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[2018] ZAWCHC 34
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Sanria 21 (Pty) Ltd v Nordaline (Pty) Ltd and Another (20123/2017, 20124/2017) [2018] ZAWCHC 34 (19 March 2018)
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Case No:
20123/2017
20124/2017
In
the matter between:
SANRIA
21 (PTY) LTD
Applicant
and
NORDALINE
(PTY) LTD
Respondent
(Case no. 20123/2017)
ARNOLITE
(PTY) LTD
Respondent
(Case no. 20124/2017)
Heard:
6 March 2018
Delivered:
19 March 2018
JUDGMENT
BOQWANA,
J
Introduction
[1]
The
applicant lodged two separate applications for the provisional
winding up of the respective respondents, Nordaline (Pty) Ltd
(‘Nordaline’) under case number 20123/2017, and Arnolite
(Pty) Ltd (‘Arnolite’) under case number 20124/2017
(collectively referred to as the ‘respondents’). The
parties agreed that these two matters are related and must
be heard
together. The facts of the cases are similar. The
deponents are the same in both instances. Eradus Van
Antwerpen
(‘Van Antwerpen’) who is a deponent in the answering
affidavits, is a director and a shareholder of both
respondents, and
Daniel Christiaan Burg (‘Burg’), a deponent in the
founding affidavit, is in the employ of the applicant.
[2]
The
applicant indicated in its replying affidavit that it does not
persist with seeking a liquidation order in both applications.
The
issue remaining before me therefore, in both matters, is that of
costs. Whilst the winding up orders are no longer
being
pursued, it is important to outline the background facts in these
applications, for reasons that shall become evident in
the judgment.
[3]
As
was held by Dlodlo J in
Hammel
vs Radio city Contact Centre CC
[2009] JOL 22982
(C) (which Mr Steyn, for the applicant, referred me
to, and which I deal with in more detail later), at para 5, in the
matters
at hand, “
it
would virtually be impossible to reach a just decision without
considering the merits of the application.”
Background
facts
[4]
In
respect of both respondents, the applicant claimed that it was owed
outstanding amounts for goods
and
services
delivered
by it to the respondents, as well as monies owing by the respondents
in terms of franchise agreements entered into between
it and each of
the respondents, during March 2007.
[5]
In
the Nordaline matter, the applicant alleged that it had entered into
a franchise agreement in terms of which Nordaline would
trade as a
franchisee of the applicant, under the name and style of ‘Java
Bistro Somerset West’. In terms of
such franchise
agreement,
Nordaline
would make the following payments to the applicant: a monthly
non-refundable royalty fee of 5% on the total sales of the
business
before any deductions, as well as a contribution towards marketing
fees, of a minimum amount equal to a specified percentage
(1%) of
Nordaline’s turnover sales. The applicant would also
provide goods and products to Nordaline, on Nordaline’s
special
request and insistence, which Nordaline would purchase from the
applicant, with payment due 30 days after receipt of invoice
.
[6]
The
applicant alleged further that on 30 June 2017, Nordaline’s
total debt towards it in respect of the terms I have recounted
above,
amounted to R474 162.87. It contends that it demanded payment
from Nordaline, but that Nordaline refused to pay.
[7]
The
applicant alleged that it sent a notice on 6 October 2017, to
Nordaline’s registered address, as envisaged in Section
345 (1)
of the Companies Act 61 of 1973 (‘the 1973 Companies Act’),
as read with section 66 of the Close Corporations
Act 69 of 1984
(‘the
Close Corporations Act&rsquo
;) and item 9 (1) and / or
(2) of Schedule 5 of the Companies Act 71 of 2008 (‘the 2008
Companies Act&rsquo
;).
[8]
The
applicant alleged that Nordaline had, for more than 24 days after
receiving the notice, neglected to pay the amount due, or
to secure
or compound for each to the satisfaction of the applicant, and in
light of that a proper case had been made out for its
winding up as
envisaged in Section 345 (1) (c) of the 1973
Companies Act, read
with
other Acts and provisions already mentioned above.
