BAIC Automobile SA (Proprietary) Limited v Samaritan Car Cover (Proprietary) Limited and Another [2024] ZAGPJHC 14 (9 January 2024)

1. The applicant and the first respondent entered into a written "Fixed Term Lease Agreement" on 14 July 2021, under which the applicant leased several motor vehicles to the first respondent for a period of 36 months.

2. The first respondent was to sublease these vehicles to third parties for use in e-hailing services, with a monthly rent of R4,161.00 per vehicle payable to the applicant.

3. By late October 2023, the first respondent had breached the Agreement by failing to pay the rent, accruing a debt of approximately R4.1 million to the applicant.

4. Following discussions, the Agreement was cancelled on 30 October 2023. Despite the cancellation, the first respondent did not return the vehicles to the applicant.

5. On 14 November 2023, the first respondent's board of directors passed a resolution to place the company under business rescue, and the second respondent was appointed as the business rescue practitioner.

6. The applicant contends that since the Agreement was terminated before the business rescue commenced, the vehicles were no longer lawfully in the first respondent's possession, and the sublease agreements also terminated by operation of law.

7. The applicant approached the court on an urgent basis for the return of the vehicles, claiming that there was no substantive redress available at a hearing in due course.

8. The court was satisfied that the applicant was entitled to a hearing before the urgent court, and the opposition to the application by the first respondent was considered dilatory, with no legal basis to retain the vehicles.

The core legal principle underlying the decision in this case can be summarized as follows:

1. Termination of Lease Agreement: The lease agreement between the applicant and the first respondent was validly terminated prior to the commencement of business rescue proceedings. As a result, the first respondent no longer had a lawful right to possess the leased vehicles.

2. Effect of Termination on Sub-Leases: Upon termination of the head lease agreement, any sub-lease agreements that the first respondent had with third parties also terminated by operation of law. This is because the rights of sub-lessees are derivative and contingent upon the rights of the main lessee.

3. Obligation to Return Leased Property: The lessee (first respondent) is legally obligated to return the leased property to the lessor (applicant) immediately upon termination of the lease, or in this case, to procure the return thereof.

4. Business Rescue Proceedings: The moratorium on legal proceedings against a company under business rescue, as provided in section 133(1) of the Companies Act, 2008, does not apply to property that does not belong to the company or is in the company's unlawful possession. Since the lease agreement was cancelled before the business rescue commenced, the moratorium did not protect the first respondent's possession of the vehicles.

5. No Right of Election for Business Rescue Practitioner: The business rescue practitioner does not have a right of election under section 136(2) of the Companies Act, 2008, in relation to the Agreement because the Agreement was no longer extant at the time of the business rescue proceedings.

6. Non-Joinder of Sub-Lessees: The sub-lessees did not need to be joined to the proceedings because they did not have a direct and substantial legal interest in the specific performance of the head lease agreement.

7. Nature of the Claim: The claim for the return of the leased vehicles is one of specific performance of the lessee’s obligations, which may take the form of a rei vindicatio when appropriate, but is not axiomatically so.

The court's decision is based on these legal principles, leading to the conclusion that the first respondent had no legal basis to retain the vehicles and was causing ongoing harm to the applicant. The court thus favored the applicant's request for the return of the vehicles.

The above quote is significant because it clearly outlines the legal basis for the court's decision, emphasising that the lease agreement's termination prior to the business rescue meant that the first respondent no longer had lawful possession of the vehicles, and that the sub-leases were also terminated as a consequence. It also underscores the lessee's obligation to return the leased goods upon termination of the lease, which is central to the applicant's claim for the return of the vehicles.

In the reasoning process, the court referred to several cases to support its legal conclusions. The full citations of the cases mentioned in the provided text are as follows:

1. Timasani (Pty) Ltd (in business rescue) and Another v Afrimat Iron Ore (Pty) Ltd [2021] 3 All SA 843 (SCA). This case was cited to support the principle that the moratorium on legal proceedings during business rescue does not apply to property that does not belong to the company or is in the company's unlawful possession.

2. Klaase and another v van der Merwe N.O and Others 2016 (6) SA 131 (CC). This case was cited for the proposition that upon termination of the head lease agreement, the sub-lease agreements also terminate by operation of law.

3. Grotius 3.9.11; Voet 19.2.32; Phil Morkel Ltd v Lawson & Kirk (Pty) Ltd 1955 (3) SA 249 (C) at 253 J; Hyprop Investments Ltd and Another v NCS Carriers and Forwarding CC and Another 2013 (4) SA 607 (GSJ) at [42]. These references were used to establish the principle that a lessee is bound to restore the let goods to the lessor immediately upon termination of the lease.

4. Chung-Fung (Pty) Ltd and Another v Mayfair Resident’s Association and Others [2023] ZAGPJHC 1162 (13 October 2023). This case was cited to justify the applicant's entitlement to a hearing before the urgent court.

5. Ntai and others v Vereeniging Town Council and Another 1953 (4) SA 579 (A) at 589 A. This case was referenced to explain that the rights of sub-lessees are entirely dependent on the main lessee's rights.

6. Rosebank Mall (Pty) Ltd and Another v Cradock Heights (Pty) Ltd 2004 (2) SA 353 (W) at [14]. This case was cited to discuss the principles of joinder and the direct and substantial interest required for a party to be joined in litigation.

7. Toekies Butchery (Edms) Bpk en Andere v Stassen 1974 (4) SA 771 (T). This case was compared to discuss the lack of a direct and substantial interest of a sub-lessee in an application for specific performance of an obligation arising under the head lease.

8. Graham v Ridley 1931 TPD 476 at 478. This case was cited to discuss the jurisdictional requirements of the rei vindicatio, a legal action to recover possession of property by the owner.

These cases were used to support the court's legal reasoning and to establish the principles that underpinned the court's decision in favor of the applicant's claim for the return of the leased vehicles.