Can an Incola Company be compelled to furnish security for costs?

The Companies Act 71 of 2008 leaves a huge question mark in our statutory provisions as to whether an incola company that instituted legal proceedings can be compelled to furnish costs. In the recent judgment of Boost Sport Africa (Pty) ltd vs The South African Breweries (Pty) Ltd [2015] 3 or SA 255 (SCA), the SCA gave much needed clarity as to when a court can require an incola company to furnish security for costs. To broaden our understanding of this judgment we will look at our common law and previous legislation leading up to the enactment of the Companies Act 71 of 2008.

Common law

In common law a local or foreign peregrinus can be requested to furnish security for costs if they institute legal proceedings in order to protect an incola from not being able to recover costs. The court has shown lea way to peregrinus that own immovable property within the jurisdiction of the court they don’t have to provide security for costs. The courts treat every case differently and with caution, therefore the mere fact that a peregrinus does not possess immovable property in the republic does not mean that the peregrinus will be requested to furnish security for costs.

The common law treats an incola differently to a peregrinus, and as general rule does not require an incola to furnish security for costs, an incola may in the exercise of the court’s discretion, be ordered to provide security for costs in circumstances where the main action in question is vexatious, reckless or otherwise amounts to an abuse of the court’s process.

Legislation

The Companies Act 25 of 1892 was passed in the Cape and Section 128 of that Act provided:

Where a limited company is plaintiff in any action, suit, or other legal proceeding, any Judge having jurisdiction in the matter may, if it appears by any credible testimony that there is reason to believe that if the defendant be successful in his defence the assets of the company will be insufficient to pay his costs, require sufficient security to be given for such costs, and may stay all proceedings until security is given.

After the Union and before the issue could be settled by our courts, the first South African Companies Act was enacted in 1926. It provided in s 216:

Where a limited company is plaintiff in any legal proceedings, the Court having jurisdiction in the matter may at any stage, if it appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendant if successful in his defence require sufficient security to be given for those costs and may stay all proceedings till the security is given.

Section 13 of the Companies Act 61 of 1973 read 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 give.[1]

[1] Companies Act 61 of 1973, section 13

The 1973 Companies Act has been repealed and replaced by the Companies Act 71 of 2008. Our most recent Companies Act, which ‘is a complete reinvention of our corporate law does not contain an equivalent provision to s 13. There has been several decisions in which our high courts have recently had occasion to consider whether, absent a counterpart to section 13 in our new Act, an incola company can be ordered to furnish security for costs.

Accordingly, in terms of the common law mere inability by an incola to satisfy a potential costs order is insufficient to justify an order for security, something more is required and has been variously described in a number of decisions. The courts ordered that; it was said that the basis of granting an order for security was that the action was ‘reckless and vexatious’. The courts further said that a Court of law had inherent jurisdiction to stop or prevent a vexatious action as being an abuse of the process of the Court; one of the ways of doing so is by ordering the vexatious litigant to give security for the costs of the other side.

In Boost Sports Africa (Pty) Ltd v The South Africa Breweries (Pty) Ltd (20156/2014) [2015] ZASCA, the SCA was called upon to decide if an incola could be compelled to furnish security for costs in the absence of section 13 of the Old Act.

An action was instituted on 21 October 2011 the appellant, Boost Sports Africa (Pty) Limited (the plaintiff), in the High Court of South Africa, Gauteng Division, Pretoria against the respondent, the South Africa Breweries (Pty) Limited (the defendant).

The plaintiff’s cause of action was based on an alleged breach of contract by the defendant. It alleges that it disclosed a particular advertising concept referred to as the ‘fans challenge concept’ to the defendant under an agreed confidentiality regime between them and that the defendant later used the concept to conduct an event called ‘be the coach’ in breach of the said agreement.

South Africa Breweries defense

  • The defendant denied that there was any confidentiality agreement between the parties in relation to the concept
  • And averred that the information pertaining to the concept was already in the public domain when it was first disclosed to the defendant.

After the plaintiff had made available to the defendant its discovered documents, the latter became concerned that the plaintiff would not be able to meet an adverse costs order should it fail in the contemplated action. When the plaintiff refused to furnish evidence of its ability to pay the defendant’s costs in the event of its claim being dismissed, the defendant launched an application against the plaintiff on 1 August 2013 for security for its costs.

In an effort to avoid the said application, the defendant wrote to the plaintiff asking it to disclose its financial statements to the defendant and to show that it has sufficient income or assets to cover any adverse costs order against it. The plaintiff refused to provide evidence of its ability to pay any such order.

