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”. The rule is not however absolute and courts do recognise exceptions based upon the court’s inherent jurisdiction to prevent an abuse of its process. 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 reckless.
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 law;
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 company; and
to prevent an abuse of process, a court may exercise its inherent discretion to order security to be put up by a plaintiff company.
Two recent full bench decisions have provided some clarity: the courts in Biochlor (Pty) Ltd v GE Betz South Africa (Pty) Ltd and Hennie Lambrechts Architects v Bombanero Investments (Pty) Ltd, 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 above 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.