institute the application on behalf of second
applicant.
The resolution which purportedly authorised Kotze to act
read as follows: Franchisees in Pharmacy – Agreed with process on
Pick
‘n Pay franchise – Parow. The committee agreed to the legal
process of an interdict against the operation of this franchise’.
This
resolution patently did not authorise Kotze to act on behalf of
second applicant in instituting the present application. The
constitution of second applicant did not grant Kotze more powers than
those expressly accorded to him. Mr Gauntlett thus submitted
that
there was no authority accorded to Kotze to depose to an affidavit on
behalf of second applicant and hence the latter was therefore
not
properly before the court. See in particular
Griffiths
& Inglis (Pty) Ltd v Southern Cape Blasters (Pty) Ltd
1972(4)
SA 249 (C) at 252 D – E.
Mr
Dickerson, who appeared together with Mr Leach on behalf of
applicants, submitted that first applicant was entitled to the relief
sought in that it relied on a breach of legislation which had been
enacted for the benefit of a class of persons of whom first applicant
was a member. In this connection Mr Dickerson referred to a
dictum
of
Harms AJ A
(as
he then was) in
Reckitt and
Coleman SA (Pty) Ltd v SC Johnson and Son SA (Pty) Ltd
1993
(2) SA 307
(A) at 321 B – C namely, ‘It has long been accepted
that this Act was not only an Act for the protection of the general
public
but also of merchants and manufacturers. A merchant or
manufacturer may have
locus
standi
to prevent a
contravention in accordance with the principles laid down in the
Roodepoort – Maraisburg
Town Council v Eastern Properties (Prop) Ltd….
’where
the Legislature prohibits the doing of an act in the interest of any
person or class of persons, such person or any one of
such class can
obtain the intervention of the Court to enforce the prohibition
without proof of special damage’.
Regarding
the
locus standi
of second applicant, Mr Dickerson referred to the judgment in
Transvaal Canoe Union and
Another v Butgereit and Another
1986
(4) SA 207
(T). In that case the Transvaal Canoe Union was held to
have
locus standi
to apply for an interdict to restrain respondent from interfering
with the rights of its members to canoe on the Crocodile River
on the
basis that it had an interest of its own to protect, being that
amongst its functions was the organising, controlling and
administering of canoeing on this stretch of the Crocodile River.
Mr
Dickerson also referred to clause 4 of the constitution of second
applicant which contained its objects. In his view, these objects
were similar to those of the Transvaal Canoe Union (see
Transvaal
Canoe Union
, supra at 209
B-D). The objects of second applicant are set out in clause 4 of its
Constitution thus:
‘
4.1 to promote the professional,
educational and economic interests of the members of the Society and
of the pharmaceutical profession.
to uphold and improve the professional integrity and
standards of professional conduct of the members of
the Society,
to bind members of the Society to professional conduct,
to improve, promote and maintain the image of the
profession,
to represent generally the views and interests of the
members on all pharmaceutical matters, including representing
the members
in dealings with government and other similar agencies,
to uphold and assist in the promotion and maintenance of
the health of the people of South Africa through the provision of a

satisfactory and dependable pharmaceutical service,
to provide and promote benefits to its members and to do all
such things as may advance the interests of its members; and
in recognising the diversity of the population of the
Republic of South Africa, to promote the representation of all
sectors
of the South African community in its membership.
In
my view, there is considerable merit in first and second respondents
attack on the
locus standi
of both applicants. The high water mark of first applicant’s claim
that it will suffer direct financial harm as a result of the
conduct
of first and second respondents’ business is set out in the
founding affidavit of Mr Ackermann thus:
‘
36.1
This harm will arise as a result of the loss of custom and therefore
trade turnover from the business of the First Applicant
to that of
the First Respondent.
36.2
I have no doubt that the reputation and goodwill of the Pick ‘n Pay
brand and trademark will attract attention and lure customers
to that
store.
36.3
This is especially so given the proximity of the First and Second
Respondents to the Pick ‘n Pay supermarket as well as the
fact that
the first respondent will be able, through the advantages of Pick ‘n
Pay’s buying power, to offer lower prices than
First Applicant can
offer and against which the First Applicant cannot compete.
37
The damage and damages that fall to be suffered as a result of the
conduct are almost impossible to assess. With regard to the
financial losses that First Applicant is suffering, it is again
virtually impossible to quantify with any procision these losses
and
therefore impossible to recover compensation for same in a subsequent
damages action.’
Needless
to say first respondent denied these allegations and pointed to the
fact that many of the 100 pharmacies in the immediate
10 kilometre
vicinity of the Parow Family Pharmacy, utilise brand names in the
same manner as first respondent.
In
a replying affidavit, Mr Ackermann on behalf of first applicant,
denied that it would not suffer loss. He then stated ‘I have
been
advised that even if, notionally, one of First Applicant’s
customers might move its custom from the First Applicant to the
Second Respondent then the First Applicant enjoys sufficient
interest’.
