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[2014] ZAGPPHC 202
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Boost Sports Africa (Pty) Ltd v South African Breweries Ltd; in Re: South African Breweries Ltd v Boost Sports African (Pty) Ltd (60294/2011) [2014] ZAGPPHC 202; 2014 (4) SA 343 (GP); 2014 BIP 499 (GP) (17 March 2014)
IN
THE NORTH GAUTENG HIGH COURT, PRETORIA
REPUBLIC
OF SOUTH AFRICA
Case No. 60294/2011
DATE: 17 MARCH 2014
In
the matter between:
BOOST
SPORTS AFRICA (PTY)
LTD
....................................................
Plaintiff
And
THE
SOUTH AFRICAN BREWERIES
LTD
........................................
Defendant
In
re:
THE
SOUTH AFRICAN BREWERIES
LTD
.......................................
Applicant
And
BOOST
SPORTS AFRICA PTY
LTD
.................................................
Respondent
JUDGMENT
HASSIM AJ
The application
[1]
The
defendant company seeks from
the plaintiff, an
incola
of the
Republic of South Africa, security for the satisfaction by the
plaintiff of any adverse costs order that may be made against
it in
the action I refer to later. I consider it more convenient to
refer to the parties as described in the action as opposed
to
referring to them as described in this application.
The particulars of the
plaintiff's claim
[2]
On or about 21 October 2011 the plaintiff
instituted an
action against the defendant for payment of R12 000 000.00 (twelve
million rand) as well as
mora
interest thereon. The main claim is founded in contract.
The
alternative
claim
is for the payment of a license fee. I interpose, to mention
for sake of completeness, that an
application
for leave to amend the particulars of the plaintiff’s claim to
introduce a claim in delict is pending.
That
application was enrolled for hearing at the same time as this
application. At the request of the parties the application
was
postponed
sine
die
.
[3]
The plaintiff avers that a particular
advertising concept
the, “
Fans’
Challenge Sport
”
concept (“
the
concept
”)
vests in it; the owner
[1]
thereof having ceded to the plaintiff, in writing on 21 February
2005, its rights, title and interest therein. The concept,
the
plaintiff avers, is unique and constitutes confidential information.
[4]
The plaintiff avers that the concept,
entails,
inter
alia
the following
[2]
:
(a)
Without the
fans, professional sport
would not exist.
(b)
Every sports
fan has an opinion as
to the way his team is managed and would relish
the opportunity to have an active say therein.
(c)
Every fan
believes he could be a
coach.
(d)
The concept
combines sport with interactive
media, including mobile communication
(cellular telephones), to form a unique product where the fans are
actively involved in the
management of the team.
(e)
Fans would
be given the opportunity
in off-season, festival matches to have a
say and vote on team selection and, during the course of any game, to
have their say
and vote for player substitutions.
(f)
Voting would take place through
the small message service (SMS)
utilising cellular telephones.
(g)
The team
coach would be obliged to
implement those selections voted as if the
selections were his own.
(h)
The concept
is primarily suited to
team sports with large, pre-existing fan
bases.
(i)
A proposed event was
a friendly match between Kaiser Chiefs and
Orlando Pirates.
(j)
The concept would hold
immense potential for the defendant due to
the unique manner in which it directly engages the public and sports
fans.
[5]
The circumstances which gave rise
to the plaintiff’s
claim broadly stated are that the plaintiff (through authorised
representatives) during or about July
and August 2006, and then again
in September 2006 disclosed the concept to 2 (two) representatives
[3]
of the defendant. Thereafter, during or about February and
March 2009, Norman Minnaar, allegedly the defendant’s marketing
consultant
[4]
was introduced to the concept by the plaintiff. The plaintiff
pleads that these 2 (two) interactions resulted in the plaintiff
providing to the defendant 2 (two) documents
[5]
,
which plaintiff contends embody the concept. The one was given
to Fleming during July 2006
[6]
and the other to Ireland during September 2006
[7]
.
These 2 (two) documents constitute annexures “B”
and “C” to the plaintiff’s particulars of
claim.
[6]
The
plaintiff further pleads that
in addition to providing annexures “B”
and “C” to the defendant, the concept in detail was
conveyed orally,
during February and March 2009, to the marketing
consultant, Minnaar.
[7]
All of these
disclosures, according
to the plaintiff were made in confidence and
the defendant’s representatives (Fleming and Ireland and the
marketing consultant)
all agreed that the disclosures were
confidential, constituted confidential information and could not be
used without the plaintiff’s
consent. The concept,
according to the plaintiff, was disclosed with the intent that the
parties would form a “commercial
relationship to utilise the
concept to their mutual financial benefit”.
[8]
It is further averred, that Fleming
gave to the plaintiff “an
express undertaking”
[8]
that the defendant was a company with high ethical standards and one
which the plaintiff could trust. The plaintiff avers
that it
accepted the undertaking which it understood to mean, in the context
of the disclosure of the concept, that the defendant
agreed that the
concept constituted confidential information and that the defendant
would not use the concept, directly or indirectly,
without the
plaintiff’s consent. The plaintiff’s case is that
this constitutes the agreement between the plaintiff
and defendant.
In my view this is the high water mark of the oral agreement.
[9]
The
plaintiff pleads that the breach
of the agreement rests in the
defendant using the concept unlawfully on or about 1 June 2011, when
it launched an event called
“
BE THE COACH
” under
the defendant’s “
Carling Black Label”
trademark
(“
the event
”), without the plaintiff's consent.
The breach is pleaded to be the cause of the plaintiff suffering
damages at a
percentage of the gross total cost incurred by the
defendant to conduct the event, which constitutes the usual
alternatively
, a fair and reasonable license fee which the
plaintiff would have charged the defendant for using the concept to
conduct the event.
[10]
The breach is further particularised and
consists in the following:
(a)
The event,
which took place at Soccer
City on 30 July 2011, was an off-season,
festival match between Orlando Pirates and Kaiser Chiefs.
(b)
The event
had been actively marketed
on television, in the print media and on a
number of websites.
(c)
The promotional material which had
been posted on the Carling
Black Label website contained
inter
alia
the
following
[9]
:
“
BE
THE COACH”
“
SELECT
YOUR PLAYERS”
“
Select
the players that will compete in the Carling Black Label Cup where
two football giants, Orlando Pirates and Kaiser Chiefs
clash.
This takes place at Soccer City on 30 July. To be the coach,
buy a Carling Black Label and follow the instructions
on pack.”
“
PROMO
RUNS: 1 JUNE-27 JULY 2011.”
“…
When
selection commences on June 1
st
you will be able to select your players by purchasing any promotional
packs of Carling Black Label at participating outlets.
Look
for the unique underliner code on the crown, SMS to the number
provided and follow instructions. You can make a selection
as
many times as you like, but to be an effective coach, you have to
make sure that only the best players in your team make the
final
cut. For further information visit: www.bethecoach.co.za.
”
The defence
[11]
The defendant has delivered a plea.
The nub of the defence is
that the concept was in the public domain,
and is hence not confidential and worthy of protection that
confidential information
deserves.
[12]
The defendant denies any undertaking by
its representatives to maintain
confidentiality and it denies an
agreement to this effect.
[13]
The defendant does not dispute that it
received annexure “B”
to the particulars of claim.
[14]
The
defendant’s case is however, that the BE THE COACH initiative
was developed independently of the information relating
to the
concept as provided to the defendant by the plaintiff in the
executive summary in July 2006.
[15]
The defendant pleads that it was aware
of the information relating
to the concept as set out in the
executive summary, prior to the date on which the defendant was
contacted by the plaintiff and
it further pleads that it had used the
fundamental aspects of the concept, to the extent set out in the
executive summary, in Castle
Classic promotions, which took place in
about the 1980s and 1990s. These promotions invited the
general public to vote for
the soccer team they supported by
selecting players in each position in the team and, ultimately,
through an interactive mechanism,
choosing the Castle Classic team.
The Castle Classic team played against the winner of the Premier
Soccer League at that
time.
