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[2016] ZAWCHC 92
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Danielson v Human and Another (19118/2015) [2016] ZAWCHC 92; 2017 (1) SA 141 (WCC) (1 August 2016)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Case
No: 19118/2015
In
the matter between:
AARON
KEVEN
DANIELSON
..............................................................................................
Applicant
And
ALBERTUS
JOHANNES
HUMAN
............................................................................
First
Respondent
JAN
PETRUS
HUMAN
...........................................................................................
Second
Respondent
Court
:
Justice J Cloete
Heard
:
30 May 2016
Delivered
:
1 August 2016
JUDGMENT
CLOETE
J
:
Introduction
[1]
The applicant seeks an order recognising
and enforcing a judgment against the respondents of the United States
District Court, Western
District of North Carolina (Charlotte
Division) handed down in his favour on 2 May 2014 (‘
the
judgment’
).
[2]
The respondents admit the judgment and the
amounts awarded therein; that it is final and conclusive and no
appeal is pending; that
they are out of time to apply for its
rescission; and that they have made no attempt to have it rescinded.
[3]
There is also no suggestion that the
judgment has become superannuated or was obtained by fraudulent
means; or that it involves
the enforcement of any penal or revenue
law of the United States of America (the six jurisdictional
requirements for enforcement
of a foreign judgment are set out in
Jones v Krok
[1994] ZASCA 177
;
1995 (1) SA 677
(A) at 685B-E).
[4]
The respondents raised four grounds of
opposition to the relief sought. Of these, two were fairly not
pursued in argument (they
pertained to whether the respondents had
notice of the proceedings against them which culminated in the
judgment and whether the
American court had international competence
over them).
[5]
The only issues which therefore remain to
be determined are: (a) whether the provisions of the Protection
of Businesses Act
99 of 1978 (‘
the
Act’
) apply to the recognition
and enforcement of the judgment (and consequently, whether
ministerial permission is required as a jurisdictional
fact for the
relief sought); and (b) whether the judgment contains a
‘
punitive element’
which for this reason makes its recognition and enforcement contrary
to South African public policy.
Background
[6]
The applicant is a businessman residing in
Colorado Springs, United States of America. The respondents, who are
brothers, are businessmen
residing in Strand and Somerset West
respectively.
[7]
The applicant and respondents previously
concluded various contracts in a joint venture to develop and market
hybrid battery technology
in the United States. The respondents were
the inventors of the technology as well as its marketers. The
applicant invested USD
1 million in the venture and in return
acquired various ownership interests, the position of managing
director in one of the
entities involved, and exclusive licencing
rights to the hybrid battery technology.
[8]
The business relationship soured and on 12
December 2012 the applicant (in person) instituted civil proceedings
against the respondents,
which culminated in the judgment (granted by
default) in which the applicant was awarded damages of USD
859 595.51, trebled
to USD 2 578 786.51 as well as costs of
USD 492.14.
The
judgment
[9]
As is apparent from the judgment the
applicant’s award was based on the American court finding that
the respondents breached
certain provisions of the Racketeer
Influenced and Corrupt Organizations Act (Stat 922 codified at 18
U.S. vols 1961-1968) more
commonly known as RICO, and more
particularly those provisions falling under what the judge termed
“Civil RICO”.
[10]
In referring to various United States
judgments pronouncing on the issue the judge stated that damages
violations of Civil RICO
‘
include
treble damages, costs and attorney’s fees…’
and further that:
‘
Punitive
damages are not available because “Statutory damages under RICO
already contain a punitive component in the form
of the trebling
provision”’.
[11]
In respect of ‘
treble
damages’
the judge stated that:
‘
Because
treble damages are designed to fully compensate a plaintiff for
intangible injuries where actual damages are often speculative
or
difficult to prove, the Court declines to assess damages for the
exclusive patent rights promised to plaintiff…the Court
also
declines to award pre-judgment interest because of the treble damages
award.
Like treble damages and
punitive damages
interest
functions as a remedial sanction, and the statutory damages
multiplier in this case already serves the corrective purpose.’
[emphasis
supplied]
[12]
The judge also declined to award the
applicant any amount based on violations of State Law (arising from
the same facts) for two
reasons: (a) a party is prohibited from
duplicate recovery for the same damages; and (b) the damages
recoverable pursuant
to the Civil RICO claims were inclusive of those
recoverable under the State Claims.
[13]
It is not this court’s function to
‘
go into the merits of the case
adjudicated upon by the foreign court’
or ‘
to attempt to review or set
aside its findings of fact or law’
:
Jones v Krok
supra at 685D-E.
