IN THE SOUTH GAUTENG HIGH COURT,  JOHANNESBURG
(REPUBLIC OF SOUTH AFRICA)
Case number: 12/36593

	 

DELETE WHICHEVER IS NOT APPLICABLE

(1)	REPORTABLE: YES/NO
(2)	OF INTEREST TO OTHER JUDGES: YES/NO
(3)	REVISED: 

____________________        ____________________
DATE				        SIGNATURE

               		      

In the matter between:
BARD MEDICAL PTY LIMITED						Plaintiff

and

LITHA MEDICAL PTY LIMITED t/a ICU MEDICAL SA			Defendant

JUDGMENT
______________________________________________________________________________
SATCHWELL  J:

INTRODUCTION

1.	Plaintiff, a supplier of certain medical products, and defendant, a distributor of  medical products,    concluded an agreement  for the distribution of  three devices supplied  by plaintiff.     Plaintiff now  claims damages from defendant alleging breach of contract  in two respects:    Defendant sold products of  another supplier in competition with the three devices supplied by plaintiff  and  also  failed to place orders to the stipulated minimum.   It is common cause that defendant  did distribute competing products and ceased placing orders with plaintiff during the lifetime of the  disputed contract.  Defendant  has pleaded that it was  not bound to any prohibition  on the  distribution of competing products and that plaintiff had failed to deliver orders promptly and expeditiously  which meant that defendant was not obliged to place orders with plaintiff. 

2.	At commencement of trial this court ordered  a separation of issues -  the issue of liability only would be dealt with  and the issue of quantum of damages (if any) was to be covered on a later occasion.

3.	At issue is the distribution agreement concluded between the parties on  6th  February 2012 which   document formalized a fairly longstanding arrangement between them.    The court must determine the import, if any,  of the  manuscript amendment made to the ‘cover page’ document  by defendant;     whether  the written document constituted  only the ‘cover page’ or the ‘cover page’ plus the  ‘“terms and conditions’  document;  the import of  the ‘minimum purchases’ provision in the ‘cover page’;   whether the agreement was  only written or partly written and partly tacit or implied.

4.	I heard evidence from  Mr Charl De Klerk , managing director of plaintiff in South  Africa  (“De Klerk”),   Mr Brendan Marshall, business unit manager at plaintiff, (“Marshall”),     Mr Carlo Natali, (“Natali”),   market manager for defendant,  and  Felicia Lipner, (“Lipner”)  administrative manager   at defendant.   Their  evidence covers  both the  circumstances of the signing of the agreement and their understanding thereof   as well as   the commercial arrangements between the parties  over a period of time  prior  and subsequent to the signing of this document.

CONTEXT TO THE AGREEMENT  

5.	South  African hospitals purchase goods and services from suppliers through tenders or procurement supply agreements.   The court heard, for instance,  that both plaintiff and defendant,  are suppliers to the Life Health Group.    During 2003 defendant met Venetec representatives in the United States and secured the rights to distribute and market the Statlok range  of “ peripheral IV securement devices”   which included “clave needle-free connectors” furnished by ICU Medical USA to Venetec.   Over a period of some three years, defendant built a significant presence in South Africa with the Statlok IV devices.  However,  during 2006 Venetec sold its business to Bard International.     Defendant continued  to be supplied with Statlok devices and to distribute them  to hospitals in South Africa.

6.	However,  the relationship was not the same.  It was not in dispute that  communications and response times  to orders was less than satisfactory for defendant.   Orders had now to be placed with an order clerk in Germany,  finished products were shipped from Mexico to the Netherlands and only then to South Africa,  delivery times or orders  increased from weeks to months and  the complaints went unresolved.     The memorandum  written by Natali to a product manager in Germany speaks for itself .

7.	During 2010,   defendant looked for and located a  supplier of an alternative product,  similar to the Statlok devices,   in the United States  and then concluded a non-exclusive agreement for the distribution of  these Griplok devices  in South Africa.  Defendant then, subsequent  to concluding its agreement to distribute the Griplok products in January 2011,   carried out  “test marketing” in South Africa  and was marketing and supplying the Griplok products  to   non-contract accounts, such as Netcare and MediClinic, as a “defensive strategy” against  plaintiff.  When  Statlok devices were not  timeously supplied by plaintiff,   defendant even substituted  the Griplok products to hospitals who had contracted for the Statlok product from defendant.

