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[2007] ZASCA 166
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Nasionale Aartappelkoöperasie Bpk. v Pricewaterhousecoopers Ingelyf (055/07) [2007] ZASCA 166; [2007] SCA 166 (RSA) (29 November 2007)
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REPUBLIC
OF SOUTH AFRICA
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
NOT REPORTABLE
Case number: 055/07
In the matter between:
NASIONALE
AARTAPPELKOöPERASIE
BEPERK
................................ Appellant
and
PRICEWATERHOUSECOOPERS
INGELYF
................................
1
st
Respondent
HOEK
& WIEHAHN
................................
2
nd
Respondent
WIEHAHN
MEYERNEL
................................
3
rd
Respondent
PRICE
WATERHOUSE MEYERNEL
................................
4
th
Respondent
PRICE
WATERHOUSE
................................
5
th
Respondent
CORAM
:
HARMS ADP, LEWIS JA and HURT AJA
HEARD
:
21 NOVEMBER 2007
DELIVERED
:
29 NOVEMBER 2007
Summary:
Security for costs – exercise of discretion
in the strict sense by trial court – appeal against –
necessary to show
material misdirection.
Neutral
citation:
This judgment may be cited as
Aartappel Koöperasie Bpk v
Pricewaterhousecoopers
[2007] SCA 166
RSA.
_____________________________________________________________________
JUDGMENT
_____________________________________________________________________
HURT AJA:
[1] The parties are
locked in litigation of marathon proportions. The appellant ('NAK')
claims that the respondents ('PWC') failed
to exercise proper care in
the auditing of NAK's finances during the period between 1984 and
1998 and has claimed damages and interest
which are said, currently,
to amount to something of the order of R500 million. A special plea
was filed, asserting that NAK's claim
was champertous. The special
plea was dismissed and an appeal to this court against its dismissal
failed.
1
The trial was resumed in the Transvaal Provincial Division, but the
presiding judge found it necessary to recuse himself. There was
accordingly a fresh start, before Botha J, on 6 October 2005. The
trial was adjourned in mid-March 2006, until 1 August. It continued
from 1 August to 17 November 2006. On Monday 20 November, after
approximately 105 court days and with NAK's first witness still in
the stand, PWC delivered an application for security for costs. The
application was opposed, but on 5 December 2006, Botha J granted
an
order directing NAK to provide security in an amount to be determined
by the Registrar. On 31 January 2007, the learned judge
granted leave
to appeal to this court against his decision. In doing so, he
mentioned two specific aspects of his judgment in regard
to which he
felt that there was a reasonable possibility that this court might
come to a different conclusion, namely:
(a) the late stage in the
proceedings at which the application for security was lodged by PWC;
and
(b) whether the fact that
PWC's own costs in the litigation were covered by insurance should be
considered as a factor operating against
the grant of security.
History
[2] It is necessary to
set out the history of the dealings between the parties in relation
to the question of security for costs.
Of significance is the fact
that the application lodged on 20 November 2006 was not PWC's first
application for security. In 2000,
before the trial had commenced,
PWC lodged an application for security based on the provisions of s
13 of the Companies Act 61 of
1973. NAK's then attorneys agreed to
deliver security without conceding liability to do so. The Registrar
fixed security in an amount
of R80 000.
[3] Two years later, in
July 2002, shortly before the trial was due to commence, PWC lodged a
second application, supported by a draft
bill of costs, for further
security. Again NAK's then attorneys agreed to deliver security
without a concession of liability to do
so. The Registrar determined
this further security, up to the first day of the trial, at R1.1
million and a further R22 000 per trial
day thereafter. By the time
the special plea had been dealt with, in August 2002, NAK had put up
security in the sum of R1.4 million.
[4] The appeal against
the dismissal of the special plea was disposed of in 2004 and, in
September of that year, the parties agreed
to set the matter down for
trial in the fourth term of 2005 and the first term of 2006. On 26
October 2004, the attorney who was
then representing NAK, Mr P P J
Buitendag, addressed the following letter to Mr A J Chappel, PWC's
attorney:
'Ons verwys na bogemelde aangeleentheid,
en in die besonder na die onderwerp van sekuriteit vir koste.
Die bestaande toedrag van
sake is dat u kliënt op verskeie geleenthede die stel van
sekuriteit deur ons kliënt vereis het,
en as 'n resultaat
daarvan bestaan daar tans waarborge ten bedrae van R1,5 miljoen ten
gunste van u kliënt as sekuriteit vir
die kostes van u kliënt.
Die gronde waarop u kliënt se versoeke gebaseer is, is ook
gedokumenteer en blyk, onder andere,
volledig uit die aansoek om
sekerheidstelling.
Soos u bewus is, is hierdie
saak weer vir verhoor geplaas gedurende die laaste termyn van 2005.
Ons het opdrag om u reeds op hierdie
vroeë tydstip te nader
omtrent die kwessie van sekuriteit vir koste in 'n poging om so
spoedig moontlik uitsluitsel daaromtrent
te verkry, indien moontlik.