[9]
It
also alleged that Nordaline had made a small payment of R12 594.72 on
10 October 2017, and from that it was blatantly clear that
Nordaline
did not have the funds, nor would it make payment of its debts
towards the applicant.
[10]
In
answer to the applicant’s claim, Nordaline raised two points
in
limine,
the first one dealing with lack of authority of the deponent to the
founding affidavit (Burg), as well as his lack of
locus
standi.
It appears that that point was not pursued by the respondent,
pursuant to further allegations made in the replying affidavit.
[11]
The
second point raised
in
limine,
was that Nordaline is solvent as its assets exceeded its liabilities,
and therefore the applicant could not rely on the provisions
of
Section 345 (1) (c) of the 1973
Companies Act. The
last point
raised, although not a point of law
,
was that in order to demonstrate its solvency and its ability to meet
its obligations, Nordaline had paid the full amount allegedly
due by
it to the applicant, into its attorney’s trust account. It
submitted that the aforesaid conclusively confirmed that
it is able
to meet its obligations as and when they fall due.
[12]
As
to the merits of the application, Nordaline denied that it entered
into a valid and binding franchise agreement with the applicant.
It
alleged that, apart from missing essential terms, the agreement was
not signed by, or on behalf of, the franchisee, and
thus it did not
comply with the requirements of the Consumer Protection Act 68 of
2008 (‘CPA’). Furthermore,
the applicant failed to
provide it with a disclosure document as is required by the CPA and
is in this respect also in breach of
its provisions. It
categorically stated that it never entered into a valid and binding
franchise agreement with the applicant.
Nordaline further
stated that the parties had embarked on negotiations aimed at
concluding the agreement, but this fell through
and the agreement was
never signed on its behalf. It denied that it was indebted to
the applicant in the amount alleged,
claiming that the applicant was
unable to produce valid invoices when called upon to do so, and
setting out how the amount was
calculated. It alleged that the
applicant, at all relevant times, was aware that Nordaline disputed
that it was indebted
to it, but nevertheless proceeded with the
application.
[13]
It
further submits that the applicant should have filed a notice of
withdrawal of the application, instead of filing a further affidavit
in which it emerged that it was not persisting with the liquidation
order in respect of Nordaline.
[14]
In
its replying affidavit, the applicant states that given that it had
approached this Court in terms of section 345 (1) (c), the
grounds of
opposition, if accepted by the Court, would be enough to stave off
the liquidation application. It further states
that, whilst not
accepting the correctness of the dispute, it appreciates that given
the nature of the proceedings such a dispute
cannot be ventilated in
this forum; it would issue a summons in due course for the recovery
of the amount claimed.
[15]
The
applicant then states the following at paragraph 3.3 of the replying
affidavit: “
I
confirm that the applicant is not persisting with the relief seeking
a liquidation order in respect of the respondent
.”
[16]
It
further states that the dispute was never declared and / or
communicated to it before the launching of the winding up
application,
and the same applies with regards to the funds held in
trust. The applicant submits that because no reaction was
forthcoming
from Nordaline, it was entitled to proceed with the
application, especially in light of the deeming provisions underlying
section
345.
[17]
The
applicant contends in its replying affidavit that despite Nordaline
denying the existence of the franchise agreement, the reality
is that
it is currently trading under the applicant’s trade name,
‘Java’. It also advertises under that
name, as
evidenced by its latest Facebook page. Therefore, the
de
facto
position does not support Nordaline’s denial of the existence
of the franchise agreement. Accordingly, the applicant
could
not have been aware of the existence of the dispute alleged in the
answering affidavit.
