[2011] UGSC 31

S 404 Cos Act Saunta<br>Rule 101073

THE REPUBLIC OF UGANDA

IN THE SUPREME COURT OF UGANDA

AT KAMPALA

(CORAM:

OKELLO, ISC Calcon NO-01 OF 2011

**BETWEEN**

GOODMAN AGENCIES LTD:

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**APPLICANT**

**RESPONDENT**

$seans$

$A\,ND$

HASA AGENCIES (K) LIMITED:

## RULING OF OKELLO, JSC:

By Notice of Motion dated 4^th January 2011, brought under rule 101(1) & (3) of the Rules of this court, and section 404 of the Companies Act (Cap. 110), the applicant seeks orders that:

(a) The respondent furnishes further security for costs, past costs and the applicant's costs in Constitutional Appeal No. 05 of 2010, within the period determined by the court, and that costs of this application be provided for. The application is supported by the affidavit of Nicholas Were, Managing Director of the applicant company sworn on 4^th January 2011, and his subsequent affidavit in rejoinder sworn on 13^th January, 2011.

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## Background:

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The background to the application is dris: the applicant and the respondent filed High Court Civil suit No. 719 of 1997 aFinst Atrorney General to cover shillings 12,485,842- plus costs. Subsequently, the respondent was struck off and ceased to be a party to the suit The applicant later reached a sefflement agreement with the Aromey General. The agreement was approved by the High Court and consent judgment dated 02-09-05 was filed in court and was sealed.

[-ater, the High Court re-joined the respondent to the consent judgment and allotted to it a portion o[ the settlement agreement.

The applicant which claimed that the High Court re-joined the respondent to the consent judgment, without any notice to and hearing of the applicant, petitioned the Constirutional Court, vide Constitutjonal Petition No. 03 of 2008. In the petition, the applicant contended that the acts of the High Court judge in joining the ^OresJrondent to the consent judgment and allotting to it a portion of the settlement agreement without any notice to and hearing of the applicant were unconstitutional. '[hat allotting to the respondent a portion of the consent judgment agreement in that manner arnounted to cornpulsr:ry deprivation of the applicant's property contrary to article 26 of the Constitution.

Secondly, that joining the respondent to the consent judgment in the manner stated above amounted to denying the applicant a fair hearing contrary to article 28 of the Constitution.

'l'he respondent argued that it applied for a revierv of the consent judgment to be reinstated as a party to the suit, and that the applicant took part in the proceedings. When the High Court ruled to join the respondent to the consent judgment, the applicant was dissatislied and sought leave to appeal but later withdrew.

The Constitutional Court believed the applicant's version o[ t]re story and allowed the petition with costs against the respondent and the PAnorney General. It also a gave to the applicant a certificate flor two advocates.

Dissatisfied with the decision of the Constinrdonal Court, the respondent hled in this courg Constitutional Appeal No. 05 of 2010. The appeal is still pending hearing.

In the meantime, the applicant filed nvo bills of costs one for each of the two counsel who represented it in the Constitutional Court

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At the time of hearing dre application, the taxation ruling on the applicant's two bills of costs in the Constitutional Court was not yet delivered. The total untaxed bills of costs stood at Shs. 6,744,766-. The applicant also filed a skeleron bill of coss for the estimated costs of the applicant in defending the Constitutional appeal No. 05 of 2010 in this court esrimarerl to be 10,000,000,000:. The cosrs in the High Court awarded in the consentjudgment in lavour of the applicant were Shs. 300,000,000-. 'the total of the bills of costs plus the costs in the High Court is estimated at Shs. 17,044,766,900: .

Mr. Semuyaba, who appeared with Mr. James Okuku for the applicant conrends ttrat the costs of the applicant so far incurred are substantial.

The applicant's application is basically based on the grountls that:

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- (1) The respondent is a foreign compiny without any known address and assets within Uganda and Kenp to couer the cosb. - (2) The respondcnt's appeal has no reasonable prospect ofsuccess. - (3) It is in the interest ofJustice to order for lfuther security for costs and past costs.

