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[2021] ZAGPJHC 375
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IDS Industry Service and Plant Construction South Africa (Pty) Ltd v Industrius D.O.O (15862/2020) [2021] ZAGPJHC 375 (28 April 2021)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, JOHANNESBURG
CASE
NUMBER: 15862/2020
REPORTABLE:
YES
OF
INTEREST TO OTHER JUDGES: YES
REVISED.
28
April 2021
In
the matter between: -
IDS
INDUSTRY SERVICE AND PLANT
CONSTRUCTION
Applicant
SOUTH
AFRICA (PTY) LTD
(Respondent in main application)
and
INDUSTRIUS
D.O.O.
Respondent
(Applicant in main
application)
JUDGMENT
DELIVERED
:
This judgment was handed down electronically
by circulation to the parties’ legal representatives by email
and publication
on CaseLines. The date and time for hand-down is
deemed to be 10h00 on 28 April 2021.
SUMMARY
:
International Arbitration Act, 15 of
2017 (“
IAA”
)–
Application for Security for Costs –
whether permissible
for a South African Court to apply the Uniform Rules of Court and the
usual considerations relating to security
for costs when the IAA is
applicable.
F.
BEZUIDENHOUT AJ:
INTRODUCTION
[1]
In these interlocutory proceedings, an
incola
applicant
(“
IDS”
) applies for security for costs against a
peregrine
respondent (”
Industrius”
) in the
amount of R500,000.00 (“
the security application”
)
in terms of rule 47(3) of the Uniform Rules of Court (“
the
URC”
).
[2]
Industrius filed an application to make an arbitral award (“
the
award
”) published on 9 June 2020 in favour of
Industrius, an order of this Court (”
the enforcement
application”
).
[3]
The
enforcement application is premised on article 35 of the UNCITRAL
[1]
Model law
[2]
(“
the
Model law
”)
as
adapted in Schedule 1 of the International Arbitration Act, 15 of
2017 (“
the
IAA”
),
read with sections 16 to 18 of the IAA.
[4]
IDS
admits that there is no substantive legal impediment for the
arbitration award to be made an order of court.
[3]
Nevertheless,
IDS
instituted a counter-application where it seeks the following relief:
-
[a]
A stay of the enforcement application pending the finalisation of an
action instituted
by IDS in this Court against Industrius under case
number 19156/2020 (“
the action”
);
[b]
In the alternative, an interdict preventing Industrius from making
the award an order
of Court (“
the order”)
, pending
the final adjudication of the action;
[c]
Further alternatively, a stay of the execution of the order pending
the final adjudication
of the action.
[5]
IDS therefore seeks security on the basis that its
counter-application for a stay is a dilatory defence to the ensuing
judgment
debt, which, it contends needs to be stayed pending the
finalisation of its action.
[6]
I am called upon to determine the security application only.
FACTUAL MATRIX
[7]
Industrius is registered as a limited liability company in terms of
the laws
of the Republic of Croatia (“
Croatia”
).
Its place of business and registered address is in Croatia, and
it does not own any unmortgaged immovable property within
the
Republic of South Africa (“
South Africa”)
[8]
IDS is a private company registered in terms of the laws of South
Africa, and
with its registered address in South Africa.
[9]
Between 2013 and 2017 IDS and Industrius forged a contractual
relationship in
terms whereof Industrius recruited Croatian welders,
fitters and supervisors to work on the Medupi and Kusile power plant
projects
in South Africa, under the supervision, direction and
control of IDS.
[10]
A dispute arose between IDS and Industrius on matters concerning
their contractual relationship
during July 2017 and as a consequence,
IDS and Industrius agreed to terms of an arbitration agreement and
referred the dispute
to an arbitration tribunal in South Africa.
[11]
It is not disputed that the arbitration agreement entered into by
Industrius and IDS is an agreement
defined in article 7 of the
Model law and that the arbitration was an international arbitration
as contemplated in article 1(3)
of the Model law in that at the
time of the conclusion of the arbitration agreement, IDS and
Industrius had their places of business
in different States. The
parties agreed to South Africa as the juridical seat in terms of
article 20 of the Model law.
[12]
The disputes referred to arbitration consisted of a main claim by
Industrius and a counterclaim
by IDS. Both claims concerned the
payment of monies.
[13]
On 25 May 2020, the arbitration proceedings took place in the absence
of any representation on
the part of IDS. Oral evidence was adduced
by Industrius.
[14]
On 9 June 2020, the award was published. Essentially, the
claim brought by Industrius
was upheld and the counterclaim brought
by IDS, dismissed.
[15]
The enforcement application was instituted on 7 July
2020.