The
replying affidavit was signed on 20 January 2003, almost two months
after first respondent had commenced business. As Mr Gauntlett
correctly observed, if there had been a tangible loss to first
applicant during the first two months of trading, it could have been
expected that some evidential basis for first applicant’s
contentions would have been included in the replying affidavit. By
contrast,
the replying affidavit continues to employ bland,
generalised statements which did not provide any evidential support
for its assertion
that it would suffer direct financial harm as a
result of the trading of first respondent.
The
basis of second applicant’s case turns on the argument that the
interests which second applicant seeks to protect, being the
promotion of responsible, accountable and ethical standards in the
pharmacy profession were not being employed by first and second
respondents. Thus Mr Kotze states in his affidavit ‘To that extent
the second applicant has served as a watchdog of the interests
of the
members of the public in seeing to it that improper, unethical and
illegal practices within the profession are stopped.’
In
my view, the approach adopted by
Lichtenburg
J
in SA
Optometric
Association v Frames Distributors, supra
at
104 B-D reflects the correct approach to the standing of voluntary
associations in the position of second applicant. To recapitulate
on
what
Lichtenburg J
said, ‘The fact that some of its members stand to lose the profits
which they would make from the sale of spectacle frames if
a
non-optometrist like the respondent is not interdicted from selling
such frames does not accord the applicant, as a ‘non-profit
association, an association not for gain’ the required legal
interest in the sense set out above since its own interest in the
subject matter of the present dispute is no more than an indirect
one, and it is certainly not a direct financial interest at all.’

This approach finds support in a decision of a full bench of this
Division in
Ahmadiyya AIIL v
Muslim Judicial Council
1983(4)
SA 850 (C) at 864 B-F. See also
Natal
Fresh Produce Growers’ Association v Agroserve (Pty) Ltd
1990
(4) SA 749
(N) at 759 B-D.
The
constitutional extension of
locus
standi
was also raised by
applicants. Admittedly, within the constitutional context the
position regarding
locus
standi
has changed.
Kruger AJ in Highveldridge
Residents Concerned Party v Highveldridge TLC
2002(6)
SA 66 (T) at para. 24 has summarised the position thus: ‘Bearing
in mind the expanded standing provided for by s 38 and
the way in
which the latter has been explained implemented in previous
judgments, I am of the view that the restrictions placed by
the
common law and the legal standing of voluntary associations cannot
and should not apply without qualification to voluntary associations
seeking to invoke s 38 to seek redress, in the event of rights in the
Bill of Rights having allegedly been infringed or threatened.
To
restrict voluntary association in the way they are restricted by way
of the common-law requirements, particularly when rights
enshrined in
Bill of Rights are at stake, would be incompatible with various
principles contained in, and which by necessary implication
underpin
the Constitution’.
In
the present dispute, however, there is no suggestion that any
constitutional rights of applicants have been breached. Furthermore
there is nothing in the objects of second applicant which place it in
the same position as the Transvaal Canoe Union, which association
had
been established,
inter
alia
, with the express
purpose of fostering and organising the sport of amateur canoeing in,
the very river area which was the location
of the dispute. See
Transvaal Canoe Union, supra
at 209 G. For the purpose
of this judgment, however, I will assume that both applicants have
the necessary
locus standi,
notwithstanding the powerful counter pointers to which I have already
made reference. I shall also assume that Mr Kotze (in the
light of
the further affidavit of Mr Stoltz) was duly authorised to depose to
an affidavit on behalf of second applicant.
Applicants’
Case
.
In
order to analyse applicants case, it is necessary to refer to certain
key provisions of the Act and the Regulations promulgated
under the
Act. In terms of section 22(1) of the Act ‘Notwithstanding
anything to the contrary contained in this Act, a body corporate
(other than a corporation) may carry on business in the Republic as a
pharmacist on the following conditions but not otherwise –
the
body corporate shall have as the managing director of its business
in the Republic, a pharmacist who resides in the Republic
and who is
not so as provided in sub-section (4) engaged in the business of a
pharmacist which does not belong to the said body
corporate either
alone or in partnership with another person…..
a
body corporate shall not carry on business as a pharmacist unless it
holds a valid certificate…. of its registration and the
registration of its managing director and unless the person
registered as managing director in fact manages the business of the
body corporate and complies with the requirements set out in
paragraph (a) in respect of such managing director…
every pharmacy in which such body
corporate carries on business shall be conducted under the
continuous personal supervision of
a pharmacist whose name shall be
displayed conspicuously over the main entrance of such pharmacy.’
Section
22 A provides that no body corporate other than a body corporate
which complies with the provisions of section 22(6) or 22
B)(1)(f)
shall open, purchase or otherwise acquire a pharmacy in which the
business of a pharmacy is carried on, or acquire any share
in such
pharmacy.
S
22(6)(b)(i) stipulates
inter
alia,
that in respect of a
company registered as a pharmacist with third respondent only natural
persons who are pharmacists may hold the
shares of such company or
have an interest in such shares.
