THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

JUDGMENT

Case number:  705/08

In the matter between:

TECMED (PTY) LIMITED

FIRST APPELLANT
MICHAEL VOI HARRY MILFORD

SECOND APPELLANT
WERNER BEGERÉ

THIRD APPELLANT
BARNEY HURWITZ

FOURTH APPELLANT
ADRIEN PULE

FIFTH APPELLANT

and

NISSHO IWAI CORPORATION

FIRST RESPONDENT
SOJITZ CORPORATION

SECOND RESPONDENT

Neutral citation:
Tecmed v Nissho Iwai Corporation (705/08) [2009]
ZASCA 143 (25 November 2009)

CORAM:

Harms DP, Brand et Malan JJA

HEARD:

10 November 2009

DELIVERED:
25 November 2009

SUMMARY:
Universal
succession
of
all
plaintiff's
rights
and
obligations under Japanese law after litis contestation -
substantive application to substitute successor as the
plaintiff successful – validity of Rule 15 notice
consequently not considered – s 15(2) of Prescription Act
68 of 1969 not set in motion by substitution.

ORDER

On appeal from:
Johannesburg High Court (Antrobus AJ sitting as
court of first instance).
The appeal is dismissed with costs, including the costs occasioned by the
employment of two counsel.

JUDGMENT

BRAND JA (Harms DP et Malan JA concurring)

[1] This appeal originates from four interlocutory applications in the same
main action that were heard together and determined in one judgment by
Antrobus AJ in the Johannesburg High Court. In the pending main action, the
first respondent, Nissho Iwai, issued summons against the first to fifth
appellants (the ‘defendants’), jointly and severally, for payment of the sum of
US $3 606 449.45 together with interest and costs. The claim against the first
defendant was said to arise from goods sold and delivered under a written
distributorship agreement between Nissho Iwai and the first defendant. The
claim against the second to fifth respondents was based on suretyships that
they signed for the debts of the first defendant in favour of Nissho Iwai.

[2] The main action was instituted in February 2003. In October 2003 all
the defendants delivered a plea while the first defendant also filed a counter-
claim against the plaintiff. In February 2006 Nissho Iwai delivered its plea to
the first defendant’s counter-claim. The four interlocutory applications that
then followed have one thing in common: they were all precipitated by a notice
in terms of Uniform Rule 15, dated 9 May 2006, and served on the
defendants' attorneys by Bowman Gilfillan, purportedly as attorneys for 'the

plaintiff', which was described in the heading of the notice as 'Nissho Iwai'. It
read:
‘Be pleased to take notice that Sojitz Corporation, a company duly incorporated in
accordance with the laws of Japan, carrying on business as a distributor of medical
and related equipment and having its principal place of business at . . .  Tokyo,  . . .
Japan is hereby substituted for Nissho Iwai Corporation as plaintiff in the above
action.
Be pleased to take further notice that as of 1 April 2004, Nissho Iwai Corporation
merged with Nichimen Corporation. The merged entity changed its name to Sojitz
Corporation. All assets, liabilities, rights and obligations of Nissho Iwai Corporation
were automatically and statutorily succeeded to by Sojitz Corporation under
Japanese law.’

[3] The first interlocutory application, the so-called authority application,
that ensued was one by the defendants on 21 February 2007 for the setting
aside of the Rule 15 notice as an irregular step. In the same application, the
defendants also raised a query, as envisaged in Rule 7(1), with regard to
Bowman Gilfillan’s authority to act on behalf of Nissho Iwai. The ground relied
upon in the authority application for querying Bowman Gilfillan’s authority to
act for Nissho Iwai was essentially that the Rule 15 notice created uncertainty
as to whether the attorneys were still acting for Nissho Iwai or for Sojitz
Corporation, who was alleged to have taken over all the rights of the former.
The basis advanced in the authority application for the setting aside of the
Rule 15 notice will presently be reverted to in more detail. But, what it boiled
down to for present purposes, was that Rule 15 does not provide for the kind
of substitution that the notice sought to achieve. What is contemplated by
Rule 15, so the objection went, is a substitution necessitated by the change of
status of a litigating party and not the transfer of rights from one corporate
entity to another, as described in the Rule 15 notice. In consequence, so the
defendants’ objection concluded, the Rule 15 notice, in so far as it purported
to effect a substitution of Nissho Iwai by Sojitz as the new plaintiff, was a
nullity.

