Slims (Pty) Ltd and Another v Morris NO

• Jurisdiction: South Africa
• Citation: 1988 (1) SA 715 (A)

Slims (Pty) Ltd and Another v Morris NO
1988 (1) SA 715 (A)

1988 (1) SA p715

Citation	1988 (1) SA 715 (A)
Court	Appellate Division
Judge	Corbett JA, Botha JA, Van Heerden JA, Nestadt JA and Nicholas AJA
Heard	September 7, 1987
Judgment	November 10, 1987

Flynote: Sleutelwoorde

D Landlord and tenant — Lease — Termination of — Lease of hotel and off-sales business — Liquor licence pertaining to such premises transferred to lessee — Clause in agreement of lease providing that, E upon termination of lease, lessee would take all necessary steps to transfer licence back to lessor — Lessee becoming insolvent and trustee in lessee's insolvent estate (respondent) refusing to retransfer liquor licence back to lessors (appellants) contending that licence vesting in lessee's insolvent estate and trustee entitled to realise licence as asset in such estate — Court, on appeal against Court a quo's decision F upholding respondent's contention, holding that liquor licence to be regarded as a 'right under the lease' in terms of s 37(5) of Insolvency Act 24 of 1936 and respondent bound by prohibition against transfer of licence as provided for in lease — Respondent ordered to take necessary G steps for re-transfer of licence to appellants — Appeal allowed.

Headnote: Kopnota

The first appellant had concluded an agreement of lease of a hotel and off-sales business with one M as lessee. The second appellant also concluded a similar agreement of lease with M as lessee, which agreement also related to a hotel and an off-sales business. (As the same questions arose in regard to both of the leases, both the Court a quo and the Court on appeal considered only the first appellant's lease with H M as a basis for their judgments.) The first appellant was itself the lessee of the property concerned from the O company and under clause 1 of the agreement between first appellant and M, the first appellant agreed to sublet the properties leased from the O company on which the business of a hotel and off-sales were conducted respectively. Clause 24 of the agreement provided that it was subject to permission being granted to transfer the licences by all relevant authorities and, in terms of clause 21, it was provided that, in the event of the I termination of the agreement, the lessee would do all things as might be necessary to ensure that the relevant trading licences were transferred back to the lessor. Thereafter the liquor licence was transferred to M on the application of the first appellant and M duly entered into occupation of the hotel and off-sales concerned, where he conducted the business on his own account until his estate was provisionally sequestrated. The respondent was appointed as trustee in M's insolvent estate and, through an agent, continued operating the business until the J termination of the lease. The

1988 (1) SA p716

respondent then vacated the premises but refused to take any steps to retransfer the liquor licence to the lessor (first appellant) as he contended that, although the leased premises reverted to the lessor by reason of the termination of the lease, the licence vested in and belonged to M's insolvent estate. He took the view that he, as trustee, was not bound by the terms of the lease providing for the restoration of the licence to the lessor on the termination of the lease, nor was he bound by any term prohibiting or restricting transfer of the licence to B third parties and claimed that he was entitled to realise the licence as an asset in the insolvent estate. The first and second appellants then made application in a Local Division, claiming an order directing the respondent to take all steps necessary to transfer to the appellants the hotel liquor licences and off-consumption authorities pertaining to the two hotels concerned. The Court a quo held that the licences had vested in the insolvent estate and that clause 21 of the lease gave the lessor C merely a jus in personam which could not be enforced against the insolvent estate. On appeal against this decision, the Court (per Botha JA, Van Heerden JA concurring) held that the crucial enquiry was whether the right in question was to be regarded as a 'right under the lease' in terms of s 37(5) of the Insolvency Act 24 of 1936, which section provided that a stipulation in a lease which restricted or prohibited the transfer of any right under the lease, shall bind the trustee of the insolvent estate of the lessee as if he were the lessee. The Court considered that the lease in question prohibited the transfer of the D liquor licence by the lessee to a third party, that the licence was merely the embodiment of the right to sell liquor on the leased premises and that that right the lessee was obliged, in terms of clause 21 of the lease, to transfer back to the lessor upon the termination of the lease, which necessarily involved a prohibition on his transferring it to anyone else. The lease thus contained 'a stipulation... which restricted or prohibited the transfer of the right in question'.

