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[2015] ZAWCHC 16
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Trinity Asset Management (Pty) Ltd v Grindstone Investments 132 (Pty) Ltd (12667/2014) [2015] ZAWCHC 16 (18 February 2015)
IN THE HIGH
COURT OF SOUTH AFRICA
WESTERN CAPE DIVISION, CAPE
TOWN
CASE NO: 12667/2014
DATE: 18 FEBRUARY 2015
REPORTABLE
In the matter between:
TRINITY ASSET
MANAGEMENT (PTY)
LTD
...................................................................
Applicant
[Registration No.
1996/010864/07]
And
GRINDSTONE
INVESTMENTS 132 (PTY)
LTD
.............................................................
Respondent
[Registration No. 2004/021971/07]
JUDGMENT
DELIVERED ON 18 FEBRUARY 2015
GAMBLE, J:
INTRODUCTION
[1]
On 18 July 2014 the Applicant (“Trinity”)
lodged an application in this court to provisionally wind-up the
Respondent
(“Grindstone”). The matter was set down for
hearing on the ordinary motion court roll on 28 July 2014. The
application
was opposed on that day and by agreement between the
parties postponed to 7 October 2014 for hearing on the semi urgent
roll, with
a timetable for the filing of papers.
[2]
Grindstone’s answering affidavit was
filed on 25 August 2014 and Trinity’s reply on 7 September
2014. On 25 September
2014 Grindstone’s Johannesburg attorney,
M J Hood & Associates (locally represented by a Mr Nirenstein of
Knowles Husain
Lindsay Inc.), filed an urgent application to be heard
during recess on Wednesday, 1 October 2014 in which Trinity was
sought to
be compelled to provide security for costs in the
liquidation application in the amount of R200 000.00.
[3]
On
2 October 2014 Saldanha J granted an order by agreement between the
parties that security as requested in the sum of R200 000.00
be
put up. The effect of paragraph 2 of that agreed order was to
automatically suspend the application for winding-up and
so the
matter did not proceed on 7 October 2014 as originally intended.
[4]
A month went by without Trinity putting up
the agreed security. On 5 November 2014 Trinity launched an
urgent application
(to be heard on 7 November 2014) to rescind the
order of Saldanha J. The matter was postponed by Riley AJ on
that day.
A tight timetable was fixed, but the parties managed
to keep to it and the matter was heard by this court on 4 December
2014 with
Mr A R G Mundell SC appearing for Trinity and Mr D van
Reenen for Grindstone.
BACKGROUND
TO THE ORDER OF SALDANHA J
[5]
Two days after the filing of the answering
affidavit, Mr Hood gave notice in terms of rule 47 to Trinity’s
erstwhile attorneys
(represented by Ms Garella of Pietermaritzburg)
for security in the sum of R200000.00. The grounds for the demand
were set out
as follows in the notice:
“
1.
Applicant [i.e. Trinity] is a private company duly incorporated as
such in terms of the company laws of the Republic of South
Africa,
and is required to give security for costs if at any time during the
proceedings it appears that there is reason to believe
that the
company or, if it is being wound up, the liquidator thereof, will be
unable to pay the costs of the Respondent [i.e. Grindstone]
if
successful in its defence;
2. Respondent has
reason to believe that Applicant will be unable to pay the costs of
Respondent if Respondent is successful in
its defence;
3. In support of
the aforegoing, Respondent refers to its averment in paragraph 11.2
of its answering affidavit, namely that the
South African Revenue
Services has a judgment against Applicant in the sum of R382693,00,
which remains unsatisfied;
4. Applicant, in
its replying affidavit has in effect admitted the said judgment, and
that it is unsatisfied
”
.
[6]
Shortly thereafter Mr Hood wrote to Ms
Garella informing her that in the event that Trinity conceded that it
was liable to put up
security but disputed the amount, the matter
would have to be referred to the Registrar for determination of the
amount in terms
of rule 47. A response was requested within 48
hours to avoid the launching of an urgent interlocutory application.
