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[2013] ZAWCHC 96
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P Christodolou & Sons Textiles CC and Another v Woolworths (Pty) Ltd (3541/12) [2013] ZAWCHC 96 (12 June 2013)
REPUBLIC OF SOUTH AFRICA
IN THE HIGH COURT OF SOUTH AFRICA
(WESTERN CAPE HIGH COURT, CAPE TOWN)
Case no: 3541/12
In
the matter between:
P CHRISTODOLOU & SONS
TEXTILES CC
..............................
First
Plaintiff
PAULOS CHRISTODOLOU
....................................................
Second
Plaintiff
and
WOOLWORTHS (PROPRIETARY
)
LIMITED
..................................
Defendant
Heard:9 – 10, 11, 15 and 17 April 2013
judgment
delivered: 12 JUNE 2013
savage AJ:
The first plaintiff, P Christodolou& Sons Textiles CC (“the
CC”), a close corporation of which the second plaintiff,
Mr
PaulosChristodolou (“Christodolou”), is the sole member,
has since 1998 operated a Woolworths franchise in Kokstad
in terms
of a written franchise agreement. After the franchise store was
upgraded and a food market introduced in December 2009,
an addendum
to the franchise agreement was signed recording the expiry of the
franchise term on 23 September 2013. The plaintiffs
now claim
inter
alia
rectification of theexpiry date recorded in this addendum
and additional relief.
The plaintiffs’ varied causes of action are apparent from the
particulars of claim, amended on four occasions as their
legal team
was changed for reasons that included the ill health of their
previous counsel. The result is that the pleadings are
not a model
of clarity, with the final set of particulars having been filed on
the first day of trial causing the trial, by agreement,
to stand
over in order to allow Woolworths to plead to the amended claim.
Material facts
From the evidence of Christodolou, his wife, Ms PanayotaChristodolou
and Ms Dawn Pottier (“Pottier”) the material
facts
appear as follows.
Christodolou’sfather and uncle immigrated to South Africaand
settled in Kokstadsome years before he was born in 1960 and
the
extended family is involved in a number of varied business
enterprises in the area. During 1997Christodolou and his
wiferesponded
to a notice placed by Woolworths in the Kokstad
Advertiser calling for applications for a “franchise
ownership” of
a Woolworths store in Kokstad. A meeting was
held with Mr Leon Laing (“Laing”) and Mr
RoeliePrinsloo(“Prinsloo”)
of Woolworths, to discuss the
franchise opportunity. During the meeting the couple were asked
about succession plans for the
business. They indicated that they
were interested in the franchise with the future of their two young
sons in mind who could
ultimately take the business over from their
parents. Laingand Prinslooinformed the couple that provided the
franchise remained
in good standing after an initial franchise
period it would be renewedindefinitely thereafter with the approval
of Woolworths.
Laing and Prinsloo also indicated to the couple that the franchise
and lease agreements would run concurrently. They were provided
with
a copy of the Woolworths franchise mission document in which it was
stated:
PREMISES
Woolworths’ negotiating power will be used to secure the
best rentals for suitable premises. The standard Woolworths lease
will be used. The standard procedure is that the Franchisee will
enter into the lease agreement with the lessor, but Woolworths
retain
the right to take over the lease should the Franchise agreement be
terminated prematurely. All obligations under the lease
agreements
must be executed by the Franchisee. The lease period will run
concurrently with the period of the Franchise agreement
.
Prior to signature of the franchise agreement, Christodolouinspected
the site in respect ofwhich Woolworths was negotiating and
was
satisfied that the franchise could be a success. With the franchise
approved, Christodolou invested R2.1 million in the enterprise
exclusive of stock and the franchise agreement was signed on 21
August 1998. In terms of the agreement, the franchise was to
endure
for a period of 10 years from 23 September 1998 with the option to
extend for one five-year period thereafter, provided
that twelve
months’ notice of the intention to extend was furnished to
Woolworths by the plaintiffs.
In terms of clause 34.4 of the franchise agreement, the parties
agreed to observe the utmost good faith in their dealings with
one
another:
‘
In implementation of this Agreement, the
parties hereto undertake to observe the utmost good faith and they
warrant in their dealings
with each other that they shall neither do
anything nor refrain from doing anything which might prejudice or
detract from the rights,
assets or interest of the other of them
.
Clause 34.2 contained a standard non-variation clause requiring any
variation of its provisions to be recorded in writing. The
agreement
was recorded to be “
the sole contractual relationship
between the parties
” and its terms override “
all
or any written or oral agreements, understandings or arrangements
entered into or concluded
” between them.
The franchise agreement defined “the Premises Lease” to
mean “
the Agreement of Lease in terms whereof the
Franchisee has a right of occupation in respect of the Premises and
includes renewals
or extensions thereof from time to time
”
and compelled the franchisee in terms of clause 23 to conduct the
franchise only at the premises agreed. Woolworths in
collaboration
with the franchisee was to negotiateon behalf of the franchisee “
the
terms, conditions and conclusion of the Premises Lease with any
landlord or prospective landlord
” under clause 33.1 on the
basis that, in terms of clause 33.2:
‘
Notwithstanding any acts or omissions on
the part of the Franchisor under clause 33.1 above or otherwise in
respect of or connected
with the negotiation and/or conclusion of the
Premises Lease, the Franchisee agrees that it will conclude any such
Premises Lease
entirely at its own risk, and that it will have no
claim, of whatsoever nature, arising from the participation, in
whatever capacity,
of the Franchisor in the negotiation and/or
conclusion of the Premises Lease
.’
