Brief Summary

Unlawful Competition — Misrepresentation — Trade in alcoholic beverages — Appellants misrepresented products as whisky contrary to the Liquor Products Act 60 of 1989 — Respondents sought interdict against appellants for unlawful competition and misrepresentation of product origin. The Supreme Court of Appeal dismissed the appeal, upholding the interdict against the appellants from selling or marketing products as whisky or Scotch whisky when they did not meet statutory requirements, and ordered the destruction of offending products.

Comprehensive Summary

Summary of Judgment

1. Introduction

These were appeal proceedings in the Supreme Court of Appeal arising from application proceedings in the Gauteng Division of the High Court, Pretoria. The dispute concerned unlawful competition founded on alleged false misrepresentations about alcoholic beverages and alleged trading in contravention of the Liquor Products Act 60 of 1989.

The appellants were Milestone Beverage CC, the trustees for the time being of the T and S Haupt Family Trust, and Mr Sean Peter Haupt. The respondents were the Scotch Whisky Association (a trade association representing and protecting the Scotch whisky industry) together with Chivas Brothers Ltd, Chivas Holdings (IP) Ltd, and Pernod Ricard South Africa (Pty) Ltd (entities connected with the production, ownership, and distribution of Scotch whisky brands in South Africa).

The respondents launched an application in January 2017 seeking extensive interdictory relief to restrain the appellants from marketing and selling certain alcoholic products in a manner alleged to mislead consumers into believing that the products were whisky or Scotch whisky, or connected to Scotland. The High Court (Kubushi J) granted wide-ranging relief on 4 March 2019, and later (27 August 2019) ordered the opposing respondents to pay the costs of the application. The appellants appealed with the leave of the High Court.

The general subject-matter of the dispute was whether the appellants’ products—sold under the names Royal Douglas and King Arthur in particular “get-ups” (trade dress)—were marketed with Scottish indicia and whisky-associated descriptors so as to misrepresent their nature, composition, and origin, and whether such marketing also contravened the statutory labelling and description prohibitions contained in the Liquor Products Act 60 of 1989 and its Regulations.

2. Material Facts

The appellants (related entities) manufactured and distributed two alcoholic beverages which, save for differing get-up, were produced by the same process and were otherwise identical. Each product was initially sold with a label and packaging that, on the respondents’ case and as accepted by the court, conveyed a whisky and Scottish association. The initial Royal Douglas label incorporated a tartan-patterned background, prominent brand text (“Royal Douglas”), the name “James Douglas & Co” and “A product of James Douglas & Co South Africa,” and descriptors including “Premium Quality,” “Whisky Flavoured,” “Spirit Aperitif,” and “Double Distilled.” The King Arthur label used similar whisky-associated descriptors and featured a heavily crested, heraldic style.

The Scotch Whisky Association became aware of trademark applications for “Royal Douglas whisky” in class 33. Correspondence followed in which the appellants, through Mr Haupt, asserted that the product would not be marketed as Scotch whisky or as whisky and described it as a vodka base with flavours, colours and sugars, classified as a “spirit aperitif.” Despite undertakings given in 2015 to limit use of “Royal Douglas” in relation to whisky products (unless produced in Scotland), the respondents’ attorney discovered that the product continued to be marketed and sold as whisky, including via the appellants’ website and in retail outlets where it was sold and receipted as “Royal Douglas whisky.”

Further correspondence in 2016 resulted in an indication that “James Douglas & Co” would be removed and the tartan background likely amended, but it was later discovered that products remained on sale using the old label. The appellants’ website presentation placed the products under a “Whisky” portal and heading, with “Flavoured Spirit aperitif” appearing in smaller text.

After the application was instituted, the appellants asserted that, from January 2017, the old labels were replaced with revised labels. The court, however, treated the continuation of marketing and promotion in the original get-up beyond January 2017 as material, and in any event considered whether the replacement get-ups still created a likelihood of confusion. On the accepted factual material, the replacement labels retained features (including crests, “premium quality,” “double distilled,” and continued “whisky flavoured” references) and an overall presentation suggestive of whisky and (in the case of Royal Douglas) Scottish association, without clearly conveying the true nature of the product.

It was common cause that the products sold by the appellants were not whisky and had no connection to Scotland or the United Kingdom. The respondents also relied on evidence (accepted by the court in relevant respects) that the products were not in fact whisky-flavoured in any meaningful sense and that the description “whisky flavoured” was misleading. Expert evidence from the Scotch Whisky Research Institute (through Ms Shona Glancy) was relied upon to show that an artificial additive could not replicate the complex flavour and aroma profile derived from the raw materials and production processes required by the statutory whisky definition, and that the appellants’ product displayed atypical aromas inconsistent with whisky. The respondents further relied on evidence from a specialist whisky retailer (Mr Gary Wadmore) that the products, while visually resembling whisky and potentially misleading to consumers, did not taste like whisky and could not accurately be described as whisky-flavoured.

