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[2016] ZAGPPHC 836
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Nedbank Limited and Another v Breytenbach N.O. and Others (1012/2007) [2016] ZAGPPHC 836 (9 September 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
(GAUTENG
DIVISION, PRETORIA)
Case
No: 1012/2007
DATE:
9/9/2016
In
the matter between:
NEDBANK
LIMITED
….............................................................
1
st
Applicant/1st Defendant
BoE
BANK
LIMITED
.................................................................
2
nd
Applicant/11th
Defendant
and
MARTHINUS
JACOBUS DE WAAL BREYTENBACH N.O.
KHATHAZILE
SIMON MAHLANGU N.O.
In
their capacity as joint liduiators of
HILLCREST
VILLAGE (PTY) LTD
(IN
LIQUIDATION)
…..............................................
Respondent/1st Plaintiff
JUDGMENT
HF
JACOBS, AJ:
[1]
The applicants (Nedbank Limited and BoE Bank Ltd)
[1]
apply for an order compelling the respondent company Hillcrest
Village (Pty) Ltd (in liquidation)("Hillcrest") to furnish
security for the applicants' costs in the
sum of R5OO
000.00. The amount of security is not challenged but the obligation
is.
[2]
The notice calling for security was served between 25 November and 8
December 2010.
At that
stage section
13 of the
Companies
Act
61 of 1973
("the 1973 Act") still applied.
On the
advent of the New Companies Act,
[2]
section 13 of the 1973 Act was repealed.
In terms of
the notice calling for security the applicants rely on allegations to
the effect that Hillcrest
would be
unable to meet any adverse cost order that may be granted in favour
of the applicants at the conclusion of the pending
litigation.
Hillcrest's inability to satisfy an adverse cost order was not
challenged. In fact, it was alleged by
Hillcrest
that its impecuniosity was the result of conduct of staff members of
the applicants and that it should not be compelled
to furnish
security for the applicants' costs at all.
[3]
The main action was instituted by Hillcrest during 2007. Hillcrest
was liquidated by way of special resolution on 18 November
2009 and
was substituted in the main action by Messrs Breytenbach and Mahlangu
as joint liquidators on 19 November 2010. This application
in terms
of Rule 47(3) to furnish security was instituted on 1 April 2011 and
enrolled for 12 May 2011. By agreement between the
parties the
application was removed from the roll of 12 May 2011 to afford
Hillcrest the opportunity to convene an inquiry in terms
of sections
417 and 418 of the 1973 Act. That application was not brought to
finality and the present application was proceeded
with by the
applicants. I will return to the facts gleaned from the affidavits
presently. It would be convenient to refer to the
legal principles
applicable to applications for security first.
[4]
The
onus
is on an
applicant
seeking
security
to
persuade
a
Court that
security should be
ordered.
Before
Boost
[3]
and
until the repeal of section 13 of the 1973-Act, a Court was vested
with the discretion to order an
incola
company
or its liquidator that has instituted action to furnish security for
costs if there were reason to believe that the liquidated
company
would be unable to pay the costs of its opponent. In
Giddey
[4]
the
Constitutional Court stated the approach to be followed in the
exercise of that discretion
given
section 34 of the Constitution which entrenches the right to have the
dispute
resolved by Courts.
Giddey
was
decided under section 13 of the 1973 Act, nine years before
Boost.
The
main purpose of section 13 was to ensure
that
companies who are unlikely to be able to satisfy an adverse costs
order
if
unsuccessful to not institute vexatious litigation or to litigate in
circumstances
where they have no prospects of success thus causing their
opponents
unnecessary and irrecoverable legal expense. A Court's discretion to
order a company to furnish security is an unfettered
one and the mere
inability to satisfy a cost order is not sufficient a reason alone.
Under
common law a Court in the exercise
of its
discretion had to have regard to the
nature of
the claim, the financial position of the company at the stage of the
application for security and its probable financial
position should
it lose the action. In
Boost
[5]
it was
held that
"something"
more is
required. The Supreme Court of
Appeal held
in
Boost
[6]
that:
"even
though there may be poor prospects of recovering costs,
a
Court, in its discretion, should only order the furnishing of
security for such costs by an incola company if it is
satisfied that
the contemplated main action (or
application) is vexatious or
reckless or otherwise
amounts to an
abuse."
