THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

JUDGMENT

Case No:  434/07
REPORTABLE

In the matter between:

KINI BAY VILLAGE ASSOCIATION                                                            Appellant

v

THE NELSON MANDELA METROPOLITAN
MUNICIPALITY                                                                                    First Respondent
CHASE STREET PROPERTIES (PTY) LTD                                Second Respondent
PIERRE KOLESKY                                                                             Third Respondent

Coram: Harms ADP, Cameron, Van Heerden, Ponnan et Maya JJA

Heard:
21 May 2008

Delivered: 29 May 2008

Summary:  Appeal against order for payment of security for costs in terms of s 13 of the
Companies Act 61 of 1973 by impecunious appellant representing residents of affluent
seaside suburb – court of first instance exercising discretion in strict sense – appeal court
entitled to interfere only where material misdirection established even in case involving a
constitutional issue.

Neutral citation:  This judgment may be referred to as Kini Bay Village Association v
Nelson Mandela Metropolitan Municipality (434/2007) [2008] ZASCA 66 (29 May
2008).

MAYA JA:

MAYA JA:

[1] This is an appeal against the judgment of the Port Elizabeth High
Court (Pakade J) ordering the appellant, inter alia, to furnish security for
the second and third respondents’ costs of suit in terms of s 13 of the
Companies Act 61 of 1973 read with Uniform rule 47(3). The appeal
against that order is with the leave of the court below.

[2] The litigation for which security for costs is sought was sparked by
an application to the first respondent (the local authority) made by the
second respondent, to have the latter’s residential property, Erf 78 Kini
Bay (the property), rezoned for purposes of operating a guesthouse and
conference facility. The third respondent is a director and shareholder of
the second respondent and resides on the property. Notwithstanding
objections to the proposed rezoning lodged by the appellant, which
represents a number of Kini Bay Village residents, the local authority’s
Housing and Land Committee recommended a grant of the rezoning
application.

[3] Pursuant to the recommendation, the appellant launched
application proceedings seeking, inter alia, to have the local authority

take the necessary steps to prevent the second respondent from operating
and advertising the business (which was already trading as Sea Otters
Lodge), to have the Housing and Land Committee’s recommendation
reviewed and set aside and the application referred back for
reconsideration.1 The second and third respondents (the respondents)
were cited in the proceedings but no relief was directly sought against
them and a costs order against them was sought only if they opposed the
application.

[4] At the commencement of the proceedings, simultaneous with the
issue of their notice to oppose, the respondents requested copies of the
appellant’s constitution and its financial statements to establish its
financial position and whether or not it would be able to meet an adverse
costs order. The constitution was duly furnished but the appellant
declined to divulge its financial status on the grounds that it is a voluntary
association2 – in its constitution it describes itself as a universitas – acting
in terms of s 38 of the Constitution,3 seeking to invoke a constitutional

1 The application was subsequently considered by the local authority’s Mayoral Committee and finally
approved by its full Council after the proceedings had been launched.
2 In argument before us, the defence that the appellant is not ‘a company or any body corporate’ as
contemplated in s 13 of the Companies Act was, correctly, not pursued although it was still contended
that it is a non-profit entity.
3 Section 38 of the Constitution of the Republic of South Africa Act 108 of 1996 provides:
‘Anyone listed in this section has the right to approach a competent court, alleging that a right in the
Bill of Rights has been infringed or threatened, and the court may grant appropriate relief, including a
declaration of rights. The persons who may approach a court are –
(a) anyone acting in their own interest;
(b) anyone acting on behalf of another person who cannot act in their own name;

right on behalf of its members, which relieves it of an obligation to
provide costs. The appellant further contended that no relief was in any
event sought against the respondents.

[5] This refusal prompted the respondents to institute proceedings for
security in terms of Uniform rule 47(3)4 and s 13 of the Companies Act.
During the course of such proceedings, which were opposed, the
respondents chanced upon a copy of the appellant’s Annual General
Meeting minutes which showed the following – its subscription levies
and seeming main source of revenue amounted to R880 comprised of
sums of R25 payable by each of its 44 members; its budget for the
relevant year, 2005/2006, was R5 480 and made no provision for
litigation; its banking account balance as at 30 September 2005 was
R3 792,68 and it had no other assets. When confronted with this
discovery, the appellant readily admitted that it would be unable to meet
an adverse costs order but persisted with its argument that it sought to
vindicate a constitutional right and could, thus, not be mulcted with costs.