Sedert u vorige versoeke om sekuriteit
het ons kliënt se finansiële posisie 'n dramatiese
omwenteling ondergaan. Ons heg
hierby aan, 'n afskrif van die NAK se
geouditeerde state vir die finansiële jaar wat op 28 Februarie
2003 geëindig het.
Etlike wesentlike veranderde omstandighede,
vergeleke met die feite wat bestaan het toe sekuriteit op vorige
geleenthede gestel is,
kom onmiddelik na vore. In hierdie opsig
verwys ons na die volgende:
1. Op 28 Februarie 2003 het die
aandeelhouersbelang (kapitaal en reserwe) R37 441 000,00 beloop in
vergelyking met 'n negatiewe waarde
van R29 983 966,00 soos op
Februarie 1999;
2. Blykens paragraaf 6 van die
direkteursverslag is die NAK se finansiële jaarstate opgestel op
die lopende saakbegrip. Dit blyk
duidelik uit gemelde verslag dat die
NAK nie net solvent en 'n lopende saak is nie, maar ook uitstekende
likiditeit aantoon, wat
duidelik gereflekteer word in die
bedryfsbates tot bedryfslaste verhoudings (bedryfsbates R13 165
000,00 en bedryfslaste R424 000,00).
Die totale bates beloop R37 865
000,00 en totale laste beloop R424 000,00.
Die ouditmening van KPMG met betrekking
tot die voormelde finansiële state is ongekwalifiseerd en
gevolglik bestaan daar geen
rede om nie te aanvaar dat die finansiële
state 'n redelike weergawe van die finansiële stand van ons
kliënt, soos
op 28 Februarie 2003, verteenwoordig nie.
Uit die aangehegte state is dit ook
duidelik dat die NAK geen aanspreeklikheid teenoor die Landbank van
Suid Afrika gehad het soos
op 28 Februarie 2003 nie. Daar bestaan
gevolglik geen risiko van die likwidasie van ons kliënt deur die
Landbank nie.
Die vorige bewering dat die NAK
geamalgameer het met die NTK is eenvoudig onwaar. Die korrekte
posisie met betrekking tot die beheer
en bestuur van die NAK word
trouens uiteengesit in die derde paragraaf van die direkteursverslag
wat in bogemelde finansiële
state verskyn.
Dit blyk ook uit paragrawe 1 tot 4 van
die direkteursverslag dat die NAK voortgaan met sy
besigheidsaktiwiteite en dat 'n wins vir
die tersaaklike finansiële
jaar van R9,3 miljoen behaal is. Die vorige spekulatiewe bewering dat
die NAK nie met sy besigheidsaktiwiteite
wil voortgaan nie, is
gevolglik sonder enige meriete hoegenaamd.
Daarbenewens is dit ook van besondere
belang om daarop ag te slaan dat die Noord-Transvaalse Koöperasie
("NTK") steeds
'n lopende saak is en dat, soos u terdeë
bewus is, die voorlopige likwidasie bevel teen die NTK gedurende
Oktober 2002 opgehef
is. Die aandeelhouersbelang in die NTK het teen
einde Februarie 2003 'n bedrag van R289 000 000,00 beloop. Die
applikant in die likwidasie-aansoek,
synde die Landbank se eise teen
die NTK is in die geheel deur die NTK afgelos.
Dit is ons kliënt se beskeie mening
dat hy (NAK) 'n gesonde besigheidsentiteit is met meer as voldoende
finansiële vermoë
om enige ongunstige kostebevel wat in
hierdie saak teen hom gegee mag word, te ontmoet.
Beoordeel op die voormelde feite is dit
met eerbied duidelik dat daar geen gronde bestaan vir die verskaffing
van enige verdere sekuriteit
vir koste nie. Trouens, blyk die
bestaande sekuriteit ook onnodig te wees.
Dit blyk dat ons kliënt in die
verlede kort voor die laaste verhoor gekonfronteer is met 'n aandrang
op verhoogde sekuriteit
ingevolge die bepalings van hofreël
47(6), klaarblyklik op sterkte van die feit dat sekuriteit reeds
voorheen (nadat u gedurende
Junie 2000 'n aansoek gebring het) gestel
is. Na die beste van ons wete het ons kliënt op daardie tydstip
toegestem om sekuriteit
te verskaf en was dit blykbaar nie nodig vir
die hof om so 'n bevel te maak nie, en is dit ook nie gedoen nie.
Indien ons enigsins
fouteer in ons siening hieromtrent, word u
uitgenooi om ons te korrigeer.
Indien u kliënt van voorneme is om
desondanks die veranderde finansiële posisie van ons kliënt
weereens aan te dring
op adisionele sekuriteit, dan word u versoek om
dit vroegtydig met ons op te neem – sê teen nie later as
Februarie volgende
jaar – sodat hierdie kwessie uitgepluis kan
word sonder dat dit op die beskikbare tyd vir verhoorvoorbereiding
inbreuk maak.
