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[2013] ZAGPJHC 274
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Incubeta Holdings and Another v Ellis and Another (2013/ 30879) [2013] ZAGPJHC 274; 2014 (3) SA 189 (GSJ) (16 October 2013)
REPORTABLE
REPUBLIC OF SOUTH AFRICA
HIGH COURT OF SOUTH
AFRICA
GAUTENG DIVISION,
JOHANNESBURG
CASE NO 2013/30879
DATE: 16/10/2013
IN THE MATTER BETWEEN:
INCUBETA HOLDINGS (Pty)
Ltd
…...............................................
First
Applicant
INTERFACE HOLDINGS (Pty)
Ltd
…........................................
Second
Applicant
and
ELLIS, JOHN ROLAND
…..........................................................
First
Respondent
GULLAN & GULLAN (Pty)
Ltd
…...........................................
Second
Respondent
JUDGMENT
PER SUTHERLAND J:
SUMMARY:
Rule 49(11) – scope
to grant leave to put into operation an order pending an application
for leave to appeal and Impact of
Section 18 of
Superior Courts Act
10 of 2013
– statutory codification of the common law rule that
application for leave to appeal or an appeal suspends a judgment -
Rule
in South Cape v Engineering Management Services overtaken –
New threshold test in
section 18
overshadows
Rule 49(11)
application - test no longer
discretionary with eye to balancing harm –
New test requires that
‘exceptional circumstances’ must be proven to justify
invoking the relief - what constitutes
- test requires a finding of
fact not an exercise of discretion – the test must be fact
specific - the concept of ‘exceptional’
to be applied in
a way functional to objective of the section – section aimed at
regulating procedure so as not to prejudice
litigants in relation to
uncertain outcomes of an appeal
Further, new test creates
a hierarchy of irreparable harm –
1. If party who seeks
leave to appeal will suffer irreparable harm, no relief is possible.
2. Where party seeking
leave will not suffer irreparable harm, the party seeking to put
order into operation must prove irreparable
harm to itself, if relief
to put the order into operation pending the appeal process is not
granted.
Restraint to trade- four
months left to run - If not put into operation the appeal process
will extend until beyond the period sought
to retain the employee –
in such case employer suffer irreparable harm as the relief cannot be
achieved in any other way
– employee, id successful in appeal
retains a damages claim for loss of earnings during period of
restraint – no irreparable
harm to employee
A restraint of trade
order is premised on the existence of irreparable harm to applicant –
in money orders and other forms
of relief it is necessary to show
irreparable harm to invoke
Rule 49(11)
An order restraining the
respondent for four months pending any appeal process granted on
basis that exceptional circumstances were
established by the relief
being rendered useless unless applied to the relevant period of the
restraint
[1] This case is about
the application of Rule 49(11) of the Uniform Rules of Court and the
impact upon that Rule by the provisions
of Section 18 of the Superior
Courts Act 10 of 2013 (SCRT) which came into force on 23 August 2013.
[2] The applicant
(Incubeta) was the victorious applicant in proceedings to obtain a
final interdict against the respondents to
restrain the second
respondent (Ellis) from breaching his restraint of trade agreement
with Incubeta by taking up employment with
the second respondent or
any other party anywhere in the country, and thus preventing Ellis
from threatening Incubeta’s confidential
information or
poaching its customers. Foulkes–Jones AJ, on16 September 2013,
granted the interdict which restrained Ellis,
for a period of 6
months calculated from his termination of employment with Incubeta on
8 August 2013. The unsuccessful Ellis noted
an application for leave
to appeal on 27 September 2013.
[3] The Application for
leave to appeal has yet to be set down and will not be ripe before
the orally delivered judgment of Foulkes
-Jones AJ is transcribed,
edited by her, made available to the litigants and a commonly
convenient date is arranged. It is incontrovertible
that none of
these happenings will occur rapidly, an observation painfully obvious
to Bench and Bar alike, in this Division. It
was contended that Ellis
has deliberately dragged his feet over the application for leave to
appeal to stretch out time to avoid
compliance. The suspicion may be
plausible but I disregard that aspect of the case as presented, as it
plays no useful role in
the reasoning I offer for my conclusions.
[4] The current
application for leave to put the order into operation pending the
appeal process was heard on 15 October 2013. At
the time this
application was heard the restraint period had 4.5 months out of 6
months to run.
[5] The crisp question is
whether or not a proper case to grant leave to put the order into
operation pending the appeal process
exists.
