Category Archives: Commercial Law

Your business risk in selling products to a consumer

Articles imagesThe Consumer Protection Act 68 of 2008 (CPA) came into effect on 1 April 2011. A concise definition of consumers are persons to whom goods or services are marketed, who have entered into transactions with suppliers, users of particular goods or recipients/beneficiaries of services and if the consumer is a juristic person then it will be considered a consumer if it has a turnover or asset value of less than R2 million.

Section 55, states that a consumer has the right to receive goods that are reasonably suitable for the purposes for which they are intended, must be of good quality, in good working order and free of any defects.

The above section brings about the implied warranty in terms of section 56 wherein a consumer can within six months after the delivery of any goods return the goods to the supplier, without penalty and at the supplier’s risk and expense. If the goods fail to satisfy the requirements and standards contemplated in section 55, the supplier must, at the direction of the consumer, either repair or replace the failed, unsafe or defective goods or refund to the consumer the price paid by the consumer, for the goods.

It however is the latter part of section 55 regarding products being free of any defects that has made a substantial change to our common law in terms of product liability. In terms of the common law, a seller of goods is strictly liable to a purchaser for any latent defect in goods (ie. a defect which would not be apparent upon inspection by an ordinary person and which makes the goods unfit, or partially unfit, for the purpose for which they are intended to be used).

In terms of the common law, a seller of goods is strictly liable to a purchaser for any latent defect in goods (ie. a defect which would not be apparent upon inspection by an ordinary person and which makes the goods unfit, or partially unfit, for the purpose for which they are intended to be used).

Section 61 of the CPA has now changed the common law position. It provides that irrespective of negligence each producer, importer, distributor or retailer of a particular product is strictly liable for any harm caused wholly or partly as a consequence of:

  • supplying any unsafe goods;
  • had a product failure, defect or hazard in any goods; or
  • the consumer was provided with inadequate instructions or warnings in relation to any hazard arising from or associated with the use of the product.

Each producer, importer, distributor and retailer of the product is jointly and severally liable, meaning that a person who suffers harm from a defective product can bring a claim against any person in this supply chain.

Therefore a consumer will no longer be required to prove that the manufacturer or other person in the supply chain acted negligently in manufacturing or supplying the goods in question.

This is risky for any business, practising as a retailer to end consumers of a product. It is imperative that goods purchased are inspected prior to the resale to consumers. Furthermore, such businesses should ensure that they have well drafted indemnity clauses in their agreements with their suppliers in which their liability is limited by the supplier agreeing to make good any loss or consequential damages that it may incur.

Please do not hesitate to contact our Commercial Department at kevind@kisch-ip.com or merciaf@kisch-ip.com or 011 324 3025/33 with any queries, or for further information on the Consumer Protection Act, or if you require our assistance in drafting or amending your indemnity agreement.

For more information, please contact:

Anola NaidooANOLA NAIDOO
Candidate Attorney
Department: Commercial
Tel: +27 11 324 3060
Email: anolan@kisch-ip.com

Author: Anola Naidoo

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

Intent to use, or to abuse? Improper trade mark management

Articles imagesThe facts and circumstances the Supreme Court of Appeal (SCA) was seized with in Etraction (Pty) Ltd v Tyrecor (Pty) Ltd 2015 ZASCA 78 (28 May 2015), are an object lesson for trade mark proprietors, in how not to manage their affairs.

It was common cause that the Appellant, Etraction (Pty) Limited (“Etraction”), had adopted the mark INFINITY in 1995 for its motor vehicle wheel rim products and had established a business and reputation in wheel rim products under that mark.  Until 2008, it had however taken no steps to register this trade mark in respect of wheel rims, or any other related products, although it had registered other trade marks for products it dealt in.

In the interim, in 2006 the Respondent Tyrecor (Pty) Limited’s predecessor in business Falck, commenced importing and selling tyres bearing the INFINITY mark.  This mark had been used internationally by the Al Dobowi Group, following a launch of its INFINITY tyres in Germany in that year.  The Respondent Tyrecor (Pty) Ltd, in which the Al Debowi Group is an indirect shareholder, succeeded in 2008 to the Falck business of importation and distribution of INFINITY tyres.

