[REPORTABLE COVERSHEET]

REPUBLIC OF SOUTH AFRICA
IN THE HIGH COURT OF SOUTH AFRICA 
(WESTERN CAPE HIGH COURT, CAPE TOWN)

In the matter between: 

(Registration number: 1998/057381/23) 

and

(Registration number: 2005/003729/07)

Judgment by:	N Saba, AJ

For the Applicant:	Adv. EJJ Spamer

Instructed by:		Louw Coetzee & Malan Inc

For the Respondent:	Adv. P S De Waal

Instructed by:		Cronje, De Waal-Skhosana Inc

Date(s) of Hearing:	Wednesday, 26 October 2011

Judgment delivered on:	Tuesday, 24 April 2012

[REPORTABLE]

Republic of South Africa

IN THE HIGH COURT OF SOUTH AFRICA (WESTERN CAPE HIGH COURT, CAPE TOWN)

Case No. 8609/2011

In the matter between:

and

JUDGMENT DELIVERED: TUESDAY, 24 APRIL 2012
Saba, AJ Introduction

The Parties

[2] The applicant is a close corporation duly registered and incorporated in terms of the laws of the Republic of South Africa and having its registered address at 75 Mani road, Diepriver, Cape Town. The respondent is a company duly registered and incorporated in terms of the laws of the Republic of South Africa, having its principal place of business at 56 Marine Drive, Paarden Island, Cape Town.

[3]     On 26 April 2011 the applicant sought and obtained on an urgent basis
an order in the following terms:

1.1.1. Attach from the respondent at 56 Marine Drive, Paarden Island, Cape Town, 7405, or wherever they may be found, the items as listed in annexure "TE10" to the founding affidavit, which annexure is also attached to this order; and 
1.1.2 Take possession of the aforementioned items and to remove same to a safekeeping appointed by the applicant's attorney, upon the applicant's instructions, the costs whereof are to be borne by the applicant; 
Pending the final determination of
(a) An action to be instituted by the applicant against the respondent for the return of all of the items listed above and further/alternative relief within 30 days of the date of this order.

2. Pending the return day herein:
2.1. The provisions of paragraph 1.1 above shall operate as an interim interdict with immediate effect;
2.2. The respondent be interdicted and restrained from trading under the name and style of "Dents 'N All or any name and style materially similar thereto;
3. The respondent is granted leave to anticipate the return day by giving 24 hours notice to the appellant's attorneys of record
4. The applicant is granted leave to apply on the same papers already filed of record under this case number, duly supplemented to the extent necessary, for a final interdict against the respondent".

[4] On 25 May 2011 (a day before the return day), the respondent filed an answering affidavit and two notices of motion in respect of counter-applications against the applicant that were to be heard at the date of hearing.

The first Notice of Motion sought an order:
(a) Declaring the agreements between the parties to which the dispute relates, to be null and void;
(b) Ordering the Applicant to pay an amount of R1 500 000.00 to the Respondent;
(c) Directing the Respondent, after receipt of the aforementioned payment, to deliver the movable property received from the applicant to the Applicant at its business premises; and
(d) Directing the Applicant to pay the costs of the application on the scale as between attorney and client.

The Second Notice of Motion sought an order:
(a) That it operate together with the interim interdict obtained by the Respondent and be made on the return day;
(b) Directing the Applicant to pay an amount of R1 500 000.00 into the trust account of independent attorneys and that the monies be kept in trust "pending the final determination of an action to be instituted by the Applicant against the Respondent within 30 (thirty) days from date of this order in which action the Respondent may institute its counterclaim";
(c)  Authorising  the  independent  attorneys  to pay out the  monies  in accordance with the directions of the trial court at the time.

[5] In his founding affidavit, Thorsten Louis Harald Eggert ("Eggert") avers that he is a sole member of the applicant and is the owner of Dents N All, an established panel beating business. He avers further that the applicant is an entity through which he conducts the franchising business of the Dents 'N All brand and is the owner of certain intellectual property.

