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[2014] ZAFSHC 210
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Bekker and Another v Stewart N.O and Another (A263/2013) [2014] ZAFSHC 210 (10 December 2014)
IN THE HIGH COURT OF
SOUTH AFRICA
FREE STATE DIVISION:
BLOEMFONTEIN
Appeal Number: A263/2013
DATE: 10 DECEMBER 2014
In the matter between:
THELMA
BEKKER
....................................................................................
Appellant
JOHAN
BEZUIDENHOUT
........................................................................
Appellant
And
MICHAEL LAWRENCE STEWART
N.O
......................................
1st
Respondent
WAHIDA PARKER
N.O
..................................................................
2nd
Respondent
(In their capacity as the duly
appointed joint trustees
of the consolidated insolvent estate
of Graeme Minne and
Carolina Frederika Minne)
CORAM: EBRAHIM,J et JORDAAN, J et,
MOENG, AJ
JUDGMENT: JORDAAN, J
HEARD ON: 10 NOVEMBER 2014
DELIVERED ON:
[1] The appellant’s, with leave
of the Court a quo appeals against certain orders granted by the
Court a quo, namely the order
compelling the defendants to pay the
qualifying costs of the expert witness Spies, including the
preparation of his report and
attendance on 6th of November 2012 and
the order compelling defendants to pay interest on the amounts of the
judgment from issue
of summons.
[2] The respondents filed a cross
appeal with leave of the Trial court against the judgment to the
effect that each party is to
pay his own costs.
[3] Initially the respondents to which
I will refer as plaintiffs, issued summons against various defendants
including the first
and second appellant to whom I will refer to as
the first and third defendants.
[4] The different cases were
consolidated so that there were five defendants in the consolidated
matter. It is only in respect
of the first and third defendants that
this appeal is concerned with.
[5] The claim of the plaintiffs as
trustees in the insolvent estate of the two insolvents, were based on
Section 26(1)(a) and (b),
alternatively
Section 30
of the
Insolvency
Act 24 of 1936
. As will later appear, the allegations were that the
insolvents ran an illegal Ponz-scheme / pyramid scheme in which the
various
defendants invested money. It was alleged that the
defendants received payments out of the scheme which were to be set
aside in
terms of the aforesaid provisions of the
Insolvency Act, for
the benefit of the insolvents' estates.
[6] The defendants defended the matters
on the basis that they entered into lawful agreements with the
insolvents whereby they loaned
money to the insolvents and received
interest from the insolvents. They denied that it was an illegal
scheme or dispositions without
value or dispositions made with the
intention of preferring one creditor above others. They also filed
counter claims in which
they alleged that, over and above the
interest they received, they were still owed the capital amount of
the loans which they claimed,
with interest, in the counter claim.
[7] The costs of the expert witness: J
Spies;
Mr Spies is a qualified chartered
accountant specializing in forensic accounting investigation. He was
mandated by plaintiffs to
do a forensic analyses of the flow of funds
and determine whether the insolvents were insolvent during the period
that the scheme
was conducted and if so, for which part of that
period. He was also asked to investigate the scheme with the view of
confirming
that it amounted to a so-called Ponzi-scheme. For that
purpose he inter alia had to determine who invested which amount into
the
scheme, which amounts were paid to each of the investors and in
the result, who of those investors would be liable to the estate
and
in what amount.
[8] It goes without saying that his
services and in particular his report, served the interest of the
estate as a whole and of the
creditors and debtors involved. It was
necessary, inter alia, to enable the plaintiffs to identify and
recover from those investors
who received more than their investments
in accordance with the principles established in the so-called
Krion-matter, (Fourie N.O.
& Others v Edeling N.O. & Others
2005 (4) ALL SA 393
(SCA) at page 402).
[9] In regard to his fees and costs
including the preparation of his report the Court dealt with it as
follows; “lastly,
in my view, the appointment of Spies was
necessary. These fraudulent pyramid schemes come in different forms.
Trustees appointed
to recoup the moneys from investors in pyramid
schemes are not experts in pyramid schemes. The schemes need to be
thoroughly investigated
and researched before the trustee can
confidently say they have a claim against anyone. The interrogation
against the third defendant
was but part of an investigation which
still needed to be considered by an expert in this field in order to
give the plaintiffs
sound advice on what step(s) to take. …
Furthermore, based on the defendants not being prepared to settle the
matter soon,
Spies had to be available for dates set down for trial.
