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[2011] ZASCA 11
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Grobbelaar and Others v Shoprite Checkers Ltd (710/2008) [2011] ZASCA 11 (11 March 2011)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case
No: 710/2008
In
the matter between:
LOUIS JOHANNES JACOBUS
GROBBELAAR
.........................................
First
Appellant
DANIEL JOHANNES MONK
HEYNS
.....................................................
Second
Appellant
PETRUS CROUS WELGEMOED
...............................................................
Third
Appellant
and
SHOPRITE CHECKERS
LIMITED
....................................................................
Respondent
Neutral citation:
Grobbelaar v Shoprite Checkers
(710/2008)
[2011]
ZASCA 11
(11 March 2011)
Coram:
BRAND,
NUGENT, LEWIS, MALAN and MAJIEDT JJA
Heard:
15
February 2011
Delivered: 11 March
2011
Summary:
Agreement
in restraint of trade – breach of – sale of business as
going concern – cession of rights – claim
for damages -
causation
_____________________________________________________________________
ORDER
On appeal from:
Western Cape High Court (Cape Town) (Van der Westhuizen AJ
sitting as court of first instance):
The appeal is dismissed
with costs, including the costs of two counsel.
_____________________________________________________________________
JUDGMENT
MALAN JA (BRAND, NUGENT,
LEWIS, and MAJIEDT JJA concurring)
[
1]
This is an appeal by the defendants in the court a quo, against the
judgment and order of Van der Westhuizen JA in the Cape High
Court
,
declaring the defendants liable to the respondent, the
plaintiff in the court below, for damages caused by their breaches of
undertakings
in restraint of trade.
[2] The dispute between
the parties arose from the purchase on 23 November 1995 by Shoprite
Checkers (Edms) Bpk (SCEB) of the businesses
of Sentra Koop
Handelaars Bpk and Megasave (Edms) Bpk
(the
Sentra/Megasave sale)
. The first defendant was the managing
director of and shareholder in both the latter companies, the second
defendant was a shareholder
and director and the third defendant an
employee. The two companies were buying organisations, Megasave
conducting a wholesale
and Sentra a retail business. A buying
organisation acts as a broker between the supplier and the dealer.
The dealer becomes a
member of the buying organisation which
negotiates prices to be paid with the supplier. The buying
organisation pays the supplier
and thus accepts the credit risk of
the member who must reimburse it. The buying organisation earns its
revenue from rebates and
allowances made by the supplier, part of
which is passed on to its members.
[3] It was a condition
precedent of the Sentra
/
Megasave sale
that the defendants conclude agreements in restraint of trade with
SCEB. The terms of the restraint agreements signed
by the defendants
were
i
dentical
s
ave that the period of the
restraint for the third defendant was 24 months and for the first and
second defendants 36 months
,
from the
time the defendants left the employ of SCEB. The first defendant left
his employment on 31 May 1998, the second defendant
on 30 April 1997
and
the
third defendant on 30 April 1998
.
T
he
restraints thus expired on 31 May 2001
and
30 April 2000
r
espectively.
As
c
onsideration
for agreeing to the restraints the first and second defendants were
paid R1,1 million each and the third defendant
R 500 000. Clause 3 of
each of the restraints provided:
‘
Die
Werknemer onderneem hiermee teenoor Shoprite [SCEB] en op die basis
van ‘n beding ten behoewe van derdes, teenoor elke
ander lid
van die Shoprite groep vir die duur van die inperkingsperiode, dat hy
nie: -
3.1 ‘n Belang sal
hê of betrokke sal wees, direk of indirek, in enige
hoedanigheid (insluitend maar nie beperk tot adviseur,
agent,
konsultant, direkteur, werknemer, finansier, bestuurder, lid van ‘n
beslote korporasie, lid van ‘n vrywillige
assosiasie, vennoot,
eienaar, aandeelhouer of trustee) in enige entiteit, direk of
indirek, wat gemoeid is in ‘n mededingende
aktiwiteit binne die
gebied [ie the Republic and Namibia] nie;
3.2 Enige vertroulike
inligting sal openbaar aan entiteite ander dan entiteite verbonde aan
die Shoprite groep en wat geregtig is
op sodanige vertroulike
inligting nie;
3.3 Ten opsigte van enige
mededingende aktiwiteit binne die gebied direk of indirek betrekkinge
sal aanbied of enige dienskontrak
sluit met of enige werwing te doen
ten opsigte van enige persoon in diens van die Groep;
3.4 Enige poging sal
aanwend om enige voorsiener of klant van die Groep te oorreed om
enige kontraktuele verhouding van welke aard
ook al met die Shoprite
groep te beëindig of die terme daarvan te wysig tot nadeel van
die Groep nie;
3.5 Binne die gebied en
ten opsigte van die besigheid van die Shoprite groep gebruik sal maak
van enige handelsverbintenis van die
Groep met enige klant of
voorsiener, anders as vir die doel om sy verpligtinge as werknemer
van Shoprite na te kom nie.’
[
4]
Pursuant to an agreement of sale concluded on 31 October 1997
Shoprite Holdings Beperk acquired the share capital and loan accounts
of OK Bazaars (1929) Ltd from South African Breweries Ltd. OK Bazaars
(1929) Ltd, as the plaintiff was then known, became a subsidiary
of
Shoprite Holdings and a member of the Shoprite Group.
