THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA

REPORTABLE

In the matter between :

Case number:  63/06

1)
INSAMCOR (PTY) LTD

APPELLANT
and

DORBYL LIGHT & GENERAL

ENGINEERING (PTY) LTD

RESPONDENT

In the matter between:

Case number:  319/2006

2)
DORBYL LIGHT & GENERAL

ENGINEERING (PTY) LTD

APPELLANT

and

INSAMCOR (PTY) LTD

RESPONDENT

CORAM :
HARMS, BRAND, NUGENT, PONNAN JJA et
SNYDERS AJA
HEARD :
16 FEBRUARY 2007
DELIVERED :
12 MAART 2007
Neutral citation:
This judgment may be referred to as Insamcor v Dorbyl [2007]
SCA 6 (RSA)
SUMMARY:
Two appeals – one against order setting aside the restoration
of a formerly deregistered company under s 73(6) of
Companies Act 61 of 1973 – setting aside order upheld mainly
on basis that restoration not preceded by issue of rule nisi and
necessary party not joined. The other appeal – against
successful claim for royalties by company restored to register –
upheld on basis that because restoration order had been
rightly set aside – the claim had effectively been granted in
favour of a party that did not exist.

JUDGMENT
_____________________________________________________
BRAND JA/

BRAND JA:

[1] In these two appeals that were heard together, the parties
are the same. The first appeal, by Insamcor (Pty) Ltd as the
appellant, is against the judgment of Meyer AJ in the
Johannesburg High Court. It emanated from a claim by the
respondent in the first appeal, Dorbyl Light & General Engineering
(Pty) Ltd ('DLG'), in motion proceedings. The claim was for
payment of royalties arising from the manufacturing and selling of
certain diaphragm valves by Insamcor under sub-licence from
DLG. In addition, DLG sought an interdict preventing Insamcor
from further manufacturing these valves on the basis that the sub-
licence agreement had been terminated. Both claims were upheld
by Meyer AJ. The appeal against that judgment is with his leave.

[2] The second appeal, by DLG as the appellant, is against a
judgment of Blieden J, also in the Johannesburg High Court,
upholding an application by Insamcor for the setting aside of a
previous court order by Cachalia J. The order by Cachalia J was
granted in terms of s 73(6) of the Companies Act 61 of 1973. In
substance it directed that DLG, which had previously been
deregistered under s 73(5) of the Act, be restored to the register of
companies. The appeal against the judgment of Blieden J, since
reported sub nom Insamcor (Pty) Ltd v Dorbyl Light and General
Engineering (Pty) Ltd 2006 (5) SA 306 (W), is again with the leave
of the court a quo.

[3] The source of the relationship between the parties lies in a
tri-partite agreement which was concluded on 11 September 1985.

The three parties involved were Insamcor, Stewarts & Lloyds of
South Africa Ltd ('S&L') and a company registered in the United
Kingdom, Saunders Valve Company Limited ('Saunders'). With the
consent of the other two parties, DLG subsequently took over all
the rights and obligations of S&L in terms of the agreement. This
happened during September 1988.

[4] The preamble to the 1985 agreement explained four things
that are pertinent. Firstly, that Saunders held copyright in certain
diaphragm valves referred to as 'the licensed products'. Secondly,
that by virtue of an earlier agreement which was entered into on 1
July 1982, Saunders had granted S&L a licence to manufacture
and sell the licensed products in South Africa. Thirdly, that during
1983 Saunders had instituted an action, based on an alleged
infringement of its copyright in the licensed products, against
Insamcor, and that this action had been settled by agreement.
Fourthly, that as part of the settlement, it had been agreed that
S&L would appoint Insamcor, inter alia, as sub-licensee in respect
of some of the licensed products, referred to as the sub-licensed
products.