When the franchise period commenced on
23
September 1998, the franchise agreement had been signed but the
lease agreement with Clearman Properties (Pty) Ltd had not.
The
plaintiffs occupied the premises in the absence of a lease agreement
for approximately a year until the lease was signed
on 27 September
1999, with the commencement date of the lease backdated to 1 October
1998. The commencement date of the lease
was therefore concurrent to
that of the opening of the franchised store, although the ten-year
lease period was calculated from
date of signature of the lease and
therefore did not mirror the agreed term of the franchise.
Woolworths, in terms of clause 33.1 of the franchise agreement,
negotiated the premises leaseon behalf of the franchisee and
was a
party to the lease agreement and its two addenda, with a
stipulatioalteri
in respect of the premises reserved in
favour of Woolworths.
The lease endured for a period of 10 years, subject to the option of
three five-year renewal periods. In the event of the termination
of
the franchise agreement, there existed in clause 14 of the lease
agreement a
stipulatioalteri
in favour of Woolworths:
The
Lessor acknowledges and agrees that the Lessee conducts its
business from the Premises under and by virtue of a written
franchise agreement (“the Franchise Agreement”) with
Woolworths (Proprietary) Limited (“Woolworths”).
In
order to give effect to the rights and remedies of Woolworths under
the Franchise Agreement (and without limiting any of
the rights or
remedies of the Lessee under this lease), the Lessor agrees and
undertakes to and in favour of the Lessee and
to Woolworths that:
Woolworths
shall be entitled to take cession and assignment of all the rights
of the Lessee under this Lease on the termination
of the Franchise
Agreement for any reason whatsoever should Woolworths elect to do
so on written notice to the Lessor within
30 (thirty) days after
the termination of the Franchise Agreement for any reason
whatsoever;
ownership
of all items of stock in the Premises from time to time sold and
supplied by Woolworths under the Franchise Agreement
and ownership
in and to all such items of stock is and remains vested in
Woolworths under the Franchise Agreement until same
are sold and
the Lessor shall not have any hypothec or other claim over all or
any items of stock on hand in the Premises,
from time to time;
should
the Lessor furnish the Lessee with any notice under this lease
then it shall simultaneously therewith furnish a copy
per
registered post to Woolworths at its domicilium…;
the
Lessor shall not allow the Lessee to cede or assign its rights
under this Lease nor sub-let the premises or any portion
thereof
nor allow any other person to occupy same without the prior
obtained written consent of Woolworths.
The
provisions of this clause 14 constitute a stipulatioalteri in
favour of Woolworths…”
Woolworths
will guarantee the payment of rental for a maximum period of 6
(six) months in the event of the Lessee defaulting
on rental
payments.
The franchise, through the efforts of the Christodolou family
supported by Woolworths, proved itself to be a success. Mr Cobus
Barnard (“Barnard”) of Woolworths
andChristodolouaccordingly explored options to open further
Woolworthsstores
in the Northern Transkei and KwaZulu-Natal area,
none of which came to fruition. In addition, Christodolouconsidered
a Woolworths
franchise offered in Maputo but having travelled there
was not interested in pursuing it.
Between 2006 and 2007Christodolou discussed with Barnard the
possibility of expanding the Kokstadstore to include foods and extra
clothing.This had followed Barnard’s concerns that the
Kokstadstore looked ‘like a Pep store’ and that clothing
was not displayed properly. Barnard indicated that he was pleased
that Christodolou was developing the brand and the business.
Emails
were exchanged between Christodolou and Mr Bernie Alfino (“Alfino”),
Woolworths’ Real Estate Manager,
during August 2006 regarding
space needs in respect of the envisaged Kokstadstore expansion.In an
email toChristodolou on 11
October 2007, Barnard confirmed on behalf
of Woolworths that the introduction of foods into the Kokstad store
had been agreed
“in principle”. Christodolou testified
that this in principle approval meant to him that “we were
going to
get there”.
Following these discussions and with Woolworths as the driving
force, less than three weeks later on 30 October 2007Christodolou
and Woolworths signed the first addendum to the lease agreementin
terms of which the premises were leased from MICC Properties
(Pty)
Ltd, which had taken cession of the lease, from 1 March 2008 for a
period of 10 years with an optional renewal period of
five years.The
new lease period did not mirror the term of the franchise contained
in the franchise agreement.The addendum was
signed prior to the
termination of the original period of lease,
a
month after the date on which the plaintiffs in September 2007, in
terms of clause 7.2.1 of the franchise agreement, were required
to
give twelve months’ notice of their intention to extend the
franchise
and almost a year prior to Woolworths confirming on
8 September 2008 that the plaintiffs’ franchise was to be
extended for
five years to 23 September 2013
.
Recordedin the addendum was an extension of 300m
2
to the premises leased.
Christodolou testified that he did not give notice of his intention
to renew the franchise agreement until told by the head of
the
franchise division to do so as he understood that the franchise
would simply be renewed. He did not consider it to be a risk
that
Woolworths would not agree to a longer franchise period as he had
put money into the franchise and he had been “negotiating
on
premises with Woolworths”.