At the hearing, Mr. Semuyaba contended that the allidavit of Mr. Nicholas Were shows that a search into the Registry of Companies in Nairobi, Kenya, revealed that the respondent has no retums in its file to reflect its tinancia.l status. He submitted that that position coupled with the fact that the respondent has no known address and assets in Uganda and Kenya, make this a fit and proper case to order for further security for costs and past costs. He cited G. M.bmbincd (U) Izl. - vs A. K, Detergent (Il) lrt|., Supreme but Ciuil Appeal No. 34 of lgi and Noble Builden (Il) Ird. And Anor - w - Jabal SW Sandhu, Ciuil Appeal No. li of 2002.

He prayed that the application be allowed with costs and that if the security flor costs and past costs are not paid or furnished within the period determined by the court, the appeal should be dismissed.

In the allidavit in reply, swom by Emmanuel Bakwega, the respondent reputed the applicant's claim that the respontlent's appeal has no reasonable prospect of success. It asserted that the appeal in fact has very high chances of success as the leamed .fustices o[ the Constitutional Court erred when they failed to properly evaluate the evirlence before them and thereby came to a wrong conclusion.

At the hearing, Mr. Didas Nkurundza for the respondent, relied on the affidavit O in reply swom by Emmanuel Bakwega and argued that the leamed Justices of the Constitutional Court held lor instance, that the High Court judge joined the respondent to the suit and to the consent judgment without giving notice to or hearing the applicant l-eamed counsel submitted that that was not true as the record shows overwhelming evidence to the contrary.

He further pointed out that the leamed Justices of the Constitutional Court held that the High Court judge, acted contrary to articles 26(2) and 28(l) of the Constitution when he joined the respondent to the suit and to the consent judgment also without O giving notice to a-nd hearing of the applicanl Counsel submitted that on the conrrary the recorul shows that the applicant was in fact given a fair hearing. He submitted that in these circumstances, the respondent's appcal has vcry high chances of SUCCESS.

He contended further that a review of a judgrnent cannot amount to a compulsory deprivation of property as envisaged in Article 26(2) of the Consdnrdon.

It was asserted in the alfidavit in reply of Bakwega that the costs in the High Court were awarded against the Attorney General only but not against the respondent. kamed counsel argued that the respondent therefore, has no liability in thar He contended that the issue in the Constitutional Appeal No. 05 of 2010 is not about a money but about the interpretation of articles 26 and 28 o[ the Constitution, and when aJudge becomes funch:s oflicio in a matter.

He submiued that the exorbitant arnount of costs were contested by both the Attomey General and the respondent at the firration proceedings and that the taxed costs allowed remained uncertain. He contended that high costs should not be used as a tool for oppression to stifle the rcspondent's appeal as it is being done in this case. He cited G. M. hmbined (1, Inl (supra); BaDkof Uganda- w - Joreph Nsereko and Othen, Ciuil Appliation No. 07 offrO2.

He concluded that the respondent's appeal has very high chances of success and that the applicant has failed to show sulficient cause to justify orders for further security for costs and past costs.

He prayerl that the application be dismissed with costs in the cause.

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Rule l0l (ii) of the llules o[ this court provides that:

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"7he Cout may, at any time if the court thinks fit, dircct th\* firther security for cosB be given and may direct that security k given for the palntent of past costs rclating to the maaer in question in the appeal.'

Clearly, the above provision of the rule gives very wide discretion to the court to order further security for costs. '[he only fetter to that discretion is that which applies to all judicial discretion, namely, that it must be exercised judicially.

It is worth pointing out at this time that it is well seuled that in an application for further security for costs, like the insiant one, the applicant bears the burden to satisfy court that the circumstances o[ the case justify making the orders sought In Lali Ca4gi - w - Nathod Vasanjee (19il /U, 315, Windham, Windham, JA, considered the application of rule 60 of the Rules of the then Court of Appeal for O Fastern Africa which was in \nri mateial'viit rule l0l (3) of the Rules of this court and on page 317 said:

utder ruIe 60 the burden lies on the appliantt for an otder for fitilter security, as it normally lies on any appliantt to a court for any rclief,, to show ause why that relief should bc granted, and he cannot mercly by avering that the secarity already depoitd for cosb of the appeal is inadequate, or that costs in the action below ordered in ht's favour, have not been paid, impse any obfuation upon the court to gant his application.'

