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[2009] ZASCA 143
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Tecmed (Pty) Limited and Others v Nissho Iwai Corporation and Another (705/08) [2009] ZASCA 143; [2010] 3 All SA 36 (SCA) ; 2011 (1) SA 35 (SCA) (25 November 2009)
THE
SUPREME COURT OF APPEAL
REPUBLIC
OF SOUTH AFRICA
JUDGMENT
Case number: 705/08
In the matter between:
TECMED (PTY) LIMITED FIRST APPELLANT
MICHAEL VOI HARRY MILFORD SECOND APPELLANT
WERNER BEGERÉ THIRD APPELLANT
BARNEY HURWITZ FOURTH APPELLANT
ADRIEN PULE FIFTH APPELLANT
and
NISSHO IWAI CORPORATION FIRST RESPONDENT
SOJITZ CORPORATION SECOND RESPONDENT
Neutral citation:
Tecmed v Nissho
Iwai Corporation
(705/08)
[2009] ZASCA 143
(25 November 2009)
CORAM: Harms DP, Brand
et
Malan JJA
HEARD: 10 November 2009
DELIVERED: 25 November 2009
SUMMARY
: Universal
succession of all plaintiff's rights and obligations under Japanese
law after
litis contestation -
substantive
application to substitute successor as the plaintiff successful –
validity of Rule 15 notice consequently not
considered –
s 15(2) of
Prescription Act 68 of 1969
not set in motion by
substitution.
ORDER
On appeal from
: Johannesburg
High Court (Antrobus AJ sitting as court of first instance).
The appeal is dismissed with costs, including the costs
occasioned by the employment of two counsel.
JUDGMENT
BRAND JA
(Harms DP
et
Malan JA concurring)
[1] This appeal originates from four interlocutory
applications in the same main action that were heard together and
determined
in one judgment by Antrobus AJ in the Johannesburg High
Court. In the pending main action, the first respondent, Nissho Iwai,
issued
summons against the first to fifth appellants (the
‘defendants’), jointly and severally, for payment of the
sum of
US $3 606 449.45 together with interest and costs.
The claim against the first defendant was said to arise from goods
sold and delivered under a written distributorship agreement between
Nissho Iwai and the first defendant. The claim against the
second to
fifth respondents was based on suretyships that they signed for the
debts of the first defendant in favour of Nissho
Iwai.
[2] The main action was instituted in February 2003. In
October 2003 all the defendants delivered a plea while the first
defendant
also filed a counter-claim against the plaintiff. In
February 2006 Nissho Iwai delivered its plea to the first defendant’s
counter-claim. The four interlocutory applications that then followed
have one thing in common: they were all precipitated by a
notice in
terms of Uniform
Rule 15
, dated 9 May 2006, and served on the
defendants' attorneys by Bowman Gilfillan, purportedly as attorneys
for 'the plaintiff', which
was described in the heading of the notice
as 'Nissho Iwai'. It read:
‘
Be pleased to take notice
that Sojitz Corporation, a company duly incorporated in accordance
with the laws of Japan, carrying on
business as a distributor of
medical and related equipment and having its principal place of
business at . . . Tokyo, . . . Japan
is hereby substituted for
Nissho Iwai Corporation as plaintiff in the above action.
Be pleased to take further
notice that as of 1 April 2004, Nissho Iwai Corporation merged with
Nichimen Corporation. The merged
entity changed its name to Sojitz
Corporation. All assets, liabilities, rights and obligations of
Nissho Iwai Corporation were
automatically and statutorily succeeded
to by Sojitz Corporation under Japanese law.’
