Afro Call (Pty) Ltd instituted action in the Pretoria High Court against MTN Service Provider (Pty) Ltd for damages exceeding R4 million, alleging repudiation of a contractual agreement relating to the provision of cellular equipment and services. MTN denied liability and filed a counterclaim exceeding R15 million, alleging that Afro Call had repudiated the contract. After pleadings closed, MTN discovered from Afro Call’s financial statements that Afro Call was insolvent and operating at a net loss. Concerned that Afro Call would be unable to satisfy an adverse costs order, MTN applied for security for costs under s 13 of the Companies Act 61 of 1973 read with Uniform Rule 47. Afro Call opposed the application but filed no answering affidavit and provided no further financial information. The High Court dismissed the application in the exercise of its discretion, and MTN appealed to the Supreme Court of Appeal with leave of the court a quo.
The appeal was upheld with costs. The High Court’s order was set aside and replaced with an order directing Afro Call to furnish security for MTN’s costs in an amount to be determined by the Registrar, staying Afro Call’s claim until such security is furnished, granting MTN leave to apply for dismissal of the claim if security is not furnished within 30 days, and ordering Afro Call to pay the costs of the security application. Afro Call’s condonation application was granted with costs on an unopposed basis, with no order as to costs for MTN’s opposition thereto.
The case is a leading authority on applications for security for costs by defendants against plaintiff companies under s 13 of the Companies Act 61 of 1973. It clarifies the proper exercise of judicial discretion in such applications, distinguishes the position of companies from that of insolvent natural persons, and affirms the Constitutional Court’s classification of the s 13 discretion as a discretion in the strict sense. The judgment provides authoritative guidance on relevant and irrelevant considerations, the evidentiary burden on plaintiff companies, and the circumstances in which appellate courts may interfere with a refusal to order security.