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[2010] ZAWCHC 88
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Schroeder NO v ABSA Bank Limited (15794/2009) [2010] ZAWCHC 88 (10 May 2010)
REPORTABLE
IN THE HIGH COURT OF
SOUTH AFRICA
WESTERN
CAPE HIGH COURT, CAPE TOWN
CASE NO: 15794 / 2009
In the matter between:
HEIN HELMUT SCHROEDER
N.O.
Plaintiff
versus
ABSA BANK
LIMITED
Respondent
JUDGMENT: 10 MAY
2010
BOZALEK J:
[1] Two issues arose
for determination in this matter by virtue of an order made by
Breitenbach AJ on 8 December 2009, namely:
(i) the costs in an
application for summary judgment which was resolved when the
application was refused and the defendant granted
leave to defend the
action the question of costs being stood over for determination on
the semi-urgent roll;
(ii) the defendant's
application for security of costs originally set down for hearing on
8 December 2009 but also postponed for
hearing on the semi-urgent
roll.
[2] The plaintiff is thus
the applicant in the summary judgment application and the respondent
in the application for security for
costs whilst the defendant is the
respondent and applicant respectively in the applications. For the
sake of clarity, I shall refer
throughout to the parties as plaintiff
and defendant.
[3] In the main action,
plaintiff, in his capacity as the Master's representative in terms of
s 18(3) of the Administration of Estates
Act, 66 of 1965 (as amended)
in the estate of the late Georg Ernst August Schroeder ("the
estate and "the deceased"
respectively") claims the
sum of R1m plus certain unpaid arrear interest and interest
a
tempore morae.
Plaintiff
makes his claim as the "final holder pro tempore" of a
"written original Negotiable Certificate of Deposit
no. 478"
issued by the defendant in Johannesburg on 29 January 1999 which
instrument I shall refer to as "the NCD"
or NCD no.478".
A copy of the NCD was annexed to the simple summons.
[4]
An NCD is described by Cowen,
The
Law of Negotiable Instruments
in South Africa
5
th
Edition Volume 1 page 291 as:
"A
receipt issued by a borrower of money, usually a bank, acknowledging
the deposit of a sum of money, stating to whom the
money is
repayable, when the capital sum is repayable, the interest rate and
when interest is payable".
Cowen observes that NCD's
are normally issued in respect of large sums of money and are payable
to bearer. He notes further that
whilst there can be little doubt
that in English law the documents issued in that country, described
and known as "negotiable
certificates of deposit", are in
truth negotiable instruments, unfortunately
"the
presence of certain conditions of issue which are normally found on
the reverse side of the South African version of an
ostensibly
'negotiable' certificate of deposit, puts the status of these
instruments in doubt".
[5] The instrument in
question, dated 29 January 1999, has a face value of R1m and is
recorded as falling due on 28 January 2000.
It is payable to bearer
and makes provision for interest to be paid monthly on the 29
th
day of each month of that particular year at a fraction of
defendant's prime rate. The reverse side of the NCD records that
interest
was indeed paid for eleven of the twelve months of the
instruments currency. The following conditions of issue and transfer
of
the instrument are material to this matter:
" (i) The issue and
transfer of the certificate is restricted to resident companies,
resident corporate bodies and resident
individuals,..." and;
(ii) 'any bona fide
transferee for value, being a resident company, resident corporate
body or resident individual obtains a good
title to (the)
certificate."
THE APPLICATION FOR
SUMMARY JUDGMENT
[6] The action was
instituted in this Court on 5 August 2009. On 3 September plaintiff
filed a notice of application for summary
judgment. In his verifying
affidavit he made the customary allegation that in his opinion
defendant did not have a
bona
fide
defence
to the action and had delivered a notice of intention to defend
solely for the purpose of delay.
[7] On 6 August 2009, the
day after the institution of the present action, plaintiff launched
proceedings against defendant in the
Johannesburg High Court seeking
provisional sentence in respect of five similar instruments (NCD's)
each with a nominal face value
of R1m. These five instruments form
part of the same batch of instruments, which include NCD 478, and
which were lost in mysterious
circumstances in late December 2000.
