About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2013
>>
[2013] ZASCA 52
|
|
Kadoma Trading (Pty) Ltd v Noble Crest CC (452/2012) [2013] ZASCA 52; 2013 (3) SA 338 (SCA); [2013] 3 All SA 126 (SCA) (28 March 2013)
THE SUPREME COURT OF APPEAL OF
SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 452/2012
In
the matter between:
KADOMA
TRADING 15 (PTY) LTD
............................................
Appellant
and
NOBLE
CREST CC
......................................................................
Respondent
Neutral citation:
Kadoma
Trading (Pty) Ltd v Noble Crest CC
(452/12)[2013] ZASCA 52 (28
March 2013)
Coram:
MAYA, SHONGWE,
PILLAY JJA, ERASMUS and SWAIN AJJA
Heard:
1 March 2013
Delivered: 28 March 2013
Summary:
Close
Corporations Act 69 of 1984
─ interpretation of deeming
provisions of
section 26(7)
– effect of restoration of the
registration of a deregistered corporation that the corporation is
deemed not to have been
deregistered at all and acts performed
between deregistration and restoration are validated retroactively.
___________________________________________________________
ORDER
On appeal from:
Western
Cape High Court (Cape Town) (Saba AJ sitting as court of first
instance):
‘
The
appeal is dismissed with costs on an attorney and own client scale.’
JUDGMENT
MAYA JA (SHONGWE, PILLAY JJA,
ERASMUS AND SWAIN
AJJA concurring)
[1] The central issue in this
appeal concerns the interpretation of the deeming provisions of
section 26(7)
of the
Close Corporations Act 69 of 1984
, as amended
(the Act), and more pertinently, whether they validate sale and
franchise agreements concluded by the parties during
the period of
the respondent’s deregistration.
[2] The respondent has its
principal place of business in Cape Town and franchises an automotive
paint and dent repair business
and brand under the name ‘Dents
‘N All’. Consequent to the appellant’s overtures to
acquire the franchise,
the parties concluded a sale agreement and a
franchise agreement (the agreements) on 21 October 2010 and 13
January 2011, respectively.
The purchase price of R1 750 000 was
payable in five instalments in terms of a payment schedule which
required the sum of R1 500
000 to be paid by the time trade
commenced. The balance of R250 000 was to be paid within 14 days of
the month end when the business
achieved a benchmark of a R100 000
monthly net profit.
[3] The appellant duly paid the
initial sum of R1 500 000 and business commenced in February 2011.
However, the relationship between
the parties soon soured because the
appellant was dissatisfied with the quality of equipment and
assistance rendered to it by the
respondent under the agreements. On
9 March 2011, the appellant served the respondent with a notice in
terms of which it cancelled
the franchise agreement based on
allegations that the respondent had failed to perform its contractual
obligations properly. In
response, in a letter dated 14 March 2011,
the respondent denied the alleged breach and rejected the purported
cancellation.
[4] The appellant then made an
interesting discovery. Unbeknown to its representative when the
agreements were concluded, the Registrar
of Close Corporations had
deregistered
1
the respondent on 16 July 2010
for ‘annual return non-compliance’. Furthermore,
according to Companies and Intellectual
Property Registration Office
records, the respondent did not own the Dents ‘N All trademark
as the appellant’s representative
believed. Relying on this
information, the appellant delivered a notice to the respondent on 13
April 2011. It alleged that it
had been induced to enter into the
agreements by fraudulent misrepresentations and was cancelling them
for that reason. In its
written response dated 18 April 2011, the
respondent’s director denied the imputations of fraud. He
claimed to have been
unaware of the deregistration when the
agreements were concluded. He stated that the respondent had, in any
event, since been re-registered
on 12 April 2011. In his view, the
re-registration cured the invalidity of the agreements.