[5]
In this context
"vexatious"
means
"frivolous,
improper: instituted without sufficient ground, to serve solely as an
annoyance to the
defendant"
and
vexatious
proceedings
would
include
proceedings
which,
although
properly instituted, are continued for the sole purpose of causing
annoyance
to the defendant and
"abuse"
connotes
a mis-use, an improper use, a
use mala
fide
and
a use for an ulterior motive.
[7]
[6]
An action would be vexatious and an abuse of the Court process
inter
alia
if it is obviously unsustainable. This must appear as a
certainty and not merely as a preponderance of probability. The
position
is so since the common law is reluctant to limit access to
court and an application for security for costs would seem to require
a less stringent test than the one for the stay of vexatious
proceedings.
[7]
It is not expected during the exercise of the discretion that a
detailed investigation of the merits of the case should be undertaken
nor is it contemplated that there should be a close investigation of
the facts in issue in the main action. In
Boost
[8]
the Supreme Court of Appeal approved
the
statement of Streicher JA in
Zietsman
[9]
stating
that:
"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."
[8]
One of the features of this application (and the main action) is
the
abandon with which allegations of fraud, collusion and shamming have
been
levelled by and on behalf of Hillcrest. The allegations are in some
instances
sweeping to the effect that BoE conducted "a
sham
auction"
and
also repelled potential purchasers from bidding at the auction when
the assets of
its
principal debtor, WKP, took place. Hillcrest's case is, as far as the
fraud,
collusion and shamming allegations are concerned, based on nothing
more than assertions. Assertions, whether made in pleadings,
affidavits in open Court or under the guise of evidence, have no
evidentiary
value.
It
does not call for rebuttal and to place reliance on assertions of the
kind
under
discussion in exercising a discretion is inappropriate and wrong.
However, and mindful of the dictum in
Zietsman
[10]
I am of the view that the
proper
approach
to
follow
in
determining
whether
the
case
pleaded
and
summarised
by
Hillcrest
in
its
answering
affidavit should be
held
to
be
"vexatious,
reckless
or
otherwise amount to an abuse"
as
the applicants allege it is, would be
to consider
whether the
allegations, if
proven
at
trial,
would make
out a case
in law against the
applicants.
[9]
Against the backdrop sketched above it is now necessary to consider
the
"nature of the dispute"
in the main action.
[10]
The main action dates back to 2007. The following history appears
from a judgment of the SCA attached to Hillcrest's answering
affidavit. On 19 October 1994 Waterkloof Projects (Pty) Ltd ("WKP")
purchased Erf 1856 Waterkloof Ridge from the Pretoria
Municipality
("the Municipality"). The property was to be developed as
113 residential stands and 107 cluster stands.
The development was to
be named the Waterkloof Boulevard. In terms of the contract between
WKP and the Municipality WKP was obliged
to create a nature park at a
cost of not more than R2 158 000.00 on a remainder of Erf 1856. BoE
guaranteed WKP's obligation in
respect of the nature park and lent
and advanced to WKP the sum of R14 200 000.00 to fund a turnkey
development. The amount of
R14 200 000.00 was secured by a mortgage
bond over the land.
[11]
WKP was also obliged, in terms of the lease agreement with the
Municipality, to undertake the long term maintenance of the
nature
park at a nominal rental of R5 000.00 per annum. Development of the
nature park had to commence within 60 days of 3 February
2000 (the
date on which the lease was concluded) and WKP had to complete the
nature park within 12 months. WKP failed to do so
and on 13 October
2000 the Municipality claimed payment from BoE for the guarantee of
R2 158 000.00. BoE then undertook to complete
the project on behalf
of WKP.
[12]
WKP was entirely dependent on the funding provided by BoE to complete
the development. Without such funding WKP would not have
been able to
meet any of its obligations. As a result of WKP's financial
difficulty during 2000, BoE advanced a further loan of
R10,8 million
to WKP for purposes of restructuring the development. The loan was
secured by a mortgage bond. Mr De la Pierre, representing
WKP,
requested BoE to appoint Pam Golding Properties to launch a marketing
campaign in respect of the stands in the development.
BoE financed
all the costs of the marketing campaign. The campaign failed.
