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[1994] ZASCA 136
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Jokari SA (Pty) Ltd v Reebok International Ltd (250/92) [1994] ZASCA 136; 1994 (4) SA 785 (AD); (29 September 1994)
Case No 250/92
IN THE SUPREME COURT OF SOUTH AFRICA APPELLATE DIVISION
In the matter between:
JOKARI SA (PTY) LTD
Appellant
and
REEBOK INTERNATIONAL
LTD
Respondent
CORAM:
JOUBERT, EM GROSSKOPF, SMALBERGER, VIVIER et NIENABER JJA
Heard:
15 and 16 August 1994
Delivered:
29 September 1994
J U D G M E N T
TOUBERT.
.JA:
This is an appeal against a judgment by Joffe J in the Transvaal Provincial
Division dismissing an action instituted by the appellant
("Jokari")
2
against the respondent ("Reebok") for the payment of R7 410 161-00 damages
allegedly suffered by Jokari as the result of a material breach of agreement
by
Reebok, alternatively the repudiation thereof by Reebok.
The material
facts which form the background to the action are reasonably straightforward and
may be outlined as follows:
The Foster family were shoemakers in England. They manufactured athletic
shoes which were sold locally. Joe Foster and his brother
commenced a
manufacturing business known as Mercury Sports Footwear which was incorporated
as Reebok Sports Ltd in 1960. The latter
manufactured at Bolton in England the
Reebok shoe and other Reebok products. The trade marks in respect of the Reebok
shoes and merchandise
were registered in the name of Reebok Sports Ltd. On 27
November 1979 the trade marks were transferred to Reebok as the marketing
company of the Reebok products while Reebok Sports Ltd continued as the
manufacturing company thereof. Mr Foster was the managing
director of Reebok
until 1989.
Towards the latter part of 1982 and early 1983 Reebok moved its
3
manufacturing to the Far East because Reebok Sports Ltd was unable to
produce the quantities of footwear that could be produced in the Far
East.
Moreover an independent corporation known as Reebok International
USA
("Reebok USA") became the distributor of Reebok products in the
United
States. It was also granted the right to manufacture Reebok products, or
cause
them to be manufactured, subject to Reebok's stringent quality control. For
the
manufacture of Reebok products it utilised the services of Asco
Merchandise
International Ltd. ("Asco") in Hong Kong. Reebok USA expanded so rapidly
that it acquired control of Reebok in March 1984.
Jokari is a South African company trading in Johannesburg since 1980 as an
importer and wholesale distributor of sporting goods. It
does not directly
retail any of its products. It sells its imported products through more than 1
300 retailers in South Africa. Its
managing director has at all material times
been Mr. Stone.
In 1981 Mr Foster met Mr Stone. The upshot of their cordial relationship was
that on 6 August 1982 Reebok as proprietor of the Reebok
4 trade mark in
respect of footwear entered into a Distribution Agreement as well
as a Trade Mark Agreement with Jokari. Both agreements were to endure
from
1 August 1982 until 31 December 1995. It is necessary to refer to some of
their provisions which are relevant for purposes of this appeal.
The Distribution Agreement is in essence a sole distribution agreement since
Reebok in terms of clause 1.1 thereof appointed Jokari
"as its exclusive
distributor of the Goods for promoting and extending the sale or disposal of the
Goods supplied under the Trade
Mark of 'Reebok' in the Territory during the term
of this Agreement subject to and upon the conditions contained in this Agreement
and in the Trade Mark Agreement." According to the Preface the expression
"Goods" refers to the "special footwear for the use of
athletes and others in
running and ancillary sports and activities under the Trade Mark 'Reebok'." The
term "the Territory" designates
South Africa.
Clause 2.1 of the Distribution Agreement provides as follows:
"The Company has made arrangements for Reebok goods to be manufactured for
sale to the Distributors and the prices applicable thereto
shall be prices as
may be agreed by the Distributors and such manufacturer or manufacturers. All
such agreements with such manufacturers
shall provide for manufacture of the
5
goods to be subject to the Company's stringent quality control procedures,
provided always that any charge or levy imposed by the
Company on such
manufacturers, or any manufacturing royalty imposed by the Company shall not
exceed 5% of the price at which the
goods are purchased by the Distributors from
such manufacturer."
