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[2015] ZAWCHC 76
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Blastrite (Pty) Ltd v Genpaco Ltd; In re: Genpaco Ltd v Blastrite (Pty) Ltd (4530/15) [2015] ZAWCHC 76; 2016 (2) SA 622 (WCC) (1 June 2015)
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Case
No.: 4530/15
DATE:
01 JUNE 2015
In
the matter between:
BLASTRITE
(PTY)
LTD
.........................................................................................................
Applicant
And
GENPACO
LTD
.....................................................................................................................
Respondent
In
re
the arbitration proceedings before Adv. D.R. Mitchell SC
between:
GENPACO
LTD
.........................................................................................................................
Claimant
And
BLASTRITE
(PTY)
LTD
......................................................................................................
Respondent
JUDGMENT:
1 JUNE 2015
Schippers
J:
[1]
This is an application in terms of
s 21(1)
of the
Arbitration Act 42 of 1965
for an order directing the
respondent to put up security for costs in the sum of R250 000.00
in arbitration proceedings. The
respondent is the claimant in those
proceedings against the applicant, pending before the arbitrator, Mr
DR Mitchell SC.
[2]
The basic facts are uncontroversial.
The applicant is a company with its registered office and main place
of business in South
Africa. It produces and sells abrasives
used as blasting grit to clean metal surfaces on ships, tanks and
offshore rigs.
The respondent is a company incorporated under
the company laws of, and with its registered office in, Nigeria.
It carries
on business in Nigeria as an importer and supplier of
abrasives. It owns no immovable property in South Africa.
The
respondent is thus a
peregrinus
of the Republic and this court.
[3]
The arbitration has its origin in an urgent
application which the respondent instituted in this court on 10
February 2010.
In that application the respondent sought an
interdict against the applicant to prevent it from selling or
distributing abrasives
to any company trading in Nigeria, on the
basis that the applicant had appointed the respondent as its sole
distributor in Nigeria
under a distribution agreement entered into
between the parties in 2002. On 11 February 2010 this court
issued a rule
nisi
operating as an interim interdict, in terms of which the applicant
was interdicted from selling or distributing any of its abrasives
to
any company in Nigeria, directly or through any third party other
than the respondent (“the interdict”).
[4]
On 20 January 2011 the respondent’s
attorneys provided the applicant’s attorneys with a deed of
security in the sum
of R120 000.00 for the applicant’s costs in
the urgent application, after the Registrar of this court determined
that the
respondent was liable to furnish security.
[5]
On 1 March 2011 the parties reached an
interim agreement which was made an order of court. In terms of
that agreement they
referred the dispute to an expert for decision,
as contemplated in clause 19 of the distribution agreement. It
was also agreed
that the interdict would continue to operate pending
the final determination of the proceedings before the expert. The
matter
was referred to Mr Mitchell and pleadings were subsequently
exchanged.
[6]
By letter dated 25 March 2014, the
respondent requested the applicant to agree that the proceedings
pending before Mr Mitchell in
terms of clause 19 of the distribution
agreement are in substance arbitration proceedings under the
Arbitration Act. On
30 May 2014 the parties formally recorded
that the proceedings are arbitration proceedings governed by the
provisions of the
Arbitration Act.
[7
]
On 2 December 2014 the applicant’s
attorney wrote to the respondent’s attorney indicating that the
applicant intended
to seek a determination in respect of security for
costs from the arbitrator. The respondent’s attorney
replied on
8 January 2015 stating that the respondent is under no
obligation to provide further security for the applicant’s
costs.
[8]
On 26 February 2015 the parties agreed on
the dates for the hearing of the arbitration: 6-10 July 2015. The
applicant brought this
application for security on 13 March 2015.
[9]
The respondent opposes the application on
two main grounds. The first is that the applicant has not made
out a case for the
exercise of the court’s discretion to order
security, and equity and fairness dictate that the application should
be refused.
