South Africa: Cold Comfort – But Comfort Nonetheless – For The Security For Costs Conundrum

Last Updated: 9 July 2015
Article by John Zieff, Adriaan Hoeben and Matthew Hewitson

Most Read Contributor in South Africa, September 2016

There is finally some certainty for defendants in civil claims who are confident about their chances in court but who are concerned that if they ultimately win their case and obtain a costs order, the plaintiff won't be able to pay up.

These legal costs – which can amount to hundreds of thousands of Rands – can leave successful defendants significantly out of pocket, despite a court victory.

However, after a period of uncertainty, on 1 June 2015, the Supreme Court of Appeal (SCA) put this hotly contested and contentious issue to bed and, in the process, issued a strong deterrent to any South African plaintiff company who plans to institute proceedings that are vexatious, reckless or an abuse of the process.

But, herein lies the rub – it is only in instances where proceedings are deemed vexatious, reckless or an abuse of the process that the court may order a plaintiff company to furnish security. It is not enough to show that the plaintiff is cash strapped and may not be able to pay court-ordered legal costs.

The confusion prior to the SCA judgment came about after the new Companies Act 71 of 2008 replaced the old Companies Act 61 of 1973.

The old Act expressly provided that a court may, at any stage of proceedings, require a plaintiff to provide sufficient security for costs "if it appears by credible testimony that there is reason to believe that the [plaintiff] 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". The court was also given the power to postpone proceedings until this security was provided by the plaintiff.

However, unlike its predecessors, the new Companies Act doesn't contain a similar provision. This omission resulted in confusion and a plethora of litigation on the subject, with different views being expressed on how the new Act, without an express provision relating to such security, was to be interpreted.

This is why the SCA's judgment in the case of Boost Sports Africa (Pty) Limited v The South African Breweries (Pty) Limited (case no: 20156/2014) provides much-needed certainty for those who may appear as litigants in a court room in future.

In this case, the SCA unanimously held that a court, exercising its discretion, should only make an order for a South African company to furnish security for costs if it is satisfied that the litigation is "vexatious or reckless or otherwise amounts to an abuse".

In doing so, the SCA has cleared up the confusion and clarified the earlier conflicting decisions of the High Court in a welcome, authoritative judgment, stating that the High Court's inherent power allows it to order such security:

"Absent [the specific provision of the old Companies Act], there can no longer be any legitimate basis for differentiating between anincola [a South African] company and anincola natural person. And as our superior courts have a residual discretion in a matter such as this arising from their inherent power to regulate their own proceedings, it must follow that the former can at common law be compelled to furnish security for costs."

In practice, this means that, even though there may be poor prospects for recovering costs, a court should only order a South African plaintiff company to provide security for costs if it is satisfied that the lawsuit is vexatious or reckless, or otherwise amounts to an abuse.

Recognising that interpreting the word "vexatious" has proven vexing to date, the SCA referred to an earlier judgment that accepted that, here, it means "frivolous, improper: instituted without sufficient ground, to serve solely as an annoyance to the defendant".

So, although the SCA has provided some much-needed clarity on this issue, for some defendants this will provide scant relief– even if they are likely to succeed in court, they won't be able to secure security for costs from a South African plaintiff company on the basis that the latter is cash-strapped.

Defendants will, however, succeed in securing costs if they can persuade a court that the proceedings are vexatious, reckless or an abuse of the process and they can convince the court to exercise its discretion accordingly.

Although cold comfort for some, the SCA judgment is a welcome bulwark against plaintiffs whose court proceedings are motivated by ulterior motives, bad faith or simply a desire to annoy their opponent.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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