Wafai and Others v SA Casual Dining Concepts (Pty) Ltd and Another (7609/2023) [2023] ZAWCHC 333 (6 December 2023)

The case involves a dispute over a franchise agreement for a chicken restaurant between the applicants, Amir and Myrell Wafai and ArianoGen (a company formed by the Wafais and the Second Respondent, Stelio Nathanael), and the respondents, SA Casual Dining Concepts and Stelio Nathanael. The Wafais intended to purchase a Chicking franchise from Casual Dining, with Mr. Nathanael as a partner. The Wafais paid a refundable deposit of R250,000, and Mr. Wafai made changes to Casual Dining's standard franchise agreement, including the addition of a clause stating that Casual Dining would provide a turnkey operation, including equipment and store construction.

Mr. Nathanael, believing that no changes had been made to the standard agreement, signed it on behalf of Casual Dining, while the Wafais signed on behalf of ArianoGen. However, Casual Dining later discovered the changes and sent a letter terminating the agreement, accusing the Wafais of surreptitiously inserting the clause. The Wafais denied this and refused to accept the termination. They eventually launched an action against Casual Dining and Mr. Nathanael, claiming the return of their payment of R901,000, damages, and loss of profit.

In their claim, the applicants argued that they accepted Casual Dining's termination and were entitled to restitution of their payment. However, Casual Dining denied that the written agreement reflected the actual agreement between the parties and alleged that ArianoGen or Mr. Wafai misrepresented the content of the agreement. They argued that there was no consensus and, therefore, no contract, and that if there was a contract, it was voidable due to misrepresentation.

The applicants sought summary judgment, arguing that regardless of the existence of a contract, they were entitled to the return of their payment. However, Casual Dining opposed this, arguing that the applicants' claim rested on the existence of a contract, and if there was no contract due to misrepresentation, their claim would fail. The court agreed with Casual Dining, finding that Casual Dining had a bona fide defense to the claim as pleaded, and dismissed the application for summary judgment.

The core legal principle underlying the decision in this case is the requirement of a consensus and meeting of the minds for a valid contract. The ratio decidendi, or the reason for the court's decision, revolves around the dispute over the existence of a contract between the applicants and respondents.

The applicants argued that they were entitled to the return of their payment regardless of whether a contract existed or not. However, the respondents opposed this, claiming that the applicants' claim relied on the existence of a contract. The court agreed with the respondents, finding that their defense rested on the argument that there was no consensus and, therefore, no contract due to a misrepresentation by the applicants.

The court determined that if the respondents could establish at trial that there was a misrepresentation and that it was so fundamental that there was no meeting of the minds, then there would be no valid contract. In such a scenario, the applicants' claim for cancellation and restitution, which relied on the existence of a contract, would fail.

Therefore, the core legal principle underlying the decision is the requirement of consensus and meeting of the minds for a contract to be valid, and the respondents' defense based on the absence of these elements due to misrepresentation by the applicants.

The case law referenced in the court's reasoning for this decision includes:

1. Maharaj v Barclays National Bank Ltd 1979 (1) SA 418 (A): This case established the principle that a respondent in summary judgment proceedings need only show a defense that is "bona fide and good in law," regardless of its prospects of success. The court cited this case to emphasise that the focus is on the existence of a bona fide defense rather than its potential success.

2. Tumileng Trading CC v National Security and Fire (Pty) Ltd 2020 (6) SA 624 (WCC): This case reaffirmed the principle from Maharaj, stating that the respondent's defense need only be "arguable and bona fide." The court referenced this case to further highlight the threshold for a successful defense in summary judgment proceedings.

3. Brink v Humphries & Jewell (Pty) Ltd 2005 (2) SA 419 (SCA): This case addressed the issue of misrepresentation and its impact on contract validity. The court cited this case to explain that a misrepresentation that induces a contract and is considered fundamental can lead to the contract being voidable or void ab initio, depending on the nature of the mistake.

4. Maresky v Morkel 1994 (1) SA 249 (C): This case dealt with a fundamental mistake regarding the nature of the subject matter of a contract, resulting in the contract being void ab initio. The court referenced this case to illustrate a scenario where a fundamental mistake can render a contract invalid from its inception.