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[2015] ZASCA 93
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Boost Sports Africa (Pty) Limited v South Africa Breweries (Pty) Limited (20156/2014) [2015] ZASCA 93; 2015 (5) SA 38 (SCA); [2015] 3 All SA 255 (SCA); 2015 BIP 22 (SCA) (1 June 2015)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case
no: 20156/2014
DATE:
01 JUNE 2015
Reportable
In
the matter between:
BOOST
SPORTS AFRICA (PTY)
LIMITED
.................................................................
APPELLANT
And
THE
SOUTH AFRICA BREWERIES (PTY)
LIMITED
..........................................
RESPONDENT
Neutral
citation:
Boost Sports Africa (Pty) Ltd
v The South Africa Breweries (Pty) Ltd
(20156/2014)
[2015] ZASCA 93
(1 June 2015)
Bench:
Ponnan, Mhlantla, Mbha JJA and Fourie and
Gorven AJJA
Heard:
13 May 2015
Delivered:
1 June 2015
Summary
:
Whether absent a provision similar to the repealed s 13 of the
Companies Act 61 of 1973 an
incola
company can be compelled to furnish security for costs.
ORDER
On
appeal from
: Gauteng Division of the High Court, Pretoria (Hassim
AJ sitting as court of first instance): reported
sub nom
Boost
Sports Africa (Pty) Ltd v South African Breweries Ltd
2014
(4) SA 343
(GP).
The
appeal is dismissed with costs, including those consequent upon the
employment of two counsel.
JUDGMENT
Ponnan
and Mbha JJA (Mhlantla JA, Fourie and Gorven AJJA concurring):
[1]
On 21 October 2011 the appellant, Boost Sports Africa (Pty) Limited
(the plaintiff), instituted action in the High Court of
South Africa,
Gauteng Division, Pretoria against the respondent, the South Africa
Breweries (Pty) Limited (the defendant). The
plaintiff’s cause
of action is based on an alleged breach of contract by the defendant.
It alleges that it disclosed a particular
advertising concept
referred to as the ‘fans challenge concept’ to the
defendant under an agreed confidentiality regime
between them and
that the defendant later used the concept to conduct an event called
‘be the coach’ in breach of that
agreement. In its plea,
the defendant raised a number of defences, in particular the
defendant denied that there was any confidentiality
agreement between
the parties in relation to the concept and averred that the
information pertaining to the concept was already
in the public
domain when it was first disclosed to the defendant.
[2]
After the plaintiff had made available to the defendant its
discovered documents, the latter became concerned that the former
would not be able to meet an adverse costs order should it fail in
the contemplated action. When the plaintiff refused to furnish
evidence of its ability to pay the defendant’s costs in the
event of its claim being dismissed, the defendant launched an
application against the plaintiff on 1 August 2013 for security for
its costs. The founding affidavit filed in support of that
application stated:
‘
16.
The defendant, therefore, became concerned that, if the plaintiff’s
claim was dismissed and an adverse costs order was
granted against
it, it would not be in a position to meet such an order. For that
reason, I was instructed to conduct investigations
to determine
whether or not the plaintiff would be able to meet an adverse costs
order against it. The investigations were conducted
by conducting
various internet searches and also searches of public records. The
investigations revealed that:
16.1
the plaintiff’s registered address recorded to be at 2
Scherwitz Road, Berea, East London, South Africa is the address
of
its auditors, Marais & Smith Accountants. . . .
16.2
the plaintiff’s principal place of business at 123 Western
Avenue, Vincent, East London, (as pleaded at paragraph 1 of
its
particulars of claim) is the address of Smale & Partners, a firm
of architects of which Jed Webber is a director. . . .
Mr Webber is a
director of the plaintiff as well as a former director of Boost
Sports International Limited, the plaintiff’s
apparent
predecessor-in-title in respect of the concept;
16.3
the document titled “Deed of Cession”, attached to the
plaintiff’s particulars of claim as Annex “A”,
records the plaintiff’s registered address and principal place
of business at 99 Clovelly Road, Greenside, Johannesburg.
This is a
residential address. . . .
16.4
the plaintiff does not have any immovable property registered in its
name in any of the Deed’s Registries in South Africa.
. . .
16.5
the plaintiff does not have a telephone number listed in the online
company telephone registry known as Brabys. . . .
16.6
the plaintiff does not have a telephone number listed in the yellow
pages. A search was conducted under the categories “marketing
consultants” and “market research” for both Gauteng
and the Eastern Cape. . . .
16.7
the plaintiff does not have a telephone number listed in Telkom’s
directory enquiry services. This information was gleaned
from my
telephone conversation with a Telkom directory enquiry operator on 18
June 2013. During that telephone conversation, I
asked the operator
to search for the telephone number of Boost Sports Africa (Pty)
Limited. The operator was not able to locate
a telephone number for
the plaintiff in South Africa;
16.8
the plaintiff does not operate a website advertising its business. .
. . ; and
16.9
the plaintiff’s parent company, Boost Sports International
Limited, has been dissolved, according to the United Kingdom’s
company register. . . .
17.
It therefore appears clear that the plaintiff is not trading
currently and has not done so in the past. It has no assets
registered
in its name. Furthermore, in an effort to avoid this
application, the defendant wrote to the plaintiff asking it to
disclose its
financial statements to the defendant and to show that
it has sufficient income or assets to cover any adverse costs order
against
it. . . . The plaintiff refused to provide evidence of its
ability to pay any such order in a letter dated 11 July 2013 . . .
The
defendant, therefore, served a formal notice in terms of Rule
47(1) on the plaintiff. . . .
18.
The only inference one can draw from the evidence above and the
plaintiff’s refusal to provide evidence of its ability
to pay
any adverse costs order against it is that the plaintiff does not
have any means with which to do so. If the plaintiff is
to contend
otherwise, it is required to adduce evidence of its ability to pay
any adverse costs order against it. Should the plaintiff
now adduce
evidence of its ability to pay any adverse costs order against it,
having been given an opportunity to do so earlier,
an adverse costs
order will be sought against it in this application.’