The
first issue: applicability of the Protection of Businesses Act 99 of
1978 (‘
the Act’
)
[14]
S 1(1)(a) of the Act provides that:
‘
1.
Prohibition of enforcement of certain foreign judgments, orders,
directions, arbitration awards and letters of request and furnishing
of information relating to businesses in compliance with foreign
orders, directions or letters of request.
---(1) Notwithstanding
anything to the contrary contained in any law or other legal rule,
and except with the permission
of the Minister of Economic Affairs
---
(a)
no judgment, order, direction,
arbitration award, interrogatory, commission rogatoire, letters of
request or any other request delivered,
given or issued or emanating
from outside the Republic in connection with any civil proceedings
and arising from any act or transaction
contemplated in subsection
(3), shall be enforced in the Republic;’
and
s 1(3) that:
(3)
In the application of subsection (1)(a) an act or transaction shall
be an act or transaction which took place at any time,
whether before
or after the commencement of this Act, and is connected with the
mining, production, importation, exportation, refinement,
possession,
use or sale of or ownership to any matter or material, of whatever
nature, whether within, outside, into or from the
Republic.’
[15]
In
Fattouche v
Khumalo
(an unreported judgment of
Weiner J of 6 May 2014, South Gauteng High Court, case no 508/12) the
learned judge set out the approach
of our courts in determining
whether the transaction in issue falls within the ambit of s 1
of the Act as follows:
‘
[21]
Section 1(3) of the Businesses Act which, with a cross-reference to
section 1(1), requires Ministerial consent for
"
any
act or transaction connected with
the
mining, production, importation, exportation, refinement, possession,
use or sale of or ownership (sic) to
any
matter or material
,
of
whatever nature
, whether within,
outside, into or from the Republic"
.
(emphasis added).
[22]
The words
"connected with"
in
section 1(3) are open to a very wide interpretation. Courts have held
that the application of this section is considerably narrowed
by the
proper interpretation of the words “
matter
or material”.
A restrictive
interpretation has accordingly been adopted.
[23]
In
Tradex
Ocean Transportation SA v MV Silvergate (Astyanax) and Others
1994
(4) SA 119
(D),
Section 1(3) of the Businesses Act was raised as a defence to a Greek
judgment and London arbitration awards relating to the
charter of a
ship. After analysing the dictionary definitions of
"matter"
and
"material"
,
Howard JP concluded that ‘matter or material’ was limited
to ‘raw materials or substances from which physical
things are
made and not manufactured things’. At 120J – 121C:-
"the
dictionary definitions indicate clearly enough that 'matter or
'material' in this context means raw materials or substances
from
which physical things are made and not a manufactured thing such as a
ship. The reference in s 1(3) to the mining, production,
importation,
exportation and refinement of 'matter or material' (with no reference
to manufacture) is a further pointer to the
meaning which that
expression is intended to bear: cognoscitur a sociis. I do not think
that the words 'of whatever nature' justify
an extension of the
ordinary meaning of 'matter and material'. If that expression
ordinarily denotes raw materials or substances,
the words 'of
whatever nature' merely indicate that it embraces everything within
that category. I therefore conclude that the
ship which features in
this case is not `matter or material' within the meaning of that
expression as used in s 1(3) of the Act.
It follows that the foreign
judgment and awards which the plaintiff seeks to enforce do not arise
from any act or transaction contemplated
in s 1(3) and that the plea
in bar does not disclose a defence."
[24]
In
Chinatex
Oriental Trading Co v Erskine
1998
(4) SA 1087
(C),
Chetty J stated at 1095I – 1096C:-
"Howard
JP in Tradex ... found that the expression 'any matter or material'
means 'raw materials or substances' for two reasons:
(i) it was
supported by the dictionary definition of the word 'matter' and
'material' and (ii) the Legislature pertinently in s 1(3)
referred to a transaction connected with the mining, production,
importation, exportation and refinement of any matter or material
but
did not refer to manufacture. In my view the above reasoning is
convincing and the matter correctly decided. The wording of
the
section evidences a clear indication that the Legislature intended to
refer to raw materials or substances and not manufactured
goods such
as garments. Consequently the plaintiff is not precluded by the
provisions of the Protection of Businesses Act ... from
seeking to
enforce the judgment of the English court."
