Security for costs when instituting proceedings in a South African court

In terms of South African common law, a plaintiff who is not resident within the court’s jurisdiction (a “peregrinus”) may be required in the case of a foreign plaintiff, to furnish security for the costs of the local defendant or respondent in opposing the proceedings (also in respect of claims in reconvention or counter-application). This rule is aimed at protecting the South African party from having to recover costs orders it may be granted in the proceedings against the foreign plaintiff abroad. A foreign natural person is generally not required to furnish security were such person has unencumbered immovable property within South Africa.

 

Factors such as hardship to the peregrinus and its financial ability to provide security, the particular circumstances of the case and considerations of equity and fairness to both parties are taken into account by a court in exercising its discretion whether to grant an order for security.

 

Similarly, an insolvent (where the action is vexatious or reckless) or any other person (where the action is considered vexatious) and Close Corporations (in terms of Section 8 of the Close Corporations Act if it appears that there is reason to believe that the corporation or, if it is being wound up, the liquidator thereof, will be unable to pay the costs of the defendant or respondent, or the defendant or respondent in reconvention, if the latter is successful in its defence) can be called upon to furnish security.

 

With regard to South African companies, the position was previously regulated in section 13 of the Companies Act of 1973, which was similar to the current position in respect of close corporations. The new Companies Act of 2008 does, however, not include a similar provision. This issue recently came under the spotlight in the case of Siemens Telecommunications (Pty) Ltd v Datagenics (Pty) Ltd 2013 (1) SA 65 (GNP) where it was held that in the absence of a provision in the Companies Act regulating the provision of security, the common law must be resorted to. According to this judgment, South African companies cannot be called upon to furnish security merely on the basis of their financial position.  This case criticised the decision in Haitas and Others v Port Wild Props 12 (Pty) Ltd 2011 (5) SA 562 (GSJ) where it was held that Section 173 of the Constitution enabled the court in terms of the court’s inherent power to regulate its own processes). The Judge remarked that extending the common law grounds on which security for costs can be granted was equal to creating substantive law and not merely regulating the court’s own processes. The development of the common law pertaining to security for costs was not discussed in the aforesaid case and should preferably be left to the legislature.

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