Had, the third defendant, for example, not taken so long to settle
the
matter, Spies would have been released from the committed trial
dates as early as the pre-trial conference on the 12th of September
2012. It is only fair that the defendants bear these costs, ie costs
of preparing the report and his probable attendance for one
day on a
party to party scale.”
[10] This order in effect meant that
the three defendants were to pay the total costs pertaining to
Spies’s report, in total
disregard of the fact that the same
report served a much wider purpose and, in result enable the
plaintiffs to issue summons for
the recovery of debts against 240
different defendants. It appears that plaintiffs' counsel during the
trial even conceded that
the defendants in this matter should only be
held liable for an apportioned share of the costs of the report,
namely one two hundred
and fortieth.
[11] The order is so glaringly improper
that I have great doubt whether the Court a quo realized what the
impact of that order really
was. There is no doubt that that part of
the order has to be set aside and a more appropriate order
substituted in its place.
[12] As far as the qualifying costs of
the expert is concerned, most of it would have consisted of preparing
his report, which has
been dealt with already. His consultation with
legal representatives for the purposes of testifying in Court,
however, also forms
part of qualifying costs and should be allowed
insofar as it was necessary. In this regard the first defendant
conceded her liability
already on the 4th of October 2012, more than
a month before the trial. It was only the third defendant who still
disputed his
liability until the 5th of November 2012, the day before
the trial, when he also conceded his liability. At that stage, the
attendance
of Spies would have been already arranged and
consultations with him held.
[13] In view of that, only the third
defendant ought to be held liable for his attendance and qualifying
fees in respect of pre-trial
consultations.
CROSS APPEAL
[14] Notwithstanding the Trial court's
order in regards to the costs pertaining to the expert witness Spies,
for the rest of the
costs, the Court order each party to pay its own
costs.
[15] It is trite law that a Trial court
has a discretion in awarding an appropriate order as to costs. Being
a discretionary matter,
a Court of Appeal will not likely interfere
with the exercise of such discretion. To justify interferences, it
must be showed
that the Trial court has not exercised its discretion
judicially.
[16] To decide whether the trial court
has exercised its discretion judicially, all the relevant
circumstances pertaining to the
question of costs should be
considered.
[17] As a starting point the general
rule is that a successful party should be awarded his costs. That
rule should only be deviated
from in special circumstances or good
grounds justifying such departure.
See: Joubert t/a Wilcon v Beacham &
Another
1996 (1) SA 500
(C) as at 502 d – f. Letsitele Stores
(Pty) Ltd v Roets and Others
1995 (4) SA 579
(T) at 579 h – 580
a.
[18] I have already preluded to the
broad background of the plaintiffs’ claims being based on
either
section 26
or
30
of the
Insolvency Act. It
was also based on
the allegations that the insolvents conducted an illegal pyramid
scheme in contravention of the Banks' Act and
the Consumer Affairs
(Unfair Business Practice) Act no 71 of 1988 and that it was declared
unlawful. The plaintiffs also alleged
that the insolvents, through
the means of the unlawful scheme, made dispositions to the defendants
which constituted disposition
without value alternatively made in
insolvent circumstances with the intention to prefer some creditors
above others.
[19] The defendants denied almost all
of the plaintiffs' allegations and filed a counter claim wherein they
alleged that they entered
into a lawful loan agreement with the
insolvents, loaned certain capital amounts to the insolvents,
received interest from the
insolvents but were still entitled to the
capital amounts of the loans which were not repaid to them.
[20] As the pleading stood, the
plaintiffs thus had to proof, inter alia:
1.The insolvency of the insolvents at
the time of the dispositions.
2.The illegality of the scheme.
3.The amounts of the dispositions paid
to the defendants.
4.That the payments were dispositions
made not for value or with the intention to prefer some creditors.
[21] The defendants had to prove their
counter claim to the effect that they entered into lawful loan
agreements with the insolvents,
that the amounts received were
received as lawful interest payments and that the capital amounts
where still due and payable to
them.
