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IN THE HIGH COURT OF SOUTH AFRICA

(TRANSVAAL PROVINCIAL DIVISION)

In the matter between:

SOUTH AFRICAN AIRWAYS (PTY) LTD APPLICANT

And

MAKWETLA & ASSOCIATES CC RESPONDENT

In re:-

MAKWETLA & ASSOCIATES CC Plaintiff

And

SOUTH AFRICAN AIRWAYS (PTY) LTD defendant

JUDGMENT

MAVUNDLA. J.

[1] The applicant seeks an order that the respondent be compelled in terms of Rule 47(3) to furnish security for cost. The respondent is opposing this application.

[2] The application for security for costs in terms of Rule 47(3) is founded on the affidavit deposed to by Mr. Ebrahim Jooma, a duly admitted attorney of this Court who describes himself as a director of the firm of attorneys of record acting on behalf of the applicant. The applicant is the defendant in the main action instituted by the respondent, who is the plaintiff in the main action. The main action is set down for trial in this Division on 12-27 August 2008. During or about September 2004 the respondent issued summons out of this Division under the above stated case number against the applicant for payment of an amount of R2 318 007,60 being in respect of an alleged oral contract concluded between both parties. The applicant entered an appearance to defend the matter and filed its plea as well as a counterclaim during February 2005 in terms of which it seeks repayment of R11, 260, 737, 60 already paid to the respondent. The applicant contends in its plea, in the alternative, for voidness of the agreement, either because of non-compliance with the Public Finance Act, No 1 of 1999 relating to the authority within the applicant which must approve the financial commitment), or non-compliance with the "no variation except in writing" clause contained in a prior written agreement. The applicant further contends for reduction in the amount payable to the respondent on various grounds. The applicant further contends that its cause of action against the respondent is based upon enrichment, in particular that payments, not owing at all, were made in circumstances of an error. It needs mention that the matter had originally been set down for hearing on 1 November 2006 but was postponed by mutual consent of the parties.

[3] The applicant caused its notice for security for costs in terms of Rule 47(1) to be served on the respondent on 1 March 2007. In the said notice in terms of Rule 47(1) the applicant requires of the respondent to furnish security for costs in the amount of R150 000, 00. The reason advanced for seeking such security is that the respondent, has admitted that it cannot pay its "subcontractors in the present matter to the value of approximately R2 300, 000, 00 (two million three hundred thousand rand) and the sub-contractors are threatening legal action. The applicant further states that there is reason to believe that the respondent if it were to be wound up, the liquidator thereof will be unable to pay the costs of the applicant in the event of the applicant being successful in its defence of the respondent's action.

[4] On 28 March 2007 a letter was sent to the respondent's attorneys by the applicant's attorney's of record pointing out that the respondent has failed to comply with the applicant's notice in terms of rule 47(1) and calling upon the respondent to comply therewith before 30 March 2007 failing which the applicant will lodge the application to comply. Such application in terms of rule 47(3) was then launched on 3 May 2007. The latter application was set down for hearing on 22 June 2007. The basis for such application was that the respondent is a close corporation and section 81anc" HREF="#sdfootnote1sym">¹ of the Close Corporations Act, No. 69 of 1984 apply. I must hasten to point out that in the matter of Computer Brilliance CC v Swanepoel 2005 (4) SA 433 (TPD) at 439G-440 A the Court said that:

"[18] Under the common law. there was no room for a court to grant an order to give security against an incola piaintiff. So, for example, the Court declined to make such an order in Liquidators, Salisbury Meat Ltd v Perelson 1924 WLD. Krause J said the following at 107:

"I can find no principle of our law upon which the application for security can be supported. The general rule of our law is that nobody but a peregrinus can be called upon under any circumstances to give security for costs, and that the Court has no jurisdiction to make a litigant or one who sues under a power conferred upon him expressly by the Act of Parliament, give security for costs. I know of only one exception to the general rule, namely, that an unrehabilated insolvent who sues independently of his trustee in regard to the general administration of his estate may be ordered to give security for costs. Mear v The Pretoria Estate and Market Co Ltd (1907 TPD 951).'

[19] The general common-law was summarized as follows in 1828 in Witham v Venable 1Menz 291 at 291:

'[No] person who is either civic municeps or incola of this colony, can, as plaintiff, be compelled to give security for costs, whether he be rich or poor solvent or insolvent: and, on the other hand, that every person, who is either civis municeps, nec incola

incola may, as plaintiff, be called to give security for costs unless he prove that he is possessed of immovable property, situated within the colony.'

The onus to show that the company or its liquidator will be unable to pay the costs order of the defendant or respondent if not successful in its claim lies on the party so alleging, vide Firstrand Bank Ltd v Pather 2005 94) SA 429 (NPD) at 432 A-H and Computer Brillance CC v Swanepoel 2005 (4) SA 433439G-H.