The following facts are in the main common cause:

[7]    On 9 March 2011 respondent delivered a notice alleging that applicant had breached certain obligations of the Franchise agreement and as a result it was terminating the Franchise agreement. The relevant clauses alleged to be breached are as follows: 10.2.7; 10.2.10; 10.2.11; 10.1.3; 10.1 4 and 10.1.8 
"FRANCHISOR'S OBLIGATIONS AND RIGHTS: 
10.1 Franchisor's initial obligation:
Provide or make available to the Franchisee at the Franchisee's costs: and expertise shop fitting design and expertise. 
10.1.3 assistance in the development of financial projections;.... 
10.1.4 recruitment and selection criteria and processes for staff....
10.1.8 the prescribed equipment requirements, which include, but are not limited, to the hardware requirements....

Franchisor's Ongoing Obligatios: 
The Franchisor undertakes, on an ongoing basis, to ....
10.2.7.    provide advice in respect of a formal operating plan, management and Marketing....
10.2.10. advice on regional/local marketing, promotion and advertising together with a national advertising initiative....
10.2.11. policies and procedures for all stationery to be used by the Franchisee for purposes of starting and sustaining a business as an DENTS 'N ALL Franchise....".
The applicant denied breaching the above terms of the Franchise agreement and undertook to fully comply with the concerns raised by the respondent.

[10]  The relevant information in the above clauses is as follows:

"Upon termination, the Franchisee shall forthwith deliver to the Franchisor:
16.4.1.1. All and any manuals or other written information relating to the systems, all advertising material and paper goods or other items bearing the Franchisor's marks subject however to the Franchisor paying the cost of any such items which may be capable of being used by any other Franchisee;
16.4.1.2. the computer software contemplated herein

16.5. Upon the termination or expiration of this agreement, all rights granted to the Franchisee in this agreement will be terminated immediately. The Franchisee will immediately cease to use the intellectual property, the Marks and System and to sell or provide the Products or Services. The Franchisee shall immediately remove and return to the Franchisor all building and vehicle signage, displays, marketing materials, literature, business cards, stationery and any other materials which contain the Marks".

[11]  The following facts are not in dispute:
11.1. The applicant was deregistered by the Registrar for Close Corporations on 16 July 2010;
11.2. The restoration of the applicant to the Register of Close Corporation occurred on 12 April 2011, one day before the respondent's notice to the applicant in which it relied on the applicant's deregistration as a basis for demanding restitution of the purchase price prior to "delivery of all the equipment, etc" at its business premises to the applicant; 
11.3   The items which the respondent had to return to the applicant in terms of the franchise agreement were attached by the Sheriff in terms of a court order dated 26 April 2011.

13.1. there is no authority whether in terms of statute or common law for respondent's proposition that an agreement concluded by a deregistered close corporation is void if the registration of the close corporation is restored before the agreement is validly cancelled or lawfully terminated by one or both parties.

[14]  The issues to be decided are as follows:
14.1. the validity of the two agreements entered into while the applicant was deregistered;
14.2. whether the subsequent re-registration of the applicant validated the two agreements. (Both counsel submitted that there are no authorities on this point).
14.3. whether the respondent is entitled to the R1 5000 000, 00 it paid as a purchase price to the applicant.

Legal Position

[18]   Section 2 of the Act provides: 
"2(1)...
(2) A corporation formed in accordance with the provision of this Act is on registration in terms of those provisions a juristic person and continues, subject to the provisions of this Act, to exist as a juristic person.. .until it is in terms of this Act deregistered...
(3) …...
(4) A corporation shall have the capacity and powers of a natural person of full capacity insofar as a juristic person is capable of having such capacity or of exercising such powers".

"Deregistration...puts an end to the existence of the company. Its corporate personality ends in the same way a natural person ceases to exist on death Once there has been deregistration there is obviously no purpose in a corporate post mortem and no-one would have the authority to conduct one".

