THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

JUDGMENT

Reportable

Case No: 20693/2014

In the matter between:

GRAINCO (PTY) LTD

APPELLANT

and

JACOBUS ALEWYN VAN DER MERWE

FIRST RESPONDENT
JOHANNES JACOBUS KITSHOFF

SECOND RESPONDENT
PERDIGON (PTY) LTD (formerly GRAINCO
INVESTMENTS (PTY) LTD t/a PERDIGON)

THIRD RESPONDENT

Neutral citation: Grainco (Pty) Ltd v Van der Merwe (20693/2014)) [2016]

ZASCA 42 (30 March 2016)

Coram:
Ponnan, Wallis, Mbha and Mathopo JJA and Plasket AJA

Heard:
17 March 2016

Delivered:
30 March 2016

Summary:
Purchase and sale ─ sale of business, inclusive of goodwill ─
implied prohibition against seller canvassing customers of sold business ─
prohibition a term implied by law ─ only seller bound by it.

______________________________________________________________

ORDER
______________________________________________________________

On appeal from Western Cape Division of the High Court, Cape Town
(Rogers J sitting as court of first instance): judgment reported sub nom
GrainCo (Pty) Ltd v Van der Merwe & another 2014 (5) SA 444 (WCC).

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

JUDGMENT
______________________________________________________________

Plasket AJA (Ponnan, Wallis, Mbha and Mathopo JJA concurring):

[1] In the court below, the Western Cape Division of the High Court, Cape
Town, the application of the appellant, GrainCo (Pty) Ltd (GrainCo), to
interdict the respondents, Mr J A van der Merwe (Van der Merwe), Mr J J
Kitshoff (Kitshoff) and Perdigon (Pty) Ltd (Perdigon), a company in which they
were shareholders, from soliciting business from, canvassing, enticing,
drawing away or dealing with a long list of people and entities, or attempting
so to do, together with other related relief, was dismissed with costs.

[2] The issue that arises for decision in this appeal is whether, when a
business is sold as a going concern, inclusive of its goodwill, the implied
prohibition against the canvassing of customers binds anyone other than the
seller. Rogers J, in the court below, found that the respondents were not the
sellers of the business and not bound by the implied prohibition. He dismissed
the application to interdict them from canvassing customers of GrainCo on
this basis and refused other relief not germane to this appeal.

[3] He granted leave to appeal to this court principally, it would appear,
because he thought that this court may wish to revisit the correctness of the

judgment in A Becker & Co (Pty) Ltd v Becker & others,1 a case concerned
with the implied prohibition and its relationship with an express restraint of
trade. I shall say something of this invitation at the end of this judgment.

The facts
[4] The material facts that gave rise to this matter are uncomplicated and
largely common cause. In 2000, Van der Merwe and Kitshoff established a
company which they called GrainCo (Pty) Ltd. This company was referred to
in the papers as ‘old GrainCo’. I shall use the same term when referring to it.

[5] Old GrainCo traded with great success in the grain commodities
market, thanks in large measure to the efforts and expertise of Van der Merwe
and Kitshoff. It quickly developed a substantial reputation in its field. It traded
in white and yellow maize, sunflower seeds, soya beans, wheat, canola,
sorghum, lucerne, brans, proteins and feed grains such as oats, feed barley
and lupines.

[6] Essentially, old GrainCo managed the supply chain between farmers
and processors by facilitating the flow of grain products from one to the other.
In other words, it bought grain from farmers and sold it to processors,
although its transactions were not necessarily ‘back-to-back’ transactions:
instead, it operated in terms of a risk-based business model which involved
speculation, risk-spreading and hedging. It was described in the founding
affidavit of Mr H B Vermooten as a ‘trusted brand with customers on both
sides of the supply chain’.

[7] The success of old GrainCo sparked the interest of BKB Limited (BKB).
For the most part, it traded in and marketed wool, mohair and livestock,
although it had other interests too. It had no involvement in the grain
commodities market but wished to be involved in it.