On the 5
th
of August 2020,
IDS opposed the enforcement application and on 28 August 2020, it
served an answering affidavit
and a counter-application.
[16]
On the 12
th
of
August 2020 IDS served a notice in terms of rule 47(1) of
the URC on Industrius, demanding security for its costs
on primarily
the following grounds: -
[a]
Industrius is a
peregrinus
of this Court, incorporated and
with its principal place of business and registered office in the
Republic of Croatia.
[b]
Industrius does not own any unmortgaged immovable property in the
South Africa.
[17]
Industrius declined to provide security on the basis that the demand
for security constituted
an abuse of the process of Court, was an
attempt to delay an award in favour of Industrius and to avoid
payment. Pursuant to the
refusal, IDS brought the security
application on the 11
th
of September 2020. On the
22
nd
of October 2020 Industrius served an
answering affidavit in opposition.
GROUNDS OF OPPOSITION
ADVANCED BY INDUSTRIUS
[18]
The enforcement application is governed by the Model law which has
been adopted in South African
law through the IAA. Industrius
therefore contends that
there is no provision in
the IAA or the Model law which empowers this Court to grant security
in an application for enforcement.
In fact, article 5 of the Model
law annexed as schedule 1 to the IAA provides that a Court should not
intervene, except where intervention
is expressly provided for: -
“
In
matters governed by this Law, no court shall intervene except where
so provided in this Law.”
[19]
Industrius asserts that the applicable “
Law”
only
provides for two instances where a party may be ordered to provide
security for costs, namely:
[a]
by an
arbitral tribunal
, in terms of chapter IV(A),
section
1, article 17 dealing with interim
measures, sub article (2)(e) of the Model law;
[b]
by the Court, in terms of section 17(3) of the IAA
[4]
,
which provides as follows:
“
(3)
If an application for the setting aside or suspension of an award has
been made to a competent
authority referred to in subsection
(1) (b) (vi), the court where recognition or enforcement is
sought may, if it considers
it appropriate-
(a)
adjourn its decision on the
enforcement of the award; and
(b)
on the application of the
party
claiming enforcement
of
the award
, order the other party
to provide suitable security.”
(emphasis
added)
[20]
In the first instance, IDS applied for security for costs before the
arbitral tribunal but failed.
In the second instance, only Industrius
as the applicant in the enforcement application, is entitled to apply
for security against
IDS, but did not do so.
[21]
Industrius argues that Chapter VIII of the
Model law provides that the enforcement of an award can be refused
only on the most
limited grounds provided for in article 36 and
that none of these grounds have been advanced by IDS.
Accordingly,
IDS has no prospect of succeeding in its counter application.
[22]
Industrius
submitted that a Court hearing a security application should also
consider whether the action has any prospects of success.
Industrius
contends that IDS has no prospect in that the claims were dismissed
by the arbitrator and are
res
judicata
,
and to the extent that IDS relies on the alternative claim of
enrichment, it is estopped from doing so on the basis that the
subcontracts have been held by the arbitrator to be fictitious. In
the alternative, Industrius contends that the enrichment claims
are
subject to the arbitration agreement between the parties, and are by
their nature not liquid claims.
[5]
[23]
In reply,
IDS denies, without further explanation, most of the grounds of
opposition. In particular, IDS disputes the correctness
of
Industrius’ interpretation of the law and states that unless
the statute expressly and specifically excludes portions
of South
African law from application, then they remain applicable.
[6]
ISSUES FOR
DETERMINATION
[24]
The Court is called upon to determine: -
[a]
whether IDS is entitled to seek security under the present
circumstances.
[b]
whether there is
prima facie
merit in IDS’s stay
application and if so, whether the issues germane to the security
application are sufficiently interlinked
to IDS’s stay
application for this Court to exercise its discretion to order
security for costs as claimed.
[c]
whether article 5 of the Model law still bears application to
stay proceedings
brought to prevent the enforcement and execution of
an arbitration award.
[b]
whether it is permissible for a South African Court to apply the URC
and the usual
considerations relating to security for costs when the
IAA is applicable.
SUBMISSIONS ON
BEHALF OF IDS
[25]
I summarise IDS’s main points of argument.
[26]
IDS relies on two main facts in support of its contention in favour
of security for costs and
those are that Industrius is a
peregrinus
of this Court and has no movable or immovable assets, nor any
interests, in the Republic capable of satisfying an award of costs.
