Firstrand Bank t/a Westbank v Manhattan Operations (Pty) Ltd and Others (37793/2012) [2013] ZAGPJHC 88; 2013 (5) SA 238 (GSJ) (18 April 2013)

REPORTABLE

SOUTH GAUTENG HIGH COURT, JOHANNESBURG

JUDGMENT

Case no: 37793/2012

DATE:18/04/2013

In the matter between:

FIRSTRAND BANK T/A WESTBANK...............................Applicant

and

MANHATTAN OPERATIONS (PTY) LTD.........................First Respondent

OCTO MINING (PTY) LIMITE.............................................Second Respondent

CRYSTAL RESOURCES LIMITED...................................Third Respondent

Heard: 23 February 2013

Delivered: 18 April 2013

Summary: Application of Rule 35(14) to application proceedings. Rule 35(14) apply to application proceedings when read with rule 35(13). The Court has discretion to apply rule 35(14). Rule 35(14) apply in exceptional circumstances.

MOLAHLEHI, AJ

Introduction

The parties in this interlocutory application are, for convenience, referred as cited in the main application. The respondents have filed an interlocutory application in terms of which they seek an order directing that they be allowed to inspect the ledger account and statements of account in respect of several account numbers referred to in the main application.

The applicant in the main application seeks rei vindicatio for the return of certain articles which were sold to the first respondent in terms of an instalment sale agreement. The applicant has in this regard filed two applications under case numbers 37793/2012 and 37794/2012. The respondents filed a notice of intention to oppose these applications but did not file any answering affidavit/s. The respondents instead filed an interlocutory application in terms of rule 35 (12) of the Uniform Court Rules (the rules) in terms of which they sought to compel the applicant to produce certain documents related to the application.

It is indicated in the heads of argument that the interlocutory application is brought in terms of Rule 35 (13) of the Rules. In terms of this application, the respondent seeks an order in the following terms:

‘10.1 declare the provisions of rule 35 (14) to be applicable;

10.2 direct the applicant to respond to the rule 35(14) within ten days.’

Background facts

In both matters, the applicant, a division of NAC Finances, arranged for policies to be sold to the respondents by Liberty Insurance Co. According to the respondents, the representation made by applicant was that the purchase of the policies would constitute an excellent investment and further that amounts paid into the policies by the respondents would earn substantial interest. It is further stated by the respondents that the purpose of taking out the policies was that, when they became paid up, the amounts derived therefrom would be utilised to discharge their liability from the applicant in terms of the master instalment sale. The principal debtors ceded the policies to the applicant as security for any indebtedness.

Although the respondents have not yet filed their answering affidavit/s, it does appear common cause that the principal debtors are in breach of the instalment agreement.

The essence of the respondents’ complaint, which forms the basis of this application, is sat out in the founding affidavit in the following terms:

‘12. On a date/s unknown to Respondents, Applicant surrendered all the policies and received payments of amounts from Liberty (which

payments Respondents believe run into the millions). However, to date hereof, Applicant has failed to disclose to any of the Respondents:

12.1. Precisely what amounts it is received from Liberty this went to the surrender of each of the policies;

12.2 Precisely when it received payment from Liberty pursuant to the surrender of each of the policies

12.3. Precisely when it paid over to each of the principal debtors the amounts received from Liberty (and how allocated payment to the schedules to the master instalment sale agreements).’

The respondents further states that they believe that:

‘13.1 Applicant held onto that payments it received from Liberty (amounting to millions of rands).