Na ons mening sal dit in die
omstandighede vir u kliënt nodig wees om weereens die hof by
wyse van aansoek te nader indien verdere
sekuriteit vereis word.
Uiteraard sal so 'n aansoek teengestaan word.'
[5] Chappel responded to
this letter in a letter dated 9 November 2004, the relevant portion
of which read:
'We agree to your request and undertake
to give you adequate notice should client decide to bring an
application for increased security.
Concerning the query raised in the third
paragraph on page 3 of your letter, it is also the writer's
recollection that your client
agreed to provide increased security at
that time and that it was not necessary to argue the matter and
obtain a court order.
We look forward to receiving a copy of
your client's financial statements for the period ended 29 February
2004, when they are available.'
[6] NAK's financial
statements for the year ending February 2004 were furnished to PWC on
5 August 2005. On 30 September 2005, on
the eve of the commencement
of the trial, Chappel wrote to Buitendag in the following terms:
'We address the issue of security for
costs in this communication.
You wrote to us in late October 2004
advising us that, as your client's financial circumstances have
improved, you will resist any
application by our client to increase
the security for costs presently held by our client. We advised you
in our response of 9 November
2004 that we will give you adequate
notice should our client require further security for costs. We
repeat this undertaking.
We record that, at the time of the
July/August 2002 trial, our agreement with MacRoberts was that your
client would provide security
for costs of R22,000 per day for each
day that the trial continued. Obviously, if our client is to insist
that further security be
provided, the daily amount of security
provided will need to be increased -- we say drastically.
It goes without saying that your client's
annual financial statements are relevant to a consideration of
whether your client is obliged
to provide security for costs to our
client. In this regard, your client's 2004 financial statements were
provided to us on 5 August
this year. We write to enquire whether
your client's 2005 financial statements are now finalised, as they
will provide the most up-to-date
information concerning your client's
financial circumstances. In the event that they are not, please
advise when your client expects
them to be finalised.
We look forward to hearing from you as
soon as possible in regard to the aforegoing. In the meantime, all
our clients' rights in regard
to the issue of security for costs are
reserved.'
[7] Buitendag's response,
dated 3 October 2005, was:
'
Dankie vir die herhaling
van u onderneming om ons vroegtydig kennis te gee ingeval u kliënt
van voorneme is om weer aansoek te
doen vir verdere sekuriteit,
Ons let op die inhoud van paragraaf 2 van
u skrywe en is nou nie van voorneme om daarop kommentaar te lewer
nie, behalwe om te herhaal
dat ons van mening is dat daar huidiglik
geen regverdiging of gronde bestaan vir enige verdere
sekerheidstelling nie. Dit dien vermeld
te word dat die sekerheid wat
reeds gestel is vir alle praktiese doeleindes nog steeds ongeskonde
is en 'n aansienlike bedrag verteenwoordig.
Wat ons kliënt se 2005
finansiële state aanbetref moet ons meld dat hierdie state nog
nie voorberei is nie. In hierdie opsig
moet ons meld dat ons kliënt
se finansiële jaareinde verander het na 31 Augustus 2005. Ons
kliënt het ook van ouditeure
verander en gevolglik sal die
"nuwe" ouditeur verantwoordelik wees vir die oudit ten
aansien van die 2005 state. Ons verstaan
dat die blote verandering
van ouditeure, om verstaanbare redes, op sigself 'n mate van
vertraging met betrekking tot die oudit en
finalisering van hierdie
jaarstate meebring.
Na verwagting sal die 2005 jaarstate in
alle waarskynlikheid nie voor die einde van Februarie 2006
gefinaliseer word nie.'
[8] The trial ran from
mid-October 2005 to mid-March 2006, when it was adjourned to 1 August
2006. After it had recommenced, Chappel
addressed a further request,
dated 24 August, to Buitendag pointing out that the last financial
statements which had been received
were those for the year ending 29
February 2004 and asking for a copy of those for the year ending
February 2006. It is common cause
that, in referring to this date,
Chappel was in error and had meant to refer to the statements for the
altered year-end of August
2005. He was informed, in a reply dated 15
September 2006, that because of the changes to NAK's financial year
and the change of
auditors, the August 2005 statements had not yet
been prepared. On 26 October 2006 Chappel wrote the following letter
to Buitendag:
'Despite repeated demand, you have failed
to provide us with your client's audited financial statements after
2004.
In the circumstances, we are instructed
to advise you that our clients require your client to furnish further
security for our clients'
costs of this action.
The amount of the security required by
our client will be provided to you in due course. The purpose of this
notification is to place
your client on notice you will recall that
we undertook to provide your client with adequate notice.'
[9] Buitendag's response,
dated 3 November, read:
'Ons verwys na u skrywe
gedateer 26 Oktober 2006 met betrekking tot u kliënt se aandrang
op verdere sekuriteit vir koste.
