Court name
High Court of eSwatini

Coope v D.B.O Investments (Pty)ltd () [2000] SZHC 89 (17 October 2000);

Law report citations
Media neutral citation
[2000] SZHC 89
Coram
Maphalala, J









1


IN
THE HIGH COURT OF SWAZILAND


CIV.
CASE NO. 675/98


In
the matter between


PETER
RONALD COOPER N.O. PLAINTIFF


(As
Liquidator of Growth Trust Corporation)


VS


D.
B.
O
INVESTMENTS (PTY) LTD DEFENDANT


Coram
S.B. MAPHALALA


For
Plaintiff MR. L. KHUMALO


For
Defendant MR. S. NKOSI


JUDGEMENT


(17/10/2000)


This
is an application for summary judgment, which is resisted by the
defendant. The plaintiff issued summons against the defendant in his
capacity as a liquidator for Growth Trust Corporation Limited (GTC),
claiming payment of the sum of E313, 200-00.


It
is set out in the particulars of claim that in or during August 1997,
the plaintiff lent and advanced an amount of E313, 200-00 to the
defendant, at the defendant's special instance and request, upon
terms as are contained in the facility letter, signed by both
plaintiff and defendant, dated 16th August 1995. A copy of the
facility letter is annexed to the papers marked "A". The
material express terms agreed upon were that:


4.1. The
monies lent and advanced by the plaintiff to the defendant were to be
repaid by the defendant within a period of sixty (60) months in
monthly instalments of E9, 142

-
21;


4.2. The
first monthly instalment was payable by the defendant to the
plaintiff on the 20th September 1995;


4.3. The
amount lent and advanced, or any balance as was to remain outstanding
thereon, was to be charged interest at the rate of 22% per annum;


2


4.4. In
the event that the instalment remained unpaid seven (7) days after
due date, a further penalty fee was to be charged by the plaintiff at
the rate of 2% on the payment due, over and above the rate
aforestated; and;


4.5. The
plaintiff reserved its rights to consider the whole loan to be due
and payable on demand any time;


5. It
was a further and implied term of the loan that the whole amount or
any balance thereof as was outstanding would become due and payable
in full in the event of the defendant defaulting on its monthly
payments.


6. As
fully appears in the ledger record, a copy of which is annexed hereto
marked "B", the defendant has not made payment in terms of
the agreement and;


6.1. As
at the 29th September 1997, the amount, being the capital and
interest charges, then due and payable by the defendant was in the
sum of E400, 352-14.


6.2. Consequent
to the default by the defendant, the whole amount of E400, 352-14

plus furthe
r
interest at the rate of 22% per annum

from
the 1st October 1997, to date of final payment i
s
payable by the defendant to
the
plaintiff.


7. Notwithstanding
demand, the defendant has failed, neglected and/or refused to pay
this amount to the plaintiff or any part thereof.


The
defendant has filed an opposing affidavit in which it denies the
allegation that it does not have a good and bona fide defence to the
plaintiff's claim, and set out at great length the history of the
matter and the defence it seeks to advance for the court to find in
its favour.


I
find it imperative to also outline these facts, as this matter is an
inherently complex one with voluminous papers filed on both sides.
Further counsel filed exhaustive Heads of Arguments. They were
equally lengthy in their submissions spanning three days.


The
defendant through the affidavit deposed by one Beverly Reid outlines
the sequence of events as follows. On or about March 1995, the Growth
Trust Corporation Ltd duly represented by Dug McClean invited the
defendant duly represented by her to enter into a franchise agreement
with the Corporation and run a cinema busiest

Mauzini
under
the business style Maxi Movies. The growth Trust Corporation

portrayed
the cin
ema
business as a very good business with a potential to make high
profits. Mr. McClean showed her a business plan, which had been made
by the Corporation after conducting a business study.