[6] Rule 49(11) provides:
“
When
an appeal has been noted or an application for leave to appeal
against or to rescind, correct or vary an order of a court has
been
made, the operation and execution of the order in question shall be
suspended, pending the decision of such an appeal or application,
unless the court which gave such order, on the application of a
party, otherwise directs.”
[7] Until recently, this
rule was premised on a principle of the common law to the effect that
the noting of an application for
leave to appeal, suspended the
‘execution’ of the order. The decision in South Cape
Corporation (Pty) Ltd v Engineering
Management Services (Pty) Ltd)
1977 (3) SA 534
(AD) by Corbett JA (as he then was) has been the
leading judicial authority for that proposition which has its roots
in the writings
of Voet.
[8] The old Supreme Court
Act 59 of 1959, did not address this exact issue. The SCRT does.
Section 18 provides as follows:
“
18.
Suspension of decision pending appeal.—
(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 judgment, 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.
(4) If a court orders
otherwise, as contemplated in subsection (1)—
(i) The court must
immediately record its reasons for doing so;
(ii) The aggrieved party
has an automatic right of appeal to the next highest court;
(iii) The court hearing
such an appeal must deal with it as a matter of extreme urgency; and
(IV) Such order will be
automatically suspended, pending the outcome of such appeal.
(5) For the purposes of
subsections (1) and (2), a decision becomes the subject of an
application for leave to appeal or of an appeal,
as soon as an
application for leave to appeal or a notice of appeal is lodged with
the registrar in terms of the rules.
[9] Sections 18(4) and
(5) are brand new and have no precedent in the law prior to their
enactment. The implications of these new
provisions are irrelevant to
this judgment, save that their very existence emphasises the
exceptionality required of the relief
of putting into operation and
executing an order that is subject to a pending application for leave
to appeal or an appeal. The
section does not address the implications
of an application to rescind or correct or vary an order.
[10] It is argued on
behalf of the respondents that Section 18 introduces a fresh test for
leave to put into operation and execute
an order pending the appeal
processes and that judicial authority that predates the section has
been overtaken by its enactment.
It is that proposition which calls
for interrogation.
[11] Hitherto, the test
applied has been that captured in South Cape at 544H – 546B:
“
..Whatever
the true position may have been in the Dutch Courts, and more
particularly the Court of Holland (as to which see Ruby's
Cash Store
(Pty.) Ltd. v Estate Marks and Another,
1961 (2) SA 118
(T) at pp.
120 - 3), it is today the accepted common law rule of practice in our
Courts that generally the execution of a judgment
is automatically
suspended upon the noting of an appeal, with the result that, pending
the appeal, the judgment cannot be carried
out and no effect can be
given thereto, except with the leave of the Court which granted the
judgment. To obtain such leave the
party in whose favour the judgment
was given must make special application. (See generally Olifants Tin
"B" Syndicate
v De Jager,
1912 AD 377
at p. 481; Reid and
Another v Godart and Another,
1938 AD 511
at p. 513; Gentiruco A.G. v
Firestone SA (Pty.) Ltd.,
1972 (1) SA 589
(AD) at p. 667; Standard
Bank of SA Ltd. v Stama (Pty.) Ltd.,
1975 (1) SA 730
(AD) at p. 746.)
The purpose of this rule as to the suspension of a judgment on the
noting of an appeal is to prevent irreparable
damage from being done
to the intending appellant, either by levy under a writ of execution
or by execution of the judgment in
any other manner appropriate to
the nature of the judgment appealed from (Reid's case, supra at p.
513). The Court to which application
for leave to execute is made has
a wide general discretion to grant or refuse leave and, if leave be
granted, to determine the
conditions upon which the right to execute
shall be exercised (see Voet, 49.7.3; Ruby's Cash Store (Pty.) Ltd. v
Estate Marks and
Another, supra at p. 127). This discretion is part
and parcel of the inherent jurisdiction which the Court has to
control its own
judgments (cf. Fismer v Thornton,
1929 AD 17
at p.
19). In exercising this discretion the Court should, in my view,
determine what is just and equitable in all the circumstances,
and,
in doing so, would normally have regard, inter alia, to the following
factors:
1. The potentiality of
irreparable harm or prejudice being sustained by the appellant on
appeal (respondent in the application)
if leave to execute were to be
granted;
3. The potentiality of
irreparable harm or prejudice being sustained by the respondent on
appeal (applicant in the application)
if leave to execute were to be
refused;
3. the prospects of
success on appeal, including more particularly the question as to
whether the appeal is frivolous or vexatious
or has been noted not
with the bona fide intention of seeking to reverse the judgment but
for some indirect purpose, e.g., to gain
time or harass the other
party; and
4. Where there is the
potentiality of irreparable harm or prejudice to both appellant and
respondent, the balance of hardship or
convenience, as the case may
be.