[18]
The
facts in Arnolite are similar, save for the fact that the amount
allegedly owed is R124 255.20 and that the applicant
specifically mentions that it entered into a written agreement with
Arnolite. Furthermore, the alleged trade name in this
instance
is ‘Craft Somerset West’. In the Arnolite matter,
Van Antwerpen states that he did sign “
a
document which purports to be a ‘Craft Wheat and Hopps’
franchise agreement with the applican
t”,
which document is annexed to the answering affidavit. He
states, however, that the applicant did not comply with
the CPA
because it failed to provide Arnolite with a disclosure document as
is required by the provisions of the CPA; the applicant
has also not
signed the agreement as required by the CPA; Arnolite further
effected changes to the said agreement, which were initialled
by Van
Antwerpen and a witness, containing a counter-offer to the offer made
by the applicant, which counter-offer had not been
accepted by the
applicant. Arnolite claims that it made payment to the
applicant of a franchise fee of R150 000 in the
bona
fide
but mistaken belief that it was due. Further amounts totalling
R2 million were paid either to the applicant or to the suppliers,
shop fitters and for the purpose of furniture and equipment.
[19]
It
further alleges that the applicant had to supply and install a stove
in Arnolite’s trading premises, but it neglected to
do so and
Arnolite was obliged to purchase a stove
in
lieu
of the stove not supplied by the applicant, at the reasonable cost of
R24 961.44. Furthermore, the applicant is indebted
to it in the
amount of R91 967.43, made up of the fact that the applicant
wrongly represented to Arnolite the amount payable
to Cape Imposters,
as a result whereof Arnolite overpaid the applicant an amount of R28
280.00. The applicant incorrectly
calculated the discount on
the electrician costs, which resulted in an over payment by Arnolite
to the applicant in the amount
of R57 723.43, and the applicant
incorrectly calculated the discount on plumbing costs, to which
Arnolite was entitled, which resulted
in an overpayment by Arnolite
to the applicant in the amount of R5 964.00.
[20]
In
the premises, so contends Arnolite, it overpaid the applicant in the
amount of R116 928.87. It further states that
the
applicant was at all relevant times acutely aware that Arnolite
disputed any liability to it. Arnolite, in fact, claims
that
the applicant was indebted to it, but in spite of that it proceeded
with the application.
Discussion
[21]
Mr
Steyn submits that
Hammel
supra
supports the proposition that, as in that case, the question to be
considered is not whether the applicant ought to have succeeded
with
the winding-up of the respondents on the basis that they were not
able to pay their debts, but whether the applicant was justified
in
launching the applications for the liquidation of the respondents.
Mr Steyn submits that the applicant in this case was
justified
in doing so.
[22]
In
Hammel,
a creditor had brought an application for the winding-up of a
respondent in terms of Section 68 (c) the
Close Corporations Act on
the basis that the respondent was unable to pay its debts. In
that case, the respondent did not dispute its indebtedness
to the
applicant and paid the claimed amount pursuant to the launching of
the liquidation application. By the time the application
for
the provisional winding up of the respondent was heard, the cause for
the application had been removed.
[23]
The
applicant, in that case, had tendered to withdraw its application
with each party paying its own costs. This tender was
rejected
by the respondent and the Court had to consider the issue of costs
under those circumstances.
[24]
Dlodlo
J held, at para 8, that “
[t]he
question is not whether the applicant ought to succeed with the
winding-up of the respondent on the basis that it is not able
to pay
its debts in terms of
section 68
(c) of the
Close Corporations Act.
Rather
, the question is whether the applicant made out a proper
case, in principle, in the founding papers that the respondent was
not
able to pay its debts and was hence justified in bringing the
application.”
[25]
Mr
de Villiers, for the respondents, argues that the general principle
that when a party withdraws its action or application, that
such
party is in the same position as an unsuccessful litigant, and
therefore, the other party is ordinarily entitled to cost,
must
follow. He submits that a departure from the principle that
costs must be awarded to the party which was put to the
expense of
defending withdrawn proceedings, is only warranted in ‘exceptional
circumstances’, which the applicant has
not shown to exist.