[4] In the authority application, the defendants further contended, as part
of their objection to the Rule 15 notice, that the substitution of Sojitz as the
plaintiff would require a substantive application to that effect. Such an
application, so the defendants then argued, was a very necessary one in that
they required to be fully informed of the basis upon which Sojitz sought to be
substituted as plaintiff. This invitation led to the second interlocutory
application, which was a substantive application – filed on 6 March 2007 – on
behalf of 'the plaintiff', still defined in the heading of the application papers as
'Nissho Iwai', for the substitution, of Sojitz as plaintiff in the action against the
defendants. Following the model adopted in the court a quo, I will refer to this
as ‘the substitution application’.

[5] The substitution application was explicitly formulated on the contingent
basis that the defendants were vindicated in their argument that the Rule 15
notice was irregular. The reason why Sojitz needed to be substituted for
Nissho Iwai, as it was foreshadowed in the Rule 15 notice and elaborated
upon in the substitution application, had its origin in a merger agreement
between Nissho Iwai and another Japanese company, Nichiman Corporation,
which became effective on 1 April 2004. Nichiman was then renamed the
Sojitz Corporation. The merger was fully implemented, both in accordance
with the provisions of the merger agreement and in accordance with articles
101, 102 and 103 of the Japanese Commercial Code. A translation of the
merger agreement is annexed to the application papers. Clauses 1 and 8.1
are relevant. They provide:
‘1.
Method of Merger
Nichiman and Nissho Iwai will merge in a spirit of equality. However, as a
result of the merger, Nichiman will survive and Nissho Iwai will be dissolved.
8.
Succession of Company Assets
8.1
Nichiman shall, as at the date of the merger, succeed any and all of
Nissho Iwai’s assets, liabilities and rights and obligations . . . '

[6] The effect of the merger in terms of the Japanese code was set out by
Japanese legal experts on both sides. The following features and
consequences of the merger were common cause between them.


The merger is described as an ‘absorption merger’ in terms of which one
company, the dissolving company, which was Nissho Iwai in this case, ceased
to exist while Nichiman (renamed Sojitz) continued. This was the effect of
article 101 of the code.

In terms of article 102 the amalgamation took effect on the day the merger
agreement was registered, which was 1 April 2004.

As at 1 April 2004, Sojitz succeeded to all the rights and liabilities of
Nissho Iwai. This was the effect of both clause 8.1 of the merger agreement
and article 103 of the code.

[7] The explanation – that in terms of Japanese law Nissho Iwai had
ceased to exist – provided the defendants with another basis for their
contention that the Rule 15 notice was irregular, namely that the notice was
given on 8 May 2006, purportedly on behalf of Nissho Iwai, which, in
accordance with the Japanese code, was no longer in existence at the time.
By the same token, so the defendants contended, the substitution application
was also a nullity because it was again brought on behalf of ‘the plaintiff’,
described as 'Nissho Iwai', which entity had been dissolved and no longer
existed since 1 April 2004.

[8] Rather out of context, but next in chronological order was the third
interlocutory application which was brought in terms of Rule 30 in the name of
Nissho Iwai as the plaintiff for the setting aside of the defendants’ Rule 7
notice as an irregular step. The basis advanced for the application was that
the Rule 7 notice was filed outside the ten day time period provided for in that
rule. This application, which was referred to by the court a quo as the 'Nissho
Iwai Rule 30 application', proved to be of little, if any, consequence.

[9] The fourth interlocutory application in chronological order was filed in
response to the defendants’ contention that the plaintiff's substitution
application was a nullity because it was brought on behalf of Nissho Iwai,
which was a non-existent entity. This was an application, filed on 29 January
2008, by Sojitz in its own name for leave to intervene in the substitution

application. As in the court a quo I propose to call this ‘the intervention
application’. It was supported by an affidavit from Sojitz’s in-house counsel, Mr
Hashimoto Masanao, in which he, inter alia, said the following:
‘I confirm that all steps in the litigation process undertaken since the merger of
Nissho Iwai Corporation with Sojitz Corporation, which became effective on 1 April
2004, have been taken on the instructions of Sojitz Corporation. I further confirm that
Bowman Gilfillan Inc has at all times since the merger been authorised to represent
Sojitz Corporation.’

[10] The defendants’ answer to the intervention application was essentially
twofold. First, that it was not competent for Sojitz to join itself in an application
which was a nullity from the start, because it had been brought by a non-
existent entity. Secondly, that in as much as Sojitz’s locus standi as a creditor
depended on a cession by Nissho Iwai, its claim had been extinguished by
prescription, since more than three years had elapsed after the alleged
cession at the time when Sojitz gave notice of its application to be joined as a
plaintiff on 29 January 2008.