Transfer of the properties could not be effected as
a result of
problems with the subdivision and installation of services. BoE then
foreclosed its mortgage bond. Application was
made by a creditor of
WKP for its liquidation. In an attempt to avoid the liquidation Mr De
la Pierre, a director of Hillcrest
and WKP and deponent to a
supporting affidavit filed by Hillcrest in this application, was
willing to conclude a sale agreement
with Mr Da Silva (the seventh
defendant in the main action) to undertake the completion of a
substantial portion of the development.
Mr Da Silva purchased the
cluster stands and undertook to pay BoE the purchase price in respect
of each cluster stand so purchased
upon completion of building
operations on the stands and the sale thereof. BoE undertook to
provide services to the cluster stands.
The agreement with Mr Da
Silva was signed by Mr De la Pierre on 18 July 2000 and a few days
later WKP also gave a general power
of attorney to BoE in respect of
the disposition of the remaining unsold subdivisions of Erf 1856.
After conclusion of the agreement
between Mr Da Silva and WKP (WKP
was represented by Mr De la Pierre), WKP contended that Mr De la
Pierre had no authority to conclude
the agreement and refused to
ratify it. By that time Mr Da Silva had already commenced with
construction on some of the portions
of Erf 1856. Mr De la Pierre
contended that the subdivided stands on Erf 1856 had a value which
BoE considered unrealistic.
[13]
WKP also gave BoE a general power of attorney for the disposition of
the remaining unsold portions of Erf 1856. A copy of the
general
power
of
attorney is attached to the particulars of claim as annexure "H".
The general power of attorney is dated 21 July 2000.
The general
power of attorney
[11]
admits the indebtedness of WKP to BoE and records that any
surplus
generated from the sale of the property shall inure for the benefit
of WKP and that should any dispute arise in regard to
the quantum of
such surplus or
the
computation thereof, such dispute shall be referred to an auditor
appointed
by BoE who
shall act
as an expert and
his
decision in that
regard
shall be final and binding on all the parties concerned. BoE then
applied for the liquidation for
WKP.
[14]
The
liquidators of WKP
[12]
applied to the Master for authority in terms of section 386(2A) and
(28) of the 1973 Act to sell the immovable property of WKP
by way of
public auction.
The auction
took place
on 20 March
2001. No bidding interest was shown at the auction and BoE considered
itself obliged to buy into the project as it was
the only creditor
and did so by offering a nominal amount of R100 000.00 which offer
was accepted by the auctioneer on the
instructions of the
liquidators (second
and third
defendants
in the
main
action). Shortly before the auction, on 6 March 2001, a written
settlement agreement was concluded between Gilboa Properties
Ltd
("Gilboa")
[13]
Hillcrest and other debtors of WKP and WKP
and BoE.
That agreement was referred to in the judgment of Streicher JA
in Clause
1.1
thereof. Ab
Second and third defendants in the main action.solute Holdings Ltd.
Cronje
[14]
as the first settlement agreement.
On 24
August 2001 a
second
settlement agreement was concluded between the same parties in terms
of which it
was agreed that CMT
[15]
would
deliver share transfer forms in respect of shares held in Gilboa to
enable the liquidators of WKP to sell the shares
in Gilboa
on the Johannesburg Stock Exchange and that the proceeds would
be applied
in the reduction of the debt due to BoE. On 23 August 2002 a further
settlement agreement (the third settlement agreement)
was concluded
in terms of
which it was agreed that Hillcrest would transfer the
immovable
property known as Gilboa House to BoE at a price equal to an amount
owing to
BoE in terms of the mortgage bond over the property which was at that
stage R6,9 million and that the balance of Gilboa
shares would be
redelivered to CMT (the second plaintiff) against transfer of the
property which
would
absolve CMT and the other parties to the settlement agreement against
transfer of the property from their obligation to pay
the amount of
R10 million to WKP and further from their obligations towards BoE in
terms of
any
suretyship. Effect was given to the agreement and the First and Final
Liquidation and Distribution Account of WKP was confirmed
by the
Master on 13 December 2002 and WKP was dissolved on 25 June 2004. BoE
was the only creditor that proved a claim against
WKP. The claim was
in the sum of R29 297 229.13 and was secured by way of mortgage bond.
