Brief Summary

Summary Judgment — Liquidated claim — Plaintiff sought summary judgment for R150 million against defendants for alleged misappropriation of shareholder investments — Defendants denied liability, attributing loss to excessive payments made by the plaintiff — Court held that the claim was for damages rather than a liquidated amount, as the calculation of loss required further evidence and resolution of factual disputes — Summary judgment refused, as the defendants disclosed a bona fide defence.

Comprehensive Summary

Summary of Judgment

1. Introduction

This judgment concerned two interlocutory applications arising from an action instituted in the High Court of South Africa, Northern Cape Division, Kimberley. The first application was an application for summary judgment brought by the plaintiff, Blue Chip Securities Limited, against three defendants for payment of R150 000 000, together with interest and costs, as claimed in Claim 4 of a simple summons. The second application was a Rule 47 security for costs application brought by the defendants against the plaintiff, seeking security in the amount of R1 280 000, alternatively an amount to be determined by the Registrar, and for the action to be stayed pending provision of security.

The parties were Blue Chip Securities Limited (plaintiff), a company incorporated in Ireland and described as a peregrine, and Fernando Manuel Freire Gaupo Garcao, John Edward Broido, and Gideon Andries Petrus Kotze (first to third defendants). The defendants were associated with two entities central to the dispute, namely New African Mining Limited AG (NAM) (a Swiss holding company, deregistered at the time of proceedings) and Meepo Investment Consortium (Pty) Ltd (a South African subsidiary, in liquidation).

Procedurally, the action was instituted on 4 November 2013. The defendants demanded security for costs shortly thereafter and later delivered a formal Rule 47 notice. The security application was filed on 24 April 2014, with affidavits filed out of time but condoned by agreement and in the interests of justice. The summary judgment application was opposed, and both applications were argued together because their factual and procedural contexts overlapped.

The dispute concerned an alleged loss of shareholder value said to have resulted from the defendants’ alleged wrongful and intentional misappropriation of shareholder investments and related conduct affecting NAM and Meepo, including allegations regarding removal of assets and documents. The court was required to determine whether the summary judgment mechanism was available for the claim as formulated, and whether the plaintiff, as a peregrine litigant, should be compelled to provide security for the defendants’ costs of the action.

2. Material Facts

Blue Chip Securities Limited was an Irish-incorporated company with its principal place of business in Dublin. It had been a shareholder of NAM, and it took cession of claims from NAM shareholders. NAM was, in turn, a shareholder of Meepo Investment Consortium (Pty) Ltd, which was later placed in liquidation. The joint venture venture structure described in the papers was established around 2007, aimed at developing mine properties, mining, and selling diamonds in the Northern Cape. The venture vehicle was NAM, intended to raise capital, and NAM would wholly own the South African subsidiary Meepo, which held rights in mineral properties.

It was common cause that the defendants were directors of NAM and Meepo. The plaintiff’s deponent, Mr Paul Ekon, was described as manager and financial advisor to the boards of the companies. The “substratum” of NAM and Meepo was said to have disappeared around April 2010, and Meepo was placed in liquidation in 2011.

The summary judgment application related only to Claim 4, which sought R150 million said to represent “complete loss of shareholder value” allegedly caused by the defendants’ wrongful and intentional misappropriation of shareholder investment in NAM and/or Meepo, the consequent liquidation of Meepo as a foreseeable consequence, and alleged failures to account and alleged unlawful removal of Meepo assets and removal of a diamond register from a mine sort house.

The court recorded that, in opposing summary judgment, the defendants did not challenge the plaintiff’s allegation that R150 million had been lost, but they denied responsibility and liability. They attributed the demise of NAM and Meepo to excessive payments and commission said to have been paid to the plaintiff on Ekon’s instructions, allegedly benefitting Ekon or his associates, and contended that the defendants were being used as scapegoats.

On the security for costs application, it was common cause that the plaintiff was a peregrine company and that it did not own unencumbered immovable property in South Africa. The defendants alleged that the plaintiff had not disclosed financial statements or indicated whether funds had been set aside to prosecute the action, that its assets and liabilities were unknown, and that there was a substantial risk the defendants would be unable to recover costs, including because enforcement would have to occur abroad.

The plaintiff resisted security primarily on the basis that the defendants had not shown inability to pay, that security would retard a claim with reasonable prospects, and that the litigation involved public importance connected to investor confidence and alleged commercial misconduct. The plaintiff also suggested the security application was timed to impede summary judgment, but the court found that demands for security preceded the summary judgment application and that the Registrar had indicated a substantive application should be filed.

