Masterspice (Pty) Ltd v Broszeit Investments CC

• Jurisdiction: South Africa
• Citation: 2006 (6) SA 1 (SCA)

Masterspice (Pty) Ltd v Broszeit Investments CC
2006 (6) SA 1 (SCA)

2006 (6) SA p1

Citation	2006 (6) SA 1 (SCA)
Case No	252/05
Court	Supreme Court of Appeal
Judge	Howie P, Farlam JA, Brand JA, Jafta JA and Maya AJA
Heard	March 13, 2006
Judgment	March 31, 2006
Counsel	A C Oosthuizen SC (with G Selikowitz) for the appellant.; J J Gauntlett SC (with S P Rosenberg SC) for the respondent.

Flynote : Sleutelwoorde B

Contract — Breach of — Remedies for — Cancellation — Restrictive cancellation clause — Proof of — Contract providing that C breach justifying cancellation only where material, going to root of contract, and incapable of being remedied by payment in money — Party seeking cancellation bearing onus of alleging and proving breach plus compliance with restrictive cancellation clause.

Contract — Breach of — Remedies for — Cancellation — Grounds for — Breach of warranty — Whether breach of warranty justifying cancellation function of parties' intention at time of conclusion of agreement — On facts, parties not D intending breach of warranty to justify cancellation.

Headnote : Kopnota

The respondent had sold a business as a going concern to the appellant. The agreement of sale contained, inter alia, a restrictive cancellation clause, in terms of which the agreement could be cancelled only on the ground of a material breach going to the root of the agreement, which could not be remedied by payment in money. It E transpired that the respondent breached certain warranties contained in the agreement and the appellant thereupon purported to cancel the agreement and applied for the winding-up of the respondent. In its founding affidavit the appellant made no allegations that its case fell within the restrictive cancellation clause. The Court nonetheless found in favour of the appellant and granted an order for the winding-up of the respondent. On appeal to F the Full Bench, however, the winding-up order was set aside. On further appeal to the Supreme Court of Appeal, the appellant contended, inter alia, that: (1) It was not open to the respondent to rely on the appellant's non-compliance with the restrictive cancellation clause as it had not been put forward by the respondent as a ground upon which it disputed its indebtedness in resisting the winding-up application; G

2006 (6) SA p2

and (2) the clauses breached by A the respondent were warranties which the parties had regarded as being essential and non-fulfilment of them therefore discharged the contract irrespective of whether the non-fulfilment could be remedied by payment in money.

Held, as to (1), that it was for the appellant, as the party seeking cancellation, to allege and prove both the breach alleged and compliance with the cancellation clause. It had failed to do so. It was not for the respondent to put up any evidence to show that the B breach was capable of being remedied by payment in money. (Paragraphs [21] and [31] at 7D - F and 9H.)

Held, further, as to (2), that the appellant's contention was not sound. In every case in which the word 'warranty' was used, it was necessary to establish the intention with which the parties had used it. In the present case there was no basis for holding that the parties had intended the word to mean that non-fulfilment automatically C gave rise to a claim for cancellation even if the non-fulfilment could be remedied by payment in money. (Paragraphs [32] and [35] at 9I and 10F - G.)

Held, further, on the evidence, that the alleged breaches were capable of being remedied by payment in money. (Paragraph [36] at 10J - 11A.) Appeal dismissed. D

The decision of the Full Bench of the Cape Provincial Division in Broszeit Investments CC v Masterspice (Pty) Ltd confirmed.

Cases Considered

Annotations

Reported cases E

Southern African cases

Badenhorst v Northern Construction Enterprises (Pty) Ltd 1956 (2) SA 346 (T): referred to

Kalil v Decotex (Pty) Ltd and Another 1988 (1) SA 943 (A): referred to

Small v Smith 1954 (3) SA 434 (SWA): referred to.

Foreign cases F

Finnegan v Allen [1943] 1 KB 425: referred to.

Case Information

Appeal from a decision of the Full Bench of the Cape Provincial Division. The facts appear from the reasons for judgment.

A C Oosthuizen SC (with G Selikowitz) for the appellant. G

J J Gauntlett SC (with S P Rosenberg SC) for the respondent.

Cur adv vult.

Postea (March 31). H

Judgment

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

2006 (6) SA p3

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

2006 (6) SA p4

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...