The sale in
execution of 20 March 2001
[16]
realised only R100 000.00 and a further R720 000.00 was raised in
respect of two stands separately auctioned which entitled BoE
as a
secured creditor to a dividend of R784 527.23 leaving it
with a
concurrent claim of R28 512 701.90. According to the
calculations
accepted by the Supreme Court of Appeal in
Cronje
[17]
BoE suffered a loss of approximately R7 million in respect of the
project.
The auction
referred
to
above, the three settlement agreements and the Liquidation and
Distribution Account
submitted
by the
liquidators
of WKP to
the
Master
were
not
challenged by Hillcrest, its directors and shareholders, the trustees
of
CMT
(the second and third plaintiffs) at
all.
[15]
Some years later, during or about 2004, Mr De la Pierre got wind of
the alleged involvement of banks allegedly participating
in a
"repo
scam".
In the media reports (attached to the
particulars of claim) reference is made in journalistic terms to
conduct of banks not accounting
to their clients against whom they
foreclosed for profits made by the banks after the banks acquired
mortgaged properties of their
clients at auctions. On 12 January 2007
Hillcrest and the trustees of CMT instituted the main action. In
their particulars of claim
in the main action the plaintiffs allege
that they first became aware of the existence of the
"repo
scam"
no later than 27 January 2004. Hillcrest and the
trustees of CMT also brought an application to this Court for an
order:
"1.
That the dissolution of WKP be declared void in terms of s 420 of the
Companies Act 61 of 1973.
2.
That the Liquidation and Distribution Account be reopened.
3.
That
the Master of the High Court be ordered to appoint new liquidators to
wind-up
WKP."
[18]
The
application was heard by Mavundla J on 18 September 2007.
Judgment
was handed down by Mavundla J on 29 April 2008. Judgment on appeal
was handed
down on 17 July 2009 by the Supreme Court of Appeal in
Cronje
[19]
The
liquidation and winding-up of WKP stand. Hillcrest's main claim does
not provide for a claim setting aside any of the settlement
agreements, power of attorney and what resulted
therefrom.
[16]
According to Hillcrest's summary of its case as pleaded
[20]
Messrs Van
Rensburg
and
Adams,
employees
. or
representatives
of
BoE,
participated in a fraudulent scheme which is referred to in the
pleadings
as the
"repo
scam"
and Nedbank identified and associated itself therewith after 1
February
2003.
[17]
The allegations are further that BoE controlled the
disbursements
of the proceeds of the loan granted to WKP but mismanaged the funds
which necessitated further funding by WKP in the
sum of R5.1 million
from BoE.According to paragraph 1O of the answering affidavit
[21]
WKP and BoE concluded an
agreement.
It is not stated in the summary whether the agreement was written or
oral and which of the terms of the agreement were
express, implied or
tacit terms. In paragraph 12 of the summary it is
alleged by
BoE failed to take action against the contractor (probably HA
Construction Enterprises (Pty) Ltd mentioned in paragraph
10.2 of the
summary), and later during November 2000 BoE negotiated excision of
certain stands from
the sale
between BoE and Mr Da Silva mentioned above in order to sell some of
the stands to the ninth defendant in the main action
(Rojahn).
Hillcrest states that on 26 January 2001 the value of the stands
amounted to R40 million and that when BoE applied for
the liquidation
of WKP it inflated the indebtedness of WKP and deflated the value of
the assets of WKP in order to secure a winding-up
order of
WKP.
[18]
The summary further records that prior to the winding-up of WKP
arrangements were made between BoE, represented by Mr Van Ransburg,
Mr Adams and Mr Cronje (later appointed as liquidator of WKP and the
second defendant in the main action), Mr Da Silva and Mr Rojahn
that
BoE was to obtain a winding-up order against WKP, that BoE would take
the necessary steps to secure Mr Cronje to be appointed
as
liquidator, that upon liquidation the sale to Mr Da Silva would not
be proceeded with, that Mr Da Silva would not lodge a claim
against
the liquidator of WKP, that Mr Da Silva would waive his builder's
lien against WKP in respect of the development of 14
stands and that
after liquidation certain of the stands of the development would be
sold to Mr Da Silva or his nominee.
[19] The arrangements
summarised above, so the summary goes, constitute collusive dealings
before the liquidation of WKP in terms
of section 31 of the
Insolvency Act and sections 339 and 340 of the Companies Act. The
summary does not address the three settlement
agreements or the
failure of Hillcrest (or the other plaintiffs) to challenge any of
those agreements prior to the application
brought before Mavundla J.
