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[2014] ZAWCHC 190
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Infitech Technologies (Pty) Ltd v Herbal Zone CC and Another (14411/2014) [2014] ZAWCHC 190 (11 December 2014)
THE HIGH COURT OF SOUTH
AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
In the matter between
Case No: 14411/2014
DATE: 11 DECEMBER 2014
INFITECH TECHNOLOGIES
(PTY) LTD
...........................
APPLICANT
And
HERBAL ZONE
CC
.............................................
FIRST
RESPONDENT
HAKIM
HERZALLAH
..................................
SECOND
RESPONDENT
Coram
:
ROGERS J
Heard:
25 NOVEMBER 2014
Delivered:
11 DECEMBER 2014
JUDGMENT
Rogers
J:
Introduction
[1]
The applicant
(‘Infitech’) and the first respondent (‘Herbal
Zone’) concluded a distribution agreement in
January 2010 which
was to run for five years from 1 February 2010 to 28 February 2015.
In terms of the agreement Herbal Zone appointed
Infitech as its
exclusive South African distributor for a men’s health capsule
called Phyto Andro. The second respondent
(‘Herzallah’)
is Herbal Zone’s sole member.
[2]
Various disputes have
arisen between the parties. These concern, among other things, a
price increase notified by Herbal Zone to
Infitech on 14 July 2014
and a purported cancellation of the contract by Herbal Zone on 9
October 2014. This has led to applications
and counter-applications
and several interim orders. Herzallah was joined in these proceedings
at a stage when Infitech was seeking
contempt relief. All the matters
are now before me. Mr Smalberger appeared for Infitech and Mr Goodman
leading Mr Acton for Herbal
Zone and Herzallah.
The
facts
[3]
Phyto Andro is a
product manufactured by Herbal Zone International, a Malaysian
company. The entity I refer to as Herbal Zone is
a South African
corporation which purchases the product from the Malaysian company.
[4]
Herzallah introduced
the product into South Africa during 2007. The first South African
distributor was an entity trading as KBD.
The distribution contract
with that company was terminated during August 2009. A former
employee of KBD introduced Herzallah to
Mr Mosiane. The latter and
his wife Sheila are the directors of Infitech. As I have said, the
latter concluded a distribution agreement
with Herbal Zone in January
2010.
[5]
I shall refer later to
the relevant provisions of the distribution agreement. For the
moment, I note that in terms of clause 15.4
the price per capsule was
R20 including VAT. The clause stated that ‘the price can be
increased depending on the USD rate
with a one month’s notice
letter’. Although the price was expressed per capsule, Herbal
Zone supplied the product to
Infitech in a cardboard box containing
50 capsules, each capsule in a separate sachet. The box had a label
on the side stating
that the product was manufactured by Herbal Zone
International (its website details were given), followed by the
words: ‘Exclusively
for: Infitech Technologies’. The
latter’s telephone number, email address and website
particulars were given.
[6]
There were
uncontentious price increases during 2011, 2012 and 2013. Pursuant to
the last of these price increases, in June 2013,
the price per
capsule was R25,60 including VAT (ie R22,46 excluding VAT).
[7]
What did give rise to
friction during 2012 and 2013 were complaints by Infitech that Herbal
Zone’s capsules or counterfeit
capsules were being marketed in
South Africa and that Herbal Zone was failing to take action against
such marketing. Although these
complaints feature in the papers, they
are not ultimately germane to anything I need decide. They did,
however, result in there
being a somewhat fractious relationship by
mid-2014.
[8]
During the first half
of 2014 Herbal Zone decided to change the packaging of the capsules.
They were now to be supplied in a sealed
jar containing 100 capsules.
Herbal Zone communicated this to Infitech in a letter dated 8 April
2014, stating that the change
would occur within the next two months.
Infitech responded by asking how its customers (re-sellers such as
pharmacies) would be
able to sell individual capsules if they came in
a sealed jar. Herbal Zone replied on 15 April 2014 by stating that
the jar would
contain the same individual sachets. Mosiane says that
he also spoke with Herzallah about the fact that Infitech’s
customers
would not want to buy stock in as large quantities as 100
capsules. He says that Herzallah told him that Infitech would be free
to repackage the capsules into boxes of 50.
[9]
On 14 July 2014 Herbal
Zone notified Infitech of a price increase. The letter stated that
the price increase was 9% and that the
new price would be R27,90
excluding VAT. While the difference between the old price including
VAT and the new price excluding VAT
was 9%, the true increase was
24%: from R22,46 excluding VAT to R27,90 excluding VAT. The notice
did not explain the increase nor
refer to clause 15.4.
[10]
On 16 July 2014
Infitech’s attorneys, Spamer Triebel Inc (‘STI’),
wrote to Herbal Zone referring to clause 15.4
and requesting a
detailed calculation of how Herbal Zone had arrived at the increase.
STI observed that since 2010 Herbal Zone
had ‘unlawfully’
increase the purchase price by 59% (ie from R17,54 excluding VAT to
27,9% excluding VAT).
[11]
Herbal Zone’s
attorneys, AMMM Inc (‘AMI’), responded on 30 July 2014.
The explanation for the price increase was
expressed thus:
‘
4.
Our client manufactures and packages Phyto Andro capsules from
overseas. The price of the product at the factory gate and the
import
parity price which is USD based have recently escalated, over and
above such, our client has introduced new failsafe packaging
to the
product to counter any copying and falsification of the product.
5. The above factors
necessitates the nominal price increase which our client considers
fair and reasonable under the circumstances.
6. Our client will
increase the price with effect from 14
th
of August 2014.’
AMI requested further correspondence to be addressed to
its offices, stating that they were authorised to accept any legal
process
regarding the matter.
[12]
On 12 August 2014 STI
responded to AMI, stating that they held instructions to bring an
urgent application for interim relief regarding
the proposed price
increase and that the application would be served on AMI as soon as
practically possible. They asked whether,
in order to remove the
urgency, Herbal Zone would agree not to implement the price increase
on 14 August 2014, recording that if
such agreement was not received
by close of business that same day they would proceed with the urgent
application.
[13]
Because Herbal Zone
seeks a reconsideration, in terms of rule 6(12)(c), of an urgent
order granted on 13 August 2014, it is necessary
to set out the
sequence of events. There having been no response to the letter of 12
August 2014, Infitech issued an urgent application
on the morning of
13 August 2014 for hearing at 12h30. (I shall, where necessary, refer
to this as ‘the price interdict application’
to
distinguish it from other applications.) At 08h47 STI emailed and
faxed the application to AMI for the attention of Mr Malapane.
The
covering letter simply said: ‘Find attached hereto our client’s
notice of motion and supporting documentation for
your records’.
STI’s Ms Botha phoned Mr Malapane on several occasions but he
was not available. She left messages.
According to Herbal Zone, Mr
Malapane only received the papers at about lunchtime.
[14]
A candidate attorney
from STI delivered the application to Herbal Zone’s Mr Awwad on
the morning of 13 August 2014. This was
at Herbal Zone’s
address in the Cape Peninsula. There is a dispute of fact as to when
this was. The candidate attorney says
in his affidavit that he
attended at Herbal Zone’s offices at 09h58 and that Awwad
refused to acknowledge receipt but confirmed
that the application had
already been received by AMI. Awwad alleges, by contrast, that he was
only handed the application at 11h40
and that he contacted AMI but
was told that Mr Malapane was unavailable until 15h00. In the event,
Mr Malapane phoned him at lunchtime
to say that he too had just
received a copy of the application. Herbal Zone says in its answering
affidavit that it now appears
that by the time Mr Malapane contacted
Awwad the urgent order had already been granted.