[5] The respondent accepted the
appellant’s cancellation of the agreements and demanded
immediate compliance with clauses
16.4 and 16.5 of the franchise
agreement. These provisions operate upon termination, ‘for
whatever reason’, of the
agreement. Among other things, they
oblige the franchisee to return to the franchisor all materials
provided under the franchise
agreement and prohibit the franchisee
from conducting itself in any manner that would give the impression
that it has any connection
to or relationship with the franchisor.
2
[6] The appellant also recognized
that the agreements were cancelled, although it denied repudiating
them. But it refused to comply
with the respondent’s demand.
Instead, it tendered to return the movable property it had acquired
from the respondent against
the refund of the sum of R1 500 000 which
it had already paid towards the purchase price. It further indicated
that it had referred
the Operations Manual supplied to it by the
respondent to another franchisor for the investigation of possible
misuse of the latter’s
intellectual property or copyright. The
respondent considered this act a breach of clauses 11.2.40 and
11.2.41 of the franchise
agreement.
3
[7] The appellant’s stance
prompted the respondent to launch an urgent application in the
Western Cape High Court for the
attachment and removal from the
appellant’s premises of items it alleged to have supplied under
the agreements. It also sought
to interdict the appellant from using
the Dents ‘N All trademark pending the finalisation of an
action it intended to institute
against the appellant. The appellant
opposed the application on the ground that the agreements were null
and void
ab initio
.
It brought a counter-application based on the
condictio
indebiti
for the
return of the sum of R1 500 00 it had paid as the purchase price,
against delivery to the appellant of all the movable property
it
received under the agreements.
[8] The court below (Saba AJ)
decided the matter in the respondent’s favour and dismissed the
counter-application. The court
held that the invalidity of the
agreements was retroactively cured by the respondent’s
re-registration and that they remained
valid and binding on the
parties as the appellant had not validly cancelled them in light of
its failure to give the respondent
notice to remedy any breach it may
have committed. The appellant challenges that decision with the leave
of the court below.
[9] The nub of the appellant’s
submissions before us was that it had contracted with an entity which
had no legal capacity.
The resultant agreements were thus void and
could not be resuscitated by the subsequent re-registration under
section 26(7)
of the Act. This was so, continued the argument,
because ‘the purpose of re-registration is to re-vest the
entity with legal
personality to enable it to own its assets and to
become liable to its creditors as at date of deregistration’.
Re-registration
therefore ‘wipes out the unregistered past’
and only an agreement validly entered into before deregistration, in
terms
of which reciprocal enforceable rights and duties already exist
upon deregistration, will revive upon re-registration under the
deeming provisions.
[10]
Section 26
of the Act
governs the process of a corporation’s deregistration and
re-registration.
According
to
section 26(1)
and (2) ‘[i]f a corporation has failed, for a
period of more than six months, to lodge an annual return in
compliance with
s 15A
or if the Registrar has reasonable cause to
believe that a corporation is not carrying on business or is not in
operation …
the Registrar may, unless good cause to the
contrary has been shown by the corporation, deregister that
corporation.’ Once
this
happens, a
corporation loses its legal personality and ceases to exist.
4
It is
trite
that an entity with no legal personality cannot perform a juristic
act such as entering into a contract.
5
And, as correctly pointed out on
the appellant’s behalf, the agreements concluded during the
respondent’s state of deregistration
were entirely void.
[11] But of real importance is
the effect, if any, which the respondent’s subsequent
restoration to the register had on its
legal status and the validity
or otherwise of the agreements concluded during its ‘death’.
Section 26(7)
reads:
‘
The
Registrar shall give notice of the restoration of the registration of
a corporation and the date thereof in the prescribed manner
and as
from such date the corporation shall continue to exist and be deemed
to have continued in existence as from the date of
deregistration as
if it were not deregistered.’
[12] There is no direct precedent
from which to draw guidance regarding the construction of
section
26(7).