[3]
The response to those allegations on behalf of the plaintiff was:
‘
16.1
Save to repeat paragraph 14 above, I admit these allegations.
16.2
The plaintiff has four shareholders whose shareholding is as follows:
16.2.1
Jed Webber (Myself) – 45%;
16.2.2
Mkhuseli Mnguni – 25%;
16.2.3
Justin Price – 20%;
16.2.4
Andrew Stylianou – 10%.
16.3
I am an architect, Mr Mnguni is an entrepreneur, Mr Price is an
estate agent and Mr Stylianou is a legal adviser.
16.4
The plaintiff’s shareholders are funding the plaintiff’s
costs. However, none of its shareholders have sufficient
assets to
fund the plaintiff’s costs and to put up the quantum of
security for costs demanded by the defendant.
16.5
This demand by the defendant will, effectively, destroy the
plaintiff’s ability to prosecute its claim.
17.1
I admit that the plaintiff has never traded. I deny that it has no
assets. The concept constitutes a valuable asset. This much
is clear
from the manner in which the concept has been exploited by the
defendant.
17.2
It is extremely difficult to place a firm value on an intangible
asset such as the concept. However, if this Court is
prima facie
of the view that the concept constitutes confidential information
worthy of protection, then the concept must have significant
commercial value given that the defendant has exploited it so
successfully.
17.3
Save as aforesaid I admit these allegations.
18.1
I repeat paragraph 17 above.
18.2
Save as aforesaid I deny these allegations.’
[4]
The defendant’s application succeeded before Hassim AJ
[1]
who,
on 17 March 2014, issued the following order:
‘
(i)
The plaintiff is ordered to furnish security for the defendant’s
legal costs in the action.
(ii)
The form, amount and manner of security to be provided by the
plaintiff shall be determined by the Registrar on application
by the
defendant to that office.
(iii)
In the event that the plaintiff fails to provide security as
determined by the Registrar within 20 days of the Registrar’s
order or determination, the action shall be stayed forthwith and the
defendant is granted leave to apply on the same papers, amplified
as
necessary, for the dismissal of the action.
(iv)
The plaintiff is to pay the costs of the application, including the
costs occasioned by the employment of two counsel.’
The
appeal is with the leave of the learned Judge.
[5]
The procedure whereby an application for security for costs is made
is governed by Uniform rule 47. It provides:
‘
(1)
A party entitled and desiring to demand security for costs from
another shall, as soon as practicable after the commencement
of
proceedings, deliver a notice setting forth the grounds upon which
such security is claimed, and the amount demanded.
.
. .
(4)
The court may, if security be not given within a reasonable time,
dismiss any proceedings instituted or strike out any pleadings
filed
by the party in default, or make such other order as to it may seem
meet.’
The
rule, which deals with the procedure to be followed, applies to all
cases where security is sought in the high court. It deals
with
procedure and not with substantive law.
[2]
For
the substantive right, it is to the common law and the relevant
statutory provisions that one must look.
[3]
The
general rule of our law as laid down in
Witham
v Venables
(1828) 1
Menz
291
is that an
incola
plaintiff cannot be compelled to furnish security for costs. As
explained in
Lumsden
v Kaffrarian Bank
(1884 –
1885) 3 S.C. 366
no inhabitant of the Colony can be
compelled to give security for costs whether he be rich or poor,
solvent or insolvent, but a
peregrinus
may be called upon to do so, unless he can prove that he is possessed
of immovable property within the Colony of adequate value
(
Lombard
v Lombardy Hotel Co Ltd (In Liquidation)
1911
TPD 866).
[6]
In the case of a company, until recently, there existed a statutory
exception to the general rule that an
incola
plaintiff cannot be compelled to furnish security.
[4]
Our
company law derives from English law. Prior to Union each of the
Provinces had its own Act. The first general Act providing
for
incorporation of companies in South Africa was the Cape Joint Stock
Companies Limited Liability Act 23 of 1861, which was based
on
English legislation. This Act served as the model for the Acts
subsequently enacted in Natal, the South African Republic and
the
Republic of the Orange Free State. Only in 1892 was a fully-fledged
Companies Act (Act 25 of 1892) passed in the Cape. Section
128 of
that Act provided:
‘
Where
a limited company is plaintiff in any action, suit, or other legal
proceeding, any Judge having jurisdiction in the matter
may, if it
appears by any credible testimony that there is reason to believe
that if the defendant be successful in his defence
the assets of the
company will be insufficient to pay his costs, require sufficient
security to be given for such costs, and may
stay all proceedings
until security is given.’
(See
Brink v Liquidator United Farming Corporation of South Africa Ltd
1913 CPD 371).
[7]
In the absence of such a provision in the Transvaal Act of 1909, the
issue as to whether or not that power existed at common
law arose in
two cases in that Province. In the first,
Liquidator,
Salisbury Meat Market Ltd v Perelson
1924 WLD 104
at 106-7 De
Waal J stated:
‘
Apart
from the English authorities to which I have referred, I can find no
principle of our law upon which the application for security
for
costs can be supported. The general rule of our law is that nobody
but a
peregrinus
can be called upon under any circumstances to give security for
costs, and that the Court has no jurisdiction to make an ordinary
litigant, or one who sues under a power conferred upon him expressly
by Act of Parliament, give security for costs.’
And,
in the second,
Lombard v Lombardy Hotel Co Ltd (In Liquidation)
1911 TPD 866
, Bristowe J stated:
‘
In
England cases of this kind are provided for by section 278 of the
Companies Consolidation Act, 1908, which (following section
69 of the
Companies Act, 1862), empowers the Court to order security for costs
in every case where a limited company is plaintiff
and will be unable
to pay the costs of the defendant if the action fails. And it has
been held that the fact that a company is
in liquidation is in itself
sufficient ground for ordering security to be given (
Pure
Spirit Company v Fowler
,
25 Q.B.D.
235).
