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IN THE HIGH COURT OF SOUTH AFRICA

(GAUTENG DIVISION, PRETORIA)

 

Case number: A187/19

NOT REPORTABLE

NOT OF INTEREST TO OTHER JUDGES

REVISED

DATE: 29 JULY 2021

 

In the matter between:

 

MARTIN'S FUNERALS FRANSCHISING (PTY) LTD          Appellant

 

And

 

MARTINS FUNERALS PRETORIA CITY CC                         1^st Respondent

JOHANNES BERNADUS CRONJE                                        2^ND Respondent

 

JUDGMENT

 

MAKHOBA J

 

1.           This is an appeal against the whole of the judgment and order handed down by Kubushi J sitting in this division as a single Judge under case number 14540/2018.

2.           The application was originally brought as an urgent application however by agreement between the parties the matter was postponed with leave to the respondents to supplement their answering affidavits. Costs were reserved.

3.           In the court a quo the application was dismissed with costs and the applicant was ordered to pay the reserved costs. Both costs orders being inclusive of the costs consequent upon the employment of two Counsel. The appellant applied for leave to appeal and the application was dismissed with costs.

4.           Leave to appeal to the Full court was granted by the Supreme Court of Appeal.

Background

5.           The appellant is a franchisor. It entered into a franchise agreement with the respondents on 12 October 2007. The appellant authorised the respondents to provide funeral services and sell related products (including, funeral insurance and tombstones) from two sites in Pretoria under the appellant's trademarks, "Martin's or Martin' s Funeral". The franchise business was always conducted through the first respondent.

6.           The written franchise agreement between the parties expired on the I^st November 2017, notwithstanding this, the respondents with the consent of the appellant, and for so long as the parties continued to negotiate a new franchise agreement, continued to trade as Martin's Funerals outlets as if the written agreement had not come to an end.

7.           The negotiations over a new franchise agreement did not succeed. The second respondent continued to trade in funeral business and the appellant instituted proceedings against both the first and the second respondents.

8.           The court a quo summarised its findings and judgment in favour of the respondents as follows:

"There is an absolute dearth of facts, in the applicants 'papers, that show that the second respondent was using the first respondent as a mere instrumentality or business conduct for the promotion of his personal affairs. As such, the applicant failed to prove that the first respondent was the second respondents alter ego. The applicant case stands to be dismissed on those reasons alone".[1]

9.           In a nutshell the court a quo found that exfacie the franchise agreement the first respondent did not sign the agreement, which was signed by the second respondents in his personal capacity. Consequently, the first respondent could not be bound by the terms of the franchise agreement.

10.        The court a quo also found that the appellant failed to establish, on its papers that the first respondent acted as the alter ego of the second respondent.

11.        Counsel for the appellant submitted that the court a quo erred in finding that the first respondent was not a signatory to the franchise agreement. According to the appellant the agreement was between the appellant and both respondents.

12.        In addition, counsel for the appellant contended that if both respondents were bound by the franchise agreement there was no need for the court a quo to embark on an alter ego enquiry at all.

13.        Counsel for the appellant further puts emphasis on the fact that the court a quo referred to the decision in Kwik Kopy (SA) (Pty) v Van Haarlem and Another[2] but followed the decision in Die Oros (Pty) Ltd and Another v Telefon Beverage CC and Others[3]^.

14.        On behalf of the respondents it is submitted that the franchise agreement was concluded between the appellant and the second respondent personally even though the actual franchise business was not conducted by the second respondent personally but by the first respondent. It is submitted that the relief sought by the appellant ought not to be granted since the conduct complained of is about the first respondent and not the second respondent and thus it must fail. The respondents contend that the plaintiff  did not plead its case properly in its papers.

The law

15.        In Quartermark Investment v Mkhwanazi[4] the court said the following:

"I deal first with the question whether Ms Mkhwanai has established a case of fraudulent misrepresentation entitling her to cancel the two agreements. It is trite that in motion proceedings affidavits fulfil the dual role of pleadings and evidence. They serve to define not only the issues between the parties, but also to place the essential evidence before the court. They must, therefore, contain the factual averments that are sufficient to support the cause of action or defence sought to be made out. Furthermore, an applicant must raise the issues as well as the evidence upon which it relies to discharge the onus of proof resting on it, in the founding affidavit. "

From the above case it is indeed so that an appellant in this matter before us must stand or fall by his founding affidavit, see also Foize Africa (Pty) Ltd v Foize Beheer BY and others[5].

