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FORM A

FILING SHEET FOR SOUTH EASTERN CAPE LOCAL DIVISION JUDGMENT

PARTIES:

FRUIT MACHINERY ENGINEERING Plaintiff

and

PATENSIE SITRUS LIMITED Defendant

1. Case Number: 2424/06

2. High Court: SOUTH EASTERN CAPE LOCAL DIVISION

DATE HEARD: 22 November 2007

DATE DELIVERED: 23 November 2007

JUDGE(S): KROON, J

LEGAL REPRESENTATIVES –

Appearances:

1. For the Applicant(s): P W Scott

2. for the Respondent(s): M Swanepoel

Instructing attorneys:

1. Applicant(s): Goldberg & de Villiers Inc

2. Respondent(s): Schoeman Oosthuizen Inc

CASE INFORMATION -

1. Nature of proceedings : Application

2. Topic:

3. Key Words:

REPORTABLE

IN THE HIGH COURT OF SOUTH AFRICA

(SOUTH EASTERN CAPE LOCAL DIVISION)

CASE NO: 2424/06

IN THE MATTER BETWEEN:

FRUIT MACHINERY ENGINEERING Plaintiff

and

PATENSIE SITRUS LIMITED Defendant

________________________________________________________________________

JUDGMENT

________________________________________________________________________

KROON J:

[1] This is an application by the defendant for the dismissal of the plaintiff’s claim for want of compliance by the latter with an order that it furnish security for the defendant’s costs in the action instituted by it against the defendant.

[2] The plaintiff’s action is for payment of the sum of R169 290,00 being the balance of the purchase price of R990 000, 00 in respect of six dry tunnels sold and delivered to the defendant. The latter raises the defence that the dry tunnels are defective and not fit for their intended purpose and in a counterclaim the defendant seeks the recovery of alleged damages in the sum of R587 069,00 being R272 976,00 in respect of the cost of remedying the alleged defects and R314 093,00 in respect of consequential loss.

[3] Pursuant to an order by Nepgen J (granted by agreement), that the Registrar determine the amount, nature and form of the security to be furnished by the plaintiff for the defendant’s costs incurred and to be incurred in the action, the Chief Registrar, after hearing the parties, fixed the security, on 30 March 2007, in the sum of R180 000,00, to be furnished by way of a bank guarantee. The order of Nepgen J further granted the defendant leave to apply to this court, on the same papers supplemented insofar as may be necessary, in the event of the security not being furnished by the plaintiff within one month of the determination by the Registrar, for an order dismissing the plaintiff’s claim.

[4] The plaintiff thereafter approached this court for an order reviewing the Registrar’s determination, setting it aside and replacing it with a determination in a lower amount. That review application, heard by me, was dismissed on 6 September 2007. I further granted the defendant leave to apply to this court, on the same papers as were before Nepgen J, amplified as may be necessary, for an order dismissing the plaintiff’s claim in the event of the plaintiff failing to furnish the security determined by the Registrar by 28 September 2007.

[5] It may be recorded that the said date of 28 September 2007 was fixed after I had enquired of the defendant’s then counsel whether same would be appropriate and received his confirmation thereof (after he had taken instructions thereanent).

[6] The plaintiff failed to furnish the required security, or any part thereof, by 28 September 2007, and to date persists in such failure; hence, the present application by the defendant for an order dismissing the plaintiff’s claim with costs.

[7] The application papers reflected that the grant of the order would be moved on 23 October and were served on the plaintiff’s attorney on 16 October. According to the answering affidavit filed in opposition to the application, deposed to by Mr de Lange, the sole member of the plaintiff close corporation, the application papers were immediately communicated to him. The answering affidavit was, however, only deposed to on 22 October and filed on the following morning. A postponement of the proceedings was thereby rendered inevitable (with additional time being afforded to the plaintiff to source funds to enable it to furnish the security, and thereby be in a position to invoke a counter to the application). His explanation for the delay was that he was engaged on Wednesday/Thursday, 16/17 October in securing travel documents and a visa for a trip to America and his tight programme prevented him from communicating with his attorney. Similarly, he was involved on Friday, 18 October, in very important negotiations with a major client who was to accompany him to America to investigate the possibility of importing certain fruit machinery, and again was unable to communicate with his attorney. I will revert to this overseas trip below.

[8] Mr Swanepoel, for the defendant, placed emphasis on the fact that the plaintiff’s financial statements for the years ending February 2005 and February 2006, which were included in the papers before Nepgen J, reflected a none too rosy and deteriorating financial position. I do not consider it necessary to set out the details: suffice it to record that the inference is that the plaintiff’s precarious financial position was no doubt the reason why the plaintiff consented to the order made by Nepgen J and is the explanation for the plaintiff’s inability at present to furnish any security. The plaintiff has not sought to contend in the present proceedings that its financial position since February 2006 has improved, and there is merit in Mr Swanepoel’s submission that, having regard to the historical trend evidenced by the now outdated financial statements, there is reason to apprehend that on the contrary the plaintiff’s financial position has deteriorated further. The apprehension is increased by the plaintiff’s failure, unexplained, to place more up to date financial statements before me.

