National Cold Storage V Namibia Poultry Industries (Pty) Ltd (A 286-2014) 2014 NAHCMD 40

1

REPUBLIC OF NAMIBIA

HIGH COURT OF NAMIBIA MAIN DIVISION, WINDHOEK

JUDGMENT

Case No: A 286/2014

In the matter between:

NATIONAL COLD STORAGE

A DIVISION OF MATADOR ENTERPRISE (PTY) LTDAPPLICANT

AND

NAMIBIA POULTRY INDUSTRIES (PTY) LTDRESPONDENT

Neutral citationNational Cold Storage v Namibia Poultry Industries (Pty) Ltd (A 286/2014) [2014] NAHCMD 40(03 March 2014)

Coram:UEITELE, J

Heard:12 November 2014

Delivered:03 March 2015

Flynote:Contract — Formation of — Consensus — Tacit Agreement — Proof of —

Contract— Specific performance - Discretion of Court to refuse - Discretion not confined to specific cases - Nor circumscribed by rigid rules - Each case to be judged in light of own circumstances.

Summary:During October 2010 Mr. Brink (acting on behalf of applicant) and Mr. White (acting on behalf of respondent) had certain discussions regarding the poultry market in Namibia. A period of approximately twelve months passed by without the parties following up on the discussions or taking any action in respect of the discussions they had during October 2010.

On 14 October 2011, the respondent’s Mr. White send an email correspondence to the applicant’s Mr. Brink to which was attached a letter which sets out the respondent’s intent to engage the applicant with regard to the sale and distribution of the respondent’s frozen products. In the letter of intent the respondent sets out the areas and aspects around which the respondent wished to engage the applicant. And it also attached a draft “non-disclosure agreement” which would form the basis of the negotiations and discussions in respect of the engagement. Pursuant to the letter of intent the parties commenced with negotiations (between October 2011 and December 2011) to enter into a contract.

The negotiations culminated in the respondent sending, during April 2012, to the applicant a draft “Distribution Agreement.” The applicant did not sign the draft agreement which was sent to it, but it made certain changes to the draft agreement and send it back to the respondent. Respondent made further changes and send the draft agreement back to applicant, who kept quiet and did not reply to respondent.The parties were, however,doing business with each other. They continued to do business for a period of more than eighteen months (i.e. between September 2012 and June 2014) when the respondent informed applicant that it is withdrawing the offer it made to applicant. Applicant maintained that the offer was tacitly accepted and a binding agreement concluded. Respondent disputes the existence of a tacit agreement. Applicant than instituted these proceedings.

Held, that the Distribution Agreement annexed to the applicant’s affidavit in support of its claim constituted a firm and unequivocal offer by the respondent to the applicant.

Held further that the applicant had an obligation in the circumstances of this matter to communicate its rejection or acceptance of the offer to the respondent. The applicants silence or failure to inform the respondent whether it accepts or rejects the offer amounted to an acceptance of the offer by acquiescence.

Held, furthermore that since the respondent’s only ground for resisting an order of specific performance is the fact the applicant can be compensated with damages, the Court should avoid becoming supine and spineless in dealing with the offending contract breaker, by giving him the benefit of paying damages rather than being compelled to perform that which he had undertaken to perform and which, when he was called upon to perform by summons, and he chose to defy the claim of the plaintiff.

ORDER

1.The applicant’s non-compliance with the rules of court is hereby condoned and this application is heard on an urgent basis as envisaged in Rule 73 (3).

2.It is declared that a binding tacit agreement exists between the applicant and respondent in terms set out in ‘JJ B20’.

3The respondent is ordered to comply with its obligations contained in the Distribution Agreement (Annexure ‘JJ B20’) in particular clause 3.3.

4The respondentmust pay the applicant’s costs of suit, such cost to include the cost of one instructing and one instructed counsel.