[20]
It should also be noted that the following do not appear from the
affidavits of Hillcrest:
[20.1]
Hillcrest does not show that it (or its liquidators or members) made
any attempt to raise funds to put up the security sought
by the
applicants. There is no evidence on its behalf that its members are
prepared to offer security on behalf of Hillcrest to
allow the
litigation to proceed.
[20.2]
I was informed that Hillcrest's legal representatives litigate in
this matter on contingency, which shows that Hillcrest,
its
liquidators and its members who are all to benefit from the the
litigation should it prove to be successful, are not at all
exposed
to the risk inherent in claims of the kind pleaded.
[20.3]
Also
relevant is the ratio between the security sought
and the
total quantum of the claim pleaded. The security sought is only a
fraction of the total sum
claimed.
[21]
Hillcrest's claim in the main action, like its unsuccessful
application in
Cronje,
seems
to have been caused by its application of the age old logical fallacy
post hoc
ergo propter hoc
[22]
The
fallacy lies in coming to a conclusion based solely on temporal
priority of events.
It seems
that Hillcrest, when
it heard of
the allegations concerning BoE, it used that as a ground to challenge
not the individual agreements concluded during
the
liquidation
process, but the net result thereof on the premise that the assets of
WKP
had
been sold below value. Hillcrest's attempt to overturn the
liquidation
process of
WKP was unsuccessful. The reasons for its failure are many and
recorded in
Cronje.
[23]
The liquidation process and all the transactions,
settlement
agreements, execution of what had been mandated by
the powers
of attorney cannot
now
be undone
in the
main action
after
an
application
to
do
so
has
failed.
In my view Hillcrest has, after dismissal of its application for the
setting aside of WKP's winding-up, no case in law as
pleaded and
summarised in the affidavits.
[22]
In my view the main action against BoE and Nedbank is unsustainable
and instituted without sufficient ground and aimed solely
to annoy
the applicants and amounts to an abuse and is mala
fide.
Under
the circumstances I am of the view that Hillcrest should be compelled
to furnish security in the sum of R500 000.00.
I
make the following order:
(1)
Hillcrest Village (Proprietary) Limited (in liquidation) and its
joint liquidators are ordered to furnish security for the applicants'
costs in the sum of RSOO 000.00 within 10 days from the date of
service of a copy of this order on the respondent's attorney of
record; and
(2)
The respondent shall pay the applicants' costs which costs shall
include the costs consequent upon the employment of two counsel.
____________________
HF
JACOBS
ACTING
JUDGE OF THE HIGH COURT
PRETORIA
Date:
9 September 2016
NEDBANK
& BOE V BREYTENBACH N.O. & OTHERS_JUDGMENT
[1]
The first and eleventh defendants in the main action.
[2]
1 May 2011.
[3]
Boost Sports v SA Breweries
2015 (5) SA 38
SCA.
[4]
Giddey N.O. v J C Barnard & Partners
[2006] ZACC 13
;
2007 (5) SA 525
CC.
[5]
Boost supra at par [15].
[6]
Boost supra at par [16].
[7]
Boost supra at [17].
[8]
Boost supra at [19].
[9]
Zietsman v Electronic Media Network Ltd & Others
2008 (4) SA 1
(SCA) at [21].
[10]
Par [7] above.
[11]
Clause 1.1 thereof.
[12]
Second and third defendants in the main action.
[13]
Gilboa is the 1ih defendant in the main action. Its name has since
been changed to
[14]
Cronje N.0. and Others v Hillcrest Village (Pty) Ltd and Another
2009 (6) SA 12
(SCA) at [12].
[15]
The second plaintiff in the main action.
[16]
See para [13] above.
[17]
Cronje supra at par [13] and [14].
[18]
Cronje, supra at par [15].
[19]
Cronje N.0. & Others v Hillcrest Village (Pty) Ltd and Another,
supra.
[20]
Record: par 3 p 46 - par 17.9 p 51.
[21]
Record: p 48.
[22]
Translated from Latin "After this, therefore because of this".
The following example is typical: The rooster crows
immediately
before sunrise; therefore the rooster causes the sun to rise.
[23]
Cronje, supra.