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[2011] ZASCA 140
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Van der Watt and Another v Jonker and Others (837/2010) [2011] ZASCA 140 (23 September 2011)
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THE SUPREME COURT OF APPEAL OF
SOUTH AFRICA
JUDGMENT
Case No: 837/2010
In the matter between
GERT JAKOBUS VAN DER WATT
….......................................
FIRST
APPELLANT
MARTHA JACOBA VAN DER WATT
…..............................
SECOND
APPELLANT
and
CHRISTIAAN JACOBUS JONKER
…....................................
FIRST
RESPONDENT
AGRIWEN (EDMS) BPK
…................................................
SECOND
RESPONDENT
AGRIGEN PETROLEUM (EDMS) BPK
…..............................
THIRD
RESPONDENT
AGRIGEN DIESEL BULTFONTEIN
(EDMS) BPK
…...................................................................
FOURTH
RESPONDENT
Neutral citation:
Van der Watt v Jonker
(837/2010)
[2011] ZASCA 140
(23 September 2011)
Coram: HARMS AP, LEWIS, PONNAN, CACHALIA and MAJIEDT
JJA
Heard: 5 SEPTEMBER 2011
Delivered: 23 SEPTEMBER 2011
Summary: Contract – Sale of business including
goodwill – effect of – locus standi in enforcing
contract.
______________________________________________________________
ORDER
______________________________________________________________
On appeal from:
Free State High Court
(Bloemfontein) (Kruger J, sitting as court of first instance):
The appeal is dismissed with costs.
______________________________________________________________
JUDGMENT
______________________________________________________________
MAJIEDT JA (HARMS AP, LEWIS, PONNAN and CACHALIA JA
concurring):
[1] This is an appeal against the judgment and order of
Kruger J, sitting as court of first instance in the Free State High
Court,
Bloemfontein, enforcing the terms of a restraint of trade
agreement. Leave to appeal was granted by this court.
[2] In terms of the order of the court below, the
appellants, as respondents, were restrained for a period of 10 years
from being
involved in a business entailing the trading, storage,
handling, sale, marketing or distribution of fuel, oil and/or related
products
in the areas serviced by the second, third and fourth
respondents (as applicants below). They were each also restrained
from providing
financial support or acting as a consultant, adviser
or agent of any person or entity conducting business in the
abovementioned
respects.
[3] The first respondent, Mr Christiaan Jacobus Jonker
(Jonker), started the business of the second respondent, Agriwen
(Pty) Ltd
(Agriwen), third respondent, Agrigen Petroleum (Pty) Ltd
(Agri-petroleum) and the fourth respondent, Agrigen Diesel
Bultfontein
(Pty) Ltd (Agri-diesel) in 1991, 2000 and 2001
respectively. Agriwen’s predecessor was Kuiltjie Landbou (Pty)
Ltd trading
as Agri-Mekka Koppies
1
and its business was primarily the sale of agricultural
products to farmers, similar to the type of business usually
conducted by
agricultural co-operatives. In 1998, Agriwen’s
business was expanded to include the distribution of Engen petroleum
products
in certain areas of the Free State province. Agri-petroleum
was involved in the sale and distribution of Engen petroleum products
under the Zenex brand
2
in certain other circumscribed areas of the Free State,
with three distribution depots at Bothaville, Bultfontein and
Virginia.
Agri-diesel was established as a black economic empowerment
entity, also for the sale and distribution of Engen petroleum
products
in certain other areas in the Free State (ie different to
the areas serviced by Agriwen and Agri-petroleum). I shall refer to
these
three businesses collectively as ‘the Agri group’.
It bears mention at the outset that the businesses were indeed
conducted
as one large, diverse entity. Jonker was not a shareholder
in the Agri group companies in his own name; his trust, the Chris
Jonker
Trust, held these shares.
[4] The first appellant, Mr Gert Jakobus van der Watt,
was a close family friend of Jonker until their business relationship
turned
sour. Van der Watt started working for Jonker in 1997 as shop
manager of Agri-Mekka Koppies and he later became Agriwen’s
marketing manager until September 2000. Thereafter Van der Watt
served as marketing manager for Agri-petroleum until 2005. Van
der
Watt held a 30 per cent shareholding in Agri-petroleum and a 21 per
cent shareholding in Agri-diesel. He is married to the
second
appellant, Mrs Martha Jacoba van der Watt, who was not a shareholder
or employee of any of the businesses in the Agri group.