A further procedural fact material to the court’s approach was that the defendants, in their founding affidavit for security, incorporated by reference their answering affidavit in the summary judgment application. This prompted the plaintiff to file material that would otherwise be an impermissible reply in summary judgment proceedings. The court treated that material as relevant only to the security application.

3. Legal Issues

The first central legal question was whether Claim 4, as formulated in the simple summons, constituted a claim for a liquidated amount in money within the meaning of Rule 32 such that summary judgment could competently be granted. This was principally a question of law, but it depended materially on the application of the legal test for “liquidated amount” to the way the claim was pleaded and to whether its quantification could be promptly and readily ascertained.

The second question was whether the defendants had disclosed sufficient material to show that the plaintiff, as a peregrine, should be ordered to furnish security for costs under Rule 47 and the applicable common-law principles. This issue involved a discretionary judicial evaluation requiring the court to balance fairness to both parties, including the injustice of preventing a legitimate claim from being pursued against the injustice of exposing defendants to unrecoverable costs.

Subsidiary issues included the consequences of Rule 32(4) (the impermissibility of a replying affidavit in summary judgment), the appropriate costs order under Rule 32(9)(a) if summary judgment was improperly invoked, and the practical determination of the amount and form of security.

4. Court’s Reasoning

Summary judgment

The court began by reaffirming the procedural constraint in Rule 32(4) that it is impermissible for a plaintiff to file a replying affidavit to a defendant’s summary judgment answering affidavit. Where replying material had been filed because the defendants incorporated their summary judgment affidavit into the security application, the court indicated that such reply could be considered only for the purposes of security for costs, and not to advance the summary judgment application.

Turning to the character of Claim 4, the court approached the matter through the settled principle that a claim is not a liquidated amount in money unless it is based on an obligation to pay an agreed sum or is formulated in a manner enabling easy and prompt ascertainment or mere calculation. The court relied on the approach in Neves Builders & Decorators v De la Cour 1985 (1) SA 540 (C), including the proposition that difficulty or protraction in proving the claim may weigh against treating it as liquidated, and that the line between liquidated and unliquidated depends on a judicial discretion exercised on the facts.

On the pleadings before it, the court concluded that the claim was “clearly one for damages” arising from an alleged diminution of patrimony, namely loss of shareholder value said to have been caused by misappropriation and related misconduct. Although the judgment accepted that in some circumstances a damages claim (including theft damages) may be sufficiently fixed and definite to qualify as a liquidated demand, the court held that this case did not meet that standard because the structure of Claim 4 did not disclose how the “complete loss of shareholder value” was calculated. It followed that further evidence would be required to substantiate quantification.

The court also treated as significant that the damage-causing event itself, namely the alleged wrongful and intentional misappropriation, was in dispute. The existence of factual disputes of this kind was regarded as a matter ordinarily suitable for trial rather than summary judgment. In this respect, the court referred to Maharaj v Barclays National Bank Ltd 1976 (1) SA 418 (A) and the summary judgment test requiring a defendant to disclose fully the nature and grounds of the defence and the material facts, and that the court does not resolve probabilities in summary judgment.

Even aside from the defendants’ defence, the court emphasised that summary judgment is a plaintiff-oriented procedure and it is pivotal that the claim falls within the remedy’s ambit. The court accepted the principle, drawn from the cited practical guide, that defects in a plaintiff’s presentation that are not merely technical may justify refusal of summary judgment, and a court is bound to the claim as formulated.

The court’s conclusion that the claim was not capable of expeditious quantification was reinforced by the plaintiff’s own attempt (in impermissible replying material) to recharacterise the claim as being “in essence” repayment of an amount invested or lent, and, alternatively, to suggest that the exact extent would be determinable after other claims were dealt with. The court treated these statements as demonstrating that the claim, as then presented, was not readily ascertainable for summary judgment purposes.

On costs, the defendants sought punitive costs and a stay of the action until taxed costs were paid, invoking Rule 32(9)(a). The court accepted that, although it had found summary judgment should not have been invoked, it did not consider the plaintiff’s invocation of the procedure to have been entirely baseless, because damages claims can in certain circumstances satisfy summary judgment requirements. The court therefore declined a special costs order and applied the ordinary principle that costs follow success on the party-and-party scale.