[27]
Neither IAA nor the Model law contain provisions which regulate or
prescribe the manner in which
a competent Court is to handle an
application brought for the enforcement of an award. It is implied
that a competent Court would
follow the procedures usually adopted by
such Court. The contrary would lead to a
lacuna
in which no
procedure would exist in terms of which a party could approach a
Court for enforcement. Accordingly, the internal procedure
of any
competent Court in an application for enforcement is not governed by
article 5 of the Model law.
[28]
It cannot be said therefore that a Court is “
intervening”
in circumstances where a competent Court is approached by one of the
parties for enforcement made pursuant to a concluded arbitration
proceeding.
[29]
Rule 47 of URC regulates procedural issues only relating to security
for costs. The substantive
provisions of when a court may and should
award security for costs is regulated by the provisions of common
law. IDS approached
this Court for resolution of the dispute
pertaining to its contended right to security for costs and in this
regard the provisions
of sections 34 and 8(3) of the South
African Bill of Rights are applicable, which provide that: -
[a]
everyone has the right to have any dispute that can be resolved by
the application
of law decided in a fair public hearing before a
Court;
[b]
when applying a provision of the Bill of Rights to a natural or
juristic person in
terms of subsection (2), a Court, in order to give
effect to a right in the Bill, must apply the common law to the
extent that
legislation does not give effect to that right.
[30]
A fundamental tenet of statutory interpretation is that the words in
a statute must be given
their ordinary grammatical meaning, unless to
do so would result in an absurdity. There are three important
interrelated riders
to this general principle, namely: -
[a]
that statutory provisions should always be interpreted purposively;
[b]
the relevant statutory provision must be properly contextualised; and
[c]
all statutes must be construed consistently with the Constitution,
that is, where
reasonably possible, legislative provisions ought to
be interpreted to preserve their constitutional validity.
[31]
When interpreting IAA, a South African Court is obliged to apply the
common law when it is applicable
in matters relating to the IAA.
[32]
If the intention of the South African legislature in giving effect to
the Model law was to preclude
the provisions for an application for
security for costs, then the exclusion would have been catered for in
the legislation. A
proper interpretation of the legislative regime
leads to a conclusion that the legislature never intended to preclude
a Court from
regulating its own processes, including issues relating
to security for costs and by necessary implication a Court would have
to
consider the common law when considering an award for security for
costs.
[33]
The authority for an arbitral tribunal to grant an award for security
for costs is dependent
upon the instrument empowering the arbitrator.
The same does not apply to a South African Court since such Court is
not regulated
by the Model law, although it is obliged to
appropriately apply its provisions.
[34]
The absence of a provision in the Model law does not stand as a
prohibition to a South African
Court to consider costs since the
Court is not regulated by the Model law. As such, a Court cannot be
said to be intervening in
the application when security for costs is
considered after the award.
[35]
On the prospects of success of the counter-application it is not an
appropriate factor as it
would require an interlocutory Court to hold
a dress rehearsal on the prospects of success in the main suit. It is
more appropriate
for the Court hearing the main application to make
those determinations.
[36]
The right of an
incola
to claim security for costs against a
peregrinus
does not flow from substantive law, but is rather a
question of practice.
[37]
The Court has a discretion to order security for costs, even in a
case where the
peregrinus
is a defendant.
[38]
It is trite
that a Court will not in applications for security for costs enquire
into the merits of the dispute or the
bona
fides
of the parties.
[7]
[39]
The very
nature and purpose for seeking security for costs is the uncertainty
and inconvenience and expense in attempting to recover
costs orders
in foreign jurisdictions.
[8]
SUBMISSIONS ON
BEHALF OF INDUSTRIUS
[40]
I summarise Industrius’ main points of argument.
[41]
There is no defence to the application by Industrius for enforcement
of the award and IDS raises
none.
[42]
The Court
has a discretion whether a
peregrinus
applicant should be ordered to give security for costs.
[9]
[43]
The Court should not order security where the
peregrinus
seeks
to enforce a valid arbitral award. To do so would undermine the
international arbitral process and its functioning in South
Africa.
[44]
Article 34 of the Model law sets out the exclusive recourse to a
Court against an international
arbitral award. IDS has not sought to
employ any such remedy. Nor does IDS dispute that the award is
binding on it.
[45]
The proper time for an
incola
to seek security from a
peregrinus
is in the arbitration, which was in fact done,
albeit unsuccessfully.
[46]
When an award against the
incola
has been made, the
enforcement process should be allowed to proceed unimpeded, barring
any application to set aside the award on
the limited grounds set out
in article 34 of the Model law.
[47]
IDS is the
applicant in the counter-application. IDS thus cannot seek costs from
a
peregrinus
respondent.
[10]
[48]
The counter-application to stay has no basis in law or in fact. IDS
should not be allowed to
frustrate the payment of the award.