In this regard he refers to a number of well-known decisions on this
aspect.
[26]
I
am of the view that the
Hammel
judgment is distinguishable on a number of fronts from the present
matter. In
Hammel,
the respondent’s version was found to be far-fetched and
untenable, it gave contradictory versions and its initial denials
that the debt was due and payable at a specified date were clearly
unsustainable. It admitted the applicant’s version.
The
Court there found, at para 16, that “
[b]y
the time that the applicant caused its letter of demand to be written
to the respondent on 20 August 2008, there was, even
on the
respondent’s own version, no dispute as regards the quantum of
the sum payable to the applicant
.”
[27]
The
Court noted, as in this case, the fact that the respondent was
forewarned that the application might be brought if no payment
was
received by a certain date. In that case, however, the
respondent paid the debt before even filing the answering affidavit.
The Court said, at para 17, “
[t]he
respondent must have known that paying that amount owed to the
applicant necessarily meant that the applicant had to withdraw
the
application. That withdrawal would come about not because the
applicant originally had no case against respondent. The
withdrawal was eminent because the payment of the debt had an effect
of removing the cause for the application. In other
words, as
soon as the money owed was paid, the applicant ceased to have locus
standi in this application.”
This
was known to the respondent, which was legally represented. The
Court questioned why the answering affidavit had been
filed (at para
17).
[28]
None
of that happened in the present matters. No payment of debt was
made, removing the cause for the application. The
Court in
Hammel
was very critical of the respondent’s conduct, for a number of
reasons, some of which I have already mentioned. The
respondents, in the present cases, very much contested their
indebtedness to the applicant. The money they paid to their
attorneys’ trust account was not to acknowledge their
indebtedness, but to show their ability to pay their debts as and
when they fall due. What prompted the applicant not to persist
with its relief against the respondents is not payment of the
amounts, but disputes raised which it felt could not be resolved in
these proceeding.
[29]
The
applicant seeks the court to grant costs in its favour because of the
respondent’s failure to respond to its
section 345
(1) notice.
It contends that had those disputes been raised in response to
the letters of demand, it would not have proceeded
with the
applications. In other words, it could not have foreseen that
the disputes would be raised, for reasons I have already
highlighted.
The difficulty with this proposition is that the existence or
non-existence of franchise agreements is a legal
issue. The
applicant would have known whether it had complied with the
requirements of the CPA prior to the issuing of the
letters of
demand. If there was non-compliance, or question marks as
regards the provisions of the CPA, the applicant would
have foreseen
the possibility of a dispute being raised regarding that issue.
In other words, it would know whether or not
it complied with the CPA
and if the matter was uncertain, anticipate a potential legal issue
on that aspect.
[30]
I
agree with Mr de Villiers that the respondents had no legal duty to
disclose their defence in response to the
section 345
(1) notice, in
this case. Whether or not the franchise agreements existed, as
required by the CPA, is something the applicant should
have checked
before launching an application. The applicant does not
demonstrate in its replying papers that there were indeed
binding and
valid franchise agreements, after this issue was raised by the
respondents. It simply dismisses the issue as being
irrelevant for
the determination of the issue of costs. Whilst the Court does
not need to determine the existence of the
franchise agreements in
these proceedings, the issue is not immaterial. It is important
in so far as it formed the basis
upon which the applicant brought its
case. The applicant alleged in its founding papers that these
respondents are indebted
to it because of the franchise agreements.
It did not allege agreements of a different kind or some kind
of business relationship
as alternatives, in anticipation of the
question marks around the franchise agreements, as a basis for the
alleged debts.