. . .
Hierdie aangeleentheid het
weer in Oktober 2004 ter sprake gekom toe ons u daarop gewys het dat
daar na ons mening geen gronde vir
die verskaffing van verdere
sekuriteit bestaan het nie. Daar is breedvoerig gehandel met die hele
basis waarop die bestaande sekuriteit,
wat destyds gestel is soos
voormeld, berus en hoe dit intussen alles verander het. Ons kliënt
se mening daaromtrent bly tot
vandag onveranderd.
Dit blyk dat die enigste
grond waarop u kliënt se huidige aandrang gegrond is, die feit
is dat u tot op hede nog nie voorsien
is van die NAK se geouditeerde
state vir die finansiële jaar wat in 2005 verstryk het nie. Ons
kliënt is van mening dat
dit op sigself nie 'n grondige rede vir
die aandrang daarstel nie. Die rede vir die "versuim" om u
van die 2005 state te
voorsien is reeds voorheen gedokumenteer,
onlangs herhaal, en verg nie verdere vermelding hierin nie.
Die inhoud en trant van u
skrywe onder beantwoording bring nou onvermydelik die gedagte by ons
tuis dat u kliënt moontlik van
voorneme is om weldra sy aandrang
te prober afdwing deur die prosedure wat deur hofreël 47(6)
bepaal word in te span.
Soos u terdeë
bewus is, is u kliënt se reg op sekuriteit, en,
omgekeerd, ons kliënt se aanspreeklikheid om dit te verskaf,
reeds nou etlike
jare op welbekende gronde in geskil. In die
omstandighede is ons van mening dat u kliënt nie geregtig is om
bloot die griffier
vir 'n verhoging te nader nie, maar 'n aansoek
soos bedoel in hofreël 47(3) sal moet bring.
Tot aanvangs van u skrywe
onder beantwoording het ons op sterkte van die inhoud van vorige
korrespondensie onder die indruk verkeer
dat u onderneming om ons
vroegtydige kennis van 'n aansoek om verhoogde sekuriteit te gee sal
behels dat u dan die hof, in teenstelling
met die griffier, sou
nader. Ons sal dit gevolglik waardeer indien u so spoedig doenlik sal
laat weet presies welke prosedure u kliënt
van voornemens is om
te volg.
Ten slotte mag ons tog meld
dat ons kliënt aangedui het dat die tersaaklike finansiële
state (2005) na alle verwagting teen
die einde van die huidige maand
gefinaliseer behoort te wees. Sodra die state beskikbaar is sal u van
'n afskrif daarvan voorsien
word.'
[10] Chappel responded on
7 November, the relevant portions of his letter being as follows:
' You are correct that the primary reason
for our client's decision to insist on further security is that your
client has failed to
make available its 2005 (and latterly its 2006)
annual financial statements, despite your client's undertaking to do
so, and the
passage of more than 20 months since the 2005 year-end.
We would have thought that it is self evident that our clients cannot
test
your assertions, regarding your client's financial health,
without access to not only the 2005, but also now the 2006 annual
financial
statements.
. . . .
Our client's agreement not to insist on
further security was conditional upon your client providing us, on an
ongoing basis, with
current information concerning its financial
circumstances. This is of particular relevance in the present
circumstances in which
your client is conducting only very limited
business, other than the prosecution of this litigation. We consider
that the stance
adopted by our clients was sensible and business-like
in the circumstances. Your client's failure to provide us with the
further
information described leaves our clients no choice but to
require further security for costs. For you to criticize us, in
circumstances
when your client is in default of its obligations in
terms of the aforesaid agreement, is baseless.
Your client's 2005 financial statements
are now out of date. We require sight of your client's 2006 financial
statements too, whether
audited or unaudited as a matter of urgency.
Clients consider it necessary and opportune to deal with the matter
before the end of
this term. Should an application to court be
necessary, we intend moving it during the last week of this term.
We record that, in 2000 and 2002, your
client conceded its obligation to provide security for our client's
costs. In these circumstances
and notwithstanding your assertions to
the contrary, we consider that we are entitled to approach the
Registrar to increase the amount
of security in terms of Rule 47(6).
However, in view of the stance your client has adopted (and as your
client will clearly refuse
to provide any further security ordered by
the Registrar in terms of Rule 47(6)), our instructions are to launch
a formal application
in terms of Rule 47(3). Our clients will do so,
however, subject to a full reservation of their rights concerning the
necessity for
doing so and the resultant costs which will inevitably
be incurred.'
[11] Buitendag's response
was that it was physically impossible for meaningful statements to be
prepared as a matter of urgency. The
result was that the application
which has led to this appeal was launched on 20 November 2006. It was
opposed on grounds to which
I shall refer shortly, and the trial was
adjourned pending the determination of the security issue.
