GrainCo (Pty) Ltd v Van der Merwe and Others

• Jurisdiction: South Africa
• Citation: 2014 (5) SA 444 (WCC)

GrainCo (Pty) Ltd v Van der Merwe and Others
2014 (5) SA 444 (WCC)

2014 (5) SA p444

Citation	2014 (5) SA 444 (WCC)
Case No	17437/2013
Court	Western Cape Division, Cape Town
Judge	Rogers J
Heard	June 18, 2014
Judgment	July 11, 2014
Counsel	AIS Redding SC (with T Dalrymple) for the applicant.; J Newdigate SC (with HC Jansen van Rensburg) for the respondents.

Flynote : Sleutelwoorde B

Sale — Business — Business and goodwill sold — Implied prohibition on canvassing customers — Scope — Effect of express restraint on competition on implied prohibition.

C Contract — Terms — Implied and tacit terms — Implied term — Contract for sale of business with goodwill — Implied prohibition on canvassing customers — Scope — Effect on implied prohibition of express restraint on competition.

Headnote : Kopnota

In issue in this case was whether the respondents were bound by an implied D prohibition against canvassing customers.

Its facts were that Van der Merwe and Kitshoff formed a company (Old GrainCo) which established a grain-trading business. Old GrainCo ultimately sold the business and its goodwill to BKB Ltd. Under the sale agreement Old GrainCo, Van der Merwe and Kitshoff bound themselves for five years to not compete with BKB or to canvass any of its customers.

E BKB immediately on-sold the business and goodwill to the applicant GrainCo (Pty) Ltd (New GrainCo). The sale agreement included a cession of all of BKB's rights in respect of the business to New GrainCo. New GrainCo then employed Van der Merwe and Kitshoff. Their employment agreements incorporated the restraints in the Old GrainCo – BKB sale agreement.

F More than five years later Van der Merwe resigned and formed Perdigon (Pty) Ltd which established a grain-trading business. Thereafter Kitshoff resigned from New GrainCo and Perdigon employed him.

A few months on New GrainCo applied to a high court to interdict Van der Merwe, Kitshoff and Perdigon from canvassing the customers of its business. It relied on a term the law implies into a contract to sell a business with its goodwill: that the seller may not later canvass persons who were G customers of the business at the time of the sale (the implied prohibition). (Paragraph [48] at 456D – H.)

The court considered the following:

Could New GrainCo enforce the implied prohibition?

It could: BKB had ceded its right to enforce the prohibition to New GrainCo. H (Paragraphs [36] and [42] – [44] at 452H – 453C and 455B – F.)

The scope of the implied prohibition

The prohibition applied only to the seller of the business and its goodwill. It prohibited the seller from canvassing persons who were customers at the date of the sale and persons who had been customers prior to the sale. It did not I prohibit from canvassing those persons who had been customers before the sale: who did not intend to resume trading with the business; who were unlikely to resume trading with the business; or whom the buyer had chosen to stop trading with. And the prohibition did not bar the seller from canvassing persons who became customers of the business after the sale. A person was a customer if the business supplied goods or services to it for consideration. (Paragraphs [95], [111], [118], [125] and [130] at 470I – 471A, 474H – I, 476E – G and 479B.) J

2014 (5) SA p445

Furthermore, the prohibition only prevented a seller from canvassing a A customer — it did not prevent a seller from dealing with a customer. Thus if a seller had unlawfully canvassed a customer and had commenced dealing with him, the buyer's remedy would be to sue for damages for breach of the prohibition, not to interdict the seller dealing with the customer. (Paragraph [134] at 479G – I.)

Lastly, the law on the duration of the prohibition was uncertain. The B prohibition might be perpetual; or alternate policy considerations might determine its permissible duration in individual cases. (Paragraphs [84] – [85] and [87] at 467I – 468C and 468F – 469B.)

The effect of an express restraint on competition on the implied prohibition

There was Appellate Division authority that an express restraint on C competition would not exclude the implied prohibition, even where the express restraint included within its scope a prohibition against canvassing customers. (Paragraphs [48], [90] and [93] at 456D – H, 469E – H and 470C – F.)

This might warrant reconsideration: where buyer and seller agreed to an D express restraint of a specified period, they could be taken to have exhaustively regulated the protection they intended the buyer to have. (Paragraphs [54] and [65] at 462G.)

Ultimately the court concluded that the implied prohibition was not excluded from the Old GrainCo – BKB sale agreement, and that BKB ceded the right to enforce it to New GrainCo. The prohibition bound only the seller of the E business with its goodwill — Old GrainCo — and not Van der Merwe or Kitshoff (or plainly Perdigon). And Van der Merwe and Kitshoff only began to compete with New GrainCo after the expiry of the express restraints. The court accordingly dismissed New GrainCo's interdict application. (Paragraphs [41], [93] – [95], [109] and [159] at 454E – 455A, 470C – 471A and 484B.) F

Cases Considered

Annotations

Case law

Southern Africa

A Becker & Co (Pty) Ltd v Becker and Others 1981 (3) SA 406 (A): G considered and applied