Woolworths was over this period involved in reviewing its franchise
model and made an offer to certain franchisees of a twelve-year
contract with increased commissions but no end of term payment to
the franchisee.This offer was not accepted by Christodolou.
Around
this time, at a presentation given at Woolworths’ offices in
Cape Town regarding its approach to franchises, Mrs
Christodolou was
informed that Woolworths was not interested in taking over the
Kokstad store as a corporate store.
Christodolou’s evidence was that, having signed the first
ten-year lease addendum, Woolworths kept asking him to prepare
viabilities over a ten-year period. On 21 April 2009
Christodolouforwarded these projections to Woolworths in a capital
expenditure
viability study regarding the introduction of foods into
the Kokstadstore,in which his financial projections for the store
were
detailed andprofits of R8.9 million for Woolworths from
franchise fees and commissions over ten yearswere projected. In
addition,
an anticipated internal rate of return for the franchise
of 14.7%, a net profit value over eight years at 16% and a payback
period
of eight yearswere recorded.
On receipt of the projections Mr Nick Acker (“Acker”) of
Woolworths forwarded Christodolou’sdocument by email
the same
day to
inter alia
Mr Simon Susman and Mr Norman Thomson
(“Thomson”) of Woolworths in which the following was
stated:
‘
At the meeting last week I undertook to
contact the franchisee to check on his turnover forecasts to
determine why he would to embark
(sic) on a “loss-making”
venture by introducing a Food market
Not surprisingly he is much more bullish on sales, both in Food
and Clothing
I took a more cautious approach and increased the Foods sales
projection from R 200k per week to R 215k per week and the Clothing
upliftment (on the back of the Foods upliftment) from 10% to 15%
I also tweaked some of the expense parameters and I believe that
he can make money from this venture - projected IRR of 14.7%
I propose that we approve the introduction of the Food market
”
Thomson replied to the email from Acker on 24 April 2009 stating:
‘
I am happy with this. Can you get him to
accept these numbers as his own best estimates? Please keep these
viability numbers close
at hand in case we ever get into a
profitability debate
…’
It was put to Christodolouin cross-examination that viabilities are
prepared over a longer period as it is not sensible to consider
the
repayment of capital expenses over a one or two year period. He
replied that Woolworths “
should have said this guy won’t
make it in four years
” but did not. He did not seek an
extension to the franchise agreement as the lease addendum had been
signed for ten years.
On 2 October 2009, prior to the opening of the upgraded Kokstad
store, both Christodolou and Woolworths signed a second addendum
to
the lease agreement commencing on 1 May 2009 for a period of 10
years with an optional renewal period of five years. This
second
addendum recorded the increase to the 300m
2
extension to
the premises leased and recorded the introduction of foods into the
leased premises.
On 3 December 2009 the upgraded store was opened. Christodolou’s
evidence was that he had invested over R5 million in the
new store
but that the period agreed in the second lease addendum gave him
comfort that his investment was secure and his risk
therefore small.
Furthermore, the franchise agreement would, in his mind, be extended
automatically as it was the Woolworths
brand involved, Woolworths
had indicated that the revamp of the store should proceed and that
the company would help Christodolou
‘all the way’. With
the trust of Woolworths, he expected the company to do the right
thing.
In his evidence Christodolouqueried why Woolworths, as the
professionals, would allow him to extend the store if only for a
period of four years. Mrs Christodolou’s evidence was that it
never crossed her mind that the franchise may end in four
years as
ten-year viabilities had been submitted and the lease addendum had
been signed for ten years.
On 4 December 2009, at the request on this day of Ms Dawn
Pottier(“Pottier”) of Woolworths,Christodolou signed an
addendum to the franchise agreement, which recorded the introduction
of foods into the store and the expiry of the franchise
agreement on
23 September 2013.
In the plaintiffs’ first further particulars provided, it was
stated that Christodolou received the franchise addendum
on 2
December 2009 fromMs ZoeyRylands (“Rylands”).
Christodolou’s evidence in cross examination was thatRylands,
who had arrived at the store on 2 December 2009, gave him the
addendum on 3 December 2009 and said he must look at it and sign
it.
He was busy and under pressure and said he could not read it then
and that she would have to give him time. Rylands told
him that
Pottier would give it to him to sign. Mrs Christodolou saw Rylands
reminding Pottier to get the addendum signed.
Pottier’s evidence was that she asked Christodolou on a few
occasions on 4 December 2009 to sign the addendum.Christodolou
and
his wife stated that Pottierhad the addendum in a brown envelope,
which she said shehad received from Rylands, and asked
Christodolou
to sign it. However, Pottier’s evidence was that the
Christodolou already had the addendum when she asked
him to sign it.
Christodolou testified thatin response to his query as to what the
addendum concerned, Pottier informed him that it was a foods
addendum dealing with turnovers, how to conduct the business and
commission structures, that she needed to take it with her to
Cape
Town and that the store would be closed down if it was not signed.
Christodolou attempted to contact his attorney two or
three times
without success and then opened the addendum, signed and initialled
it. He “did not read a word” of the
agreement, which had
notbeen sent to him electronically before he signed itas he was in a
rush given his direct involvement in
the logistics of the newly
opened upgraded store.
