Novartis SA (Pty) Ltd v Maphil Trading (Pty) Ltd

JurisdictionSouth Africa
JudgeLewis JA, Majiedt JA, Pillay JA, Zondi JA and Mathopo JA
Judgment Date03 September 2015
Citation2016 (1) SA 518 (SCA)
Docket Number20229/2014 [2015] ZASCA 111
Hearing Date18 August 2015
CounselMVR Potgieter SC for the appellant. MJ Fitzgerald SC (with RMG Fitzgerald) for the respondent.
CourtSupreme Court of Appeal

Lewis JA (Majiedt JA, Pillay JA, Zondi JA and Mathopo JA concurring): I

[1] The question to be answered in this appeal is whether a contract between the parties was concluded: if so, the appellant, Novartis South Africa (Pty) Ltd (Novartis), would be guilty of repudiation of the contract, and the respondent, Maphil Trading (Pty) Ltd (Maphil), would be entitled to damages. The contract alleged by Maphil was in fact negotiated by representatives of a company, Hiline Medical (Pty) Ltd J

Lewis JA (Majiedt JA, Pillay JA, Zondi JA and Mathopo JA concurring)

A (Hiline), the shares of which were sold after the events that I shall describe. The name of the company was changed to Maphil subsequently. All references to Hiline in what follows apply thus to Maphil as well.

[2] Novartis is a subsidiary of a pharmaceutical drug manufacturer and B supplier based in Switzerland. It operated 'divisions' (separate trading entities, but not companies themselves) in South Africa, which in turn supplied medicines to pharmacies and hospitals. The Sandoz Division supplied generic pharmaceutical products, and the Sandoz Specialty Division (SSD) supplied 'ethical' or non-generic products.

C [3] In 2004 the Medicines and Related Substances Act 101 of 1965 was amended to introduce, amongst other provisions, a prohibition on the supply of medicines according to a bonus or rebate system, or any other incentive scheme. Regulations under the amended Act provided stringent controls for the pricing of medicines and the marketing, sale and D distribution of pharmaceutical products. Consequently Novartis and its divisions had to change their marketing strategies.

[4] The uncontroverted facts were these. The director of the SSD, Mr Ian van der Spuy, and the business manager, Ms Annie van Jaarsveld, in consultation with other members of the SSD, came up with the idea of E putting the Sandoz brand and logo on packaging for medical devices (not medicines themselves) that would be seen by health professionals. The idea was to market the Sandoz brand (its name), particularly in hospitals, since the medicines themselves could not be advertised. The strategy was approved not only by SSD but also by the executive committee of Sandoz F (EXCO), and its chairman, Mr John Hallam.

[5] Van Jaarsveld, with the approval of members of SSD which met on 3 August 2004, approached Mr Martin Lambrecht, a director of Hiline, sometime in August 2004 and met him in Cape Town in September 2004: she suggested that SSD and Hiline enter into an arrangement in G terms of which Hiline would receive a fee for putting Sandoz branding on the packaging of devices supplied by Hiline to hospitals. Lambrecht was amenable to this.

[6] The timing of the approach was fortunate because Hiline was about to put in a bid for the supply of medical devices to Mediclinic, a national H private-hospital group. If SSD committed to paying a fee for the marketing proposed, Lambrecht would be able to reduce the prices of the items that Hiline was tendering to supply by some R3 million. Lambrecht's tender documents had to be submitted to Disa-Med, the procurement department for Mediclinic. The proposed marketing strategy had been discussed with the procurement manager of Disa-Med, Ms Anita Hamilton. I Indeed, it was she who had suggested Hiline to SSD as a potential partner in a marketing arrangement.

[7] The deadline for submitting the tender was 14 October 2004. Lambrecht had, before then, indicated to Van Jaarsveld that unless he had a commitment from SSD, he could not give the discounted prices to J Mediclinic. On 14 October Van Jaarsveld and Van der Spuy went to

Lewis JA (Majiedt JA, Pillay JA, Zondi JA and Mathopo JA concurring)

Cape Town (they were based in the Novartis offices in Johannesburg) A with a draft marketing agreement between SSD and Hiline, signed by Van Jaarsveld and Van der Spuy for SSD, offering a marketing fee of R3,5 million for the year 2005. After some amendments effected to it by the SSD representatives at Lambrecht's request, he orally accepted the commitment. I shall discuss the terms of the marketing agreement itself in due course since Hiline alleged that it formed part of the contract, the B balance of which was concluded orally and by email exchange.