[5] In order to make use
of an accrued tax loss in OK Bazaars (1929) Ltd a reorganisation and
rationalisation scheme was launched
by the Shoprite Group in August
1998. To give effect to the scheme the business, assets and rights of
SCEB and some
40
other companies in the Shoprite Group (the ‘sellers’)
were in terms of an agreement of sale dated 28 August 1998 sold
to OK
Bazaars (1929) Ltd, the plaintiff, as going concerns with
retrospective effect to 1 November 1997 (the ‘SCEB sale’).
Thereafter OK Bazaars (1929) Ltd changed its name to Shoprite
Checkers (Edms) Bpk
(
the
respondent in this court and plaintiff in the court below). SCEB
subsequently changed its name to OK Bazaars (1998) (Pty) Ltd
and,
having disposed of all its business, became dormant. Clause 2 of the
SCEB sale contained the following
c
ondition:
‘
It
is a condition precedent for the transactions embodied in this
Agreement acquiring force and effect that the approval of the
Commissioner of Inland Revenue be obtained in terms of
Section 39
of
the
Taxation Laws Amendment Act, Act
20 of 1994.’
It is not in dispute that
the Commissioner approved the rationalisation scheme on 27 October
1998. SCEB managed the entire business
as agent of the plaintiff from
1 November 1997 pending fulfilment of the suspensive condition.
[
6]
The plaintiff’s cause of action is based on its acquisition of
the entire business of SCEB with the inclusion of the rights
SCEB
held in terms of the restraints against the defendants
,
the plaintiff
having
taken
possession
of th
e b
usiness
and
conducted it
.
In the alternative the plaintiff relied on a written
cession of the rights arising from the restraints dated 24 September
1999.
The defendants admitted this cession.
[7] The plaintiff alleged
in its particulars of claim that the defendants committed breaches of
their restraint agreements by becoming
involved in competitive
activities, disclosing confidential information and by the
establishment of a competing buying organisation,
The Buying Exchange
Company (Pty) Ltd
(BEC)
. The defendants
allegedly, directly or indirectly, enabled BEC to conduct a competing
buying organisation by providing it with
advice, knowledge and
financial assistance and by furthering the purpose and aims of BEC.
Members of Megasave and Sentra were encouraged
to resign and join
BEC. The defendants disclosed the identity of suppliers and clients
of the Shoprite Group to BEC and persuaded
them to sever their
contractual relationships with the plaintiff. The plaintiff listed
some
11
members who resigned from
Megasave and Sentra between 3 February 1999 and 16 March 1999 (the
dates of resignation of three members
are unknown). This conduct, it
was alleged, was unlawful and in breach of the provisions of the
restraint agreements. The amount
claimed, some R8m, represented the
income the plaintiff would have earned, but for the resignation of
these members
, until termination of the first
defendant’s restraint.
[8] The defendants
pleaded that during the course of the second part of 1998 they
considered the establishment of a buying forum,
not a buying
organisation, in which members
of
Megasave and Sentra could have taken part. The forum would not have
competed with these two organisations. The defendants stated
that
they had discussions with certain of
these
members and gave instructions for the registration of BEC, the
vehicle through which the buying forum would have conducted business.
The defendants were appointed directors of BEC. The defendants added
that during November 1998 certain members of Megasave and
Sentra,
with whom the buying forum was discussed,
were
dissatisfied with
these
organisations and indicated that they wanted to resign and to take
part in the buying forum through an alternative buying
organisation.
Consequently, the defendants pleaded, they informed these members on
17 November 1998, when the first board meeting
of BEC was held, that
they could no longer be involved in the proposed organisation since
that might infringe the provisions of
their restraint agreements.
They gave instructions to
Mr B J
Van den Berg, BEC’s secretary, to have them removed as
directors and terminated their involvement with BEC.
[9
]
At the first hearing before the court a quo Van der Westhuizen AJ
granted absolution from the instance on the basis that the plaintiff
had not shown that it had acquired the rights arising from the
restraint agreement
s
o
n the limited basis that there
was no evidence that SCEB had complied with s 228 of the Companies
Act 61 of 1973.
In terms of the SCEB sale, SCEB
and the other sellers sold their businesses to the plaintiff so that
a resolution in terms of s
228 was required.
On appeal to this court the order of absolution was set aside
and the matter referred back to the trial court. Before the trial
commenced a separation order was made, calling on the trial court
first
to
determine
the issue of liability
,
including the
question whether the persons or entities listed in the particulars of
claim resigned as members and ended their relationship
with the
plaintiff as a result of the defendants’ alleged breaches of
contract. At the resumed hearing only the first defendant
gave
evidence for the defendants and called as witnesses
Mr
G S
Yusuf, a former employee of
the plaintiff and later employed by BEC, and
Mr
J R
Basson,
the managing director of the plaintiff. Van der Westhuizen AJ made
the declarator holding the defendants liable. As I have
said, he also
found that the defendants’ conduct caused the resignations of
the members of Sentra and Megasave
referred to
in the particulars of claim
. In coming to these conclusions he
rejected the evidence of the first defendant and drew adverse
inferences from the failure of
the second and third defendants to
testify and call, amongst others, Van den Berg, as a witness.
[10] On appeal the
judgment of the trial court was attacked on four bases: First,
whether the plaintiff acquired the rights arising
from the restraint
agreement and, if so, whether the acquisition was prior to the
defendants’ breaches of contract or the
‘damage-causing’
events, viz the resignation of members of Megasave and Sentra;
secondly, whether the defendants breached
their obligations under the
restraints; thirdly, whether such breaches, if established, caused
the relevant
members of Sentra and Megasave to terminate their membership
or their relationship with the plaintiff; and, fourthly, whether the
plaintiff had acquired the Sentra and Megasave business and their
members prior to th
e
r
esignations
of
the members
(ie whether the
plaintiff had in fact suffered loss).