[15]
The time at which the
urgent order was granted does not appear on the order itself but I
was told by Mr Smalberger that at 12h30
the acting judge before whom
the matter served adjourned it down until 14h15 to give Herbal Zone
additional time and that the order
was then granted at 14h15. Whether
anything happened between 12h30 and 14h15 does not appear from the
papers. If there was attempted
contact, there is nothing to suggest
that it succeeded. The order, which was in the form sought by
Infitech, reads as follows:
‘
1. Pending
the final determination of an action (“the action”) in
which the Applicant will seek inter alia
an Order:
1.1 Declaring the
purported increase in the price of Phyto Andro capsules (“the
capsules”) supplied by the
Respondent to the Applicant, due to
come into effect on 14 August 2014 (“the price increase”),
to be declared invalid
and of no force or effect; and
1.2 Directing the
Respondent to comply with its obligations under the distribution
agreement concluded between the parties
on 20 January 2014 (“the
distribution agreement”), in particular its obligations under
clause is 5 6 thereof,
the Respondent is:
1.3 Interdicted and restrained
from implementing the price increase; and
1.4 Directed to continue to
supply capsules to the Applicant at the price at which it supplied
the capsules to the Applicant before
the price increase, being R25,60
including
VAT.
2.The relief in paragraph 1.3
and 1.4 above shall operate as an interim order and direction, with
immediate effect.
3.The action shall be instituted
within 30 (30) days of the date of this Order.
4.The costs of this application
shall be costs in the action.’
[16]
At 14h45 AMI sent the
following somewhat extraordinary missive to STI: ‘Thank you, we
shall await to hear of the outcome from
you.’ As it happens, by
this time the urgent order had already been granted. STI emailed a
copy to AMI at 16h05.
[17]
There was no immediate
reaction from Herbal Zone’s side. It appears that its attorneys
may have been under the impression
that the matter would serve again
before court, an impression which may have been created by para 2 of
the order. AMI was still
addressing correspondence to STI on other
matters relating to the distribution agreement in the latter part of
August 2014. Herbal
Zone then changed to their current attorneys
(‘Hunter’) who on 15 September 2014 delivered a notice of
opposition.
On 2 October 2014 Herbal Zone filed answering papers in
the price interdict application. These papers contained a request for
a
reconsideration of the matter in terms of rule 6(12)(c). At the
same time, Hunter delivered a notice setting the matter down for
hearing on 8 October 2014. In the meanwhile, Infitech issued summons
in the main case.
[18]
On 8 October 2014 an
order was made by agreement in terms whereof the application was
postponed for hearing on the semi-urgent roll
on 25 November 2014.
Herbal Zone having intimated an intention to bring a
counter-application, the order provided that the said
counter-application and any further affidavits by Herbal Zone should
be delivered by 24 October 2014. A timetable was set out.
Costs were
to stand over for later determination.
[19]
At that stage,
therefore, the matters which were to be heard on 25 November 2014
were the price interdict application (and in particular
Herbal Zone’s
request for a reconsideration thereof) and the intimated
counter-application.
[20]
In order to understand
the counter-application, it is necessary to refer to some earlier
events. I have already mentioned Herbal
Zone’s switch in
packaging from cardboard boxes containing 50 capsules to sealed
plastic jars containing 100 capsules. Herzallah
says that following
the switch Herbal Zone discovered that Infitech was repackaging the
product into cardboard boxes containing
50 capsules. (It will be
recalled that Mosiane alleges that Herbal Zone agreed to this.) The
cardboard boxes Infitech used for
repackaging were in most respects
identical to the boxes Herbal Zone had previously supplied. The side
of the box still contained
the statement that the capsules were
manufactured by Herbal Zone International, and its website details
were given. Beneath this
appeared: ‘Exclusively Distributed by:
Infitech Technologies’, and its telephone number was given. The
content and
get-up of the front and back of the box were the same as
before, including the name Herbal Zone and its logo. A new feature,
however,
on the front and back of the box was the addition of the
name Infitech and its logo.
[21]
On 26 August 2014 AMI
wrote to STI, responding to a letter which is not part of the record
but which, from the tenor of the response,
appears to have been a
complaint by Infitech about Herbal Zone’s change in packaging.
AMI in its response called on Infitech
to desist from changing or
re-filling the original package (ie the jar). Such conduct was said
to be in conflict with clause 14.9
of the distribution agreement. The
latter clause states that Infitech must not wilfully do any act,
matter or thing detrimental
to the best interests of Herbal Zone or
the product.
[22]
It is common cause that
Infitech continued to repackage the Phyto Andro capsules.
[23]
Herzallah says that
during September 2014 he discovered further conduct by Infitech which
undermined the distribution agreement.
This was the existence of a
website in the name of ‘Herbs, Oils & Co’. In the
counter-application subsequently
filed, this was said to be a
competing business which Infitech was conducting. It now appears,
though, that there is a company
called Herbs Oils and Co (Pty) Ltd
(‘HOC’). The Mosianes are the directors of this company.
It appears to have been
acquired by them from STI as a shelf company
during the first quarter of 2014. The address and telephone number of
HOC as shown
on the website are the same as Infitech’s. The
website stated that HOC retailed and distributed herbal and
nutritional supplements
and that its products were stocked by leading
pharmacies, organic food stores and supermarkets. Among its products
was a capsule
called Phyto-Form, the composition of which is
identical to Herbal Zone’s Phyto Andro. Another of its products
was a coffee
called Cappuccino Zing. Its composition was likewise
identical to that of Herbal Zone’s Phyto-Andro coffee, a
product which
Infitech previously distributed for Herbal Zone.
[24]
On the day following
the agreed order on 8 October 2014, Hunter wrote to STI setting out
various respects in which Infitech was
alleged to have breached the
distribution agreement. Among the clauses allegedly breached was
clause 10.1. That clause reads:
’
10.1 The
Distributor agrees that it will not distribute or represent any
Products in the Territory which compete with the Products
of Herbal
Zone cc during the term of this Agreement or any extensions thereof.’
In terms of clause 10.2, a breach of clause 10.1
entitles Herbal Zone summarily to terminate the agreement. This is by
way of contrast
to clause 20 which requires, in respect of other
breaches, that an aggrieved party give the other party a notice to
remedy the
breach within three days, failing which certain remedies
are specified.
[25]
In its letter Hunter
said that Infitech had breached clause 10.1 by distributing and
representing the competing products reflected
on the HOC website. On
this basis, Herbal Zone purported summarily to terminate the
agreement. The other breaches alleged in the
letter concerned
Infitech’s repackaging of the capsules and the insertion of its
name and logo on the front and back of the
boxes. In respect of those
alleged breaches, Infitech was given three days to remedy the
breaches (though this would only be of
relevance if the summary
termination were ineffective).
[26]
Regarding the order of
13 August 2014, Hunter’s letter reflects a view that, pending
reconsideration of the order on 25 November
2014, Herbal Zone was
obliged to continue complying with the order. Hunter said that Herbal
Zone thus undertook to continue complying
with the order despite its
view that the contract had been validly cancelled.
[27]
STI responded by way of
a letter dated 14 October 2014 in which they denied that Infitech was
guilty of any breaches. In regard
to HOC, STI said that it was ‘an
independent legal entity’ and that Infitech had not distributed
or represented any
competing products. (It so happens that shortly
after Hunter’s letter of 9 October 2014 the HOC website became
inaccessible.)
