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June 27, 2015

Can a defendant ask a plaintiff company to put up security?

Until the arrival of the Companies Act 71 of 2008 (the Act) a defendant could request an incorporated company as plaintiff in litigation, to put up security for costs (provided that there was reason to believe that the plaintiff company was unable to pay the defendant's costs, if successful).
The Act does not provide for that any longer, so when can a Defendant call for security for costs?
The Supreme Court of Appeal ("SCA") answered that question in Boost Sports Africa (Pty) Ltd v The South Africa Breweries (Pty) Ltd [2015] ZASCA 93.
It held that corporate plaintiffs must be treated the same as natural plaintiffs, and the defendant can only call for security for costs it can show that an action is vexatious or reckless. This is a difficult onus to discharge. Our courts have attempted to define vexatious litigation:
In the words of Holmes JA in African Farms & Townships v C.T. Municipality 1963 (2) SA 555 (A) at 565D-E, "an action is vexatious and an abuse of the process of Court … if it is obviously unsustainable". In Golden International Navigation SA v Zeba Maritime 2008 (3) SA 10 (C) para 18, Griesel J posited that an action is vexatious and frivolous, "where on the face of the pleadings it is shown that the action cannot be maintained".
Thus it is possible to call for security, no longer as a right, but if the Plaintiff’s action is vexatious or reckless.

June 22, 2015

Significant change to the in duplum rule
The Constitutional Court recently developed the common law regarding the in duplum rule in its judgment in Paulsen and Another v Slip Knot Investments 777 (Pty) Limited 2015 (3) SA 479 (CC).
The in duplum rule provides that arrear interest stops accruing when the sum of the unpaid interest equals the amount of the outstanding capital. This was to cap the interest creditors could claim from debtors.
Until the judgment in Paulsen, the in duplum rule had one exception, namely that the prohibition against claiming interest in excess of the capital fell away when a creditor instituted proceedings to recover the debt and the interest, so interest would then run at a fixed rate for as long as the litigation persisted.
In Paulsen – to the relief of debtors (borrowers) - the Constitutional Court has now abolished the exception to the in duplum rule while litigation persists.
The effect of the Paulsen judgment is thus that until judgment (after which interest will once again run on the 'judgment debt' at the agreed rate), lenders will only be able to recover 1) the capital advanced to a debtor and 2) the interest equal to that capital amount and no more.

The Court found that the post-judgment "…interest runs on – and is limited to an amount equal to – the whole of the judgment debt, including the portion which consists of previously accrued interest."