[11] The trial court
found that in the absence of any contradictory evidence the rights
arising from the restraint agreements
attached
to the businesses of Megasave and Sentr
a
,
forming part of their goodwill. These rights included the rights
arising from the restraint agreements as well as the right to
earn an
income from sales made by members of Megasave and Sentra. It was not
in dispute that the purpose of the rationalisation
scheme was to
transfer the whole of the business of SCEB to the plaintiff. The
rights referred to, the court found, were transferable
and were in
fact transferred to the plaintiff with effect from 1 November 1997,
but at least on 27 October 1998, when the suspensive
condition to the
SCEB sale, the approval of the Commissioner for Inland Revenue, was
fulfilled. It was not in dispute that SCEB
conducted the businesses
of Sentra and Megasave from 1 January 1996 as a division of its own
business. SCEB also conducted as part
of its enterprise a retail
chain of supermarkets under the name
s
of
‘Shoprite’ or ‘Checkers’. The plaintiff
conducted a retail chain of supermarkets under the names of
‘OK
Bazaars’ and ‘Hyperama’.
[12]
It was common cause that pursuant to the rationalisation
scheme the entire business of SCEB was sold and transferred to the
plaintiff
and merged with the business of the plaintiff. In their
additional heads of argument the appellants disputed only the date of
the
transfer. The rationalisation scheme was implemented to
take
advantage of
the accrued tax loss of the plaintiff and this could be done
only if the entire business of SCEB had been transferred to the
plaintiff.
The plaintiff had in fact
used
part of the tax loss in the financial year ending June 1998.
[13]
The best illustration that the entire business of SCEB was
transferred to the plaintiff is the fact that SCEB became dormant
after
the transfer
,
and the plaintiff
became
the
operating company in the group. These facts were not disputed at the
trial.
[14]
The first ground on which the plaintiff relied for its
acquisition of these rights as pleaded i
n
t
he particulars of claim was that
they were transferred and acquired by the plaintiff’s taking
possession of the business and
conducting it. This is indeed what the
court a quo found. The defendants, however, characterized this
finding differently and contended
that the trial court found that
these rights passed to the plaintiff by operation of the SCEB sale
per se
. This is not correct. The trial found that the
plaintiff ‘die gehele onderneming van SCEB met effek 1 November
1997, ingevolge
die koopkontrak van 28 Augustus 1998, gekoop,
oorgeneem en bedryf het’.
[1
5
]
What the defendants disputed was the finding of the court a quo that
SCEB managed the business of SCEB with effect from 1 November
1997 as
the agent for the plaintiff. The defendants contended that SCEB
managed, pending fulfilment of the suspensive condition,
the business
on behalf of Shoprite Holdings Ltd and not on behalf of the
plaintiff. This is not correct. The clause 3 of Part Four
of the SCEB
sale provides that the management
and
control in respect of the businesses -
‘
shall
be deemed to have passed to the PURCHASER on the Effective Date, from
which date it has been managed and controlled on behalf
of the
PURCHASER by the SELLERS as its agent.’
The
‘purchaser’ as defined is the plaintiff. Shoprite
Holdings Ltd is not one of the ‘sellers’.
1
This
conclusion is, moreover, borne out by the evidence of
Mr
A N
Van
Zyl, the plaintiff’s secretary, and
Ms
S J
De
Boor, an employee of the plaintiff’s auditors. In addition, the
documents submitted as part of the application for approval
of the
rationalisation scheme show that the amalgamation of the entire
business of SCE
B
w
ith
that of the plaintiff was envisaged. Moreover, the managing director
of Shoprite reported in February 1998 to the directors
of SCEB and
Shoprite Holdings Ltd that the merged businesses were conducted as a
single entity from 1 November 1997. The rationalisation
scheme was
approved on 24 February 1998 by the directors of both SCEB and the
plaintiff. The SCEB sale was ratified by Shoprite
Holdings Ltd on 7
July 1998. The court a quo was therefore correct
in
finding
that
SCEB conducted its business as agent for and on behalf of the
plaintiff from 1 November 1997.
Was there a transfer
of the right to enforce the restraints to the plaintiff?
[1
6
]
The defendants contended that there was no evidence that the rights
had passed to the plaintiff before 24 September 1999 when
the written
cession was executed. The relevant members of Megasave and Sentra had
all resigned before that date, viz during February
and March 1999. It
follows, so the argument went, that no rights of the plaintiff were
infringed at the time of the resignations
and thus no wrong
s
were
committed
as against the plaintiff at that time. The defendants submitted that
clause 1 of Part Four of the SCEB sale, providing
that the effective
date of the sale would operate retroactively from 1 November 1997,
was a deeming provision
inter
se
that
could not affect the parties to the litigation or elevate any prior
act of the defendants to the breach of a right which the
plaintiff
did not have at the time of breach. The only evidence of a cession,
it was argued, was the written document of 24 September
1999 which
expressly provided for the cession. For the reasons set out these
contentions cannot be accepted.
[1
7
]
There is, as was observed,
a
d
istinction
between th
e
a
greement
to cede and the real agreement of cession
,
although these will often coincide
.
2
‘
The
undertaking to cede and the actual cession will often coincide and be
consolidated in a single document, yet they remain discrete
juristic
acts. However, because they are frequently merged into one
transaction the clear distinction between the obligationary
agreement
to cede and the actual cession sometimes tend to be smudged. They are
nevertheless distinct in function and
it
can
be so in time: by the former a duty to cede is created, by the latter
it is discharged.’