Defendant filed a lengthy opposing affidavit in those proceedings on
11 September 2009. On
16 October, i.e. after the service of the
defendant's opposing affidavit in the provisional sentence
proceedings, defendant's attorneys
in this matter despatched a letter
to plaintiff's attorneys requesting them to reconsider and withdraw
the summary judgment application
in the light,
inter
alia,
of
the contents of the said opposing affidavit in the Gauteng
proceedings. In that letter defendant's attorney asserted that the
defences raised in the provisional sentence proceedings applied
equally - with the necessary changes appropriate to the specific
instrument in question - to the present action and set out various of
these defences. The letter warned that unless the application
for
summary judgment was withdrawn defendant would file its opposing
affidavit and seek an order for costs
de
bonis propriis
against
plaintiff on the attorney/client scale.
[8] In the same letter
defendant's representatives called upon plaintiff to furnish security
for defendant's costs since, it was
stated, defendant did not believe
that plaintiff would be in a position to satisfy any costs order
which might be obtained against
him.
[9] The letter elicited a
reply, on 23 October 2009, to the effect that plaintiff would
consider whether defendant had a
"bona
fide
defence
upon receipt of its opposing affidavit" adding that if this
appeared to be the case his representatives would advise
him to
consent to "the normal order", namely, leave to defend,
being granted.
[10] In early December
2009 defendant duly filed a 36-page opposing affidavit together with
approximately 40 pages of annexures
in which it set out at least half
a dozen substantive defences to plaintiff's claim as well as pointing
out various defects in
the plaintiff's application for summary
judgment. Many of these defences,
in
limine,
technical,
procedural and absolute, had been expressly foreshadowed in
defendant's opposing affidavit in the Johannesburg provisional
sentence proceedings, due allowance being had to the different
factual circumstances which apply to NCD 478 as opposed to the other
NCD's. Chief amongst these defences were defendant's averments that
any claim arising out of the NCD had long since prescribed,
that
plaintiff enjoyed no
locus
standi
and
that, for a variety of technical reasons relating to the nature of
the instrument, plaintiff's claim was vague and embarrassing
and/or
excipiable.
[11] Not surprisingly,
after receipt of the opposing affidavit plaintiff agreed that the
application for summary judgment should
fail and defendant should be
given leave to defend the action. Plaintiff refused, however, to
tender the costs incurred by defendant
in opposing the application
hence the reservation of the question of costs.
[12] A court hearing an
application for summary judgment may make such order as to costs as
to it may seem just. It is well established
that if, in the opinion
of the court, the plaintiff knew that the defendant relied on a
contention which entitled him/her to leave
to defend it may order the
plaintiff to pay the defendant's costs and further order that such
costs be taxed as between attorney
and client or even order that
action be stayed until such time as such costs are paid. Rule of
Court 32(9)(a) specifically makes
provision for such an order in such
circumstances. See for example
ABSA
Bank Ltd (Volkskas Bank Division) v SJ Du Toit and Sons Earthmovers
(Pty) Ltd
1995
(3) SA 265
(C). See also SABS v GGS/AU (Pty) Ltd
2003 (6) SA 588
(T)
and the authorities quoted at 591 I - 592 E.
[13] In
Floridar
Construction Company (SWA) (Pty) Ltd v Kriess
1975
(1) SA 875
(SWA) at 878 A Vermooten AJ, referring to the provisions
of Rule 32(9)(a) states, quoting Nathan, Barnett and Brink, Uniform
Rules
of Court, at p.156:
"The
purpose of the subrule is, on the one hand, to discourage unnecessary
or unjustified applications for summary judgment,
and, on the other
hand, to discourage defendants from setting up unreasonable defences.
In regard to the first of these it is to
be borne in mind that in
many instances the object of bringing an application for summary
judgment is to force the defendant to
put his defence on affidavit. A
plaintiff is not entitled to do this unless it is clear that there
are good grounds for making
the application".
In the present matter
plaintiff was directly and pointedly advised of at least some of the
defences upon which defendant would be
relying. He had before him,
moreover, defendant's deposing affidavit in a similar matter setting
out such defences. Plaintiff was
warned in terms that if he persisted
with the summary judgment application a special order for costs would
be sought against him.
Notwithstanding these warnings defendant was
put to the trouble and expense of drafting a lengthy opposing
affidavit which predictably
resulted in plaintiff withdrawing the
application for summary judgment. In these circumstances it seems to
me that a costs order
as contemplated in s 32(9)(a) is entirely
justified.
[14] There remains the
question of whether the order for costs should be made
de
bonis propriis.
It
is common cause that the deceased's estate which the plaintiff
purports to represent is insolvent. Accordingly any costs order
made
against the plaintiff in his representative capacity will be a
brutum
fulmen.