The response to those allegations on behalf of the plaintiff was that the plaintiff has four shareholders who are funding the plaintiff’s costs. However, none of its shareholders have sufficient assets to fund the plaintiff’s costs and to put up the quantum for security for costs demanded by the defendant.

The plaintiff claims that the demand by the defendant to provide security for costs will, effectively, destroy the plaintiff’s ability to prosecute its claim.

The defendant’s application succeeded before Hassim AJ and was the plaintiff ordered to furnish security for the defendant’s legal costs in the action.

Leave to appeal was granted and the matter was heard in the supreme court of appeal and the following was held:

In terms of the common law mere inability by an incola to satisfy a potential costs order is insufficient to justify an order for security, something more is required and has been variously described in a number of decisions. The courts ordered that; it was said that the basis of granting an order for security was that the action was ‘reckless and vexatious. The courts further said that a Court of law had inherent jurisdiction to stop or prevent a vexatious action as being an abuse of the process of the Court; one of the ways of doing so is by ordering the vexatious litigant to give security for the costs of the other side.

There is no legislation that will differentiate between an incola company and an incola natural person. It must follow that the former can at common law be compelled to furnish security for costs. Accordingly, even though there may be poor prospects of recovering costs, a court, in its discretion should only order the furnishing of security for such costs by an incola company if it is satisfied that the contemplated main is vexatious or reckless or otherwise amounts to an abuse.

The plaintiff has failed to show that it cannot raise the funds for security for costs and further that such an order will be detrimental to its case as such funds are not available. The shareholders funding these proceedings claim not to have the resources to furnish any security (irrespective of the amount) for costs. Even though the shareholders are funding the litigation, they are doing so in a manner that allows them to hide behind the corporate veil of the plaintiff. No evidence has been adduced by them that there has been an attempt to raise funds to put up security for the respondent’s costs, but that they have been unable to do so.

The appeal was in this regard dismissed with costs.

By
Kony Tshivase
konanani@dyason.co.za

The clarion call #FEESMUSTFALL

With the matric results having been released and the arduous registration process almost over, allow me to visit the question which is pertinent to those matriculants who cannot afford to enrol in institutions of higher learning and those students who have suffered the fate of financial exclusion from institutions of higher learning; without forgetting those ‘graduates’ who have met the requirements of their different qualification who however will not graduate nor get their qualification confirmation letter because of outstanding fees. A couple of years ago I read a book titled “I will try” by Legson (Didimu) Kayira, which is premised on his journey from Malawi (the county of his forefathers) to the United States of America on foot, in pursuit of attaining higher education for which he yearned. I herein cogitate on the clarion call for free quality education in our higher education institutions, and so doing I hope you do welcome my equipoise.

It is most befitting that at the onset we capture the essence of the clarion call by scrounging of the preamble of the Constitution of the Republic of South Africa, a few declarations, stating: “We, the people of South Africa, Recognise the injustices of our past …” and further adopt the Constitution as the supreme law so as to: “Heal the divisions of the past and establish a society based on democratic values, social justice and fundamental human rights … Improve the quality of life of all citizens and free the potential of each person …”.

Section 2 of the Constitution again declares the constitution as the supreme law of the Republic and that the obligation so imposed therein must be fulfilled. Further that the state must respect, protect, promote and fulfil the rights so enshrined in the bill of rights, section 7 (2). Section 29 speaks firmly on the right to education, which I quote with my own emphasis: “(1) Everyone has the right – (a) to a basic education, including adult basic education; and (b) to further education, which the state, through reasonable measures, must make progressively available and accessible.”

I respectfully submit that the importance of education to the continued liberation of our nation, its importance in nation building, and in maintaining the rule of law (and by consequence order) cannot be ignored nor can it be reduced to nugatory side discourse.

The Constitutional court has been petitioned on numerous occasions to adjudicate on the right to education, albeit being mainly to adjudicate on the rights that arise of section 29 (1) (a), with the most recent being the curtain call of the now former Deputy Chief Justice Moseneke, which decision will bear reference later. At no particular point, in the literature read, was the court summoned to expand on the rights as conferred in section 29 (1)(b). The position in relation the section 29(1)(a) rights is to a great extent cleared by the courts, and is well cemented. LN Murungi (in PELJ 2015(18)1) advances that the implementation of the right to basic education as set out in section 29 is not subject to the availability of resources, and accordingly has to be directly and immediately implemented, which position is also confirmed by the Constitutional court in Governing Body of the Juma Musjid primary school v Ahmed Asruff Essay 2011 ZACC 13.

