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[2008] ZASCA 4
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Zietsman v Electronic Media Network Ltd. and Others (11/07) [2008] ZASCA 4; [2008] 2 All SA 523 (SCA); 2008 (4) SA 1 (SCA); 2008 BIP 1 (SCA) (7 March 2008)
Links to summary
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Reportable
CASE NO: 11/07
In the matter between :
DAVID WALLACE ZIETSMAN
Appellant
and
ELECTRONIC MEDIA NETWORK LIMITED
First Respondent
MULTICHOICE AFRICA (PTY) LIMITED
Second Respondent
VODACOM (PTY) LIMITED
Third Respondent
________________________________________________________________________
Before: STREICHER, NUGENT, HEHER JJA, HURT & SNYDERS AJJA
Heard: 18 FEBRUARY 2008
Delivered: 7 MARCH 2008
Summary: Security for costs – s 17(2) of
Patents Act 57
of 1978
– ‘any party’ includes
incola
plaintiff – agreement to provide security – relevant
factors.
Neutral citation: Zietsman v Electronic Media Network (11/07)
[2008] ZASCA 4
(7 March 2008)
__________________________________________________________
J U D G M E N T
__________________________________________________________
STREICHER JA
STREICHER JA
:
[1] The appellant instituted action
in the court of the Commissioner of Patents against the respondents
for damages for the alleged
infringement of his South African patent
no 92/9925. The respondents gave notice of their intention to defend
the action but when
they failed to deliver their pleas they were in
terms of the rules barred from doing so. As a result the first and
second respondents
(the second and third defendants in the court a
quo) brought an application for the bar to be removed and for an
extension of time
to file their pleas. In the same application they
applied for an order directing the appellant to provide security for
any costs
which might be awarded to them. The third respondent (the
fourth defendant in the court a quo) in two separate applications
applied
for similar relief. The Commissioner of Patents (De Vos J)
directed the appellant to provide security for the costs of the
respondents,
removed the bar to the filing of their pleas, granted
the respondents an extension of time to deliver their pleas and
ordered the
appellant to pay the costs of the applications, including
the costs of two counsel. With the necessary leave the appellant now
appeals against the order directing him to provide security for the
respondents’ costs and against the costs orders.
[2]
Section 17(2)
of the
Patents Act
57 of 1978
provides as follows:
‘
17(2)(a) The commissioner may also order
that any party to proceedings before him shall furnish security to
the satisfaction of
the commissioner in respect of any costs which
may be awarded against such party in those proceedings, and may
refuse, until such
security has been furnished, to permit such
proceedings to be continued.
(b) The commissioner may have regard to the
prospects of success or the
bona fides
of any such party in considering whether such
security should be furnished.’
[3] In the court a quo the appellant submitted that the
phrase ‘any party’ in
s 17(2)(a)
should not be
interpreted so as to include an
incola
plaintiff. The court a quo dismissed this argument as
also the argument by the respondents that the appellant had admitted
his liability
to provide security. It erroneously assumed that the
parties were agreed that the furnishing of security should be ordered
in the
event of it being found that a plaintiff
incola
,
such as the appellant, could in terms of
s 17
be ordered to
furnish security and proceeded to determine the quantum of the
security to be furnished.
The interpretation of s
17(2)(a)
[4]
Although
the appellant in his heads of argument in this court attacked the
court a quo’s interpretation of
s 17(2)(a)
he expressly
abandoned the argument before us. The concession was correctly made.
There is no reason not to give the phrase ‘any
party’ its
ordinary literal meaning. T
he
general rule of our law is that a plaintiff
incola
cannot be compelled to furnish
security for costs
1
but the common law recognises
exceptions to this general rule. A High Court has inherent
jurisdiction to prevent abuse of its process
by ordering security in
certain circumstances. One such circumstance would be if the action
is vexatious.
2
In the case of companies there is a
statutory exception to the general rule.
3
In the light of the position at
common law and the aforesaid statutory exception it is unlikely that
the phrase ‘any party’
in
s 17(2)(a)
was intended
not to include
incola
plaintiffs. Moreover, the same
phrase, ‘any party’, appeared in s 76(1) of the
Patents Act 37 of 1952
4
,
the predecessor of s 17(2) and in
Selero
(Pty) Ltd and Another v Chauvier and Another
1982
(3) SA 519
(T) at 521D-F a full bench of the Transvaal Provincial
Division held that the phrase should be interpreted literally. In the
light
of this authoritative interpretation of the phrase it is
unlikely that it was intended to have a different meaning in
s 17(2)(a).
