According to a recent judgment of the SCA, a foreign company may be asked to provide security that it is able to settle the legal costs of its opponent in the event that it is unsuccessful in litigation. The purpose of this rule is to discourage foreign companies from instituting frivolous litigation in South Africa. The litigation in this case was brought by a shell company funded by its four shareholders. The company pleaded that it did not have the finances to provide security.
By way of explanation, once legal proceedings are finalised, a costs order will usually be made against the unsuccessful party. If such an order is made against a Plaintiff (the party instituting the proceedings) located outside of South Africa, and the Plaintiff refuses to pay the successful party’s costs, recovery can be challenging where – as is often the case – there are no company owned assets within the Republic to attach and sell in execution.
It is no secret that the legal costs required to run a trial can, and often do, outweigh the capital claimed. Once one is sued, there is very little option but to defend at great cost. This judgment may have the effect of reducing the number of frivolous actions brought or, at least, ensuring the recovery of costs once the litigation is concluded.
Access the full judgment here: http://www.justice.gov.za/sca/judgments/sca_2015/sca2015-093.pdf