In our own Statute (the Companies Act, 1909), although it is
taken almost
verbatim
from the English Act, this section is omitted. Why this should have
been done it is hard to say, for the power to order security
for
costs is a most reasonable one, having regard to the enormous
protection which shareholders of a company derive from the principle
of limited liability. But the omission is not a reason for straining
the Common Law. On the contrary, it rather indicates an intention
on
the part of the Legislature that litigants with joint stock companies
in this country shall not enjoy the protection which is
afforded to
them in England.’
On
appeal from the judgment of Bristowe J to the full court, neither
Wessels J, nor Smith J, entered into the issue, both having
concluded
that the matter was not appealable. De Villiers JP considered that
the court could order security against an
incola
company. He
expressed himself thus (at 876):
‘
Now
it was admitted that under similar circumstances in England a company
could be compelled to give security for costs under sec.
278 of the
Companies Cons. Act, 1908. In fact, as Bristowe J, points out, it has
been held in the
Pure Spirit Co. v
Fowler
(25 Q.B.D. 235)
, that the fact
that a company is in liquidation is, in itself, sufficient ground for
ordering security to be given. But it was
contended that this Court
has no such power as the corresponding section was left out in our
Company’s Act, 1909, which,
it was urged, follows the English
Act so closely. This conclusion is, to my mind, unwarranted. The mere
fact of the absence of
a corresponding section in our law does not
justify such a conclusion. It may be that the Legislature considered
that the matter
was covered by the principles of our Common Law, or
it may even be a pure oversight.’
[8]
After Union and before the issue could be settled by our courts, the
first South African Companies Act was enacted in 1926.
[5]
It
provided in s 216:
‘
Where
a limited company is plaintiff . . . in any legal proceedings, the
Court having jurisdiction in the matter may at any stage,
if it
appears by credible testimony that there is reason to believe that
the company . . . will be unable to pay the costs of the
defendant .
. . if successful in his defence require sufficient security to be
given for those costs and may stay all proceedings
till the security
is given.’
A
similar provision was to be found in s 13 of the Companies Act 61 of
1973, which read:
‘
Where
a company or other body corporate is plaintiff in any legal
proceedings, the Court may at any stage, if it appears by credible
testimony that there is reason to believe that the company or body
corporate or if it is being wound up, the liquidator thereof,
will be
unable to pay the costs of the defendant or respondent if successful
in his defence, require sufficient security to be
given for those
costs and may stay all proceedings till the security is given.’
[9]
Section 216 (and its successor, s 13, which mirrors provisions in
certain other Commonwealth jurisdictions),
[6]
meant
that the issue under the common law whether an impecunious
incola
company can be required to give security for the costs of proceedings
instituted by it, was left unresolved. The object of s 13
was to
protect persons against liability for costs in regard to any action
instituted by bankrupt companies.
[7]
Its
main purpose was to ensure that companies, who were unlikely to be
able to pay costs and therefore not effectively at risk of
an adverse
costs order if unsuccessful, did not institute litigation in
circumstances where they had no prospects of success thus
causing
their opponents unnecessary and irrecoverable expenses. As is
apparent from s 13, if a company ordered to provide security
for
costs was unable to do so, it could have been prevented from
proceeding with its action. The section, like its predecessor
s
216 of the 1926 Act,
vested
a court with a discretion to order a company that had instituted
action to furnish security for costs if there was reason
to believe
that it would be unable to pay the costs of its opponent.
[10]
The phrase 'if it appears that there is reason to believe' in s 13
placed a much lighter burden of proof on an applicant for
security.
[8]
In
terms of s 13, a two stage enquiry was required. At the initial
stage, and in order to discharge the onus, the applicant for
security
had to adduce facts on which the court could conclude that there was
reason to believe that the plaintiff would be unable
to satisfy an
adverse costs order. If the court could not come to such a conclusion
that was the end of the matter and the application
was bound to be
refused. However, if the court was satisfied that a case had been
made out, it had, at the second stage, to decide,
in the exercise of
its discretion, whether or not to order the company to furnish
security. (See
MTN
Service Provider (Pty) Ltd
v
Afro
Call
(Pty)
Ltd
2007
(6) SA 620
(SCA)
at
622H.)
[11]
Until
Shepstone & Wylie and Others v
Geyser NO
1998 (3) SA 1037
(SCA), the
approach adopted had been that although the
court was not bound to order security
to be
furnished, it should nevertheless do so unless special circumstances
exist.
Hefer JA rejected that approach. He
stated (
at 1045I–1046A)
:
‘
In
my judgment, this is not how an application for security should be
approached. Because a Court should not fetter its own discretion
in
any manner and particularly not by adopting an approach which brooks
of no departure except in special circumstances, it must
decide each
case upon a consideration of the relevant features, without adopting
a predisposition either in favour of or against
granting security.’
[12]
The 1973 Companies Act has been repealed and replaced by the
Companies Act 71 of 2008
.
Our
most recent
Companies Act, which
‘
is
a complete reinvention of our corporate law’,
[9]
does
not contain an equivalent provision to
s 13.
There have been several
decisions in which our high courts have recently had occasion to
consider whether, absent a counterpart
to
section 13
in our new Act,
an
incola
company
can be ordered to furnish security for costs.
[10]
Those
decisions – or more accurately some – have been
discordant. Valuable as those decisions are, a discussion of each
of
them would likely contribute to a judgment that is indigestible. We
thus approach the problem as if the matter is
res
nova
.
In doing so, we obviously draw on the benefits and insights that a
reading of those judgments has given.
[13]
However, in the light of some of the views expressed in those
decisions it may be prudent to pass certain general observations.
First, our courts now derive their power from the Constitution
itself,
[11]
which
in section 173 provides:
'The
Constitutional Court, Supreme Court of Appeal and High Courts have
the inherent power to protect and regulate their own process,
and to
develop the common law, taking into account the interests of
justice.'