[5] The operative part of the agreement is divided into five
chapters, numbered I to V. Of relevance are chapter II, which
recorded the terms of the sub-licence granted by S&L to Insamcor
and chapter V, which set out the general terms applicable to each
of the other four chapters. With regard to the payment of royalties
by Insamcor, clause 13 in chapter II provided that:
'13.1 For the rights and licences granted in terms of this chapter II, the sub-
licensee shall for the duration of this agreement pay to the sub-licensor a

royalty on the 'net selling price' of all sub-licenced products sold or otherwise
disposed of, at the rate of 7,5% (seven comma five per centum) per piece.
13.2
. . .
13.3 The sub-licensee agrees to pay all amounts owing to the sub-licensor
in terms of sub-clause 13.1 of this clause within 30 days of the last day of
March, June, September and December of each year for the three preceding
full calendar months . . . '

[6] In terms of clause 7 of chapter II, Insamcor was entitled,
against payment of the royalties set out in clause 13, to utilise the
know-how and technical aid defined in the agreement in order to
manufacture, assemble and sell the sub-licensed products in
South Africa. Clause 8 obliged S&L – and subsequently DLG – to
furnish Insamcor 'as promptly as practicable following receipt of
requests therefore', with all such know-how and technical aid as
Insamcor was entitled to.

[7] DLG brought its application for payment of royalties on 31
August 2004. In support of the claim it contended that Insamcor
had breached its contractual obligations by failing to make any of
the quarterly royalty payments, contemplated by clause 13, since
31 September 2001. By reason of this breach, DLG averred, it had
cancelled the 1985 agreement on 3 August 2004, as it was entitled
to do in terms of the general provisions in chapter V. In
consequence of the cancellation, DLG contended, Insamcor was
bound not to manufacture or sell any of the sub-licensed products
for a period of two years following the cancellation. It is on the
basis of these last mentioned allegations that the prohibitory
interdict was sought.

[8] In its answering affidavit, Insamcor originally relied on a
number of defences. Of these the only one persisted with derived
from the allegation that, on a proper interpretation of the 1985
agreement, its obligation to pay royalties was reciprocal upon
performance by DLG of its obligations under clauses 7 and 8, to
provide know-how and technical aid. Because DLG had failed to
comply with these obligations, so Insamcor contended, it was not
entitled to claim royalties or to cancel the agreement.

[9] Resolution of the royalties dispute was, however, overtaken
by another event. Two days before the matter was set down for
hearing, Insamcor compelled discovery of two documents which
formed the basis of an additional defence against the royalties
claims. What is more, these two documents – and the paper trail
leading from them – also paved the way for the setting aside
application before Blieden J, which eventually gave rise to the
second appeal.

[10] What emerged from these documents were facts previously
unknown to Insamcor. First and foremost among these was the
fact that on 19 March 1996 and at the behest of its parent
company, Dorbyl Ltd ('Dorbyl'), DLG had been deregistered by the
Registrar of Companies in terms of s 73(5) of the Companies Act.
The deregistration, so it appeared, originated from a decision
taken during 1989 to restructure the Dorbyl Group and to
rationalise the activities of the entities in the group. As part of the
restructuring process, the business of DLG was transferred to
Dorbyl. From then on the business was conducted as a division of
the latter and no longer as the business of a separate legal

persona. Since DLG then ceased to be operational, Dorbyl
alleged, it filed the deregistration application with the Registrar of
Companies.

[11] What also transpired was that on 21 September 2001, Dorbyl
sold the business previously conducted by DLG, including control
of the Saunders license, to a company known as Dynamic Fluid
Control (Pty) Ltd ('DFC'). After the business had been transferred
to DFC pursuant to the sale, Insamcor, however, refused to accept
DFC as its debtor under the 1985 agreement. In an obvious
attempt to overcome this difficulty, Dorbyl  decided to sell the
shares in DLG, as opposed to its former business, to DFC. Dorbyl
must then have realised that DLG no longer existed. The two
documents of which Insamcor obtained discovery shortly before
the hearing of the royalties matter were those pertaining to the
DFC transaction, namely the deed of sale of DLG's business in
September 2001 and the subsequent sale of shares in DLG, which
was entered into on 28 January 2004. The share sale agreement
recorded that the business of DLG had already been transferred to
DFC and that DLG had previously been deregistered, but that
Dorbyl was in the process of applying for the restoration of its
name to the register of companies. The agreement was specifically
subject to the successful outcome of the restoration application.

