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[2016] ZASCA 42
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Grainco (Pty) Ltd v Van der Merwe (20693/2014) [2016] ZASCA 42; 2016 (4) SA 303 (SCA) (30 March 2016)
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THE SUPREME COURT OF APPEAL OF SOUTH
AFRICA
JUDGMENT
Case No: 20693/2014
DATE: 30 MARCH 2016
Reportable
In the matter
between:
GRAINCO (PTY)
LTD
......................................................................................................
APPELLANT
And
JACOBUS ALEWYN VAN DER
MERWE
.....................................................
FIRST
RESPONDENT
JOHANNES JACOBUS
KITSHOFF
..........................................................
SECOND
RESPONDENT
PERDIGON (PTY) LTD (formerly GRAINCO
INVESTMENTS (PTY) LTD t/a
PERDIGON)
.............................................
THIRD
RESPONDENT
Neutral citation:
Grainco
(Pty) Ltd v Van der Merwe
(20693/2014))
[2016] ZASCA 42
(30 March 2016)
Coram:
Ponnan,
Wallis, Mbha and Mathopo JJA and Plasket AJA
Heard:
17
March 2016
Delivered:
30
March 2016
Summary:
Purchase
and sale ─ sale of business, inclusive of goodwill ─
implied prohibition against seller canvassing customers
of sold
business ─ prohibition a term implied by law ─ only
seller bound by it.
ORDER
On
appeal from
Western
Cape Division of the High Court, Cape Town (Rogers J sitting as court
of first instance): judgment reported
sub
nom GrainCo (Pty) Ltd v Van der Merwe & another
2014 (5) SA 444
(WCC).
The
appeal is dismissed with costs, including the costs of two counsel.
JUDGMENT
Plasket
AJA (Ponnan, Wallis, Mbha and Mathopo JJA concurring):
[1]
In the court below, the Western Cape Division of the High Court, Cape
Town, the application of the appellant, GrainCo (Pty)
Ltd (GrainCo),
to interdict the respondents, Mr J A van der Merwe (Van der Merwe),
Mr J J Kitshoff (Kitshoff) and Perdigon (Pty)
Ltd (Perdigon), a
company in which they were shareholders, from soliciting business
from, canvassing, enticing, drawing away or
dealing with a long list
of people and entities, or attempting so to do, together with other
related relief, was dismissed with
costs.
[2]
The issue that arises for decision in this appeal is whether, when a
business is sold as a going concern, inclusive of its goodwill,
the
implied prohibition against the canvassing of customers binds anyone
other than the seller. Rogers J, in the court below, found
that the
respondents were not the sellers of the business and not bound by the
implied prohibition. He dismissed the application
to interdict them
from canvassing customers of GrainCo on this basis and refused other
relief not germane to this appeal.
[3]
He granted leave to appeal to this court principally, it would
appear, because he thought that this court may wish to revisit
the
correctness of the judgment in
A
Becker & Co
(Pty) Ltd v Becker & others
,
[1]
a case concerned with the implied prohibition and its relationship
with an express restraint of trade. I shall say something of
this
invitation at the end of this judgment.
The facts
[4]
The material facts that gave rise to this matter are uncomplicated
and largely common cause. In 2000, Van der Merwe and Kitshoff
established a company which they called GrainCo (Pty) Ltd. This
company was referred to in the papers as ‘old GrainCo’.
I
shall use the same term when referring to it.
[5]
Old GrainCo traded with great success in the grain commodities
market, thanks in large measure to the efforts and expertise
of Van
der Merwe and Kitshoff. It quickly developed a substantial reputation
in its field. It traded in white and yellow maize,
sunflower seeds,
soya beans, wheat, canola, sorghum, lucerne, brans, proteins and feed
grains such as oats, feed barley and lupines.
[6]
Essentially, old GrainCo managed the supply chain between farmers and
processors by facilitating the flow of grain products
from one to the
other. In other words, it bought grain from farmers and sold it to
processors, although its transactions were not
necessarily
‘back-to-back’ transactions: instead, it operated in
terms of a risk-based business model which involved
speculation,
risk-spreading and hedging. It was described in the founding
affidavit of Mr H B Vermooten as a ‘trusted brand
with
customers on both sides of the supply chain’.
[7]
The success of old GrainCo sparked the interest of BKB Limited (BKB).
For the most part, it traded in and marketed wool, mohair
and
livestock, although it had other interests too. It had no involvement
in the grain commodities market but wished to be involved
in it.
[8]
BKB consequently entered into an agreement, styled an amalgamation
agreement (the amalgamation agreement), in terms of which
it
purchased the business, inclusive of the goodwill, of old GrainCo as
a going concern. Various parties are referred to in the
agreement.