The Preface explains that the terms "Company " and "the Distributors" refer
to
Reebok and Jokari respectively.
Clause 7.1 of the Distribution Agreement records the following:
"This Agreement shall be deemed to have been made in England and the
construction validity and performance of this Agreement shall
be governed in all
respects by English Law."
On turning to the Trade Mark Agreement
it is apparent from its Preface that Reebok and Jokari are referred to as the
"Proprietor"
and "the Users" respectively while "the Trade Mark" is the trade
mark Reebok. The expressions "the Goods" and "the Territory" have
the same
meaning as defined in the Distribution Agreement.
According to clause 1(a) of the Trade Mark Agreement Reebok grants Jokari
"the right during the continuance of this Agreement and
subject to the terms and
conditions hereinafter contained to use display or exploit or otherwise
6
deal with the Trade Mark in or upon or in connection with the Goods sold
by
or on behalf of the User in the Territory (as defined in the
Distribution
Agreement) ...." Clause 10 provides as follows:
"In consideration of the rights granted pursuant to this Agreement the User
agrees to pay the Proprietor (as provided by Clause 14
and 15 hereof) a sum
equivalent to 7½ percent of the total amount of the Net Sales Value of all
Goods sold by the User under
or in pursuance of the terms of this Agreement and
the Distribution Agreement."
It is clear from the contents of the aforementioned two agreements, which
must be read in conjunction with each other, that Jokari
was appointed both a
licensee or user and a distributor. It was a licensee or user of the trade mark
Reebok in relation to the Reebok
footwear imported and sold by it in South
Africa. It was also an exclusive distributor of the said Reebok footwear. The
two agreements
accordingly complement each other.
I now turn to examine the method evolved by Reebok for the ordering of its
products by its distributors. Towards the end of 1982 and
the beginning of 1983
Reebok invited its distributors from time to time to attend product meetings at
which they could assess the
products on display and decide whether
7 they
were interested in them or not. The next step would be for Reebok to
submit the range of products to Asco for costing at factories in the Far
East.
Asco would then negotiate with the manufacturers the design and price
of the
products. The information obtained would be forwarded to Reebok in
order to
prepare a price list which would be circulated among the distributors.
The
latter could place their orders with Reebok before a stipulated deadline
date.
After scrutinising and collating the orders received Reebok would forward
them
to Asco. As Reebok USA expanded its business immensely a slight change
was
introduced approximately in 1985. After receipt and processing of the
orders
Reebok would send them to Reebok USA instead of sending them direct to
Asco. Reebok USA would after co-ordinating all the orders, including its
own,
send them to Asco.
Asco would on receipt of the orders place them with the various
manufacturers. It would consolidate the delivery dates in order to give
the
distributor one date for the shipment of the footwear. A sales
confirmation
note and a pro forma invoice containing particulars of the shipment date,
the
8 ordered footwear, the prices per pair and the total price in American
dollars
would be forwarded to the distributor. The following legend appeared on
the
sale confirmation notes: "We have this day sold the undermentioned goods
to
. . ." the particular distributor. The total price included Asco's buying
commission of 6% for its buying and sourcing services as well as the
royalty
due to Reebok by the distributor which had by now increased to 20%. Asco
would pay this royalty to Reebok. Receipt by Asco of the distributor's
letter
of credit was a condition precedent to the shipment of the ordered
footwear.
Upon receipt of the distributor's letter of credit Asco would give its own
letter
of credit to the manufacturer who would then proceed with the production
and
delivery of the footwear. It was incumbent on Jokari to obtain an import
permit in respect of each shipment until this requirement was done away
with
as from 1 January 1988.
From 1985 onwards strong repugnance was mounting in the United
States against South Africa's racial policies to such an extent as to
cause
resistance by black people to the marketing of Reebok products by reason
of
9 the sales of such products in South Africa. Reebok USA accordingly
exerted
pressure on Reebok to terminate its distribution connections with Jokari.
