Essar Telecom Kenya Limited v Joseph Ondongo Okumu & Roselyne Akeyo Okumu T/A Regional Institute of Business Management [2015] KEHC 1367 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

CIVIL CASE NO.474 OF 2011

ESSAR TELECOM KENYA LIMITED …….…...………………..PLAINTIFF

VERSUS

JOSEPH ONDONGO OKUMU &

ROSELYNE AKEYO OKUMU

T/A REGIONAL INSTITUTE OF BUSINESS                                                         MANAGEMENT……………………………………………….DEFENDANTS

RULING

The defendant’s application is dated 1st September 2014.  The application is brought under  the provision of  Order 26  Rules 1,5,and 6  of the  Civil Procedure  Rules, Sections 1A,1B and 3A of the  Civil Procedure Act and all enabling laws.

The defendants seek orders that  the plaintiff  be ordered to furnish  security of costs in the  sum of  kshs  2,000,000 within 14 days  from  the date  of the order; which  security should be deposited  in an  interest earning account in the joint  names of the advocates on record  for the plaintiff and the defendants.  The defendants also pray for costs to be in the cause.

The application is predicated  on the  grounds that the plaintiff had commenced  a process  to dispose of all its assets  and business  in Kenya; the  plaintiff  has laid  off its  employees in Kenya; and the said  employees  have gone to court challenging  the plaintiff’s decision to terminate  them, unless the orders sought herein are  granted, the defendant  will not be able  to recover  the costs  it shall have  incurred  in their  counterclaim and the plaintiff’s  suit herein in the likely event that  they  are successful against  the plaintiff; the  defendants  have a good  defence against  the plaintiff’s claim, together with a  meritorious  counterclaim with high  chances of success; The Honourable court has discretion  to grant the orders  sought for the  attainment of the ends of  substantive  justice in the matter for  all the  parties; and that the application has been  brought   with reasonable  promptitude.

The Notice of Motion is also supported  by the affidavit of Roselyne Okeyo  Okumu the 2nd defendant   sworn on  1st  September 2014, averring that  the plaintiff  was until 6th March 2009  the defendant’s subtenant but that it had started pulling  out  of Kenya’s Telecommunications business, and had commenced the process of  selling its infrastructure  and subscribers  to other communication services providers  like Safaricom and Airtel Kenya.

In addition, that the plaintiff had also  begun laying off its employees  countrywide  who have petitioned vide  Industrial Court Cause No. 5/2014 at the Industrial Court  Nairobi seeking  a  security deposit  of 1. 25 million  for their retrenchment dues;  That since  the sell-buy-out  is at advanced  stages and the plaintiff  has no other known assets in Kenya, the defendants  are  apprehensive  that should they succeed  in their counterclaim, they will not  recover  the costs  incurred  since the  plaintiff’s claim is a frivolous  complaint  against  the defendants  who have a meritorious  counterclaim.  They therefore sought for security for costs in the amount of kshs 2 million.

It is also deposed that unless the orders sought are granted, the defendants shall suffer injustice, financial prejudice and loss.  The defendants  annexed  copy of Business Daily, Thursday  April 3 , 2014  showing  the planned  sell-buy-off  of the Yu Mobile  whose  majority shareholder is Essar Services of  India; Business Daily Friday April 18,2014 titled  “ Yu workers seek travel ban against Indian boss;” Standard on  Saturday August  23, 2014  “ Safaricom eyeing  share holders’ nod  for shs 7 billion Yu Mobile  deal;” Business  Daily Monday August  25, 2014;  “Safaricom takes over  Yu Mobile  employees”  Safaricom  and Airtel to absorb 175 Yu Mobile staff.”

The defendants  also filed  a supplementary affidavit  on 11th June 2015  sworn by Velma Maumo on 9th June 2015  to the effect that  the plaintiff  had now completely exited the Kenyan Market  after selling  its Kenyan  Yu Mobile to Airtel and Safaricom for USD 120,000,000 which  information was available  on the plaintiff’s website  and in the public  domain.