They are Thembeka Capital (Pty) Ltd, ‘the other shareholders’,
BKB and old Grainco. The ‘other shareholders’
are listed
in an annexure as the Swartkop Family Trust, the J J Kitshoff Family
Trust, the J R van Niekerk Trust and the Dalin
Trust. All four of
these entities were represented by Van der Merwe and Kitshoff. These
entities together held 74.9 percent of
the issued ordinary shares of
old GrainCo, Thembeka Capital holding the rest.
[9]
Clause 2.1 of the agreement recorded that Thembeka Capital and the
other shareholders ‘are the registered holders and
beneficial
holders of the GrainCo Shares’. Clauses 2.3 and 2.4 stated:
‘
2.3
GrainCo is the registered holder and beneficial owner of the Company
Assets, which,
inter
alia
,
include the business conducted by GrainCo, as a going concern, and
its interest in BKB GrainCo (Pty) Ltd . . .
2.4
BKB wishes to acquire the Company Assets from GrainCo and GrainCo is
willing to dispose of the Company Assets to BKB, subject
to the terms
and conditions as set out in this Agreement.’
[10]
Clause 3 is the crux of the agreement. It provided:
‘
3.1
GrainCo hereby disposes of the Company Assets to BKB, who hereby
acquires the Company Assets from GrainCo in exchange for
3.1.1
the allotment and issue by BKB of the BKB Shares to GrainCo;
3.1.2
a cash consideration equal to R4 000 000 (four million
rand) which cash consideration is specifically allocated
to the
debtors listed in Annexure I; and
3.1.3
BKB hereby assumes the GrainCo Liabilities.’
The
company assets are listed in an annexure. They include goodwill.
[11]
Clause 3.2 recorded that GrainCo would be ‘liquidated and/or
deregistered’ subsequent to the agreement. Clause
3.4 placed an
obligation on GrainCo to ‘take such actions as to ensure that
the BKB Shares received are distributed to its
shareholders’.
The value of the shares referred to in clause 3.1.1 was R24 450 430.
[12]
Clause 6 dealt with the apportionment of the BKB shares allotted to
GrainCo. Thembeka Capital received 25.1 percent of the
shares, while
the remaining 74.9 percent was allotted as follows: the Swartkop
Family Trust and the J J Kitshoff Family Trust each
received 46.66
percent of the shares while the J R van Niekerk Trust received 1.34
percent of the shares and the Dalin Trust received
5.34 percent of
the shares
[13]
Clause 12 contained a comprehensive restraint of trade. It restrained
old GrainCo, Van der Merwe and Kitshoff, for a period
of five
years
[2]
and within the ‘geographical area comprising the states forming
part of the Southern African Development Community’,
[3]
from having an interest in any entity which had an interest in any
activity in competition with BKB, or themselves having an interest
in
any such competitive activity; from involving themselves in
competitive activity that could have the effect of causing BKB
prejudice; from directly or indirectly canvassing ‘any customer
and/or client of BKB for or on behalf of any entity in which
they are
interested’, or on their own behalf; and from disclosing
confidential information.
[4]
[14]
In addition, they agreed with BKB that none of them would, ‘either
for their own account or as representative or agent
of any entity’
in which they had an interest ‘persuade, induce, encourage or
procure any employee’ employed by
BKB to ‘become employed
by or interested, directly or indirectly, in any entity which is
interested in a competitive activity’;
to terminate his or her
employment with BKB; or to furnish information or advice acquired by
the employee as a result of his or
her employment to ‘any
unauthorised person’.
[5]
[15]
Old GrainCo, Van der Merwe and Kitshoff agreed that the restraint was
‘reasonable as to subject matter, period and territory’
and that clauses 12.2 and 12.3 ‘shall be given the widest
possible interpretation’.
[16]
Vermooten, in the founding affidavit, explained the effect of the
transaction envisaged by the amalgamation agreement as follows:
‘
The
effect of the transaction was that BKB did not acquire the shares of
Old GrainCo, but only its business and assets (including
the shares
of the businesses controlled by Old GrainCo) for a purchase price of
R28 450 430.00. The majority of the purchase
price was paid
to the trusts controlled by Kitshoff and van der Merwe by the
allotment of BKB shares to them. R4 million was paid
to them in
cash.’