8.	De Klerk’s predecessor at  the plaintiff had made attempts during 2008  to conclude a written agreement with the defendant which came to naught.   Nevertheless plaintiff continued to supply defendant with the Statlok devices for distribution without any formal agreement. 

9.	De Klerk took over at   plaintiff in 2010 and had his first meeting with Natali and Lipner of defendant on 13th January 2011.  He was made aware of defendant’s frustration  with plaintiff and responded that plaintiff had an  internal customer services team with whom a meeting would be and was arranged  for 22nd February.

10.	 Natali was adamant that he was open with de Klerk at their very first meeting  that defendant  had concluded the contract with Zefon as “backup”,  had completed “test marketing”   and was about to start selling Griplok products in noncontract accounts.   He said that this  advice met with “no response” from de Klerk but “a blank stare”.    The evidence of both De Klerk and Marshall is that  they were not informed by Natali of the Zefon  contract nor of the pending distribution of the Griplok devices.

11.	 At  a  subsequent meeting of 28th July 2011,  continuing difficulties in supply were  raised by Natali and discussed between himself and  De Klerk and Marshall.     Natali testified that  defendant’s strategy in distributing Griplok devices had been  successful in that the Griplok devices were “gaining traction” in the market  and that    he so  informed de Klerk at  this meeting.      Natali’s evidence was that it would be absurd for de Klerk to say that he had no knowledge  about the distribution of the Zefon products during 2011,  i.e. the Griplok devices, because the market  in South Africa is so small.   Both de Klerk and Marshall deny that Natali informed them  that defendant was distributing the Griplok devices pursuant to the agreement with Zefon.

12.	The last meeting of 2011 was on 29th November.   De Klerk and Marshall  testified that they both attended  this meeting at defendant’s premises  when de Klerk handed  a proposed agreement to  Natali which included  both the ‘cover page’ and the ‘terms and conditions’;   Natali says only Marshall was there on behalf of plaintiff and that no document was received by him.  Natali recalls that, some days after the meeting of 29th November,  he received an unsigned  single page  document  (the ‘cover page’)   in a white envelope.     No ‘terms and conditions’ were attached thereto.

13.	Natali inserted certain information into the ‘cover page’  and made  a manuscript amendment to the document  under the ‘business terms’ column.   He signed the document and dated it 5th January 2012.    He then returned the document  to plaintiff.  Thereafter it was  received  and   signed by De Klerk who dated it 6th February 2012.   Marshall acknowledged receipt thereof  on 8th February and returned a signed copy to Natali.

BREACH – DISTRIUBTION  OF COMPETITIVE PRODUCTS
	
	Pleadings

14.	Plaintiff avers that the defendant was obliged during the term of the agreement  “to refrain from the manufacture, import, promote the sale of, sell, deal in or distribute any products in the Territory which are competitive with  Products,  save for any products competitive with the Products sold, dealt with or distributed by the defendant as at the effective date of the Distribution Agreement and as specifically provided for as Excluded  Competing Products”   “without the prior consent in writing of the plaintiff”.      In short,  plaintiff  relies upon  the provisions of clause 7(a) set out in the ‘Terms and Conditions’ document  to preclude  distribution of the Griplok product whilst the defendant is being supplied with the Statlok devices. 

15.	Defendant has  pleaded  the parties entered into “a partly written and partly oral, alternatively tacit agreement” and   that  POC1,  i.e. the Cover Page  constitutes the written portion thereof   Defendant’s plea specifies that  “no restrictions were applicable in respect of the defendant’s entitlement to distribute products that competed with those to which the distributorship related”   and that “Natali , in signing … did not intend to conclude a contract on behalf  of the defendant with the plaintiff on the basis of the terms and conditions set forth in such unsigned pages” .