[12] The two discovered documents led Insamcor to the founding
affidavit in the restoration application. It was deposed to by the
financial director of Dorbyl on the same day that the share sale
agreement was signed. Yet the affidavit made no reference to that
agreement or to the earlier alienation of DLG's business to DFC. In

fact, the situation represented in the founding affidavit was that
DLG's business had been taken over and was still conducted by
Dorbyl. The founding affidavit also made no mention of the 1985
agreement between DLG and Insamcor. The only agreement
adverted to was the 1982 licensing agreement between Saunders
and S&L which had subsequently been taken over by DLG. As it
turned out, the 1985 agreement nevertheless received specific
mention in the restoration order.

[13] The
Registrar
of
Companies
and
two
government
departments were cited as respondents in the restoration
application. Other than the three respondents, no one else was
notified. On 2 March 2004 the matter came before Cachalia J on
an unopposed basis. Apart from the restoration order itself and
certain ancillary relief, he granted the following relief in paragraph
5 of the order:
'5.
It is declared that upon the restoration of the registration of the
company:

5.1
The assets of the company are no longer bona vacantia;
5.2
The assets of the company will vest in the company with retrospective
effect to the date of deregistration and as if the company had not been
deregistered.
5.3
The assets of the company include all its right, title and interest in and
to a sub-licence agreement concluded between Saunders Valve Company
Limited, Stewarts and Lloyds of South Africa Limited, Insamcor (Proprietary)
Limited and the Company under licence to manufacture and sell various
models of Saunders' diaphragm valves.'

[14] Upon learning of these facts, Insamcor launched an
application for the setting aside of the restoration order. At the

same time it sought a stay of the royalties proceedings, pending
the outcome of the setting aside application on the basis that, if
DLG were to revert to its previous state of deregistration, the
claimant for royalties would disappear.

[15] Meyer AJ held that Insamcor's application for a stay was
without merit, because, so he found, Insamcor, from the outset,
had no locus standi to oppose the grant of the restoration order
and therefore had no locus standi to bring an application for the
order to be set aside. As is apparent from Meyer AJ's judgment,
his views were largely influenced by the judgment of De Vos J in
Ex Parte Varvarian: In re Constantia Pure Food Co (Pty) Ltd 1965
(4) SA 306 (W) to which I shall presently return. After refusing the
stay, Meyer AJ then proceeded to decide the merits of the royalties
claim. The outcome, as we know, was a judgment in favour of
DLG.

[16] Before dealing with the appeal against the judgment of
Meyer AJ in the royalties proceedings I should revert to the
application for the setting aside of the restoration order before
Blieden J. As appears from his reported judgment (para 14 at
312A-D) Insamcor relied on three grounds in support of its
application. First, since it had a direct and substantial interest in
the outcome of the restoration order, it should have been joined in
those proceedings. Second, Dorbyl, as applicant in the restoration
application, not only failed in its duty to fully appraise the court of
all the relevant facts, but indeed misrepresented material facts to
the court. Third, in any event, para 5.3 of the restoration order was
not competent, in that the 1985 agreement which the paragraph

declared to be an asset of DLG, was not even referred to in the
founding papers.

[17] For the reasons appearing from his reported judgment (see
paras 16-38 at 312D-318E) Blieden J essentially agreed with
Insamcor in respect of all three grounds upon which its application
relied. On appeal DLG's main contention was that Blieden J had
erred in his finding that Insamcor should have been joined as a
necessary party to the restoration application, because, so it
argued, Insamcor would, in any event, have no locus standi to
oppose that application. In consequence, so the argument went,
Blieden J should have found that Insamcor likewise had no locus
standi to seek the setting aside of the restoration order.