The second is that the common law practice in terms
of which a
peregrinus
may be called upon to give security for costs, is unconstitutional
because it violates the right to equality before the law enshrined
in
s 9(1) of the Constitution, and amounts to unfair discrimination.
[10]
In
deciding whether a party should furnish security, a court has a
judicial discretion, having regard to the particular circumstances
of
the case and considerations of fairness and equity to both the
incola
and the
peregrinus
.
[1]
The court should not adopt a predisposition in favour of or against
granting security, and must carry out a balancing exercise:
it must
weigh the injustice to the respondent if prevented from pursuing a
proper claim by an order for security, against the injustice
to the
applicant if no security is ordered.
[2]
[11]
In this case the consideration that the
respondent may be prevented from pursuing its claim does not arise.
The answering
affidavit states that if so ordered, the respondent
will provide security in the amount of R250 000.00 as claimed.
There
is no complaint that the amount of security is unreasonable.
Furthermore, it appears that the respondent is able to furnish
security from its own resources.
[12]
The respondent however contends that
security for costs should not be ordered because the applicant has
approached the court was
unclean hands; has delayed unreasonably; has
not shown that the respondent is unable to pay costs or that it would
encounter difficulty
in executing a costs award; and security is
inconsistent with the parties’ intention.
[13]
These contentions are unsound.
Regarding the unclean hands point, the respondent says that the
applicant directly and indirectly
sold abrasives to customers in
Nigeria in breach of the interdict. The applicant declined to
deal with these allegations
in the replying affidavit because they
are the subject of the arbitration. The applicant terminated
the distribution agreement
between the parties with effect from 1
June 2010, as it was entitled to do. In its statement of claim
in the arbitration,
the respondent expressly accepted the termination
of the agreement. There was thus no longer any need for
interdictory relief
after 1 June 2010. Aside from this, the
respondent was not prejudiced. Its claims in the arbitration
proceedings all
relate to alleged prior instances of breach of the
distribution agreement. Moreover, the claims relating to the
breach of
the agreement and court orders subsequently obtained, fall
squarely within the ambit of the arbitrator’s jurisdiction.
It would be inappropriate for this court to pronounce upon those
claims in an application for security for costs. The submission
that the applicant’s simultaneous violations of the interdict
are merely ancillary to the merits of those claims, is thus
incorrect.
[14]
As
to delay, the general rule is that a party is expected to apply
expeditiously for security but may seek additional security at
any
stage, although an unreasonable delay in doing so may be decisive in
the exercise of the court’s discretion.
[3]
The respondent submits that the applicant has given no
explanation for its failure to apply for security for costs when it
knew in May 2014 already that the matter was to proceed to
arbitration.
[15]
The respondent however ignores the facts.
The matter had been dormant for many months through no fault of the
applicant’s
and it was unnecessary to seek security for costs
in those circumstances, particularly when the applicant did not know
whether
or not costs would be incurred in preparation for trial.
The applicant unsuccessfully tried to come to an agreement with the
respondent regarding security for costs after May 2014. The
dates for the hearing of arbitration were agreed only on 26
th
of February 2015 and this application was launched on 13 March 2015.
But more fundamentally, the respondent has not suffered
any prejudice
as a result of any alleged delay on the part of the applicant - it is
able to furnish the security sought.
[16]
The
fact that a litigant may have to proceed abroad if it obtains a costs
order in its favour, with the associated uncertainty,
inconvenience
and additional expense which that entails, is one of the fundamental
reasons why a
peregrinus
should provide security.
[4]
The reasons for this approach are not far to seek. The
successful party would have to work across thousands of kilometres,
instruct lawyers in a country it did not choose and with no
connection to the original suit; and it may happen that the expense
of recovering its costs may exceed the judgment debt or
party-and-party costs. The respondent’s contention that
the
applicant has not shown that it would be difficult to execute a
costs award in Nigeria, particularly because both South Africa and
Nigeria are signatories to the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards 1958 (the New York
Convention),
is therefore misplaced.