1 A Becker & Co (Pty) Ltd v Becker & others 1981 (3) SA 406 (A).

[8] BKB consequently entered into an agreement, styled an amalgamation
agreement (the amalgamation agreement), in terms of which it purchased the
business, inclusive of the goodwill, of old GrainCo as a going concern.
Various parties are referred to in the agreement. They are Thembeka Capital
(Pty) Ltd, ‘the other shareholders’, BKB and old Grainco. The ‘other
shareholders’ are listed in an annexure as the Swartkop Family Trust, the J J
Kitshoff Family Trust, the J R van Niekerk Trust and the Dalin Trust. All four of
these entities were represented by Van der Merwe and Kitshoff. These
entities together held 74.9 percent of the issued ordinary shares of old
GrainCo, Thembeka Capital holding the rest.

[9] Clause 2.1 of the agreement recorded that Thembeka Capital and the
other shareholders ‘are the registered holders and beneficial holders of the
GrainCo Shares’. Clauses 2.3 and 2.4 stated:
‘2.3 GrainCo is the registered holder and beneficial owner of the Company Assets,
which, inter alia, include the business conducted by GrainCo, as a going concern,
and its interest in BKB GrainCo (Pty) Ltd . . .
2.4 BKB wishes to acquire the Company Assets from GrainCo and GrainCo is willing
to dispose of the Company Assets to BKB, subject to the terms and conditions as set
out in this Agreement.’

[10] Clause 3 is the crux of the agreement. It provided:
‘3.1 GrainCo hereby disposes of the Company Assets to BKB, who hereby acquires
the Company Assets from GrainCo in exchange for
3.1.1 the allotment and issue by BKB of the BKB Shares to GrainCo;
3.1.2 a cash consideration equal to R4 000 000 (four million rand) which cash
consideration is specifically allocated to the debtors listed in Annexure I; and
3.1.3 BKB hereby assumes the GrainCo Liabilities.’
The company assets are listed in an annexure. They include goodwill.

[11] Clause 3.2 recorded that GrainCo would be ‘liquidated and/or
deregistered’ subsequent to the agreement. Clause 3.4 placed an obligation
on GrainCo to ‘take such actions as to ensure that the BKB Shares received

are distributed to its shareholders’. The value of the shares referred to in
clause 3.1.1 was R24 450 430.

[12] Clause 6 dealt with the apportionment of the BKB shares allotted to
GrainCo. Thembeka Capital received 25.1 percent of the shares, while the
remaining 74.9 percent was allotted as follows: the Swartkop Family Trust and
the J J Kitshoff Family Trust each received 46.66 percent of the shares while
the J R van Niekerk Trust received 1.34 percent of the shares and the Dalin
Trust received 5.34 percent of the shares

[13] Clause 12 contained a comprehensive restraint of trade. It restrained
old GrainCo, Van der Merwe and Kitshoff, for a period of five years2 and
within the ‘geographical area comprising the states forming part of the
Southern African Development Community’,3 from having an interest in any
entity which had an interest in any activity in competition with BKB, or
themselves having an interest in any such competitive activity; from involving
themselves in competitive activity that could have the effect of causing BKB
prejudice; from directly or indirectly canvassing ‘any customer and/or client of
BKB for or on behalf of any entity in which they are interested’, or on their own
behalf; and from disclosing confidential information.4

[14] In addition, they agreed with BKB that none of them would, ‘either for
their own account or as representative or agent of any entity’ in which they
had an interest ‘persuade, induce, encourage or procure any employee’
employed by BKB to ‘become employed by or interested, directly or indirectly,
in any entity which is interested in a competitive activity’; to terminate his or
her employment with BKB; or to furnish information or advice acquired by the
employee as a result of his or her employment to ‘any unauthorised person’.5

2 Clause 12.1.5.
3 Clause 12.1.6.
4 Clause 12.2.
5 Clause 12.3.

[15] Old GrainCo, Van der Merwe and Kitshoff agreed that the restraint was
‘reasonable as to subject matter, period and territory’ and that clauses 12.2
and 12.3 ‘shall be given the widest possible interpretation’.

