Auto Fine Limited v Ecobank Kenya Limited & another [2022] KEHC 14732 (KLR)

Auto Fine Limited v Ecobank Kenya Limited & another (Civil Suit E177 of 2021) [2022] KEHC 14732 (KLR) (Commercial and Tax) (4 November 2022) (Ruling)

Neutral citation: [2022] KEHC 14732 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Civil Suit E177 of 2021

EC Mwita, J

November 4, 2022

Between

Auto Fine Limited

Plaintiff

and

Ecobank Kenya Limited

1st Defendant

Central Bank of Kenya

2nd Defendant

Ruling

1. This is a notice of motion dated July 8, 2021 brought by Ecobank Kenya Limited, (1st defendant), seeking security for cost. The application is premised under sections 1A, 1B and 3A of the Civil Procedure Act, (the Act) and Order 26 rule 1, 5(1) of the Civil Procedure Rules (the Rules). The applicant wants the court to order the respondent (plaintiff) to deposit Kshs. 62,578,264. 07 into a joint interest earning account in the joint names of the advocates as security for costs pending the hearing and determination of the suit. The applicant also prays that further proceedings be stayed pending provision of security and, in default, the suit be struck out with costs.

2. The applicant’s case is that the respondent’s suit claiming among others, special damages of Kshs. 3,115,579,870 against the defendants is a sham with no prospect of success; that the applicant could not disburse the facility, the subject of the suit, because the respondent failed to comply with conditions for the facility; that the respondent has admitted in the plaint that it has closed down its operation and that the respondent has no known means or assets that would be sufficient to pay costs that may be awarded at the end of the trial.

3. The respondent has opposed the application through grounds of opposition dated September 16, 2021 and a notice of preliminary objection of the same date and written submissions dated July 25, 2022. In the preliminary objection, the respondent asserts that the affidavit in support of the application is argumentative, thus offends Order 19 of the rules as it raises arguments that tend to answer the claim in the plaint and, therefore, cannot support the application.

4. According to the respondent, the suit raises triable issues, which defendant is liable and to what extent. The application is intended to stifle a genuine claim and, if allowed, it will be prejudicial to its case. The respondent further asserts that there is a difference between believing that it is unable to pay costs and the fact that this is indeed the case. the respondent takes the view, that the situation it finds itself was caused by the applicant who should not rely on it to seek security for costs. In other words, the applicant has not demonstrated that the respondent has no means to pay cost if so ordered. The respondent views the application as an abuse of the court process and is intended to delay the hearing and determination of the suit,

5. The applicant seeks an order for security for costs pending the hearing and determination of the suit. The argument put forward in support of the application, is that the respondent has pleaded in the plaint that it has closed down which means it may not be able to pay costs at the end of the trial if ordered so ordered. The applicant has relied on Ahmed Kulimye Bin & 2 others v Kenya Revenue Authority & another [2012] eKLR, Jayesh Hasmukh v Navin Haria & another[2015] eKLR and Anita Karuturi & another v CFC Stanbic Bank Limited & 4others [2020] eKLR to support its position.

6. The respondent on its part argues that the application is not merited; that the applicant was the cause of its problems and should not rely on this misery to seek security for costs and that the application, if allowed, will cause it more prejudice. The respondent relies on Marco Tool & Explosives Ltd v Mamujee Brothers Ltd [1988] eKLR and Kakuta Mima Hamise v Peris Tobiko, IEBC and Returning officer Kajiado East Constituency (High Court) [2017] eKLR.

7. Order 26 rule 1 confers on the court general discretion to order that security for the whole or any part of the costs of a defendant or third or subsequent party be given by any other party. The court has unfettered secretion to make an order for security for costs, a discretion to be exercised judicially. (Shah &2 others v Shah & 2 others [1982] eKLR;Cancer Investments Limited v Sayani Investments Limited [2010] eKLR).

