Rule 47 of the Uniform Rules makes provision for a defendant to demand security for costs. This section is usually applied against plaintiffs such as foreigners, insolvents, foreign companies or close corporations. The rule does not set out the grounds on which one party is entitled to demand security, so recourse must be had to the common law and statutory provisions.

Section 13 of the Companies Act, No 61 of 1973 (old Act), provided that a court could order a limited company plaintiff to furnish costs if there was reason to believe that the company or its liquidator would be unable to pay the costs in cases where the defendant is successful. As s13 has now been repealed by the new Companies Act, No 71 of 2008 (new Act), can a demand for security for costs be filed by relying solely on rule 47 of the Uniform Rules?

The Court in Haitas and Others v Port Wild Props 12 (Pty) Ltd 2011 (5) SA 562 (GSJ) had to decide whether an insolvent private company must provide security for costs. The respondent (an insolvent private company) had been liquidated and had no realisable assets or cash. There was no prospect of the company being able to meet its obligations should an adverse costs order be made against it. The respondent refused to file security for costs, shielding behind the new Act, which does not require an insolvent incola plaintiff to file security for costs.

The court held that although the new Act lacks a provision equivalent to s13 of the old Act, the common law will prevail in this situation in that an impecunious or insolvent company, or other corporate entity that is an incola of the Republic, cannot be called on to give security for costs for proceedings it institutes.

The court referred to s173 of the Constitution, which deals with a court's inherent power to protect and regulate its own process and develop the common law, taking into account the interests of justice. In coming to its decision and taking into consideration that s13 of the old Act had been repealed, the court held that the interest of justice would be served in requiring the plaintiff to furnish security for costs in terms of rule 47.

Relying on its inherent power, the court was of the view that court's should order security to be furnished in the interests of justice, since insolvent or impecunious plaintiff companies could encourage unnecessary or vexatious law suits.

But it stressed that each case should be decided on its own facts and courts should not hesitate to order security for costs to be filed when peculiar facts scream for that judgment.

Written by Tayob Kamdar, Director, and Natasha Foster, Associate, Dispute Resolution, Cliffe Dekker Hofmeyr