Glenn IRA Aquadro t/a Dodge City Diner and Others v Talmera Tranding CC (16746/2009) [2011] ZAWCHC 31 (28 February 2011)

IN THE HIGH COURT OF SOUTH AFRICA

(WESTERN CAPE HIGH COURT, CAPE TOWN)

Case No: 16746/2009

In the matter between:

GLENN IRA AQUADRO T/A DODGE

CITY DINER …................................................................First Applicant

GLENN IRA AQUADRO N.O. …...............................Second Applicant

CATHERINE ELAINE AQUADRO N.O. …....................Third Applicant

and

TALMERA TRADING CC

(Registration No: 2007/112692/23) ….................................Respondent

Court: CLOETE. AJ

Heard: 17 February 2011

Delivered: 28 February 2011

JUDGMENT

CLOETE AJ:

INTRODUCTION

[1] What commenced as winding-up proceedings has evolved into a dispute regarding costs.

[2] On 10 September 2009 the applicants applied on an urgent basis for the provisional winding-up of the respondent, and set the matter down for hearing on 17 September 2009. On that date, and by agreement between the parties, the matter was postponed to the semi-urgent roll for hearing on 26 November 2009. with an agreed timetable for the filing of further papers. The respondent delivered its answering affidavit on 30 October 2009. On 26 November 2009 the matter was further postponed to 16 March 2010, being a date arranged between the parlies.

[3] On 16 March 2010 the parties agreed to an order in terms of which (a) the applicants' liquidation application was withdrawn; (b) the respondent consented to the withdrawal of the application; and (c) the issue of costs was postponed for argument on 17 February 2011. when the matter came before

me.

[4] On 15 February 2011 (two days before the hearing) the applicants tendered to pay the respondent's costs "on a parly and party basis (including the costs of senior counsel) as taxed or agreed7'. This tender was rejected by respondent who requires that its costs be paid on the scale as between attorney and client, including the costs of two counsel.

[5] During the course of argument applicants' counsel clarified their tender and advised that the applicants tendered the actual costs of senior counsel together with the attorney's costs on a scale as between party and party as taxed or agreed. The tender specifically excludes the costs of junior counsel.

[6] Applicants' counsel also informed the court that if an order was made in terms of the applicants' tender, the applicants would seek costs against the respondent from the date upon which the tender was made.

ISSUES TO BE DETERMINED

[7] The issues to be determined are as follows:

Whether the applicants are liable for the respondent's costs;

If so. whether such costs should be paid on the scale as between party and party or as between attorney and client;

If the applicants are liable for the respondent's costs, whether such costs should include the costs of two counsel (it being common cause that senior counsel was only involved to the extent of settling the respondent's answering affidavit):

If I make an order in accordance with applicants' tender of 15 February 2011. whether the applicants are entitled to their costs incurred from that date on the scale as between party and party.

WHETHER THE APPLICANTS ARE LIABLE FOR THE RESPONDENTS COSTS

[8] The applicants contend that the terms of the agreed order of 16 March 2010 amount to a settlement, as opposed to a withdrawal, of the liquidation application, save for the issue of costs, and that in these circumstances the applicants should not be regarded as the losing party.

[9] The applicants also argue that had the respondent wished to rely on the advantage vested in the recipient of a notice of withdrawal of an application, it ought to have refused to agree to the order of 16 March 2010

The advantage referred to by the applicants is that, if a notice of withdrawal does not contain a consent to pay costs, the other party is at liberty to apply to court on notice for an order for costs (see rule 41(1) (a)-(c) of the Rules of

Court).

[10] I disagree As pointed out by respondent's counsel, the provisions of rule 41(1)(a) are clear, namely that an application can only be withdrawn after it has been set down for hearing with the consent of the other party or leave of the court. The fact that the respondent consented to the withdrawal of the liquidation application after it had been set down for hearing does not translate such withdrawal into a settlement. The application was simply withdrawn and the terms of the order of 16 March 2010 make it clear that the parties were well aware that the issue of the costs attendant upon such withdrawal would nonetheless have to be determined

[11] I also agree with respondent's counsel that the need to apply to court on notice for an order for costs was obviated by the terms of the order of 16 March 2010, which specifically provided that "the issue of costs is postponed for argument on Thursday 17 February 2011".

[12] In Reuben Rosenblum Family Investments (Pty) Ltd and Another v Marsubar (Pty) Ltd (Forward Enterprises (Pty) Ltd and Others intervening) 2003(3) SA 547 CPD at 550C the court set out the principle relating to costs pursuant to the withdrawal of an application as follows:

'It is only in exceptional circumstances that a party that has been put to the expense of opposing withdrawn proceedings will not be entitled to all the costs caused thereby.

[13] In Wildlife and Environmental Society of South Africa v MEC for Economic Affairs, Environment and Tourism, Eastern Cape and Others 2005(6) SA 123 (ECD) at 131B-C the court, in considering the relevant line of authorities, stated that:

'...in my view ... even in cases where litigation has been withdrawn, the general rule is of application, namely, that a successful litigant is entitled to his costs unless the Court is persuaded, in the exercise of its judicial discretion upon a consideration of all the facts, that it would unfair to mulct the unsuccessful party in costs.'

