Law report: Is a handshake equivalent to an agreement?
In the case Beer House Ltd (the "Claimant") vs The General Soft Drinks Company Ltd (C3774) (the "Defendant") & GSD Marketing Limited (called in as a joinder by means of a decree on the 4 January 2022) ( "GSDM"), the Hon. Madame Justice Audrey Dem
In the case Beer House Ltd (the "Claimant") vs The General Soft Drinks Company Ltd (C3774) (the "Defendant") & GSD Marketing Limited (called in as a joinder by means of a decree on the 4 January 2022) ( "GSDM"), the Hon. Madame Justice Audrey Demicoli delved into and examined the commercial relationship between the Claimant, the foreign company Swinkels Family Brewers ("SFB"), Defendant company and/or GSDM. Briefly, the Claimant has, since the year 2000, imported the brand of beer "Bavaria" which it eventually started selling to the Defendant and/or GSDM for it to then be distributed locally. This case was decided by the First Hall Civil Court (the "FHCC") on the 29 November 2024.
The Claimant requested the FHCC (i) to declare the Defendant responsible for all damages suffered by the Claimant which included both actual losses and loss of profit; (ii) to declare that the Defendant acted in breach of its fiduciary duties; (iii) to liquidate all damages suffered by the Claimant including any compensation which may be owed due to a breach of fiduciary duties including use of confidential information of the Claimant and/or unjust enrichment, and if necessary, with the help of legal experts and (iv) to condemn the Defendant to pay the Claimant those amounts as liquidated above.
Relevant facts of the case
The Claimant was involved in the importation of beer and was the exclusive distributor of the beer Bavaria, and this in terms of an agreement dated 10 July 2013. For a number of years, the Claimant used to sell directly to the Defendant who would then distribute the product locally. The parties then entered into talks for the Claimant to transfer its business to the Defendant who would begin importing Bavaria and would continue distributing it locally at a fair price.
On the 10 October 2018, through various correspondence, the parties had agreed on all aspects of their business and that the Defendant was to acquire the business of the Claimant as of 1 January 2019, given that a due diligence had to be carried out by the Defendant. Then, between November and December of 2018 the Claimant passed on all confidential information in relation to the business, including prices and profit margins, however, the Claimant alleged that the Defendant used this information for its own benefit and for it to be in a position to sell at an advantageous price.
Once the transfer of business took place, the Claimant claimed that the Defendant failed to recognise that an agreement was in place between the parties and that it never paid the Claimant the amounts due. The Claimant stated that this was a clear example of bad faith on the part of the Defendant including also a clear example of breach of fiduciary duties on the part of the Defendant, under Article 1124E of the Civil Code.
The Defendant, in its Sworn Reply, held that:
1. Firstly, the Claimant must identify under which provision of the law it is basing its case on;
2. Without prejudice, it is not the proper defendant in these proceedings given that it had no relationship or agreement or business with the Claimant and if at all, it was GSDM who had a distribution contract with the Claimant;
3. The claims are unfounded both in fact and in law given that between the parties there existed no agreement;
4. Without prejudice, the Claimant must prove what is the confidential information that it allegedly passed on as well as how and why such information is confidential;
5. Without prejudice, the Defendant caused no damage to the Claimant. In any case, and without prejudice, the Claimant must prove the causal link between the acts of the Defendant and the alleged damages suffered, including also as it tried to minimise the damages.
GSDM, in its sworn reply held that:
1. The claims, particularly those in relation to the payment for damages for actual losses and loss of profit are unfounded in fact and in law given that between the parties there existed no agreement;
2. Without prejudice, the Claimant must prove what is the information that it allegedly passed on, how and why it is confidential and what it gained from such information;
3. Without prejudice, GSDM caused no damage to the Claimant. In any case, and without prejudice, the Claimant must prove both the causal link between the acts of GSDM as well as the alleged damages suffered including also as it tried to minimise the damages.
Courts considerations
The FHCC first went into two preliminary points, (1) the action under which the Claimant brought this case and (2) the preliminary plea raised by the Defendant that it is not the proper defendant in these proceedings.