In
terms of paragraph 3 of the Regulations relating to the Practice of
Pharmacy (GNR 1158 – 20 November 2000)(‘the Practice
Regulations’)
the following acts shall be regarded as acts
specially pertaining to the profession of the pharmacist:
The
provision of pharmaceutical care by taking responsibility for the
patient’s medicine related needs and being accountable for
meeting
these needs, which shall include but not be limited to the following
functions:
evaluation
of a patient’s medicine related needs by determining the
indication, safety and effectiveness of the therapy;
dispensing
of any medicine or scheduled substance on the prescription of a
person authorised to prescribe medicine;
furnishing
of information and advice to any person with regard to the use of
medicine;
determining
patient compliance with the therapy and follow up to ensure that the
patient’s medicine related needs are being met;
and
the
provision of pharmacist initiated therapy;
(2) the compounding, manipulation,
preparation or packaging of any medicine or scheduled substance or
the supervision thereof;
(3) the
manufacturing of any medicine or scheduled substance or the
supervision thereof;
(4) the
purchasing, acquiring, importing, keeping, possessing, using,
releasing, storage, packaging, repackaging, supplying or selling
of
any medicine or scheduled substance or the supervision thereof; and
(5) the
application for the registration of a medicine in accordance with the
Medicines Act.
Paragraph
25(1) of the Practice Regulations provide that the managing director
of a company or the manager of a close corporation
entitled to carry
on the business of a pharmacist must –
(1)
undertake the overall administration of the pharmacy business, which
includes but does not limit it to the regulation of pharmacy
matters,
human resources, or matters relating to processes regarding medicines
or scheduled substances including procedures and record
keeping and
shall be responsible to council for any act performed by or on behalf
of such company or close corporation, including
any omission to
perform an act required to be performed by or on behalf of such owner
which may involve disciplinary action by council,
unless he or she
can satisfy council that the responsibility for such act rests upon
the nominee, responsible pharmacist or a pharmacist
other than him -,
or a self employed by such company or close corporation.
In
terms of Rules relating to Acts or Omissions in respect of which the
Council may take Disciplinary Steps (GNR 599 – 31 March
1989 (‘the
Rules’) a number of acts or omission are deemed to be unethical or
unprofessional conduct, subject to the disciplinary
steps of third
respondent, including adopting and using a trading title for a retail
pharmacy without the prior written approval
of third respondent (para
20) ‘the use by a retail pharmacy as its trading title or as part
of such title of the name of any other
company, firm or business or
any words indicating or suggesting that the pharmacy is associated
with, belongs to or is in any way
connected with such other company,
firm or business, unless such other company, firm or business is
registered with the Council as
the owner or part owner of the
pharmacy….’ (para 21).
To
return to applicants case and the three key issues which require
analysis, being the use of a trading title, the grant of an interest
in a pharmacy and the exercise of control.
1.
Use of trading title.
Applicants
contend that first and second respondents use the word HealthPharm
which indicates that the business is associated with
the Pick ‘n
Pay group. Signage employed includes the words ‘HealthPharm’,
‘Family Value Pharmacy’, ‘professional health
care from the
people who care’, ‘a member of the Pick ‘n Pay franchise
family’ It also includes the HealthPharm logo and
the Pick ‘n
Pay trade mark. The signage containing the name of the first or
second respondents and Parow Family Pharmacy is to
be found on a
small notice above the entrance to the premises.
Mr
Dickerson submitted that the word ‘trade name’ is defined in the
Concise Oxford Dictionary
to
include the name under which a business trades. Accordingly, it was
clear from photographs which had been attached to the founding
affidavit that first respondent was trading under the name of
HealthPharm, being the most prominent title under which the pharmacy
conducted its business. Mr Dickerson conceded that first respondent
may have employed another title, being Parow Family Pharmacy
but it
also held itself out as trading under the name of HealthPharm.
The
manner in which the first and second respondent utilised the
HealthPharm branding made it clear that the manner of usage
established
the branding as the trade name or trading title of the
business. For these reasons, Mr Dickerson submitted that the use of
the HealthPharm
trade mark and associated branding amounted to the
use of a trading title for which authorisation had not been given by
third respondent.
2.
The grant of an interest in the pharmacy and/or its share as to Pick
‘n Pay
.
Applicants
submitted that the franchise agreement entered into between Pick ‘n
Pay and first and second respondent conferred upon
the franchisor,
Pick ‘n Pay Retailers (Pty) Ltd, an interest in the shares of first
respondent as well as an interest in the retail
pharmacy business
operated by first and second respondents. To this extent therefore,
first and second respondents had acted contrary
to both the Act and
the Regulations.
In
this connection Mr Dickerson referred to clause 23(2) of the
franchise agreement which provides: ‘At all time subsequent to the
first (annual) anniversary of the opening date, no shareholder or the
franchisee shall sell or otherwise dispose of or transfer (including
by way of donation) his/her (or any of his/her) shares in and/or
claims against the franchisee unless –
23.2.1
the contemplated acquireror complies with and satisfies all
applicable provisions and requirements of the pharmaceutical
legislation;
and
23.2.2.
the contemplated acquireror thereof is reasonably acceptable to the
franchisor and has been approved by the franchisor in
writing; and
23.2.3
the franchisor’s position or risk (or potential risk) will not be
significantly prejudiced or increased, as the case may
be, by such
contemplated disposal transfer; and
23.2.4
the franchisor has approved such disposal or transfer in writing,
which approval such not be unreasonably withheld'.
