[2015] UGSC 128

# THE REPUBLIC OF UGANDA IN THE SUPREME COURT OF UGANDA AT KAMPALA. **CIVIL APPLICATION NO.06 OF 2013 BETWEEN**

#### DIAMOND TRUST PROPERTIES.................................... 10 AND

## YOKA RUBBER INDUSTRIES LTD.......... RESPONDENTS

#### RULING OF M. S. ARACH-AMOKO, JSC

This is an application brought under Rules $101(1),(3)$ and $42(1),(2)$ of the Judicature (Supreme Court Rules) Directions for orders that the respondent furnishes security for payment of the applicant's costs of the High Court and of the Court of Appeal and further security for the costs of this second appeal. The applicant further prays that the costs of this application be provided for.

#### Grounds

The grounds for the application as set out in the Notice of Motion are that: 25

- i) The applicant was awarded shs. 11, 824,000 as costs in the High Court but the respondent has failed. neglected or refused to pay the costs in spite of demands for payment. - 30

ii) The applicant was awarded shs. 29,277,000 as costs in the Court of Appeal but the respondent has failed.

$\mathbf{1}$

⁵ neglected or refused to pay the costs in spite of demands for paSrment.

- iii) The respondent has no assets whatsoever, is not engaged in any economic activity and as such has no income. - iv) The respondent will not be in position to meet the applicant's costs of this appeal and of the lower Courts should this appeal be dismissed. In the absence of any assets as to which recourse can be had the applicant will be unfairly prejudiced in the event that the appeal is dismissed as any costs order will be illusory. 10 - v) The applicant shall incur costs in the conduct of this second appeal estimated in excess of Ug. Shs 30,000,000 - vr) It is in the interest of justice that the security be provided by the respondent for the costs of the lower Courts and that further security be provided for the costs of this second appeal being a total of Ug.shs 71, 101,O00.

# Alfidavits

The application is supported by the affidavit of Mr. Shaffik Mitha, the applicant's General Manager sworn on 25th June, 2013 in which he substantially repeats the grounds set out in the Notice of motion. The applicant also hled a supplementar5r affidavit sworn on 8th September 2Ol4 by David Mukiibi Semakula, said to be an advocate practicing with the law hrm representing the applicant, in which he basically avers that the respondent has no chance of success. 25 30

I

The respondent opposed this application and relied on the $\mathsf{S}$ affidavit sworn on 30^th day of October, 2013 by Leila Walia a director/shareholder of the respondent company. In her response, she averred that the applicant has not shown sufficient grounds for additional security for costs and that the application is intended to delay the respondent's appeal to the 10 Supreme Court. That the applicant's costs for the second appeal are hypothetical and not given in the Supreme Court Rules and that the respondent has not failed to pay costs but intends to appeal against the Judgment of the Court of Appeal and has lodged a Notice of Appeal. That the respondent's 15 poverty should not be a ground for ordering further security for costs. She further averred that her lawyers have advised her that the respondent's appeal has a reasonable possibility of success since the distress for rent was unlawful having been carried out by a person who was not legally authorized to do so 20 as per the Distress for Rent (Bailiff) Act (Cap 76).

### **Background**

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The brief background leading to this application as found by the courts below is that in 1993, the applicant and respondent were Landlord and Tenant respectively on Plot 8A/B Kabalega 25 close Luzira. The respondent carried on business of re-treading tyres. In 1999 the applicant re-entered the premises on the ground of non-payment of rent arrears amounting to USD 21,327 and subsequently distressed the respondent's property which included plant, machinery and a motor vehicle among 30 other things. The distress was carried out by the property manager of the applicant. The respondent subsequently made part payment of USD 11,603 leaving a balance of USD 9,724 and requested the applicant to re-open the premises and release its property but the applicant declined to do so and 35

$\overline{3}$

5 continued to charge rent of USD 1000 for sixty four (64) months for the period the respondent was not in occupation of the premises.

10 15 As a result, the respondent challenged the applicant's action in the High Court on the grounds that it was unlawful and sought for damages. The applicant opposed the claim and made a counter claim for storage charges and loss of rental income from May 1999 to October 2004 plus storage charges at the rate of USD 500 from September 2OO4 to the date of judgment. The trial judge found in favour of the respondent and awarded it general damages of 100,OOO,000 shillings for the value of the property held by the applicant and general damages of 216,000,000 shillings for loss of earnings.

20 Dissatisfied, the applicant successfully appealed to the Court of Appeal which set aside the High Court judgment with costs to the applicant in the Court of Appeal and the High Court. The respondent then filed an appeal against the Court of Appeal's decision to this Court which is pending hearing.

