Fantastic Clothing (PTY) Ltd & Ano. V Luqy's Group Investment (PTY) Ltd (C of A (CIV) No 41/2024) [2024] LSCA 33 (1 November 2024)

LESOTHO

 

IN THE COURT OF APPEAL OF LESOTHO

 

HELD AT MASERU

C OF A (CIV) 41/2024

 

In the matter between:                                 

 

FANTASTIC CLOTHING (PTY) LTD.                 1^ST APPELLANT

ADVOCATE SALEMANE PHAFANE                 2^ND APPELLANT

 

 

AND

 

LUQY’S GROUP INVESTMENT (PTY) LTD         RESPONDENT

 

 

CORAM:          Damaseb, AJA

Musonda, AJA

Chinhengo, AJA

 

HEARD:           8 October 2024

DELIVERED:   1 November 2024

 

 

SUMMARY

Mareva Interdict –the 1^st appellant ceased to operate in Lesotho. It has no bank account and no other assets within the jurisdiction thus a case was made out for an anti-dissipatory order – Suretyship under a bond of security – Once the funds were transferred from the control of the 2^nd appellant liability under the security bond had been extinguished by operation of law.

 

JUDGMENT

 

P T Damaseb AJA

Introduction

 

1. The respondent (Luqy’s Group) issued summons against the appellant (Fantastic Clothing) in 2020 for damages for alleged breach of contract. The summons was served but was not defended and Luqy’s Group proceeded to obtain default judgement on 10 November 2020 before Mahase ACJ (as she then was).

 

2. In November 2020,  Fantastic Clothing lodged an application for rescission of judgment which was opposed. To comply with Rule 27(6)(a) and (b) of the High Court Rules, security for the rescission application was set against Fantastic Clothing at M2 000 000 which came to be held in trust by Phafane KC – an advocate as opposed to an attorney[1].
3. The Security bond reads as follows:

 

“IT IS ORDERED THAT:

I. Stay of execution of the judgment granted by Her Ladyship Mahase ACJ on the 10* day of November 2020 in CCT/0376/70 be and is hereby stayed pending the finalization hereof,

 

2. That the Applicant shall furnish Security in the sum of Two Million Maloti (M2, 000,000.00) in the form of a Surety Bond to be filed with the Registrar by the Applicant Legal Representatives herein;

 

3. Upon the filing of the Surety Bond refereed to above, all the Applicant's attached property pertaining to this case including the attachment to found jurisdiction shall be taken inventory of, recorded, signed for by the partics and the Deputy Sheriff and then released to the Applicant immedintely;

 

4. That the 1" Respondent shall file its Answering Affidavit within seven (7) days hereof and the Applicant shall file its Replying Affidavit within seven (7) days of receipt of the Answering

Affidavit;

 

5. That this matter be postponed to the 2™ December 2020 for appointment of a hearing date and the rule be extended thereto accordingly.

BY ORDER OF COURT’’

 

4. Fantastic Clothing succeeded in its rescission application and on 26 February 2024 the default judgment was set aside by Mokhesi J.  Aggrieved by the order of rescission, Luqy’s Group applied for leave to appeal against that order after first trying to appeal it to this Court without obtaining leave. That application for leave to appeal the order of rescission is pending in this Court under C of A (CIV) 10/2024.

 

Luqy’s anti-dissipation order application

 

5. In February 2024, Luqy’s Group brought an urgent application in the High Court to change the status of the funds held in trust by Phafane KC – ostensibly concerned by the absence of a guarantee that the funds will not be dissipated so as to render meaningless any judgment it may in due course obtain against Fantastic Clothing.

 

6. Luqy’s Group sought the following relief:

 

‘2. A rule nisi is issued and made returnable on a date to be determined by this honourable Court calling the RESPONDENTS to show cause if any why the following reliefs may not be made final:

 

1. The security funds held in the Standard Bank Account of S Phafane Chambers in the amount of TWO MILLION MALOTI (shall not be removed from the said account to the registrar’s account or alternative third party trust account with indemnity insurance.