[31]
This
does not mean the applicant, at an appropriate forum, would not be
able to show the existence of such agreements, taking into
account
the alleged
de
facto
position and therefore, the existence of debts. As Mr Steyn
submits, that is not the issue I am concerned with. The
relevant question before me is whether the applicant, before
launching this application, could have foreseen that the existence
of
franchise agreements, upon which its case was based, could be
disputed, in light of the undisputed requirements of the law.
My
view is that those disputes were foreseeable. The applicant
therefore, at that stage, could have chosen a different
forum.
This is unlike cases where an applicant has a choice as to which
forum it should approach to claim its debts, as it
has been stated in
Hammel
and in a number of other cases.
[32]
Mr
Steyn indicated after the hearing of the matter that he had come
across a judgment of
Gore
NO & 2 Others v Lancelot Stellenbosch Mountain Retreat (Pty) Ltd,
Case
Number 7884/12 WCHC 29 April 2013
,
which
in his view had a bearing to the outcome of the costs argument. As a
consequence, parties filed a consolidated supplementary
note. The
respondents differ with the applicant’s view.
[33]
I
have had a look at that decision and I do not think it finds
application to the issue in this case. In
Gore
NO
the
court had to decide whether or not the running of prescription had
been interrupted by a tacit acknowledgment of liability,
as
contemplated by s 14 (1) of the Prescription Act, 68 of 1969 (‘the
Prescription Act&rsquo
;), “
more
particularly, whether the respondent’s failure to respond to
the letters of demand in terms of
s 345
can be seen as such a tacit
acknowledgement of liability
.”
(At para 7.)
[34]
In
s 14
(1) of the
Prescription Act the
word ‘tacit’ had
been used. Referring to
Cape
Town Municipality v Allie NO
1981 (2) SA 1
(C), the court in
Gore
NO
supra, at para 8, found that “…
one
must have regard not only to the debtor’s words, but also to
his conduct, in considering whether there has been acknowledgment
of
liability….Furthermore, and of great importance to the present
case, it was held that whilst silence or mere passivity
on the part
of the debtor will not ordinarily amount to an acknowledgment of
liability, this will not always be so.
If
the circumstances create a duty to speak and the debtor remains
silent, a tacit acknowledgment of liability may rightly be said
to
arise
.”
(Own emphasis, footnotes omitted.)
[35]
The
court in
Gore
NO
supra was very much emphatic that the circumstances of a particular
case may give rise to the duty to speak; if that were not the
case,
in my view, it would mean that, in every situation, where the
respondent has failed to respond to a
section 345
letter, an
inference that its silence constitutes a tacit acknowledgment of
liability, would be justified.
[36]
In
my view, what distinguishes the circumstances of this case from
Gore
NO
is the foreseeability of the liability being be disputed on grounds
that the agreements the claims were based on, did not comply
with the
provisions of the CPA. The only issue raised in
Gore
NO
was that of prescription, which in terms of the
Prescription Act
could
be interrupted by a tacit acknowledgment of liability, as
contemplated in that Act.
[37]
Mr
Steyn submits that the application was launched on the basis of the
respondents’ failure to respond to the section 345
letters and
not the franchise agreements
per
se,
and
that the validity of the franchise agreements is not relevant for the
cost argument because the
de
facto
positions pointed to a business relationship. I have already
dealt with this issue and would not repeat my observations in
this
regard.
[38]
The
only circumstance, from which Mr Steyn suggests an inference of a
tacit acknowledgment of liability should be drawn, is the
respondents’ failure to respond to the section 345 letter.
In my view, more is required for such an inference to be
drawn from
the conduct of a respondent, for if that were not to be the case,
every instance in which a respondent fails to respond
to the letter
of demand in terms of s 345, may be construed as an admission of
liability, which may potentially elevate the assessment
of this issue
to a legal principle, something Griesel J, in
Gore
NO,
was careful to clarify. It is perhaps worth noting that the
Gore
NO
matter
went on appeal where the appeal was dismissed but on different
grounds by the Supreme Court of Appeal (being that the debt
had not
prescribed). (
See
Lancelot Stellenbosch
Mountain Retreat v Gore NO
(108/14)
[2015] ZASCA 37
(25 March 2015 at para 15)
Abuse
of process?
