Nu-Angle Medical (Proprietary) Limited and Another v Coloplast A/S and Another (35345/08) [2009] ZAGPHC 59 (26 February 2009)

IN THE HIGH COURT OF SOUTH AFRICA

(WITWATERSRAND LOCAL DIVISION)

Case No. 35345/08

In the matter between:

NU-ANGLE MEDICAL (PROPRIETARY) LIMITED First Applicant

MENT-AFRIQUE MEDICALÉ LIMITED Second Applicant

and

COLOPLAST A/S First Respondent

DANIEL DEKKER Second Respondent

JUDGMENT

WILLIS J:

[1] The applicant seeks interim interdictory relief against the first respondent pending the determination of the disputes between the parties in proceedings to be instituted within time frames to be sanctioned by the above Honourable Court. Essentially, the applicants seek an order which will enforce a so-called “Distribution Agreement” between the parties and preventing the first respondent from attempting to recruit its employees, past and present, pending the outcome of a trial action for specific

performance, alternatively, damages. The application was launched on 16 October 2008 on a semi-urgent basis, inter alia, as the first respondent had purported to terminate the applicants’ rights to distribute certain medical products with effect from 31 December 2008. The matter was due to be heard in the urgent court on 11 November 2008. The respondents sought a postponement of the hearing for one week as they needed more time to obtain confirmatory affidavits from their witnesses. The applicants agreed to grant the indulgence and the respondents’ counsel attended court to arrange the postponement. In the absence of the applicants’

counsel and contrary to an agreement to postpone the matter to accommodate the respondents, the matter was struck off the urgent

roll for lack of urgency. The circumstances are explained in the applicants’ attorney’s affidavit of 12 November 2008. By agreement between the parties, the matter was placed on the ordinary motion roll for hearing on Tuesday 18 November 2008 and the respondents waived any rights to raise any objections relating to non-compliance with the ordinary time periods prescribed in Rule 6. The respondents then sought a second postponement for a further week on the basis that they intended to file a rebutter and needed time to consult with their witnesses. The applicants accommodated the respondents by agreeing to postpone the matter to 25 November 2008. The costs of the postponement on 18 November 2008 were reserved. The respondents failed to file a rebutter in time for the intended hearing on 25 November 2008 and sought a third postponement of the matter until February 2009. The first respondent gave certain undertakings to protect the applicants in the interim, inter alia, that its purported termination of the applicants’ rights to distribute certain medical products would only take effect on 15 March 2009. This matter is accordingly now brought in the ordinary course and the relief sought in prayer 1.1 of the notice of motion is no longer necessary.

[2] It is common cause that:

since 1999 the first applicant has had the exclusive right to market, sell and distribute Porgés urology and surgery products in South Africa, which later came to also include Mentor urology products; since 2004 the first applicant has been the second applicant’s sub-agent; during June 2006 the first respondent purchased Mentor and entered into a distribution agreement with the second applicant, with the first applicant continuing as the second applicant’s exclusive sub-agent in South Africa.

[3] The dispute between the parties concerns the terms of the contractual relationship between the second applicant and the first respondent and, in particular, whether the first respondent has the right to terminate a distribution agreement for any reason whatsoever and with immediate effect. The first respondent purported to terminate the distribution agreement on three months’ notice on 3 September 2007. The issue is whether the first respondent had the right in terms of the contract existing between it and the second applicant. The case turns on the issue of whose version of the contract between the parties applies. It is common cause that if the agreement an agreement of 1st December, 2004 has not been superseded by any later agreement, the first respondent was entitled to terminate the distribution agreement with immediate effect. It is further common cause that, in any event, such agreements as existed between the parties would result in the termination of the distribution agreement in March 2010.

[4] The applicants contend that the terms of the agreement between the second applicant and the first respondent are:

(i)contained in an unsigned document ; and/or

(ii)contained in email exchanges of 23 November 2007; and

(iii)established by practice over many years in regard to the products distributed. The identity of the Products is common cause between the parties.

Ms Cane, who appeared for the applicants, referred to the above arrangements as the “Distribution Agreement”.