3


It
appeared to her that the business plan appeared to be a very good
business. According to her the Growth Trust Corporation made an
undertaking to assist in providing the following finance to establish
the cinema business support services in the form of marketing the
business, supplying the movies, training the staff in cinema
operations, maintaining the equipment and assist in the accounting
and business procedures. The plaintiff confirmed that they would
supply the movies, which would be of high quality and would be the
latest movies thus ensuring attendance at the movie house. On the
strength of the representation made by the Growth Trust Corporation
about the cinema business the defendant entered into the business. On
the 31st March 1995, she signed a letter awarding the defendant a
Maxi Movie franchise licence.


Following
a number of discussions between the Corporation and the defendant on
the 2nd August 1995, a franchise agreement was entered into between
the parties for purposes of setting up and running the cinema
business the Growth Trust Corporation Ltd was the master franchise
holder, franchiser and the defendant was the franchisee. The
agreement

was to oper
ate
for
a
period

o
f
sixty calen
dar
months from the date of signature. In most discussions held at the
time and thereafter she was with one Mr. Ali of M & I Investments
(Pty) Ltd.


In
terms of the franchise agreement the main obligations of Growth Trust
Corporation Ltd are as follows:


i) To
p
rovide
finance

to the fra
nchisee
in the
form
of
loan
for

purposes o
f
buying"
equipment, "fixtures and things for sending up the chiema
business.


ii) To
su
pply
the franchise with

the movies weekly.


iii) To
market the cinema business


iv) To
maintain the equipment used in the cinema.


v) To
provide technical assistance training the staff in Maxi movie cinema
operations.


vi) To
assist in the accounting and business procedures.


She
deposed that for the purposes of establishing the value of the
equipment, fixtures and fittings of the cinema business she utilised
the company that initially fitted the cinema Signlines (Pty) Ltd to
make a valuation of the cinema. The value of some of the equipment,
fixtures and fittings as installed new is E20, 961-00. For purposes
of the plaintiff's claim she had requested Panasonic of Johannesburg
to give her a verbal quote on the protection equipment as new.
Panasonic had stated that its estimated value is E48, 000-00 now. She
submits that the actual amount spent by Growth Trust Corporation is
approximately the amount of E69, 000-00 and not the figure of E313,
000-00 as claim. The sum of money used to set up the business was
greatly exaggerated by the Corporation in order to make profits from
the defendant. The value of the equipment fixtures and fittings

bought by the
Corporation
is far less than the money the Corporation

allegedly was on the behalf. Defendants
avers
that it was repaying its loan with the Growth Trust Corporation. The
total amount the defendant has paid to the Corporation is the sum of
E203, 844-99. No receipts were received. The monies were paid by stop
order and cheques as per the schedule annexed marked "C".
The defendant disputes the amount claimed by the plaintiff in that
the latter failed to issue statements to the defendant for the loan
account. That


4


since
October 1995, the defendant has not received statements from Growth
Trust Corporation for the loan account, showing as to how much has
been paid and what was the balance outstanding.


Defendant
further detailed at some length how the business commenced and how
the plaintiff acted its part of the franchise agreement. The long and
short of defendant story in this regard is plaintiff failed to comply
with the provisions of the franchise agreement. As a direct
consequence the business lost its customers as they could only show
videos obtained from local shops. These were of a very poor quality
resulting in minimal attendances.


Plaintiff
was then put under liquidation and this resulted in a complete
breakdown of the franchise agreement. The defendant alleges that the
Growth Trust Corporation is therefore in serious breach of the
agreement and has also defrauded the defendant of a substantial
amount of money being the difference between what defendant paid and
the actual value of the equipment and fittings that were installed.


The
defendant further alleges that the plaintiff further breached the
franchise agreement in that it failed to supply the defendant with
the movies that had been advertised for screening. When it supplied
the movies they were delivered very late and were of very poor
quality. This resulted in poor attendances at the cinema in turn
spiralling into a situation where money would have to be pumped into
the business from defendant's personal savings. The situation got so
bad that defendant had to seek facilities from

sister
companies
just to keep the cinema going and

to
pay rentals,
staff
salaries and other fixed costs. The net result has been an overdraft
exceeding
E40,000-00.