[22] On the 12th of September 2012, at
a pre-trial conference, the plaintiff’s recorded that they
would only persist with
their claims in accordance with the
principles set out in the Krion (supra) matter and seek orders for
payment of the amounts they
alleged each defendant received in excess
of their capital investment, with costs. The minutes also record
that no settlement
could be reached.
[23] In response to the above the first
defendant on the 4th of October filed a response intimating that the
first defendant agree
that plaintiffs are entitled to orders for
payments of the amounts recorded by plaintiffs, being the balance
received in excess
of the investments. At that stage the third
defendant still maintained that he received less than his investment
and is entitled
to payment from plaintiffs in the amount of R164
000,00 with costs.
[24] On the 5th of November, the third
defendant in effect withdrew his stance and admitted to the amounts
as recorded by plaintiffs
in the Rule 37 minutes. Thus the first and
third defendants in effect abandoned their counter claims and
consented to judgment
in the amounts recorded by plaintiff.
[25] The only remaining issue therefore
at that stage was the costs of suit. Plaintiffs maintained that they
are entitled to costs
and defendants stance was that each party
should pay its own costs, relying on a judgment in the Eastern Cape
in a similar matter
by the Honourable Revelas J.
[26] The trial court dealt with the
question of costs as follows;
“(22) When one applies the
principals set out in FOURIE vs EDELING, the plaintiffs where
entitled to claim and receive back
moneys from defendants as follows;
… first defendant: R30 000,00. … third defendant: R136
000,00.
(23) Yet in their summons the
plaintiffs claimed R536 000,00 from the third defendant without
making any reference to the amount
of R400 000,00 which he had
invested originally. In other words the plaintiffs claimed what the
third defendant had invested (R400
000,00) plus what he had received
in return (R136 000,00).
(24) It is clear that when the
plaintiff instituted these proceedings against the defendants they
were themselves, not certain of
the amounts they were entitled to
claim. They thus claimed all the moneys, ie the invested amount plus
what the defendants had
received in return.
(25) In my view, had the plaintiffs not
insisted on the return of all the moneys, but only the moneys the
defendants received in
addition to the investment, in line with the
FOURIE vs EDELING decision, the defendants would not have contested
the plaintiffs'
case as vigorously as they did and correctly so.
(26) The negotiations that were
undertaken during the pre-trial meetings indicated that the parties
only came to a common understanding
on 12th September 2012 during the
pre-trial conference. The plaintiffs' case was not as clear and
crisp as on the day on which
the first, second and other investors
accepted their responsibility and undertook to return what was due to
the estate. Even in
the third defendant's case, the plaintiffs were
persisting with their claim for R536 000,00 instead of claiming only
the returns
regardless of his counter claim to that effect.
(27) The general rule applicable in
civil matters is that the successful party should be awarded its
costs except in special circumstances.
It is trite law that the
award of costs is a matter which falls within the Court's discretion,
which must be exercised judiciously
and with due regard to the facts
of each case and fairness to the parties.
(28) It is correct that the matter
became settled but to the limited extends as set out in paragraph [9]
above. This is where this
matter differs from that decided by
Revelas J in STEWART N.O. MICHAEL LAWRENCE AND ANOTHER vs PE HENRY &
4 OTHERS… .
In the Revelas matter the settlement was an
outright settlement between the parties. In this case the
settlements where reached
piece-meal until the day of the
commencement of the trial on 6 November 2012. The argument that, at
the end of day, the defendants
were successful in there counter claim
cannot take away the reality that the plaintiffs had to come to Court
to get the estate's
money back. In the same breath, the defendants
had to come to Court to protect their rights as plaintiffs made
claims contrary
to the FOURIE vs EDELING decision. In my view both
parties were relentless and not prepared to make concessions as and
when the
correct information became available. Both are to blame for
this protracted litigation. This is a classic case where each party
must bear its own costs.
(29) The issue of the counter claims as
well as the costs related thereto fell by the sideway as a result of
the settlement set
out above in paragraph [9].”
[27] One must immediately note that the
trial court correctly found that the reality is that plaintiffs had
to come to Court to
get the estate’s money back. I, however,
disagree that defendants also had to come to Court to protect their
rights because
of the fact that the plaintiffs claimed more than they
were entitled to.