[5] It is common cause that the negotiations pertaining to the terms of the Distribution Agreement were between Mr Jean-Michel Deroulers (“Deroulers”), a Director – Export Region of the first respondent, and Lindsay Shahim (“Shahim”). It is also common cause that Hendrik Hjermov (“Hermov”) was the first respondent’s vice president (Export Region) and was involved in the negotiation process as Deroulers’s senior manager in the first respondent’s export division responsible for the distribution of the Products in South Africa. The e-mail exchanges between the aforesaid persons evidencing the conclusion of the distribution agreement took place over the period

13 February 2007 to 19 November 2007. The applicants contend that the agreement was concluded in the following circumstances. During

November 2007 Deroulers emphasised that the terms of the agreement needed to be finalised and on 13 November 2007 enquired by e-mail as to whether this could be done before the end of 2007. This is not disputed by Deroulers. Ms Cane submitted that this evidences that the first respondent required a new distribution agreement to be finalised in 2007 and was not content to rely on its predecessor’s

agreements (i.e. the 1 December 2004 agreement and the 24 November 2005 agreement. On 13th November, 2007, (i.e. the same dayas Deroulers e-mailed her) Shahim replied that she had just received advice on the wording, would need to update the contract and said that she would revert with the wording that week. Deroulers thanked her for the prompt answer.

Shahim tracked all the changes she made to the document so that Hjermov and Deroulers would easily see what she had done and on 19 November 2007 she sent it to both of them. Shahim requested Hjermov and Deroulers to please let her know if there was anything further, she offered to print the document and courier it to them and indicated that she awaited their instructions. On 23 November 2007 Deroulers reverted to Shahim’s email of 19 November 2007. The only issue he raised was whether Mauritius should be integrated in the contract. On the same day Shahim conceded that it should not be.

[6] It is common cause that the second respondent was dismissed from first applicant's employ on Saturday, 29 November, 2008 and, although this dismissal is the subject of a referral to the Commission for Conciliation Mediation and Arbitration, Second

Applicant will seek compensation for unfair dismissal and not reinstatement. After his dismissal the second respondent took up employment with the first respondent.

[7] The applicants seek to enforce clause 15 (e) and contend that in a trial action they will enforce clause 15 (f) of annex "F" to the founding affidavit. These clauses read as follows:

"(e) In the event of Coloplast terminating Ment Afrique agency agreement. Coloplast shall not be permitted to employ any of Ment Afrique Medicale, and thus Nu Nagle Medical, staff for a period of 2 years as they are all subject to restraint of trades.

(f) Should the distributor Agency/mandate be terminated OR NOT be renewed/extended for another term, because Coloplast decides to

operate the 'business' themselves or via another Coloplast subsidiary, the following shall apply. Coloplast shall purchase Nu Angle Medical. The purchase price shall be calculated on the following basis. Purchase price will be the annual turnover of the

business in South African Rand, of Coloplast products sold in the territory in the preceding 12 months prior to termination. This

figure is to be verified by an independent Auditor. The turnover figure shall, however, exclude all tender business in the preceding

12 months as they are once off purchases and may not be repeat business. If a tender has not completed its 'term' Coloplast agrees

to pay Nu Angle Medical out the actual and potential profits that would have been made for this tender. Should Coloplast decide to approach NAM to purchase the company, the purchase price shall be no less than the annual turnover of the company. However, the specifics of the agreement would be negotiated at the time."

[8] Ms Cane submitted that, in the circumstances set out in paragraph [5] abovee, Deroulers and Hjermov should have reverted if they had any further issues to raise. They failed to do so and the parties continued to trade for the next nine months without any mention that the first respondent’s internal requirements pertaining to its contracts had not been satisfied or that there were further issues pertaining to the agreement. This, so Ms Cane submits has the consequence that the first respondent had accepted the second applicant’s proposed agreement sent by Shahim in November, 2007.

[9] Ms Cane further submits, in the alternative, that to the extent that Deroulers and Hjermov did not have actual authority to conclude the

Distribution Agreement with the second applicant (which is denied), they had ostensible authority to do so and that the first respondent

should be estopped from denying their authority and the Distribution Agreement in the circumstances set out in above.