As to (1) above, the Claimant in its sworn application provided that it is basing its case on Article 1124E of the Civil Code while also mentioning, in its third claim, the element of unjust enrichment as provided for in Article 1124A (5) of the Civil Code. During the proceedings the Claimant presented a note making reference to Article 1028A of the Civil Code, i.e. an action referred to as actio de in rem verso. However, time and time again, the Claimant made it clear that any reference to unjust enrichment refers to the fiduciary action under Article 1124E and not Article 1028A. In view of this, the FHCC decided to tackle the case as one brought due to a breach of fiduciary obligations in terms of Article 1124E.
As to (2) above, the Defendant claimed that it was not the proper defendant given that any agreement made, if at all, was made between GSDM and the Claimant. In fact, the Claimant agreed with this given that the two companies advertised themselves as being sister companies, even having the same shareholders. The FHCC referred to caselaw providing that he who states that he is not the proper defendant must prove that he was in no way involved. By applying this principle, the FHCC concluded that the agreement for the distribution of Bavaria was made between Beer House Limited and GSDM since there existed no agreement between Beer House Limited and the Defendant. In fact, that all correspondence was signed off with GSDM's logo. The FHCC upheld the Defendants' second preliminary plea and freed it from the observation of justice.
The FHCC then went into the merits of the case:
(1) Payment of damage representing actual losses and loss of profit: The FHCC stated that while the Claimant did make a claim for damages, it did not however state why such damages are due. The Court examined various exchanges between the parties and that none of it constituted an agreement. In fact, up until November 2018, not only was GSDM still awaiting additional documentation as part of its due diligence, but the contract was yet to be drafted. The FHCC noted that what the Claimant was relying on was in no way a formal contract but rather a formal agreement between the parties' representatives. This was evident from an email where the following was stated "Beer House formally transferred operations to your company to you personally [...] sealed by the common understanding of the agreement reached and handshakes on the day of the transfer." This further confirmed the courts understanding that the Claimant based its case not on a formal agreement but rather a handshake deal which was yet to be formulated into an agreement. The FHCC agreed with GSDM in that since there was no written agreement, it could not be presumed that there was one in place between the parties. In view of this, the court rejected the Claimant's first claim.
(2) Fiduciary Obligations: In its sworn application the Claimant claimed that GSDM used confidential information to acquire its business and this in breach of fiduciary obligations. The FHCC held that it could in no way agree with the Claimant and this for the following reasons:
(i) Firstly, the documents passed on were price lists, copies of invoices and financial statements, all of which could in no way be considered as confidential.
(ii) Secondly, Article 1124A (5) provides that a person subject to a fiduciary obligation who acts in breach of such obligation shall be bound to return any property together with all other benefits derived by him, whether directly or indirectly, to the person to whom the duty is owed. In this case, it was not proven that GSDM acquired some sort of benefit due to a breach of fiduciary obligations further proving that GSDM did not acquire the business due to a benefit but rather due to mistakes and shortcomings on the part of the Claimant which in turn resulted in SFB wanting to terminate the commercial relationship it had in place. Effectively, it was always SFB's intention to terminate the relationship it had with the Claimant as evidenced by a Termination Confirmation. In view of this the FHCC held that it was not adequately proven that there was breach of fiduciary obligations on the part of GSDM and therefore rejected the Claimant's claims in their entirety.
Decision
In conclusion and for the above-mentioned reasons, the FHCC declared that there was in fact no relationship between the parties and for this reason went on to accede to the Defendant's second preliminary plea that it was not the proper defendant in the proceedings, while freeing the same company from the observation of justice while on the other hand rejecting all the Claimant's claims in their entirety.
Disclaimer: Ganado Advocates is responsible for contributing to this law report but was not in any way involved as legal advisor for the parties in the judgement being covered in this law report.
Krista Refalo is an Advocate within Ganado Advocates' litigation team assisting clients in contentious matters particularly in relation to civil and commercial disputes, whilst also having a keen interest in insolvency litigation.
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