[49]
The arbitrator decided the case on the merits in dismissing the
counter application. In
reaching the conclusion, the arbitrator
held that the purported Medupi and Kusile subcontracts on which IDS
relied, were a fiction
and did not govern or have any application to
the relationship between the parties.
[50]
In terms of the arbitration agreement there was no appeal against the
award and the award was
thus final. IDS has not sought to review the
award, nor would there be any basis in the IAA or the Model law to do
so.
[51]
Under article 36(2) the Court may adjourn a decision on
enforcement under the Model law
only where an “
application
for setting aside or suspension of an award has been made
”
to another Court in terms of article 36(1)(a)(v). No such
application has been made or is pending. The action is not
an
application for the setting aside or suspension of the award, nor
could it be since there is no dispute that the award is binding.
DELIBERATION
INTERNATIONAL
ARBITRATIONS
[52]
For arbitration to function as an effective alternative
dispute resolution mechanism for international commercial disputes,
the
recognition and enforcement of foreign arbitral awards are
fundamental.
[53]
Within
the present context of this matter, section 39(1) of the Constitution
specifically provides that “
[W]
hen
interpreting the Bill of Rights, a court… must consider
international law
.”
The
IAA provides for the recognition and enforcement of foreign arbitral
awards in South Africa and explicitly states that the provisions
of
both the convention and the model law are subject to the
Constitution.
[11]
[54]
The IAA incorporates the Model law as well as the full text of
the New York Convention on the Recognition and Enforcement of Foreign
Arbitral Awards (“
the convention”
). South Africa
acceded to the convention on the recognition and enforcement of
foreign arbitral awards in 1976 and enacted the
Recognition and
Enforcement of Foreign Arbitral Awards Act, 40 of 1977 (repealed) to
comply with its international law obligations
as a contracting state
of the convention. The convention is incorporated into the IAA in
schedule 3 and the Model law as schedule 1.
[55]
It is therefore quite clear that the IAA,
Model law and convention not only form part of the laws of South
Africa, but South African
Courts “
must”
consider the IAA (and therefore also the Model law and convention)
when interpreting the Bill of Rights.
[56]
IDS’s argument that South African Courts,
when interpreting the IAA, are obliged to apply the common law when
it is applicable in matters relating to the IAA is an inaccurate
and
general proposition made without due regard to the wording of section
8(3) of the Bill of Rights which states that a court
“
must
apply, or if necessary develop, the common law to the extent that
legislation does not give effect to that right
”
and
the provisions of section 39(1).
[57]
Firstly, the IAA provides for security for
costs in specific instances. The fact that it does not provide for
security for costs
within the context of the present application,
does not render the IAA unconstitutional or oblige the Court to turn
to the common
law.
[58]
Moreover, IDS’s reliance on section
34 (access to court and fair public hearings) of the Bill of Rights
is similarly misplaced.
IDS is a contracting party to an arbitration
agreement in terms whereof the parties elected to have their disputes
resolved, not
through a court, but through a private arbitral
tribunal. Therefore, in accordance with Chapter 3 of the IIA, South
African Courts
must enforce and recognize arbitration agreements.
[59]
The
principle of party autonomy is also linked to freedom to contract and
to upholding the terms of the arbitration agreement.
[12]
It is well-known that
arbitration
is the preferred mechanism employed in resolving international
commercial disputes in that the parties can effectively
regulate
their own process.
[60]
Judicial
intervention is limited and discouraged to safeguard party autonomy,
the foundation of international commerce.
[13]
It
is therefore not surprising that
article III of the convention is peremptory in that “
each
contracting State shall recognise arbitral awards and enforce them”
is often referred to as the convention’s “
pro enforcement
bias
”.
[14]
[61]
The IAA contains two sets of provisions on recognition and
enforcement, namely those contained in the convention and those in
the
Model law. Significantly, subsection 16(1) of the IAA
requires that an arbitration agreement and foreign arbitral award
“
must”
be recognised and enforced in South Africa
as required by the convention, subject to section 18 of the IAA
which provides
exhaustive grounds for the refusal of the recognition
and enforcement of foreign judgments.
[62]
The grounds for an application to set aside an arbitral award
in the jurisdiction where the award was made, as provided for in
article 34
of the Model law, also correspond with the grounds
for the refusal of recognition and enforcement as set out in
article 36
of the model law and article V of the
convention. Christie commented that: -
“
The advantage
of such an alignment is obvious: An award that cannot be set aside
cannot be refused recognition and enforcement in
any of the …
states which have become parties to the Convention, and an award that
can be set aside can also be refused
recognition and
enforcement.”