Reebok yielded to this pressure by forwarding on 22 June 1987 in the form
of
a letter to Jokari a proposed new agreement to apply as from 1 July 1987.
The
introduction to and the relevant provisions thereof read as follows:
"By this letter we confirm
the arrangements
by which we have agreed to
continue to
supply
you with Reebok products and permit you to distribute
these products in South Africa:-
1)
The
arrangements
set
out in this letter will apply from 1st July 1987 and the terms set out in this
letter will replace and supersede any previous
arrangements
which are
hereby cancelled.
2)
We reserve the right to
terminate the distribution by yourself in South Africa at any time, on giving
you three months notice in writing.
3)
The
arrangements for purchase of Reebok products
will be the same as apply to
other Reebok distributors.
4) .....
5) Your appointment will be exclusive and we will not appoint or
supply
Reebok permits to any other person in South Africa.
6) .....
7) ------"
(My underlining)
Reluctantly Jokari signed the New Agreement but amended the period of 3
months stipulated in clause 2 to 6 months. Reebok accepted the amendment.
10
Three months later on 29 September 1987 Reebok invoked the
6
months' notice to cancel its Distribution Agreement with
Jokari. The notice period was to run from 1 October 1987 until 31 March 1988
when the Distribution Agreement was to terminate. Although Jokari did not place
orders for Reebok products after October 1987 there
were still ordered goods in
the pipeline for delivery before 31 March 1988. It is common cause that
shipments were delivered by Asco
to Jokari from 24 July 1987 to November 1987.
After that period Jokari received no shipments save for two shipments in July
1988.
On 14 May 1988 Asco faxed Jokari that there were six order numbers of 3744
pairs of shoes available for shipment provided a letter
of credit was promptly
put up. The letter of credit was obtained on 26 May 1988.
An examination of the pleadings reveals that according to Jokari's amended
intendit its action for damages against Reebok was based
on the agreement of 24
July 1987 ("the New Agreement") in terms of which Jokari was permitted as
exclusive distributor to distribute
Reebok products in South Africa subject to
Reebok's right of termination at any time upon 6 months'
11
notice in writing. Reebok agreed to continue to supply Jokari with its
products in accordance with the arrangements regarding the
practice or procedure
introduced in 1985 for the placing of orders for the said products. The
arrangements for the purchase of Reebok
products would be the same as those
applicable to other Reebok distributors. In para 9 of its intend it Jokari
purported to outline
the practice or procedure that was introduced in 1985. In
para 9.5 of its intendit Jokari pleaded that in terms of the said practice
". .
. the defendant became obliged to supply the plaintiff with the goods thus
ordered." It was alleged that from 5 February 1987
until 23 October 1987 Jokari
placed 8 orders for a total pairage of 255 746 shoes which Reebok was obliged to
supply. In para 12
of its intendit Jokari alleged that ". . . in breach of the
second agreement the defendant failed to deliver any of the aforesaid
shoes." As
a result of Reebok's alleged breach of contract Jokari claimed that it suffered
a loss of profits amounting to R7 410
161-00.
In his opening address in the Court
a quo
Mr Horwitz, Jokari's
counsel, stated unequivocally: "This is an action for damages. It arises out of
a
12 distribution agreement between the plaintiff and the defendant." The
distribution agreement he had in mind was the New Agreement of 24 July
1987. (No cause of action other than a contractual one was pleaded).
Reebok in paras. 2.3 to 2.3.4 of its plea outlined the procedure
followed
by distributors in placing their orders with Reebok for
its footwear, the
consolidation of the orders and passing them on to Asco who negotiated
with
manufacturers in the Far East for their manufacture and who would
thereafter
offer to each distributor in a sales confirmation note and a pro forma
invoice
at a particular price the goods ordered for which the necessary letter of
credit
had to be furnished by the distributor upon acceptance of the offer.
Reebok's
defence to Jokari's cause of action was formulated as follows:
Para 2.3.5: "No agreement of purchase and sale would come into being until
ASCO had offered the product ordered at a particular price
or prices and until
such offer had been accepted by the said distributor by means of the requisite
letter of credit being supplied
to ASCO."
