Oilwell (Pty) Limited v Protec International Limited and Others

The case concerned the South African registration of the trade mark 'Protec' (1987/10291), registered in the name of the second respondent, Protec Auto Care Ltd (Auto Care), a UK company. The appellant, Oilwell (Pty) Ltd, sought rectification of the trade mark register to reflect Oilwell as proprietor instead of Auto Care, relying on s 24(1) of the Trade Marks Act 194 of 1993. In 1998, the trade mark and related foreign Protec marks were assigned to the first respondent, Protec International Ltd (International), incorporated in Guernsey, pursuant to a comprehensive agreement. Relations between the parties subsequently soured, resulting in multiple court orders in the USA and locally (2002) against Oilwell for trade mark infringement. International ran into financial difficulties and assigned the South African trade mark to Auto Care in 2007. Following the judgment in Couve v Reddot International (Pty) Ltd 2004 (6) SA 425 (W), which held that patent applications/patents are 'capital' under Exchange Control Regulation 10(1)(c) and that assignment to a foreign company without SA Reserve Bank consent amounts to 'export' of capital, Oilwell applied in September 2008 for rectification of the trade mark register on the basis that the 1998 assignment was void for non-compliance with reg 10(1)(c). Prinsloo J dismissed the application, finding Couve wrongly decided. Oilwell appealed with leave.

• Whether trade marks constitute 'capital' within the meaning of Exchange Control Regulation 10(1)(c)
• Whether assignment of a trade mark to a foreign entity amounts to 'export' of capital under reg 10(1)(c)
• Whether the judgment in Couve v Reddot International was correctly decided regarding patents as 'capital'
• What is the effect of non-compliance with reg 10(1)(c) - does it render a transaction void ab initio?
• Whether prior consent of the SA Reserve Bank/Treasury was required for the 1998 assignment

The appeal was dismissed with costs, including the costs of two counsel.

The binding legal principles established are: (1) Trade marks and other intellectual property rights do not constitute 'capital' within the meaning of Exchange Control Regulation 10(1)(c). 'Capital' in that context means money that can be used to produce further wealth (a financial concept), not all assets with monetary value; (2) The territorial nature of intellectual property rights (being akin to immovables) means they cannot be 'exported' for purposes of reg 10(1)(c); (3) Non-compliance with Exchange Control Regulation 10(1)(c) does not render a transaction void ab initio. Following Voetian principles, things done contrary to law are not ipso jure null if the law is content with imposing penalties; (4) The criminal sanctions in reg 22 and the civil remedies in regs 22A-C (attachment, forfeiture, recovery) are sufficient to achieve the objectives of the Exchange Control Regulations without rendering transactions void; (5) Where a transaction may require Treasury consent under the Regulations, both parties are obliged to seek such consent, which can be granted ex post facto. The transaction is not void at the election of one party simply due to absence of prior consent; (6) Exchange Control Regulations are for the public interest and to protect the fiscus, not to enable private parties to avoid contractual obligations or to protect private interests.

The court made several obiter observations: (1) It is debatable whether all of s 9 of the Currency and Exchanges Act 9 of 1933 would survive constitutional scrutiny, particularly s 9(3) which empowers the head of state to suspend any Act of Parliament by means of regulation; (2) The parties to the 1998 assignment did not intend to contravene the Regulations and it is unlikely any had mens rea for criminal liability, especially where the public was not informed of the requirement (the Exchange Control Manual was only amended two years after Couve to reflect that reg 10(1)(c) applied to intellectual property assignments); (3) The criminalization of contraventions under reg 22 requires mens rea (per S v de Blom 1977 (3) SA 513 (A)), though contravention itself does not require mens rea; (4) The court noted that royalties represent earnings or income, not capital in any sense; (5) A restrictive interpretation is called for for legislation that creates criminal and administrative penalties; (6) Oilwell's underlying cause of action, based on alleged invalidity of the assignment, remained an enrichment action because ownership passed under the abstract theory of transfer (which does not require a valid underlying transaction), and rectification of the register was merely a formal way of accomplishing restitution; (7) The par delictum rule may apply in such circumstances; (8) The court noted the anomalies that would arise if 'capital' meant everything with monetary value (e.g., sales of immovable property to foreign companies, purchases of movables by foreigners would all require consent).

This judgment is significant for several reasons: (1) It definitively establishes that intellectual property rights (trade marks, patents, designs, copyright) are not 'capital' within the meaning of Exchange Control Regulation 10(1)(c) and their assignment to foreign entities does not require prior Treasury consent; (2) It overrules (at least implicitly) the approach in Couve v Reddot International regarding the classification of patents/patent applications as 'capital'; (3) It clarifies that non-compliance with Exchange Control Regulations does not automatically render transactions void ab initio, applying Voetian principles and the common law approach to statutory prohibitions; (4) It establishes that the criminal and administrative sanctions in the Exchange Control Regulations (including attachment, forfeiture and recovery provisions) are sufficient enforcement mechanisms without the need for automatic invalidity; (5) It protects the sanctity of commercial contracts by preventing parties from opportunistically using regulatory non-compliance to escape contractual obligations; (6) It clarifies the procedural position where regulatory consent may be required - parties must seek consent, which can be granted ex post facto, and dilatory pleas may be appropriate pending Treasury determination; (7) It limits the use of Exchange Control Regulations as a defensive tool by unwilling debtors seeking to avoid obligations; (8) It applies a restrictive interpretation to legislation creating criminal penalties, particularly where the public was not informed of requirements; (9) The judgment is important in the context of intellectual property transactions and confirms that such assets are distinct from capital for exchange control purposes.