[15]
[63]
While
it is not expressly so provided, the Courts have considered the
burden of proof under article V(2) of the convention
to rest
with the party opposing recognition and enforcement.
[16]
It would also explain why a party who challenges the enforcement and
recognition may be called upon to provide security.
[64]
IDS on its
own version does not challenge the recognition and enforcement of the
award. The award has not been set aside or suspended
either. In any
event, even if IDS did challenge the award, it could only do so on
limited grounds and only Industrius, and not
IDS, would be entitled
to apply for security for costs. The intention of the security
provision under article VI of the convention
is quite clear -
to
prevent an abuse of the setting aside/suspension provision by the
losing party which may have started annulment proceedings without
a
valid reason purely to delay or frustrate the enforcement of the
award.
[17]
The permissive
language used in article VI as mirrored in section 18(3) of the IAA
is also instructive. It indicates that the application
for
adjournment (and so also the providing of security)
[18]
is a matter of discretion.
[19]
[65]
Under
article VI, only the party opposing enforcement can be ordered to
provide security. In one reported case, a court decided
that it was
“justified that the claimants give security [...] for the case
of anticipatory enforcement.”
[20]
Several years later, another court in the same jurisdiction held that
the Convention offers no basis to order security from the
party
seeking enforcement.
[21]
In
1993, a court in Germany held that pursuant to article VI of the
Convention, a court may only order the party opposing enforcement
to
provide adequate security, but not the party seeking enforcement.
[22]
Since then, it appears that courts have consistently refused to order
the party seeking enforcement to provide security as a condition
for
enforcing the award.
[23]
[66]
Articles
III and IV of the convention concern the formalities of the
enforcement procedure under the convention. The simplicity
of the
formal enforcement procedures is instructive. It provides insight as
to why an application for security for costs is only
provided for in
limited instances such as in the case of setting aside and suspension
of arbitral awards. This has the effect that
courts are seldom faced
with matters in which they have to rule on non compliance with
these two articles.
[24]
[67]
Article III further prohibits a Court from imposing
“
substantially more onerous conditions or higher fees or
charges on the recognition and enforcement of arbitral awards to
which this
convention applies than are imposed on the recognition and
enforcement of domestic arbitral awards”
. In my view this
would include an instance where a successful party applies to Court
for the enforcement of an arbitral award only
to be faced with an
application for security for costs. Such judicial intervention would
discourage parties from choosing South
Africa as a juridical seat in
international arbitrations which, in turn, will have a negative
effect on the country’s economy.
[68]
The
Supreme Court of Appeal has recognised the need to favour party
autonomy and avoid judicial intervention in commercial arbitration
matters and South Africa in this regard therefore aligns itself with
the stance taken by other jurisdictions such as Australia
[25]
.
In
Zhongij
Development Construction Engineering Company Ltd v Kamoto Copper
Company SARL
,
[26]
Willis JA (for the majority) stated that there is a duty to recognise
international arbitration:
“
South
African courts not only have a legal but also a socio-economic and
political duty to encourage the selection of South Africa
as a venue
for international arbitrations. International arbitration in South
Africa will not only foster our comity among the
nations of the
world, as well as international trade but also bring about the
influx of foreign spending to our country.”
[69]
Gorven
AJA emphasized the sanctity of contract and party autonomy
[27]
by stating:
“
[59]
With reference to the rules and the international trend referred to
and relied on by both parties, it is clear that if courts
arrogate to
themselves the right to decide matters which parties have agreed
should be dealt with by arbitration, the likelihood
of this country
being chosen as an international arbitration venue in future is
remote in the extreme. Persons wishing to
have their disputes
resolved by arbitration do not wish the process to be retarded by
constant recourse to courts.”
[70]
I therefore find that:
[a]
IDS is not entitled to seek security under the present circumstances.
[b]
article 5 of the Model law still finds application.
[c]
the URC and the usual considerations relating to security for costs
do not apply in
matters concerning international arbitrations and the
IAA.
SECURITY FOR COSTS
[71]
Even if I am wrong in my finding that IDS
is not entitled to seek security and that the URC does not apply, the
security application
still has no merit in my view.
[72]
The Court has a discretion whether or not to order security to
be lodged in any given case, a discretion which is to be exercised
by
having regard to all the relevant facts, as well as considerations of
equity and fairness to both parties.
[73]
It is an
established practice and not part of the substantive law that a Court
may order security for the judgment on the counterclaim
of the
resident defendant against the foreign plaintiff.