A further misrepresentation concerned alcohol content. The labels indicated alcohol strengths of 43% or 43.5%, whereas testing relied upon by the respondents produced a result of 34.98%. The appellants produced a “Vinlab” certificate to contradict this, but it was not supported by affidavit and was treated as documentary hearsay without evidential value.

The judgment also noted that, in 2002, an interdict had been obtained by the Scotch Whisky Association against Mr Haupt’s parents restraining, among other things, the use of “King Arthur Scotch Whisky” or whisky descriptions for products not meeting statutory whisky requirements or not produced in Scotland. This earlier litigation context informed the court’s assessment of the need for the appellants to distance themselves from the “margin line” after prior conduct.

3. Legal Issues

The central legal questions the Supreme Court of Appeal was required to determine were whether the respondents had established actionable unlawful competition on the basis of (i) false misrepresentations by the appellants as to the character, attributes, composition, and origin of their products (misrepresentation as to “own performance”), and (ii) trading in contravention of statutory provisions governing liquor product descriptions and labelling, in particular sections 11 and 12 of the Liquor Products Act 60 of 1989 and relevant Regulations.

A further legal issue concerned whether, and on what basis, the respondents were entitled to interdictory relief to restrain conduct that also constituted a statutory contravention, including the questions of jurisdiction and locus standi in light of authority such as Patz v Greene and Co 1907 TS 427 (TS). This entailed the application of legal principle to the facts, rather than the resolution of pure fact alone, and included an evaluative assessment of whether consumers were likely to be misled by the get-up and marketing of the products.

The appeal also engaged with the extent to which subsequent changes to labels and get-up affected the appropriateness and scope of final interdictory relief, particularly where earlier conduct had already created misleading impressions and where there was concern about continuing or future unlawful conduct.

4. Court’s Reasoning

The court approached the matter by emphasising that while competition is lawful and desirable, it must be conducted lawfully. It treated unlawful competition as a distinct actionable wrong under the Lex Aquilia, applying the general principle that wrongful interference with another trader’s rights through unlawful competitive conduct may ground delictual relief.

Relying on Schultz v Butt 1986 (3) SA 667 (A) and Long John International Ltd v Stellenbosch Wine Trust (Pty) Ltd 1990 (4) SA 136 (D), the court articulated that a trader who falsely and culpably represents to the public that its products are of a particular character, composition, or origin known under a descriptive name with a public reputation, and thereby causes patrimonial loss, commits unlawful competition. The court further noted the articulation in Long John that interdictory relief may be appropriate to restrain such conduct where loss has occurred or is likely, and that an interdict may be justified even if all elements save for fault are present.

In applying these principles, the court considered the perception of a substantial number of the public and whether the products were marketed in a way likely to lead a significant section of consumers to believe they had attributes they did not. It emphasised a commonsensical assessment of the labels and visual impressions, including the likelihood that an average consumer would not closely scrutinise the product in a liquor store. The court accepted that descriptors such as “premium quality” and “double distilled,” combined with the labels’ heraldic imagery, the artificially whisky-like colouring, and the prominent positioning of whisky-associated terminology, would likely create the impression that the products were whisky, notwithstanding the presence (less prominently) of the term “spirit aperitif.”

The court treated the Scottish and UK associations as materially reinforced by the initial get-up, including tartan and the use of “Douglas,” a Scottish clan name strongly associated with Scotland, together with crests and heraldic elements suggestive of tradition and continuity. The appellants’ explanation for adopting “Royal Douglas” (linking it to Mr Haupt’s grandfather’s name and the term “Royal” as laudatory) was endorsed as having been correctly rejected by the High Court. For King Arthur, the court found the UK association self-evident and noted the absence of evidence from the appellants explaining their choice of name and heraldic symbolism.

The court then evaluated the effect of the replacement get-ups. It accepted that prior conduct and prior impressions matter, and endorsed authority reflecting that where a competitive business has been “convicted” of unfair competition, it should be required to “keep a safe distance” from the margin line, drawing on PPI Makelaars v PPS Provident Society of South Africa 1998 (1) SA 595 (SCA) and the quoted statement from Broderick & Bascom Rope Co v Manoff [1930] 41 F (2d) 353. The court also drew support from William Grant & Sons Ltd and Another v Cape Wine & Distillers Ltd and Others 1990 (3) SA 897 (C) for the proposition that abandoning some objectionable advertising or material does not necessarily remove the misleading impression already created. It considered that the replacement labels did not sufficiently distance the products from whisky and Scotland, and that continued use of “whisky flavoured,” “double distilled,” crests, whisky-like colouring, and evocative brand names sustained the likelihood of confusion. In this context, the court referred to Blue Lion Manufacturing (Pty) Ltd v National Brands Limited 2001 (3) SA 884 (SCA) as supporting the inference that deliberate imitation of get-up suggests the imitator believes it confers an advantage.

