Unilever South Africa, the South African licensee of the well-known OLA ice-cream brand, acquired the rights in the MILKY LANE franchise business and trade marks owned by Pleasure Foods in 2003. Unilever then required the existing franchisees to use the OLA trade mark and purchase OLA ice-cream.
The Defendant, who was one of many MILKY LANE franchisees and operated several outlets in the Western Cape, resisted these changes. He disputed that Unilever could, in law, acquire the rights and obligations in the MILKY LANE franchise operation without his consent (which had never been obtained). Unilever's purported cancellation of the Defendant's several franchise agreements was therefore challenged by him.
Unilever sued the Defendant for an order that the various franchise agreements be declared cancelled; payment of damages relating to unpaid royalties (based on a formula in the franchise agreements); return of an operations manual and related documentation and also punitive costs on the attorney and client scale (as provided for in the agreements).
The agreements relating to three of the franchise outlets (referred to as the "Sea Point Agreements") contained the following clause :
"The franchisor may cede, assign, transfer or make over this agreement or all or any of its rights hereunder whether as security for debt or any other cause to any person at any time as it may in its discretion think fit."
A further franchise agreement relating to an operation in Mitchells Plain contained no such provision.
In finding in favour of the Plaintiff in relation to the Sea Point Agreements, but against it in relation to the Mitchells Plain Agreement, the Court held that :
- it is trite in South African law that a delegation of rights and obligations may only be affected by agreement between all concerned. As far as the Mitchells Plain Agreement was concerned (which contained no delegation clause), Unilever had failed to discharge its onus of establishing, on the facts, that there had been an implied consent to the delegation by the Defendant;
- with reference to the Sea Point Agreements, the Court rejected the Defendant's plea that the clause quoted above did not provide for the assignment of the franchise agreements to a competitor of the MILKY LANE business (that is, the OLA franchisor). There was no basis on which to infer such a tacit term in the clear wording of the clause;
- several other defences raised by the Defendant in relation to the Sea Point Agreements, including the following, were also all rejected by the Court :
- the contention that the unfettered and wide discretion in the quoted clause rendered it void and unenforceable;
- the clause imported a tacit term that the discretion to terminate should be reasonably exercised and Pleasure Foods/Unilever had not done so;
- the Plaintiff and Pleasure Foods had been under a duty to disclose the likely sale of the MILKY LANE franchise to the Plaintiff;
- the assignment of the Agreements was incompetent in law as it created an individual burden and/or prejudice to the position of the Defendant;
- the Defendant was excused from performance under all the Agreements because they were synallagmatic (reciprocal) and the Plaintiff had failed to perform its obligations under the MILKY LANE contracts to supply MILKY LANE products.
The Sea Point Agreements were declared cancelled and the Plaintiff was ordered to pay damages in respect of the Sea Point operations, return the operations manual and related documentation, and pay the Plaintiff's costs on the attorney and client scale.
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