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[2021] ZAWCHC 182
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TCI Investments Proprietary Limited v Bravospan 192 CC (10885/2020) [2021] ZAWCHC 182 (13 September 2021)
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Case No:
10885/2020
In the
matter between:
TCI
INVESTMENTS PROPRIETARY
LIMITED
Applicant/Defendant
and
BRAVOSPAN
192
CC
Respondent/Plaintiff
Date of
hearing: 30 August 2021
Date of
judgment: 13 September 2021
JUDGMENT
SAVAGE J:
Introduction
[1]
The applicant,
TCI Investments Proprietary Limited (“TCI”) is the
defendant in an action instituted against it under
the above case
number by the plaintiff, Bravospan 192 CC (“Bravospan”).
In this application TCI seeks that Bravospan
be directed to furnish
security for costs in respect of the action instituted.
[2]
The
circumstances relevant to the matter are that TCI leased commercial
premises to Bravospan in Cape Town. Bravospan fell
into arrears
in the payment of rental and ultimately cancelled the lease agreement
entered into with TCI. Bravospan thereafter
instituted an action
against TCI claiming that during or about August 2016, prior to the
conclusion of the lease agreement, Mr
Mark Hibbert representing TCI
made a fraudulent representation to Bravospan, represented by Mr Guy
van der Post, that no negotiations
were underway at that time between
TCI and any potential developer of the urban property which was the
subject of the lease agreement.
[3]
Bravospan
pleaded in its action that:
3.1
this
representation was false in that TCI was engaged in negotiations with
the developer FWJK regarding the development of the premises;
3.2
TCI and Mr
Hibbert knew that the fraudulent representation was false and that it
was intended to induce Bravospan into concluding
the lease agreement;
3.3
the fraudulent
representation induced Bravospan to conclude the lease agreement on
10 August 2015;
3.4
the lease
agreement was lawfully cancelled by Bravospan as a result of TCI’s
fraudulent misrepresentation which rendered the
lease agreement void
ab initio entitling Bravospan to restitution, compensation for
improvements and damages;
3.5
no obligation
to pay rental arose by virtue of the lawful cancellation of the lease
agreement;
3.6
Bravospan
suffered damages in the amount of R 6 629 817,00, being the
net loss suffered by it.
3.7
TCI,
notwithstanding demand, has failed and/or refused to pay the amounts
claimed.
[4]
TCI has
defended the action on the basis that Bravospan was in arrears,
failed to pay in terms of the lease, “cannibalised”
the
deposit and had made payment arrangements to remedy the situation. It
denies the fraudulent misrepresentation alleged and in
its
counterclaim seeks payment
inter
alia
of
arrear rental owed to it and reinstatement of the security deposit.
[5]
In opposing
the current application that it be directed to furnish security for
costs, Bravospan produced a range of documents,
including its 2021
annual financial statements. From these it is apparent that its loan
liabilities and accounts payable amount
to over R7 million with
assets of R1.23 million. Income in the 2021 financial year is shown
in the amount of R852 181.
Submissions
[6]
It was
submitted for TCI that from Bravospan’s 2021 annual financial
statements it is apparent that the close corporation
is in a position
of vast factual insolvency, with its liabilities exceeding its assets
by R5.77 million. Even if its full net profit
were to be used to pay
off debt it was submitted that this would take more than eight years.
Furthermore, Bravospan has no real
assets and no obligation to
continue earning income. Although it has concluded recent commercial
agreements, the agreement entered
into with the Beachwood Country
Club was one concluded between Mr Van der Post and Stardance
Entertainment CC, or a close corporation
to be nominated and replaced
by him, with no nomination provided. As a consequence, Bravospan does
not gain any rights under such
agreement. Although the subordination
of loans advanced to Bravospan was tendered in the argument of this
application for the first
time, the fact that most of its liabilities
consist of personal loans suggests that Bravospan and its members may
make decisions
which suit their personal situations, with it
submitted that paying TCI’s costs is likely to be at the bottom
of such priorities.
As to the prospects in the main action, it is
contended that TCI’s likelihood of success outweighs that of
Bravospan when
regard is had to the facts. Since a severe risk of
loss exists there is reason to believe that a costs order in TCI’s
favour
may not be satisfied.