The Court found that the evidence showed that there was awareness, from the year 2006, of the sale of INFINITY tyres in South Africa – and that the Appellant Etraction was aware of this inter alia because it was an exhibitor, together with the then importer and distributor Falck, at the Tyre Expo Africa 2006 exhibition where the latter was promoting its INFINITY tyres.

Etraction took no steps in 2006 or thereafter to object to Falck’s importation and distribution of tyres under the INFINITY trade mark. Had Etraction objected to Falck’s use in 2006, the objection may then have been warranted. It had a reputation in the mark INFINITY in respect of motor vehicle wheel rims, and might then with some justification have contended that use on tyres would be likely to be associated with the Etraction wheel rim business.

Instead, Etraction sat idly by while Falck from 2006 onwards, and Tyrecor from 2008 onwards, increased distribution and advertising of INFINITY tyres.  Moreover, the Appellants appear on the basis of the following facts cited in the SCA judgement, progressively to have acquiesced in the Respondent Tyrecor obtaining vested rights in its business of promoting and distributing tyres under the INFINITY mark :

  • On 17 and 18 March 2008 Tyrecor addressed e-mails to Etraction offering to supply it with INFINITY tyres. The e-mails enclosed photographs of the tyres that Tyrecor was offering to supply and set out the prices at which it was offering the tyres. On 26 March 2008, Tyrecor sent an e-mail recording a meeting its representative had with the Appellants representative.  It read as follows:

    “I would once again like to thank you for affording me the time to meet with both of you today to introduce our products. We are very proud of the INFINITY brand and believe that we will be able to add value to your organization.
    I sincerely hope that we can establish a beneficial relationship in the near future. Please do not hesitate to contact me should you require any additional information”.
  • Within three weeks after that meeting Etraction applied for registration of the mark INFINITY in relation not only to wheel rims for vehicles, but also to tyres.  It had not, however, conveyed to Tyrecor either at the aforesaid March 2008 meeting, or when shortly thereafter filing its application to register the mark INFINITY that it objected to Tyrecor using the mark.  Nor did it give any notice of its application to Tyrecor until it had secured registration of the mark, which occurred on 19 May 2011.  During the three years between the date of its application and registration, Tyrecor continued to trade and built up its business in the sale of INIFINITY tyres without any inkling that Etraction objected thereto, or that it intended itself to enter the market for tyres under that brand name.  In 2011, Tyrecor’s turnover from this trade exceeded R100 million.

On the basis of these facts and the Appellant’s evidently supine and acquiescing conduct, the SCA confirmed the partial expungement by the Court a quo of the Appellants registration no. 2008/08612, removing “tyres” from the specification, and in so doing upheld the dismissal of Appellant’s claim for infringement by Tyrecor. The basis in law for this finding, which involved a consideration of the meaning of bona fides for two separate and distinct purposes, was as follows:

Trade Mark infringement and the defence of “prior use”

Etraction, on securing registration in May 2011 of its INFINITY mark in class 12 covering both wheel rims and tyres, instituted infringement proceedings against Tyrecor.

Tyrecor raised a defence under Section 36(1) of the Trade Marks Act.  This section precludes a trade mark proprietor from interfering or restraining a third party from using the same (or confusingly similar mark), if that third party had made continuous and bona fide use of the mark in question from a date prior to the registrant’s first use of the mark, or prior to its registration thereof, whichever was the earlier.

The SCA held on the facts summarized above that Tyrecor (initially through its predecessor in business Falck and thereafter itself since 2008) had enjoyed continuous and bona fide use of the INFINITY mark in respect of tyres from a date prior to Etraction’s application (i.e. in 2008) to register the mark in respect of inter alia tyres, and thus that the provisions of Section 36(1) applied.

Etraction’s contention that Tyrecor did not have rights arising from its distribution of INFINITY tyres (i.e. in that it was itself not the manufacturer that had applied the mark to the tyres, and was thus not the proprietor of the mark), was dismissed on the basis that Tyrecor had established user rights in its business in the distribution and promotion of INFINITY tyres – and more specifically that its interest in a business in goods under that mark, was a protectable interest for purposes of Section 36(1).

