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[2011] ZAFSHC 37
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Fourways Precinct (Pty) Ltd v Signal Capital Securities (Pty) Ltd in re: Signal Capital and Securities v Fourways Precinct (Pty) Ltd [2011] ZAFSHC 37 (24 February 2011)
FREE STATE HIGH
COURT, BLOEMFONTEIN
REPUBLIC OF SOUTH
AFRICA
Case No. : 1565/2008
In the matter between:-
FOURWAYS PRECINCT
(PTY) LTD
….........................................
Applicant
and
SIGNAL CAPITAL AND
SECURITIES (PTY) LTD
…...............
Respondent
IN RE:
SIGNAL CAPITAL AND
SECURITIES
….........................................
Plaintiff
and
FOURWAYS PRECINCT
(PTY) LTD
….......................................
Defendant
_______________________________________________________
HEARD ON:
10 FEBRUARY 2011
_______________________________________________________
JUDGMENT BY:
HANCKE, J
_______________________________________________________
DELIVERED:
24 FEBRUARY 2011
_______________________________________________________
[1] The applicant (the
defendant in the main proceedings pending in this court) has launched
an application in terms of the provisions
of section 13 of the
Companies Act, 61 of 1973, as amended (“the said Act”),
read together with Rule 47 of the Uniform
Rules of Court, whereby the
applicant seeks relief in terms of which the respondent (the
plaintiff in the main proceedings) is
ordered to furnish security for
the defendant’s legal costs in the main proceedings.
[2] It appears from the
papers that the respondent instituted a claim for damages in the
amount of R1,2 billion, allegedly suffered
as a result of breach of
contract against the applicant. The summons was issued on 31 March
2008, the claim is defended and the
main action has been enrolled for
hearing during the period 9 - 27 May 2011.
[3] On 12 July 2010 a
notice in terms of Rule 47(1) was served on the respondent’s
attorneys. The grounds, upon which the
demand for security was based,
were set out in the said notice. It was contended that there is
reason to believe that the respondent
will be unable to pay any
adverse costs order,
inter alia
, on the following grounds:
1. A deeds search
revealed that the respondent has no immovable property within the
Republic of South Africa registered in its name;
2. The respondent does
not conduct its business from the address chosen as
domicilium
citandi et executandi
, to wit 9 Queen Street, Durbanville. This
is also the respondent’s registered address.
3. The respondent has no
other place of business.
4. The respondent does
not have any employees in its employ.
5. The respondent does in
fact not conduct any business.
6. Despite being so
requested by the applicant, the respondent refuses to produce copies
of its balance sheet and audited financial
statements for the periods
February 2004 until January 2010.
[4] The respondent’s
then attorneys of record, Messrs Bowman Gilfillan Incorporated, wrote
a letter to the applicant’s
attorneys on 26 July 2010 and
conceded the respondent’s liability to furnish security. The
attorneys stated,
inter alia
, the following in their letter:
“
2. Whilst
our client concedes that it must furnish your client with security
for costs in the above matter, our client contests
the quantum of
securities sought by your client. The amount sought in the sum of R7
233 902,60 is, in our view, excessive.
3. We propose that your client
attempts to having a
pro forma
bill of costs prepared for our
consideration. Once we have had a reasonable opportunity to consider
your client’s
pro forma
bill of costs, our respective
clients can try and reach agreement on the quantum of security to be
furnished failing which the
parties may request that the registrar
determines the quantum of security to be furnished by our client.
4. In the circumstances, since our
client has conceded the obligation to furnish security, an
application to compel the giving of
security would not need to be
brought by your client.”
[5] On 14 October 2010
the registrar determined that the respondent should provide security
in the amount of R3,05 million. The
applicant’s attorney then
demanded that security, as determined by the registrar, be furnished
within ten days in terms of
a letter which was addressed to the
respondent’s Bloemfontein attorneys, Messrs McIntyre & Van
der Post, on 8 November
2010.
[6] There was no reply to
the letter of demand within the stipulated period and the respondent
alleges that the reason for this
is that:
“
it was
during this time that the respondent was changing their attorney of
record.”
