That's Life Estates Estate CC v Ambassador Letting Agency CC (42249/2020) [2020] ZAGPPHC 715 (8 October 2020)

REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

(1) REPORTABLE: YES/NO

(2) OF INTEREST TO OTHER JUDGES: YES/NO

(3) REVISED

8/10/2020

CASE NO: 42249/2020

In the matter between :-

That's Life Estates Estate CC

Plaintiff

And

Ambassador Letting Agency CC

Applicant

JUDGMENT

Kollapen J

Introduction

[1] This is judgment in an application for security for costs brought by the Applicant (the Defendant in the main action) against the Respondent (the Plaintiff in the main action) in which the Applicant seeks an order that the Respondent be ordered to provide security in respect of the costs of the Applicant in the amount of R 1 000 000 .00 and further that the main action be suspended until the security has been furnished. The Respondent opposes the application.

Background and the litigation history

The litigation history

[2] The Respondent issued summons against the Applicant in 2010 in which it seeks payment of the sum of R 406 854.85 being in respect of alleged commission it says it earned arising out of the sale and letting of properties and the management thereof. It locates its entitlement to commission in an alleged agreement entered into between the parties in terms of which it (the Respondent) would introduce clients to the Applicant for the purpose of sale or leasing of properties and where such sale or lease was concluded would thereby be the effective cause thereof and on account of that be entitled to commission.

[3] There have been various delays in the finalisation of the matter over the years and the parties take opposing views with regard to the cause for those delays. The matter was enrolled for hearing on no less than two occasions, the first being for the 2ist of February 2013. The matter did not proceed as a result of an application for postponement brought by the Applicant before the trial which the Respondent did not oppose.

[4] The matter was also enrolled for trial for the 30th of January 2015 and prior thereto this Court granted an application to compel in terms of Rule 35(3) on the 10th of December 2014 against the Applicant. An application for leave to appeal the order of the 10th of December 2014 was lodged by the Applicant which resulted in the postponement of the trial on the 30 January 2015. The application for leave to appeal which was scheduled to be heard on the 12th of March 2015 did not proceed.

[5] As things currently stand the matter is now ready for trial.

The application for security

[6] The Applicant grounds its application in Section 8 of the Close Corporations Act No 69 of 1984 ('the Act') which provides as follows:-

'Security of Costs in legal proceeding by corporations - When a corporation in any legal proceedings is a plaintiff or applicant or brings a counter claim or counter application, the court concerned may at any time during the proceedings if it appears that there is reason to believe that the corporation or, if it being wound up, the liquidator thereof, will be unable to pay the costs of the defendant or respondent or the defendant or respondent in reconvention if he is successful in his defence, require security to be given for those costs, and may stay all proceedings till the security is given.’

[7] In support thereof the Applicant says that there is uncertainty as to whether the Respondent would be able to meet any costs order that may be made in its favour as the Respondent failed to provide it with a list of its assets and liabilities when the same was requested. In addition it says that the Respondent accepted that it held an amount of R 35 000.00 due to the Applicant as commission and that such amount was held in trust but that it was unable to obtain confirmation whether such amount was still being held in trust.

[8] In response thereto the Respondent has made available its balance sheet for the years 2018 and 2019 and says that they reflect that the Respondent is a healthy business able to pay its creditors. In addition it denies that the amount of R 35 000.00 is not being held in trust. Finally on this issue the Applicant in response to the balance sheets submitted by the Respondent contends that to the extent that they reflect that the Repondent has traded at a loss supports its view that the Respondent will be unable to meet any adverse costs order . For the sake of completeness, the 2019 balance sheet reflects a total income of some R 1.2 million and total expenditure of R 1.3 million culminating in a loss of about R 100 000.00.

[9] The Respondent accordingly denies that there are any grounds upon which to conclude that it will be unable to pay the costs of the Applicant and in particular denies that its financial position is precarious as the Applicant has sought to make it out.

The law

[10] In advancing the relief sought the Applicant urged the Court to consider the matter purely within the parameters of Section 8 and not to have regard to the common law as it relates to applications for security for costs. It argued that Section 8 insulated the determination of an application of this nature from the common law principles that would find application where the Plaintiff in an action was not a close corporation.

[11] On the other hand the Respondent while not disregarding the provisions of Section 8 contended that the section gave the Court a discretion even where the inability of the corporation to pay was established and that in the exercise of that discretion the Court was entitled to have regard to other considerations and in doing so the Court would be obliged to take into consideration the principles of the common law as they have developed over time and in particular whether the action was

vexatious or an abuse of the pro cess.

[12] The 1973 Companies Act dealt with the matter of security for costs in Section 13 thereof as follows:-

'Where a company or other body corporate is plaintiff 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 respondent if successful in his defence, require sufficient security to be given for those costs and may stay all proceedings till the security is given.'