[12] Broadly speaking,
the grounds upon which PWC applied for security were that it was to
be inferred from an analysis of such information
as NAK had provided
and from NAK's failure to furnish up-to-date financial statements or
data, that NAK was not in a position to
satisfy an adverse costs
order in the event of its claim being unsuccessful.
[13] In its opposition,
NAK (in an answering affidavit deposed to by Buitendag) did not
challenge PWC's inference as to NAK's inability
to meet an adverse
costs order. On the contrary, Buitendag acknowledged that NAK was in
a parlous financial situation due to various
adverse occurrences
during 2005 and 2006. It is not necessary to detail all of these
here. It will suffice to say that the company,
Noord- Transvaalse
Koöperasie Beperk ('NTK'), which had undertaken to provide
financial assistance for the litigation and which
was a 49 percent
shareholder in NAK, suffered an unexpected loss of R30 million in the
early part of 2005, which had all but drained
its cash reserves. This
had left NAK with no choice but to dispose of assets to fund the
litigation. There is no explanation in the
answering affidavit as to
how NAK dealt with the cost of the trial from October 2005 to
mid-March 2006, but, during that month, NAK
sold its shareholding in
NTK's affiliate, NTK Limpopo Agric Ltd
2
and its loan account with an entity called the Limpopo Agricultural
Trust
3
to NTK for a total price of R8 million. It is not stated how NTK
funded this purchase. Part of the property on which NAK's offices
were situated, which had been valued at R4,5 million in 1996, was
also disposed of at a price of R1 million. It is not stated to
whom
this property was sold. These 'forced sales', according to Buitendag,
had the effect of substantially reducing NAK's nett asset
value
during 2006. Attempts to collect the book debt of NAK, which had been
reflected as standing at R12,6 million in 2004, had yielded
only R4,9
million at a cost of R2,8 million, resulting in a cash inflow of only
R2,1 million. NAK had made an unsuccessful call on
its shareholders
to pay the balance due on their shares, on pain of being excluded
from any share in 'future profits', by which was
plainly meant the
proceeds of the pending litigation against PWC. In these
circumstances, according to Buitendag, NAK would hardly
be able to
bear its own costs of the litigation after 2006, let alone satisfy an
adverse costs order if PWC's defence were to succeed.
However, all of
this does not explain how a dormant company with nett assets of more
than R37 million in 2003 has found itself in
this parlous state.
Significantly, no financial statements bearing this out have been
provided.
[14] Despite the
circumstances referred to in paragraph 9, NAK nevertheless opposed
the grant of an order for security without stating
how it intends to
finance its own costs of the litigation. The grounds of opposition
can broadly be summarized as follows:
(a) PWC's delay in
bringing the application for security was unreasonable and
oppressive. PWC was in possession of sufficient information
to enable
it to make an application on or before 1 August 2006, but it had
delayed for nearly 4 months with the result that enormous
costs had
been incurred by NAK while the trial ran on between 1 August and 20
November 2006;
(b) The parlous financial
state in which NAK found itself in 2005 and 2006 was directly
attributable to the culpable conduct of PWC
during the years in which
PWC was responsible for the auditing of NAK's finances;
(c) Given NAK's financial
plight, the grant of an order for security would (obviously assuming
that the order was coupled with the
stay of proceedings pending the
delivery of the security) effectively close the doors of the court to
NAK and stifle its claim;
(d) An order for security
would be inequitable, given that PWC's costs of litigation were being
funded by an insurance company up
to an amount of US$ 45 million;
(e) PWC was unnecessarily
dragging out the trial proceedings by failing to co-operate insofar
as narrowing of issues was concerned
and by unduly prolonging
cross-examination of NAK's witnesses.
[15] It will be
convenient, before considering the manner in which Botha J dealt with
the issues before him, to deal briefly with
the legal requirements
for the proper exercise of the discretion required of a judge in
applications of this sort. As is indicated
in the correspondence,
both parties appear to have been
ad idem
that PWC should
proceed by way of an application to court, rather than an approach to
the Registrar in terms of Rule 47(6) for an
increase in the existing
security.
4
The application was therefore one in terms of s 13 of the Companies
Act.
5
There has, during the past ten years, been a modification and
clarification of the law in this regard. The concept that it was
necessary
for the respondent company in such an application to show
'special circumstances' excusing it from the obligation to secure its
opponent
in respect of a costs order which might be granted if the
defence was successful, has been jettisoned. Instead, the court
approaches
the application without a predisposition to grant or to
refuse it. The applicant must establish that there is reason to
believe that
the respondent will not be able to satisfy an adverse
costs order, but once that is done
'the court must carry out a
balancing exercise. On the one hand it must weigh the injustice to
the plaintiff if prevented from pursuing
a proper claim by an order
for security. Against that, it must weigh the injustice to the
defendant if no security is ordered and
at the trial the plaintiff's
claim fails and the defendant finds himself unable to recover from
the plaintiff the costs which have
been incurred by him in the
defence of the claim.'