Mrs Christodolou confirmed that Pottier had said the contract
concerned food commissions, that Pottier had handed it over and
that
her husband had signed it without reading it. Pottierstated that
sheassumed Christodolou had read the addendum but that
she did not
ask him this. She denied that she had said the store would be closed
down but confirmed that her instructions were
to leave Kokstad with
the signed addendum although in her experience a franchisee is
required to sign an agreement before a store
is opened.
Christodolou’s evidence was that had he known that 23
September 2013 was recorded as the expiry date of the franchise in
the addendum he would not have signed it, nor would he have upgraded
the store or introduced foods into it. Both he and his wifebelieved
that the franchise was extended for ten years, concurrent with the
lease addendum, given the viabilities prepared over a ten-year
period.
On 20 September 2011 Woolworths informed
Christodolou that it would trade as a corporate store in Kokstad
from 24 September 2013
and that the plaintiffs’Kokstad
franchise would end at midnight on 23 September 2013. On receipt of
this letter Christodolou
called for a copy of the franchise
addendum. In the letter from Woolworths it was recorded that the CC
would be entitled to an
end of term payment provided that the
requirements of the end of term policy were met. The end of term
payment offered by Woolworths
to the plaintiffs amounted to 3.6
times the net profit over the preceding three-year period plus
assets and stock, but was rejected
by the plaintiffs given the
investment made in funding the upgrade of the store and the fact
that it had taken years to build
the business into a successful
enterprise which the plaintiffs had understood they would retain
into the future.
Discussion
Rectification
Against the foregoing background, the plaintiffs launched the
present action, claiming
inter alia
rectification of the
franchise agreement. The plaintiffs’ claim for rectification
relies on the common intention of the
parties prior to the
conclusion of the franchise addendum that the duration of the
franchise agreement would be extended to 30
April 2019, identified
to the duration of the lease, subject to renewal in terms of the
franchise agreement for a period of five
years. They plead that as a
result of mistake, the franchise addendum did not reflect this
common intention of the parties.
Rectification is aremedy that has as its
purpose to give effect to the true intention of the parties.
In
order to succeed, the plaintiffs,having pleaded mistake, must prove
that the sustained common intention
of the parties is not
expressed in the agreement due to an error or mistake, or
the
dolus
of one party. (Christie
The Law of Contract
(6
th
ed
at 344). Rectification presupposes a common intention and does not
find application in circumstances of unilateral mistake.
If the party seeking rectification can prove an
agreement anterior to or contemporaneous with the writing with which
the written
agreement, owing to a mutual mistake, fails to conform,
the Court will rectify the erroneous instrument.
Weinerlein
v Goch Buildings Ltd
1925
AD 282
at 288;
Meyer v Merchants' Trust Ltd
1942
AD 244
at 253
and 256;
Von Ziegler and Another v Superior
Furniture Manufacturers (Pty) Ltd
1962 (3) SA 399
(T) at 409E.
In
Brits
v Van Heerden
2001
(3) SA 257
(C) at 283B
it was stated that –
‘…
the mistake does not
have to relate to the writing itself, but might relate to the
consequences thereof. The mistake may be one
common to both parties;
the mistake may be that of only one party; the mistake may be induced
by misrepresentation or fraud. But
there must be a mistake. In my
view, the crux of the matter is that the mistake, be it a
misunderstanding of fact or law or be
it an incorrect drafting of the
document, must have the effect of the written memorial not correctly
reflecting the parties’
true agreement
.”
Rectification does not constitute a variation of the written
agreement, but a correction or completion of it so as to reflect
what the parties agreed.Rectification cannottherefore be excluded by
a clause prohibiting variation.
Leyland (SA) (Pty) Ltd v Rex
Evans Motors (Pty) Ltd
1980 (4) SA 271
(W) at 273.
In
Tesven CC and another v South African Bank
of Athens
2000 (1) SA 268
(A) at para
13 it was stated that the parolevidence rule does not exclude
evidence of a prior oral agreement or a common continuing
intention
which a party seeks to lead in support of a claim for
rectification.See
Rand Rietfontein
Estates Ltd v Cohn
1937 AD 317
at 327.
At para 16 Farlam AJA stated that:
‘
To allow the words the parties actually used in the
documents to override their prior agreement or the common
intention that
they intended to record is to enforce what was not
agreed, and so overthrow the basis on which contracts rest in our
law: the application
of no contractual theory leads to such a
result
.’
Period of franchise and lease agreements
While the franchise mission document did not create rights as
between the parties, it recorded an intention on the part of
Woolworths that there exist concurrency between its franchise and
lease agreements which made business sense so as to ensure that
the
premises from which a franchise store would operate were secured for
the period of the franchise.
The plaintiffs from opening of the franchise store complied with
their contractual obligation to trade from the premises negotiated
and secured by Woolworths. In this regard, while the periods
recorded in the franchise and lease agreements have not mirrored
each other in precise terms, there has existed
de facto
concurrency between the date of occupation of the premises and the
operationof the franchise. This is evident from the retrospective
commencement date of the lease and the fact that, apart from the
first year, the period of the lease has at no time been less
than
the agreed franchise period.
Having obtained in-principle agreement to introduce foods into the
Kokstad store, the agreed extension to the leased premises,
negotiated by Woolworths, followed. Christodolou’s
confidence
that
“we were going to get there” appears to have
been justified.
