University of Fort Hare v Wavelengths 256 (Pty) Ltd (8605/2005) [2007] ZAWCHC 56 (18 October 2007)

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[2007] ZAWCHC 56
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University of Fort Hare v Wavelengths 256 (Pty) Ltd (8605/2005) [2007] ZAWCHC 56 (18 October 2007)

by
or against
the company concerned shall be suspended until
the appointment of a liquidator”
(emphasis supplied).
[8] The Applicant’s request
for a costs award against Mrs. Williams does not amount to
proceedings “by or against the company”.
Accordingly, on a proper
interpretation of section 359, the Court is at liberty to grant a
costs order against Mrs. Williams notwithstanding
the supervening
liquidation of the Respondent company, should such a finding be made.
One arrives at this conclusion whether one
adopts a strictly
linguistic interpretation of the section, or a purposive one. On a
strictly linguistic analysis, a costs award
against Mrs. Williams is
not ‘against the company’. It has been held that
“the
phrase ‘civil proceedings’ where it appears in s 359(1)…must be
limited in its application to proceedings in which…
‘An order in
the nature of a declaration of rights or of giving or doing
something’ is sought against the company in question”
(emphasis supplied). (See:
Blackman
et al
Commentary on the Companies Act
Vol. 3 14-233. See also:
King
Pie Holdings (Pty) Ltd v King Pie Pinetown) (Pty) Ltd
1998 (4) SA 1241
(D) 1248 where the Judge quoting from the judgment
of De Villiers CJ in
Collet
v Priest
1931 AD
290
299, stated the following:
“
Sequestration
proceedings are instituted by a creditor against a debtor not for the
purpose of claiming something from the latter,
but for the purpose of
setting machinery of the law in motion to have the debtor declared
insolvent. No order in the nature of a
declaration of rights or of
giving or doing something is given against the debtor”
.
Magid J found in
Collier
v Redler
1923 AD
640
(‘civil suit’) and
Mostert
v JW Jagger Ltd
1938 CPD 518
(‘any proceedings instituted…for the recovery of
debt’) support, albeit indirect, for the view that the term ‘civil
proceeding’
in Section 359 (1) is limited to proceedings to obtain
such orders. The proceedings in the instant matter fall outside the
ambit
of section 359 of the Companies Act.
[9] On a broader, purposive
approach it is immediately apparent that no purpose at all would be
served by delaying the determination
of the Applicant’s request for
costs against Mrs. Williams herself until after the appointment of a
liquidator. In simple terms,
that request is a matter for Mrs.
Williams, not the liquidator. As
Blackman
et al op. cit
points out (
See
Blackman et al Commentary on the Companies Act
Vol. 3 14-233 and authorities therein mentioned):
“
The
provisions of s359 have been enacted for the benefit of the
liquidator”;
and
“
The
purpose [of s359] is to ensure that the liquidator is not
embarrassed with legal proceedings before he has had an opportunity
to consider them, i.e. ‘to afford the liquidator an opportunity,
immediately after his appointment, to consider and assess,
in
the interests of the general body of creditors
,
the nature and validity of the claim or contemplated claim and how
to deal with it – whether, for instance, to dispute or settle
or
acknowledge it’”.
(emphasis supplied).
[10] The liquidator requires no
such opportunity
in
casu
since a costs
award against Mrs. Williams herself is not a matter which affects the
interests of the general body of the Respondent’s
creditors (as
opposed to a costs award against the Respondent Company, which
obviously does). Whatever the liquidator decides to
do in relation to
the principal application (i.e. whether he decides to continue to
oppose or to abandon opposition), it is quite
certain that he or she
will not become involved in contesting the Applicant’s request for
costs against Mrs. Williams herself.
Indeed the conclusion that the
supervening liquidation of a company does not prevent a Court from
making a costs order against a
director of the company (i.e.
personally) in (other) proceedings against the company is clearly
illustrated by the facts of
BS
Finance Corp v Trusting Engineering
1987
(4) SA 518
(W). Strangely the facts in
BS
Finance Corp v Trusting Engineering
case
supra
are in material respects substantially similar to the facts of the
instant matter.