[7]
In opposing
the application it was argued for Bravospan that it had not been
established that there is reason to believe that Bravospan
will be
unable to pay TCI’s costs if unsuccessful in the action and
that an order of security should not be permitted to
stifle
litigation when past financial difficulties faced by Bravospan arose
due to fraudulent misrepresentation which is the subject
of the
action. Any present factual insolvency is not decisive of an
inability to pay costs given TCI’s conduct and when such
factual insolvency exists only if the damages claimed in the main
action are left out of the account. Bravospan is clearly commercial
solvent given recent commercial agreements entered into, including a
further five-year contract with the Kloof Country Club, and
the
financial documentation produced discloses that it has made a net
profit of R1 151 196,00 between August and December
2020
and R953 222,22 from March 2021 to June 2021. Its business
prospects are evidently positive and there is no reason to
believe
that it will be unable to pay any costs order in future when neither
Mr Van der Post nor his father, who have advanced
loans to the
corporation, intends abandoning Bravospan.
Evaluation
[8]
The
ordinary common-law rule is that a plaintiff who resides in South
Africa may institute actions in our courts without furnishing
security for costs
.
Despite this,
section 8
of the
Close Corporations Act 69 of 1984
provides:
‘
When
a corporation in any legal proceedings is a plaintiff…the
court concerned may at any time during the proceedings if
it appears
that there is reason to believe that the corporation…will be
unable to pay the costs of the defendant…if
he or she is
successful in his or her defence, require security to be given for
those costs, and may stay all proceedings till
the security is
given.’
[9]
This provision
mirrors
section 13 of the
Companies Act 61 of 1973 which was repealed with the repeal of the
1973 Act. No provision similar to section 13
was included in
the 2008 Companies Act. In spite of this, the jurisprudence which has
been developed around the interpretation
and application of s 13
continues to provide useful guidance to courts in relation to section
8.
[10]
The
purpose of security for costs was recognised by the Constitutional
Court in
Giddey
NO v J C Barnard and Others (‘Giddey’),
[1]
to
protect
“
persons
against liability for costs in regard to any action instituted by
bankrupt companies
”
[2]
and “
to
ensure that companies, who are unlikely to be able to pay costs and
therefore not effectively at risk of an adverse costs order
if
unsuccessful, do not institute litigation vexatiously or in
circumstances where they have no prospects of success thus causing
their opponents unnecessary and irrecoverable legal expenses
”.
[3]
[11]
The
court holds a discretion to order that security for costs be
furnished “
if
there is a reason to believe that the company will be unable to pay
the costs of its opponen
t”.
[4]
In
Shepstone
& Wylie and Others v Geyser NO
,
[5]
it was noted that in exercising its discretion, the court “
must
decide each case upon a consideration of all relevant features,
without adopting a predisposition either in favour of or against
granting security
”.
[6]
In
Giddey
it was said that this required that courts -
‘…
need
to balance the potential injustice to a plaintiff if it is prevented
from pursuing a legitimate claim as a result of an order
requiring it
to pay security for costs, on the one hand, against the potential
injustice to a defendant who successfully defends
the claim, and yet
may well have to pay all its own costs in the litigation.
[7]
To
do this balancing exercise correctly, a court needs to be apprised of
all the relevant information. An applicant for security
will
therefore need to show that there is a probability that the plaintiff
company will be unable to pay costs. The respondent
company, on the
other hand, must establish that the order for costs might well result
in its being unable to pursue the litigation
[8]
and
should indicate the nature and importance of the litigation to rebut
a suggestion that it may be vexatious or without prospects
of
success. Equipped with this information, a court will need to balance
the interests of the plaintiff in pursuing the litigation
against the
risks to the defendant of an unrealisable costs order.’