[16]
Apart from denying that
Boost Sports International Ltd was at any time
the owner of the
rights in the concept, the defendant pleads that the concept was in
the public domain prior to the date on which
the executive summary
relating to the concept was first provided to the defendant.
The concept was not therefore proprietary
to the plaintiff or its
purported predecessors in title, or to any person on the date of the
cession. In support of the
latter averments the defendant
relies on disclosures which had been made in PCT
[10]
patent application WO 02/19206 which was published on 7 March
2002.
[11]
[17]
The patent application is titled
“
MANAGEMENT OF THE REAL WORLD SPORTS ORGANISATION VIA
INTERACTIVE MEDIA
”. The concept is stated in the
application to be a method and system for managing a real world
sports organisation.
[18]
Mr Antonie SC who appeared for the
plaintiff pointed out to me during
argument that it is evident from
the pleadings that the defendant concedes that it had not relied on
the patent application in
the development of the BE THE COACH
initiative. He also pointed to me that on the defendant’s
version it is clear
that the patent application was discovered after
the defendant had received a letter of demand from the plaintiff.
I am
of the view that it is irrelevant that the patent application
came to the defendant’s knowledge as late as after June 2011.
It may have been fortuitous that the patent application was
discovered at all. The point, however, is that at the time
when the defendant launched its BE THE COACH initiative the concept
was in the public domain and objectively it was no longer
confidential. A defendant incurs no liability if it uses
information that had lost the characteristic of confidentiality.
[19]
A discussion as to whether the concept
was in the public domain, or
not cannot be avoided. It is the
central issue that has to be probed. As will appear later, the
merits of both the
claim and the defence thereto, are factors that I
may take into account in deciding the application.
[20]
I consider it desirable to devote some
time to the patent application.
Commonalities between the
patent application and the plaintiff's concept will reveal whether
the contended confidential information
would in law qualify as
confidential information. Stated differently, whether the
information meets all the elements of
confidential information.
It is commonalities or differences between the plaintiff's concept
and the concept disclosed in
the patent application which will
ultimately show whether the plaintiff’s claim to
confidentiality, has merit or not.
[21]
The plaintiff’s concept is aimed
at encouraging and facilitating
fan involvement in a particular sport
and thereby generating income. It was envisaged that this aim
could be achieved if
fans were given the opportunity to participate
in and influence team management issues, such as the selection of the
team before
a game and player substitutions during the game.
This would be done through a system of voting
via
interactive
media devices. In this way fans could communicate their
selection of players (and substitute players) for an
actual event or
game. The coach had to implement the selections or
substitutions based on majority vote.
[22]
The patent too, is aimed at facilitating
involvement and control in
the management of a sports organisation.
Fans could through interactive media control, coach and manage real
world sports
teams who competed against other real world sports
teams. The management of the real world sports teams will be
informed
by the votes submitted by fans via interactive media; an
internet web page or a dial-in-number. The real world sports
team
would be notified of the voting result and the input received
from the fans will be implemented in the strategy executed during
the
real world sports event. Notification devices such as pagers,
telephones or wireless phones and the internet would be
media of
communication. I do not believe that the method of voting e.g.
via cellular telephones or other methods derogates
from the essence
of both concepts. I am of the view that the core elements of
both concepts are largely, if not completely,
the same. I am
mindful of the fact that the plaintiff’s concept entailed
voting through SMS transmitted by cellular
telephone. Although
the concept in the patent application does not specifically refer to
cellular telephones as a medium
of interaction between the fans and
the management, this medium communication is not excluded. To
the contrary it appears
to me there are indications to the contrary;
notifications could be sent “
to devices accessible through
the telecommunication interface 208 such as, by way of example, a
pager, a telephone, or a wireless
phone
”. What is
significant for me is that both concepts contemplate voting
via
similar, if not the same media.
[23]
Considering the similarities I have
identified, I am of the view that
the concept was not confidential
when it was conveyed to the defendant. Moreover the concept
lacked the quality of confidentially
and it could therefore in the
first place not have constituted confidential information. Nor
to my mind was the unique.
[24]
The defendant avers that it had used the
concept as far back as the
1980s and 1990s when it ran its Castle
Classic promotions. The plaintiff disputes this. I am
mindful of this
[25]
The plaintiff’s
action rests on an alleged breach of an undertaking
to maintain the
confidentiality of the concept (contained in annexures “B”
and “C”) which according to
it constitutes confidential
information.
[12]
The plaintiff bears the onus to show that the information
constitutes confidential information deserving of protection in
law.
In my view, the plaintiff has
prima
facie
not
done so. The defendant, on the hand has
prima
facie
shown that the concept was in the public domain as far back as 7
March 2002.
[26]
It must follow as a matter
of logic that if the concept was in the
public domain it could not
have constituted confidential information at the time it was
allegedly disclosed to the defendant.
It goes without saying
that once information loses the element or characteristic of
confidentiality, it cannot be regained.
Confidentiality cannot
be restored even if a person promises not to divulge it: a secret
once out; is no longer a secret.
[13]
If information is not confidential, it does not deserve
protection.
[14]
[27]
The
House of Lords in
O.
Mustad & Son v Dosen and Another
[1964]
1 W.L.R (HL) faced the same issue which presents here. In that
case the appellant was the owner of confidential information.
It sought to restrain a former employee from divulging the
confidential information to a third party. An interdict
(injunction)
was granted by Rowlatt J, who heard the action.
The Court of Appeal set the interdict aside. The appellant
unsuccessfully
appealed to the House of Lords. The appellant
failed in its appeal because an application had been made in Germany
in 1925
for a patent in respect of matter which consisted essentially
of the information alleged by the appellant to be confidential.
On 22 January 1926 a convention application was made in the United
Kingdom on behalf of the appellant based on the German application.
On 31 May 1926, the specification was available to the public and
the patent received a number. The respondent contended
that,
that published the secret to the world. The House of Lord’s
ratio
for dismissing the appeal is found in the following statement in the
speech:
“
Of
course, the important point about the patent is not whether it was
valid or invalid, but what it was that it disclosed, because
after
the disclosure had been made by the appellants to the world, it was
impossible for them to get an injunction restraining
the respondents
from disclosing what was common knowledge.
The
secret, as a secret had ceased to exist
.
”
[underlining
inserted]
The application for security
[28]
The plaintiff, an
incola
company,
does not dispute that it does not have the financial resources to
satisfy any adverse costs order that may be made against
it in the
action. Notwithstanding this concession the plaintiff disputes
that it is liable to furnish security to the defendant.
The
plaintiff’s candour is probably the consequence of the comfort
it believes it enjoys, since the defendant’s statutory
right to
security has been taken away by the repeal of the Companies Act, No
61 of 1973 (“
Companies Act, 1973
”).
The legal position: Statutory
right to security
[29]
In disavowing liability to provide
security the plaintiff calls in
aid the common law rule which
protects a plaintiff who is an
incola
of the Republic of South
Africa (“
an
incola
plaintiff”
) from
having to furnish to a defendant security for the satisfaction of any
adverse costs order that may be made in the action.
[30]
The general common law
principle is that “
nobody
but
a
peregrinus
could be called upon, under any circumstances, to give security for
costs.
”
[15]
[31]
The common law rule was
however not absolute. It recognised
exceptions which were
based on the court’s inherent jurisdiction to prevent an abuse
of its process.
[16]
In order to do so,
[17]
and in cases where the court was satisfied that litigation is
vexatious and reckless
[18]
it could order an
incola
plaintiff to provide security for any adverse costs order.
[32]
In 1926,
[19]
all
incola
plaintiff companies were exposed to having to provide security to a
defendant where there was credible evidence that there was
reason to
believe that the company will be unable to satisfy an adverse costs
order.
[33]
The object of section 216
of the Companies Act No.46 of 1926 (“
the
Companies Act, 1926
”)
as well as section 13 of the now repealed Companies Act, 1973, was to
protect defendants sued by bankrupt companies.
[20]
These statutes conferred upon all defendants, sued by
incola
plaintiff
companies who may be unable to satisfy an adverse costs order, the
right to demand security from that company.