[14] Regarding the exercise of judicial discretion upon a consideration of all the facts, the court in the Wildlife and Environmental Society case went on to say the following at 133C:

Bearing the above principles as to the award of costs in mind I turn to consider the issues remaining in dispute, namely, whether in launching the application applicant acted reasonably and whether it made due efforts to use other means available to obtain the relief sought.'

[15] Although the applicants combined forces in launching the liquidation proceedings against respondent, it is clear from their papers that certain amounts were alleged to be owed to first applicant on the one hand, and second and third applicants on the other. First applicant alleged that respondent was indebted to him in (a) the sum of R247 760.68 in respect of unpaid franchise royalties and related claims; and (b) two untaxed costs orders, estimated by his attorney at the time to amount to approximately R50 000.00. Second and third applicants as representatives of the G&E Trust ("the Trust") alleged that the respondent was indebted to the Trust in respect of arrear rentals in an amount of R511 991.94 It was further alleged that "the respondent fails and refuses to satisfy its debt and instead continues to trade and continues to increase its debt both to me and the Trust (and to others as well). The respondents financial position has deteriorated to a point where it is clearly unable to meet its obligations and to satisfy its debts as and when they arise. The respondent has been preferring some creditors over others, and has attempted to play creditors off against one another."

[16] As to the claim in respect of unpaid royalties and related claims, the first applicant was aware, prior to the launching of proceedings, that the respondent denied that the amount was owing to it In his founding affidavit, first applicant stated that "/ am aware that the respondent may seek to try and dispute the quantum of the debt; however, in this regard I wish to state as follows: ..." The first applicant then proceeded to set out what he understood the respondent's defence to be and submitted that, on the basis of the facts as stated by him, there could be no dispute that the respondent owed him the monies in question. He also pointed out that the franchise agreement in terms of which the royalties had to paid expressly forbade the withholding of such payments.

[17] However, what the first applicant pertinently failed to mention is that in a letter from his then attorney dated 9 July 2009 he served notice of his election to refer this dispute between the parties to arbitration as provided for in clause 30.2 of the franchise agreement. The letter went on to state the following: "Kindly confirm, by no later than close of business on Friday 10 July 2009, that your clients agree that the disputes between the parties be referred to arbitration, or alternatively furnish us with a written undertaking by the said date that your clients shall comply fully with their obligations in terms of the Franchise agreement, including payment of all outstanding royalties forthwith, failing which our client will make Application to the High Court to compel your clients to abide by the Agreement and to order that the disputes between the parties be referred to arbitration." The first applicant did not withdraw this election prior to the institution of the liquidation proceedings.

[18] As to the reliance by first applicant on the two costs orders which he had obtained against the respondent, any action instituted prior to taxation was clearly premature and this was correctly conceded by applicants' counsel in argument. The simple fact of the matter is that the amounts to be paid by the respondent in terms of the costs orders were not due and owing at the date when the application for liquidation was launched.

[19] As to the arrear rentals allegedly owed by the respondent to the Trust, and after setting out the basis upon which the Trust alleged that the respondent is indebted to it. Mr Aquadro (who deposed to the founding affidavit) stated the following: 'The Trust has cancelled the Agreement of Sub-lease on 9 April 2009 ... and has instituted action against the Respondent for eviction in the Magistrate's Court of Wynberg under case number 10630/09 The Respondent has disputed the cancellation of the sub­lease

agreement, and yet continues to fall behind even further in its obligations towards the Trust."

[20] However, what the applicants failed to mention (again, pertinently in my view) is that, not only had proceedings been instituted in the Wynberg Magistrate's Court for recovery of the so-called arrear rentals, but that after receipt of a notice of intention to defend, the Trust had in fact applied for summary judgment against the respondent. After the respondent had delivered an opposing affidavit in the summary judgment proceedings setting out its defence to the rental claim, the Trust did not proceed with that application. All of this took place prior to the applicants launching the liquidation application on an urgent basis In fact, the alleged arrear rentals claimed in the liquidation proceedings include a portion of the very same amount which was the subject of litigation in the magistrate's court, at the time.

[21] As to the ability of the respondent to meet its liabilities the applicants averred that they were not "the only ones being prejudiced by the failure of the respondent to meet its responsibilities" and relied, inter alia, on certain amounts allegedly owed to certain other of respondent's creditors. There was no confirmation from these creditors that the amounts were indeed owed (although the applicants had the opportunity to obtain such confirmation) and the answering affidavit filed by the respondent put paid to the veracity of these allegations by inter alia documentary proof from some of these creditors to the contrary.

[22] In my view, all of these facts lead to the overwhelming conclusion that the applicants did not act reasonably in launching the application and deliberately chose not to avail themselves of the other means (on their own version) available to them to seek relief against respondent. I accordingly find that the applicants are liable for the respondent's costs.

