UK: Security For Costs: Another Lacuna In The Companies Act About To Be Filled?

Last Updated: 26 January 2015
Article by Max Ebrahim and Thomas Henstra

Unlike its predecessors, the new Companies Act is silent on the issue of whether a plaintiff company can be called upon to put up security for a defendant's costs. This has led to myriad court challenges, often yielding contradictory results but it appears as though certainty may be in sight.

Besides the commercial value of being able to recover some of the costs of litigation, bringing an application for security for costs from a plaintiff company can be a powerful strategic tool as it often has the effect of frustrating the litigation. For this reason, it was an oft invoked tool of defence under the old legislation – it is therefore unsurprising that this issue has become hotly contested terrain.

Against the backdrop of statutory silence, litigants have been forced to invoke the common law rules regulating security which, up to now, were only applied to natural persons. In this regard, the principle regarding natural plaintiffs is that "nobody but a peregrinus [non-resident] could be called upon, under any circumstances, to give security for costs"1. The rule is not however absolute and courts do recognise exceptions based upon the court's inherent jurisdiction to prevent an abuse of its process2. In this regard, there are cases where the court has ordered a "resident" natural plaintiff to put up security where it was satisfied that the litigation was vexatious or reckless3.

Various judges, sitting alone, in the North Gauteng High Court have ruled on various applications as follows:

  • a company can never be called upon to put up security under the common law4;
  • a plaintiff company may be called upon to put up security if the defendant can demonstrate "something more than mere insolvency or impecuniosity" on the part of the plaintiff company5; and
    to prevent an abuse of process, a court may exercise its inherent discretion to order security to be put up by a plaintiff company6.

Two recent full bench decisions have provided some clarity: the courts in Biochlor (Pty) Ltd v GE Betz South Africa (Pty) Ltd7 and Hennie Lambrechts Architects v Bombanero Investments (Pty) Ltd8, gave a strong indication that the pendulum is swinging in favour of allowing applications to be brought to have security for costs paid when the plaintiff company is engaged in vexatious litigation.

Fortunately, the Supreme Court of Appeal ("SCA") will have an opportunity to provide much needed direction as one of the single judge decisions referred to above9 will be going on appeal and will be heard later this year.

Ultimately, the legislator's regrettable oversight in failing to regulate the putting up of security by a plaintiff company may be remedied by the willingness of our courts to fashion a remedy under the common law. The momentum seems to be swinging in favour of the obligation to put up security where a defendant can satisfy the requirements established under the jurisprudence developed under the old legislation. It would, of course, be a welcome development if the SCA confirmed this.

Footnotes

1.Mears v Pretorius Estate and Market Co. Ltd 1907 TS 951 at 956.

2.Ecker v Dean 1937 AD 254 at 259.

3.Giddey NO v JC Barnard and Partners 2007 (5) SA 525. Vexatious proceedings are ones brought with no reasonable prospect of success and/or for the purpose of annoying the other party.

4.Siemens Telecommunications (Pty) Ltd v Data Genetics (Pty) Ltd 2013 (1) SA 65 (GNP)

5.Ngwenda Gold (Pty) Ltd and Another v Precious Prospects Trading AD (Pty) Ltd and Another (GSJ case No 2011/31664, 14 December 2011)

6.Boost Sports Africa (Pty) Ltd v South African Breweries Ltd 2014 (4) SA 343 (GP); Nielson v Rautenbach NO & Others 2014 (3) SA 17 (GNP); Haitas and Others v Port Wild Props 12 (Pty) Ltd 2011 (5) SA 562 (GSJ)

7.Case No. A710/2013 (12 December 2014)

8.Case No. A49/2013 (delivered on 20 February 2014)

9.Boost Sports supra

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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