[13] This provision was excluded from the current Act and in Boost Sport Africa (pty) Ltd v South African Breweries Ltd 2015 (5) SA 38 SCA the Court observed that going forward there would be different approaches to security for costs in relation to a close corporation as opposed to a company . It said :-

'.... the omission of a provision akin to s 13 from the new Act is strange particularly since s 8 of the Close Corporations Act 69 of 1984, which has been interpreted in accordance with the principles that have evolved in relation to the corresponding provisions in the previous Companies Act, has been retained . It follows that the principles pertaining to the furnishing of security by a close corporation will henceforth differ from that applicable to a company.'

[14] To the extent that the position with regard to Close Corporations is indeed different to that applicable to a company I proceed to consider the application of Section 8 of the Act.

[15] The operative phrase in the section that 'it appears that there is reason to believe ... that the corporation will be unable to pay the costs of the defendant...' was interpreted as follows in Vumba lntertrade CC v Geometric lntertrade CC 2001 (2) SA 1068 (W):-

'... although the phrase 'reason to believe' places a much lighter burden of proof on an applicant than, for instance, 'the court is satisfied'...the 'reason to believe' must be constituted by facts giving rise to such belief ..and a blind belief based on such information or hearsay evidence as a reasonable man ought or could not give credence to, does not suffice... In short there must be facts before the court on which the court can conclude that there is reason to believe that a plaintiff close corporation will be unable to satisfy an adverse court order and the onus of adducing such facts rests on the applicant.'

[16] Also in Computer Brilliance CC V Swanepoel 2005 (4) SA 433, the Court held that the provisions of Section 8 should be complied with 'by means of credible testimony put before the Court ... '

[17] In 'Henochsberg on the Close Corporations Act' the learned author describes Section 8 as incorporating a test in two parts.

'An application for costs must be considered in two stages. First, the applicant for security bears the onus of establishing that there is reason to believe that the corporation, if unsuccessful, will be unable to pay the applicant's costs, failing which the application will be unsuccessful. At this stage there is no onus on the respondent to satisfy the Court that it will be able to satisfy any order for costs that may be granted against it (Pother case supra at 431}. If the applicant discharges such security for the applicant's costs be furnished (see, eg, Northbank Diamonds Ltd v FTK Holland BV 2003 (1) SA 189 (NmS) at 193 '

[18] In these proceedings the stance adopted by the Applicant was that the only issue the Court was required to determine was whether it had made out a case in terms of Section 8. Counsel for the Applicant took the view that whether the Respondents action was vexatious or an abuse of the process was not relevant to the determination the Court was required to make.

[19] On that score and whatever the merits of that sub mission may be, it was never seriously argued that the Respondents action was an abuse of the process in the sense that it was vexatious or was unsustainable. Rather it was argued that there was an abuse of procedure by the Respondent in not taking the matter to finality sooner. Even this submission is not sustainable given that the trial in the main action was postponed on no less than 2 occasions both at the instance of the Applicant . Under those circumstances the suggestion that there has been a delay on the part of the Respondent is without merit.

[20] If regard is had to the two stage test to which reference has been made, the first leg of the enquiry is whether it can be said that there is reason to believe that the Respondent, if unsuccessful in the main matter, will be unable to pay the costs of the Applicant.

[21] The Applicant advances two submissions in support of this argument to which I have already made reference. With regard to the financial position of the Respondent as evidenced by its financial statements, they certainly do not suggest that the Respondent is in a state of insolvency or is in an unhealthy financial state. The recording of a loss is not uncommon in many businesses and the statements reflect that the Respondent was able to discharge all its obligations and carry on the business as a going concern. That does not sustain the argument that there is reason to believe that the Respondent will be unable to meet any adverse costs order, if one is made.

[22] The second submission relates to what the Applicant says is the uncertainty whether the amount of R 35 000.00 is still being held in trust. The Respondent has confirmed under oath that this amount is still being held in trust and no more needs to be said on this aspect.

[23] Under those circumstances and mindful that there is no onus on the Respondent to satisfy the Court that it will be able to satisfy any costs order made against it, the Applicant has not discharged the onus of establishing that there is reason to believe that the Respondent, if ultimately unsuccessful, will be unable to pay its costs.

[24] In the circumstances the application falls to be dismissed.

[25] The Respondent has sought a punitive costs in the event of the application being unsuccessful. I am not inclined to grant costs on such a scale. At the time of the launch of the application the Applicant was not in possession of the financial statements of the Respondent; these only emerged later and to a large extent shed valuable light on the Respondents financial status. This in itself militates against the grant of punitive costs.

Order

[26] In the circumstances I make the following order:­

The application is dismissed with costs.

N KOLLAPEN

JUDGE OF THE HIGH COURT,

PRETORIA

APPEARANCES

COUNSEL FOR THE APPLICANT : Adv T JACOBS

INSTRUCTED BY

: STOPFORTH SWANEPOEL &

BREWIS INC

1st RESPONDENTS COUNSEL : Adv R DU PLESSIS S.C.

SWANEPOEL

INSTRUCTED BY

: VOGEL INC

DATE OF HEARING

: 1 OCTOBER 2020

DATE OF JUDGMENT

: 8 OCTOBER 2020