There
must also be a serious question as to whether, in his capacity as a
Master's representative in terms of s 18(3) of the Act,
plaintiff has
the capacity to litigate on behalf of the deceased estate. It is not
necessary, however, for me to decide that question.
[15] The principle
underlying costs orders
de
bonis propriis
applies
where a person acts or litigates in a representative capacity and the
basic rationale behind such an award of costs is a
material departure
from the responsibility of office.
Du
Plessis NO v Strauss
1988
(2) SA 105
(A) 119 G - J. Plaintiff's position in the present matter
may be closely likened to that of an executor and costs
de
bonis propriis
may
be awarded against an executor who is
mala
fide
or
has acted negligently or very unreasonably. See
Die
Meester v Meyer En
Andere
1975
(2) SA 1
(T).
[16] In the present
matter, at the very least, plaintiff acted unreasonably in pursuing
the application for summary judgment in
the circumstances described
above. In doing so he was probably emboldened by the fact that any
potential adverse costs order would
lie against the insolvent estate
and would thus have no material effect. In these circumstances I
consider it appropriate that
costs
de
bonis propriis
be
awarded as a mark of the Court's displeasure at plaintiff's conduct.
Defendant sought in addition the costs of senior counsel
where these
had been incurred. However, I am not persuaded that this is justified
given that the opposing affidavit in the provisional
sentence
proceedings existed as a template for the drawing of the opposing
affidavit in the present application, a task well within
the
capabilities of junior counsel.
[17] In the result
plaintiff is ordered to pay defendant' s costs of opposing the
summary judgment application on the attorney and
client scale, such
costs to be taxable and payable forthwith.
APPLICATION FOR
SECURITY FOR COSTS
[18] Defendant brought a
substantive interlocutory application requiring that the deceased
estate, alternatively plaintiff in his
personal capacity, in the
further alternative, both, were liable to furnish security to
defendant for its costs in the sum of R100
000.00. That application
was supported by an extensive supporting affidavit plus annexures. In
due course it was met with plaintiff's
answering affidavit which in
turn elicited a replying affidavit from the defendant.
[19] In its notice in
terms of Rule 47(1) defendant cited the following factors as the
basis for its demand for security; that plaintiff
purported to
litigate in a representative capacity notwithstanding that he was
statutorily not permitted to do so with the result
that the action
was a nullity; secondly, the deceased estate which the plaintiff
purported to represent was insolvent and there
was therefore reason
to believe that it would not be able to pay defendant's costs should
it be successful in its defence. Further
grounds relied on were that
plaintiff's claim or claims had no merits and, in any event, had
prescribed.
[20] In order to deal
with the application it is necessary to set out a brief history of
the events which gave rise to the litigation.
According to defendant,
Standard Bank of South Africa Ltd acquired eight NCD's, including NCD
478, on 29 January 1999 for a total
purchase consideration of R8m.
The monthly interest payments due on each
NCD were paid upon
regular presentation thereof until the date of their loss, 28 January
2000 the day before they matured. On that
day the eight NCD's were
handed to a Standard Bank employee for hand delivery to defendant.
Sometime before they reached the relevant
employee of defendant the
eight NCD's disappeared. The matter was reported to the police and
investigated internally by Standard
Bank but ultimately nobody was
found responsible for the disappearance of the instruments.
[21] In due course,
against an indemnity furnished by Standard Bank to defendant, the
remaining interest payable plus the capital
sums on the NCD's were
paid by defendant to Standard Bank. On 9 February 2000 and at
defendant's Table View branch, one of the
deceased's sons presented
NCD 478 to an official of defendant with a query as to whether
payment of the interest and the capital
could be made there rather
than in Johannesburg. Defendant's official took possession of the
certificate and issued the deceased's
son with a receipt therefor.
[22] On 26 May 2003 the
deceased launched a vindicatory action against defendant and Standard
Bank in the High Court in Johannesburg
seeking a declaration that he
was the owner of NCD no. 478 and requiring defendant to return the
original of such certificate to
him. In the aforesaid application the
deceased claimed to have purchased six of the missing batch of NCD's
in question in return
for payment of R5m from a certain Dambar. The
action was opposed and on 4 December 2003 was dismissed with costs.
[23] On 19 February 2004
the deceased committed suicide and on 16 March 2004 plaintiff, one of
the deceased's sons, received letters
of authority from the Master in
terms of s 18(3) of the Act authorising him "to take control of
the assets of the estate ...
to pay the debts, and to transfer the
residue of the estate to the heir/s entitled thereto by law".
