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[2011] ZASCA 182
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Exploitatie- en Beleggingsmaatschappij Argonauten 11BV and Another v Honig (649/2010) [2011] ZASCA 182; 2012 (1) SA 247 (SCA); [2012] 2 All SA 22 (SCA) (30 September 2011)
Links to summary
THE SUPREME COURT
OF APPEAL
OF
SOUTH AFRICA
Case No:
649/2010
In
the matter between:
EXPLOITATIE- EN BELEGGINGSMAATSCHAPPIJ
ARGONAUTEN 11 B.V.
…......................................................................
First
Appellant
ELIZABETH CORNELIA MARIA HONIG
…......................................
Second
Appellant
and
GEORGE NICOLAAS HONIG
….................................................................
Respondent
Neutral
citation:
Exploitatie- en Beleggingsmaatschappij v Honig
(649/2010)
[2011] ZASCA 182
(30 September 2011)
Coram:
Mthiyane, Van Heerden, Bosielo and Leach JJA and Meer AJA
Heard:
13 September 2011
Delivered:
30 September 2011
Summary:
Practice ─ security for costs ─
respondent seeking additional security after appellants had furnished
security at the
outset of proceedings ─ appellants’
prospects of success in the main application somewhat bleak ─
that a factor
to be taken into account in considering whether to
order a peregrinus to furnish security.
___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from:
The Western Cape High Court, Cape
Town (Davis J sitting as court of first instance):
The appeal is dismissed with costs.
___________________________________________________________________
JUDGMENT
__________________________________________________________________
LEACH JA (Mthiyane, Van Heerden and Bosielo JJA and Meer
AJA concurring)
[1] The first appellant is a private company
incorporated in the Netherlands of which the second appellant is a
director. The second
appellant is the respondent’s sister, and
also resides in that country. The appellants were ordered by the
Western Cape High
Court, Cape Town (Davis J) to furnish security for
the respondent’s costs in sequestration proceedings they have
instituted
against him and his wife who are domiciled in the Western
Cape. It is against this order that the appellants now appeal to this
court with its leave, leave to appeal having been refused by the high
court
.
[2] On 25 April 2008, the appellants launched urgent
motion proceedings in the high court seeking the sequestration of the
respondent’s
estate. The respondent’s wife was later
joined as a party in those proceedings but played no part in the
application for
security, and I shall make no further mention of her.
[3] In order to establish their locus standi to seek a
sequestration order, the appellants contended that as at March 2008
the respondent
was indebted to the first appellant in an amount in
Dutch guilders equivalent to about R181 million and to the second
appellant
in an amount of Dutch guilders equivalent to approximately
R51 million. These sums they alleged were owed to them under two
acknowledgements
of debt given by the respondent which, although due,
remained unpaid.
[4] The appellants’ application for a provisional
sequestration order was set down as a matter of urgency for hearing
on 13
May 2008. Hearing of this, the respondent took immediate steps
to oppose the granting of such an order. Not only did he file what
he
referred to as a ‘preliminary affidavit’ – in which
he sought time to fully reply to the appellants’
allegations
before a sequestration order was considered – but on 12 May
2008 he filed a notice under Uniform rule 47 calling
upon the
appellants to furnish security for costs in an amount of R250 000.
[5] When the matter was called on 13 May 2008 the
proceedings were postponed to 14 October 2008 by agreement between
the parties.
In addition, it was ordered that the respondent file his
supplementary opposing affidavit by 7 July 2008 and the appellants
their
replying affidavits on or before 11 August 2008 (further
directions relevant to the filing of affidavits in an application to
strike
out material from the appellants’ papers need not be
mentioned).
