Johannesburg - A long-running David versus Goliath-like legal battle between second-hand goods retail giant Cash Crusaders and two black business consortiums, Luvhomba Group and Masiza Capital, has seeLuvhomba, Crusaders duke it outn the companies fighting tooth and nail for the ownership of five franchises.
Cash Crusaders said as a last resort it would approach the Judge President of the Pretoria High Court so outstanding appeals could be dealt with swiftly.
At the centre of the battle are issues regarding intellectual property rights, unpaid royalties, marketing fund contributions and lack of support from the franchisor, Cash Crusaders.
Luvhomba, which bought five stores from Cash Crusaders, has been accused of selling them to another company, Masiza Capital. The stores were later changed into Edge Superstores brand instead of Cash Crusaders.
Selwyn Zackon of Ashersons Attorneys, acting on behalf of Cash Crusaders, said Luvhomba had conducted itself in a manner that the franchisor found to be non-compliant with Cash Crusaders system and contractual agreements.
Luvhomba said the franchisor did not give them the support to run the stores.
Relations between the two companies soured in 2009 where a number of disputes were eventually referred for arbitration and later to the High Court in Cape Town and Pretoria.
During the mediation processes in 2012, Luvhamba decided to end relations with Cash Crusaders and sold the stores to another consortium, Masiza Capital, which changed the stores from the Cash Crusaders brand to Edge Superstores. Luvhamba did this before the end of its contract agreement with Cash Crusaders.
Later in 2012, an arbitrator handed down an award in favour of Cash Crusaders, ordering Luvhamba to pay all amounts owed by each store to Cash Crusaders according to the ongoing franchise agreement. “Luvhomba Group was of the opinion that this automatically terminated their contractual relationship with the franchisor,” Zackon said.
However, Luvhomba refused to comply with the award, which forced the franchisor to take the matter to the Cape Town High Court.
The court held that Cash Crusaders was entitled to the arbitration award and to the enforcement thereof.
Cash Crusaders believed that the re-branding of these stores was a sham and that the Edge Superstores continued to operate with sale corporate entities, in the same premises, with the same managers and staff, Zackon said.
“Cash Crusaders saw these various activities as repudiation by the Luvhomba of the obligations of the franchise agreement,” he said.
Luvhomba said it sold the stores to Masiza Capital as a gesture of goodwill that would enable another black business an opportunity in the retail sector. However, this did not succeed as Judge Bertellsman of the North Gauteng High Court granted the order against Luvhomba to sell three of the five stores back to Cash Crusaders.
Zackon said other court rulings stipulated that the franchisee was to return all of Cash Crusaders operating manuals, which were confidential and valuable propriety assets of the franchisor.
However, Luvhomba is not backing down, while Masiza Capital has appealed the court’s decision.
Masiza Capital has put forward an application opposing the court’s order for Cash Crusaders to buy three of the five stores. The company claims that the stores now belong to them and not Luvhomba.
Despite a flurry of urgent applications from Masiza Capital, all applications put forward by Luvhomba were dismissed with costs and Cash Crusaders once again traded from the three premises, Cash Crusaders said.
Luvhomba said there were a number of disgruntled franchisees who had gone under, but not because of poor business skills, but because of a repressive system designed to impoverish franchisees.
“Many Cash Crusaders franchisees both black and white alike, barely survive, but have no option than to stay in an unhappy relationship because of fear of expensive litigation, a tactic Cash Crusaders has mastered,” Luvhomba said.
It added that it has incurred millions of rands in legal costs because of the system designed to make the franchisor wealthier while impoverishing its franchisees. Luvhomba said despite all of this, it would open 10 stores next month.