16.	Further,  defendant has pleaded that  “the unsigned pages allegedly forming part of annexure POC1 were not sent to or received by Natali”   .   I do not need to make a finding on the disputed receipt of the  ‘Terms and Conditions’   by reason of my finding on the  construction of the written cover page itself.      Similarly,   defendant’s plea that   the   “unsigned pages… contain clauses which were contrary to Natali’s and de Klerk’s previous discussions in relation to the proposed distributorship”  do not require a finding by myself  by reason of my understanding of the clear language of the cover sheet.    However, I have made some comments on the probabilities in respect of the  discussions between the parties.

The Cover Page

17.	The ‘Cover Page’    is headed “BARD  International Distribution Agreement for Exclusive Distributors” and comprises   a section for “Distributor  Information” to be inserted,   a section for “Business Terms” to be inserted,  a section on “Terms and Conditions” and a portion for  signatures and dates.

18.	In the “Business Terms” section there are three columns:  the first apparently refers to paragraphs or clauses of another document  (because the numbers do not follow chronologically ),  the second identifies  what information  pertaining to “Business Terms” is  dealt with or to be inserted and the third section provides space for information to be inserted.

19.	Clause 6 deals with “Products” which are identified as “IV0567, IV0575, IV0583”.  It is common  cause that these are the Statlok devices supplied by  plaintiff to defendant.   The typed details were inserted by plaintiff and Natali initialed that information.

20.	Clause 10 deals with the  “Term” which is identified as “1/12/2011”  to “30/11/2014”  typed in by plaintiff and  initialed by Natali.

Amendment of Cover Page - “Not Applicable”

21.	Clause 7(a)  of the Cover Page deals with “Competing Products”.   The word “NIL” had been typed in by plaintiff but this was deleted by Natali who inserted, in manuscript, the words “Not Applicable” and initialed this amendment. 

22.	Natali’s evidence  is that he  concluded an agreement with plaintiff   because he needed to ensure  a supply of items from plaintiff  and this contract “facilitated me to purchase product for the Life Health contract which still had one year to run”.      However,  when he  signed the written  portion of the contract,  he   “struck out” the “most important clause” .   The typed  insertion of the word “nil”   meant, to Natali,  that  defendant was “not allowed competing products on the basis as already discussed” and so he  “struck out”  “what I thought was not applicable”.   Natali heard “not a word”   from de Klerk or Marshall   querying  the signed document. 

23.	De Klerk said that  there were  discussions with Natali  about the document at the end of November 2011 before it was signed but these did not include deletion of any provision of the contract.    When he received the signed ‘cover page’ with “NIL” deleted and “not applicable” inserted  he took the view that  they meant the “same thing”   or “one and the same thing” in the sense that  competing products were “none”.     If there were to be competing products then the details of these were to be inserted.    Since there was no reference to any competing products  De Klerk  signed the document.

24.	The insertion of the words “Not Applicable”  appears to me to be determinative  of the issue whether or not defendant was precluded from  the distribution of competing products.   After all, the first point of departure  are the words used in the written document

25.	The document  as originally prepared by plaintiff and presented to Natali  clearly stated that  there  were   “NIL”  “competing products”    which means  (as then apparently understood by De Klerk)  that   no competing products were allowed.    However,  the offer as contained in that document was not accepted by Natali.  He deleted the prohibition on  competing products.

26.	That which was inserted by Natali  was not the same as contained in the original  offer.    His change  states that clause 7(a)  concerning “competing products” is “Not Applicable”.   Whatever the import of the provisions of clause 7(a) as set out in the disputed  ‘terms and conditions’,  those provisions are “not applicable”.   They have  been proclaimed by  Natali to have no relevance to  the  written agreement about to be signed by himself.   The manuscript insertion  specifically states that  clause 7(a) and the issue of “competing products”  is not  pertinent to this particular contract.

27.	The language is neither complex nor contorted.     “Not applicable”  is sufficiently clear to be understood by anyone reading the insertion with care.       The result of  reading this  fairly simple  phrase is to understand  both that  clause 7(a)  has  no   reference to this cover sheet and hence this contract and that  this cover sheet  has  no contact with any provisions  dealing with competitive products.   In short,   description of ,   prohibition of or  even provision for “competing products”   has no bearing upon and  no connection with this agreement.   The cover sheet is silent in regards thereto.   

28.	Natali obviously selected the language  and specially inserted them over and above that which had been typed.   Such amendment  must supplant the typed version.

