Unlike its predecessors, the Companies Act 71 of 2008 does not contain a specific provision to the effect that whenever an incorporated company is plaintiff in litigation, any defendant can demand that that the plaintiff company put up security for costs (provided that there is reason to believe that the plaintiff company is unable to pay the defendant's costs, if successful).
We mentioned in our update of January 2015 that besides the commercial value of being able to recover some of the costs of litigation, bringing an application for security for costs against a plaintiff company can also be a powerful strategic tool as it often has the effect of frustrating the litigation.
Many have argued that the statutory omission means that one can no longer demand security from a plaintiff company. The ensuing jurisprudence has been chaotic and inconsistent.
The Supreme Court of Appeal ("SCA") has recently had the opportunity to pronounce on the matter in Boost Sports Africa (Pty) Ltd v The South Africa Breweries (Pty) Ltd [2015] ZASCA 93.
It has ruled that in the absence of a specific statutory exemption, corporate plaintiffs must be treated in the same way as natural plaintiffs with the result that if a defendant can show that an action is vexatious or reckless, it can call upon a plaintiff to put up security for costs. In other words, the same common law remedy that applied to natural plaintiffs now applies to corporate plaintiffs.
Insofar as demanding security for costs from corporate plaintiffs is concerned, the decision brings somewhat of a sea-change as it means that the underlying merits of the case must now be visited when applying for security. This is significantly more cumbersome than having to prove mere inability to satisfy a costs order.
To illustrate the difficulties of availing oneself of such a remedy, one must have regard to the definition of 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".
One must assume that if a corporate plaintiff can demonstrate even a hint of a plausible and, of course, that it has a real interest in the litigation, a defendant will probably not be allowed to call upon it to put up security for costs.
At all events, one must welcome the fact that obtaining security is at least still possible, even if one must cross the harder hurdle of having to prove that the action is vexatious. On any basis, it is helpful to finally have certainty on the matter.
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