5
Was the appellant liable to furnish security to the
third respondent?
[5] Before us only the third
respondent persisted with the submission that the appellant agreed to
provide security to it. The following
constitutes the factual basis
for the submission.
5.1 In a letter by the appellant’s attorneys,
Galgut & Galgut, to the first and second respondents’
attorneys, Adams
& Adams, the appellant tendered to furnish
security for the costs of the first and second respondents in an
amount of R40 000
each. Thereafter t
he
attorneys for the third respondent, Leslie Cohen & Associates,
wrote to the appellant that they had been advised by Adams
&
Adams that the appellant was willing to furnish security for costs in
relation to each of their clients. They stated that
they were of the
view that the appellant would not be able to meet an adverse order
for costs, that they required to know whether
the appellant would be
prepared to furnish the third respondent with the necessary security
for costs, that R40 000 security would
be inadequate and that, on the
assumption that the appellant would consent thereto, they had
communicated with Adams & Adams
and requested that a time and
date be arranged whereby all parties approach the Registrar to
determine the amount of the security
that the appellant would be
obliged to pay.
5.2 The appellant, through his attorneys, in a letter
dated 7 March 2005 responded as follows:
‘
You have not stated the quantum of security
required by your client. Your letter therefore cannot be considered
to be a demand in
terms of Rule 47.
Our client agrees to provide security for costs in this matter. Our
client tenders security in an amount of R40 000 (forty
thousand
Rands). If you do not accept this amount then doubtless you will make
requisite demand and the matter will go to the Registrar
for
settlement of the quantum.’
5.3 The third respondent’s attorneys responded:
‘
By virtue of the fact that your client has
agreed to furnish our client with security for the costs we hereby as
a consequence request
that your client furnish security to our client
in the sum of R250
000.00
. . . failing which the Registrar of the High Court be approached for
the purpose of determining the amount of security to
be paid by your
client . . ..’
5.4 The appellant’s attorneys
replied that the appellant was willing to provide security for costs
but that he contested the
amount of security required.
[6] From the aforegoing it is clear that the appellant
accepted that rule 47 of the Uniform Rules of the High Court applied.
Subsections
(1) and (2) of the rule provides as follows:
‘
47(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.
(2) If the amount of security only is contested the registrar shall
determine the amount to be given and his decision shall be
final.’
[7] Section 17(2) provides that the commissioner
may order a party to furnish security to his satisfaction in respect
of costs
that may be awarded against that party in the proceedings
before him and it is to the commissioner that the third respondent
applied
for such security. Reference to Rule 47 nevertheless assists
in the interpretation of the letter of 7 March 2005. Read with the
rule the statement in the letter that should the tender of security
in the amount of R40 000 not be accepted, the quantum
of the
security to be provided would be determined by the registrar, serves
to confirm that the appellant’s agreement to
provide security
was not limited to a specific amount or specific costs or subject to
acceptance of the tender. In terms of the
letter the appellant’s
liability to furnish security was no longer in issue, only the
quantum to be provided still had to
be determined. Had there not been
provision for the determination of the quantum of the security to be
provided where a party merely
agreed to provide security, the
agreement to provide security, without stipulating the amount of such
security, would of course
have served no purpose. That is however not
the case. A commissioner faced with an application in terms of
s 17(2) of the
Act has to determine whether a party from whom
security is demanded is liable to furnish security and if he is he
may order him
to furnish security to his satisfaction ie he may then
determine the amount of such security. Where such party agrees to
provide
security for costs, as was done by the appellant, the
commissioner is relieved of the duty to determine whether the party
is liable
to provide security and may proceed to determine the amount
of the security to be furnished.
[8] The appellant, relying on
Cooper
v Mutual & Federal Versekeringsmaatskappy Bpk
6
,
submitted that an agreement to provide security did not bind a party
to provide security in an amount subsequently determined.
The case is
no authority for the proposition. The plaintiff in that case agreed
to provide security in a certain amount and the
court held that that
was not an agreement or an admission of liability to provide security
in respect of a subsequent increase
in the amount of security
required.
[9] Although acting on the basis of the erroneous
assumption that subject to s 17(2)(a) being interpreted as
aforesaid, liability
to furnish security was not in issue, the court
a quo did determine the amount of the security to be furnished. It
said in this
regard:
‘
At the hearing of this application,
however, counsel for the defendants submitted that an amount of
R250 000,00 would be reasonable
under the circumstances. I find
no facts before me to differ from that suggestion’.
The court a quo then made the following order:
‘
The plaintiff is directed to furnish
security for costs for the second, third and fourth defendants in the
amount of R250 000,00.’