It is therefore instructive to consider the manner in which
our courts have dealt with its counterparts dealing with the
resuscitation
of corporate entities, albeit bearing some differences.
These are couched in sections 73(6)(a) and 73(6A) of the Companies
Act
61 of 1973 (the Companies Act), from which the provisions of
section 26(7) originate.
6
In terms of these sections, upon
restoration a company was deemed
to have continued in existence as if it had not been deregistered
.
7
[13] Dealing with the meaning of
s 73(6), the court in
Ex
Parte Sengol Investments (Pty) Ltd
8
said:
‘
The
effect of restoration to the register is that the company is deemed
not to have been deregistered at all. This entails that
all parties
who have by deregistration of the company or thereafter acquired
rights to assets which the company had upon deregistration
will lose
those rights as the assets will revert to the company. This includes
assets which have become
bona
vacantia
and
as such accrued to the State. Likewise debtors and creditors of the
company at time of deregistration may upon restoration find
their
obligation or rights resuscitated. It follows that the restoration of
registration of a company in terms of s 73(6) may have
wide-ranging
effects.’
[14] This court had occasion to
consider the issue thereafter in
Insamcor
(Pty) Ltd v Dorbyl Light & General Engineering (Pty) Ltd
.
9
Approving the
dictum
in
Ex
Parte Sengol
and
related decisions, the court commented as follows:
10
‘
As
a result of deregistration, third parties may have acquired or lost
rights, or they may have decided not to exercise their rights
against
the company – precisely because the company did not exist.
Through the operation of a restoration order obligations
towards the
company, which were extinguished because of deregistration, would
revive with retrospective effect. What is more, a
restoration order
seems to validate, retrospectively, all acts done since
deregistration – including for example, the institution
of
legal proceedings – on behalf of a company that did not exist.’
This has been the line of
thinking in other Commonwealth jurisdictions too, notably well before
the promulgation of the Companies
Act. There, substantially similar
provisions have consistently been interpreted to mean that acts
conducted during the deregistration
period are retrospectively
validated upon the company’s re-registration.
11
[15] This
reasoning
applies equally to section 26(7). It should, however, be mentioned
that the cases which pronounced on the retroactive
effect of section
73(6), including those of foreign jurisdictions in relation to
similar provisions, did not only recognise the
potential prejudice
posed by a restoration order against the rights of third parties.
They also endorsed the need to issue all
restoration orders in a
judicially guided context, in the form of a rule nisi, to give
interested parties an opportunity to show
cause why the company’s
registration should not be restored. Much was made on the appellant’s
behalf of this seeming
lacuna in section 26. It was contended that
the absence in section 26 of a provision invoking judicial assistance
for the regulation
of the re-vesting of assets and liabilities by
means of a rule nisi to protect the rights of third parties, such as
that found
in section 73(6), does not mean that the court’s
role has been supplanted by a functionary in the form of the
Registrar.
It was argued that the legislature would have expressly
said so if its intention was to vest the power to reverse common law
rights
and create obligations, which could not exist under common
law, in the Registrar.
[16] I do not agree. Section 26
unambiguously makes provision for an administrative procedure which
is entirely controlled by the
Registrar and requires no court
intervention. The provisions of section 26(6) are significant. They
empower the Registrar to re-register
a corporation by the same
administrative process ‘on application by any interested
person, if he or she is satisfied that
a corporation was at the time
of its deregistration carrying on business or was in operation, or
that it is otherwise just that
the registration of the corporation be
restored’. These provisions make clear that the legislature was
not oblivious to the
possibility of a deregistration not coming to a
corporation’s attention or the Registrar wrongly assuming that
a corporation
was not in operation or carrying on business. And it is
telling that the legislature contemplated restoration precisely in a
situation
where the corporation was deregistered despite the fact
that it was in operation or carrying on business. To my mind, this
signifies
an objective to save a corporation’s acts, performed
in good faith during a period of deregistration, from invalidity.