JUDGMENT

UEITELE, J

Introduction

[1]The applicant is a company with limited liability and it is engaged in the distribution of fast moving consumer goods, (such as poultry, fish and eggs) of locally produced products as well as the importation of fast moving consumer goods from South Africa into and around Namibia. The respondent is also a company with limited liability and it is the only major producer trading inthe broiler industry in Namibia.

[2]During October 2014 the applicant gave notice, by way of a Notice of Motion, to therespondent that it intends to apply to this court on Friday 14 November 2014 for an order in the following terms; (I quote verbatim from the applicant’s Notice of Motion).

‘1.Condoning the applicants non-compliance with the rules of court and hearing this application on an urgent basis as envisaged in rule 73 (3).

2.Granting a rule nisi, calling the respondent to show cause on 09 January 2015 at 10h00 alternatively on a date to be determined by this court why the following orders should not be made final.

2.1 an order declaring that a binding tacit agreement exists between the applicant and respondent in terms set out in annexure “JJ B20” for the following affidavit;

2.2an order that the respondent complies with the obligations contained in the aforesaid agreement, in particular clause 3.3 thereof.

3.Ordering the respondent to pay the applicants costs of suit, such cost to include the cost of one instructed counsel, should it possible oppose the relief sought.

4Ordering that the relief sought in paragraph 2.2 hereof shall operate as an interim interdict pending the return day of the rule nisi.

5Further and/or alternative relief. ’

[3]The respondent did, as it was called upon to do, give notice that it will oppose the orders sought by the applicant and it also filed its answering affidavit setting out the basis and grounds on which it opposed the applicant’s claims. I find it appropriate to first give the background to the applicant’s claim before I set out the grounds or basis upon which the claim is based and the grounds or basis on which it is opposed.

Background to the claim

[4]During the period between October 2010 and September 2014 the applicant had as its chief executive officer a certain Mr. Jan Johannes Brink, and he is the person who deposed to the affidavit supporting the applicant’s claim. The respondent had a certain Mr.GysJacquesWhite as its Managing Director for the period 01 March 2010 to 30 April 2013. Mr.White is the person who deposed to the respondent’s opposing affidavit.

[5]During October 2010 Mr. Brink and Mr. White had certain discussions regarding the poultry market in Namibia. A period of approximately twelve monthspassed bywithout the parties following up on the discussions or taking any action in respect of the discussions they had during October 2010, but on 14 October 2011, the respondent’s Mr.Whitesend an email correspondence to the applicant’s Mr. Brink to which was attached a letter which sets out the respondent’s intent to engage the applicant with regard to the sale and distribution of the respondent’s frozen products. In the letter of intent the respondent sets out the areas and aspects around which the respondent wished to engage the applicant. And it also attacheda draft “non-disclosure agreement” which would form the basis of the negotiations and discussions in respect of the engagement.

[6]In response to the letter of 14 October 2011 and on 20 October 2011 Mr. Brink, Mr. King (from the applicant’s holding company) and Mr. White (from the respondent company) had an introductory meeting. At the introductory meeting the respondent confirmed its intentions to trade in frozen poultry products and its wish to make use of the applicant’s service in its pursuit to trade in frozen poultry products.A follow up meeting[1] washeld on 08 November 2011, where a detailed discussion took place. The minutes of that meeting were attached and they reveal that discussions took place around a range of issues but what was particularly discussed is the marketing, sales and distribution of the respondent’s frozen poultry products.

[7]The parties hadanother meeting on 02 December 2011[2]. At the meeting of 02 December 2011, the respondent indicated that it intends to start trading in the frozen poultry products as from April 2012. On 26 March 2012,Mr. White send an e-mail to Mr. Brink, to the email was attached a draft “distribution agreement” and he asked Mr. Brink for his input into the draft agreement. On 05 April 2012, Mr. White send an email to Mr. Brink to which was attached an updated price list according to which, the respondent was prepared to trade with the applicant in terms of the draft Distribution Agreement.During April 2012, Mr. Brink made his comments and inputs to the draft agreement and, per email, forwarded the comments to Mr. White on 20 April 2012. In the email Mr. Brink stated that Mr. White should let him know whether there was anything to be discussed with respect to the changes which he made. Mr. White did not, for a period of five months respond to the changes made to the draft Distribution Agreement byMr. Brink or to his (Mr. Brink’s) email. On the 26thApril 2012 the applicant placed its first purchase order.In terms of the purchase order the respondent had to deliver a mixed portion of 1.5kg bags of frozen chicken brand “Country Choice” to the applicant’s business in Windhoek. The delivery date was set at 30 April 2012 and the quantity ordered was 1300 bags at a unit price of N$150.40 per bag. On 02 May 2012 the respondent delivered the mixed portions of chicken which were ordered, but on 30 April 2012 the respondent issued its first tax invoice to the applicant for this sale.

