Academy of Learning (Pty) Ltd v Hancock and Others

• Jurisdiction: South Africa
• Judge: Brand J
• Judgment Date: 19 November 1999
• Citation: 2001 (1) SA 941 (C)
• Docket Number: 7465/99
• Counsel: R M Robinson for the applicant. G Walters for the respondents.
• Court: Cape Provincial Division

Brand J:

[1] Applicant is the registered owner of certain trademarks, including the trademark 'Academy of Learning'. It franchises the operation of training colleges under this registered trademark. At C present applicant has 86 franchisees in the Republic of South Africa and its neighbouring countries. On 16 January 1996 applicant concluded a written franchise agreement with first respondent. The agreement afforded first respondent the right to conduct a training college under the name of Academy of Learning in the Worcester area (the Worcester franchise). D

[2] On 3 October 1996 first respondent, acting on behalf of second respondent, entered into a further franchise agreement with applicant which entitles the second respondent to conduct a training college under the name Academy of Learning in the Somerset West area (the Somerset West franchise). E

[3] First respondent and her husband, third respondent, are the members of second and fourth respondents. In terms of the franchise agreements the members of a close corporation bind themselves to applicant as sureties and co-principal debtors with the close corporation for the due performance by the latter of its obligations F pursuant to the franchise agreement. Third respondent also signed a suretyship in favour of applicant, with reference to first respondent's obligations in terms of the Worcester franchise agreement. For the sake of convenience I will refer to the respondents as follows: to first respondent as 'Mrs Hancock'; to second respondent as 'Dunmar Training'; to third respondent as 'Mr Hancock'; to fourth respondent as 'L A G Training'; to those respondents who are parties to the franchise agreements as 'the Worcester franchisee' and the 'Somerset West franchisee' respectively, to both of them as 'the franchisees', and to all the respondents jointly as 'the respondents'.

Applicant's claims H

[4] Both franchise agreements provide that the franchisee is obliged to purchase all the products necessary to effectively manage and operate the franchise college - such as educational material - from applicant at its current prices with payment to be made 30 days from invoice. Applicant avers that, pursuant to these provisions, the I Worcester franchisee is liable to it in an amount of R253 701,76, whereas the Somerset West franchisee is liable to it for payment of the sum of R93 643,49.

[5] Applicant's first claim is therefore against Mrs Hancock - as the Worcester franchisee - and Mr Hancock - in his capacity as surety - for an amount of R253 701,76. The second claim is against Dunmar J

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Training CC - as the Somerset West franchisee - as well as against A Mrs Hancock and Mr Hancock - again by virtue of their suretyship - for an amount of R93 643,49.

[6] Applicant's further allegation is that the failure by the two franchises to pay the amounts owing to applicant in accordance with the provisions of the agreements constituted a breach of contract on their part which entitled applicant to cancel the franchise agreements B in terms of clause 16.1 thereof. This clause, which is contained in both agreements, reads as follows:

'16.1

The franchisor will have the right, in addition to all other remedies it may have, to terminate the franchise granted under this agreement upon 15 days' notice in writing to the franchisee at its designated address if the franchisee fails to comply with any of C the provisions of this agreement. . . .'

[7] On 30 April 1999, applicant's attorney, on its behalf, formally demanded payment within 15 days of the amounts owing to applicant from both franchisees. The letters expressly informed the D franchisees of applicant's intention to cancel the agreements if they should fail to make payment in full of all outstanding amounts within the stated period of 15 days. Applicant's contention is that, since the franchisees failed to give effect to the demand for payment within the stated period of 15 days, it was entitled to cancel both franchise agreements. Consequently, applicant's attorneys, on 18 May 1999, E wrote letters to the two franchisees, informing them that the franchise agreements were formally cancelled.

[8] The validity of the cancellation is denied by respondents. The further relief sought by applicant is therefore for an order declaring applicant's cancellation of the two franchise agreements on 18 May 1999 to be valid. F

[9] Clauses 16.3 and 16.4 of both franchise agreements provide as follows:

'16.3

Upon termination of this agreement for any reason whatsoever:

16.3.1

all rights which may have vested in the franchisee in terms of this agreement will immediately and automatically remit to the franchisor;

16.3.2

the franchisee will return to the franchisor any and all G manuals and other printed matter relating to the franchise operation and will immediately cease to use or exploit any intellectual property [as defined in clause 1 of the agreements] owned by the franchisor.