[9]
[12]
In addition:
‘…
in
exercising its discretion in terms of section 13, a court must bear
in mind the provisions of section 34 and weigh them in the
light of
other factors laid before it. The balancing exercise proposed by the
Supreme Court of Appeal in
Shepstone
& Wylie
’s
case (adopted from the English case
Keary
Developments Ltd v Tarmac Construction Ltd and
Another
[10]
) acknowledges
this (albeit without express reference to the Constitution). On one
side of the scale must be weighed the potential
injustice to the
plaintiff or applicant if it is prevented from pursuing a legitimate
claim. This incorporates a recognition of
the importance of the right
of access to courts. On the other side of the scale must be placed
the potential injustice to the defendant
if it succeeds in its
defence but cannot recover its costs. Relevant considerations in
performing this balancing exercise will
include the likelihood that
the effect of an order to furnish security will be to terminate the
plaintiff’s action; the attempts
the plaintiff has made to find
financial assistance from its shareholders or creditors; the question
whether it is the conduct
of the defendant that has caused the
financial difficulties of the plaintiff; as well as the nature of the
plaintiff’s action.’
[11]
[13]
I
n
Fusion
Properties 233 CC v Stellenbosch Municipality
[12]
the position was summarised on the basis that:
‘
[24]
Accordingly, there are at least three principles to be
derived from the excerpts from
Giddey
and
Shepstone
& Wylie
...
First, a court seized with an application to compel a plaintiff or
applicant to furnish security for costs retains an
unfettered
discretion. Second, the court needs to 'balance the potential
injustice to a plaintiff if it is prevented from pursuing
a
legitimate claim as a result of an order requiring it to pay security
for costs, on the one hand, against the potential injustice
to a
defendant who successfully defends the claim, and yet may well have
to pay all its costs in the litigation'.
[13]
Third, the salutary purpose of s 13 is 'to deter would-be plaintiffs
from instituting proceedings vexatiously or in circumstances
where
their prospects are poor'.
[14]
[14]
In balancing
the potential injustice to each party
were an order to be made one way or the other, relevant
considerations include the likelihood
that Bravospan will be able to
pay TCI’s costs if unsuccessful in the action; the likelihood
that the effect of an order
to furnish security will be to terminate
Bravospan’s action; the attempts Bravospan has made to find
financial assistance
from its shareholders or creditors; whether it
is the conduct of TCI that has caused the financial difficulties of
Bravospan; a
consideration of the nature of Bravospan’s action
and TCI’s defence to such action to allow a fair sense of the
strength
and weakness of their respective cases.
[15]
From its
financial statements it is
apparent that Bravospan’s current liabilities exceed its
assets. Its damages claim against TCI
remains undetermined and does
not alter this position. Similarly, while new business ventures have
been embarked upon, with evidence
of regular income, this has not
fundamentally altered Bravospan’s financial situation when
regard it had to the extent of
its liabilities. The facts show that
at the current level of income derived from such new business
operations it would take many
years for Bravospan to extinguish its
current liabilities.
[16]
Turning
to an assessment of the strengths and weaknesses of the parties’
respective cases in the action, it is so, as was
the case in
Gibbey
,
that the allegation of fraud raised could be found to constitute a
powerful factor gainsaying the grant of security
.
But simply because such an allegation is raised, does not bar the
court from exercising its discretion to order that security
should be
furnished. The relative strength or weakness of the parties’
respective cases is a relevant factor to be considered
and weighed in
the balance with all others.
In
Zietsman
v Electronic Media Network Ltd and Others
[15]
it was made clear that the extent to which it is practicable for a
court to make an assessment of each party's prospects of success
depends on the nature of the dispute in each case, with it not
expected of the court in an application for security attempt to
resolve the dispute between the parties. Neither party is however
entitled, for purposes of an application such as this, to assume
that
it will succeed in the action.
[17]
From the material placed before
this Court it is possible to arrive at a fair sense of the strength
and weakness of the parties’
respective cases. From this the
facts do not point to the action against TCI having been instituted
vexatiously, nor do they show
Bravospan’s prospects necessarily
to be poor. At its core the fraud alleged is a factual dispute that
patently requires determination
by a trial court. The allegation of
fraud alone is not however a sufficient basis on which to refuse the
current application when
on the material before this court, the
prospects of succeeding in the main action appear to be equally
weighted. The prospect of
success in the action is, on the facts
before this court, no more than a neutral factor which in itself does
not weigh heavily
in favour or against the grant of security. That
the action has been shown not to be vexatious and to have equally
balanced prospects
of success is not however a factor which on its
own invites the exercise by this Court of its discretion in favour of
Bravospan.