[7]
On 16 September 2014 Ms Garella responded
indicating that she had only received Mr Hood’s letter the
previous day and bemoaned
the fact that her offices had been without
electricity for a large part of that day. She undertook to revert on
18 September 2014
after consulting with her client.
[8]
Ms Garella complied with her undertaking,
and on that day, sent a without prejudice letter to Mr Hood in which
she said,
inter alia
:
“
2. We have
consulted with our client and counsel and our instructions are to
advise you that our client does not accept liability
and is disputing
that he has to put up security for costs as called for by you.
However, to avoid protracting the matter,
we have been instructed to
tender R50 000.00;
3. The amount of
R200 000.00 is excessive in the circumstances;
4. Kindly take
instructions and revert as a matter of urgency. If your client
is not amenable to our tender the matter has
to go before the
Registrar
”
.
[9]
The tender of R50000.00 was rejected and on
26 September 2014 Grindstone launched an urgent application for
security: this is the
matter that came before Saldanha J on 1 October
2014. After the parties had negotiated the resolution of their
dispute, an
order was taken by agreement before Saldanha J.
[10]
As I have said, the agreed security was not
immediately forthcoming. On 27 October 2014, Mr George, a director of
Trinity, was consulting
a certain Mr Korber, an attorney in Cape
Town, about an unrelated matter. There was evidently discussion
in passing about
the security application during which Mr Korber
offered Mr George certain gratuitous advice
viz.
that he held the view that Trinity was not liable to put up security
on the basis requested by Grindstone.
[11]
The upshot of that discussion was that Mr
Korber interceded as the attorney of record in place of Ms Garella in
both the liquidation
and security applications, and immediately set
about corresponding with Ms Garella’s local correspondent, Mr
Watson of Gunstons
Attorneys, in an attempt to procure the reversal
of the order of Saldanha J. This was not achievable and the current
rescission
application was then launched, as I have said, as a matter
of compelling urgency on only two days’ notice.
TRINITY’S
ALLEGATIONS REGARDING THE SECURITY APPLICATION
[12]
Mr Mundell SC argued (much in line with the
points taken by Mr Korber in correspondence) that the basis for
Grindstone’s demand
for security was legally flawed, in that it
purported to be based on the redundant provisions of section 13 of
the repealed Companies
Act of 1973 (“the Old Act”).
[1]
That section was not carried through to the Companies Act, 71 of 2008
(“the
Companies Act&rdquo
;) and the position currently is that
any application for security for costs involving a company, is to be
determined according
to common law principles.
[2]
[13]
In
Maigret
I followed the decision of Thring J in
Ramsamy
[3]
,
and held that in an application for security under the common law it
was not sufficient to simply allege that security was warranted
because of the mere inability of a plaintiff or applicant to satisfy
a potential costs order: something more was required.
I
have no reason to deviate from that view, which seems to be the view
of other courts too.
[14]
A reading of the notice in terms of
rule 47
in this case leaves one with little doubt that it was intended to be
based on the provisions of section 13 of the Old Act –
the
wording is almost identical and, in addition, there is no suggestion
of “
something more
”
(e.g. vexatiousness or recklessness) that justifies the application.
It seems then that Mr Hood was oblivious of the
repeal of section 13
of the Old Act. I say “
seems
”
because Mr Hood has not filed an affidavit in these proceedings
explaining the Rule 47 notice.
[15]
In the founding affidavit in the rescission
application Mr George complains that he was wrongly advised by Mr
Watson, then acting
as Ms Garella’s correspondent, as to the
correct legal position:
“
36.2 The
instructions referred to by Watson in his aforesaid e-mail of 29
September were the same instructions as those set out
in Garella’s
e-mail to Hood of 18 September 2014, save that they were no longer
limited to R50 000.00 which had been
rejected by Grindstone.
This was on the advice of Watson who, like Garella before him, did
not advise me of, and seemed to
be oblivious to, the fact that the
law pertaining to security for costs by a company ostensibly unable
to pay the costs of an adverse
costs order had changed as a result of
the repeal of the 1973
Companies Act and
, with it,
section 13
thereof.