[9] Indeed, Mr Scott, for the plaintiff, recognized that, as he put it, the plaintiff “is having difficulty in providing the necessary security at this time”, and restricted his argument to supporting the plaintiff’s request for an extension of the period in which to furnish security.

[10] Rule 47(4) provides as follows:

“The court may, if security not be given within a reasonable time, dismiss any proceedings instituted or strike out any pleadings filed by the party in default, or make such other order as to it may seem meet”.

In casu, it was correctly not argued that the fixing of 28 September as the date by which security was to be furnished, did not in the circumstances, having regard to the history of the matter, afford the plaintiff a reasonable period. Accordingly, in terms of the Rule I have a “discretion” whether to order, on the ground of the plaintiff’s failure to provide the security by that date, to make any of the orders provided for in the Rule. The Rule reflects the approach that obtained prior to the promulgation of the Uniform Rules of Court: In Excelsior Meubels Bpk v Trans Unie Ontwikkelingskorporasie Bpk 1957(1) SA 74 (T) at 77F-G it was held that the court had the inherent power to dismiss the action of a plaintiff company which did not provide the security ordered within the time stipulated.

[11] The nature of the discretion accorded by the use of the word “may” in the Rule was the subject of debate at the Bar ie whether it was discretion in the strict sense or not. The issue does not require resolution in that whatever the true nature of the discretion the conclusion reached by me on the application would be the same.

[12] (a) It has been held that strong grounds must be shown to justify a court of justice in staying the hearing of an action, that the courts of law are open to all, and it is only in very exceptional circumstances that the doors will be closed upon anyone who desires to prosecute an action. Western Assurance Co vs Caldwell’s Trustee 1918 AD 262 at 273. In noting that this dictum has been steadily adopted ever since, Foxcroft J in Wallace NO v Commercial Union Insurance Co of SA Ltd 1999 (3) SA 804(C) (at 809I-810B) commented that it is trite that a court will be slow to adopt the extreme measure of dismissal when another remedy is available.

(b) In SA Scottish Finance Corporation Ltd v Smit 1966 (3) SA 629 (T) at 634D-F, Trollip J, in dealing with the dismissal of an action upon failure to provide security, said the following:

“Generally, I do not think that the action ought to be dismissed unless ‘the plaintiff has recklessly disregarded his obligations, or…..the case appears to be hopeless, or the Court is convinced that the plaintiff does not seriously intend to proceed’. That was the test applied by Greenberg J (as he then was) in Ford v South African Mineworkers Union 1925 TPD 405 at 406 in determining whether to grant absolution from the instance under the Supreme Court Rules against a plaintiff for not filing a declaration timeously, and I think it is also a useful guide for Rule 58(2)”.

(Rule 58(2) was the then rule relating to the provision of security in the magistrate’s court).

(c.f. the comments in Shepstone & Wylie & Others v Geyser NO 1998 (3) SA 1036 (SCA) at 1046H-I that while the probability that an order for security would effectively terminate the litigation is not by itself sufficient reason to refuse the order, it is a factor to be taken into account. See, too, Giddy NO v J C Barnard & Partners [2006] ZACC 13; 2007 (2) BCLR 125 (CC), the headnote in which reflects the following approach: In applying s 13 of the Companies Act 61 of 1973 in a manner consistent with the Constitution, a court is obliged to balance on the one hand, the potential injustice to a plaintiff if it were prevented from pursuing a legitimate claim and on the other hand, the potential injustice to a defendant who could successfully defend the claim, but who would be unable to recover costs from the plaintiff. The first consideration incorporated a recognition of the importance of the right of access to courts. Relevant considerations in performing this balancing exercise would include the likelihood that the effect of an order to furnish security would be to terminate the plaintiff’s action; attempts made by the plaintiff to find financial assistance from its shareholders or creditors; the question whether it was the conduct of the defendant that caused the financial difficulties of the plaintiff; as well as the nature of the plaintiff’s action).

[13] Mr Swanepoel submitted that the correct procedure for the plaintiff to have followed was to have launched a substantive application in terms of Rule 27(1) for an extension of time within which to file the required security (either by way of an application initiating proceedings, and preferably prior to 28 September, the date fixed by which the security was to be furnished, or by way of a counter-application in the present proceedings). He sought to stress that in such an application the plaintiff would bear an onus to show good cause for the grant of relief to him. Accepting that it was open to the plaintiff to bring such a substantive application, it is clear that the plaintiff was entitled to adopt the course it did, to offer resistance to the defendant’s application, including requesting an extension of time to file the security, and it remains an obligation on him to demonstrate good cause for the court to come to his aid.