Defendant
states that plaintiff did not maintain the equipment of the cinema.
Plaintiff did not train the defendant's staff to operate the Maxi
Movies Cinema business. This resulted in failure to run the business
efficiency and meant that the staff complement was too high leading
to high costs. Plaintiff failed to provide the defendant

w
ith
accounting and business strategies for purposes of running the cinema
business efficiently and keeping proper books of account. As a result
of that the defendant had serious problems in running the business.


As
a result of the breach of the franchise agreement the defendant's
business could not make profits as projected in the business plan.
The estimated losses and damages suffered by the defendant as a
result of the Growth Trust Corporation's breach of the franchise
agreement is estimated at E400, 901-00.


All
in all defendants submit that the defendant has a good defence and a
counter-claim against the plaintiff.


The
d
efendant
ma
de
a
n
applic
ation
to file a further affidavit and this was contested

by
the

plaintiff.


The
matter was
argued
before me on the 16th April 1999,

where
court
subsequently found in favour of the plaintiff and disallowed the
reception

of a
further
affidavit. A full judgement was subsequently handed down in this
regard.


5


The
matter then appeared before me for full arguments on the merits on
the summary judgement application. As I have alluded to earlier the
parties filed exhaustive Heads of Arguments and their submissions
were long.


The
Plaintiff as represented by Mr. Khumalo submitted that the claim is
based on annexure "A" being the facility letter signed by
both parties, which embodies the terms of the loan. Defendant does
not deny the terms and the facility letter and does not refer to it
at all. The closest the defendant comes to addressing the matter of
the loan is by denying that the amount was E313, 200-00, asserting
that it was E69, 000-00. Mr. Khumalo punched holes in this allegation
in that defendant do not refer to the amount as that of the loan, but
as an amount spent by Growth Trust Corporation. Defendant
approximates this amount and has no proof of its allegation.
Defendant does not state it as the loan in terms of the facility
letter but that it comes as money spent in terms of the franchise
agreement (with another party). Defendant makes no connection at all
between this amount (whether E313, 200-00 or E69, 000-00) and the
amount of the loan in terms of the facility letter. Lastly defendant
does not deny that it was lent and advanced the amount stated in the
facility letter.


Mr.
Khumalo further argued that the allegation by the defendant that it
has repaid E203, 844-99 to Growth Trust Corporation is fraught with
difficulties. Firstly, defendant alleges the mechanism to have been
in terms of a "stop order" but provides no evidence
thereof. Secondly, defendant attaches annexure "C", being
some unexplained compilation or schedule, the author and purpose of
which is not explained.

Thirdly defendant provides no evidence of bank confirmation of the
stop
order
and the accord'
s
that were debited and correspondence XXX
thereof.


If
defendant admits the money loaned to it to be the one that the
defendant repaid, it has a duty to prove such repayment in this event
that the plaintiff alleges non­payment.


Mr.
Khumalo further attacked the rest of defendant's affidavit, from
paragraph 17 to paragraph 24 as irrelevant in that reference is made
to non-performance by a franchiser in terms of a franchise agreement.
Further reference is made to damages sustained as a result of
non-delivery of material and services by the franchiser. Furthermore,
consequently it is sought to establish a "counter claim"
which is ill advised in this event that the defaulting franchiser is
GTCC not Growth Trust Corporation, and is therefore a company
different from the claimant.


In
the result, plaintiff's claim as set out in the declaration is
totally uncontested and should succeed.


The
alleged omission of the words "proprietary" or "limited"
in the name of GTCC in the

franchise agreement is irrelevant to the claim of Growth Trust
Corporation.


The
claim is based on a facility letter and the monies lent and advanced
by Growth Trust Corporation, not GTCC. That GTCC entered into a
franchise agreement with defendant and its name in that franchise
agreement with defendant was incomplete is irrelevant. Defendant
should have known in each case that it was contracting with two
separate entities; the names are clearly different in the documents
involved.