Mr
Dickerson also referred to the manner in which the franchise
agreement had made provision for a number of methods whereby the Pick
‘n Pay group could protect and enhance the goodwill attaching to
the intellectual property by directly intervening and dictating
the
business of the retail pharmacy. For example clause 14.2 of the
Franchise Agreement provided that ‘in order to protect,
and to be
able to protect, the intellectual property, the franchisor (including
its duly authorised professional advisers and employees
and/or its
duly authorised agents, representatives and/or nominees) shall, for
the purposes of this agreement be entitled to –
14.2.1
determine the distinctive brand and style that should be used by the
franchisee in the conducting of the business including
without
limitation, the décor of the premises…..the fixture and fittings,
the manner, form and style of advertising and promotions
by the
franchisee, the style of (and requirements in respect of) the
franchisee’s delivery vehicles (if any) the style of stationery,
invoices and documentation used by the franchisee in the conducting
of the business and the uniforms worn by the franchisee staff’.
Clause
15.5 obligated the franchisee ‘to operate and conduct the retail
pharmacy business –
15.5.1.1.
strictly in accordance with the provisions of the relevant title
deeds or lease agreement or sub-lease agreement as the
case may be,
from which the franchisee derives its entitlement to possess the
premises;
15.5.1.2
so as not to harm or prejudice the franchisor’s right, title,
interest and goodwill to, in or derived from the intellectual
property;
15.5.1.3
in a business-like and proficient manner and ensure that the retail
pharmacy business at all times protects a good and competitive
image;
15.5.1.4
strictly in accordance with pharmacy legislation.
In
terms of clause 15.6.2, the franchisee’s obligations include the
display of the brand and the HealthPharm signage on or at the
premises (both exterior and interior) and use its best endeavours to
display the brand and the Health Pharm signage in the most
appropriate
and prominent places on or at the premises or as
otherwise reasonably directed by the franchisor.
Clause
15.7.1 provides that ‘subject to any legal constraint to the
contrary, (the franchisee shall) stock such range of non
pharmaceutical
products in or on the premises as the franchisor may,
in its reasonable discretion, direct from time to time’. In terms
of 15.7.2,
the franchisee must consider the mix and suggested range
of pharmaceutical products recommended by the franchisor.
On
the basis of these provisions, Mr Dickerson submitted that a legal
relationship has been established in terms of both the franchise
agreement and the supply agreement by which first and second
respondents had unlawfully granted to the fourth respondent and to
Pick
‘n Pay Retailers (Pty) Ltd an interest in the business of a
retail pharmacy which was impermissible in terms of the Act and the
Regulations.
The Exercise of Management and Administrative Control vested in
Pick ‘n Pay:
The franchise agreement obliged first and second
respondent to commence operating the pharmacy business on a date
specified in the
franchise agreement but only once the franchisor was
satisfied that first and second respondents and their employees have
‘satisfactorily
undergone such training with the franchisor…as
the franchisor may reasonably determine (clause 15.4.2.1). In terms
of clause 15.4.2.2
first and second respondents are obliged to
operate and conduct the business ‘strictly in accordance with the
provisions of .….the
agreement, the HealthPharm system, the
franchise manuals and the methods, system and standard procedures
determined and directed
by the franchisor, in its reasonable
discretion, from time to time and further in accordance with any
other written or oral directives
given by the franchisor, in its
reasonable discretion, to the franchisee from time to time’.
In addition the franchise manual sets out a
comprehensive set of requirements for dispensing procedures,
reporting and stock procedures
and staff relations.
In particular, Mr Dickerson referred to the
section of the franchise manual dealing with dispensing procedures in
which
inter alia
the following guidelines are set out: ‘Make
a study of the ingredients, especially of the (over the counter)
drugs. There are
many medicines that contain exactly the same active
ingredients and are equally as effective e.g. actophlem and
solthylex. Most of
the time the price difference is almost
negligible. The generic often carries a better mark-up’.
Mr Dickerson submitted that the regulatory regime
set out in the manual and as the franchise agreement provided a
clear evidential
basis for applicants’ case, namely that the first
and second respondents had unlawfully and in contravention of the
provisions
of the Act and Regulations surrendered administrative
control and management in and in respect of the pharmacy to fourth
respondent
and/or to members of the Pick ‘n Pay group.
In support of these submissions Mr Dickerson
referred to the decision in
J Pintusewitz (Pty) Ltd v South
African Pharmacy Council
1994(2) SA 68(C) at 76 I in which
Berman
J
said ‘[t]his franchise agreement deprived applicant of a
free and unfettered right to conduct its proposed business on an
independent
basis and Mr Pintusewitz of the effective use of the
powers of a managing director to manage every part of applicant’s
business
other than that relating exclusively to its purely
pharmaceutical aspect. In fact, Mr Pintusewitz’ role in the
proposed pharmacy,
in the light of the franchise agreement, is
comparable to that of a
locum tenens
in a pharmacy, where the
qualified pharmacist is absent through illness or is away on holiday
and where the substitute pharmacist
is subject to constant
supervision by the person or company which owns the pharmacy
business’. Mr Dickerson contended that the
court’s approach to
the franchise agreement in the Pintusewitz case, supra, was of clear
application to the facts of the present
dispute and therefore should
be followed.