As
it was put by the Constitutional Court in
SABC
Ltd v National Director of Public Prosecutions and others
:
[12]
‘
This
is an important provision which recognises both the power of Courts
to protect and regulate their own process as well as their
power to
develop the common law. . . . The power recognised in s 173 is
a key tool for Courts to ensure their own independence
and
impartiality. It recognises that Courts have the inherent power to
regulate and protect their own process. A primary purpose
for the
exercise of that power must be to ensure that proceedings before
Courts are fair. It is therefore fitting that the only
qualification
on the exercise of that power contained in section 173 is that Courts
in exercising this power
must take into
account
the interests of justice.'
That
our courts were endowed with such power even in our
pre-constitutional era is evident from the following dictum of
Corbett
JA:
'There
is no doubt the Supreme Court possesses an inherent reservoir of
power to regulate its procedures in the interests of the
proper
administration of justice ....'
[13]
According
to the Constitutional Court:
[14]
‘
The
task of a . . . Court in determining its own proceedings is an
important one. Its primary constitutional responsibility
is to
ensure that the proceedings before it are fair and it must give
content to that obligation. This obligation has always been
part of
our law and is now constitutionally enshrined as a fundamental right
in s 35(3) of the Constitution. The task of ensuring
that the
proceedings are fair will often require consideration of a range of
principled and practical factors, some of which may
pull in different
directions.’
Second,
it is a well-established principle of statutory construction that the
legislature must be taken to be aware of the nature
and state of the
law existing at the time when legislation is passed.
[15]
The
omission of a similar provision to s 13 from the 2008 Act, must
therefore be taken (
prima
facie
at
least) to import a change of intention on the part of the
legislature. It must therefore follow that it is not open to a court
to approach an enquiry such as this as if the position is unaltered
and that s 13 is still part of our law. For, to do so may well
result
in a court impermissibly intruding into the domain of the
legislature. Third, it has been suggested that such a provision
has
been excluded because its inclusion would limit the fundamental right
of access to the courts as enshrined in s 34 of the Constitution
and
would thereby be unconstitutional. But that may be to ignore the fact
that a court was vested with a discretion in terms s
13 and that in
exercising its discretion a court performs a balancing act. On the
one hand it must weigh the injustice to the plaintiff
if prevented
from pursuing a proper claim by an order for security and against
that it must weigh the injustice to the defendant
if no security is
ordered and the plaintiff’s claim fails and the defendant finds
himself unable to recover costs.
[16]
Significantly,
on that score, the European Court of Human Rights
[17]
appears
to have inclined to the view that security for costs pursued a
legitimate aim, namely to protect a litigant from being faced
with an
irrecoverable bill for legal costs and since regard was had to
prospects of success the requirement could be said to have
been
imposed in the interests of the fair administration of justice. It is
also noteworthy that back home, as long ago as
Lombard
it
was stated by Bristowe J that the power to order security for costs
is a most reasonable one.
[18]
Why
the legislature saw fit to exclude it (or a provision that mirrors
it) is fortunately a debate that is not necessary for us
to enter.
Fourth, s 39(2) of the Constitution makes plain that, when a court
embarks upon a course of developing the common law,
it is obliged to
‘promote the spirit, purport and objects of the Bill of
Rights.’ This ensures that the common law
will evolve, within
the framework of the Constitution, consistently with the basic norms
of the legal order that it establishes.
Faced with such a task, a
court is obliged to undertake a two-stage enquiry. It should ask
itself whether, given the objectives
of s 39(2), the existing common
law should be developed beyond existing precedent—if the answer
to that question is in the
negative that should be the end of the
enquiry. If not, the next enquiry should be how the development
should occur and which court
should embark on that exercise.
[19]
Fifth,
the omission of a provision akin to s 13 from the new Act is strange
particularly since
s 8
of the
Close Corporations Act 69 of 1984
, which
has
been interpreted in accordance with the principles that have evolved
in relation to the corresponding provisions in the previous
Companies
Act,
[20
]
has
been retained. It follows that the principles pertaining to the
furnishing of security by a close corporation will henceforth
differ
from that applicable to a company. Such incongruity as may arise from
that dichotomy is no invitation to a court to continue
to approach an
enquiry such as this in relation to a company as if
s 13
is still in
force.
[14]
The onus is on the party seeking security to persuade a court that
security should be ordered. As was the situation under
s 13
in the
past, a court in the exercise of its discretion will 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. The distinction
to be drawn
between the common law and that which prevailed in terms of
s 13
is
described thus by Brand JA in
MTN
Service Provider (Pty) Ltd
v
Afro
Call
(Pty)
Ltd
2007 (6) SA 620
(SCA) paras 15–16:
‘
Against
an insolvent natural person, who is an
incola
,
so it has been held, security will only be granted if his or her
action can be found to be reckless and vexatious (see
Ecker
v
Dean
1938
AD 102
at 110). The reason for this limitation, so it was explained
in
Ecker
(at
111), is that the court’s power to order security against an
incola
is
derived from its inherent jurisdiction to prevent abuse of its own
process in certain circumstances. And this jurisdiction, said
Solomon
JA in
Western Assurance Co
v
Caldwell’s Trustee
1918
AD 262
at 274, ‘is a power which . . . ought to be sparingly
exercised and only in very exceptional circumstances. (See also eg
Ramsamy NO
v
Maarman NO
2002
(6) SA 159
(C) 173F–I). In the exercise of its discretion under
s 13
of the
Companies Act, on
the other hand, there is no reason why
the court should order security only in the exceptional case. On the
contrary, as was stated
in
Shepstone &
Wylie
v
Geyser
NO
1998 (3) SA 1037
(SCA) at 1045I–J,
since the section presents the court with an unfettered discretion,
there is no reason to lean towards
either granting or refusing a
security order.’
