Boost Sports Africa (Pty) Limited v The South Africa Breweries (Pty) Limited

Boost Sports Africa (Pty) Ltd (the plaintiff/appellant) instituted action against South Africa Breweries (Pty) Ltd (the defendant/respondent) on 21 October 2011 for alleged breach of contract. The plaintiff alleged it disclosed a confidential advertising concept called the 'fans challenge concept' to the defendant under a confidentiality agreement, which the defendant later used in breach of that agreement. After discovering that the plaintiff was not trading, had no assets, had no registered office at any of its listed addresses, and appeared unable to pay costs if unsuccessful, the defendant applied for security for costs. The plaintiff was a non-trading company with four shareholders (an architect, legal advisor, entrepreneur and estate agent) who were funding the litigation but claimed inability to furnish security. The plaintiff denied it would be unable to pay costs and relied on the alleged value of the concept as an intangible asset. The high court (Hassim AJ) ordered the plaintiff to furnish security for costs.

• Whether, absent a provision similar to the repealed section 13 of the Companies Act 61 of 1973, an incola company can be compelled to furnish security for costs
• Whether the common law power to order security for costs against an incola company exists
• What test applies at common law for ordering security for costs against an incola company
• Whether there is a distinction between natural persons and companies for purposes of security for costs in the absence of section 13

The appeal was dismissed with costs, including costs consequent upon the employment of two counsel. The order of the high court requiring the plaintiff to furnish security for costs was upheld.

Absent a statutory provision equivalent to section 13 of the Companies Act 61 of 1973, an incola company can be compelled to furnish security for costs at common law, in the exercise of the court's inherent power under section 173 of the Constitution to regulate its own process and prevent abuse. However, security should only be ordered where the court is satisfied, on a balance of probabilities, that the contemplated action is vexatious, reckless or otherwise amounts to an abuse of process. There is no legitimate basis for differentiating between an incola company and an incola natural person in this regard. Mere inability to satisfy a potential costs order is insufficient; something more is required - namely that the action is vexatious (frivolous, improper, instituted without sufficient ground to serve solely as annoyance) or reckless or an abuse of process.

The court made several important observations: (1) The omission of a provision similar to section 13 from the Companies Act 71 of 2008 is strange, particularly since section 8 of the Close Corporations Act 69 of 1984 (which mirrors section 13) has been retained, creating an incongruity between close corporations and companies. (2) The suggestion that section 13 was excluded because it would limit the constitutional right of access to courts under section 34 of the Constitution may ignore the fact that courts exercised discretion under section 13 through a balancing process. (3) The European Court of Human Rights has indicated that security for costs pursues a legitimate aim of protecting litigants from irrecoverable costs. (4) The power to order security for costs is 'a most reasonable one' having regard to the protection shareholders derive from limited liability. (5) A detailed investigation of the merits should not be undertaken in security for costs applications - the test is less stringent than for striking out vexatious proceedings.

This judgment is significant because it settled the position on security for costs against incola companies following the repeal of section 13 of the Companies Act 61 of 1973 and its non-inclusion in the Companies Act 71 of 2008. It established that: (1) Courts retain common law power (reinforced by section 173 of the Constitution) to order security for costs against incola companies; (2) The test is whether the action is vexatious, reckless or amounts to an abuse of process; (3) There is no distinction between incola companies and incola natural persons for this purpose; (4) The mischief of shareholders hiding behind corporate personality to avoid liability for costs can be addressed through the common law power; (5) The test is on a balance of probabilities, not requiring moral certainty. The judgment addresses an important gap created by the new Companies Act and confirms courts' inherent powers to prevent abuse of process.