Summary of Judgment

Introduction

The judgment concerns an interlocutory application for security for costs brought in the High Court of South Africa (Orange Free State Provincial Division), in which the applicants sought an order compelling the respondent to furnish security in the amount of R50 000.00.

The parties were Coen Pelser (first applicant) and Precision Car, Truck & Trailor (second applicant) as applicants, and Si Las Khumalo as respondent. The respondent opposed the application and disputed that he was obliged to provide security.

The application arose against a procedural background of multiple proceedings initiated by the respondent against the applicants relating to the same goods. The respondent had previously launched motion proceedings in 2002, later instituted a further application in 2005 (which was dismissed with costs), and thereafter commenced action proceedings in 2008 for delivery of the same items. The present interlocutory application was brought by the applicants in response to the 2008 action proceedings.

The general subject matter of the dispute was the respondent’s pursuit of claims for the delivery of two machines, namely a press brake Heli 250 ton 3m hydraulic machine and a quillotine 2m 500 Pearson machine, and the applicants’ attempt to protect themselves against the risk of irrecoverable costs by requiring the respondent to furnish security.

Material Facts

It was common cause that on 1 November 2002 the respondent launched an application under case number 3924/2002 against both applicants for delivery of the two machines. That application was opposed and remained pending at the time of the present judgment.

The respondent explained that he had instructed his former attorneys, Magunda and Moalusi, to bring the 2002 application and that he signed the founding affidavit. He received no progress reports and, after unsuccessful efforts to obtain updates, discovered that those attorneys had closed down. He then consulted a new attorney but did not have a copy of the earlier papers or even the case number, and thus could not provide details of the earlier proceedings.

On his new attorney’s advice, the respondent instituted a second application in 2005, under case number 5229/2005, again seeking delivery of the same machines. That application was dismissed with costs, apparently due to numerous factual disputes.

It was also accepted that the respondent did not immediately pay the costs arising from the dismissal of the 2005 application. A warrant of execution was issued and some of his assets were attached by the Sheriff. The respondent stated that he did not know there was still money outstanding.

In 2008, the respondent issued summons under case number 2645/2008 against both applicants, suing for delivery of the same goods. The applicants then brought the present application for security for costs, originally alleging that the respondent was vexatious because the 2008 action constituted the third set of proceedings concerning the same subject matter and cause of action.

After the present security application had been launched, the applicants’ attorney informed the respondent’s attorney that the outstanding balance on the 2005 costs order was R26 577.07. The respondent paid the full amount. The respondent alleged that the applicants’ attorney conveyed the impression that payment of the outstanding costs would result in the security application not being pursued; notwithstanding payment, the application proceeded.

A further material feature was that by the hearing the applicants’ counsel abandoned reliance on vexatiousness as a ground for security and instead advanced the position that the respondent’s previous failure to satisfy the costs order in the 2005 matter, without more, justified an order for security.

The respondent stated that he was in a position to pay any costs order that might be made against him in the action. The applicants did not persist with contentions that the respondent’s claim was vexatious, reckless, or an abuse of process, and it was not contended that the respondent’s prospects of success were poor.

Legal Issues

The central question was whether, in the exercise of its discretion under Rule 47, the court should order the respondent (as plaintiff in the 2008 action) to furnish security for costs to the defendants (the present applicants).

This required determination of the proper threshold for granting security where the litigant against whom security is sought is an incola, and whether inability or past failure to satisfy a costs order, without a finding of vexatiousness, recklessness, or abuse, is sufficient to justify security.

The dispute primarily concerned the application of legal principles to the established facts and the court’s discretionary value judgment in balancing competing considerations, including the constitutional right of access to courts under section 34 of the Constitution against the defendants’ potential prejudice in being unable to recover costs if successful.

Court’s Reasoning

The court began by reaffirming that it has an unfettered discretion to order security for costs, but that such discretion must be exercised without any predisposition either in favour of or against granting security. In exercising that discretion, the court emphasised the need to be mindful of section 34 of the Constitution of the Republic of South Africa, 1996, which protects the right to have disputes resolved by a court in a fair public hearing.

The court held that Rule 47 must be read together with section 34, requiring a balancing exercise between, on the one hand, the potential prejudice to a plaintiff/applicant who might be prevented from pursuing a legitimate claim, and, on the other hand, the prejudice to a defendant who might succeed but be unable to recover costs. In adopting this balancing approach, the court referred to constitutional guidance that relevant factors may include whether an order for security would effectively terminate the litigation, attempts to obtain financial assistance, whether the defendant caused the plaintiff’s financial difficulty, and the nature of the claim.