[15]
Accordingly,
in terms of the common law
mere inability by an
incola
to
satisfy a potential costs order is insufficient to justify an order
for security, something more is required (
Ramsamy
NO
v
Maarman
NO
2002 (6) SA 159
(C) 172I-J). As
Thring J put it (
Ramsamy NO
at 172J-173A): ‘[w]hat this something is has been variously
described in a number of decisions. Thus in
Ecker
v Dean
. . . it was said that the basis
of granting an order for security was that the action was ‘reckless
and vexatious’.’
In
Ecker
v Dean
1937 AD 254
at 259, Curlewis CJ
stated:
‘
In
Western Assurance Co. v Caldwell’s
Trustee
(1918, A.D. 262)
this Court
laid down that a Court of law had inherent jurisdiction to stop or
prevent a vexatious action as being an abuse of the
process of the
Court; one of the ways of doing so is by ordering the vexatious
litigant to give security for the costs of the other
side, and I know
of no reason why the Court below should not have [exercised] such an
inherent jurisdiction.’
To
once again borrow from De Villiers JP (
Lombard
at 877):
‘
But,
however, this may be the case of
Mears v
The Pretoria Estate and Market Co.
is
an authority for the proposition that this Court has the power to
settle a question of practice like the present for itself.
Innes,
C.J., on page 956, is reported as follows: “But after all, this
is a question of practice which this Court is justified
in settling
for itself; and I think that we should lay down the rule that an
insolvent ought to give security for costs in a case
like the
present.” And if that be so, there can be no doubt as to what
the practice should be. Where a company is in liquidation
it is
sufficient ground for ordering security to be given; and when the
company has everything to gain and nothing to lose, as
in the present
case, it would be putting a premium upon vexatious and speculative
actions if such practice were not adopted.’
[16]
Absent
s 13
, there can no longer be any legitimate basis for
differentiating between an
incola
company and an
incola
natural person. And as
our superior courts
have a residual discretion in a matter such as this arising from
their inherent power to regulate their own
proceedings, it must
follow that the former can at common law be compelled to furnish
security for costs.
Accordingly, even
though there may be poor prospects of recovering costs, a court, in
its discretion should only order the furnishing
of security for such
costs by an
incola
company
if it is satisfied that the contemplated main action (or application)
is vexatious or reckless or otherwise amounts to an
abuse.
[17]
According to Nicholas J in
Fisheries Development Corp v Jorgensen
1979 (3) SA 1331
(W) at 1339E-F:
‘
In
its legal sense “vexatious” means
“
frivolous,
improper: instituted without sufficient ground, to serve solely as an
annoyance to the defendant”
[21]
(Shorter Oxford English Dictionary). Vexatious proceedings would also
no doubt include proceedings which, although properly instituted,
are
continued with the sole purpose of causing annoyance to the
defendant; “abuse” connotes a mis-use, an improper
use, a use
mala
fide
,
a use for an ulterior motive.’
In
African Farms & Townships v C.T. Municipality
1963 (2) SA
555
(A) at 565D-E, Holmes JA observed:
‘
An
action is vexatious and an abuse of the process of Court
inter
alia
if it is obviously unsustainable.
This must appear as a certainty, and not merely on a preponderance of
probability.
Ravden v Beeten
,
1935 C.P.D. 269
at p. 276;
Burnham v
Fakheer
,
1938 N.P.D. 63.
’
[18]
African
Farms & Townships
was concerned with an application to strike out a claim. Since the
common law is reluctant to limit access to court, an application
for
security for costs would seem to require a less stringent test than
one for the stay of vexatious proceedings; the latter ends
unsustainable litigation whereas the former contemplates the
continuance of the proceedings with the safeguard of security for
costs.
[22]
Thus in
Fitchet
v Fitchet
1987 (1) SA 450
(ECD) at 454E-G, Olivier J pointed out that:
‘
It
may well be that, in applications for security for costs, the test
should be somewhat different. Where, in an application for
dismissal
of an action, the Court without hearing evidence on the merits will
require moral certainty alone that the action is
unsustainable, in an
application for security for costs the merits test should be somewhat
less stringent, and other factors, which
are irrelevant in a
dismissal application, should be taken into account. I am therefore
in respectful agreement with the statement
of Klopper J in
Davidson’s
Bakery (Pty) Ltd v Burger
1961 (1) SA
589
(O) at 593E, viz:
“
Myns
insiens is die meriete van eiser se aksie nie altyd deurslaggewend
nie, maar slegs ‘n faktor wat in oorweging geneem
moet word.
Daar kan gevalle wees waar die Hof sekuriteitstelling sal verleen al
word dit slegs bevind dat die kanse van welslae
op die aksie alleen
twyfelagtig is sonder dat dit gesê kan word dat dit geen
vooruitsigte van sukses inhou nie.”’
[19]
In
Golden
International Navigation SA v Zeba Maritime
2008
(3) SA 10
(CPD) para 18, Griesel J posited that the ordinary
yardstick – a preponderance of probability – should find
application
in an enquiry such as the present. In
Ravden
v Beeten
1935 CPD 269
at 276, Sutton J cited with approval the following
dictum of Fletcher Moulton J (
Goodson
v Grierson
1908
1 KB 761
at 764): ‘In my opinion that is limited to the case
where on the face of the pleadings it is shown that the action cannot
be maintained and is frivolous and vexatious’.
[23]
It is not envisaged, it seems to us, that a detailed investigation of
the merits of the case should be undertaken. Nor, is it contemplated
that there should be a close investigation of the facts in issue in
the action. As it was put by Streicher JA in
Zietsman
v Electronic Media Network Ltd
2008
(4) SA 1
(SCA) para 21:
‘
I
am not suggesting that a court should in an application for security
attempt to resolve the dispute between the parties. Such
a
requirement would frustrate the purpose for which security is sought.
The extent to which it is practicable to make an assessment
of a
party’s prospects of success would depend on the nature of the
dispute in each case.’
[20]
Against that backdrop we turn to a consideration of the claim sought
to be advanced by the plaintiff against the defendant.
