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[2007] ZASCA 6
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Isamcor (Pty) Ltd v Dorbyl Light & General Engineering (Pty) Ltd, Dorbyl Light & General Engineering (Pty) Ltd v Insamcor (Pty) Ltd (63/06 , 319/06) [2007] ZASCA 6; 2007 (4) SA 467 (SCA) (12 March 2007)
Links to summary
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
REPORTABLE
Case number: 63/06
In the matter between :
1) INSAMCOR (PTY) LTD
........................
APPELLANT
and
DORBYL LIGHT & GENERAL
ENGINEERING (PTY) LTD
........................
RESPONDENT
Case number: 319/2006
In the matter between:
2) DORBYL LIGHT & GENERAL
ENGINEERING (PTY) LTD
........................
APPELLANT
and
INSAMCOR (PTY) LTD
........................
RESPONDENT
CORAM : HARMS, BRAND, NUGENT, PONNAN JJA
et
SNYDERS AJA
HEARD : 16 FEBRUARY 2007
DELIVERED : 12 MAART 2007
Neutral citation: This judgment
may be referred to as
Insamcor
v Dorbyl
[2007] SCA 6
(RSA)
SUMMARY
:
Two appeals â one against order setting aside the restoration of a
formerly deregistered company under s 73(6) of Companies Act
61 of
1973 â setting aside order upheld mainly on basis that restoration
not preceded by issue of rule
nisi
and necessary party not joined.
The other appeal â against successful claim for royalties by
company restored to register â upheld
on basis that because
restoration order had been rightly set aside â the claim had
effectively been granted in favour of a party
that did not exist.
JUDGMENT
_____________________________________________________
BRAND JA
/
BRAND JA
:
[1] In these two appeals that were heard together, the parties are
the same. The first appeal, by Insamcor (Pty) Ltd as the appellant,
is against the judgment of Meyer AJ in the Johannesburg High Court.
It emanated from a claim by the respondent in the first appeal,
Dorbyl Light & General Engineering (Pty) Ltd ('DLG'), in motion
proceedings. The claim was for payment of royalties arising from
the
manufacturing and selling of certain diaphragm valves by Insamcor
under sub-licence from DLG. In addition, DLG sought an interdict
preventing Insamcor from further manufacturing these valves on the
basis that the sub-licence agreement had been terminated. Both
claims
were upheld by Meyer AJ. The appeal against that judgment is with his
leave.
[2] The second appeal, by DLG as the appellant, is against a judgment
of Blieden J, also in the Johannesburg High Court, upholding
an
application by Insamcor for the setting aside of a previous court
order by Cachalia J. The order by Cachalia J was granted in
terms of
s 73(6) of the Companies Act 61 of 1973. In substance it directed
that DLG, which had previously been deregistered under
s 73(5) of the
Act, be restored to the register of companies. The appeal against the
judgment of Blieden J, since reported
sub nom
Insamcor
(Pty) Ltd v Dorbyl Light and General Engineering (Pty) Ltd
[2006] ZAGPHC 31
;
2006
(5) SA 306
(W), is again with the leave of the court
a quo
.
[3] The source of the relationship between the parties lies in a
tri-partite agreement which was concluded on 11 September 1985.
The
three parties involved were Insamcor, Stewarts & Lloyds of South
Africa Ltd ('S&L') and a company registered in the United
Kingdom, Saunders Valve Company Limited ('Saunders'). With the
consent of the other two parties, DLG subsequently took over all the
rights and obligations of S&L in terms of the agreement. This
happened during September 1988.
[4] The preamble to the 1985 agreement explained four things that are
pertinent. Firstly, that Saunders held copyright in certain
diaphragm
valves referred to as 'the licensed products'. Secondly, that by
virtue of an earlier agreement which was entered into
on 1 July 1982,
Saunders had granted S&L a licence to manufacture and sell the
licensed products in South Africa. Thirdly, that
during 1983 Saunders
had instituted an action, based on an alleged infringement of its
copyright in the licensed products, against
Insamcor, and that this
action had been settled by agreement. Fourthly, that as part of the
settlement, it had been agreed that S&L
would appoint Insamcor,
inter alia
, as sub-licensee in respect of some of the licensed
products, referred to as the sub-licensed products.
[5] The operative part of the agreement is divided into five
chapters, numbered I to V. Of relevance are chapter II, which
recorded
the terms of the sub-licence granted by S&L to Insamcor
and chapter V, which set out the general terms applicable to each of
the other four chapters. With regard to the payment of royalties by
Insamcor, clause 13 in chapter II provided that:
'13.1 For the rights and licences granted in terms of
this chapter II, the sub-licensee shall for the duration of this
agreement pay
to the sub-licensor a royalty on the 'net selling
price' of all sub-licenced products sold or otherwise disposed of, at
the rate
of 7,5% (seven comma five per centum) per piece.