[17]
As soon as the amalgamation agreement was concluded, BKB sold the
business it had acquired to a company called Saamwerkverspreiders
(Pty) Ltd, which later changed its name to GrainCo (Pty) Ltd
(GrainCo). Van der Merwe was appointed as the managing director of
GrainCo in 2006. He also entered into an employment contract with it
for a fixed term of five years. That ended on 30 June 2012,
simultaneously with the termination, by effluxion of time, of the
restraint of trade. He then entered into a new contract of
employment.
Kitshoff was appointed as a director of GrainCo and was
employed, in terms of a five year contract of employment, as its head
of
trading. When the contract of employment ended, together with the
restraint of trade, Kitshoff entered into a new contract of
employment.
[18]
In the years that followed the acquisition of the business, GrainCo
expanded its operations and increased the number of its
depots. It
formed a new division, called BKB Logistics, and an existing
division, GritCo, which milled yellow maize to produce
maize grit,
moved its plant and tripled its capacity. A third division, BKB
GrainCo (Pty) Ltd trading as BKB Grain Storage, also
operated as a
wholly owned subsidiary of GrainCo. It provided the service of
storage and management of grain in silo bags. The
number of people
employed by GrainCo increased from 54 to 280.
[19]
GrainCo, as a whole, operated profitably but matters took a turn for
the worst in 2013. The reasons for the downturn are in
dispute but
there is no need to resolve this particular dispute of fact.
[20]
It was, however, in this environment that Van der Merwe resigned as
managing director and as an employee of GrainCo. He did
so with
effect from 31 March 2013. A month later, Kitshoff resigned. So did a
number of senior employees thereafter.
[21]
At the beginning of June 2013, a company named Grainco Investments
(Pty) Ltd, trading as Perdigon, opened its offices across
the road
from GrainCo. (It later changed its name to Perdigon (Pty) Ltd.) In
addition to Van der Merwe and Kitshoff, who were its
shareholders, it
was staffed by people who had either resigned from or taken voluntary
retrenchment packages from GrainCo.
[22]
Perdigon described itself as ‘commodity traders specialising in
the management of the supply chain between the producer
and the
processor’ of grain. It is clear that Perdigon competed with
GrainCo from the outset, even though there were differences
in
approach and scope.
The issue
[23]
During the course of the proceedings in the court below, the implied
prohibition against the canvassing of clients was referred
to as the
Trego
prohibition. This was a reference to the leading English case of
Trego & another
v Hunt
[6]
in which Lord Macnaghten set out the basis for the prohibition and
its contours when he stated:
[7]
‘
And
so it has resulted that a person who sells the goodwill of his
business is under no obligation to retire from the field. Trade
he
undoubtedly may, and in the very same line of business. If he has not
bound himself by special stipulation, and if there is
no evidence of
the understanding of the parties beyond that which is to be found in
all cases, he is free to carry on business
wherever he chooses. But,
then, how far may he go? He may do everything that a stranger to the
business, in ordinary course, would
be in a position to do. He may
set up where he will. He may push his wares as much as he pleases. He
may thus interfere with the
custom of his neighbour as a stranger and
an outsider might do; but he must not, I think, avail himself of his
special knowledge
of the old customers to regain, without
consideration, that which he has parted with for value. He must not
make his approaches
from the vantage-ground of his former position,
moving under cover of a connection which is no longer his. He may not
sell the
custom and steal away the customers in that fashion. That,
at all events, is opposed to the common understanding of mankind and
the rudiments of commercial morality, and is not I think to be
excused by any maxim of public policy.’
[24]
While
Trego
concerned a partnership, rather than the sale of a business, the
principle enunciated in it – that the seller of goodwill
is
prohibited from taking it back by canvassing for the old business’
customers – was accepted as correct in
Becker
.
In that case, Becker, in his personal capacity and as a director of
his company, A Becker & Co (Pty) Ltd, sold the business
of the
company, inclusive of the goodwill, and bound himself to a restraint
of trade. In terms of the sale agreement, the purchaser
acquired the
right to the use of the name of the company (as happened with GrainCo
in this case) and the original seller changed
its name, while the
purchaser became A Becker & Co (Pty) Ltd. When the restraint of
trade had expired, Becker began to approach
former customers with a
view to soliciting their business. An interdict was sought to
restrain him from doing so but, at the close
of the plaintiff’s
case, absolution from the instance was granted.
[25]
In upholding the appeal and setting aside the order for absolution
from the instance, Muller JA held that
Trego
was correct and that if ‘a seller disposes of the goodwill of a
business he is not allowed thereafter to act contrary to
the
sale’.
[8]
In his separate concurring judgment, Van Heerden AJA held that
Trego
was consistent with the principles of South African law.
