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[2002] ZAWCHC 53
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Die Dros (Pty) Ltd and Another v Telefon Beverages CC and Others (3413/02) [2002] ZAWCHC 53; [2003] 1 All SA 164 (C); 2003 (4) SA 207 (C) (3 October 2002)
15
IN
THE HIGH COURT OF SOUTH AFRICA
Reportable
(CAPE
OF GOOD HOPE PROVINCIAL DIVISION)
CASE
NO:
3413/02
DATE:
3-10-2002
In
the matter between:
DIE
DROS (PTY) LTD
First
Applicant
(Registration
Number: 9905766/07)
KRUGKOR
FRANCHISE (PTY) LTD
Second
Applicant
(Registration
Number: 9905766/07)
and
TELEFON
BEVERAGES CC
First
Respondent
PIETWYN
CC
Second
Respondent
MARTIQ
631 CC
Third
Respondent
LLEWELLYN
FREDERICK KAPP
Fourth
Respondent
LYNETTE
HILDA KAPP
Fifth
Respondent
METROPOLITAN
LIFE (PTY) LTD
Sixth
Respondent
J
U D G M E N T
VAN
REENEN, J:
1] The
first applicant operates a business known as the Dros Restaurant and
Wine Cellar at Stellenbosch. This business consists
of a restaurant
and wine cellar with décor designed to create the ambience of a wine
cellar. The first applicant franchises the
Dros Restaurant and Wine
cellar concept by entering into franchise agreements with natural
persons and legal entities in terms whereof
they are entitled to use,
in specified areas, the Dros Restaurant and Cellar concept; the
intellectual
3-10/10:06 property
/...
JUDGMENT
property
rights appertaining thereto; and the business system devised by the
applicant against an initial payment, monthly royalties
and
contributions made towards marketing/advertising.
2] The
second applicant, in terms of a written agreement entered into with
the first applicant, attends
inter
alia
,
to the marketing of the Dros Restaurant and Cellar operations, both
individually and as a group, and monitors compliance with prescribed
standards and methods as regards the serving of food and drinks; the
use of prescribed equipment and fittings; and the training of
personnel.
3] The
first respondent is a close corporation registered under number CK
97/47792/23. The fourth respondent and Petrus Johannes
van der
Westhuizen ("Van der Westhuizen") were originally the
members thereof. Van der Westhuizen is no longer a member
of the
first respondent.
4] The
second respondent is a close corporation registered under number
CK96/6409223. Van der Westhuizen and fourth respondent were
originally the members of the second respondent. Fourth respondent
is no longer a member of second respondent. The second respondent,
pursuant to a franchise agreement entered into with the first
applicant, operated a Dros Restaurant and Wine Cellar at 1 Omnicron
Building, Main Road, Paarl until 24 February 2002.
5] In
terms of a written agreement of lease entered into between the sixth
and second respondents during August 1997, the latter hired
from the
former until 31 August 2002 (with an option for a further five years)
Shop No 15, Plattekloof Centre, Plattekloof, Parow
(hereinafter
referred
3-10/10:08 to
/...
JUDGMENT
to
as "the premises"). The first applicant bound itself to
the sixth respondent to remedy any breach resulting in the
cancellation of the said agreement of lease by operating "the
business" until a lease with a new franchisee, acceptable
to it,
is concluded whilst continuing to fulfil all the obligations of the
lessee in terms of the original agreement of lease.
6] The
fourth respondent and Van der Westhuizen in their capacities as
"members
of a Close Corporation to be formed"
on 4 February 1998 entered into a franchise agreement with the first
applicant in terms whereof the right was acquired to operate
a Dros
Restaurant and Wine Cellar at the premises as from 1 June 1997 to 31
May 2002 with an option to renew the agreement on six
months' notice.
7] It
is common cause that despite the fact that the agreement of lease in
respect of the premises was entered into between second
respondent
and sixth respondent the first respondent, after its incorporation,
occupied the premises; conducted a Dros Restaurant
and Wine Cellar
operation thereon; and paid rental to the sixth respondent.
8] The
franchise agreement contains the following term:
"16.8 If the
franchisee is acting for or as a nominee or as a trustee for a
Company/Close Corporation to be formed, or in any
other
representative capacity then the franchisee shall be personally
liable as franchisee in terms of this Agreement unless the
said
Company/Close Corporation is formed and in addition adopts, ratifies
and confirms the
3-10/10:10
terms
/...