[34]
In terms of the common law plaintiffs
who were
incolae
of the Republic of South Africa were
generally protected from having to provide security for the costs of
the defendant, regardless
of the former’s financial
circumstances. Section 216 of the Companies Act, 1926 and
section 13 of the Companies Act,
1973 were both a complete departure
from the common law which allowed a defendant to demand security from
an
incola
plaintiff (a natural person) only as an exception
and under limited circumstances. There was no common law rule
in terms
of which security could be demanded from an
incola
plaintiff company. The obvious reason is that an entity
akin to a limited liability company did not exist at common law.
This is no surprise: South African company law was derived from the
English law.
[35]
Later in this judgment I deal again with
the common law position regarding
the circumstances under which an
incola
plaintiff could be compelled to provide security for
costs. I consider this indispensable because since the repeal
of the
Companies Act, 1973, two questions arise. Firstly
whether an
incola
plaintiff company can be compelled to
provide to a defendant security for costs and secondly whether a
defendant may invoke the
common law in this regard.
[36]
Before venturing into a discussion of
the common law precepts of applications
for security for costs I wish
to deal with the applications for security for costs brought under
section 13 of the Companies Act,
1973 as well as its predecessor,
section 216 of the Companies Act, 1926.
[37]
Over many decades a body of law
developed as to how a court should
approach applications for security
for costs against companies. The nature of the court’s
discretion and the manner
in which it should be exercised has been
extensively explored by the courts from time to time. Whether
or not a plaintiff,
(regardless of whether the plaintiff is a natural
or juristic person) should be ordered to provide security for any
adverse costs
rests within the exclusive domain of the court’s
discretion. The judicial pronouncements regarding applications
brought
under both section 126 and section 13, at the very least,
provide guidance on how a court should approach an application for
security
for costs against an
incola
plaintiff company, if
such a right is found to be available to a defendant.
[38]
Section 216 of the Companies Act, 1926
provided as follows:
“
Costs
in actions by limited companies
Where a limited company is
plaintiff…in any legal proceedings, the Court having
jurisdiction in the matter may at any stage,
if it appears by
credible testimony that there is reason to believe that the
company…will be unable to pay the costs of
the defendant …if
successful in his defence require sufficient security to be given for
those costs and may stay all proceedings
till the security is given.”
[39]
Section 13 of the Companies Act, 1973
provided as follows:
“
Security
for costs in legal proceedings by companies and bodies corporate.-
Where a company or other body
corporate is plaintiff 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…, will be unable to
pay the costs of the defendant
…if successful in his defence,
require sufficient security to be given for those costs and may stay
all proceedings till
the security is given.”
[40]
It is important for a court when
considering the statutory position
against the common law position to
bear in mind that even where the defendant discharged the onus which
rested on him in applications
under the Companies Act, 1926 and the
Companies Act, 1973, namely that there is reason to believe that the
plaintiff company will
be unable to pay an adverse costs order, the
court was not obliged to make such order; it retained it the
discretion to decide
whether to do so or not.
[41]
The provisions of section 216 and
section 13 mirror each other.
The cases which dealt with
applications for security for costs under the Companies Act, 1926
remained good law in determining
such applications brought under the
Companies Act, 1973.
[42]
Once the defendant had
demonstrated that there is reason to believe
that the plaintiff
company will be unable to pay an adverse costs order, the courts
found (prior to the decision of the Supreme
Court of Appeal in
Shepstone
& Wylie and others v Geyser NO
[21]
)
that they could only exercise their discretion not to order security
for costs if special circumstances existed for them to do
so.
[22]
Courts were generally inclined towards granting such
applications.
[23]
[43]
The court in
Trust
Bank van Afrika Bpk v Lief and Another
[24]
expressed
this in the following way:
“
The
body of law which has grown up around this section [i.e. section 216]
was thoroughly reviewed in
Fraser
v Lampert NO
1951
(4) SA 110
(T)
a decision of three Judges….In
Kruger
Stores (Pty) Ltd v Kopman and Another
1957
(1) SA 645
(W)
the effect of section 216 was again examined in the light of previous
decisions. From the two decisions, incorporating as
they do
points from previous cases, the following principles can be
distilled. The court will not deprive a defendant who
is being
sued by a company of the benefit of the section unless special
circumstances exist. The court will lean towards
security.
The Court will consider what the financial position of the company
will be when it loses the action….The
Court will not enquire
fully into the merits of the contemplated litigation and form an
opinion of the plaintiff’s prospects
of success, but the nature
of the claim and the defence are not irrelevant The
defendant (the applicant for security)
ought to specify his defence.”
[44]
Hefer JA in
Shepstone
& Wylie and others v Geyser NO
[25]
speaking for the court departed from the string of earlier decisions
in this regard. Hefer JA rejected the principle that
“
a
defendant … should not be deprived of [the benefit of seeking
security for costs] unless special circumstances exist
”.
[26]
The Supreme Court of Appeal criticised this approach. It
opined that it was wrong “[b]
ecause
a court should not fetter its own discretion in any manner and
particularly not by adopting an approach which brooks of no
departure
except in special circumstances, it must decide each case upon a
consideration of all the relevant features, without
adopting a
predisposition either in favour of or against granting
security
”.
[27]
[45]
The Supreme of Appeal
endorsed the approach of Peter Gibson LJ in
Keary
Developments Ltd v Tarmac Construction Ltd and Another
[1995] 3 All ER 534
at 540a-b, namely, that “
[a]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 his defence of the claim.”
,
as being the preferred and correct approach.
[28]
This approach was reaffirmed by the court in
Zietsman
v Electronic Media Network and others.
[29]
[46]
While it has been found
that the court will not “enquire fully”
into the merits
of the plaintiff’s claim and form an opinion of the prospects
of success, the nature of the claim and the
defence thereto are not
irrelevant considerations and are factors to be taken into
account.
[30]
Whether it is practicable to assess a party’s prospects of
success will depend on the nature of the dispute which
presents in a
particular case.
[31]
[47]
What the court is not required to do in
an application for security
is to attempt to resolve the dispute.
In
Davidson’s Bakery (Pty) Ltd v Burger
1961 (1) SA
589
(O)
Klopper J stated:
“…
Daar kan gevalle wees waar die Hof
sekuriteits stelling sal verleen al word dit slegs bevind dat die
kanse van welslae op die aksie
alleen twyfelagtig is sonder dat dit
gesȇ kan word dat dit geen vooruitsigte van sukses inhou
nie”
[32]
[48]
In
Waste Tech (Pty) Ltd and another v
Van Zyl and Glanville NNO
2000 (2) SA 400
(SE)
at 404A-C
Chetty J referring to Halsbury volume 37 lists some factors for a
court to consider in adjudicating an application for
security for
costs. They are the following:
“
1.
Whether the Plaintiff's claim is
made in good faith and is not a sham.
2.
Whether the plaintiff has
a reasonably good prospect of success.
3.
Whether there is an
admission by the Defendant on the pleadings or otherwise
that money
is due.
4.
Whether there is a
substantial payment into court or an open offer.
5.
Whether the application
for security was being used repressively or, for example
to stifle a
genuine claim.
6.
Whether the Plaintiff’s
want of means, especially in the case of a limited
company, has been
brought about by conduct of the Defendant such as delaying payment.
7.
Whether the application
for security was made at a late stage.
”
[49]
It is trite that the court has an
unfettered discretion in deciding
applications for security.
No list is a closed one nor, can it be.
[50]
In any event any closed list will fly in
the face of the decision in
Shepstone & Wylie and others v
Geyser NO.
[51]
If I were to summarise the approach of
courts to applications for security
for costs it would be that even
if a defendant demonstrates that the plaintiff company would not be
able pay an adverse costs order,
the court has to in the exercise of
its discretion carry out a balancing exercise; weighing on the one
hand the injustice to the
plaintiff if it is prevented from pursuing
a proper claim by an order for security and weighing on the other
hand the injustice
to the defendant if no security is ordered.
Questions going to the merits of the claim and defence are some of
the factors
that a court may have regard to when deciding an
application for security.
[52]
What other factors should be taken into
account would be dictated by
the peculiar facts and circumstances of
a given case.
