Kini Bay Village Association (Pty) Ltd v Nelson Mandela Metropolitan Municipality and Others (434/07) [2008] ZASCA 66; [2008] 4 All SA 50 (SCA) ; 2009 (2) SA 166 (SCA) (29 May 2008)

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Kini Bay Village Association (Pty) Ltd v Nelson Mandela Metropolitan Municipality and Others (434/07) [2008] ZASCA 66; [2008] 4 All SA 50 (SCA) ; 2009 (2) SA 166 (SCA) (29 May 2008)

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THE SUPREME COURT OF APPEAL OF
SOUTH AFRICA
Case No: 434/07
REPORTABLE
In the
matter between:
KINI
BAY VILLAGE ASSOCIATION
...
Appellant
v
THE
NELSON MANDELA METROPOLITAN MUNICIPALITY
...
First
Respondent
CHASE
STREET PROPERTIES (PTY) LTD
...
Second Respondent
PIERRE
KOLESKY
...
Third Respondent
Coram: Harms ADP, Cameron, Van Heerden, Ponnan et Maya
JJA
Heard: 21 May 2008
Delivered: 29 May 2008
Summary: Appeal against order for payment of security for costs in
terms of s 13 of the Companies Act 61 of 1973 by impecunious
appellant
representing residents of affluent seaside suburb – court
of first instance exercising discretion in strict sense – appeal
court
entitled to interfere only where material misdirection
established even in case involving a constitutional issue.
Neutral citation: This judgment may be referred to as
Kini
Bay Village Association v Nelson Mandela Metropolitan Municipality
(434/2007)
[2008] ZASCA 66
(29 May 2008).
JUDGMENT
MAYA JA:
MAYA JA:
[1] This is an appeal against the judgment of the Port
Elizabeth High Court (Pakade J) ordering the appellant, inter alia,
to furnish
security for the second and third respondents’ costs of
suit in terms of s 13 of the Companies Act 61 of 1973 read with
Uniform
rule 47(3). The appeal against that order is with the leave
of the court below.
[2] The litigation for which security for costs is
sought was sparked by an application to the first respondent (the
local authority)
made by the second respondent, to have the latter’s
residential property, Erf 78 Kini Bay (the property), rezoned for
purposes
of operating a guesthouse and conference facility. The third
respondent is a director and shareholder of the second respondent and
resides on the property. Notwithstanding objections to the proposed
rezoning lodged by the appellant, which represents a number of
Kini
Bay Village residents, the local authority’s Housing and Land
Committee recommended a grant of the rezoning application.
[3] Pursuant to the recommendation, the appellant
launched application proceedings seeking, inter alia,
to
have the local authority take the necessary steps to prevent the
second respondent from operating and advertising the business
(which
was already trading as Sea Otters Lodge),
to
have the Housing and Land Committee’s recommendation reviewed and
set aside and the application referred back for reconsideration.
1
The second and third respondents (the respondents) were
cited in the proceedings but no relief was directly sought against
them and
a costs order against them was sought only if they opposed
the application.
[4] At the commencement of the proceedings, simultaneous
with the issue of their notice to oppose, the respondents requested
copies
of the appellant’s constitution and its financial statements
to establish its financial position and whether or not it would be
able to meet an adverse costs order. The constitution was duly
furnished but the appellant declined to divulge its financial status
on the grounds that it is a
voluntary
association
2
–
in its constitution it describes itself as a
universitas
–
acting
in terms of s 38 of the Constitution,
3
seeking to invoke a constitutional right on behalf of
its members, which relieves it of an obligation to provide costs. The
appellant
further contended that no relief was in any event sought
against the respondents.
[5] This refusal prompted the respondents to institute
proceedings for security in terms of Uniform rule 47(3)
4
and s 13 of the Companies Act. During the course of such
proceedings, which were opposed, the respondents chanced upon a copy
of the
appellant’s Annual General Meeting minutes which showed the
following – its subscription levies and seeming main source of
revenue
amounted to R880 comprised of sums of R25 payable by each of
its 44 members; its budget for the relevant year, 2005/2006, was R5
480 and made no provision for litigation; its banking account balance
as at 30 September 2005 was R3 792,68 and it had no other assets.