[3] The first interlocutory application, the so-called
authority application, that ensued was one by the defendants on 21
February
2007 for the setting aside of the
Rule 15
notice as an
irregular step. In the same application, the defendants also raised a
query, as envisaged in
Rule 7(1)
, with regard to Bowman Gilfillan’s
authority to act on behalf of Nissho Iwai. The ground relied upon in
the authority application
for querying Bowman Gilfillan’s
authority to act for Nissho Iwai was essentially that the
Rule 15
notice created uncertainty as to whether the attorneys were still
acting for Nissho Iwai or for Sojitz Corporation, who was alleged
to
have taken over all the rights of the former. The basis advanced in
the authority application for the setting aside of the
Rule 15
notice
will presently be reverted to in more detail. But, what it boiled
down to for present purposes, was that
Rule 15
does not provide for
the kind of substitution that the notice sought to achieve. What is
contemplated by
Rule 15
, so the objection went, is a substitution
necessitated by the change of status of a litigating party and not
the transfer of rights
from one corporate entity to another, as
described in the
Rule 15
notice. In consequence, so the defendants’
objection concluded, the
Rule 15
notice, in so far as it purported to
effect a substitution of Nissho Iwai by Sojitz as the new plaintiff,
was a nullity.
[4] In the authority application, the defendants further
contended, as part of their objection to the
Rule 15
notice, that the
substitution of Sojitz as the plaintiff would require a substantive
application to that effect. Such an application,
so the defendants
then argued, was a very necessary one in that they required to be
fully informed of the basis upon which Sojitz
sought to be
substituted as plaintiff. This invitation led to the second
interlocutory application, which was a substantive application
–
filed on 6 March 2007 – on behalf of 'the plaintiff', still
defined in the heading of the application papers as 'Nissho
Iwai',
for the substitution, of Sojitz as plaintiff in the action against
the defendants. Following the model adopted in the court
a quo, I
will refer to this as ‘the substitution application’.
[5] The substitution application was explicitly
formulated on the contingent basis that the defendants were
vindicated in their
argument that the
Rule 15
notice was irregular.
The reason why Sojitz needed to be substituted for Nissho Iwai, as it
was foreshadowed in the
Rule 15
notice and elaborated upon in the
substitution application, had its origin in a merger agreement
between Nissho Iwai and another
Japanese company, Nichiman
Corporation, which became effective on 1 April 2004. Nichiman was
then renamed the Sojitz Corporation.
The merger was fully
implemented, both in accordance with the provisions of the merger
agreement and in accordance with articles
101, 102 and 103 of the
Japanese Commercial Code. A translation of the merger agreement is
annexed to the application papers. Clauses
1 and 8.1 are relevant.
They provide:
‘
1. Method of Merger
Nichiman and Nissho Iwai will
merge in a spirit of equality. However, as a result of the merger,
Nichiman will survive and Nissho
Iwai will be dissolved.
8. Succession of Company Assets
8.1 Nichiman shall, as at the
date of the merger, succeed any and all of Nissho Iwai’s
assets, liabilities and rights and
obligations . . . '
[6] The effect of the merger in terms of the Japanese
code was set out by Japanese legal experts on both sides. The
following features
and consequences of the merger were common cause
between them.
The merger is described as an ‘absorption merger’
in terms of which one company, the dissolving company, which was
Nissho Iwai in this case, ceased to exist while Nichiman (renamed
Sojitz) continued. This was the effect of article 101 of the
code.
In terms of article 102 the amalgamation took effect on
the day the merger agreement was registered, which was 1 April 2004.
As at 1 April 2004, Sojitz succeeded to all the rights
and liabilities of Nissho Iwai. This was the effect of both clause
8.1
of the merger agreement and article 103 of the code.
[7] The explanation – that in terms of Japanese
law Nissho Iwai had ceased to exist – provided the defendants
with another
basis for their contention that the Rule 15 notice was
irregular, namely that the notice was given on 8 May 2006,
purportedly on
behalf of Nissho Iwai, which, in accordance with the
Japanese code, was no longer in existence at the time. By the same
token,
so the defendants contended, the substitution application was
also a nullity because it was again brought on behalf of ‘the
plaintiff’, described as 'Nissho Iwai', which entity had been
dissolved and no longer existed since 1 April 2004.
