SECURITY FOR COSTS BY EMMA CHARTER

Tuesday, September 30, 2008
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Security for costs may be requested should there be apprehension over the opposing party’s inability to bear the costs of litigation in the event of an adverse cost order being granted.
 
A peregrinus is a foreign litigant; one not domiciled within the jurisdiction of South Africa’s courts. In this situation the court will often grant an application for security of costs. Saker & Co Ltd v Grainger 1937 AD 223 at 227 lays down the rationale for this rule- a South African court is entitled to protect a resident defendant to the fullest extent. The court held a non-resident plaintiff, who does not own immovable property in South Africa, may be called upon to furnish costs.
 
This case echoes an earlier case of Rosenblum v Arcus 1884 NLR, where the court said that while it might be desirable to welcome strangers and travellers, domiciled residents have a prior claim for consideration.
 
Furthermore in Thomson, Watson & Co v Poverty Bay Farmers Meat Supply Co 1924 CPD 93, the court stated: "It is clear that a peregrinus who comes into our jurisdiction as a plaintiff is bound to furnish security. He chooses to avail himself of our courts and before granting him our aid, we see that our incolae are protected."
 
In terms of S13 of the Companies Act a party entitled and desiring to demand security for costs from another shall, as soon as practicable after the commencement of proceedings, define the grounds upon which such security is claimed, and the amount demanded.
 
If, however, the party from whom security is demanded contests his liability to give security or if he fails or refuses to furnish security in the amount demanded, the other party may apply to court on notice for an order that such security be given and that the proceedings be stayed until such order is complied with.
 
The court may, if security is not forthcoming within a reasonable time, dismiss any proceedings instituted or strike out any pleadings filed by the party in default, or make such other order as it deems appropriate.
 
Although the principle of security for costs is embodied in the statutes, it is a Common Law rule and is a question of practice- the court has discretion when granting or refusing a request for security costs.
 
In the case of Vanda v Mbuqe & Mbuqe, Nomoyi v Mbuqe 1993 (3) SA 93 (Tk), White J said that an incola does not as a matter of course have the right to be furnished with security for costs by a peregrinus plaintiff. The court would not deny the peregrinus justice by placing unreasonable obstacles in his way.
 
However only, in very exceptional circumstances, where the plaintiff is a peregrinus, will the court not grant security to the incola defendant. Santam Insurance Co Ltd v Korste 1962 (4) SA 53 (E) at 56B.
 
The courts will look to the circumstances of the case and not the merits. For example, it has been suggested that if a plaintiff can’t satisfy a defendant’s claim for costs, that plaintiff should be absolved from furnishing security.
 
However it is exactly the fear that the peregrinus plaintiff won’t be able to pay the litigation costs should he be unsuccessful that causes a defendant to apply to the Court to grant an application for security of cost.
 
What the defendant needs to prove to bring his application for security and to show that it is a valid and necessary request is, in effect, the same as what the peregrinus plaintiff will have to show to get off having to furnish such security.
 
Therefore in Magida v Minister of Police 1987 (1) SA 1 (A), Joubert JA said it should be left to the court’s judicial discretion, bearing in mind the circumstances of the case – as well as equity and fairness to both the incola and peregrinus – as to whether the latter should be compelled or absolved from furnishing security.
 
A salutary effect of the ordinary rule of cost – that unsuccessful litigants must pay the costs of their opponents – is to deter would-be plaintiffs from instituting proceedings vexatiously or in circumstances where their prospects of success are poor.
 
Per O"Regan J: "The courts have…recognised that in applying Section 13, they need to balance the potential injustice to the plaintiff if it is prevented from pursuing a legitimate claim as a result of an order requiring it to pay security for costs, on the one hand, against the potential injustice to the defendant who successfully defends the claim, and yet may well have to pay all its own costs of the litigation."
The court must conduct a ‘balancing exercise’ based on all the relevant information. A court is obliged to consider Section 34 of the Constitution when it exercises its discretion in terms of not only Section 13 of the Companies Act but in all cases where a court is called on to decide whether an application for security should be granted.
 
Section 34 provides that everyone has the right to resolve a dispute by a court or tribunal in a fair public hearing. The court must bear this in mind and weigh it in the light of other facts in front of it.
 
By ordering a plaintiff peregrinus to give security for costs where he/she cannot afford it they would be forced to abandon their action. This would affect the plaintiff’s right of access to court.
 
Therefore, in order to reconcile section 13 with the Constitution, the court must consider all the relevant information.
 
A court must balance the interests of the plaintiff in pursuing litigation against the risks to the defendant of an unrealisable costs order.
 
In Shepstone & Wylie and others v Geyser NO (1998) 3 All SA 349 (A) it was held that a court must consider all relevant factors without adopting a pre-disposition either in favour of or against granting security.
 

Emma Charter is a Candidate Attorney at Bowman Gilfillan.