Turning to the statutory cause of action, the court held that it is a form of unlawful competition to trade in contravention of statute. It analysed section 12(1) of the Liquor Products Act, which prohibits the use of words, expressions, references, or indications in connection with the sale of liquor products in a manner likely to create a false or misleading impression as to nature, substance, quality, composition, class, origin, identity, or manner/place of production. It read this with section 11(2)(d), which prohibits the use of a class designation (or similar expression likely to deceive) unless it is the applicable class designation for the product concerned.

The court then contrasted the statutory and regulatory definitions. It set out the regulatory requirements for whisky (including maturation for at least three years in wooden casks and an alcohol content of at least 43%), and considered the statutory framework for spirit-based liquor under section 9 and the Regulations. In particular, it considered Regulation 29(4), which requires the flavour, taste, and character of a spirit-based liquor to be clearly distinguishable from that of a spirit or class of spirit (whisky being a spirit). On the evidence accepted, the court held that the appellants’ reliance on “whisky flavouring” was not substantiated by confirmatory affidavits from suppliers and that the representation “whisky flavoured” was misleading, especially given the appellants’ own contention that “whisky flavour” is not objectively identifiable. The court rejected the logical implications of that contention as inconsistent with the statutory purpose.

The court further held that the appellants’ alcohol-strength representation (43%/43.5%) was false on the evidential material accepted. It treated the “Vinlab” certificate as hearsay with no evidential value, and accepted the testing result relied upon by the respondents. From this, it concluded that the appellants’ products offended sections 11 and 12 of the Act by being represented (directly or indirectly) as whisky, Scotch whisky, or whisky with a Scottish connection, as whisky-flavoured, and as having an alcohol content materially higher than the actual percentage.

Finally, on entitlement to interdictory relief for statutory contraventions and on standing, the court considered Patz v Greene and Co 1907 TS 427 (TS) and authorities addressing interdicts restraining statutory offences, including Johannesburg City Council v Knoetze and Sons 1969 (2) SA 148 (W) and Madrassa Anjuman Islamia v Johannesburg Municipality 1917 AD 718. It accepted the approach that the civil remedy of interdict is presumed available unless excluded expressly or by necessary implication, and that an interdict addresses future or continuing breaches while prosecution addresses past conduct. It also endorsed the reasoning (including in Long John) that legislation prohibiting misleading trading practices is capable of protecting not only the public but also traders whose businesses are harmed by competitors’ misleading representations, supporting the respondents’ standing to seek restraint.

The court recorded that, at the appeal hearing, the respondents did not persist in certain aspects of the High Court relief. It considered that, because amending parts of the High Court order might cause confusion, the appropriate course was to set it aside and replace it with a revised order that reflected what was persisted in.

5. Outcome and Relief

The Supreme Court of Appeal dismissed the appeal with costs, including the costs of two counsel.

The court replaced the High Court’s order with a new order granting interdictory relief restraining the appellants (as the relevant respondents a quo) from selling, marketing, or distributing products using the offending trade dress (or similar get-up), from using “whisky/whiskey” (or derivations) for products not meeting the statutory requirements for whisky, from representing products as whisky or connected to whisky when they are not, and from using “Scotch/Scotland/Scottish” or Scottish-evocative insignia in relation to liquor products not wholly manufactured or produced in Scotland.

The replacement order also restrained misrepresentations about whether products are whisky or whisky-flavoured, restrained false representations of alcohol content (including claims of 43% or 43.5% or higher where untrue), and restrained representing products as Scotch whisky when they are not. It further ordered the destruction (or procurement of destruction) of offending products and advertising material within 14 days, authorised the sheriff to attach and seize offending materials if there was non-compliance, and authorised the relevant state functionary (the seventh respondent a quo) to seize and remove offending products under sections 11(1)–(3) or 12(1) of the Act, to be held by the State pending prosecution.

The appellants (as respondents a quo) were ordered, jointly and severally, to pay the costs of the application.