[39]
As
to whether bringing these applications amounted to abuse of process,
I do not think so. Whilst I would query the fact that the
written
agreements are not attached in the applications or, failing that, if
there were no written agreements, the essential allegations
that
would normally be alleged (such as whether the agreement was verbal
or not, where it was entered into, and who represented
the companies
etc.), I would not say that failure to fulfil the above pointed to
abuse of process. I would further query
the fact that no
background facts pointing to the possible insolvency, or otherwise,
of the respondents, other than the section
345 (1) letters, as the
cases were based on section 345 (1) (c), were presented by the
applicant; that would, however, also not
lead me to conclude that the
applicant abused the process by bringing the liquidation
proceedings.
[40]
Whilst
the applicant might have jumped the gun without properly doing its
homework, I do think that it might have genuinely moved
from the
premise that, given
de
facto
position and the silence from the respondents after receipt of the
section 345 notices, the applications could be brought. This,
however, does not assist its case as to the question of whether
legally it foresaw that using the franchise agreements as a basis
for
the applications, could attract disputes of fact.
[41]
For
those reasons, I do not see any reason why this case should be
treated any different from the usual position, that when a party
withdraws an application, it is in the same position as an
unsuccessful litigant. As I have said before, the case is
different
from
Hammel
.
Mr Steyn submits that the applicant has not withdrawn the
applications but continued with them, though only on the aspect
of
costs.
[42]
When
the applications were brought, costs were an ancillary relief, the
main relief being the liquidation of the respondents. In
other
words, the cases brought to Court were not about costs, but about the
winding-up of the respondents. Paragraph 3.3
of the replying
affidavit in both applications clearly states that the applicant does
not persist with the relief seeking the liquidation
orders. I
am, accordingly, not sure how that could be distinguished from an
applicant withdrawing the relief sought before
the Court. I am
willing to assume that the withdrawal did not come about because the
applicant agreed with the respondents’
version, that the
franchise agreements did not exist, but because the plaintiff felt
that this was not the proper forum to resolve
the disputes. Mr
Steyn agreed, however, during the course of his argument, that the
applicant had conceded the merits of
the applications.
[43]
Taking
into account the circumstances of these particular cases, I see no
reason why the respondents should not be entitled to costs,
as a
party that was put to the expense of opposing the matters, when
disputes of fact were foreseeable, prior to the applicant
embarking
on liquidation proceedings.
Formulation
of the relief
[44]
I
asked the parties what ought to be done regarding the fact that no
formal notice withdrawing the liquidation relief was delivered.
Mr
Steyn suggested that the matter be removed from the roll, whilst Mr
de Villiers was concerned that removal from the roll
could notionally
lead to re-enrolment of the matter and submitted that there ought to
be a firm order in regard to the future of
this application. After
some debate both counsel agreed that an appropriate solution would be
to confirm paragraph 3.3 of
the replying affidavits as part of the
order to be issued by the Court.
[45]
I
therefore make the following order:
1.
Paragraph
3.3 of the applicant’s replying affidavits in case numbers
20123/17 and 20124/17 respectively, stating that the
applicant is not
persisting with the relief seeking a liquidation order in respect of
the respondents, is confirmed.
2.
The
applicant is ordered to pay the respondents’ costs in respect
of both applications.
_____________________
N
P BOQWANA
Judge
of the High Court
APPEARANCES
For
the Applicant: Adv R L Steyn
Instructed
by: Brink De Beer & Potgieter, Tyger Valley C/O MacRobert
Attorneys, Cape Town
For
the Respondents: Adv A De Villiers
Instructed
by: Morkel & De Villiers, Somerset West, C/O Heyns &
Partners, Cape Town