 

2. The 1^st Respondent shall not be ordered not to interfere with the security for costs funds currently held in the account of S Phafane Chambers at Standard Lesotho Bank pending the finalization of this matter.

 

3. The order of this honourable Court issued on the 26^TH FEBRUARY 2024 rescinding the order of MADAM JUSTICE MAHASE granted on the 10^TH NOVEMBER 2024 be stayed pending finalisation hereof.

 

3. The APPLICANT be granted leave to appeal the judgment of this honourable Court granted on the 26^th February 2024.

 

4. The security funds held in the account of S Phafane Chambers at Standard Lesotho be transferred to a third party’s attorney or the registrar of this honourable Court pending finalisation of the appeal filed on the 26^TH FEBRUARY 2024 or the main action.

 

5. The order of this honourable Court issued on the 26^TH FEBRUARY 2024 rescinding the order of MADAM JUSTICE MAHASE granted on the 10^TH NOVEMBER 2024 be stayed pending finalisation of the appeal C OF A/CIV/10/2024 filed on the 26^TH FEBRUARY 2024.

 

6. Prayer 1, 2 (a) (b) and (c) operate with immediate effect as interim reliefs.’

 

7. In the founding affidavit in support of the relief sought, Mairoon Adams, Luqy’s Group director, alleged that although Fantastic Clothing is registered in Lesotho with a registered address in the district of Leribe, it ‘is not actually operating from this address’. She stated that Phafane KC is cited ‘in his capacity as the custodian of the security funds that are subject to the [action] proceedings’, which are pending.

 

8. According to the deponent, the 1^st respondent has no presence at its registered address in Lesotho and no longer operates in Lesotho. In addition, it is alleged, the 1st respondent no longer has assets in the country and that the only asset it owns in Lesotho is the security bond held by Phafane KC.

 

9. It is further alleged that Luqys’ Group’s in vain made an effort to identify any other assets belonging to Fantastic Clothing in Lesotho, including bank accounts, leaving the applicant without recourse in the event of a successful appeal (if leave to appeal against rescission is granted) or should Luqy’s Group achieve success in the main action. According to Luqys Group, all directors of Fantastic Clothing’s are foreigners.

 

10. Luqy’s Group also expressed concern about the fact that the lawyer who holds the security bond is an advocate who in terms of the law governing legal practitioners is not required to hold a trust account and as a result has to keep the security bond money in his business account which can be attached by personal creditors of the advocate. Luqy’s Group preference therefore is that the moneys held as security bond be managed by either an attorney or the court's registrar.

 

11. The applicant contends that it has a clear right to the security amount held by Phafane KC and that a failure to secure the funds would severely prejudice their position, given that the 1st respondent has ceased operations and lacks assets to satisfy future court orders. The applicant raises concern about the respondents potentially transferring the funds out of the jurisdiction, as the Commercial Court did not grant an interdict to prevent this. Without an alternative remedy, the applicant fears the funds could disappear, particularly since they are not held in a proper trust account. The applicant therefore requestsed that the security funds be safeguarded.

 

12. The order sought was opposed by both Fantastic Clothing and Phaphane KC. Fantastic advanced the following principal objections:

 

1.  Such an order was not competent by the High Court because it was functus officio;
2.  Only the Court Appeal can grant such an order;

 

3.  The purpose for which the funds were preserved by the High Court (as security for the rescission application) ceased to exist and the funds could now be accessed by Fantastic Clothing.

 

13. The matter came before Mokhesi J who granted an order in the following terms:

 

‘[17] …

 

1. The security funds held in the Standard Bank account of S. Phafane Chambers in the amount of Two Million Maloti (M2, 000, 000.00) shall be moved into the Trust account of the 1^st respondent’s attorney within 5 days of this judgment being handed down to be preserved therein pending finalization of the main action or the appeal, and for the 1^st respondent’s attorney to file proof of same with the registrar of this Court within the time stipulated in this part of the order.

