Matheus Hepute v The Minister of Mines and Energy & Northbank Diamonds (Pty) Ltd Reinhard Tötemeyer The importance of the so-called Hepute judgment lies in the fact that it, for the first time, firmly and authoritatively establishes the principle in southern African law that a party initiating litigation as a man of straw and who effectively (although he has locus standi) acts as a front for another, can be ordered to give security for the costs of a respondent/defendant. As a result, the existence of a further category of persons who may be held liable to give security for costs has been confirmed. The history and facts of the matter The litigation in question had a long history in which the landowner of the Farm Aussenkehr, situated on the northern banks of the Orange River, as well as various other associated parties sought to prevent Northbank Diamonds (Pty) Ltd ( Northbank ) from fully exploiting an Exclusive Prospecting Licence ( EPL 2101 ) granted to it by the Minister of Mines and Energy ( the Minister ) and to declare the granting of EPL 2101 by the Minister as invalid. The litigation commenced in 2000 in terms of an application brought under Case No. A 132/2000. It was brought by the landowner, Aussenkehr Farms (Pty) Ltd, and others. Northbank successfully opposed the application in the High Court, and an appeal by the applicants to the Supreme Court also failed. The Supreme Court judgment is reported at 2005 NR 21 (SC). The legal costs incurred by Northbank in Case No. A 132/2000 were in the order of N$1.5 million. In November 2000, yet another application challenging the renewal of EPL 2101 was launched in the High Court, this time under Case No. (T) I 113/2000. The latter application was brought by two of the parties that had also been applicants in Case No. A 132/2000, and constituted the landowner, Aussenkehr Farms (Pty) Ltd. Yet another application was commenced in June 2004, under Case No. A 57/04. This one was brought by Matheus Hepute and six other persons who are all low-income-earning employees living on the Aussenkehr Farm and at the Aussenkehr Village owned by Aussenkehr Farms (Pty) Ltd. It was common cause that the purpose of the latter application was also to prevent Practising Advocate; Member of the Society of Advocates of Namibia. Namibia Law Journal 95
JUDGMENT NOTES Northbank from fully exploiting EPL 2101. The application under Case No. A 57/04 prompted Northbank (the second respondent in the application) to deliver a notice in terms of High Court Rule 47(1) demanding security for their legal costs. 1 Security for costs was claimed from Mr Hepute and the other five applicants jointly and severally, in the amount of N$350,000 and on the following grounds: The applicants were persons of no or little means or assets (and effectively persons of straw) who would be unable to pay Northbank s costs in the event of Northbank being successful with its defence, and The applicants were effectively litigating in the matter in a nominal capacity or as a front for another or for others, more particularly for all (or one or more) of the following entities: Nagrapex (Pty) Ltd Aussenkehr Farms (Pty) Ltd, and/or Other companies or institutions who were the applicants in the applications brought under Case No. s A132/2000 and (T) I 113/2000. Mr Hepute and the others making the application contested their liability to give security for Northbank s costs. This led to an opposed application in terms of Rule 47, in which Northbank claimed the said security. The latter application was opposed and Northbank succeeded in the High Court, where Muller J ordered Mr Hepute and the others, jointly and severally, to give security for Northbank s costs in an amount of N$350,000. 2 Mr Hepute and the others subsequently appealed against the High Court judgment. This appeal was opposed by Northbank and led to the judgment under discussion, delivered on 31 October 2008. The following facts were held to be common cause by the Supreme Court: 3 Mr Hepute and the other employees resided on the land of the landowner, Aussenkehr Farms (Pty) Ltd Mr Hepute and the other employees were not parties to approximately the same legal battles over similar disputes in the past, and Mr Hepute and the others were incolae of the Supreme Court were low-income-earning employees with little means commenced with proceedings that were approximately the same or closely related to those which the landowner and others had launched against Northbank in the past 1 For an exposition of the above facts, see the Hepute judgment, pp 1 2, 10 12. 2 Reported at 2007 (1) NR 124 (HC). 3 (ibid.:10 12, 17 18). 96 Volume 1 Issue 2 July 2009