Para 2.3.6: "All agreements of purchase and sale in respect of goods ordered
were entered into between ASCO and the distributors and
no agreements in this
respect were entered into between the distributors and the Defendant".
At the trial both Stone and Foster testified on behalf of Jokari. Joffe
J
13 found that "Stone's factual evidence does not differ from Foster's to
any great
degree." After a careful consideration of their evidence as supported
by
documentation he came to the conclusion that "there was no obligation on
the
defendant to supply the goods ordered by plaintiff as alleged in
paragraph 9.5
of the plaintiffs amended Intendit." He accordingly dismissed
Jokari's claim
with costs, including the costs of two counsel and the qualifying fees of
two
expert witnesses.
The crucial question is whether or not Reebok was contractually obliged to
supply Jokari with the goods ordered. That is to say, did
they enter into
agreements of purchase and sale in respect of the goods ordered?
Clause 5 of the New Agreement re-affirmed the appointment of Jokari
as the sole distributor of Reebok products in South Africa. An important
characteristic of a sole distribution agreement is concisely described as
follows
in
Schmitthoffs Export Trade. The Law and Practice of International
Trade
by Clive M. Schmitthoff, 9th ed at p 261:
"The sole distribution agreement is not a contract of sale of specific goods.
It merely lays down the general terms on which later
individual contracts of
sale
14
will be concluded."
The New Agreement does not refer to contracts of sale
of specific goods by Reebok to Jokari. In the introduction to the said Agreement
Reebok confirmed "the arrangements by which we have agreed to supply you with
Reebok products." The word "supply" is not elucidated
in the said Agreement. Nor
is it equated with words such as "sell" or "deliver." This introduction must be
read in conjunction with
clause 3 which provides: "The arrangements for purchase
of Reebok products will be the same as apply to other Reebok distributors."
The
arrangements for the manufacture of Reebok goods for sale to its distributors
were mentioned in clause 2.1 of the Distribution
Agreement (quoted
supra
)
which envisaged agreements between the distributors and the manufacturers.
Reebok never manufactured Reebok goods and it never supplied
Reebok goods to its
distributors. It never received payment for Reebok goods from its distributors.
Reebok was not a manufacturing
company of Reebok goods.
Reebok was described by Foster in his evidence as a marketing
15 company.
It was concerned with the quality control of goods marketed as
Reebok goods. It was the proprietor of the Reebok trade mark which
was
extremely valuable. Its only income was royalties which it obtained from
users
of the trade mark. The royalties were sales-based.
I have already explained
supra
the arrangements made by Reebok
for
setting up a buying system for its distributors by utilising
the services of Asco.
That also happened between Asco and Jokari as appears from the evidence
of
Foster as supported by the discovered documentation. It is clear therefrom
that
no agreement of sale of Reebok goods was concluded until Asco had sent
Jokari a sales confirmation note and pro forma invoice and Jokari had
accepted
the goods and prices offered by Asco in the said sales confirmation note
and
pro forma invoice by supplying the necessary letter of credit in favour of
Asco.
The buying commission of Asco and the royalties of Reebok were included
in
the prices of the goods. This buying system enabled Reebok as trade mark
proprietor to exercise stringent quality control over the manufacture of
Reebok
products and to assess how much royalty it was earning from the purchases
by
16
its distributors.
It was argued on behalf of Jokari that Asco was Reebok's
agent. That was never pleaded. Moreover, the facts do not support the
submission.
It follows in my view that the Court
a quo
correctly
concluded that Jokari contracted with Asco to purchase from it the Reebok
footwear which it had initially ordered. There
was accordingly no obligation on
Reebok to supply the goods ordered by Jokari as alleged in para 9.5 of its
amended intendit. That
is the answer to the crucial question I have formulated
supra
. In view of that conclusion it is not necessary to consider other
issues in dispute between the parties.
In the result the appeal is dismissed with costs of two counsel.
C.P. JOUBERT JA
EM GROSSKOPF JA SMALBERGER JA
CONCUR
VIVIER JA NIENABER JA