Court name
Supreme Court of Zimbabwe
Case number
SC 97 of 2005
Civil Appeal 294 of 2002

Dairibord Zimbabwe (Pvt) Ltd. v Lighton Trading (Pvt) Ltd. (94/02) (SC 97 of 2005, Civil Appeal 294 of 2002) [2005] ZWSC 97 (22 May 2005);

Law report citations
Media neutral citation
[2005] ZWSC 97













REPORTABLE (86)


Judgment
No. SC 97/05


Civil Appeal No. 294/02








DAIRIBORD ZIMBABWE
(PRIVATE) LIMITED v





LIGHTON TRADING
(PRIVATE) LIMITED








SUPREME COURT OF
ZIMBABWE


CHIDYAUSIKU CJ,
ZIYAMBI JA & MALABA JA


HARARE, MAY 23, 2005








J C Andersen SC,
for the appellant





No appearance for the
respondent






MALABA JA: At the conclusion of submissions made on behalf of the
appellant, we allowed the appeal with costs, set aside the
order of
the court a quo and substituted it with the following
order –






“1. That the franchise agreement entered into between the appellant
and the respondent in or around December 1999 be and is hereby
declared lawfully cancelled.





2. That the respondent
and all those claiming through it be and are hereby ordered to vacate
forthwith –






(a) The depot premises at number 9 Wilcania Street, Kwekwe;





(b) The depot premises
at number 11 Wilcania Street, Kwekwe; and





(c) The house at
number 9 Norfolk Drive, Fitchlea, Kwekwe.






3. In the event of the
respondent failing to comply with paragraph 2 above, it is
ordered that the Deputy Sheriff be and is hereby
authorised to evict
the respondent from the said premises mentioned in paragraph 2 above.





4. The respondent pays
the costs of suit.”






We indicated that our
reasons for our decision would follow in due course. These are
they.





The appellant and the
respondent entered into a franchise agreement on 1 December 1999, in
terms of which the latter was appointed
the sole franchisee of the
appellant to sell and distribute its milk and other dairy products in
the district of Kwekwe from the
date of signature of the agreement to
30 November 2004.





To facilitate the
operation of the franchise the respondent was allowed to occupy the
appellant’s business premises at numbers
9 and 11 Wilcania Street,
Kwekwe. It was also allowed to lease the house at number 9
Norfolk Drive, Fitchlea, Kwekwe at a
fixed monthly rental. The
franchise was one of a fixed duration.





In terms of clause 1
of the franchise agreement the parties agreed that the duration of
the franchise was to run from December
1999 to 30 November 2004.
In clause 8(3) the parties agreed that:






“Either party may terminate the agreement at any time after the
expiration of one year from the date of this agreement by giving
to
the other party two months’ notice in writing sent by registered
post to the address of the other party as given in this agreement.”






The effect of the
termination of the franchise agreement was to be what was agreed upon
by the parties in clause 9. It was
stated that:






“Upon termination of this agreement for any cause the franchisee
shall forthwith deliver up the premises from which it operates
the
franchise and all equipment of Dairibord contained therein, described
in the schedule. If for any reason the franchisee contests
the
termination of this agreement, the franchisee shall still forthwith
deliver up the premises which it operates from and all the
equipment
of Dairibord contained therein pending the outcome of their
contention.”






On 26 February
2002 the appellant, through its legal practitioners, gave the
respondent notice in terms of clause 8(3)
of the franchise
agreement of its intention to terminate the franchise at the
expiration of two months, on 30 April 2002.
At the expiration
of the notice period, the respondent did not deliver up the business
premises and the house, arguing that the termination
was unlawful.





A court application
for an order confirming the lawfulness of the termination of the
franchise agreement and directing the respondent
to vacate the two
properties was made by the appellant to the High Court. The
respondent opposed the application, contending that
clause 8(3) of
the franchise agreement was an unlawful term, because it could not
exist in the same contract with clause 1 fixing
the duration of
the franchise at five years. The respondent also argued that it had
purchased the cold-rooms which were fixed to
the building and as such
it had become the co-owner of the buildings from which the appellant
claimed its eviction. It also said
it had bought the house from the
appellant.