6
In performing this
exercise and coming to its conclusion, the court exercises what has
become known as a discretion 'in the strict
sense',
7
ie a discretion which is exercised on a judicial evaluation of the
facts and circumstances before the court and which will not be
interfered with by another court in the absence of any misdirection
as to the facts or the law. It would be an idle exercise to try
to
compile a list of the considerations relevant to the decision of an
application in terms of s 13. To specify requirements in that
way
would, of necessity, limit the court's discretion. But there is one
particular consideration which, since the enactment of the
Bill of
Rights in the Constitution, must have more weight attached to it than
was the situation in pre-Constitution days. It is the
entrenchment of
the right of access to the court under s 34. An order for delivery of
security in terms of s 13, coupled with the
stay of proceedings until
the security is furnished, may effectively close the doors of the
court to an indigent plaintiff company.
This aspect was fully dealt
with in
Giddey
. The constitutional court rejected a contention
that an order which had the effect of closing the court doors to the
plaintiff could
not be made because it would be unconstitutional. It
held that, in performing the 'balancing exercise', the possibility
that a right
of access to court might be limited by an order for
security had to be weighed in the hypothetical scale.
8
The likelihood of the order having this effect must be judged on the
basis of all the evidence before the court.
9
[16] Botha J summarised
the evidence before him in considerable detail. Since he had been
steeped in the atmosphere of the trial for
105 court days, he was
able to make reference to certain events which had occurred in the
course of the trial, such as the conduct
of the parties and the
problems encountered in attempts to restrict the ambit of the issues.
He made specific reference, in considering
the various factors in
this case, to the legal principles set out in
Shepstone and Wylie
,
Keary
and
Giddey.
[17] In regard to the
question of delay in bringing the application for security, he
concluded that, in the light of the correspondence,
Chappel, and thus
PWC, could not be blamed for delaying the decision to bring the
application.
[18] He took the view
that the contention that NAK's financial predicament was attributable
to the culpable conduct of PWC was not
clearly established on the
evidence before him. He mentioned Buitendag's evidence to the effect
that NAK had been financially healthy
in 2003. In any event, he
pointed out, there was no suggestion that PWC had acted fraudulently.
Such a circumstance would, on the
authority of
Giddey
,
10
have weighed heavily against PWC. On the contrary, he said, part of
the claim against PWC was based on a contention that it had culpably
failed to detect, and expose, the negligence of, and mismanagement of
NAK's affairs by, NAK's own directors.
[19] As to whether the
grant of security would infringe upon NAK's right of access to the
court, he referred to the finding in
Giddey
11
to the effect that, in appropriate circumstances, this right must
yield to the right of the defendant to recover the costs of
unsuccessful
proceedings against it. This, he said, was particularly
so in a situation such as the present, where the plaintiff was being
assisted
by shareholders, affiliates or third parties, in the funding
of the litigation.
[20] In regard to the
suggestion that the application should be refused because, in fact,
PWC was not bearing the costs of its defence
being funded to the tune
of US$45 million by its insurer Botha J expressed the view that this
could not be a relevant consideration.
He pointed out that PWC had
procured insurance 'at a price'. By the principle of subrogation, the
insurer would stand in the shoes
of PWC to recover what it could from
the litigation. He considered that it would be inimical to the
concept of insurance if a third
party, such as NAK, could benefit
from a prudent decision by PWC to insure itself against this type of
risk.
[21] Finally, as to the
contention that the costs of the trial had been unnecessarily
increased by the conduct of PWC, Botha J pointed
out that actions
involving claims for professional negligence are invariably
complicated. The claims covered a period of 14 years
from about 1984
to 1998. Even though the trial had already run for a period of more
than 100 court days, it was not possible for
him to express a view on
whether PWC should have been more co-operative in the conduct of its
defence. On the matter as it stood
before him, he said, he felt that
PWC could not be blamed for declining to assist NAK, eg by agreeing
to the latter's proposals as
to how the evidence should be presented.
[22] Having thus formed a
view as to the weight, or validity, of the specific grounds of
opposition dealt with in paragraphs 13 to
17, above, Botha J stated
that one of the considerations that weighed most heavily in favour of
the grant of security was the circumstance
that NTK (and possibly a
few speculative shareholders in NAK) had in fact furnished NAK with
financial support and might well be
in a position to continue to do
so. He emphasised the circumstance that, apart from some general and
unsubstantiated comments to
the effect that NTK had sustained
crippling losses, there was no evidence whatsoever as to the current
financial position of NTK.
This, he said, was crucial, having regard
to the question whether it was within NAK's power to furnish security
if ordered to do
so. He emphasised the fact that Buitendag had
stated, in the letter of 26 October 2004, that NTK's shareholders'
interest had amounted,
at the end of February 2003, to R289 million.
In the absence of any satisfactory evidence that this net asset value
had been wiped
out, it could be inferred that if the delivery of
security became necessary, it would be obtained from a realisation of
some of NTK's
assets. In this regard he pointed to a material
omission in the evidence.