Cases Cited

Atlas Organic Fertilizers (Pty) Ltd v Pikkewyn Ghwano (Pty) Ltd and Others 1981 (2) SA 173 (T)

Blue Lion Manufacturing (Pty) Ltd v National Brands Limited 2001 (3) SA 884 (SCA)

Broderick & Bascom Rope Co v Manoff [1930] 41 F (2d) 353

Chocosuisse Union Des Fabricants Suisses De Chocolat v Cadbury Ltd [1999] RPC 826 (CA)

Diageo North America Inc and Another v Intercontinental Brands (ICB) Limited and Others [2010] EWCA Civ 920

Dun and Bradstreet (Pty) Ltd v SA Merchants Combined Credit Bureau (Cape) (Pty) Ltd 1968 (1) SA 209 (C)

Dunlop (South Africa) Ltd v Metal and Allied Workers Union and Another 1985 (1) SA 177 (D)

Elida Gibbs (Pty) Ltd v Colgate Palmolive (Pty) Ltd 1988 (2) SA 350 (W)

Erven Warnink BV v J Townend & Sons (Hull) Ltd and Others [1979] 2 All ER 927

John Walker & Sons Ltd v Henry Ost & Co Ltd [1970] 2 All ER 106

Johannesburg City Council v Knoetze and Sons 1969 (2) SA 148 (W)

Long John International Ltd v Stellenbosch Wine Trust (Pty) Ltd 1990 (4) SA 136 (D)

Madrassa Anjuman Islamia v Johannesburg Municipality 1917 AD 718

Patz v Greene and Co 1907 TS 427 (TS)

Pexmart CC and Others v H Mocke Construction (Pty) Ltd and Another [2018] ZASCA 175; 2019 (3) SA 117 (SCA)

PPI Makelaars v PPS Provident Society of South Africa 1998 (1) SA 595 (SCA)

Schultz v Butt 1986 (3) SA 667 (A)

Stellenbosch Wine Trust Ltd and Another v Oude Meester Group Ltd; Oude Meester Group Ltd v Stellenbosch Wine Trust Ltd and Another 1972 (3) SA 152 (C)

The Scotch Whisky Association v Glenn Kella Distillers Ltd [1997] ETMR 470

William Grant & Sons Ltd and Another v Cape Wine & Distillers Ltd and Others 1990 (3) SA 897 (C)

Legislation Cited

Liquor Products Act 60 of 1989

Consumer Protection Act 68 of 2008

Companies Act 1948 (United Kingdom)

Liquor Products Regulations, GN R 1433, GG 12558 of 29 June 1990 (made under the Liquor Products Act 60 of 1989)

Rules of Court Cited

Uniform Rule 34

Held

The court held that the respondents established unlawful competition on two bases recognised in the judgment. First, the appellants’ get-up, labelling, and marketing were held to amount to false and misleading representations likely to cause a significant portion of the public to believe that the products were whisky (and even connected to Scotland), when they were not. This conclusion was reached on a commonsense assessment of the overall impression created by brand names, tartan and heraldic elements, whisky-associated descriptors, and marketing presentation.

Second, the court held that the appellants’ conduct amounted to trading in contravention of the Liquor Products Act 60 of 1989 and Regulations, including the statutory prohibition on descriptions likely to create a misleading impression about the nature, composition, or origin of liquor products, and the prohibition against using whisky-associated designations where statutory whisky requirements were not met. The representation of alcohol content was also held to be false on the accepted evidence.

The court further held that interdictory relief is, in principle, available to restrain future or continuing statutory contraventions unless excluded by statute, and that the respondents had standing to seek such relief in circumstances where misleading conduct harmed their trading interests and the interests they represented.

LEGAL PRINCIPLES

Unlawful competition is actionable as a delict distinct from passing off and falls within the protective ambit of Aquilian liability where competition involves wrongful and unlawful interference with another trader’s rights. Unlawfulness is assessed against the objective standard of public policy and the community’s sense of justice (boni mores) as manifested in public opinion.

A trader who falsely represents to the public that its products have a particular character, composition, or origin known by a descriptive name with an established reputation, and thereby causes or is likely to cause patrimonial loss to rivals, commits unlawful competition. The appropriate inquiry focuses on how a substantial number of the public would perceive the product and whether the marketing is likely to lead a significant section of consumers to believe the goods possess attributes they do not.

Where a trader has engaged in misleading conduct, subsequent changes to get-up do not necessarily remove the need for restraint, particularly if the new get-up continues to create a likelihood of confusion or if earlier impressions persist. In such contexts, a party previously found to have engaged in unfair competition may be required to keep a safe distance from the margin line.

Trading in contravention of statutory prohibitions governing product descriptions and labelling may constitute unlawful competition. An interdict to restrain future or continuing statutory breaches is generally available unless a statute excludes it expressly or by necessary implication, and statutory prosecution remedies directed at past breaches do not, without more, displace civil interdictory relief. Standing to seek an interdict may exist for traders whose interests are protected by the statutory policy of truthful and non-misleading trading practices, and is not limited to consumers who are directly misled.

Milestone Beverage CC and Others v The Scotch Whisky Association and Others (1037/2019) [2020] ZASCA 105; [2020] 4 All SA 335 (SCA); 2021 (2) SA 413 (SCA); 2020 BIP 505 (SCA); [2020] 2 CPLR 447 (SCA) (18 September 2020)