The legal position: The
common law right to claim security
Vexatious claims
[53]
While the general rule of
our common law is that an
incola
plaintiff cannot be compelled to furnish security for costs, there
are recognised exceptions thereto. One such exception
is
vexatious and reckless claims.
[33]
The exception flows from the High Court’s inherent
jurisdiction to prevent abuse of its process. One the methods
of halting or preventing the abuse, is to require a vexatious
litigant to provide security.
The issues
[54]
In deciding whether I should order the
plaintiff to provide security
I have to consider the following
questions:
(a)
Whether
there is any basis in law
to order an
incola
plaintiff company
to furnish security? (“The defendant’s right to
claim security.”);
(b)
If so:
(i)
whether the failure
by the defendant to expeditiously demand
security is a bar to this application? (“The delay
issue.”);
(ii)
whether the
application is aimed at committing
the plaintiff under oath to a
version before the trial? (“The ulterior motive issue.”)
(iii)
whether the plaintiff’s
claim is vexatious or
unmeritorious? (“the vexatious
claim issue.”);
(iv)
whether the plaintiff’s
constitutional right, under
section 34, to have the action resolved
by the application of law decided in a fair and public hearing before
a court will be infringed
(“The limitation on the right of
access to courts”.).
(c)
Whether
there are material disputes
which cannot be resolved on the papers
and without the benefit of oral evidence?
Are there material disputes
of disputes of fact?
[55]
I consider it appropriate to dispose of
this issue before considering
the other issues.
[56]
I have examined the alleged disputes of
fact. I am not persuaded
that in truth there is a real dispute
of fact which cannot satisfactorily be determined without the aid of
oral evidence or determined
on the conspectus of the evidence.
The right to demand security
from an
incola
plaintiff company
[57]
Prior to the enactment of the Companies
Act, 1926, a defendant had
no statutory right to demand security from
a plaintiff company.
[58]
Section 216 of the
Companies Act, 1926 and section 13 of the Companies
Act, 1973 were
both aimed at protecting litigants against liability for costs of
litigation instituted by impecunious companies.
[34]
An order for security for costs against plaintiff companies was a
means of deterring companies from pursuing vexatious claims
or claims
with poor prospects of success and in this way, defendants were
protected against unnecessary and irrecoverable legal
expenses.
[35]
[59]
With the repeal of section 13 of the
Companies Act, 1973, defendants
brought to court by companies of
doubtful financial strength lost the protection they had previously
enjoyed against incurring
unnecessary and irrecoverable legal
expenses. The Companies Act, 71 of 2008 (“
the
Companies Act, 2008
”) contains no provision akin to
section
13.
[60]
The common law did not
afford defendants the right to demand security
from an
incola
plaintiff
company.
[36]
With the repeal of section 13 of the Companies Act, 1973 by the
Companies Act, 2008
plaintiff companies are once again immune to a
demand for security for costs. The question is whether a
defendant, notwithstanding
the absence of a statutory right to do so,
can demand security from a plaintiff company. Mere
impecuniosity of a plaintiff
company no longer entitles a defendant
as of right to demand security; something more is required. In
my view the absence
of a statutory right does not deprive a defendant
of the right to demand security from an
incola
plaintiff company where the defendant is brought to court to defend a
vexatious or unmeritorious claim. A defendant's right
to claim
security stems from the court’s inherent jurisdiction to
regulate its own process and prevent its abuse by discouraging
vexatious or unmeritorious claims by ordering a plaintiff to file
security.
[37]
[61]
Since the enactment of the
Companies
Act, 2008
the courts have on a number of occasions been called upon
to decide whether a defendant may demand security from an
incola
plaintiff company.
[62]
In
Haitas
and others v Port Wild Props 12 (Pty) Ltd
[38]
the
incola
plaintiff
company was ordered to provide security. I respectfully agree
with the decision and the basis on which it was made.
[63]
There are other cases
where the courts have refused applications for
security for costs by
a defendant. One such case is
Siemens
Telecommunications (Pty) Ltd v Datagenics Ltd
[39]
where
Fabricius J refused the application on the basis that our courts have
no power to order an
incola
plaintiff company to provide security for costs because even though
the court has the inherent jurisdiction to regulate its own
process,
it cannot create substantive law by extending the common law so as to
confer upon a defendant the right to demand security
for costs from
an
incola
plaintiff company. I am respectfully unable to agree with the
learned judge. In my view it is established law that
the
question of security for costs is one of procedure and not
substantive law.
[40]
That being so the court has the inherent jurisdiction to prevent
unmeritorious and vexatious litigation at the instance
of an
incola
plaintiff company by ordering it to provide to the defendant security
for costs. Another case in which the court refused
an
application for costs was
Ngwenda
Gold (Pty) Ltd and Another v Precious Prospect Trading 80 (Pty) Ltd
and Another
(unreported, case no. 2011/31664, South Gauteng High Court).
The application was refused on the basis that the common law
required
“
something
more than mere insolvency or impecuniosity
”
and since no special circumstances were present and the “established
common law approach to an order for security
for costs should be
applied.” I cannot disagree that “special
circumstances” have to exist before an
incola
plaintiff company can be ordered to provide security for costs.
Such an approach is not only inconsistent with the decision
in
Haitas
and
Others v Port Wild Props 12 (Pty) Ltd
where Tsoka J, in my respectful view, correctly found that each case
must be decided on its own peculiar facts, it is also inconsistent
with the decision in Shepstone & Wylie and others v Geyser NO.
If a court has to find that special circumstances exist
before it
can order an
incola
plaintiff
company to provide security, it will fetter its own discretion.
In order to properly exercise its discretion the
court must take
account of all relevant features “
without
adopting a predisposition either in favour of or against granting
security
”.
[41]
[64]
I am satisfied that despite the repeal
of section 13 of the Companies
Act, 1973 an
incola
plaintiff
company can be ordered to provide to a defendant security for any
adverse costs order. I can find no compelling
reason why
incola
plaintiff companies should be immune from providing
security for costs where the company will not be able to satisfy and
adverse
costs order whereas
incola
plaintiffs who are natural
persons may be ordered to furnish such security. A distinction
between these two classes of plaintiff
will be unreasonable and
irrational.
The delay in bringing the
application
[65]
Delay in itself is not an
automatic bar to an application for security
for costs. It is
but one of factors a court can take into account in determining
whether to deprive a defendant of the benefit
of security for any
adverse costs order that may be made against an
incola
plaintiff company. I accept that unreasonable delay, depending
on the circumstances of a particular case may be decisive
in the
exercise of the court’s discretion.
[42]
[66]
Selke J in
Francis & Graham Ltd v
East African Disposal Co, Ltd
1950(3) SA 502 (W)
found
that delay is not necessarily fatal. In this regard he stated
as follows:
“
In
the case of
The
British America Assurance Co v Moretti
(1) (1936, E.C.P.D. 497) CENTLIVRES, J., considered a contention that
because a long time had elapsed since the defendant could
have made
an application for security for costs, he was therefore out of
Court. He said:
'In the case of
Lagesen v
Electric Lamps Regenerators Limited
(1914, W.L.D. 76)
it was laid
down that although it is desirable that an application by a defendant
for security as to costs should be made promptly,
promptness is not
essential. In that matter Mr. Justice CURLEWIS dealt with the
case of
Oaten v Bentwich and Lichtenstein,
which had been
decided by Mr. Justice MASON, and which suggested that, unless a
defendant asked the Court promptly for an order
for security as to
costs, the Court should not grant such an order. Mr. Justice
CURLEWIS said this: 'Though there is much
to be said for the
suggestion that a defendant must demand security for his costs
promptly, I am not disposed to hold that because
the applicant did
not demand security for his claim in reconvention at the same time as
he demanded security for his costs, he
is thereby debarred from
making the present application. If the applicant has a right
to demand security for his claim in
reconvention, I do not see how a
delay on his part can deprive him of his right, unless the
circumstances are such that the Court
comes to the conclusion that he
has waived that right.' That principle seems to be applicable to a
case like this one where the
defendant asks for security when he is
sued by a person who he alleges to be a peregrinus.'