[28]
Africar
(Rhodesia) Ltd v Interocean Airways SA
[29]
and Prentice and Mackie v Bells Assignee
[30]
and
Schunke
v Taylor and Symonds
[31]
and
Taylor
v Merrington
[32]
are all authority for the proposition that a
peregrinus
plaintiff can be ordered to give security for a claim in
reconvention.
[74]
However, a
Court should be slow to conclude that considerations of fairness and
equity favour the granting of security and should
do so only in the
most exceptional of circumstances, if at all
[33]
“
particularly
in present-day circumstances”
[34]
where
intercontinental travel and communication has become infinitely
swifter and more convenient. “
Legal
practice should not stand aloof from such changes but should
recognise them and their impact.”
As
it was put by Goldstone
J
in
Elscint
(Pty) Ltd v Mobile Medical Scanners (Pty) Ltd
:
[35]
-
“
Considerations
of fairness and justice and the reality of modern international
commerce and efficient means of travel and communication
militate
against treating foreign defendants who have submitted to the
jurisdiction more harshly than incola defendants.”
[75]
Milne J
in
Sandock
Austral Ltd v Exploitation Industrielle et Commerciale-Bretic
[36]
pointed out the ease of suing in the peregrine’s own forum at
286H: -
“
[I]t is not
suggested that the French Courts would not enforce the plaintiff’s
claim and it does not seem to me a totally
irrelevant consideration
that international travel is a great deal easier and quicker nowadays
and the task of following the peregrinus
to his own forum is
accordingly less arduous than before.”
[76]
In
Compair
SA (Pty) Ltd v Global Chemical Co (Pty) Ltd
[37]
Aaron AJ said: -
“
A counterclaim
is technically separate and distinct from the claim in convention,
and it is probably competent to order, in a proper
case, that a
defendant gives security for the costs of the counterclaim.
Nevertheless the issues in the conventional action and
the
reconventional action may be so closely related that, if the court
orders a plaintiff in reconvention to give security for
costs, it may
in effect be ordering it to give security for the costs brought about
by its defence of the action in convention.
Accordingly, although it
may be competent for a court to order security to be given by a
plaintiff in reconvention, the court may
in the exercise of its
discretion decline to do so in such cases.”
[77]
In
B&W
Industrial Technology (Pty) Ltd and Others v Baroutsos
[38]
the Full Bench of this Court had opportunity to deal with an appeal
concerning two applications against a
peregrine
respondent. In the first application, the appellants sought security
for costs of the respondent’s claim against them and
in the
second application which related to a separate action they sought
security for costs and for the potential value of their
counterclaims, should they succeed. I pause to state that the
applications were dismissed primarily on the grounds of substantial
delay, which is not one the grounds of opposition in the present
matter.
[78]
More importantly for present purposes, in the second application the
Court was of the view that
in modern commercial actions it was
undesirable and not generally in the interest of justice to order
security in respect of claims
in reconvention. The Full Bench
fortified its finding as follows at paragraph 37 of the judgment: -
“
The equity and
fairness of directing security for costs where an incola is sued by a
peregrine plaintiff is far more readily apparent
than the equity and
fairness of requiring a peregrine plaintiff to give security for the
judgment likely to be obtained against
him on a counterclaim by an
incola. In the first instance, the claim has been brought by the
peregrinus; he has chosen to litigate
against the incola. In the
second case, the claim for which security is sought is brought by the
incola and not the peregrinus;
it is the incola who has chosen to
litigate insofar as his claim is concerned. Where the incola is a
defendant in convention, he
is such involuntarily. He has no choice
in the matter. In the case of a counterclaim, the incola acts
voluntarily and chooses to
sue. Having done so, he now turns to his
peregrine opponent and requires that the latter secures the incola’s
counterclaim.”
[79]
The Full Bench in
B&W
, correctly in my view, stated
that: -
“
It is not in
accordance with modern commercial needs, nor is it just or equitable
to impose such a burden on peregrine plaintiffs
who chose to sue
their alleged debtors in South African courts.”
[39]
[80]
This is now even more so in the case of international commercial
arbitration conducted with South
Africa as its juridical seat.
[81]
It is
neither in accordance with modern commercial needs, nor just and
equitable to impose the burden of having to give security,
for the
amount of an
incola
defendant’s counterclaim, on a
peregrinus
plaintiff particularly in circumstances where the
peregrinus
plaintiff resides in a civilized country with a civilized legal
system and where there is nothing preventing the
incola
defendant, given the present ease of travel and communication, from
suing the
peregrinus
plaintiff in his/her own country.
