Shoprite Checkers (Edms) Bpk v Grobbelaar and Others

Shoprite Checkers (Edms) Bpk ('SCEB') purchased the business of two companies (Sentra and Megasave) on 23 November 1995 for R21 million. The three respondents were shareholders, directors and employees of these companies. As part of the transaction, the respondents signed restraint of trade agreements on 10 April 1996 in favour of SCEB, receiving between R500,000 and R1.1 million each as consideration. The restraint periods were 24-36 months covering South Africa and Namibia. In October 1997, Shoprite Holdings Bpk ('Holdings') acquired OK Bazaars (1929) Bpk. In August 1998, as part of a group rationalization scheme, SCEB's business, assets and rights were sold with retrospective effect to OK Bazaars (1929) Bpk, which then changed its name to Shoprite Checkers Bpk (the appellant). SCEB changed its name to OK Bazaars (1998) Bpk. The respondents resigned from SCEB between April 1997 and May 1998. Subsequently, they established The Business Exchange Company (Pty) Ltd on 8 September 1998, a buying exchange competing with the appellant's business. They encouraged members of Megasave and Sentra to resign and join their new company. Eleven clients resigned from Megasave and Sentra. The appellant sued for damages of R8,625,339 for breach of the restraint of trade agreements.

• Whether the appellant had locus standi in iudicio to enforce the restraint of trade agreements, having allegedly acquired the rights from SCEB
• Whether compliance with section 228 of the Companies Act 61 of 1973 was necessary for the transfer of rights to be valid
• Whether the rights under the restraint of trade agreements were personal to SCEB or attached to the business as part of its goodwill and were therefore transferable
• Whether the respondents committed breach of contract
• Whether there was a causal connection between the alleged breach and the damages claimed

The appeal succeeded with costs, including costs of two counsel but excluding costs of an application to lead further evidence (which costs the appellant was ordered to pay to the respondents). The order of the trial court granting absolution from the instance was set aside and replaced with an order dismissing the application for absolution. The matter was referred back to the trial court for continuation of the trial.

The binding legal principles established are: (1) A sole shareholder of a company who is party to an agreement for the disposal of substantially all of the company's assets need not hold a formal general meeting and pass a resolution as required by section 228 of the Companies Act 61 of 1973 - the sole shareholder's consent as party to the agreement constitutes sufficient compliance with the section's purpose. (2) Whether rights under a restraint of trade agreement are personal to the original creditor or attach to a business as part of its goodwill (and are therefore transferable with the business) is a question of fact to be determined by inferring the intention of the parties from the agreement and surrounding circumstances. (3) Where parties to a contract do not insist on compliance with a suspensive condition, third parties cannot rely on non-compliance with that condition to defeat claims arising from the contract. (4) On an application for absolution from the instance after the plaintiff's case, if the plaintiff has presented prima facie evidence on material issues that would entitle it to succeed if believed and left unrebutted, absolution should be refused even if other grounds for absolution are raised.

The court made several observations: (1) While not deciding the point definitively (as that was for the trial court after all evidence), the court observed there was sufficient prima facie evidence that the restraint rights in this case attached to the business rather than being personal to SCEB, given the nature of the transaction and the commercial context. (2) The court noted that in inter-company transactions conducted as part of corporate rationalization schemes (as opposed to arm's length transactions), courts may more readily infer tacit agreements not to insist on formal contractual conditions. (3) The court observed that the respondent's failure to raise the section 228 compliance issue in pleadings, discovery or cross-examination, only raising it in closing argument at the absolution application, was problematic and would have entitled the appellant to rely on waiver, unanimous consent or rectification - though the court found it unnecessary to decide these points given its finding on the substantive section 228 issue. (4) The court indicated that following the judgment, the appellant remained free to apply to reopen its case to lead the documentary evidence of section 228 compliance that had been discovered after the trial court's judgment, should it see fit to do so.

This case is significant in South African company law and restraint of trade law for several principles: (1) It confirms that where a company has a sole shareholder who is party to a transaction involving disposal of substantially all assets, formal compliance with section 228 of the Companies Act (convening a general meeting and passing a resolution) is unnecessary - the sole shareholder's consent as party to the agreement suffices. This practical approach recognizes that formal meeting machinery is designed to secure assent of multiple shareholders. (2) The case applies and reinforces the principle from Botha v Carapax that restraint of trade agreements may be either personal to the original contracting party or may attach to a business as part of its goodwill, depending on the parties' intention. Where restraint rights form part of goodwill, they are transferable with the business. (3) It demonstrates that third parties (like the respondents) cannot rely on non-compliance with contractual conditions (like suspensive conditions regarding section 228) where the parties to the contract do not insist on compliance. (4) The judgment illustrates the application of the prima facie test for absolution from the instance, requiring courts to consider whether sufficient evidence has been led to resist absolution on multiple alternative bases for a claim.