(See in this connection
Ruby's case, supra at pp. 127-8; also Rood v Wallach,
1904 T.S. 257
at p. 259; Weber v Spira, 1912 G T.P.D. 331 at pp. 334-4; Rand Daily
Mails Ltd. v Johnston,
1928 W.L.D. 85
; Frankel v Pirie,
1936 E.D.L.
106
at pp. 114-6; Leask v French and Others,
1949 (4) SA 887
(C) at
pp. 892-4; Ismail v Keshavjee,
1957 (1) SA 684
(T) at pp. 688-9; Du H
Plessis v Van der Merwe,
1960 (2) SA 319
(O).) Although most of the
cases just cited dealt with the exercise of the Court's discretion
under a statutory provision or Rule
of Court, the statute or Rule
concerned did not prescribe the nature of the discretion except in
broad general terms (e.g. secs.
36 and 39 of Proc. 14 of 1902 (T)
empower the Court to give directions as "may in each case appear
to be most consistent with
real and substantial justice") and
the same general approach would be appropriate to the exercise of a
discretion under the
aforementioned rule of practice.
Where the Court has
acceded to an application for leave to execute, it has generally
stipulated for the provision of security de
restituendo by the
applicant (respondent on appeal) in order to ensure that no prejudice
will be suffered by the respondent (appellant
on appeal) in the event
of the appeal succeeding and the order of the Court a quo being set
aside. In the case of appeals to the
Appellate Division AD Rule 6 (1)
itself makes provision for the furnishing of such security.
Similarly, if ordering execution to
be stayed, the Courts have
required security for the amount of the judgment to be furnished by
the appellant (see e.g., Rand Daily
Mails case, supra). On occasion
other conditions have been attached to an order allowing execution to
issue pending the appeal
(see, e.g., S.A. Breweries v Solomon,
1924
OPD 76
; Ismail v Keshavjee, supra).”(Emphasis supplied)
[12] The critical
component of that approach is a judicial discretion, derived from the
inherent jurisdiction of the court, to rule
in accordance with the
equities present in the given case. An earlier decision, often
quoted, is Leask v French & Others 1949(4)
SA 887 (C) at 893,
where after addressing the dilemma of reconciling contending
interests Searle J concluded with this poignant
observation:
“
In
the circumstances the court can only reduce to a minimum the
possibilities of prejudice by granting or refusing the application
in
accordance with the preponderance of equities...”
[13] There is a single
case reported about a restraint interdict being put into operation
pending a bona fide appeal: Fox &
Carney (Pvt) Ltd v Carthew-
Gabriel (2)
1977 (4) SA 970
(R). In that case Smith J applied the
reasoning from Leask v French. Interestingly, this case also involved
a restraint of short
duration of 4 months protecting the customer
connections of an estate agent from a breach by its employee who
sought to set up
in business as an estate agent in competition.
[14] There are several
other examples where orders ad factum praestandum have been put into
operation pending an appeal. Among them
are these:
1. In Chaimowitz v
Chaimowitz
1960 (4) SA 829
(C) an interim custody order in favour of
the mother pending a divorce action was put into operation despite an
appeal being noted.
The current Rule 43 regime makes this sort of
issue now redundant.
2. In Kalahari Salt Works
(Pty) Ltd & Others v Bonne Fortune Beleggings Bpk
1973 (4) SA 471
(NC), an order was obtained to eject tenants and take possession of
certain movables. The tenants noted an appeal. The order of
ejectment
and for the seizure of movables was put into operation together with
the provision of security by the victor, as contemplated
in Rule
49(11). At issue had been the existence of a debt pursuant to a lien,
a point upon which the tenant had lost and now sought
to reverse on
appeal. The rationale for the order being put into operation was that
the tenant’s prejudice was resolved by
the security.
[15] The thesis advanced
on behalf of the Respondent is that the discretion hitherto exercised
by the court is history and that
one must now look exclusively to the
text of Section 18. Emphasis was placed on the heavy onus on the
litigant who seeks to execute
on an order, pending an appeal, as
formulated in the Sections 18(1) and (3).