However, it appears that
Messrs McIntyre & Van der Post had been on record since inception
of the action.
[7] In its opposing
affidavit the respondent raises various defences. In argument before
this court, Mr. Ploos van Amstel SC, on
behalf of the respondent,
limited the defences to the following:
1. Section 13 of the
Companies Act, 1973, is not applicable to the respondent,
alternatively if applicable, it is unconstitutional;
2. The respondent was
entitled to withdraw the said concession that it was liable to
furnish security;
3. The respondent
requests in a “counter application” that the amount of
security be reviewed.
MERITS
[8] Rule 47(1) provides
that:
“
A party
entitled and desiring to demand security for costs from another
shall, as soon as practicable after the commencement of
proceedings,
deliver a notice setting forth the grounds upon which such security
is claimed.”
[9] It is clear that Rule
47 deals with procedural aspects. It does not set out upon what basis
a party would be entitled to demand
security. Apart from that,
recourse must be had to the common law or statutory law.
[10] In this regard the
wording of section 13 of the said Act is of importance, which reads
as follows:
“
Where a
company or other body corporate is plaintiff or applicant in any
legal proceedings, the Court may at any stage, if it appears
by
credible testimony that there is reason to believe that the company
or body corporate ..... will be unable to pay the costs
of the
defendant or respondent if successful in his defence, require
sufficient security to be given for those costs and may stay
all
proceedings till the security is given.”
[11] The crux of the
matter is whether the applicant has contracted with a company or a
partnership. The agreement of sale is therefore
the foundation of the
present action. The parties are described in clause 1 of the Deed of
Sale as “Fourways Precinct (Pty)
Ltd, ... a private company
with limited liability ...” and “Signal Capital and
Securities (Pty) Ltd, ... a private
company with limited liability
(being the general partner of the Plexus Private Property Fund No 1
En Commandite
partnership) ... herein represented by Prieur du
Plessis (in his capacity as a director of a company duly authorised
hereto by
resolution of the directors).”
[12] In the particulars
of claim the citation as pleaded in paragraph [1] reads as follows:
“
The
plaintiff is Signal Capital & Securities (Proprietary) Ltd, a
company duly registered with limited liability according to
South
African law (being the General Partner of the Plexus Private Property
Fund No 1
En
Commandite
Partnership) with chosen
domicilium
citandi et executandi
in
terms of the Deed of Sale referred to below at 9 Queen Street,
Durbanville, Western Cape.”
[13]
The parties to the Deed of Sale are similarly described, for example,
respondent is “represented by
Prieur du Plessis (in his
capacity as a director of the company duly authorised hereto by
resolution of the directors).”
[14] It also appears that
the applicant, in its request for further particulars in terms of
Rule 21(2), asks the respondent the
following:
“
Who are the
other partners of the Plexis Private Property No 1
En
Commandite
Partnership (“the Partnership”)? “
In reply thereto the
respondent stated the following:
“
This
paragraph does not contain enough particularity to enable the
Plaintiff to respond.”
[15] As far as the
partner of a
commanditarian
partnership is concerned, it was
known to the Roman Dutch Law and still forms part of our law. The
medieval
commenda
was in substance an arrangement by which a
capitalist (
commendator
) entrusted capital to a trader
(
commendatarius
) for employment in merchantile enterprises on
the understanding that the
commendator
, while not in name a
party to the enterprise and though entitled to a share of the
profits, would not be liable for losses beyond
the amount of his
contribution. This concept of limiting the liability of non-managing
investors spread from Italy into French
commercial law, emerging as a
société
en commandite
, the predecessor of
the present day limited or
commandatirian
partnership. From
French it was incorporated into Roman Dutch Law under its French
name.
Compare:
LAWSA
,
Volume 19, Second Edition, paragraphs 253 – 258, 547.
[16] A partnership
en
commandite
is a commercial or trading partnership, which is to be
carried on in the name of one or some of the partners (
in casu
the respondent) and to which every partner whose name is not
disclosed, called a
commanditarian
partner or partner
en
commendite
, contributes a fixed sum of money on condition that he
receives a certain share of the profit, if there is any, but that in
the
event of loss is liable to his co-partners to the extent of the
fixed amount of his agreed capital contribution only.