[10] In his heads of argument appellant’s counsel
made it clear that the appellant was not appealing against the court
a quo’s
determination of the quantum of the security to be
provided. However, in reply before us he stated that if, upon a
correct interpretation
of the order, the appellant was ordered to
furnish security in an amount of R250 000 to the third
respondent and not, as he
interpreted the order, to furnish security
in an amount of R250 000 to the three respondents together the
appellant did not
accept such determination. For the reasons that
follow I do not think that there can be any doubt that in so far as
the third respondent
is concerned, the court a quo intended to order
that security in an amount of R250 000 be furnished. First, the
first and
second respondents on the one hand and the third respondent
on the other brought separate applications and were represented by
different attorneys and counsel making it highly unlikely that the
court a quo could have intended that the amount of R250 000
should serve as security for the costs of all three respondents
leaving it to the respondents to determine how to divide the amount
amongst themselves. Second, the appellant in his heads of argument
stated that the respondents had in fact submitted in the court
a quo
that R250 000 per respondent would be reasonable in the
circumstances. Third the court a quo stated in its judgment
that it
could find no facts before it to differ from the suggestion by
counsel.
[11] Apart from stating that the appellant did not
accept the determination of the amount of security to be furnished
the appellant
did not advance any basis for interfering therewith.
Was the appellant liable to furnish security to the
first and second respondents?
[12] In terms of s 17(2) the court a quo had a
discretion to order the appellant to furnish security. Such an order
places
a limitation on the right conferred on litigants in terms of
s 34 of the Constitution.
The
section provides that everyone has the right to have any dispute that
can be resolved by the application of law decided in a
fair and
public hearing before a court or tribunal. In terms of s 36 of
the Constitution
7
the right may be limited in terms of
a law of general application to the extent that the limitation is
reasonable and justifiable
in an open and democratic society. The
right is limited by the provisions of s 17(2), the
constitutionality of which is not
challenged by the appellant. It
follows that it is accepted by the appellant that the conferral of a
discretion on a commissioner
in terms of s 17 to order a party
to furnish security for costs is reasonable and justifiable. As the
validity of the section
itself depends on the reasonableness and
justifiability thereof it must follow that an order that a plaintiff
should furnish security,
thereby limiting his right to have his
dispute resolved in a court, may only be made if it is reasonable and
justifiable to do
so.
[13] In exercising his discretion in
terms of s 17(2) a commissioner must consider all relevant
factors and balance them against
one another. It is clear that the
court a quo never did so. The court a quo in fact never applied its
mind to the question whether
it should exercise its discretion in
favour of the respondents. As stated above it proceeded on the basis
of an erroneous assumption
that the parties were agreed that it
should order the appellant to provide security in the event of it
finding that it could in
terms of the section order a plaintiff
incola
to provide security. It is therefore
for this court, having regard to all relevant factors, to decide
whether the court a quo should
have ordered the appellant to provide
security for the costs of the first and the second respondents.
[14]
The first
and second respondents alleged that they, in another pending matter,
experienced considerable difficulty in extracting
payment from the
appellant in respect of various costs orders against him and that
their holding company experienced similar problems
in a matter
between it and the appellant. Writs of execution had to be issued
against the appellant and
nulla
bona
returns
were received in respect of them. Although the costs awarded against
the appellant were eventually paid, in one instance
only after the
appellant’s patent which gave rise to these proceedings was
attached, these allegations cast doubt on the
ability of the
appellant to meet adverse costs orders. Such doubt is reinforced by
the fact that the appellant did not state that
he would be able to
meet adverse costs orders and made no disclosure concerning his
financial affairs but stated that his financial
state was irrelevant.
In the circumstances I am satisfied that there is reason to believe
that the appellant may not be able to
meet adverse costs orders.
[15] The object of s 17(2) in so
far as defendants are concerned is clearly to protect them in
appropriate circumstances against
actions instituted by plaintiffs
who may eventually be unable to meet costs orders made against them.
8
The fact that there is reason to
believe that the appellant may not be able to meet such orders is
therefore a relevant factor to
be taken into account in exercising a
discretion in terms of the section.
9
[16] The appellant stated in his answering affidavit
that the effect of the security sought would be to deny him his right
to assert
his rights in his property and to deprive him of his right
to access to a court for that purpose. He would, he said, simply not
be in a position to finance the assertion of his rights in court and
put up security in the extraordinary amounts claimed by the
respondents. It is self-evident that the extent to which the right of
access to a court would be curtailed by an order that security
be
furnished is a relevant consideration in determining whether such
curtailment would be reasonable and justifiable. However,
the
appellant who is relying on this factor, failed to adduce any
evidence in support of the conclusion that he would be unable
to
enforce his patent rights should he be ordered to furnish security.