[25]
The restrictive approach was subsequently approved in
Richman
v Ben-Tovim
2007
(2) SA 283
(SCA),
which held that the Act was not applicable to a claim for money due
for professional services. In consideration of Section
1(3) of the
Act, Zulman J held at 11:-
"The
wording of the section refers to transactions connected with raw
materials or substances. Even manufactured goods are
excluded from
the operation of the Act. The plaintiff's claim is for services and
disbursements related to negotiations, advice,
drafting of contract
documents and incidental matters pertaining to a restructuring,
re-arrangement (and ultimately) dissolution
of joint ventures between
the respondent, on the one hand, and various affiliates of the De
Beers group of companies.
If
manufactured goods are sufficiently remote from ‘matter’
and `material' within the meaning of the Act by parity of
reasoning
there can be no scope for applying it to a claim for payment sounding
in money where the claim is one for professional
services rendered.
I accordingly consider that this defence is without merit."
(emphasis added).’
[16]
The respondents contend that underpinning
the contracts concluded (and from which the applicant’s claims
in the American court
arose) was the application of the hybrid
battery technology. They submit that this technology relates directly
to mining, production
and refinement of matter or materials in that:
(a) electro-extraction methods are employed in the production and
refinement of
lead, copper, gold, silver, zinc and various other raw
materials; and (b) the hybrid battery technology is used in the
production
of hydrogen gas from raw materials as well as the
extraction of oxygen from a solid lead fuel cell. They accordingly
argue that
the judgment relates directly to a transaction referred to
in s1(3) of the Act and, given the lack of ministerial permission,
this
application must fail.
[17]
However, although the technology might
arguably have its foundation in ‘
raw
materials or substances from which physical things are made’
(
Tradex
supra)
the ‘
act or transaction’
giving rise to the applicant’s
case in the American court was not the technology itself but rather –
as the respondents
themselves acknowledge – contracts
concerning the application of that technology. The application of
that technology was
limited, in the applicant’s case, to him
acquiring certain ownership interests in various entities as well as
exclusive licencing
rights in respect of the technology.
[18]
The position is thus comparable to that in
Fattouche
supra
where the court found at para [29]:
‘
[29]
Having regard,
inter alia
,
to the underlined portion of the
Richman
judgment above and the restrictive
approach of the courts, I am of the view that Section 1(3) of the
Businesses Act would not be
applicable to an arbitral award arising
from a dispute regarding the sale of shares since the shares cannot
be classified as raw
matter or material (notwithstanding that such
shares are shares in the mining company).’
[19]
It follows that the ‘
act
or transaction’
in question falls
outside the scope of s 1(3) of the Act and it was thus not
incumbent upon the applicant to obtain ministerial
permission.
The
second issue: whether the judgment contains a ‘
punitive
element’
[20]
S 1A(1) of the Act reads as follows:
‘
No
judgment delivered by a court outside the Republic, arising from any
act or transaction referred to in section 1(3) and directing
the
payment of multiple or punitive damages shall be recognised or
enforced in the Republic, irrespective of whether or not the
Minister
has in terms of s 1 granted his consent as contemplated in that
section.’
[21]
S 1A(1) has no application in the present
matter, given that the ‘
act or
transaction’
falls outside the
scope of s 1(3). It is thus necessary to consider the common law
position.
[22]
In
Jones v
Krok
1996 (1) SA 504
(T) [which for
reasons not relevant for present purposes followed on the decision of
the former Appellate Division in the same
matter] Kirk-Cohen J held
that: (a) it is the policy of South African law and practice that for
breach of contract the injured
party is entitled to no more than
compensation for the damages actually suffered, irrespective of
reprehensible behaviour of a
defendant or the flagrancy of the breach
[at 516G]; (b) the mere fact that awards are made by a foreign
court on a basis not
recognised in South Africa does not mean that
they are necessarily contrary to public policy, and whether a
judgment or award is
contrary to public policy depends largely on the
facts of each case [at 515H]; and (c) in principle it would be
wrong to refuse
to enforce a foreign order of punitive damages merely
because it is unknown in South Africa, and it cannot be said that
this principle
is necessarily unconscionable [at 516E].
[23]
Having regard to the aforegoing it seems to
me that scrutiny of the facts of a particular case should include a
consideration of
the true nature of the damages award contained in
the judgment at issue, and not merely the label given to that award
by the prevailing
law of the foreign jurisdiction.
[24]
The foreign award which Kirk-Cohen J had to
consider was comprised of two elements, namely compensatory damages
arising from breach
of contract and punitive damages based on the
defendant’s ‘
fraud and
conversion of assets’
[at
509B-C]. An expert on Californian law (which applied in the foreign
court) explained that:
‘
In
addition to seeking compensatory damages plaintiff also sought
punitive damages against defendant … and his daughters
for
fraud and for conversion of … assets. Under California Civil
Code s 3294 an award of punitive or exemplary damages is
only
permitted in an action for breach of an obligation not arising from
contract, where it is proven by clear and convincing evidence
that
the defendant has been guilty of oppression, fraud or malice.’