With
respect, I agree with this reasoning, for it seems to me that to
insist in every case upon immediate demand for security for
costs,
and to regard delay as necessarily fatal, regardless of whether or
not the circumstances indicate a waiver by the applicant,
or give
rise to an estoppel against him, is to erect a supposed rule of
practice into an empty fetish divorced from the realities
of the
situation and from principle. Nor does it seem to me that
Order XIV, Rule 1 of the Rules of this Court, when properly
construed, sanctions any such practice. It may be, I would
suppose, that a waiver is possibly to be spelled out of delay
in
demanding security, or that circumstances give rise to an estoppel.
But nothing like this is shown to exist here; for,
on the contrary,
it is obvious that the applicant at no time intended to waive its
right to demand security, and Mr. Henning has
not been able to
suggest any prejudice which the respondent would suffer as a result
of the delay. And, having regard to
the requirement that the
notice envisaged by Order XIV Rule 1 shall indicate the amount of the
security demanded, it seems to me
requisite, or at least very
desirable, that the party giving the notice should be in a position
to estimate with reasonable accuracy
the probable amount of the costs
for which he desires security. So far as I can see, he only
gets into that position when
the claim is properly and fully
formulated. In this case, that appears to me to have been when
the respondent filed the
particulars of his claim in reconvention on
8th October, 1949. The applicant was, I think, obviously
entitled to a reasonable
time to consider the bearing and
implications of these particulars, and, in the circumstances, I do
not see how it can fairly be
said that in writing the letter of the
20th October, or in serving the notice even on November 30th, it did
not take steps as soon
as practicable in terms of the Rule.
That being so, it seems to me that the applicant has not forfeited
its right now to
make this application.”
[43]
[67]
In my view the delay in
bring the application was not unreasonable.
After the
plaintiff served its discovery affidavit, the defendant requested
copies of various documents listed in the discovery
affidavit.
The documents were received by the defendant's attorneys on 11 March
2013. The deponent to the founding
affidavit states that until
this point in the proceedings, the defendant had no reason to believe
that the plaintiff would not
be able to pay its costs. It was
only after the defendant had had an opportunity to consider documents
which it intended
using at the trial, that it became clear that the
plaintiff has never successfully commercialised the concept despite a
number
of attempts to do so.
[44]
The deponent continues to state that, given that the plaintiff had
not discovered documents showing that it had ever received
an income
from doing so and that the plaintiff had not entered into other
commercial arrangements in respect of other marketing
initiatives or
sporting events, the defendant became concerned as to whether the
plaintiff would be able to satisfy an adverse
costs order in the
event that it did not succeed in its claim. In my assessment,
the impecuniosity of the plaintiff was
discoverable after all
relevant documents had been scrutinised. I am also not able to
find that the defendant waived its
right to demand security at a time
in the future.
[68]
On 25 June 2013, the defendant's
attorneys in writing notified the
plaintiff's attorneys that the
defendant was intent on applying on an urgent basis for an order
compelling the plaintiff to put
up security for the costs of trial.
[69]
In the plaintiff's attorneys response on
1 July 2013 they denied that
the plaintiff was obliged to furnish
security because an
incola
of the Republic of South Africa
does not have to provide security for costs.
[70]
On 8 July 2013 the defendant delivered a
notice in terms of rule 47
(1). On 20 July 2013 the
plaintiff’s attorneys in response to the notice in terms of
rule 47 (1) wrote a letter to
the defendant's attorneys along the
lines that the plaintiff was of the view that it was not obliged to
provide security for costs
and will not be providing it either in the
amount claimed or at all. The application for security for
costs was delivered
on 1 August 2013.
[71]
Rule 47 requires a defendant to demand
security for costs “
as soon as practicable after the
commencement of proceedings
”. When precisely this
stage arrives will differ from case to case. I cannot find in
the prevailing circumstances
that the defendant did not demand
security “as soon as practicable” albeit that the demand
was made rather late after
the action had been instituted.
[72]
The plaintiff has not demonstrated that
had it been aware earlier that
security would be required from it,
attempts would have been made to raise funds or due consideration
would have been given to
whether the claim should be pursued or not.
The plaintiff does not say that it would not have committed itself
to legal
costs to pursue its claim in that case.
[73]
Apart from arguing that the defendant is
barred from seeking security
because of a perceived delay, the
plaintiff argues that the defendant or (as I understand the
allegation), its attorneys were grossly
negligent in failing to have
established earlier that the plaintiff was not a trading entity and
that the concept had not been
commercialised. The plaintiff
contends that the defendant’s failure to take these steps was
at its peril. I
am unable to find any negligence, let alone
gross negligence on the part of either the defendant or its
attorneys.
[74]
The argument that the defendant must be
punished for not having been
able to establish that the plaintiff was
a shell, is farcical. The defendant is not at risk because of
any action on its
part. The source of the defendant’s
risk is the plaintiff’s parlous financial position. The
plaintiff’s
argument is in any event opportunistic. It
wishes to seize on the late discovery of its financial position to
escape an
order compelling it to furnish security to the defendant.
I am of the opinion that the plaintiff should not be permitted
to
benefit from the defendant’s late discovery of its
impecuniosity.
[75]
In my view the defendant has
satisfactorily explained why it did not
demand security or apply
therefore any earlier than it did. As I understand it, there
was until receipt of the documents
listed in the discovery affidavit
no reason for the defendant to even suspect, let alone believe, that
the plaintiff would not
be able to pay its costs in the event of the
litigation failing.
[76]
I do not consider the delay a bar to the
defendant seeking security
for costs.
The defendant’s
ulterior motive
[77]
The plaintiff contends that the
application was aimed at derailing
the trial which was set down for
hearing on 25 November 2012 for a period of two weeks. On this
basis the plaintiff contends
that the application is
mala fides
.
[78]
The plaintiff in addition claims that
the application has the ulterior
motive of compelling the plaintiff
to commit, prior to the hearing, to a version.
[79]
Both these allegations are bald and
bare. They are not supported
by any facts.
Is the plaintiff’s
claim unmeritorious and/or vexatious and/or reckless?
[80]
Before I delve into the question whether
the plaintiff’s claim
is vexatious or not I must consider when
a party can be accused of embarking of vexatious litigation.
[81]
I find the answer in
Hennie
Lambrechts Architects v Bombenero Investments (Pty) Ltd
.
[45]
Thamage AJ relying on the decision in
Golden
International Navigation SA v Zobo Maritime Co Ltd; Zobo Maritime Co
Ltd v MV Visvliet
[46]
describes an
action as vexatious if it is obviously unsustainable.
[82]
As I have mentioned earlier the
plaintiff’s claim rests in a
proprietary right to confidential
information and an oral agreement in terms of which undertakings were
given by representatives
of the defendant.
[83]
For the plaintiff to succeed in its
action it will have to show that
the concept constituted confidential
information. Proof that the concept was in the public domain
would entirely defeat
the plaintiff’s claim.
[84]
The plaintiff’s concept is
embodied in annexures “B”
and “C” to the
particulars of the plaintiff’s claim. The defendant
relies on the patent application which
was published on 7 March 2002
to show that the concept was in the public domain.
[85]
In the exercise of my discretion I am
entitled to have regard to the
nature of the claim. I have to
also consider the merits of the dispute.
[86]
Baker J considered the question of how
far the enquiry into the merits
of the dispute can go. He was
of the view that:
“
How
far that enquiry can go is very difficult to say. The Court
cannot at this stage express an opinion as to who is going
to win
this case. There is a further reference to the nature of the
claim in Sir Lindsay Parkinson & Co Ltd v Triplan
Ltd
[1973] 2
All ER 273
(QB) at 282f by Mars-Jones J, where his Lordship said:
'In my judgment, where some
reasonable assessment of the plaintiff's chances of success can be
made at this interlocutory stage,
and that must be comparatively
rare, that would be relevant to the question of whether security for
costs should be made or not,
but not to the issue of quantum....'
This passage was cited with
approval in Procon (GB) Ltd v Provincial Building Co Ltd and Others
[1984] 2 All ER 368
(CA) at 375h - j.
