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[2016] ZAWCHC 22
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Nel v Maverick Trading 487 CC t/a Little Big Book Store and Others; In re: Maverick Trading 487 CC t/a Little Big Book Store and Others v Nel (19217/2012, 19219/2012) [2016] ZAWCHC 22 (1 March 2016)
THE REPUBLIC OF SOUTH
AFRICA
IN THE HIGH COURT OF
SOUTH AFRICA
(WESTERN CAPE DIVISION,
CAPE TOWN)
Case Nos: 19217/2012 &
19219/2012
DATE: 01 MARCH 2016
In the matter between:
JAKOBUS HENDRIK LOUW
NEL
.......................................................................................
Applicant
And
MAVERICK TRADING 487 CC t/a THE
LITTLE BIG BOOK STORE
(Reg No:
2003/046307/23)
...............................................................................................
1st
Respondent
COALITION TRADING 182 CC t/a THE
LITTLE BIG BOOK STORE
(Reg No:
2003/041918/23)
.............................................................................................
2nd
Respondent
LOUISE NORMA
KILLIAN
.........................................................................................
3rd
Respondent
In re:
MAVERICK TRADING 487 CC t/a THE
LITTLE BIG BOOK STORE
(Reg No:
2003/046307/23)
.....................................................................................................
1st
Plaintiff
COALITION TRADING 182 CC t/a THE
LITTLE BIG BOOK STORE
(Reg No:
2003/041918/23)
...................................................................................................
2nd
Plaintiff
LOUISE NORMA
KILLIAN
...............................................................................................
3rd
Plaintiff
And
JAKOBUS HENDRIK LOUW
NEL
....................................................................................
Respondent
Coram: KOEN AJ
Heard: 16 February 2016
Delivered: 1 March 2016
JUDGMENT
KOEN AJ
[1] This is an application for security
for costs relating to two separate actions which have been
consolidated. The applicant in
this matter is the defendant in both
matters and the respondents the plaintiffs. For ease of reading I
intend to refer to the parties
as they are referred to in the main
actions.
[2] In each case a close corporation
(“the corporation”), as first plaintiff, together with Ms
Killian, as second plaintiff
(“Ms Killian”), have
instituted proceedings against the defendant (“Mr Nel”)
in which the court is asked
to order Mr Nel to render a true and
proper statement of account of the profits generated by the
corporation, and a statement of
account indicating any balance
outstanding in respect of the purchase price of the business of the
corporation purchased by him.
An order directing that the accounts to
be rendered are debated is also sought, as well as costs.
[3] In each of the cases the plaintiff
alleges that Mr Nel was employed in a managerial position by the
corporation. Mr Nel had,
it is alleged, purchased the business of
each corporation and was to pay the purchase price in question from
the operating profits
generated by the business. It is alleged,
further, that because of his position as an employee in a managerial
position Mr Nel
was obliged to render to the plaintiffs a true and
proper statement of account of all the profits generated as well as
to furnish
documents indicating income, assets, liabilities and
expenses. Finally, the allegation is made by the plaintiffs that Mr
Nel had
been withdrawing cash and profits from the corporations and
depositing them into an account over which he exercised sole control
in breach of his fiduciary obligations towards the plaintiffs.
[4] In the pleas he has filed in each
matter Mr Nel takes two points in limine. The first of these is that
each corporation has
not taken a proper resolution to institute the
proceedings against him. Secondly, he pleads in limine, that any duty
to account
relied upon by the plaintiffs arising out of his
employment as a manager could be a duty owed only to a corporation
and not to
one of its members, namely, Ms Killian. For the rest, the
allegations made by the plaintiffs are met with a denial.