When confronted with this discovery, the appellant readily admitted
that it would be unable to meet an adverse costs order but persisted
with its argument that it sought to vindicate a constitutional right
and could, thus, not be mulcted with costs.
[6] The court below took the view that the relief sought
by the appellant, which it decided is a body corporate, has a direct
impact
on the respondents’ rights, thus entitling them to oppose
the application. I must say at the outset that this finding is, in my
view, correct as the appellant’s primary objective was to prevent
the rezoning of the respondents’ property and the operation
of a
guesthouse on it.
[7] In rejecting the appellant’s constitutional
defence, the court below discussed the implications of the rights
claimed by the
appellant on the basis of s 38 of the Constitution and
the considerations to be observed by a court in an application of
that nature.
It then concluded, on the authority of the dictum in
Ferreira v Levin NO and others;
5
regarding the manner in which the principles relating to
the award of costs in constitutional litigation are to be applied,
that it
would be unfair to deprive the respondents of their costs in
the event that they successfully opposed the application.
[8] In argument before us, counsel for the appellant
submitted that the legal principles relating to s 13 of the Companies
Act relied
upon by the respondents were not disputed. What was being
challenged, it was contended, was only the manner in which the court
below
exercised its discretion, ie failing to have sufficient regard
to the fact that the appellant sought constitutional relief, as its
order would have a ‘chilling effect’ on non-profit, impecunious
parties such as the appellant seeking to enforce their constitutional
rights against public authorities.
6
This, therefore, is the sole issue in this appeal.
[9] Section 13 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.’
[10] These provisions are intended to protect persons
against liability for costs relating to litigation instituted by
impecunious
companies
7
by deterring such companies from litigating vexatiously
or in circumstances where they have poor prospects of success, thus
exposing
their opponents to unnecessary and irrecoverable legal
expenses.
8
The party seeking security must, however, first
establish, by credible testimony, that its opponent, if unsuccessful,
will be unable
to meet an adverse costs order.
[11] To succeed on appeal, a litigant must satisfy the
court that the discretion exercised by the court of first instance in
terms
of s 13 – which is a discretion ‘in the strict sense’ ie
a discretion exercised on a judicial evaluation of the facts and
circumstances
before the court – was not judicially exercised or
was based upon a wrong principle of law or wrong facts.
9
[12] Whilst the court is enjoined to exercise its
discretion with the litigants’ constitutional right to access to
courts
10
in mind, the mere possibility that an order for security
will effectively put an end to the litigation, which seemingly is the
intended
and inevitable result of s 13, does not constitute
sufficient reason for its refusal – this is but one of the factors
(there is
no closed list) a court will consider in the exercise,
which involves weighing the potential injustice to the plaintiff or
applicant
if it is prevented from pursuing a legitimate claim,
against the potential injustice to the opposing party if it succeeds
in its
defence but cannot recover its costs.
11
[13] Turning back to the facts of the present case, save
to allege that it would be unable to meet an adverse costs order, the
appellant
was otherwise extremely reticent about its financial
status. It offered no explanation at all as to the source of funds
for its litigation,
which has seen it come all the way to this court.
What was clear from its minutes mentioned above, however, was that it
had not been
doing so from its own resources but nevertheless has
access to substantial funds. Its counsel was constrained to disclose
in argument
the rather obvious fact that its members, who are wealthy
(
Kini
Bay Village itself being an affluent seaside neighbourhood
)
,
are footing its legal bills.
[14] Another factor which a court will take into account
in its balancing exercise is the plaintiff’s attempt to find
financial
assistance from its shareholders and creditors or other
affiliates, backers or interested persons.
12
This must be so considering that they are the ultimate
beneficiaries of a successful action. Making this point in
MTN
Service Provider
,
Brand
JA said:
13
‘
One of the very mischiefs s 13 is intended to
curb, is that those who stand to benefit from successful litigation
by a plaintiff company
will be prepared to finance the company’s
own litigation, but will shield behind its corporate identity when it
is ordered to pay
the successful defendant’s costs. A plaintiff
company that seeks to rely on the probability that a security order
will exclude
it from the Court, must therefore adduce evidence that
it will be unable to furnish security; not only from its own
resources, but
also from outside sources such as shareholders or
creditors’.
