Pick n Pay Retailers (Pty) Ltd (the “Applicant”) launched an urgent application to perfect its security in of the form of a general notarial bond (“the Bond”) held in favour of Pine Valley Supermarket (Pty) Ltd (the “Respondent”).
The Applicant sought to perfect its security as a result of the Respondent’s failure to effect timeous payments due to the Applicant under a Franchise Agreement (“FA”). Furthermore, the Applicant submitted that its interests were being imperilled as a result of fraudulent activity committed by a director of the Respondent, Gerhardus Francios Maritz (“Maritz”), who had been rendering fictitious invoices to the Applicants suppliers and embezzling the monies received.
Subsequent to the conclusion of the FA the Applicant and Respondent entered into various agreements including an addendum to the FA (“addendum”), a Liquor Store Addendum (“LSA”) and a Payment Variation Agreement (“PVA”) on 8 July 2011, 30 November 2012 and 22 May 2014, respectively.
In an attempt to have the court declare the FA to be null and void, the Respondent alleged that the addendum brought the FA into the ambit of the Consumer Protection Act No. 68 of 2008 (“CPA”) and that implementation of the FA would infringe on section 13(1) of the CPA which deals with a consumer’s right choose and section 48 which deals with unfair, unreasonable or unjust contractual terms. In addition, the Respondent alleged that the implementation of the FA infringed on sections 5(1) and 5(2) of the Competition Act No. 89 of 1998 (“CA”) which deals with resale price maintenance.
Furthermore, the Respondent alleged that the urgency of the application was unnecessary and unwarranted and that enforcement of the bond would be: – unfair, unreasonable, unduly oppressive and contra bonos mores;
– a drastic and an unreasonable abuse of contractual powers by the Applicant, as the debt on which the Applicant relied was paid approximately 2 weeks after payment was due (being “marginally late”) thereby rendering the Applicant’s case redundant; and – subject the Respondent to undue hardship if the Applicant were to take over the Respondent’s business.
Upon consideration of the arguments made by the Applicant and Respondent, the court held as follows:
– 1. the urgency of the application was warranted due to the misconduct of Maritz
2. the FA pre-dated the implementation of the CPA and therefore did not bring the FA within the ambit of the CPA;
3. the addendum did not have a material effect on the FA and therefore did not bring the FA within the ambit of the CPA;
4. the LSA only extended to business conducted by the Respondent and therefore did not bring the FA within the ambit of the CPA;
5. the PVA provided specifically for repayment in arrears and therefore had no effect on and did not warrant any material changes to the FA;
6. the complaint of anti-competitiveness and the possibility of a referral to a Competition Tribunal to deal with same was “contrived, without merit and dilatory” and therefore dismissed; and
7. that the FA and subsequent agreements were valid and enforceable. Accordingly, the court held that the bond was executable and granted an order in favour of the Applicant perfecting the bond.
It is common practice for large retailers, such as Pick ‘n Pay Retailers (Pty) Ltd etc., to obtain security in the form of notarial bonds when franchising their business to franchisees. This case serves as an example of grounds that a defaulting franchisee would attempt to rely on to prevent the perfection of the franchisor’s security (i.e. notarial bond).
Written by Simone Jansen Van Rensburg and Alisha Naik.