The M B Ontwikkelings Trust is taking Cell C to court for “wrongfully and culpably” interfering in a contract it has with a large retail outlet that supplies starter packs.
The trust, which is situated in Maletswai – previously known as Aliwal North – a town on the Orange River, is demanding more than R21.3 million in damages from the embattled mobile phone company.
In papers filed at the Eastern Cape High Court, the trust claims Cell C wrongfully and culpably interfered with its contract with DNI Retail, the largest wholesaler of starter packs for the mobile company in the country.
Herman Zurich, the attorney firm representing the M B Ontwikkelings Trust, explains in the papers that the multi-million rand claim was calculated and compiled as follows:
- The contract would endure for an indefinite period, and the plaintiff would have conducted the business at least for another 21 years.
- The trust suffers a loss of net profit for 21 years based on the average sales that the business would have generated minus the expenses.
- The trust’s average net profit over 21 years would have been R21 346 008.00
“Cell C maintains that it acted lawfully when it cancelled the franchise agreement with the MB Ontwikkelings Trust and therefore disputes the claim instituted by the Trust,” said Lethiwe Hlatshwayo, Cell C’s executive head of corporate communications.
She added that Cell C has opposed the legal proceedings brought by the Trust.
“The legal process will follow its course until the Court has determined the proceedings in due course.”
On 15 July 2015, the MB Ontwikkelings Trust and DNI Retail concluded and entered into a written exclusive sub-dealer agreement.
The MB Ontwikkelings Trust traded as Cell Powerstation in Aliwal North, Eastern Cape Province.
DNI Retail appointed the trust as exclusive distribution channel partners to market and promote Cell C services in the Aliwal North region.
It also procured the conclusion of subscriber agreements and renewed subscribed contracts with customers.
The trust vetted all prospective and existing customers through Xpert Decision Systems (XDS) tool.
It then forwarded the subscriber agreement to Cell C.
Once Cell C approved a customer, the trust would receive a commission from DNI Retail.
As part of the agreement, the trust was expected to ensure that each store performs in line with the prescribed sales targets.
However, on 23 October 2015, DNI Retail advised the trust in writing that it intended to cede its rights and delegate its obligations to Cell C. The cession was to be effective on 1 December 2015.
The trust says to its surprise, a week later on 8 December, Cell C informed it that the DNI Retail’s rights and obligations had been ceded to it.
“The first defendant (DNI Retail) did not at any time relevant or pertinent to this action advise the plaintiff (Trust) in writing that it was ceding its rights and delegating its obligations to the second defendant (Cell C Service Provider Company),” complains the trust in court papers.
The trust argues that DNI Retail and Cell C made it impossible to reach the sales targets per sales.
The trust alleges that Cell C would decline applications it submitted from potential customers because it said they were “not creditworthy”.
However, the trust further alleges that Cell C, “would then contract the same customer, whose application had just been denied, directly and offer him/her exactly the same contract on the same terms and conditions as were denied when the plaintiff submitted the application.
“When customers indicated that they would return to the trust’s store to complete the necessary documentation, they were informed that the contract is only available on the terms and conditions through Cell C Direct.”
The trust also argues that DNI Direct, notwithstanding knowledge of Cell C’s practice, failed or refused to take any action to ensure its effectiveness and ability to deliver in terms of the agreement.
The trust says the Cell C coverage in Aliwal North was inadequate and not consistent. Customers repeatedly complained of weak and inconsistent cellular phone signals.
“Some of the customers switched to competitors like Vodacom and prospective consumers were put off the Cell C brand as a result of the negative perception of members of the public in Aliwal North,” says the trust in court papers.
The trust says DNI Retail and Cell C failed to take any steps to ensure sufficient and suitable cellular phone coverage, said the Trust.
“As result of the second defendant or his predecessor in title’s conduct by making performance in terms of the sales targets impossible, the plaintiff is entitled to cancellation of the agreement and damages,” argues the trust.
“The third defendant unreasonably infringed the interests of the plaintiff and wrongfully and intentionally, alternative culpably caused the plaintiff patrimonial damage by interfering in the contractual relationship between the plaintiff and the first, alternatively the second defendant.”
Court papers indicate that Cell C says in its defence that the trust failed to meet its contractual obligations.
Cell C insists that it was merely exercising its rights in terms of the agreement “to immediately cancel the deal” due to the trust’s failure to reach agreed targets.
In 2019, Blue Label Telecoms – which owns a large part of Cell C – had a series of transactions with DNI.
In September 2019, Blue Label Telecoms announced it would sell its shareholding in Blue Label Mobile to DNI 4PL Contracts Proprietary Limited (DNI).
In terms of this transaction, Blue Label will sell 85% of Blue Label Mobile issued shares and all claims on loan to DNI 809.
The price consideration payable by DNI to Blue Label in respect of the deal was R350 million. DNI would also pay R100 million.
For more read: Net 1 Wants To Sell Its Stake In ‘Obscure’ Firm DNI
In October 2019, Net 1, which owns a 15% stake in Cell C, disclosed it was considering selling its 30% stake in DNI.
Net 1 disclosed in its recently published annual report that on 3 May 2019, its wholly-owned subsidiary, Net1 Applied Technologies South Africa or Net1 SA, agreed to grant a call option to DNI to acquire Net1 SA’s remaining 30% interest in DNI.
The controversial firm added that the option expires on 31 December 2019, but maybe exercised at any time before expiration.
“The option strike price is calculated as R2.827 billion ($200.8 million, translated at exchange rates applicable as of 30 June, 2019) less any special distribution made by DNI multiplied by Net1 SA’s retained interest (i.e. assuming no special distribution, the strike price for the 30% retained interest is R859.3 million, or $61.0 million, translated at exchange rates applicable as of 30 June, 2019),” the company said.
Net 1 added that the call option may be split into smaller denominations, but Net1 SA cannot be left with less than 20% unless the whole remaining interest is disposed of.