[8] Rather out of context, but next in chronological
order was the third interlocutory application which was brought in
terms of
Rule 30 in the name of Nissho Iwai as the plaintiff for the
setting aside of the defendants’ Rule 7 notice as an irregular
step. The basis advanced for the application was that the Rule 7
notice was filed outside the ten day time period provided for
in that
rule. This application, which was referred to by the court a quo as
the 'Nissho Iwai Rule 30 application', proved to be
of little, if
any, consequence.
[9] The fourth interlocutory application in
chronological order was filed in response to the defendants’
contention that the
plaintiff's substitution application was a
nullity because it was brought on behalf of Nissho Iwai, which was a
non-existent entity.
This was an application, filed on 29 January
2008, by Sojitz in its own name for leave to intervene in the
substitution application.
As in the court a quo I propose to call
this ‘the intervention application’. It was supported by
an affidavit from
Sojitz’s in-house counsel, Mr Hashimoto
Masanao, in which he, inter alia, said the following:
‘
I confirm that all steps
in the litigation process undertaken since the merger of Nissho Iwai
Corporation with Sojitz Corporation,
which became effective on 1
April 2004, have been taken on the instructions of Sojitz
Corporation. I further confirm that Bowman
Gilfillan Inc has at all
times since the merger been authorised to represent Sojitz
Corporation.’
[10] The defendants’ answer to the intervention
application was essentially twofold. First, that it was not competent
for
Sojitz to join itself in an application which was a nullity from
the start, because it had been brought by a non-existent entity.
Secondly, that in as much as Sojitz’s
locus
standi
as a creditor depended on a cession by
Nissho Iwai, its claim had been extinguished by prescription, since
more than three years
had elapsed after the alleged cession at the
time when Sojitz gave notice of its application to be joined as a
plaintiff on 29
January 2008.
[11] In broad outline the court a quo approached the
matter along the following lines.
It first considered the Rule 15 notice of 9 May 2006.
In the event it concluded that the provisions of the rule covered
the facts
of this case. As to the defendants’ contention that
the notice was given on behalf of a non-existent entity, ie Nissho
Iwai, it found that properly construed, the Rule 15 notice was in
fact given by Bowman Gilfillan on behalf of Sojitz.
In the light of these findings, the court held that the
Rule 15 notice achieved its purpose in effecting the substitution of
Sojitz
for Nissho Iwai as plaintiff from the date on which it was
served.
Its findings with reference to the Rule 15 notice, so
the court held, rendered the substitution application not strictly
necessary.
Nonetheless it decided that the relief sought in the
application was in effect for confirmation that the Rule 15 notice
was valid
and effective. Since that was what it essentially decided,
the court found it appropriate to grant the relief sought in the
substitution
application as well.
As to the defendants’ contention that the
substitution application was a nullity in that it was brought on
behalf of the
non-existent Nissho Iwai, the court held that although
the application was brought in the name of the ‘plaintiff’
it must be construed as an application by Sojitz.
In the circumstances the defendants’ application
to set aside the Rule 15 notice as well as their challenge of Bowman
Gilfillan's
authority under Rule 7 were held to be ill conceived.
Consequently the court held that the authority application should be
dismissed
while the Nissho Iwai Rule 30 application should be
upheld.
The intervention application, so the court held, was
unnecessary to decide, because it was brought as an alternative to
the substitution
application which had been decided in favour of the
plaintiff.
In sum, the court accordingly ordered that Sojitz be
substituted for Nissho Iwai as the plaintiff and granted
consequential relief
for the amendment of the plaintiff’s
pleadings. It dismissed the defendants’ authority application,
granted the plaintiff's
Rule 30 application and made no order on the
intervention application.
