Bisset and Others v Boland Bank Ltd and Others

• Jurisdiction: South Africa
• Judge: Booysen J
• Judgment Date: 08 April 1991
• Hearing Date: 12 February 1991
• Court: Durban and Coast Local Division

Bisset and Others v Boland Bank Ltd and Others
1991 (4) SA 603 (D)

1991 (4) SA p603

Citation	1991 (4) SA 603 (D)
Court	Durban and Coast Local Division
Judge	Booysen J
Heard	February 12, 1991
Judgment	April 8, 1991

Flynote : Sleutelwoorde

Practice — Withdrawal and dismissal of proceedings — Dismissal of — Vexatious proceedings — Application to strike out proceedings on basis that they constituted an abuse of the process of Court and therefore G vexatious — Proceedings being action for damages against attorneys responsible for registration of bond in contravention of provisions of Share Blocks Control Act 59 of 1980 — Only in very exceptional cases would such application be granted — Action which is obviously unsustainable clearly vexatious — Unsustainable as matter of certainty and not merely on H preponderance of probability — In casu, validity of registration of bond in doubt — No certainty that action unsustainable as it would have been if bond validly registered — Applicants not having shown that action clearly unsustainable and therefore vexatious — Application dismissed.

Share block — Share block company — Loan obligations of — Increase of I — Requirement of resolution of shareholders for such increase — Share Blocks Control Act 59 of 1980, s 14(1) — Definition of 'loan obligation' in s 1 of Act — Consisting of total amount owing by company in respect of loans made in order to finance acquisition of immovable property and cost of improvements to property — Not including J obligation to repay money under condictio.

1991 (4) SA p604

Headnote : Kopnota

A Application was made in a Local Division by the partners in a firm of attorneys for an order striking out an action instituted against them and the second respondent by the first respondent (the bank). The bank claimed damages either for breach of an implied contractual term that the registration of the bond in respect of the purchase of property by a share block company (the third respondent) would be carried out with reasonable professional knowledge, care and skill; or alternatively for B breach of duty of care by the applicants for having registered the bond in contravention of the provisions of s 14(1) of the Share Blocks Control Act 59 of 1980 which prohibited the company, inter alia, increasing its loan obligations unless that increase had been approved by at least 75% of the members of the company. The failure of the applicants to ensure compliance with the provisions of that Act had resulted in the bond being invalid. The company had fallen in arrears with the repayment of the bond and subsequently became insolvent. The bank, so it was alleged, was, as a result of the invalidity of the bond, C only a concurrent creditor on liquidation of the company and accordingly had suffered damages. The ground on which the applicants sought to have the action of the bank set aside was that the bank had already obtained judgment by default on the invalid bond and therefore that the action by the bank against the applicants was an abuse of the process of Court and that it was vexatious for the bank to persist with that action. The liquidators of the third respondent opposed the application to have the D proceedings set aside and delivered a third party notice claiming an order that the bank was not entitled to recover from the company more than a specific sum of money and that the bond did not provide security for the bank for payment of more than that specified sum. The bank opposed the application and lodged a counter-application in which it sought declaratory orders to the effect that it had a secured claim for a higher amount in terms of the bond and an additional concurrent claim against the company. The applicants and the liquidators opposed this counter-application.

E Held, that the Court had an inherent power to strike out claims which were vexatious which, in this context, meant frivolous, improper, instituted without proper ground, to serve solely as an annoyance to the defendant.

Held, further, that the power to strike out was one which had to be exercised with great caution and only in a clear case, the reason being that the courts were open to all and it was only in exceptional circumstances that the doors of the courts would be closed on anyone who desired to prosecute an action.

F Held, further, that, while an action that was unsustainable was vexatious, that had to appear as a certainty and not merely on a preponderance of probabilities.

Held, further, that, in relying on the default judgment obtained by the bank rather than seeking to prove facts showing that the bond was valid, the applicants had failed to show that the action against them was clearly unsustainable on the basis that the bond validly secured the loan.

G Held, further, with regard to the applicants' contention that as long as the judgment stood the matter was res judicata between the bank and the liquidators and that the parties were bound to recognise the validity of the bond, that the argument, to some extent, sought to ascribe to a judgment in personam effects of a judgment in rem and there was no reason why the bank and liquidators were bound to set aside the judgment before proceeding on the assumption that the bond was invalid.

Held, accordingly, that it had not been shown that the action against H the applicants was unsustainable as a matter of certainty and therefore vexatious by virtue of the earlier default judgment, and that the application therefore fell to be dismissed.

Held, further, with regard to the bank's application for an order in terms of Uniform Rule of Court 6(5)(g) that oral evidence be heard to determine whether it had a concurrent claim against the company based on unjust enrichment for the amount of its claim which was unsecured, that in terms of s 14(1) of the Act a resolution passed by 75% of the shareholders was required to increase the loan obligation of the I company, failing which any act purporting to increase such loan obligation would in terms of s 8 of the Act be invalid.

Held, further, that in terms of s 1 of the Act, 'loan obligation' meant the total amount owing by the company excluding any amount owing by the company in respect of its share capital; the aggregate amounts transferred in terms of the Companies Act 61 of 1973 to the reserves and provisions of the company; and debts to be discharged from the levy fund J in terms of s 13(1) of the Act by the company.

1991 (4) SA p605

A Held, further, that to consider what the Legislature meant to include within the concept of 'loan obligation', s 1 read with s 13 should not be considered in isolation and that in order to determine whether any particular obligation formed part of the company's loan obligation it was necessary to have regard to the purpose(s) of the provisions relating to this concept.

Held, further, that the purpose of the provisions of ss 14(1) and 8 was primarily to protect the interests of shareholders in a share block B company and 'loan obligation' had been widely defined in the Act to prevent evasion of these protective provisions.

Held, further, however, that it was difficult to escape the conclusion that, despite the definition's wide import, no more was meant than that it consisted of the total amount owed by the company in respect of loans made in order to finance the acquisition of immovable property and the cost of improvements to the property.

Held, further, that it seemed clear that the obligations falling within the concept of 'loan obligation' did not include obligations which were C not contractual so that the prohibition against increasing its loan obligations could not have been intended to apply to an obligation to pay damages arising from delict or unjust enrichment.

Held, therefore, that it followed that an obligation to repay money under a condictio by virtue of an unjust enrichment was not part of the D loan obligation of a share block company and that s 14(1) was accordingly not applicable.

Held, accordingly, that the application for the order referring the matter as to whether first respondent had a claim and the amount thereof for the hearing of oral evidence should be granted.

Case Information

Application for the striking out of certain proceedings on the ground that they were an abuse of the process of the Court and thus vexatious and counter-application for a declaratory order. The facts appear from E the reasons for judgment.

P A M Magid SC (with him G R Thatcher) for the first and second applicants.

P M Meskin SC (with him J C King) for the third applicant.

F H M Carstens SC for the first respondent and third party.

M D Southwood SC for the third respondent.

Cur adv vult.

Postea (April 8).

Judgment

Booysen J:

This started off as an application by three applicants for an G order striking out an action for damages for professional negligence instituted against them and the second respondent by the first respondent (hereinafter called 'the bank') upon the ground that it is an abuse of the process of the Court and thus vexatious for the bank to persist with the action. The applicants and the second respondent were members of a partnership of attorneys at the relevant time. The damages H were alleged to have been suffered as a...