Intent to use, or to abuse?

The second context in which the meaning of bona fides was considered on appeal, was in relation to Etraction’s own intention to use the INFINITY mark in respect of tyres. On the facts, the court found that Etraction had never had any bona fide intention to use the mark INFINITY on tyres, holding in this connection that its conduct in obtaining a registration covering tyres was for an ulterior purpose, and that it was carried out surreptiously. It accordingly confirmed that its registration was liable partially to be expunged by the removal of tyres from its specification.

The judgment canvasses in detail Etraction’s failure in 2006, when it learnt of Falck’s commencement of the distribution of INFINITY tyres, to object to that distribution – and the adverse inferences to be drawn from that failure to object. This finding begs the question:  had Etraction objected to Falck commencing distribution of INFINITY branded tyres in 2006, would continued use have been “bona fide” use of the INFINITY mark for purposes of a defence under Section 36(1)?

The SCA in making its finding on the issue of Etraction’s bona fides, cited with approval the judgment in Rembrandt Fabrikante en Handelaars (Edms) Bpk v Gulf Oil Corporation [1], wherein it was held that:

“…an ulterior purpose, unassociated with a genuine intention of pursuing the object for which the Act allows the registration of a trade mark and protects its use, cannot pass as a bona fide user”;

and also the judgment of Harms JA in AM Moolla Group Ltd v The Gap Inc [2], wherein it is stated:

“For present purposes, it suffices to say that “bona fide” user means a user by the proprietor of his registered trade mark in connection with the particular goods in respect of which it is registered with the object or intention primarily of protecting, facilitating, and furthering his trading in such goods, and not for some other, ulterior object”.

Similarly, the court referred to the European Court of Justice case of Ansul, where it was stated that: “When assessing whether use of the trade mark is genuine, regard must be had to all the facts and circumstances relevant to establishing whether the commercial exploitation of the mark is real…”.

Conclusion

The essence of a trade mark is its capacity to distinguish one trader’s goods and services, from those of competing traders.  This fundamental characteristic is the basis of the well-known dictum in Kinetex Africa (Pty) Ltd v Coverite (Pty) Ltd 1967(3) SA 307(10) , citing Kerr On Injunctions – “the life of a trade mark depends on the promptitude with which it is vindicated”.

The facts in the Etraction/Tyrecor matter illustrate what occurs when rights in a trade mark are not promptly vindicated – and that failure to assert rights as soon as third party conduct impinges upon them, allows such third parties to acquire vested rights.  It shows further that obtaining a trade mark registration, while simultaneously acquiescing in the establishment of competing third party rights, will be of no avail, and will be regarded by our Courts as sharp practice.

[1] 1963 (3) SA 341 (A) at 351 C-F

[2] (123/2004) [2005] ZASCA 72; [2005] 4 All SA 245 (SCA) at para 42

For more information, please contact:

Zama ButheleziZAMA BUTHELEZI
Attorney
Department: Trade Mark
Tel: +27 11 324 3027
Email: zamab@kisch-ip.com

Author: Zama Buthelezi

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

Can you rely on your suretyship in business rescue?

Articles imagesSo you think it’s safe to offer credit to a company or close corporation just because you have a suretyship in place? The Companies Act 71 of 2008 (“the Act”) and recent case law may change your thinking.

Once business rescue commences, the company enjoys a personal moratorium in terms of section 133(3) of the Act which precludes a creditor from claiming against a company, including in respect of suretyships which the company stood surety for, as this action is suspended for the duration of business rescue. Should a creditor wish to retrieve the company debt, the creditor would need to enforce a suretyship against those who stood as surety/ies for the company debt.

It is important to note that while a creditor’s claim against the company is suspended, so is the legal time limit to institute legal proceedings there for, however, prescription is applicable when enforcing the suretyship and therefore it is imperative that a creditor knows when the outstanding debt became due and payable in order to avoid the prescription of the creditor’s debt.