36.3 At the risk
of stating the obvious, had I known that the security application was
a non-starter, I would
not
have agreed to take the advice of Watson (or Garella) which was
predicated on ignorance of the correct legal position
”
.
BASIS
FOR THE RESCISSION APPLICATION
[16]
While various points were raised in the
heads of argument, Mr Mundell SC limited his submissions in the
rescission application arguing
that the application fell to be
determined either under
rule 42(1)(a)
or the common law. Mr van
Reenen adopted the stance that the order of Saldanha J was the
product of a negotiated settlement
in which an expedient decision had
been taken by both parties to enable the main litigation to
progress. He argued that,
while both sets of attorneys may have
been mistaken as to the basis for the application, an agreement of
compromise was reached
after both sides had considered their options
to enable the liquidation application to be speedily disposed of.
RULE
42(1)(a)
[17]
Mr Mundell SC referred to the court’s
power under this rule to rescind or vary:
“
(a) an
order or judgment erroneously sought or erroneously granted in the
absence of any party affected thereby
”.
[18]
He argued, on the strength of a number of
authorities
[4]
that where an order of court was legally incompetent or lacked a
legal foundation, it was capable of being rescinded under this
rule.
[19]
I am prepared to accept, without deciding,
that the basis for the application before Saldanha J was a piece of
repealed legislation
of which Mr Hood was unaware. That,
however, is not sufficient to warrant rescission in the present case
because Trinity
has not established that the order was taken “
in
the absence of the party affected thereby
”,
i.e., itself.
[20]
It is true, as claimed in the affidavits,
that neither Mr George nor Mr Watson were present at court when the
order was made by
Saldanha J, who, it seems, heard the matter in
chambers given that it was court recess. The papers do not
reflect which party’s
counsel presented the order to Saldanha J
– just Trinity’s, or Grindstone’s as well? I
shall assume for
purposes of argument that the order was presented by
Grindstone’s counsel alone – it was after all the party
seeking
security and the party armed with an agreement to take the
order by consent. In such circumstances, Trinity clearly waived
the right to be before the presiding judge having satisfied itself
that this was not necessary in light of the parties’
agreement. That much is common practice in this Division where
matter are settled and only one legal representative , with
the
consent of his/her opponent, sees the presiding judge in chambers.
[21]
In such circumstances, I am not persuaded
that Trinity has established the criterion of “
absence
”
as contemplated under
rule 42(1)(a).
COMMON
LAW
[22]
In relying on the court’s common law
power to rescind the order made by Saldanha J, Mr Mundell SC argued
with reliance in
the main on
Kruisenga
.
[5]
In a detailed and well-researched judgment Van Zyl J was required to
deal with an application for rescission of a judgment
granting a
damages claim due to a veld fire in which the defendant (the MEC) had
conceded the merits on certain of the plaintiff’s
claims.
In seeking to set aside those parts of the judgment where the MEC had
conceded the plaintiff’s claims, the
defendant’s only
point was that the State Attorney lacked the requisite authority to
concede the merits to agree to pay those
heads of damages which he
had purported to concede.
[23]
Although the application for security for
costs in this matter was an interlocutory proceeding, the parties
accepted that Saldanha
J’s order constituted a final judgment.
The dispute around the provision of security or not, and the amount
thereof,
was accordingly
res judicata
between the parties.
[24]
After an extensive analysis of the remedy
of
restitutio in integrum
as it has devolved from the Roman Dutch authorities, Van Zyl J made
the following observations at 280D
et
seq
:
“
[33] The
grounds for restitution (causae iustae) are said to be fear, fraud,
absence, minority, justifiable mistake (justus error),
and what Voet
describes as the ‘general clause’ to the praetor’s
edict, namely, ‘any good and sufficient
cause’. All
of these grounds do not apply to each and every juristic act to which
the remedy extended. Restitutio
is granted on a lawful ground
(iusta causa) founded or recognised in law, i.e. a reason that has
been held to be sufficient so
as to justify an order for restitution
in any particular case. At common law, any cause of action that
is relied on as a
ground for the setting aside of a final judgment
must have existed at the date of the judgment. There must be
some causal
connection between the circumstances which gave rise to
the claim for rescission and the judgment
”.