(c) anyone acting as a member of, or in the interest of, a group or class of persons;
(d) anyone acting in the public interest; and
(e) any association acting in the interest of its members.’
4 Uniform rule 47(3), which regulates the procedure for applications for security, provides:
‘If the party from whom security is demanded contests his liability to give security or if he fails or
refuses to furnish security in the amount demanded or the amount fixed by the registrar within ten days
of the demand or the registrar’s decision, the other party may apply to court on notice for an order that
such security be given and that the proceedings be stayed until such order is complied with.’

[6] The court below took the view that the relief sought by the
appellant, which it decided is a body corporate, has a direct impact on the
respondents’ rights, thus entitling them to oppose the application. I must
say at the outset that this finding is, in my view, correct as the appellant’s
primary objective was to prevent the rezoning of the respondents’
property and the operation of a guesthouse on it.

[7] In rejecting the appellant’s constitutional defence, the court below
discussed the implications of the rights claimed by the appellant on the
basis of s 38 of the Constitution and the considerations to be observed by
a court in an application of that nature. It then concluded, on the authority
of the dictum in Ferreira v Levin NO and others;5 regarding the manner
in which the principles relating to the award of costs in constitutional
litigation are to be applied, that it would be unfair to deprive the
respondents of their costs in the event that they successfully opposed the
application.

[8] In argument before us, counsel for the appellant submitted that the
legal principles relating to s 13 of the Companies Act relied upon by the
respondents were not disputed. What was being challenged, it was

5 1996 (2) SA 621 (CC) para 3. There, the court said that ‘the principles which have been developed in
relation to the award of costs are by their nature sufficiently flexible and adaptable to meet new needs
which may arise in regard to constitutional litigation … [which] if the need arises … may have to be
substantially adapted … on a case by case basis’.

contended, was only the manner in which the court below exercised its
discretion, ie failing to have sufficient  regard to the fact that the appellant
sought constitutional relief, as its order would have a ‘chilling effect’ on
non-profit, impecunious parties such as the appellant seeking to enforce
their constitutional rights against public authorities.6 This, therefore, is
the sole issue in this appeal.

[9] Section 13 provides:
‘Where a company or other body corporate is plaintiff or applicant in any legal
proceedings, the Court may at any stage, if it appears by credible testimony that there
is reason to believe that the company or body corporate or, if it is being wound up, the
liquidator thereof, will be unable to pay the costs of the defendant or respondent if
successful in his defence, require sufficient security to be given for those costs and
may stay all proceedings till the security is given.’

[10] These provisions are intended to protect persons against liability
for costs relating to litigation instituted by impecunious companies7 by
deterring such companies from litigating vexatiously or in circumstances
where they have poor prospects of success, thus exposing their opponents

6 In this regard, reference was made to the provisions of s 152(1)(e) of the Constitution in terms of
which one of the objects of local government is ‘to encourage the involvement of communities and
community organisations in the matters of local government.’
7 Hudson & Son v London Trading Co Ltd 1930 WLD 288 at 291; Shepstone & Wylie and Others v
Geyser NO 1998 (3) SA 1036 (SCA) at 1044E.

to unnecessary and irrecoverable legal expenses.8 The party seeking
security must, however, first establish, by credible testimony, that its
opponent, if unsuccessful, will be unable to meet an adverse costs order.

[11] To succeed on appeal, a litigant must satisfy the court that the
discretion exercised by the court of first instance in terms of s 13 – which
is a discretion ‘in the strict sense’ ie a discretion exercised on a judicial
evaluation of the facts and circumstances before the court – was not
judicially exercised or was based upon a wrong principle of law or wrong
facts.9

[12] Whilst the court is enjoined to exercise its discretion with the
litigants’ constitutional right to access to courts10 in mind, the mere
possibility that an order for security will effectively put an end to the
litigation, which seemingly is the intended and inevitable result of s 13,
does not constitute sufficient reason for its refusal – this is but one of the
factors (there is no closed list) a court will consider in the exercise, which
involves weighing the potential injustice to the plaintiff or applicant if it