JUDGMENT
terms
of this Agreement, within 60 (sixty) days from signature hereof by
the franchisee.
If
the said Company/Close Corporation or Trust so formed adopts and
ratifies and confirms all the terms of this Agreement, then
the
franchisee by his signature hereto binds himself to the franchisor as
surety and co-principal debtor
in
solidum
with the said Company/Close Corporation or Trust under renunciation
of the benefits of execution, division and cession of action
for the
due performance by the said Company/Close Corporation or Trust of its
obligations in terms hereof."
9] As
it is common cause that the first respondent was duly incorporated
and adopted/ratified/confirmed the franchise agreement within
60 days
of the signing thereof, the fourth respondent and Van der Westuizen's
obligations under the franchise agreement were limited
to their being
sureties and co-principal debtors
in
solidum
with the first respondent to the first applicant for the due
performance of the former's obligations in terms of the franchise
agreement.
First respondent and Van der Westhuizen on 4 February
1998 executed a separate Deed of Suretyship in favour of first
applicant
for the proper fulfilment by the first respondent of its
obligations in terms of the
3-10/10:12 franchise
/...
JUDGMENT
franchise
agreement.
10] As
the franchise agreement was not extended as provided for in clause 11
thereof, the first respondent operated a Dros Restaurant
and Wine
Cellar on the premises until 31 May 2002.
11] The
Franchise Agreement contains the following restraint of trade
provision:
"10.3 Upon
termination of this agreement the franchisee will not participate
either directly or indirectly in the management
or control of a
business which conducts business in the nature of or similar to the
franchise business within the territory for a
period of 12 (twelve)
months. The franchisee acknowledges that this restraint is a
reasonable one in order to protect the franchisor's
business system
and intellectual property rights."
12] It
is common cause that the premises has been converted into a De Kelder
Restaurant operated under franchise by the third respondent,
a close
corporation incorporated under No. CK 2002/029531/23, of which the
fourth respondent's brother Mr Ettiene Kapp - who also
operates other
De Kelder Restaurants - is the only member.
13] First
and second applicants, contending that the provisions of clause 10.3
of the franchise agreement are being breached instituted
proceedings
out of this court against the respondents in which they,
inter
alia
,
claimed orders -
3-10/10:14
"3.
/...
JUDGMENT
"3. Directing
that First, Second, Third and Fourth Respondents be and hereby are
interdicted from participating either directly
or indirectly in the
management or control of any restaurant business in the nature of/or
similar to the Applicants' business at
Shop 15 Plattekloof Centre for
a period of 12 months from 1 June 2002;
4. Directing that
First and Fourth Respondents and any other Respondent opposing the
application pay the applicants' costs of suit,
including the costs of
two counsel; the said liability to be joint and several, the one
paying, the other(s) being absolved;
5. Alternatively
to paragraphs 3 and 4 above:
5.1 Directing
that pending the determination of an action to be instituted by the
Applicants within 10 days for final relief in
the terms set out in
paragraph 3 above, or until
31
May 2003
,
whichever is the earlier, the First to Fourth Respondents be and
hereby are interdicted from participating either directly or
indirectly
in the management or control of any restaurant business in
the nature of/or similar to the applicants' business at Shop 15
Plattekloof
Centre;
5.2 That the
costs of this application be
3-10/10:14
determined
/...
JUDGMENT
determined
by the Court which determines the action."
14] Answering
and replying affidavits were filed and the matter was set down for
hearing in Fourth Division on the semi-urgent roll.
15] At
the hearing of the matter before me, Mr
Binns-Ward
,
who with Mr
Ferreira
appeared for the applicants, confined the relief sought in prayer 3
of the notice of motion to first and fourth respondents and in
view
of the factual disputes thereanent, requested that the question
whether fourth respondent is involved in the restaurant business
conducted by third respondent known as the De Kelder Restaurant at
the premises, be referred to oral evidence in terms of Rule 6(5)(g)
on an urgent basis, to be heard on a date to be determined by the
Judge President of this Court or, in his absence, the Deputy Judge
President, after compliance with such directions as may be given in
respect of discovery and the obtaining of evidence by subpoena,
including subpoenas
duces
tecum
.