31.2. Applicant failed to credit the principal debtors with any interest and on the monies received from Liberty over the period in which Applicant held onto the amounts (before creating the principal debtor);

13.3 Applicant earned substantial amount in respect of commission which it failed to disclose to the principal debtors.’

The respondents believe that they were short credited in substantial amounts and that is why they are seeking an order that the applicants be directed to produce documents in that regard in terms of Rule 35(14) of the Rules. The claims in the two main applications, in essence, seek orders cancelling the instalment agreements, ordering the first respondent to deliver certain goods to it and payment in the amounts of R7607 956.00 and R22 415 7220 respectively. The case of the applicant, in both claims, is based on certificates wherein the balance of the outstanding amounts including arrears is due and payable by the first respondent as at 10 September 2012. The claim in case number 37793/12 states the outstanding balance as follows:

‘Under account number BEA 703-0001K amount to R967 604 00;

Under account number BEA 703-0004E amounts to R966 884 00;

Under account number BEA 349-0001T amounts R1 323 780 00;

Under account number BEA 349-0002S amounts to R1 284 339 00;

Under account number BEA 349- 0003L amounts to R849 731 00;

Under account number BEA 349-0004k amounts to R1 247 186 00;

Under account number BEA 703-0002j amounts to R968 432 00;’

And under case number 37794/12, it is certified by the applicant that the balance is R22 415 722.00 and that is under account number 4420003L.

After filing the notice to oppose, the main applications the respondents sought unsuccessfully to compel the applicant to produce certain documents in terms of Rule 35 (12) of the Rules.1 Subsequent to the failure to compel the production of the documents, the applicant set down the main application for a hearing. The matter was thereafter postponed at the instance of the respondents.

Following the postponement, the respondents filed the present application which as indicated seeks to have Rule 35 (14) of the Rules declared applicable to the present matter, more particularly to the demand that the applicant be ordered to allow for the inspection of certain documents. The respondents contend that they will be deprived of a defence which they could have raised should the court decline to grant the application.

The interlocutory application is opposed by the applicant. The applicant contends in this regard that respondents’ application is nothing but a fishing expedition and that the provisions of Rule 35(14) are only applicable to action proceedings and not the matters such as the present. The applicant’s counsel in particular argued that rule 35(14) was designed specifically for action and not application proceedings. He also argued that the ordinary grammatical reading of the sub-rule indicates clearly that the rule was intended to apply to only action proceedings.

The issue for determination

The issue for determination is whether the provisions of Rule 35 (14) of the Rules are applicable to application proceedings. If found to be the case, then the next issue is whether the respondents have made out a case upon which the court can exercise the discretion given to it in terms of Rule 35 (13) of the Rules.

The applicant, in opposing this application, contends that the approach adopted by the respondent is vexatious and intended to avoid the finalisation of the main application.

It was argued on behalf of the applicant that the provisions of Rule 35 (14) are not intended to deal with discovery and that on its proper reading it is a rule that applies to action proceedings and does so in very specific circumstances. It was further argued, in the alternative, that should it found that the Rule 35 (14) of the Rules was applicable, it would only apply in its exceptional circumstances.

Legal principles

As indicated earlier, the respondents seek to have the applicant discover and allow inspection of certain documents. The issues of discovery, inspection and production of documents are, in general, governed by the provisions of Rule 35 whose main focus in this regard is on action proceedings. In relation to application proceedings, the provision of Rule 35 are made applicable thereto by Rule 35(13) which provides:

‘The provisions of this rule relating to discovery shall mutis mutandis apply’ in so far as the court may direct.’

The authorities are in agreement that, in general, discovery does not apply in application proceedings as a matter of course.2 In this respect, the Court, in Moulded Components and Rotomoulding South Africa (Pty) Ltd v Coucourakis and Another,3 held that:

‘In application proceedings we know that discovery is a very, very rare and unusual procedure to be used and I have no doubt that is a sound practice and it is only in exceptional circumstances, in my view, that discovery should be order in application proceedings.’

The exception to the general rule, that discovery does not apply in application proceedings, does not arise as a matter of course, but can only be by way of an application. Once an application is made, the Court, in considering whether the exception to the general rule applies, has discretion to exercise. In order to succeed, the applicant has to persuade the Court that there exist exceptional circumstances that justify the departure from the general rule. In this respect, the Court, in Krygkor Pensionefonds v Smith,4 held:

‘The answer to this contention is that the principle underlying the procedure sanctioned by the Courts in these cases is that the Courts have, as stated in the passage quoted above (uit Hart v Stone), “very large powers of ordering a disclosure of facts where justice would be defeated without such a disclosure”. In the present case it is not disputed that the respondent bona fide intends to bring his action and it is obvious that he cannot bring that action unless he knows the names and addresses of the executive committee. The procedure of compelling a person to disclose the necessary information is not in my opinion confined to those cases where information is required of the names and addresses of members of an unincorporated body.’