[17] For its submission that ‘a
deeming provision should not be taken any further than is necessary
to achieve its legislative
purpose as it creates a fiction’ and
that re-registration merely ‘wipes out the unregistered past’,
the appellant
relied on this court’s judgment in
Mouton
v Boland Bank Ltd
.
12
There, the court dealt with the
liability of the deregistered corporation’s members for its
debts and held that section 26(7)
did not have the effect that
personal liability of such members imposed in terms of section 26(5)
of the Act upon deregistration
is extinguished. That, in my view, has
no bearing on the issue at hand as it is only a question arising
between a third party and
a corporation’s member. The judgment
said nothing about the effect of the deeming provision as between a
third party and
the corporation itself and I do not see how it
assists the appellant’s cause.
[18] Examples were postulated on
the appellant’s behalf to illustrate the absurdity of the
interpretation which the court
below ascribed to the deeming
provisions and the prejudice that would potentially be suffered by a
counter-party to an agreement
concluded with a deregistered entity
which wished to enforce or extricate itself from the agreement.
Without detailing them, those
problems seem to me more perceived than
real. They could very well occur where a corporation is deregistered
after an agreement
has been validly concluded but has not been fully
executed; an act which the appellant agreed would be revived by
re-registration.
Nothing would preclude the disadvantaged
counter-party from invoking the provisions of section 26(6) to its
advantage by itself
initiating re-registration or enlisting the
Registrar’s assistance to compel the deregistered corporation’s
agents
to seek restoration without delay, depending on what it
wanted. And there is also the remedy of review available to an
aggrieved
party to set aside the restoration if it is prejudicial.
[19] I see no reason to depart
from the plain meaning of the words used in section 26(7) in the
circumstances. They simply mean
what they say – that a
corporation is deemed to have continued in existence as from the date
of its deregistration as if
it were not deregistered, is deemed to
have been in existence with legal personality and is capable of
performing juristic acts
including entering into valid contracts. The
interpretation which the court below gave to the deeming provisions
was therefore
correct.
[20] The appellant’s
counsel properly conceded that the counterclaim’s success was
contingent on the success of appellant’s
interpretation of
section 26(7). It must therefore fail in light of the above finding
in this regard.
[21] The court below granted the
respondents costs on an attorney and own client scale on the basis of
clauses 16.9 and 25.10 of
the franchise agreement which entitle the
franchisor to costs on that scale ‘should it succeed in any
proceedings (whether
in a court of law or arbitration)’.
Clearly, the award was properly made and should not be disturbed.
[22] In the result, the appeal
fails. The following order is made:
‘
The
appeal is dismissed with costs on an attorney and own client scale.’
________________________
MML
Maya
Judge
of Appeal
APPEARANCES
APPELLANT:
JI DuToit SC (with him PS De Waal)
Instructed
by Cronje De Waal Skhosana
Inc,
Secunda
Rosendorff
Reitz Barry, Bloemfontein
FIRST
RESPONDENT: F J Erasmus
Instructed by Louw Coetzee Malan,
Cape Town
Lovius Block, Bloemfontein
1
In
terms of section 1 of the Act, ‘deregistration’, in
relation to a corporation, means the cancellation of the
registration of a corporation and ‘deregister’ has a
corresponding meaning.
2
The
clauses provide:
‘
16.4
All provisions of this Agreement which in order to give effect to
their meaning must survive its termination, shall remain
in full
force and effect thereafter.