[17]
In sum, the case comes down to this. The
respondent, a
peregrinus
,
has instituted proceedings in this country against the applicant, a
company registered in South Africa. For that reason
it
furnished security for costs in the sum of R120 000.00. The
applicant now asks for that security to be increased
by an additional
R250 000.00 as the case is proceeding to trial. The
respondent is able to furnish the additional security
and will thus
not be prevented from pursuing its claim by an order for security.
As against all of this, the applicant, if
it obtains a costs order in
its favour, would have to proceed against the respondent in Nigeria
and incur the uncertainty, inconvenience
and additional expense
associated with the enforcement of that order.
[18]
In these circumstances, I conclude that it
would be unjust to absolve the respondent from furnishing security.
[19]
What remains is the constitutional issue.
The respondent contends that the current common law practice in terms
of which a
peregrinus
may be ordered to furnish security for costs, is inconsistent with
the spirit, purport and object of the Bill of Rights; that it
violates the right to equality before the law and equal protection of
the law contained in s 9(1) of the Constitution in a manner
that is
irrational; and that it amounts to unfair discrimination.
[20]
Although
it is not strictly necessary to determine the constitutional
issue,
[5]
I have nonetheless
decided to do so because it can be disposed of briefly, and it is
likely to arise again. In the latter
event this judgment may
provide some guidance.
[21]
The
Bill of Rights applies to all law and binds the legislature, the
executive, the judiciary and all organs of state.
[6]
[22]
When
interpreting any legislation, and when developing the common law,
every court must promote the spirit, purport and objects
of the Bill
of Rights.
[7]
Where the
common law as it stands deviates from, or is deficient in promoting
these objectives, the courts are under a general
obligation to
develop it appropriately.
[8]
[23]
Section
9(1) of the Constitution provides that everyone is equal before the
law and has the right to equal protection and benefit
of the law.
This means, at the very least, that everybody is entitled to equal
treatment by our courts of law; that no one
is above or beneath the
law; and that all persons are subject to law impartially applied and
administered.
[9]
[24]
A
practice that differentiates between categories of people will
violate s 9(1) of the Constitution if there is no rational
relationship between the differentiation and a legitimate government
purpose. The question as to whether there is unfair
discrimination under s 9(3) ordinarily would arise only if there is
such a rational relationship. In that event the party
challenging the constitutionality of the differentiation must
establish that the differentiation constitutes unfair
discrimination.
[10]
[25]
The respondent concedes that the common law
practice relating to security for costs promotes a legitimate
government purpose - to
enable an
incola
to recover the costs of successfully defending a claim by a
peregrinus
.
But it says that in the modern world of instant global communication,
ease of global travel and the fact that many states
have developed
legal systems like South Africa, it cannot be assumed that in all
cases where a
peregrinus
sues, the defendant will always be subject to uncertainty,
inconvenience or expense in recovering costs, in the absence of any
evidence to that effect. This is particularly so, the argument
runs, in the case of an international arbitration where the
parties
are residents of member states of the New York Convention; and
therefore the practice regarding security for costs is a
violation of
the right to equality because the differentiation between an incola
plaintiff and a
peregrinus
plaintiff is irrational.
[26]
Then the respondent submits that the
differentiation upon which the applicant relies in this case - the
claimant in the arbitration
is a
peregrinus
which owns no immovable property in South Africa and this
per
se
renders it liable to furnish
security for costs – amounts to unfair discrimination, displays
“a xenophobic attitude
to the respondent” and the
practice directly or indirectly imposes a burden or disadvantage on a
peregrinus
.
[27]
The
respondent however is mistaken. The practice regarding security
for costs has nothing to do with xenophobia - it was laid
down as far
back as 1828 (
Witham
v Venables
1 Menzies 291)
that a non-resident plaintiff who does not own
immovable property in this country, can be called upon to give
security for the
costs of the action.