In weighing whether exceptional circumstances exist, in an application to deviate from the general rule of discovery in application proceedings, the Court will take into account fairness and equity including the constitutional values of openness and transparency5. In addition, the Court will also take into account the caution sounded in The MV Urgup: Owners of MV Urgup v Western Bulk Carriers (Australia).(Pty) Ltd and Others6 where it was held that:

‘But it must not be abused or be called in aid lightly in situations for which it was not designed or it will lose its edge and become debased . . . It is not intended to be used as a sniping weapon in preliminary skirmishes, such as the main application in this matter is, unless

there are exceptional circumstances present.’

The research conducted has failed to reveal any authority which supports the contention that the provisions of Rule 35 (13) can be employed to facilitate the application of Rule 35 (14) to application proceedings. On face value and the plain reading of the rule, it would suggest that there is no basis for concluding that Rule 35 (13) was intended to make the provisions of Rule 35 (14) applicable to application proceedings. It is important to note that at the time Rule 35(14) was introduced, Rule 35 (13) had been in existence for many years. Rule 35(13) came into operation in January 1965 7 and Rule 35(14) was included in the Rules in October 1987.8

Turning to the specific provisions of Rule 35(14), it is apparent that the respondents are seeking to have a wide enough interpretation to the Rule so as to cover application proceedings. Rule 35(14) reads as follows:

‘After appearance to defend has been entered, any party to any action may for purposes of pleadings require any party to make available for inspection... a clearly specified document... which is relevant to a reasonable anticipated issue in the action…’ (my underlining).

In my view, the issue of the application of the provisions of Rule 35 (14) to application proceedings turns around the interpretation of Rule 35 (13). It is apparent from the reading of the rule that there is a recognition that the focal point of Rule 35 as a whole governs discovery in action proceedings. The underlying purpose of sub-rule (13) is to extend the provisions of Rule 35, which as indicated focuses on action proceedings to application proceedings. In other words, anything that deals with action proceedings in terms of Rule 35 is made applicable to application proceedings. There is nothing in sub-rule 14 that excludes the provision of sub-rule (13). In my view, had the drafters of the rule intended to exclude the provisions of sub-rule (13) to apply to sub-rule (14) they would have expressly stated as such. In the absence of express exclusion of the provisions of sub-rule (13) to the provisions of sub-rule (14), and accepting that sub-rule (13), in its reference to “this rule relating to discovery”, refers also to the provisions of sub-rule (14) once it was incorporated in to Rule 35 of the Rules, it is also my view that the word discovery in sub-rule (13) is used broadly to include inspections.

The extent and the application of sub-rule (14) received attention in in Quayside Fish Suppliers (CC) v Irvin and Johnson Ltd,9 where the Court held that:

“Rule 35 (14) is limited in application and is aimed at operating only in the very specific circumstances set out in the Rule. To interpret it more widely would make inroads into general principle that prior to the institution of an action a party cannot snoop around other people’s books.

The question that then arises, having found that the provisions of sub-rule (13) applies to sub-rule (14), is whether this Court should exercise its discretion in favour of directing the applicant to make available for inspection the documents as required by the respondents. The question has to be answered by investigating as to whether exceptional circumstances exist that would warrant such a directive. In this respect, consideration of fairness, equity openness and transparency serves to provide guiding principles.

In the present instance, the applicant contends that there are no exceptional circumstances justifying a directive by the court as requested by the respondents. The applicant argues, in this regard, that there is no admissible evidence in the supporting affidavit to the respondent’s application that establishes exceptional circumstances. The evidence provided by the respondents, in their papers according to the applicant, is inadmissible hearsay which cannot be relied upon.