[28]
On 16 October 2014
Infitech placed an order for 5000 capsules. Given Herbal Zone’s
view regarding the continued application
of the order of 13 August
2014, it was obliged to supply these capsules and to do so at the old
price. On 20 October 2014 STI wrote
to Hunter, stating that Herbal
Zone had not in accordance with its usual practice issued an invoice
for the 5000 capsules and that
upon enquiry an employee of Herbal
Zone had said that she was under instructions not to process the
order. STI said that Herbal
Zone was in contempt of the order of 13
August 2014 and required certain undertakings failing which an urgent
contempt application
would be brought.
[29]
Hunter replied on 21
October 2014, stating that because the distribution agreement had
been cancelled Herbal Zone was entitled to
supply other parties,
which it was doing. Although (so Hunter evidently believed) Herbal
Zone was also obliged to supply Infitech
pursuant to the order of 13
August 2014, it would have to wait its turn. The
bona
fides
of the order
given the small quantity, was also questioned. Further letters
ratcheting up the tension were exchanged on 22 October
2014. Also on
that day, Herbal Zone issued an invoice to Infitech for 2000 of the
5000 capsules ordered. Payment was made and they
were duly delivered.
The other 3000 capsules were invoiced on 29 October 2014 but not
before Infitech served the threatened contempt
application.
[30]
In the meanwhile, on 23
October 2014 Herbal Zone served its counter-application. In this
application it sought (i) interdicts preventing
Infitech from
marketing the capsules in packaging bearing the Infitech logo,
manufacturing packaging which was similar to that
of Herbal Zone,
holding out that it was associated in the production of Phyto Andro
capsules or with Herbal Zone’s business
or products, and the
like; (ii) declaring the distribution agreement to have been
validly cancelled on 9 October 2014. I shall
refer to the interdicts
sought in the counter-application as the ‘packaging
interdicts’.
[31]
As I have said,
Infitech then served its contempt application on 28 October 2014.
Perhaps encouraged by its earlier success, Infitech
set down its new
application for 31 October 2014. Although I refer to this as a
contempt application, the relief sought was not
confined to seeking a
declaration that Herbal Zone be found to be in contempt and that
Herzallah be imprisoned (for which purpose
he was joined as the
second respondent). In addition, Infitech sought interdicts arising
from the disputed cancellation of the
distribution agreement (I shall
refer to this latter part of the application as ‘the
termination interdict application’).
The interdict sought to
restrain Herbal Zone from supplying Phyto Andro capsules to persons
other than Infitech and directing it
to comply with the agreement and
in particular to supply capsules to Infitech in terms thereof. The
relief to be sought on 31 October
2014 was in the form of a rule
nisi, with the interdict component of such relief to operate as an
interim order with immediate
effect.
[32]
Herbal Zone filed
answering papers in the contempt and termination interdict
application on 30 October 2014. On the following day
Infitech filed
its replying papers in the said application. Unsurprisingly the
matter was not able to be heard and it was postponed
to 5 November
2014. The order is not in the file but I assume costs were to stand
over.
[33]
The lawyers were now at
full throttle. On 3 November 2014 Infitech filed its replying papers
in the price interdict/reconsideration
application and its answering
papers in the counter-application. On 4 November 2014 Infitech filed
a supplementary replying affidavit
in the price
interdict/reconsideration application.
[34]
On 5 November 2014 the
postponed contempt and termination interdict application served
before Riley AJ. He heard argument and made
an order on 6 November
2014. During argument Mr Smalberger for Infitech had handed Riley AJ
two draft orders. Both drafts assumed
success for Infitech on the
contempt application and on the termination interdict application.
The only difference was in regard
to costs – the one draft
included the perhaps optimistic request for an immediate costs order
against Herbal Zone and Herzallah;
the other draft provided for costs
to stand over for determination at the hearing on 25 November 2014.
Both of Mr Smalberger’s
drafts followed the notice of motion in
requesting a rule nisi, returnable on 25 November 2014 (ie
simultaneously with the price
interdict/reconsideration application
and with the counter-application).
[35]
In the event, Riley AJ
dismissed the contempt application but granted the termination
interdict application. This meant a reformulation
of the drafts as
submitted by Mr Smalberger. Although I do not think there can be any
serious doubt as to what the learned judge
intended, the wording of
the order gave rise to another application, this time by Herbal Zone
for the variation of what was said
to be a patent error in the order.
The order was as follows (I omit the portion of the order summarising
the relief claimed in
the action, since that is the same as in the
order of 13 August 2014):
‘
1.
The application for contempt of court is dismissed.
2. Pending the final
determination of the action issued by the Applicant in this Court
under the above case number (“the action”)
alternatively
the termination date of the distribution agreement concluded between
the Applicant and the First Respondent on 20
January 2014 (“the
distribution agreement”), which ever date is the earlier, in
which action the Applicant seeks
inter alia
an order:
2.1 …;
2.2 …,
the First Respondent is:
2.3 Interdicted and restrained
from selling and supplying the capsules to persons or parties other
than the Applicant; and
2.4 Directing [
sic
] to
comply with its obligations under the Supply agreement and, in
particular, its obligation to supply capsules to the Applicant
in
terms thereof.
3.The relief sought in
paragraphs 1.3 and 1.4 shall operate as an interim order and
direction, with immediate effect.
4.The costs of this application
shall stand over for determination on Tuesday, 25 November 2014.
5.Written reasons for this order
will be furnished on application by any of the parties.’
[36]
On 10 November 2014
Herbal Zone requested reasons, which were furnished on 24 November
2014. Also on 10 November 2014, Hunter wrote
to STI expressing the
view that there was a patent error in the order, in that it was not
cast in the form of a rule nisi returnable
on 25 November 2014.
Hunter requested Infitech’s consent to a variation.
[37]
On 11 November 2014
Herbal Zone filed its replying papers in the counter-application.
[38]
On 13 November 2014
Herbal Zone, having not received the requested consent from STI,
delivered an application in terms of rule 42
for the variation of
Riley AJ’s order. Infitech filed an opposing affidavit on 21
November 2014. As I have said, Riley AJ’s
reasons became
available on 24 November 2014.
[39]
This, then, was the
tangled web which the parties had succeeded in weaving when the
matter came before me on 25 November 2014.
The
variation application
[40]
It is convenient to
deal with the variation application first. Having regard to the
procedural history, the form of relief sought
in the contempt and
termination interdict application and the draft orders handed up by
Infitech’s counsel at the hearing
before Riley AJ, it is
perfectly clear that he could not have intended the interim interdict
to operate beyond 25 November 2014,
on which date Herbal Zone’s
counter-application for confirmation of the cancellation was to be
argued. The learned judge
had to reformulate the order because he was
dismissing the contempt application. In the process of reformulation
he omitted to
deal with the interim interdict in the form of a rule
nisi returnable on 25 November 2014.
[41]
Para 3 of his order
reflected that the interim interdict purportedly granted in terms of
paras 2.3 and 2.4 would have immediate
effect as interim orders. This
would have made no sense if paras 2.3 and 2.4 were themselves
intended as interim interdicts immediately
effective until the
earlier of the determination of the action or termination of the
distribution agreement. Para 4 recognised
that there was still to be
a hearing on 25 November 2014, a hearing which would have been
rendered academic if interdicts in the
apparent form of paras 2.3 and
2.4 were already operative. Those paragraphs must thus have been
intended to embody the terms of
a rule nisi.