16.        I will now deal with the two cases referred to by the court a quo regarding· the alter ego enquiry. Ms Blackman gives the definition of alter ego enquiry as follows[6]:

"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 business or affairs of its shareholders, in other words, its controllers do not treat it as a separate entity, at least not in 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 treating it as a separate entity) ".

17.         In Kwik Kopy (SA) (Pty) Ltd v Van Haarlem and Another [7]the court applied the alter ego enquiry as follows "while the applicant was entitled to, and did continue to, treat the first respondent as the franchisee, it accepted that the business was conducted by the second respondent which was a one-man corporation the first respondent's alter ego. The second respondent was obviously aware of the provisions of the agreement and the restrictions imposed by them. The papers treated the first respondent as the franchisee, but, if relief is granted restraining him from trading, it should obviously extend to the second respondent".

18.         I am persuaded to accept the argument put forward by counsel for the appellant that the facts in the Dros case[8] cannot assist us in  this matter. It is puzzling that the court a quo found that the facts in the present case were most similar to those in Kwik Kopy (SA) (Pty) Ltd v Van Haarlem and Another [9]but instead followed the findings by the court in the Die Oros[10] matter.

Findings

19.         In my view the court a quo made two fundamental errors and thus misdirected itself. I deal with the two errors below.

20.         The first error by the court a quo is found in the judgment on pages 10-11[11]where the court said the following "In answer to the first leg of the test, it is common cause that the second respondent is bound by the terms of the franchise agreement in his personal capacity- he is the signatory to the franchise agreement. It is also not in dispute that ex facie the franchise agreement the first respondent is not a signatory to the franchise agreement. The applicant's case against the first respondent, as argued before me, is not that the first respondent should be ordered to comply with the provisions of the franchise agreement because it was a signatory to the franchise agreement. To the contrary, the argument is that such an order is sought because the first respondent acted as the alter ego of the second respondent. This submission, as I understand, is based on the allegation in the applicant's papers that the first respondent was merely a vehicle through which the second respondent conducted his business, that is, the first respondent was a corporate manifestation of the second respondent's interest in the franchise outlet. In this sense, the applicant sought to disregard the first respondent's legal personality and to equate it to the second respondent, with the result that the applicant regarded the franchise agreement binding on the first respondent. This argument leads to the second leg of the test".

21.         From the documents filed before the court a quo it is evident that the first respondent is a signatory to the franchise agreement because second respondent signed on behalf of the first respondent. This is apparent from the franchise agreement.[12] That the first respondent and second respondent entered into the franchise agreement with the appellant is further confirmed by the addendum to the franchise agreement[13]In the addendum the whole addendum clearly states that both the first and second respondents are parties to the agreement with the appellant.

22.         Therefore the submissions by counsel for the respondents in his heads of argument[14] are also incorrect and must be rejected for the same reasons as above namely it is clear from the papers that the appellant entered into an agreement with both the respondents.

23.         The second error by the court a quo is found on page 13-14 of the judgment [15]paragraph 39 of the judgment reads as follows "From my understanding o{the above passage it is quite clear that 'conducting the franchise business through the vehicle ofthe first respondent' and "acting as the alter ego o{the second respondent" cannot be equated. It follows that the applicant should have specifically pleaded in its papers that the first respondent was either acting as the alter ego of the second respondent or as a front or carried business as acting as the alter ego of the second respondent or as a front or carried business as a mere instrumentality or business conduit for promoting the business affairs of the second respondent. This, as we know was not done. From the facts and or/evidence set out in the applicant's papers the allegation that the first respondent acted as the alter ego of second respondent appears nowhere in either the applicants founding affidavit, the replying affidavit or the supplementary affidavit, it has neither been pleaded nor canvassed. By merely alleging in its founding affidavit that the second respondent conducted the franchise business through the vehicle of the first respondent is not sufficient. The applicant, as such. has not been able to establish, on its papers as they stand, that whilst conducting the franchise agreement, the first respondent acted as the alter ego of the second respondent"