[40]
[82]
In
Shuncke v Taylor and Symonds
the Court held that a
defendant is sufficiently protected from being unduly harassed by
unfounded claims by compelling a foreign
plaintiff to give full
security for costs either expressly or by being possessed of property
available in case of his failing in
his action. To compel such
plaintiff, who follows his debtor to such debtor’s
domicile
,
and sues him in his own forum, to furnish security for any amount of
damages which such debtor alleges he intends to claim by
way of
reconvention would open the way to a denial of justice.
[83]
The factors which the Court will consider in the exercise of its
discretion to determine an application
for security for costs are
case specific. No list of factors to be rigidly followed exists
indicating which factors weigh
more heavily than others. Some
guidelines exist that may influence the Court in the exercise of its
discretion. These include whether
the plaintiff’s claim is made
in good faith or whether it is
mala fide
, whether it can be
concluded that plaintiff has a reasonable prospect of success and
whether the application for security was used
to stifle a genuine
claim.
[84]
Williams AJ
held in
Alexander
v Jokl and Others
:
[41]
-
“
The
bona fides or the soundness of the claim of the peregrinus is at no
time a factor which influences the discretion to be exercised
in
deciding whether or not an incola should be protected against
possible loss in regard to the costs of defending the claim brought
against him. The court in ordering security for such a purpose does
not in any way anticipate the eventual decision on the claim
by
investigating and weighing up at that stage the probabilities of
success or the bona fides of the claim…”
[85]
Apart from stating that Industrius is a
peregrine
and has no unmortgaged immovable property in South Africa, IDS has
failed to establish any exceptional circumstances to justify
an order
for security for costs. It was most certainly not argued that Croatia
is anything but a civilized country with a civilized
legal system nor
that there is anything preventing IDS, given the present ease of
travel and communication, from enforcing in Croatia
any costs order
that may be granted in its favour. Furthermore, Croatia is a party to
all the relevant treaties for the enforcement
of foreign arbitral
awards.
[86]
In view of my finding on the absence of
exceptional circumstances I am not required to consider whether there
is
prima facie
merit in IDS’s stay application and therefore defer this issue
to the Court hearing the enforcement and stay application.
COSTS
[87]
It was argued on behalf of IDS that I
should not allow the costs of two counsel, should I find in favour of
Industrius. It is not
disputed that Industrius was represented by two
counsel throughout the arbitration proceedings. Complex matters of
law were argued
which justify the employ of senior and junior
counsel. I therefore do not find any reason why I should limit
Industrius from recovering
the costs of one counsel only.
ORDER
[88]
In the circumstances I make the following order: -
[a]
The application for security for costs is dismissed.
[b]
The applicant (IDS) shall pay the respondent’s (Industrius)
costs, including
the costs consequent upon the employment of two
counsel.
F
BEZUIDENHOUT
ACTING
JUDGE OF
THE
HIGH COURT
Date
of Hearing:
15 March 2021
Date
of Judgment:
28 April 2021
APPEARANCES:
On
behalf of applicant:
SF du Toit SC
(With him IB Currie)
Instructed
By:
Knowles Hussain Lindsay Inc
Tel: 011 669 6000
E-mail:
ivl@khl.co.za
/
sh@khl.co.za
On
behalf of respondent:
HJ Fischer
Instructed
By:
Spellas Lengert Kuebler Braun Inc
Tel: 011482 1431
E-mail:
hpb@slkb.co.za
[1]
United
Nations Commission on International Trade Law.
[2]
Means
the UNCITRAL Model Law on International Commercial Arbitration
adopted by the United Nations Commission on International
Trade Law
on 21 June 1985, as amended by the said Commission on 7 July 2006.
[3]
Applicant’s
supplementary practice note dated 5 March 2021: par. 4.3
[4]
Mirroring
article 36(2) of the Model law
[5]
Answering
affidavit, paragraphs 5 to 11.
[6]
Replying
affidavit, paragraph 6.3.
[7]
Arkell
& Douglas v Berold
1922 CPD at 198;
Estate
Fawcus v Wood
1934 CPD 234
at 249;
Banks
v Henshaw
1962 (3) SA 464 (D).
[8]
Exploitatie-EN
Beleggings Maatschappij Argonauten 11 BNV and Another v Honig
2012 (1) SA 247
(SCA) at 255.
[9]
Magida
v Minister of Police
1987 (1) SA 1 (A).
[10]
Banks
v Henshaw
1962 (3) SA 464 (D).
[11]
Sections
2 and 3(d) of the IAA; Constitution of the Republic of South Africa,
1996.