[15] Needless to say in the circumstances of this case,
in the absence of any evidence relating to the appellant’s source
of funds
and whether it solicited its members’ financial assistance
or made any other attempts to raise funds to continue the litigation,
the appellant dismally failed to establish that a security order will
halt its case. Its reticence, which is clearly deliberate,
inexonerably leads to an inference that its wealthy members who
authorised it to conduct the litigation in the first place
impecunious
as it was, are using it merely as a front and are
shielding behind an empty shell simply to avoid liability for costs.
[16] As regards the appellant’s constitutional point,
I must say first that to my mind, the real dispute stripped to its
bare essentials,
is no more than a skirmish concerning property
rights between neighbours. The ‘constitutional issue’ in the form
of a judicial
review between the appellant and the local authority,
is ancillary to that. Be that as it may, the matter does bear some
constitutional
character and that must be given credence which the
court below did.
[17] Whilst the Constitutional Court has sometimes found
it inappropriate to make costs awards lest they have a chilling
effect on
members of society wishing to vindicate their
constitutional rights,
14
there is nonetheless no rule of thumb that a costs order
will not be made in constitutional litigation. In
Affordable
Medicines Trust v Minister of Health
,
15
Ngcobo J reiterated this position as
follows:
‘
[T]he general rule in constitutional litigation
that an unsuccessful litigant ought not to be ordered to pay costs …
is not an inflexible
rule … There may be circumstances that justify
departure from this rule ... The ultimate goal is to do that which is
just having
regard to the facts and circumstances of the case’.
Indeed, a
uthorities
abound in which both this court and the Constitutional Court, in
keeping with the trite principle that costs should ordinarily
follow
the result, have made costs awards in matters in which the parties
sought to invoke constitutional rights.
16
Significantly, in a number of those cases private
individuals were ordered to pay the costs of public authorities.
Having due regard
to the facts of this case and the principles of
equity and fairness, there seems to me no reason justifying a
departure from the
usual rule. The appellant should not escape
liability for costs.
[18] There is another issue that merits mention. As
indicated, leave to appeal to this court was granted by the court
below. There
being no demonstrable misdirection in its reasoning,
such leave should never have been granted. In the event that leave
was warranted,
there still is no reason why the matter could not have
been dealt with by the Full Court in terms of s 20(2) of the Supreme
Court
Act 59 of 1959. The principles governing applications of this
nature, which present no complexities, are by now settled as
evidenced
by the cases cited above. This court has previously
remonstrated against appeals against security orders being brought to
it, at
great expense for the litigants and to the detriment of
difficult cases more deserving of its attention.
17
It is hoped that litigants and the high courts will heed
this concern.
[19] Finally, we were asked on the respondents’ behalf
to vary the order granted by the court below by substituting the
amount of
security specified in the order of the court below, in
terms of their notice of motion, with the words ‘an amount to be
determined
by the Registrar’. However, there being no cross-appeal
in this regard, our hands are tied and we cannot accede to the
request.
[20] For all these reasons, I can find no reason to
interfere with the judgment of the court below. The appeal must,
therefore, fail.
[21] Accordingly, the appeal is dismissed with costs.
__________________
MML MAYA
JUDGE OF APPEAL
CONCUR:
HARMS ADP
CAMERON JA
VAN HEERDEN JA
PONNAN JA
1
The
application was s
ubsequently considered by the
local authority’s Mayoral Committee and finally approved by its
full Council after the proceedings
had been launched.
2
In
argument before us, the defence that the appellant is
not ‘a
company or any body corporate’ as contemplated in s 13 of the
Companies Act was, correctly, not pursued although it was
still
contended that it is a non-profit entity.
3
Section
38 of t
he Constitution of the Republic of South
Africa Act 108 of 1996 provides:
‘
Anyone listed in this section has the right to
approach a competent court, alleging that a right in the Bill of
Rights has been
infringed or threatened, and the court may grant
appropriate relief, including a declaration of rights. The persons
who may approach
a court are –
(a) anyone acting in their own interest;
(b) anyone acting on behalf of another person who cannot act in
their own name;
(c) anyone acting as a member of, or in the interest of, a group or
class of persons;
(d) anyone acting in the public interest; and
(e) any association acting in the interest of its members.’