When a business rescue plan fails to provide for suretyships, the common law position becomes applicable. The common law position is that the obligation of a surety is accessory in nature, thus the extinction of the principal obligation extinguishes the obligation of the company. It is this position that questions the enforceability of a suretyship against the sureties of a debtor company. The two recent court judgments, Turning Fork (Pty) Ltd t/a Balanced Audio v Greed and Another 2014 (4) SA 521 (WCC) and New Port Finance Company (Pty) Ltd v Nedbank Ltd (30/2014) ZASCA 210 are vital to understanding the enforceability of a suretyship.

From the above it is generally accepted that the principal debt is discharged by an agreement between the principal debtor and the creditor or by the release of the principal debtor, the surety is released unless the deed of suretyship provides otherwise.

Some light can be found in section 155(9), in that a compromise does not affect the liability of any person who is a surety of the company and thus the rights of a surety are preserved. Therefore, you may proceed against a surety for the debts of a company in business rescue at the commencement of the business rescue proceedings when the company is enjoying the protection of the personal moratorium, which protection the surety cannot invoke. However, when the business rescue plan is silent on the creditor’s right against such surety, you may not proceed against the surety for the debts of the company which is in business rescue after such plan is adopted and which provides for the discharge of the debt by agreement between the principal debtor and the creditor or release of such company’s obligations to the creditor.

So what should you do? A creditor must ensure that when entering into a suretyship to recover the debts incurred by the company, that the surety relinquishes the benefit of excussion (the right to require the creditor to claim from the principal debtor before claiming against the surety) and agrees to pay the debt of the company should the company enter into business rescue regardless of what is stipulated in the business rescue plan. Furthermore, creditors of the company in debt must ensure that they attend the meeting of creditors when called by the business rescue practitioner. Creditors must furthermore ensure that at the meeting, the business rescue plan takes into account suretyships and the ability for creditors to enforce same regardless of the fact that the company in debt is in business rescue.

Please do not hesitate to contact our Commercial Department at kevind@kisch-ip.com or merciaf@kisch-ip.com or 011 324 3025/33 with any queries, or for further information on suretyships or business rescue, or if you require our assistance in drafting or amending your suretyship agreement.

For more information, please contact:

Anola NaidooANOLA NAIDOO
Candidate Attorney
Department: Commercial
Tel: +27 11 324 3060
Email: anolan@kisch-ip.com

Author: Anola Naidoo

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

How does a company’s social and economic impact affect the laws governing it?

DMK-a3BSouth African company law is complex and business owners are required to keep track of the multiple requirements that can impact on their day to day business, as failure to do so could result in your company incurring a fine of up to R1 million or ten percent of your turnover.

One of the factors that affects whether greater accountability and transparency is required of you is your company’s public interest score. The Companies Act uses a public interest score to indicate a company’s social and economic impact.  The public interest score is calculated as the sum of the following:

  1. the average number of employees of the company during a particular financial year;
  1. one point for every R1 million (or part thereof) in outstanding unsecured debt of the company held by creditors, at the financial year end;
  1. one point for every R1 million (or part thereof) in turnover during the financial year; and
  1. one point for every individual who is a shareholder or who has the right to receive or participate in any distribution in respect of a company’s

Every company must calculate its public interest score at the end of each financial year so that it will be aware of the obligations which it must comply with.

If your company has a public interest score of 350 points or more or if your company has a public interest score of 100 points or more and its annual financial statements are not prepared by an independent accounting professional; the following requirements will be applicable to you:

  1. Your company’s annual financial statements must be audited.
  1. Your company’s annual financial statements will have to be prepared within six months of the end of your company’s financial year.
  1. You will have to appoint a company secretary and an audit committee. The audit committee must be comprised of at least three members, who must all be directors of the company. The audit committee is required to appoint an auditor for the company.

If your company has a public interest score less than 100 points, or if your company has a public interest score between 100 and 350 points and its annual financial statements are prepared by an independent accounting professional, you need only have its annual financial statements independently reviewed by an independent accounting professional. The requirement of independent review does not apply to companies in which every shareholder of the company is also a director of the company.