A significant feature of the court’s reasoning was the distinction between litigants who are incolae and those who are peregrini. The court treated the respondent as an incola and relied on authority indicating that, as a general rule, mere inability to satisfy a prospective costs order is insufficient on its own to justify security against an incola. The court accepted that “something more” is required, which has been described in prior decisions as circumstances showing that the proceedings are vexatious, reckless, or constitute an abuse of process.

Against that framework, the court considered the applicants’ revised stance at the hearing. The applicants no longer pursued the contention that the respondent was vexatious and instead relied on the respondent’s previous failure to pay costs in the earlier 2005 application. The court considered the authority invoked for that proposition but found it distinguishable because it concerned a peregrinus litigant and involved a party who knowingly ignored a debt for legal services; by contrast, the respondent here was an incola and had, by the time of the hearing, paid the outstanding costs in full, albeit after the security application had been launched.

The court also treated the respondent’s current financial ability to satisfy a future costs order as a relevant factor. It rejected the proposition that the earlier inability of the Sheriff to attach sufficient assets to satisfy the costs order necessarily demonstrated a present or future inability to pay. In the court’s view, the respondent’s payment of R26 577.07 promptly once he became aware of the outstanding balance supported the inference that he had sufficient funds to meet a costs order if unsuccessful.

In dealing with the suggestion that the respondent acted recklessly by not withdrawing the 2002 application, the court referred to the respondent’s answering affidavit, in which he indicated that it would be more convenient to proceed with the action where evidence could be led regarding factual disputes. The court treated this as a clear indication that the respondent would not proceed with the earlier application. The court also noted that this course would likely entail further costs consequences for the respondent in relation to the earlier application, but it did not regard the continued pendency of that matter as establishing recklessness warranting security.

The court observed that the applicants did not contend that the respondent’s prospects of success were poor, and therefore the court did not consider it necessary to engage with that factor. In the absence of allegations that the respondent was acting vexatiously, recklessly, or abusively, the court treated the respondent’s bona fides as not being in issue. The court concluded that the applicants’ case rested essentially on the respondent’s past difficulties in paying costs, and that this factor alone did not justify an order for security against an incola, particularly in light of the constitutional imperative not to impede access to court on the basis solely of inability to pay an opponent’s costs.

Having considered all the circumstances and applied the balancing approach, the court held that it was not satisfied that its discretion should be exercised against the respondent by ordering security.

Outcome and Relief

The court dismissed the application for security for costs.

The applicants were ordered to pay the respondent’s costs of the security application jointly and severally, the one paying the other to be absolved.

Cases Cited

Shepstone & Wylie and Others v Geyser NO 1998 (3) SA 1036 (SCA)

Giddey NO v JC Barnard and Partners [2006] ZACC 13; 2007 (2) BCLR 125 (CC)

Ramsamy NO and Others v Maarman NO and Another 2002 (6) SA 159 (C)

Ecker v Dean 1938 AD 102

Vanda v Mbuqe & Mbuqe 1993 (4) SA 93 (Tk)

Fitchet v Fitchet 1987 (1) SA 450

Davidson’s Bakery (Pty) Ltd v Burger 1961 (1) SA 589 (O)

Crest Enterprises v Barnett and Schlosberg 1986 (4) SA 19 (C)

Legislation Cited

Constitution of the Republic of South Africa, 1996, section 34

Companies Act 61 of 1973, section 13 (referred to in explaining the relevance of constitutional considerations to security, by comparison)

Rules of Court Cited

Uniform Rules of Court, Rule 47

Held

The court held that, although it has a discretion to order security for costs under Rule 47, the discretion must be exercised consistently with section 34 of the Constitution and through a balancing of the parties’ competing prejudices.

The court further held that where the litigant against whom security is sought is an incola, the mere inability (or past failure) to satisfy a costs order is generally insufficient on its own to justify an order for security. In the absence of additional factors such as vexatiousness, recklessness, or abuse of process, and given the respondent’s payment of the outstanding costs and assertion of ability to meet future costs, the court declined to order security.

LEGAL PRINCIPLES

A court has a broad discretion to order security for costs, but it must be exercised judicially and without predisposition, taking account of the constitutional right of access to courts in section 34.

Rule 47 must be applied through a balancing exercise between the plaintiff’s interest in pursuing a legitimate claim without being effectively barred by an inability to furnish security and the defendant’s interest in not being exposed to unrecoverable costs if successful.

In proceedings involving an incola litigant, insolvency or inability to satisfy a potential costs order, without more, is generally not a sufficient basis for ordering security; something additional is required, typically showing that the proceedings are vexatious, reckless, or constitute an abuse of the court’s process.

A litigant’s present ability to pay and conduct indicating the capacity to meet costs obligations may be relevant to whether security should be ordered, and earlier execution difficulties do not necessarily establish ongoing inability to satisfy a prospective costs order.