Evaluation
.
1. Whether First and Second Respondents are
carrying on business using the words HealthPharm as the trading title
for their retail
pharmacy business?
In answering this part of applicants’ case much
of the argument turned on the meaning of the phrase ‘trading
title’. Rule 21
of the Rules relating to Acts or Omissions in
respect of which the Council may take Disciplinary Steps (GNR 599: 31
March 1989) provides
as follows:
‘Use by a retail pharmacy as its trading title
or as part of such title of the name of any other company, firm or
business or any
words indicating or suggesting that the pharmacy is
associated with, belongs to or is in any way connected with such
other company,
firm or business, unless such other company is
registered with the Council as the owner or part owner of the
pharmacy…..’
Mr Gauntlett submitted that ‘title’ (as
opposed to a name or description) together with the use of the word
‘trading’ (denoting
an action of commerce) referred to an
identity under which the pharmacy was known in its particular
industry. In this context ‘trading
title’ had a specific purpose
of identifying the pharmacy as general commercial business and as
distinguishing it from another
pharmacy. For this reason a trading
title had to be approved by third respondent to prevent, for example,
acts such as duplication,
passing off, confusion or the use of
offensive words which purpose, in Mr Gauntlett’s view, was
congruent with the provisions of
section 35 A (c) of the Act which
afforded the third respondent a discretion to prove the name or title
under which the pharmacy
may be conducted. For this reason Mr
Gauntlett contended that the use of ‘trading title’ should be
contrasted with the use of
a brand or other promotional device in
connection with the business. A branding title sought to associate a
particular pharmacy
with the market by means of the creation and use
of an image through a name or description with which the pharmacy in
question and
other pharmacies are associated.
It is common cause that first respondent sought
approval from third respondent of ‘The Parow Family Pharmacy’ as
its trading
title. This title was duly registered. Notwithstanding
this registration, applicants contend that the photographs which were
attached
to its papers reveal that the ‘HealthPharm’ branding is
affixed to all the windows of the premises from where the pharmacy
trades,
including the shop front windows alongside and above the
doors and upon the glass doors themselves. The signage bears the
words
‘HealthPharm’, ‘Family Value Pharmacy’ “Health Care’
and includes the HealthPharm logo and the Pick ‘n Pay trade mark.

Any signage containing the name of the first and second respondents
or ‘Parow Family Pharmacy’ can be found to the right of
the
entrance to the premises.
According to applicants, to the extent that first
respondent may also have another trade title whether registered with
third respondent
or not was irrelevant to the question of whether in
fact first respondent holds itself out as trading under the name of
HealthPharm.
First and second respondents sought to draw a
distinction between a trade name and branding, contending that the
manner in which
the first and second respondents utilised the
HealthPharm branding made it clear that the usage thereof sought to
indicate that the
Parow Family Pharmacy associated with a particular
brand of pharmacy.
In evaluating this dispute, it is important to
emphasize that the matter was brought on motion. This court must
resolve the dispute
by an analysis of the competing affidavit
evidence presented to it. In terms of the papers placed before the
court, first and
second respondents contend that first respondent
trades under the trading title ‘Parow Family Pharmacy’. In
support of this
contention, first and second respondent produced a
range of invoices to show that suppliers charged ‘Mr Tobie Nortjé
(Pty) Ltd
Parow Family Pharmacy, P O Box 1200, Parow’. Not only
was Parow Family Pharmacy identified by way of signage at the
entrance but
the promotional material which has been used expressly
announced ‘the opening of the new Parow Family Pharmacy at 09h00 on
27 November
2002’. In addition a further promotional leaflet
contained the following in a prominent place: ‘Parow Family
Pharmacy always
offers:
Best Basket value
unbeatable special offers….’
In the light of the manner in which this matter
has been brought before this Court great care must be taken simply to
examine one
component of the signage employed at the shop front of
the pharmacy and then conclude that no clear distinction can be
drawn between
the branding of the business as a ‘Pick ‘n Pay
franchise’ being part of the HealthPharm pharmacy brand and the
trading name,
Parow Family Pharmacy.
A considerable debate ensued as to the value of
evidence presented by respondents which revealed that in the ten
kilometre radius
within which both applicant and first respondents
trade, a number of pharmacies were connected to ‘The Link Good
Health Pharmacy’
brand.
In his answering affidavit, second respondent
refers to an article of October 2002 in the
Journal of Modern
Pharmacy
where Mr Clive Stanton, a member of the second applicant
and the president of the retail pharmaceutical sector of second
applicant
is quoted thus, ‘We realise that it is practically
impossible for single pharmacies to remain competitive amidst the
various corporate
players in the market place. For this reason,
AlphaPharm Retail afford the pharmacists the opportunity of
maintaining ownership
of their pharmacy, while benefiting from the
group’s strength in leveraging its many resources.’
At the last moment, literally as the doors of the
court opened, applicants filed an application seeking to strike out
the use of
photographs of Link and other pharmacies associated with
franchise operations as well as the reference to Mr Stanton’s
article.