[5] In support of its allegation that there is reason to believe that the respondent will be unable to pay an adverse costs order, it is pointed out on behalf of the applicant that during a pre-trial held on 17 October 2006 which was attended by the legal representatives and advocates of the respective parties it was common cause that the respondent had not paid its sub-contractors' invoices of approximately R1,9 million relating to the postponement of a launch that had been scheduled for 11 February 2004, in respect of which a management agreement was concluded between the parties and in respect of which management agreement the respondent had provided a quotation in the sum of R11 260 737, 60. The aforesaid launch was then postponed to 15-21 September 2004. The respondent was paid its full original fee of R11 260 737, 60. Further the applicant relies on a letter that was written to Mr. Khaya Nqgula, the Chief Executive Officer of the applicant, by Mrs. Makwetla on behalf of the respondent, which letter is dated September 2006 and attached to the papers as annexure EJ5. In the said letter the intervention of Mr. Nqgula is sought for the following reasons: "13 As you will appreciate, a small Black Empowerment Company like ourselves cannot afford the costs of protracted litigation and further desperately need to settle the accounts for costs incurred in preparation for the launch.

14. A protracted litigation process may in fact result in M & A being liquidated for failure to pay creditors."

[6] On behalf of the applicant it is contended that from the above it is clear that the respondent faces claims from its sub-contractors in a total amounted of at least R1,9 million and that it has admitted its inability to pay those creditors without a successful outcome of its litigation against the applicant and further that the liquidation of the respondent is a distinct possibility. It is further contended that substantial legal costs have been incurred by the applicant and that each party will incur further legal cost between R200 000, 00 and R250, 000, 00, excluding previous legal costs already incurred as the result of the previous postponement of the matter. It is further contended on behalf of the applicant that the respondent has failed to submit its financial statements. It is further contended in its affidavit that the applicant is not seeking a stay of the proceedings pending the provision of security for costs by the respondent because such an order would serve little purpose given the fact that pleadings have closed and the parties are merely awaiting the commencement of the trial in August 2008.

[7] An opposing affidavit deposed to by the plaintiff's attorney of record, has been filed on behalf of the respondent. It is contended; inter alia, in the said affidavit that the applicant is bound to prove the grounds mentioned in its rule 47(1) dated 28 February 2007. In this regard vide paragraph 3 supra. The aforesaid grounds are denied by the respondent and the applicant is put to proof thereof.

[8] On behalf of the respondent it is admitted that a pre-trial did take place on 27 October 2006. It is contended that a possible settlement of the matter was discussed on a without prejudice basis and it is denied that it was said that the plaintiff was unable to pay "those costs unless it succeeds with its claim against the applicant." It is admitted that the legal representatives of the applicant were told that the sub-contractors might take legal action against the respondent, however no such legal action has been taken by such sub­contractors. It is further stated that the financial statements of the respondent reflect that the financial affairs of the respondent are sound as reflected in annexure AM2 which are the financial statements of the respondent for the year 2005, 2006, and 2007. At paginated page 59 Mrs A Makwetla has signed the Makwetla And Associtaes cc" Annual Financial Statements and it is further stated that these statements have been approved on 21 May 2007. This puts to rest the submission made on behalf of the applicant that the financial statements have not been signed and that I must therefore ignore them. It would be incorrect not to have regard to these statements. I therefore accept that at the end of the year end 28 February 2005 the respondent made a profit of R373, 742 before taxation and retained profit at the beginning of the year in the amount of R1,752,850. I also accept as reflected in the financial statements for the year ended 28 February 2007 the respondent also made a profit as reflected at paginated page 72. I do however take note of the fact that the applicant in its replying affidavit denies that the finances of the respondent are not sound. However the applicant has not furnished any evidence refuting that the respondent did not make any profits. Accordingly I do accept that the respondent has made some profits, and this goes against the contestation that the respondent is in financial difficulties to an extent that it is about to be sued by its sub-constructors..

[9] It is common cause that the applicant is a parastatal company and can therefore be regarded as an organ of the State. This as much has been conceded by counsel for the applicant. In this regard in Chief Lesapo v North West Agricultural Bank and Another² Mokgoro J said that: "[17] The Bank, as an organ of State, should be exemplary in its compliance with the fundamental constitutional principle that proscribes self help. Respect for the rule of law is crucial for a defensible and sustainable democracy. In a modern constitutional State like ours, there is no room for legislation which, as in this case, is inimical to a fundamental principle such as against self help. This is particularly so when the tendency for aggrieved persons to take the law into their own hands is a constant threat. [18] The rule against self-help is necessary for the protection of the individual against arbitrary and subjective decisions and conduct of an adversary. It is a guarantee against partiality and the consequent injustice that may arise." The relevance of this paragraph must be seen in the context of s34 of the Constitution, which I shall refer to shortly.