[11] In broad outline the court a quo approached the matter along the
following lines.

It first considered the Rule 15 notice of 9 May 2006. In the event it
concluded that the provisions of the rule covered the facts of this case. As to
the defendants’ contention that the notice was given on behalf of a non-
existent entity, ie Nissho Iwai, it found that properly construed, the Rule 15
notice was in fact given by Bowman Gilfillan on behalf of Sojitz.

In the light of these findings, the court held that the Rule 15 notice
achieved its purpose in effecting the substitution of Sojitz for Nissho Iwai as
plaintiff from the date on which it was served.

Its findings with reference to the Rule 15 notice, so the court held,
rendered the substitution application not strictly necessary. Nonetheless it
decided that the relief sought in the application was in effect for confirmation
that the Rule 15 notice was valid and effective. Since that was what it
essentially decided, the court found it appropriate to grant the relief sought in
the substitution application as well.


As to the defendants’ contention that the substitution application was a
nullity in that it was brought on behalf of the non-existent Nissho Iwai, the
court held that although the application was brought in the name of the
‘plaintiff’ it must be construed as an application by Sojitz.

In the circumstances the defendants’ application to set aside the Rule 15
notice as well as their challenge of Bowman Gilfillan's authority under Rule 7
were held to be ill conceived. Consequently the court held that the authority
application should be dismissed while the Nissho Iwai Rule 30 application
should be upheld.

The intervention application, so the court held, was unnecessary to
decide, because it was brought as an alternative to the substitution application
which had been decided in favour of the plaintiff.

In sum, the court accordingly ordered that Sojitz be substituted for Nissho
Iwai as the plaintiff and granted consequential relief for the amendment of the
plaintiff’s pleadings. It dismissed the defendants’ authority application, granted
the plaintiff's Rule 30 application and made no order on the intervention
application.

[12] In considering the approach of the court a quo, sight should not be lost
of the import of Rule 15. The purpose of the Rule was not to afford the High
Court the power to substitute a party to proceedings. The High Court already
had that inherent power under the common law (see eg Curtis-Setchell &
McKie v Koeppen 1948 (3) SA 1017 (W) at 1021; Putzier v Union and South
West Africa Insurance Co Ltd 1976 (4) SA 392 (A) at 402E-F). The court still
has that power to grant a substitution of parties on substantive application
where Rule 15 does not apply (see eg Waikiwi Shipping Co Ltd v Thomas
Barlow & Sons (Natal) Ltd 1978 (1) SA 671 (A) at 678G; Devonia Shipping Ltd
v MV Luis (Yeoman Shipping Co Ltd intervening) 1994 (2) SA 363 (C) at
369F-370B). The purpose of Rule 15 is merely to provide a simplified form of
substitution, subject to the right of any affected party to apply to court for relief
in terms of Rule 15(4) (see eg LTC Harms Civil Procedure in the Supreme
Court B-1 to 5; HJ Erasmus Superior Court Practice B1-118).

[13] In the absence of any substantive application for substitution the
effectiveness of a Rule 15 notice will obviously depend on whether it was
given in a situation covered by the rule. But where, as in this case, a
substantive application for substitution had in fact been brought, any
investigation into the effectiveness of a preceding Rule 15 notice is most likely
to result in a futile exercise. If the substantive application is upheld, the
substitution will materialise. Caedit questio. If, on the other hand, the
application is dismissed on its merits, the situation cannot be saved by a
notice under Rule 15.

[14] As I see it, the focus should therefore immediately be directed at the
substitution application. The settled approach to matters of this kind follows
the considerations in applications for amendments of pleadings. Broadly
stated it means that in the absence of any prejudice to the other side, these
applications are usually granted (see eg Devonia Shipping Ltd v MV Luis
(Yeoman Shipping Co Ltd Intervening) (supra) at 369F-I; Rosner v Lydia
Swanepoel Trust 1998 (2) SA 123 (W) at 127D-H). As is pointed out in
Devonia Shipping at 369H, the risk of prejudice will usually be less in the case
where the correct party has been incorrectly named and the amendment is
sought to correct the misnomer than in the case where it is sought to
substitute a different party. But the criterion remains the same: will the
substitution cause prejudice to the other side which cannot be remedied by an
order for costs or some other suitable order, such as a postponement?

