Under what circumstances can a Defendant approach a court for an order for security for costs?

 

By Dean Brainin, candidate attorney. Supervised by Roy Bregman.

The Rules of the High Court and the Magistrates’ Court allow a Defendant to apply to Court to compel a Plaintiff to provide security for costs, in limited circumstances. The common law and the Close Corporation Act also give a Defendant that limited right.

The rationale is that Plaintiff would be unable to satisfy the costs order if Defendant succeeds with its defence and the Court dismisses the claim against Plaintiff with costs.

Such security for costs can take the form of a bank guarantee, bond or an insurance policy. Defendant has the onus to satisfy a Court that it is appropriate to order Plaintiff to provide security.

A party may only make an application for security of costs once legal proceedings have commenced, and Defendant must bring the application “as soon as practicable after the commencement of proceedings”. The timeframe as to what constitutes “as soon as practicable” is at the Court’s discretion.

In Ecker v Dean 1937 AD 254, the Court confirmed that it had inherent jurisdiction to stop or prevent a vexatious action as an abuse of the process of the Court by ordering the vexations litigant to give security for the costs of the other side.

Over time, the grounds upon which a party could rely to obtain an order for security of costs have become more stringent. In Boost Sports Africa (Pty) Ltd v The South Africa Breweries (Pty) Ltd [2015] ZASCA 93, the Court found that it is not sufficient to demonstrate that a Plaintiff will be unable to satisfy a possible cost order against it. The Court must also be confident that the main action or application is (1) vexatious, (2) reckless, or (3) amounts to an abuse of the process of the Court.

Various Courts have defined the terms “vexatious”, “abuse”, and “frivolous”:

·         “vexatious” as “frivolous, improper: instituted without sufficient ground, to serve solely as an annoyance to the defendant”.

 

·         “an action is vexatious and an abuse of the process of court inter alia if it is obviously unsustainable. This must appear as a certainty, and not merely on a preponderance of probability”.

 

·         An action is vexatious and frivolous, “where on the face of the pleadings it is shown that the action cannot be maintained“.

 

·         “abuse” as “a misuse, and improper use, a use mala fide, a use for an ulterior motive”.

See Fisheries Development Corporation of SA Ltd v Jorgensen and Another; Fisheries Development Corporation of SA Ltd v AWJ Investments (Pty) Ltd and Others 1979(3) SA 1331 (W)); African Farms and Townships Ltd v Cape Town Municipality 1963 (2) SA 555(A) and Golden International Navigation SA v Zeba Maritime 2008 (3) SA 10 (C)  

A court will also consider each case independently based on their facts and surrounding circumstances taking into account the interests of justice. See Haitas & Others v Port Wild Props (Pty) Ltd 2011 (5) SA 562 (GSJ).

Moreover, a court has to consider section 34 of the  Constitution, which provides that everyone has the right to have any legal dispute decided in a fair public hearing. The Court must balance the potential injustice to a Plaintiff if it cannot pursue a legitimate claim due to an order requiring it to pay security for costs, on the one hand, against the potential injustice to a Defendant who successfully defends the claim. See Sherenisa and Others v Minister of Safety and Security and Another (2394/09) [2012] ZAFSHC 30) and Giddey NO v JC Barnard and Partners 2007 (5) SA 525 (C).

Accordingly, it is not enough that a Plaintiff may not be able to satisfy an adverse costs order granted against it. The Court must still be satisfied that the main action or application is (1) vexatious, (2) reckless, or (3) amounts to an abuse of the process of Court whilst considering Section 34 of  the Constitution.