[24] In September 2008
the estate became subject to a final order of sequestration. This
order was rescinded however in March 2009
at the instance of
plaintiff on the basis that the service upon him of the application,
in his capacity as a s 18(3) representative,
was incompetent.
[25] As previously
mentioned the present action, in respect of NCD no. 478, was
instituted in this Court on 5 August 2009 and was
followed, the next
day, by the institution of provisional sentence proceedings in
respect of the remaining five NCD's in the Johannesburg
High Court,
again at the instance of plaintiff.
[26] Defendant filed its
opposing affidavit in those proceedings 30 minutes late. This led to
an opposed condonation application
which was eventually granted with
costs being awarded against plaintiff
de
bonis propriis.
The
Court found that plaintiff's actions in opposing the condonation
application could only be seen as vexatious. It was further
ordered
that plaintiff could not charge the costs awarded against him as a
cost in the estate. A bill of costs in a substantial
amount was taxed
but, as at the date of the present hearing, remained unpaid by
plaintiff.
GENERAL PRINCIPLES
[27] The general rule of
our law with regard to the giving of security for the costs of an
action by a litigant was laid down in
Witham
v
Venables
(1828)1
Menz 291 as follows:
"(No)
person, who is either
civic
municeps
or
incola
of this colony can, as plaintiff, be compelled to give security for
costs, whether he be rich or poor, solvent or insolvent; and
on the
other hand, ... every person, who is neither
civic
municeps, nec incola,
may, as plaintiff, be called on to give security for costs, unless he
prove that he is possessed of immovable property, situated
within the
colony."
One of the exceptions to
the general rule is that the Court may, in its inherent jurisdiction,
order a litigant to give security
for the costs of the other side.
1
The power of the court to order security for costs on this basis is,
however, exercised sparingly and only in exceptional cases.
[28] In
Crest
Enterprises (Pty) (Ltd) and Another v Barnett and Schlosberg
NNO
1986 (4) SA 19
(CPD) Berman J held that:
"The
mere fact that a party suing is an insolvent is no ground for
obliging him to provide security for his opponent's costs
- each case
must be considered in the light of its own particular facts, and only
where the insolvent's action is vexatious or
reckless or where it
amounts to an abuse of the Court's process should he be called on to
give security for costs".
This approach were
reaffirmed in
Ramsamy
N.O. and Others v
Maarman N.O. and
Another
2002
(6) SA 159
(CPD) where Thring J
held that, in general
terms, an abuse of process took place when the procedures permitted
by the Rules of Court to facilitate the
pursuit of truth were used
for a purpose extraneous to that objective. An improper purpose could
be a factor where an abuse of
process was at issue.
[29]
In
Fitchet
v Fitchet
1987
(1) 450 (SA) (ECD) the Court was similarly
concerned with an
application for the plaintiff to furnish security for the defendant's
costs, inter alia, on the basis that the
action was vexatious. It was
held that, outside the parameters of the Vexatious Proceedings Act, 3
of 1956, a vexatious action,
for the purposes of
dismissing
an
action, had to be equated to one standing outside the region of
probability altogether, and which becomes vexatious because it
cannot
succeed. This onus is a stringent one in that the Court must be
satisfied not as on a balance of probabilities but as a
certainty.
Because the Court could not find in that case that the plaintiff
would not be able to satisfy an adverse order of costs,
it approached
the application on the basis that security had only to be furnished
by the plaintiff if his claim was incapable of
succeeding.
[30] However Olivier J
qualified the general stringent test for vexatiousness in the
following terms (at page 454 E - G):
"It
may well be that, in applications for security of costs, the test
should be somewhat different. Where, in an application
for dismissal
of an action, the Court without hearing evidence on the merits will
require moral certainty alone that the action
is unsustainable, in an
application for security for costs the merits test should be somewhat
less stringent, and other factors
which are irrelevant in a dismissal
application should be taken into account. I am therefore in
respectful agreement with the statement
of Klopper J in Davidson's
Bakery (Pty) Ltd v Burger
1961
(1)
SA 589
(O) at 593 E, viz:
'Myns
insiens is die meriete van eiser se aksie nie altyd deurslaggewend
nie, maar slegs
'n
faktor wat in oorweging geneem moet word. Daar kan gevalle wees waar
die hof sekuriteitstelling sal verleen al word dit slegs bevind
dat
die kanse van welslae op die aksie alleen twyfelagtig is sonder dat
ditgese kan word dat dit geen vooruitsigte van sukses inhou
nie.' The
financial ability of the plaintiff to comply with an order to pay the
defendant's costs of action should it prove to
be unsuccessful is an
obvious factor which should be taken into account ... There may also
be other considerations relevant to
the exercise of the court's
discretion."