# Representation

At the hearing of this application before me, Counsel Bwogi Kalibala represented the applicant while Counsel Francis Butagira appeared for the respondent.

## Submlsslons

The applicant's Counsel gave the following summary as the ground of the application:

i) That costs were awarded to the applicant in the High Court and the Court of Appeal which remain unpaid notwithstanding demands from the applicant; 30

ii) That the respondent company is not engaged in any economic activity and has no income; and as such, it will not be in a position to meet the applicant's past costs and future further costs:

iii) That the respondent's appeal stands no chance of success.

On the first and third grounds, he submitted that the whole dispute stems from the fact that the respondent had failed to meet its rental obligations in 1999 which obligation still remains and the monies remain unpaid hence the distress for rent that culminated into an action in High Court. He contended further that the appeal was premised on the distress and this distress still persists. In addition he submitted that a demand was made for payment of costs of the lower courts. The respondent's appeal had no likelihood of success in the premises.

On the second ground, Counsel referred to paragraph 6 of the respondent's affidavit in reply and contended that the respondent had infact conceded that it is poor and is not carrying out any economic activity and has no income as averred in the affidavit in support which was not controverted. It will not be in position to meet the applicant's costs in case the appeal fails.

He pointed out that the rationale for security for costs is to protect the applicant in the event that the appeal is unsuccessful. That the applicant has incurred substantial 30 costs in defending the suit. It must therefore have recourse for protection from this expenditure.

$\mathsf{S}$

$\frac{1}{2} \cdot \frac{1}{2} \cdot \frac{1}{2} \cdot \frac{1}{2} \cdot \frac{1}{2}$

$\mathsf{S}$

$\mathsf{S}$ When I inquired about the fate of the distressed goods, Counsel Bwogi informed court that both parties had earlier on tried to sell them but had failed.

$\frac{1}{2} \sum_{i=1}^{n} \frac{1}{2} \frac{1}{2} \frac{1}{2} \frac{1}{2}$

He based his submissions on rule 101(3) and the case of **Noble** Builders (U) Ltd & Anor V Jabal Singh Sandhu, SCCA No. 15 of 2002 at page 4 to 5 and 9, in support of his submissions 10 and prayed that the application be granted with costs to the applicant.

Counsel for the respondent opposed the application very strongly. In his view, the application is premised on three grounds namely; (i) inability to pay; (ii) poverty of the 15 respondent and (iii) the likelihood of success of the appeal.

For the considerations for the grant of applications for costs. he referred to **Namboro v Kaala [1975] HCB** and the ruling by Oder JSC, in G. M Combined V A. K Detergents (U) Ltd, Civil Appeal No.34 of 1995 (SC).

Regarding the likelihood of success of the appeal, relying on the case of G. M Combined v A. K Detergents (U)Ltd, (supra), Counsel submitted that the appeal has a high chance of success because the distress was unlawfully carried out and

- the dispute is based on that. He contended that the respondent 25 had won in the High Court then the applicant appealed to the Court of Appeal where the respondent lost and consequently has appealed to the Supreme Court. That there are serious issues to be dealt with like the illegal distress as well as the - rent arrears claimed by the applicant for the period when the 30 respondent was not on the premises. The matter is therefore not frivolous.

He argued further that inability to pay costs is no ground for ordering for security for costs and relied on the case of

Kakooza Jonathan & anor V Kasaala Cooperative Society $\mathsf{S}$ Ltd, Civil Application No. 13 of 2011 (SC) at page 6, which in his view summarized all the law relating to security for costs.

$\mathcal{F}_{\mathcal{F}}$

Regarding poverty or impecuniosity of the respondent, Counsel referred to the paragraph in the case of **Lalji Gangji v Nathoo** 10 Vassanjee [1960] EA 315 cited with approval in the case of Kakooza (supra) at page 6 on this issue.

He further relied on the case of **Noormohammed Abdulla v R.** J. Patel and Another [1962] EA 447 also cited in the Kakooza ruling to the effect that a litigant however poor 15 should be permitted to bring his or her proceedings without hindrance and have his or her case decided.

With respect to past costs, Counsel pointed out that apart from the demand letter, no steps had been taken by the applicant to

enforce the judgment. An application for security for costs 20 should not be regarded as a substitute for execution according to Platt JSC, in **Lalji Gangi (supra)**.

Counsel also pointed out the issue of delay in bringing the application as one of the considerations for an application for

security for costs. He submitted that the Notice of Appeal was 25 filed on 15^th, April 2010 and the application was filed on 4^th July, 2013. He argued that in **Kakooza's** case, it was stated that lateness may be a factor to consider against the applicant in an application of this nature and it was actually one of the grounds for which **Kakooza's** application was dismissed. 30

In the premises, he prayed for dismissal of the application with costs.