The application is opposed  by the plaintiff who swore  an affidavit on 24th November 2014 by Sundararaman Pattabiraman contending  that the plaintiff is a local company registered in Kenya  and not a foreign  Company against  whom security for costs  should be sought; the plaintiff’s claim is money had  and  received by the defendants who have no  defence; the application is intended to delay the hearing of this suit; and there is no question  of the plaintiffs  insolvency or other  financial limitation as to  require for security for costs  from the plaintiff, since the plaintiff had  sold  only part of its business and  had assets  still worth  over 20 billion after  sale of  assets  worth over  11 billion.

The parties   agreed to dispose of the application by way of written submissions.  The defendant  filed  theirs on 5th June  2015  whereas  the plaintiff  filed their  written  submissions on 7th July 2015.

The defendants framed 3 issues for determination namely:-

Whether  the plaintiff  has exited the Kenyan market;

Whether or not the defendant/applicant is entitled to the relief sought.

Who should pay the costs of this application?

On whether the plaintiff had exited the market, the defendant submitted that the plaintiff had sold its telecommunications infrastructure in Kenya to its competitors namely Safaricom Ltd and Airtel Ltd at a sum of USD 120 million which fact is conceded in the replying affidavit.

On whether  the defendant is entitled  to the relief sought it was  submitted that the defendant had satisfied  the requirements of Order 26 Rule 1 of the Civil Procedure Rules 2010, whose purpose is to protect  the defendant  in the event  of success  and who may experience  difficulties  in realizing  the costs incurred  as was reiterated in the case of Ocean View Beach  Hotel Ltd V Salim Sultan Moloo & 5  Others (2012) e KLR;that the  purpose  of an order for  security for costs  is to protect  a party from incurring expenses  on a  litigation which it  may never recover  from the losing  side and not  to deter  the plaintiff from pursuing  its  claim.  The defendants  also relied on Shah V  Shah (1982) KLR 85  which espoused  the principle  that “ the general rule is that  security is normally  required from plaintiffs  resident outside  the jurisdiction……the court has the  discretion to be exercised  reasonably  and judiciously to refuse to order that security be given. The test on application for security is not whether the  plaintiff has established  a prima facie  case, but  whether   the defendant has shown  a bonafide defence.”

On whether  the plaintiff is  resident  outside  the jurisdiction it was submitted  that with the sale of the business to its rivals, the  plaintiff had  exited the Kenyan Market, information  which is readily available  on their website.

On whether  the defendant  has a  bonafide defence on record  it  was  submitted that the plaintiff  had not tendered  evidence to demonstrate  its ability  to meet is financial obligations including costs in this case, having closed  its business in Kenya.  Further, that the plaintiff has not denied  or  controverted the counter claim against it  in the sum of  kshs 1. 5 million.

On the exercise  of discretion  of the court the  defendant relied on  Pancras  T. Swai V KBL Ltd (2014)  e KLR ; Messina & Another V Stallion  Insurance Company Ltd (2005) IEA  264(CAK)citingKeary Development V Tarmac  Construction (1995) 3ALL ER 534 that in the exercise of discretion:

“The court has a complete discretion whether to order security, and accordingly  it will act in the light of all  the  relevant circumstances.

The possibility  or probability  that the  plaintiff  company will  be deterred  from pursuing  its claim by an order  for security is not without  more a sufficient  reason  for not ordering  security.

The court   must carry out a balancing exercise .  On the one hand it must  weigh  the injustice  to the plaintiff if  prevented  from pursuing  a proper  claim  by an order for security.  Against  that, it must weigh the injustice  to the defendant if no security is ordered  and at the trial the plaintiff’s claim  fails and the defendant  finds himself  unable  to recover from the plaintiff  the costs which  have been incurred  by him in his defence of the claim.

In considering all the circumstances, the court will have regard to the plaintiff’s company’s prospects of success.  But it should not  go into the merits  in detail unless it can clearly be  demonstrated  that there is a high degree  of probability  of success or failure.

The court  in considering   the amount  of security that might be  ordered will bear in mind that  it can order  any amount upto the full amount claimed by way of  security, provided that it is more than a simply normal amount, in all the circumstances , it is  probable that  the claim would be stifled.

The lateness of the application for security is a circumstance which can properly be taken into account.”