[16] Vermooten, in the founding affidavit, explained the effect of the
transaction envisaged by the amalgamation agreement as follows:
‘The effect of the transaction was that BKB did not acquire the shares of Old
GrainCo, but only its business and assets (including the shares of the businesses
controlled by Old GrainCo) for a purchase price of R28 450 430.00. The majority of
the purchase price was paid to the trusts controlled by Kitshoff and van der Merwe by
the allotment of BKB shares to them. R4 million was paid to them in cash.’

[17] As soon as the amalgamation agreement was concluded, BKB sold the
business it had acquired to a company called Saamwerkverspreiders (Pty)
Ltd, which later changed its name to GrainCo (Pty) Ltd (GrainCo). Van der
Merwe was appointed as the managing director of GrainCo in 2006. He also
entered into an employment contract with it for a fixed term of five years. That
ended on 30 June 2012, simultaneously with the termination, by effluxion of
time, of the restraint of trade. He then entered into a new contract of
employment. Kitshoff was appointed as a director of GrainCo and was
employed, in terms of a five year contract of employment, as its head of
trading. When the contract of employment ended, together with the restraint of
trade, Kitshoff entered into a new contract of employment.

[18] In the years that followed the acquisition of the business, GrainCo
expanded its operations and increased the number of its depots. It formed a
new division, called BKB Logistics, and an existing division, GritCo, which
milled yellow maize to produce maize grit, moved its plant and tripled its
capacity. A third division, BKB GrainCo (Pty) Ltd trading as BKB Grain
Storage, also operated as a wholly owned subsidiary of GrainCo. It provided
the service of storage and management of grain in silo bags. The number of
people employed by GrainCo increased from 54 to 280.

[19] GrainCo, as a whole, operated profitably but matters took a turn for the
worst in 2013. The reasons for the downturn are in dispute but there is no
need to resolve this particular dispute of fact.

[20] It was, however, in this environment that Van der Merwe resigned as
managing director and as an employee of GrainCo. He did so with effect from
31 March 2013. A month later, Kitshoff resigned. So did a number of senior
employees thereafter.

[21] At the beginning of June 2013, a company named Grainco Investments
(Pty) Ltd, trading as Perdigon, opened its offices across the road from
GrainCo. (It later changed its name to Perdigon (Pty) Ltd.) In addition to Van
der Merwe and Kitshoff, who were its shareholders, it was staffed by people
who had either resigned from or taken voluntary retrenchment packages from
GrainCo.

[22] Perdigon described itself as ‘commodity traders specialising in the
management of the supply chain between the producer and the processor’ of
grain. It is clear that Perdigon competed with GrainCo from the outset, even
though there were differences in approach and scope.

The issue
[23] During the course of the proceedings in the court below, the implied
prohibition against the canvassing of clients was referred to as the Trego
prohibition. This was a reference to the leading English case of Trego &
another v Hunt6 in which Lord Macnaghten set out the basis for the prohibition
and its contours when he stated:7
‘And so it has resulted that a person who sells the goodwill of his business is under
no obligation to retire from the field. Trade he undoubtedly may, and in the very same
line of business. If he has not bound himself by special stipulation, and if there is no
evidence of the understanding of the parties beyond that which is to be found in all
cases, he is free to carry on business wherever he chooses. But, then, how far may

6 Trego & another v Hunt [1896] AC 7 (HL).
7 At 24-25.

he go? He may do everything that a stranger to the business, in ordinary course,
would be in a position to do. He may set up where he will. He may push his wares as
much as he pleases. He may thus interfere with the custom of his neighbour as a
stranger and an outsider might do; but he must not, I think, avail himself of his special
knowledge of the old customers to regain, without consideration, that which he has
parted with for value. He must not make his approaches from the vantage-ground of
his former position, moving under cover of a connection which is no longer his. He
may not sell the custom and steal away the customers in that fashion. That, at all
events, is opposed to the common understanding of mankind and the rudiments of
commercial morality, and is not I think to be excused by any maxim of public policy.’