[31] In
Davidson's
Bakery (supra)
the
Court was likewise seized with an application that the plaintiff
provide security for the defendant's costs. Klopper J noted
that the
discretion to order security in such circumstances arose from the
court's inherent power to prevent abuse of its process
and that such
discretion could be exercised where the action was reckless or
vexatious. In concluding that a court was not precluded
from making
such an order unless it could find that the action was doomed to
failure, the learned Judge placed reliance on a dictum
from
Ecker
v Dean
1938 AD 102
,
one
of a line of cases dealing with the circumstances in which an
insolvent plaintiff could be required to furnish security for
the
defendant's costs. There De Wet JA stated as follows at page 110
"Notwithstanding
dicta to the contrary, it seems to me that the correct principle
underlying these decisions is that every
application for security
must be decided on the merits of the particular case before the
court, bearing in mind that the basis
for granting an order for
security is that the action is reckless and vexatious. In determining
this the facts that the plaintiff
is an insolvent, that the action
could have been brought by the trustee or the creditors and, if such
be the case, that there has
been previous litigation on the same
subject are matters to be taken into account by the Court in
exercising its discretion."
I find myself in
respectful agreement with the less stringent test for the vexatious
of the action in applications for the furnishing
of security for
defendants' costs expressly approved of in
Davidson's
Bakery
and
Fitchet.
It
stands to reason that there will be those actions which, although
highly questionable, cannot, without the advantage of hearing
evidence or full argument, be held to be incapable of succeeding. In
such circumstances it is entirely appropriate that the Court
should
have a discretion, afterconsidering all the relevant circumstances,
to order that a plaintiff provide security for any
adverse costs
order which may follow.
[32] The question which
arises then is whether the present action is vexatious, reckless or
amounts to an abuse of the process of
court. In answering this
question regard must be had,
inter
alia,
to
the defences which defendant proposes to raise. The terms of NCD no.
478 provide that:
"The
nominal amount of the deposit will be repaid upon presentation of the
certificate
(at
certain offices of Defendant in Johannesburg)".
On the basis hereof
defendant avers that this court lacks jurisdiction. Plaintiff
responds by contending that defendant has consented
to the
jurisdiction of this court, relying on a letter from an official of
defendant agreeing to accept service of process in Cape
Town.
[33] A further defence
the defendant indicates it will raise is that the plaintiff lacks
locus
standi
in
that, inasmuch as he derives his representative capacity from an
appointment in terms of s 18(3) of the Act, plaintiff lacks
the
capacity to sue on behalf of the deceased's estate. In this regard
defendant relies upon the statement in
Jacobs
v Baumann
N.O.
2
to the effect that:
"The
rule in our law is that the only proper person to litigate on behalf
of a deceased's estate, in the vindication of its
assets, is its
executor even to the exclusion of the beneficiaries in the estate."
[34] S 18(3) of the Act
reads as follows:
"If
the value of any estate does not exceed the amount determined by the
Minister by notice in the Gazette, the Master may
dispense with the
appointment of an executor and give directions as to the manner in
which any such estate shall be liquidated
and distributed."
Having regard to the
terms of section 18(3) and the letters of authority issued by the
Master, quoted above, there must be serious
doubt whether plaintiff
had the authority to institute the present action in a representative
capacity for and on behalf of the
estate.
[35] It should be said
that plaintiff now appears to be relying for his
locus
standi
on
his appointment as executor of the estate by the Master with effect
from 6 January 2010 and, to this end, has sought to amend
the
description of himself in the summons. A procedural dispute now looms
between the parties, since defendant opposes the amendment
contending
that what is being sought is the substitution of one plaintiff for
another thereby avoiding the fact that the summons,
as initially
issued, was a nullity.
[36] A further defence
which defendant proposes to raise is that of prescription. NCD no.
478 fell due on 29 January 1999 and the
present action was instituted
some 9 years and 8 months later. Defendant contends that the
operative prescriptive period is 3 years
since, on a proper analysis,
the NCD is not a negotiable instrument as defined in the Bills of
Exchange Act 34 of 1964 with the
result that the 6 years prescriptive
period provided for therein does not apply. Defendant points out
further that, assuming always
that the prescriptive period commenced
when the instrument fell due, even if the 6 year prescriptive period
is applied the action
was instituted more than 2V
2
years after such period expired. For his part plaintiff appears to
reckon the prescriptive period as being six years and commencing
in
August 2003 when the receipt which defendant apparently gave to
plaintiff's brother upon confiscation of the original NCD 487
was
unsuccessfully presented for payment.