However, to come to the most
important factor in this case, and that is the discretion of the
Court, it is quite clear from the
Parkinson case that the discretion
is very wide indeed. At 278 Mars-Jones J, whose judgment was upheld
by the Court of Appeal,
said:
'Counsel for Parkinson submits
that the situation here is on all fours with that which existed in
the Northampton Coal case (1878)
7 I ChD 500 and
the Pure Spirit case,
(1890) 25 QBD 235.
Triplan is in precisely the
same position as if it were in liquidation. Speaking for myself, if
those Court of Appeal cases can
be properly construed as meaning that
I have no discretion to refuse to give security for costs in a case
of this kind, I would
limit it to cases where the company is actually
in liquidation. Triplan is not. But I am not prepared to hold that
such is the
proper construction to be placed on those observations by
those members of the Court of Appeal.'
At
279 Mars-Jones J said:
'As Kay LJ said in Jenkins v
Bushby, ''the court cannot be bound by a previous decision, to
exercise its discretion in a particular
way, because that would be in
effect putting an end to the discretion''. A discretion necessarily
involves a latitude of individual
choice according to the particular
circumstances, and differs from a case where the decision follows ex
debito justitiae once the
facts are ascertained.
And at the bottom of the same
page ending that quotation from a report by one Jack Hames, a
barrister who wrote an article in the
Solicitors' Journal, is this:
'Either the Court has a
discretion and that must be a wide discretion to take account of all
relevant circumstances, or it has no
discretion and the order is
mandatory, so that s 447 is thus restricted. Clearly the
section is not restricted and the discretion
is wide’
[87]
The information on the papers before me
is sufficient for me to assess
whether there are reasonably good
prospects of the plaintiff succeeding in its claim.
[88]
Having considered the similarities
between the plaintiff’s concept
and the patent application
published on 7 March 2002 I do not believe that there are reasonable
prospects of the plaintiff succeeding
in its claim that the concept
constituted confidential information. A party’s belief
that information is confidential
is of no consequence. The
fact that the plaintiff was not, or may not have been, aware of the
patent is to my mind insignificant.
[89]
The plaintiff has failed
to show that the concept constituted confidential
information.
As I see it at least two of the requisites for information to qualify
as confidential have not been established,
namely that the
information was useful, i.e. it involved and was capable of
application in the trade or industry and that it was
not in the
public domain (i.e. objectively determined it must be known only to a
restricted number of people).
[47]
The plaintiff might have believed that the concept constituted
confidential information. This is irrelevant.
Ordinary
general information by way of example such as information, about the
concept does, not become confidential just because
the proprietor
chooses to call it confidential.
[48]
[90]
The plaintiff’s case as I see it
is that the alleged oral undertakings
given by Fleming constitute the
oral agreement between. The plaintiff avers that it (and
significantly not it
and
the defendant’s representative
both) accepted the “undertakings” and understood them to
mean, “in the context
of the disclosure of the concept, that
the defendant’s representative accepted [that] the concept
constituted confidential
information and [also accepted] that the
defendant was precluded from using the concept, directly or
indirectly, without the plaintiff’s
consent”.
Webber’s understanding of what the statements mean or meant,
does not prove an agreement. A
contract only comes into being
when facts objectively construed yield that conclusion. To my
mind it is implausible that
an oral agreement came into being.
This especially so, when the chain of e-mails exchanged between
Fleming and Webb is given
due consideration.
[91]
The papers before me defendant contain
correspondence in the form of
e-mails exchanged between Mr Fleming
and the plaintiff’s representative, Webber. I have
considered these e-mails.
The sequence of the e-mails
exchanged, in my view, does not bear out the plaintiff’s
version that undertakings as alleged
were given by Fleming.
[92]
On 12 July 2006 the plaintiff’s
representative, Webber, sent
to Fleming an e-mail attaching a
non-disclosure agreement (NDA). Fleming refused to sign it.
I consider this to be
a significant factor to take into account when
I assess the plaintiff’s prospects of success.
[93]
Fleming responded on 26 July 2006 in an
e-mail which reads:
“
I
am not happy to sign a contract that prevents me from making use of
an activity that I might have been exposed to/thought of etc.
It is too restrictive. SAB is a company with high ethical
standards and one you can trust.
I
hope this makes sense.”
[94]
The response from Webber to Fleming was
sent by e-mail on 28 July 2006.
It contains among others, the
following statement:
“
We
are happy to send you a 2 page summary for you to consider
before
[underlining
inserted by author of the e-mail] any form of NDA is signed.
We have utmost respect for
SABMiller, your good standing as a company and global brand, but feel
that it is reasonable as well as
good business practice to be able to
expect at least some sort of a written undertaking that what we
divulge and discuss remains
highly confidential, from the perspective
of both parties.
Please
let me know if that is acceptable to you?”
[95]
Fleming responded in the following
terms:
“
I’m
obviously happy to see your exec summary. Let's take it from
there”
[96]
On 31 July 2006 Webber
sent to Fleming an executive summary.
[49]
The covering e-mail states that the executive summary “highlights
the essence of our concept and which I am sure will
prove to be of
interest to you”
[97]
Then interestingly and significantly
follows a statement that justifies
the inference that the concept may
by then have been in the public domain:
“
We
are confident that any prior exposure you may have had would have
indirectly come from us in any case and would not prove to
be a
stumbling block to us taking it forward together.
Thank you for your time and
consideration and I look forward to meeting with you in the near
future.”
[98]
I am unable to find any undertakings, of
the sort alleged by the plaintiff,
in any of these communications.
I have difficulty in understanding how the statement that SAB was a
company with high ethical
standards and one that the plaintiff could
trust could have constituted an undertaking. I can equally not
understand how
the statement could have been understood to mean that
the defendant agreed that the concept constituted confidential
information
and also agreed not to use the concept, directly or
indirectly, without the plaintiff’s consent.
[99]
I am of the view that the plaintiff has
not even
prima facie
demonstrated the existence of the
agreement. On the facts I am unable to find that a contract
had been concluded between
the parties and I am not satisfied that
there are reasonable prospects that the plaintiff will succeed in
doing so.
[100]
I am satisfied on the information before me that there are
reasonable prospects that the defendant
will succeed in showing that
the concept had been in the public domain since March 2002.
The fact that the defendant had
utilised the concept in the 1980s and
1990s is further support that the concept did not and does not
constitute confidential information.
I am cognisant of the
dispute in this regard. Even if I leave the disputed fact out
of account, my conclusion will not
be any different.
[101]
I am also mindful of the plaintiff’s attack on
the admissibility of the patent application
attached to the
defendant’s papers which the latter relies upon. The
plaintiff has argued that the patent application
constitutes
inadmissible hearsay. Mr Antonie SC, appearing for the
plaintiff, urged me to therefore disregard it.
I am not
inclined to do. I am satisfied that by virtue of section 42,
section 43 (1) and
section 43B
of the
Patents Act 57 of 1978
, the
patent application, is a public document and therefore at common law
constitutes admissible evidence.
[50]
Apart from this, there was no proper objection thereto by the
defendant. Nor was I presented with an application
to strike
out the hearsay evidence.
[102]
I am also mindful of the plaintiff’s contention that the
plaintiff’s allegation that
an undertaking was given by the
defendant’s employees/representatives has not been properly
challenged because these individuals
have not made affidavits.
In my opinion nothing turns on this. If the concept was in the
public domain, it was not
confidential and once the characteristic of
confidentiality was destroyed it could not be restored. I have
already expressed
myself on the oral agreement.
[103]
Having assessed the plaintiff and defendant’s respective
claims, I am constrained to find
that the litigation will not be
sustainable and hence it is vexatious.
Will the constitutional right
embodied in section 34 of the Constitution of the Republic of South
Africa, 1996 be infringed by an
order to provide security?
[104]
This question received the attention of the
Constitutional Court in
Giddey
NO v J C Barnard and
Partners.
[51]
[105]
I accept, as a general proposition, that when a company is unable to
provide security after being
ordered to do so, it may be forced to
abandon its claim. I also accept that this may affect the
company’s right of
access to court.