[11] Because of the supervening
provisional liquidation of the Respondent, in
BS
Finance
case when
the matter came before Court, counsel for the Applicant did not
proceed in asking for relief (obviously mindful of the
effect of
section 359). Instead he requested a postponement of the matter to
the return date of the provisional liquidation order
in the Grammanos
application. Notwithstanding the supervening liquidation of the
Respondent in
BS
Finance
case
supra
the Applicant sought a costs order against the director, Konstas,
personally and on the attorney and client scale on the grounds
of his
vexatious and dishonest conduct in the litigation. The court granted
that relief against Konstas (despite the fact that the
Respondent
company was in provisional liquidation).
[12] I am of the view that Mr.
Van der Merwe’s argument that section 359 of the Companies Act
prevents the Court at this stage from
making a determination as to
whether or not Mrs. Williams should be ordered to pay costs
personally, cannot be sustained. The submissions
made in
substantiation of the
point
in limine
did not
succeed in persuading me. The
point
in limine
therefore
stands to be dismissed and is hereby dismissed. I proceed
infra
to consider the application on its merits.
ATTORNEY AND CLIENT COSTS
[13] An absence of
bona
fides
may constitute
a ground for awarding an attorney and client costs, examples being
fraudulent or dishonest conduct. Indeed dishonesty
or fraud is not a
requirement. However, conduct that is vexatious and an abuse of legal
process may justify a punitive costs award
even though there is no
intention to be vexatious. Unworthy, reprehensible or blameworthy
conduct as well as conduct contemptuous
of the Court may also justify
the sanction. At times less than grave misconduct or reprehensible
misconduct may, however, suffice.
The following are examples:
A gross failure to put before
the Court a material fact which it was essential the Court should
know may lead to an attorney and
client costs award.
So too may unreasonable
conduct on the part of the litigant.
See
Joubert
(ed)
LAWSA
First Re-issue Vol. 3 part 2 para 324 and the authorities there
collected. The above are principles relating to special costs awards.
These will guide me as I proceed to determine this application.
COSTS ORDERS AGAINST COMPANY
DIRECTORS
[14] In a proper case the Court
will order a company director to pay costs
de
bonis propriis.
See:
Herbstein & Van
Winsen – The Civil Practice of the Supreme Court of South Africa
4ed p732;
Joubert
(ed) op. cit. para 380;
Cilliers
The Law of Costs
B10-28. The general principles has been described thus:
“It
is unusual to order a litigant in a fiduciary position to pay costs
de bonis propriis, and good reason for such a course should
be shown,
such as want of bona fides, negligent or unreasonable action, or
improper conduct… The basic notion is a material departure
from the
responsibility of office….”
See
Herbstein &
Van Winsen
op. cit.
p728-729; also
Cilliers
op. cit. B10-22.
[15] In the specific case of
company directors, it has been held that the basis for making such a
costs award is that “justice requires
that it be done”. See
BS
Finance Corp v Trusting Engineering
1987
(4) SA 518
(W) at 523F-J, 524G/H;
Francarmen
v Gulmini and Another
1982 (2) SA 485
(W) at 490A;
Registrateur
van Banke v Clanwilliam-Eksekuteurskamer Bpk
1972
(4) SA 387
(C) at 401A-C (where the Court apportioned liability for
the costs of a curatorship application in respect of the Respondent
company
amongst its directors on an equitable basis).
[16] In the
BS
Finance
case
supra
the following factors motivated Kirk-Cohen J to order the director
concerned to pay the costs of the proceedings
de
bonis propriis
(at
524C-H):
The director had litigated on
behalf of the company in a manner which could not be to the
advantage of the company.
The director’s conduct had
been vexatious and thoroughly dishonest.
If the costs arising from the
director’s reprehensible conduct were to be paid by the Respondent
corporation (as opposed to the
director himself), this “would be
at the expense of the general body of creditors”.
Obviously the Applicant need
not show dishonesty on the part of Mrs. Williams. Differently stated,
whilst dishonesty is not a requisite
but it would militate in favour
of the costs order sought in a deserving case. At the very least the
Applicant need only show unreasonable,
improper or negligent conduct
on the part of a litigant from whom/which such costs are sought to be
recovered. In Mr. Blumberg’s
submission Mrs. Williams has been
guilty of gross unreasonableness as well as dishonesty or at least
recklessness with the truth.
MRS. WILLIAMS’ CONDUCT
[17] Mrs. Williams sought and
obtained a postponement on 6 August 2007 on the basis that she was
not in the country at that time (and
could not be in the country at
that time). She was, however, well aware that the matter would be
proceeding on 6 August 2007. Why
then was she not here? I ask
rhetorically. Her counsel sought to explain her absence on the
grounds of her involvement in litigation
in the USA. Mrs. Williams,
however, says nothing of this in her affidavit. Her failure to be
present at Court on 6 August 2007 is
simply unexplained. Mrs.