WATERMEYER v
KERDEL’S TRUSTEES
(1834) 3
MENZIE
424 at 433
LAMB BROS. v
BRENNER & CO
,
(1886) 5 EDC 152
at 161
COMMISSIONER
FOR SARS v HAWKER AIR SERVICES (PTY) LTD; IN RE COMMISSIONER FOR SARS
v HAWKER AVIATION SERVICES PARTNERSHIP AND OTHERS
[2005]
1 ALL SA 715
(T);
[2006] 2 All SA 565
(SCA) at 572 -575.
See also J J Henning,
Law
of Partnership
,
Transactions of the Centre for Business Law
(45) p. 34 – 36.
[17] De Wet and Yeats,
KONTRAKTEREG EN HANDELSREG
, (Fourth Edition) stated the
following in this regard on p. 417 – 418:
“
Hierdie
buitengewone vennootskappe het een gemeenskaplike kenmerk, nl. dat
sekere van die vennote alleen teenoor hulle mede-vennote,
en nie
teenoor buitestaanders nie, die posisie van vennote beklee. Teenoor
buitestaanders is hulle nie saam met die res van die
vennote
gesamentlike mede-skuldeisers en mede-skuldenare nie, m.a.w. daar
bestaan geen regsband tussen hulle en die skuldeisers
en skuldenare
van die vennootskap nie.”
[18] Henning,
op cit
stated the following on p. 35:
“
C
ommanditarian
partners
are not liable to creditors of the partnership, but only to their
partners ... It should be noted that the doctrine of
the undisclosed
principle does not apply to this type of partnership and thus cannot
be utilised by a partnership creditor to render
a
commanditarian
partner liable for partnership debts.
C
ommanditarian
partners may not participate actively in the business of the
partnership. It is clear that mere interference
per se
in a
partnership business, not amounting to holding out or acting as
ordinary partners, does not render them liable to partnership
creditors.”
[19] I
agree with the aforesaid quotation. It is therefore clear that there
is no nexus between the so-called silent partners and
the applicant.
The
commanditarian
partners are not liable for debts
(and for that matter costs) to creditors, but only to their
co-partners. It is clear that, on
the assumption that a
commanditarian
partnership exists, the
applicant, if successful in the main action, can
only
recover its costs from the respondent, being a
company, and not from its
commanditarian
partners. As far as the applicant is concerned the
reference to the said partnership in either the agreement or the
particulars
of claim is therefore superfluous and irrelevant. It
follows therefore that the applicant was entitled to make use of
section 13
of the said Act.
[20] The next question is
whether section 13 is unconstitutional? Mr. Ploos van Amstel
submitted that it would constitute an unreasonable
and unjustifiable
limitation on the rights conferred by section 34 of the Constitution
and would therefore be unconstitutional,
because the injustice to the
respondent, if ordered to provide security in terms of section 13 of
the said Act, or if prevented
from pursuing its claim by an order of
security, far outweighs any injustice to the applicant if no security
is ordered.
[21]
In
GIDDEY
NO v J C BARNARD AND PARTNERS
2007
(2) SA 125
(CC)
O'Regan
J referred to the fact that section 13 of the said Act constitutes an
exception to the ordinary common law rule that plaintiffs
who reside
in South Africa may institute actions in our courts without
furnishing security for costs. Compare: Section 29 of the
Supreme
Court Act, 59 of 1959. In par. 7 of the said judgment, the following
is stated:
“
A salutary
effect of the ordinary rule of costs – that unsuccessful
litigants must pay the costs of their opponents –
is to deter
would be plaintiffs from instituting proceedings vexatiously or in
circumstances where the prospects of success are
poor. Where a
limited liability company will be unable to pay its debts, that
salutary effect may well be attenuated. Thus the
main purpose of s 13
is to ensure that companies, who are unlikely to be able to pay costs
and therefore not effectively at risk
of an adverse costs order if
unsuccessful, do not institute litigation vexatiously or in
circumstances where they have no prospects
of success thus causing
their opponents unnecessary and irrecoverable legal expense.”