[12]
Burton,
“The New Judicial Hostility to Arbitration: Federal
Preemption, Contract Unconscionability, and Agreements to Arbitrate”
(2006) Journal of Dispute Resolution 469 at 470; See also
Baboolal-Frank, Judicial Hostility towards International Arbitration
Disputes in South Africa: Case Reflections” (2019) South
Africa Mercantile Law Journal 31 at 373
[13]
De
Lange v Presiding Bishop of the Methodist Church of Southern Africa
for the Time Being & Another
2015
(1) SA 106
(SCA);
Bidoli
v Bidoli
2011 (5) SA 247 (SCA)
[14]
UNCITRAL
Secretariat Guide (2016), p 78.
[15]
Christie,
Arbitration:
Party Autonomy or Curial Intervention II: International Commercial
Arbitrations
(1994) 111 SALJ 360
at 369.
[16]
UNCITRAL
Secretariat Guide (2016), p 129.
[17]
Travaux
préparatoires, United Nations Conference on International
Commercial Arbitration, Summary Record of the Seventeenth
Meeting,
E/CONF.26/SR.17, p. 4
[18]
Spier
v. Calzaturificio Tecnica S.p.A, District Court, Southern District
of New York, United States of America, 29 June 1987,
663 F. Supp.
871; Consorcio Rive, S.A. de C.V. v. Briggs of Cancun, Inc., David
Briggs Enterprises, Inc., District Court, Eastern
District of
Louisiana, United States of America, 26 January 2000, 99-2205, XXV
Y.B. Com. Arb. 1115 (2000); Yukos Oil Co. v. Dardana
Ltd., Court of
Appeal, England and Wales, 18 April 2002,
[2002] EWCA Civ 543
; IPCO
v. Nigeria (NNPC), High Court of Justice, England and Wales, 27
April 2005,
[2005] EWHC 726
(Comm); The Republic of Gabon v. Swiss
Oil Corporation, Grand Court, Cayman Island, 17 June 1988, XIV Y.B.
Com. Arb. 621 (1989).
[19]
Hebei
Import & Export Corp v. Polytek Engineering Co. Ltd., High
Court, Supreme Court of Hong Kong, Hong Kong, 1 November
1996,
[1996] 3 HKC 725
[20]
Henri
Lièvremont and v. Adolphe Cominassi, Maatschappij voor
Industriele Research en Ontwikkeling B.V., President of Rechtbank,
Court of First Instance of Zutphen, Netherlands, 9 December 1981,
VII Y.B. Com. Arb. 399 (1982)
[21]
Southern
Pacific Properties v. Arab Republic of Egypt, President of the
District Court of Amsterdam, Netherlands, 12 July 1984,
X Y.B. Com.
Arb. 487 (1985)
[22]
Oberlandesgericht
[OLG] Frankfurt, Germany, 10 November 1993, 27 W 57/93. See also
Powerex Corp., formerly British Columbia Power
Exchange Corporation
v. Alcan Inc., formerly Alcan Aluminum Ltd., Court of Appeal of
British Columbia, Canada, 4 October
2004, 2004 BCCA 504.
[23]
See,
e.g., Gater Assets Ltd. v. Nak Naftogaz Ukrainiy, Court of Appeal,
England and Wales, 17 October 2007,
[2007] EWCA Civ 988
; Yukos Oil
Co. v. Dardana Ltd., Court of Appeal, England and Wales, 18 April
2002, [2002] EWCA Civ 543.
[24]
Di
Pietro & Platte, (Cameron May 2001) 128
[25]
TCL
Air Conditioner (Zhongshan) Co Ltd v The Judges of the Federal Court
of Australia
[2013]
HCA 5
[26]
2015
(1) SA 345
(SCA) 345; par 30
[27]
Wethmar-Lemmer
& Schoeman, “The International Arbitration Act 15 of 2017:
Impetus for Development on the Cross-Border
Commercial Front”,
(2019) TSAR 1
127 at 130
[28]
Saker
& Co Ltd v Grainger
at 227.
[29]
1964
(3) SA 114 (SR).
[30]
1960
H 29.
[31]
(1891)
8 SC 103.
[32]
(1885)
2 SAR 30.
[33]
See
B&W
Industrial Technology (Pty) Ltd and Others v Baroutsos
,
paragraphs 38 to 42.
[34]
B
& W; paragraph 38, p 143.
[35]
1986
(4) SA 552
(W) at 557H.
[36]
1974
(2) SA 280 (D).
[37]
1985
(1) SA 532
(C) at 532I - 533A.
[38]
2006
(5) SA 135 (W).
[39]
Paragraph
42.
[40]
Silvercraft
Helicopters (Switzerland) Ltd and Another v Zonnekus Mansions (Pty)
Ltd and two other cases
2009 (5) SA 602
(C), paragraph 46, p 611.
[41]
1948(3)
SA 269 (W) at 281.