13.2 . . .
13.3 The sub-licensee agrees to pay all amounts owing to
the sub-licensor in terms of sub-clause 13.1 of this clause within 30
days
of the last day of March, June, September and December of each
year for the three preceding full calendar months . . . '
[6] In terms of clause 7 of chapter II, Insamcor was entitled,
against payment of the royalties set out in clause 13, to utilise
the
know-how and technical aid defined in the agreement in order to
manufacture, assemble and sell the sub-licensed products in South
Africa. Clause 8 obliged S&L â and subsequently DLG â to
furnish Insamcor 'as promptly as practicable following receipt of
requests therefore', with all such know-how and technical aid as
Insamcor was entitled to.
[7] DLG brought its application for payment of royalties on 31 August
2004. In support of the claim it contended that Insamcor had
breached
its contractual obligations by failing to make any of the quarterly
royalty payments, contemplated by clause 13, since 31
September 2001.
By reason of this breach, DLG averred, it had cancelled the 1985
agreement on 3 August 2004, as it was entitled to
do in terms of the
general provisions in chapter V. In consequence of the cancellation,
DLG contended, Insamcor was bound not to
manufacture or sell any of
the sub-licensed products for a period of two years following the
cancellation. It is on the basis of
these last mentioned allegations
that the prohibitory interdict was sought.
[8] In its answering affidavit, Insamcor originally relied on a
number of defences. Of these the only one persisted with derived
from
the allegation that, on a proper interpretation of the 1985
agreement, its obligation to pay royalties was reciprocal upon
performance
by DLG of its obligations under clauses 7 and 8, to
provide know-how and technical aid. Because DLG had failed to comply
with these
obligations, so Insamcor contended, it was not entitled to
claim royalties or to cancel the agreement.
[9] Resolution of the royalties dispute was, however, overtaken by
another event. Two days before the matter was set down for hearing,
Insamcor compelled discovery of two documents which formed the basis
of an additional defence against the royalties claims. What
is more,
these two documents â and the paper trail leading from them â
also paved the way for the setting aside application before
Blieden
J, which eventually gave rise to the second appeal.
[10] What emerged from these documents were facts previously unknown
to Insamcor. First and foremost among these was the fact that
on 19
March 1996 and at the behest of its parent company, Dorbyl Ltd
('Dorbyl'), DLG had been deregistered by the Registrar of Companies
in terms of s 73(5) of the Companies Act. The deregistration, so it
appeared, originated from a decision taken during 1989 to restructure
the Dorbyl Group and to rationalise the activities of the entities in
the group. As part of the restructuring process, the business
of DLG
was transferred to Dorbyl. From then on the business was conducted as
a division of the latter and no longer as the business
of a separate
legal persona. Since DLG then ceased to be operational, Dorbyl
alleged, it filed the deregistration application with
the Registrar
of Companies.
[11] What also transpired was that on 21 September 2001, Dorbyl sold
the business previously conducted by DLG, including control
of the
Saunders license, to a company known as Dynamic Fluid Control (Pty)
Ltd ('DFC'). After the business had been transferred to
DFC pursuant
to the sale, Insamcor, however, refused to accept DFC as its debtor
under the 1985 agreement. In an obvious attempt
to overcome this
difficulty, Dorbyl decided to sell the shares in DLG, as opposed to
its former business, to DFC. Dorbyl must then
have realised that DLG
no longer existed. The two documents of which Insamcor obtained
discovery shortly before the hearing of the
royalties matter were
those pertaining to the DFC transaction, namely the deed of sale of
DLG's business in September 2001 and the
subsequent sale of shares in
DLG, which was entered into on 28 January 2004. The share sale
agreement recorded that the business
of DLG had already been
transferred to DFC and that DLG had previously been deregistered, but
that Dorbyl was in the process of applying
for the restoration of its
name to the register of companies. The agreement was specifically
subject to the successful outcome of
the restoration application.
[12] The two discovered documents led Insamcor to the founding
affidavit in the restoration application. It was deposed to by the
financial director of Dorbyl on the same day that the share sale
agreement was signed. Yet the affidavit made no reference to that
agreement or to the earlier alienation of DLG's business to DFC. In
fact, the situation represented in the founding affidavit was
that
DLG's business had been taken over and was still conducted by Dorbyl.