If your company has a public interest score of more than 500 points, you must appoint a social and ethics committee to monitor the company’s activities with regard to matters relating to social and economic development. At least three directors or prescribed officers of your company must be members of the social and ethics committee.

Therefore, in order to meet the requirements for audit committees and social and ethics committees, companies with a greater social and economic impact require at least three directors, whereas companies that have a lesser social and economic impact only require a minimum of one director.

Please do not hesitate to contact our Commercial Department at Kevind@dmkisch.com or Merciaf@dmkisch.com or 011 324 3025/33 for further information or if you require our assistance in ensuring your company’s compliance with company law.

Mercia_BlogMercia Fynn
Senior Associate
Department: Commercial
Merciaf@dmkisch.com
011 324 3025/33

Author: Mercia Fynn

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

Dangerous liaisons: The risk of misappropriation of intellectual property in the cross border licensing context

A5blMany risks arise when a company formed in one jurisdiction enters into an exclusive commercial licence and distribution arrangement with a company formed in another jurisdiction, particularly where commercial arrangements involve granting the licensee an exclusive licence to operate in a defined territory, not home to either of the parties to the arrangement.

Often the terms of such agreements include where a licensor grants a licensee an exclusive right to use intellectual property i.e. trade marks, patents, designs, domain names, regulatory approval certificates (where applicable) and other proprietary information including customer data and related know-how in the defined territory in relation to specific products/services, subject to imposing certain obligations on the licensee such as it agreeing to adhere to certain quality control criteria/measures, including adhering to defined labelling, packaging, and advertising specifications.

Situations may arise where faith in a licensee’s abilities grows over time and rights are often extended contractually to it (either verbally, or in writing) in the defined territory.   Rights and obligations in terms of the initial arrangement become blurred and indeterminate and often disputes result. The licensee has often developed a secure market in the exclusive and defined territory at that stage that it may not be willing to forego, even if the initial and extended contractual arrangement with its former licensor is terminated and comes to an abrupt end.

It is at this juncture that typically the original licensor’s intellectual property tends to be misappropriated. A licensee may allege that contractual arrangements are no longer in place that prevent it from using or adopting certain intellectual property rights, including trade marks, as its own in the defined territory. It may assert that it has, in any event, gained an independent goodwill and reputation in relation to certain intellectual property rights which give it what is termed a bona fide claim to proprietorship to same. It can allege that the licensor has not used such intellectual property rights itself in the defined territory and thus never had any bona fide intention of doing so in the future other than through its licensee.

This is when one has to review the initial and extended contractual arrangements that were in place as between the parties.  If a licensee has acknowledged the licensor’s title in its trade mark, then no other person, including it, can be permitted to use such intellectual property rights as its own and has an obligation to transfer the intellectual property in question back to the licensor. Furthermore, one needs to look at the timing of when appropriation/misappropriation of this nature took place.  It may have taken place when contractual exclusivity of an extensive nature was granted to the licensee i.e. in some instances a licensor is excluded from making its own products in pre-defined territories, or a licensee enjoys the benefits of using a licensor’s marketing materials. It is essential to include in any contract albeit in its original or varied form, acknowledgements that any goodwill or reputation in relation to certain products or services must inure to the benefit of the licensor.

A fine line must be drawn between the definition of a proprietor on one hand i.e. one who has the exclusive right or title to use certain intellectual property rightsand the concept of good faith, which is an ethical value or controlling public policy principle founded upon community standards of fairness and decency. Whether one has a bona fide claim to proprietorship involves an ethical value judgement as does a determination of whether a party is acting mala fide.

Although trade marks are territorial, if regard is had to an ever increasing globalisation of trade, there are certain bona mores emerging which give greater recognition to the goodwill and reputation in a brand arising from worldwide sales. One needs to go back to the contracts in place between trade partners to establish who has the better or greater moral claim to ownership in certain intellectual property rights.  Whilst it can be said that a licensee gains a reputation and goodwill in relation to its products or services using a licensor’s intellectual property rights in a defined territory, any claim it makes to proprietorship of certain intellectual property rights will have been tainted by an element of sharp practice and unethical dealing.  Even if initial or extended contractual arrangements are terminated a claim of proprietorship by a licensee falls short of the ethical standards of acceptable commercial behaviour.  It is also important to note that even where no contractual or pre-contractual relations have existed between two or more parties, circumstances can arise where it can be inferred that adoption of third party intellectual property rights can be contrary to good faith.