[1
8
]
The SCEB sale was a
n
a
greement
to effec
t
a
cession
in future. A cession is an abstract legal act that is independent of
the underlying, obligationary, agreement.
3
The
cession of personal rights is brought about by agreement and no
formalities are required.
A
cession may thus be either express or tacit, to be inferred from the
conduct of the parties.
4
Clause
4.3 of Part Four of the SCEB sale requires the sellers
,
i
ncluding
SCEB, to ‘use their best endeavours to procure, with effect
from the fulfilment of the condition precedent referred
to in clause
2 of Part One [ie the approval by the Commissioner for Inland
Revenue], the cession and assignment of all rights and
delegation of
all obligations under the contracts to the PURCHASER with effect from
the Effective Date, [
1
November
1997]
…
.’
It
does not follow from this clause that a real agreement of cession
could not have been concluded tacitly. No formalities were
required
for the cession envisaged: all the parties had to do was to use their
best endeavours to procure it. The intention was
clearly that any
cession, whenever done and in whatever manner accomplished, would
suffice. The evidence was that SCEB conducted
its entire business on
behalf of the plaintiff from the effective date in order to give
effect to the rationalisation scheme. The
only inference to be drawn
from this is that the parties
by
their conduct
concluded
the real agreement of cessio
n
transferring
t
he
rights flowing from the restraint agreements, being part of the
business of SCEB, to the plaintiff.
5
This
was no ‘mere loose understanding’.
6
[1
9
]
A
n
a
greement
to
cede
may
be
subject to a
suspensive
condition, as in this case, or
to
a
time
clause relating to the cession, in which event the right will not
pass until the condition has been fulfilled or the prescribed
period
has elapsed. Logically,
the
transfer of the rights to enforce the restraints was also subject to
the same
suspensive
condition the SCEB sale was subject to. On fulfilment of the
condition the parties
inter
se
are
then placed in that position
ex
tunc
.
7
In
view of my conclusion below, I need not express an opinion on the
effect of such a cession
inter
omnes
,
as against third parties, but will accept that as far as third
parties are concerned the rights vested in the plaintiff only on
fulfilment of the condition,
on
27
October 1998, a date before the resignation of the members of Sentra
and Megasave.
[
20
]
The defendants, however, contended on appeal that the plaintiff
had
failed
to show that the rights in respect of Sentra and Megasave formed part
of the SCEB sale. The argument rested on a narrow basis.
Clause 3.1.1
of Part One describes the
merx
as
‘the SC business comprising: the entire retail supermarket
business which is being sold as a going concern’ as well
as the
immovable property and share sales and claims in respect of its
subsidiaries. The ‘retail supermarket business’,
the
argument went, did not include the businesses of Sentra and Megasave:
the latter’s members were wholesalers and Sentra
did not
conduct a supermarket business. The definition of ‘going
concerns’ in clause 1.2.2.6 of Part One and, by reference,
of
‘SC Business’ in clause 1.2.2.17 again contain the same
apparent limitation of the business sold as the ‘retail
supermarket business’. It was argued on behalf of the plaintiff
that this interpretation was too restrictive and that, when
the whole
agreement is seen in context and against its factual matrix,
8
it
became clear that the entire business of the seller under the SCEB
sale was to be disposed of. It is not necessary to determine
this
issue. The trial court found that the businesses of Sentra and
Megasave were transferred to and conducted by the plaintiff,
initially by SCEB on behalf of the plaintiff and later, after
fulfilment of the suspensive condition, by the plaintiff itself.
For
the reasons set out the real agreement of cession was concluded
tacitly and pursuant to the rationalisation scheme followed
by the
SCEB sale which was implemented by SCEB taking possession and
managing the entire business on behalf of the plaintiff. Only
its
effect was suspended pending fulfilment of the condition precedent.
Whether or not the rights arising from the restraints formed
part of
the ‘SC business’ as defined is irrelevant: they formed
part of the business of SCEB.
Breach of duty to
plaintiff
[
21
]
The defendants contended that, inasmuch as the plaintiff sought to
recover damages suffered in its own right, it had to establish
a
breach of an obligation owed to it which resulted in the
‘damage-causing’ events,
that
is
the
resignation of the members. This again depended on the existence of a
contractual obligation at the time of the conduct complained
of. The
submission was made that it was not within the power of the plaintiff
to render an act retroactively wrongful by taking
cession of the
relevant right at a later stage. The first answer to this contention
is that the real agreement of cession on fulfilment
of the condition
brought about the transfer of the rights of SCEB, arising from the
restraint agreements, to the plaintiff. Since
the plaintiff acquired
the entire busines
s
of
SCEB
,
the
rights ceded also included all rights that had accrued to SCEB
arising from the alleged breaches of the restraints. These rights
vested
pendente
conditione
in
SCEB
,
and
would in the ordinary course and in an appropriate case have provided
a sufficient basis for an interdict at the suit of SCEB.
Pending
fulfilment of the condition any wrong would have been committed
against SCEB, not as against the plaintiff. But on fulfilment
of the
condition the rights in respect of the restraint agreements and also
those arising from their breach vested in the plaintiff.
The damages
(ie those resulting from the resignation of the members) were
suffered only later after the plaintiff had acquired
those rights.
The claim for damages thus vested in the plaintiff.