[14] In his answering affidavit de Lange made the following averments.

3. He was somewhat shocked at the “stiff security” required of the plaintiff in the light of the “small” amount of its claim; nevertheless, he was of the opinion that the plaintiff has a good case and he wished bona fide to proceed with its claim.

4. After the order of 6 September was made he caused a request to be conveyed to the defendant for an extension of time, until about 20 October 2007, to enable him “to generate funds” to provide the security required.

In fact, as the replying papers reflect, the approach to the defendant’s attorneys was only made some time after the date the security was due viz on 9 October, when it was conveyed that the plaintiff would be able to provide the security towards the end of October. However, no firm date by which the plaintiff would be so able was provided, this was unacceptable to the defendant and the application was launched.

The failure to furnish the security in October was explained by de Lange as follows: a client was to pay “a big account” to the plaintiff by 20 October; unfortunately, however, the payment did not materialise and the client was still busy arranging his finances with his bank.

5. On 23 October he was flying out to various overseas destinations viz Cairo, Spain, London and California, and would only return on 9 November. The purpose of the overseas visits was to generate work to acquire funds in order to place the plaintiff in a position at a later stage to furnish security and proceed with the action against the defendant.

[15] Were the matter to have been decided only on the above answering affidavit then, in addition to the criticisms to be levelled at the content thereof (as to which, see below) an allied criticism would have been the following: more than a month would have elapsed since the alleged debt had become payable and some two weeks after de Lange’s return from overseas; yet no leave had been sought (which would undoubtedly have been granted if applied for) to file a further affidavit to place further information before the court as to what had happened in the matter of the alleged client’s indebtedness to the plaintiff or as to what had transpired pursuant to his trip overseas; the inference would have been that he was unable in either case to aver that a real source of funds had eventuated.

In fact, however, prior to the hearing yesterday morning de Lange cause a further affidavit to be delivered to the defendant’s attorneys, and at the hearing Mr Scott moved that the affidavit be received. Despite objection by Mr Swanepoel I considered that the interests of justice would be served by the receipt of the affidavit, and I ruled accordingly.

[16] The further affidavit recorded the following:

1. He returned from overseas on 9 November and on 13 November he travelled (from Cape Town where he is based) to the Eastern Cape where he consulted with clients over a period of a week.

2. Pursuant to his overseas trip he secured a contract with a local fruit company for the importation of fruit machinery from overseas, as also for the manufacturing of certain machinery for a local fruit warehouse. The contract “amounts to” approximately R6 000 000,00. He is at present engaged in finalising the terms and conditions of the contract and he anticipates that such finalisation will be achieved by the end of December 2007.

3. Pursuant to his visit to the Eastern Cape he secured a further contract with a fruit warehouse for the installation of all the machinery in the warehouse. The “value” of this contract “amounts to” about R9 000 000,00. This contract, too, was in the process of finalisation, anticipated to be completed early in January 2008.

4. A further contract was secured in Nelspruit for the manufacture of machinery and plant and for the importation of machinery from overseas. The “value” of the contract “amounts to” approximately R3 200 000,00. The project is scheduled for the middle of April 2008 and the envisaged completion date is November 2008.

5. In the light of the above, so it was averred, the plaintiff will certainly be in a financial position to furnish the security required by the end of January 2008.

[17] Factors counting against the plaintiff are the following:

(a) The obligation to furnish security arose when the order of Nepgen J was issued on 7 December 2006 and the amount and form of the security was determined on 30 March 2007. It was the good right of the plaintiff to seek a review of the determination, but, as Mr Swanepoel pointed out, it was only the quantum of the security that was in issue in the review, and as yet, many months down the line, no security has been furnished; as recorded earlier, the plaintiff is at present impecunious and unable to furnish security.

(b) In his first affidavit de Lange did not take the court into his confidence as to what steps, if any, were taken by the plaintiff to find the means to furnish security after judgment in the review was handed down on 6 September: he mentioned only that it was conveyed (at a relatively late stage) to the defendant’s attorney that he anticipated a payment being made by a client on 20 October and that he was proceeding overseas to endeavour to generate some income for the plaintiff.

(c) De Lange’s coyness in that affidavit in failing to disclose the details relating to the two steps referred to in (b) attracts cognizable criticism: he did not disclose the amount of the debt allegedly payable on 20 October nor the identity of the debtor; he failed to disclose, other than to intimate, somewhat baldly, that the trip overseas was to explore the possibility of importing fruit machinery, what investigations were to be conducted overseas including details of the type of machinery that might be imported, the identity of the parties who were to be approached in that regard, the prospects of the trip being met with success and the likely income that might eventuate.