The founding affidavit also made no mention of the 1985
agreement
between DLG and Insamcor. The only agreement adverted to was the 1982
licensing agreement between Saunders and S&L
which had
subsequently been taken over by DLG. As it turned out, the 1985
agreement nevertheless received specific mention in the
restoration
order.
[13] The Registrar of Companies and two government departments were
cited as respondents in the restoration application. Other than
the
three respondents, no one else was notified. On 2 March 2004 the
matter came before Cachalia J on an unopposed basis. Apart from
the
restoration order itself and certain ancillary relief, he granted the
following relief in paragraph 5 of the order:
'5. It is declared that upon the restoration of the
registration of the company:
5.1 The assets of the company are no longer
bona
vacantia
;
5.2 The assets of the company will vest in the company
with retrospective effect to the date of deregistration and as if the
company
had not been deregistered.
5.3 The assets of the company include all its right,
title and interest in and to a sub-licence agreement concluded
between Saunders
Valve Company Limited, Stewarts and Lloyds of South
Africa Limited, Insamcor (Proprietary) Limited and the Company under
licence
to manufacture and sell various models of Saunders' diaphragm
valves.'
[14] Upon learning of these facts, Insamcor launched an application
for the setting aside of the restoration order. At the same time
it
sought a stay of the royalties proceedings, pending the outcome of
the setting aside application on the basis that, if DLG were
to
revert to its previous state of deregistration, the claimant for
royalties would disappear.
[15] Meyer AJ held that Insamcor's application for a stay was without
merit, because, so he found, Insamcor, from the outset, had
no
locus
standi
to oppose the grant of the restoration order and therefore
had no
locus standi
to bring an application for the order to
be set aside. As is apparent from Meyer AJ's judgment, his views were
largely influenced
by the judgment of De Vos J in
Ex Parte
Varvarian: In re Constantia Pure Food Co (Pty) Ltd
1965 (4) SA
306
(W) to which I shall presently return. After refusing the stay,
Meyer AJ then proceeded to decide the merits of the royalties claim.
The outcome, as we know, was a judgment in favour of DLG.
[16] Before dealing with the appeal against the judgment of Meyer AJ
in the royalties proceedings I should revert to the application
for
the setting aside of the restoration order before Blieden J. As
appears from his reported judgment (para 14 at 312A-D) Insamcor
relied on three grounds in support of its application. First, since
it had a direct and substantial interest in the outcome of the
restoration order, it should have been joined in those proceedings.
Second, Dorbyl, as applicant in the restoration application,
not only
failed in its duty to fully appraise the court of all the relevant
facts, but indeed misrepresented material facts to the
court. Third,
in any event, para 5.3 of the restoration order was not competent, in
that the 1985 agreement which the paragraph declared
to be an asset
of DLG, was not even referred to in the founding papers.
[17] For the reasons appearing from his reported judgment (see paras
16-38 at 312D-318E) Blieden J essentially agreed with Insamcor
in
respect of all three grounds upon which its application relied. On
appeal DLG's main contention was that Blieden J had erred in
his
finding that Insamcor should have been joined as a necessary party to
the restoration application, because, so it argued, Insamcor
would,
in any event, have no
locus
standi to oppose that application.
In consequence, so the argument went, Blieden J should have found
that Insamcor likewise had no
locus standi
to seek the setting
aside of the restoration order.
[18] As authority for this argument, DLG relied mainly on those
dicta
by De Vos J in
Ex Parte Varvarian (supra)
which had persuaded
Meyer AJ not to stay the royalties proceedings. In dealing with the
precursor to s 73(6) of the Companies Act
â s 199(7) of Act 46 of
1926 â De Vos J said the following (at 309D-G):
'Now it seems to me that the provisions of this section
could never have been envisaged by the lawgiver as affording a new or
additional
remedy, either substantive or procedural, to persons
standing in some legal relationship to the company, either as member,
creditor
or otherwise where such remedy is not otherwise in law
provided for . . . . If this right [to apply for restoration] is
exercised
the worst that can happen to any party, or the best,
according to the facts, would be the revival of a pre-existing
relationship
which may have been terminated by the action of the
Registrar in securing the removal from the register. The restoration
then brings
the company back into existence as if the Registrar had
never acted, and leaves all parties concerned thereafter to enforce
such
rights as they may have against the restored company.
There seems to be no reason why any party, albeit as
creditor, debtor or party in litigation pending, should have a right
to intervene
in an application of this kind, particularly in the
present circumstances, where the restoration of the company to the
register would
afford that company an opportunity which it would
otherwise lose of proceeding with litigation against the intervening
party.'