16] The
applicants aver that the first and fourth respondents are, in terms
of clause 10.3 of the franchise agreement, prohibited
from
participating either directly or indirectly in the management or
control of a business that conducts business in the nature
or similar
to the franchised business within the magisterial districts of
Bellville and Goodwood for a period of twelve months from
1 June 2002
and that fourth respondent is using third respondent as a front to
conduct the business of a De Kelder Restaurant at
the premises where
the Dros Restaurant and Wine Cellar had previously been conducted.
3-10/10:18 17]
/...
JUDGMENT
17] The
fourth respondent disputes that the restraint of trade clause in the
franchise agreement is binding on him personally; denies
that he is
in any way involved in the conduct of a De Kelder Restaurant on the
premises; and disavows any intention of becoming involved
therein in
the future. Mr Etienne Kapp, the fourth respondent's brother,
confirms that he was the only member of the third respondent
and that
fourth respondent has neither any interest nor involvement therein.
18] As
the relief sought in prayer 3 of the notice of motion is final of
nature, real and genuine disputes of fact must be resolved
by
applying the test enunciated in
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
1984(3) SA 623 (A) at 634E-G namely, that the relief sought may be
granted only if the facts as stated by the respondents, together
with
the admitted facts in the applicants' affidavits, warrant the
granting thereof. It is implicit in the request that the factual
issues be referred to oral evidence, that the applicants accept that
the respondents' averments are not so far-fetched or untenable
that
their rejection is warranted merely on the papers; that the disputes
of fact are genuine and real; and that on an application
of the test
enunciated in the
Plascon-Evans
case, they have not succeeded in showing on a balance of
probabilities that they are entitled to the relief which they are
seeking.
The decision whether or not factual disputes should be
referred to oral evidence depends on the outcome of two enquiries.
The
first is an assessment of the probabilities in respect of the
disputed issues: the more the probabilities favour a respondent's
version,
the less likely it is that a court will exercise its
discretion in favour of referring disputed factual
3-10/10:19 issues
/...
JUDGMENT
issues
to oral evidence (See:
Kalil
v Decotex (Pty) Ltd & Another
1988(1) SA 943 (A) at 979G-I). The second is a consideration of the
prospects of
viva
voce
evidence tilting the probabilities in favour of the party bearing the
onus
.
19] Mr
Treurnich
SC,
who with Mr H L
du
Toit
appeared for first, third and fourth respondents, opposed the
application to have the factual disputes referred to oral evidence.
He did so on the basis that unless the applicants succeed in showing
that the restraint of trade embodied in clause 10.3 of the
franchise
agreement is binding on the fourth respondent, their resolution is
pointless.
20] The
applicants in their replying affidavit articulated the issues between
them and the respondents as being two-fold. The first
is a legal
question, namely whether the fourth respondent is prohibited by the
terms of clause 10.3 of the franchise agreement from
carrying on the
business of a restaurant at the premises, either in his personal
capacity, or through a corporate entity. The second
is a factual
question, namely whether the fourth respondent is in fact carrying on
a restaurant business on the premises in the guise
of or in
association with the third respondent. First and second applicants
want the second issue to be referred for oral evidence.
First,
third and fourth respondents want the first issues to be adjudicated
first as its outcome will determine whether or not
the referral for
oral evidence will serve any purpose.
21] The
restraint of trade embodied in clause 10.3 of the franchise agreement
binds "the franchisee". The concept "franchisee"
is not defined in the franchise agreement. The fourth respondent and
Van der
3-10/10:22 Westhuizen
/...
JUDGMENT
Westhuizen
are parties to the franchise agreement "in their capacities as
members of a Close Corporation to be formed (hereinafter
called the
'franchisee')". Whatever obligations resided in the fourth
respondent and Van der Westhuizen as signatories of
the franchise
agreement prior to its incorporation and the adoption, ratification
and confirmation of the terms thereof, they thereafter
became merely
sureties and co-principal debtors to the first applicant for the
contractual obligations of the first respondent.
Any possible
uncertainty about whom the parties to the franchise agreement
considered to be the franchisee is dispelled by the terms
of the
separate suretyship agreement entered into by fourth respondent and
Van der Westhuizen in which the first respondent is signified
as the
franchisee. In view of the aforegoing, I incline to the view that
ex
facie
its provisions, clause 10.3 of the franchise agreement are binding
only on the first respondent.