[24] While Trego concerned a partnership, rather than the sale of a
business, the principle enunciated in it – that the seller of goodwill is
prohibited from taking it back by canvassing for the old business’ customers –
was accepted as correct in Becker. In that case, Becker, in his personal
capacity and as a director of his company, A Becker & Co (Pty) Ltd, sold the
business of the company, inclusive of the goodwill, and bound himself to a
restraint of trade. In terms of the sale agreement, the purchaser acquired the
right to the use of the name of the company (as happened with GrainCo in
this case) and the original seller changed its name, while the purchaser
became A Becker & Co (Pty) Ltd. When the restraint of trade had expired,
Becker began to approach former customers with a view to soliciting their
business. An interdict was sought to restrain him from doing so but, at the
close of the plaintiff’s case, absolution from the instance was granted.

[25] In upholding the appeal and setting aside the order for absolution from
the instance, Muller JA held that Trego was correct and that if ‘a seller
disposes of the goodwill of a business he is not allowed thereafter to act
contrary to the sale’.8 In his separate concurring judgment, Van Heerden AJA
held that Trego was consistent with the principles of South African law.9

8 Note 1 at 414G-H.
9 Note 1 at 418C-D.

[26] Van Heerden AJA also considered the juridical basis of the implied
prohibition. He held that there were two possibilities: either it arose from a
tacit term – an unexpressed term that arose from the actual or imputed
intention of the parties; or it arose as an implied term, properly so called – a
term implied by law, a naturalium of the contract.10 He concluded that the
implied prohibition was a term implied by law in a contract for the sale of a
business that includes the goodwill:11
‘Die erkende naturalia van 'n koopkontrak van liggaamlike goed kan egter analogiese
toepassing vind op die verkoping van 'n immateriële goed soos werfkrag. Dié wat ten
gunste van die koper strek, is gerig op beskerming van sy genot en gebruik van die
merx. Vandaar, bv, die verkoper se verpligtinge rakende uitwinning en verborge
gebreke. Soos reeds aangedui, konstitueer 'n direkte inwerking deur die verkoper 'n
nadelige aantasting van die koper se genot en gebruik van die werfkrag. Daar is dus
alle rede om sodanige inwerking in stryd te ag met 'n naturalium van die betrokke
koopkontrak.’

[27] That being so, the principle can only be invoked in relation to a seller of
a business. It is clear from clauses 2 and 3 of the amalgamation agreement
that the only parties to the sale of old GrainCo were it and BKB. Unlike in the
Becker matter, in which Becker was a party to the sale of the business, both
personally and in a representative capacity, Van der Merwe and Kitshoff were
not parties to the sale in this case. They could accordingly not be bound by an
implied term of the agreement. The appeal must therefore fail.

Leave to appeal
[28] In the course of his judgment in the court below, Rogers J dealt at
length with the Becker case and with what he considered to be flaws in its
approach to the relationship between the implied prohibition against

10 Note 1 at 419E-H. See too Alfred McAlpine & Son (Pty) Ltd v Transvaal Provincial
Administration 1974 (3) SA 506 (A) at 532C-H.
11 Note 1 at 419H-420B. ‘The recognised naturalia of a contract of sale of corporeal things
can however find application by analogy with the sale of an incorporeal thing like goodwill.
Those which operate in favour of the purchaser are aimed at the protection of his use and
enjoyment of the merx. Hence, for example, the seller’s obligations concerning eviction and
latent defects. As already indicated, a direct interference on the part of the seller constitutes a
prejudicial impairment of the purchaser’s use and enjoyment of the goodwill. There is thus
every reason to consider such an interference to be in conflict with a naturalium of the
particular contract of sale.’ (My translation.)

interfering with the goodwill of the sold business and the express restraint of
trade that bound Becker. He suggested that the conclusion in Becker in this
respect ‘might warrant reconsideration’ by this court.12

[29] The issue that appears to have consumed a great deal of the attention
of Rogers J was one that could only have become relevant if he had found
that Van der Merwe and Kitshoff were parties to the amalgamation
agreement. As he had made a finding to the contrary – and quite correctly so
– there was no reason that I can discern for him having to address the
correctness of Becker, much less give this court ‘the opportunity of mending
its earlier judgment’.13 It is an issue that this court would not have had to
consider and if it did have anything to say on it, it would have been obiter.
Entirely academic issues such as this should not be forced upon this court.