[6] The respondent's notice under Uniform rule 47 of 12
May 2008 stated that, if the appellants contested their liability to
give
security or refused to furnish security in the amount claimed
(R250 000) or any amount fixed by the registrar, the respondent might
apply to court for an order that such security be given. At that
stage the appellants did not contest that they were obliged to
provide security. Instead, on 28 July 2008 their attorneys provided a
security undertaking in which they confirmed they were holding
the
amount of R154 400 in trust on behalf of the appellants and
unconditionally and irrevocably agreed to pay the respondent any
amount up to that sum which might become payable to him by the
appellants in respect of any final costs order. The respondent was
apparently satisfied by this at the time, and the question of
security was left there.
[7] I revert to the progress of the sequestration
proceedings. The respondent failed to file his answering affidavits
by 7 July
2008 as had been agreed, and only did so on 27 August 2008.
He blamed the delay, inter alia, on the appellants’ failure to
expeditiously furnish security. The rights or wrongs of this need not
be examined for present purposes. What must be mentioned
is that the
appellants, in turn, were tardy and by the time of the postponed
hearing on 14 October 2008, ie some six weeks after
the respondent
had filed his answering papers, they had still not filed their
replying affidavits. This led to the application
being postponed,
once more by agreement, for hearing on 18 February 2009. However, the
appellants only filed their replying affidavits
on 3 February 2009
and, two weeks later on the date of the postponed hearing, they
indicated that they were still not ready to
proceed and were
considering filing additional papers. This led to a further
postponement by agreement, on this occasion for a
period of seven
months to 2 November 2009. At the same time the respondent was
granted leave to file supplementary answering affidavits
by 30 April
2009 and the appellants directed to deliver any supplementary
replying papers by 30 June 2000. Although no costs orders
had been
made in respect of the postponements of 30 May 2008 and 14 October
2008, the appellants were ordered to pay the costs
occasioned by the
postponement on this occasion.
[8]. Following this, both sides filed further affidavits
although, once again, neither did so within the time constraints of
the
order of 18 February 2009. The bulk of the papers was due largely
to the respondent disputing the appellants’ claims against
him.
He alleged that their claims under the acknowledgements of debt had
prescribed. The appellants adopted the contrary view.
Both sides were
supported by experts in Dutch law. It is unnecessary to detail the
dispute for present purposes; suffice it to
say that it was correctly
conceded by counsel for the appellants that the dispute was genuine
and bona fide.
[9] In any event, the papers on which the question of
the respondent’s sequestration fell to be determined were only
finally
placed before court in July 2009, and had swelled
considerably since the appellants had provided security for costs a
year before.
At about that stage the respondent changed attorneys
and, presumably as a result of the escalation of costs over the
previous year,
his new attorneys decided that the security already
provided was insufficient. Accordingly, on 21 September 2009, the
respondent
served a further rule 47 notice on the appellants calling
for additional security in a sum of R962 200. The appellants
immediately
and indignantly responded that they had already furnished
security, that the respondents were not entitled to demand further
security
and that the amount demanded was ‘ludicrous’.
Undeterred, the respondent launched a formal application under rule
47
on 29 October 2009 seeking an order for additional security. This
was just four days before the main application was due to be heard.
[10] On the date of the hearing on 2 November 2009, the
sequestration proceedings were again postponed by agreement, this
time to
16 March 2010. Presumably this was in part due to the pending
rule 47 application to which the appellants had not yet filed
answering
papers; but importantly it was also because the parties
were in the throes of settlement negotiations. This probably explains
why
it was only almost 4 months later, on 25 February 2010, that the
appellants filed their answering affidavit in the security
application.
The respondent lodged his replying affidavit on 16 March
2010, the date of the postponed hearing, when the question of
security
alone was argued before Davis J. Two days later, on 18 March
2010, the learned judge issued an order that the appellants provide
additional security for the respondent's costs ‘in an amount
and in such form as may be determined by the registrar’
within
five days of security being so determined, and staying the
sequestration application pending the additional security being
furnished. It is against this order that the appellants now appeal.
[11] This is a convenient stage to raise the issue of
the respondent’s alleged indebtedness to the appellants.