It is essential to include in contractual arrangements between global partners that when a licensor grants a licensee exclusive rights to use its intellectually property in a defined territory, there is a clear obligation for the licensee to transfer back to the licensor instruments that are likely to be misappropriated such as domain names, customer data and regulatory approval certificates (when applicable) and the like on termination of the contract.

References:

  • Victoria’s Secret Inc v Edgars Stores Ltd 1994 3 SA 739 (A)
  • Reynolds Presto Products Inc t/a Presto Products Company v P.R.S. Mediaterranean Limited and The Registrar of Trade Marks – Judgment handed down on 13 March 2014 (Unreported at this stage)

For more information please contact:

Karen 1KAREN KITCHEN
Senior Associate
Department: Trade Mark
Tel: +27 (0)11 324 3057
Email: karenk@dmkisch.com

Author: Karen Kitchen

Force Majeure

A1blHas your business been affected by the recent Association of Mineworkers and Construction Union (AMCU) or National Union of Metalworkers of South Africa (NUMSA) strike? It was recently reported in the media that the strike action by AMCU was declared a force majeure event by Anglo American Platinum and Impala Platinum, whose employees participated in the strike.

A force majeure event is an event beyond the control of a party which prevents the party from fulfilling its contractual obligations to another party. The effect of a force majeure event is that a party may be temporarily excused for a delay in performing its obligations under a contract or from having to perform its obligations under a contract altogether if the contract provides for this. Force majeure provisions do not operate automatically, but must be invoked by the party seeking to rely thereon by sending a force majeure notice.

A strike can constitute a force majeure event (as was asserted with regards to the AMCU strike), as can lock-outs, industrial action, war, civil commotion, riot, insurrection, government action, fire, explosion, floods, sea transport accidents and acts of God (irresistible forces of nature).

A contract should define force majeure and should provide for the types of events which will be considered force majeure events. Where possible an exhaustive list of force majeure events should be provided, so as to provide certainty for the contracting parties as to what will constitute a force majeure event. In certain instances force majeure events may be industry-specific, for instance volcanic ash which prevents an airline from undertaking air travel.

A force majeure clause should stipulate the effect of a force majeure event on the parties’ rights and obligations, i.e. the period for which performance may be delayed and whether and after what period of time the contract may be terminated as a result of a force majeure event.

The force majeure clause should also place an obligation on a party affected by a force majeure event to notify the other party to a contract of the occurrence of the event.A force majeure notice should clearly set out:

  1. The event giving rise to the assertion of force majeure, with sufficient particularity so as to allow the other party to determine whether the affected party is entitled to invoke the force majeure clause;
  1. To what extent the affected party is not able to meet its obligations as a result of the force majeure event;
  1. The anticipated duration of the force majeure event, should this be capable of determination; and
  1. The steps taken by the affected party to terminate the circumstances giving rise to force majeure.

If force majeure is not provided forin a contract, the party affected by an event beyond its control may rely on a claim of impossibility of performance in terms of Contract Law in order to avoid liability for breach of contract. This will however not allow for the temporary suspension of the party’s obligations, but will result in the obligations and any counter-obligations being extinguished.

It is therefore important that force majeure clauses are given due consideration when contracting, as they can have far reaching consequences.

Please do not hesitate to contact our Commercial Department at Kevind@dmkisch.com or Merciaf@dmkisch.com or 011 324 3025/33 with any queries, or for further information on force majeure, or if you require our assistance in drafting or amending your force majeure clause or to determine whether you require a force majeure clause in your contracts.

Mercia_BlogMercia Fynn
Associate
Department: Commercial
Merciaf@dmkisch.com
011 324 3025/33

Author: Mercia Fynn

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.