Security for costs

In addressing security for costs, the court treated the matter as one of judicial discretion, to be exercised without predisposition either to granting or refusing security, and with due regard to the circumstances and to equity and fairness to both parties. The court relied on Magida v Minister of Police 1987 (1) SA 1 (A) for the modern articulation of the common-law approach to security for costs against peregrini, including the balancing exercise and the fact that a peregrinus’s alleged inability to provide security can be considered but does not automatically absolve them.

The court rejected the plaintiff’s suggestion that the security application was a tactical move to impede summary judgment, finding that demands for security preceded the summary judgment application and that the Registrar had indicated that a substantive application should be brought. The court found no basis on the papers to infer mala fides in the timing of the security application.

The court accepted that while there are authorities suggesting courts do not enquire into merits on security applications, the rule is not inflexible, referring to Exploitatie-en Beleggingsmaatschappij Argonauten 11 BV and Another v Honig 2012 (1) SA 247 (SCA). Without deciding the merits of the main dispute, the court considered it relevant that the plaintiff’s claim did not appear vexatious, that it appeared legitimate, and that it raised issues of public importance. The court also noted, based on reference to an earlier Northern Cape decision involving Mr Garcao and a section 417 enquiry, that not all defendants appeared as “unblemished” as alleged.

However, these considerations did not displace the central difficulties raised by the defendants: the plaintiff was a peregrine, had no unencumbered immovable property in South Africa, and had not made adequate disclosure of its financial position. The court regarded the plaintiff’s stance—that its assets and liabilities were not germane—as unhelpful and inconsistent with the need for the court to be placed in possession of relevant information in order to balance the competing risks.

In this regard, the court drew on the Constitutional Court’s explanation in Giddey NO v JC Barnard and Partners [2006] ZACC 13; 2007 (5) SA 525 (CC) that the applicant for security must show a probability that the plaintiff will be unable to pay costs, and the respondent must show that security may prevent pursuit of the claim and must indicate the nature and importance of the litigation so the court can balance the interests properly. The court also referred to Kini Bay Village Association v Nelson Mandela Metropolitan Municipality and Others [2008] ZASCA 66; 2009 (2) SA 166 (SCA) for the inference that may arise from deliberate reticence regarding funding, and to Argonauten v Honig for the principle that if financial status is relied on to avoid security, a peregrinus must take the court into its confidence and provide sufficient disclosure, commonly by way of a balance sheet.

Applying these principles, the court found that the plaintiff had not vindicated itself by providing financial statements or demonstrating that it had funds available to protect the defendants’ costs position, and that nothing had been placed before the court to show that ordering security would cause hardship or retard the plaintiff’s claim in a meaningful way. The court held that the fact that security might end litigation is not, without more, sufficient to refuse security, but is one factor among many in the balancing exercise.

The court also held that the contention that the defendants’ alleged conduct caused the plaintiff’s loss could not be treated as decisive against ordering security. It relied on Shepstone & Wylie and Others v Geyser NO 1998 (3) SA 1036 (SCA) for the proposition that alleged director misconduct may be relevant but must be weighed against factors such as difficulty of proof and the risk of unrecoverable costs.

On the amount of security, the court accepted that the best evidence is ordinarily derived from legal experts’ estimates, with reference to Nederlandsche Z.A. Hypotheek Bank v Mears 1913 TPD 704 and Avenue Shipping Co Ltd v South African Railways and Harbours 1936 CPD 486. Because only a disputed rough estimate was provided, the court determined that the Registrar was best positioned to determine the reasonable amount, form, and manner of security.

5. Outcome and Relief

The court dismissed the plaintiff’s application for summary judgment with costs on a party-and-party scale. The defendants were granted leave to defend, and further pleadings were directed to proceed as if appearance to defend had been entered on the date of the order.

The court granted the defendants’ application for security for costs and ordered the plaintiff to furnish security for the defendants’ legal costs in the action. The form, amount, and manner of security were directed to be determined by the Registrar upon application by the defendants. The main action was stayed forthwith pending the furnishing of security to the satisfaction of the Registrar.

The plaintiff was ordered to pay the costs of the Rule 47(3) application.