Sequestration
proceedings are designed to bring about a
concursus
creditorem
to ensure an equal distribution
between creditors, and are inappropriate to resolve a dispute as to
the existence or otherwise of
a debt. Consequently, where there is a
genuine and bona fide dispute as to whether a respondent in
sequestration proceedings is
indebted to the applicant (as in this
case), the court should as a general rule dismiss the application.
This is the so-called
‘
Badenhorst rule
’
.
Named after the decision in
Badenhorst v
Northern Construction Enterprises Ltd,
1
this principle was reaffirmed by this court in
Kalil
v Decotex (Pty) Ltd & another
2
and applies equally in both winding up and sequestration
proceedings.
3
It is a rule of long standing and good sense and is not
likely to be departed from in circumstances such as the present. On
this
basis alone, the appellants may well face grave difficulty in
obtaining a sequestration order against the respondent, as their
counsel correctly conceded.
[12] Unfortunately neither the parties nor the learned
judge took this into account. If they had, it may well have been
possible
to deal with the sequestration application on this limited
issue alone rather than embarking upon an interlocutory skirmish
about
security for costs, a skirmish which must have grossly
exacerbated the costs of both sides, especially with the matter
coming to
this court on appeal. Be that as it may, the
Badenhorst
rule is not inflexible and, indeed, was not
applied in
Kalil v Decotex
4
and there can be no guarantee that the appellants will
fail in the main application on that score alone. Nevertheless it
does make
their prospects of successfully obtaining a sequestration
order somewhat bleak ─ I put it no higher than that ─
which
is a material factor to which I shall return in due course.
[13] Counsel for the appellants contended that the high
court ought to have dismissed the application for security due to the
respondent’s
unduly delay in bringing it. He initially
presented this in relation to three different periods: (a) from July
2008 to July 2009
when the respondent’s new attorneys were
appointed; (b) from then until 29 October 2009 when the security
application was
launched; and (c) from that date until the
application was heard in March 2010. Counsel refined this argument by
contending in
respect of period (a) that the application ought to
have been brought by 14 October 2008 when the sequestration
proceedings were
postponed for hearing in February 2009. In the
alternative he argued that in respect of period (b) there had been an
undue delay
of more than a month from 21 September 2009 when the
respondent had served his further rule 47 notice until the
application for
security was launched on 29 October 2009. In the
further alternative he argued in respect of period (c) that once the
proceedings
were postponed on 2 November 2009, there had been no
reason to delay the security application until the date of the
postponed hearing
in March 2010 and that it could have been enrolled
for an earlier hearing and determined well before the main
application.
[14] The difficulty I have with this argument is that it
was not foreshadowed in the appellants’ affidavits. All that
the
appellants alleged was that the respondent ‘is not entitled
to seek security for costs at such a late stage of the proceedings’.
While as a general rule a party is expected to apply expeditiously
for security under rule 47 (which the respondent did in his
first
security notice), a party is entitled to seek additional security at
any stage, although an unreasonable delay in doing so
may be decisive
in the exercise of the court’s discretion. The appellants’
allegation was therefore not merely argumentative
but wrong. In
addition, in motion proceedings the affidavits serve as both the
pleadings and evidence relevant to the issues between
the parties,
and a party can only be expected to deal with averments raised by the
other side and not with allegations possibly
anticipated but which
are not made.
5
Had the appellants raised the alleged delays and their
contention that the court should decline to deal with the matter as a
result,
the respondent may well have offered a perfectly acceptable
explanation. Without the respondent having being called upon to do
so, it would not be proper to decide the application against him by
having regard to an issue that he was not called upon to meet.
[15] In any event, on the facts that are disclosed there
does not appear to have been any undue delay:
(a) In respect of the first alleged delay, the
postponement on 14 October 2008 was less than three months after the
original security
of R154 400 had been provided. It was also before
the appellants had even filed their replying affidavits which were
only delivered
on 3 February 2009. There is no reason to think that
the security already provided had been exhausted by October 2008 or
that the
appellant required additional security at this early stage
of the proceedings.