[11]
[28]
Furthermore,
the alleged differentiation upon which the applicant relies is
irrelevant. The question is whether in terms of
the practice,
security for costs is required purely on the basis that the litigant
is a
peregrinus
which owns no immovable property in this country. The answer
is, no. The court has a discretion to order security,
and must
take into account the particular circumstances of the case and
considerations of fairness and equity to both parties.
Even
before the advent of the Constitution, the Appellate Division in
Magida
held that there was no justification for the principle that a
court should exercise its discretion in favour of a peregrinus
only
sparingly.
[12]
[29]
In
my opinion therefore, a proper order in terms of the practice
regarding security does not result in irrational differentiation
or
unfair discrimination. And the cases reveal that the courts
have given or withheld security because of the justice of
the
individual case.
[13]
[30]
Neither
does the practice relating to security impose any burden or
disadvantage on a
peregrinus
.
This proposition is based on common sense, as is evidenced by the
dictum of Cote JA, writing for the Court of Appeal of
Alberta in
Crothers
:
[14]
“
It
is almost impossible for a non-resident to sue without a lawyer.
That is because of the practicalities of life, not because
of any law
or Rules. A lawyer, court reporters, and experts all cost far
more than security for costs would, so what is the
practical impact
of security? Security for costs never exceeds (and may be less
than) estimated party-and-party costs, which
are rarely more than a
fraction of solicitor-and-client costs on one side … So the
security, but a drop in the total bucket
of litigation expenses, is
highly unlikely to be the prohibitive expense.”
[15]
[31]
The
fact that the practice regarding security treats a
peregrinus
plaintiff differently from an incola plaintiff is not itself a
violation of s 9(1) of the Constitution. As was said in
Prinsloo
,
it is impossible to govern a modern country or regulate the affairs
of its inhabitants without differentiation and without
classifications
which treat people differently and which impact on
people differently.
[16]
Contrary to the respondent’s assertion that the practice
violates the right to equality, it does exactly the opposite
–
its purpose is to ensure equality between litigants. Where a
peregrinus
does not reside or conduct business in South Africa and does not own
sufficient assets to satisfy a costs order, it is not at risk
on an
equal footing with the
incola
or resident party. The practice relating to security for costs
thus has the effect of restoring a measure of equality between
the
parties.
[17]
As was held
in
Crothers
:
“
Security
for costs is designed to protect a defendant from a plaintiff who
wants to gamble and collect if he wins, but not pay if
he loses.
Indeed, such a plaintiff acts more unfairly than that for by his
groundless suit he inflicts serious expenses on the
defendant.”
[18]
[32]
For these reasons, I do not think it can be
said that the practice relating to security is either irrational or
that it amounts
to unfair discrimination.
[33]
I
should also point out that aside from holding that security for costs
by non-residents does not violate the right to equality
in s 15(1) of
the Charter of Rights and Freedoms,
[19]
the courts in Canada have also held that security for costs does not
unfairly hinder access to courts.
[34]
Thus
in
Crocker-McEwing
,
[20]
Watson J, after noting that security for costs embodies “a
carefully considered policy balance which has withstood
Constitutional
challenge,” said:
“
[33]
The fundamental policy balance is between the desire not to
unnecessarily or unfairly impede access to the Courts by legitimate
and
bona fide
Plaintiffs and the desire to ensure that the administration of
justice is not perverted by encouraging risk-free and doubtful
litigation claims by Plaintiffs to the harassment of, and to the
imposition of practically unrecoverable cost upon, Defendants who
are
possessed of facially meritorious answers to such claims.