[42]
That this is what Riley
AJ intended is placed beyond doubt by the reasons he gave on 24
November 2014 (see in particular para 33).
[43]
Herbal Zone is thus
entitled to have Riley AJ’s order varied as prayed pursuant to
rule 42(1)(b).
The
order of 13 August 2014
[44]
Before dealing with the
other matters, I must deal with the proper interpretation of the
urgent order of 13 August 2014. To the
extent that the parties
regarded the order as imposing an obligation to supply capsules at a
specified price regardless of subsequent
events, they erred. The
order must be interpreted in the light of the application on which it
was based. The application complained
that the price increase of 14
July 2014 was invalid. That is the only thing which the order could
or did address.
[45]
For this reason, Herbal
Zone’s complaint that the order purported to compel it to
supply capsules beyond the distribution
agreement’s expiry date
on 28 February 2015 was misconceived. Also misconceived is the notion
that Herbal Zone was obliged
to continue supplying capsules after 13
August 2014 if, after that date, it cancelled the agreement. The
order of 13 August 2014
could not have been intended to limit the
freedom of either side to exercise their rights under the contract
after 13 August 2014.
Herbal Zone could even have given a fresh
notice of a price increase, this time expressly explaining how the
increase was related
to the exchange rate.
[46]
Accordingly, and even
without Herbal Zone’s reconsideration application, Herbal Zone
could, pursuant to its cancellation of
the contract on 9 October
2014, have stopped supplying capsules to Infitech. A refusal to
supply on the basis of an alleged cancellation
would not have
violated the order of 13 August 2014. Of course, if Infitech disputed
the cancellation it was at liberty to institute
a fresh application
for a further interdict, focusing this time on the validity or
otherwise of the cancellation. That is indeed
what Infitech did in
the termination interdict application. If that further interdict
succeeded, the order of 13 August 2014 would
continue to regulate the
price at which capsules would have to be supplied (unless Herbal Zone
in the meanwhile gave a fresh notice
of a price increase, in which
case Infitech, if it disputed the new price increase, would have to
obtain relief focusing on the
validity of the new notice).
The
reconsideration application
[47]
Rule 6(12)(c) provides
that a person against whom an order was granted ‘in his absence
in an urgent application’ may
by notice set down the matter
‘for reconsideration of the order’. The word ‘absence’
does not here bear
any technical meaning. The fact that a respondent
has received prior notice of an urgent application may be relevant to
the exercise
of the court’s discretion but if such respondent
is not as a fact present when the matter is heard and the order
granted,
he is ‘absent’ within the meaning of the rule.
[48]
Herbal Zone was absent
when the price interdict application was heard and the order granted
on 13 August 2014. The application was
brought as one of urgency.
This court thus has jurisdiction to reconsider the order in terms of
rule 6(12)(c).
[49]
A reconsideration
occurs with reference not only to the arguments the respondent may
have to offer on the founding papers but also
with reference to the
facts alleged in any answering and replying papers which may have
been filed (see
Industrial
Development Corporation of South Africa v Sooliman
2013
(5) SA 603
(GSJ), where the earlier decisions are reviewed). Here
there were answering and replying papers.
[50]
The court has a wide
discretion in its reconsideration of the case. Relevant factors
include not only the merits of the order but
also the reasons for the
respondent’s absence, any delay in seeking reconsideration,
prejudice suffered and the like.
[51]
Apart from the merits
of the price interdict application, Mr Smalberger emphasised two
aspects militating against acceding to the
reconsideration request.
The first was the lack of a proper explanation from Herbal Zone for
its absence on 13 August 2014. The
second was the delay of about
seven weeks in Herbal Zone’s filing opposing papers and setting
down the matter for reconsideration.
[52]
The first of these
complaints is, in my view, completely overshadowed by the lack of a
proper explanation on Infitech’s part
for having rushed into
court on such short notice. Infitech knew on 14 July 2014 that Herbal
Zone intended to implement the price
increase on 14 August 2014. By
31 July 2014 it had AMI’s response to STI’s challenge of
16 July 2014. Nearly two weeks
passed before the urgent application
was issued. When it was issued, it was set down on only a couple of
hours’ notice.
[53]
Even if the matter by
13 August 2014 was extremely urgent, Infitech’s own delay had
created the extreme urgency. But the matter
was not, even on 13
August 2014, extremely urgent. Infitech did not allege that it was on
the verge of ordering a substantial further
quantity of stock.
Nothing was said about its current stock position or its future
requirements.
[54]
By contrast, the
complaint against Herbal Zone is that it failed to appear in court at
12h30 in respect of an application which
was at best served on it an
hour or two previously. Although STI had foreshadowed an urgent
application in its letter to AMI of
12 August 2014, STI did not say
in that letter that if they did not receive the requested undertaking
the application would be
issued for hearing the next day. STI did
not, in its covering letter to AMI at 08h47 on 13 August 2014,
highlight that the application
was to be heard at 12h30 that same
day. In any event, there could be no guarantee that Mr Malapane of
AMI would get to see the
papers immediately. The fact that he said in
his letter of 31 July 2014 that his firm was authorised to accept
service of process
did not mean that he would be constantly available
to consider urgent proceedings on very short notice. There is no
acceptable
evidence that STI succeeded in making contact with Mr
Malapane on the morning of 13 August 2014.
[55]
There is a dispute of
fact as to when Herbal Zone’s Awwad received the papers –
09h58 on STI’s version, 11h40
on Awaad’s version. Awwad’s
attempts to contact his attorney are precisely what one would have
expected. By the time
they communicated between 13h00 and 14h00, they
would have expected the matter already to have served before a judge.
[56]
In my view, the
founding papers came nowhere close to justifying the immediate
granting of relief, let alone relief expressed as
it was rather than
in the form of a rule nisi with a relatively short return day.
[57]
The point regarding
Herbal Zone’s delay in seeking reconsideration has greater
force. However, by mid-September 2014 there
had been a notice of
opposition, indicating that Herbal Zone did not consider Infitech to
be entitled to the relief sought in the
price interdict application.
In support of the delay argument, Mr Smalberger referred me to
ISDN
Solutions (Pty) Ltd v CSDN Solutions CC
1996
(4) SA 484
(W). Other cases can only be of limited assistance in
regard to the fact-sensitive exercise of a judicial discretion such
as that
conferred by rule 6(12)(c). In
ISDN
the court’s
decision not to take an urgent interim order under reconsideration
was influenced by a number of factors. In that
case the respondents
had received the urgent application on the previous day and had
advised the applicant’s attorney that
they would be opposing
the application. Notwithstanding such notice and advice, they failed
to appear. Importantly, the main case
in
ISDN
was scheduled to be
heard and finally determined within about three weeks from the date
on which reconsideration was sought. The
interim order, which had
already been in force for a month, would thus only continue in
operation for about three more weeks. The
learned judge also pointed
out that the interim order merely enjoined the respondents to refrain
from doing that which in law they
were in any event prevented from
doing or prevented them from using information which they claimed in
any event not to have. The
continued operation of the interim order
thus did not prejudice them.
[58]
The present case is
obviously distinguishable from
ISDN
.
Although the delay was greater in the present case, the interim order
of 13 August 2014 would, unless reconsidered, continue to
apply until
the final determination of an action or (though not so stated in the
order) until the distribution agreement terminated
on 28 February
2015. The trial action in this division would never have been finally
determined prior to 28 February 2015, so the
effect of the interim
order was to prevent Herbal Zone from acting on its price increase
for the remaining term of the contract
(a period of about six and a
half months reckoned from the date of the order or about four and a
half months reckoned from the
date of the reconsideration request).