In its
particulars of claim the plaintiff alleges:
‘
3.
During or about July and August 2006 the plaintiff, represented by
Jed Webber (“
Webber
”)
introduced the defendant, represented by Rob Fleming (“
Fleming
”)
to the plaintiff’s
Fans’
Challenge Sport
concept (“
the
concept
”).
.
. .
8.
Annexure “B” [a document that purported to introduce the
concept] was provided to Fleming during July 2006 and annexure
“C”
[an executive summary] was provided to Ireland during September 2006.
.
. .
11.
The concept is unique and constitutes confidential information.
12.
The concept was disclosed to Fleming, Ireland and Minnaar in
confidence and with the intention that the plaintiff and the
defendant
would enter into a commercial relationship to utilise the
concept to their mutual financial benefit.
13.
Fleming, [. . .] orally accepted that the concept was disclosed to
them in confidence, constituted, confidential information
and could
not be used without the consent of the plaintiff.
14.
Fleming gave Webber an express undertaking that the defendant was a
company with high ethical standards and one that the plaintiff
could
trust. Webber accepted the undertaking which, in the context of the
disclosure of the concept, meant that:
14.1
the defendant agreed that the concept constituted confidential
information; and
14.2
the defendant would not use the concept, directly or indirectly,
without the consent of the plaintiff.
15.
In the premises, the plaintiff and the defendant concluded an
agreement on the terms recorded in paragraphs 14.1 and 14.2 above
(“
the agreement
”).’
[21]
The plaintiff’s pleaded case was thus that there was: (a) an
oral acceptance on behalf of the defendant that the concept
was
disclosed in confidence and constituted confidential information
(para 13); and, (b) a tacit undertaking that the concept constituted
confidential information (para 14). In both instances, so it is
alleged, the concept would not be used by the defendant without
the
consent of the plaintiff. Facially, paragraphs 13 and 14 of the
plaintiff’s pleaded case appear incompatible. But assuming
in
the plaintiff’s favour that it is not or that in due course
such incompatibility can be overcome, the plaintiff alleges
in
paragraph 16 of its particulars of claim that ‘[t]he defendant
has breached the agreement in that . . . on or about 1
June 2011,
unlawfully using the concept without the consent of the plaintiff, it
launched an event called “
BE THE
COACH”
under its
Carling
Black Label
trade mark’.
[22]
The defendant’s plea in answer to those allegations is:
‘
3.1
The plaintiff, represented by Jed Webber (“Webber”), and
Rob Fleming (“Fleming”), an employee of the
defendant,
engaged in email correspondence during the course of July and August
2006, a copy of which is attached marked “P1”.
3.2
During the course of that exchange, the plaintiff provided an
“executive summary” relating to the
Fan’s
Challenge Sport
concept (the “concept”) to the
defendant in the absence of any undertaking by the defendant to
maintain the alleged
confidentiality of the concept. The executive
summary is an attachment to the email exchange attached as P1.’
The
exchange of emails relied on by the defendant makes interesting
reading. On 12 July 2006 Jed Webber on behalf of the plaintiff
wrote
to Rob Fleming, the sponsorship manager of the defendant:
‘
Further
to our conversation earlier today I have attached an NDA [non
disclosure agreement] for you to consider. It is a standard
NDA to
protect both parties which should enable us to enter into candid
discussion.
.
. .
If
the NDA is acceptable to you I will forward an executive summary
highlighting the essence of the Concept and I look forward to
discussing the way forward. . . .’
On
26 July Mr Fleming replied:
‘
I
am not happy to sign a cont[r]act that
prevents me from making use of an activity that I might have been
exposed to/thought of etc
etc. it is too restrictive.
SAB
is a company with high ethical standards and one that you can trust.’
Undaunted,
on 28 July Mr Webber wrote:
‘
.
. . we fully understand SABMiller’s position, but you need to
appreciate our position too in that we are discussing and
divulging
very sensitive Intellectual Property . . .
We
are happy to send you a two page summary for you to consider before
any form of NDA is signed. We have utmost respect for SABMiller,
your
good standing as a company and global brand, but feel that it is
reasonable as well as good business practice to be able to
expect at
least some sort of written undertaking that what we divulge and
discuss remains highly confidential, from the perspective
of both
parties.’
On
31 July 2006 Mr Webber despatched the executive summary to Mr
Fleming. After receipt of the executive summary on 21 August 2006,
Mr
Fleming wrote:
‘
Thanks
for the mail. After reading your exec summary, I still don’t
believe there is a need to me to sign confidentiality
contracts. It
looks like an interesting concept but I certainly don’t want to
make any binding commitments right now.’
What
those emails reveal is that Mr Webber appears to have disclosed the
executive summary in the face of a refusal by Mr Fleming
to sign a
confidentiality undertaking.
[23]
Further, in his answering affidavit in opposition to the application
for security, Mr Webber stated:
‘
21.8
I was undeterred and determined to pitch the details of the concept
to Mr Fleming. To this end I arranged to have a telephone
conversation with him. I called Mr Fleming on 24 August 2006.
21.10
Mr Fleming reiterated that the plaintiff could trust the defendant. I
apologized and stated that I was sure he understood
that the
plaintiff needed an assurance that the defendant would not use the
concept without the plaintiff’s permission. Mr
Fleming gave me
his assurance that the information that I was about to impart to him
(the concept), would be received by him on
a strictly private and
confidential basis and would not be used without the consent of the
plaintiff.’
But
that, so contends the defendant, is not the case pleaded by the
plaintiff in its particulars of claim. The defendant asserts
that if
regard is had to the exchange of emails, by 24 August 2006, the
concept had already been disclosed by Mr Webber to Mr Fleming.
Accordingly, so the contention proceeds, the case asserted under oath
in this application is at odds with the plaintiff’s
pleaded
case and, in addition, the plaintiff’s pleaded case is not
supported by the emails. It is, inter alia, for these
reasons that
the defendant denies the existence of the agreement as alleged by the
plaintiff.