29.	Essentially,   Natali made a counteroffer to plaintiff.   De Klerk did not question or query or dispute  the  noticeable manuscript amendment  to plaintiff’s original offer.  He accepted the document as it now stood by signing and dating it.  Marshall returned it to Natali.

30.	It was argued on behalf  of plaintiff that, if one were to allow competition by reading  the amendment as I have suggested, that this would  be irreconcilable with other provisions in the ‘terms and conditions’,  for instance clause 5 requiring  the “best efforts” of a distributor.  It was also argued that  the  document purports to be a “Distribution Agreement for Exclusive Distributors” and that the quid pro quo of such exclusive supply by plaintiff  would be the prohibition on distribution of  competitive products  by the distributor.     Both these arguments  are contradicted by the possibilities provided for in the  cover page itself,  the terms and conditions on which plaintiff relies and the evidence of De Klerk.   Clause 7 allows for  distribution of competitive products with “the prior consent in writing of Bard”.     Where such consent is granted then such products shall, according to clause 7, be “set forth in the Cover Sheet as Excluded Competing Products”.   In short,  the cover page and the terms and conditions themselves  allow for  competitive products notwithstanding  the exclusivity of the distributorship or the requirement that the distributor use its best efforts to distribute plaintiff’s products.

31.	The cover page   refers to the “attached Terms and Conditions”,  requests that the other contracting party “Please read the Terms and Conditions”, requires that  “Any modifications to the Terms and Conditions must be made on the Cover Sheet” and states that  “Your signature on this  Cover Page indicates Distributors agreement to the attached Terms and Conditions”.    It is clear that this document,  i.e. the cover page or cover sheet,   was  determined to ensure that  the other contracting party,  the distributor,  would be bound by the ‘Terms and Conditions’.   If Natali did not receive these Terms and Conditions, it is my view that he was cavalier in not  contacting plaintiff to  procure same.  Whether or not  De Klerk and Marshall had handed these Terms and Conditions to Natali then they were somewhat supine in not querying  or challenging his amendment to the cover page which rendered clause 7(a) of the Terms and Conditions of no application to the written agreement.   Whichever is the case, the amendment made it clear that  there were no provisions pertaining to competing products which were “applicable” to this particular contract.

Conclusion

32.	For the reasons given above I have no difficulty in finding that  the specially composed and inserted  manuscript amendment to the cover page takes precedence over   the repeated references to the terms and conditions as set out in the cover page.   

33.	Over and above the wording of the document as it was signed by both parties,   I note  a number of contextual matters relevant to  the issue of distribution of competitive products.     Firstly,  both plaintiff and defendant had concluded contracts with Life Health,   which provide in clause 6 (with which De Klerk said he was familiar) that,  under certain circumstances,  plaintiff and defendant are  obliged to make “alternate” products available to Life Health  indicating that  distribution/supply contracts with Life Health (at least) required access to alternates and that this was known to plaintiff.   Secondly,  notwithstanding  the denials  by De Klerk and Marshall  that Natali  informed them of the Zefon/Griplok  distribution,   there is no reason why Natali would have been secretive or deceptive  during 2011 when defendant had no written contract with plaintiff  ( and it was never suggested that there  had been or was any prohibition on distribution of competitive products).  Thirdly,    Natali’s evidence  that  there had been   test marketing of the Griplok devices,  this  had been successful and   sales were now being made by defendant was not gainsaid  while his   evidence  that this should all have been known to  Marshall and De Klerk  since the South African market is  quite small  certainly confirms lack of deception and the likelihood that Natali had been open with plaintiff about Griplok.  Fourth,   Natali’s  rather scathing  comment on the lack of response by De Klerk to the advice that defendant  had contracted with Zefon/Griplok  is  echoed in the De Klerk’s   lack of response to the noticeable manuscript amendment to the cover page.

34.	Accordingly,  I find that plaintiff has failed to discharge the onus that  defendant was in breach of its agreement with plaintiff  when it distributed products  competing with those of plaintiff,  , i.e. the Griplok devices.
BREACH – FAILURE  TO PLACE ORDERS TO STIPULATED MINIMUM

35.	Plaintiff avers that defendant  was  “obliged, during each  contract year of the Term, to purchase and pay for products in a quantity not less than is specified in terms of the Distribution Agreement”  and that  “during or about March 2012, the defendant ceased placing orders with the plaintiff for the supply of the Products.”.     

