A change in company law has made it difficult to get security for costs against a corporate plaintiff because the defendant must now show that the proceedings are either vexatious, reckless or an abuse of the court process.
Change in law
The 1973 Companies Act made it relatively easy for a defendant to obtain security for costs against a corporate plaintiff residing in South Africa. The defendant only had to prove that there was reason to believe that the plaintiff would not be able to satisfy a costs order against it.
A change in company law has made it difficult to get security for costs against a corporate plaintiff because the defendant must now show that the proceedings are either vexatious, reckless or an abuse of the court process.
Things have changed, with the absence of a similar provision in the 2008 Companies Act. The common law position now applies, requiring the defendant to prove something more than the company’s inability to satisfy an adverse costs order. The court has to find exceptional circumstances before requiring the company to provide security for their costs.
At common law, the court has an inherent power to regulate its own process. The Constitution enshrines this and expands on it by allowing courts to develop the common law, taking into account the interests of justice.
A few cases under the 2008 Companies Act clarify the new circumstances where an application for security for costs will be granted. Proceedings will have to be either vexatious, reckless or an abuse of the court process. For a contrary view, see Siemens Telecommunications (Pty) Ltd v Datagenics (Pty) Ltd, where the court held that a company cannot be compelled to provide security for costs under any circumstances.
Examples
Proceedings are:
- vexatious, if instituted to harass the defendant;
- reckless, if the proceedings are obviously unsustainable; and
- an abuse of the court process, if the proceedings have an improper purpose, for example to delay payment of an amount which is due, or where a doubtful claim is ceded to a straw company to sue.
So what?
We will watch how the courts develop these grounds. The court in Ngwenda Gold (Pty) Ltd v Precious Prospect Trading 80 (Pty) Ltd commented that the fact that a plaintiff has “nothing to lose” may be a factor to be considered in future. For now, applications for security for costs should be brought sparingly and only when the defendant has a strong basis for alleging that the plaintiff’s proceedings are either vexatious, reckless or an abuse of the court process. Inability to satisfy an adverse costs order is not sufficient on its own. These common law principles also apply to natural persons.