were represented by the same legal representatives and counsel as the landowner and others in the previous litigation were dependent on the landowner for the costs of opposing the application for security for costs, and The landowner foots the bill for the application brought under Case No. A 57/04. On a balance of probabilities, the Supreme Court found that Mr Hepute and the others were persons of straw who were effectively put up as a front for another party, namely the landowner, in Case No. A 57/04. 4 The legal principles applicable and the import of the Hepute judgment Before the import of the Hepute judgment is considered further, brief reference needs to be made to the applicable and generally accepted practice and principles in existence prior to that judgment regarding the liability to give security for costs. It has been a long-accepted principle that incolae will not be ordered to give security for costs on the ground of impecuniosity alone, since the general rule is that every citizen should have uninhibited access to the courts. This was also recognised by the Supreme Court in the Hepute judgment. 5 Herbstein and Van Winsen, with reference to numerous authorities, identify the following general categories of parties who may be held liable to give security for costs: 6 Peregrini Insolvents Companies (and in terms of section 13 of the Companies Act 7 Litigants who institute vexatious proceedings, and So-called special cases. It was common cause that Mr Hepute and the others did not fall into the first four categories referred to above. Although the Court a quo held that the litigants were vexatious, that finding was, strictly speaking, obiter. 8 What called for consideration was, therefore, whether or not they could fall under what 4 (ibid.:27 30). 5 (ibid.:15, para 23; 16, para 24); see also Witham v Venables, (1828) 1 Menz 291. 6 De Villiers, L et al. 1997. Herbstein and Van Winsen: The civil practice of the Supreme Court of South Africa (Fourth Edition). Cape Town: Juta, pp 321 342. 7 No. 61 of 1973. 8 2007 (1) NR 124 (HC), at 134, para 30. Namibia Law Journal 97
JUDGMENT NOTES is (generically) referred to by Herbstein and Van Winsen as being special cases. With regard to special cases, Herbstein and Van Winsen state the following: 9 It may be that where the process of the court is being abused by a man of straw being put up as a plaintiff while the real party shelters himself behind the dummy the Court will order security for costs to be given. But it must be clearly shown that the plaintiff is such in name only and that he possesses no property. The above quote from Herbstein and Van Winsen suggests that a party with a substantial and real interest in the subject-matter of the litigation could never be ordered to give security even if he is put up as a dummy for another and is impecunious. However, on a proper analysis of the case law in existence before the Hepute judgment, it appears these cases do not fully support the above statement by Herbstein and Van Winsen. In Mears v Brooks Executor and Mears Trustee 10, it was held in an obiter dictum that the litigant who initiated the action in that matter (who was an unrehabilitated insolvent) could be ordered to give security on the basis that he had only a nominal interest in the litigation and had no real interest in the subject-matter thereof. In the matter of Pillemer v Israelstam and Shartin, 11 the Court upheld the principle that a nominal plaintiff (without defining that term) must give security for costs in circumstances where he, as a man of straw, is put up as a plaintiff. In a more recent judgment of the Transkei High Court in the matter of Vanda v Mbuque and Others 12 the Court (as per White J) after setting out a full exposition of the grounds upon which a litigant may be ordered to give security for costs held (almost in passing) as follows concerning the circumstances where an incola may be ordered to furnish security: If an incola who is a man of straw litigates in a nominal capacity or is a front for another, he may be ordered to furnish security. In the Hepute matter, it was common cause that Mr Hepute and the other applicants complained of a violation of a number of their constitutional rights. From their allegations made in application A 57/04, it thus appears that they had a real interest in the litigation. In that sense, therefore, it could not have 9 De Villiers et al. (1997:342). 10 1906 TS 546, at 550. 11 Pillemer v Israelstam & Shartin, 1911 WLD 158, at 160. 12 1993 (4) SA 93 (TkGD), 94 J 95 A. 98 Volume 1 Issue 2 July 2009
been said that they in any manner fell in the category of being nominal litigants. In the High Court proceedings in the Hepute matter, the court followed Vanda v Mbuque. 13 In the latter regard, the Supreme Court agreed with Muller J and held as follows: 14 [24] I agree with Muller J that the implicated exception creates two discrete categories: while being a man of straw litigating in a nominal capacity, or while being a man of straw being put up as a front for another. Both instances would amount to an abuse of the process of the Court. There is, or ought to be[,] a distinction between being a nominal plaintiff and being a front. In my view a nominal plaintiff/applicant is one who, although he might be entitled to maintain the action[,] has no interest in the subject-matter of the cause such as the case was in Mears case supra, at 550 A front on the other hand is one who is being used to shield another from the adverse consequences of litigation. In both respects the principle underlying the rule is sound and is founded on the public policy consideration that the abuse of the process of the court should be frowned upon: it is not fair to allow a plaintiff with no real interest in the litigation to drag another through litigation while being unable to meet an adverse costs order at the end of the day; and it is equally unfair to allow a party who has an interest in the litigation to use a poor man (who also has an interest) and in doing so hedge itself against an adverse costs order. It needs to be understood very clearly that in