8 Giddey NO v JC Barnard & Partners 2007 (5) SA 525 (CC) para 7.
9 Bookworks (Pty) Ltd v Greater Johannesburg Transitional Metropolitan Council & another 1999 (4)
SA 799 (W) at 807G-808B (per Cloete J); Giddey NO paras 20-22; MTN Service Provider (Pty) Ltd v
Afro Call (Pty) Ltd 2007 (6) SA 620 (SCA) para 11; Aartappel Koöperasie Bpk v
Pricewaterhousecoopers [2007] SCA 166 RSA, unreported judgment delivered on 29 November 2007,
para 15.
10 Section 34 of the Constitution grants ‘[e]veryone … the right to have any dispute that can be
resolved by the application of law decided in a fair public hearing before a court or, where appropriate,
another independent and impartial tribunal or forum.’

is prevented from pursuing a legitimate claim, against the potential
injustice to the opposing party if it succeeds in its defence but cannot
recover its costs.11

[13] Turning back to the facts of the present case, save to allege that it
would be unable to meet an adverse costs order, the appellant was
otherwise extremely reticent about its financial status. It offered no
explanation at all as to the source of funds for its litigation, which has
seen it come all the way to this court. What was clear from its minutes
mentioned above, however, was that it had not been doing so from its
own resources but nevertheless has access to substantial funds. Its
counsel was constrained to disclose in argument the rather obvious fact
that its members, who are wealthy (Kini Bay Village itself being an
affluent seaside neighbourhood), are footing its legal bills.

[14] Another factor which a court will take into account in its balancing
exercise is the plaintiff’s attempt to find financial assistance from its
shareholders and creditors or other affiliates, backers or interested
persons.12 This must be so considering that they are the ultimate

11 Shepstone & Wylie at 1046G-I; Keary Developments Ltd v Tarmac Construction Ltd & another
[1995] 3 All ER 534 (CA) at 539j-540a; Giddey NO para 29.
12 Shepstone & Wylie at 1047A-B,-540a Giddey NO paras 30, 33 and 34.

beneficiaries of a successful action. Making this point in MTN Service
Provider, Brand JA said:13
‘One of the very mischiefs s 13 is intended to curb, is that those who stand to benefit
from successful litigation by a plaintiff company will be prepared to finance the
company’s own litigation, but will shield behind its corporate identity when it is
ordered to pay the successful defendant’s costs. A plaintiff company that seeks to rely
on the probability that a security order will exclude it from the Court, must therefore
adduce evidence that it will be unable to furnish security; not only from its own
resources, but also from outside sources such as shareholders or creditors’.

[15] Needless to say in the circumstances of this case, in the absence of
any evidence relating to the appellant’s source of funds and whether it
solicited its members’ financial assistance or made any other attempts to
raise funds to continue the litigation, the appellant dismally failed to
establish that a security order will halt its case. Its reticence, which is
clearly deliberate,  inexonerably leads to an inference that its wealthy
members who authorised it to conduct the litigation in the first place
impecunious as it was, are using it merely as a front and are shielding
behind an empty shell simply to avoid liability for costs.

[16] As regards the appellant’s constitutional point, I must say first that
to my mind, the real dispute stripped to its bare essentials, is no more than

13 Para 20.

a skirmish concerning property rights between neighbours. The
‘constitutional issue’ in the form of a judicial review between the
appellant and the local authority, is ancillary to that. Be that as it may, the
matter does bear some constitutional character and that must be given
credence which the court below did.

[17] Whilst the Constitutional Court has sometimes found it
inappropriate to make costs awards lest they have a chilling effect on
members of society wishing to vindicate their constitutional rights,14 there
is nonetheless no rule of thumb that a costs order will not be made in
constitutional litigation. In Affordable Medicines Trust v Minister of
Health,15 Ngcobo J reiterated this position as follows:
‘[T]he general rule in constitutional litigation that an unsuccessful litigant ought not to
be ordered to pay costs … is not an inflexible rule … There may be circumstances
that justify departure from this rule ... The ultimate goal is to do that which is just
having regard to the facts and circumstances of the case’.
Indeed, authorities abound in which both this court and the Constitutional
Court, in keeping with the trite principle that costs should ordinarily
follow the result, have made costs awards in matters in which the parties
sought to invoke constitutional rights.16 Significantly, in a number of