Arlyn Butcheries (Pty) Ltd v Bosch 1966 (2) SA 308 (W): referred to

Basson v Chilwan and Others 1993 (3) SA 742 (A): referred to

Botha and Another v Carapax Shadeports (Pty) Ltd 1992 (1) SA 202 (A): dictum at 211 applied

Brenda Hairstylers (Pty) Ltd and Others v Marshall 1968 (2) SA 277 (O): H referred to

Caterham Car Sales & Coachworks Ltd v Birkin Cars (Pty) Ltd and Another 1998 (3) SA 938 (SCA) ([1998] 3 All SA 175): referred to

Commercial and Industrial Holdings (Pvt) Ltd and Another v Leigh-Smith and Others 1982 (4) SA 226 (ZS): referred to

Diner v Carpet Manufacturing Co of SA Ltd 1969 (2) SA 101 (D): referred to I

Forman v Barnett 1941 WLD 54: referred to

John Craig (Pty) Ltd v Dupa Clothing Industries (Pty) Ltd 1977 (3) SA 144 (T): referred to

Manousakis and Another v Renpal Entertainment CC 1997 (4) SA 552 (C): referred to

New United Yeast Distributors (Pty) Ltd v Brooks 1935 WLD 75: referred to J

2014 (5) SA p446

Reckitt & Colman SA (Pty) Ltd v SC Johnson & Son SA (Pty) Ltd 1993 (2) SA 307 (A): referred to A

Van der Watt v Jonker [2011] ZASCA 140: considered

Weinberg v Mervis 1953 (3) SA 863 (C): referred to.

Australia

Bacchus Marsh Concentrated Milk Co Ltd (in Liquidation) v Joseph Nathan & Co Ltd (1919) 26 CLR 410: referred to B

Fisher v GRC Services Pty Ltd [1997] QSC 215: referred to

Lloyd's Ships Holdings Pty Ltd v Davros Pty Ltd [1987] FCA 70: referred to.

Canada

Jiffy People Sales (1966) Ltd v Eliason (1975) 58 DLR (3d) 439 (BCSC): referred to C

JLR Holdings Ltd v Wiseberg 1978 CanLII 1414 (ONCA): referred to

KRG Insurance Brokers (Western) Inc v Shafron 2007 BCCA 79: referred to

Mid Island Truck and Crane Ltd v Simian Cartage Inc 2011 BCSC 677: referred to

Unisource Canada Inc v Enterprise Paper Co Ltd & Others 1999 CanLII 6553 (BCSC): considered D

Western United Insurance Brokers Ltd v Macdonald 1994 CanLII 2344 (BCSC): referred to.

England

Baldwins (Ashby) Ltd v Maidstone [2011] EWHC B12 (Merc): referred to

Churton v Douglas (1859) Johns 174: referred to E

Connors Brothers Ltd v Connors [1940] 4 All ER 179 (PC): referred to

Cruttwell v Lyle (1810) 17 Vesp 335: referred to

Labouchere v Dawson (1871 – 2) 13 Eq 322: considered

Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535 (HL) ([1891 – 4] All ER Rep 1): referred to

Pearson v Pearson (1884) 27 Ch D 145: considered F

Trego v Hunt [1896] AC 7: considered.

United States

Bergum v Weber 288 P 2d 623 (136 Cal App 2d 389 (1955)): considered

Ferris v Pett (1919) 2 ALR 768 (RI): considered

First American Title Insurance Company of New York Inc v Benchmark Title Agency LLC 48 AD 3d 327 (2008): referred to G

MGM Court Reporting Service Inc v Greenberg 74 NY 2d 691 (1989): referred to

Mohawk Maintenance Co Inc v Kessler 52 NY 2d 276 (1981): referred to

North Atlantic Instruments Inc v Fred Haber 188 F 3d 38 (1999): referred to

Suburban Ice Manufacturing Co v Mulvihill 21 Oh App 438 (1926): referred to

Titus & Donnelly Inc v Alfred B Poto 614 NYS 2d 10 (1994): referred to. H

Case Information

AIS Redding SC (with T Dalrymple) for the applicant.

J Newdigate SC (with HC Jansen van Rensburg) for the respondents.

I An application to restrain the respondents from soliciting the applicant's customers. The application was dismissed with costs.

Judgment

Rogers J:

Introduction

[1] The applicant ('GrainCo' or 'New GrainCo') seeks to restrain the J first respondent (Van der Merwe), the second respondent (Kitshoff) and

2014 (5) SA p447

Rogers J

the third respondent (Perdigon) from (I summarise) soliciting its A customers, passing off Perdigon as being associated with GrainCo, unlawfully interfering in GrainCo's contractual relations and publishing injurious falsehoods.

[2] The application was issued on 22 October 2013 in long form. The B main founding affidavit ran to 63 pages plus 184 pages of annexures. The main answering affidavit, filed on 12 December 2013, was 150 pages plus 217 pages of annexures. On 19 February 2014 the applicant filed its replying affidavit, in the circumstances an admirably terse document of 32 pages plus a further 43 pages of annexures.

[3] The matter came before me on 18 June 2014. Mr AIS Redding SC, C leading Mr T Dalrymple, appeared for GrainCo, and Mr J Newdigate SC, leading Mr HC van Rensburg, appeared for the respondents.

The facts

[4] Since many of the matters traversed in the papers are irrelevant to the arguments, I...