16.4

The franchisor will have the right, at its election and in addition to all other remedies, to obtain injunctive relief to enforce the aforegoing provisions.' H

[10] The further relief sought by applicant is in essence for an order enforcing the provisions of clause 16.3.

[11] As far as L A Training is concerned, it is common cause that, although the Worcester franchise agreement was concluded between applicant and Mrs Hancock personally, the Worcester franchise is I conducted by the latter through the vehicle of L A Training. Applicant's case is, however, that, since it never contracted with L A Training, this close corporation's conduct amounts to an infringement of applicant's registered trade marks as well as a passing off of applicant's training services. It therefore seeks an interdict against L A Training on these J

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bases. Respondents' answer to this claim - as it appears from the main A opposing affidavit deposed to by Mrs Hancock - is that applicant's representatives at all material times were aware of the fact that Mrs Hancock intended to conduct the business through the vehicle of a close corporation and that she in fact did so after L A Training was incorporated. In these circumstances, respondents contend, the Worcester franchise agreement falls to be rectified to B reflect the correct intention of the parties. Alternatively, and in any event, respondents' argument is that applicant is estopped from denying that L A Training is the franchisee under the Worcester franchise agreement. However, as it turned out in argument, the whole case against L A Training is somewhat of a red herring. On the one hand C it was conceded by Ms Robinson, who appeared for applicant, that, if applicant's cancellation of the Worcester franchise agreement is not enforceable against Mrs Hancock, any interdict to the effect that L A Training is not allowed to conduct the Worcester franchise in its name will be of no real assistance to applicant. Mrs Hancock will D just continue to conduct this franchise in her own name. On the other hand, Mr Walters, who appeared for respondent, conceded that, if the Worcester franchise agreement is found to have been validly cancelled by applicant, it makes no material difference to respondents whether the real franchisee in terms of the cancelled agreement was Mrs Hancock or L A Training. E

[12] For the sake of completeness it needs to be mentioned that, apart from the failure by the franschisees to pay the amounts allegedly owing in terms of the franchise agreements, applicant also relies on various other alleged breaches of the franschise agreements by the franschisees as a basis for its cancellation thereof. However, for reasons that will presently become apparent, I find it unnecessary to F deal with these other grounds of cancellation upon which applicant seeks to rely.

Respondents' defences to applicant's claims

[13] This brings me to the defences raised by the respondents to applicant's claims. As to applicant's claims sounding in money, it is G not denied by respondents that there are certain amounts owing by both franchisees to applicant. Respondents' first defence to applicant's claim for payment is, however, that the amounts owing to applicant are substantially less than the sums claimed by applicant. The second defence raised by respondents in this regard is that both franchisees have counterclaims against applicant which exceed the H amounts actually owing by them.

[14] With regard to applicant's claim for cancellation, respondents raise the following four defences:

(a)

Since the counterclaims of both franchisees against I applicant exceed the amounts actually owing by them, the franchisees' failure to pay applicant did not constitute a breach of the franchise agreements on their part. Consequently, applicant was not entitled to cancel the agreements on this basis.

(b)

Alternatively and in any event, respondents' contention is that even if the franchisees' failure to pay the amounts owing to J

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applicant is found to constitute a breach of the franchise A agreements, such failure was caused by applicant's own wrongful conduct. Consequently, respondents aver, applicant cannot be allowed to rely on such breach as a basis for cancellation.

(c)

According to respondents, the parties came to an oral agreement prior to the purported cancellations, in terms whereof both franchisees were allowed to settle the amounts outstanding on B their respective accounts with applicant by payment of agreed monthly instalments. Consequently, respondents contend, applicant was not entitled to cancel the franchise agreements on the basis of the franchisees' failure to pay the whole of the amount outstanding on their accounts, as it purported to do. C

(d)

Lastly, respondents allege that, prior to the purported cancellation...