About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: South Gauteng High Court, Johannesburg
SAFLII
>>
Databases
>>
South Africa: South Gauteng High Court, Johannesburg
>>
2009
>>
[2009] ZAGPJHC 58
|
|
Gainford NO and Another v Drennon (8572/09)) [2009] ZAGPJHC 58 (26 October 2009)
8572/09
SvS
JUDGMENT
16/09/2009
LOM Business
Solutions t/a Set LK Transcribers/
IN GAUTENG SOUTH HIGH COURT OF
SOUTH AFRICA
JOHANNESBURG
CASE NO
:
8572/09
DATE
:
16/09/2009
In the matter
between
G C GAINFORD NO 1
st
Plaintiff
T R NDEBELE NO 2
nd
Plaintiff
and
DAVID MICHAEL DRENNON Defendant
_________________________________________________________
J U D G M E N T
_________________________________________________________
VAN OOSTEN J
:
This is an application by the defendant for the plaintiffs to furnish
security for costs in a pending action between the parties.
The
background facts relating to the matter are the following. SFS
Financial Services (Pty) Ltd (in liquidation) (SFS), it is common
cause, carried on business in providing financial services as a
franchisee of the Liberty Holdings Group. It
inter alia
attracted loans from members of the public for short periods of time
at exorbitantly high and unrealistic interest rates. It conducted
what has become known as an unlawful pyramid scheme (as to which see
Fourie NO v Edeling NO and Others
2005 (4) All SA 393
(SCA)).
As almost invariably is the case, the scheme eventually collapsed
resulting in the liquidation of SFS and the loss of millions
of Rands
by investors in the scheme.
One of the investors in SFS was the
defendant. He however was, so he says, unaware of the illegality of
the scheme. The defendant
invested substantial amounts in SFS. Some
of the investments, or loans as he prefered to call it, were repaid
by SFS together with
the agreed interest. This snowballed into
further investments again at an agreed interest rate.
As at the date of the liquidation of
SFS the defendant had paid SFS some R7,1 million more than he had
received from SFS, excluding
interest on a loan of R3 million. The
defendants total alleged loss is some R7,1 million. In October
2008 the defendant proved
a claim of some R5,2 million against the
insolvent company and he has expressed his intention to institute a
claim against the
insolvent company for the balance of R1,85 million.
The present action was instituted by
the joint liquidators of SFS against the defendant in April 2009. The
plaintiffs claim is
for repayment by the defendant of the sum of
R13,1 million, being all amounts paid by SFS to the defendant of all
investments or
loans made by him, based on the provisions of s 26,
alternatively s 29 and 30 of the
Insolvency Act 24 of 1936
, further
alternatively on the grounds of unjust enrichment.
The defendant has filed a notice of
intention to defend the action but no plea has as yet been delivered.
The defendant now in this
application seeks security for costs based
on the allegation that the plaintiffs will not be able to pay the
costs of the defendant,
should he be successful in his defence to the
claim. A request for the furnishing of security for costs was
delivered but the plaintiffs
refuse to put up security, hence the
present application.
An aspect that upfront caused me much
concern is the way in which the defendant has dealt with the facts of
this matter in the founding
papers. He labelled the investments made
to SFS as loans instead of investments as they truly were. One
forms the impression
on reading the founding papers that the
defendant was nothing more than an investor in SFS. In the answering
affidavit much more
came to light and it then emerged
inter alia
that the defendant was listed on the payroll of SFS as an employee
when in fact he was not an employee of SFS and that he received
a
monthly salary from SFS without having earned a salary. He moreover
was in possession of and utilized a credit card on the account
of SFS
and certain of his medical aid costs, as well as the costs of
acquisition of computer equipment were paid for by SFS. He
further
admittedly had a close relationship with the directors of SFS.
Having carefully considered all the
facts of this matter and for reasons that will become apparent I have
come to the conclusion
that the aspects I have mentioned should not
be held against the defendant in the exercise of my discretion
whether or not to order
the furnishing of security for costs.
Of
importance is the fact that the defendant was an investor of large
sums of money. He is a major creditor of SFS. I am unable
to find
that he in any way was aware of the illegality of SFSs operations.
The defendant convincingly stated that his trust in
the operations of
SFS was confirmed by their affiliation to the Liberty Group.
Next, it is necessary to consider the
evidence relied upon to show that the plaintiffs will be unable to
pay the costs of the defendant
if he is successful in his defence to
the claim.
It is common cause that only a free
residue of R296 925.15 was available in the insolvent company as at
30 April 2009. The amount
quite clearly is wholly insufficient to
cover the costs of the litigation the insolvent company is involved
in and intends to become
involved in. Some 42 High Court actions
are looming, to which must be added the costs of the enquiry in terms
of Section 417
of the Companies Act 61 of 1973, which has already
commenced and is bound to proceed at some stage, and then of course
the costs
of this action. The liquidators however heavily rely on
their expectations to claim repayment from other investors
monies paid
to them by SFS. Their expectations seemingly rest on
shaky grounds of speculation. No details of these investors have been
furnished
and moreover, as correctly pointed out by counsel for the
defendant, it can equally be expected that those investors will
resist
the claims made against them by the liquidators.
The applicable legal principles in
considering security for costs are well established and need not be
repeated here. Suffice to
refer to Section 13 of the Companies Act
and the leading case of
Shepstone & Wylie and Others v Geyser
NO
1998 (3) SA 1036
(SCA) 1044D-E, 1045I -1046D; as well as
MTN
Service Provider (Pty) Ltd v Afro Call (Pty) Ltd
2007 (6) SA 620
(SCA) [16]. In the exercise of my discretion I propose to take into
account all the circumstances of this case (
B&W Industrial
Technology (Pty) Ltd v Baroutsos
[2005] ZAGPHC 93
;
2006 (5) SA 135
(W)) without
adopting a predisposition either in favour of or against the granting
of security
Lappeman Diamond Cutting Works (Pty) Ltd v MIB Group
(Pty) Ltd (No 1)
1997 (4) SA 908
(W)).
I am
satisfied that the defendant has shown that the plaintiffs at this
stage will be unable to meet an adverse costs order. On
the other
hand it has not been shown that the ordering of security for costs
would effectively deprive the plaintiffs of the opportunity
to
proceed with their claim against the defendant (see
Giddey NO v JC
Barnard and Partners
[2006] ZACC 13
;
2007 (5) SA 525
(CC) para [8]). As against
this the potential injustice to the defendant, who successfully
defends the claim having to pay all
his own costs in the litigation
tips the scales in the present matter in favour of ordering security.
The plaintiffs are authorised by the
creditors to institute action against the other investors. They have
expressed their optimism
concerning the prospects of successful
claims against those investors. It should therefore be relatively
easy for them in due
course to furnish security (see
Trust Bank
van Afrika Bpk v Lief and Another
1963 (4) SA 752
(T) 756). On
the other hand, should their expectations prove to have been too
optimistic this action will remain suspended, in
which event the
defendant will not be prejudiced.
In the
result an order is granted in terms of prayers 1, 2, 3 and 4 of the
notice of motion.
oooOOOOooo
.