[106]
The court in
Giddey NO v J C Barnard and Partners
2007 (5)
525 (CC) said that a court when determining an application for
security for costs must take into consideration the provisions
of the
Constitution of the Republic of South Africa, 1996 (“
the
Constitution
”) more particularly section 34 thereof.
In resolving the constitutional issue, O’Reagan J found that to
the
extent that the right of a party to access courts would be
limited by an order for security, the limitation would be justifiable
in terms of section 36 of the Constitution.
[107]
O’Regan J speaking for the Constitutional Court has pronounced
that although the Constitution
guarantees to all access to courts,
for courts to function fairly they must be able and allowed to
regulate legal proceedings.
The rules of court, Justice
O’Reagan, expressed “will often require parties to take
certain steps on pain of being
prevented from proceeding with a claim
or defence”. The court also found that to the extent
that this may limit the
right of a party to access courts, if the
limitation is justifiable in terms of section 36 of the Constitution,
there can be no
cause for a constitutional complaint.
[108]
South African courts have repeatedly stated that
section 13 of Companies Act, 1973 (as well as
its predecessor) was
aimed at shielding persons who successfully defended actions
instituted by bankrupt companies, from incurring
costs that they most
likely would not be able to recover from the company. The
Constitutional Court agreed that this was
what section 13 sought to
achieve.
[52]
[109]
The Constitutional Court has agreed with the Supreme Court of
Appeal’s decision that a court
seized with an application under
section 13 must balance the potential injustice to the plaintiff if
it is prevented from pursuing
a legitimate claim, on the one hand,
against the potential injustice to a defendant who despite having
successfully warded off
a claim (and I must add probably at an
enormous financial burden) may find that it is been deprived of the
benefit of the general
rule namely that costs should follow the
result.
[110]
The Constitutional Court held that where litigants are compelled to
litigate; whether as plaintiffs
or defendants they must as a matter
of fairness and reasonableness be indemnified for costs of pursing or
defending unsuccessful
proceedings.
[111]
While a defendant in defending an action brought against him by
insolvent plaintiff companies
litigates at great cost and risk, a
plaintiff company with doubtful financial strength litigates with
impunity. This is
neither just nor, equitable.
[112]
The Constitutional Court
[53]
considered the decision by Joffe J in
Lappeman
Diamond Cutting Works (Pty) Ltd v MIB Group (Pty) Ltd
(1)
[54]
.
In that case the plaintiff alleged that if it was ordered to furnish
security it would have to use working capital to comply
with the
order. The consequence of this would be that the plaintiff
would have to either cease trading or abandon its action.
O’Regan J, quoted the following passages from the Joffe J’s
judgment:
“
It is
clear that, in the event of its being successful, defendant will not
recover its costs from the plaintiff. It is common
cause that
these costs will be substantial. It is noteworthy that whilst
not litigating on as lavish a scale as the defendant
(the defendant
has engaged the services of three counsel) plaintiff has none the
less engaged the services of an attorney and two
counsel.
Plaintiff must have made arrangements for the payment of its own
legal costs. The inevitable inference that
arises, is that
those who stand to benefit from the litigation in the event of an
award being made in favour of the plaintiff,
are financing the
plaintiff's litigation whilst shielding behind the plaintiff's
corporate identity insofar as the defendant's
costs are concerned.
This consideration must weigh in favour of ordering security.”
[113]
These remarks apply equally to this case.
[114]
The costs in the main action will undoubtedly be substantial.
The plaintiff is represented
by senior counsel and the defendant by
both senior counsel and junior counsel;
[115]
I am not oblivious that the effect of an order to pay
security may very well, if not certainly,
put an end to the
litigation. However, the Supreme Court of Appeal
[55]
has pronounced that the mere fact that an order for security will
bring an end to a plaintiff’s claim, does not in itself
warrant
the refusal of the application. Furthermore, it found that the
mere possibility that the order will effectively
terminate the
litigation could not without something more, affect the court’s
decision. It only becomes a factor once
it is established as a
probability by the plaintiff. The possibility that the
plaintiff may have to abandon the litigation
becomes a relevant
consideration only after the plaintiff has established this as a
probability. Even if the plaintiff succeeds
in establishing
this, this is but one of many other factors that the court can take
into account when deciding the application.
In my opinion, the
plaintiff has failed to establish as a probability, that an order for
security will bring an end to its claim.
[116]
In my opinion the plaintiff will not by an order requiring it to
furnish security be denied the
right to prosecute its claim.
It must simply provide security and proceed with the action.
There is no bar in this
regard.
[117]
There is no evidence that the plaintiff’s four shareholders
will not be able to raise funds
in order to provide security.
The plaintiff has made arrangements for the payment of its own legal
fees by its shareholders.
The shareholders claim not to have
the resources to provide security to the defendant. In my view
the shareholders have
not been candid with the court. In my
view they should have produced documents to substantiate this
[118]
I am of the opinion that the shareholders must be persons of some
means considering that two of
them are professionals; one an
architect and the other a legal advisor. Of the remaining two,
one is described as an “entrepreneur”.
The other
is an estate agent. These shareholders are content to reap the
benefits of success litigation. They however
want a shield to
escape the consequences of an unfavourable award. In the
interests of justice and fairness I cannot countenance
this.
[119]
In
Shepstone
and Wylie and others v Geyser NO
Hefer
JA remarked that “where a plaintiff company is in financial
difficulties, the sharp commercial reality of such an order
is that
at times where the plaintiff cannot find security for costs it will
not be able to pursue its action.
”
In
my view this applies aptly to the plaintiff.
[120]
I disagree with the plaintiff’s contention that an order
requiring it to provide security
for costs will deny to it the right
it enjoys in terms of section 34 of the Constitution of the Republic
of South Africa, 1996.
[121]
The following factors in addition to the ones I have already
discussed weigh in favour of an order
for security:
(i)
The plaintiff has conceded
that it will be unable to satisfy an
adverse costs order.
(ii)
The costs in
the main action are likely
to be substantial. The plaintiff is
represented by senior counsel and the defendant by both senior and
junior counsel.
(iii)
There is no evidence
before me whether the order for
security would put an end to the
litigation or not. The Supreme Court of Appeal in
Shepstone
and Wylie and Others v Geyser NO
said that the mere possibility
that the order for security will effectively terminate the litigation
can plainly not affect a court's
decision. The plaintiff has
made a bald and unsubstantiated statement that the litigation will
come to an end. The
plaintiff has to establish this as a
probability. It has elected not to produce evidence to
establish this.
(iv)
I am not satisfied that
the plaintiff has established
that an order compelling it to provide
security might very well result in it having to abandon its claim.
I am somewhat
surprised that the plaintiff did not disclose whether
it or its shareholders have attempted to raise funds. This in
my view
leads to the inescapable conclusion that no such attempts
were made. In the absence of such attempts the plaintiff
cannot
be heard to say it cannot provide security. It has not
attempted to do so. The plaintiff does not take the court into
its confidence and disclose the financial strength of its
shareholders. The high water mark of its candour is the
statement
that the shareholders do not possess sufficient assets to
fund the defendant’s costs
and
provide the amount
demanded as security.
(v)
An order compelling security would
not as a matter of course
put an end to the litigation. Even if it does, that by itself
does not provide sufficient reason
for refusing an order.
[56]
(vi)
When the plaintiff decided
to litigate it must have considered
and made provision for the
consequence of unsuccessful litigation. I find it
inconceivable that the plaintiff would have
not so. I also
find it inconceivable that the plaintiff would not have known that if
its action was to be dismissed it would
have to pay the defendant’s
legal costs.
[122]
I have in weighing the interests of the parties taken into account
that the company and consequently
its shareholders may be negatively
affected by an order. In my view they must knowingly have
assumed the risks that accompany
litigation. Litigation is
after all not for the faint-hearted
[123]
Mr
Antonio submitted that I should not leave out of consideration that
the defendant is a listed company making huge annual profits.
In my view the financial position of a defendant is irrelevant.