Defendants’
breaches
[
22
]
The defendants contended that, assuming that the cession had taken
place before resignation of the members, it was not sufficient
for
the plaintiff to rely on evidence of generalised breaches of the
restraints but that it had to show particular acts on the
part of
each defendant that were causally linked to the resignation of each
member. This, the argument proceeded, was not considered
by the court
a quo.
[2
3
]
The trial court found that BEC was a buying organisation that
conducted business in competition with Megasave and Sentra. It was
established after a meeting in August 1998 by members of these
organisations at the Little Switzerland Hotel and convened by the
defendants. After the meeting the defendants
prepared
a business plan for the proposed buying organisation which was handed
in as Exhibit S
. BEC was registered on the instructions of the
first defendant. The office of BEC was set up as a result. The
defendants directly
or indirectly funded BEC. Their resignation at
the first board meeting of BEC was not in good faith and, the court
found, they
continued to be involved in BEC. I
accept
these
findings and the inferences
drawn by the trial court. The conclusion of the court that the
defendants planned and funded the establishment
of a competing buying
organisation seems to me the most likely, if not the only, inference
to be drawn.
The Little Switzerland
Hotel meeting of 12 August 1998
[2
4
]
The defendants convened the meeting. The trial court found that what
was discussed was not, as alleged by the defendants, the
establishment of a forum that would have done business through
Megasave but a competing buying organisation. The evidence indeed
shows that several of the largest members of Sentra and Megasave were
invited. Mr
A
Allie, a member of Megasave, testified that everyone invited
was hand-picked and that they represented some of the largest stores.
The meeting was addressed by the first and second defendants, the
first defendant playing the leading role. The third defendant
attended. Allie had been informed before the meeting by the first and
second defendants that a new buying group would be formed
and that he
would be invited. He indeed received a written invitation and
understood the purpose of the meeting to be the formation
of a new
group to ‘run down Shoprite Checkers’.
Allie
had no interest in supplying small members: all those invited were
businessmen intending to establish a new buying group of which
they
would be the ‘muscle’. He understood that the rebate
system at Shoprite was to be restructured and a franchise
operation
and administration fee introduced. The defendants were apparently
unhappy with this course of events and informed the
invitees that the
new organisation would be less difficult, offering more benefits to
members. Those invited were to be its directors
and shareholders.
They were encouraged to resign from Sentra and Megasave and take up
shares in the new organisation. It was suggested
that each had to
contribute R100 000 as capital. New members would be recruited
after the buying organisation was set up and
its structure settled.
The defendants undertook to provide a business plan for the new
organisation and to submit it to those present
for approval. Exhibit
S was eventually produced. No reference was made at the meeting to
the restraints to which the defendants
were subject, not even when it
became clear at the meeting, as was put to Allie in
cross-examination, that some of those present
wanted to form a new
buying organisation.
[2
5
]
The trial court accepted that all three defendants had played a
leading role in convening the meeting and that its purpose was
the
formation of a new buying organisation in competition with Sentra and
Megasave. Had it been the intention to establish a buying
forum, one
would have expecte
d
t
he latter two organisations
would
have
been invited as well, particularly where the concept of a ‘banner
group’ had already been discussed by the second
defendant with
officials of the plaintiff. The meeting was clearly confidential and
set up to discuss the establishment of a competing
buying
organisation. Had the defendants planned a buying forum, one would
have expected them to continue with this enterprise.
What they did,
however, was to support the ‘core’ grou
p.
A
s the court found, Exhibit S, was a detailed plan for the
establishment of a buying organisation
,
produced shortly after the meeting
.
Exhibit S
[2
6
]
Exhibit S was distributed under the name of the interim management
committee,
comprising
the first and
second defendants. Each of the defendants contributed to it. In the
letter accompanying the exhibit those who attended
the meeting were
thanked for their participation. Paragraph two thereof read that
‘[t]he enthusiasm and support that was
shown, convinced us once
more of the opportunity to combine our efforts. Attached herewith a
draft document listing our plans.’
The two cellphone numbers
listed at the foot of the letter were those of the first and second
defendants.
[2
7
]
Exhibit S was headed ‘The Buying Exchange Company’ and
commences with the words ‘[i]n order to investigate\evaluate
the need for an independent buying group it is necessary to analize
certain basic concepts …’. It continued with
descriptions of the retail market, the independent market and the
future market. Franchises and buying groups were discussed. It
was
stated that Shoprite intended Sentra and Megasave to become fully
franchised operations. This information, the trial court
found, could
only have come from the first defendant. The formal franchise market
was expected to grow but ‘a second market
exists for either the
true independent or those operating in the informal market’.
The ‘Concept for the Future’
was to follow a ‘top
down approach’ and to establish a low risk organisation with a
small capital base. The ideal structure
for the organisation was a
company to be owned and controlled by 15 major equal shareholders and
directors. The shareholders’
agreement had to provide for
ownership to remain in the hands of the major players and for the
buy-out of or sale to new members
and directors. Participants on the
second level were to be involved on a membership or smaller
shareholder basis. Provision was
also made for an operating company
and for the eventual listing on the JSE. It was not intended to sell
the proposed company but
rather to provide benefits to members
through discounts and rebates and growth in the share value. The
trial court correctly inferred
that the latter provision was probably
included to allay the fears of members that, as had happened in the
case of Sentra and Megasave,
the business of the new organisation
would eventually be sold by the defendants. This issue was
specifically raised at the Little
Switzerland Hotel meeting.