 

2. The applicant if awarded 50% of the costs on attorney and client scale.

 

14. The reference to ‘the appeal’ is in the event that Luqy’s Group obtains leave to appeal the rescission judgment from this Court and eventually succeeds in such appeal and is able to enforce the default judgment granted by Mahase ACJ.
15. Both Fantastic Clothing and Phafane KC appeal against Mokhesi J’s order.

 

16. The view taken by Fantastic Clothing, as I understood its counsel during oral argument on appeal and as set out in the grounds of appeal and the heads of argument, is that Lugys’ application seeks to suspend Mokhesi J’s interlocutory order granting rescission (which only this Court can do since the High Court has become functus officio); is based on the premise that there was an appeal pending in the Court of Appeal (which it was not) while there was only an application for leave to appeal.

 

17. The second appellant, Adv. Phafane KC, also opposed the application, amongst others maintaining that the application did not establish a proper foundation for an anti-dissipation interdict.

 

18. During oral argument, upon being pressed by the court to explain the interest Phafane KC was seeking to protect in opposing Luqy’s Group application, his counsel, Mr Letsika, gave a more nuanced explanation.

 

19. I hope I do justice to counsel if I explain it in this way. The security bond given by Phafane KC (as recorded in Soakene CJ’s order) exposes him to personal liability to the extent of M2 000 000.00. If the transfer of funds from his account is allowed to stand, Phafane KC would still be liable to Luqy’s Group to the extent of the surety he gave. On this view, it mattered not that Phafane KC had lost control of the funds on the strength of a court order.

 

20. During oral argument, Mr. Letsika accepted the Court’s suggestion that the concern harboured by his client posed the following legal question which, if resolved in his client’s favour, would render (Adv Phafane’s) opposition to the application unnecessary:

 

‘Did Mokhesi J’s order removing the M2000 000 from Phafane KC’s control at the instance of Lugys’ by operation of law extinguish any liability Adv Phafane KC had towards Luqy’s Group under the security bond?

 

21. I will answer this legal question after I have disposed of Fantastic Clothing’s grounds of appeal.

Mokhesi J’s approach

 

22. In his consideration of the application, Mokhesi J took into account the fact that Luqy’s Group had ‘purported to note an appeal in C of A(CIV) 10/2024.” As the learned judge put it:

 

“[4] I used the word purported …. because …. applicant’s counsel had lost sight of the fact that in terms of section 16(1)(b) of the court of Appeal Act 1978, leave of the court of appeal should first have been sought to appeal recession judgement. This was conceded by applicants counsel….leading him to burden the relief for leave to appeal (prayer 2 of the Notice of motion).”

 

23. In other words, in his adjudication of the application brought by Lugys’, Mokhesi J recognised that Luqy’s Group application did not suspend the order of rescission that he granted and that to reverse that order Luqy’s Group would have to seek relief from this Court.

 

24. The learned judge then focussed his attention on the opposition to Luqy’s Group application. At para [6] he records:

“[6] The 1^st respondent on the other hand contends that this court does not have jurisdiction to entertain this application because security for costs is inexorably linked to the grant of rescission order, and that once rescission is granted, security should be released to the 1^st respondent – the Court is functus officio. The 5^th respondent argues along the same line. These are the only arguments that I will be dealing with in the ensuing discussion because the rest of the respondents did not oppose the matter.”

 

25. According to Mokhesi J:

 

“[7] I think the 1^st Respondent’s counsel, as Applicant’s counsel argued, mischaracterised the nature of the reliefs sought. The Applicant is not by any means urging upon this court to order the money that is held by Adv. Phafane KC as security for costs to continue being held as such. This is apparent from the Applicant’s founding papers.”

 

26. In other words, the learned judge makes clear that Luqy’s Group application seeks to change the legal character of the funds held in trust by Phafane KC into something else from being security for the costs of rescission as contemplated in Rule 27(6)(a) and (b).

 

27. To support his view of the nature of Luqy’s Group application, the learned judge specifically quoted paragraphs 4.5 and 4.6 in Luqy’s Group founding affidavit. I need not reproduce them because I summarised their essence above. In the judge’s view, Luqy’s Group application sought a ‘Mareva-type’ interdict.

