The Butcher Shop and Grill CC v The Trustees for the time being of the Bymyam Trust

The Bymyam Trust (respondent) owns sections in a sectional title scheme in Mouille Point, Cape Town. In 2014, it concluded a lease agreement with The Butcher Shop & Grill CC (appellant) for premises to conduct restaurant business. The Butcher Shop sublet the entire premises to Apoldo Trading (Pty) Ltd, a related company with the same sole shareholder (Mr Pick). This arrangement was formalized in an Addendum Agreement in 2019, making Apoldo jointly and severally liable with the Butcher Shop for the lease terms. When the Covid-19 pandemic and national lockdown restrictions prevented or limited restaurant operations from March 2020, Apoldo suffered loss of use and enjoyment of the premises. The Butcher Shop withheld rent payments, contending it was entitled to remission because of the loss of beneficial use. The Trust sued for payment of R1,576,919.20 in arrear rent. The Butcher Shop defended and counter-claimed for remission of rent.

• Whether the lease agreement excluded the right to claim remission of rent arising from vis major or casus fortuitus
• Whether a tenant (the Butcher Shop) may claim remission of rent when the loss of use and enjoyment is suffered by its sub-tenant (Apoldo)
• Whether the corporate veil between the Butcher Shop and Apoldo should be pierced to allow the tenant to rely on the sub-tenant's loss
• Whether the common law principles on piercing the corporate veil should be developed to accommodate the circumstances of this case

The appeal was dismissed with costs.

The binding legal principles established are: (1) A tenant may only claim remission of rent for loss of use and enjoyment that it actually suffers; it cannot claim remission based on losses suffered by a sub-tenant, as the sub-tenant is a separate legal entity occupying under a separate tenancy arrangement. (2) Remission of rent is an equitable remedy available only to the party who directly suffers the loss of beneficial occupation due to vis major. (3) The corporate veil may only be pierced where there is fraud, dishonesty, abuse, misuse or unconscionable conduct in respect of corporate personality. The ordinary employment of corporate structures involving no such conduct does not justify disregarding separate legal personality. (4) Section 20(9) of the Companies Act 71 of 2008 supplements the common law on piercing the corporate veil but does not replace it. (5) Parties cannot rely on separate corporate structures to obtain benefits while simultaneously seeking to disregard those structures to avoid corresponding liabilities or obligations. (6) When interpreting lease agreements, parties are presumed to intend that their rights be governed by common law unless they plainly and unambiguously indicate otherwise.

The Court made several non-binding observations: (1) That "flexibility" in applying piercing principles (as mentioned in Cape Pacific) does not mean jettisoning the guiding principles, but rather means careful consideration of facts without being constrained to set categories of cases. (2) That the wisdom of allowing persons to escape consequences by using corporate structures may be "open to doubt," but as long as law permits it, courts must recognize the position, and persons must abide by both advantages and disadvantages of that choice (citing Ochberg v CIR). (3) That s 20(9) of the Companies Act "broadens the bases" upon which courts may disregard corporate personality compared to previous common law (citing Ex Parte Gore with approval). (4) That courts will exercise inherent discretion to develop common law sparingly, mindful that the legislature is the major engine for law reform. (5) That South African law does not countenance casuistic resort to equity and fairness to circumvent statutory provisions or common law rules. (6) That if compensation for loss is received from a third party, different considerations would apply to a remission claim (citing North Western Hotel).

This case is significant for: (1) Clarifying that a tenant cannot claim remission of rent based on losses suffered by a sub-tenant - the party claiming remission must be the one who actually suffers the loss of use and enjoyment. (2) Reaffirming the narrow scope of the doctrine of piercing the corporate veil in South African law, requiring fraud, dishonesty, or unconscionable conduct. (3) Confirming that s 20(9) of the Companies Act 71 of 2008 supplements rather than replaces the common law on disregarding corporate personality. (4) Establishing limits on judicial development of common law where the legislature has recently addressed the same area. (5) Providing guidance on interpreting lease agreements during Covid-19 and determining when contractual terms exclude common law rights to remission. The judgment reinforces the sanctity of separate corporate personality and the principle that parties must accept both benefits and burdens of their chosen business structures.