36.	The cover sheet, under the “Business Terms” column   specifies  with (reference to clause 6) dealing with “Minimum Purchases”   the value of the purchases to be placed in each contract year:  “1st contract year $ 796,000,  2nd contract year $ 876,000, 3rd contract year  $ 964,000”.

37.	  Defendant  has pleaded that the parties entered into “a partly written and partly oral, alternatively tacit agreement”  and that one of the terms of the agreement was that “all orders of products placed by the defendant on the plaintiff would be  executed promptly and expeditiously by the plaintiff in a manner that would not disrupt the business of the defendant  and more particularly its ability to satisfy the reasonable purchase orders of its customers from time to time”   but that plaintiff  breached this term of the agreement  and “failed promptly and expeditiously to deliver products ordered by the defendant”  which breach “resulted in disruption to the business of the defendant and effected [sic] its ability to satisfy the reasonable purchase orders of its customers from time to time”.

Supply System 

38.	The  general background to the  written agreement  set out above   indicates what defendant considered to be perennial problems  with plaintiff and which were,  according to defendant, not resolved.  When Bard took  over ,  “only two out of forty five employees” from  Venetec stayed on with the result that there was little  or no institutional history,  there were “breakdowns in communication”   with the only point of contact now an “order clerk in Germany”,  product now followed  the circuitous route from Mexico to the Netherlands and not direct to South Africa  contrary to Natali’s view that  “cargo must move on the shortest line/route”, directions were then given by the Bard MD in SA  to Germany that  product  was to be supplied first to Bard and only then passed on to defendant  which was yet another complication leading to delays.     Under Venetec lead times for supplies had been four to six weeks whilst under the Bard regime  delivery times were  “unpredictable”   and   were,   according to both plaintiff and defendant considerably longer,  Marshall  having written in January 2012  that the “turnaround currently from placing an order to delivery is between 5 – 6 months”  
 
39.	According to Natali,  plaintiff  had some idea that  it  would take over distribution of products in the market and   therefore removed  product for distribution from defendant,  but this had not materialized and  plaintiff  had to return to defendant  to assist with distribution of those very products.

40.	 Natali wrote to   Markus Pitsch at Bard in German on 27 August 2010 setting out the many difficulties,   that this meant that “your company has successfully placed inefficiencies in our way and increased the cost of doing business to a point where it’s becoming unviable to pursue contractual work due to the uncertainty of what Bard plans to do next”.    Natali proposed a number of solutions to Pitsch  including that defendant would order “container lots at a time” if Bard would send   “fast selling, high volume line items directly from the USA/Mexico”  because this would both  eliminate certain   “transport/freight handling costs”    and  “would simply reduce lead times by  3 months” 

41.	In short,   defendant experienced plaintiff as  a highly unsatisfactory partner in the process of bringing  medical products to hospitals.       Such “stock shortaging” , says Natali,   had both  “a reputational effect”  and placed “stress on business”.

42.	These historic difficulties had all been explored with De Klerk and his staff from 2011 onwards. It was not disputed  by him that Natali was “unhappy”     and that  there  had been “complaints regarding lead times and deliveries” .    De Klerk’s response had been to “try to encourage them to order more stock and   [we would]  resolve queries and  [we offered] extended payment terms to six months”    because  this would “allow them to carry more stock but not have to carry the cashflow burden”  According to De Klerk these offers of extended payment terms were “not taken up”  .    Natali explained that this would not  resolve the main issues and would add new costs  such as increased warehousing costs.

Orders and Deliveries

43.	Plaintiff and defendant clearly had and still have a very different understanding of the requirements for deliveries.    De Klerk    stated in  his evidence in chief that he considered  that deliver/supply times were acceptable for this product and referred the court to a period of 90 days as   “average lead time” .  Although he did want  to make the lead times “shorter” ,  he seemed comfortable with the notion that “we supplied 100% of orders”.    Natali  said  defendant continued to  “ experience usual delays”  at the  hands of plaintiff.   
    