[19] On the other hand, section 26 (7) of the Act dealing with the effect of restoration provides:

"The Registrar shall give notice of the restoration of the registration of a corporation and the date thereof in the prescribed manner and as from such date the corporation shall continue to exist and be deemed to have continued in existence as from the date of deregistration as if it were not deregistered".
In Insamcor (Pty) Ltd v Dorbyl Light and General Engineering (Pty) Ltd 2007
(4) SA (SCA) at 475 the following was said:
"Through the operation of a restoration order obligations towards the company, which were extinguished because of deregistration, would revive with retrospective effect. What is more, a restoration order seems to validate, restrospectively, all acts done since deregistration - including, for example, the institution of legal proceedings - on behalf of company that did not exist....It is an oversimplication to regard a restoration order as no more than an 'as you were'. It can cause severe prejudice to third parties".

Evaluation

[20] Section 26 of the Close Corporation Act makes provision for the enforcement of liabilities which were outstanding at the time the close corporation was deregistered. It is silent on the validity of the agreements concluded after deregistration but before the close corporation's registration is restored. In terms of section 73 (6) (b) of the Companies Act 61 of 1973 (currently section 83 of the new Companies Act 71 of 2008), the court ordering a restoration of a company to the register of companies is empowered to give directions which would safeguard or place the company or other persons in a position they would be if the company had not been deregistered. Section 26 (7) does not empower the Registrar to give any directions with regard to the rights and obligations of a close corporation and/ or other parties on restoration. The fact that there is no such provision does not mean the Legislature had intended to disregard the rights of innocent parties who concluded agreements in circumstances similar to those of this case.

"Certainly no less important than the oft repeated statements that the words and expressions used in a statute must be interpreted according to their ordinary meaning is the statement that they must be interpreted in the light of their context. But it may be useful to stress two points in relation to the application of this principle. The first is that 'the context', as here used, is not limited to the language of the rest of the statute regarded as throwing light of a dictionary kind on the part to be interpreted. Often of more importance is the matter of the statute, its apparent scope and purpose, and, within its limits, its background. The second point is that the approach to the work of interpreting may be along either of two lines. Either one may split the inquiry into two parts and concentrate, in the firs instance, on the finding out whether the language to be interpreted has or appears to have one clear meaning, confining a consideration of the context only to cases where the language appears to admit of more than one meaning; or one may from the beginning consider the context and the language to be interpreted together".

Cancellation of Agreements

"12. BREACH
In the event of either party committing any breach of the terms and conditions of this agreement and failing to remedy such breach within 7 (seven) days of receipt of written notice calling upon it to do so, then the party giving notice shall be entitled;

[26] In Godbold v Tomson 1970 (1) SA 61 (D) at 65C - D, the following is stated:

"The question for decision is always whether the conditions on which the right to cancel was dependent have been fulfilled. (Rautenbauch v Venner, 1928 T.P.D. at p31). The purpose of such notice is to inform the recipient of what he is required to do in order to avoid the consequences of default, and if it is in such terms as to leave him in doubt as to the details of what is required of him, then it may be that it will be held that the notice is not one such as is contemplated by the contract (Rautenbauch's case supra at p 31)".

[28] It is not necessary to deal with the effect of the cancellation of the Franchise Agreement due to the fact that the items referred to in clause 16 of that agreement have already been attached by the Sheriff in terms of the interim order dated 26 April 2011.

[29] With regard to the second counter application based on, firstly; the respondent's lack of confidence that the applicant might not be deregistered in future, thereby leaving its claim unenforceable against it. Secondly; that the respondent could easily dissipate the R1 5000, 00 (which is the subject matter of the respondent's counter-applications), to the detriment of the respondent. I find both arguments to be misplaced for reasons that follow.

[31]   In the result, I make the following order:

31.1. The rule nisi granted on 26 April 2011 is hereby confirmed.
31.2. The respondent's counter-applications are both dismissed with costs.

N SABA
(Acting Judge of the High Court)