[37] Defendant intends
also to except to plaintiff's claim as being bad in law and/or vague
and embarrassing. In this regard it
points out that the basis upon
which plaintiff's sues, as the "final holder
pro
tempore"
of
the "written original" is contradictory in that plaintiff
cannot be the "final holder" and seek to sue on
the
instrument "for the time being, temporary or provisionally",
being the meaning of
"pro
tempore".
It
relies also on the fact that plaintiff has never been the holder of
the instrument, the original being held by defendant which
successfully saw off a vindicatory application by the deceased,
seeking the return of the instrument and a declaration that he
was
the owner.
[38] In addition to the
above, defendant contends that plaintiff neither alleges in his
particulars of claim nor will be able to
prove compliance with each
of the necessary conditions required for the obtaining of good title
to the instrument, namely, that
the transferee must be
"bona
fide,
that
value must have been given for the instrument and that the transferee
must be a South African resident. In regard to the requirement
of
value given, notwithstanding the voluminous documentation in the
litigation initiated by plaintiff and the deceased in relation
to the
NCD's, there is a dearth of concrete proof of such value having been
given for the instruments, including NCD 478. Dambar
appears to be a
shadowy figure and, as far as can be seen, has never filed any
affidavit while the principal party involved in
the original
acquisition of the NCD's, the deceased, can no longer testify.
[39] It is both
undesirable and unnecessary for this Court to express a view on the
validity of the various defences which the defendant
proposes to
raise either
in
limine,
technical,
procedural or substantive. What can safely be said is that there are
many formidable obstacles in the path of plaintiff
proving his claim,
not least the defences of prescription and the lack of value given.
[40] As far as
plaintiff's ability to meet any order for costs it is common cause
between the parties that the deceased estate is
insolvent. According
to defendant the liabilities in the estate are in the order of
R17.7million whilst its only assets, presumably,
are the claims it
has in respect of the NCD's. According to plaintiff the estate's
liabilities are less than half a million rand
but no explanation is
furnished for a longstanding debt in the sum of US$2.2 million.
[41] The litigation
involving the NCD's has produced at least two costs orders, the first
arising out of the 2003 application and
the latest arising out of the
successful condonation application in Johannesburg late last year.
The first such order was not met
and no doubt is a liability in the
deceased estate. It remains to be seen whether plaintiff will meet
the second costs order made
herein relating to the summary judgment
application.
[42] Any costs orders
made in these proceedings can, in the nature of things, not be
satisfied by the insolvent estate and liability
therefor will be
disavowed by the plaintiff personally since he sues in a
representative capacity, either as the s 18(3) representative,
or if
his amendment is successful, as the estate's executor. Although
plaintiff is legally represented it is apparent that much
of the work
involved in the presentation of his case and preparation of his
papers is done by a lay person, presumably himself.
In this matter
alone plaintiff has filed two declarations running to hundreds of
pages including annexures.
[43] It is likely that
the litigation, irrespective of the merits of plaintiff's claim will
be prolonged and strenuously contested
at every level. The signs, in
the form of the opposed condonation application in the provincial
sentence proceedings and the summary
judgment application in this
action, are already clear. Plaintiff's counsel was unable to explain
why, after a hiatus of six years
between 2003 and 2009, plaintiff has
seen fit to launch actions on two fronts seeking to enforce the
estate's claims in respect
of the NCD's.
[44] Various arguments
were raised on behalf of plaintiffs why he should not be required to
furnish security for costs and these
fall to be dealt with. Apart
from a reliance on the common law rule that
incolae
plaintiffs
can not be compelled to furnish security for costs, these arguments
are the estate's constitutional rights in terms of
s 34(1) of the
Bill of Rights, that the estate will be unable to proceed with its
action if it is ordered to provide security for
costs, that there
will be no prejudice to defendant if it succeeds in its defences and
cannot recover its costs in as much as it
is indemnified against all
costs orders by Standard Bank and, finally, that the estate finds
itself in its current predicament
due to the action of defendant in
refusing to honour the NCD's.