[22] It is important to
note what Brand JA stated in
MTN SERVICE PROVIDER (PTY) LTD v
AFRO CALL (PTY) LTD
2007 (6) SA 620
(SCA) at par. [20]:
“
One of the
very mischiefs s 13 is intended to curb, is that those who stand to
benefit from successful litigation by a plaintiff
company will be
prepared to finance the company's own litigation, but will shield
behind its corporate identity when it is ordered
to pay the
successful defendant's costs. A plaintiff company that seeks to rely
on the probability that a security order will exclude
it from the
Court, must therefore adduce evidence that it will be unable to
furnish security; not only from its own resources,
but also from
outside sources such as shareholders or creditors.”
[23] In its opposing
affidavit, the respondent alleges the following in this regard:
“
The
respondent, in order to comply with an order to supply security for
costs, will have to call on the partners of the respondent
to fund
same.”
The effect of this is
that the doors of the court will not necessarily be closed when the
respondent is ordered to furnish security,
because it can always call
upon its partners to assist the respondent.
[24] It is important to
note what was stated in
GIDDEY NO
’s case at par.
6 :
“
As stated
above, sec 13 of the Companies Act confers a discretion upon courts
to order the payment of security for costs by a plaintiff
company if
there is reason to believe that the company will be unable to pay the
costs of its opponent. It is a long standing provision
in our law,
and indeed, mirrors provisions in other countries.”
[25] It follows from the
aforegoing that the cases relied on by the respondent are not
authority for the submission that section
13 of the said Act is
unconstitutional.
[26] As far as the
counter application is concerned, the registrar’s determination
of the amount of security is subject to
review by the court only if
it is satisfied that the registrar was clearly wrong -
TRAKMAN
NO v LIVSHITZ AND OTHERS
1995 (1) SA 282
(A) at 289 G.
[27] In
LEGAL AND
GENERAL ASSURANCE SOCIETY LTD v LIEBERUM, NO AND ANOTHER
1968
(1) SA 473
(A) Potgieter JA stated the following at 478 H:
“
The Court,
therefore, has the power to correct the Taxing Master's ruling not
only on the grounds stated in
Shidiack's
case
but also when it is clearly satisfied that he was wrong. Of course,
the Court will interfere on this ground only when it is
in the same
or in a better position than the Taxing Master to determine the point
in issue.”
[28] It is clear that
none of the grounds for review are present in this application. In
determining the amount of security the
registrar had the benefit of
an extensive and detailed
pro forma
bill of costs. The parties
were represented at the proceedings and made submissions.
[29] It follows that no
case has been made out for the reviewing and setting aside of the
registrar’s determination. In any
event, the registrar was not
even been joined as a party to the review application.
[30] In view of the
conclusion reached by me, it is not necessary to deal with the other
points raised by Mr. Ploos van Amstel.
[31] Consequently the
following orders are issued:
1. The respondent is
ordered to furnish security for the applicant’s costs in the
pending proceedings between the parties
instituted under case
1565/2008, in the amount of R3 050 000,00 (three million and fifty
thousand rand) by way of a bank guaranteed
cheque valid for two years
to the applicant’s attorneys.
2. The respondent is
ordered to furnish such security within one month of the granting of
this order.
3. Leave is given to the
applicant to approach this court on the same papers, duly amplified
if necessary, for the dismissal of
the respondent’s claim under
the aforementioned case number against the applicant, should the
respondent fail to timeously
furnish the security so ordered.
4. The counter
application is dismissed.
5. The respondent is
ordered to pay the costs of both applications, including the costs
consequent upon the employment of two counsel.
_______________
S.P.B. HANCKE, J
On behalf of applicant:
Adv. P.F. Rossouw SC
Assisted by:
Adv. S. Tsangarakis
Instructed by:
E G Cooper Majiedt Inc.
BLOEMFONTEIN
On behalf of respondent:
Adv. C. Ploos van Amstel SC
Instructed by:
McIntyre & Van der
Post
BLOEMFONTEIN
/sp