'Dit help nie om te sê
dat NAK sou nie probeer het om help by ander oorde te soek as hy dit
nie by die NTK kan kry nie. Die
feit is dat die NTK nooit
gekonfronteer was met die opsie om in sy kapitaal reserwes te delf
ten einde hierdie saak te finansier
nie. Daardie tyd het nou
aangebreek. Na my mening is dit niks minder as reg dat iemand wat wil
deel in die wins van 'n belegging
ook die kapitaal moet uitlê
wat nodig is om dit te verwesenlik.'
This comment is, in my
view, all the more apposite if one bears in mind the fact that NTK
acquired its shareholding in NAK on the
basis of a contractual
obligation to assist NAK with the financing of the litigation
.
[23] In the result, the
learned judge a quo took the view that the balance of equity and
justice favoured the grant of security. The
appellant has challenged
that finding on the basis, particularly, that the learned judge's
conclusions in relation to the question
of delay and of NTK's role,
or potential role, in the financing of the litigation, were based on
wrong findings of fact. It is also
suggested that the learned judge
erred in taking the view that the circumstance that PWC's costs were
being borne by an insurer was
not a relevant consideration in
deciding whether security should be granted. The submission in this
regard was that this constituted
a material misdirection both of fact
and of law.
[24] The approach of the
court to an appeal of this nature was carefully considered in
Bookworks
12
and the decision in that case was approved and adopted by the
Constitutional Court in
Giddey.
13
Both of those cases involved applications in terms of s 13. Given
that the court of first instance exercises a 'discretion in the
strict sense', to succeed on appeal an appellant must satisfy the
court that the discretion was not judicially exercised or was based
upon a wrong principle of law or wrong facts.
[25] Accepting that this
was the correct approach, counsel for NAK submitted, in the first
place, that Botha J had reached his conclusion
as to the weight to be
attributed to PWCs delay in bringing the application, on a wrong
factual finding. In doing this, so the submission
ran, Botha J had
overlooked the palpable prejudice suffered by NAK in the form of
expenses incurred in running the trial for the
period between 1
August and 20 November 2006. NAK contended that Botha J had erred in
finding that Chappel had been misled by Buitendag's
correspondence
concerning the question of security. He submitted that there was no
evidence to support such a finding and that Chappel
himself had not
stated anywhere that he had been misled. That might be true in regard
to the founding affidavits, but at that stage
the complaint of undue
delay had not been mentioned nor were the facts relevant to NAK's
actual financial situation known to him.
When the answering affidavit
was delivered, Chappel's response was that it presented a picture so
drastically different from that
painted in the correspondence that
there must be serious doubt about NAK's (and Buitendag's) veracity.
Chappel opted for the contention
that the picture painted in the
correspondence was probably closer to the truth than that in the
affidavits. It is plain that counsel's
submission that Botha J had
found, as a fact, that Chappel had been misled, is not accurate. In
fact, what Botha J said was that
Chappel could not be blamed for only
taking the decision to move the application in November. He
did
find that some of the letters written by Buitendag had been
misleading. That this was so is perfectly clear from a comparison of
the content of the letters, especially those of 26 October 2004 and 3
November 2006, with the evidence in Buitendag's affidavit.
In the
result, the contention that there was a material factual error in the
findings by the learned judge is stillborn.
[26] Nor am I able to
understand the complaint that the delay in bringing the application
for security resulted in substantial prejudice
to NAK. In the first
place, there was no evidence in the affidavits to the effect that
such prejudice had been suffered – the
contention found its
origin in counsel's heads of argument. If the application had been
brought on 1 August 2006, NAK may have been
put to a decision whether
to deliver security or end the litigation there and then. But there
was also no evidence as to what its
decision would have been at that
stage. What is clear is that, until that date, Buitendag had been
maintaining, in terms bordering
on the strident, that security was no
longer necessary and that any application for it would be opposed.
Prejudice in this context
must relate to the future conduct of the
case. In other words, did the late application impact on the future
conduct of the case?
On counsel's argument an earlier application
would have brought the proceedings to a halt at an earlier stage. But
that does not
amount to the kind of prejudice referred to. According
to counsel for NAK, if Chappel had been diligent, he would have come
to the
conclusion, by 1 August 2006 at the latest, that there was no
substance in Buitendag's posturing and would have moved the
application.
On this basis, counsel endeavoured to suggest that
Chappel had consciously deferred the lodging of the application so as
to use it
as a weapon of oppression at a convenient stage. Such a
contention is not borne out by a consideration of the evidence and,
more
particularly, the correspondence. As was found by Botha J,
Chappel was kept in the dark about the actual situation with regard
to
NAK's and NTK's finances and, on the assumption that the excuses
and explanations given to him from time to time by Buitendag were
given in good faith, there was no reason for Chappel to become
suspicious. Indeed, the appellant's argument in this regard amounts
to a contention that Chappell should have disbelieved the appellant's
attorney and saved the appellant from itself by bringing the
application for security on 1 August 2006, which is absurd.
