Do South African companies need to furnish security for litigation costs?

Section 13 of the Companies Act 61 of 1973 provided that a court had a discretion whether to order that a plaintiff company should furnish security for costs, if there was reason to believe that the company would not be able to pay the Defendant’s costs.

The new Companies Act 71 of 2008 has repealed the previous act and makes no provision for security for costs by companies. In Siemens Telecommunications (Pty) Ltd v Datagenics (Pty) Ltd 2013 (1) SA 65 the court held that the common law still applied in this instance and that the high court’s inherent power under section 173 of the Constitution to regulate its own process, did not include the power to extend the common law grounds on which security for costs could be granted.

In terms of our common law a local company has an unimpaired substantive right to institute legal proceedings and could not be compelled to provide security for costs.

Therefore even if a company instituted vexatious proceedings, they could not be forced to provide security.

However, recently in Boost Sports Africa (Pty) Ltd v South African Breweries Ltd the court granted Boost Sports Africa leave to appeal against a decision ordering it to furnish security for costs.

The court a quo held that the common law rule that a resident of South Africa cannot be called upon to furnish security, was not absolute and recognised that there are exceptions based on the courts inherent jurisdiction to prevent an abuse of its process.

A definitive, precedent setting answer will now be required from the Supreme Court of Appeal.