Caxton Ltd and Others v Reeva Forman (Pty) Ltd and Another

• Jurisdiction: South Africa
• Judge: Corbett CJ, Hoexter JA, E M Grosskopf JA, Friedman AJA and Nienaber AJA
• Judgment Date: 17 May 1990
• Citation: 1990 (3) SA 547 (A)
• Court: Appellate Division

Corbett CJ:

The first respondent, Reeva Forman (Pty) Ltd, carries on business in South Africa as an importer, distributor and seller of E cosmetics and beauty products. It markets its products by means of what is termed the 'direct-selling' system. I shall later describe this in more detail. The second respondent, Reeva Success Dynamics (Pty) Ltd, carries on the business of offering training courses to the public and to persons engaged in selling the products of first respondent by means F of so-called 'beauty consultants' and 'business management' schools. First and second respondents share the same principal place of business, which is located in Johannesburg.

The founder of and driving force behind first and second respondents is Miss Reeva Forman. She holds 80% of the shares in each of the G companies and is their chief executive officer. She also lectures in the schools run by second respondent. The remaining 20% shareholdings in the companies are held by a Mr C Vassiliades.

The first appellant, Caxton Ltd, whose principal place of business is also in Johannesburg, publishes a monthly magazine called 'Style', which is distributed to the public throughout South Africa through the medium H of fifth appellant, National News Distributors, and of sixth appellant, Central News Agency Ltd. Second appellant, Miss M L Hattingh, is the editor of 'Style' and fourth appellant, CTP Web Printers (Pty) Ltd, prints it. In the July 1985 edition of 'Style' there appeared an article under the following title:

I 'QUESTION

HOW DID REEVA FORMAN

GET TO BE SO SUCCESSFUL?

ANSWER:

SHE BELIEVES IN GOD, SELF-PROMOTION,
J (and a couple of other little things).'

Corbett CJ

A As the title indicates, the article is devoted to Miss Forman and her two companies, first and second respondents. It was written by third appellant, Miss L Sampson.

This particular edition of 'Style' was published and distributed to the trade on 25 June 1985. On the same day Miss Forman and first and second respondents, claiming that the article was defamatory of them, B applied to Kriegler J in the Witwatersrand Local Division for an order interdicting the further distribution of the article. The Court granted a rule nisi. The appellants opposed the confirmation of the rule upon various grounds, including the defence that what had been said in the article was true and had been published in the public interest. The interdict proceedings were protracted and voluminous affidavits were C filed. The case was widely reported in the press. Eventually appellants undertook not to continue to publish the article and the rule was extended as against certain of the appellants until the final determination of a trial action to be instituted by Miss Forman and first and second respondents. This action was commenced by the issue of D a combined summons in the Witwatersrand Local Division on 1 August 1985. The matter came to trial before Curlewis J on 28 April 1988. Shortly before the commencement of the trial Miss Forman's claim for damages in respect of the injury to her good name and reputation (she figured as first plaintiff in the pleadings) was settled by the payment to her of R35 000 and costs. The action proceeded at the instance of first and E second respondents. Each claim two items of damages: (i) impairment to or loss of goodwill and (ii) net loss of profit. First respondent's claim, as finally computed, amounted to R250 000 under item (i) and R2 079 694 under item (ii); and second respondent's claim was R119 029 and R75 000 under each item respectively. The respondents also asked for the F rule nisi granted by Kriegler J in the interdict proceedings to be made final. After a lengthy hearing, during which in all 17 witnesses were called and much documentary evidence was placed before the Court, Curlewis J gave judgment in favour of the respondents, ordered a final interdict and awarded first respondent damages in the sums of R250 000 and R1 800 000 (in respect of loss of goodwill and loss of profit G respectively) and the second respondent damages in the globular sum of R75 000, these amounts to carry interest from the date of judgment. He also ordered the appellants to pay the costs of the suit (apart from the trial costs of two particular days), such costs to be taxed on the scale as between attorney and client. With leave granted by this Court, H appellants noted an appeal against the whole of the judgment, apart from the order of a final interdict.