[28] This argument is based on the
one-sided view that it was the plaintiffs’ persistence in
claiming more than they were
entitled to until the 12th of September
2012 which lead to the matter not being disposed of earlier. It
loses sight of the fact
that:
1.Defendants, from the outset,
persisted in their denial of the illegality of the scheme.
2.They persisted in their stance that
the loans were lawful, that they could retain what they received and
in addition claim payment
of the capital amounts of the loans by way
of the counter claims.
3.They never availed themselves of the
opportunity to saveguard themselves against a cost order by making
use of the process of
tender in accordance with the principles of the
Krion (supra) matter which were open to them.
4.In effect they were unsuccessful in
their counterclaims and their defence.
5.The mere fact that the plaintiffs
succeeded in a lesser amount that originally claimed is not a
sufficient ground to disentitle
them to their costs.
See: Letsitele Stores (Pty) Ltd v Roets
(supra) at 582 page 582 e – h Joubert t/a Wilcon v Beacham &
Another (supra) at
502 e – f Jonker v Schultz
2002 (2) SA 360
(0) at 366 e – g.
[29] In my view, on the totality of
facts, the trial court did not exercise its discretion judicially and
for just reasons. The
plaintiffs were successful in all material
respects, although to a lesser amount than originally claimed. They
should have been
awarded their costs.
[30] As far as the first defendant is
concerned, it was argued that the first defendant's cost should only
be on the Magistrate's
Court scale since the claim against the first
defendant fell within the jurisdiction of that Court. The counter
side of that,
however, is that there was also a claim in terms of
section 30 of the
Insolvency Act for
an amount exceeding the
Magistrate's Court jurisdiction, although not proceeded with. What
is more, five different matters have
been consolidated so that the
first defendant would in effect only be liable for a fifth of the
costs of the consolidated action.
The matter was of sufficient
importance to have been heard in the High Court and with the
advantage of having all five matters
adjudicated upon by one court at
the same time. I am therefore not convinced that the costs in regard
of the first defendant should
be limited to magistrate court's scale.
[31] The respondents proposed that the
costs order should be altered to compel the first and third
defendants to pay the costs of
the matter jointly and severally. I
am of the view that that would not be in accordance with justice. In
so far as the orders
granted by the Court a quo did not differentiate
between the different cases that made up the consolidated matters and
therefore
the different defendants and in insofar as those orders are
altered in this decision or set aside by this Court, it will only
relate
to the applicable cases of the first and third defendants,
namely case 2349/2011 in respect of the first defendant and case
3008/2011
in respect of the third defendant.
[32] As far as the costs of appeal is
concerned, the appellants are substantially successful in their
appeal and the respondents
in their cross appeal. I am of the view
that, in those circumstances, each party should bear their own costs
of appeal.
[33] In conclusion, I am of the view
that the following orders should be granted:
A. The appeal and cross appeal succeeds
to the extent set out in the following paragraphs.
B. 1. In respect of case number
2349/2011 and 3008/2011, paragraph 1, 3 and 4 of the orders of the
Court a quo are set aside, and
substituted with the following:
2. In case 2349/2011;
2.1 Defendant is ordered to pay
plaintiff the sum of R30 000,00 with interest at the legal rate
calculated from the 4th of October
2012.
2.2 Defendant is ordered to pay the
costs of suit which will include one 240th of the costs pertaining to
the report of the expert
witness, Mr J Spies.
3. In case 3008/2011;
3.1 Defendant is ordered to pay
plaintiffs the sum of R136 000.00 with interest at the legal rate
calculated from the 5th of November
2012.
3.2 Defendant is ordered to pay the
costs of suit, which will include one 240th of the costs pertaining
to the report of the expert
witness, J Spies, as well as his
additional qualifying fees and attendance at Court for one day.
4. Each party is to bear its own costs
of appeal.
A. F. JORDAAN, J
I concur, and it is ordered
accordingly.
S. EBRAHIM, J
I concur.
L. B. J. MOENG, AJ
On behalf of the appellant: Adv.
W.G. Pretorius
Instructed by:
Christo Dippenaar Attorneys
BLOEMFONTEIN
On behalf of the respondent: Adv. B.
Pretorius
Instructed by: Honey Attornets
BLOEMFONTEIN