[8]Between May 2012 and September 2012 the applicant and the respondent continued on that basis, the applicant would place an order for the frozen poultry products (specifically the frozen chicken brand “Country Choice”). Respondent would deliver, the applicant will then distribute the goods to its customers and the respondentwould invoicethe applicant for the goods delivered to it. On 12 September 2012 (i.e. approximately five months after the parties started doing business with each other) Mr. White send an e-mail to Mr. Brink, to which he had attached an amended draft of the “Distribution Agreement” forwarded to him earlier (i.e. on 20 April 2012) by Mr. Brink.Mr. Brink alleges in hissupporting affidavit that he did not formally respond to Mr. White’s email of 12 September 2012 for the simple reason that theapplicant and the respondent already, on 26 April 2012, started trading on the basis set out in the Distribution Agreement.

[9]Between 20 September 2012 and 30 June 2014 (that is for a period of twenty months) the parties continued to do business on the basis that they started to trade with each other on 26 April 2012,save that on 01 November 2012 Mr. White addressed an e-mail to Mr. Brink in which email Mr. White asked whether they (that is, the applicant) had any feedback as regards the Distribution Agreement. Brink did not reply to that e-mail. As I indicated above between 12 September 2012 and 30 June 2014 the parties continued to do business on the same basis that they commenced on 26 April 2012, but on 30 June 2014 the respondent addressed a letter to the applicant in which letter it stated the following: (I quote verbatim from the letter).

‘We need to inform you that our offer to enter into a long term distribution agreement with yourselves iswithdrawn.

We regret to inform you that the current arrangement in terms of which you distribute our chicken products is terminated with effect on 31 August 2014.

Be assured that you will however in future be free to purchase chicken products from us foron sale to your customers.’

[10]On 09 July 2014 the applicant’s legal practitioner (on instruction by the applicant) responded to the respondent’s letter dated 30 June 2014. In that letter (i.e. the letter of 09 July 201) the applicant indicated the following to the respondent:

That although the distribution agreement send to the applicant on 12 September 2012, was not signed the parties proceeded to act according to the terms and conditions on the draft agreement.

That the applicant has been providing the respondent with distribution services as from 12 May 2012, in accordance with the draft agreement specifically schedules 1 and 2 to the draft agreement.

That since a valid distribution agreement, albeit verbal exists between the parties, the respondent could not withdraw thereafter.

That the termination is not in line with what the parties have agreed. The appellant further stated that in terms of the agreement as reflected in the unsigned draft Distribution Agreement the parties agreed to a one year termination notice which may not be given prior to 07 May 2015.

[11]The respondent did not timeously reply to the applicant’s letters,necessitating the applicant to put it (the respondent) on terms to reply within a specific time frame. Despite the fact that the respondent did not timeously respond to the applicant’s letter of 09 July the parties conducted meetings aimed at resolving the termination issue. The meetings took place on 21 July 2014, 09 August 2014, 08 September 2014 and18 September 2014 (during this period the parties were still trading and doing business with each other). At all these meetings the parties mooted the idea of finding an alternative way in which they would do business. On 24 September 2014, a further meeting was held between the applicant and the respondent’s representatives. At the meeting of 24 September 2014 the respondent’s representatives informed the applicant’s representatives that the possibilities of a new contractual relationship were no longer an option for the respondent and stated that, the ‘arrangement’ between the parties will terminate on 30 September 2014. The applicant’s representatives requested the respondent to place the oral termination in writing. As from 30 September 2014 the respondent did not make use of the applicant’s services. On 22 October 2014 the applicant launched this application on an urgent basis.