[45] As far as the
indemnity defence is concerned defendant readily admits that it holds
an indemnity from Standard Bank against
anyjudgment which may be
taken against it in the respect of NCD 478. That indemnity was
furnished by Standard Bank when defendant
paid it the nominal value,
presumably plus interest, in respect of the "lost" NCD's
including no. 478.
[46] As Mr. Robinson, who
appeared for defendant, pointed out however, the existence of the
indemnity constitutes
res
inter alios acta.
Moreover,
defendant cannot sit back armed with such an indemnity and adopt a
supine attitude towards the litigation. There will
always be an
implied term in such an indemnity that defendant put up a "virilis
defensio", a powerful or proper defence,
to the action.
3
This would include defendant's obligation to seek security for its
costs in the face of the prospect that plaintiff will be unable
to
meet any costs award made against him. It was suggested on behalf of
plaintiff, albeit not pursued by counsel with any vigour,
that the
estate's impecunious position was principally due to defendant's
actions in not honouring the NCD's. Apart from the fact
that this
begs the question as to whether defendant was obliged in law to
honour these instruments, there is considerable evidence
that the
prime liability of the estate was a longstanding debt of US$ 2.2
million and thus, even had the deceased received full
payment on the
NCD's, the estate would still have been in an insolvent position.
[47] It was also
contended that requiring plaintiff to furnish security for
defendant's costs would infringe his rights of access
to court
constitutionally enshrined in s 34(1)(a) of the Bill of Rights which
provides that:
"Everyone
has the right to have any dispute that can be resolved by the
application of law decided in a fair public hearing
before a court
[48] In
Giddey
No. v J.C. Barnard and Partners
2007(5)
SA 525 (CC) The Constitutional Court recently considered the import
of this basic right in the context of the provisions
of section 13 of
the Company's Act, 61 of 1973, ("The Act") which permit a
litigant to require a company to furnish security
for costs.
[49] The Court held that
the main purpose of the relevant provision of the Act is to ensure
that companies, who are unlikely to
be able to pay costs and are
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.
4
The court held further that in applying s 13, a court needed to
"balance
the potential injustice to a plaintiff if it is prevented from
pursuing a legitimate claim as a result of an order
requiring it to
pay security for costs, on the one hand, against the potential
injustice to a defendant who successfully defends
theclaim and may
well have to pay all its own costs in the litigation. To do this
balancing exercise correctly, a court needs to
be apprised of all the
relevant information. An applicant for security will therefore need
to show that there is a probability
that the plaintiff company will
be unable to pay costs. The respondent company on the other hand must
establish that the order
for costs might well result in its being
unable to pursue the litigation and should indicate the nature and
importance of the litigation
to rebut a suggestion that it may be
vexatious or without prospects of success. Equipped with this
information, the court will
need to balance the interests of the
plaintiff in pursuing the litigation against the risk that the
defendant of an unrealisable
costs order."
[50] After reviewing the
authorities the Court held that s 13 could not be read, in the light
of the Constitution or otherwise,
to mean that "a court has no
discretion to order security to be furnished where the effect of that
order will be to terminate
the litigation". It quoted with
approval from the judgment of Hefer JA in
Shepstone
and Wylie and Others v Geyser N.O.
5
where
he stated:
"Let
me say at the outset that the fact that an order of security will put
an end to the litigation does not by itself provide
sufficient reason
for refusing it. It is a possibility inherent in the very concept of
a provision like s 13 which comes into operation
whenever it appears
to the court that the plaintiff or applicant will not be able to pay
the defendant or respondent's costs in
the event of the latter being
successful in his defence."
[51 ] The Constitutional
Court's judgment in
Giddey
is in
my view a strong indication that the court's inherent power to order
an
incola
plaintiff
to provide security for costs in exceptional circumstances, and in
particular where the action instituted is vexatious,
reckless or an
abuse of process, will survive constitutional scrutiny and,
furthermore, that the fact that the effect of such an
order might be
to put and end to the litigation is in itself not the decisive factor
in deciding whether security for cost should
be furnished or not.