[19] Blieden J in the court
a quo
was of the view (see para 22
at 313H) that, although
Varvarian
was not specifically
referred to, it had in effect been subsequently overruled in
Ex
Parte Sengol Investments (Pty) Ltd
1982 (3) SA 474
(T), which was
followed in
Ex Parte Jacobson: In re Alec Jacobson Holdings
1984
(2) SA 372
(W). What these two cases laid down in substance, was that
an order of restoration under s 73(6) of the Companies Act should, as
a matter of practice, be preceded by a rule
nisi
calling upon
all interested persons to show cause why the company's registration
should not be restored.
[20] The reasoning behind this practice appears from the following
statement by Van Dijkhorst J in
Sengol
(at 477C-F):
'The effect of restoration to the register is that the
company is deemed not to have been deregistered at all. This entails
that all
parties who have by deregistration of the company or
thereafter acquired rights to assets which the company had upon
deregistration
will lose those rights as the assets will revert to
the company. This includes assets which have become
bona
vacantia
and as such accrued to the State.
Likewise debtors and creditors of the company at time of
deregistration may upon restoration find
their obligations or rights
resuscitated.
It follows that the restoration of the registration of a
company in terms of s 73 (6) may have wide-ranging effects. Although
the
applicant alleges that the company had no other assets than the
mineral rights, and that it had no liabilities, the possibility does
exist of the discovery of forgotten assets. That this is not illusory
is evidenced by the cases where this fact necessitated an application
like the present . . . .'
(See also Goldstone J in
Ex Parte Jacobson
at 377F-H.)
[21] The statement by Van Dijkhorst J must, of course, be understood
against the background of s 73(6). It provides:
'6(a) The Court may, on application by any interested
person or the Registrar, if it is satisfied that a company was at the
time of
its deregistration carrying on business or was in operation,
or otherwise that it is just that the registration of the company be
restored, make an order that the said registration be restored
accordingly; and thereupon the company shall be deemed to have
continued
in existence as if it had not been deregistered.
(b) Any such order may contain such directions and make
such provision as to the Court seems just for placing the company and
all
other persons in the position, as nearly as may be, as if the
company had not been deregistered.'
[22] With regard to the effect of s 73(6) the basic premise of the
judgment in
Varvarian
â and, building upon it, the argument
by DLG â appears to be that an order under the section is no more
than a return to 'as
you were' whereby all parties involved are
retrospectively placed in the same position as they were prior to
deregistration. Proceeding
from that premise the accepted notion
seems to be that the rights and obligations of all parties remain the
same as prior to deregistration.
Since all parties have the same
defences available against each other as prior to deregistration, no
one can be prejudiced by the
restoration order.
[23] But, with respect to De Vos J, the reality is not that simple.
As Schutz JA said, albeit in a somewhat different context, in
Mouton
v Boland Bank Ltd
2001 (3) SA 877
(SCA) at 882D-H), during the
period that elapsed since deregistration, 'the moving finger', so to
speak, may very well 'have moved
on' and the deeming provision in s
73(6) cannot change that fact. As a result of deregistration, third
parties may have acquired
or lost rights, or they may have decided
not to exercise their rights against the company â precisely
because the company did not
exist. Through the operation of a
restoration order obligations towards the company, which were
extinguished because of deregistration,
would revive with
retrospective effect. What is more, a restoration order seems to
validate, retrospectively, all acts done since
deregistration â
including, for example, the institution of legal proceedings â on
behalf of a company that did not exist.
[24] In the light of all of this, it is an over simplification to
regard a restoration order as no more than an 'as you were'. It
can
clearly cause severe prejudice to third parties. In
Sengol
(at
477C) Van Dijkhorst J gave the example of those who, upon
deregistration, acquired rights to company property, who will lose
those rights when the registration of the company is restored.
Examples of such prejudice have also been recognised in other
jurisdictions
(see eg
Smith v White Knight Laundry Ltd
[2001]
EWCA Civ 660
;
[2001] 3 All ER 862
(CA);
Tyman's Ltd v Craven
[1952] 2 QB 100
;
[1952] 2 All ER 613
(CA)).
[25] Insamcor contended that on the facts of this case its prejudice
resulting from the restoration order is plain: prior to the
restoration order it could raise the defence in the royalties
proceedings that, upon deregistration of DLG, its rights and duties
under the 1985 agreement came to an end. But, because of the
restoration order, that defence was no longer available. In fact,
DLG's
whole answer to the defence based on deregistration relied on
the retrospective effect of the restoration order.