Applicants contended that these portions of the answering
affidavit raised a whole host of collateral issues concerning the
conduct
of other pharmacies and were insufficiently relevant to the
issues with which this dispute was concerned.
Mr Gauntlett submitted that the material sought to
be struck out by applicants was intended to be employed in the very
limited context
of an application of the doctrine of
subsecuta
observatio.
In thie connection Du Plessis
Re-interpretation
of Statutes
(2002) at 260 writes: ‘There is a Latin saying
dating back to classical Roman law that
optima enim ests legum
interpres consuetudo
(‘custom is the best interpreter of a
law’). The courts have not been quite that optimistic about the
value of custom as an aide
to interpretation (‘[c]ustom….does not
dictate absolutely the construction of statutes’),
but do
insist that “where a statute may fairly be interpreted in either of
two ways, custom may well be invoked to tip the balance”.
An
appeal to custom has thus…. been held to be justified only where
the language of a provision to be construed is ambiguous or
obscure.
Continuous practices which evolved in the course of applying an early
enactment may also be relied on to construe its similarly
worded
successors and specially if the words on which that practice was
founded are repeated in the later enactment.’
In my view, the evidence which has been put
forward by respondents can be employed in this very limited purpose
only, mainly to assist
in the resolution of the contested distinction
between a trade name and branding. If, as appears to be the case,
there is clear
evidence that other pharmacies utilise brands to
promote their business with the knowledge of third respondent, it
would appear to
be a factor, albeit an extremely limited one, in
favour of the interpretation for which first and second respondents
contend.
In argument, Mr Dickerson conceded that
applicants’ case was not based on the contention that all forms of
franchising of pharmacies
were prohibited in terms of the Act and the
Rules. Once that concession is made, the proposition that pharmacies
cannot in principle
employ a brand name to associate with other
pharmacies’ and thus boost their goodwill cannot be gainsaid.
With the limited assistance which can be gained by
the invocation of the doctrine of
subsecuta observatio
coupled
with the uncontested evidence of respondents, namely that the Parow
Family Pharmacy is employed regularly as its trading name,
that this
name appears prominently on promotional leaflets and is the name with
which contracts of supply are concluded, the argument
that the
provisions of Rule 20 or 21 have been contravened cannot be justified
on the evidence presented to this court.
The Agreements with Pick ‘n Pay.
Applicants contend that the agreements concluded
between first and second respondents and the fourth respondent and
Pick ‘n Pay
Retailers (Pty) Ltd constitute a contravention of
section 22 of the Act in that first and second respondents have
granted an interest
in the business of the retail pharmacy and/or in
the shares of first respondent to fourth respondent or to another
company within
the Pick ‘n Pay retail group.
Section 22 (1)(b)(iv) empowers third respondent
to cancel the registration of the pharmacy if it ‘disposes of the
whole or any
part of its interest in the retail pharmacy business….
to any person other than a pharmacist’.
Whatever the meaning of the phrase ‘interest in
the retail pharmacy business’, the section only operates if there
has been a disposal.
As
Irving Steyn J
said in
Finger and
Others v Secretary for Inland Revenue
1971 (2) SA 411
at 418 H –
419 A ‘As I see the matter, any “disposal” by a person of an
asset belonging to him must normally result in his
being divested of
all his rights in and to such assets
simul ac semel
the
“disposal” thereof, and clearly death is the most final and
conclusive form in which any person can be divested of all things
temporal.’ See also
Estate De Jager v Whittaker and Another
1944 AD 246
at 250-251 in which the court emphasised that the
word ‘disposal’ must imply a divestment of rights of another
person or entity,
in other words some form of alienation of rights.
There is nothing in the evidence before this court
to suggest that first and second respondents divested of a whole or
part of an
interest in the retail pharmacy business to another
person. In other words, no disposal of an interest was effectd of a
kind which
would bring the contractual arrangements between first,
second and fourth respondent within the scope of s 22(1)(b)(iv) of
the Act.
Section 22(6)(b)(i)
requires that only
natural persons who are pharmacists may hold the shares of a company
conducting the business of a retail pharmacy
or ‘have an interest
in such shares’. Section 22(1)(b)(iv) empowers third respondent to
cancel the registration of any person
other than the pharmacist who
‘acquires any shareholding’ in a body corporate carrying on
business as a retail pharmacy.
Applicant’s case is based on clause 23 of the
franchise agreement as well as the supply agreement in terms whereof
second respondent
is prohibited from selling its shares unless it
complies with certain requirements so specified. An examination of
both the supply
agreement and Clause 23 of the franchise agreement
reveals that no such transfer of shares to fourth respondent or any
other entity
within the Pick ‘n Pay retail group is sanctioned by
Clause 23. The clear intention of clause 23 is to ensure that no
franchisee
shall sell or otherwise dispose of his or her shares
unless certain conditions are met. The supply agreement contains a
similar set
of conditions. In no way do these two documents justify
applicants’ argument. At best the franchisor may possess a veto
power
against a franchisee disposing of its shareholding.