[10] The first respondent relies on a written agreement, which, it is common cause, was entered into between the parties on 1st December 2004, contending that this is the only binding agreement between the first respondent and the second applicant. It is common cause that if this agreement was not superseded by the unsigned “agreement” of 24 November 2005 or the “agreement” of November 2007 (even if indirectly enforced in terms of the doctrine of estoppel or the Turquand rule), then the first respondent validly terminated the distribution agreement on three months’ notice on 3rd September, 2007.

[11] Applicants have stated that first applicant had marketed first respondent's products in South Africa for a period of almost 10 years and that first applicant had made investments over that period to promote First Respondent's products and to build a client base and a distribution network in this country where it currently employs a staff complement of 18 people. The first applicant has also concluded a long-term lease on 26 September, 2006 with the company in respect of which Mr Clinton Shahim, the husband of Lindsay, is a director. Applicants have stated that "Without the rights to distribute, market and sell the Product, the first applicant's business is unsustainable. Its staff will have to be retrenched and its lease will have to be terminated, notwithstanding the onerous costs of doing so prematurely. All the hard work and investment over many years in building up the first applicant's goodwill and customer base would simply be lost”. Mr and Mrs Shahim were concerned about the fact that first respondent, in contrast with its predecessors, had an office in South Africa from where first respondent could have marketed its own products. This concern was addressed by Mrs Shahim's insertion of clause 15 to annex "F" to the founding affidavit. The applicants state that "It was in this context and with this knowledge that the terms of the Distribution Agreement were negotiated". The respondents have denied that it was the intention of the parties to have included the protections that the applicants now seek to enforce and points out that the amended clause 15 (f) was inserted by Ms Shahim during November 2007 after negotiations had continued for almost a year. The applicants contend that the protections contained in clauses 15 (e) and (f) were stipulations for the benefit of first applicant and that first applicant accepted those stipulations during November or December 2007, alternatively they are accepted in the founding affidavit.

[12] It is not denied by the second applicant that during a visit to South Africa in February, 2007 Deroulers reminded Shahim that no binding contract could be entered into unless it had been approved and signed by the first respondent’s legal department in Copenhagen, Denmark. The standard form contracts or master agreements upon which Shahim, Deroulers and Hjermov made suggested alterations all clearly refer to the ultimate sanction of the head office in Denmark. I therefore cannot see how the second applicant can in the circumstances claim, in the absence of such approval, that they were wrongly lead to believe that Shahim’s proposals of November 2007 had been accepted by first respondent.

[13] Moreover, there is no reason to doubt the first respondent contentions that clause 15 (f) inserted into Shahim’s proposals

were unacceptable to it and that this explains why no agreement was entered into as proposed by Shahim in November 2007.

[14] Furthermore, if the agreement was entered into between the parties as contended for by the second applicant, it was subject to an arbitration clause under the rules of arbitration of the International Chamber of Commerce and would be determined according

to Danish Law. Save in exceptional circumstances, this court should not hear the matter and there appears no compelling reason to justify a disregard of this provision.

[15] If there was an agreement concluded in November 2007, it is common cause it would have superseded whatever agreement may have been entered into between the parties in November 2005.

[16] It is true that proposals were exchanged between the parties in 2005, known as the “Porgès-Ment proposals”, but the applicants have blown “hot and cold” in regard thereto, did not rely on them in their founding affidavit. The proposals also lack reference to essential elements such as products to be distributed and transfer prices. This agreement was unsigned and, if held to have come into existence, would defeat any claim that an agreement came into existence in 2007.