[18] As authority for this argument, DLG relied mainly on those
dicta by De Vos J in Ex Parte Varvarian (supra) which had
persuaded Meyer AJ not to stay the royalties proceedings. In
dealing with the precursor to s 73(6) of the Companies Act – s
199(7) of Act 46 of 1926 – De Vos J said the following (at 309D-
G):
'Now it seems to me that the provisions of this section could never have been
envisaged by the lawgiver as affording a new or additional remedy, either
substantive or procedural, to persons standing in some legal relationship to
the company, either as member, creditor or otherwise where such remedy is
not otherwise in law provided for . . . .  If this right [to apply for restoration] is
exercised the worst that can happen to any party, or the best, according to the
facts, would be the revival of a pre-existing relationship which may have been
terminated by the action of the Registrar in securing the removal from the
register. The restoration then brings the company back into existence as if the

Registrar had never acted, and leaves all parties concerned thereafter to
enforce such rights as they may have against the restored company.

There seems to be no reason why any party, albeit as creditor, debtor
or party in litigation pending, should have a right to intervene in an application
of this kind, particularly in the present circumstances, where the restoration of
the company to the register would afford that company an opportunity which it
would otherwise lose of proceeding with litigation against the intervening
party.'

[19] Blieden J in the court a quo was of the view (see para 22 at
313H) that, although Varvarian was not specifically referred to, it
had in effect been subsequently overruled in Ex Parte Sengol
Investments (Pty) Ltd 1982 (3) SA 474 (T), which was followed in
Ex Parte Jacobson: In re Alec Jacobson Holdings 1984 (2) SA 372
(W). What these two cases laid down in substance, was that an
order of restoration under s 73(6) of the Companies Act should, as
a matter of practice, be preceded by a rule nisi calling upon all
interested persons to show cause why the company's registration
should not be restored.

[20] The reasoning behind this practice appears from the
following statement by Van Dijkhorst J in Sengol (at 477C-F):
'The effect of restoration to the register is that the company is deemed not to
have been deregistered at all. This entails that all parties who have by
deregistration of the company or thereafter acquired rights to assets which the
company had upon deregistration will lose those rights as the assets will
revert to the company. This includes assets which have become bona
vacantia and as such accrued to the State.   Likewise debtors and creditors of
the company at time of deregistration may upon restoration find their
obligations or rights resuscitated.

It follows that the restoration of the registration of a company in terms of s 73
(6) may have wide-ranging effects. Although the applicant alleges that the
company had no other assets than the mineral rights, and that it had no
liabilities, the possibility does exist of the discovery of forgotten assets. That
this is not illusory is evidenced by the cases where this fact necessitated an
application like the present . . . .'
(See also Goldstone J in Ex Parte Jacobson at 377F-H.)

[21] The statement by Van Dijkhorst J must, of course, be
understood against the background of s 73(6). It provides:
'6(a) The Court may, on application by any interested person or the
Registrar, if it is satisfied that a company was at the time of its deregistration
carrying on business or was in operation, or otherwise that it is just that the
registration of the company be restored, make an order that the said
registration be restored accordingly; and thereupon the company shall be
deemed to have continued in existence as if it had not been deregistered.
(b)
Any such order may contain such directions and make such provision
as to the Court seems just for placing the company and all other persons in
the position, as nearly as may be, as if the company had not been
deregistered.'

[22] With regard to the effect of s 73(6) the basic premise of the
judgment in Varvarian – and, building upon it, the argument by
DLG – appears to be that an order under the section is no more
than a return to 'as you were' whereby all parties involved are
retrospectively placed in the same position as they were prior to
deregistration. Proceeding from that premise the accepted notion
seems to be that the rights and obligations of all parties remain the
same as prior to deregistration. Since all parties have the same
defences available against each other as prior to deregistration, no
one can be prejudiced by the restoration order.