14 See, for example, Mkontwana v Nelson Mandela Metropolitan Municipality & Another 2005 (1) SA
530 (CC) para 74; Steenkamp v Provincial Tender Board, Eastern Cape 2007 (3) SA 121 (CC) para 62.
15 2006 (3) SA 247 (CC) para 138.
16 See, for example, Fuel Retailers Association of Southern Africa v Director-General: Environmental
Management, Department of Agriculture, Conservation and Environment, Mpumalanga Province and

those cases private individuals were ordered to pay the costs of public
authorities. Having due regard to the facts of this case and the principles
of equity and fairness, there seems to me no reason justifying a departure
from the usual rule. The appellant should not escape liability for costs.

[18] There is another issue that merits mention. As indicated, leave to
appeal to this court was granted by the court below. There being no
demonstrable misdirection in its reasoning, such leave should never have
been granted. In the event that leave was warranted, there still is no
reason why the matter could not have been dealt with by the Full Court in
terms of s 20(2) of the Supreme Court Act 59 of 1959.  The principles
governing applications of this nature, which present no complexities, are
by now settled as evidenced by the cases cited above. This court has
previously remonstrated against appeals against security orders being
brought to it, at great expense for the litigants and to the detriment of

Others 2007 (6) SA 4 (CC); MEC: Department of Agriculture, Conservation and Environment and
Another v HTF Developers (Pty) Ltd 2008 (2) SA 319 (CC); MEC for Education : KwaZulu-Natal and
Others v Pillay 2008 (1) SA 474 (CC); Minister of Environmental Affairs and Tourism v Scenematic
Fourteen (Pty) Ltd 2005 (6) SA 182 (SCA); Oudekraal Estates (Pty) Ltd v City of Cape Town and
Others 2004 (6) SA 222 (SCA); Chairperson : Standing Tender Committee and Others v JFE Sapela
Electronics (Pty) Ltd and Others 2008 (2) SA 638 (SCA); South African Liquor Traders Association
and Others v Chairperson Gauteng Liquor Board and Others 2006 (8) BCLR 901 (CC); Rail
Commuters Action Group v Transnet Ltd t/a Metrorail 2005 (2) SA 359 (CC); Premier of the Province
of the Western Cape v Fair Cape Property Developers (Pty) Ltd 2003 (6) SA 13 (SCA).

difficult cases more deserving of its attention.17 It is hoped that litigants
and the high courts will heed this concern.

[19] Finally, we were asked on the respondents’ behalf to vary the order
granted by the court below by substituting the amount of security
specified in the order of the court below, in terms of their notice of
motion, with the words ‘an amount to be determined by the Registrar’.
However, there being no cross-appeal in this regard, our hands are tied
and we cannot accede to the request.

[20] For all these reasons, I can find no reason to interfere with the
judgment of the court below. The appeal must, therefore, fail.

[21] Accordingly, the appeal is dismissed with costs.

__________________
MML MAYA
JUDGE OF APPEAL

17 MTN Service Provider (Pty) Ltd para 24; Shoprite Checkers (Pty) Ltd v Bumpers Schwarmas CC and
Others 2003 (5) SA 354 (SCA) para 23.

CONCUR:
HARMS    ADP
CAMERON          JA
VAN HEERDEN   JA
PONNAN              JA
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

From: The Registrar Supreme Court of appeal

Date: 29 May 2008

Status: Immediate

Kini Bay Village Association

And

Nelson Mandela Metropolitan Municipality; Chase Street Properties, Pierre Kolesky

The Supreme Court of Appeal today dismissed an appeal by the Kini Bay Village Association
against an order made in the Port Elizabeth High Court directing it to furnish security for
costs in its application against Chase Street Properties and Mr Kolesky.

The Supreme Court of Appeal rejected its argument that the judge in the in the High Court
had not properly exercised his discretion by failing to give sufficient regard to the
constitutional nature of the relief it sought.

The Supreme Court of Appeal, held that (i) its wealthy members were using it as a front to
avoid an adverse costs order and that (ii) even though the litigation bore a constitutional
character, principles of equity and fairness dictate that it provides the security to protect the
respondents against irrecoverable costs.