[17] It follows that if the alleged agreement of November, 2007 was not a valid and binding agreement, then there are also no stipulations for the first applicant's benefit that could have been accepted. Moreover, as was said in Joel Melamed and Hurwitz v Cleveland Estates (Pty) Ltd; Joel Melamed and Hurwitz v Vorner Investments (Pty) Ltd 1:-

"... in the legal sense, which alone is here relevant, what is not very appropriately styled a contract for the benefit of B a third person is not simply a contract designed to benefit a third person; it is a contract between two persons that is designed to enable a third person to come in as a party to a contract with one of the other two (cf Jankelow v Binder, Gering and Co 1927 TPD 364)... the typical contract for the benefit of a third person is where A and B make a contract in order that C may be enabled, by notifying A, to become a party to a contract between himself and A. What contractual rights exist between A and B pending acceptance by C and how C far after such acceptance it is still possible for contractual relations between A and B to persist are matters on which differences of opinion are possible, but broadly speaking the idea of such transactions is that B drops out when C accepts and thenceforward it is A and C who are bound to each other." Although this was a minority judgment (concurred in by Fagan JA), there is nothing inconsistent therewith in the majority D judgments and it has generally been regarded as an authoritative statement of the law”.

[18] In the matter of Cape Produce Co (Pty) Ltd v Dal Maso and Another NNO2 the court made the following remarks as regards the position of creditors for whose benefit a stipulatio alteri was concluded: " When the offer is accepted by a creditor he becomes a party to the agreement entitling him to enforce his rights by action upon the contract itself. (Compare McCullogh v Fernwood Estate Ltd 1920 AD 204 at 205 - 6; Christie (op cit at 297).)” In my view there is no merit in the stipulatio alteri point. There was no intention to benefit a third party nor any offer made to any third party to accept a stipulatio alteri.

[19] Not only is it common cause that second respondent was dismissed from first applicant's employ on Saturday, 29 November, 2008 but if there was no agreement concluded between the parties in November 2007, then there is no restraint of trade agreement to enforce. If it is correct that the conclusion of the distribution agreement will result in retrenchment of employees of the first applicant, the first respondent can hardly be criticised for offering them employment.

[20] Mr Wilke, who appears for the respondents has referred to the cases of Cape Tex Engineering Works (Pty) Ltd v SAB Lines (Pty) Ltd;3 SAB Lines (Pty) Ltd v Cape Tex Engineering Works (Pty) Ltd;4 BHT Water Treatment (Pty) Ltd v Leslie and Another;5 Shoprite Checkers Ltd v Pangbourne Properties (Pty) Ltd6 and Knox D'Arcy Ltd and Others v Jamieson and Others7 to contend that, as the distribution agreement, would, in any event, terminate in March 2010 and such trial action as may arise

would not be completed by then, the applicants were approaching the court under the guise of interim relief to seek what would, in effect be final in nature. There is merit in this submission although it is not, ultimately, determinative.

[22] Mr Wilke also submitted that I should exercise a discretion not to order specific performance as it was clear that the relationship between the parties had soured, more especially when there was the remedy of damages available to the respondent. In the end, I am persuaded that the application must be dismissed because it fails in respect of at least one of the essential requirements of an interim interdict as set out in Webster v Mitchell8 as qualified in Gool v Minister of Justice and Another9 and Ferreira v Levin NO & Others; Vryenhoek & Others v Powell NO & Others10, viz: the applicants have failed, on the probabilities, to establish a prima facie right.

[23] The application should be dismissed. There is no reason why costs should not follow the result.

[24] The following is the order of the court:

The application is dismissed with costs, which costs are to include all costs reserved to date.

DATED AT JOHANNESBURG THIS 26th DAY OF FEBRUARY, 2009

N.P. WILLIS

JUDGE OF THE HIGH COURT

Counsel for the Applicants: J.M.A. Cane

Attorneys for Applicants: Webber Wentzel

Counsel for the Respondents: F.J. Wilke

Attorneys for the Respondents: Rob Dick

Date of hearing: 19th February, 2009

Date of Judgment: 26th February, 2009

1 [1984] ZASCA 4; 1984 (3) SA 155 (A) at 172 A – E.

2 2001 (2) SA 182 (W) at 188

3 1968 (2) SA 528 (C)

4 1968 (2) SA 535 (C)

5 1993 (1) SA 47 (W)

6 1994 (1) SA 616 (W)

7 1995 (2) SA 579 (W)

8 1948 (1) SA 1186 (W)

9 1955 (2) SA 682 (C) at 688E-F

10 1995 (2) SA 813 (W) at 817I-818B;824I-J