[9]
[26]
Van Heerden AJA also considered the juridical basis of the implied
prohibition. He held that there were two possibilities:
either it
arose from a tacit term – an unexpressed term that arose from
the actual or imputed intention of the parties; or
it arose as an
implied term, properly so called – a term implied by law, a
naturalium
of the contract.
[10]
He concluded that the implied prohibition was a term implied by law
in a contract for the sale of a business that includes the
goodwill:
[11]
‘
Die
erkende
naturalia
van 'n koopkontrak van liggaamlike goed kan egter analogiese
toepassing vind op die verkoping van 'n immateriële goed soos
werfkrag. Dié wat ten gunste van die koper strek, is gerig op
beskerming van sy genot en gebruik van die
merx
.
Vandaar, bv, die verkoper se verpligtinge rakende uitwinning en
verborge gebreke. Soos reeds aangedui, konstitueer 'n direkte
inwerking deur die verkoper 'n nadelige aantasting van die koper se
genot en gebruik van die werfkrag. Daar is dus alle rede om
sodanige
inwerking in stryd te ag met 'n
naturalium
van die betrokke koopkontrak.’
[27]
That being so, the principle can only be invoked in relation to a
seller of a business. It is clear from clauses 2 and 3 of
the
amalgamation agreement that the only parties to the sale of old
GrainCo were it and BKB. Unlike in the
Becker
matter, in which Becker was a party to the sale of the business, both
personally and in a representative capacity, Van der Merwe
and
Kitshoff were not parties to the sale in this case. They could
accordingly not be bound by an implied term of the agreement.
The
appeal must therefore fail.
Leave to appeal
[28]
In the course of his judgment in the court below, Rogers J dealt at
length with the
Becker
case and with what he considered to be flaws in its approach to the
relationship between the implied prohibition against interfering
with
the goodwill of the sold business and the express restraint of trade
that bound Becker. He suggested that the conclusion in
Becker
in this respect ‘might warrant reconsideration’ by this
court.
[12]
[29]
The issue that appears to have consumed a great deal of the attention
of Rogers J was one that could only have become relevant
if he had
found that Van der Merwe and Kitshoff were parties to the
amalgamation agreement. As he had made a finding to the contrary
–
and quite correctly so – there was no reason that I can discern
for him having to address the correctness of
Becker
,
much less give this court ‘the opportunity of mending its
earlier judgment’.
[13]
It is an issue that this court would not have had to consider and if
it did have anything to say on it, it would have been obiter.
Entirely academic issues such as this should not be forced upon this
court.
The order
[30]
The appeal is dismissed with costs, including the costs of two
counsel.
C M Plasket
Acting Judge of
Appeal
APPEARANCES:
For
Appellant: A I S Redding SC (with him T Dalrymple)
Instructed
by:
Chris
Baker & Associates, Belville
Symington
& De Kok, Bloemfontein
For
Respondent: J A Newdigate SC (with him H Jansen van Rensburg)
Instructed
by: De Klerk & Van Gend Inc, Cape Town
McIntyre
& Van der Post, Bloemfontein
[1]
A Becker & Co (Pty) Ltd v Becker &
others
1981 (3) SA 406
(A).
[2]
Clause 12.1.5.
[3]
Clause 12.1.6.
[4]
Clause 12.2.
[5]
Clause 12.3.
[6]
Trego & another v Hunt
[1896] AC 7 (HL).
[7]
At 24-25.
[8]
Note 1 at 414G-H.
[9]
Note 1 at 418C-D.
[10]
Note 1 at 419E-H. See too
Alfred
McAlpine & Son (Pty) Ltd v Transvaal Provincial Administration
1974 (3) SA 506
(A) at 532C-H.
[11]
Note 1 at 419H-420B. ‘The recognised
naturalia
of a contract of sale of corporeal things can however find
application by analogy with the sale of an incorporeal thing like
goodwill. Those which operate in favour of the purchaser are aimed
at the protection of his use and enjoyment of the
merx
.
Hence, for example, the seller’s obligations concerning
eviction and latent defects. As already indicated, a direct
interference on the part of the seller constitutes a prejudicial
impairment of the purchaser’s use and enjoyment of the
goodwill. There is thus every reason to consider such an
interference to be in conflict with a
naturalium
of the particular contract of sale.’ (My translation.)
[12]
GrainCo (Pty) Ltd v Van der Merwe &
another
2014 (5) SA 444
(WCC), para
54.
[13]
S v Kgafela
[2003] ZASCA 53
;
2003 (5) SA 339
(SCA) para 3. See too
Blaauwberg
Meat Wholesalers CC v Anglo Dutch Meats (Exports) Ltd
[2003] ZASCA 144
;
2004 (3) SA 160
(SCA) para 20.