The defendants  maintain that they  have a bonafide  defence  on record  as well as a counterclaim which the  plaintiff  has not denied hence the  application should be allowed  since it  has been brought  with immense  promptitude, to protect  the defendant  on costs, citing Section  401  of the Companies  Act Cap 486 Laws of Kenya.

On costs, the defendants contended that the plaintiff should pay since it concealed material facts of its exiting the Kenyan market.

The plaintiff/respondent filed  its submissions  on 7th July 2015  contending that  Order 26 Rules  1,5 and  6 of the Civil Procedure Rules gives  this court  the discretion to make orders for security  for costs  and that the general  rule laid  down in Shah V Shah (supra) is that  security  is normally required  from Plaintiffs resident outside the jurisdiction.  They  contended  that the plaintiff  is a locally registered  company and continues  to carry out   its business  operations  in Kenya  and its unlikely that it will close its  business  in Kenya  in order to defeat  paying costs  of this suit.

Further, it is submitted that the  defendants  have no bonafide  defence since  they held  out themselves as owners of  premises  capable  of granting the plaintiff a lease  but after  receiving payment from the plaintiff, they could  not agree on the terms since  the defendants were  tenants  whose lease  had  only 3 years to expire   hence they  could not  give the  desired 6 years. That the plaintiff is therefore entitled to a refund of the consideration.  The plaintiff invited the court to peruse the pleadings and find that the plaintiff’s claim is bona fide with good  chance  of success.  The plaintiff  further submitted that the defendant’s  defence and counterclaim are not  bonafide.

Further, that the application was brought late to frustrate the  expeditious  disposal of the suit  hence the defendants  do not  deserve  the exercise  of discretion by this  court.  The plaintiff  relied  on Mama  Ngina Kenyatta V Malira Housing Company CA 266/2003; and HCC 79/2013  Saudi Arabian  Airlines Corporation V Sean  Express  Services  Ltd and  urged  the court to  dismiss the application  with costs.

I have carefully considered the application, the replying affidavit, the annextures and the rival submissions and authorities relied on by the parties’ advocates.  In my view, the only issue for determination is whether the defendants have made out a case for an order of security for costs.

The applicable law on an application for security for costs is Order 26  Rule 1 of the Civil Procedure  Rules which  provides that:

In any suit the court may order that security for the whole or any part of the costs of any defendant or third on subsequent or third party be given by any other party.

If security for costs is not given within the time ordered and if the plaintiff is not permitted to withdraw the suit, the court shall, upon an application, dismiss the suit.

Where  security  by payment has been ordered, the party ordered  to pay may make payment to a  bank or a reputable  financial institution  in the  joint names  of himself  and the defendant  or in the names  of their respective advocates when  advocates are acting.

The principles  upon which  a court  exercises  its discretion  in an  application for security for costs were considered in the case of Keary  Development  V Tarmac Construction (1995) 3 ALL ER 534 and Ocean  View Beach Hotel Ltd V Salim  Sultan  Mollo (supra) as outlined  above.

The general rule is that security for costs is required from plaintiffs residing out of jurisdiction (see Shah V Shah (supra).  However, it does not mean that the court may not refuse to grant such an order as long as the court exercises its discretion judiciously.

It is now settled law that 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  such 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 bona fides  of the plaintiff’s claim, or any  other relevant  circumstances or conduct  of the plaintiff  or defendant  may  be taken  into account.(see Jayesh  Hasmukh Shah V Narin Haira & Another  (2015) e KLR per Sergon J.

The conduct of the plaintiff  may  include  activities  that may hinder recovery  of costs, for instance, recent  close or transfer of bank accounts, and disposal  of assets; and the conduct of the  defendant include  filing of application  for security  for costs  as a  way  of oppressing  or obstructing  the plaintiff’s  claim, for  instance, where the defence  is a mere sham, or there is an  admission  by the defendant  of money  owing  or that there  is a deliberate  refusal or delay to pay money  owing or refusal to perform its part of  the bargain.