[2
8
]
The new organisation was to commence with the establishment and
equipping
of a buying office in Gauteng
after the formation of the company and the setting of the share
participations. Exhibit S stated
that during the initial phase
members had to conduct their accounts through their existing buying
organisations because rebates
usually ran to December of each year.
It follows that the eventual resignation of members from their old
buying organisations
was
contemplated.
After the initial phase the buying organisation had to be established
and second level members recruited. To recruit
smaller members and
allow for their rebate income it was planned to carry their accounts
and pay suppliers on their behalf. It
was not the intention to create
a franchise operation although it was envisaged that some sort of
‘combining image’
had to be offered to smaller members. A
timetable
was annexed to Exhibit S
requiring the company to be established by 30 September 1998. Dates
were set for the establishment of
the company, for top members taking
up their shares, for the opening of the buying office, for the
recruiting of second level members
and for the administration and
accounts system to be set up. The full organisation had to be
functional by July 1999. Exhibit S
also contained an income and
expense budget, a
pro forma
letter to suppliers (which
included a statement that
Mr Leon
Volschenk had been appointed as commercial manager) and a
draft acceptance form for taking up shares in the company. The last
section
dealt with computer and software requirements, invoices and
statements.
[2
9
]
The court a quo rejected the evidence of the first defendant that
Exhibit S was merely an ‘interim document’ and not
a
specific guide to be followed. I agree with this assessment. The very
wording of Exhibit S reflects that it was a detailed business
plan
for the establishment of BEC. This conclusion is supported by the
reluctance of the defendants to admit its origin. The first
defendant
at first said in evidence that he gave Exhibit S to his attorneys.
Although a document substantially the same as Exhibit
S was
discovered before the trial, it was only admitted after Allie had
given evidence and referred to it. The first defendant,
moreover,
denied in a discovery affidavit that there existed any documents
pertaining to the establishment of BEC or the buying
forum. He also
denied, after the trial had commenced, that he was in possession of
Exhibit S or that it was prepared by him or
on his behal
f.
T
he trial court correctly drew the inference that the
defendants deliberately tried to conceal their role in the drafting
of Exhibit
S and the establishment of BEC. The trial court, moreover,
rejected the contention that an amount of R1,5m was insufficient for
the establishment of a buying organisation. The manner of financing
the new organisation was detailed in Exhibit S, and it was
specifically stated that the capital of the company did not have to
be substantial. The founding members were at first going to
purchase
through their existing buying organisations but thereafter through
BEC. Moreover, at the first meeting of the BEC board
on 17 November
1998 it was resolved that members would initially have to pay for
their purchases in advance.
Establishment of BEC
[
30
]
Events after the distribution of Exhibit S confirm that the
defendants assisted
in implementing
the
business plan. The first defendant instructed Van den Berg to see to
the establishment of BEC
,
which was
registered on 8 September 1998. The main business of BEC was to carry
on the business of a ‘buying organisation’.
The first
defendant provided both the name of the company and the description
of its main purpose. An office was found and equipped.
Volschenk and
Van den Berg were appointed as managing director and secretary
respectively. The defendants were BEC’s first
directors. Some
of those who attended the meeting at the Little Switzerland Hotel
took up their shares and were appointed directors
of BEC. The members
of Sentra and Megasave who became members of BEC resigned, as
contemplated in Exhibit S, during February and
March 1999, after BEC
started operating.
[
31
]
The minutes of the board meeting of BEC on 17 November 1998 confirm
most of these events. It was attended by some of the persons
who had
attended the meeting at the hotel. Also present was the chairman of
Verbruikers Groothandel. It was resolved that ‘an
option be
exercised to take up shares in The BEC in exchange for shares by The
BEC in VGK’. Verbruikers was a competing buying
organisation
and the undisputed evidence for the plaintiff was that the first
defendant knew from early 1998 that
it was
for sale. Verbruikers, the trial court found, would provide the
vehicle through which the members of BEC could make their purchases.
It was resolved that the share capital of BEC was to be R1,5m and
that there would be 15 main shareholders with
ten
board members and
five
executive
directors. BEC was to function with a small capital base and members
initially had to pay for their purchases in advance.
The minutes show
that BEC was geared to start operating on 1 February 1999 and that
members would be informed of the date on which
business would
commence so that they could resign their existing membership. Legal
opinion on the correct procedure for resignation
had to be obtained.
The minutes of the meeting of 3 February 1999 reflect that the
resignations of members of Sentra and Megasave
had been discussed
with attorneys. Negotiations with suppliers had already taken place
and they required written resignations.
The conclusion of the trial
court that BEC was established in breach of the defendants’
obligations under their restraints
seems unassailable.
Funding of BEC
[
32
]
Extensive evidence of the funding of BEC by the defendants through
the Sengroep group of companies was led. MEGS was a wholly
owned
subsidiary of Sengroep, the shares of which were held by DSAL,
Superbia and Desbel (all private companies). The three defendants
were directors of MEGS during 1998 and 1999. They were also directors
of Sengroep and DSAL in 1998. Van den Berg was the secretary
of most
if not all of these companies. Howard, their auditor, described Van
den Berg as the ‘de facto executive’ of
the group. In the
1998 and 1999 financial years the third defendant and Van den Berg
were among the directors of Karaat (a private
company associated with
the Sengroep group).
The latter
was also the secretary of BEC.
[3
3
]
The account into which the funds flowed was an ABSA money market
account, the account holder of which was reflected as BEC in
the
books of the bank on 28 October 1998. The account holder was
subsequently indicated as MEGS. The trial court concluded that
the
account was indeed that of BEC. The defendants in their
concise
heads of argument filed at the request of this court admitted the
findings made by the trial co
urt t
o the
effect that the account was that of BEC.