[24]
Moreover, the defendant pleads
[24]
that
the information comprising the fans challenge concept was disclosed
in a patent application filed in terms of the Patent Co-operation
Treaty (PCT) and assigned patent number PCT/US01/25784 (the PCT
Patent). In dealing with this defence, Mr Webber stated in his
answering affidavit: ‘I deny the existence of the alleged
patent or that it was public knowledge or public property or that
it
was in the public domain’. The priority date of the PCT patent
is 28 August 2000. It bears an international publication
date of 7
March 2002. According to the defendant the concept was thus available
internationally. Moreover, South Africa is one
of the National
Designated States in the PCT patent. In terms of
s 43B
of the
Patents
Act 57 of 1978
, ‘an International Application designating the
Republic shall be deemed to be an application for a patent lodged at
the patent
office in terms of this Act.’ It is therefore clear
according to the defendant that the plaintiff’s concept was
neither
unique nor confidential as at the date on which the plaintiff
alleges that the parties entered into a confidentiality regime in
respect of the concept.
[25]
It remains to add that the plaintiff has dismally failed to show that
an order compelling it to furnish security will have
the effect of it
being forced to terminate its action. The lack of candour by the
plaintiff’s shareholders, who are funding
the plaintiff’s
litigation but are unwilling to assist it in putting up security for
the defendant’s costs, is telling.
It
is not in dispute that the plaintiff does not trade and that it has
no assets. Moreover, it will not be in a position to meet
an adverse
costs order should one ultimately be granted against it. Of the
plaintiff`s four shareholders, two are professionals
– one is
an architect and the other a legal advisor. Of the remaining two, one
is an entrepreneur and the other an estate
agent. They claim not to
have the resources to furnish any security (irrespective of the
amount) for costs. The picture that emerges
is that although these
shareholders are funding the litigation, they are doing so in a
manner that allows them to hide behind the
corporate veil of the
plaintiff. No evidence has been adduced by them that there has been
an attempt to raise funds to put up security
for the respondent’s
costs, but that they have been unable to do so.
That
reticence to take the court into their confidence should inexorably
lead to the inference that the shareholders, who authorised
the
litigation on behalf of the plaintiff, impecunious as it was, are
shielding behind an empty shell in order to avoid liability
for
costs.
[25]
[26]
In
MTN Service Provider
para
20, Brand JA pointed out that:
‘
One
of the very mischiefs s13 is intended to curb, is that those who
stand to benefit from successful litigation by a plaintiff
company
will be prepared to finance the company’s own litigation, but
will shield behind its corporate identity when it is
ordered to pay
the successful defendant’s costs. A plaintiff company that
seeks to rely on the probability that a security
order will exclude
it from the court, must therefore adduce evidence that it will be
unable to furnish security; not only from
its own resources, but also
from outside sources such as shareholders or creditors (see eg
Lappeman Diamond Cutting Works (Pty) Ltd
v MIB Group (Pty) Ltd (No 1)
1997 (4)
SA 908
(W) 920G-J;
Keary Developments
at
540f-j;
Shepstone & Wylie
at
1047A-B;
Giddey NO
at paras 30, 33 and 34).’
Notwithstanding
the obsolescence of s 13, that mischief remains.
[27]
In the language of
Lombard
(at 877), when a company has
everything to gain and nothing to lose, it would be putting a premium
upon vexatious and speculative
actions if such practice (namely,
compelling security) were not adopted. In
Re Alluvial Creek Ltd
1929 CPD 532
at 535, Gardiner J said in the context of a punitive
costs order:
‘
Now
sometimes such an order is given because of something in the conduct
of a party which the Court considers should be punished,
malice,
misleading the Court and things like that, but I think the order may
also be granted without any reflection upon the party
where the
proceedings are vexatious, and by vexatious I mean where they have
the effect of being vexatious, although the intent
may not have been
that they should be vexatious. There are people who enter into
litigation with the most upright purpose and a
most firm belief in
the justice of their cause, and yet whose proceedings may be regarded
as vexatious when they put the other
side to unnecessary trouble and
expense which the other side ought not to bear.’
[28]
It follows, for the reasons given, that there is no warrant for
interfering on appeal with the discretion exercised by the
high court
(as to which see
Giddey NO v JC Barnard
and Partners
[2006] ZACC 13
;
2007 (5) SA 525
(CC)) in
ordering the plaintiff to furnish security for the costs of the
proceedings instituted by it against the defendant.
[29]
In the result the appeal must fail and it is dismissed with costs,
including those consequent upon the employment of two counsel.
V
M Ponnan
Judge
of Appeal
B
H Mbha
Judge
of Appeal
APPEARANCES:
For
Appellant: M Antonie SC
Instructed
by:
Spoor
& Fisher, Pretoria
Matsepe’s
Inc., Bloemfontein
For
Respondent: P Ginsburg SC (with him GD Marriott)
Instructed
by:
Adams
& Adams, Pretoria
Honey
& Partners Inc., Bloemfontein
[1]
The
judgment of Hassim AJ is reported
sub
nom Boost Sports Africa (Pty) Ltd v South African Breweries Ltd
2014
(4) SA 343 (GP).
[2]
D
F Scott (EP) (Pty) Ltd v Golden Valley Supermarket
2002
(6) SA 297
(SCA) para 9.
[3]
ICC
Car Importers (Pty) Ltd v A Hartrodt SA (Pty) Ltd
2004
(4) SA 607
(W) at 615 G.
[4]
Zietsman
v Electronic Media Network Ltd & others
2008 (4) SA 1
(SCA) para 4.
[5]
M S Blackman ‘Company Law’ in
Lawsa
Vol 4(1) (first re-issue) para 5.
