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CAN AN IMPECUNIOUS JURISTIC PERSON AS PLAINTIFF STILL BE REQUIRED TO FURNISH SECURITY FOR COSTS?

Firm • 31st Oct, 14

 

Since the coming into effect of the Companies Act, 2008, all too often attorneys will have been asked this question by their clients who are defending legal proceedings instituted by a juristic person where there is reason to believe that the juristic person plaintiff is impecunious.  The rationale behind requiring an impecunious juristic person plaintiff to put up security for costs in favour of a defendant was to prevent abuse of the court process and protect defendants against unnecessary and irrecoverable legal expenses. 

The general principal of the common law regarding security for costs was that, nobody but a peregrinus plaintiff (foreigner to South Africa) could be called upon, under any circumstances, to give security for costs.  The common law, however, is not static and soon certain exceptions were recognised.  An incola (a national of South Africa) plaintiff could be ordered to put up security where the court was satisfied that the litigation constituted an abuse of process by that plaintiff in that his action was vexatious or reckless. An action is vexatious if it is obviously unsustainable.  What must be kept in mind is that the common law did not recognise juristic persons but only natural persons and therefore it was not applicable to companies.

In 1926 the first Companies Act was enacted which provided a defendant with a statutory right to request a juristic person plaintiff to put up security for costs where there was reason to believe that the juristic person plaintiff could not satisfy an adverse costs order.  The exact same provision was contained in the 1973 Companies Act.  Over the years, these provisions have been interpreted on many occasions by the High Court.  Initially the Court was predisposed to order that security be furnished as soon as there was reason to belief that the juristic person plaintiff was impecunious.  From about 1951, the High Court shifted the then prevailing stance slightly and the concept of ‘special circumstances’ was adopted.  The High Courts would now order security for costs if there was reason to believe that the juristic person plaintiff is impecunious, unless special circumstances existed not to order security for costs (such as that the plaintiff had good prospects of success).  In 1998, the Supreme Court of Appeal criticised the then prevailing approach and that the High Court should not fetter its own discretion by being predisposed to granting security for costs too easily.  Instead the Courts must weigh up the injustices to a juristic person plaintiff if an order to put up security for costs inevitably meant the end of the litigation, against the injustice suffered by the defendant in the event that he is successful and he will not be able to recover his costs.  When doing so, the court may have regard to the merits of the claim, without enquiring fully therein, and the defence raised thereto as well as other peculiar facts and circumstances of the particular case before it – it has to make use of its inherent discretion.  This was the approach followed until the enactment of the 2008 Companies Act, which repealed the statutory right to demand security for costs from an impecunious juristic person company.

Does this now mean that we have reverted to the common law position and that an impecunious juristic person plaintiff may institute vexatious or reckless claims and a defendant can no longer bring an application for security for costs?

In the latest 2014 High Court judgment of Boost Sports Africa (Pty) Ltd v South African Breweries Ltd a defendant requested that the juristic person plaintiff put up security for costs because it was common cause that it was impecunious.  The plaintiff juristic person defended the application on the basis that the 2008 Companies Act no longer made provision for this statutory right and that the common law position was applicable again.

The High Court evaluated the development of the courts position in granting applications for security of costs as set out above.  This High Court in the Boosts Sport Africa case found that mere impecuniosity of a juristic person plaintiff no longer entitles a defendant as a right to demand security; something more is required.  The court found that the absence of a statutory right should not deprive a defendant of the right to demand security from a plaintiff juristic person where the defendant is brought to court to defend a vexatious or unmeritorious claim. The court concluded that a defendant’s right to claim security stems from the court’s inherent jurisdiction to regulate its own processes and prevent its abuse by discouraging vexatious and unmeritorious claims by ordering a plaintiff juristic person to put up security. When deciding on whether to grant an order for security for costs, the court had to take into account all relevant factors and carry out the balancing exercise as mentioned above.

This is the latest judgment on this topic and as it is a High Court judgment it constitutes good authority for any defendant who finds himself in this situation until such time as it is approved or overruled by the Supreme Court of Appeal.

 

Carolin Gillon
Associate

 

 



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