Before considering the issues raised on appeal it is necessary to say something about the businesses run by first and second respondents, the nature of the defamatory article and its alleged impact upon the respondents.

The business of first respondent is, as I have indicated, the I marketing of cosmetics and beauty preparations. It does so not through the ordinary retail outlets or from shop premises of its own, but by means of a sales force of individuals, almost exclusively women, who are recruited for this purpose (hence the term 'direct-selling'). A new recruit to the organisation is given a preliminary training course J relating to the product to be

Corbett CJ

A marketed and to the method of demonstrating the product and concluding sales. She also receives what is known as a 'basic kit', consisting of the product range, which she uses for demonstration purposes and for which she pays. She is then termed a 'beauty adviser' and may commence selling the products direct to customers. She does so not as an employee or agent of first respondent, but as an independent saleswoman on a B commission basis. Goods sold are invoiced by her to the customer. The saleswoman collects the goods from first respondent's office, pays the full price as per invoice to first respondent and delivers the goods to the customer against payment of the price. The commission accruing on sales is calculated and paid by first respondent to the saleswoman monthly.

C Saleswomen are encouraged to attend the course for beauty consultants run by second respondent - after which they can call themselves 'beauty consultants' - and the business management course, also run by second respondent and designed to teach marketing and proper business methods. Fees are charged for these courses. Before a saleswoman can give a beauty treatment known as 'a facial' it is necessary for her to attend a D beauty consultant's course.

A saleswoman is also encouraged to recruit other saleswomen as part of a 'team'. If she succeeds in building up a team of at least three other saleswomen and the team achieves a certain level of sales of cosmetics (at the time R3 000 worth) in one calendar month, she may become what is E described as a 'distributor'. While maintaining what is termed a 'retail sales volume' at a certain level the distributor is entitled to an overriding commission of 40 per cent on the team sales volume, out of which she would have to pay commissions to her team members, on a sliding scale, on their individual sales. A saleswoman can also qualify F to become a distributor by a combination of retailing a proportion of the R3 000 volume through her team's efforts (the team being a minimum of three beauty advisers) and by purchasing the balance of the R3 000 volume in the same calender month; or by making a single payment of 'such amount for stocks as may be determined by the company (first respondent) from time to time' (see chap 11 of the Reeva Forman Training G Manual, exh 'FF'). Team members may, by doing the necessary recruiting, establish teams of their own and qualify to become distributors in their own right. Where this happens the original distributor becomes a senior distributor.

The whole organisation thus has a pyramid-like structure, with the first respondent at the apex and the individual saleswoman at the base, H the two linked by a network of teams, headed by distributors and senior distributors. Since the product is marketed through the efforts of the individual saleswoman it is obvious that the more saleswomen there are the greater the sales are likely to be. Accordingly the growth of the business depends upon ever-increasing recruitment. And, since for various reasons there is a continuous drop-out of saleswomen from the I organisation, recruitment is necessary even to maintain the status quo. Recruitment is done through personal contact and by means of advertising. Customers are canvassed also by personal contact and by what are termed 'promotions' at other functions. The giving of a facial is often a prelude to the establishment of a supplier/customer relationship. To achieve maximum sales it is thus necessary to be a J beauty consultant. Some distributors

Corbett CJ

A establish their own business premises; others work from their homes. That briefly is the modus operandi of the business.

First respondent commenced business in 1975. In its first four years the growth of the business, as measured by sales, was steady but not spectacular. In about 1980, however, the picture changed and the business went into a phase of very rapid growth. This continued into B 1985. By then first respondent had established regional offices or branches, staffed by full-time employees, in Pretoria, Bloemfontein, Cape Town, Durban and Port Elizabeth. These offices assisted distributors and beauty consultants in their areas, saw to the necessary administration and carried the stocks required by saleswomen.

C In order to stimulate and motivate its sales force first respondent periodically ran competitions, the prize for which was a free holiday in some attractive location. In May 1983 it was in Greece, in March 1984 it was at Umhlanga in Natal and in May 1985 it was a trip to Rio de Janeiro. In each case the competition ran for a period prior to the holiday trip (in the case of the 'Rio trip', as it was...