The interim order did not prohibit Herbal Zone from doing something
which was in any event
obviously unlawful; the order prevented it
from acting on a price increase, the validity of which would turn on
competing views
regarding the interpretation of the contract as
applied to factual circumstances.
[59]
I thus consider that
this is a case where the order of 13 August 2014 should be
reconsidered. This takes me to the merits of the
price interdict
application. Infitech sought an interim interdict and that is the
form of order granted. Infitech thus needed to
establish the
well-known requirements for an interim interdict. Its burden in
regard to the infringed right was thus lighter than
in the case of a
final interdict – it was sufficient to establish a
prima
facie
right though
open to some doubt. On the other hand, Infitech had to establish that
without an interim interdict it would suffer
irreparable harm and
that the balance of convenience was in its favour. These are hurdles
which an applicant for a final interdict
is not required to cross.
[60]
I consider that
Infitech met the burden of establishing its
prima
facie
right, ie
that the price increase of 14 July 2014 was
prima
facie
invalid so
that Infitech remained entitled to receive capsules at the old price.
I have already quoted the relevant part of clause
15.4. Neither side
argued that the price clause was void for vagueness by virtue of the
power conferred on Herbal Zone to increase
the price. However, the
power to increase the price was limited – the price could be
increased ‘depending on’
the USD exchange rate. I do not
need finally to determine the precise interpretation of this power.
It might give Herbal Zone a
measure of flexibility, in the sense that
Herbal Zone might have regard to the exchange rates on particular
dates or to average
exchange rates over one or more periods. It might
suffice for the price increase to bear a rational relationship to
changes in
the exchange rate.
[61]
On the face of it,
however, the clause does not entitle Herbal Zone to have regard to
considerations other than the exchange rate.
We know in the present
case, from AMI’s letter of 31 July 2014, that Herbal Zone had
based the price increase on (i) ‘the
price of the product
at the factory gate’; (ii) an escalation in the ‘import
parity price which is USD based;
and (iii) the introduction of
the new jar package.
[62]
I shall assume for
present purposes that the second of these considerations is a
reference to a weakening in the rand as against
the USD, though even
this is by no means obvious. An ‘import parity price’ is
a price which a domestic producer charges
to his domestic customers
and which he sets by calculating how much a domestic customer would
have to pay if he imported the same
product from a foreign
manufacturer. An import parity price is affected not only by the
exchange rate but by all the circumstances
which determine the price
at which a foreign manufacturer will sell the product for export to
South Africa.
[63]
Be that as it may, the
first and third considerations previously mentioned seem to me to be
unrelated to the exchange rate. The
first presumably means that the
cost of manufacturing the capsules in the foreign country had
increased. The second indicates that
the jar packaging is more
expensive than the cardboard packaging. Both of these additional
considerations are extraneous to the
price-increase power conferred
by clause 15.4. Herbal Zone’s answering affidavit confirms that
these further matters were
taken into account.
[1]
The clause does not say that Herbal Zone may increase the price
because the manufacturing costs or packaging costs in the foreign
country where they are manufactured and packaged have increased.
[64]
Since two of the three
reasons given for the price increase were bad, the price notice
itself was invalid. Herbal Zone did not,
in its notice, specify
separately the portion of the increase attributable to the increase
in manufacturing cost, the increase
in packaging costs and the
weakening of the rand against the dollar. From the exchange rate
information supplied by Herbal Zone
in its answering papers, it
appears that the rand weakened from about R7,70 in February 2010 to
R10,70 in July 2014, which would
suggest that Herbal Zone might have
been able to justify an increase of 39% in the starting price of
R17,54 excluding VAT, ie a
price in July 2014 of R24,38 excluding VAT
(in contrast with price increase to R27,90 excluding VAT which Herbal
Zone sought to
impose). Possibly a somewhat higher increase could
have been justified if different pricing points were taken or
averages were
used but there does not seem to be any rational basis
on which one could have arrived at an increase from February 2010 to
July
2014 of 59%. (In its answering papers, Herbal Zone tried to do
so by comparing the relatively strong rand in December 2010 (R6,70)
with the relatively weak rand in February 2014 (R10,95), a
depreciation of about 63%. However, and apart from the fact that
Herbal
Zone did not say in its answering papers that this was in fact
how it arrived at the price increase of July 2014, the pricing points
chosen for the comparison are irrational. Since the contract was
concluded in January 2010 and commenced on 1 February 2010, the
starting price specified in clause 15.4 would have been based on the
then prevailing exchange rate, rather than the significantly
stronger
rand in December 2010.
[65]
On this basis, the
price increase was
prima
facie
invalid. It
is thus unnecessary to consider Mr Smalberger’s submission that
the price increase was invalid because the letter
of notification did
not in terms link the increase to the exchange rate and show how it
had been calculated.
[66]
Infitech’s case
on irreparable harm and balance of convenience is much less
satisfactory. In regard to the former, Infitech’s
deponent said
in the founding affidavit that its irreparable harm could be ‘summed
up’ as follows: (i) It was
required by the distribution
agreement to purchase a substantial number of capsules each month.
(ii) The price increase was
of such a magnitude – 24% –
that, if it took effect, it would be ‘extremely difficult’
for Infitech to
sell them and thus sell the number of capsules that
it is contractually required to purchase from Herbal Zone. (iii) This
‘may seriously imperil’ Infitech’s business. In
regard to the balance of convenience, it was said that Herbal
Zone
would not suffer ‘substantial financial loss’ because,
pending the final determination of the applicant, Infitech
would
continue buying capsules from Herbal Zone as it was required by the
distribution agreement to do. Infitech, by contrast,
would, in the
light of its allegations on irreparable harm, suffer ‘severe
inconvenience and prejudice’.
[67]
These allegations
appear to me to have been hopelessly deficient to justify interim
relief. Infitech stated its prejudice as bald
conclusions without
substantiation. Harm is irreparable if it cannot be made good by
later action. Infitech did not say that it
did not have the financial
resources to pay the increased price pending a determination of its
validity. More importantly, Infitech
said nothing about the strength
of the market or its current pricing. Depending on its mark-up,
Infitech might have been able to
absorb a part or the whole of Herbal
Zone’s price increase pending a final determination of the
action. The only reference
to Infitech’s pricing which I can
find anywhere in the more than 600 pages making up the record in this
case is a letter
written by Herbal Zone to Infitech on 20 to March
2013 in which it was said that Infitech was selling capsules to
wholesalers at
R34,50, a mark-up of 50% on the then prevailing price
of R23,10 including VAT.
[2]
This letter was attached to Herbal Zone’s answering affidavit
in the price interdict. Even if Infitech’s price in August
2014
was still R34,50 (despite the intervening price increase by Herbal
Zone in June 2013), that price would have still yielded
a gross
profit of about 8,5% after the disputed price increase of July
2014.
[3]
[68]
Another relevant
consideration in this regard is that the contract had only just over
six months to run. And even within that period,
the fact that the
notice of 14 July 2014 was invalid did not mean that Herbal Zone
could not validly have given notice of a somewhat
lesser price
increase. The exchange rate appreciation would undoubtedly have
justified some increase. Infitech’s prejudice
could not
legitimately be assessed on the basis that it had a right to receive
capsules for the remainder of the contract at the
existing price of
R22,46 excluding VAT.