[15] In this case, the defendants’ answer to the substitution application was
not that they would be prejudiced in any way by the relief sought. Apart from
the defence of prescription to which I shall presently return, the defendants’
sole answer to the substitution application was that it was brought by a non-
existent party. That answer obviously found its basis in the notice of motion
itself which indicated that the application was brought by ‘the plaintiff’ and at
the same time described ‘the plaintiff’ as 'Nissho Iwai Corporation'.

[16] Self-evidently, however, a proper interpretation of the application would
not limit itself to that aspect alone. It would also have regard to the affidavits

filed in support. In this regard the deponent to the founding affidavit described
herself as ‘the attorney for the plaintiff’. She immediately went on to explain
that Nissho Iwai was no longer in existence; that it had been succeeded in its
rights and obligations by Sojitz; and that she had been instructed by the legal
advisors of Sojitz. In the event, she said, any judgment against the defendants
will be for the benefit of Sojitz. Conversely, if any judgment were to be given in
favour of the defendants, it was Sojitz who would satisfy that judgment. In
conclusion she sought an order in terms of the notice of motion that Sojitz be
substituted as the plaintiff. The affidavit by Mr Masanao confirmed the
contents the founding affidavit. As I see it, the only sensible meaning that can
be attributed to all this is the one given by the court a quo, namely, that in fact
and in law the substitution application was brought by Sojitz and not by the
non-existent Nissho Iwai.

[17] Another argument raised by the defendants, rather belatedly, for the
first time on appeal, was that if Sojitz were to be substituted as plaintiff
pursuant to the substitution application, the claim against the defendants
would in any event have become prescribed and that the application should
for that reason have been refused. In support of his argument the defendant
sought to rely primarily on the judgment of this court in Silhouette Investments
Ltd v Virgin Hotels Group Ltd 2009 (4) SA 617 (SCA), in so far as that
judgment was based on s 15 of the Prescription Act 68 of 1969. The relevant
part of s 15 provides:
'15.   Judicial interruption of prescription – (1)   The running of prescription shall,
subject to the provisions of subsection (2), be interrupted by the service on the debtor
of any process whereby the creditor claims payment of the debt.

(2)   . . . [T]he interruption of prescription in terms of subsection (1) shall
lapse, and the running of prescription shall not be deemed to have been interrupted,
if the creditor does not successfully prosecute his claim under the process in
question to final judgment or if he does so prosecute his claim but abandons the
judgment or the judgment is set aside.'

[18] What happened in Silhouette Investments, in broad outline, was that
the appellant instituted action against the respondent within the prescription

period of three years after the debt relied upon became due. It subsequently
gave notice of its intention to amend its particulars of claim in two respects,
first, by substituting one John Dyer as the plaintiff and, secondly, by alleging
that after the institution of action, Mr Dyer had acquired, by cession, its claim
against the respondent. The respondent pleaded to the amended particulars
of claim. One of the defences raised in the plea was that in terms of the sale
agreement the appellant was not entitled to cede its rights. This led to a
further amendment of the particulars of claim in terms of which the appellant
was substituted for Mr Dyer as the plaintiff. Notice of this amendment was
given in October 2006, which was after the expiration of the three year
prescription period.

[19] To this reamended particulars of claim the respondent raised a plea of
prescription. It did not deny that the running of prescription in respect of the
claim relied upon had been interrupted by service of the original summons in
terms of s 15(1) of the Prescription Act. What the respondent contended for,
however, on the basis of s 15(2), was that the appellant did not prosecute its
claim under the original summons to final judgment and accordingly the
interruption of prescription by that process had lapsed. If the appellant were
eventually to obtain final judgment in its favour, so the respondent's argument
went, the process under which it would be obtained would be the notice of
amendment of October 2006 and not the original summons. Since the notice
was only effected after the three year prescription period, so the respondent's
argument concluded, the appellant's claim had become prescribed. The plea
of prescription was upheld by the court of first instance, essentially on the
acceptance of the respondent's argument and in dismissing the appeal
against that order, this court did the same (see paras 27, 28 and 42 of the
judgment).

[20] At the heart of Silhouette Investments lies the notion that the legal
effect of a cession after litis contestatio is to terminate the proceedings
instituted by the cedent with the corollary that the substitution of the
cessionary as the plaintiff must be regarded as the institution of new
proceedings. As to whether that underlying notion is correct in respect of

cessions, is not necessary to consider in this case. I say that because Sojitz
does not rely on a transfer of rights by means of a cession. What it relies upon
is a universal succession of all Nissho Iwai's rights and obligations by
operation of Japanese law.