What is apparent is that
Woolworths negotiated thenew ten-year lease period recorded in t
he
addendumand effective on 1 March 2008, before a final decision had
been taken on the introduction of foods and prior to the
expiry of
the ten-year period recorded in the original lease agreement signed
in 1999. While clause 33.2 of the franchise agreement
recorded the
agreement of “
the Franchisee … that it will conclude
any such Premises Lease entirely at its own risk, and that it will
have no claim,
of whatsoever nature, arising from the participation,
in whatever capacity, of the Franchisor in the negotiation and/or
conclusion
of the Premises Lease
’, the parties were
obliged to observe the utmost good faithtowards one another and
hadwarranted“
that they shall not do anything which might
prejudice or detract from the rights, assets or interest of the
other of them
”.
In such circumstances it is difficult to understand why Woolworths
would have negotiated and Christodolou would have signed the
first
lease addendum had further space over a ten-year period not been
required in order to introduce the sale of foods out of
a larger
franchised store and when the lease period recorded in the original
lease agreement could have remained operative.
Approximately five months after the new lease
period commenced on 1 March 2008, the parties agreed to the
extension of the term
of the franchise agreement to 23 September
2013. This extension was granted after Christodolou sought the
franchise extensionin
August 2008, eleven months out of time,
following his having been informed to do so by the head of
Woolworths’ franchise
division.
Christodolou’s
view was that he understood that the franchise would simply be
extended given that he had put money into
the franchise and
Woolworths was aware of and had negotiated the ten-year lease
addendum, including the extension to the leased
premises. When the
franchise period was then extended, neither party raised the lack of
congruency between the franchise and
lease periods.
Christodolou’s evidence that he was
repeatedly requested by Woolworths to provide ten-year viability
projections in respect
of the franchise was not disputed. He
provided Woolworths with a
capital expenditure viability study
on 21 April 2009 in whichfinancial projections over an eight and
ten-year period,and not over
the remaining four-year franchise
period, were recorded.
Acker’sconcern as to why Christodolou would embark on a
loss-making venture by introducing foods into the store was not
further explained in the email, nor did Acker testify at the trial
to explain such comment or why it was that he nevertheless
proposed
that the introduction of foods be approved, amendingcertain of the
projected figures and concluding that he was of the
view that
Woolworths “
can make money from this venture - projected
IRR of 14.7%
”. What is patently clear from Acker’s
email is that the projections considered were not projections over a
four-year
period but over a ten-year period. It is further material,
and in my mind not simply coincidental, that these projections were
over ten years when an additional ten years to the lease had been
agreed between the parties in terms of the lease addendum,
which had
commenceda year earlier. The fact that the second lease addendum was
later signed with a commencement date retrospective
to 1 May 2009
for a period of ten years provides further support for the fact that
ten years was the period being considered
by the parties.
Thomson’s reply on 24 April 2009 to Acker’s email asked
that Christodolou “
accept these numbers as his own best
estimates
” and that the numbers be kept close at hand in
case of a “
profitability debate
”. This email did
not record that the projections were made in respect of an incorrect
period, or that they should have
been made in respect of a four-year
period. It illustrated rather Thomson’s acceptance of the
ten-year period projected.
I am satisfied in the circumstances that
the evidence clearly shows that the parties were
ad idem
in
working off ten-year and not four-year projections in considering
viability and that expanded premises had been secured over
the same
period in order to allow the introduction of foods into the store
over this period.
This conclusion is relevant given that Woolworths would therefore
have known that given that ten-year projections had been examined
and profitability questions raised over a ten-year period to approve
the venture, the introduction of foods over a four-year
period would
not, on the projections, have been viable given the capital outlay
required and the limited time available to make
profits.
The profits considered by Woolworths were profits to be made in the
franchise arrangement. As much is evident from the projections.
The
profitability of foods in a corporate store was not under
consideration. As much is evident from the emails between Acker
and
Thomson from which it was apparent that Woolworths was not
considering the projections on the basis that it would step into
the
shoes of the franchisee and take over the Kokstad store as a
franchise store upon expiry of the franchise period in 2013.
For
this reason, Thomson requested that Christodolou be asked to “
accept
these numbers as his own best estimates
” and that the
numbers be kept close at hand in case of a “
profitability
debate
”, and Acker concluded that Woolworths could make
money on the venture calculated over a ten year period with the
franchisee
included in the calculations.
In the circumstances, the fact that no mention was made of a
four-year period remaining for the franchise, supports a conclusion
that Woolworths did not hold the view that it was four years that
was to remain on such franchise term.
Acker’s mention of a “loss-making” venture by
introducing a food market and the fact that Christodolou was
“(n)
ot
surprisingly … more bullish on sales, both in Food and
Clothing
” do not persuade me differently given the period
of the projections under consideration and the fact that a limited
franchise
term was not considered in the projections.