44.	Just two  examples from the documentation speak to the   problems complained of:

a.	 On 1st February 2012   order VEN 126 was placed by defendant  involving product to the value of  $ 84,800.  The order clerk in Germany confirmed this order the same day advising  that  she  did not “have ETA dates yet”.   On 8th February the invoice clerk in Germany advised that “ETA date (subject to receipt of the valves) is 15th June 2012” which was explained in evidence as  delivery in South Africa but not to defendant. Then on  29th February  an “improved ETA date for order” of the 18th May 2012 was notified..  In summary,   the original lead time on the order was four and a half months  or some  135 days. 

b.	On 8th  February 2012 order VEN 127  was placed by defendant involving products to the value of $ 63,600.   The order clerk in Germany advised on 27tth  February that the ETA was 11th June 2012.   This was a lead time of  four months or some 120 days. 

45.	It was common cause in evidence that this was not acceptable to defendant.    But the lack of certainty   was compounded. 

a.	  Firstly,   on 13th March  new  ETA dates were advised from Germany – delivery for order VEN 126 had improved to 18th May ( three and a half months or  about 105 days)  and delivery for VEN 127 had improved to 11th June  (  four months or 120 days).

b.	Secondly,      De Klerk  took control and on 16th March advised that   “with the help of my new boss in the US” he   had “managed to track down exactly who is in charge of the Statlok IV SA kits” .    Instructions had been given “to prioritise  the 2 orders in the system” and the result was plaintiff had been able to “move the  completion date forward”   “Both orders will be completed and ready for shipment on April 18th” .       This 18th April  is only “ready for shipment from our global DC on April 18th”   This 18th April was described  as “already a big stretch,  2 months quicker than the usual/normal lead times”.

c.	Thirdly,   defendant  had written to the  invoice clerk in Germany advising “we urgently need stock”    who informed defendant on  30th March that   plaintiff   “have not received any better ETA than the ones I already communicated to your earlier VEN 126  18th May and VEN 127  11th June”  .

d.	Finally,  it must be noted that on the packing list of 18th April,  Bard makes it clear it was only shipping  portion of the  VEN 126 order.    On 23rd April De Klerk was trying to provide reassurance that there would be shipping that very week and in two weeks’ time and then  “in progress”.

46.	In summary,    Natali’s view that   there was an “erratic nature” to the deliveries,   a lack of “predictability”   and   “confusion within the organization”   is confirmed by the evidence.  Plaintiff quotes lead times  in 2012 of four to four and half months.   After discussions and obviously complaints,    De Klerk in  March 2012   has  been able to obtain help from his new superior in the US   and only then has the plaintiff been able to locate  exactly which individual was “in charge” of the orders.    Once priority was given to these orders  shipping dates  (not delivery date) of  two and a half months and just over two months were promised.   The cargo still had to travel from Mexico via the Netherlands to South Africa and then to defendant.   As it turned out,   the full orders were not shipped on 18th April.

47.	It is no wonder that De Klerk described these recent events as  “the immediate crisis”   and Natali gave evidence that  De Klerk appeared to being trying to “better things” but it was “out of his control”.

Minimum  Purchases
48.	I have no doubt that this clause meant and was intended to mean that  the distributor undertook to place a minimum number of purchases in each contract year.   Otherwise,  why would plaintiff grant an “exclusive”  right of distribution to a distributor who might or might not order one IV device per annum

49.	I am not in the least persuaded by Natal’s evidence that he understood this clause of the contract sheet to give no more than a “guideline”.

50.	However,   the first contract year (1st  December 2011 to 30th  November 2012)  still had  almost five months to run by the time plaintiff  complained about cessation of orders on 7th June 2012.    Plaintiff could not reasonably demand,  as it did,  that defendant must “immediately… place an order for the Products sufficient to meet the minimum required by the Distribution Agreement” .   Defendant responded that it did note  plaintiff’s intention to terminate the agreement but  did “not accept such termination on the grounds of breach as you allege” and maintained that it was defendant  which “was placed in an untenable position  of not meeting its clients orders due to BARD’s non-performance of its own obligations”.    And so the correspondence continued.  What is important is that firstly,   the annual minimum value of purchases could not yet be computed because the year had still a long way to run;   secondly,    plaintiff’s demands were nonsensical;   thirdly, defendant did not, at that stage, concede that it had ceased to place and would not place any further orders.