Counsel Bwogi contended in his rejoinder that it was ironic for $\mathsf{S}$ a party that had failed to pay costs in the lower courts was seeking for dismissal of this application with costs.

$\mathcal{L} \left( \mathcal{L} \right)$

Submitting on the issue of delay, he argued that when the parties appeared before Hon. Chief Justice Katureebe, counsel for the respondent then Ms. Deepa Verma sought for more time to conclude negotiations with the applicant, hence the delay in filing the instant application.

Regarding the issue of execution, counsel submitted that there was a consent order signed by both parties in 2010 agreeing not to execute the judgment. He was quick to add that the 15 consent was without prejudice to this application.

On the conditions set out in the case of **Namboro v Kaala** (**supra**), he pointed out that it says mere poverty is not "by itself" a ground for the grant of security for costs. Counsel argued that this application is not based entirely on inability to pay costs; there are other grounds in this application as well.

He agreed with **G. M Combined** (supra) that the grant for security for costs is discretionary based on the circumstances and contended that the applicant has demonstrated that the substratum of the case is unpaid rent and they have consented not to execute the decree.

He submitted that in Kakooza's case there was no formal demand or agreement not to execute. That case is therefore distinguishable from the instant one.

Counsel reiterated his earlier prayer to court 30

## Consideration of the application by Court

I have carefully considered the application and the affidavits on $\mathsf{S}$ record; I have perused the record of proceedings from the courts below and listened to the submissions of learned counsel.

I have to start by restating the well settled law regarding security for costs which I must say, was summarised in most 10 of the cases relied on by both counsel including that of Kakooza(supra).

The law is that every appellant to this court must deposit security for costs. The figure was fixed at shs 400,000 under rule 101(1) of the Supreme Court Rules. That figure is 15 definitely low and has been eroded over the years by inflation. It is noteworthy that this court has pointed out this anomaly in several applications for security for costs and hopefully this figure will be amended one of these days. However, Rule 101(3) under which this application was brought empowers the Court 20 to order for further security as well as past security. It provides that,

## "The court may, at any time, if the court thinks fit, direct that further security for costs be given and may direct that security be given for the payment of past costs 25 relating to the matters in question in the appeal." (emphasis is mine)

Further, section 404 of the Companies Act, provides in cases where a plaintiff is a limited liability company like this one, that:

$\frac{1}{\sqrt{2}}\sum_{i=1}^N\frac{1}{\sqrt{2}}\sum_{i=1}^N\frac{1}{\sqrt{2}}\sum_{i=1}^N\frac{1}{\sqrt{2}}\sum_{i=1}^N\frac{1}{\sqrt{2}}\sum_{i=1}^N\frac{1}{\sqrt{2}}\sum_{i=1}^N\frac{1}{\sqrt{2}}\sum_{i=1}^N\frac{1}{\sqrt{2}}\sum_{i=1}^N\frac{1}{\sqrt{2}}\sum_{i=1}^N\frac{1}{\sqrt{2}}\sum_{i=1}^N\frac{1}{\sqrt{2}}\sum_{i=1}^N\frac{1}{\sqrt{2}}\$

"Where a limited company is plaintiff in any suit or other legal proceeding, any judge having jurisdiction in this matter may, if it appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendant if successful in his or her $\mathsf{S}$ defence, require sufficient security to be given for those costs, and may stay all proceedings until the security is aiven"

In interpreting the equivalent of section 404 of the Companies Act, Lord Denning M. R. in the case of **Lindsay Parkinson Ltd** 10 - Vs- Triplan Ltd (1973), 1 QB. 609, held:-

"Turning now to the words of the statute, the important word is "may". That gives the judge discretion whether to order security or not. There is no burden one way or the

other. It is a discretion to be exercised in all the 15 circumstances of the case if there is reason to believe that the company cannot pay the costs, then security may be ordered, but not must be ordered. The court has discretion which it will exercise considering all the circumstances of the particular case..." 20

Clearly, Rule 101(3) and section 404 of the Companies Act lays emphasis on the discretion of the Court to give security for costs, however, like all judicial discretion it must be exercised judicially. See: Goodman Agencies Ltd V Hassa Agencies (K)

Ltd Civil Application No.1 of 2011 (SC). 25

The rationale for providing security of costs is to primarily protect a successful litigant against the risk of nonpayment of costs that may have been incurred in the process of litigation. See: Noble Builders (U) Ltd & Anor V Jabal Singh Sandhu SCCA No.15 of 2002 citing the case of De Bry V Fitzgerald &