22] The
case made out by the applicants in their founding papers is that:
"...the
Fourth Respondent is endeavouring to avoid the
restraint
of trade obligations undertaken by him and First Applicant
(read
first respondent) by using the entity of Third Respondent as an
ostensibly unrelated and independent person"
(underling
provided).
Although
the applicants appear to have formulated the aforementioned legal
issue therein identically, their case in reply appears
to have
evolved somewhat. The applicants by asserting that first and second
respondents were regarded by them as a corporate manifestation
of
first
3-10/10:25 respondent
/...
JUDGMENT
respondent
and Van der Westhuizen's interest
"...in
the franchise outlet"
and
that first respondent is merely the vehicle through which fourth
respondent conducted his business, appear to disregard the first
respondent's separate legal personality and equating it and fourth
respondent, resulting in the restraint undertaken by the first
respondent becoming binding also on the fourth respondent. The third
respondent is then further categorised as merely a corporate
vehicle
used as a front by fourth respondent to disguise his involvement with
the De Kelder Restaurant which is being conducted on
the premises in
conflict with the restraint of trade embodied in clause 10.3 of the
franchise agreement.
23] Courts
do not have a general discretion to disregard a company's separate
legal personality whenever they consider it just or
convenient to do
so. The then Appellate Division (per
Smalberger,
JA
who wrote the majority judgment) in
Cape
Pacific Limited v Lubner Controlling Investments (Pty) Ltd &
Others
1995(4) SA 790 at 803 G-H and I-J expressed the view that it is a
salutary principle that courts should not lightly disregard a
company's
separate legal personality, but should strive to give
effect to it, as to do otherwise would negate and undermine the
policy and
principles that underpin the concept of separate corporate
personality and the legal consequences that attach thereto, but held
that
where fraud, dishonesty or other improper conduct is present,
other considerations come into play, in which event, the need to
preserve
the separate corporate personality of a company has to be
balanced against policy considerations favouring the piercing of the
corporate
veil.
24] Courts
permit the separate corporate personality of a close
3-10/10:28 corporation
/...
JUDGMENT
corporation
or company to be disregarded where a natural person who is subject to
a restraint of trade, uses a close corporation or
company as a front
to engage in the activity that is prohibited by an agreement in
restraint of trade (See:
Le'Bergo
Fashions CC v Lee & Another
1998(2) SA 608 (C);
Gilford
Motor Co Ltd v Horne
[1933] CH 935
(CA);
[1933] All ER Rep 109).
Those decided cases
could be invoked as authority for restraining fourth respondent if
the applicants succeed in overcoming two
evidential obstacles. The
first is that the restraint embodied in clause 10.3 of the franchise
agreement is binding on fourth respondent.
The second is that fourth
respondent is using the third respondent as a front to engage in the
activities prohibited by the said
clause.
25] I
have already found that
ex
facie
the provisions of the franchise agreement, the provisions of clause
10.3 thereof are binding only on the first respondent. The
fact
that fourth respondent bound himself as surety and co-principal
debtor to the first applicant for the due and proper fulfilment
by
the first respondent of all its obligations in terms of, in
connection with or arising in any way whatsoever out of the franchise
agreement, in relation to clause 10.3 of the franchise agreement,
amounts merely to the guaranteeing of the performance of a negative
obligation on the part of the first respondent (See:
Segell
v Kerdia Investments (Pty) Ltd
1953(1) SA 20 (W);
Demetriou
v O'Flaherty & Another
1973(4) SA 691 (D & CLD) at 694D-E) and did not impose the
obligations embodied in clause 10.3 of the franchise agreement on
the
fourth respondent personally. A surety and co-principal debtor is no
more than a surety and does not undertake a separate independent
3-10/10:30 liability
/...