[5] The summonses in each action were
issued during October 2012 and the pleadings are closed. In each
matter, some three months
after a pre-trial conference in terms of
rule 37 (8) had taken place, Mr Nel delivered a notice in terms of
rule 47(1) calling
upon the plaintiffs jointly and severally to
furnish security for costs in the amount of R150 000. The notice
calling for the furnishing
of security stated that the security was
demanded from the plaintiffs on the basis that there is reason to
believe that they will
be unable to pay Mr Nel’s costs if he is
successful in his defence.
[6] Because security for costs was not
furnished pursuant to the delivery of the notices in terms of rule
47(1) this application
was launched.
[7] Mr Nel bases his application for
security for costs as against the corporations on the allegation that
there is reason to believe
that they will be unable to pay his costs
if he is successful in his defence as contemplated in
section 8
of
the
Close Corporations Act 69 of 1984
. In this regard Mr Nel alleges
that he has been unable to recover the costs incurred in previous
litigation between himself and
the corporations and that an amount of
approximately R97 000 is still owing - this after the credit balances
in the corporation’s
bank accounts had been attached and all
available funds paid over pursuant to writs of execution issued in
regard to the taxed
bills. He also attaches to his affidavit copies
of the corporations’ latest bank statements which reflect that
they do not
have anything like sufficient funds to enable them to
settle the balance owing in respect of costs.
[8] The allegations made in the
affidavit filed in support of the application for security for costs
by Mr Nel relating to the corporation’s
inability to pay costs
in the event that he is successful in his defence are not refuted by
the plaintiffs. I am satisfied that
Mr Nel has established by
credible evidence that there is reason to believe that the
corporations, if unsuccessful, will be unable
to pay his costs.
[9] That, however, is not the end of
the matter. In Shepstone & Wylie and Others v Geyser NO
1998 (3)
SA 1036
(SCA) it was held that “The court must carry out a
balancing exercise. On the one hand it must weigh the injustice to
the
plaintiff if prevented from pursuing a proper claim by an order
for security. Against that, it must weigh the injustice to the
defendant if no security is ordered and at the trial the plaintiff’s
claim fails and the defendant finds himself unable to
recover from
the plaintiff the costs which have been incurred by him in his
defence of the claim”. Shepstone & Wylie
also makes it
clear that the proper exercise of discretion in regard to security
for costs requires of a court that “…
it must decide
each case upon a consideration of all the relevant features, without
adopting a predisposition either in favour
of or against granting
security” (at 1045l to 1046C).
[10] Moreover, a court in the exercise
of its discretion must “have regard to the nature of the claim;
the financial position
of the company at the stage of the application
for security; and its probable financial position should it lose the
action”
(see Boost Sports Africa (Pty) Ltd v South African
Breweries (Pty) Ltd
2015 (5) SA 38
(SCA) at 48G.)
[11] Having regard to these general
principles I turn to consider the nature of the claims which form the
subject matter of the
consolidated actions. These are actions for the
rendering and abatement of an account allegedly due by Mr Nel.
Although in the
pleadings the existence of a fiduciary duty is denied
by Mr Nel, he takes a somewhat different view in his replying
affidavit in
the application for security for costs where he
concedes, correctly in my view, that as a result of his employment as
a manager
he did owe a fiduciary duty towards the corporations. It is
also clear from the affidavits in the application for security for
costs that, in fact, funds were transferred from the corporations’
bank accounts to those of Mr Nel. Mr Nel also states that
he used his
personal bank account to fund the operations of the corporations
including payment of creditors. In fact, on his version
he did this
to the complete exclusion of the bank accounts of the corporations
with the result that, in effect, the corporations
had only one
creditor, namely himself. On my reading of the affidavits, it seems
clear that it was only Mr Nel who was instrumental
in the making of
these payments by the corporations to himself. Finally, I pause to
add that the amounts involved are alleged to
be considerable, running
into many millions of Rand.
[12] It must be observed, further, that
the application for security for costs has been brought at a very
late stage of the proceedings.
Whilst this is not necessarily fatal
it is a factor which counts against Mr Nel. This is because not
insignificant costs have already
been incurred in bringing the matter
to the verge of trial.