6


That
both companies were owned by SBGT and the defendant was invited by
SBGT to enter into a franchise agreement with GTCC or that the
defendant confused the three entities (SBGT, GTC and GTCC) in making
payments does not alter the law regarding separate personalities of
the three institutions so clearly demonstrated in terms of the
certificates of incorporation and the transaction document used.
Further, it does not make one entity the same as the other, and does
not justify the piercing of the corporate veil.


Mr.
Khumalo further argued that the separateness of the company from its
owner, shareholder, director or member is clearly dealt with in a
number of decided cases. I was referred to the cases of Salomon vs
Salomon and company (1897) AC 22 (HL), Dadoo Limited and others vs
Krugersdorp Municipal Council 1920 A.D. 530, JTR Gibson's South
African Merchantile and Company Law at page 287, Mandrassa Anjuman
Islamia vs Johannesburg Municipal Council 1919 A.D. 439.


Mr.
Khumalo further argued that separate existence of a company has been
disregarded only in a few cases, even then on the basis of certain
special circumstances and not on any known articulated principle. He
directed the court to Company Law. 4th ED by Cilliers and Benade on
the examples of circumstances and cases in which the corporate veil
is known to have been pierced at pages 14 and 15. The learned authors
could only formulate factors that justify the application of the
economic entity approach as the only common ground or common
principle upon which

this
corporate

ex
istence
my be disregarded, as there are no other known common factors or
common grounds. These ground are If the necessary degree of
control
evident
is
in
such
a m
anner
that the relationship between the companies in the
group
is that of holding

company
and a wholly owned subsidiary. Where the subsidiary is subservient to
the holding company. This cannot be inferred in the present case
where nothing whatsoever may justify any inference of
subsidiary/holding company relationship between GTC and GTCC. Further
if there may be an identity and "community of interest"
between the holding and subsidiary company in the group.


He
argued further that this also may not arise in the present case where
there is no evidence of a group company arrangement, and no company
between the two may be said to be the subsidiary of another.


If
by isolating each holding company and subsidiary it would in law lead
to an unjustifiable inequity.


This
may not apply, as no company is the holding company or the subsidiary
of another as between GTC and GTCC. If creditors and shareholders
would be prejudiced where the economic entity approach will result in
a group (of companies) is held liable as one entity for the debt of
one of its constituent subsidiaries. The fact that between GTC and
GTCC does not arise a group of companies made of

a holding

company and constituent subsidiaries makes this factor completely
inapplicable.


Mr.
Khumalo argued that in the circumstances there would be no
justification whatsoever to pierce the corporate veil or in any other
manner and under any other circumstances deal with GTC as if it was
the same as GTCC. Any claim or counter-claim the defendant may have
against GTCC has no reference or bearing whatsoever to and on the
claim of GTC against the defendant. For the claim


7


that
GTC has proved against the defendant and which defendant has not
contested, no counterclaim has been alleged or set out, Mr. Nkosi
argued in contra. His opening remarks were that the court in this
matter is faced with the task to decide whether the defendant has a
bona

fide
defence against summary judgement.


Essentially
his arguments are two pronged. The first leg of his argument is that
the independent identity of the three companies (SBGT, GTC and GTCC)
was fraudulently concealed. The defendant was led to believe that
there was no distinction between SBGT, GTC and GTCC. Consequently
nearly all the loan repayments were made to one entity namely SBGT
under the impression that GTC and SBGT were one. This is evidenced by
annexure "C" of the opposing affidavit. Therefore, although
the repayments were made to SBGT, the relationship of the three
companies made the repayment effective to GTC.


The
second prong of Mr. Nkosi's submission is that the court has
discretion not to grant summary judgement even where the requirements
of Rule 32 are complied with. He submitted that from the multiplicity
of documents that defendant signed with the various entities, a
reasonable possibility exist that an injustice will be done to the
defendant if judgement is granted.


