H Merks & Co (Pty) Ltd v The B-M Group (Pty) Ltd and Another

• Jurisdiction: South Africa
• Judge: Corbett CJ, Hefer JA, Nestadt JA, F H Grosskopf JA and Howe JA
• Judgment Date: 10 May 1995
• Docket Number: 270/93
• Hearing Date: 03 March 1995
• Counsel: A J Horwitz SC (with him J M Suttner) for the appellant. I W Schwartzmann SC (with him A Subel) for the first respondent. No appearance for the second respondent.
• Court: Appellate Division

H Nestadt JA:

The issue in this appeal is whether the first respondent ('B-M') repudiated a written agreement entered into by it with the appellant ('Merks'). If it did, the appeal succeeds. If not, the appeal fails.

Part of the business of B-M was the manufacture and marketing of hair care products. It began this activity in March 1986. The products were known as the Clairol Professional Formula ('Clairol') range of products. As will be seen the range consisted I of a number of items. Merks, suppliers of hairdressing requisites, was appointed one of B-M's distributors in the Transvaal. The products were purchased by hairdressing salons for use by their customers. By about October 1988 B-M had decided to discontinue the manufacture and sale of the Clairol products. The business was not profitable. Mr Lars Fischer, a consultant employed by Merks, heard of B-M's decision. He thought that, if Merks was J

Nestadt JA

A appointed sole distributor for the whole country, it could successfully market the products. With this in mind he met with B-M's managing director, a Mr Paul Woolfson (as also with the company's sales manager, a Mr Rodney Hesketh-Maré). They were amenable to his proposal. The result was the agreement to which I earlier referred.

B It will, in due course, be necessary to analyse the agreement in some detail and to quote certain clauses. For the moment, however, it suffices to merely outline its effect. The agreement was entered into and commenced on 15 November 1988. The parties to it were B-M and Merks. Merks was for a period of five years appointed 'the exclusive sales agent, distributor and purchaser' of Clairol products for South Africa C and certain of its neighbouring States. However, in terms of clause 2 of the agreement, Merks was given the right to nominate a company or close corporation 'who shall on its behalf handle all matters regarding the [Clairol] range of products'. Merks committed itself to purchasing a certain quantity of Clairol products each year. The parties would in this regard agree on a forecast which Merks was obliged to D submit annually, in advance. To ensure that B-M had stocks available, Merks also undertook to furnish, by way of further (quarterly) forecasts, details of the purchases to be made. As will appear, the issue of forecasts is of importance. Even more so is the question of the price of the products. It, too, is dealt with in the agreement. Those for E 1989 would be B-M's prices as at October 1988. For the ensuing years, however, it is stipulated that they may, subject to certain qualifications, be increased. Clause 22 provides for the agreement to be replaced by a more comprehensive contract prepared by B-M 'within a reasonable period of time'. (Such contract was never concluded.)

F During the months that followed the agreement was implemented. To begin with, and pursuant to clause 2, Merks caused the second respondent ('CPF') to be formed and nominated. Thereafter orders were placed by CPF with B-M, who duly executed them. Such orders included products to the value of R62 816,07 sold and delivered during the period from September 1989 to November 1989. At about this time, G however, problems arose between the parties. They culminated in B-M on 13 March 1990 stating in a letter addressed to Merks that the agreement was 'henceforth terminated'.

Thus it was that the business relationship between the parties came to an end. H Litigation took its place. B-M issued summons in the Witwatersrand Local Division claiming payment from Merks of the R62 816,07 referred to earlier. Subsequently, by way of an amendment, CPF was cited as a second defendant. It was now alleged that CPF, alternatively Merks, had purchased the goods. Payment was accordingly claimed from CPF, alternatively Merks. In its plea CPF denied liability. Merks, on the other hand, admitted that it had purchased the goods and that it was liable to B-M for I the amount claimed. Payment was sought to be excused on the basis of a counterclaim which Merks averred it had against B-M and which it pleaded should first be adjudicated on. The counterclaim was for damages in the sum of a little over R8,2 m. Merks' cause of action was that B-M had repudiated the agreement and that Merks J had accepted such repudiation. The damages claimed represented

Nestadt JA

A the loss of profit which it was alleged Merks had suffered over the remaining term of the agreement as a result of its premature termination. In its plea in reconvention B-M raised a number of defences in support of its denial that it had repudiated the agreement.

The matter came to trial before Mynhardt J. At the request of the parties, and in B relation to the claim in reconvention, an order in terms of Rule 33(4) was made that certain agreed issues relevant to the question of whether B-M repudiated the agreement first be determined and that in the meantime proof of damages stand over. Somewhat surprisingly (seeing that the liability of CPF on the claim was in issue), Merks and CPF tendered evidence first. They relied on the testimony of Fischer. C Evidence on behalf of B-M was given by Woolfson and Hesketh-Maré. It was held that B-M had not proved that CPF was liable for payment of the purchase price of the products. Accordingly, B-M's claim against CPF failed. As regards the counterclaim, the Court found that in law there had been no repudiation of the agreement. D Consequently, the counterclaim was dismissed. It followed that judgment in the claim (in the sum of R62 816,07) was granted against Merks. With the leave of the trial Judge Merks appeals against the dismissal of the counterclaim. With the leave of this Court B-M cross-appeals against the dismissal of its claim against CPF (as well as the E refusal of an amendment to the plea to the counterclaim which B-M had sought during the trial). Both cross-appeals are conditional on the appeal succeeding.

It is necessary at this stage to examine the course of events which gave rise to the dispute between the parties and B-M's notification in March 1990 that it had terminated the agreement. They concern the forecasts which Merks was obliged to F submit and the prices at which the products were to be sold by B-M. These issues must be considered with clauses 3, 4 and 5 of the agreement in mind. They provide:

'3.

This agreement shall have a tenure of five years. Merks will be committed to achieving certain forecasts, such forecasts being mutually agreed upon yearly in advance. It is agreed that the G forecast for 1989 will...