'I'he above statement was cited with approval in a number of cases in this court, including by Oder JSC (RIP) in Patel - w - Amen'can Expess Intemational Banking Corpontio4 Ciuil Appcal No. 9 of 1989 and by Mulenp, JSC, (as he tlren was), in Bnk of Uganda - vs - Joseph Nsereko and 2 Othen, Ciuil Application No. 07 of 2002.

The imposing pertinent question to ask in this application at this time is, has the applicant made out a case for orders flor further security for costs and past costsP

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The first significant ground of the application is that the respondent is a floreign company with no known address and assets in Uganda and Kenya from which the costs could he recovered if the respondent lost its appeal. This ground was founded on the averment of Nicholas Were in his alfidavit in support of the application (paragraph 7). Nicholas Were also averred in paragraph 9 of his said alfidavit that a search in the Regisry of C,ompanies in Nairobi, Kenya, where the respondent was registered, revealed that there were no returns in the respondent's file to reflect its O hnancial status, 'l-he applicant submitted that, that evidence shows that the respondent's financial stahrs is not known.

Section 404 of the Companies Act (Cap. I l0) provides thau

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Wherc a limited company is plaintitr in any suit or other legal prcceedings, any judep hevingjudsdiction in the mafrer, may, if it appean by credible testimony that therc is rcason to believe that the company will k unable to pay the msb of the defendant if successfii in his defence, rcquirc sufrcient securiry n b giuen for those cosb, and may say all prcceedings wtil the security is given.'

'fhe above section empowers court where the plaintiff is a limited liability company and it appears on credible evidence that there is reason to believe that the company will be unable to pay the defendant's costs if it succeeds in its defence, to require the company to give sufficient security for the defendant's costs and may stay all proceedings until the security is fumished.

Mr. Semuyaba submined that there is alfrdavit evidence of Nicholas Were shown on O 4'January 2011, which shows that the respondent, a limited liabilitv company, has not only no known address and assets in Uganda and Kenya, but also has no returns in its file in the Registry of Companies where it is registered, reflecting its financial status. According to Mr. Semuyaba, this is credible evidence from which there is reason to believe that the respondent will be unable to pay the applicant's costs if it succeeds in defending the respondent's appeal. l.earned counsel submined that this is therefore, a fit and proper c:Lse in which to or<ler further security flor costs and past costs.

ln Noble Builden ({J) Itcl,(supra), the respondent chose to live in Canada with no assets in Uganda. It admiu.ed that it had money but would prefer to put it to a more profitable use than to secure payment of costs in a litigation it started. This attinrde increased the applicant's fear. It these circumstances, security for costs was ordered.

The admission and the ncptive anitude shown in Noble Builden (U) Id. case were not available in the instant case. However, there is credible evidence for reason a to believe that the respondent in the instant case may be unable to pay the applicant's costs i[the applicant succeeds in is defence against the appeal.

ln Sir Linday Pankninn & h. Drl. - vs - Triplan, (1973) I QB 6N, citedin G. M. bmbind (tl) Izl. (supra), section 447 of the Companies Act of England which was in "pari matcia"vnth section 404 of our Companies Act was considered. It was stated in that case that the discretion given in section 447 was so unfetrered that even if a plaintiff or an appellant was in hnancial problem and therel'ore, unable to pay the costs o[ the suit or appeal if the suit or the appeal failed, the court may still refuse to O order security for costs considering other circumstances of the case. For example, i[ there is strong prima facie presumption that the defendant or the respondent to the appeal will fail in his defence to the suit or appeal, the court may refuse him security for costs. The reason being that it will be a denial o[ justice to order the plaintiff or the appellant to give security for costs of the defendant or respondent who has no likelihood of success in his del'ence against the plaintiffs claim or appellant's appeal.