[17] It does not follow from the fact
that there is reason to believe that the appellant may not be able to
meet adverse costs orders
that there is also reason to believe that
the appellant would not be able to furnish security. Funds may be
available to the appellant
for as long as there is a prospect of
success but not after the case had been lost. That the appellant has
access to funds appears
from the fact that he is conducting these
proceedings and that he was able to offer security in an amount of
R120 000. The
appellant did, however, not disclose the source
and extent of these funds. In the result there is no basis upon which
it can be
found that the appellant would be unable to raise security
for costs and thus be unable to exercise his right to have his action
decided by a court.
[18] There are, however, other
factors militating against an order that security be furnished by the
appellant.
18.1 The fact that a commissioner may
in terms of s 17(2) order a plaintiff
incola
to furnish security does not have the
result that the residential status of the plaintiff is no longer
relevant especially not if
the plaintiff is a natural person.
Generally the chances of extracting payment from a presently
impecunious plaintiff are much
better in the case of a natural person
who is also an
incola
than from a presently impecunious
plaintiff who is a company or a
peregrinus
.
18.2 It is stated in the founding
affidavit to the first and the second respondents’ application
that they intend making application
to set aside certain amendments
to the relevant patent on the basis that the amendments do not comply
with the provisions of s 51(6)
of the Act. However, they do not
state what the effect of the setting aside of the amendments would be
on the appellant’s
claim. They demand that security be
furnished without even alleging that they have a defence to the
appellant’s claim, let
alone stating what the nature of their
defence is. They are doing so notwithstanding the fact that
s 17(2)(b) specifically
provides that the Commissioner may have
regard to the prospects of success or the bona fides of the party
from whom security is
required.
[19] In my view it would be quite unreasonable to order
the appellant, an
incola
natural
person, to provide security for an action instituted by him, at the
behest of a defendant who may not even have a defence
worthy of
consideration. The first and second respondents submitted that, in
the light of the fact that the appellant made no allegation
in regard
to his prospects of success either, it should be accepted that they
do have a defence which is not devoid of any merit.
There are two
answers to this submission. First, the onus is on the first and
second respondents as applicants for security to
persuade a court
that security should be ordered. Second, not only is a defence not
disclosed in the application, it is not alleged
that a defence has at
any stage been disclosed to the appellant. Therefore, assuming the
first and second respondents have a defence
to the appellant’s
action, it does not appear from the papers filed that the appellant
is in a position to deal with the
merits of the defence.
[20] The appellant’s counsel conceded that there
is reason to fear that the appellant may eventually not be able to
meet an
adverse costs order but then no reason has been advanced to
fear that an adverse costs order may eventually be made against the
appellant. To require the appellant to furnish security in these
circumstances would place an unjust impediment on his constitutional
right in terms of s 36 of the Constitution.
[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.
[22] It follows that the first and second respondents’
application for security should have been dismissed by the court a
quo.
Costs
[23] The appellant also appealed against the order that
he should pay the costs of the respondents’ applications for
the removal
of bar and the extension of the time for the filing of
their pleas. The application of the first and second respondents
formed
an insignificant part of their application for security and
their counsel conceded that the costs thereof should follow the
result
of their application for security. It follows that the
appellant’s appeal against the costs order in respect of the
first
and second respondents’ application should succeed.
[24] The third respondent brought an application for
removal of bar and an extension of time and subsequently, when the
appellant
disputed that he had agreed to provide security, a separate
application for security. The two applications and the application by
the first and second respondents were heard together. The appellant
submitted that he had not opposed the application for an extension
but only opposed the third respondent’s prayer for costs, that
the third respondent was asking for an indulgence and that
it should
have tendered the costs of the application.