**Anor (1990)1 ALL ER 560** in which Lord Donaldson M. R said:

"A defendant should be entitled to security if there is reason to believe that, in the event of his succeeding and

- being awarded costs of the action, he will have real $\mathsf{S}$ difficulty in enforcing that order. If the difficulty would arise from the impecuniosity of the plaintiff the court will of course have to take an account of the likelihood of his succeeding in his claim, for it would be a total denial of justice that poverty should bar him from putting forward 10 what is prima facie a good claim. If, on the other hand, the problem is not that the plaintiff is impecunious but that, by reason of the way in which he orders his affairs. including where he chooses to live and where he chooses to keep his assets, an order for costs against him is likely 15 to be unenforceable, or enforceable only by a significant expenditure of time and money, the defendant should be entitled to security." - It is also settled that in such an application, the burden lies on the applicant to show cause why that relief should be granted. 20 This court in the case of Kakooza Jonathan & anor V Kasaala Cooperative Society Ltd, Civil Application No. 13 of 2011 (SC) cited with approval the case of Lalji Gangji- Vs-Nathoo Vassanjee [1960] EA 315 where the court stated the position thus:-25

$\mathcal{L}_{\mathcal{M}}^{\mathcal{L}}\left(\mathcal{L}_{\mathcal{M}}\right)$

"The burden lies on the applicant for an order for further security, as it normally lies on any applicant to a court for any relief, to show cause why that relief should be granted, and that he cannot, merely by averring that the security already deposited for costs of the appeal is inadequate, or that costs in the action below. ordered in his favour, has not yet been paid, impose any obligation upon the court or judge or *registrar to grant his application...*"

- This court has laid down the conditions on which applications $\mathsf{S}$ for security for costs may be granted in a number of cases including Kakooza Jonathan & anor V Kasaala Cooperative society Ltd, (Supra) where the court quoted with approval the case of Namboro V Kara [1975] HCB to include; - - (a) Whether the applicant is put to undue expenses by 10 defending a frivolous and vexatious suit,

(b) That he has a good defence to the suit and he is likely to succeed and

(c) That mere poverty of a plaintiff is not by itself a ground for ordering security for costs for if it were so, poor litigants would 15 be deterred from enforcing their legitimate rights through the legal process.

In G. M Combined V A. K Detergents (U) Ltd, Civil Appeal No.34 of 1995 (SC), the court emphasized that the determining factor in allowing or not allowing such 20 applications was the prospect of success, that is, whether or not the applicant was likely to succeed in the substantive case.

Further, in the case of **G. M Combined V A. K Detergents (U)** Ltd (supra) citing the case of Lindsay Parkinson Ltd V **Triplan Ltd (supra)** it was held that:

"Among the circumstances which the Court might take into account are: (1) whether the plaintiff's claim is bonafide and not a sham; $(2)$ whether the plaintiff has a reasonably good prospect of success; (3) whether there is an admission by the defendant on the pleadings or elsewhere that money is due; $(4)$ where there is a substantial payment into Court or an "open offers of a substantial amount; (5) whether the application for

security was being used oppressively, e.g., so as to stifle a $\mathsf{S}$ genuine claim; (6) whether the plaintiff's want of means has been brought about by any conduct by the defendant, such as delay in payment, or in doing their part of the work; (7) whether the application for security is made at a late stage of proceedings."

$\mathcal{L} \subset \mathcal{L}$

Delay in making such an application is also a material consideration as was held in the case of **Kakooza Jonathan &** anor V Kasaala Cooperative society ltd (supra).

Other conditions are lack of a known address and lack of any assets from which a successful litigant can recover costs. This 15 was the position in the case of **Goodman Agencies Ltd V** Hassa Agencies (K) Ltd Civil Reference No.1 of 2011 (SC)

I shall proceed to apply these conditions to the grounds of this application as follows:

### Grounds i & ii 20

This ground is in respect of failure to pay. The applicant contends that the respondent has failed to pay past costs in spite of the demand made. That may well be so, but Nonpayment in itself is not a ground for further security for costs. The applicant must furnish court with evidence of the 25 respondent's inability or refusal to pay such as failed execution as was held by Platt, JSC (as he then was) in the case of Uganda Commercial Bank V Multi Constructors Ltd SCCA No. 29 of 1994:

"As the authorities show non-payment by itself is not 30 sufficient. What was needed was failure of execution, or some other step to show that the appellant cannot pay, or an admission on his part."

