Grainco (Pty) Ltd v Van der Merwe

In 2000, Van der Merwe and Kitshoff established a company called old GrainCo, which traded successfully in the grain commodities market. In 2006, BKB Limited entered into an amalgamation agreement to purchase the business of old GrainCo as a going concern, including its goodwill. The sellers were old GrainCo and various trusts (represented by Van der Merwe and Kitshoff) which held shares in old GrainCo. Van der Merwe and Kitshoff were not parties to the sale agreement itself, though they were bound by an express restraint of trade contained in it. BKB sold the acquired business to a company that became GrainCo (Pty) Ltd (the appellant). Van der Merwe was appointed managing director and Kitshoff as head of trading, both on five-year contracts that included restraints of trade. After the restraints expired in 2012, both resigned in 2013 and established Perdigon (Pty) Ltd, which competed with GrainCo. GrainCo applied to interdict the respondents from canvassing its customers, relying on the implied prohibition against canvassing (the Trego prohibition). The Western Cape High Court dismissed the application, finding that Van der Merwe and Kitshoff were not sellers of the business and therefore not bound by the implied prohibition.

• Whether the implied prohibition against canvassing customers (Trego prohibition) binds anyone other than the seller of a business
• Whether Van der Merwe and Kitshoff, as representatives of shareholders rather than parties to the sale agreement, were bound by the implied prohibition against canvassing customers
• The juridical basis of the implied prohibition against canvassing - whether it is a tacit term or a term implied by law (naturalium)

The appeal was dismissed with costs, including the costs of two counsel.

The implied prohibition against canvassing customers (Trego prohibition) when a business and its goodwill are sold is a term implied by law (naturalium) in the contract of sale. This prohibition binds only the seller of the business, not other parties who may be associated with or benefit from the transaction. To be bound by this implied term, a person must be a party to the sale agreement in the capacity of seller. Shareholders or their representatives who are not themselves parties to the sale agreement as sellers are not bound by the implied prohibition, even if they represented entities that were shareholders in the selling company and benefited from the sale proceeds.

The court commented on the appropriateness of the High Court judge granting leave to appeal on the basis that this court might wish to reconsider its earlier judgment in A Becker & Co (Pty) Ltd v Becker regarding the relationship between the implied prohibition and express restraints of trade. Plasket AJA stated that this issue was academic given the finding that the respondents were not bound by the implied prohibition, and that "entirely academic issues such as this should not be forced upon this court." The court emphasized that leave to appeal should not be granted merely to give the appellate court an opportunity to reconsider earlier judgments on issues that are not determinative of the appeal before it.

This case clarifies the scope and application of the implied prohibition against canvassing customers when a business (including goodwill) is sold. It confirms that this prohibition is a naturalium (term implied by law) that binds only the seller of the business, not other parties who may have been involved in or benefited from the transaction. The case is significant in distinguishing between: (1) parties to a sale agreement who are bound by implied terms; and (2) shareholders or their representatives who, while benefiting from the sale, are not themselves sellers and therefore not bound by the implied prohibition. This has important implications for commercial transactions involving the sale of businesses, particularly where the actual sellers are corporate entities owned by trusts or individuals who subsequently wish to compete in the same market. The case reinforces that express restraints of trade may be necessary to bind individuals who are not themselves parties to the sale agreement.