Five months after the introduction of foods into the franchise was
approved in April 2009, the parties signedthe second lease
addendum
on 2 October 2009 with the commencement date backdated to 1 May
2009. In terms of the addendum, the lease was to endure
for a period
of ten years until 30 April 2019 with an option to renew for a
further five years. Theextended leased premises and
the introduction
of food sales from the premises were recorded in the addendum. In
terms of clause 33.2 of the franchise agreement
“
the
Franchisee agrees that it will conclude any such Premises Lease
entirely at its own risk, and that it will have no claim,
of
whatsoever nature, arising from the participation, in whatever
capacity, of the Franchisor in the negotiation and/or conclusion
of
the Premises Lease
”. However, Woolworths was also not only
obliged to observe the utmost good faithtowards the plaintiffs
buthad warrantedthat
it would “
not do anything which might
prejudice or detract from the rights, assets or interest”
of
the plaintiffs under the franchise agreement. What is apparent is
that thepremises were required from which to run the franchise
and
the plaintiffs therefore would have no use for a ten-year lease on
premises in the absence of a franchise. Of this fact,
I am satisfied
that Woolworths wouldreasonably have been aware.
Signature of the addendum to franchise agreement
The upgradedKokstadstore openedon 3 December 2009,two months after
the lease addendum had been signed. Prior to the store opening
no
further agreement was signed between the parties.On 4 December 2009
Christodolou signed the franchise addendum, which was
witnessed by
Pottier and Mr Mike Hargreaves in Kokstad, and was later signed by
Thomson and Mr Andrew Jennings for Woolworths.
In signing the addendum to the franchise agreement, a presumption
exists that Christodolou knew and understood the contents of
what it
was that he had had signed.
Nicholas J in
Glen
Comeragh
(
Pty
)
Ltd v Colibri
(
Pty
)
Ltd
1979 (3) SA 210
(T) at 215A–C put it as follows:
‘(t)
he fact that a person has put his signature to a
document gives rise to a presumption of fact that he knew what it
contained. The
reason given (in Hoffmann South African Law of
Evidence 2ed at 391) is that ‘people do not usually sign
documents without
reading them’. . . . It would not in my view
be at all unusual for a person signing such a document [a standard
form of contract]
not to read it, whether because of laxity,
unwariness, heedlessness, or confidence in the integrity of the
[offeror]. In my view,
a more satisfactory basis for the presumption
of fact is that a person by his conduct in putting his signature to a
document admits
that he is acquainted with its contents (cfKnocker v
Standard Bank of SA Ltd
1933 AD 128).
The admission is not of course
conclusive, but it is sufficient to establish that fact prima facie
.’
The plaintiffs’ case is that Christodolou did not know what it
was that he was signing. In order to determine the issue,
the
circumstances surrounding signature of the franchise addendum are
relevant.
Woolworths took issue with the fact that in their further
particulars the plaintiffs stated that the franchise addendum had
been received from Rylands, yet in his testimony
Christodoloudeviated from this version of events, first testifying
that he
had been handed the addendum for signature on 4 December
2009 and then that it had been received on 3 December 2009.
Christodolou’s
evidence on this issue was argued, with
reference to
McDonald v Young
2012 (3) SA 1
(SCA) at 6I-7A,to
be is so dishonest and therefore improbable that it is “
contrary
to all reasonable probabilities and, despite the fact that it was
unchallenged
[in the sense of Woolworths being unable to produce
positive evidence that he read the document]
counts for
‘nothing’
”.
It is not disputed that Christodolou was asked to sign the franchise
addendum in an extremely busy period in which he was integrally
involved in troubleshooting problems and learning new systems
related to the introduction of foods into the Kokstad store. While
his recall of the date on which he was given the addendum was not
perfect, I accept his evidence to be truthful that Rylands
arrived
at the store on 2 December 2009, that she spoke to him about signing
the addendum on 3 December 2009 and that he indicated
that he was
busy and needed time. Rylands wasnot called to testify that this was
not so.
It is clear from the evidence that Christodolou knew that Woolworths
wanted the addendum signed. His unsuccessful attempts to
contact his
lawyer accorded with his testimony that he is dyslexic and uses
lawyers to look at contracts, unless they are one
page. The evidence
of both Christodolou and his wife was that he did not read the
contract before signing was not contradicted
by Pottier who did not
observe if Christodolouhad read the addendum, although she assumed
that he had.It is to me plausible that
Christodolou, having not had
success in contacting his lawyer, being consumed in the logistics
ofthe store opening, faced with
Pottier’s insistence that she
had to leaveKokstadwith the addendum signed and having previously
indicated to Rylands that
he needed time with which he had been
provided, took the decision to sign it.
I accept too the evidence of Christodolou and his wife that Pottier
indicated to him what was contained in the addendum and that
no
mention was made of the franchise period. There existed a friendly
professional relationship over a five-year period between
Pottier
and Christodolou, whose father and mother respectively had known
each other. In such circumstances, it is entirely plausible
to me
that Christodolou would ask Pottier to indicate to him what was
contained in the addendum and be prepared to rely on it,
particularly given the urgency with which signature was required and
the fact that he was busy. Pottier’s evidence that
she could
not recall discussing the addendum with Christodoloudoes not
persuade me that she did not and was evidence that was
contradicted
by Mrs Christodolou. From Pottier’sevidence it was clear that
she was focused on leaving Kokstad with the
signed addendum, having
been charged with this task in somewhat invidious circumstances
given that she testified that such contracts
are usually signed
before a store opens.