[27] Concerning the
contention that Botha J misdirected himself by finding that NTK
(which is contractually bound to finance the litigation
and is the
main beneficiary of it) was probably still in a position to assist in
funding the litigation, little need be said. As
Botha J pointed out,
there was no evidence concerning NTK's current financial status. He
referred to
Giddey,
paras 31 and 32, where O'Regan J had
endorsed the following statements by Joffe J in the court a quo:
'It must be noted that the ordering of
security will not necessarily lead to the termination of the action.
If there is such a good
claim against the applicant, it is not
inconceivable that Sadrema's creditors, who must have authorized
respondent to institute the
action, will provide the means for
respondent to fund the action. After all, they will be the ultimate
beneficiaries of a successful
action against the applicant.'
The similar approach by
Botha J cannot be faulted on any basis. His conclusion was plainly
justified on the facts, and also having
regard to the absence of
evidence before him. Furthermore, unless NAK obtains outside finance
it cannot pursue this litigation to
its ultimate conclusion. Unless
NTK provides the finance, NAK will only litigate until its funds have
been exhausted which, on Buitendag's
evidence will be in the near
future. Also on Buitendag's evidence it is clear that there is no
real prospect of NAK obtaining funding
from any outside source.
14
[28] That leaves the
challenge to the learned judge's finding on the irrelevance of PWCs
insurance. As he stated, counsel was not
able to refer him to any
authority for the proposition that a matter which is
res inter
alios acta
, such as insurance, can be weighed in the balance in
deciding whether security for costs should be ordered. Indeed, I
would be surprised
if there was any such authority. The learned
judge's reasoning in coming to his conclusion is persuasive. In this
case, as submitted
by counsel for PWC, the scale on which the trial
was being run and the amount of costs which would ultimately hang in
the balance
were cogent considerations in deciding that PWC, as well
as its insurer, should be given the protection of security for costs.
There
may well be situations in which the fact that a defendant is
covered against the costs of the litigation by a contract of
insurance
may be weighed in the balance in this type of application.
On that, I do not think it would be appropriate to express a view.
But
I consider that there is no valid basis for this court to hold
that the reasoning of Botha J in this particular instance constitutes
any form of 'reviewable misdirection'. The appellant's contention in
this regard must also be rejected.
[29] To sum up: so far
from having misdirected himself in any respect in coming to his
conclusion, I consider the Botha J properly
considered all of the
material facts and circumstances before him and came to a justifiable
conclusion. If there
was
any misdirection on his part, it was
in the suggestion, in his judgment on leave to appeal, that this
court might take a different
view on the two issues of which he made
specific mention. What he should have done was to adopt a different
approach to the application
for leave to appeal. That application
comprised a series of contentions that Botha J had erred in each of
the conclusions he had
drawn on the basis of the evidence before him.
He should, in my view, only have granted leave if he considered that
there was a prospect
that this court could find that he did not
exercise a judicial discretion, or of some other misdirection which
had the effect of
vitiating his decision. If he had approached the
application for leave to appeal on that basis, he must surely have
refused it.
[30] The appeal is
dismissed with costs, such costs to include those occasioned by the
employment by the respondents of two counsel.
_____________________
N V HURT AJA
CONCUR:
HARMS ADP
LEWIS JA
1
Price
Waterhouse Coopers Inc v National Potato Co-operative Ltd
2004
(6) SA 66
(SCA)
.
2
Reflected
in the February 2004 financial statements as having a value of
approximately R18 million.
3
Valued
at R4 million in the 2004 statements.
4
It
should be noted that, as is to be inferred from the correspondence,
PWC did not insist on the delivery of security at the rate
of R22
000 per day when the trial before Botha J commenced in October 2005.
5
The
section reads : '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 until the security is given.'
6
Per
Peter Gibson LJ in
Keary Developments Ltd v Tarmac Construction
and Another
[1995] 3 All ER 534
at p 540
a – b
,
cited with approval and adopted in
Shepstone and Wylie and Others
v Geyser NO
1998 (3) SA 1036
at p 1046. Hefer JA mentioned,
loc.
cit.,
that these considerations are probably the 'considerations
of equity and fairness' referred to in
Magida v Minister of
Police
1987 (1) SA 1
(A) at p14D-F.
7
Bookworks
(Pty) Ltd v Greater Johannesburg Transitional Metropolitan Council &
Another
1999 (4) SA 799
(W) at p 804;
Giddey NO v J C Barnard
and Partners
[2006] ZACC 13
;
2007 (2) BCLR 125
(CC).
8
Giddey
para 30.
9
Giddey
paras 31 and 32
10
Para
33.
11
Paras
28 to 30.
12
pp
804 to 808
13
Para
21, referring also to
S v Basson
2005 (12) BCLR 1192
, paras
112 to 114.
14
Cf.
MTN Service Provider v Afro Call
[2007] SCA 97 (RSA)