Mozart Ice Cream Franchises (Pty) Ltd v Davidoff and Another

• Jurisdiction: South Africa
• Judge: Davis J
• Judgment Date: 01 December 2008
• Citation: 2009 (3) SA 78 (C)
• Docket Number: 18784/2008
• Hearing Date: 01 December 2008
• Counsel: RJ Howie for the applicant. RD Mitchell SC for the respondents.
• Court: Cape Provincial Division

Davis J:

The applicant seeks to enforce a restraint of trade contained in a franchise agreement concluded between the parties. The restraints which are relevant to this dispute are set out in clause 13 of the F agreement and read thus:

13.1

The franchisee shall not be entitled to 24 months reckoned from the termination date, whether directly or indirectly, as principal, agent, sole proprietor, partner, shareholder, director, member, trustee, beneficiary, employee, consultant, advisor or a financier from a representative or in any other capacity, to be G employed by or be engaged in or be interested in or be associated with any person or legal entity which carries on a business which is similar to, or which competes with or which endeavours to compete with the franchise business within South Africa.

13.2

The franchisee acknowledges and agrees that the restraint H referred to in subclause 14.1 is reasonable to the subject matter, area and duration and it is reasonably necessary for the protection of the franchisor as well as the intellectual property.

13.3

The franchisee shall not at any time before or after the determination date, whether directly or indirectly, itself or together with any other person or entity in any capacity I whatsoever, employ or seek to employ any person who was at that time or who was at any time in the previous 12-month period been employed by the franchisor or by any other franchisee or agent to the franchisor, nor shall the franchisee induce or seek to induce any such person to leave such employment. J

Davis J

A To the extent that it is relevant, the words franchise business mean the Mozart franchise business of running a Mozart ice-cream franchise, using the franchisor's intellectual property (clause 2.1.3).

In brief, clause 13 provides for two distinct restraints: clause 13.1 restricts, what can broadly be termed, competitive trade, and clause B 13.2 prevents the soliciting of employees of the applicant or other franchisees. The applicant now comes to court for final relief.

Factual matrix

From the papers it would appear that the following facts can be accepted C by this court.

(1)

The first respondent was a franchisee in terms of the franchise agreement that was concluded with the applicant.

(2)

The first respondent trades from Shop 122, N1 City Mall, Louwtjie Rothman Street, Goodwood, Cape Town.

(3)

D Second respondent is the franchisee in terms of the franchise agreement concluded with applicant.

(4)

It trades from Shop 12A, Bayside Mall, cnr Blaauwberg and West Coast Roads, Tableview, Cape Town.

(5)

Second respondent has traded as Bayside Mozart Express and E currently trades as the Lucky Marble.

(6)

On 1 October 2008 applicant received a telefax from second respondent in which it was expressly stated that applicant was given 30 days' notice of its intention to defranchise from the applicant by 31 October 2008.

(7)

On 22 October 2008, in respect of the trading name Lucky Marble, F second respondent applied for credit facilities with LP Agencies CC in respect of a business that was being operated prior to 31 October 2008.

(8)

On 27 October 2008 attorneys representing the respondents addressed a telefax to the applicant's attorneys in which: one, the Mozart Ice Cream intellectual property and trademark were G acknowledged and, two, it was unequivocally recorded that respondents did not believe that the applicant was entitled to prevent them from trading as independent businesses, competing with the applicant. Further, it was expressly stated that respondents would continue trading from the same premises but would remove all H reference to Mozart Ice Cream and its product.

(9)

Second respondent has converted the Bayside premises from a Mozart franchise and now runs this business under the signage of Lucky Marble.

(10)

On 23 September 2008, and at the same time as giving applicant an I ultimatum to make a decision about their future relationship by no later than 30 September 2008, first respondent reiterated its decision to pursue a new business model with immediate effect.

(11)

On 31 October 2008 first respondent addressed an e-mail to other franchisees and the applicant in which he stated that he had defranchised from the applicant to its great displeasure, that his J lawyers had advised applicant of his view that there was no valid

Davis J

contract, that the shop would trade as the Lucky Marble and that all A Mozart signs had been removed.

Mr Howie, who appeared on behalf of the applicant, submitted that in the circumstances and on these facts, first and second respondents were bound by the restraint of trade provisions which were contained in the franchise agreement and which they had concluded with the applicant B some years previously.

It is important at this stage to emphasise that, when this case was launched in great haste, the cause of the application was predicated on both the trademark and restraint of trade provisions. The trademark issue disappeared in argument before this court. Applicant now relies C exclusively upon the restraint of trade provisions. Mr Howie submitted that the protectible interest which necessitated the enforcement of the restraint of trade included the following:

(1)

Applicant's reputation has been built over the past 25 years, in which it has developed and perfected the creation by virtue of D advanced methods, both in relation to ingredients and processing of unique ice-cream flavours and quality.

(2)

Its unique 'rand per kg' system in which the ice-cream is weighed and which, in turn, maximises the way the franchisee can control the quantity of ice-cream sold and therefore maximise profits. E

(3)

Unique serving spoons which were designed by the applicant with the specific intention to ensure that the correct shape of ice-cream is presented to the customer in a cone.

(4)

In Mr Howie's view, what the respondents had done was unlawfully to repudiate the franchise agreements. There has been no provision F in the agreements entitling them to cancel the agreement unilaterally as they indeed have done. In order to commence their own business they have relied upon the established Mozart customers, or walk-in customers, the familiar locality of the business, the fact that customers associate the business at the Bayside and Goodwood premises with the quality product provided by the applicant, and G that customer loyalty and customer inertia were associated with purchasing ice-cream from a Mozart outlet at the premises in question.

Mr Howie contended that the respondents have failed to advance any evidence to establish a basis from which it could be found by this court H that the enforcement of the restraint was unreasonable and that it was not unenforceable. In brief, Mr Howie submitted that the applicant has shown on the papers that there was a protectible interest in terms of the restraint of trade, which was reasonable and enforceable, and that the respondent, should be held to the bargain they had struck previously. He I further contended that the urgent application had been precipitated by respondents' repudiating the agreements by unilaterally 'de-franchising' themselves at the end of October 2008, and in particular by their undertaking to compete with the applicant in the selfsame franchise premises from which they traded under the Mozart franchise, in direct competition with the applicant.

Davis J

A Accordingly, Mr Howie submitted that respondents had flagrantly breached the restraint of trade which binds them. Applicant was entitled to seek urgent interdictory relief. There was no basis for applicant simply to content itself with seeking damages as an...