[8] Lambrecht, when testifying for Hiline, explained that the full contract could not be concluded on 14 October 2004 because Hiline and SSD had yet to agree upon the exact items on which the Sandoz name would C be used and on the details of logos and naming. Moreover, Hiline did not yet know what items tendered for would be accepted by Disa-Med. Addendum A to the agreement presented to Hiline by SSD was headed 'Marketing Agreement', and typed below that were the words 'To be finalized by 30 November 2004'. There was never any formalised D addition to the addendum. The marketing arrangements were agreed over the telephone, in emails, and at a meeting on 12 November 2004, on Hiline's version. The marketing agreement presented to Hiline on 14 October, signed by Van Jaarsveld and Van der Spuy for SSD, was at some time signed by Lambrecht and his brother for Hiline, but Lambrecht could not remember if the document with their signatures on it were ever sent to SSD. E

[9] The tender by Hiline, in which the prices had been reduced by some R3 million, was in due course accepted by Disa-Med. Hiline proceeded as if there were a contract with SSD, as did SSD. By February of the F following year Hallam had second thoughts about the feasibility of the contract, and after a meeting with a representative of Mediclinic, at which he discovered that SSD would not get rebates on medicines. On 4 March 2005 Hallam wrote a letter to Hiline, stating that there was no contract between Novartis and Hiline and that the invoice (with the Sandoz logo already printed on it) that Hiline had submitted to it for the first monthly payment would not be paid. G

[10] Hiline treated Novartis' conduct as a repudiation of the contract between them, and instituted action in the Gauteng Local Division for damages for breach of contract. Boruchowitz J found for Maphil (which had, as buyer of the Hiline shares, taken over the claim) and awarded the H sum claimed — the fee that Hiline would have been entitled to had the contract been performed — and interest. Novartis appeals with the leave of the trial court. That, in broad outline, is the background to this appeal.

The contract relied on by Hiline I

[11] It is necessary at this point to consider the way in which Hiline pleaded its claim against Novartis. It alleged that there were two components to the contract on which it relied: first, the partly written marketing agreement signed by Van der Spuy and Van Jaarsveld on behalf of SSD and presented to Lambrecht on 14 October 2004, which he accepted for Hiline that day. The written part was annexed to the J

Lewis JA (Majiedt JA, Pillay JA, Zondi JA and Mathopo JA concurring)

A particulars of claim. Second, a subsequent partly oral and partly written agreement in terms of which the marketing activities were agreed, as contemplated in the document accepted on 14 October 2004. That agreement, Hiline alleged, was reached on 12 November 2004 at a meeting held in Cape Town with Lambrecht and his brother Phillip, and B Van der Spuy and Ms L Biel, the product manager of SSD, for SSD.

[12] At that meeting, it was alleged, the parties reached agreement on the Hiline products that would bear the Sandoz logo, and on putting the logo on Hiline's delivery vehicles. The written part of the agreement on marketing activities comprised three emails: one from Van Jaarsveld, sent C on 30 November 2004 to Lambrecht; a response from the latter later on the same day; and a further email from her to Lambrecht, also on the same day.

[13] The first email asked for details of Hiline's registration number and banking account, and set out the Hiline products on which Sandoz logos would be advertised. It was confirmed that the logo would be put on the D Hiline invoices as well. Van Jaarsveld also advised that a new vendor- application form should be completed by a representative of SSD and sent to her by fax.

[14] It should be noted that Van Jaarsveld also said in that email that she intended to send a draft agreement for Lambrecht's attention and that of E Hiline's attorney, Mr Adriaan Hoeben, of the firm Sonnenberg Hoffman and Galombik (as it was known then) in Cape Town. Lambrecht responded, saying that the detail for the logo on the invoices that Hiline used had changed. He attached a document confirming the details of the marketing activities. The third email confirmed details and said that Van Jaarsveld F would be seeing SSD's attorney, Mr Neil Kirby, of Werksmans Attorneys, the following day and did not want to 'get any of the detail wrong'.

[15] Hiline pleaded accordingly that the marketing agreement on which it relied, comprising both written and oral agreements, was concluded in the meetings and by the exchange of emails, ending on 30 November 2004. G The material terms of the agreement were that Hiline would perform marketing activities for SSD at a fee of R3,5 million for the year 2005, payable in monthly instalments on receipt of an invoice issued by Hiline to SSD.

[16] Novartis raised a number of defences in its plea: no contract had H been proved; the document signed on 14 October 2004 was inchoate and lacked exigible content; the parties had intended to conclude a contract only when one was drafted by an attorney; and none of the representatives of Novartis who purported to bind it had authority to do so.

The terms of the written document I

[17] The preamble stated that the agreement, dated 1 January 2005 to 31 December 2005, was between Hiline and SSD; that Hiline is a medical-supplies company; and that SSD manufactures and sells...

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55 practice notes
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52 cases
  • Smyth and Others v Investec Bank Ltd and Another
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    • Invalid date
    ...Ltd 2013 (5) SA 1 (SCA) ([2013] ZASCA 76): dictum in para [24] applied Novartis D SA (Pty) Ltd and Another v Maphil Trading (Pty) Ltd 2016 (1) SA 518 (SCA) ([2015] ZASCA 111): dicta in paras [24] – [31] Oakland Nominees (Pty) Ltd v Gelria Mining & Investment Co (Pty) Ltd 1976 (1) SA 441 (A)......
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3 books & journal articles
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