8. In Lalji Gangji v Nathoo Vassanjee [1960] EA 315, although the issue was an application for further security in the Court of Appeal, the court was clear that on such matters, the judge exercises unfettered discretion subject only to the implied fetter upon all such discretions, namely that they should be exercised judicially.

9. In Jayesh Hasmukh Shah v Narin Haira & another [2015] eKLR, the court stated:It is now settled Law the order for security for costs is a discretionary one as long as that discretion is exercised reasonably, and having regard to the circumstances of each case. Such factors as absence of known assets in the Country, absence of an office within the jurisdiction of the court, inability to pay costs; the general financial standing or wellness of the plaintiff; the bonafides of the plaintiff’s claim, or any other relevant circumstances or conduct of the plaintiff or defendant may be taken into account.

10. An applicant seeking an order for security for costs, must establish that the respondent would not be able to pay costs due to poverty if the suit was lost. It is not enough to allege that the respondent will not be able to pay costs in the event the suit is unsuccessful. The fact of inability to pay costs must be satisfactorily proved. (Kenya Education Trust v Katherine S.M. Whitton (Civil Appeal No 310 of 2009), Keystone Bank Limited & 4 others v I&M Holdings Limited & another [2017]eKLR.)

11. Even though the court exercises discretionary power when dealing with an application for security for costs, the onus is on the applicant to prove inability or lack of good faith that would make the order for security reasonable. Much will, however, depend on the circumstances of each case though the final result must be reasonable and modest. (Marco Trols & Explosive Limited Vs Mamunje Brothers Limited [1988] eKLR).

12. In Noornamohammed Abdullah v Ranchhodbhai J. Patel [1962] EA 447, the court held that it is right that a litigant, however poor should be permitted to bring his proceedings without hindrances and have the case decided.

13. The principle stated in the above case aptly captures the essence of the right of access to justice as well as the right to be heard now firmly embedded in the Constitution. No person should be denied the opportunity to have his case heard because of his social or economic status. Where the court is called upon to consider an application for security for costs, the court, while exercising this wide discretion, must also bear in mind that there are occasions when an order for security for costs may deprive a party an opportunity to be heard if not able to comply with the order to provide security.

14. In the case at hand, the applicant asked the court to order the respondent to provide security of Kshs. 62,578,264. 07, despite the fact that the suit is for general and special damages of Kshs, of about Kshs 3,000,000. The applicant did not justify why security for costs of over Kshs. 62 million should be provided. The court can only infer that the applicant wanted to make it difficult for the respondent not only to offer security even if ordered, but also to make it completely impossible for the applicant to comply, thus deny it the opportunity to have his day in court.

15. In any event, in case of two or more defendants, Order 26 rule (3) states that where it appears to the court that the substantial issue is which of the two or more defendants is liable, or what proportion of liability two or more defendants should bear, no order for security for costs may be made. There is no doubt that there are two defendants in this suit and one of the issues to be decided is liability of either defendant and to what extent.

16. This court also notes that the applicant just made a general statement that the respondent may not be able in a position to settle the costs were the suit to fail, thus failed to discharge its evidential burden.

17. On the issue of whether the defendant has a bonafide defence, I have perused the defence and I am of the views that the suit raises triable issues given that at this stage the court is not considering the merits of the case or the defendant’s defence as that is the mandate of the trial court. As was held in Shah & 2 others v Shah & 2 others (supra), the test in an application for security for costs is whether the defendant has a bonafide defence. The applicant does not dispute the respondent’s claim that there was an offer for a financial facility by the applicant to the respondent. The applicant’s contention is that the respondent did not comply with conditions on which draw down could be effected. That is issue can only be determined after evidence has been adduced at the trial. In the circumstances, it would be unfair to order the respondent to deposit such a huge and unjustified amount as security for costs.

18. Consequently, the application dated July 8, 2021 is declined and dismissed with costs.

DATED, SIGNED AND DELIVERED AT NAIROBI THIS 4th DAY OF NOVEMBER, 2022. E C MWITAJUDGE