There is no compelling reason why a public company or a
large
commercial enterprise should have to defend litigation at enormous
costs and then have snatched from it the right to hold
an
unsuccessful plaintiff, who has chosen to litigate to do so with
impunity. It is unfair to expect a successful defendant
in
such circumstance to have to pay its own costs.
Conclusion
[124]
I can find no basis for denying the defendant protection from
irrecoverable legal costs.
Order
[125]
In the result I make the following order:
(i)
The plaintiff is ordered
to furnish security for the defendant’s
legal costs in the action.
(ii)
The form,
amount and manner of security
to be provided by the plaintiff shall
be determined by the Registrar on application by the defendant to
that office.
(iii)
In the event that the
plaintiff fails to provide security
as determined by the Registrar
within 20 days of the Registrar’s order or determination, the
action shall be stayed forthwith
and the defendant is granted leave
to apply on the same papers, amplified as necessary, for the
dismissal of the action.
(iv)
The plaintiff is to pay
the costs of the application,
including the costs occasioned by the
employment of two counsel.
SK Hassim
Acting Judge of the High
Court
Date of Hearing:
25, 26 and 27 November
2013
Date of order:
11
March 2014
Date of Judgment:
19 March
2014
Counsel for plaintiff:
Adv.
M Antonie SC
Counsel for defendant
Adv P Ginsburg SC
Adv
G Marriott
[1]
Boost Sports International Ltd.
[2]
The
precise words in the particulars of the claim are repeated.
[3]
To
Rob Fleming (“
Fleming
”)
during or about July and August 2006 and during or about September
2006, to Brian Ireland (“
Ireland
”),
who the plaintiff asserts is an employee of the defendant.
[4]
The
defendant disputes the alleged contact between the plaintiff’s
representative and Minnaar.
[5]
The
logo “
Boost
Sports International
”
appears on both documents.
[6]
Annexure “B” was
given to Fleming. It is a document consisting of 2 (two)
pages. The concept is introduced
in very broad terms.
It is described to be a concept that “…
combines
sport with interactive media and reality television to form a unique
product, where [the] fans are actively involved
in the management of
their team. Team management options are presented to the fan
base and decisions are implemented through
the majority vote of the
team's fans
”
.
There are a number of options through a number of agreed media
technologies for fans to vote on how a particular team
is to be
managed. The participation of the fans in the management of their
team in this fashion generates the financial support
that
professional sport needs. These are elaborated upon in
annexure “C”. This is borne out by the e-mail
communications.
[7]
Annexure “C”, the
plaintiff alleges was given to Ireland. It is a document
consisting of 27 (twenty-seven)
pages. The defendant denies
that this document was given to Ireland or to any of its employees
or representatives at any
time whatsoever.
[8]
I
cannot see how this can be construed as an undertaking. At
best for the plaintiff it was some sort of representation.
[9]
The
style in which this is pleaded, i.e. each statement within quotation
marks, suggests that each of these were separate statements.
[10]
An
international application published under the Patent Co-operation
Treaty.
[11]
The
international filing date was 17 August 2001. The applicant
for the patent was Liveplanet Inc. The inventor
was Bailey
Michael.
[12]
Harms:
Amler’s Precedents of Pleading (7
th
ed) p. 108 sets out the elements of information that is considered
confidential information. Information is considered
to be
confidential if: (i) it is useful- that is, if it involves and is
capable of application in trade or industry; (ii) objectively
determined it is not public knowledge or public property but is
known to a restricted number of persons; (iii) is objectively,
of
economic value to the plaintiff.”
[13]
O.
Mustad & Son v Dosen and Another
[1964]
1 W.L.R (HL).
[14]
Cf.
Alum-Phos (Pty) Ltd v C Spatz
[1997] 1 All SA 616
(W) at p. 623-624.
[15]
Mears
v Pretoria Estate and Market Co., Ltd
1907
TS 951
at 956.
[16]
Ecker
v Dean
1937 AD 254
at 259.
[17]
Western
Assurance Co v Caldwell’s Trustee
1918
AD 262.
[18]
Ecker
v Dean
1938 AD 102
at 110;
Giddey NO v
JC Barnard and Partners
[2006] ZACC 13
;
2007
(5) SA 525.
[19]
There
were statutes that pre-dated the Companies Act, 1926 which contained
similar provisions. Cf.
Brink
v Liquidator United farming Corporation of South Africa, Ltd
1913
CPD 371.
[20]
Hudson
& Son v London Trading
1930 WLD 288.
[21]
1998
(3) SA 1036 (SCA).
[22]
Fraser
v Lampert NO
1951
(4) SA 110
(T) which has been consistently applied
inter
alia
in the decision
of the full bench of the then Transvaal Provincial Division-
Trust
Bank van Afrika Bpk v Lief and Another
1963
(4) SA 752 (T).
[23]
Trust
Bank van Afrika Bpk v Lief and Another at 754H.
[24]
Trust
Bank van Afrika Bpk v Lief and Another at 754H-755A.
[25]
1998
(3) SA 1036
(SCA).
[26]
Cf.
Fraser
v Lampert NO
1951
(4) SA 110 (T).
[27]
At
p.1045 I.
[28]
At
p.1046 A-C.
[29]
2008(4)
SA 1 (SCA) at par 13. The principle is good notwithstanding
that the application for security was brought under
section 17
(2)
of the
Patents Act 57 of 1978
.
[30]
Cf.
Trust Bank van Afrika Bpk v Lief and Another
at p.755A,
Exploitative-en
Bellegingsmaatschappij Argonauten 11 BV and Another v Honig
[2012]
2 All SA 22
(SCA) at p. 21 par 20.
[31]
Zietsman
v Electronic Media Network and others
2008 (4) SA 1
(SCA) at par. 21.
[32]
At
p. 593E.
[33]
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;
Zietsman
v Electronic Media Network and Others
at
par. 4
[34]
Kini
Bay Village Association v Nelson Mandela Metropolitan Municipality
[2008] 4 All SA 50
SCA par 10. ( Also reported at 2009(2) SA.166 (SCA)).
[35]
Kini
Bay Village Association v Nelson Mandela Metropolitan Municipality
[2008] 4 All SA 50
(SCA) at par 10.
[36]
Van
Zyl v Euodia Trust (Edms) Bpk
1983
(3) SA 394
(T) at p. 396 G-H. It is no surprise that our
common law did not confer upon a defendant the right to demand
security
from
incola
plaintiff companies. In our common law an entity akin to a
company was non-existent. Our company law is derived
from
English law and is sourced in statute.
[37]
Ecker
v Dean
1938 AD 102
at 111.
[38]
2011(5)
SA 562 (GSJ).
[39]
2013
(1) SA 65 (GNP).
[40]
Mears
v Pretoria Estate Co Ltd at p.
956;
Saker & Co Ltd v
Grainger
1937 AD 223
at 226-227;
Magida v
Minister of Police
1987 (1) SA 1
(A) at 12A.
[41]
Shepstone
& Wylie and others v Geyser NO
at
p 1045 I-J.
[42]
Exploitative-en
Bellegingsmaatschappij Argonauten 11 BV and Another v Honig
at
p. 28.
[43]
At p.505E-506E.
[44]
Cf. Wallace NO v Rooibos Tea Control Board
1989 (1)
SA 137
(C) at 144.
[45]
2013 (2) SA 477
(FB).
[46]
2008 (3) SA 10 (C).
[47]
Alum-Phos (Pty) Ltd v C Spatz
[1997] All SA 616
(W)
at p. 623.
[48]
Alum-Phos (Pty) Ltd v C Spatz
at p. 624.
[49]
Annexure “B” to the particulars of
the
plaintiff’s claim.
[50]
The Law of Evidence: DT Zeffert
et al
(2003), 398.
[51]
2007 (5) 525 (CC).
[52]
Giddey
NO v J C Barnard and Partners
par.
7, p.530.
[53]
In Giddey NO v JC Barnard and Partners.
[54]
1997 (4) SA 908
(W).
[55]
Shepstone & Wylie and others v Geyser NO.
[56]
Shepstone and Wylie and Another v Geyser.