In 2005, by
agreement with Jonker, Van der Watt terminated his services with
Agri-petroleum and started a new business in Randfontein
selling and
distributing Sasol petroleum products, mostly to industrial clients
(the Agri group businesses distributed Engen petroleum
products,
mostly to farmers). The Randfontein business was purchased in the
name of the erstwhile third respondent in the court
below, Big Red
Investments (Pty) Ltd, a company owned in equal parts by Van der Watt
and Jonker. Despite this equal shareholding,
Van der Watt was
reflected as the only shareholder on the company documents, to
protect Jonker’s business relationship with
Engen. For the same
reason a similar arrangement regarding the purchase and shareholding
was reached between them in respect of
the filling station business
at Randfontein, which was purchased in the name of the erstwhile
fourth respondent, Turquoise Moon
(Pty) Ltd. Mrs van der Watt is the
sole shareholder and director of this last mentioned company. The
filling station business was
conducted under the trade name ‘Dynamic
Fuels’.
[5] It is common cause that the Randfontein and Agri
group businesses all did very well. However, Van der Watt wanted to
operate
separately and independently. Jonker acquiesced to a
separation of the Randfontein and Agri group businesses, culminating
in a
written agreement on 25 April 2007 (the restraint agreement).
This agreement is the kernel of the dispute between the parties and
it is therefore necessary to set out its salient features. The
restraint agreement was between Jonker on the one part and the two
van der Watts on the other. It contained a recordal that the parties
do business in the Randfontein companies and in the Agri group
companies and that they agree to separate these businesses. The
agreement provided that the Van der Watts became the sole
shareholders
of the two companies in which the Randfontein business
was conducted, while Jonker in turn became the sole shareholder in
the Agri
group companies. It was agreed further that, in order to
effect a fair and equitable settlement, Jonker would pay to the Van
der
Watts R2 million in cash - a point that assumes particular
significance in this case. Clause 6 contains restraints in respect of
both the Van der Watts and Jonker in respect of a 10 year period in
the petroleum business for the geographical areas serviced
by the
Agri group businesses (for the Van der Watts) and for a radius of 80
kilometres from Randfontein (for Jonker). It was recorded
further in
clause 6 that the parties agree that the restraints of trade are fair
and reasonable in respect of their nature, extent
and period and that
they do not extend further than is reasonably necessary to protect
the businesses of the respective companies.
[6] Jonker and the Agri group companies sought and
obtained relief in the high court in terms of the restraint agreement
on the
basis that the Van der Watts were proved to have solicited
customers of the Agri group and were trading in contravention of
their
restraint under the trade name Dynamic Fuel on both the
distribution and retail sides. It was not seriously in issue that the
Van
der Watts were trading in the Agri group’s service areas
contrary to the restraint provisions. To the extent that Van der
Watt
sought to create a factual dispute on this aspect in the papers, the
high court correctly found for Jonker and the Agri group
that there
was indeed a breach if the restraint was enforceable. In this court
counsel for the Van der Watts sensibly argued the
matter on the basis
that the Van der Watts were in fact trading in the petroleum business
in the affected areas. Their attack was
directed against the
enforceability of the restraint. Three main issues were raised in
argument on behalf of the appellants, namely
Jonker and the Agri
group’s locus standi, the unenforceability of the restraints
due to the absence of a protectable interest
on the part of Jonker
and the Agri group and lastly the 10 year period of the restraint. As
will presently appear, this appeal
stands to be decided on a somewhat
different basis to the one advanced by the parties and decided by the
high court. In this regard,
this court drew the parties’
attention prior to the hearing to its decision in
A
Becker & Co (Pty) Ltd v Becker & others.
3
I shall deal with that decision in due course.
[7] It is convenient to deal first with the locus standi
issue. Appellants’ counsel argued the point not on the legal
standing
per se, but on the question whether Jonker had the right to
sue in the absence of a protectable interest. He contended that
Jonker
himself does not have a protectable interest since he is not
the owner of the goodwill in the Agri group. Such goodwill, counsel
submitted, was held by the companies themselves. It was contended
further that Jonker is not a shareholder in any of the Agri group
companies. Reference was made to a dictum of Botha JA in
Botha
& another v Carapax Shadeports (Pty) Ltd
4
which reads as follows:
‘
What I have been referring to
as “the benefit” of an agreement in restraint of trade,
pertaining to a business, is,
in the eyes of the law, the contractual
right to enforce the restraint. It rests in the owner of the
business. He is the creditor
in respect of it.’
These contentions are misconceived. Jonker was a party
to the contract. It is in that capacity that he seeks to enforce the
restraint.
The restraint agreement stipulates that Jonker himself
became the sole shareholder in the Agri group. And clause 4 of the
restraint
agreement provided that Jonker must pay the sum of R2
million in cash to the Van der Watts. His protectable interest
plainly arises
from the restraint agreement itself and there can be
no ambiguity about this at all.
[8] This court’s decision in
Basson
v Chilwan & others
5
fortifies the aforementioned conclusion. The Chilwans
owned Chilwans Bus Services, a large transport company based in Cape
Town
with countrywide operations. Basson had acquired vast experience
in the design and construction of busses. After he had built a
bus
for the Chilwans with which they were very satisfied, they negotiated
successfully with Basson to jointly set up a bus construction
business. This resulted in a written agreement to form a close
corporation, named Coach-Tech, with the Chilwans and Basson holding
equal interests in it. A restraint clause, which formed the subject
of the dispute between the parties, was included in the agreement
in
respect of Basson’s employment and the confidentiality of the
agreement.
Of importance for present purposes is that the parties
to the restraint agreement were the four Chilwans, Basson and
Coach-Tech.
Both Nienaber JA
6
and Van Heerden JA
7
held that the Chilwans were entitled to seek enforcement
of the restraint against Basson as embodied in the agreement. In the
words
of Van Heerden JA (supra):
‘
Tweedens het die Chilwans net
so seer as Coach-Tech ‘n belang by die beperking gehad. Enige
handeling wat tot nadeel van Coach-Tech
sou strek, sou onvermydelik
nadelig op hul ledebelange inwerk.
Bowendien
was hulle partye tot die kontrak waarin die beperking op Basson gelê
is
.
. .’ (Emphasis supplied.)
Jonker therefore, as a contracting party like the
Chilwans, plainly has a protectable interest affording him the right
to sue for
enforcement of the restraint. The startling contention was
made in the appellants’ heads of argument (although not
persisted
with in oral argument) that the Agri group companies lack a
protectable interest since they had not been parties to the contract.
This circuitous argument is self-evidently destructive of the one or
the other proposition. But
cadit quaestio
–
as indicated in
Chilwan
,
both the companies and Jonker clearly have a protectable interest and
they have a right to sue on the restraint agreement.
[9] I turn next to a discussion of the application of
Becker
to this case.
In that matter Becker had sold his jewellery business which he
conducted in a company, the appellant, A Becker &
Co, to one
Akoodie. The assets sold included goodwill and certain restraints of
trade were set out in the written agreement of
sale. The restraint of
trade was for a period of five years and extended to the entire
Republic of South Africa. Becker and his
companies, to which the
restraint applied, complied in full with it until the expiry of the
restraint period. After the restraint
had fallen away, Becker through
his companies approached his old customers in order to solicit
business from them. Circulars were
distributed reminding former
customers of Becker’s previous jewellery business and
announcing that Becker was back in that
business. Akoodie, through
the appellant company which he had bought from Becker, sued for an
interdict to restrain Becker and
his wife (who had been in the
business with Becker) from canvassing or soliciting business from
their old customers. In upholding
the appeal against an order of
absolution this court held that while the express restraint in
respect of competition had fallen
away, the sale of the company’s
goodwill meant that Becker and his wife were prohibited from
soliciting business from their
former customers. Muller JA referred
with approval to the speech of Lord Macnaghten in
Trego
v Hunt
8
and held as follows:
9
‘
In my opinion the judgement in
the English case of Trego v Hunt . . . is correct. If a seller
disposes of the goodwill of a business
he is not allowed thereafter
to act contrary to the sale’.
In a separate, concurring judgment Van Heerden AJA
analysed in detail the origin and nature of the right to goodwill in
a business.