(b) There is no explanation for the delay between the
respondent giving his rule 47 notice calling for further security on
21 September
2009 and the launching of the application for such
security, but the respondent had not been called on to provide one.
It may well
be that this delay was caused by the settlement
negotiations which were underway when the applications were postponed
on 2 November
2009, but that is a matter of speculation. However the
delay was no more than a month and that, in itself, does not seem to
be
any good reason to deny the respondent security to which he would
otherwise be entitled.
(c) In regard to the contention that the security
application should have been heard at some stage after the
postponement on 2 November
2009, it is common cause that both the
security application and the sequestration proceedings were postponed
to 16 March 2010 by
agreement and as a matter of convenience as Davis
J, who was to hear both applications, was steeped in the matter. And
importantly,
the postponement was due in part to allow the parties to
attempt to settle. I can think of nothing more likely to jeopardise
settlement
negotiations than the respondent promptly insisting upon
disposing of the application for security for costs. Moreover the
appellants
themselves only filed their answering affidavits in the
security application on 25 February 2010, almost three months after
the
application for security had been launched. In these
circumstances it hardly lies in the mouth of the appellants to
complain of
any undue delay.
[16] In the light of all these considerations, there is
no merit in the appellants’ contention that the application for
security
should have been refused by reason of any undue delay on the
part of the respondent. I therefore turn to the further issues
raised.
[17] As was correctly conceded by counsel for the
appellants, where in ongoing litigation a party seeks security
additional to that
already provided, regard may be had not only to
prospective costs but to those already incurred.
6
The respondent explained that he had already paid his
previous attorneys more than R1 million for opposing the
sequestration proceedings
and two other legal proceedings brought
against him by the second appellant or entities under her control,
although he was unable
to say what portion of that sum related solely
to the sequestration application as the attorneys had not accounted
to him. However
the sum he had paid did not include a further R270
000 which his first attorneys were seeking to recover from him, being
the fee
charged by the expert they had employed to testify on the
issue of prescription in Dutch law. In addition, after taking over
the
sequestration proceedings in mid-2009, by 22 September 2009 his
new attorneys had already charged an amount excess of R148 000 for
their services; and would of course charge further for their services
as the litigation progressed. In these circumstances the
security
provided by the appellants at the outset of proceedings is clearly
adequate.
[18] The appellants sought to avoid the general rule of
practice that a peregrinus should provide security for an incola’s
costs by relying on the judgment in this court in
Magida
v Minister of Police
,
7
in which an impecunious peregrinus was excused from
providing security, and making the bald and unsubstantiated averment
that the
appellants ‘. . . will be unable to furnish security
for costs, due to the (respondent) failing to honour his debts
towards
them the (appellants) are hardly in a position to finance
their own costs . . .’. However the appellants’ case on
this
issue was ambivalent. While pleading poverty, on the one hand,
they alleged, on the other, that the respondent would have no
difficulty
in recovering a costs order by suing them in Europe. Of
course the appellants cannot have it both ways. If their financial
status
was relevant to the question of security it was incumbent upon
them to take the court into their confidence and make sufficient
disclosure of their assets and liabilities to enable the court to
make a proper assessment thereof in the exercise of its discretion.
In the case of the first appellant, a private company, this is
generally done by disclosing its current balance sheet. This the
appellants did not do. In these circumstances and in the light of the
appellants’ allegation that any costs order would be
recoverable by way of litigation abroad, it must be accepted that the
financial status of the appellants is in itself no reason
to refuse
security. This distinguishes this case from the decision in
Magida
relied upon by the appellants in which the
fact that the peregrinus was indigent was a material consideration
taken into account.