JUDGMENT
liability
as a principal debtor (See:
Peimer
v Finbro Furnishers (Pty) Ltd
1936 AD 177).
26] The
language used by the applicants to describe the relationship between
the fourth respondent and first respondent, namely that
the latter is
merely a corporate vehicle which the former conducted business as a
franchisee of the first applicant, is redolent
of the first applicant
being the
alter
ego
of the fourth respondent. M S Blackman:
Lawsa
(1st Reissue) Volume 4, Part 1, paragraph 46 provides the following
helpful exposition of the
alter
ego
concept in the context of the disregarding of a corporate entity's
separate legal personality:
"A
company is said to have been the... the '
alter
ego
'
of its controlling shareholders where it does not, in truth, carry on
its own business or affairs, but acts merely in the furtherance
of
the business or affairs of its shareholders, in other words, its
controllers do not treat it as a separate entity, at least not
in the
full sense. Although the form is that of a separate entity carrying
on business to promote its stated objects, in truth
the company is a
mere instrumentality or business conduit for promoting, not its own
business or affairs, but those of its controlling
shareholders. For
all practical purposes the two concerns are in truth one. In these
cases there is usually no intention to defraud
although there is
always abuse of the company's separate existence (an attempt to
obtain the advantages of the separate personality
of the company
without in fact
3-10/10:33
treating
/...
JUDGMENT
treating
it as a separate entity)."
27] As
the applicants, impermissibly amplified their case in reply, the
respondents have not had an opportunity to deal with the applicants'
averments relating to the relationship between the fourth respondent
and first respondent.
28] It
is trite law that the affidavits in motion proceedings serve to
define not only the issues between the parties, but also to
place the
essential evidence before the court (See:
Swissborough
Diamond Mines (Pty) Ltd & Others v Government of the Republic of
South Africa & Others
1999(2) SA 279 (W) at 323G) for the benefit of not only the court,
but also the parties. The affidavits in motion proceedings must
contain factual averments that are sufficient to support the cause of
action on which the relief that is being sought is based.
Facts may
either be primary or secondary. Primary facts are those capable of
being used for the drawing of inferences as to the
existence or
non-existence of other facts. Such further facts, in relation to
primary facts, are called secondary facts (See:
Willcox
& Others v Commissioner of Inland Revenue
1960(4) SA 599 (A) at 602A;
Reynolds
N.O. v Mecklenberg (Pty) Ltd
1996(1) SA 75 (W) at 78I). Secondary facts, in the absence of the
primary facts on which they are based, are nothing more than
a
deponent's own conclusions (See:
Radebe
v Eastern Transvaal Development Board
1988(2) SA 785 (A) at 793C-E) and accordingly do not constitute
evidential material capable of supporting a cause of action.
29] Even
if regard is had to the averments that the applicants made in their
replying affidavits in amplification of the case made
out in their
3-10/19:35 founding
/...
JUDGMENT
founding
papers, there is an almost total absence of primary facts that show
that the fourth respondent used the first respondent
as a mere
instrumentality or business conduit for the promotion of his personal
business affairs. The applicant's entire case is
based on secondary
facts. Assuming, without deciding, that in the event of the first
respondent being the fourth respondent's
alter
ego
,
the restraint embodied in clause 10.3 of the franchise agreement
would be binding on the latter, the applicants, in my view, have
failed to discharge the
onus
of showing, on a balance of probabilities, that the first respondent
was the fourth respondent's
alter
ego
.
30] In
view of the aforegoing I have come to the conclusion that the
applicants have failed to show that the provisions of clause
10.3 of
the franchise agreement are binding on the fourth respondent.
Accordingly the resolution of the factual issues that the
applicants
wish to be referred for oral evidence, namely, whether the fourth
respondent in fact is carrying on the business of a
restaurant at the
premises, under the guise of or in association with the first
respondent, will not have any purpose whatsoever.
Accordingly the
application to have that issue referred for oral evidence cannot be
granted.
31] As
the applicants - any lack of
locus
standi
on the part of the second applicant was not ventilated on the papers
or in argument before me - have failed to show any act of
interference
with any clear right that vests in them (See:
Sanachem
(Pty) Ltd v Farmers Agri-Care (Pty) Ltd & Others
1995(2) SA 781 (A) at 788J-790C) they, in my view, are not entitled
to an interdict in the terms sought. Because of the narrow
3-10/10:38 ambit
/...
JUDGMENT
ambit
of the application, I have not given consideration to whether any of
the applicants are entitled to relief against any of the
respondents
on the basis of any other legal
causa
,
and accordingly, refrain from expressing any views thereanent.
32] In
view of the conclusion arrived at herein it is not necessary to deal
with the application to strike out parts of the applicants'
founding
and/or replying papers.
33] Accordingly,
the application is dismissed with costs, such costs to be taxed on a
party and party scale including the costs occasioned
by the
employment of two counsel.
VAN
REENEN, J