The #FeesMustFall call, I must indicate, was directed at further education which is covered in terms of section 29 (1) (b) of the constitution. In the Juma Musjid Primary-matter, the court in the inverse to it assertions on the right to basic education made clear that the right to further education contained an internal limitation, which requires that the right be progressively realised within the available resources, which is further subject to reasonable legislative measures. In careful consideration of the section 29(1)(b), it is noted that an obligation rests on the state to make further education progressively available and accessible. The state has though the Higher Education Act, 101 of 1997, together with the National Student Financial Aid Scheme Act, 56 of 1999, advanced acts which would help with the realization of the right in section 29 (1)(b). It is significant to note the preamble of the Higher Education act, which notes amongst others that it is desirable to restructure and transform programmes and institutions to respond better to the human resource, economic and development needs of the Republic; and redress past discrimination and ensure representation and equal access. I bring to your attention that the act also speaks to the funding of public higher education, which position is to be read in line with possible solutions to the call #FeesMustFall.

In summary, the National Student Financial Aid Scheme is a credit scheme which lends money to students who meet particular criteria, which beneficiaries have a responsibility to repay the money to the scheme. I should also advance that I am aware that under particular circumstances parts of the loan to the students are converted to a bursary, and the remaining greater part of the loan remains as a loan. The question on whether the efforts of the government in enacting the above acts achieves the purpose of section 29 (1)(b) cannot be answered in the absolute, however inference can be draw from the call for fees to fall.

As a point in passing, the autonomy of the Universities is noted, however such an autonomy is to be read in line with Justice Nkabinde’s findings in the Juma Musjid Primary-case (paragraph 60) wherein the Justice indicated that the Trust (a private entity) has a negative constitutional obligation not to impair the learners of their right to education.

It would be reckless to consider the call #FeesMustFall without considering those who made the call together with the socio-economic position they made the call from, in a country with such a history as ours. The Freedom Charter (the founding charter of the Bill of rights and birth paper to our constitutional jurisprudence), as adopted, declares that the doors of learning shall be opened to all. Further that education shall be free, compulsory and universal, and equal for all children. In relation to further education, the charter states that, higher education and technical training shall be opened to all by means of state allowances and scholarships awarded on the basis of merits. The persons making the #FeesMustFall call are the intended beneficiaries of the declaration in the freedom charter as adopted.

As his parting contribution to our constitutional Jurisprudence, former deputy chief justice Moseneke delivered a Judgment in the matter of Federation of Governing Bodies for South African school v MEC Education Gauteng, Case CCT 209/15. We will borrow from that judgement sentiments which speak to the call #FeesMustFall call, albeit not specifically. Justice Moseneke stated that: “…teaching and learning are as old as human beings have lived…”, also noted that “ the indigenous and ancient African wisdom teaches that “thuto ke lesedi la sechaba”, the DCJ also quotes Immanuel Kant as having stated that “How then is perfection to be sought? Wherein lies our hope? In education, and in nothing else.” The DCJ also notes in paragraph 3 that “…all forms of human oppression and exclusion are premised, in varying degrees, on a denial to access to education and training. The uneven relations that marked slavery, colonialism, the industrial age and the information economy are girded, in great part, by inadequate access to quality teachings and learning.” The DCJ in the above matter summarized what necessitates the call for fees to fall; because without such a fall, the limited access to higher education perpetuates the status quo for the majority of the masses who cannot afford to pay to access higher education, and also cannot afford to be granted access through government loans, which (in the long run) result in the already destitute being even more destitute by the time they qualify and want to start a career.

Is the system as is, as at this instance, not designed to frustrate or perpetuate the struggle for the already destitute youths who have ambition to attain further education? Karl Marx’s statement: “Hitherto every form of society has been based, as we have already seen, on the antagonism of oppressing and oppressed classes. But in order to oppress a class, certain conditions must be assured to it under which it can, at least, continue its slavish existence.” I submit that this remains true today.

How then do we answer the clarion call? For it is imperative for the future of this country that we answer the call. I advance that the Constitutional court should be petitioned, in terms of section 38 to enforce the rights as set out in section 29 (1)(b). Such a petition would enable the court, to take the state to task, and would equally place on the state a burden to investigate alternatives to ensuring that the future of each citizen is secured regardless of the family they are born into. In answering the call, we are securing the future of the students, and further the future of the country. Upon such a petition, the Constitutional court would be in a better position to answer the call through section 172. In Mpumalanga Department of Education v Ermelo Hoerskool (2010), DCJ Moseneke stated in relation to section 172 that: “…this ample and flexible remedial jurisdiction in constitutional disputes permits a court to forge an order that would place substance above mere form by identifying that actual underlying disputes between the parties and by requiring the parties to take steps directed at resolving the dispute in a manner consistent with the constitutional requirements.”.