[at 509B]
[25]
After reviewing the authorities the learned
judge concluded that it would be contrary to public policy to allow
the foreign judgment
to be enforced for the following reasons:
‘
The
punitive damages awarded amount, for all practical purposes, to
granting the plaintiff double the amount of damages she claimed
and
was awarded. The fact that the trial Judge reduced the jury’s
subjective calculation does not assist the plaintiff. The
award was
granted because of the reprehensible behaviour of the defendant. On a
parity of reasoning with the facts in Taylor’s
case the award
is so excessive and exorbitant that, in my view, it is contrary to
public policy in this country; by that I mean
that to double an
already high award which was adequate compensation cannot be
countenanced.’
[at 517F-H]
[26]
The respondents contend that the ‘
trebling’
component of the judgment at issue is, of itself, evidence of a
punitive element, the enforcement of which would be contrary to
South
African public policy.
[27]
To my mind however this is not the proper
enquiry. It is rather whether or not the damages awarded are in fact
compensatory (as
opposed to strictly punitive) in nature. As was
stated by Ackermann J in
Fose v Minister
of Safety and Security
[1997] ZACC 6
;
1997 (3) SA 786
(CC) at para
[62]
:
‘
It
must of course be borne in mind that it is not always easy to draw
the line between an award of aggravated but still basically
compensatory damages, where the particular circumstances of or
surrounding the infliction of the
injuria
have justified a substantial award, and
the award of punitive damages in the strict and narrow sense of the
word.’
[28]
It must of course immediately be stated
that in
Fose
the Constitutional Court was considering the issue within the context
of delictual, and not contractual damages. However, to my
mind, what
the learned judge expressed has equal relevance to the considerations
at issue in the present matter.
[29]
In support of the relief which he seeks,
the applicant filed an affidavit by Professor George Blakey, who is a
professor of law
at Notre Dame Law School, United States of America.
His curriculum vitae reveals his competence to provide an expert
opinion to
this court, and his expertise was correctly not challenged
by the respondents. Prof Blakey was asked to provide an opinion on
the
legal character of the treble damages provision in RICO, and in
particular whether that provision is compensatory or punitive in
nature.
[30]
According to Prof Blakey the treble damages
provision in RICO: (a) has repeatedly been acknowledged by the
American courts to constitute
remedial relief; (b) does not
permit the award of ‘
punitive’
damages because its purpose is to ‘
make
whole’
the harm suffered; and (c)
does not exclude the recovery of punitive damages under State Law for
the same course of conduct.
[31]
Prof Blakey explained as follows:
‘
At
the same time, and similarly, RICO’s treble damage provisions
do not authorize “punitive” damages. They are
two
different and distinct legal entities, both in operation and purpose.
RICO’s treble damages are
automatically
assessed
by
the court
(the jury is not informed of
them), they are
limited
to
3x actual damages; and they thus assure that the plaintiff…is
amply incentivized to bring such litigation by providing
for the
recovery of “accumulative” (“full”,
“complete” “make-whole”) his or her
harm…
On
the other hand, punitive damages, often referred to a “exemplary”
damages, “vindictive” damages or “smart”
(as
in make the perpetrator “sting”) money, are
discretionarily
assessed
by the jury
based,
not on some limiting, multiple-damage-relation principle to
plaintiff’s injury, but, generally, and independently,
the
malice
and
wealth
of
the defendant…
In
fact, while RICO itself does not authorize an additional punitive
damage claim, RICO’s treble damages recovery can and
should
independently stand with a punitive damages recovery under state
law…Indeed, of the early (1970-1981) 15 state
RICO
statutes authorizing civil recovery, eight
specifically
authorized, where appropriate,
both a
treble (one authorized only 2x)
damage claims
and
a
punitive damage claim, because they each could focus on different
aspects of unlawful conduct…If treble damages were rightly
understood as a subset of “punitive damages”, it would be
legislative redundancy of
(sic)
authorize
both
treble damages
and
punitive damages, a construction that a
court ought to avoid.’
[32]
The facts before Kirk-Cohen J were that the
foreign court awarded an amount for compensatory damages, but also a
separate amount
for ‘
punitive or
exemplary’
damages as determined
– subjectively – by the jury, although the judge
ultimately reduced that amount. As found by
Kirk-Cohen J: ‘
The
award was granted because of the reprehensible behaviour of the
defendant’.
