Zietsman v Electronic Media Network Limited

The appellant (Zietsman) instituted action in the court of the Commissioner of Patents against three respondents for damages for alleged infringement of his South African patent no 92/9925. The respondents failed to deliver their pleas timeously and were barred from doing so. They applied for removal of bar, extension of time to plead, and for security for costs. The appellant had offered security of R40,000 to each of the first and second respondents. Regarding the third respondent, there was correspondence in which the appellant agreed to provide security (with quantum contested), and the third respondent demanded R250,000. The Commissioner of Patents (De Vos J) directed the appellant to provide security for costs to all respondents in the amount of R250,000, removed the bar, granted extension of time, and ordered the appellant to pay costs including costs of two counsel. The appellant appealed against the security order and the costs orders.

• Whether the phrase 'any party' in section 17(2)(a) of the Patents Act 57 of 1978 includes an incola plaintiff who can be ordered to furnish security for costs
• Whether the appellant had agreed to provide security to the third respondent and, if so, the nature and extent of that agreement
• What factors should a commissioner consider when exercising discretion under section 17(2) to order security for costs
• Whether the order for security for costs was reasonable and justifiable in light of the constitutional right of access to courts in section 34 of the Constitution
• Whether the costs orders, including costs of two counsel, were appropriately made

The appeal was upheld in part: (1) The appeal against the order directing security to the first and second respondents was upheld with costs. (2) The appeal against the order directing security of R250,000 to the third respondent was dismissed. (3) The appeal against costs of two counsel for the third respondent was upheld. (4) The appellant was ordered to pay the third respondent's costs of the appeal. (5) The court a quo's order was replaced with an order that: (a) the second and third defendants' (first and second respondents') security application was dismissed; they were granted removal of bar and extension of time but ordered to pay costs of the applications; (b) the plaintiff was ordered to furnish security of R250,000 to the fourth defendant (third respondent); the fourth defendant was granted removal of bar and extension of time; the plaintiff was to pay costs of these applications (but implicitly not costs of two counsel).

The binding legal principles established are: (1) The phrase 'any party' in section 17(2)(a) of the Patents Act 57 of 1978 includes incola plaintiffs and should be given its ordinary literal meaning. (2) An agreement by a plaintiff to provide security for costs, where only the quantum is contested and provision is made for determination of quantum, constitutes acceptance of liability to furnish security, leaving only the amount to be determined by the commissioner. (3) Section 17(2) of the Patents Act limits the constitutional right of access to courts under section 34 of the Constitution, and therefore any order for security for costs must be reasonable and justifiable in an open and democratic society. (4) In exercising discretion under section 17(2), a commissioner must consider all relevant factors and balance them, including: the residential status and nature of the plaintiff (natural person vs company, incola vs peregrinus); whether there is reason to believe the plaintiff may not be able to meet adverse costs orders; the prospects of success and bona fides of the party from whom security is required as provided in section 17(2)(b); whether the defendant has disclosed a defense worthy of consideration; and the extent to which an order for security would curtail access to courts. (5) It is unreasonable to order an incola natural person plaintiff to provide security for costs where the defendant seeking security has not disclosed any defense or its nature, even if there is reason to believe the plaintiff may not be able to meet adverse costs orders, as no reason has been shown to fear an adverse costs order would be made against the plaintiff. (6) The onus is on the applicant for security to persuade the court that security should be ordered.

The court made several non-binding observations: (1) The court noted that assessment of prospects of success should not require a court to attempt to resolve the dispute between parties in a security application, as this would frustrate the purpose of security. The extent to which assessment is practicable depends on the nature of the dispute in each case. (2) The court observed that generally the chances of extracting payment from a presently impecunious plaintiff are much better where the plaintiff is a natural person who is also an incola, compared to a company or peregrinus. (3) The court noted that funds may be available to a litigant for as long as there is a prospect of success but not after the case has been lost, and the fact that there is reason to believe a party may not meet adverse costs orders does not necessarily mean the party cannot furnish security. (4) The court commented that following an invariable practice regarding costs of two counsel, without exercising discretion in the particular case, constitutes a failure to exercise judicial discretion. (5) Streicher JA noted that the common law recognizes exceptions to the general rule that an incola plaintiff cannot be compelled to furnish security, including where a High Court uses its inherent jurisdiction to prevent abuse of process (such as vexatious litigation), and the statutory exception for companies in section 13 of the Companies Act 61 of 1973.

This case is significant in South African patent law and civil procedure for: (1) Confirming that section 17(2) of the Patents Act 57 of 1978 authorizes a commissioner to order an incola plaintiff to furnish security for costs, departing from the common law rule. (2) Establishing the framework for exercising discretion under section 17(2), requiring consideration and balancing of all relevant factors. (3) Requiring that orders for security for costs be reasonable and justifiable given the constitutional right of access to courts in section 34. (4) Establishing that where a defendant seeks security for costs but fails to disclose any defense or its nature, it would be unreasonable to order an incola natural person plaintiff to provide security. (5) Clarifying that section 17(2)(b) specifically provides that prospects of success and bona fides are relevant considerations, and the burden is on the applicant for security to establish grounds for the order. (6) Distinguishing between an agreement to provide security in a specific amount versus an agreement to provide security with quantum to be determined.