Allow me to also scrounge from Dr Ravi Zacharias, a Christian apologist’s assertions in that: “A nation has reached its lowest ebb when our children are victimized. The last vestige of civility is left when we are there to see what we do with our children.” I am aware that no right is absolute, but I submit that the limitation as asserted in section 36 should be considered carefully when dealing with the right to further quality education, mainly as it affects particular social classes.

“Rintihu rinwe ari nusi hove” one finger cannot lift a pebble.

By
Gastavus Chabalala (African Child)
gastavus@dyason.co.za

Copyright Infringement Involving Dictionaries

This case was a very uncommon legal case involving intellectual property law in South Africa since it was the first time that copyright infringement pertaining to dictionaries was determined.

Background

In 1933 Media 24 Books (Pty) Ltd produced and published its first Afrikaans – English bilingual dictionary entitled the “Tweetalige Aanleerderswoordeboek”. This dictionary was later updated and reproduced in 2006, thereafter it became known as the “Pharos Aanleerderswoordeboek”. A year later, in 2007, Oxford University Press Southern Africa) Pty) Ltd released its own bilingual dictionary entitled the “English – Afrikaans Skool Woordeboek”.

It was only some time later in 2011 when Media 24 Books (Pty) Ltd was intending on releasing a completely new bilingual dictionary that it discovered certain similarities between their own dictionary, the Pharos Aaleerderswoordeboek and the dictionary produced by Oxford University Press Southern Africa (Pty) Ltd. Whilst doing market research in order to compile their new dictionary Media 24 Books (Pty) Ltd consulted a variety of dictionaries and of course also consulted the Oxford University English – Afrikaans Skool Woordeboek. This is when Media 24 Books (Pty) Ltd realised that Oxford University Press had copied some of the example sentences from their dictionary.

Media 24 Books (Pty) Ltd alleged that Oxford University Press had copied the short sentences used to illustrate the meaning of words and that the example sentences were similar or loosely adapted from the Pharos Aanleerderswoordeboek. At the hearing of in the High Court Media 24 alleged that the similarity of the example sentences were too numerous and that they justified the conclusion that Oxford University Press had copied them. Oxford University Press vigorously denied having plagiarised Media 23 Book’s dictionary and maintained that their dictionary was a product of independent work.

Media 24 Book’s claim was dismissed and Media 24 Books (Pty) Ltd proceeded to bring and application for leave to appeal following the judgment granted by the Western Cape Division of the High Court.

At the hearing in the High Court and in the SCA the focus fell on the similarity between the illustrative sentences as they appeared on both the Afrikaans and the English sides of the two dictionaries.

In order to succeed with a prima facie case of copying Media 24 Books (Pty) Ltd had to show that that there was substantial similarity between the alleged infringing work and the original work and that the alleged infringer, Oxford University Press, had access to the original work, Then the alleged infringer is called upon to explain how the infringing work was produced and accordingly Oxford University Press had to explain how the Afrikaans – English Skoolwoordeboek was produced.

Oxford University Press filed affidavits by the three freelancers who prepared the entries for the dictionary in which they all denied copying from Media 24 Book’s dictionary. Two of the compilers denied even having a copy of that work, while the other said that she occasionally used it along with many other dictionaries in the ordinary course of her work, but did not copy from it.

In addition Oxford University Press filed affidavits by two expert lexicographers who explained how it was likely that in compiling a dictionary of this type it was probable that there would be similarities between the illustrative sentences in each, given that the words being defined constituted a basic core vocabulary and had to be explained in terms appropriate for children.

Judge Gamble found in favour of Oxford University Press and dismissed the application brought by Media 24 books, due to their failure to show “sufficient objective similarity”, and its actual harm suffered. Gamble focussed on the “quality” of the work alleged to have been plagiarised and not the quantity. The court agreed that where there is a common source, the mere of fact of similarity does not create an inference that there was copying.

It is noteworthy that Media 24 Books (Pty) Ltd elected to argue its case without the benefit of oral evidence where it would have had the opportunity to cross examine the witnesses of Oxford University Press in order to establish if they were telling the truth. Instead Media 34 Books (Pty) Ltd confined itself to the evidence presented in the affidavits submitted. Media 24 Books (Pty) Ltd simply submitted that the similarities between the dictionaries were so great that it demanded the rejection of evidence tendered by Oxford University Press.

The Court after considering the extent of the original work in the Oxford University Press publication and a number of other factors that counted against copying having occurred, concluded that that Media 24 Books (Pty) Ltd had failed to prove copying and accordingly its claim had been properly dismissed.

By
Pariksha Moodley
pariksha@dyason.co.za