Van den Berg Water (Pty) Ltd t/a Oasis Water Lynnwood and Others v Oasis Water (Pty) Ltd and Another
Background
Oasis supplies bottled, filtered and purified water and other beverages in South Africa. It has been in operation for over twenty years and is the fourth largest bottled water brand in South Africa (with an estimated 60% of the refilling market in SA). Through franchise agreements, it licenced the use of its brand name, proprietary processes, and confidential information to a network of franchisees. However, by early 2023, a significant number of these franchisees (54 in total) claimed that Oasis had effectively repudiated its contractual obligations. According to the former franchisees, Oasis allegedly failed to abide by certain provisions of the Consumer Protection Act (“CPA”), particularly those relating to providing management accounts for a marketing fund and engaging in business practices that disadvantaged its franchisees.
When the former franchisees terminated their agreements in February 2023, Oasis took legal action, seeking to interdict them from continuing the water-purification business using the same premises, equipment, or processes that they had used under the Oasis brand. In response, the rebranded “Manzi Water” franchises argued that they were within their rights to continue operating, as the cancellation of the agreement was lawful and, in their view, Oasis did not possess the unique trade secrets or intellectual property it claimed. The Supreme Court of Appeal's decision thus addressed how far a franchisor's contractual protections can go once an agreement has ended.
Issues:
The legal issues in this case centered on several key questions:
- Whether the post-termination provisions in the franchise agreements were enforceable, particularly in light of the CPA and constitutional principles such as freedom of trade and property rights.
- Whether the former franchisees' continued operation of water purification businesses under the "Manzi Water" brand constituted unlawful competition or passing off, especially where the business model, customer base, and processes were similar to those used under the Oasis brand.
- Whether Oasis Water (Pty) Ltd had protectable intellectual property, trade secrets, or confidential information that the ex-franchisees unlawfully exploited after termination.
- Whether contractual terms requiring the return of equipment purchased by franchisees were fair, reasonable, and just, or whether they were unenforceable under the CPA as being unreasonably one-sided.
- The extent to which a franchisor can restrict a former franchisee's use of business systems, know-how, and customer information after the end of the franchise relationship
Findings
The Supreme Court of Appeal examined each category of relief sought. In relation to returning Oasis's branding and materials, namely its signage, training manuals, and specific documentation regarding its business system, the Court held that these had to be handed over to Oasis. It emphasised that the franchise agreement made it clear that brand-specific assets or materials belonged exclusively to Oasis. Once the agreement ended, the ex-franchisees could no longer publicly display or profit from those items or intangible assets.
The Court reached a more nuanced conclusion on the water-purification equipment. Although Oasis attempted to claim it back under a clause that required franchisees to surrender their equipment upon termination, the Court found that Oasis had no ownership claim over equipment the franchisees had purchased outright. Additionally, it concluded that the relevant contractual provision was unreasonably one-sided under the CPA, because it effectively let Oasis repossess the equipment without tendering payment for it.
With respect to claims of unfair competition or passing off, the Court noted that if the franchisees had simply carried on with the same premises and the same signage implying their goods were truly the same “Oasis water,” that would seemingly be unfair. But as the signage had changed to “Manzi Water,” and the processes in question were standard within the industry, the Court found that there was insufficient evidence to prove that any “secret combination” of filters was being exploited. While the Court upheld interdicts requiring the removal of Oasis's trademarks and prohibiting the misuse of genuine proprietary information, it dismissed the contention that the entire filtration system was a trade secret or that the franchisees were invariably passing off their products as Oasis's.
Key lessons
This decision underscores the courts' willingness to give effect to post-termination clauses that protect legitimate brand interests, including intellectual property, proprietary manuals, and other confidential materials. However, it also shows that there are limits to what is enforceable. Franchisors cannot rely on overbroad, all-encompassing clauses to recoup items purchased outright by franchisees.
In practical terms, the judgment sends a clear message about the need to craft fair, balanced contracts that comply with consumer protection legislation. It also highlights the importance of supplementing the legal protection (provided in the agreement) with practical protections, such as franchisor's leasing equipment to their franchisee's (as opposed to an outright sale) or even leasing those premises that are critical to its operations in its own name.
Ultimately, an ex-franchisee cannot simply rebrand and make off with a franchisor's core assets or brand identity, but neither should a franchisor expect to claw back everything a franchisee has purchased or done under the agreement, particularly equipment that is widely available in the market.
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