Paragraph 41 of the judgment of the court a quo reads as follows "The case against the second respondent has not been properly formulated in the papers. It is not in dispute that one of the orders the applicant seeks is to direct the second respondent in his personal capacity to desist from continuing to operate the business of funeral services in unlawful competition with the applicant. What comes out from the papers, which is common cause, is that at all material times the first respondent and not the second respondent, was operating the franchise business and that presently it is the first respondent that is conducting the funeral services business under the umbrella of Mosaic Funeral Group. The applicant has, as such, not been able, when crafting the cause of action against the respondents, to establish the connection between the first respondent, who at all materials times hereto operated the funeral services business and the second respondent who signed the franchise agreement in his personal capacity but conducted the business, with the knowledge and consent of the applicant, through the vehicle of the first respondent . That link is missing".

24.         This finding by the court a quo that the appellant did not plead its case on the papers properly. This is also confirmed by counsel for the respondent in his heads of argument[16].

See in this regard Founding Affidavit ("FA") para 7 at Voll, p7; Answering Affidavit ("AA") para 17.1 at Vol 2, p 179;

(Not dispute in reply- see Vol 3, p241);

Supplementary Answering Affidavit ("SAA") para 2at Vol 3, p 257; (Not disputed in the Supplementary Replying Affidavit) ("SRA"), Vol 3,

P270

This is in any event the only pleaded case that the respondents were called upon to meet. It is, of course, settled law that in motion proceedings the founding affidavit constitutes both the pleadings and the evidence in support thereof '.

^25.                 I am of the view that counsel for the appellant is correct when he submits that the appellant pleaded in its founding papers that both respondents were bound by the contract and the second respondent as the sole member of the first respondent conducted the business through the first respondent.[17]

26.         It is further my view that in the papers the appellant refers to both first and second respondent as the respondents[18] that is in the plural form. It is therefore clear that appellant properly pleaded its case.

27.         Thus the court a quo when it found that the first respondent did not sign the contract the court then as a result thereof held an alter ego enquiry in my view that was an incorrect path to follow. It was not necessary for the court a quo to embark on an alter ego enquiry. In addition, the court a quo misdirected itself when it found that the appellant did not plead its case properly.

28.         Even though it was not necessary to embark on the alter ego enquiry the court a quo did not properly apply the decision in Kwik Kopy[19] and if it did it would have found in appellant 's favour.

29.         It is a cumbersome task to grant the orders as prayed for by the appellant because of the passage of time from the date of the first hearing to the appeal hearing because so much has now changed.

30.         Appellant's counsel during his address abandoned prayer 2.2. Prayer 2.3.1 cannot be granted as it is, because it is too broad and overlaps the period in which the respondents started a new business. Regarding prayer 2.3.2 counsel for the respondents submits in his heads of argument[20] that respondents were provided only with a memory stick or CD disc which no longer exists. Therefore, it will be impossible for this court to issue such an order since it might be impossible to implement. In any event the appellant did not tender any evidence regarding the existence of such memory stick. Counsel merely submits that such information ought to have been copied to a hard drive. As far as prayer 2.3.3 is concerned my view is the same as in paragraph 2.3.2. Prayer 2.3.4 has become moot since the respondents have already vacated the outlet in Soutpansberg and the one in the CBD has already been completely changed. No evidence to the contrary was presented before the court a quo.

31.         In the premises I make the following order:

31.1              The appeal is upheld with costs, including the costs of two counsel.

31.2              The order of the court a quo is set aside and replaced with the following:

31.2. 1 The respondents are interdicted from using or exploiting the applicant' s business system and any intellectual property owned by the applicants

31 .2.2 The respondents are ordered to pay the costs of the application before the court a quo, including the costs of two counsel.

 

D MAKHOBA

JUDGE OF HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

 

I agree

 

J MOGOTSI

ACTING JUDGE OF HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

 

I agree and it is so ordered

 

S BAQWA

JUDGE OF HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

APPEARANCES:

 

For the appellant:                     Advocate G Marriott

                                                         Advocate KD Iles

Instructed by:                           Adams & Adams Attorneys

For the respondents:              Advocate MC Maritz SC

                                                        Advocate K Griessel

Instructed by:                            VFV Attorneys

Date heard:                                26 May 2021

Date of Judgment:                    29 July 2021

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