[16] It seems to me that
there is indeed a new dimension introduced to the test by the
provisions of Section 18. The test is twofold;
the requirements are:
16.1 First ,whether or
not ‘exceptional circumstances ‘exist, and
16.2 Second, proof on a
balance of probabilities by the applicant of-
16.2.1 The presence of
irreparable harm to the applicant/victor, who wants to put into
operation and execute the order, and,
16.2.2 The absence of
irreparable harm to the respondent/loser, who seeks leave to appeal.
[17] What constitutes
“exceptional circumstances has been addressed by Thring J in MV
Ais Mamas
2002 (6) SA 150
(C), where a summation of the meaning of
the phrase is given as follows at 156I – 157C:
“
What
does emerge from an examination of the authorities, however, seems to
be the following:
1.
What is ordinarily contemplated by the words 'exceptional
circumstances' is something out of the ordinary and of an unusual
nature; something which is excepted in the sense that the general
rule does not apply to it; something uncommon, rare or different;
'besonder', 'seldsaam', 'uitsonderlik', or 'in hoë mate
ongewoon'.
2. To
be exceptional the circumstances concerned must arise out of, or be
incidental to, the particular case.
3. Whether or not
exceptional circumstances exist is not a decision which depends upon
the exercise of a judicial discretion: their
existence or otherwise
is a matter of fact which the Court must decide accordingly.
4.
Depending on the context in which it is used, the word 'exceptional'
has two shades of meaning: the primary meaning is unusual
or
different; the secondary meaning is markedly unusual or especially
different.
5.
Where, in a statute, it is directed that a fixed rule shall be
departed from only under exceptional circumstances, effect will,
generally speaking, best be given to the intention of the Legislature
by applying a strict rather than a liberal meaning to the
phrase, and
by carefully examining any circumstances relied on as allegedly being
exceptional.”
[18] Significantly,
although it is accepted in that Judgment that what is cognisable as
‘exceptional circumstances’
may be indefinable and
difficult to articulate, the conclusion that such circumstances exist
in a given case, is not a product
of a discretion, but a finding of
fact.
[19] The survey of the
authorities addressed by Thring J included a broad range of
circumstances, and his summation or compendium
appears to be of
universal application. Nevertheless, it seems to me, to be necessary
to express caution about importing from one
kind of enquiry into
another kind of enquiry, an understanding of a familiar phrase. It is
important to appreciate that Thring
J was not addressing the phrase
in Section 18 of the SCRT but in the provisions of Section 5(a)(iv)
the Admiralty Regulation Act
105 of 1983 which confers a power upon a
competent court to direct an examination of various things in order
to procure evidence.
[20] A given phrase in
any statutory provision has a function specific to that provision and
to that specific statute and the primary
aim of the interpreter is to
discover the function it performs in that specific context. It may
perform a different function in
another statute and one must avoid
being seduced by beguiling similarities.
[21] The context relevant
to Section 18 of SCRT is the set of considerations pertinent to a
threshold test to deviate from a default
position; ie the appeal
stays the operation and execution of the order. The realm is that of
procedural laws whose policy objectives
are to prevent avoidable harm
to litigants. The primary rationale for the default position is that
finality must await the last
court’s decision, in case the last
court decides differently, the reasonable prospect of such an
outcome, being an essential
ingredient of the decision to grant leave
in the first place. Where the pending happening is the application
for leave itself,
the potential outcome in that proceeding, although
conceptually distinct from the position after leave is granted, ought
for policy
reasons, to rest on the same footing.
[22] Necessarily, in my
view, exceptionality must be fact-specific. The circumstances which
are or may be ‘exceptional’
must be derived from the
actual predicaments in which the given litigants find themselves. I
am not of the view that one can be
sure that any true novelty has
been invented by Section 18 by the use of the phrase. Although that
phrase may not have been employed
in the judgments, conceptually, the
practice as exemplified by the text of Rule 49(11), makes the notion
of the putting into operation
an order in the face of appeal process
a matter which requires particular ad hoc sanction from a court. It
is expressly recognised;
therefore, as a deviation from the norm, ie
an outcome warranted only ‘exceptionality’.
[23] I address the
relevant circumstances of these litigants below as to the presence of
‘exceptional circumstances’.
[24] The second leg of
the Section 18 test, in my view, does introduce a novel dimension. On
the South Cape test, number 4, (cited
supra) an even handed balance
is aimed for; best expressed as a balance of convenience or of
hardship. In blunt terms, it is asked:
who will be worse off if the
order is put into operation or is stayed. But Section 18 (3) seems to
require a different approach.