[26] According to s 73(6)(a) the court's power to grant a restoration
order is introduced by the word 'may'. It follows that the
court has
a discretion to grant the order. It is not bound to do so, even if
all the prerequisites imposed by the section are satisfied
(see eg
Ex
Parte Minister of Lands, Ex Parte Ventersdorp Muslim Trust (Pty) Ltd
1964 (3) SA 469
(T) 471A;
Ex Parte Sengol Investments (Pty)
Ltd (supra)
477A-B). One of the considerations the court will
inevitably have regard to in the exercise of that discretion, is the
potential prejudice
the restoration may cause to third parties. (See
Blackman, Jooste, Everingham
, Commentary on the Companies Act
,
original service, 2002 p 4-179. Cf
Unkovich v Commissioner for
Corporate Affairs
(1986) 4 ACLC 502
SC (WA) 503;
Re Porter
(1994) 15 ACSR 424
SC (WA) 427).
[27] In the premises it is, in my view, self-evident that third
parties who will or may be prejudiced by the restoration order must
be given the opportunity to persuade the court not to exercise its
discretion in favour of a restoration order. Alternatively, they
may
endeavour to persuade the court to make the order subject to such
directions under s 73(6)(b) as may serve to alleviate its prejudicial
consequences. The inevitable conclusion I draw from all this is that
third parties who will or may suffer prejudice as a result of
the
restoration order, have a 'direct and substantial interest' in the
outcome of the application for such an order. It follows that
they
should be joined as necessary parties to the application (see eg
Amalgamated Engineering Union v Minister of Labour
1949 (3) SA
637
(A) at 659).
[28] DLG's argument against this conclusion was that in some
instances it would be well nigh impossible to join every party to a
contract with the deregistered company and any other third party who
may be prejudicially affected by the restoration order as respondents
in the application. That, however, is not a novel dilemma. It often
arises in cases where necessary parties may be numerous and sometimes
even unknown. For many years this problem has been resolved by the
mechanism of issuing a rule
nisi
, as an alternative to actual
joinder of all necessary parties. The import of this mechanism in an
analogous situation was explained
as follows by Ramsbottom J in
Ex
Parte Gold
1956 (2) SA 642
(T) at 649E-F:
'The Court will exercise its power only where all the
parties who have the right to object have consented . . .. The
practice is well
established that proof of consent is inferred from
failure to object after the issue of a rule
nisi
served in the manner and on the persons ordered by the
Court. In the present case the rule was duly served, and the consent
of all
persons concerned . . . was inferred. There was therefore no
reason why the rule should not be confirmed.'
(See also eg
Ex Parte Millsite Investments Co (Pty) Ltd
1965
(2) SA 582
(T) at 584H.)
[29] That was precisely the procedure suggested by Van Dijkhorst J in
Sengol
to be followed, as a matter of practice, in all
applications for restoration orders under s 73(6). I agree. All I can
add is that,
since failure to react to the rule
nisi
will give
rise to deemed consent, proper care should be taken in issuing
directions as to service of the rule. Where a particular
third party
can be identified
a priori
as a necessary party â such as
Insamcor in the present case, who was in fact referred to in the
order by name â service of the
rule on that party should be
directed, while notice to unknown potentially interested parties can
be ensured through publication
of the rule (see eg the order in
Sengol
at 479A-C and in
Jacobson
at 378B-C).
[30] In the circumstances I find myself in agreement with the finding
by Blieden J (in para 25at 314A-D) that, because the order
restoring
DLG to the register of companies was granted without the prior issue
of a rule
nisi
or the formal joinder of Insamcor as a
necessary party, the order could not stand. For that reason alone,
the setting aside application
therefore rightly succeeded.
[31] The inevitable result is that the appeal against the setting
aside order must fail. In the event, DLG conceded, rightly, that
Insamcor's appeal in the royalties matter should be upheld. Whether
the restoration order was void
ab initio
or not is of no real
consequence in the present context. Its setting aside must in any
event have operated with retrospective effect
to the date it was
granted. It follows that the royalties proceedings were conducted all
along on behalf of a claimant that did not
exist. This conclusion,
incidentally, shows why the stay of the royalties proceedings,
pending the outcome of the setting aside application
would have been
the appropriate solution. The question whether DLG's royalties claim
should have succeeded on its merits is therefore
not one we have to
decide.
[33] For these reasons the following order is made:
(a) The appeal by DLG (under case number 319/2006) is dismissed with
costs, including the costs of two counsel.
(b) The appeal by Insamcor (under case number 63/2006) is upheld with
costs, including the costs of two counsel.
(c) The order of the court
a quo
in the last-mentioned matter
is set aside and replaced with the following:
"The application is dismissed with costs."
.......................
F D J BRAND
JUDGE OF APPEAL
Concur
:
HARMS JA
NUGENT JA
PONNAN JA
SNYDERS AJA