Williams says in her Answering Affidavit that she thought that her
“testimony was not
required”
. Is this
why she saw it fit not to be present on 6 August 2007 (i.e. that she
had deliberately absented herself)? If that is her
explanation, on
what basis did she instruct her legal representatives to seek a
postponement on the grounds that she was not in South
Africa (i.e. if
she was under the impression the litigation could proceed in her
absence)? I am of the view that Mrs. Williams indeed
acted
unreasonably in unilaterally excusing herself from Court on 6 august
2007. Moreover, her failure to even attempt any explanation
for her
absence on 6 August 2007 is certainly contemptuous of this Court.
[18] The further postponement
on 12 September 2007 needs further attention. Mrs. Williams did not
disclose to the Court on 6 August
2007 that she had taken steps to
liquidate the Respondent. Has she disclosed this:
The matter would never have
been postponed to 12 September 2007, since the Court and the parties
would have been well aware (as
Mrs. Williams was) that the matter
could not proceed on that date; and
The wasted costs arising from
setting the proceedings down on 12 September 2007 would have been
avoided.
Instead, Mrs. Williams waited
until 10 September 2007 to disclose the fact of the liquidation. By
that stage, counsel was on brief
and wasted costs had been incurred.
Even if Mrs. Williams had only disclosed the fact of the liquidation
after it happened (on 15
August 2007), the wasting of costs could
have been avoided: counsel could have been taken off brief then and
there. Mrs. Williams’
failure to disclose the fact of the
Respondent’s liquidation (at her own hands) to the Court and to the
Applicant was correctly
described by Mr. Blumberg as “grossly
unreasonable and vexatious.”
[19] That is not the end of
Mrs. Williams’ unreasonable and contemptuous conduct. On 12
September 2007, her counsel sought a (yet
further) postponement of
the matter on account of Mrs. Williams being out of town. When
questioned by the Court about why Mrs. Williams
was not in Cape Town
when the matter was set down to proceed on 12 September 2007, her
counsel indicated that Mrs. Williams was entitled
to an opportunity
to explain her absence on Affidavit. No explanation has been
proffered at all to-date.
[20] On
6 August 2007 Mrs. Williams’ counsel, on her instructions, argued
that a postponement should be granted since a costs award
against the
Respondent Company would address the Applicant’s prejudice. Mrs.
Williams was, however, well aware that the costs award
would never be
met (owing to the Respondent’s insolvent position and its imminent
liquidation). The net result is that the Applicant
is indeed severely
prejudiced by the postponement in that it is unable to recover the
wasted costs of briefing counsel for the proceedings
commencing on 6
August 2007, as well as the travelling, accommodation and other costs
of its attorney. I would agree with Mr. Blumberg
that Mrs. Williams’
conduct in this regard is at least reckless as to the truth. It in
fact borders on dishonesty.
[21] Her Answering Affidavit is
riddled with inconsistencies and contradictions. For purposes of
illustration I merely mention
infra
two (2) examples justifying my conclusion. In paragraph 25 of her
Answering Affidavit Mrs. Williams says: “At no time did I ever
contemplate liquidating the Respondent until my conversation with Mr.
Bennie Van Der Hoven.” This “conversation” can only be
that of
6 August 2007 (when Mrs. Williams first had contact with Mr. Van Der
Hoven, or that of “mid August 2007.” Either way,
the statement is
obviously devoid of the truth regard being had to what follows: Mrs.
Williams admittedly signed a resolution that
the company be wound up
on 31 July 2007 and faxed it to Mr. Oelofse (whom she instructed to
procure the winding up) on 2 August 2007
i.e. before her very first
conversation with Mr. Van Der Hoven.
[22] In paragraph 27 Mrs.
Williams says “I did not contemplate liquidating the Respondent
after the matter had been taken on by
Mr. Van Der Hoven” (this
occurred on 6 August 2007). How this statement is to be reconciled
with the one quoted in the previous
paragraph is not explained at
all. Moreover, Mr. Oelofse, however, says that he proceeded with the
liquidation of the company after
receiving an instruction to do so
from Mrs. Williams “during mid August 2007”. The fact of the
matter is that Mrs. Williams has
caused costs to be wasted on two
occasions: 6 August 2007 and 12 September 2007. Had she acted
reasonably and honestly, those wasted
costs could have been avoided.