It was argued for Woolworths that there is no cause to doubt
Woolworths’ desire that the addendum should be signed before
the opening of the store. This was clearly so, however no
explanation was provided as to why Woolworths had not resolved the
necessary contractual issues recorded in the addendum with
Christodolou prior to the opening of the upgraded store. For
Woolworths
to present such a contract to Christodolou in the middle
of an extremely busy opening period had the effect that he was
compromised
in his ability to review the contract and ensure that he
was in agreement with its contents. To then insist on its signature
in the face of the extreme pressure, with Pottier agitated to leave
Kokstad and with Christodolou, having previously indicated
that he
needed time and with him then unable to contact his lawyer, was in
my mind unreasonable.
Having regard to the evidence tendered, I cannot agree with the
contention for Woolworths that Christodolou was “extraordinarily
dishonest” in his testimony regarding the contract, explained
by his desire to hide from the Court the true fact that he
knew what
he was signing and that the overwhelming probability is that he had
read the clause providing for a termination date
of 23 September
2013. I find to the contrary that Christodolou presented as an
honest and credible witness who had not constructed
a version of
events to support a complex claim against Woolworths.His
recall,while not always perfect, was not dishonest, let
alone
“extraordinarily dishonest”. His testimony reflected the
pressures of the store opening period and its imperfections
confirmed to me that it was genuine. Furthermore, material aspects
were supported by Mrs Christodolou, whose credibility as a
witness
was not brought into issue by Woolworths, and who I am satisfied was
also an honest and reliable witness on the issues
in respect of
which she had knowledge.
I find therefore on the evidence before this Court that while
Christodolou signed the addendum to the franchise addendum on 4
December 2009, the probabilities favour Christodolou’s version
that had he been alerted to the franchise expiry date contained
in
the addendum, he would not have signed the addendum given his
financial investment in the store, the acceptance by Woolworths
of
his viability projections recording returns over ten years, the
ten-year lease period which had already commenced and his
expressed
commitment to the franchise.
Accordingly, it follows that I am satisfied that in signing the
addendum Christodolou was not aware that he was consenting to
the
expiry of the franchise on 23 September 2013.
Conduct of Woolworths
It was argued for Woolworths that on 8 September 2008 when the
franchise agreement was extended to 23 September 2013, Woolworths
did not intend that the franchise would endure beyond this date and
its understanding of the situation is fatal to a claim for
rectification.
However through
its conduct I am satisfied that
Woolworths presented itself in such a manner that a reasonable
person in the position of Christodolou
would have understood
Woolworths to be consenting to the introduction of foods into the
store and the extension of the franchise
period in order to do so.
This is so given that on approving the introduction of foods into
the store and on signing the lease addendum, Woolworths did
not
indicate to Christodolou that in spite of the ten-year viability
projections and the ten-year lease period, the franchise
would
nevertheless expiry in four years. Given the projections and the
lease, Woolworths in my view conducted itself in such
a manner as
would lead a reasonable person to believe that it was assenting to
the extension of the franchise agreement for a
period of ten years.
As a consequence of its conduct, I find that Christodolouacted upon
the belief that Woolworths had assented
to the extension of the
franchise agreement on this basisand entered into the franchise
addendum.
The well-known
dictum
referred to by Blackburn J in
Smith
v Hughes
(1871) LR 6 QB 597
at 607, and referred to in
Pieters&
Co v Salomon
1911 AD 121
at 137, is that:
‘
If, whatever a man’s real intention may be, he so
conducts himself that a reasonable man would believe that he was
assenting
to the terms proposed by the other party, and that other
party upon the belief enters into the contract with him, the man thus
conducting himself would be equally bound as if he had intended to
agree to the other party’s terms.
’
Christie states that if this were not accepted to be the case, “
our
law would be in a sorry state, as it would be obliged to hold that
whenever there was no true subjective agreement there was
no
contract, even if the one party had given the other reasonably to
understand that they were in agreement
”. (Christie 6
th
ed
at 11-12.
See too
George
v Fairmead
(
Pty
)
Ltd
1958 (2) SA 465
(A) 471 B-D
Fagan CJ;
National
and
Overseas Distributors Corporation (Pty)
Ltd v Potato Board
1958 (2) SA 473
(A) at 479G–H per Schreiner JA;
SonapPetroleum
(SA) Pty Ltd v Pappadogianis
1992 (3) SA 234
(A);and
Du Toit v Atkinson’s
Motors Bpk
[1985] 2 All SA 149
(A) per
Van Heerden JA).
The circumstances under which the franchise
addendum was presented to Christodolou do not assist Woolworths. It
is clear on the
facts that Christodolou, while busy with all issues
related to the store opening and the unique complexities of
introducing foods
into the store,
Woolworths
presented the franchise addendum to him for signature without
explanation as to why this was not done prior to the
store opening.
In my view
a reasonable person would have
concluded that the sustained common intention
of
the parties was that the franchise agreement was to be extended for
a period of ten years.
This is so given the conduct of
Woolworths with regards to the ten-year projected viabilities and
the conclusion of the ten-year
lease. The effect of Woolworths’
conductwas that it was
sufficient to constitute a
misrepresentation which had the effect of misleading the plaintiffs
when signing the franchise addendum.I
t follows therefore that
on the facts before me, the franchise
expirydate recorded in the addendum was a consequence of this
misrepresentation on the part
of Woolworths and did not record the
common intention of the parties.