[52] In the present case
plaintiff states in his affidavit opposing security for costs that
making such an order would put an end
to the estate's claims. He
gives little detail, however, as to what efforts, if any, has been
made to secure finance to assist
the estate in its prosecution of its
claims which totals some R6m. Plaintiff does, however, state that he
is funding the litigation
from his personal monthly salary income and
that after various deductions and monthly obligations which he had
are met he is left
with approximately R10 000.00 which is used to
assist in the litigation against defendant. Plaintiff adds he has no
other income
or liquid investments from which he can fund the
litigation and that his twin brother, being the other beneficiary in
the estate,
assists in the aforementioned funding. The position
appears to be that although the plaintiff performs much of the legal
work himself,
he engages attorneys and counsel to present his case
and presumably meets their fees through finances mentioned. In these
circumstances
I can see no reason why the plaintiff and his brother
cannot set aside a sum of money to satisfy an order providing for
security
for costs. They are also free to approach any person to
finance their claim as well. Plaintiff is, therefor, not an
impecunious
litigant who cannot afford even his own legal
representation. He is, rather, a litigant able to fund his own legal
expenses but
largely immune to any adverse costs order. The provision
by plaintiff of security for the defendant's costs in the
circumstances
of this matter will, at the very least, have the
salutary effect of discouraging ill-considered interlocutory
applications or procedural
steps on the part of plaintiff.
[53] On behalf of
plaintiff Mr. Heyns argued that defendant's interest were protected
since the Court retained the power to order
costs award against
plaintiff
de
bonis propriis
and
it was thus unnecessary to order plaintiff to provide security for
costs. This argument ignores the fact that special circumstances
must
exist before a court will order costs
de
bonis propriis
and
they are not ordered against a party simply because he is acting in a
representative capacity for an insolvent entity. Nor,
in the absence
of any information concerning plaintiff's financial solvency, would
such costs orders provide the certainty to defendant
which an order
for the provision of security for costs will.
[54] Taking all these
circumstances into account I consider that the defendant has not
established that the present action is doomed
to failure or amounts
to an abuse of the process of court. Having regard to all the
surrounding circumstances, however, I am satisfied
that the present
action is reckless or vexatious, within the meaning discussed above.
These circumstances include earlier unsuccessful
litigation to
establish ownership and re-claim possession of NCD 478, the long and
unexplained delay in the institution of the
present action, the
several procedural, technical and substantive defences which
defendant proposes to raise and the manner in
which the plaintiff has
conducted this and related litigation, most notably the filing and
withdrawal of lengthy declarations and
his persisting in the
application for summary judgment and in opposing an application for
condonation in the Johannesburg proceedings.
[55] Having made this
finding it is open to this court, in exercising its discretion, to
order the furnishing of security. I see
no reason why defendant,
notwithstanding that it is a large commercial concern, should be
exposed to expensive and time consuming
litigation over NCD no. 478
at the instance of a plaintiff who, if unsuccessful, can merely shrug
off any adverse costs award because
he sues in a representative
capacity on behalf of an insolvent estate. There are strong
indications that Plaintiff is one of the
two beneficiaries (the other
being his brother) in the estate and thus the litigation on its
behalf directly furthers his interests.
[56] Ultimately, and by
way of amendment, the order sought by defendant was that security for
its costs be furnished by plaintiff,
that the amount and the form
thereof be determined by the Registrar and that the action be stayed
until such time as the security
was furnished. I regard such an order
as appropriate in the circumstances. Defendant also sought an order
that plaintiff pay the
costs of this application on the attorney and
client scale,
de
bonis propriis.
I
do not think costs on this scale are appropriate since, in the
ordinary course, an
incola
plaintiff
is not required to furnish security for costs and therefore it was
reasonable on the part of plaintiff to oppose the application.
For
the same reasons I do not consider that the costs of this application
should be awarded against plaintiff in his personal capacity.
[57] In the result the
following order is made:
1.
Plaintiff shall pay defendant's costs in the application for summary
judgement on the attorney and client scale, de bonis propriis,
such
costs to be payable immediately;
2.
Plaintiff is directed to furnish security for the costs of defendant
in an amount and form to be determined by the Registrar.
3.
The
action is stayed until such security is furnished;
4.
Plaintiff
shall pay defendant's costs in the application for security for
costs, such costs to include the costs of two counsel,
where
employed.
[58]
For the guidance of the Taxing Master it is recorded that no less
than two thirds of the argument heard on 17 March 2010 was
devoted to
the question of security for costs.
L.
J BOZALEK J
JUDGE
OF THE HIGH COURT
1
See
Western
Assurance Company v Caldwelf's Trustee
1918
AD 262
and
Ecker
v Dean
1937
AD 254
at 259.
2
2009 (5) SA 432
(SCA) at 437 para 13.
3
See
York
and Company (PVT) Ltd v Jones N.O. Co.
1962
(1) SA 72
(SR).
4
At page 530 C - D.
5
1998 (3) SA 1036
(SCA) at 1046 G.