The Applicant is out-of-pocket in respect of substantial legal
expenses which are wasted due to Mrs.
Williams’ unpardonably poor
behaviour. Fairness demands that the Applicant be indemnified in
respect of such expenses.
[23] Leaving the company to pay
such wasted costs does not, in my view, bring about a fair result
since:
The Applicant will not end up
being indemnified at all, given the hopelessly insolvent state of
the company; and
To the extent that concurrent
creditors do receive any dividend at all, a costs award against the
company will simply end up reducing
that dividend, with the result
that the Respondent’s creditors effectively shoulder the financial
burden of Mrs. Williams’
conduct.
It cannot, in my view, be
contended that Mrs. Williams has sought to advance, or has advanced,
the interests of the Respondent Company
in her handling of this
matter particularly regard being had to her behaviour outlined
supra
.
Given Mrs. Williams’ unreasonable and vexatious conduct, coupled
with her apparent lack of bona fides (or as justifiably labelled
by
Mr. Blumberg “her recklessness with the truth”), it is
appropriate that she be ordered to pay the wasted costs of the two
postponements in her personal capacity (
de
bonis propriis
) and
on the attorney and client scale.
THE COSTS AWARD MADE ON 7
AUGUST 2007
[24] Generally, costs awards
are regarded as final orders and Courts are thus disinclined to amend
them. At common law, however, a
Court may recall or amend a final
order:
That was made pursuant to
fraud on the part of one of the parties. (See
Joubert
(ed) op cit. para 299;
Joseph
v Joseph
1951
(3) SA 776
(N) at 780;
Ex
Parte Nel
1957
(1) SA 216
(D) at 218-219, esp at 219C;
Society
for the Prevention of Cruelty to Animals WO 916 (Bloemfontein) v De
Swart
1969 (1)
SA 655
(O) at 659A.)
When new (and material)
documents are later discovered, provided that the applicant (for the
amendment) is not to blame for not
placing the documents before the
court in the first place (See
Booth
v Collis
1916
CPD 453
at 456;
Childerley
Estate Stores v Standard Bank of SA Ltd
1924 OPD 163
at 168;
Schierhout
v Union Government
1927 AD at 105.)
[25] The resolution pursuant to
which the Respondent Company was placed in liquidation, as well as
the statement of affairs showing
the Respondent to be hopelessly
insolvent, were material to the order made on 6 August 2007, given
the importance of the costs order
in the context of the decision to
grant the postponement. Had the Court been aware of these documents,
it most certainly would not
have:
Ordered that the wasted costs
be borne by the Respondent Company (which is and was insolvent); and
Allowed the matter to be
postponed to 12 September 2007 (when the matter could never
proceed).
It is my view that the
subsequent discovery of these documents is and remains a basis for
revisiting and amending the previous costs
order I made.
Non-disclosure of the fundamental truth and the said documents can in
no way be attributable to the fault on the part
of the Applicant.
This true situation regarding the financial condition of the
Respondent Company was well within the knowledge of
Mrs. Williams.
She chose for reasons best known to herself, not to disclose same to
this Court.
ORDER:
[26] In the circumstances I
make the following order:
The application under the
above case number is postponed pending the appointment of a
liquidator to the Respondent.
The wasted costs occasioned
by this postponement are to be borne by Mrs. Elsie Maria Magdalena
Williams in her personal capacity
(
de
bonis propriis
)
and on the attorney and client scale.
Paragraph 2 of the order of
Court made on 7 August 2007 is hereby amended to read as follows:
“
2. The
wasted costs occasioned by the postponement are to be paid by Mrs.
Elsie Maria Magdalena Williams
de
bonis propriis
and
on the attorney and client scale. Such costs are to include the
travelling and accommodation expenses of the Applicant’s attorney
and witness (Mr. Thomas).”
(d) The
costs of the application launched by the Applicant on 11 September
2007 (under the ‘Notice of Application’ of that date)
are to be
paid by Mrs. Elsie Maria Magdalena Williams in her personal capacity
(
de bonis propriis)
and on the attorney
and client scale. Such costs shall include the travelling and
accommodation expenses of the Applicant’s attorney,
Mr. Andrew
Conroy, in attending court on 12 September 2007 and 19 September
2007.
____________________
DLODLO, J