The essence of the respondents’ case, in seeking an order directing the applicant to disclose the information in question, is to have the applicant disclose the amount received from Liberty pursuant to the surrender of each of the policies, the date when it received the payments and the date when such payments were made to the principal debtors.

At paragraph 13.1 of the founding affidavit, which seems to be at the core of the respondents’ application, the respondents state that the applicant held on to the payments received from Liberty for a number of months before crediting the principal debtors. In this respect, the respondents contend that the applicant has failed to credit the principal debtors with any interest earned over the period subsequent to receiving monies from Liberty.

In a sense, the case of the respondents is that the applicant cheated in the manner it handled the various accounts subsequent to receiving the monies from Liberty.

The suspicion and the apprehension expressed by the respondents regarding the monies received by the applicant is, in my view, not reasonable and accordingly provides no basis for a finding that there exist exceptional circumstances justifying a directive that the applicant should provide the documents in question. The suspicion and the apprehension have no bearing on the certificates issued in line with the agreements. There is no evidence challenging the validity and legitimacy of the certificates. Accordingly, prima facie and on the balance of probabilities, the certificates, in issue in the main application, is unlikely to be disturbed.

In light of the above, I am of the view that the respondents have failed to establish exceptional circumstances justifying the granting of a direction envisaged under Rule 35 (14) of the Rules.

For the reasons set out above, whilst I am of the view that Rule 35(14) of the Rules is applicable to application proceedings when read with the provisions of sub-rule (13), there are no exceptional circumstances justifying an order that applicant should be ordered to discover the documents referred to by the respondents.10

In brief I am not persuaded that there exist a bases upon which I can exercise my discretion in favour of evoking the provisions of rule 35(14) of the rules.

Costs

As concerning costs of this application I do not see the reason why costs should not follow the results. As concerning the costs incurred as a result of the previous postponement, I am of the view that is a matter to be dealt with in the main matter.

The order

In the premises, the following order is made:

1. The order herein is also applicable to case number 33794/2012

2. The respondent’s application in terms of rule 35(14) of the Uniform Rules of the Court is dismissed.

3. The respondents are to serve and file their answering affidavit within 10 days of the date of this order.

4. The applicant may set the matter in the main application after the expiry of the 10 days referred to above.

5. The respondents are to pay the costs of this application.

6. The costs reserved on 12 February 2013, shall be dealt with in the main application.

______________

Molahlehi, AJ

Acting Judge of the South Gauteng

Appearances:

For the Applicant: Adv C Van Der Spuy instructed by Lanham-Love Attorneys

For the Respondent: Avd W B Bank instructed by Hirschowitz Flionis Attorneys.

1  Rule 35 (12) of the Uniform Court Rules read as follows: “Any party to any proceeding may at any time before the hearing thereof deliver a notice as near as may be in accordance with Form 15 in the First Schedule to any other party in whose pleadings or affidavits reference is made to any document or tape recording to produce such document or tape recording for his inspection and to permit him to make a copy or transcription thereof. Any party failing to comply with such notice shall not, save with the leave of the court, use such document or tape recording in such proceeding provided that any other party may use such document or tape recording.

2 African Bank Ltd v Buffalo City Municipality 2006 (2) SA 130 (CKH) at para 6.

3 1979 (2) SA 457 (W) at 470D-E.

4 [1993] ZASCA 47; 1993 (3) SA 459 (A) at 467B-D.

5 See Premier Freight (Pty) Ltd v Breathe Fex Corporation (Pty) Ltd 2003 (6) SA 190 (SELD).

6 1999 (3) SA 500 (C) at 513H-I.

7 See Government Notice R48 dated 12 January 1965.

8 See Government Notice R2642 of 27 November 18987.

9 2000 (2) SA 529 (C) at para 16.

10 This paragraph has been amended to reflect the correct and true intention of what was intended.