 

28. Semantics aside, it is a kind of order which is not unknown to the Roman-Dutch tradition although its origin is English law.[2]

 

29. The Mareva injunction (or interdict), also known as the anti-dissipation interdict, is an important procedural legal remedy aimed at preventing a defendant from depleting assets that could thwart the enforcement of a future judgment. Originating from English common law, this remedy has been adapted into the Roman-Dutch legal tradition. For a Mareva injunction to be granted, the applicant must first establish a bona fide, or legitimate, claim against the defendant. Additionally, there must be a real and substantial risk that the defendant will dissipate or transfer assets outside the court’s jurisdiction, making any future judgment difficult to enforce. This risk, though not required to show irreparable harm, must indicate the likelihood of asset dissipation before judgment execution. Importantly, the interdictory remedy is not a substitute for a compensation claim but serves merely as a procedural safeguard to preserve assets while the main legal action is resolved. Courts also consider issues of justice and convenience when deciding to grant remedy.

 

30. According to Mokhesi J, Luqy’s Group was not seeking to lay any claim to Fantastic’s money but only to preserve it “so that it may stake a claim to it once the main trial is finalized’’. That is to ‘provide security’ for Luqy’s Group’s claim’.

 

31. According to the learned judge, it is common cause that although it is an incola, Fantastic Clothing ceased to have any business in Lesotho nor does it have any operational bank account. Its shareholders are Chinese foreign nationals and the only asset it has in this jurisdiction is the two Million Maloti.

 

32. In that court’s view, the peculiar and undisputed facts of the case before it, made it more likely that Fantastic Clothing  will be inclined to get rid of the funds to avoid satisfaction of Luqy’s Group claim if ultimately successful. Once the funds are released to Fantastic Clothing, the judge reasoned, they will be used and that will leave Luqy’s Group with a hollow judgement should it be successful at the trial or on appeal if leave is granted to appeal.
33. The court a quo then went on to consider the propriety of Adv. Phafane K.C holding the funds and concluded that it breached the Legal Practitioner’s Act 1983, principally because, as an advocate, he was not required to hold a trust account into which the funds will be kept as would be the case if they were held by an attorney.

 

34. The court emphasised that the application was aimed at preserving the funds so that if Luqy’s Group ultimately succeeds with its claim it can satisfy its judgment. According to Mokhsi J, that  purpose would be defeated if the funds were kept by an advocate who is not required under the legal Practitioners Act to keep a trust account.

 

35. Mokhesi J made the following order;

“(a)    The security funds held in the Standard Bank account of S. Phafane Chambers in the amount of Two Million Maloti (M2,000,000.00) shall be moved into the Trust account of the 1^st attorney within 5 days of this judgement being handed down to be preserved therein pending finalization of the main action or the appeal, and for the 1^st Respondent’s attorney to file proof of same with the registrar of this court within the time stipulated in this part of the order.

 

(b)      The Applicant if awarded 50% of the costs of on attorney and client scale”.”

 

36. As far as costs are concerned, the learned judge said that the parties agreed that a special costs order be made in favour of the successful party. Mr Rasekoai for Fantastic Clothing submitted before us that there was no such agreement. As the court pointed out to counsel during oral argument, such an argument cannot be sustained without the appellant producing the record of the transcript of proceedings to gainsay the court a quo’s statement of what transpired before it[3].

 

Disposal

37. There is a pending claim by Luqy’s Group against Fantastic Clothing. A judge of the High Court considered it to be based on a valid cause of action when she granted default judgment on the strength of it. Regrettably, that claim has stalled because of the many interlocutory applications brought by the parties. It is a matter for serious concern that after such a long time a plea has not even been filed.

 

38. While that claim is pending, Fantastic Clothing has ceased to operate in Lesotho. It has no bank account and no other assets within the jurisdiction. During oral argument, Mr Rasekoai made it clear that Fantastic Clothing wants to gain access to the money. When it does, it will be free to use it as it wishes. When that happens, Luqy’s Group will have nothing to execute agsinst in the event that it is successful.