- In the instant case the court record shows that on 28^th May, $\mathsf{S}$ 2010 the parties consented to staying execution of the Court of Appeal decree Appeal No.51 of 2008 pending the disposal of the substantive application for stay of execution. This is evidence that the respondent had neither refused nor failed to pay costs but rather it was a mutual consent. The applicant 10 therefore cannot place the blame of non payment on the respondent. The consent was without prejudice to this application therefore the parties intended the application to be heard on its merit. - The respondent further averred in paragraph 5 of its affidavit 15 in reply that it did not fail or refuse to pay the costs but rather had appealed against the Judgment of the Court of Appeal and could not have paid the costs when there was a pending appeal. This is not unreasonable and cannot infer failure, neglect or refusal to pay, in my judgment. 20

## Grounds iii & iv

This ground is in respect of impecuniosity or poverty of the respondent. The applicant contends that the respondent has no assets which could be used to recover its costs. The court record in the lower courts, to the contrary shows that the 25 respondent has assets which are in the hands of the applicant. It is not in dispute that the respondent's property was distressed by the applicant, who admits that it entered the premises, removed the property and stored it in the containers yet it claims the respondent has no assets whatsoever. This 30 contention in my view contradicts the evidence on court

record. It is untenable in my opinion.

#### Ground v $\overline{5}$

Regarding the applicant's perceived costs of 30,000,000 shillings, I would decline to delve in that matter since it is speculative. It is further my opinion that given the foregoing facts admitted on record by the applicant, granting the orders sought would be double jeopardy, oppressive and unjust to the respondent whose plant, machinery and other equipment were distressed resulting in closure of its business. Moreover, this ground was not canvassed by the applicant's counsel. I take it that it was abandoned.

#### Ground vi 15

Turning to the issue of success, in the case of **G. M Combined V A. K Detergents (U) Ltd (supra).** Oder, JSC (as he then was) held.

"The court must consider the prima facie case of both the plaintiff and the defendant. Since a trial will not yet have 20 take Place at that stage, an assessment of the merit of the respective cases of the parties can only be based on the pleadings, on the affidavits filed in support of or in opposition to the application for s.f.c. and any other material available at that stage." 25

The applicant averred in the supplementary affidavit of David Semakula Mukiibi, that the respondent's appeal stands no chance of success and attached copies of the proceedings in the Court of Appeal together with the Judgment. He contended that the substance of the case was unpaid rent but did not elaborate further to show how the appeal has no success. On the other hand the respondent averred that there was a reasonable possibility of success as the distress was unlawfully


$\mathsf{S}$ carried out as per the Distress for Rent (Bailiffs) Act Cap 76 by an unauthorized person.

A further analysis of the respondent's Memorandum of appeal indicates that the appeal is premised on five $(5)$ grounds including the validity of distress and other grounds such as entitlement to damages, evaluation of evidence among others

which in my view raises pertinent legal issues that should be addressed by the court. The appeal is therefore not frivolous.

# Delay

$\mathcal{L}_{\mathcal{A}} = \mathcal{L}_{\mathcal{A}}$

Although delay was not alluded to in the respondent's affidavit in reply, it was raised and both counsel addressed court on the 15 issue in their respective submissions. The Court therefore has a duty in the premises to rule on it. From the record, the Notice of Appeal was indeed filed on 15^th April, 2010 and the application was filed on 26^th June, 2013, three years after. In

- **Kakooza's case (supra)** it was held that delay was one of the 20 factors to consider in such an application. Although Rule 101(3) of the Rules of this Court provides that the application may be made "at any time", however Courts have held that the applicant must prove that the application must be made without undue delay which delay did not prejudice the 25 - respondent. A case in point is Noormohamed Abdulla V Patel [1962] EA 447 also cited in **Kakooza's** case it was held that:

"Delay in making applications of this nature is a material consideration: that the onus is on the applicant to show that such delay has not been prejudicial to the respondent..."

Further the Courts have considered at what amounts to delay. In Premchand V Quarry Services Ltd [1971] E. A where an application was filed four months after the appeal was filed, it

was considered as a delay. Where an application was filed after $5$ one year, it was also considered as an inordinate delay. This was the position in Kakooza Jonathan & anor V Kasaala Cooperative Society Ltd (supra).

In this case the application was lodged after three years which in my view constitutes an inordinate delay. Additionally, the 10 applicant has not shown to this court by its affidavits that this application was not prejudicial to the respondent.

In the result, and for the reasons given, I am of the firm view that the applicant has failed to make out a case for the grant of the orders sought. I accordingly dismiss this application with costs to the respondent.

Dated at Kampala this. 11^th September 2015

ARACH-AMC

JUSTICE OF THE SUPREME COURT

15