The question may then arise as to whether a veto
power of this nature constitutes an interest on the part of the
franchisor in the
shares of first respondent. This argument is
predicated on a generous interpretation of the word ‘interest’.
The word ‘interest’
must be interpreted within the context of
the qualifying phrase ‘In the retail pharmacy business’. In this
context the decision
in
Lipschitz N.O v South African Pharmacy
Board
1985 (2) SA 702
(C) at 707 G-I is of relevance,
particularly the following passage: ‘The business of a pharmacist –
in his capacity as pharmacist
- is dealing in pharmaceutical
products, i.e. medicines in some shape or form…. The sum total of
his trading activity could then
aptly be described as “the conduct
of business by a pharmacist” but only that portion relating to
pharmaceuticals could accurately
be described as “the conduct of
the business of a pharmacist”….’.
This
dictum
appears to
support a
narrower construction of the word ‘interest’. If adopted
in
the context of the present dispute, there are no contractual
arrangements which have been entered into between first and second
respondent and any entity within the Pick ‘n Pay group which would
justify the contention that there has been a disposal of interest
in
the business of a pharmacist. That the franchisor may have an
interest in the success of a franchise arrangement does not in
itself
translate into an interest in the business of pharmacy to the extent
that the word ‘interest’ is employed by applicants
to include
interest in management or control that is appropriately dealt with
under the third leg of applicants case. To the extent
that it is
contended that the franchisor has an interest in the franchise fee
which it earns from the franchise relationship, it
was never
contended by applicant that a franchise relationship
per se
was unlawful.
Management and Administrative Control vested in
Pick ‘n Pay.
Section 22(1)(c) of the Act requires that the
managing director of the company, who must be a pharmacist, must ‘in
fact manage the
business of the body corporate. Section 22(1)(d)
requires that every pharmacy in which a body corporate carries on
business shall
be conducted under the continuous personal supervision
of a pharmacist.
Regulation 22 of the Practice Regulations require
that ‘every pharmacy shall … be conducted under the direct
personal supervision
of a responsible pharmacist.’ Regulation 25
(1) provides that the managing director of a company or the manager
of a close corporation
entitled to carry on the business of a
pharmacist ‘must…..undertake the overall administration of the
pharmacy business which
includes but is not limited to the regulation
of pharmacy matters, human resources,. or matters relating to
processes regarding medicines
or scheduled substances including
procedures and record keeping’. Regulation 25(4) stipulates that
the managing director must
‘be part of the decision making process
effecting the pharmacy business’.
Applicants contend that these provisions contained
in the Act and Regulations require that the management, control and
supervision
of the premises and entire business of a retail pharmacy
be vested in a person who is a qualified and registered pharmacist.
These
functions cannot validly be abdicated or delegated. Applicants
contend that the terms of the franchise agreement and franchise
manual
have had the effect that first and second respondent have
relinquished or been deprived of second respondent’s right to
manage
and control the pharmacy or alternatively have lost their
independence in the exercise of this right.
The critical question is whether, by concluding
agreements which, by virtue of the nature of a franchise, are
rigorously prescriptive
as to the management of the commercial
aspects of the pharmacy and the standards of service offered by the
pharmacy, a pharmacist
has ceased to manage the business for the
purposes of the Act.
Clause 15.5.1 of the franchise agreement provides
that the retail pharmacy business must be operated and conducted
strictly in accordance
with the provisions of the relevant title
deeds or lease agreement or sub-lease agreement as the case may be,
from which the franchisee
derives its entitlement to possess the
premises, so as not to harm or prejudice the franchisor’s right,
title, interest and goodwill
to in or derived from the intellectual
property, in a businesslike and proficient manner and ensure that the
retail pharmacy business
at all times projects a good and competitive
image and strictly in accordance with pharmacy legislation.
Intellectual property is defined in clause 1.2.27
to mean ‘collectively all of the intellectual property in respect
of or relating
to or resulting from or arising from or derived from
or attaching to the HealthPharm system, the HealthPharm signage, the
brand and
the franchise manuals it being recorded that the
franchisor is the proprietor of intellectual property.
The retail pharmacy business is defined as the
business of a retail pharmacy offering the products for sale to
members of the general
public, conducted or to be conducted by the
franchisee only from the premises in accordance with the
pharmaceutical legislation in
this agreement.
Products are defined to mean collectively all
ranged pharmaceutical products, non-ranged pharmaceutical products,
ranged non-pharmaceutical
products and non-ranged non-pharmaceutical
products.
There is nothing expressly contained in the
provisions of Clause 15.5.1 read with the applicable definitions in
Clause 1 which constitutes
an invasion of a pharmacist’s ability to
conduct a pharmaceutical business. By the very nature of entering
into a franchise, first
and second respondent agreed that certain
business systems would be utilised. The objective of the franchise
agreement was to ensure
that the retail pharmacy business projected
an efficient and competitive image and was run on a businesslike
basis. The evidence
reveals that the franchise manual provide a
business model within which the business must operate to achieve
these business goals.
This in no way detracts from the ability of
second respondent to supervise the pharmacy continuously or to
exercise an unfettered
discretion insofar as the dispensing of
pharmaceutical products are concerned. For this reason clause 15.7 of
the franchise agreement
draws a distinction between the role of a
franchisor insofar as non-pharmaceutical products and pharmaceutical
products are concerned.