These
are the issues before me. I have considered the matter very
carefully. It appears to me that there is a connection between

the
thee

en
tities.
Mr.
Nk
osi
seems
to
be correct in his submission that these entities are basically one
and the same
There
is a relationship between SBGT, GTC and GTCC.


These
are
intertwined.

I
further
agree with him on his legal exposition that a full inquiry is to be
conducted to determine the relationship of each entity and this can
only be done in triad. It appears to me that there is a defence
advanced by the defendant. The defence is that there was a franchise
agreement, which was entered into between the defendant and one of
the three entities. According to that agreement equipment for the
movie business was purchased by monies, which were advanced by the
plaintiff to one of the other two entities. The defendant it would
appear never even received a cent of the loan advanced in terms of
annexure "A". The defendant did not receive any money but
certain equipment, which was purchased on its behalf. This equipment
was purchased by one of the companies and it is not clear which one.
Further plaintiff also agrees that they will pay directly to the
vendor or supplier and not to the defendant directly. The defendant
is querying the value of the equipment bought on its behalf by one of
the three entities. It becomes confusing when one look at plaintiffs
replying affidavit and the annexures at page 134, 135 and 136 of the
Book of Pleadings (PRC4, PRC5 and PRC6). These are purportly
withdrawal slips which plaintiff claims are evidence of cash
withdrawal by defendant.


Plaintiff
agrees at page 134 paragraph 11 that plaintiff would pay certain
suppliers for services rendered. Plaintiff agrees that they

wood
day directly to the

vendor not to the defendant. Under these circumstances it would

b
e
manifesty
unjust to require the defendant to pay the amount is annexure "A"
without determining the exact extent the defendant is indebted to the
plaintiff.


8


The
denial by the plaintiff that it had nothing to do with the matter
after it had granted the loan is inexplicable. It appears rather
strange that when the franchise agreement is brought plaintiff tries
very hard to distance itself from it. The franchise agreement was
signed prior to the incorporation of GTCC.


I
tend to agree with Mr, Nkosi that these issues are to be brought
before trial. Much play was made by the other side that defendant has
not advanced hard facts to properly resist summary judgement. With
the greatest of respect to the plaintiff the defendant is required to
only prove a bona fide defence. In this regards I cite the case of
Maharaj vs Barclays National Bank Ltd 1976 (1) S.A. 416 where Corbett
J

A
had this to say:


"While
the defendant need not deal exhaustively with the facts and the
evidence relied upon to substantiate them, he must at least disclose
his defence and the material facts upon which it is based with
sufficient particularity and completeness to enable the court to
decide whether the affidavit discloses a bona fide defence".


The
learned judge went further to say:


"At
the same time

t
he
defendant is not expected to formulate his opposition to the

claim
with
the precision that would be required of a plea, nor does the court
examines it by the standards of pleading (see Estate Potgieter vs
Elliot 1948 (1) S.A. 1084 © at 1087)".


It
appears to me that there is a nexus between GTC and SBGT.


Finally,
it is my considered view that it cannot be said with certainty that
the defendant

is
indebted
to the plaintiff in th
e
amount reflected

i
n
the lo
an
agreement in
view
of the circumstances of the case.


The
circumstances in which a court will grant
summary
judgement an tally considered in Herbstein and Van Winsen the Civil
Practice
of the Superior Courts in South Africa, 4th RD, 434 and Nathan,
Barnett and Brink Uniform Rules of Court 3rd ED, 190. It has been
stated and stressed that the remedy for summary judgement is an extra
ordinary and very stringent one in that it closes the door to the
defendant and that it will only be accorded to a plaintiff who has,
in effect, an unanswerable case. It appears to me from the totality
of the

facts
and submissions presented before me that defendant ought to be
granted leave to defend the matter.


Costs
to be costs in the cause.


S.B.
MAPHALALA


JUDGE