[12] In considering the approach of the court a quo,
sight should not be lost of the import of Rule 15. The purpose of the
Rule
was not to afford the High Court the power to substitute a party
to proceedings. The High Court already had that inherent power
under
the common law (see eg
Curtis-Setchell &
McKie v Koeppen
1948 (3) SA 1017
(W) at 1021;
Putzier v Union and South West Africa Insurance Co Ltd
1976
(4) SA 392
(A) at 402E-F). The court still has that power to grant a
substitution of parties on substantive application where Rule 15 does
not apply (see eg
Waikiwi Shipping Co Ltd v
Thomas Barlow & Sons (Natal) Ltd
1978 (1)
SA 671
(A) at 678G;
Devonia Shipping Ltd v MV
Luis (Yeoman Shipping Co Ltd intervening)
1994
(2) SA 363
(C) at 369F-370B). The purpose of Rule 15 is merely to
provide a simplified form of substitution, subject to the right of
any affected
party to apply to court for relief in terms of Rule
15(4) (see eg LTC Harms
Civil Procedure in the
Supreme Court
B-1 to 5; HJ Erasmus
Superior
Court Practice
B1-118).
[13] In the absence of any substantive application for
substitution the effectiveness of a Rule 15 notice will obviously
depend
on whether it was given in a situation covered by the rule.
But where, as in this case, a substantive application for
substitution
had in fact been brought, any investigation into the
effectiveness of a preceding Rule 15 notice is most likely to result
in a
futile exercise. If the substantive application is upheld, the
substitution will materialise.
Caedit questio
.
If, on the other hand, the application is dismissed on its merits,
the situation cannot be saved by a notice under Rule 15.
[14] As I see it, the focus should therefore immediately
be directed at the substitution application. The settled approach to
matters
of this kind follows the considerations in applications for
amendments of pleadings. Broadly stated it means that in the absence
of any prejudice to the other side, these applications are usually
granted (see eg
Devonia Shipping Ltd v MV Luis
(Yeoman Shipping Co Ltd Intervening) (supra)
at 369F-I;
Rosner v Lydia Swanepoel Trust
1998 (2) SA 123
(W) at 127D-H). As is pointed out in
Devonia
Shipping
at 369H, the risk of prejudice will
usually be less in the case where the correct party has been
incorrectly named and the amendment
is sought to correct the misnomer
than in the case where it is sought to substitute a different party.
But the criterion remains
the same: will the substitution cause
prejudice to the other side which cannot be remedied by an order for
costs or some other
suitable order, such as a postponement?
[15] In this case, the defendants’ answer to the
substitution application was not that they would be prejudiced in any
way
by the relief sought. Apart from the defence of prescription to
which I shall presently return, the defendants’ sole answer
to
the substitution application was that it was brought by a
non-existent party. That answer obviously found its basis in the
notice of motion itself which indicated that the application was
brought by ‘the plaintiff’ and at the same time described
‘the plaintiff’ as 'Nissho Iwai Corporation'.
[16] Self-evidently, however, a proper interpretation of
the application would not limit itself to that aspect alone. It would
also
have regard to the affidavits filed in support. In this regard
the deponent to the founding affidavit described herself as ‘the
attorney for the plaintiff’. She immediately went on to explain
that Nissho Iwai was no longer in existence; that it had
been
succeeded in its rights and obligations by Sojitz; and that she had
been instructed by the legal advisors of Sojitz. In the
event, she
said, any judgment against the defendants will be for the benefit of
Sojitz. Conversely, if any judgment were to be
given in favour of the
defendants, it was Sojitz who would satisfy that judgment. In
conclusion she sought an order in terms of
the notice of motion that
Sojitz be substituted as the plaintiff. The affidavit by Mr Masanao
confirmed the contents the founding
affidavit. As I see it, the only
sensible meaning that can be attributed to all this is the one given
by the court a quo, namely,
that in fact and in law the substitution
application was brought by Sojitz and not by the non-existent Nissho
Iwai.