[25] The appellant did say in the last paragraph of a
twelve page answering affidavit that he did not take issue with third
respondent’s
‘application for the indulgences sought’
and that he abided the decision of the court a quo but in the
preceding part
of the affidavit he disputed the basis upon which the
third respondent claimed to be entitled to an extension of time and
concluded:
‘The applicant has not, I am advised, shown good
cause for the indulgences sought and has made no attempt to explain
its
remissness in not pleading timeously’. He even filed a
duplication to the third respondent’s replying affidavit. As
in
the case of the application for security the main dispute in the
application for an extension was whether the appellant was
liable to
furnish security for the costs of the third respondent. This dispute
was decided against the appellant. In these circumstances
the court a
quo in the exercise of its discretion awarded the third respondent
the costs of the application. It cannot be said
that the court a quo
did not exercise its discretion judicially. In the circumstances this
court cannot interfere with the order
by the court a quo. However,
the court a quo went further and ordered that the costs of the
application for extension as well as
the application for security
should include the costs of two counsel. The court a quo did so on
the basis of a practice in that
court ‘that where the main
action justifies the retention of two counsel, both counsel may
appear in interlocutory proceedings
to the action and the cost for
both counsel are justified’. We were informed from the bar that
the practice referred to is
not an invariable practice. The court a
quo had a discretion and by simply following a practice in that court
it failed to exercise
that discretion. This court is therefore free
to interfere with the costs order insofar as it relates to the costs
of two counsel.
In my view the applications did not justify the
employment of two counsel.
[26] In the result the following order is made:
(1) The appellant’s appeal against the order
directing him to furnish security to the first and second respondents
(the second
and third defendants in the court a quo) and to pay the
costs of the first and second respondents in respect of their
applications
for security, removal of bar and extension of time to
plead, is upheld with costs.
(2) The appellant’s appeal against the order
directing him to provide security in an amount of R250 000 to
the third
respondent (the fourth defendant in the court a quo) is
dismissed.
(3) The appellant’s appeal against the order that
the costs of the third respondent in respect of the applications for
removal
of bar and extension of time to plead should include the
costs of two counsel, is upheld.
(4) The appellant is ordered to pay the third
respondent’s costs of the appeal.
(5) The order of the court a quo is replaced with the
following order:
‘
(a) (i) The second and third
defendants’ application for security for costs is dismissed.
The second and third defendants’ application for
the removal of the bar to the filing of their pleas and for an
extension
of time is granted.
The second and third defendants are ordered to pay the
costs of these applications.
The second and third defendants are granted leave to
plead to the plaintiffs particulars of claim within a period of 20
days after
their application in terms of s 51(10) has been
determined.
(b) (i) The plaintiff is ordered to furnish security for
the costs of the fourth defendant in an amount of R250 000.
(ii) The fourth defendant’s application for the
removal of the bar to the filing of its plea and for an extension of
time
to plead is granted.
The plaintiff is ordered to pay the costs of these
applications.
The fourth defendant is granted leave to plead to the
plaintiffs particulars of claim within a period of 20 days after the
application
in terms of s 51(10) has been determined or after
the plaintiff has furnished security for its costs, whichever occurs
later.
_____________________
P E STREICHER
JUDGE OF APPEAL
CONCUR
:
NUGENT JA)
HEHER JA)
HURT AJA)
SNYDERS AJA)
1
See
Witham v Venables
(1828)
1 Menz 291.
2
See
Western Assurance Co v Caldwell’s
Trustee
1918 AD 262
at 274;
Ecker
v Dean
1937 AD 254
at 259; and
Ecker
v Dean
1938 AD 102
at 111
.
3
Section
13 of the Companies Act 61 of 1973 provides: ‘Where a company
or other body corporate is plaintiff or applicant
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.’
4
Section
76(1) read as follows: ‘(1) The commissioner may, for the
purpose of this Act . . .(j) if any party to proceedings
before him
is resident outside the Union, or has no fixed property therein, on
the application of any other party to the proceedings,
order that
security to the satisfaction of the commissioner be lodged or given
by the first-mentioned party in respect of any
costs which may be
awarded against him in those proceedings, and refuse until such
security has been lodged or given to permit
such proceedings to be
continued, …’
5
See
Ex parte Minister of Justice: In re Rex
v Bolon
1941 AD 345
at 359.
6
2002
(2) SA 863
(O) 869F-J.
7
Section
36 reads as follows: ‘The rights in the Bill of Rights may be
limited only in terms of law of general application
to the extent
that the limitation is reasonable and justifiable in an open and
democratic society based on human dignity, equality
and freedom,
taking into account all relevant factors, including –
the nature of the right;
the importance of the purpose of the limitation;
the nature and extent of the limitation;
the relation between the limitation and its purpose; and
less restrictive means to achieve the purpose.’
8
Cf
Hudson &Son v London Trading Co Ltd
1930 WLD 288
at 291;
Shepstone
& Wylie and Others v Geyser NO
1998
(3) SA 1036
(SCA) at 1044E-F.
9
Giddey
NO v J C Barnard and Partners
[2006] ZACC 13
;
2007 (5)
SA 525
(CC) at 530B-E.