Masterspice (Pty) Ltd v Broszeit Investments CC

• Jurisdiction: South Africa
• Judge: Howie P, Farlam JA, Brand JA, Jafta JA and Maya AJA
• Judgment Date: 31 March 2006
• Citation: 2006 (6) SA 1 (SCA)
• Docket Number: 252/05
• Hearing Date: 13 March 2006
• Counsel: A C Oosthuizen SC (with G Selikowitz) for the appellant. J J Gauntlett SC (with S P Rosenberg SC) for the respondent.
• Court: Supreme Court of Appeal

Farlam JA:

Introduction

[1] The appellant instituted proceedings in the Cape High Court for the provisional winding-up of the respondent. On 21 August 2002 Griesel J referred the matter for the hearing of oral evidence on I the issues as to (1) whether the applicant, now the appellant, was a creditor of the respondent; and, if so, (2) whether the respondent was unable to pay its debts. On 25 June 2003, after hearing oral evidence, the same learned Judge granted a final winding-up order. An appeal brought by the respondent against that order was upheld by the Full Bench of the Cape J

Farlam JA

High Court on 26 January 2005. The appellant now appeals with special leave to this A Court, contending that the original final winding-up order was correctly made and that the Full Bench erred in setting it aside on appeal.

Facts B

[2] The winding-up application was a sequel to an agreement of sale concluded on 31 August 2000, in terms of which the respondent sold a spice-blending business known as Masterspice, as a going concern, to the appellant, for an amount of R2 198 574 plus the value of the stock. Expressly included among the business assets which formed the subject-matter of the sale were what were described as '(t)he C recipes and product formulations of the Business [which were listed in an annexure to the agreement by reference number as stored electronically on the business's computer], including the computer software and back-up copies thereof'. In clause 9 of the agreement were set out in 12 subclauses what were called the 'seller's warranties'. D

[3] Two of these subclauses are of particular importance in this case, viz clauses 9.3 and 9.10. They read as follows:

'9.3

The seller warrants that all assets hereby sold are the seller's property, are or will on the date of possession be fully paid for, and that they are not subject to any lien or right of retention of whatsoever nature. E

. . .

9.10.1

The seller warrants that, apart from as set out in para 9.11 below, at date of signature hereof, it is not aware of any factors in respect of its business, products, customer satisfaction or other dealings with its customers and suppliers that could negatively impact on the smooth and profitable operation of the business after the date of possession. Further, the seller warrants that he will advise, within F 24 hours of him becoming aware of any such factors, which arise between the dates of signature hereof, and the date of possession.'

[4] Another clause of importance in this case is clause 13, which deals with breach of the agreement and which reads as follows: G

'13.

In the event of either of the parties committing a breach of any of their respective obligations in terms of this agreement of sale and further failing to remedy such breach within 14 (fourteen) days from the date of a written notice addressed by or on behalf of the non-defaulting party to the defaulting party calling upon it so to do, the non-defaulting party shall be entitled, without prejudice to any other right which it might have against the defaulting party, whether H at common law or otherwise to:

13.1

Enforce the provisions of the agreement; or

13.2

cancel the sale, in which event the parties shall give each other restitutio in integrum, without prejudice to the non-defaulting party's aforesaid right to claim damages or otherwise in consequence of such breach. I

Provided that no party shall be entitled to cancel this agreement of sale as a consequence of any breach of any provision hereof unless the breach is a material breach going to the root of this agreement and is incapable of being remedied by payment in money or, if capable of being so remedied, the defaulting party fails to make such payment within 14 (fourteen) days after amount thereof has been finally determined.' J

Farlam JA

[5] In a relatively short period after the appellant took possession of the business, its turnover fell to a significant degree A and the majority of its clients were lost. In particular, it lost the custom of its largest customer, Today Frozen Foods, a division of Pioneer Foods (Pty) Ltd, which, in the last financial year before the appellant took over the business, accounted for approximately 46% of the turnover. B

[6] Subsequent to the loss of the customers to which I have referred, the two directors of the appellant, Messrs Taylor and Read, set about finding a basis for cancelling the agreement and recovering the purchase price against a tender of the by now substantially reduced business. They ascertained that some of the recipes and product formulations sold to the appellant were not the property of the C respondent and that the respondent had accordingly breached the warranty contained in clause 9.3. They also contended that the respondent had disseminated some of the formulations listed in the annexure to which I have referred to as Today Frozen Foods, a fact which was not, but should have been, disclosed to the appellant in D terms of clause 9.10 of the agreement.

[7] On 14 March 2002 the appellant sent a written notice to the respondent calling upon it to remedy the alleged breaches of clause 9.3 and clause 9.10 within 14 days and stating that, if the breaches were not remedied within that period, it intended cancelling the agreement and reclaiming the purchase price. After the E respondent had replied, denying the alleged breaches, the appellant sent it a notice of cancellation on 2 April 2002. Three weeks later, on 23 April 2002, it launched an application for the winding-up of the respondent.

[8] The respondent opposed the application and filed, inter alia, an affidavit by Mr Michael Broszeit, one of its F members. One of the defences raised by the respondent was that it was inappropriate for the appellant to have instituted proceedings for the winding-up of the respondent where the claim on which it based its locus standi as a creditor was bona fide disputed by the respondent. In this regard, reliance was G placed on what Corbett JA, in giving the judgment of this Court in Kalil v Decotex (Pty) Ltd and Another 1988 (1) SA 943 (A) at 980B - G, called 'the Badenhorst rule' (after the decision of the Transvaal Provincial Division in Badenhorst v Northern Construction Enterprises (Pty) Ltd 1956 (2) SA 346 (T)). H

[9] In the answering affidavit filed on behalf of the respondent Mr Broszeit also denied that the recipes and formulations in question were not the property of the respondent and that some of them had been disseminated to Today Frozen Foods.

[10] Mr Broszeit pointed out in para 62 of the answering affidavit that the appellant was only entitled to cancel the agreement I if it could satisfy the proviso to clause 13 of the agreement and show not only that the breaches relied on were material and went to the root of the agreement but also that they were incapable of being remedied by payment in money. He contended that the appellant had disregarded the proviso and submitted that the breaches, if established, fell within it. It is correct that, J

Farlam JA

in the founding affidavit, no attempt was made to show, by factual averment or otherwise, that the case fell within A the proviso.

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