WHETHER COSTS SHOULD BE PAID ON THE SCALE AS BETWEEN PARTY AND PARTY OR AS BETWEEN ATTORNEY AND CLIENT

[23] The respondent contends that it is entitled to a punitive costs order because (a) there was no legal and/or factual basis for the liquidation application; (b) the liquidation application was launched purely to harass the respondent and its members and to draw them into another round of unnecessary litigation with its concomitant legal expense; and (c) the applicants were completely reckless in launching the application. During the course of argument respondent's counsel also pointed out that the applicants were in any event entitled to launch liquidation proceedings in the magistrate's court (the respondent being a close corporation: see section 7 of the Close Corporations Act no 69 of 1984) and that the respondent was put to additional unnecessary expense by virtue of the fact that the applicants chose to launch proceedings in this court.

[24] The applicants on the other hand submit that in light of the ordinary rule that the successful party is awarded party and party costs, a court must be cautious of using hindsight when assessing the conduct of an unsuccessful party: see AA Alloy Foundry (Pty) Ltd v Titaco Projects (Pty) Ltd 2000(1) SA 639 (SCA) at 648E. Special considerations must be present arising either from the circumstances of the case or from the conduct of the losing party before an order of attorney and client costs is made: see Nel v Waterberg Landbouwers Ko-operatiewe Vereniging 1946 AD 597 at 607 where the court stated as follows:

The true explanation of awards of attorney and client costs not expressly authorised by Statute seems to be that, by reason of special

considerations arising either from the circumstances which give rise to the action or from the conduct of the losing party, the court in a particular case considers it just, by means of such an order, to ensure more effectually than it can do by means of a judgment for party and party costs that the successful party will not be out of pocket in respect of the expense caused to him by the litigation '

[25] Circumstances where such an order is appropriate include situations where a litigant has acted vexatiously, recklessly or maliciously, or where his conduct has been unworthy, reprehensible or blameworthy: see Joubert (ed) The Law of South Africa" 2ed. vol. 3 (2) para 323.

[26] The applicants accept that in terms of the so-called "Badenhorst Rule" (Badenhorst v Northern Construction Enterprises (Pty) Ltd 1956(2) SA 346 (T) at 348A). a court should not grant a winding-up order where a debt is disputed on bona fide and reasonable grounds. The applicants also accept that the principle regarding the appropriate scale of costs as set out above also applies to winding-up proceedings.

[27] The applicants however argue that the applicants were at worst "misguided" in launching the application. They argue that, in particular, the defence to the royalty claim is suspect and apparently appreciating that difficulty the respondent sought to overcome it (and presumably the allegation that it was unable to pay its debts) by paying an amount equivalent to that outstanding into the trust account of its attorney of record. The applicants point out that the answering affidavit states that: "should Applicants persist with this application after service of there [sic] opposing papers. Respondent will seek an appropriate order as to costs should the application be dismissed". It is on this basis that the applicants contend that respondent appreciated that only if the application was proceeded with thereaftei an adverse costs order would be appropriate.

[28] However, the applicants in advancing this argument overlook the following.

(a) Prior to the institution of the proceedings, first applicant had advised the respondent that he was proceeding by way of arbitration.

Having made that election, it was surely encumbent upon the first applicant to inform this court thereof in the founding papers and to explain why arbitration was no longer an option, since it is not the function of the court to speculate.

(b) In respect of the arrear rental claim, the applicants did not approach court with clean hands. A court hearing the liquidation

application may well have formed a different view had the summary judgment proceedings in the magistrates court been disclosed in the founding papers. The Trust itself had clearly concluded that the respondent had a bona fide defence to its claims, otherwise it would have proceeded with its application for summary judgment in that court

(c) The claim in respect of the two costs orders was wholly premature and there was no basis upon which the applicants could have alleged that any amounts were due and payable: see Tredoux v Kellerman 2010(1) SA 160 at 167C-D.

[29] To my mind, the applicants were not merely 'misguided' in launching the liquidation proceedings; their conduct was reckless, and the respondent is entitled to an order for costs on the attorney and client scale.

WHETHER THE COSTS ORDER SHOULD INCLUDE THE COSTS OF TWO COUNSEL

[30] Whilst it may be that, as argued by applicants' counsel, the issues and evidence were not particularly complex, the stakes were high for the respondent, particularly if regard is had to the material non-disclosures by the applicants in their founding papers and the possible consequences of at least a provisional winding-up order to the respondent.

[31] In any event, it is common cause that senior counsel was only briefed to settle the answering affidavit. The tender made by the applicants to pay the costs of senior counsel and nothing in respect of junior counsel makes no sense and is in any event inappropriate.

[32] In my view the employment of senior counsel to settle the answering affidavit was proper and reasonable.

[33] In the result, I make the following order:

(a) The applicants shall effect payment of the respondent's costs in these proceedings on the scale as between attorney and client;

(b) Such costs shall include the costs of two counsel; save that senior counsel's fees shall be limited to the amount recoverable for settling the respondent's affidavit;

(c) such costs shall be paid by the applicants jointly and severally, the one paying, the other to be absolved.

J I CLOETE