[Footnotes omitted.]
[25]
Van Zyl J considered that there were
essentially three categories of judgment which fell to be considered.
Firstly, the court found
that a judgment granted after the hearing of
evidence and argument was capable of rescission on very limited
grounds only.
Secondly, there were judgments which have been
granted without going into the merits of the dispute, e.g. through
default of appearance
of the defendant. In those instances, the
court’s powers of rescission are far wider.
[26]
Finally, there is the category with which
we are dealing here – what is customarily referred to as a
“
consent judgment
”.
Reliance was placed on
Gollach &
Gomperts
[6]
in which the Appellate Division dealt at length with the concept of a
transactio
[7]
whose purpose it was said was not only to put an end to existing
litigation, but also to prevent or avoid looming litigation.
[8]
[27]
Miller JA observed that it appeared to him
that a
transactio
was:
“
most
closely equivalent to a consent judgment … Such a
judgment could be successfully attacked on the very grounds
which
would justify rescission of the agreement to consent to judgment.
I am not aware of any reason why justus error should
not be a good
ground for setting aside such a consent judgment … provided
that such error vitiated true consent and did
not merely relate to
motive or to the merits of a dispute which it was the very purpose of
the parties to compromise
”.
[9]
[28]
The learned Judge of Appeal quoted with
approval the following extract from Williston on
Contracts
3
rd
ed
vol. 13 para 1543 pp 75-76, in which the learned authors, recognising
that mistake would in appropriate cases render contractual
transactions voidable, cautioned as follows:
“
However,
there must be excluded from consideration mistakes as to matters
which the contracting parties had in mind as possibilities
and as to
the existence of which they took the risk. With respect to any matter
not made a basic assumption of the contract, the
parties take their
chances.
Thus, where a
compromise is made, the fact that one or both parties were under a
mistake in regard to the claim which was the subject
of compromise
affords no grounds for relief.
It should be
observed, however, that even a compromise may be based on the assumed
existence of some fact, and then may be set aside
for mutual mistake
as to such basic assumption like any other contract
”
.
[10]
[29]
And, concluded Miller JA:
“
Voluntary
acceptance by parties to a compromise of an element of risk that
their bargain might not be as advantageous to them as
litigation
might have been is inherent in the very concept of compromise.
This is a circumstance which the Court must bear
in mind when it
considers a complaint by a dissatisfied party that, had he had
laboured under an erroneous belief or been ignorant
of certain facts,
he would not have entered into the settlement agreement
”.
[11]
JUSTUS
ERROR
[30]
In the founding papers in this application
for rescission, Mr George speculates as follows in an attempt to set
up a common mistake:
“
14. It can
only be inferred that Grindstone’s attorneys were similarly
unaware of the fact that section 13 of the 1973
Companies Act was
no
longer of application and that it was accordingly not legally
competent for Grindstone to seek, or for the Court to make, the
order
of 1 October 2014. In the event, I submit that:
14.1 there was no
true consensus between the parties who were both operating under the
incorrect assumption or mistaken supposition
that
section 13
of the
(old)
Companies Act was
still in operation when it had been repealed
(and not re-enacted) with effect from 1 May 2011 when the new
Companies Act came
into operation;
14.2 Trinity’s
ostensible consent to the security order was vitiated by its mistake
regarding the applicability of section
13 of the 1973
Companies Act,
which
mistake arose because of the manner in which Grindstone framed
the security application and the advice it received from its
erstwhile
attorneys …
”
.
[31]
In the answering affidavit filed on behalf
of Grindstone, these allegations are met with the following denials:
“
Ad
para 14
31. I deny the
content of this paragraph. There is
[
sic
]
ample legal authorities to support
Respondent’s position that security for costs can be demanded
and should be provided.
Ad para
14.1
32. I deny that
there was no consensus between the parties.
33. I refer to
the email from Garth Watson a director of Gunston Attorneys dated 29
September 2014 which is self-explanatory, attached
as annexure “B”.