51.	By the time pleadings were exchanged ,  defendant’s plea admitted that it had ceased to place orders during March 2012. 

52.	In the symphony of complaints from defendant and  undertakings to resolve those complaints by plaintiff,  is the minor scale aria from plaintiff   offering or trying to tempt defendant into interest in another product in  Bard’s range.   It is noticeable that this offer is dangled from time to time by De Klerk  and Marshall without any apparent interest or response from Natali .  It  reads as though de Klerk is  trying to  sweeten the acknowledged difficulties  by offering an additional string to defendant’s bow.   

Tacit  or Implied Term  - “Execution Promptly and  Expeditiously and without Disruption”  

53.	I have no doubt that the  common cause facts as I have set them out above and heard them in evidence suggest that such a term was implied. 

54.	The ‘Cover Sheet’ or ‘Cover Page’ is silent on any obligation by the plaintiff to deliver on defendant’s orders within  any specified time,  in accordance with any identified  expectations or to meet any commercial or industry  norms.  De Klerk conceded that the ‘Terms and Conditions’  offer no guidance in this regard.   Yet plaintiff and defendant had operated without anything in writing for a number of years during which time   issues of   (mis)timing   had caused  dissatisfaction and  led to discussions and undertakings and use of the internal customer relations team.  Certainly,  prior to concluding any written document early in 2012,  both parties knew that supply and delivery times in response to orders were of the essence of their relationship.

55.	Both plaintiff and defendant operated within the same industry as suppliers.  De Klerk  was in agreement with Natali’s evidence that  this is a  ‘competitive “industry involving tenders to both state and private sector and      that there is an obligation on distributors to meet  the demands of hospitals and  that it is “critical to make sure that [one has] enough inventory”.   He himself used the words “competitive market”.  Both  plaintiff and defendant had contracts with Life Health,  for example, as suppliers  and both were held to more or less the same terms – De Klerk having confirmed  that certain clauses of the contract of defendant with Life Health also applied to plaintiff.    Both plaintiff and defendant  were held to requirements of speedy supply  and penalties for failure to meet hospital requirements as well as the obligation to substitute with alternate products under certain circumstances.    There was no dispute that hospitals require products of requisite standard for the treatment of patients and that  meeting such requirements timeously  is central to both their businesses as distributors//suppliers to such clients.  The evidence of Natali that he was under pressure  from the procuring officer at Life Health in 2012 who  not only wanted to    know about  plaintiff’s price increases  but was not interested in any supply problems experienced by defendant  with plaintiff,  merely reminding him  of the  terms  of  contract –  “ the supplier shall  ensure that the Specific Category Products  are always available for delivery to the Purchaser”   failing which the supplier  is obliged to use best efforts to source an alternative product at no higher price. 

56.	De Klerk’s apparent ease in knowing that all orders placed were ultimately  fulfilled is clearly of no relevance to either party’s real understanding of their relationship.    Both  testified that  delivery times  plaintiff needed to be shorter.   De Klerk was clearly working towards such an outcome.    But it would appear that his best endeavours did not  lead to greater certainty,   predictability,   speed   or satisfaction.

57.	There can be no doubt that  defendant wanted and plaintiff  undertook to provide product as expeditiously as possible in a manner which would  meet the requirements of defendant’s customers.

58.	Natali   was questioned at length on  whether   the defendant had informed  plaintiff of the  dates by which product  was required by defendant’s clients/hospitals;   whether defendant  had specified  to plaintiff  the date  by which product had to be received in hand by defendant.  In other words,  it was very pertinently put  that defendant had never actually  made it clear to plaintiff   of the need  for  responsiveness to orders.   It was thus also very pertinently put  that plaintiff was not informed of the deadlines which had to be met in order for defendant to satisfy its customers.    It was also pertinently put that  such details were needed because the implied term contended for by defendant  are vague and general and give no useful guidance to anyone.   Natali’s response was  very practical.    He said  “what purpose [would there be] for me to stipulate date if unlikely to be met” and further that    the “contract to hospitals to [require me to] deliver within 48 to 72 hours of order” .