[23] But, with respect to De Vos J, the reality is not that simple.
As Schutz JA said, albeit in a somewhat different context, in
Mouton v Boland Bank Ltd 2001 (3) SA 877 (SCA) at 882D-H),
during the period that elapsed since deregistration, 'the moving
finger', so to speak, may very well 'have moved on' and the
deeming provision in s 73(6) cannot change that fact. As a result of
deregistration, third parties may have acquired or lost rights, or
they may have decided not to exercise their rights against the
company – precisely because the company did not exist. Through
the operation of a restoration order obligations towards the
company, which were extinguished because of deregistration,
would revive with retrospective effect. What is more, a restoration
order seems to validate, retrospectively, all acts done since
deregistration – including, for example, the institution of legal
proceedings – on behalf of a company that did not exist.

[24] In the light of all of this, it is an over simplification to regard a
restoration order as no more than an 'as you were'. It can clearly
cause severe prejudice to third parties. In Sengol (at 477C) Van
Dijkhorst J gave the example of those who, upon deregistration,
acquired rights to company property, who will lose those rights
when the registration of the company is restored. Examples of
such prejudice have also been recognised in other jurisdictions
(see eg Smith v White Knight Laundry Ltd [2001] EWCA Civ 660;
[2001] 3 All ER 862 (CA); Tyman's Ltd v Craven [1952] 2 QB 100;
[1952] 2 All ER 613 (CA)).

[25] Insamcor contended that on the facts of this case its
prejudice resulting from the restoration order is plain: prior to the
restoration order it could raise the defence in the royalties
proceedings that, upon deregistration of DLG, its rights and duties
under the 1985 agreement came to an end. But, because of the
restoration order, that defence was no longer available. In fact,
DLG's whole answer to the defence based on deregistration relied
on the retrospective effect of the restoration order.

[26] According to s 73(6)(a) the court's power to grant a
restoration order is introduced by the word 'may'. It follows that the
court has a discretion to grant the order. It is not bound to do so,
even if all the prerequisites imposed by the section are satisfied
(see eg Ex Parte Minister of Lands, Ex Parte Ventersdorp Muslim
Trust (Pty) Ltd 1964 (3) SA 469 (T) 471A; Ex Parte Sengol
Investments (Pty) Ltd (supra) 477A-B).  One of the considerations
the court will inevitably have regard to in the exercise of that
discretion, is the potential prejudice the restoration may cause to
third parties. (See Blackman, Jooste, Everingham, Commentary on
the Companies Act, original service, 2002 p 4-179. Cf Unkovich v
Commissioner for Corporate Affairs (1986) 4 ACLC 502 SC (WA)
503; Re Porter (1994) 15 ACSR 424 SC (WA) 427).

[27] In the premises it is, in my view, self-evident that third parties
who will or may be prejudiced by the restoration order must be
given the opportunity to persuade the court not to exercise its
discretion in favour of a restoration order. Alternatively, they may
endeavour to persuade the court to make the order subject to such
directions under s 73(6)(b) as may serve to alleviate its prejudicial

consequences. The inevitable conclusion I draw from all this is that
third parties who will or may suffer prejudice as a result of the
restoration order, have a 'direct and substantial interest' in the
outcome of the application for such an order. It follows that they
should be joined as necessary parties to the application (see eg
Amalgamated Engineering Union v Minister of Labour 1949 (3) SA
637 (A) at 659).

[28] DLG's argument against this conclusion was that in some
instances it would be well nigh impossible to join every party to a
contract with the deregistered company and any other third party
who may be prejudicially affected by the restoration order as
respondents in the application. That, however, is not a novel
dilemma. It often arises in cases where necessary parties may be
numerous and sometimes even unknown. For many years this
problem has been resolved by the mechanism of issuing a rule
nisi, as an alternative to actual joinder of all necessary parties. The
import of this mechanism in an analogous situation was explained
as follows by Ramsbottom J in Ex Parte Gold 1956 (2) SA 642 (T)
at 649E-F:
'The Court will exercise its power only where all the parties who have the right
to object have consented . . .. The practice is well established that proof of
consent is inferred from failure to object after the issue of a rule nisi served in
the manner and on the persons ordered by the Court. In the present case the
rule was duly served, and the consent of all persons concerned . . . was
inferred. There was therefore no reason why the rule should not be
confirmed.'
(See also eg Ex Parte Millsite Investments Co (Pty) Ltd 1965 (2)
SA 582 (T) at 584H.)