Yet a
day before this appeal was heard the defendants filed a supplementary
note seeking to withdraw the admissions including the admission
that
the money market account referred to ‘belonged’ to BEC.
The plaintiff had inadequate time to address the issues
raised
properly.
[3
4
]
It is not necessary
to determine these
issues. Clause 3 of the restraints prohibit the defendants from
having an interest in or being involved with,
directly or indirectly,
in any capacity, including that of a financier
,
a
competing activity. The flow of funds commenced with a
transfer of R500 000 on 28 October 1998 from an account of MEGS
to
the current account of Karaat. On the same day BEC’s current
account was credited with the amounts of R10 000 and R90 000
and Karaat’s account debited accordingly. On that day an amount
of R400 000 was transferred from Karaat’s current
account
to the disputed BEC money market account. Further transfers were made
from this account to BEC’s current account.
MEGS also advanced
a loan of R500 000 to Volschenk during 1999 while the defendants were
its directors. At that time they knew
that Volschenk was the managing
director of BEC. The ‘transfer’ of this loan to Sengroep
,
and later to Desbel because the directors of Desbel had approved it
does not detract from the conclusion that the defendants funded
BEC
through companies in the Sengroep group. Whether or not the disputed
money market account belonged to BEC or MEGS is of no
consequence.
The fact is that both amounts originated from MEGS of which all three
defendants were directors at the relevant times.
They were
,
therefore, directly or indirectly, involved as financiers in BEC. In
addition, the evidence of the first defendant was that, since
they
were still involved with BEC during October 1998, he requested Van
den Berg to have ‘’n paar rand beskikbaar’
for BEC.
The transfer of the R100 000 (in two amounts of R10 000 and
R90 000) occurred, as he said, ‘in my
tyd’. The
first defendant also said that he did not put any money of his own
into BEC but that if they, the defendants, had
contributed then the
funds had to be returned. There is no evidence that th
e
a
mount of R100 000 was repaid after the defendants had
allegedly withdrawn from BEC. If any person could have explained the
movement
of the funds it would have been Van den Berg. The defendants
did not call him as a witness. The inference that the defendant
s
,
in breach of their restraints
,
financed
BEC is unavoidable.
Causation
[35]
The defendants submitted that the evidence did not establish that the
members of Sentra and Megasave resigned as a result of
any conduct on
the part of each defendant and that the plaintiff had not shown that
the resignations were not attributable to other
factors related to
dissatisfaction with the plaintiff. In addition, it was submitte
d
t
hat
the plaintiff had not demonstrated that there was a contract or some
other relationship between the plaintiff and these members.
The trial
court, it was argued, erred in not applying the ‘but for’
test to establish whether the conduct of the defendants
was the
factual cause of the resignations.
9
The
argument was that the trial court approached the issue on the basis
that the defendants bore
some
or other
burden
of
showing
that
the members resigned for reasons other than those alleged by the
plaintiff. This is not how I understand the judgment of the
court a
quo. In this court Combrinck AJA
in
reversing the order of absolution from the instance
held
that there was
prima
facie
evidence
that the
11
members
had resigned
because
of the conduct
of
the defendants. The expression
prima
facie
evidence
10
‘
is
used to mean
prima
facie
proof
of an issue the burden of proving which is upon the party giving that
evidence. In the absence of further evidence from the
other side, the
prima
facie
proof
becomes conclusive proof and the party giving it discharges his
onus.’ I understand the judgment of the trial court
to be
saying no more than this. Nor was the question whether the members
who resigned were members or buyers from Sentra and Megasave
disputed
in evidence: they had all resigned.
[36]
The witnesses for the plaintiff readily conceded that a large number
of members resigned from Sentra and Megasave during the
period
following September 1998 and that there was dissatisfaction among
them due to the policy of retaining rebates, the 1999
incentive
scheme, the opening of competing stores and stringent structural and
policy changes. The defendants relied on allegations
to the effect
that some of the members resigned as a result of the incentive
package that was introduced at the end of 1998. Another
member who
resigned had requested a special concession which was denied. Other
members were upset about competing stores of Shoprite
opening or the
structural changes that were introduced. The trial court found that
there was no admissible evidence of the reasons
why the defendants
resigned and that the defendants’ contentions were speculative.
In addition, it found that the resolution
taken by the BEC board at
its meeting on 17 November 1998 that members would be advised when to
resign from Sentra and Megasave
implied that the incentive packages
for 1999 could not have played a role in the decisions of four
founding members of BEC because
the package only became known in
December 1998. The letters of resignation of these four members were
worded in the same terms,
all dated 3 February 1999, and faxed from
BEC’s offices. The majority of members who resigned
were,
by January 1999,
reflected
as members of BEC although they only resigned in February 1999. This
indicates, as Combrinck AJA found, at least
prima
facie
that
the resignations were consequences of the defendants’ conduct.
In the absence of evidence to the contrary the
prima
facie
proof
becomes conclusive.
[37]
Even if the facts relied upon by the defendants were established they
do not assist them. The essence of the plaintiff’s
case is that
the defendants acted in concert pursuant to a carefully contrived
plan to establish, set up and finance BEC. This
conduct constituted a
breach of clause 3.1 of each of the agreements in restraint of trade.
The resignations of the members were
consequences of this conduct:
these members would probably not have resigned but for the
establishment of BEC. A plaintiff suing
for breach of contract is, in
any event, not required to show that the breach by the defendant was
the
cause
but only that it was
a
cause
of the loss.