[18]
Bravospan has not suggested that an
order to furnish security might well result in its being unable to
pursue the litigation. Its
recent income stream from new commercial
ventures and the expressed assurance that the corporation can rely on
the continued support
of Mr Van der Post and his father into the
future, suggests that
it
will not. In addition, it is a relevant consideration that there has
been no indication made of any attempts by Bravospan
to
obtain financial assistance, including from its members or creditors,
in order
to place it in a position to tender security
if
it is unable to provide such security itself.
[19]
In
Boost
Sports Africa (Pty) Ltd v South African Breweries (Pty)
Ltd
[16]
it
was stressed that the court vested with a discretion in terms of s 13
performs a balancing act, weighing the injustice to the
plaintiff if
prevented from pursuing a proper claim by an order for
security, as against the injustice to the defendant
if no
security is ordered and the plaintiff's claim fails and
the former finds itself unable to recover costs.
[17]
I am not satisfied that it has been shown that a requirement that
Bravospan furnish security will amount to an injustice to it
or that
it will necessarily prevent it from pursuing its action. It clearly
has found the resources to enable it to pursue the
action to date and
to oppose the current application in circumstances in which the
corporation is factually insolvent. Although
it was contended that it
retains the support of its creditors, it is a relevant consideration
that it creditors have not advanced
security to date and were only
prepared in argument for the first time to subordinate their loans to
the corporation despite their
professed support for it.
[20]
I am satisfied for
these reasons that TCI has established that, if successful in the
action,
there
exists a probability that Bravospan will be unable to pay an order of
costs
made
against it and that TCI may therefore be faced with
an
unrealisable order of costs. The application must therefore succeed.
There is no reason why costs should not follow the result.
Order
[21]
In the result
the following order is made:
1.
The plaintiff,
Bravospan CC, is ordered to furnish security for the costs of suit of
the defendant, TCI Investments (Pty) Ltd, in
the action under the
above case number in the form, amount and manner to be determined and
directed by the Registrar of this Court.
2.
Should the
plaintiff not comply with paragraph 1 above within two (2) months of
the Registrar making her determination, the defendant
is granted
leave to approach this Court, on the same papers, duly amplified, if
necessary, for appropriate relief, including to
seek an order that
the plaintiff’s claim be dismissed with costs and the granting
of judgment in respect of the defendant’s
counter claim, or
such other order that the Court may deem fit.
3.
The plaintiff
is to pay the costs of the application for security for costs.
SAVAGE J
Appearances
:
Applicant/Defendant:
A Kantor SC
Instructed by
H T de Villiers Attorneys
Respondent/Plaintiff:
G D Harpur SC
Instructed by
De Villiers, Evans & Petit Attorneys
[1]
[2006]
ZACC 13
;
2007
(5) SA 525
(CC).
[2]
At
para 8 quoting
Hudson
and Son v London Trading Co Ltd
1930
WLD
288
at
291 (Greenberg J); and
Shepstone
and Wylie and Others v Geyser NO
1998
(3) SA 1036
(SCA)
at 1045 – 1046.
[3]
Id
note 1
at
para 7.
[4]
Id
note 1 a
t
para 6.
[5]
1998
(3) SA 1036
(SCA).
[6]
At
1045G-J. See too in this regard:
MTN
Service Provider (Pty) Ltd v Afro Call (Pty) Ltd
2007
(6) 620 (SCA) para 16.
[7]
See
Shepstone
and Wylie and Others v Geyser NO
cited
above n 5 at 1046B, citing with approval the English case
Keary
Developments v Tarmac Construction Ltd and Another
[1995]
3 All ER 534
(CA)
at 540a – b; Fusion
[8]
See
Shepstone
and Wylie and Others v Geyser NO
cited
above n 5 at 1046G – I.
[9]
Id
note 1 at para 8.
[10]
Keary
Developments v Tarmac Construction Ltd and Another
[1995]
3 All ER 534
(CA) at
540a – b.
[11]
Id
note 1 at para 30.
[12]
[2021]
ZASCA 10
at para 21.
[13]
Id
note 1 at para 8.
[14]
Id
note 1 at para 7.
[15]
[2008]
ZASCA 4
;
2008
(4) SA 1
(SCA)
at para 21.
[16]
[2015]
ZASCA 93; 2015 (5) SA 38 (SCA).
[17]
At
para 13.