Cases Cited

Neves Builders & Decorators v De la Cour 1985 (1) SA 540 (C); International Hardware Corporation (Rhod) (Pvt.) Ltd v Appleton 1971 (1) SA 404 (R); Colrod Motors (Pty) Ltd v Bhula 1976 (3) SA 836 (W); Maharaj v Barclays National Bank Ltd 1976 (1) SA 418 (A); Magida v Minister of Police 1987 (1) SA 1 (A); Saker & Co Ltd v Grainger 1937 AD 223; Exploitatie-en Beleggingsmaatschappij Argonauten 11 BV and Another v Honig 2012 (1) SA 247 (SCA); Vumba Intertrade CC v Geometric Intertrade CC 2001 (2) SA 1068 (W); FirstRand Bank Ltd v Pather 2005 (4) SA 429 (N); Giddey NO v JC Barnard and Partners [2006] ZACC 13; 2007 (5) SA 525 (CC); Kini Bay Village Association v Nelson Mandela Metropolitan Municipality and Others [2008] ZASCA 66; 2009 (2) SA 166 (SCA); Shepstone & Wylie and Others v Geyser NO 1998 (3) SA 1036 (SCA); Lappeman Diamond Cutting Works (Pty) Ltd v MIB Group (Pty) Ltd (No 1) 1997 (4) SA 908 (W); Stellenbosch Farmers’ Winery Ltd v Stellenvale Winery (Pty) Ltd 1957 (4) SA 234 (C); Pitelli v Everton Gardens Projects CC 2010 (5) SA 171 (SCA); Nederlandsche Z.A. Hypotheek Bank v Mears 1913 TPD 704; Avenue Shipping Co Ltd v South African Railways and Harbours 1936 CPD 486; Whelan v Oosthuizen 1937 TPD 304; Lester Investments (Pty) Ltd v Narshi 1951 (2) SA 464 (C); Ford Brothers v Clayton 1906 TS 205; Consolidated Fish Distributors 1966 (4) SA 427 (C); Botha v W Swanson & Co 1968 (2) PH F85 (C).

Garcao v The Master of the Northern Cape High Court and Others Case No: 185/2013 (Northern Cape Division, Kimberley, 8 August 2014) was also referred to in argument and quoted in the judgment.

Legislation Cited

Companies Act 61 of 1973 (repealed), section 13; Companies Act 61 of 1973, section 417; Close Corporations Act 69 of 1984, section 8; Companies Act 71 of 2008.

Rules of Court Cited

Uniform Rule 32(4); Uniform Rule 32(9)(a); Uniform Rule 47; Uniform Rule 47(3).

Held

The court held that Claim 4 as formulated was, on its face, a claim for damages (loss of shareholder value) and was not shown to be a liquidated amount in money capable of prompt ascertainment or mere calculation for purposes of summary judgment. The court accordingly refused summary judgment and granted the defendants leave to defend.

The court further held that, given the plaintiff’s status as a peregrine without unencumbered immovable property in South Africa, the risk and inconvenience to the defendants of seeking to enforce a costs order abroad, and the plaintiff’s failure to place adequate information about its financial position before the court or to show hardship if security were ordered, the defendants had made out a case for security for costs. The action was stayed pending provision of security, with the amount and form to be determined by the Registrar.

LEGAL PRINCIPLES

A claim qualifies as a liquidated amount in money for summary judgment only where it is based on an obligation to pay an agreed sum or is formulated so that the amount is capable of easy and prompt ascertainment or mere calculation, and the likely protraction or difficulty of proof may legitimately influence that assessment in the court’s discretion.

Although certain damages claims may, in principle, be treated as liquidated where the amount is fixed, certain, and definite, a plaintiff must still demonstrate that the quantum is capable of expeditious determination on the pleadings and admissible summary judgment material; where the structure of the claim does not disclose how the amount is calculated, and material aspects of the damage-causing event are disputed, summary judgment is inappropriate.

In summary judgment proceedings, where a defence is based on facts, the court does not decide probabilities but asks whether the defendant has fully disclosed the nature and grounds of the defence and the material facts, and whether the disclosed defence appears bona fide and good in law; factual disputes of substance are generally for trial.

Security for costs against a peregrine is a discretionary matter requiring a balancing of potential injustice to the plaintiff (if security prevents pursuit of a legitimate claim) against potential injustice to the defendant (if a successful defence yields an unrecoverable costs order). The court must be provided with sufficient information to perform that balance, and where a peregrine relies on inability to furnish security, adequate disclosure of financial position is ordinarily required to enable proper exercise of discretion.

An allegation that the defendants’ wrongdoing caused the plaintiff’s impecuniosity or loss is a relevant factor but is not necessarily decisive against ordering security; it must be weighed with other factors such as the difficulty of proof, likely scale of costs, and the defendants’ exposure to unrecoverable costs, including the practical burdens of enforcing a costs order abroad.

Blue Chip Securities Limited v Garcao and Others (627/2014) [2014] ZANCHC 14 (7 November 2014)