The proper meaning of that subsection
is that if the loser, who seeks leave to appeal, will suffer
irreparable harm the order must
remained stayed, even if the stay
will cause the victor irreparable harm too. In addition, if the loser
will not suffer irreparable
harm, the victor must nevertheless show
irreparable harm to itself. A hierarchy of entitlement has been
created, absent from the
South Cape test. Two distinct findings of
fact must now be made, rather than a weighing up to discern a
“preponderance of
equities”. The discretion is indeed
absent, in the sense articulated in South Cape. What remains
intriguing however, is the
extent to which even a finding of fact as
to irreparable harm, is a qualitative decision admitting of some
scope for reasonable
people to disagree about the presence of the so
called “fact’ of ‘irreparability’.
[25] Turning to the
circumstances of these litigants, what is relevant, in my view, is
the following:
25.1 If the order is not
put into operation, the relief will, regardless of the outcome of the
application for leave to appeal,
be forfeited by Incubeta because the
short duration of the restraint will expire before exhaustion of the
appeal processes.
25.2
The only value in the relief is to stop the breach and protect
legitimate interests during the precise period of the next 4.5
months. Unrebutted evidence in the affidavits alleges a breach is
taking place at this very time.
25.3
Damages are not an appropriate alternative remedy precisely because
the very relief obtained is posited on the absence of such
a remedy
being available. This places a restraint interdict in a different
position to other forms of relief, such as money claims,
where the
aspect of irreparable harm is a factor extraneous to the substantive
relief procured.
25.4
Ellis will, on the probabilities, be without work for 4.5 months and
without pay. This will be financially detrimental.
25.5
Significantly, no allegation is made that Ellis or his family will
endure true hardship during this short period.
25.6
If the appeal is won, Ellis’s loss of earnings can be sued for
and the quantum is feasible to compute, including the
loss of
interest or lost opportunity cost of being out of funds and any such
interest expended on borrowing for living expenses,
if necessary.
25.7
Moreover, Security under Rule 48 (12) is available.
[26] I have made no
reference to the ‘merits’ of the case which resulted in
the interdict. In my view they are not pertinent
to this kind of
enquiry. The considerations that are valuable pre-suppose a bona fide
application for leave to appeal or an actual
appeal. No second
guessing about the judgment per se comes into reckoning.
[27] Do these
circumstances give rise to ‘exceptionality’ as
contemplated? In my view the predicament of being left
with no
relief, regardless of the outcome of an appeal, constitutes
exceptional circumstances which warrant a consideration of
putting
the order into operation. The forfeiture of substantive relief
because of procedural delays, even if not protracted in
bad faith by
a litigant, ought to be sufficient to cross the threshold of
‘exceptional circumstances’
[28] The plight of the
victor alone is probably all that is required to pass muster.
Nonetheless, I am not unconscious of the undesirable
outcome that
relief granted by the court becomes a vacuous gesture. A court order
ought not to be lightly allowed to evaporate,
a fate, which seems to
me, would tend undermine the role of courts in the ordering of social
relations.
[29] Furthermore, it is
plain from the summary of circumstances given above, that the
applicants would indeed suffer irreparable
harm if the order is not
put into operation. Moreover, it is plain that Ellis will not suffer
irreparable harm if the order is
put into operation. Although Ellis
in his answering affidavit complains that putting the order into
operation will render his right
of appeal meaningless, this in
incorrect for the reasons mentioned above; he cannot be without
practical relief. The Section 18
test is met on both counts of the
second leg.
[30] Accordingly, I make
an order as follows:
30.1
The order of Foulkes-Jones AJ of 19 September 2013 shall operate
pending the outcome of the appeal process, including the application
for leave to appeal and any appeal noted, if at all.
30.2 The parties are
directed to take the steps contemplated in Rule 49 (12) in respect of
security.
30.3 The First respondent
shall pay the applicant’s costs in these proceedings.
ROLAND SUTHERLAND
Judge
Hearing:
…......................................................................................
5
October 2013
Judgment:
…..................................................................................
16
October 2013
For
applicants:
...................................................................................
Adv
M Nowitz
Instructed by
…......................................................................
Larry
Dave Attorneys
Ref: L Dave
For
Respondents
:.....................................................................
Adv
R Stockwell SC
Instructed
by
......................................................................
Stan Fararoff Attorneys
…
..................................................................................................
Ref
Ms S Henning