Retailer, Mnaka Diamonds (Pty) Ltd, has successfully obtained a default judgment against Engen Petroleum Limited in a drama emanating from a dispute over the alleged wrongful taking of business assets and stock without proper compensation.
In April 2017, Mnaka Diamonds entered into a franchise agreement with Engen Petroleum, establishing the company as a licenced retailer of Engen’s products. Tensions escalated in 2022 when, following an agreement approved by Engen for the sale of Mnaka to Thrive Retail (Pty) Ltd, the case took a dramatic turn. Just prior to finalising the sale, Engen demanded that Mnaka vacate the business premises, effectively halting operations and leaving Mnaka without its business, stock, or the agreed-upon selling price of R6.8 million.
In his testimony, Mnaka's sole director, Shadrack France Mashele, recounted the chain of events leading to the litigation. After handing the site keys to Engen in June 2022, not only did the sale fail to materialise, but Mnaka also faced further losses. Evidence presented in court indicated that Mnaka handed over stock valued at R500,000 and ceased operations, expecting the sale to Thrive to proceed as planned.
Mashele testified and confirmed his sole directorship of Mnaka following the demise of the other director. He testified that in April 2017, in their respective capacities as a licenced retailer and licenced wholesaler, Mnaka and Engen entered into a written franchise agreement, being Engen's standard franchise agreement, to enable Engen to have its proprietary products offered and sold on the open market to consumers by way of Mnaka at Chris Hani Street, KaNyamazane, Mpumalanga province (the site).
In 2021, Mnaka sought to sell its business to the buyer, which Engen approved. Subsequent to Engen's recommendation of Thrive Retail (Pty) Ltd (Thrive) as a buyer, a written sale of the business agreement was proposed between Mnaka and Thrive, represented by their respective owners.
The agreed final selling price was R6.8 million, which is made up of R6.5 million as contained in a principal agreement and R300. 000 included in an addendum, excluding stock on hand and dealer assets. Engen approved the terms of the agreement between Mnaka and Thrive. Engen directed Mnaka to share the necessary documentation, including financials, with Thrive.
Pursuant to the engagement between Mnaka and Thrive, and acceding to a request from Nokuthula Yembe of Engen, Mnaka handed over the site keys to a representative identified only as Ntombi of Engen on 1 June 2022, even though the sale price and stock were not paid yet. On this date, Mnaka ceased operations at the site.
Mnaka, through Mashele, contacted Thrive; however, Thrive informed him it was told by Engen not to engage with them further. The proposed agreement between Mnaka and Thrive was accordingly not signed per Engen's instructions. He further testified that he handed over the site to Engen in good faith. When the site was handed over, the stock valued at R500 000 was in the site's fuel tanks.
In July 2022, Mnaka, in correspondence to the Controller of Petroleum Products, yielded to Engen's request by agreeing to surrender its petroleum retail licence for Thrive to succeed in its application for a new retail licence for the site previously operated by Mnaka.
Engen continued with the proposed sale and finalised the agreement with Thrive after Mnaka handed the site to Engen. Thrive commenced to trade. However, despite demand, Engen had not compensated Mnaka for the ongoing retailing potential of the site, the value of fixtures, fittings and equipment in the amount of R6.8 million and R500 000 for stock at the time of handing over.
Mashele stated that Mnaka would have ordinarily handed over the site to Thrive, the buyer. The stock price would have been determined on the day of the takeover by two stocktake teams from Mnaka and Thrive by sharing stock sheets and agreeing on the value thereof. However, at the insistence of Engen, that was not done as the handover was to Engen, not the buyer.
The lawsuit, initiated in April 2023, sought damages for the financial losses incurred, which included the sale price for the business as well as the value attributed to the stock at the time of the handover. The court found that Engen’s actions in requesting the handover were unjustified and resulted in a direct loss for Mnaka, thus establishing a case for default judgment.
Mpumalanga High Court's Acting Judge Mazibuko highlighted that the circumstances under which the handover occurred were deceptive and indicative of bad faith on Engen's part. The evidence suggested that Engen’s insistence on taking possession led directly to the breakdown of the agreement with Thrive, resulting in significant financial consequences for Mnaka.
Following the default of Engen to defend the case, the court found sufficient grounds to grant Mnaka's claim, ordering Engen to compensate Mnaka the total sum of R7.3 million, which constituted R6.8 million for the selling price and R500,000 for stock, in addition to legal interest from the date of summons until settlement.
Moreover, it has been established that the court's decision falls in line with legal precedents regarding the compensatory principles in South African delict law, aiming to restore injured parties to their original financial position prior to the harm inflicted upon them.