[6]
See eg s 726(1) of the United Kingdom
Companies Act, which
provides:
‘
(1)
Where in England and Wales a limited company is plaintiff in an
action or other legal proceedings, the court having jurisdiction
in
the matter may, if it appears by credible testimony that there is
reason to believe that the company will be unable to pay
the
defendant's costs if successful in his defence, require sufficient
security to be given for those costs, and may stay all
proceedings
until the security is given.’
And
s 1335 of the Australian Corporations Act 2001, which provides:
‘
(1)
Where a corporation is plaintiff in any action or other legal
proceeding, the court having jurisdiction in the matter may,
if it
appears by credible testimony that there is reason to believe that
the corporation will be unable to pay the costs of the
defendant if
successful in his, her or its defence, require sufficient security
to be given for those costs and stay all proceedings
until the
security is given.
(2)
The costs of any proceeding before a court under this Act are to be
borne by such party to the proceedings as the court, in
its
discretion, directs.’
[7]
Hudson
& Son v London Trading Company Ltd
1930
WLD 288
at 291; D R Harms
Civil
Procedure in the Superior Courts
(2014)
para B47.16.
[8]
D
R Harms op cit.
[9]
Per Brand JA in
Newlands
Surgical Clinic v Peninsula Eye Clinic
[2015] ZASCA 25
(20 March 2015) para 24.
[10]
Hiatas
& Others v Port Wild Props 12 (Pty) Ltd
2011 (5) SA 562
(GSJ);
Ngwenda
Gold (Pty) Ltd & Another v Precious Prospect Trading 80 (Pty)
Ltd
unreported
case number 2011/31664 (GSJ);
Genesis
on Fairmount Joint Venture v KNS Construction (Pty) Ltd & Others
unreported
judgment, 28 November 2012, case number 2012/36204, SGJ;
Siemens
Telecommunications (Pty) Ltd v Datagenics (Pty) Ltd
2013
(1) SA 65
(GNP);
Hennie
Lambrechts Architects v Bombenero Investments (Pty) Ltd
2013
(2) SA 477
(FB);
Maigret
(Pty) Ltd (in liquidation) v Command Holdings Ltd & Another
2013
(2) SA 481
(WCC)
Biochlor
(Pty) Ltd v G E Betz South Africa (Pty) Ltd
(A 710/2013) [2014]
ZAGPPHC 1030 (12 December 2014). See also D E van Loggerenberg and J
Malan 'Security for costs by local companies:
Back to 1909 in the
Transvaal, or not?'
(2012) 75 THRHR 609
; Van Loggerenberg &
Farlam ‘Erasmus Superior Court Practice’ – Rule 47
Security for Costs.
[11]
Phillips
and others v National Director of Public Prosecutions
[2005] ZACC 15
;
2006 (1) SA 505
(CC) para 47.
[12]
SABC Ltd v NDPP
[2006] ZACC 15
;
2007 (1) SA 523
(CC) para 35 and 36.
[13]
Universal
City Studios Inc and others v Network Video (Pty) Ltd
[1986] ZASCA 3
;
1986 (2) SA 734
(A) at 754G.
[14]
SABC
Ltd
para
21.
[15]
Road
Accident Fund v Monjane
2010
(3) SA 641
(SCA) para 12;
Marine
& Trade Insurance Co Ltd v Workmen’s Compensation
Commissioner
1972
(1) SA 535
(N) at 538D.
[16]
See
Shepstone
& Wylie
at 1046A-C citing with approval the dictum of Peter Gibson LJ in
Keary
Developments Ltd v Tarmac Construction Ltd
[1995]
3 All ER 534
(CA) at 540a-b; see also
Lappeman
Diamond Cutting Works v MIB Group (No 1)
1997
(4) SA 908
at 919G.
[17]
Tolstoy
Miloslavsky v United Kingdom
[1995]
ECHR 18139/91.
[18]
More recently in
Shepstone
& Wylie
(at
1046G–I)
,
Hefer JA stated:
‘
Let
me say at the outset that the fact that an order of security will
put an end to the litigation does not by itself provide
sufficient
reason for refusing it. It is a possibility inherent in the very
concept of a provision like s 13 which comes into
operation whenever
it appears to the Court that the plaintiff or applicant will not be
able to pay the defendant or respondent’s
costs in the event
of the latter being successful in his defence. If there is no
evidence either way, the mere possibility that
the order will
effectively terminate the litigation can plainly not affect the
Court’s decision. It only becomes a factor
once it is
established as a probability by the plaintiff or applicant. And,
even if it is established, it remains no more than
a factor to be
taken into account; by itself it does not provide sufficient reason
for refusing an order.’
[19]
City
of Cape Town v SANRAL
[2015]
ZASCA 58
(30 March 2015) para 29.
[20]
Henry
v R E Design
1998
(2) SA 502
(CPD).
[21]
Bisset
v Boland Bank Ltd
1991
(4) SA 603
at 608D-E.
[22]
D R Harms
Civil
Procedure in the Superior Courts
– Uniform Rule 47 – Instances where security can be
demanded B-339.
[23]
Under consideration there was Order 25, rule 4, which provided: ‘The
Court or a Judge may order any pleading to be struck
out, on the
ground that it discloses no reasonable cause of action or answer, or
in any such case or in the case of the action
or defence being shown
by the pleadings to be frivolous or vexatious the Court or a Judge
may order the action to be stayed or
dismissed, or judgment to be
entered according as may be just.’
[24]
In that regard the defendant’s plea reads:
‘
6.1
The defendant denies that Boost Sports International Limited was at
any time the owner of the rights in the concept.
6.2
The defendant pleads that the concept was in the public domain prior
to the date on which the executive summary relating to
the concept
was first provided to the defendant and was not therefore
proprietary to the plaintiff or its purported predecessors
in title,
or to any person at that date.
In
support of the aforegoing, the defendant will rely on the
disclosures in PCT patent application WO 02/19206 published in March
2002, a copy of which is attached marked “P2”.’
[25]
Kini
Bay Village Association v Nelson Mandela Metropolitan Municipality
[2008]
4 All SA 50
(SCA) para 15.