The respondent made no response either by oral submission or by alfidavit in reply to the applicant's assertion that the respondent neither has known address and assets in tJganda and Kenya nor known financial stahrs, This omission could be construed as an admission by the respondent that it has neither known address and assets in Uganda and Kenya nor known financial status. This gives reason for belief that the respondent will be unable to pay the applicant's coss if applicant succeeds in ils defence ag-ainst the appeal,

I have considered G. M. hmbined (U) Ittl (supra), and Noble Builden (tl) Ild. And Radtbir Singh Sandhu (supra) both of which were referred to me by counsel for the applicanr I found that both these cases are distinguishable from the instant case on their facts.

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ln G. M. bmbined (U) Inl., the appellant was under receivership because it could not pay its debenture holders; it was also under liquidation as it was unable to pay a judgment creditor and was indebted to many creditors; it was involved in ^a O multiplicity o[ suis. None o[ these was brought about by the conduct o[ the respondenL In these circumstances this court held on appeal that the order for security for costs was justified. AII those circumstances do not obtain in the instant case save the existence of credible evidence for reason to believe that the respondent will be unable to pay costs of the applicant if it lost the appeal.

I am persuaded by the above interpretation. I adopt ir Justice should not be the preserve of the rich. Existence o[ credible evidence for reason to believe that the respondent will be unable to pay the applicant's cosb i[ the respondent lost the appeal is a factor that strengthens the applicant's case lor an order flor further security for costs depending on other circumstances o[ the case, for example, satisfying court that the respondent's appeal has no reasonable prospect of success.

O The next significant ground which I am proceeding to consider is that the respondent's appeal has no reasonable prospect of success. This ground is contained in paragraph (0 of the Notice of Motion and founded on the averment of Nicholas Were in paragraph 15 of his allidavit in support of the application. In support o[ that ground, Mr. Semuyaba submitted that as there was consent judgment already registered and the High Court had become "functus olficio'in the maser, there is no way the respondent's appeal can succeed. It has no chance of success.

The respondent controverted the applicant's claim that the respondent's appeal has O no reasonable prospect of success. It asserted that the respondent's appeal has very high chances of success. This assertion was founded on the averment of Mr. Emmanuel Bakwega's affrdavit in reply where he deponed in paragraph l0 thereof that:

"Having perused the judgment of the Constitutional Court and taken part in the preparation of this appeal and the said statement of the appellant's arguments in support of the appeal, I do verily believe that this appeal has very high chances of success."

The above statement was followed by further statements which set out specific points which the respondent considered were wrongly decided by the Constitutional Court and required intervention of the appellate court for correction. These statements demonstrably show the reasonable prospect of success of the respondent's appeal. For example, one of such statements states that:

"The learned Justices of the Constitutional Court erred in law when they held that the High Court judge acted contrary to the provisions of Articles 26(2) and 28(1) of the Constitution and without jurisdiction when he joined the respondent to the suit and to the consent judgment yet the applicant was in fact given a fair hearing and, in law, review of a judgment by a court cannot amount to compulsory deprivation of property as envisaged in Articles 26(2) and 28(1) of the Constitution."

The above statement appears to suggest that there were review of a judgment proceedings in the High Court in which the applicant took paft The materials available !o me in this application do not include the record of proceedings in the Constitutional Court to enable me verifu some of the facts. The onus is on the applicant to show that the appeal of the respondent has no reasonable prospect of success. Unfortunately, the applicant has not demonstrably established that. Mr. Semuyaba did not elaborate on his submission that as there was consent judgment already registered and the High Court had become "functus olficio'in the matter O the respondent's appeal has no reasonable prospect of success, In these circumstances, I find that this is not a fit and proper case to order security for further cosls. It will be a denial ofjustice to order the respondent to give security for cosls of the applicant which has no likelihood of success in is defence against the respondent's appeal.

In the result, the application is dismissed with costs to abide the outcome of the appeal.

Dated at Kampala this day of 2011.

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G. M. OKELLO

JUST'ICE OF TIIE S UPREME COURT

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