The order
[30] The appeal is dismissed with costs, including the costs of two counsel.

__________________
C M Plasket
Acting Judge of Appeal

12 GrainCo (Pty) Ltd v Van der Merwe & another 2014 (5) SA 444 (WCC), para 54.
13 S v Kgafela [2003] ZASCA 53; 2003 (5) SA 339 (SCA) para 3. See too Blaauwberg Meat
Wholesalers CC v Anglo Dutch Meats (Exports) Ltd [2003] ZASCA 144; 2004 (3) SA 160
(SCA) para 20.

APPEARANCES:
For Appellant:

A I S Redding SC (with him T Dalrymple)
Instructed by:
Chris Baker & Associates, Belville
Symington & De Kok, Bloemfontein

For Respondent:

J A Newdigate SC (with him H Jansen van
Rensburg)
Instructed by:
De Klerk & Van Gend Inc, Cape Town
McIntyre & Van der Post, Bloemfontein
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

FROM

The Registrar, Supreme Court of Appeal

DATE

30 March 2016

STATUS

Immediate

Please note that the media summary is for the benefit of the media and does not form part of
the judgment.

GrainCo (Pty) Ltd v Van der Merwe
(20693/2014) [2016] ZASCA 42

MEDIA STATEMENT

Today the Supreme Court of Appeal (SCA) dismissed an appeal by GrainCo (Pty) Ltd, and upheld an
order of the Western Cape Division of the High Court, Cape Town that had dismissed an application
to interdict two of GrainCo’s former employees from canvassing its customers.

The issue before the SCA was whether, when a business is sold as a going concern, inclusive of
goodwill, the implied prohibition against the canvassing of its customers bound anyone other than the
seller.

Mr J A van der Merwe and Mr J J Kitshoff, the first and second respondents, established a company
called GrainCo (Pty) Ltd, referred to in the papers as ‘old GrainCo’. Old GrainCo traded in the grain
market, managing the supply chain between farmers and processors by  facilitating the flow of grain
products from producer to processor. BKB Limited (BKB) which traded in and marketed wool, mohair
and livestock took an interest in old GrainCo, due to its success,  and subsequently entered into an
amalgamation agreement in terms of which it purchased the business, inclusive of the goodwill, of old
GrainCo. In terms of clause 3, the seller of the business was old GrainCo. Clause 12 of the
agreement contained a comprehensive restraint of trade. It restrained old GrainCo, Van der Merwe
and Kitshoff for a period of five years from conducting any activity that would cause prejudice to BKB.

As soon as the amalgamation agreement was concluded, BKB sold the business it had acquired to a
company called Saamwerkverspreiders (Pty) Ltd, which later changed its name to GrainCo (Pty) Ltd.
At the beginning of June 2013, after the restraints of trade had expired and Van der Merwe and
Kitshoff had resigned from GrainCo, a company named Grainco Investments (Pty) Ltd trading as
Perdigon, opened its offices across the road from GrainCo. (This company later changed its name to
Perdigon (Pty) Ltd.) In addition to Van der Merwe and Kitshoff, who were Perdigon’s shareholders, it
was staffed by people who had either resigned from GrainCo or had taken voluntary retrenchment
packages from it. This was the basis of the application to interdict the respondents as the appellant
alleged that they had canvassed, enticed and dealt with a long list of people and entities which were
GrainCo’s customers.

The court held that the implied prohibition against canvassing customers was a term implied by law in
a contract for the sale of a business that included the goodwill As such it could only find application in
respect of a seller of a business.

The SCA held therefore that it was clear from clauses 2 and 3 of the amalgamation agreement that
the only parties to the sale of old GrainCo were it and BKB. Van der Merwe and Kitshoff were not
parties to the sale and therefore they could not be bound by an implied term of the agreement.

--- ends ---