[29] That was precisely the procedure suggested by Van
Dijkhorst J in Sengol to be followed, as a matter of practice, in all
applications for restoration orders under s 73(6). I agree. All I can
add is that, since failure to react to the rule nisi will give rise to
deemed consent, proper care should be taken in issuing directions
as to service of the rule. Where a particular third party can be
identified a priori as a necessary party – such as Insamcor in the
present case, who was in fact referred to in the order by name –
service of the rule on that party should be directed, while notice to
unknown potentially interested parties can be ensured through
publication of the rule (see eg the order in Sengol at 479A-C and in
Jacobson at 378B-C).

[30] In the circumstances I find myself in agreement with the
finding by Blieden J (in para 25at 314A-D) that, because the order
restoring DLG to the register of companies was granted without
the prior issue of a rule nisi or the formal joinder of Insamcor as a
necessary party, the order could not stand. For that reason alone,
the setting aside application therefore rightly succeeded.

[31] The inevitable result is that the appeal against the setting
aside order must fail. In the event, DLG conceded, rightly, that
Insamcor's appeal in the royalties matter should be upheld.
Whether the restoration order was void ab initio or not is of no real
consequence in the present context. Its setting aside must in any
event have operated with retrospective effect to the date it was
granted. It follows that the royalties proceedings were conducted
all along on behalf of a claimant that did not exist. This conclusion,
incidentally, shows why the stay of the royalties proceedings,

pending the outcome of the setting aside application would have
been the appropriate solution. The question whether DLG's
royalties claim should have succeeded on its merits is therefore
not one we have to decide.

[33] For these reasons the following order is made:
(a)
The appeal by DLG (under case number 319/2006) is
dismissed with costs, including the costs of two counsel.
(b)
The appeal by Insamcor (under case number 63/2006) is
upheld with costs, including the costs of two counsel.
(c)
The order of the court a quo in the last-mentioned matter is
set aside and replaced with the following:
"The application is dismissed with costs."

.......................
F D J BRAND
JUDGE OF APPEAL

Concur:

HARMS JA
NUGENT JA
PONNAN JA
SNYDERS AJA
In the Supreme Court of Appeal of South Africa
MEDIA SUMMARY –

Case number:  63/06
In the matter between

1)
INSAMCOR (PTY) LTD

APPELLANT
and

DORBYL LIGHT & GENERAL

ENGINEERING (PTY) LTD

RESPONDENT

In the matter between:

Case number:319/2006

2)
DORBYL LIGHT & GENERAL

ENGINEERING (PTY) LTD

APPELLANT

and

INSAMCOR (PTY) LTD

RESPONDENT

From:
The Registrar, Supreme Court of Appeal
Date:
2007-03-12
Status:
Immediate

On 12 March 2007 the SCA gave judgment in the appeal of Dorbyl Light
& General Engineering (Pty) Ltd (DLG) against Insamcor (Pty) Ltd. DLG
instituted action against Insamcor in the Johannesburg High Court for
payment of royalties in terms of a sub-licence agreement between the
parties. During the course of proceedings, Insamcor learnt that DLG had
previously been deregistered and then restored to the register of
companies pursuant to a court order granted under s 73(6) of the
Companies Act 61 of 1973.

Upon establishing these facts, Insamcor sought the setting aside of the

restoration order on the basis that it should have been joined as a
necessary party in the application for that order. DLG's contention, on
the other hand, was that Insamcor, in any event, had no standing in law
to oppose the restoration order and could therefore not be considered a
necessary party in the application. The Johannesburg High Court held
that Insamcor should indeed have been joined as a necessary party to
the application and consequently set the restoration order aside. The
Supreme Court of Appeal agreed with the Johannesburg High Court and
the appeal was therefore dismissed with costs.