11
Nor
was it necessary for the plaintiff to show particular acts of each
defendant that were causally linked to the resignation of
each member
of Megasave and Sentra. Each defendant is liable for the conduct of
the others individually or in co-operation with
the other in breach
of their respective restraint agreements in order to achieve their
common object.
12
Their
breach, the establishment of BEC, led to the resignations of the
members of Sentra and Megasave or contributed to it.
13
The
trial court found that the defendants acted in concert in pursuit of
the common purpose to establish BEC. They intended members
of Sentra
and Megasave to resign and,
a
fortiori
,
caused their resignations.
14
It
follows that the appeal should be dismissed.
Order
[38] The appeal is
dismissed with costs, including the costs of two counsel.
_________________
F R MALAN
JUDGE OF APPEAL
APPEARANCES:
For Appellant: J G
Dickerson SC
A
Smalberger
Instructed
by:
Edward Nathan Sonnenbergs
Inc
Cape Town
Matsepes Inc
Bloemfontein
For Respondent: P Coetsee
SC
D van der Walt
Instructed
by:
Werksmans Inc
Cape Town
Naudes
Bloemfontein
1
Clause
1.2.2.18 of Part One of the SCEB sale.
2
P
M Nienaber ‘
Cession
’ 2 (2)
LAWSA
2 ed para 8. See in particular
Botha
v Fick
[1994] ZASCA 184
;
1995 (2) SA 750
(A) at 765 A-B.
3
Rabinowitz
& another v De Beers Consolidated Mines Ltd & another
1958
(3) SA 619
(A) at 637B-C;
Dreyer &
another NNO v AXZS Industries (Pty) Ltd
2006
(5) SA 548
(SCA) at 554E-H; 2 (2)
LAWSA
2ed para 8.
4
Botha
v Fick
at 762B-H and 778F-G.
5
See
Botha & another v Carapax
Shadeports (Pty) Ltd
[1991] ZASCA 134
;
1992 (1) SA 202
(A) 213A-B and at 214D-F where it was said: ‘[T]he
obligationary agreement is the sale of the goodwill, including as it
does the contractual right, while the transfer agreement by which
the right is conveyed to the purchaser, is constituted by the
delivery by the seller, and the acceptance by the purchaser, of the
physical possession of the business, pursuant to the sale.
The
incorporeal assets comprising the goodwill are incidental to the
business itself and they are transferred together, in the
intendment
of the law. … I am convinced that nothing more is required by
law to render the cession effective as between
cedent and cessionary
…’.
6
2
(2)
Lawsa
2
e
d para 26.
7
ABSA
Bank Ltd v Sweet & others
1993
(1) SA 318
(C) 323B-C: ‘It is also now, it appears, accepted
that when a suspensive condition is fulfilled the contract and the
mutual
rights of the parties relate back to, and are deemed to have
been in force from, the date of the agreement and not from the date
of fulfilment of the condition, ie
ex
tunc
…’
.
And at 323H: ‘The effect of the aforegoing would therefore
appear to be that rights acquired by third parties during the
period
of suspension would not be affected by the retroactivity in regard
to the rights of the contracting parties’.
Schalk
van der Merwe,
L
F
van
Huyssteen,
M
F B
Reinecke
and
G
F
Lubbe
Contract
General Principles
3ed
(2007) p 488 refer to Wolfgang Fikenscher and Andreas Heinemann
Schuldrecht
(2006)
para 59 II A 1 who state:
‘
An
agreement, according to which the claim should be transferred to the
cessionary retroactively, ie with an effect of an earlier
date, can
only be construed as a cession of the claim with effect
ex
nunc
.
This is inevitable for the sake of the protection of the debtor. A
retroactive cession is, as matter of principle, excluded
and not
conceivable. However, the parties to the cession are obliged to
treat each other as if the cession would have been effective
at the
earlier date, especially with respect to interest’ (my
translation).
8
KPMG
Chartered Accountants (SA) v Securefin Ltd & another
2009
(4) SA 399
(SCA) para 39.
9
International
Shipping Co (Pty) Ltd v Bentley
1990
(1) SA 680
(A) at 700E-H.
10
Ex
parte The Minister of Justice: In re Rex v Jacobson & Levy
1931
AD 466
at 478. See the discussion by
D
T
Zeffertt
A
P
Paizes and A St Q Skeen
The
South African Law of Evidence (formerly Hoffmann and Zeffertt)
(2003) p 124 ff.
11
Thoroughbred
Breeders’ Association v Price Waterhouse
2001
(4) SA 551
(SCA) para 66.
12
Aetiology
Today CC t/a Somerset Schools v Van Aswegen & another
1992
(1) SA 807
(W) at 816C-E and compare
Nedcor
Bank Ltd t/a Nedbank v Lloyd-Gray Lithographers (Pty) Ltd
2000
(4) SA 915
(SCA) para 10. The defendants were in a sense ‘joint
wrongdoers’ as the term is used in delict.
13
Thoroughbred
Breeders’ Association
para 66:
‘Where a plaintiff can prove that the breach of the defendant
was
a
cause
of the loss (as opposed to
the
cause thereof) he should succeed even if there
was another contributing cause for the loss, be it an innocent one,
the actions
of a third party … or, logically, the
carelessness of the plaintiff himself in failing to take reasonable
precautions
to avoid it.’
14
I
am not called upon to consider whether all the damages claimed is a
consequence of the resignations of the relevant members.