The reasons advanced  by the defendants  are that the plaintiff had embarked  on the process of selling all its  telecommunications  infrastructure in Yu Mobile  in the country  to its  two main competitors  Safaricom Limited  and Airtel Kenya Limited.  The defendants  annextures  to the supporting  and supplementary affidavit  all confirm  that position, including  evidence that  the plaintiff’s employees had sought  orders restraining  the departure of  the plaintiff’s Chief Executive Officer  from the country  until the  plaintiff discloses  to them terms  of an alleged retrenchment  plan.

When the court  asked the  parties to  disclose  the current status of the plaintiff, the defendants availed  documentation from the plaintiff’s website  showing that the sale  deal with Airtel Kenya Limited  and Safaricom Limited for the sum of kshs UDS 120 million  had been sealed.  Those allegations and facts were not controverted by the plaintiff in any way.  The plaintiff’s submission is that yes it is selling its interests but not because of this case to defeat payment of costs.

Further, that it is a locally registered company with assets worth over 11 billion.  Further, that the defendants owe it money advanced as deposit for lease that never was.

From the above circumstances and situation analysis, this court  finds  overwhelming evidence that  the plaintiff has  exited  the Kenyan Market   after  selling all its shares  in Yu Mobile  its  main investment in Kenya , to  its two rivals Safaricom and Airtel Kenya  Limited.  The plaintiff  did not  file any  affidavit  of means  to show   what  specific  assets  are available  in Kenya which could be liable  to attachment  to recover costs of  the suit should  their claim fail.  This is not  to say that  the suit is  frivolous, but that  there is  no evidence  that the plaintiff has  after selling  its assets in the telecommunication infrastructure  has any other assets  left capable  of settling  costs  of the suit herein as well as the claimed counterclaim should its  claim be dismissed, especially where  the defendants  have a counterclaim against them.  There is no admission  of the plaintiff’s  claim by the  defendant, going by the statement  of defence  filed on    15th February  2012  and  as amended , incorporating  counterclaim  in 19th August  2014  to which latter  claim by  the defendants, the plaintiff has not filed  any defence.

Albeit this application was brought  in September  2014  whereas suit was  filed in 2011, I find that the application was brought  at the right  and opportune time, a time  when  the defendants learnt   that the  plaintiff was planning  to exit the  Kenyan Market.  Therefore, there is in my view, no delay in bringing the application.  In addition, I do not find any bad faith  or bad intention  on the part of the defendants in bringing  this application.  The plaintiff has not demonstrated that the application is an afterthought or brought in bad faith or intended to delay or frustrate/obstruct or oppress the plaintiff’s claim.  Furthermore, I do not find any prejudice being occasioned by an order for security for costs, which if ordered, will be secured by a deposit either in court or in both parties’ advocates’ joint interest earning account in accordance with the dictates of Order 26 Rule 1 (3) of the Civil Procedure Rules.

For  the foregoing  reasons  I hereby allow the  defendant’s application for security for costs and  order that the plaintiff  Essar Telcom Kenya  Ltd do furnish security for costs  in  the sum of kshs 2,000,000 within  21 days  from the date  hereof.  The security for costs to be deposited  in an  interest   earning  reputable bank account  to be opened  and operated in the  joint names  of the firms of  Atonga  Miyare & Associates  Advocates  and Njuguna & Partners  Advocates  within the  said 21 days  from dated  of this ruling.  In default, the defendants may apply under Order 26 Rule 5(1) of the Civil Procedure Rule.

I order that costs shall be in the cause.

Dated, signed and delivered at Nairobi this 15th day of October 2015.

R.E. ABURILI

JUDGE

15/10/2015

Coram R.E. Aburili J

C.A Adline

Mr Kamenju holding brief for Mr Njuguna for plaintiff /respondent

Miss Maumo for defendant/applicant.

Court – Ruling read and delivered in open court.  Ruling to be typed.

R.E. ABURILI

JUDGE

15/10/2015

Mr Kamenju- I seek for stay of the deposit.

Miss Maumo- I pray for copy of the ruling.

Mr Kamenju-   I wish to withdraw   the application for stay.

R.E. ABURILI

JUDGE

COURT- The application for stay of deposit is marked as withdrawn.  Ruling to be typed and supplied upon payment of the requisite court fees.

R.E. ABURILI

JUDGE

15/10/2015