[12]As I have indicated above the respondent opposed the orders sought by the applicant. The grounds on which the respondent opposes the application are that:

‘3.2…the Applicant is, in effect, seeking specific performance and in substance and effect, final relief, in circumstances where such relief ought not to be granted;

3.2.1in the face of factual disputes;

3.2.2with the availability of an alternative remedy;

3.2.2bearing in mind the this Honourable Court may excise in deciding whether or not an order of specific performance should be granted;

3.3on the relevant facts it is clear,…, that the parties had agreed that no agreement would be enforceable unless and until to writing and signed by both sides;

3.4the actual conduct of the parties over the period of time relied upon by the Applicant is in direct conflict with the material terms of the Draft agreement and such conduct therefore operates to destroy the very agreement relied upon, alternatively such conduct fails to prove consensus between the parties on an essential term, namely, price.

3.5having regard to the totality of circumstances referred to and the availability of an effective alternative remedy of damages, there is every reason for this Honourable Court, in any event to refuse interim relief in the exercise of its discretion;

3.6 in the alternative and if the draft agreement was adopted, which is denied:

3.6.1it is not open to the Applicant to avoid the compulsory arbitration clause contained in the draft agreement relied upon (annexure “JB20”) (the draft) by … labeling the relief sough as interim relief;

3.6.2the applicant is precluded from claiming specific performance by the very draft relied upon since it has failed to 21 days’ written notice to remedy the breach relied upon, as contemplated in clause 14;

3.6.3it is unenforceable since it contains a pactum de contrahendo in respect of an essential term, namely price.

4On the merits the Respondent maintains that the Draft was intentionally never finalized and that the parties, by their conduct simply implemented a different and independent contractual arrangement in terms of which the Respondent sold product to the Applicant instead of engaging the services of the Applicant against payment of a fee as contemplated in the Draft.’

[13]From the above background facts it is clear that, the dispute between the parties in this case is whetheran agreement came into being as a result of the conduct of the parties and whether the applicant can on the basis of the evidence before court obtain the remedy (particularly the remedy of specific performance) it seeks from the Court.

The legal principles relating to the formation of contracts

[14]A contract is often defined merely as an agreement made between two or more parties with the intention of creating an obligation or obligations.[3]In order to decide whether a contract exists, one looks first for the agreement by consent of the two or more parties. Professor Christie[4] opines that the most common and normally the most helpful technique, for ascertaining whether there has been an agreement, true or based on quasi mutual assent, is to look for an offer and acceptance. In the case of Estate Breet v Peri-Urban Areas Health Board[5]Van den Heever,JA said consensus is normally evidenced by offer and acceptance.

[15]Professor Christie[6] further argues that a person is said to make an offer when he puts forward a proposal with the intention that by its mere acceptance, without more, a contract should be formed. In the matter of Wasmuth v Jacobs[7] Levy, J said:

‘It is fundamental to the nature of any offer that it should be certain and definite in its terms. It must be firm, that is, made with the intention that when it is accepted it will bind the offeror.’

[16]It thus follows that for a contract to come into existence the offer must be accepted. In the matter of Boerne v Harris[8]Schreiner, JA said that for an acceptance to be effective it must be clear and unequivocal or unambiguous. One aspect of the rule that acceptance must be clear and unequivocal or unambiguous is that acceptance must exactly correspond with the offer. This principle has been stated as follows by Nestadt J in the matter of JRM Furniture Holdings v Cowlin.[9]

‘…acceptance must be absolute, unconditional and identical with the offer. Failing this, there is no consensus and therefore no contract. (Wessels Law of Contract in South Africa 2nd edvol I para 165 et seq.) Wille Principles of South African Law 7th ed at 310 states the principle thus: