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[2022] ZAECELLC 32
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De Wet and Another v Gambeno and Another (434/2022) [2022] ZAECELLC 32 (22 November 2022)
IN
THE HIGH COURT OF SOUTH AFRICA
EASTERN
CAPE DIVISION, EAST LONDON CIRCUIT COURT
CASE
NO. 434/2022
In
the matter between:
GREGORY
DE WET First
applicant
ENRICO
BLIGNAUT Second
applicant
and
PHILIP
GAMBENO First
respondent
BISE
ENGINEERING (PTY) LIMITED Second
respondent
JUDGMENT
LAING
J
[1]
This
is an application for an interdict against the first respondent in
relation to a business that supplies flexographic labelling
and
trades as PEG Labels, alternatively PEG Labelling.
[1]
[2]
Pending the finalisation of separate action proceedings, the
applicants seek to interdict
the first respondent from: instructing
suppliers to suspend the operation of any accounts that the business
may hold with such
suppliers; preventing the applicants from using
such accounts to place orders for stock and materials; and directing
suppliers
not to accept such orders and not to deliver any stock or
materials in accordance therewith. The applicants stipulate that
their
prior written consent would first be required.
[3]
Furthermore, the applicants seek an order directing the first
respondent to reinstate all
accounts held by the business with the
suppliers in question.
[4]
The applicants brought the application on an urgent basis,
instituting proceedings on 23
March 2022 and requesting interim
relief. The first respondent opposed the matter on 24 March 2022 and
delivered his answering
affidavit on 28 March 2022. At the same time,
he delivered an undertaking to the effect that he would refrain from
the activities
that the applicants sought to interdict, provided that
all orders for stock and materials were of a formal, written nature;
the
first respondent also insisted on his authority to cancel
excessive or unnecessary orders.
[5]
The application was postponed, permitting the first respondent to
file a further affidavit.
Subsequently, the applicants brought a
successful joinder application on 14 June 2022 to address the first
respondent’s point
in limine
that the second respondent
had not been joined. The main application was argued on 25 August
2022.
The
applicant’s case
[6]
The parties entered into a partnership agreement on 23 March 2011 to
conduct the business
of flexographic labelling, which entailed
certain production, sales and management roles. The partnership would
conduct the business
under the name of ‘PEG Labels’. The
first respondent was responsible for the management of the business
and was required
to account to the applicants for its financial
affairs. The applicants allege that the first respondent failed to
render a proper
account during the existence of the partnership
inasmuch as business income was unlawfully appropriated and used to
settle third
party business expenses.
[7]
It had been the first respondent’s task to open and manage
accounts with various suppliers.
The relationship between the
partnership and its suppliers over the past decade had proved to be
mutually beneficial.
[8]
On 7 March 2021, the first respondent’s attorneys notified the
applicants’ attorneys
that he had decided to terminate the
partnership. The applicants accepted this. However, upon the first
respondent’s refusal
to render a proper account of the
financial affairs of the partnership, the applicants instituted
action proceedings for such an
account, as well as the debatement
thereof, and the payment to them of whatever amount was due.
[9]
The applicants allege that, notwithstanding the above action, the
business of PEG Labels
has continued unabated. Orders have been
placed, sales have been concluded, and PEG Labels has made a profit,
despite strained
relations between the parties.
[10]
On 17 March 2022, it came to the attention of the applicants that the
first respondent had instructed an
employee to inform suppliers that
all accounts held with them by PEG Labels were to be suspended with
immediate effect, until further
notice. This had resulted in numerous
queries from the suppliers concerned, placing at risk the good
relations that PEG Labels
enjoyed with them. The applicants feared
that the first respondent would resort to similar tactics in the
future.
[11]
Consequently, the applicants instructed their attorneys to demand
from the first respondent’s attorneys,
on 18 March 2022, that
the accounts be reinstated, failing which urgent proceedings would
commence. The applicants rely on the
partnership agreement to assert
that they have a right to good faith from the first respondent and
have a right to ensure that
PEG Labels continues to run smoothly,
notwithstanding the first respondent’s having left the
partnership. The suspension
of the accounts would cause irreparable
harm to the business. At the time, the value of orders placed by
clients with PEG Labels
for the production and delivery of products
was just under R1,5 million, which the business stood to lose if the
situation was
not rectified. The applicants argue that the balance of
convenience favours the reversion to the
status quo ante
,
pending the outcome of the action instituted against the first
respondent.
Answering
allegations
[12]
The first respondent is the sole director of the second respondent.
The basis for the first respondent’s
point
in limine
was
that the applicants sought, to all intent and purposes, the
reinstatement of accounts held with various suppliers by the second
respondent, which traded as ‘PEG Labelling’ (not ‘PEG
Labels’). The applicants had failed to join the second
respondent. As already discussed, the applicants subsequently
remedied this.
[13]
Turning to the merits, the first respondent contends that the
applicants are employed by the second respondent
as a sales manager
and production manager, respectively, and attaches copies of salary
slips in support thereof. He denies that
a partnership was ever
created, mentioning several conditions that were never fulfilled. The
business of the purported partnership,
he says, ran at a loss and was
taken over by the second respondent.
[14]
The first respondent states that, as the sole director of the second
respondent, he is responsible for its
financial affairs, including
the management of accounts held with suppliers. He refutes the
assertion that he is obliged to render
an account of the second
respondent’s financial affairs to its employees, i.e. the
applicants. The second respondent’s
income was used to settle
the second respondent’s expenses.
[15]
The partnership, contends the first respondent, was indeed
terminated. This occurred when the conditions
attached to the
partnership agreement were never fulfilled; his attorneys merely
confirmed the position when they notified the
applicants’
attorneys on 7 March 2021.
[16]
In relation to the suspension of the accounts, the first respondent
says that it was brought to his attention
that the orders for stock
and materials that had been placed with suppliers far exceeded the
needs of the second respondent. He
mentions that the second
respondent had previously incurred debt with suppliers, placing the
second respondent in financial difficulty
and necessitating
arrangements for repayment. Accordingly, in keeping with his
fiduciary responsibilities, the first respondent
had instructed that
the accounts be suspended.
[17]
The first respondent emphasises that he does not have any partnership
interest in ‘PEG Labels’.
He is the shareholder and sole
director of the second respondent, which trades as ‘PEG
Labelling’.
[18]
The accounts have indeed been reinstated, says the first respondent.
However, this was done subject to the
requirement that formal orders
were to be placed in future, rather than informal orders (made by
email or telephone), so as to
avoid the unnecessary incurring of
further debt. There was adequate stock on hand to meet the demands of
existing clients and business
had carried on as usual.
Replying
allegations
[19]
The applicants explain that when the business of the partnership
first commenced, it was agreed that it would
use the second
respondent’s facilities and resources, such as factory floor
space, administrative staff, and the second respondent’s
bank
account. Transactions with partnership clients would be conducted via
the bank account in question. The partnership traded
as either ‘PEG
Labels’ or ‘PEG Labelling’, using the names
interchangeably.
[20]
The reinstatement of the accounts held with suppliers for the
partnership is all that the applicants seek.
It is the applicants’
contention that the first respondent cannot suspend the accounts
unless a partnership decision has
been taken to that effect and that
he has failed to appreciate that the core business of the partnership
is entirely separate to
that of the second respondent. The accusation
is made that the first respondent mismanaged the partnership’s
financial affairs
and used its income to pay the second respondent’s
expenses.
[21]
The applicants deny that they are employed by the second respondent.
They assert that they have always been
full partners in the
partnership trading as PEG Labels; they receive monthly drawings, an
annual bonus, and a share of the profits.
Moreover, insurance was
previously secured on the lives of the partners (so-called ‘key
person’ agreements) and the
applicants were previously required
to enter into deeds of suretyship for purposes of the partnership’s
securing credit facilities
with one of its suppliers, H & M
Rollers. The applicants point out that even the first respondent has
referred to himself as
a partner, as evident from a recent email
addressed to them.
[22]
It is the contention of the applicants that the partnership has been
in existence since 23 March 2011. Despite
the first respondent’s
termination thereof, the partnership remains in existence, pending
the liquidation and distribution
of its assets. The applicants
strongly refute the first respondent’s allegation that the
business of the partnership was
taken over by the second respondent,
saying that there was never any decision to that effect.
[23]
Regarding the salary slips, the applicants assert that these reflect
monthly drawings paid to them via the
second respondent’s bank
account in relation to the business of the partnership, ‘PEG
Labelling’. They are not
employees of the second respondent;
they never entered into any written contracts of employment, in
contrast to what was required
of the second respondent’s
employees.
Issues
to be decided
[24]
The matter is characterised by a dispute about whether the
partnership ever came into existence. It is common
cause, however,
that the first respondent decided to ‘terminate’ the
partnership on 21 March 2021, via his attorneys,
and that such
‘termination’ was accepted by the applicants. The legal
ramifications of this will be explored further
in the paragraphs that
follow.
[25]
However,
it is important not to lose sight of the key issue: whether the
applicants are entitled to the relief sought in their notice
of
motion, excluding an order directing the first respondent to
reinstate the accounts held by PEG Labels with various suppliers.
[2]
The applicants seek no relief against the second respondent.
[26]
Essentially,
the court is required to decide: (a) whether the applicants are
entitled to interdictory relief against the first respondent;
and (b)
whether the applicants are entitled to the costs of the
application.
[3]
[27]
The law in relation to the dissolution of a partnership is pertinent.
This serves as a useful starting point
for a discussion of the
applicable legal framework.
Legal
framework
[28]
A
partnership can be dissolved as a result of several causes. These
include effluxion of time, where a fixed term partnership reaches
its
agreed time of duration. The partners can, nevertheless, expressly or
impliedly agree to continue the partnership, in which
event there is
a presumption that the partnership endures without any fixed term but
subject to dissolution by any of the partners
at his or her own
discretion.
[4]
A further cause
is a notice of dissolution, where one of the partners gives notice to
the others that he or she no longer intends
to continue the
partnership
[5]
.
This more commonly applies to a partnership at will, of indefinite
duration, rather than a fixed term partnership.
[29]
The
dissolution of a partnership means that the implied authority or
mutual mandate of the partners comes to an end. As a result,
any new
transactions conducted by a partner, not connected with the
liquidation and distribution of the partnership assets, are
solely
for his or her account and do not bind his or her former partners.
[6]
[30]
The writers, Lee and Honoré, discuss the dissolution of a
partnership as follows:
‘
The
immediate consequences of a dissolution of a partnership is that the
agency which existed between the partners ceases, and the
partnership
continues merely for the purpose of completing current transactions,
winding up the business and adjusting the rights
of the partners…
Unless otherwise provided in the dissolution agreement, no provision
of the partnership agreement is binding
after dissolution (
Beiles
v Glazer
1947 (2) PH A79 (W)). All rights and duties acquitted by a former
partner after dissolution, even if contracted on behalf of the
partnership, are binding on him alone (Van der Linden 4.1.14;
Western
Province Bank v Du Toit, Smith & Co
(1850) 1 Searle 39).
The former partners, however, will be liable
where they accept the acts of their ex-partner, or where he has been
authorised to
act on their behalf (
Birkenruth
v Shaw, Hoole & Co
(1850) 1 Searle 39).’
[7]
[31]
Generally,
it appears to be an accepted principle that after dissolution, the
partnership continues but only for purposes of the
liquidation and
distribution of its assets.
[8]
Henning remarks that:
‘
In
most civil and common-law jurisdictions dissolution puts an end to
the partnership, but only as regards new operations. In nearly
all
cases dissolution does not result
ipso
facto
in the disappearance of the partnership. This “extension”
of the partnership for purposes of liquidation and winding-up
is
considered to be further proof that it is not possible to reduce the
institution to a simple contract even in those countries
where the
existence of the partnership as a legal entity is not recognised.’
[9]
[32]
The
above principles must be applied to the facts of the present matter,
but not before dealing with the requirements for interdictory
relief.
The
requirements for an interlocutory interdict are trite: a
prima
facie
right, a well-grounded apprehension of irreparable harm if the
interim relief is not granted and the ultimate relief is eventually
granted; a balance of convenience in favour of the granting of the
interim relief; and the absence of any other satisfactory remedy.
[10]
A final interdict requires: a clear right on the part of the
applicant; an injury actually committed or reasonably apprehended;
and the absence of any other satisfactory remedy available to the
applicant.
[11]
[33]
During argument, there was some debate about whether the
applicants sought interim or final interdictory relief. This aspect
will
be addressed shortly but the matter appears to turn on whether
the applicants have demonstrated any right at all to the relief
sought, either of a
prima facie
or a clear nature, depending
on what has actually been sought.
Application
of the law to the facts
[34]
The partnership agreement concluded by the parties on 23 March
2011 was for the stated purpose of forming a subsidiary company to
the second respondent, to trade as ‘PEG Labels’. At the
same time, the parties agreed, seemingly in contradiction to
the
stated purpose, that the partnership (not the company) would be
conducted under the name of ‘PEG Labels’. There
was also
a provision to the effect that the terms of the partnership agreement
would endure for a period of nine months, whereupon
a ‘partnership
contract’ would be drawn up by a practising attorney. If,
furthermore, a partner withdrew or retired
from the partnership, then
the remaining partners were permitted to continue operating ‘the
company’ under the same
name. Overall, the partnership
agreement was not a model of clarity and was riddled with
contradictions and ambiguities.
[35]
The applicants rely on the original partnership for the relief
sought. In contrast, the first respondent asserts that no partnership
ever came into existence.
[36]
The
classic approach to a situation where the material facts are in
dispute and where no request has been made for the matter to
be
referred for oral evidence was set out in
Stellenbosch
Farmers’ Winery Ltd v Stellenvale Winery (Pty) Ltd
,
[12]
where the court held that:
‘
where
there is a dispute as to the facts a final interdict should only be
granted in notice of motion proceedings if the facts as
stated by the
respondents together with the admitted facts in the applicant’s
affidavits justify such an order.’
[13]
[37]
The
proviso to the above principle, however, is that a court may reject
the respondent’s version when his or her allegations
are
patently implausible. The entrenched authority for this is the
seminal decision in
Plascon-Evans
Paints v Van Riebeeck Paints
,
[14]
where the court held as follows:
‘…
In
certain instances the denial by respondent of a fact alleged by the
applicant may not be such as to raise a real, genuine or
bona fide
dispute of fact… If in such a case the respondent has not
availed himself of his right to apply for the deponents
concerned to
be called for cross-examination… and the Court is satisfied as
to the inherent credibility of the applicant’s
factual
averment, it may proceed on the basis of the correctness thereof and
include this fact among those upon which it determines
whether the
applicant is entitled to the final relief which he seeks…
Moreover, there may be exceptions to this general
rule, as, for
example, where the allegations or denials of the respondent are so
far-fetched or clearly untenable that the Court
is justified in
rejecting them merely on the papers…’
[15]
[38]
Here, it is clear from the evidence that the parties conducted
themselves as partners for the better part
of a decade; the expiry of
the nine-month period of duration and the absence of a ‘partnership
contract’ to have been
drawn up by a practising attorney
appeared to have had no effect whatsoever on the relationship amongst
the parties. This was demonstrated,
at the very least, by the
assertions of the applicants in reply, supported by documentation
pertaining to the conclusion of a copy
of a deed of suretyship and
(more importantly) a thread of email correspondence to the effect
that the first respondent appeared
to have regarded himself very much
as a partner of the business trading as PEG Labels. An email from the
first respondent to the
applicants, dated 15 December 2020 (just
under three months before the ‘termination’ of the
partnership), reveals the
following:
‘
Yes
you right have done nothing for the last 3 months, but until you and
Greg pay me for my part of the business
I
remain a partner regardless whether I work for the company or not
.
But with regard to the staff bonuses you still are responsible for
them receiving or not. I made a call why don’t you the
office
staff still have to receive theirs.’
[16]
[sic]
[39]
From the above, the first respondent’s contention that a
partnership never came into existence does
not ring true.
Notwithstanding the shortcomings of the partnership agreement and the
question of whether it came to an end by the
effluxion of time at the
expiry of the nine-month period of duration, the parties impliedly
agreed to continue the partnership.
[40]
The
picture changed, however, when the first respondent instructed his
attorneys, on 7 March 2021, to inform the applicants that
he had
decided to ‘terminate’ the partnership. This amounted to
no less than a notice of dissolution. What is more,
the applicants
admit that they accepted the ‘termination’. The effect
thereof, at the very least, was to have brought
the partnership to an
end. In the absence of a formal dissolution agreement that might have
provided otherwise, the dissolution
rendered the partnership
agreement non-binding. The implied authority or mutual mandate of the
parties ended and PEG Labels, as
a partnership, would only have
continued for purposes of completing current transactions, winding up
its business, and adjusting
the rights of the parties where
necessary.
[17]
The business of
the partnership could not simply have continued unabated, as alleged
by the applicants.
[41]
Consequently, the applicants cannot rely on the original partnership
agreement to contend that they have
either a
prima facie
or a
clear right in relation to the relief sought. The original
partnership agreement is no longer binding. Insofar as they may
enjoy
residual rights that have survived the dissolution of the
partnership, these pertain only to the liquidation and distribution
of partnership assets. Such residual rights do not pertain to the
ongoing business of PEG Labels, which the applicants now seek
to
protect by means of the present application.
[42]
The questions that arise, of course, are what has become of PEG
Labels- and who now owns and controls the
business. These, on the
available evidence, are difficult questions to answer. It appears
that the business is now being conducted
by the second respondent,
trading as PEG Labelling, but whether (and to what extent) the assets
and liabilities of the partnership
were taken over by the second
respondent is simply not apparent from the papers.
[43]
Importantly, the applicants have not asserted that, after the
dissolution of the partnership, they formed
a new partnership and
carried on trading. They have also not asserted that the parties
reached any agreement at the time of the
first respondent’s
‘termination’ of the partnership that they would remain
bound by any of the provisions of
the original partnership agreement.
In contrast, the first respondent avers that the applicants are
employees of the second respondent,
employed as a sales manager and
production manager, respectively. The numerous copies of salary slips
attached to the answering
affidavit seem to support such an averment.
The applicants’ contention that these merely reflect monthly
drawings is implausible;
it cannot be denied that the partnership has
come to an end. Furthermore, the absence of written contracts of
employment for the
applicants takes their case no further; it is
probable that tacit contracts of employment emerged after the
dissolution of the
partnership and that the second respondent (not
the first respondent) deals with the applicants, in law, as employees
and pays
them accordingly.
[44]
There
was, accordingly, considerable merit in the first respondent’s
point
in
limine
about non-joinder. The test for joinder has been distilled to the
following: any person is a necessary party and should be joined
if
such person has a direct and substantial interest in any order that
the court might make; alternatively, if such an order cannot
be
sustained or carried into effect without prejudicing such person,
unless he or she has waived the right to be joined.
[18]
Quite clearly, the second respondent, insofar as it now seems to
conduct the business previously carried out by the partnership,
has a
direct and substantial interest in the order sought by the
applicants.
Relief
and order
[45]
The court is not satisfied that the applicants have demonstrated
either a
prima facie
or a clear right to the relief sought.
The original partnership agreement upon which the applicants rely is
no longer binding.
The relief sought pertains to the ongoing business
of PEG Labelling, i.e. the suspension or otherwise of accounts held
with various
suppliers, the placing of orders with such suppliers for
stock and materials, and the cancellation or otherwise of existing
orders.
These must be distinguished from the completion of
transactions that were in progress at the time that the partnership
came to
an end, the winding up of partnership business, and the
adjustment of the rights of the parties, in relation to the business
previously
carried out by the partnership under the name of PEG
Labels. To all intent and purposes, the applicants are now employees
of the
second respondent and have relied upon the incorrect basis in
law to assert a right to interdict the first respondent.
[46]
It is not necessary to deal with the remaining requirements for
either interlocutory or final relief. Notwithstanding,
insofar as the
applicants seek to protect their rights as partners of the erstwhile
partnership in relation to the liquidation
and distribution of its
assets, it can well be argued that an alternative remedy is
available. The applicants, to that effect,
have instituted action
proceedings against the first respondent, claiming a full account of
the financial affairs of PEG Labels,
the debatement thereof, and
payment of whatever is due.
[47]
Overall, the court is not persuaded that either interlocutory or
final relief can be granted to the applicants.
They have not
satisfied the relevant requirements.
[48]
The only remaining issue is that of costs. The first respondent’s
immediate reinstatement of the accounts
after service of the
application and his subsequent undertaking (subject to certain
conditions), do not have an impact on the findings
made above. The
applicants, at the time of such reinstatement and undertaking, were
not entitled to the relief sought. There was
indeed a basis for the
first respondent’s decision to oppose the proceedings.
[49]
The costs of the application were reserved by Mjali J at the hearing
on 28 March 2022. No argument was led
by either the applicants or the
respondents in this regard. In relation to the joinder application,
Gqamana J ordered on 14 June
2022 that the costs thereof be costs in
the cause.
[50]
In the circumstances, the following order is made:
(a)
the application is dismissed; and
(b)
the applicants are directed to pay the costs of the application,
including the costs of the hearing
on 28 March 2022 and the costs of
the joinder application.
JGA
LAING
JUDGE
OF THE HIGH COURT
APPEARANCE:
For
the applicant(s): Adv
Cole SC, instructed by
Allams
Attorneys, East London.
For
the respondent(s): Adv
Whitaker, instructed by
Bate
Chubb & Dickson Inc., East
London.
Date
of hearing: 25
August 2022.
Date
of delivery of judgment: 22
November 2022.
[1]
The
reason for the difference between the trading names will become
apparent in the paragraphs that follow.
[2]
The
applicants abandoned such relief during argument.
[3]
The
question of liability for costs of the hearing on 28 March 2022,
reserved at the time, must also be decided.
[4]
Henning,
‘Partnership’, in
LAWSA
(vol 31, 3ed, LexisNexis, 2022), at paragraph 488. See, too,
Wegner
v Surgeson
1910 TPD 571
;
Fortune
v Versluis
[1962] 1 All SA 414 (A).
[5]
Wegner
v Surgeson
(n
3,
supra
);
also see
Kelly
Group Ltd v Solly Tshiki & Associates (SA) (Pty) Ltd
[2010] JOL 25265 (GSJ).
[6]
Henning,
op
cit
,
at paragraph 491. See, too,
Davis
& Son v McDonald & Sutherland
(1833) 1 M 86;
Bosman
v Registrar of Deeds and The Master
1942 CPD 302
;
R
v Levitan
[1958] 2 All SA 140 (T).
[7]
Lee
and Honoré,
The
South African Law of Obligations
(2ed, Butterworths, 1978), at paragraph 409.
[8]
Henning,
op
cit
,
at paragraph 490. Also see
Haarhof
v Cape of Good Hope Bank
(1887) 4 HCG 304; and, more recently,
Lee
v Maraisdrif (Edms) Bpk
[1976] 3 All SA 53
(A).
[9]
Ibid.
[10]
Setlogelo
v Setlogelo
1914
AD 221
, at 227; see, more recently,
National
Treasury v Opposition to Urban Tolling Alliance
2012 (6) SA 223
(CC), at 235D-E.
[11]
Setlogelo
(n
9,
supra
);
also see
Hotz
v University of Cape Town
2017 (2) SA 485
(SCA), at 496G-H, 496I, and 497G-H. The requirements
for interdictory relief are well-established.
[12]
1957
(4) SA 234 (C).
[13]
At
235.
[14]
1984 (3) SA 623 (A).
[15]
At
634F-635C.
[16]
Emphasis
added.
[17]
Lee
and Honoré,
op
cit.
[18]
DE
van Loggerenberg,
Erasmus:
Superior Court Practice
(Jutatstat, RS 16, 2021), at D1-124. See, too,
Kethel
v Kethel’s Estate
1949 (3) SA 598
(A), at 610;
Amalgamated
Engineering Union v Minister of Labour
1949 (3) 637 (A), at 659; and, more recently,
Watson
NO v Ngonyama
2021 (5) SA 559
(SCA), at paragraph [52].