 

39. Clearly, Luqy’s Group had made out an arguable case for the grant of the anti-dissipation order and its appeal against Mokhesi J’s order must fail.

 

Phafane KC’s release as surety

40. Luqy’s Group waived any right it had against Phafane KC by approaching court to remove the funds from his control into the account of a third party. Waiver arises where a party expressly or by conduct relinguishes or abandons a known right or claim. Whether there was a waiver is a question of fact, but once established, it extinguishes a right and the concomitant obligation.[4]

 

41. A statement or conduct by a party to litigation (such as Luqy’s Group in the present case) against its own interest constitutes an admission subversive of any right it may have that is inconsistent with that declaration against its own interest.[5]

 

42. If ever there was the clearest evidence of waiver of a right, the present is such a case. It would be a clear and intolerable abuse of the machinery of justice for Luqgy’s to seek to exact or enforce the security bond against Phafane KC in these circumstances: invoking  the machinery of justice to wrest control over the funds held in trust from the person holding it for its benefit, only to turn around to seek to enforce a suretyship whose substratum has been lost by its deliberate invocation of the machinery of justice.

 

43. Luqy’s Group conduct in bringing and succeeding with the application which resulted in the removal of the funds from Phafane KC to a third party – is not only a clear intent to act against its own interest, but also an unequivocal waiver of any and all rights it had under the security bond given by Phafane KC.
44. It follows that the answer to the legal question posed at paragraph 17 of this judgment is that by operation of law Mokhesi J’s order which is the subject of the present appeal had by operation of law extinguished any liability that Phafane KC had towards Lugys or any other person under the bond of security held by him.

 

Costs

45. As I already demonstrated, Fantasic Clothing failed to show that Mokhesi J erred in his conclusion that the parties had agreed that the successful party should get the special costs order that the court made. Luqy’s Group appeal against that order shoud therefore also fail.

 

46. During oral argument, counsel for Luqy’s Group made it clear that as regards costs, it was an arrangement made between Luqy’s Group and Fantastic Clothing. I did not understand him to suggest that Phafane KC was party to that agreement.

 

47. The special costs order against Phafane KC cannot herefore be sustained, although his appeal against the order transferring the funds from him to a third party should fail for all the reasons that I have given.

 

48. To secure his legal interests which, in my view, were bona fide expressed on appeal, I will make a declarator which the High Court should have made consequent upon wresting control of the funds from him, that his liability under the security bond had been extinguished by operation of law.

 

The order

49. Accordingly, I make the following order:

1. The appeal succeeds in part and the order of the High Court is set aside and substituted for the following order:

 

‘(a)     The security funds held in the Standard Bank account of S. Phafane Chambers in the amount of Two Million Maloti (M2,000,000.00) shall be moved into the Trust account of the 1^st attorney within 5 days of this judgement being handed down to be preserved therein pending finalization of the main action or the appeal, and for the 1^st Respondent’s attorney to file proof of same with the registrar of this court within the time stipulated in this part of the order.

 

(b) By virtue of para (a) S Phafane KC’s liability under the security bond held by him  is by operation of law extinguished.

 

3. The Applicant is awarded 50% of the costs of on attorney and client scale against Lugys.

 

4. There is no order of costs against the 2^nd respondent , Phafane KC.’

 

2. The respondent is awarded costs in the appeal on party and party scale only against the first appellant.

_____________________________

P T DAMASEB

ACTING JUSTICE OF APPEAL

I agree:    

_____________________________

P. Musonda

ACTING JUSTICE OF APPEAL

I agree:    

_____________________________

M. Chinhengo

ACTING JUSTICE OF APPEAL

 

 

For the 1^st Appellant:     Mr M. Rasekoai

For the 2^nd Appellant:     Mr Q. LetSika               

 

For the Respondent:        Adv. M.G Makara with Adv M.M Makara