He pointed out that it is an incorporeal property right
usually based on two components, namely locality of the business and
the
personality of the driving force behind the business.
10
In alienating the goodwill of a business, a vendor
commits himself not to perform any act adverse to the granting of the
right.
In this regard Van Heerden AJA cited the well established
English law notion that ‘a vendor is not entitled to derogate
from
his grant’, as espoused by Lord Herschell in
Trego
v Hunt
.
11
It is by now also firmly established in our law that,
absent a restraint provision, the seller of goodwill is permitted to
trade
in competition with the purchaser, but he may not solicit his
old customers for business.
12
[10] The present matter falls squarely within the
Becker
principles. Van der Watt seeks to take back that which
he has sold for a consideration of R2 million in cash, namely the old
customers
with whom he did business while part of the Agri group. It
is plain from
Becker
and
the authorities cited there that the present matter concerns the
protection of goodwill as well as the restraint of trade. Harms
JA
described goodwill in
Caterham Car Sales &
Coachworks Ltd v Birkin Cars (Pty) Ltd
13
as follows:
‘
Goodwill is the totality of
attributes that lure or entice clients or potential clients to
support a particular business.’
In
The Commissioners of Inland
Revenue v Muller & Co’s Margarine Ltd
14
Lord Macnaghten defined goodwill thus:
‘
What is goodwill? It is a
thing very easy to describe, very difficult to define. It is the
benefit and advantage of the good name,
reputation and connection of
a business. It is the attractive force which brings in custom.’
[11] It is plain on the undisputed facts that van der
Watt had built up strong business relationships with Agri group’s
existing
customers through his previous employment there. He had also
formed strong personal associations with some of them through his
family and that of his wife. This is particularly so in the case of
the Parys, Koppies and Bothaville areas
15
.
It is significant that Van der Watt, on his own version, focused
Dynamic Fuels’ business entirely on those areas of the
Free
State where the Agri group operates. This suggests, to my mind, that
he targeted customers in those areas for his new business.
The
uncontroverted facts demonstrate that Van der Watt actively solicited
those Agri group customers by marketing his petroleum
products at the
Koppies club, where a number of them were in attendance, at a golf
day where he actively marketed Dynamic Fuels’
business and
through a direct approach to at least one Agri group customer, Mr
Taljaard. There is in my view no difference between
this type of
general canvassing, that is, at a club or during a golf day and that
employed in
Becker,
namely
the distribution of circulars to erstwhile customers. It is not
necessary to prove direct overtures to Agri group customers
by Van
der Watt. In any event, as the court below correctly found, the
Taljaard case amply demonstrates that direct canvassing
and
solicitation was undertaken by Van der Watt. It was admitted in Van
der Watt’s answering affidavit that he had personally
informed
Jonker that he intended resuming his business activities in the Agri
group’s service areas. His defence was that
the restraint of
trade was unenforceable and that he might consequently trade with his
old Agri group customers in competition
with Jonker and the Agri
group.
[12] In summary: Jonker and the Van der Watts separated
their businesses through their written agreement as mentioned. The
businesses
were sold as going concerns. It is trite that such a sale
of business as going concern includes that business’ goodwill.
A restraint of trade against a seller forms part of the goodwill of a
business.
16
In order to determine all the components contained in
the
merx
in a sale of
a business one must have regard to the contract and those components
will normally, if not invariably, include the
goodwill of the
business.
17
There can be no doubt that the parties intended to and
did in fact sell the goodwill in the respective businesses to each
other.
The appellants’ counsel did not contend otherwise. The
legal consequences of such sale were apparently not emphasized in the
high court and, as stated, the parties were alerted to
Becker’s
case by this court prior to the hearing. But in the
papers, Jonker, on behalf of the respondents, repeatedly complained
that the
goodwill was being eroded by the Van der Watts’
conduct. The issue was therefore raised pertinently in the papers and
referred
to in the judgment of the high court. As stated, the Van der
Watts’ answer was that the restraint is unenforceable. But in
a
supplementary answering affidavit an auditor of the Van der Watts
undertook, on their instructions, a calculation of the price
of the
various businesses, including goodwill. Implicitly therefore, the
appellants had been alive to the fact that goodwill formed
part of
the businesses purchased and sold respectively. The legal
consequences of trading in contravention of the alienation of
the
goodwill appear, however, to have eluded them. For these reasons
Jonker and the Agri group have the right to assert their rights
to
goodwill in terms of the restraint agreement.