[69]
In regard to balance of
convenience, Infitech’s even balder assertions contain an
obvious
non
sequitur
. In the
absence of substantiation, it is no more obvious that Infitech would
suffer material prejudice than that Herbal Zone would
not. If the
price increase was, from Herbal Zone’s perspective, necessary
to cover increased manufacturing and packaging
costs and rand
depreciation, an interim interdict might have the effect of requiring
it to supply capsules at a price below its
cost. That would depend on
its costs and on rand depreciation. In the same way, material
prejudice to Infitech would depend on
its operating costs and
mark-up.
[70]
The replying papers
added nothing to Infitech’s case on irreparable harm and
balance of convenience.
[71]
For these reasons, and
upon reconsideration, it is my conclusion that the interim order of
13 August 2014 should be set aside.
The
counter-application - cancellation
[72]
In regard to the
counter-application, I shall deal firstly with the order declaring
the distribution agreement to have been validly
cancelled on 9
October 2014. This is a claim for final relief. The
Plascon-Evans
rule applies to
disputes of fact.
[73]
The only breach which
could have justified a summary termination was the alleged breach of
clause 10.1, the terms of which I have
previously quoted. Herbal Zone
alleged in its attorney’s letter of cancellation dated 9
October 2014, and repeated in the
counter-application, that HOC’s
website and the conduct described therein constituted a breach of
clause 10.1.
[74]
Clause 10.1 on its face
applies only to conduct by Infitech. When Herbal Zone gave notice of
summary termination and when it launched
its counter-application its
contention was that HOC was a business which Infitech was conducting.
Subsequent evidence established
that HOC is a separate juristic
entity. There is no basis for finding that any business which HOC is
conducting is in truth the
business of Infitech.
[75]
The Mosianes obviously
provide a link between Infitech and HOC, in that they are the
controllers of both. They answered Herbal Zone’s
allegations
regarding the website in an evasive fashion, contenting themselves
with the bland assertion that it was ‘an entity
independent and
distinct from’ Infitech. In view of the common denominator
provided by the Mosianes, it is not true to say
that HOC is an
‘independent’ entity.
[76]
It does not follow,
however, from the common control of the Mosianes that Infitech has
breached clause 10.1. The argument advanced
on behalf of Herbal Zone
at the hearing went as follows. Clauses 6.2.2 and 9.6 impose on
Infitech’s ‘representatives’
the same obligations
as are imposed on Infitech itself. The Mosianes are the
‘representatives’ of Infitech. They are
thus bound
inter
alia
by clause
10.1. HOC is their
alter
ego
. The court
should pierce the corporate veil and find that the Mosianes
themselves, under the guise of HOC, are distributing or
representing
the competing products, namely those described on HOC’s
website.
[77]
I regard the first step
in this reasoning as unsound. Clause 6.2.2 reads as follows (clause
9.6 is virtually identical):
‘
[Infitech]
shall be accountable for upholding all the terms and conditions
contained in this Agreement, and it is further responsible
for
ensuring that its representatives in the Territory have a full
understanding of the terms and conditions contained in this
Agreement
and that [Infitech] is fully accountable for any breach thereof which
may be caused by its appointed Representatives
in turn’.
[78]
The term
‘representatives’ is not defined in the contract. On the
title page of the contract it is recorded that Infitech
was
‘represented’ by the Mosianes but I do not think the word
‘representatives’ in clause 6.2.2 refers
to the persons
who represented Infitech in concluding the contract. It would not
make sense to require Infitech to ensure that
those who represented
it in concluding the contract had a full understanding of the
contract’s terms. I think the word ‘representative’
means, in context, the sales representatives used by Infitech to
market the capsules. Infitech was obliged, for example, to ensure
that such representatives understood the territorial limits
applicable to the product’s distribution (clause 6.2.1), that
they were aware of and complied with Herbal Zone’s policies in
regard to discounts, incentives and the like (clause 6.3),
that they
were aware of and complied with Herbal Zone’s instructions to
Infitech (clause 8.5), and so forth. If sales representatives
marketed the product in breach of these provisions, Infitech would be
accountable for the breach.
[79]
Herbal Zone’s
counsel argued that if clause 6.2.2 were interpreted in this way it
would add nothing to the liability which
Infitech would in any event
incur. Infitech, being a juristic person, could only act through
human agency. If the ‘representatives’
were limited to
people acting on Infitech’s behalf, their conduct would in any
event be attributable to Infitech.
[80]
Although Infitech can
act only through human representatives, it is not necessarily so that
it would incur liability for the acts
of its purported agents. That
would depend on the scope of the representative’s authority, a
matter between Infitech and
the representative in question.
Regardless of the precise scope of the agency, clause 6.2.2 makes
Infitech liable where a person,
appointed by Infitech and marketing
the Herbal Zone product, does something in the course of such
appointment which would be a
breach if committed by Infitech.
[81]
The contract cannot
sensibly be interpreted, however, as imposing a personal liability on
the representatives. They are not parties
to the contract. Herbal
Zone could no more sue them for breaches of the contract than it
could sue them for payment of the purchase
price of the capsules.
[82]
Assuming, therefore,
that one or both of the Mosianes were Infitech’s
representatives as contemplated in clause 6.2.2 (ie
persons engaged
by Infitech in selling the Phyto Andro capsules to Infitech’s
customers), clause 10.1 does not bind them
personally. If they are
directly or indirectly distributing or representing a competing
product, such conduct is not being perpetrated
by them in the course
of their appointment as persons engaged by Infitech to market Herbal
Zone’s Phyto Andro capsules. In
that respect, they do not stand
in a different position from a third party engaged by Infitech as a
sales representative to market
the product in a particular part of
South Africa or to deal with particular customers. If the third party
were to start distributing
a competing product, the Mosianes might
promptly cause Infitech to terminate the third party’s
appointment. But on Herbal
Zone’s argument, the third party’s
conduct would already constitute grounds for summary termination of
the distribution
agreement. I do not think that can be correct. Such
conduct by a representative is not the sort of conduct which clause
6.2.2 contemplates
as being attributed as a breach to Infitech.
[83]
It does not follow from
this analysis that what has occurred in this case does not implicate
Infitech in a breach of the contract.
The Mosianes are directors of
Infitech and its controlling mind. They have fiduciary duties to
advance its best interests and to
ensure, among other things, that it
complies with its contractual obligations. In terms of clauses 9 and
15.7 Infitech must use
its best efforts to develop the largest
possible market for Phyto Andro capsules and to promote orders,
increase the sales of the
product and protect Herbal Zone’s
interests. Clause 14.8 obliges Infitech ‘faithfully and loyally
[to] perform, observe
and conform to the duties and requests imparted
to’ it by Herbal Zone. Clause 14.9 stipulates that Infitech
must not wilfully
do any act or thing detrimental to the best
interests of Herbal Zone. Consistently with these duties, Infitech
could not allow
the Mosianes to remain as its directors while they
were undermining the market for Phyto Andro capsules by promoting an
identical
competing product. The Mosianes’ knowledge of HOC’s
website and activities is attributable to Infitech. The inference
is
justified that Infitech has stood by while the directors who were
meant to be advancing its interests were in fact promoting
the
interests of a competing company, HOC.
[84]
However, the fact that
Infitech breached these other clauses of the distribution agreement
does not mean that the summary termination
of 9 October 2014 was
lawful. In respect of breaches other than those contained in clause
10.1, there must be a three-day notice
to remedy the breach. Although
such a notice was given in the letter of 9 October 2014, it is not
altogether clear that a breach
of the kind just mentioned was
alleged. More importantly, there was not, after 9 October 2014, any
further act of cancellation.