[17] Another argument raised by the defendants, rather
belatedly, for the first time on appeal, was that if Sojitz were to
be substituted
as plaintiff pursuant to the substitution application,
the claim against the defendants would in any event have become
prescribed
and that the application should for that reason have been
refused. In support of his argument the defendant sought to rely
primarily
on the judgment of this court in
Silhouette
Investments Ltd v Virgin Hotels Group Ltd
2009
(4) SA 617
(SCA), in so far as that judgment was based on
s 15
of the
Prescription Act 68 of 1969
. The relevant part of
s 15
provides:
'15. Judicial interruption of
prescription – (1) The running of prescription shall, subject
to the provisions of subsection
(2), be interrupted by the service on
the debtor of any process whereby the creditor claims payment of the
debt.
(2) . . . [T]he interruption
of prescription in terms of subsection (1) shall lapse, and the
running of prescription shall not
be deemed to have been interrupted,
if the creditor does not successfully prosecute his claim under the
process in question to
final judgment or if he does so prosecute his
claim but abandons the judgment or the judgment is set aside.'
[18] What happened in
Silhouette
Investments
, in broad outline, was that the
appellant instituted action against the respondent within the
prescription period of three years
after the debt relied upon became
due. It subsequently gave notice of its intention to amend its
particulars of claim in two respects,
first, by substituting one John
Dyer as the plaintiff and, secondly, by alleging that after the
institution of action, Mr Dyer
had acquired, by cession, its claim
against the respondent. The respondent pleaded to the amended
particulars of claim. One of
the defences raised in the plea was that
in terms of the sale agreement the appellant was not entitled to cede
its rights. This
led to a further amendment of the particulars of
claim in terms of which the appellant was substituted for Mr Dyer as
the plaintiff.
Notice of this amendment was given in October 2006,
which was after the expiration of the three year prescription period.
[19] To this reamended particulars of claim the
respondent raised a plea of prescription. It did not deny that the
running of prescription
in respect of the claim relied upon had been
interrupted by service of the original summons in terms of
s 15(1)
of the
Prescription Act. What
the respondent contended for, however,
on the basis of
s 15(2)
, was that the appellant did not
prosecute its claim under the original summons to final judgment and
accordingly the interruption
of prescription by that process had
lapsed. If the appellant were eventually to obtain final judgment in
its favour, so the respondent's
argument went, the process under
which it would be obtained would be the notice of amendment of
October 2006 and not the original
summons. Since the notice was only
effected after the three year prescription period, so the
respondent's argument concluded, the
appellant's claim had become
prescribed. The plea of prescription was upheld by the court of first
instance, essentially on the
acceptance of the respondent's argument
and in dismissing the appeal against that order, this court did the
same (see paras 27,
28 and 42 of the judgment).
[20] At the heart of
Silhouette
Investments
lies the notion that the legal
effect of a cession after
litis contestatio
is
to terminate the proceedings instituted by the cedent with the
corollary that the substitution of the cessionary as the plaintiff
must be regarded as the institution of new proceedings. As to whether
that underlying notion is correct in respect of cessions,
is not
necessary to consider in this case. I say that because Sojitz does
not rely on a transfer of rights by means of a cession.
What it
relies upon is a universal succession of all Nissho Iwai's rights and
obligations by operation of Japanese law.
[21] As I see it, the resulting position is not
materially different from the one created by our own legislature in
the case of
an amalgamation or takeover agreements between banks
under s 54(2)(b) of the Banks Act 94 of 1990. In such event,
s 54(3)
of the Act essentially provides that all the rights and
obligations of the amalgamating banks or transferor bank will vest in
the
amalgamated or transferee bank by operation of law. With
reference to the situation thus created by the legislator it was held
in
Absa Bank Ltd v Van Biljon
2000
(1) SA 1163
(W) that the substitution of the transferee bank (Absa)
as plaintiff in an action previously instituted by the transferor
bank
(Bankorp) does not activate the provisions of
s 15(2)
of
the
Prescription Act. By
virtue of s 54(3) of the Bank's Act, so
it was held, Absa stepped into the shoes of Bankorp and became the
plaintiff by operation
of law. In essence the plaintiff remains the
same entity. In this light the formal substitution of Absa as
plaintiff by way of
an amendment of pleadings cannot be regarded as a
termination of the proceedings instituted by Bankorp and the
commencement of
new proceedings by Absa as contemplated in s 15(2).