Held, further, having regard to the Legislature's manifest intention in enacting s 37(5) that the legal relationship between lessee and lessor and the substance of the agreement between them should take precedence over the position of the lessee vis-à-vis the licensing authority, that the word 'under' in the section should be given a wide meaning and that the licence held by the lessee embodied a 'right under the lease' as envisaged by s 37(5).

Held, consequently (per Botha JA, Van Heerden JA and Nicholas AJA F concurring; Corbett JA and Nestadt JA dissenting), that in terms of s 37(5) the respondent was bound by the prohibition against the transfer of the licence provided for in the lease.

Held (per Nicholas AJA), that, upon termination of the lease, the respondent became obliged to restore the business to the lessor, not because of the provisions of the lease but because of the common law rule that, upon the termination of the lease, the lessee's right to use G and enjoy the leased property ceased and he was obliged to redeliver the property to the lessor: the business which had been leased included not only the occupation of fixed property but also the enjoyment of the intangible asset of the goodwill of the business.

Held, further, that the ownership of the goodwill (an inseparable part of which was the privilege of selling liquor) was a jus in re, which existed independently of any jus in personam constituted by the lease.

Held, further, the respondent having restored to the lessor only the H premises, that, until he redelivered the goodwill (which required that he take the steps necessary to retransfer the liquor licence), the hotel would not have enjoyment of the goodwill attached to a licensed hotel and would be deprived of that asset.

Held, accordingly, that, even though the licence vested in M's insolvent estate, the respondent was not relieved thereby of his obligation to redeliver the goodwill of the hotel business, which required that he should retransfer the liquor licence.

Held, consequently (Corbett JA and Nestadt JA dissenting), that the appeal should be allowed.

The decision in the South Eastern Cape Local Division in Slims (Pty) Ltd and Another v Morris NO reversed.

Case Information

Appeal from a decision in the South Eastern Cape Local Division J (Kannemeyer J). The facts appear from the judgment of Nicholas AJA.

1988 (1) SA p717

L R Dison SC (with him J I Immerman) for the appellants: The vesting for which provision is made in s 47(1) of the Liquor Act 87 of 1977 is merely temporary and transitory and, once respondent elected not to carry on the subleases and therefore not to carry on the business formerly conducted by the insolvent on the leased premises, the vesting for which s 47(1) of the Liquor Act makes provision ceases. Inasmuch as B the vesting of the licences in respondent pursuant to s 47(1) of the Liquor Act has ceased, the fate of the licences must be determined by the provision of the subleases themselves insofar as they provide therefor; alternatively by the provisions of the Insolvency Act 24 of 1936, more particularly s 37(5) thereof. Under the subleases express provision is made for the licences to be transferred back by the C sublessee to the appellants. Under s 37(5) of the Insolvency Act, 'a stipulation in a lease, which restricts or prohibits the transfer of any right under the lease... shall bind the trustee of the insolvent... as if he were the lessee...'. In the case of the subleases in question there are express provisions for the transfer back to appellants (or their nominees) on termination of the subleases. These D provisions clearly constitute restrictions on the right of the sublessee under the lease to transfer to third parties the right to use the licences, this being clearly a right under the subleases. Respondent has elected not to take over the subleases. Accordingly any right that he might have had to take over the licences has fallen away. A trustee's entitlement to a licence held by the insolvent is provided for in terms E of s 47(1) of the Liquor Act 87 of 1977. In terms of this provision a trustee may take over a licence held by the insolvent if he elects to carry on the insolvent's business in respect of which the licence is held. A provision such as s 47(1) of the Act is obviously essential. In its absence on sequestration, the licence would lapse and without the F Minister's approval no person other than the insolvent licensee could carry on the business. The purpose of s 47(1) is clearly to permit the trustee to carry on the business if he elects to do so on a temporary and transitory basis and to use the licence in order to do so. Until he has made that election he is similarly entitled to use the licence. Once, however, he has made his election and is not continuing...