[13] There is another factor which, I
think, is of some importance. Mr Nel contends that the cases against
him can be disposed of
by way of the points in limine he has taken.
The points are simple, namely that corporation has not resolved to
sue him, and that
Ms Killian cannot enforce in her name a duty owed
by him to the corporations. As to the first point counsel for Mr Nel
indicated
that he wished the court to refer the question whether or
not a resolution had been taken to sue Mr Nel to oral evidence. He
proposed
to call the other 50% member of the corporations to testify
that such a resolution had not been taken. I declined to allow this
to happen, because it seemed to me quite undesirable that a court
determining an application for security for costs should hear
evidence on the merits of the dispute itself, so as to assess the
prospects of success of the plaintiffs in the consolidated actions.
But what is clear is that the battle lines are clearly demarcated.
Whether or not Ms Killian can enforce the claims seems to me
to be a
matter for legal argument. Why these issues cannot be separately
determined in terms of
rule 33(4)
was not explained to me. If a
separation was ordered the issues could be disposed of swiftly and
relatively inexpensively. If Mr
Nel is correct in regard to the
points in limine, then he could succeed in his defence with
relatively little cost, without effectively
depriving the plaintiffs
of the right to make their case. In weighing the interests of the
parties referred to in Shepstone &
Wylie, it seems to me that
this it is a compelling reason not to order that security be
furnished with the likely effect that the
plaintiffs are denied
recourse to the courts.
[14] In the circumstances, on the basis
of what is contained in the affidavits filed in the security for
costs application, it seems
to me that it cannot be said that the
corporations have no reasonable prospect of being able to establish
that Mr Nel is under
a duty to account to them. It cannot be said, in
my view, in the light of what is known about them at this stage, that
the corporations’
claims are not made in good faith. The
corporations appear to me to have instituted claims which present
triable issues and I think
that an injustice would be done if they
were to be prevented the opportunity of prosecuting their claims
because they might be
unable to furnish security for costs.
[15] This leaves the claim for security
for costs against Ms Killian. In this regard one must turn to the
common law. As a general
rule something more than an inability to pay
is required, and the court must be satisfied that the action is
vexatious or reckless
or amounts to an abuse of process. The power to
order security in these circumstances is one, it is well settled,
which ought to
be sparingly exercised and then only in exceptional
circumstances (see Ecker v Dean
1938 AD 102
at 111).
[16] Mr Nel argues that Ms Killian has
not shown that she is entitled to an accounting because any fiduciary
duty which flowed from
his employment by the corporations is one
which is owed only to the corporations and not to its members. He may
well be right (although
this need not be decided at this stage), but
is it enough of a reason to order her to furnish security for costs?
The difficulty
which I have with the proposition is that her
participation in the proceedings seems to me to add nothing of any
substance to the
costs which might have to be borne by Mr Nel if he
succeeds in his defence. She and the corporations are represented by
the same
legal team, are engaged in the resolution of essentially the
same dispute, about which it seems overwhelmingly likely the same
evidence will have to be considered. Whether or not she is entitled
to the rendering of an account and the debate there of in her
own
right is a matter which I cannot see will take up any significant
amount of time or add any significant layer to the costs
of the
action. As stated above it appears to be an issue capable of
resolution by legal argument on a narrow point. In the circumstances
of this case, then, I am not satisfied that this is a matter which
calls for the exercise of the court’s power to order Ms
Killian
to furnish security for costs.
[17] As to costs I see no reason why
the normal rule, which is that costs follow the result, should not
apply.
[18] In the circumstances I make the
following order:
The application is refused with costs.
KOEN AJ
APPEARANCES
For the Applicant: Mr CW Kruger
Instructed by: VanDerSpuy Cape Town
For the Respondents: Mr C Hendricks
Instructed by: Marais Muller Yekiso