[22] I agree with the decision in
Absa
.
It derives support from the reasoning of Longmore J in
Eurosteel
Ltd v Stinnes AG
[2000] 1 All ER (Comm) 964
(QB), which I find particularly persuasive. What happened in
Eurosteel
mirrors the
facts of this case in virtually every material respect. A German
company, Bayerischer Lloyd, instituted arbitration
proceedings
against Eurosteel in London. Thereafter Bayerischer entered into a
merger agreement with another German company, Stinnes
AG, under
German law. In terms of s 20 of the German Umwandlungsgesetz or
Transformation Law, the merger had the effect, first,
that all the
assets and liabilities of Bayerischer passed over to Stinnes by
operation of law and, secondly, that Bayerischer was
dissolved and
ceased to exist.
[23] Eurosteel thereupon brought an application before
the Queen's Bench for an order declaring that the arbitration
proceedings
initiated by Bayerischer had lapsed because that entity
had ceased to exist and that they could not be continued for the
benefit
and in the name of Stinnes. In dismissing Eurosteel's
application, Longmore J inter alia expressed himself as follows (at
969):
'English law is, in my judgment,
not so impotent at least in cases of universal succession. The whole
point of universal succession
is that the successor is treated as the
same person as the person to whom he succeeds. The law of the forum
in which the universal
successor seeks to gather in his assets may or
may not require him to give formal notice of his existence before
award or judgment
will be given but the idea that any pending
arbitration (or indeed action) begun by his predecessor must, of
necessity, come to
an end would mean that this succession was
particular not universal and would be contrary to the term of s 20
of the German
transformation law.'
(See also eg
Harper Versicherungs
AG v Indemnity Marine Assurance Co Ltd
[2006]
2 Lloyd's Rep 263 (QB) para 34;
Republic of
Kazakhstan v Istil Group Inc
[2006] EWHC 448
(Comm) paras 53 and 54.)
[24] What Longmore J said about the effect of the German
Code, in my view, also applies to the almost identical provisions of
the
Japanese Code that concern us. It means that Sojitz stepped into
the shoes of Nissho Iwai by operation of law. In effect, the
plaintiff
therefore remained the same entity. The fact that our law
of procedure requires a formal substitution of Sojitz for Nissho Iwai
does not change the principle. The result of all this, as I see it,
is that the court a quo was right in granting the substitution
application. I also agree with the court a quo's approach that the
other interlocutory applications before it were so closely linked
to
the substitution application that it would make no sense to decide
them separately. Once the substitution application was brought,
the
defendants should not have proceeded with the authority application.
On the other hand, the plaintiff should never have launched
the
intervention application. But it all resulted from the defendants'
opposition to the substitution application which opposition
turned
out to be unwarranted. In consequence I find no reason to interfere
with the judgment of the court a quo in any respect.
[25] The appeal is dismissed with costs, including the
costs occasioned by the employment of two counsel.
………………………
..
F D J BRAND
JUDGE OF APPEAL
Counsel for the Appellants: A Subel SC
J Peter
Instructed by: Schindlers Attorneys
Johannesburg
Correspondents: Webbers Attorneys
Bloemfontein
Counsel for the Respondents: C Cohen SC
N J Graves
Instructed by: Bowman Gilfillan Attorneys
Johannesburg
Correspondents: McIntyre & Van der Post
Bloemfontein