Group 2
Zaiba Faki, Tawfeeq Amlay, Noah Higgins
Entrepreneurial Law
Die Dros v Telefon Beverages (2003)
Facts
The case is between Die Dros, Kruger Franchise and Telefon
Beverages(1st respondent), Pietwyn( second respondent, Martiq 63
( third respondent), Llewellyn Frederick Kapp( fourth respondent).
The case was filed by Die Dros against Telefon Beverages because
they broke Clause 10.3 of the contract. The case took place on 3rd
October 2002 in the High Court of South Africa(Cape of Good Hope
Division).
 The first applicant operates a business known as the Dros
Restaurant and Wine Cellar at Stellenbosch.
 The second applicant, in terms of a written agreement entered
with the first applicant, attends inter alia, to the marketing of the
Dros
Restaurant and Cellar operations
 The first respondent is a close corporation registered under
number CK 97/47792/23.
 The second respondent is a close corporation registered
under number CK96/6409223.
 The fourth respondent and Van der Westhuizen in their
capacities
as "members of a Close Corporation to be formed" on 4 February
1998
entered into a franchise agreement with the first applicant in terms
whereof the right was acquired to operate a Dros Restaurant and
Wine
Cellar at the premises as from 1 June 1997 to 31 May 2002 with an
option to renew the agreement on six months' notice.
Issue
The applicants filed a case against the respondents over breaking clause
10.3 and the fact that the fourth respondent used the first respondent as
a corporate vehicle to get away with breaking the clause.
Rules/References

Piercing of the corporate veil: It is a law technique used by
courts to disregard the separate legal personality of a legal entity
and those who run it.
o Section 20(9) of The Companies Act, 2008 includes new
statutory power for the purpose of “Piercing the Corporate
Veil”.
 An “interested party” can approach the court in terms
of this section, where there was an act by or on
behalf of the company that constituted an
‘unconscionable [unreasonable/excessive] abuse of
the juristic personality of the company as a separate
entity’ in order to “Pierce the Corporate Veil”.
o Courts do not have the discretion to disregard separate
legal personality whenever they feel it is convenient to do
so, but should strive to give full effect to it.
 The then Appellate Division in Cape Pacific Limited v
Lubner Controlling Investments (Pty) Ltd &
Others 1995(4) SA 790 at 803 G-H and I-J.
o Court allows for separate legal personality to be
disregarded where a natural person who is subject to a
restraint of trade, uses a close corporation or company as a
front to engage in the activity that is prohibited by an
agreement in restraint of trade.
 With reference to: Le'Bergo Fashions CC v Lee &
Another 1998(2) SA 608 (C); Gilford Motor Co Ltd v
Horne [1933] CH 935 (CA); [1933] All ER Rep 109.
Analysis
The court decided to take into consideration that they needed to
preserve the separate corporate personality of a company had to be
balanced against policy considerations favouring the piercing of the
corporate veil. Le'Bergo Fashions CC v Lee & Another 1998(2) SA
608 (C); Gilford Motor Co Ltd v Horne
These decided cases could be invoked as authority for
restraining fourth respondent if the applicants succeed in overcoming
two evidential obstacles. The first obstacle is that the fourth is held
responbile for clause 10.3(Upon termination of this agreement the
franchisee will not participate either directly or indirectly in the
management or control of a business which conducts business
in the nature of or similar to the franchise business within the
territory for a period of 12 (twelve) months. The franchisee
acknowledges that this restraint is a reasonable one in order to
protect the franchisor's business system and intellectual
property rights.") of the franchise agreement. They have also used
previous court cases(I.e case law) while deciding what should
happen. They come to the conclusion, using the aforementioned law
that only the first respondent will be held responsible for breaching the
agreement as he is signified as the franchisee. The clause 10.3 of the
franchise agreement are binding only on the first respondent. This is
because the fourth respondent bounded himself as surety and co
principle( does not undertake a separate independent liability as a
principle debtor (See: Peimer v Finbro Furnishers (Pty) Ltd
1936 AD 177)) debtor to the first applicant, in connection to clause 10.3
of the franchise agreement puts performance of negative obligation onto
the first respondent (See: Segell v Kerdia Investments (Pty) Ltd 1953(1)
SA 20 (W); Demetriou v O'Flaherty & Another 1973(4) SA 691 (D & CLD)
at 694DE), therefore it did not impose any obligation personally on the
fourth respondent. The applicants refer to the first respondent as a
corporate vehicle for the fourth respondent, but they did not give
substantial evidence to prove this. There is also a lack of primary facts
from the applicants, and they have based their entire case off of
secondary facts/ assumptions of the relationship between the first and
fourth respondents.
Conclusion
The applicants have not shown the onus, on a balance of probabilities
that the fourth respondent used the first respondent for his personal
business affairs. They lacked proof and based their entire case of
secondary facts and assumptions.