[34]
Both policy considerations deserve great respect. Access to the
Courts is a matter going to the very heart of the viability
and
credibility of the administration of justice. Limitations on that
access should be driven by strong grounds of policy …
On the
other hand, the uses of recoverable and case-related costs has long
been accepted as a means of regularizing the processes
of courts and
ensuring fairness therein. Moreover, the use of costs is to serve the
further aim of discouraging the phenomenon
of legal proceedings which
become the tool of the recreational litigant or, worse, the
litigation terrorist. Judicial notice can,
arguably, be taken about
the litigation atmosphere of our great southern neighbour. There,
costs do not have the same function
or characteristics as they do in
Canada.”
[35]
For the above reasons I am of the opinion
that the common law practice in terms of which a non-resident
plaintiff who does not own
immovable property in this country can be
called upon to give security for the costs of a lawsuit, is
consistent with the Constitution.
[36]
I make the following order:
(a)
The respondent shall furnish security for
the applicant’s costs in the sum of R250000.00, in respect of
the arbitration proceedings
pending before the arbitrator, Mr DR
Mitchell SC.
(b)
The respondent shall furnish such security
by no later than Friday 12 June 2015, failing which the applicant is
granted leave to
approach this court on the same papers (supplemented
if necessary) for an order dismissing the respondent’s claims
in the
arbitration; alternatively, staying the arbitration
proceedings until such time as the respondent furnishes security in
the sum
of R250 000.00.
(c)
The respondent shall pay the costs of this
application, including the costs of two counsel.
SCHIPPERS
J
Applicant’s
counsel :
Advocates
B Manca SC and S Van Zyl
Applicant’s
attorneys : Herold Gie Attorneys
Respondent’s
counsel : Advocates A Katz SC and J Engelbrecht
Respondent’s
attorney : Bisset Boehmke McBlain Attorneys
[1]
Magida
v Minister of Police
1987 (1) SA 1
(A) at 14 D-E.
[2]
Shepstone
& Wylie and Others v Geyser
NO
1998 (3) SA 1036
(SCA) at 1045I-1046 B.
[3]
Exploitatie-en
Beleggingsmaatschappij Argonauten 11 BV and Another v Honig
2012 (1) SA 247
(SCA) at 253A-B.
[4]
Exploitatie
n 3 para 19.
[5]
Zantsi
v Council of State, Ciskei and Others
[1995] ZACC 9
;
1995 (4) SA 615
(CC) para 3.
[6]
Section
8(1) of the Constitution.
[7]
Section
39(2) read with s 173 of the Constitution.
[8]
Carmichele
v Minister of Safety and Security and Another (Centre for Applied
Legal Studies intervening)
[2001] ZACC 22
;
2001 (4) SA 938
(CC) paras 33, 39 and 54.
[9]
Prinsloo
v Van Der Linde and Another
1997 (3) SA 1012
(CC) para 22. Although this case dealt with
the interpretation of the right to equality in s 8(1) of the Interim
Constitution,
the position is no different under the Constitution.
[10]
Jooste
v Score Supermarket Trading (Pty) Ltd (Minister of Labour
intervening)
1999 (2) SA 1
(CC) para 11.
[11]
Saker
& Co Ltd v Grainger
1937 AD 223
at 226-227.
[12]
Magida
n 1 above at at 14F.
[13]
See
for example
Magida
n 1and
Exploitatie
n
3 above.
[14]
Crothers
v Simpson Sears Ltd
1988 ABCA 155
(CanLII); 51 DLR (4
th
)
529.
[15]
Crothers
n 14 above para 21.
[16]
Prinsloo
n 9 above para 24.
[17]
Crothers
n 14 above para 43.
[18]
Ibid
.
[19]
Crothers
n 14 above;
Isabelle
v Campbellton Regional Hospital and Arseneau
(1987) 80 NBR. (2d);
Nissho
Corp v Bank of B.C.
(1987) 39 DLR. (4
th
)
453 (Alta.); Cf
Kask
v Shimizu
1986 CanLII 100 (AB QB).
[20]
Crocker-McEwing
v Drake
2001 ABQB 13
(CanLII).