I am satisfied that a
reasonable person would have perceived the common intent of the
parties to be that the franchise period
would be extended to endure
for the period recorded in the lease addendum and that the recordal
in the franchise addendum of
23 September 2013 constituted a
mistake. I find therefore that
in such
circumstances the addendum to the franchise agreement stands to be
rectified
.
Consequently, the
franchise addendum must be rectified to record the expiry date of 30
April 2019 being the date on which the
ten-year lease addendum
terminates.
I am not persuaded by the further argument put up for Woolworths
that at best the plaintiffs held a
spes
that the franchise
period would be extended. It is material that the parties had, in
terms of clause 34.4 of the franchise agreement,
undertaken in the
implementation of the franchise agreement‘
to observe the
utmost good faith’
and warranted ‘
in their
dealings with each other that they shall neither do anything nor
refrain from doing anything which might prejudice or
detract from
the rights, assets or interest of the other of them’
. Such
a good faith undertaking remained binding on the parties and in as
much as it obliged the plaintiffs to act in good faith,
so too did
it oblige Woolworths.
In
Shoprite
Checkers (Pty) Ltdv Bumpers
Schwarmas CC & Others
2002(6) SA
202 (C) 215 H – I Davis Jstated that –
‘
Whatever the uncertainty, the principle
of good faith must require that the parties act honestly in their
commercial dealings. If
the one party promotes its own interests at
the expense of another in so unreasonable a manner as to destroy the
very basis of
consensus between the two parties, the principle of
good faith can be employed to trump the public interest inherent in
the principle
of the enforcement of a contract.’
The good faith undertakingto which both parties were bound required
Woolworths not to promote its own interests, in the words
of Davis
J, in an unreasonable manner against the plaintiffs. I am satisfied
however that the evidence shows that in breach of
the undertaking
provided, it did precisely that in taking the stance that it did
towards the plaintiffs.
Woolworths took issue with the recordal at paragraph 17 of the
plaintiffs’ particulars of claim that the plaintiffs in
signing the addendum were taking up” their option to extend
the franchise agreement through to 30 April 2019 stood in contrast
to the claim for rectification. Although drafted poorly, I am not
persuaded that this paragraph stands contrary to my findings
regarding the reasonable perception as to the intent of the parties
and the mistake therefore recorded into the addendum.
To summarise, I find that the plaintiffs have discharged the onus of
establishing that they are entitled to rectification of
the addendum
to the franchise agreement.
Tacit option to extend franchise
I move now to consider whether a tacit option contract exists in
terms of which it was agreed that the plaintiffs held an option
to
extend the franchise agreement for a period of five years from 2019
to 2024.
The principles governing importation of a tacit term were restated
by Nienaber JA in
Wilkins NO v Voges
[1994] ZASCA 53
;
1994 (3) SA 130
(A) at
136I-137B, as follows:
‘
A tacit term, one so self-evident as to
go without saying, can be actual or imputed. It is actual if both
parties thought about
a matter which is pertinent but did not bother
to declare their assent. It is imputed if they would have assented
about such matter
if only they had thought about it - which they did
not do because they overlooked a present fact or failed to anticipate
future
one. Being unspoken, a tacit term is invariably a matter of
inference. It is an inference as to what both parties must orwould
have had in mind. The inference must be a necessary one: after all,
if several conceivable terms are all equally plausible, none
of them
can be said to be axiomatic. The inference can be drawn from the
express terms and from admissible evidence of surrounding
circumstances. The onus to prove the material from which the
inference is to be drawn rests on the party seeking to rely on the
tacit term. The practical test for determining what the parties would
necessarily have agreed on the issue in dispute is the celebrated
bystander test
.’
Applying these principles to the evidence in this case, I am not
satisfied from the signature of the second lease addendum that
there
existed unequivocal conduct which is capable of no other reasonable
interpretation than that the intention of the parties
was to include
an option to extend the franchise agreement for a further five years
from 2019. This is given that the viability
projections prepared by
Mr Christodolou made no reference to the option of such an extended
period and I can only conclude on
the facts before this Court that
the parties had not considered the period from 2019 until 2024. In
such circumstances, a conclusion
that a tacit option contract
existed between them is not sustainable on the facts.
Given my findings with regards to the rectification of the franchise
addendum, it is not necessary to consider the remainder
of the
causes of action raised by the plaintiffs.
Costs
The plaintiff seeks an order of costs order against the defendant,
inclusive of the costs of two counsel.
I am satisfied that in the circumstances of this
case,
it was both reasonable and
justifiable that a second advocate be appointed and accordingly,
that the order as to costs is to include
the costs of two counsel.
Order
[80] In the result, the following order is made:
1. Clause 3.2 of the Addendum to the Franchise Agreement signed by
the plaintiffs on 4 December 2009 and by the defendant on a
date
thereafter is rectified to read:
“
Clause 7.1.2 shall be deleted in its
entirety and replaced by a new clause 7.1.2 which clause shall read
as follows:
“
7.1.2. endure for a period reckoned from
the Commencement Date and expiring at midnight on 30 April 2019.”
2. The defendant shall pay the plaintiffs’ costs, inclusive of
the costs of two counsel.
KM SAVAGE
ACTING JUDGE OF THE HIGH COURT
Appearances
:
For plaintiffs: D Gordon SC and A Christison
Instructed by Llewellyn Cain Attorneys
For defendant: E Fagan SC and E van Huysteen
Instructed by Edward Nathan Sonnenberg