[19] As against that, the fact that the respondent will
have to proceed against the appellants abroad if he obtains a costs
order
in his favour, with the associated uncertainty and
inconvenience that would entail – and it is his undisputed
allegation
that it would be substantially more expensive to do so
than litigating in this country – is one of the fundamental
reasons
why a peregrinus should provide security. In these
circumstances it is not surprising that the high court exercised its
discretion
not to absolve the appellants from providing security. And
it must be remembered that in adjudicating on whether to order
security
for costs a court exercises a narrow or strict discretion
8
with which a court of appeal will only interfere if the
court below failed to exercise such discretion judicially or did so
on an
incorrect factual finding or on the basis of wrong legal
principles.
9
[20] Of course, as already mentioned, the high court
failed to take any account of the difficulty the appellants face by
reason
of the
Badenhorst
principle.
But if anything it is factor which operates in favour of the
respondent. Although there are authorities to the effect
that a court
will not enquire into the merits of the main dispute in the exercise
of its discretion as to security for costs,
10
like all rules of practice that rule should not be seen
to be wholly inflexible. In
Zietsman
v Electronic Media Network
2008
(4) SA 1
(SCA), albeit in considering an appeal against an order of
security made by the Commissioner of Patents ─ who under
s
17(2)(b)
of the
Patents Act 57 of 1978
is entitled to have regard to
the prospects of success of a party in considering whether security
should be furnished ─ the
court was influenced largely by the
fact that the respondents had not disclosed their defence. In this
regard Streicher JA said
at 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.’
[21] In the present case, too, it is not necessary to
deal with the merits of the dispute between the parties in the main
application.
But even without doing so, in the light of the
Badenhorst
principle
the appellants clearly face a considerable hurdle and the prospects
of their success in the main application appear to
be bleak as
already mentioned. That being the case, there is a distinct
possibility of the appellants being ordered to pay the
respondent’s
costs in the sequestration application, a factor which makes it all
the more important for the respondent to
be secured.
[22] Although not taken into account by the high court,
this factor would undoubtedly have reinforced its decision had it
been.
Moreover, the appellants have failed to establish any error of
fact or law on the part of the high court which justifies
interference
with its discretion. In these circumstances there is no
room for a finding that the order of the high court should be set
aside.
[23] The appeal is dismissed with costs.
______________________
L E Leach
Judge of Appeal
APPEARANCES:
For Appellant: R Engela
Instructed by:
Ward Ward & Pienaar, Cape Town
Symington & De Kok, Bloemfontein
For Respondent: R Le Breton
Instructed by:
Francis Thompson & Aspden, Cape Town
Claude Reid Inc, Bloemfontein
1
Badenhorst
v Northern Construction Enterprises Ltd
1956 (2) SA 346
(T) at
347-8
.
2
Kalil
v Decotex (Pty) Ltd & another
1988 (1) SA 943
(A) at 980B.
3
See
eg
Sonnenburg McLouglin Inc v Spiro
2004 (1) SA 90
(C) at
96B-C and
Meskin Insolvency Law
(1990) para 2.1.5.
4
At
980H-I.
5
Cf
Minister of Law and Order v Dempsey
1988 (3) SA 19
(A) at 37H-J.
6
Cf
Petz Products (Pty) Ltd v Commercial Electrical Contractors (Pty)
Ltd
1990 (4) SA 196
(C) at 206D-207A and
Cooper & ‘n
ander NNO v Mutual & Federal Versekeringsmaatskappy Bpk
2002
(2) SA 863
(O) at 875B-876D.
7
Magida
v Minister of Police
1987 (1) SA 1
(A).
8
Giddey
NO v JC Barnard and Partners
[2006] ZACC 13
;
2007 (5) SA 525
(CC) pars 20-23.
9
See
Giddey NO
paras 19 and 22.
10
Arkell
and Douglas v Berold
1922 CPD 198
,
Alexander v Jokl & others
1948 (3) SA 269
(W) at 281,
Santam
Insurance Co Ltd v Korste
1962 (4) SA
53
(E) at 56B-C and
Fourie v Ratefo
1972 (1) SA 252
(O) at 256C-D.