6. The absence of any reference in the second affidavit to the alleged debt payable on 20 October confirms the inference that nothing will come thereof.

7. That affidavit, too, generally suffers from the same criticism of being lacking in detail as apply to the first affidavit. As to the fact that amounts have been mentioned allegedly reflecting the “values” of the contracts, it is not indicated whether the amounts represent alleged net or gross profit or how same have been arrived at. Certain of the contracts are still inchoate.

8. The security determined does not take account of the costs incurred in respect of the review proceedings or the present proceedings.

[18] Factors favourable to the plaintiff are the following:

1. The grant of the defendant’s application would have the drastic result of shutting the doors of the court to the plaintiff’s pursuit of his claim.

2. As Mr Scott argued, it cannot be found that the plaintiff is in wilful disregard of the court’s order nor am I able to ascribe recklessness to it. It must be accepted, too, that the plaintiff is bone fide in its desire to pursue its claim against the defendant.

3. Despite the criticisms to be levelled at the content of the plaintiff’s affidavits, they do reveal some, cognizable, prospects that the funds required for the security will be sourced by it.

4. The plaintiff’s claim is for the balance of a purchase price, admittedly not paid by the defendant which alleges defective performance founding a counterclaim. The issues are interrelated and shutting the doors of the court to the plaintiff would not obviate the need for those issues to be ventilated as the defendant is clearly bent on pursuing its claim.

The fact of such interrelation is, however, not to be overstated and it speaks for itself that it cannot be conclusive; otherwise there could never be talk of obliging a plaintiff to furnish security in circumstances such as those obtaining in the present matter. It nevertheless remains a factor.

(e) Mr Swanepoel did not join issue with Mr Scott’s statement that, having regard to the fact that no trial date has as yet been allocated in the matter, it is unlikely that the matter would be heard within the next six months. That does not mean, of course, that preparation for trial must pro tempore come to a standstill. However, regard should also be had to the fact that the extension moved by Mr Scott was until 31 January 2008 and that the year end closed period for the business of the court and the annual holiday season would be embraced therein.

(f) As Mr Scott further pointed out, the costs occasioned by the review proceedings and the present proceedings are a fait accompli. Mr Scott’s further concession was that it would be proper, should I be disposed to come to the plaintiff’s aid and grant the extension sought, for a further order to be made that should the security not be furnished by 31 January 2008 the plaintiff’s claim shall be deemed to have been dismissed with costs (a similar order was granted in Mampudi Mining (Pty) Ltd v President of the RSA NO and Others [2004] 4 All SA 457 (T)) and, as counsel pointed out, any further incurring of costs by the defendant in respect of the dismissal of the plaintiff’s claim by reason of the latter’s failure to furnish security would thereby be obviated.

[18] Two further submission of Mr Swanepoel may shortly be disposed of.

(a) He submitted that the papers before Nepgen J reflected that the plaintiff had no prospects of success in its claim. I do not find it necessary to record the grounds invoked for the submission. Suffice it to record that I am unable to make a finding to that effect.

(b) Similarly, I am unable to accept the invitation to find that the terms of the financial statements placed before Nepgen J reflect that a cession by the plaintiff to a bank of its receivable debts applies also to future debts, and that therefore any amounts that become owing to the plaintiff in terms of the alleged contracts would be hit by the cession (and would therefore not be a source of the funds required to furnish security).

[19] On a conspectus of the above considerations I am persuaded that the interests of justice would be served by the plaintiff being afforded the extension sought.

[20] The plaintiff has achieved a measure of success today in warding off an order for the dismissal of its claim. On the other hand, the extension to be granted constitutes an indulgence, the plaintiff’s conduct in the matter and the contents of its papers attract a cognizable measure of censure, and I am persuaded that it was reasonable for the defendant to have persisted in its application. In the circumstances, I am persuaded that the defendant is entitled to its costs.

[21] The following order will accordingly issue:

3. The plaintiff is given leave to furnish the security determined by the Registrar by 31 January 2008.

4. In the event of the plaintiff failing to furnish the security by the said date the plaintiff’s claim shall be deemed to have been dismissed with costs.

5. The costs of the application will be paid by the plaintiff.

_____________________

F. KROON

JUDGE OF THE HIGH COURT

Date of hearing: 22 November 2007

Date of judgment: 23 November 2007

For applicants: P W Scott, instructed by

Goldberg & de Villiers Inc

13 Bird Street

Central, Port Elizabeth

For respondents: M Swanepoel, instructed by

Schoeman Oosthuizen Inc

167 Cape Road

Port Elizabeth

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