[13] The position of the second appellant, Mrs van der
Watt, requires brief consideration. It was contended on her behalf
that no
relief should have been granted against her, since she was
neither an employee nor a shareholder of any of the Agri group
companies.
The contention cannot be upheld. First, Mrs van der Watt
was a signatory to the restraint agreement. Second, it is abundantly
clear
on the papers that Van der Watt is using his wife’s
company, Turquoise Moon (Pty Ltd, as a front to conduct the retail
business
(the filling stations) with Agri group customers as a target
market. Lastly, she was a co-recipient of the R2 million cash
consideration
in terms of the agreement. She is therefore also in
breach of the agreement.
[14] Having reached this conclusion, it is not necessary
to deal at length with the restraint of trade issue. It would suffice
to
uphold the findings of the high court, that the Van der Watts were
in breach of the restraint and that the ten year period was not
unreasonable. I agree with the high court that the following features
of the restraint were conclusive – the reciprocity
of the
restraint (i.e. binding both the Van der Watts and Jonker), the fact
that the Van der Watts were paid R2 million in cash
as part of the
deal, the success attained by Van der Watt with the Randfontein
business even with the restraint in operation, Van
der Watt’s
special relationship with the Agri group customers while he worked
for the group as a marketer, the Taljaard incident,
the fact that Van
der Watt is specifically targeting the areas where the Agri group
operates and lastly the fact that this is a
commercial, not an
employer-employee restraint agreed upon when the parties parted ways
in their business relationship and at a
stage when they were fully
conversant with their respective businesses’ extent and
potential.
[15] The appeal is dismissed with costs.
___________
S A MAJIEDT
JUDGE OF APPEAL
APPEARANCES:
Counsel for appellants : C E PUCKRIN SC (with him AJP
ELS)
Instructed by : Thomas & Swanepoel, Tzaneen
Symington & de Kok, Bloemfontein
Counsel for respondents : J Y CLAASEN SC
Instructed by : Thabo Grimbeek Attorneys, Kroonstad
Naude’s, Bloemfontein
1
The
name was changed to Agriwen in 2004.
2
Engen
took over the Zenex businesses countrywide at about the time when
Agri-petroleum had been established, first as a shelf
company, just
before 2000.
3
A
Becker & Co (Pty) Ltd v Becker & others
1981
(3) SA 406
(A).
4
Botha
& another v Carapax Shadeports (Pty) Ltd
1992(1)
SA 202 (A) at 214B.
5
Basson
v Chilwan and others
[1993] ZASCA 61
;
1993 (3) SA 742
(A).
6
At
768J–769B.
7
At
774G-H.
8
Trego
v Hunt
[
1896] AC 7
at 22-25.
9
At
414H.
10
See
also
Receiver of Revenue, Cape v
Cavanagh
1912 AD 459
at 461–462.
11
At
19-20.
12
A
Becker & Co (Pty) Ltd v Becker &
others
at 417F-G and 418G-H; see also:
Corbin on Contracts
vol.
6A s1386: ‘When a business is sold with its goodwill, but
without any express promise not to compete, the seller is
privileged
to open a new business in competition with the buyer; but he is
under obligation not to solicit his former customers
or to conduct
his business under such a name and in such a manner as to deprive
the buyer of the “goodwill” that
he paid for.’
13
Caterham
Car Sales & Coachworks Ltd v Birkin Cars (Pty) Ltd
[1998] ZASCA 44
;
1998
(3) SA 938
(SCA) para 15.
14
The
Commissioners of Inland Revenue v Muller & Co’s Margarine
Ltd
[1901] AC 217
at 223-224.
15
The
Van der Watts live in Parys and had opened a filling station there.
Mrs van der Watt hails from Bothaville and Van der Watt’s
family live in the Koppies area.
16
Botha
& another v Carapax Shadeports (Pty) Ltd
at
212D
17
Slims
(Pty) Ltd v Morris
NO
1988
(1) SA 715
(A) at 727E;
Shoprite
Checkers (Edms) Bpk v Grobbelaar
[2011]
ZASCA 11
paras 18-19.