In the modern era, business is everything. Everyone has a specific form of relationship with another, and one of the most important relationships we will have throughout our life-time, is that of a business relationship. These business relationships come about in more than one way, where for example a franchise agreement might be concluded between two parties when they both sign the franchise agreement, or you might have requested your nephew to clean the swimming pool for some sweets through a verbal agreement. What has come about through years of Court Cases, is the importance of trust and acting in good faith towards your business partners.
An aspect, which is part and parcel of all business relationships, and might be seen as the most important is that of trust. Trust is an integral requirement for a good business relationship. Trust is also a mechanism by which business partners can measure one another. Trust is the gold standard when it comes to business relationships. The reason why trust is such an integral part is best described in the Court Case of Silent Pond Investments CC v Woolworths and Another which was handed down on 25 June 2007. The Silent Pond case is interesting, and the background is summarised for the ease of the reader.
Silent Pond Investments CC had bought the rights to operate an Engen petroleum station in Mount Edgecombe, KwaZulu-Natal. As part of the Engen station, Silent Pond had to also open a “Quick Shop” on the premises of the Engen station. Silent Pond had opened the Engen station as well as the Quick Shop and had been running them both for about 2 years, when in 2005 Silent Pond and Engen Petroleum (Ltd) had concluded a further business agreement with Woolworths. This agreement was for Silent Pond to be able to sell Woolworths products out of the Quick Shop in Mount Edgecombe. Silent Pond would be able to use the name, brand, products and intellectual property of Woolworths and within the confines of the Engen Station it owned and operated.
After same time while the parties were enjoying the agreement, it came about that Woolworths will be opening a new store in a shopping area, and which would be less than 200 metres from the Engen Station operated by Silent Pond. This would place a burden on Silent Pond where a portion of its customers would then start shopping at the new Woolworths storefront instead of at the Engen Station. This would inevitably lessen Silent Pond’s sales and profits.
What this case turned on was not a restraint of trade, or request for geographical exclusivity, but rather that Woolworths had breached the agreement and the business relationship between them and Silent Pond in that it did not act in good faith towards Silent Pond. What Silent Pond was attesting, was in other words that Woolworths and Silent Pond had concluded an agreement which was the measure to its business relationships. This agreement incorporated specific clauses for the careful consideration towards acting and doing business in good faith towards the other, and that both parties would:
“Warrant in their dealings with each other that they shall neither do anything nor refrain from doing anything which might prejudice or detract from the rights, assets or interest of the other of them”. Quoted from the Judgement handed down by the Honourable Justice Morley AJ, dated 25 June 2007
What turned about in Court was that the above part of the agreement was integral to the business relationship between the parties. It required of both to act to a greater measure of good faith towards one another, in circumstances where they placed their trust. Woolworths entrusted Silent Pond with the know-how, intellectual property and products of Woolworths, which were to be handled with care. Silent Pond would entrust its future profits and autonomy to Woolworths. This mutual trust came with the expectation of fair dealings and good faith towards the other, and the Honourable Justice placed a large degree of importance on this.
The question which the Court came down to was: “The question is whether the First Respondent is putting its own interests above those of the Applicant, contrary to its duty of good faith, and whether its conduct prejudices or detracts from either the Applicant’s rights or its assets or its interests, whether proprietary or financial”.
The Court held up the importance of acting in good faith towards the trust given by one party to another, and that some business relationships can be likened to be a testament of a fiduciary relationship and duty between the parties in business. The important factors which came about in the Silent Pond case was that the parties had specifically included a clause in their agreement wherein they would act with good faith towards one another. The Court upheld that this requirement for good faith was breached by Woolworths opening a store so close to the Silent Pond Engen Station.
What this case tells us about the overarching standards for business relationships is simply, act in accordance with the trust held between the parties and do it in good faith.
This is further expanded on by the multitude of Court cases where the standard of a fiduciary duty is explained. The definition of “Fiduciary Duty” is in relation to a position of trust in the management of another person’s finances. It has however become synonymous to a relationship of trust formed between two persons which is implied by law. This trust relationship can be formed by implication grounded on the specific kind of relationship, or business, or agreement entered into between the parties. The Court in a previous judgement in the matter of Robinson v Randfontein Est. G.N. Co. Ltd in 1926, held that the circumstances in which a fiduciary duty arises, should not be confined too easily. It is an investigation into each relationship from which one would establish the application of trust through a fiduciary duty.
What all of this means is that when you enter a business relationship in any way shape or form, it is important to act in good faith towards your business partner. Where a relationship has been established, one should keep to his word and act towards the trust established by virtue of the business relationship. This is best captured by the words of the Honourable Justice Innes CJ, who said:
“Where one man stands to another in a position of confidence involving a duty to protect the interests of that other, he is not allowed to make a secret profit at the other’s expense or place himself in a position where his interests conflict with his duty…” P177 – Robinson v Randfontein Est. G.N. Co. Ltd 1926 AD 172.