[21] As I see it, the resulting position is not materially different from the one
created by our own legislature in the case of an amalgamation or takeover
agreements between banks under s 54(2)(b) of the Banks Act 94 of 1990. In
such event, s 54(3) of the Act essentially provides that all the rights and
obligations of the amalgamating banks or transferor bank will vest in the
amalgamated or transferee bank by operation of law. With reference to the
situation thus created by the legislator it was held in Absa Bank Ltd v Van
Biljon 2000 (1) SA 1163 (W) that the substitution of the transferee bank (Absa)
as plaintiff in an action previously instituted by the transferor bank (Bankorp)
does not activate the provisions of s 15(2) of the Prescription Act. By virtue of
s 54(3) of the Bank's Act, so it was held, Absa stepped into the shoes of
Bankorp and became the plaintiff by operation of law. In essence the plaintiff
remains the same entity. In this light the formal substitution of Absa as plaintiff
by way of an amendment of pleadings cannot be regarded as a termination of
the proceedings instituted by Bankorp and the commencement of new
proceedings by Absa as contemplated in s 15(2).

[22] I agree with the decision in Absa. It derives support from the reasoning
of Longmore J in Eurosteel Ltd v Stinnes AG [2000] 1 All ER (Comm) 964
(QB), which I find particularly persuasive. What happened in Eurosteel mirrors
the facts of this case in virtually every material respect. A German company,
Bayerischer Lloyd, instituted arbitration proceedings against Eurosteel in
London. Thereafter Bayerischer entered into a merger agreement with
another German company, Stinnes AG, under German law. In terms of s 20 of
the German Umwandlungsgesetz or Transformation Law, the merger had the
effect, first, that all the assets and liabilities of Bayerischer passed over to
Stinnes by operation of law and, secondly, that Bayerischer was dissolved
and ceased to exist.

[23] Eurosteel thereupon brought an application before the Queen's Bench
for an order declaring that the arbitration proceedings initiated by Bayerischer
had lapsed because that entity had ceased to exist and that they could not be
continued for the benefit and in the name of Stinnes. In dismissing Eurosteel's
application, Longmore J inter alia expressed himself as follows (at 969):
'English law is, in my judgment, not so impotent at least in cases of universal
succession. The whole point of universal succession is that the successor is treated
as the same person as the person to whom he succeeds. The law of the forum in
which the universal successor seeks to gather in his assets may or may not require
him to give formal notice of his existence before award or judgment will be given but
the idea that any pending arbitration (or indeed action) begun by his predecessor
must, of necessity, come to an end would mean that this succession was particular
not universal and would be contrary to the term of s 20 of the German transformation
law.'
(See also eg Harper Versicherungs AG v Indemnity Marine Assurance Co Ltd
[2006] 2 Lloyd's Rep 263 (QB) para 34; Republic of Kazakhstan v Istil Group
Inc [2006] EWHC 448 (Comm) paras 53 and 54.)

[24] What Longmore J said about the effect of the German Code, in my
view, also applies to the almost identical provisions of the Japanese Code that
concern us. It means that Sojitz stepped into the shoes of Nissho Iwai by
operation of law. In effect, the plaintiff therefore remained the same entity. The
fact that our law of procedure requires a formal substitution of Sojitz for
Nissho Iwai does not change the principle. The result of all this, as I see it, is
that the court a quo was right in granting the substitution application. I also
agree with the court a quo's approach that the other interlocutory applications
before it were so closely linked to the substitution application that it would
make no sense to decide them separately. Once the substitution application
was brought, the defendants should not have proceeded with the authority
application. On the other hand, the plaintiff should never have launched the
intervention application. But it all resulted from the defendants' opposition to
the substitution application which opposition turned out to be unwarranted. In
consequence I find no reason to interfere with the judgment of the court a quo
in any respect.

[25] The appeal is dismissed with costs, including the costs occasioned by
the employment of two counsel.

………………………..
F D J BRAND
JUDGE OF APPEAL

Counsel for the Appellants:
A Subel SC

J Peter

Instructed by:

Schindlers Attorneys

Johannesburg

Correspondents:

Webbers Attorneys

Bloemfontein

Counsel for the Respondents:
C Cohen SC

N J Graves

Instructed by:

Bowman Gilfillan Attorneys

Johannesburg

Correspondents:

McIntyre & Van der Post

Bloemfontein