[10] In Drakensbergpers Bpk and Others v Sharpe 1963 (4) (NPD) at 619 the court said that:

"The grant or refusal of an order to lodge security for costs is a matter of practice, in which the Court has a discretion." In South African and Steel Corporation Ltd v Abdulnabi 1989 (2) SA 224 (TPD) at 237C-D Hartzenberg J said in deciding whether or not to grant or not to grant an order for security for costs, the court must have regard to the nature of the case, the circumstances as to how the claim arose and the conduct of the parties during the earlier stages of the case. I therefore take note of the fact that the applicant in its plea as reflected in the bundle of documents supplied by the applicant's attorneys, in particular at paginated page 22. the applicant admit having received a quotation from the respondent in an amount of R11 260 737,60 for staging and managing a corporate launch event to mark the introduction of the new Airbus aircraft into the SAA fleet. Further the applicant at paragraph 6.1 of its plea admits having paid the respondent the amount of R11 260 737.60. It is contended by the applicant that such payment was in error. It is inconceivable that such a huge amount can be paid purely on error. The respondent is claiming from the applicant an amount of R2 318 007, 60 being in respect of an alleged oral contract concluded between both parties. I however do not have to traverse the prospects of success of the respective parties on their alleged claims against each other. But in my view it would be travesty of justice where an incola litigant claims whatever it contends that it is owed by a State organ that it must be called to furnish security for costs be for it can have access to court³. This must be seen in the context of what is said by Mokgoro J and O'Regan about the right of access to Court.

[11] In the matter of Giddey NO v JC Barnard and Partners⁴ O'Regan J stated that: " [1]... the procedure whereby an application for security for costs is made is governed by Rule 47 of the Uniform Rules of Court.⁵ If a company ordered to provide security for costs is unable to do so, it will, in the ordinary course be prevented from proceeding with the action."

At page 532B-C O'Regan dealt with s34 of the Constitution as follows:

"The scope of and meaning of s 34 of the Constitution

[15] Section 34 of the Constitution provides that everyone has the right to have a dispute that can be resolved by the application of law decided by a court or tribunal in a fair public hearing. This important right finds its normative base in the rule of law. As Mokgoro J stated in Chief Lesapo v North West Agricultural Bank and Another⁶: The right of access to court is indeed foundational to the stability of an orderly society. It ensures the peaceful, regulated and institutionalized mechanisms to resolve disputes, without resorting to self-help. The right of access to court is a bulwark against vigilantism and the chaos and anarchy which it causes. Construed in this context of the rule of law and the principle against self help in particular, access to court is indeed of cardinal importance."

[12] In the matter of Chief Lesapo v North West Agricultural Bank and Another [1999] ZACC 16; 2000 (1) SA 409 (CC) Makgoro J at 416 stated inter alia that:

"[16] On the analysis. s34 and the access to courts it guarantees for the adjudication of disputes are a manifestation of a deeper principle; one that underlies our democratic order. The effect of this underlying principle on the provisions of s34 is that any constraint upon a person or property shall be exercised by another only after recourse to a court recognized in terms of the law of the land. Dicey's first principle of the rule of law is that:

'...no man is punishable or can be lawfully made to suffer in body or goods except for a distinct breach of law established in the ordinary legal manner before the ordinary courts"

[13] The issue of whether a litigant must be ordered to furnish security for costs is a matter of the discretion of the Court. In the exercise of its discretion the court must have regard to considerations of fairness and equity.⁶ The Court must have regard to the general principle that an incola plaintiff should not be ordered to furnish costs before he can litigate.⁷

[14] Having regard to the above authorities, I am of the view that the thread flowing there from can be synthesized as follows: Where an organ of the State is engaged in litigation with an incola, be it a natural person or a legal entity, the right of the incola to access to Court is sacrosanct and no impediment to such access to Court must be placed on the path of such incola directly or indirectly in the form of calling upon such an incola to pay security for costs before he can gain access to court. In casu it has been conceded by counsel for the applicant that the applicant is an organ of the State. I accept that the respondent is an incola of this Court. I also take note of the matter of Crest Enterprises (Pty) Ltd and Another v Barnet and Schlosberg NNO 1986 (4) SA 19 (CPD) at 19H where the Court further said: "That applicants in this case may never be able to recover any part of their costs if they succeed in the action brought against them by or on behalf the trust cannot in my view outweigh in the balance the inalienable right of an incola to call in aid the due process of the law in pursuing his (or its) claim and neither he ( nor it) should be effectively deprived of the right to this Court (or have any impediment placed in the way of the exercise of the right) upon the basis solely of an inability to pay the costs of the opposing party should he subsequently fail in the prospective proceedings. "

[15] The discussions that took place during the pretrial on which the applicant seeks to rely on that the admission of inability to pay its sub-constructors was made, it has been submitted on behalf of the respondent that these were made during without prejudice and that I should not attach much weight thereon. I am of the view that this submission is sound. But in any event the authorities seem to suggest that the fact that a party is facing liquidation is no ground for the Court to shut the doors of court against such party.

[16] In the premises, in the exercise of my discretion. I am of the considered opinion that having regard to the circumstances of this matter, the application to have the respondent ordered to furnish security for costs in this matter must fail. With regard to costs it is trite that the costs follow the event and consequently the applicant must bear the costs of this application.

[17] In the result I make the following order:

1. That the application in terms of Rule 47(3) is dismissed;

2. That the applicant is ordered to pay the costs of this application on party and party scale.

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