4
Uniform
rule 47(3), which regulates the procedure for applications for
security, provides:
‘
If the party from whom security is demanded
contests his liability to give security or if he fails or refuses to
furnish security
in the amount demanded or the amount fixed by the
registrar within ten days of the demand or the registrar’s
decision, the other
party may apply to court on notice for an order
that such security be given and that the proceedings be stayed until
such order
is complied with.’
5
[1996] ZACC 27
;
1996
(2) SA 621
(CC) para 3. There, the court said that ‘the principles
which have been developed in relation to the award of costs are by
their
nature sufficiently flexible and adaptable to meet new needs
which may arise in regard to constitutional litigation … [which]
if the need arises … may have to be substantially adapted … on a
case by case basis’.
6
In
this regard, reference was made to the provisions of s 152(1)(e) of
the Constitution in terms of which one of the objects of
local
government is ‘to encourage the involvement of communities and
community organisations in the matters of local government.’
7
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.
8
Giddey
NO v JC Barnard & Partners
[2006] ZACC 13
;
2007 (5) SA 525
(CC) para 7.
9
Bookworks
(Pty) Ltd v Greater Johannesburg Transitional Metropolitan Council &
another
1999 (4) SA 799
(W) at
807G-808B (per Cloete J)
; Giddey NO
paras 20-22;
MTN
Service Provider (Pty) Ltd v Afro Call (Pty) Ltd
2007
(6) SA 620
(SCA) para 11;
Aartappel
Koöperasie Bpk v Pricewaterhousecoopers
[2007]
SCA 166 RSA, unreported judgment delivered on 29 November 2007,
para 15.
10
Section
34 of the Constitution grants ‘[e]veryone … the right to have
any dispute that can be resolved by the application of
law decided
in a fair public hearing before a court or, where appropriate,
another independent and impartial tribunal or forum.’
11
Shepstone
& Wylie
at 1046G-I;
Keary Developments Ltd v Tarmac
Construction Ltd & another
[1995] 3 All ER 534
(CA) at
539j-540a;
Giddey NO
para 29.
12
Shepstone
& Wylie
at 1047A-B,-540a
Giddey NO
paras 30, 33 and 34.
13
Para
20.
14
See,
for example,
Mkontwana v Nelson Mandela
Metropolitan Municipality & Another
2005
(1) SA 530
(CC) para 74;
Steenkamp v
Provincial Tender Board, Eastern Cape
2007
(3) SA 121
(CC) para 62.
15
[2005] ZACC 3
;
2006
(3) SA 247
(CC) para 138.
16
See,
for example,
Fuel Retailers Association of Southern Africa v
Director-General: Environmental Management, Department of
Agriculture, Conservation
and Environment, Mpumalanga Province and
Others
2007 (6) SA 4
(CC);
MEC: Department of Agriculture,
Conservation and Environment and Another v HTF Developers (Pty) Ltd
[2007] ZACC 25
;
2008 (2) SA 319
(CC);
MEC for Education
:
KwaZulu-Natal and Others v Pillay
[2007] ZACC 21
;
2008 (1) SA 474
(CC);
Minister
of Environmental Affairs and Tourism v Scenematic Fourteen (Pty) Ltd
[2005] ZASCA 11
;
2005 (6) SA 182
(SCA);
Oudekraal Estates (Pty) Ltd v City of
Cape Town and Others
2004 (6) SA 222
(SCA);
Chairperson :
Standing Tender Committee and Others v JFE Sapela Electronics (Pty)
Ltd and Others
2008 (2) SA 638
(SCA);
South African Liquor
Traders Association and Others v Chairperson Gauteng Liquor Board
and Others
[2006] ZACC 7
;
2006 (8) BCLR 901
(CC);
Rail Commuters Action
Group v Transnet Ltd t/a Metrorail
[2004] ZACC 20
;
2005 (2) SA 359
(CC);
Premier
of the Province of the Western Cape v Fair Cape Property Developers
(Pty) Ltd
2003 (6) SA 13
(SCA).
17
MTN
Service Provider (Pty) Ltd
para 24;
Shoprite Checkers (Pty) Ltd v Bumpers
Schwarmas CC and Others
2003 (5) SA
354
(SCA) para 23.