Storegate Africa (Pty) Limited v Airlink Cargo International (Pty) Ltd

The plaintiff (appellant) instituted action against the defendant (respondent) for damages arising from the loss of computer equipment which the plaintiff had allegedly entrusted to the defendant for storage. The defendant opposed the action and filed a plea denying liability. The defendant thereafter delivered a notice in terms of rule 47(1) requesting security for costs in the sum of R30,000 on the basis that the plaintiff was a company with limited liability and that the defendant believed the plaintiff would be unable to pay the defendant's taxed costs if the defendant was successful in its defence. The plaintiff ignored the notice. Eight months later, the defendant approached the High Court in Johannesburg for an order directing that security be furnished. The defendant's application was based on a 'Subrogation Form' whereby Mutual & Federal Insurance Company Limited was subrogated to all rights and remedies of the plaintiff in respect of the lost goods and was authorised to use the plaintiff's name in proceedings. The defendant argued that as it had no contractual nexus with the insurance company, it would not be entitled to recover costs from the insurer if successful. The plaintiff filed no answering affidavit but sought to resist the application based on the defendant's own papers. Willis J granted the application, directing the plaintiff to provide security for the defendant's costs. The High Court refused leave to appeal but the Supreme Court of Appeal subsequently granted leave.

• Whether an order granting security for costs is appealable
• Whether the jurisdictional requirements of section 13 of the Companies Act 61 of 1973 were satisfied to empower the court to order security for costs
• What constitutes 'credible testimony' showing 'reason to believe' that a company will be unable to pay costs under section 13 of the Companies Act
• Whether the existence of a subrogation agreement constitutes reason to believe a company will be unable to pay costs
• Whether a plaintiff's failure to respond to a rule 47(1) notice or to file an answering affidavit constitutes acquiescence or admission

The appeal was upheld with costs. The judgment of the High Court was set aside and substituted with an order dismissing the application for security for costs with costs.

An order granting security for costs is appealable as it is a final order on the separate and ancillary issue of entitlement to security, collateral to the main dispute. Section 13 of the Companies Act 61 of 1973 affords a court discretion to order a company to provide security for costs only if certain jurisdictional facts are established. The defendant bears the onus of satisfying these requirements, specifically that there must appear by credible testimony to be reason to believe that the company will be unable to pay the defendant's costs if successful. Until these jurisdictional requirements have been satisfied, the court has no power to order security and the question of how to exercise discretion does not arise. A plaintiff company has no obligation to place information before the court as to its financial position until the defendant has first satisfied the jurisdictional requirements of section 13. The existence of a subrogation agreement between a company and its insurer does not constitute reason to believe the company will be unable to pay a defendant's costs, as subrogation is a matter between insurer and insured and does not affect the defendant's rights against the plaintiff. A bald statement of belief in a rule 47(1) notice, not confirmed under oath in the subsequent application, does not constitute 'credible testimony' within the meaning of section 13.

The court observed that once the requirements of section 13 have been satisfied, the party against whom security is sought will run the risk of an adverse order should it fail to place information before the court as to its financial position. The court also noted that the wealthiest of companies insure themselves against claims and sign subrogation forms, implying that the existence of insurance and subrogation arrangements is a normal commercial practice that says nothing about a company's financial position or ability to pay costs.

This case is significant in South African civil procedure and company law for clarifying: (1) that orders granting security for costs are appealable (extending the principle in Shepstone & Wylie v Geyser NO which held that orders refusing security are appealable); (2) the proper interpretation and application of section 13 of the Companies Act 61 of 1973, specifically the jurisdictional prerequisites that must be established before a court has power to order security for costs; (3) that the onus rests firmly on the party seeking security to establish through credible testimony that there is reason to believe the company will be unable to pay costs; (4) that a plaintiff company has no obligation to prove its ability to pay until the jurisdictional requirements are satisfied by the defendant; and (5) that the existence of a subrogation agreement with an insurer does not in itself constitute evidence of inability to pay costs. The case provides important guidance on the evidential burden in applications for security for costs against companies.