16.4.1 Action on
termination
The franchisee
shall refrain from holding out in any manner whatsoever that there
is any connection or relationship between the
Franchisee and the
Franchisor and without derogation from the generality of the
aforegoing, shall refrain from making use of
any get-up peculiar to
the Franchisor or of any writing, symbols, logos, slogans, devices,
advertising styles of an object whatsoever
which may lead to a
belief among the public that such relationship continues to exist;
Upon termination,
the Franchisee shall forthwith deliver to the Franchisor:
16.4.1.1 all and
any manuals or other written information relating to the systems,
all advertising material and paper goods or
other items bearing the
Franchisor’s marks subject however to the Franchisor paying
the cost of any such items which may
be capable of being used by any
other Franchisee;
16.4.1.2 the
computer software contemplated herein;
16.4.1.3 the client
information of all clients served by the Franchisee is deemed to
also be client information of the Franchisor
and said client
information will be provided to the Franchisor upon cancellation of
this agreement for whatever reason.
16.5 Upon the
termination or expiration of this Agreement, all rights granted to
the Franchisee in this Agreement will terminate
immediately. The
Franchisee will immediately cease to use the intellectual property,
the Marks and System and to sell or provide
the Products or
Services. The Franchisee shall immediately remove and return to the
Franchisor all building and vehicle signage,
displays, marketing
materials, literature, business cards, stationery and any other
materials which contain the Marks.’
3
According
to t
hese clauses, the franchisee may
‘
11.2.40
not do anything which may adversely affect the Franchisor’s
rights in the intellectual property or which infringes
on the
reputation and corporate image of the Franchisor or other
Franchisees,
11.2.41
not do anything which may bring the system or the business into
disrepute or which may damage the interests of the Franchisor
or
other Franchisees.’
4
Miller
v NAFCOC Investment Holding Co Ltd
2010 (6) SA 390
(SCA) para
11;
Ex Part Jacobson: In re Alex Jacobson Holdings
1984 (2)
SA 372
(W) at 377A-D. In the latter matter the court dealt with the
effect of a company’s deregistration and restoration under the
provisions of s 73(6) of the Companies Act 61 of 1973 (the Companies
Act). But the principle there enunciated applies equally
to close
corporations as s 26(7) of the Act which has the same objectives and
is similarly structured.
5
Steenkamp
NO v Provincial Tender Board, Eastern Cape
2006 (3) SA 151
(SCA)
para 51.
6
The
Companies Act has since been repealed by the
Companies Act 71 of
2008
but the amendments brought about by the new legislation bear no
relevance for present purposes as it came into effect only on 1
May
2011.
7
They
read:
‘
73
Cancellation of registration of memorandum of articles
…
(6) (a) The Court
may, on application by any interested person or the Registrar, if it
is satisfied that a company was at the
time of its deregistration
carrying on business or
was in operation, or
otherwise that it is just that the registration of the company be
restored, make an order that the said registration
be restored
accordingly, and thereupon the company shall be deemed to have
continued in existence as if it had not been deregistered.
(b) Any such order
may contain such directions and make such provision as to the Court
seems just for placing the company and
all other persons in the
position, as nearly as may be, as if the company had not been
deregistered.
(6A)
Notwithstanding subsection (6), the Registrar may, if a company has
been deregistered due to its failure to lodge an annual
return in
terms of
section 173
, on application by the company concerned and on
payment of the prescribed fee, restore the registration of the
company, and thereupon
the company shall be deemed to have continued
in existence as if it had not been deregistered: Provided that the
Registrar may
only so restore the registration of the company after
it has lodged the outstanding annual return and paid the outstanding
prescribed
fee in respect thereof.’
8
1982
(3) SA 474
(T) at 477 C-D.
9
2007
(4) SA 467
(SCA).
10
Ibid,
para 23.
11
For
example, in
Tyman’s Ltd v Craven
[1952] 2 QB 100
([1952]
1 All ER 613
(CA)), the court held that the effect of
broadly similar provisions was not only that the corporate existence
of the company
that had been struck off the register was preserved
but was also retroactive. See also
Top Creative Ltd v St Albans
District Council
[2000] 2 BCLC 379
(CA) at 385e-387f;
Royal
Bank of Canada v Cressler Hotels
1980 CanLll 1072 (ABQB).
12
2001
(3) SA 877
(SCA).