Cash Crusaders Franchising (Pty) Ltd v Cash Crusaders Franchisees Listed on Annexure “ADP1” to the Founding Affidavit of Andries Daniel Du Plooy (16453/2023) [2024] ZAWCHC 11

A dispute between Cash Crusaders, a franchisor which specialises in selling new and pre-owned merchandise, and 78 of its franchisees ensued in late September 2023. Prior to instituting legal proceedings, these franchisees represented approximately a third of the Cash Crusaders franchise footprint.

The Cash Crusader franchise business operations are made up of three main income avenues: firstly, the sale of new goods, which are procured and provided to franchisees by Cash Crusaders Corporate (Pty) Ltd; secondly, the purchase and sale of pre-owned products from and to members of the general public, and thirdly, the suspensive security buy transactions (“SSB transactions”) concluded with members of the public by customers pledging movable items as collateral for a financial loan granted by the franchisee for a common term of thirty days. Commonly known as “pawn” transactions, the SSB transactions are regulated by section 8(4)(a) of the National Credit Act, No 34 of 2005 (“NCA”).

The dispute between Cash Crusaders and the franchisees had its roots in the third income stream, namely the SSB transactions. At the commencement of each SSB transaction, the customer was charged an initiation fee as is provided for in terms of section 101 of the NCA. At the end of the thirty-day period, customers often sought to extend their loans with the franchisees. The franchisees regarded such an extension as a new rather than an extended loan, which in turn entitled the franchisees to charge the customer a further initiation fee on each loan extension. Subsequent to receiving legal advice however, Cash Crusaders made a business decision to change its system, as a result of which the franchisees were limited to charging only a single initiation fee per SSB transaction, regardless of the number of extensions granted to a customer.

The franchisees claimed that this decision constituted a unilateral change to their franchise agreements and consequently a breach, by Cash Crusaders, of the agreements. After placing Cash Crusaders on terms, the franchisees cancelled the franchise agreements on 26 September 2023 and commenced trading independently under the Cash Xchange brand. This dispute is at the time of writing still pending and will be the subject of a mutually agreed arbitration process scheduled for March and April 2024.

On 28 September 2023 Cash Crusaders launched an urgent application, seeking an interim order interdicting and restraining the franchisees from cancelling their franchise agreements and compelling them to comply with their obligations under the agreement. Since by that date the franchisees had already cancelled their franchise agreements, Cash Crusaders amended the relief sought at the hearing of the interdict application by seeking to hold the franchisees to the terms of the franchise agreements despite their cancellation, pending a determination by an arbitrator. This order was granted by the urgent court on 3 October 2023. The next day the franchisees applied to the High Court for leave to appeal the order, which application was dismissed on 25 October 2023. Undaunted, the franchisees launched an application for leave to appeal to the Supreme Court of Appeal on 26 October 2023.

The essential question before the Court was whether the interim interdict granted should be suspended pending appeal. Section 18 of the Superior Courts Act, No 10 of 2013 (“SCA”) provides that:

1. “Subject to subsections (2) and (3), and unless the court under exceptional circumstances orders otherwise, the operation and execution of a decision which is the subject of an application for leave to appeal or of an appeal, is suspended pending the decision of the application or appeal.
2. Subject to subsection (3), unless the court under exceptional circumstances orders otherwise, the operation and execution of a decision that is an interlocutory order not having the effect of a final judgement, which is the subject of an application for leave to appeal or of an appeal, is not suspended pending the decision of the application or appeal.
3. A court may only order otherwise as contemplated in subsection (1) or (2), if the party who applied to the court to order otherwise, in addition proves on a balance of probabilities that he or she will suffer irreparable harm if the court does not so order and that the other party will not suffer irreparable harm if the court so orders.”

The Court found that there are exceptional circumstances in the context of this dispute, being that the parties have, despite the pending appeal, agreed to have the very same dispute decided on arbitration. As such, the requirement in section 18(2) of the SCA has been fulfilled. The Court also noted that the requirement of “irreparable harm” in section 18(3) does not involve a balancing act between two disputing parties but must both be established on a balance of probabilities.

In thereafter considering the question of whether the franchisees and/or Cash Crusaders will suffer irreparable harm if the Court does not order the interim order to be suspended, Cash Crusaders alleged the following:

• That Cash Crusaders will experience mass retrenchments and that more than 150 employees stand to lose their employment because of the reduction in royalties;
• That Cash Crusaders will lose valuable skills, amassed over an extended period, as the employees that may be lost range from the CEO to trainers and operational managers;
• That Cash Crusaders will be losing more than 40 percent of its royalty and marketing income, and may cause it to go insolvent soon;
• That the franchisees’ de-identification process exposes Cash Crusaders to reputational harm and brand damage; and
• That Cash Crusaders is exposed to serious legal liability as a result of the franchisees’ conduct in that they continued to use its intellectual property, including its payment system, and invoicing in the name of Cash Crusaders, thus triggering the general warranties of Cash Crusaders for terms sold by the franchisees’ stores.

In addition Cash Crusaders contends that the franchisees will not suffer irreparable harm if they are made to comply with the franchise agreements; that most of their stores are profitable despite a volatile economy with high interest rates, inflation and load-shedding.

In spite of the above however, the Court was of the opinion that Cash Crusaders did not establish that the franchisees will not suffer harm if the order was granted and in fact, that it was established that the franchisees will suffer irreparable harm if the court order is implemented.

The franchisees averred that they had already placed orders with third party suppliers as part of the de-identification process. This stock is already in the shops, or in the process of being delivered, and the franchisees are liable for the payment of the stock to the suppliers. They have already committed capital to the third-party stockists and will not be able to expend additional capital in purchasing stock from Cash Crusaders, as required by the terms of the franchise agreement.

In addition, if the order is not suspended, the franchisees would not be able to sell the stock to customers, as the stock does not conform to Cash Crusaders’ requirements as set out in the franchise agreement. The stock will then simply sit in the warehouse or a store. As such the franchisees will be lumped with stock which they have paid for which they cannot sell.

This latter harm, the Court found, was overwhelming. Cash Crusaders’ application was dismissed with costs.