the application of the exception, a person is not ordered to pay costs because he or she is poor but because, while being impecunious, he or she is either a nominal plaintiff/applicant or is being used as a front by another. Poverty, without more, is no bar to seek justice. [25] A defendant/respondent who wishes to obtain security for costs on the strength of the implicated exception should, on a balance of probability, show that the plaintiff/applicant is poor and is, in addition, a nominal litigant or a front for another party. If the jurisdictional facts are established for the invocation of the exception, the Court may order security for the costs of the defendant/respondent upon application therefor. The importance of the Hepute judgment is that it is the only authoritative statement in southern African law which fundamentally addresses the issues underlying the principle that persons who have a real interest in the litigation, but who are impecunious and who are put up as dummy litigants by other parties in order to advance the interests of the latter, can be held liable to give security for costs. 13 2007 (1) NR 124 (HC), at 131, para 21; and 132, para 25. 14 Hepute judgment, pp 15 16 para. 24 25; see also p 19, para 28. Namibia Law Journal 99
JUDGMENT NOTES In firmly establishing the aforementioned category, the Supreme Court emphasised that it is mindful of the well-established principle that the question of security is one of practice and not of substantive law and in which the courts enjoy a wide discretion. 15 It is submitted that the Supreme Court judgment constitutes an important development in further enhancing procedural justice and to avoid that the processes of the court are abused at the respondents /defendants expense. When an impecunious litigant (with a real interest in the litigation) institutes proceedings whilst being backed by another party who also has a substantial interest in the litigation and who uses the litigant as a dummy to advance his/her own interests (whilst not entering the arena him-/herself), it has the inherent potential danger that the initiator and backer of the litigation hedges him-/herself against a possible adverse order for costs should the litigation ultimately be successful, and injustice may be caused to respondents/defendants, who will be unable to recover their costs from the impecunious applicant/plaintiff should they be successful in their defence of the litigation. This will only be prevented if the initiator of such litigation who in any event funds the litigation is effectively compelled to give security for costs. This can effectively only be achieved by ordering the dummy litigant to give security. An order for security for costs in the aforementioned circumstances will also prevent the impecunious applicant/plaintiff from being exploited by the initiator of the litigation in the sense that, should the litigation ultimately fail, the impecunious litigant will be held liable for costs (thereby being deprived of whatever meagre assets it may have) whilst the actual initiator could turn its back on the litigation and not be held accountable for costs at all. A brief reference to other principles under discussion in the Hepute judgment Numerous other issues and principles were addressed by the Supreme Court, none of which were novel. One further aspect may, however, require mentioning. The Supreme Court held that the proposition by Herbstein and Van Winsen, namely that 16 [i]n deciding the application for security for costs, the Court will not inquire into the merits of the dispute but may have regard to the nature of the case[,] 15 (ibid.:20, para 29; 21, para 30; 31, para 46). 16 De Villiers et al. (1997:330, 344); see also the authorities referred to therein. 100 Volume 1 Issue 2 July 2009
should be approached with great caution, lest, in the process of trying to draw the very fine dividing line between what is properly the merits of the case as opposed to the nature of the case, the real purpose of the enquiry is lost and the court s discretion is unduly fettered. 17 The court also held that cases on which Herbstein and Van Winsen rely in support of their above proposition are of contestable authority in the light of recent judgments in South Africa. 18 When security for costs is sought against an applicant who alleges an infraction of his/her constitutional rights, consideration of the nature and extent of the alleged violation is an important consideration in exercising a discretion one way or the other with regard to the furnishing of security for costs by such litigant. 19 In the Hepute cases before the High and Supreme Courts, however, and also with reference to the history of the litigation between applicant and the other parties who instituted the earlier litigation referred to above, it is apparent that the violation of the constitutional rights of the inhabitants of Aussenkehr Farms (Pty) Ltd on account of the exploitation of the EPL 2101 had already been considered by the courts in the earlier litigation, which was resolved in favour of Northbank. As a result, the alleged infraction of constitutional rights relied on in the current main application (A 57/04) was not as weighty as might otherwise have been the case. 20 17 Hepute judgment, p 22, para 31. 18 See earlier herein. 19 (ibid.:22, para 32). 20 (ibid.:23 24, para 34). Namibia Law Journal 101