This is not surprising, because Herbal
Zone considered that it had already terminated the contract summarily
on 9 October 2014.
If it wished to cover the eventuality that a
summary termination might not be valid, it should have held its hand
until the expiry
of the three days and then exercised such rights of
cancellation as it considered itself to have. (It was suggested in
argument
that the counter-application itself could serve as a notice
of cancellation. However, the counter-application did not say so and
instead sought a declaratory order that the contract had been
cancelled on 9 October 2014.)
[85]
I should add this in
respect of the three-day notice. Herbal Zone says that the HOC
website became inaccessible shortly after the
sending of its letter
of 9 October 2014. This indicates that such representation of
competing products as was constituted by the
marketing material on
the website indeed came to an end after the giving of the notice.
There is no evidence that HOC has ever
actually sold the competing
Phyto-Form capsule. Herbal Zone does not say in its papers that it
has found that product on retailers’
shelves or seen print
advertisements for them. The website referred to prices ‘to be
announced’ (‘TBA’),
suggesting that the product was
not yet available. (HOC does appear to be marketing its coffee
product. Herbal Zone attached to
its replying papers in the
counter-application a newspaper advert dated 4 November 2014 for
‘Cappuccino Zing’. However,
the distribution agreement
does not relate to this product. Whether HOC’s marketing of
Cappuccino Zing is lawful is not something
which arises for decision
in this case.)
[86]
For these reasons,
Herbal Zone’s claim for confirmation of cancellation of the
contract on 9 December 2014 must be refused.
The
counter-application – the packaging interdicts
[87]
The interdicts sought
in the counter-application are also claimed in the form of final
orders. Again, the
Plascon-Evans
rule applies. In
the light of my conclusion on the invalidity of the cancellation of
the contract, the claim for the interdicts
must be assessed on the
footing that the distribution agreement remains in place.
[88]
I do not intend to
quote the precise terms of the nine sub-prayers constituting the
interdict. In essence, the interdict complains
of two aspects of
Infitech’s conduct, namely (i) the repackaging of the
capsules into cardboard boxes; (ii) the
insertion of the
Infitech logo on the packaging.
[89]
Although reference was
made in the counter-application to trade marks, Herbal Zone did not
establish that it was the registered
owner of any trade marks in
South Africa though it has applied to have certain marks registered.
(The Malaysian company holds certain
trade marks abroad but they are
not relevant.)
[90]
In regard to the
repackaging of the capsules, Herbal Zone relies on the instruction
contained in AMI’s letter of 26 August
2014 read with clause
8.5, which obliges Infitech ‘to comply with any written and
oral instructions issued by Herbal Zone’
to it. That the
instruction was given is clear from the letter. However, the power to
give instructions in terms of clause 8.5
must be subject to some
limits. Contractual powers imposing an obligation on the
counter-party are usually impliedly subject to
their being exercised
in accordance with the
arbitrium
boni viri
, ie
honestly and on grounds upon which a reasonable person could act
(
Benlou Properties
Pty Ltd v Vector Graphics Pty Ltd
[1992] ZASCA 158
;
1993
(1) SA 179
(A) at 187J-188C). It has been said that a court may find
a power to have been invalidly exercised if it was ‘so
unreasonable,
improper, irregular or incorrect that it would give
rise to obvious unfairness’ (
Absa
Makelaars (Edms) Bpk v De Lange
[2009]
ZAWCHC 54
para 20, not disapproved on this point in the appeal
reported at
[2013] 3 All SA 403
(SCA); see also
Lobro
Properties Pty Ltd v Express Lift Co (SA) Pty Ltd
1961
(1) SA 704
(C) at 708F-H;
NBS
Boland Bank v One Berg River Drive & Others, and Other Cases
1999
(4) SA 928
(A) paras 25-27).
[91]
Subject to the logo
point to be dealt with hereunder, the packaging which Infitech is
using is identical to the packaging in which
Herbal Zone initially
supplied the capsules to it. According to Infitech, Mosiane discussed
the question of repackaging with Herzallah
when Herbal Zone changed
to the jar packaging. Mosiane claimed in his affidavit that Herzallah
agreed that Infitech could repackage
the product if it wished to
supply its customers in batches of 50 rather than 100. Apart from the
fact that Mosiane’s version
on this aspect cannot be rejected
as false on the papers, it does not strike me as implausible that
Herzallah would have agreed
to the repackaging. Herbal Zone would
have wanted Infitech to maximise its sales in South Africa. It is
common cause that for more
than four years Herbal Zone had been
supplying the product to Infitech, and Infitech had been on-supplying
the product to its customers,
in packages containing 50 capsules.
Mosiane avers, and one would not expect Herbal Zone to be in a
position to dispute, that Infitech’s
customers (the
re-sellers), or at least some of them, do not wish to purchase as
many as 100 capsules at a time, so that an insistence
on supplying
the product only in the sealed jars would negatively impact on sales.
There is nothing objectionable
per
se
in the packaging
which Infitech is using. It is, after all, identical to the packaging
which Herbal Zone initially used.
[92]
I am not persuaded,
therefore, on the papers that Herbal Zone’s instruction, as
contained in AMI’s letter of 26 August
2014, was, insofar as it
prohibited repackaging altogether, an instruction given in accordance
with the judgment of a reasonable
person. That letter was written a
couple of weeks after the urgent order was granted on 13 August 2014.
I cannot help but think
that the heightened tension which it caused
between the parties led to Herbal Zone instructing AMI to give the
instruction contained
in the letter.
[93]
On the basis,
therefore, that Infitech was lawfully entitled to repackage the
capsules, the remaining question is whether the insertion
of its logo
on the packaging is objectionable. There can be no objection to the
placing, on the side of the box, of Infitech’s
particulars as
the sole South African distributor of the product. Herbal Zone itself
previously supplied packaging with these details.
Clause 11 entitles
Infitech to ‘advertise and hold itself out as’ the
authorised sole distributor of the products in
South Africa.
[94]
In my view, the logo
which Infitech has caused to be placed on the front and back of the
new packaging as well as on the one side
stands on a different
footing. The front and back of the box advertise the product,
proclaiming ‘Double strength to give
you more power’. The
back and front of the box are the largest and most prominent
packaging features which a buyer would
see. The get-up (the colouring
and stripes) is that of Herbal Zone, and only its marks (the Phyto
Andro name and the circular device
in combination with the name
‘Herbal Zone’) appeared on the front and back of the
packaging as supplied by Herbal Zone.
Infitech has now inserted its
own logo on the front and back of the box diagonally opposite that of
Herbal Zone. The Infitech logo
is at least as prominent as Herbal
Zone’s and appears immediately above the Halaal and GMP
certifications which the product
enjoys. The logo on the side of the
box, which appears immediately beneath Infitech’s details as
exclusive distributor, is
the only logo appearing on the side of the
packaging and thus again attracts the eye.
[95]
In my opinion, the
insertion of the logo in this way is not a legitimate part of
advertising and holding Infitech out as the sole
authorised
distributor of the product in South Africa. A person viewing the box
might not examine the particulars contained on
the side and might
thus not know that Infitech is merely a distributor. The manner in
which the logo has been brought to bear,
particularly on the front
and back, associates Infitech directly with the product (ie its
manufacture or origin) rather than its
distribution. This in my view
infringes several provisions of the contract. Clause 14.6 prohibits
Infitech from taking any action
or making any representation which
might establish any apparent relationship or association with Herbal
Zone (though naturally
this must be read subject to Infitech’s
right to hold itself out as the sole distributor of the product in
South Africa).