The appellant pointed
out that the respondent had purchased equipment and not the
cold-rooms. It said that although the respondent
had been offered
the house at a purchase price of $180 000 in 1996 and had in
October 1997 indicated that it accepted the offer,
no agreement of
sale had been reached, as the respondent had not paid the purchase
price. The respondent had instead made a counter-offer
to pay the
purchase price in instalments. The counter-offer had not been
accepted. Hence the respondent was still paying monthly
rentals for
its occupancy of the house in December 1999. The appellant
contended that the respondent was obliged under clause 9
of the
franchise agreement to vacate the premises, notwithstanding the fact
that it was contesting the termination.





The court a quo
held that the termination of the franchise agreement by the appellant
was null and void. It reasoned that clause 8(3) was
unlawful
and unenforceable because the agreement was for a fixed period of
five years. The learned Judge said:






“In my view, clause 8(3) of the agreement runs against the grain
of the relationship between the parties. The gist of the agreement
is that the parties intended a five year agreement, renewable if both
parties agree. Premature termination of the agreement is
contemplated
in the main under well defined and momentous
circumstances such as breach, insolvency, liquidation, prejudicial
conduct and prevention
of performance of duties. Clause 8(3)
seeks to empower either party to cancel the agreement at any time
after its first anniversary
for no reason. I agree with the
respondent in the argument that the effect of clause 8(3) is to
provide for wrongful breach
of the contract. To the extent that
clause 8(3) provides for unlawful termination of the agreement
the applicant should not
expect this court to hold that provision
binding on the parties. Accordingly, the applicant has not, in my
view, established the
grounds upon which the agreement may be
cancelled.”






The learned Judge
proceeded on an assumption of the existence of a law prohibiting
parties to a franchise agreement providing in
its terms for its
termination at the expiration of a fixed period of time and also
giving either party the right to terminate upon
giving notice of a
specified time to the other party without giving reasons for the
termination. I agree with Mr Andersen that the learned
Judge misdirected himself in proceeding on the basis that there was
such a law and therefore that what the parties
did in enacting
clauses 1 and 8(3) in the franchise agreement was unlawful.





A franchise agreement
is, of course, one of the types of contracts for which a fixed
duration of operation is usually a material
term. The law
recognises the freedom in parties to an agreement to determine the
substance of the terms of their contract, as long
as they do not
contravene any common law or statutory law or public policy.





There is no law to
the effect that once parties have entered into a franchise agreement
and fixed the period of its termination
they cannot provide in the
same contract for its termination by either of them on notice to the
other. In the absence of such a
law it would not be unlawful for
the parties to have as a term of the franchise agreement the
stipulation that it may be terminated
by either party on notice at
any time before the expiration of the fixed period.





In Halsbury’s
Laws of England
Vol 9 (4 ed) para 529 it is stated
as follows:






“Contracts for Fixed Term





Where the parties to a
contract stipulate that the contract is to continue for a definite
period, the contract cannot be terminated
before the expiration of
that period, unless the parties are empowered to do so by the
terms of the contract
.” (the underlining is mine for
emphasis)






The termination of
the franchise agreement by the appellant was clearly in terms of the
contract. It was lawful.





In any case, the
respondent bound itself under clause 9 of the franchise
agreement to deliver up to the appellant the business
premises and
equipment therein, even if it was contesting the termination.






It is also clear from the facts that the respondent could not sustain
the contention that it had purchased the house. It produced
no
evidence of payment of the purchase price, particularly in light of
the allegation by the appellant that it made a counter-offer
to pay
the purchase price in instalments, which was not accepted. It was
common cause that the respondent was paying monthly rentals
for the
occupancy of the house at the time it claimed it had purchased it.






CHIDYAUSIKU CJ:
I agree.





ZIYAMBI JA: I
agree.





Webb, Low &
Barry
, appellant's legal practitioners