Clause 15.7.1 provides that, subject to any
legal constraint to the contrary, (the franchisee shall) stock such
range of non-pharmaceutical
products in or on the premises as the
franchisor may, in its reasonable discretion, direct from time to
time. By contrast Clause
15.7.2 provides that (the franchisee)
consider the mix and suggested range of pharmaceutical products
recommended by the franchisor.
In short, the franchise agreement
appears to have followed the Act and the Regulations by drawing a
clear distinction between the
two forms of products so that the
discretion of the pharmacist remains unfettered insofar as
pharmaceutical products are concerned.
Conceptually, the agreements entered into by first
and second respondent do not constitute a restriction
per se
on the managerial powers of the registered pharmacist, being
respondent. For this reason, applicants would have been required to
produce evidence which indicated that the manner in which the
business was run supported the interpretation of the agreement and
the franchise manual for which they have contended. No such evidence
was produced.
On the facts it cannot be said that the
contractual arrangements amount to a cessation by second respondent
of his ability to manage
first respondent. As Mr Gauntlett contended,
second respondent bound himself to manage first respondent in terms
of a model which
claims to be ‘the best practice system’. The
fact that second respondent would manage first respondent in terms of
this model
was, in itself, insufficient to justify the conclusion
that the Act or Regulations had been contravened.
Much was made by applicants of the decision in
J
Pintusewitz supra.
Indeed Mr Dickerson went so far as to suggest
that this judgment was one of a full bench of this Division and thus
was binding on
this Court. A careful analysis of the judgment reveals
that it was held that third respondent was justified in refusing to
register
the applicant with Mr Pintusewitz as its managing director.
The precise legal basis on which the court arrived at this conclusion
is not altogether clear to me. It would appear that the Court was
satisfied that the reasoning adopted by the council (third
respondent)
in refusing the application could not be faulted. That
reasoning was to the effect that ‘in the light of the terms of the
franchise
agreement which formed part of each application
…..respondent was of the view that Mr Pintusewitz would not be the
managing director
of applicant nor would he act as such, nor would he
in fact manage applicant’s business and it (respondent) was
therefore justified
in refusing the application for registration’,
at 76 E-F.
The judgment in
Pintusewitz, supra
does not
describe the provisions of the relevant franchise agreements in any
detail, nor the provisions of franchise manuals, if
any, which
governed the transaction in that case. On the facts of the present
case, there is insufficient evidence to conclude that
the provisions
of the franchise agreement and franchise manual inevitably reduce the
second respondent to the status of ‘a
locum tenens
…subject
to constant supervision…a transparent and unsophisticated attempt
on the part of the franchisor….to operate and to
effectively own a
retail pharmacy’.
Pintusewitz
at 76 J – 77 C.
It may well be that the purport of a franchise
agreement and the franchise manuals in this case extended the role of
the franchisor
beyond that which
Berman J
appeared to
consider would constitute a normal franchise operation ‘whereby one
commercial entity authorises and distribute the
former’s product(s)
or to make use of the former’s get-up, know-how and expertise in
return for payment of a royalty fixed in
a specific amount or a fee
calculated according to a predetermined formula, (at 76 I). However
as applicants have conceded that
a franchise operation
per se
does
not contravene the Act and Regulations it would appear that the
narrow model of a franchise as described by
Berman J
is not
necessarily shared by applicants or third respondent as constituting
the only meaning of a franchise operation. A franchise
operation
within the pharmacy context would appear to imply that some form of
business model is employed to standardise systems
thereby ensuring a
regular level of good service and, for example, the application of
computer software to ensure that the business
maximises as its
profits in the most efficient manner possible.
In summary, the evidence is insufficient to
justify the conclusion urged by applicants.
Unlawful Competition.
Mr Gauntlett submitted that, even if it was found
that the first or second respondents had acted in contravention of
any of the alleged
statutory provisions, applicants could only
succeed if they could show
that the alleged transmission had led or
would lead to an infringement of the applicant’s goodwill; and
on the probabilities, that first and second
applicants had actually suffered damage or were likely to suffer
damage from the prohibited
act. See Van Heerden and Neethling
Unlawful Competition
(1995) at 270
et seq.
As has already been noted first applicant did not
demonstrate any causal relationship between the conduct or business
operations
of first respondent and the infringement of its
goodwill. Further, it is difficult to see what actual damage has
been suffered
by second applicant.
To the extent that second applicant’s case is
predicted upon the basis that it seeks to enforce the Act which is
designed to enhance
the public interest, there is no evidence of any
prejudice that it has suffered, save for its desire to restrict
competition from
outsiders against its members.
Costs
.
Initially applicants sought urgent relief at the
hearing on 29 November 2002. On that day the matter was postponed and
a time-table
was agreed. In the result, the wasted costs arising
from that hearing must be paid by applicants.
For the reasons set out above, the application is
dismissed with costs, including the costs of two counsel and the
wasted costs occasioned
by the hearing of 29 November 2002, to be
paid by applicants jointly and severally.
________________
DAVIS
J