Clause 14.9 prohibits Infitech from wilfully doing
anything which is detrimental to the best interests of Herbal Zone
and the product.
Both these clauses were relied upon in Hunter’s
letter of 9 October 2014.
[96]
In addition to these
provisions, clause 11.1 obliges Infitech to submit to Herbal Zone
examples of ‘all proposed advertisements
and other promotional
materials’ for the capsules and may not use same without Herbal
Zone’s prior written consent.
In similar vein, clause 14.7
provides that Infitech may not publish or display any advertisement
or sign referring to the product
or to the business of Herbal Zone
unless same has been approved by the latter in writing. The front and
the back of the packaging
can fairly be regarded as advertising or
promotional material. Although Hunter’s letter of 9 October
2014 did not invoke
these clauses directly, reliance was placed on a
failure by Infitech to comply with Herbal Zone’s instructions,
in breach
of clause 8.5. The instruction to refrain from using
packaging on which Infitech had brought its own logo to bear was
reasonable,
having regard to clauses 11.1 and 14.7.
[97]
I thus consider that
Herbal Zone is entitled to an interdict prohibiting Infitech from
selling, advertising, promoting or presenting
Phyto Andro capsules in
packaging bearing Infitech’s logo. Save as aforesaid, the
application for an interdict must be refused.
Counter-application
– costs
[98]
In regard to the costs
of the counter-application, Herbal Zone has failed in obtaining
confirmation of cancellation and has also
failed to obtain some of
the interdicts it sought. The balance of success in the
counter-application lies with Infitech. I think
it would be fair to
order Herbal Zone to pay 50% of Infitech’s costs in the
counter-application.
The
termination interdict
[99]
What I have styled the
termination interdict was claimed by Infitech together with the
contempt relief by way of the application
it delivered on 28 October
2014 for hearing on 5 November 2014. What Infitech sought was a rule
nisi, returnable on 25 November
2014, calling on Herbal Zone to show
cause why it should not be ordered, pending the final determination
of Infitech’s pending
action, from supplying capsules to third
parties and directed to comply with its obligations under the
agreement. In terms of Riley
AJ’s order as amended pursuant to
the variation application, this is the rule nisi that was granted on
6 November 2014, with
the rule to operate as an interim interdict (ie
over the period 6-25 November 2014).
[100]
It seems to me that the
termination interdict application was unnecessary, except for the
interim period between 6-25 November 2014.
As from 9 October 2014
Herbal Zone adopted the position that the distribution agreement had
been summarily terminated. That was
why Herbal Zone saw itself as
being at liberty to supply third parties and as being under no
obligations pursuant to the contract
(though it erroneously assumed
that the urgent order of 13 August 2014 would continue to apply,
despite a valid cancellation of
the contract). In order to obtain
clarity that it was entitled to act in this way, Herbal Zone sought
confirmation of the cancellation
of the contract by way of the
counter-application. By the time Infitech delivered the contempt and
termination interdict application,
Infitech knew that the
counter-application would be heard on 25 November 2014. There was no
reason to think that, if the court
ruled against Herbal Zone on the
cancellation point, Herbal Zone would then not comply with the
contract. The very issue which
would determine whether Herbal Zone
was or was not bound to comply with the contract was scheduled to be
argued and finally determined
on 25 November 2014.
[101]
In the circumstances,
there was no need for Infitech to seek an interdict in the form set
out in its application of 28 October 2014,
ie an interdict pending
the determination of Infitech’s action. Infitech’s action
was not the litigation in which the
validity of the cancellation was
to be determined; the cancellation was to be determined pursuant to
Herbal Zone’s counter-application.
For this reason, and as I
have said, the only interim interdict which Infitech might have
required was in respect of the period
up to the time when the
counter-application was determined. The interim interdict in respect
of that limited period was granted
by Riley AJ, though Herbal Zone
was also called upon to show cause why the interim relief should not
be extended until determination
of Infitech’s action. My
decision on the counter-application now determines that the agreement
has not been validly cancelled,
and Herbal Zone will thus be obliged
to continue complying with the agreement. If it does not do so,
Infitech may bring further
proceedings for relief.
[102]
I rather doubt whether
Infitech was justified in seeking interim relief in respect of the
period from 5 November 2014 to the date
on which the
counter-application was determined, a period which was unlikely to be
longer than three to four weeks. However, since
Riley AJ (in the
order as varied) granted the interim interdict for that period, and
since I have in the event found that the cancellation
was invalid, I
think the costs of the termination interdict should be granted in
favour of Infitech.
The
contempt application
[103]
Riley AJ dismissed the
contempt application on the grounds that wilful non-compliance had
not been proved. Mr Smalberger conceded
that there was no reason for
the costs of the contempt application not to follow the result.
Conclusion
[104]
in regard to costs, I
should indicate for the guidance of the taxing master that at the
hearing on 25 November 2014 not more than
10% of the time was spent
on the variation application (order (c) below), 45% on the price
interdict/reconsideration application
(order (a) below) and 45% on
the counter-application (order (b) below). Virtually no time was
spent on the contempt and termination
interdict applications (order
(d) below).
[105]
For the reasons set out
above, I make the following orders:
(a) In regard to the application launched by the
applicant on 13 August 2014 and the reconsideration thereof sought by
the
first respondent in terms of rule 6(12)(c):
(i) The order of 13 August 2014 is set aside.
(ii) The applicant’s application for an
interim interdict is dismissed with costs, including those of two
counsel where
employed.
(b) In regard to the first respondent’s
counter-application launched on 23 October 2014:
(i) The applicant is interdicted from selling,
advertising, promoting or presenting Phyto-Andro capsules in
packaging bearing
the applicant’s logo.
(ii) Save as aforesaid, the counter-application is
dismissed.
(iii) The first respondent is to pay 50% of the
applicant’s costs in opposing the counter-application,
including the
costs of two counsel where employed.
(c) In regard to the variation application launched
by the respondents on 13 November 2014:
(i) The application succeeds with costs, including
the costs of two counsel where employed.
(ii) The order granted on 6 November 2014 is varied
so as to read in the manner set out in annexure ‘X’
hereto.
(d) In regard to the applicant’s application
for contempt and interdictory relief delivered on 28 October 2014:
(I) The application for contempt relief having already
been dismissed on 6 November 2014, the applicant is directed to pay
the respondents’
costs in relation to the contempt relief, such
costs to include those of two counsel where employed.
(ii)
Save for the interim relief granted on 6 November 2014 (operative
until the grant of this order), no further order is made
on the
application for interdictory relief, save that the first respondent
shall pay the applicant’s costs thereof, including
the costs of
two counsel where employed.
ROGERS
J
APPEARANCES
For Applicant: Mr A Smalberger
Instructed by:
Spamer Triebel
Unit 4, Oude Westhof Village
Square
Van Riebeeckshof Road
Oude Westhof
Bellville
For Respondents: Messrs R
Goodman SC and R Acton
Instructed
by:
EQM
Hunter Attorneys
6
th
Floor, Commerce House
55
Shortmarket Street
Cape
Town
[1]
Para 48 at record 86.
[2]
See record 136.
[3]
Following the price increase of July 2014, the
VAT-exclusive price was R27,90. On the basis that Infitech’s
price of R34,50
was VAT-inclusive, the comparable VAT-exclusive
price was R30,26, which is 8,5% higher than R27,90.