59.	Similarly,  Natali was questioned whether he had informed plaintiff of any occasion that the defendant had been unable to satisfy  a client.  Again his answers were practical.  He said  that defendant was “able to meet   [the client’s orders] with other product”  and that the defendant “Didn’t lose orders”   because defendant  “supplied  alternates”. 

60.	Should defendant  have spelt out chapter and  verse to plaintiff each time an order was placed?   The answer must be not.   Plaintiff knew what was required and why;  plaintiff was well aware  that  three to four months was inadequate supply time and neither  sufficiently responsive nor expeditious;   plaintiff undertook to do better and made efforts to so do.   In short,  plaintiff knew what was wanted by defendant and undertook to meet that  requirement.

61.	 I can only but conclude that  both parties  had, over the years prior to the written document, and subsequent to 1st December 2011,    treated as axiomatic  that  plaintiff was expected to and undertook to  respond to orders and supply product  in  a manner and  as promptly as business efficacy  in this particular industry required.

62.	The difficulties are common cause.    Was plaintiff in breach of the implied term that there be  expedition in meeting orders?  The answer is yes.

63.	There was stress on defendant’s business – Natali explained that he had moved all noncontract clients to Griplok and was under pressure from Life Health;   correspondence is replete with unhappiness  and dissatisfaction.   Plaintiff in South Africa did not have control  over the process -  Germany did not know what South Africa and the USA were arranging and  plaintiff therefore issued contradictory  advice to defendant.      Dates for delivery chopped and changed and the only constant was the lack of certainty  in lead times for delivery – four and a half months  reducing downwards then upwards and certainly not consistent with de Klerk’s  hopes for 90 days. 

64.	Natali  identified  “reputation” as  an important  attribute in this  particular industry   (and indeed in every industry).   He complained that  defendant’s reputation   depended upon  “consistent and reliable source of supply  [as] required  by  patients and hospitals”  but that this  reputation was at risk    where defendant was subject to the vagaries  of  an inconsistent and unreliable source of supply.  Fortunately,  he had an alternative source, Zefon, who could supply a product, Griplok,  which was supplied promptly and expeditiously and therefore  could be used to protect the reputation of defendant.

65.	Meaning  or content is given to  the  words “prompt” and “expeditious”   both in their ordinary usage and in their attachment to the responses required  to orders for   IV product  in the hospital industry.    The words are repetitive –  speediness is  included in definitions of both.   Interestingly,  the noun of ‘expedition”  pertains to ‘definite purpose’.    If  plaintiff was to be prompt then it was to be responsive  to orders placed.   Yet as late as March 2012,  three months after the effective date of the written agreement,   de Klerk had only just identified the  person in charge of the orders and all the efforts to “prioritise”  were going to result in a  shipment (not delivery) date  two and a half months after placement of the order – certainly less responsive than de Klerk’s evidence that ninety days from order to delivery to defendant was the average. 

66.	I find that defendant   has  proved an implied term  in its agreement with plaintiff  to the effect  that plaintiff undertook  to execute all orders placed by defendant “promptly and expeditiously”     and that such execution  would be carried out in a manner which would  not  “disrupt the business of the defendant”    more particularly  the “ability of the defendant to satisfy the reasonable purchase orders of its customers”.    I find that defendant has succeeded in  establishing that plaintiff was in breach of such an implied term.
CONCLUSION

67.	 Plaintiff has  failed to prove  that defendant was in breach of their agreement by  distribution of competitive products.

68.	Defendant has succeeded in establishing that  there was an implied term in the party’s agreement  as pleaded by defendant.

69.	An order is therefore made as follows:

Plaintiff’s claim is dismissed with costs.

Dated at Johannesburg on this day the 3rd of  December  2013.

_________________
K. SATCHWELL

Counsel for Plaintiff:  Adv. A J Daniels
Counsel for Defendant: Ivan Miltz SC
Attorneys for Plaintiff: Baker & McKenzie
Attorneys for Defendant: Tugendhaft Wapnick Banchetti and Partners
Date of hearing: 18th -20th November  2013
Date of Judgment: 4th December 2013