The latter award thus
fell squarely into the category of ‘
exemplary’
,
‘
vindictive’
or ‘
smart’
damages for the purpose of making ‘
the
perpetrator sting’
in the words
used by Prof Blakey.
[33]
In argument before me counsel for the
respondents referred to Gregory P Joseph:
Civil
RICO: a Definitive Guide
(3 ed). The
author writes that:
‘
Not
infrequently, plaintiffs seek both trebled and punitive damages for
alleged RICO violations. The law is in a state of flux as
to whether
punitive damages may be awarded in addition to treble damages under
RICO. The better view is that punitive and treble
damages are
mutually exclusive remedies. Moreover, to the extent that punitive
damages may be recovered on any additional tort
claim predicated on
the same facts as the RICO violation, punitive and treble damages
overlap, and the latter (or lesser) should
be deducted from the
former (or greater).’
[at 195]
[34]
As to whether RICO’s treble damage
remedy is punitive in nature, Joseph states that:
‘
The
Supreme Court has consistently emphasized the remedial nature of the
treble-damage remedy. It has held in the arbitration context
that
“the treble-damages provision contained in RICO itself is
remedial in nature”, and, therefore, it was for the
arbitrators
to decide whether a contractual prohibition against an award of
punitive damages precluded an award of treble damages
and rendered
the contractual arbitration clause unenforceable.
PacifiCare
Health Sys., Inc. v. Book
,
[2003] USSC 2713
;
538 U.S. 401
,
406-07 (2003). The clear implication of
PacifiCare
is that, because treble damages under
RICO are “remedial”, they should not be construed as
“punitive” within
the meaning of contractual or state law
prohibitions inhibiting arbitrators from awarding punitive damages.
See also Shearson/American Express,
Inc. v. McMahon,
[1987] USSC 158
;
482 U.S. 220
, 240
(1987)…’
[at 195]
[35]
The aforementioned extract from Joseph’s
work supports the expert opinion of Prof Blakey and, to my mind,
places the trebling
provision in RICO, at most, into the category of
aggravated compensatory damages, which are therefore not strictly
punitive in
nature.
[36]
Moreover, one should not lose sight of what
the judge in the American court in the present matter reasoned and
what he specifically
excluded in making the award. First, he stated
that treble damages are designed to fully compensate a plaintiff for
intangible
injuries where actual damages are often speculative and
difficult to prove. He thus declined to assess damages for what he
called
‘
the exclusive patent
rights’
promised to the
applicant. Second, he refused to award pre-judgment interest because
the remedial nature of the treble damages
provision ‘
already
serves the corrective purpose’.
Third, he declined to award the applicant any amount based on
violations of State Law because this would result in the duplication
of the award.
[37]
It seems to me that the treble damage
provision is designed to compensate a plaintiff for his entire loss
suffered (including those
components which of their nature are
difficult to quantify). It is not strictly punitive in the sense that
its purpose is to, in
addition, punish the defendant because of his
reprehensible behaviour. As was held by Kirk-Cohen J in
Jones
v Krok
supra, the mere fact that awards
are made by a foreign court on a basis not recognised in South Africa
does not mean that they are
necessarily contrary to public policy.
Put differently, that a particular formula to fully compensate a
plaintiff for actual loss
suffered is not familiar to South African
legal practice is not for that reason alone justification for the
conclusion that the
damages are impermissibly punitive in nature.
[38]
I thus find that the recognition and
enforcement of the judgment of the American court is not precluded by
public policy.
Conclusion
[39]
I accordingly make the following order:
1.
The judgment handed down in favour
of the applicant against the respondents by the United States
District Court, Western District
of North Carolina, Charlotte
Division, dated 2 May 2014 is hereby recognised and enforced.
2.
The respondents are directed to pay
the applicant, jointly and severally, the one paying, the other to be
absolved:
2.1
The sum of USD 2578786.51 (two million five hundred and seventy eight
thousand seven hundred and eighty six United States dollars
and fifty
one cents);
2.2
The sum of USD 492.14 (four hundred and ninety two United States
dollars and fourteen cents); and
2.3
Interest on each of the amounts aforesaid at the rate of 15.5% per
annum from 2 May 2014 until 1 August 2014; from 2 August
2014 until
29 February 2016 at the rate of 9% per annum, and thereafter at the
rate of 10.25% per annum until date of payment in
full in terms of
section 1 of the Prescribed Rate of Interest Act 55 of 1975.
3.
The respondents are directed to pay
the costs of this application, jointly and severally, the one paying,
the other to be absolved.
J I CLOETE