34. This is an
agreement entered into between two duly admitted attorneys, who are
practising in the above High Court
”
.
[32]
Earlier in the affidavit Grindstone’s
Mr Cunningham-Moorat points out, firstly, that George’s
allegations regarding
a lack of consensus are not confirmed under
oath by either Ms Garella or Mr Watson, Trinity’s erstwhile
attorneys.
He goes on to say that:
“
8. I am
advised that it will be argued at the hearing of this matter that the
issue of the provision for costs in respect of an
incola company has
been settled and that this court, and any High Court has a discretion
whether to compel the provision of security
for costs.
9. It will be
argued further, that parties can
agree
to the provision of security for costs and that such agreement is not
an illegal or immoral agreement and that it constitutes an
enforceable agreement
”
.
[33]
Further, Grindstone says that:
“
26. …
[Its] request for security for costs was premised on the discretion
conferred upon the above court in terms of the
common law applied to
the facts set out in the application for the provision of security.
27. Furthermore,
the Respondent and Applicant’s respective legal representatives
entered into an
agreement
to provide security for costs.
28. I deny that
an incola company cannot be compelled to provide security for costs
”
.
[34]
If one has regard to Ms Garella’s
contemporaneous letter to Mr Hood of 18 September 2014 (referred to
in paragraph 8 above),
it is apparent that it is not common cause
that Trinity’s erstwhile attorneys held the view (now said to
be a mutually mistaken
view) that it was obliged to put up security
by virtue of believing that it was bound to do so under section 13 of
the Old Act.
Rather, its concession appears to be predicated on a
decision driven by expediency in line with the exceptional situation
referred
to in
Williston
.
[35]
These are motion proceedings for final
relief and in the event of a dispute of fact Grindstone’s
allegations must carry the
day.
[12]
I am therefore not persuaded that Trinity has established the mutual
mistake relied upon in paragraphs 14.1 and 14.2.
It follows
therefore that it cannot be said that the agreement was concluded
under
justus error
.
ORDER
OF COURT
[36]
In the circumstances the application for
rescission is dismissed with costs.
GAMBLE, J
[1]
The section reads as follows:
“
13. 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 or, if
it is being wound
up, the liquidator thereof, will be unable to pay
the costs of the defendant or respondents if successful in his
defence, require
sufficient security to be given for those costs and
may stay all proceedings until the security is given
”.
[2]
Ngwenda Gold (Pty) Ltd and Another v Precious
Prospect Trading 80 (Pty) Ltd
[2011]
ZAGPJHC 217 (14 December 2011);
Siemens
Telecommunications (Pty) Ltd v Datagenics (Pty) Ltd
2013 (1) SA 65
(GNP);
Maigret
(Pty) Ltd(in liquidation) v Command Holdings td and Another
2013 (2) SA 481
(WCC);
Nielson v
Rautenbach N.O. and Others
2014 (3) SA
17
(GNP).
[3]
Ramsamy N.O. and Others v Maarman N.O. and
Another
2002 (6) SA 159
(C) at 172-3.
[4]
Athmaram v Singh
1989
(3) SA 953
(D);
Marais v Standard
Credit Corporation Ltd
2002 (4) SA 892
(W);
Seale v Van Rooyen N.O. and
Others; Provincial Government, North West Province v Van
Rooyen N.O. and Others
2008 (4) SA 43
(SCA) and
Silver Falcon Trading 333
(Pty) Ltd and Others v Nedbank Ltd
2012 (3) SA 371 (KZP).
[5]
MEC for Economic Affairs, Environment and
Tourism v Kruisenga and Another
2008
(6) SA 264
(CkHC).
[6]
Gollach & Gomperts v Universal Mills &
Produce Co.
1978 (1) SA 914
(A).
[7]
“
An agreement between litigants for the
settlement of a matter in dispute
”
(921B).
[8]
921C.
[9]
922H.
[10]
923A-B.
[11]
923D.
[12]
Plascon-Evans Paints Ltd v Van Riebeeck Paints
(Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(A) at
634E-635C.