Faddy NO. and Others v Nedbank Limited

• Jurisdiction: http://justis.com/jurisdiction/166,South Africa
• Judge: Gounden J
• Judgment Date: 06 July 2022
• Court: KwaZulu-Natal Local Division, Durban
• Docket Number: 5321/2021; 10832/2015
• Citation: 2022 JDR 1879 (KZD)

Gounden AJ:

Introduction:

[1]

This is an application to join the respondent, as a co-plaintiff in an action instituted by the trustees of an insolvent estate ("main action"). The unique controversy in this case is whether the creditor in an insolvent estate ought to be joined to the main action for the sole purpose of seeking an order for costs from that creditor.

[2]

The relationships among the parties are as follows:

(a)

The first and second applicants are the trustees of the Haven Manor Family Trust ("the trust"). They are also cited in their personal capacities as the third and fourth applicants. Collectively, the applicants are the defendants in the main action instituted by the trustees of the insolvent estate.

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Gounden AJ

(b)

The respondent is Nedbank Limited.

(c)

The estate of Stephen and Pauline Faddy ("the insolvents") was sequestrated by the respondent.

(c)

The third and fourth applicants are the children of the insolvents.

(d)

Constant Wilsnach, Kurt Robert Knoop and Sthembiso Kunene NNO are the plaintiffs in the main action. They are the trustees of the insolvent estate. The trustees are not a party to this application.

Background:

[3]

The trust was created in 2012. The insolvents sold their family home to the trust, less than two years prior to the date of sequestration of their estate. They also sold and transferred an adjacent property held by LTC Developments (Pty) Ltd by way of a sale of shares to the fourth applicant which was subsequently disposed of by way of sale.

[4]

In the main action, the trustees claim against the applicants is to set aside collusive dispositions, alternatively dispositions without value, alternatively a fraudulent alienation in terms of the actio pauliana. It is alleged that as a result of the dispositions, there are no assets in the insolvent estate. The main action was instituted after an insolvency interrogation had been held.

[5]

The applicants defended the main action on the basis that the insolvent estate was not insolvent or rendered insolvent by the dispositions, a denial that no payment was made in respect of the dispositions, and a denial that the dispositions had the effect of prejudicing the insolvent creditors by giving rise to actionable claims against the applicants.

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Gounden AJ

[6]

It is common cause, alternatively, not seriously disputed that: (a) the respondent instituted various legal proceedings for the recovery of loans advanced to Stephen Faddy and his company and it has sequestrated the insolvents; (b) the respondent was successful in all the litigation; (c) the respondent is the major creditor in the insolvent estate; (d) the respondent provided funding to the trustees; (e) the insolvent estate would have insufficient funds to satisfy an adverse cost order in the event that the applicants are successful in their defence at trial; and (f) the main action is not frivolous or vexatious.

[7]

The applicants' case is that the respondent is enjoying the benefit of luxurious litigation without any risk of costs being awarded against it in as much as it is not a party to the main action. The respondent is the actual party seeking to recover money in the litigation and it should be at risk for costs in the event that the applicants are successful in the main action.

[8]

The respondent opposes the application on four grounds. First, the entire foundation of the applicants' case is misplaced as they will be entitled to recover their costs because the provisions of the Insolvency Act 24 of 1936 ("the Act") makes provision for cost contribution by creditors. Second, this court has already found that the applicants are not entitled to security for costs and this application is another attempt to obtain security which has already been refused. Third, all the legal authorities that the applicants rely upon relate to champertous agreements or fall under a different factual matrix. Fourth, no case has been made out for the exercise of the Court's discretion in favour of the applicants.

[9]

The legal framework within which this decision has to be considered relates to joinder, litigation funding and the Act.

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Gounden AJ

Joinder:

[10]

The procedure of joinder is regulated by Uniform rule 10 which provides at rule 10(1):

'Any number of persons, each of whom has a claim, whether jointly, jointly or severally, separately or in the alternative, may join as plaintiffs in one action against the same defendant or defendants against whom any one or more of such persons proposing to join as plaintiffs would, if he brought a separate action, be entitled to bring such action provided that the right to the relief of the persons proposing to join as plaintiffs depends upon the determination of substantially the same question of law or fact which, if separate actions were instituted, would arise on such action, and provided that there may be a joinder conditionally upon the claim of any other plaintiff failing.'

[11]

The test for joinder of a party is whether a party has a 'direct and substantial interest' in the subject matter of the action, that is, a legal interest in the subject matter of the litigation which may be affected prejudicially by a judgment of the court. [1] A mere financial interest is an indirect interest and may not require joinder of a person having such interest. [2]

[12]

In Snyders and others v De Jager, [3] the Constitutional Court confirmed 'that the test for joinder is that a litigant must have a direct and substantial legal interest that may be affected prejudicially by the judgment of the court in the proceedings concerned'. [4]

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Gounden AJ

Litigation funding:

[13]

Litigation funding is largely novel in South African law. Its history can be traced to the judgment of Price Waterhouse Coopers Inc and others v IMF (Australia) Ltd and others [5] ("PWC1") where a litigation funder was joined to the litigation. In PWC1, the court developed the common law and held that the litigation funder should be joined to the proceedings in order to enable the court to exercise its discretion regarding costs against the funder of the litigation.

[14]

PWC1 was developed against the judiciousness of Price Waterhouse Coopers Inc and others v National Potato Co-operative Ltd [6] where the Supreme Court of Appeal reconsidered the lawfulness of champertous agreements against the changed circumstances, specifically the advent of the Constitution, and stated that the provision of good faith finance to a poor litigant and assistance to prosecute an action in return for a reasonable recompense or interest in the suit, would not be unlawful or void.

[15]

PWC1 was about a champertous agreement. The joinder of the co-owner of the claim was allowed as a measure to prevent possible abuses arising from champertous agreements.

[16]

In EP Property Projects (Pty) Ltd v Registrar of Deeds, Cape Town and another, and Four Related Applications [7] ("EP Property Projects") the brief facts were that one Naidoo, the litigation funder, had concluded an agreement with one Marais which gave Naidoo a direct and substantial interest in the litigation. Naidoo became the owner of the claim; it was her funding that enabled the continuation of the litigation. She appointed her own legal team on her behalf and on behalf of Marais and she stood to acquire a substantial benefit if Marais was ultimately successful in the litigation. Naidoo had consented to her joinder

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Gounden AJ

to the proceedings and it was not an issue that the Court had to consider. The High Court held that Naidoo was the real party to the litigation as she not only funded the whole litigation but she was also in full control of the litigation and stood to benefit substantially if Marais was successful.

[17]

The Court referred to Dymocks Franchise Systems (NSW) Pty Ltd v Todd and others [8] ("Dymocks Franchise Systems") where the Privy Council, in an appeal from the Court of appeal in New Zealand, set out guidelines derived from English and common law authorities for the exercise of a Court's discretion to make costs orders against a party who was not a litigant. The concepts of 'real funder' and 'pure funder ' were raised.

[18]

The Court held that Naidoo was the 'real funder' as she held all the rights of a party to the proceedings and she was not a 'pure funder' (namely funders with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business, and in no way seek to control its course).

[19]

In Naidoo v EP Property Projects (Pty) Ltd [9] the Supreme Court of Appeal agreed with the High Court that in the circumstances of the case, namely the critical role that Naidoo played in financing and controlling the litigation to the exclusion of Marais and the substantial benefits she stood to receive, it was just and fair that she...